-----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, PcXPDu5m6iKlD9UlNZBDs4VQIsB0ldWHi/cZ5gwBQgh0dMdBC4i8StGjJ2bKYl2l RvdTsiTcap1BGp4r4KgQfg== 0000950130-99-003564.txt : 20020715 0000950130-99-003564.hdr.sgml : 19990610 ACCESSION NUMBER: 0000950130-99-003564 CONFORMED SUBMISSION TYPE: S-4 PUBLIC DOCUMENT COUNT: 8 FILED AS OF DATE: 19990609 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FAIRCHILD CORP CENTRAL INDEX KEY: 0000009779 STANDARD INDUSTRIAL CLASSIFICATION: BOLTS, NUTS, SCREWS, RIVETS & WASHERS [3452] IRS NUMBER: 340728587 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-80311 FILM NUMBER: 99643166 BUSINESS ADDRESS: STREET 1: 45025 AVIATION DR STREET 2: STE 300 CITY: DULLES STATE: VA ZIP: 20166 BUSINESS PHONE: 7034785800 MAIL ADDRESS: STREET 1: 45025 AVIATION DRIVE STREET 2: SUITE 300 CITY: DULLES STATE: VA ZIP: 20166 FORMER COMPANY: FORMER CONFORMED NAME: BANNER INDUSTRIES INC /DE/ DATE OF NAME CHANGE: 19901118 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RHI HOLDINGS INC CENTRAL INDEX KEY: 0000083573 STANDARD INDUSTRIAL CLASSIFICATION: BOLTS, NUTS, SCREWS, RIVETS & WASHERS [3452] IRS NUMBER: 341545939 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-80311-01 FILM NUMBER: 99643167 BUSINESS ADDRESS: STREET 1: 45025 AVIATION DR STREET 2: SUITE 400 CITY: DULLES STATE: VA ZIP: 20166 BUSINESS PHONE: 7034785800 MAIL ADDRESS: STREET 1: 45025 AVIATION DR STREET 2: SUITE 400 CITY: DULLES STATE: VA ZIP: 20166 FORMER COMPANY: FORMER CONFORMED NAME: REXNORD HOLDINGS INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: REXNORD INC DATE OF NAME CHANGE: 19880821 FORMER COMPANY: FORMER CONFORMED NAME: REX CHAINBELT INC DATE OF NAME CHANGE: 19730131 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BANNER AEROSPACE INC CENTRAL INDEX KEY: 0000863445 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-MACHINERY, EQUIPMENT & SUPPLIES [5080] IRS NUMBER: 952039311 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-80311-02 FILM NUMBER: 99643168 BUSINESS ADDRESS: STREET 1: 45025 AVIATION DRIVE STREET 2: SUITE 400 CITY: DULLES STATE: VA ZIP: 20166-7556 BUSINESS PHONE: 7034785800 MAIL ADDRESS: STREET 1: 45025 AVIATION DRIVE STREET 2: SUITE 400 CITY: DULLES STATE: VA ZIP: 20166 FILER: COMPANY DATA: COMPANY CONFORMED NAME: KAYNAR TECHNOLOGIES INC CENTRAL INDEX KEY: 0000917193 STANDARD INDUSTRIAL CLASSIFICATION: AIRCRAFT ENGINES & ENGINE PARTS [3724] IRS NUMBER: 330591091 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-80311-03 FILM NUMBER: 99643169 BUSINESS ADDRESS: STREET 1: 45025 AVIATION DR STREET 2: STE 400 CITY: DULLES STATE: VA ZIP: 20166 BUSINESS PHONE: 7034785800 MAIL ADDRESS: STREET 1: 45025 AVIATION DR STREET 2: SUITE 400 CITY: DULLES STATE: VA ZIP: 20166 FORMER COMPANY: FORMER CONFORMED NAME: KAYNAR HOLDINGS INC DATE OF NAME CHANGE: 19970205 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SUCHOMIMOUS TERENSIS INC CENTRAL INDEX KEY: 0001046540 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-EATING PLACES [5812] IRS NUMBER: 541857356 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-80311-04 FILM NUMBER: 99643170 BUSINESS ADDRESS: STREET 1: 45025 AVIATION DR STREET 2: SUITE 400 CITY: DULLES STATE: VA ZIP: 20166 BUSINESS PHONE: 7034785800 MAIL ADDRESS: STREET 1: 45025 AVIATION DR STREET 2: SUITE 400 CITY: DULLES STATE: VA ZIP: 20166 FILER: COMPANY DATA: COMPANY CONFORMED NAME: A10 INC CENTRAL INDEX KEY: 0001088038 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 541813456 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-80311-05 FILM NUMBER: 99643171 BUSINESS ADDRESS: STREET 1: 45025 AVIATION DR STREET 2: SUITE 400 CITY: DULLES STATE: VA ZIP: 20166 BUSINESS PHONE: 7034785800 MAIL ADDRESS: STREET 1: 45025 AVIATION DR STREET 2: SUITE 400 CITY: DULLES STATE: VA ZIP: 20166 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CAMLOC HOLDINGS INC CENTRAL INDEX KEY: 0001088039 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 391648939 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-80311-06 FILM NUMBER: 99643172 BUSINESS ADDRESS: STREET 1: 45025 AVIATION DR STREET 2: SUITE 400 CITY: DULLES STATE: VA ZIP: 20166 BUSINESS PHONE: 7034785800 MAIL ADDRESS: STREET 1: 45025 AVIATION DR STREET 2: SUITE 400 CITY: DULLES STATE: VA ZIP: 20166 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FAIRCHILD DATA CORP CENTRAL INDEX KEY: 0001088040 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 541310286 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-80311-07 FILM NUMBER: 99643173 BUSINESS ADDRESS: STREET 1: 45025 AVIATION DR STREET 2: SUITE 400 CITY: DULLES STATE: VA ZIP: 20166 BUSINESS PHONE: 7034785800 MAIL ADDRESS: STREET 1: 45025 AVIATION DR STREET 2: SUITE 400 CITY: DULLES STATE: VA ZIP: 20166 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FAIRCHILD FASTENERS CORP CENTRAL INDEX KEY: 0001088041 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 341617948 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-80311-08 FILM NUMBER: 99643174 BUSINESS ADDRESS: STREET 1: 45025 AVIATION DR STREET 2: SUITE 400 CITY: DULLES STATE: VA ZIP: 20166 BUSINESS PHONE: 7034785800 MAIL ADDRESS: STREET 1: 45025 AVIATION DR STREET 2: SUITE 400 CITY: DULLES STATE: VA ZIP: 20166 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FAIRCHILD FRANCE INC CENTRAL INDEX KEY: 0001088042 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 311333767 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-80311-09 FILM NUMBER: 99643175 BUSINESS ADDRESS: STREET 1: 45025 AVIATION DR STREET 2: SUITE 400 CITY: DULLES STATE: VA ZIP: 20166 BUSINESS PHONE: 7034785800 MAIL ADDRESS: STREET 1: 45025 AVIATION DR STREET 2: SUITE 400 CITY: DULLES STATE: VA ZIP: 20166 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FAIRCHILD HOLDING CORP CENTRAL INDEX KEY: 0001088045 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 541794337 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-80311-10 FILM NUMBER: 99643176 BUSINESS ADDRESS: STREET 1: 45025 AVIATION DR STREET 2: SUITE 400 CITY: DULLES STATE: VA ZIP: 20166 BUSINESS PHONE: 7034785800 MAIL ADDRESS: STREET 1: 45025 AVIATION DR STREET 2: SUITE 400 CITY: DULLES STATE: VA ZIP: 20166 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FAIRCHILD RETIREE MEDICAL SERVICES INC CENTRAL INDEX KEY: 0001088046 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 311336560 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-80311-11 FILM NUMBER: 99643177 BUSINESS ADDRESS: STREET 1: 45025 AVIATION DR STREET 2: SUITE 400 CITY: DULLES STATE: VA ZIP: 20166 BUSINESS PHONE: 7034785800 MAIL ADDRESS: STREET 1: 45025 AVIATION DR STREET 2: SUITE 400 CITY: DULLES STATE: VA ZIP: 20166 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MAIROLL INC CENTRAL INDEX KEY: 0001088049 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 330699886 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-80311-12 FILM NUMBER: 99643178 BUSINESS ADDRESS: STREET 1: 45025 AVIATION DR STREET 2: SUITE 400 CITY: DULLES STATE: VA ZIP: 20166 BUSINESS PHONE: 7034785800 MAIL ADDRESS: STREET 1: 45025 AVIATION DR STREET 2: SUITE 400 CITY: DULLES STATE: VA ZIP: 20166 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MEOW INC CENTRAL INDEX KEY: 0001088050 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 541834938 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-80311-13 FILM NUMBER: 99643179 BUSINESS ADDRESS: STREET 1: 45025 AVIATION DR STREET 2: SUITE 400 CITY: DULLES STATE: VA ZIP: 20166 BUSINESS PHONE: 7034785800 MAIL ADDRESS: STREET 1: 45025 AVIATION DR STREET 2: SUITE 400 CITY: DULLES STATE: VA ZIP: 20166 FILER: COMPANY DATA: COMPANY CONFORMED NAME: QUACK QUACK INC CENTRAL INDEX KEY: 0001088051 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 541881792 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-80311-14 FILM NUMBER: 99643180 BUSINESS ADDRESS: STREET 1: 45025 AVIATION DR STREET 2: SUITE 400 CITY: DULLES STATE: VA ZIP: 20166 BUSINESS PHONE: 7034785800 MAIL ADDRESS: STREET 1: 45025 AVIATION DR STREET 2: SUITE 400 CITY: DULLES STATE: VA ZIP: 20166 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RECYCLING INVESTMENTS INC CENTRAL INDEX KEY: 0001088052 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 341611199 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-80311-15 FILM NUMBER: 99643181 BUSINESS ADDRESS: STREET 1: 45025 AVIATION DR STREET 2: SUITE 400 CITY: DULLES STATE: VA ZIP: 20166 BUSINESS PHONE: 7034785800 MAIL ADDRESS: STREET 1: 45025 AVIATION DR STREET 2: SUITE 400 CITY: DULLES STATE: VA ZIP: 20166 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RECYCLING INVESTMENTS II INC CENTRAL INDEX KEY: 0001088053 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 541813457 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-80311-16 FILM NUMBER: 99643182 BUSINESS ADDRESS: STREET 1: 45025 AVIATION DR STREET 2: SUITE 400 CITY: DULLES STATE: VA ZIP: 20166 BUSINESS PHONE: 7034785800 MAIL ADDRESS: STREET 1: 45025 AVIATION DR STREET 2: SUITE 400 CITY: DULLES STATE: VA ZIP: 20166 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SIMMONDS MECAERO FASTENERS INC CENTRAL INDEX KEY: 0001088056 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 953812384 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-80311-17 FILM NUMBER: 99643183 BUSINESS ADDRESS: STREET 1: 45025 AVIATION DR STREET 2: SUITE 400 CITY: DULLES STATE: VA ZIP: 20166 BUSINESS PHONE: 7034785800 MAIL ADDRESS: STREET 1: 45025 AVIATION DR STREET 2: SUITE 400 CITY: DULLES STATE: VA ZIP: 20166 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SPECIAL T FASTENERS INC CENTRAL INDEX KEY: 0001088057 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 541834940 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-80311-18 FILM NUMBER: 99643184 BUSINESS ADDRESS: STREET 1: 45025 AVIATION DR STREET 2: SUITE 400 CITY: DULLES STATE: VA ZIP: 20166 BUSINESS PHONE: 7034785800 MAIL ADDRESS: STREET 1: 45025 AVIATION DR STREET 2: SUITE 400 CITY: DULLES STATE: VA ZIP: 20166 FILER: COMPANY DATA: COMPANY CONFORMED NAME: VSI HOLDINGS INC/DE CENTRAL INDEX KEY: 0001088059 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 541522454 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-80311-19 FILM NUMBER: 99643185 BUSINESS ADDRESS: STREET 1: 45025 AVIATION DR STREET 2: SUITE 400 CITY: DULLES STATE: VA ZIP: 20166 BUSINESS PHONE: 7034785800 MAIL ADDRESS: STREET 1: 45025 AVIATION DR STREET 2: SUITE 400 CITY: DULLES STATE: VA ZIP: 20166 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BANNER AEROSPACE SERVICES INC CENTRAL INDEX KEY: 0001088062 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 341616492 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-80311-20 FILM NUMBER: 99643186 BUSINESS ADDRESS: STREET 1: 45025 AVIATION DR STREET 2: SUITE 400 CITY: DULLES STATE: VA ZIP: 20166 BUSINESS PHONE: 7034785800 MAIL ADDRESS: STREET 1: 45025 AVIATION DR STREET 2: SUITE 400 CITY: DULLES STATE: VA ZIP: 20166 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BANNER AEROSPACE SINGAPORE INC CENTRAL INDEX KEY: 0001088064 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 341586794 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-80311-21 FILM NUMBER: 99643187 BUSINESS ADDRESS: STREET 1: 45025 AVIATION DR STREET 2: SUITE 400 CITY: DULLES STATE: VA ZIP: 20166 BUSINESS PHONE: 7034785800 MAIL ADDRESS: STREET 1: 45025 AVIATION DR STREET 2: SUITE 400 CITY: DULLES STATE: VA ZIP: 20166 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BAR DE INC CENTRAL INDEX KEY: 0001088065 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 510382087 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-80311-22 FILM NUMBER: 99643188 BUSINESS ADDRESS: STREET 1: 45025 AVIATION DR STREET 2: SUITE 400 CITY: DULLES STATE: VA ZIP: 20166 BUSINESS PHONE: 7034785800 MAIL ADDRESS: STREET 1: 45025 AVIATION DR STREET 2: SUITE 400 CITY: DULLES STATE: VA ZIP: 20166 FILER: COMPANY DATA: COMPANY CONFORMED NAME: D A C INTERNATIONAL INC CENTRAL INDEX KEY: 0001088066 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 742093559 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-80311-23 FILM NUMBER: 99643189 BUSINESS ADDRESS: STREET 1: 45025 AVIATION DR STREET 2: SUITE 400 CITY: DULLES STATE: VA ZIP: 20166 BUSINESS PHONE: 7034785800 MAIL ADDRESS: STREET 1: 45025 AVIATION DR STREET 2: SUITE 400 CITY: DULLES STATE: VA ZIP: 20166 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DALLAS AEROSPACE INC CENTRAL INDEX KEY: 0001088067 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 751609331 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-80311-24 FILM NUMBER: 99643190 BUSINESS ADDRESS: STREET 1: 45025 AVIATION DR STREET 2: SUITE 400 CITY: DULLES STATE: VA ZIP: 20166 BUSINESS PHONE: 7034785800 MAIL ADDRESS: STREET 1: 45025 AVIATION DR STREET 2: SUITE 400 CITY: DULLES STATE: VA ZIP: 20166 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GEORGETOWN JET CENTER INC CENTRAL INDEX KEY: 0001088068 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 742581782 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-80311-25 FILM NUMBER: 99643191 BUSINESS ADDRESS: STREET 1: 45025 AVIATION DR STREET 2: SUITE 400 CITY: DULLES STATE: VA ZIP: 20166 BUSINESS PHONE: 7034785800 MAIL ADDRESS: STREET 1: 45025 AVIATION DR STREET 2: SUITE 400 CITY: DULLES STATE: VA ZIP: 20166 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MATRIX AVIATION INC CENTRAL INDEX KEY: 0001088069 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 480951308 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-80311-26 FILM NUMBER: 99643192 BUSINESS ADDRESS: STREET 1: 45025 AVIATION DR STREET 2: SUITE 400 CITY: DULLES STATE: VA ZIP: 20166 BUSINESS PHONE: 7034785800 MAIL ADDRESS: STREET 1: 45025 AVIATION DR STREET 2: SUITE 400 CITY: DULLES STATE: VA ZIP: 20166 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NASAM INC CENTRAL INDEX KEY: 0001088070 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 942666806 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-80311-27 FILM NUMBER: 99643193 BUSINESS ADDRESS: STREET 1: 45025 AVIATION DR STREET 2: SUITE 400 CITY: DULLES STATE: VA ZIP: 20166 BUSINESS PHONE: 7034785800 MAIL ADDRESS: STREET 1: 45025 AVIATION DR STREET 2: SUITE 400 CITY: DULLES STATE: VA ZIP: 20166 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PB HERNDON AEROSPACE INC CENTRAL INDEX KEY: 0001088071 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 431030308 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-80311-28 FILM NUMBER: 99643194 BUSINESS ADDRESS: STREET 1: 45025 AVIATION DR STREET 2: SUITE 400 CITY: DULLES STATE: VA ZIP: 20166 BUSINESS PHONE: 7034785800 MAIL ADDRESS: STREET 1: 45025 AVIATION DR STREET 2: SUITE 400 CITY: DULLES STATE: VA ZIP: 20166 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PROFESSIONAL AIRCRAFT ACCESSORIES INC CENTRAL INDEX KEY: 0001088072 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 582294305 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-80311-29 FILM NUMBER: 99643195 BUSINESS ADDRESS: STREET 1: 45025 AVIATION DR STREET 2: SUITE 400 CITY: DULLES STATE: VA ZIP: 20166 BUSINESS PHONE: 7034785800 MAIL ADDRESS: STREET 1: 45025 AVIATION DR STREET 2: SUITE 400 CITY: DULLES STATE: VA ZIP: 20166 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PROFESSIONAL AVIATION ASSOCIATES INC CENTRAL INDEX KEY: 0001088073 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 581608013 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-80311-30 FILM NUMBER: 99643196 BUSINESS ADDRESS: STREET 1: 45025 AVIATION DR STREET 2: SUITE 400 CITY: DULLES STATE: VA ZIP: 20166 BUSINESS PHONE: 7034785800 MAIL ADDRESS: STREET 1: 45025 AVIATION DR STREET 2: SUITE 400 CITY: DULLES STATE: VA ZIP: 20166 FILER: COMPANY DATA: COMPANY CONFORMED NAME: M&M MACHINE & TOOL CO CENTRAL INDEX KEY: 0001088074 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 952482072 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-80311-31 FILM NUMBER: 99643197 BUSINESS ADDRESS: STREET 1: 45025 AVIATION DR STREET 2: SUITE 400 CITY: DULLES STATE: VA ZIP: 20166 BUSINESS PHONE: 7034785800 MAIL ADDRESS: STREET 1: 45025 AVIATION DR STREET 2: SUITE 400 CITY: DULLES STATE: VA ZIP: 20166 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MARCLIFF CORP CENTRAL INDEX KEY: 0001088075 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 042951395 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-80311-32 FILM NUMBER: 99643198 BUSINESS ADDRESS: STREET 1: 45025 AVIATION DR STREET 2: SUITE 400 CITY: DULLES STATE: VA ZIP: 20166 BUSINESS PHONE: 7034785800 MAIL ADDRESS: STREET 1: 45025 AVIATION DR STREET 2: SUITE 400 CITY: DULLES STATE: VA ZIP: 20166 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RECOIL AUSTRALIA HOLDINGS INC CENTRAL INDEX KEY: 0001088076 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 330752208 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-80311-33 FILM NUMBER: 99643199 BUSINESS ADDRESS: STREET 1: 45025 AVIATION DR STREET 2: SUITE 400 CITY: DULLES STATE: VA ZIP: 20166 BUSINESS PHONE: 7034785800 MAIL ADDRESS: STREET 1: 45025 AVIATION DR STREET 2: SUITE 400 CITY: DULLES STATE: VA ZIP: 20166 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RECOIL HOLDINGS INC CENTRAL INDEX KEY: 0001088077 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 330752207 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-80311-34 FILM NUMBER: 99643200 BUSINESS ADDRESS: STREET 1: 45025 AVIATION DR STREET 2: SUITE 400 CITY: DULLES STATE: VA ZIP: 20166 BUSINESS PHONE: 7034785800 MAIL ADDRESS: STREET 1: 45025 AVIATION DR STREET 2: SUITE 400 CITY: DULLES STATE: VA ZIP: 20166 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RECOIL INC CENTRAL INDEX KEY: 0001088078 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 330829400 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-80311-35 FILM NUMBER: 99643201 BUSINESS ADDRESS: STREET 1: 45025 AVIATION DR STREET 2: SUITE 400 CITY: DULLES STATE: VA ZIP: 20166 BUSINESS PHONE: 7034785800 MAIL ADDRESS: STREET 1: 45025 AVIATION DR STREET 2: SUITE 400 CITY: DULLES STATE: VA ZIP: 20166 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MARSON CREATIVE FASTENER INC CENTRAL INDEX KEY: 0001088114 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 042433261 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-80311-36 FILM NUMBER: 99643202 BUSINESS ADDRESS: STREET 1: 45025 AVIATION DR STREET 2: SUITE 400 CITY: DULLES STATE: VA ZIP: 20166 BUSINESS PHONE: 7034785800 MAIL ADDRESS: STREET 1: 45025 AVIATION DR STREET 2: SUITE 400 CITY: DULLES STATE: VA ZIP: 20166 S-4 1 FORM S-4 As filed with the Securities and Exchange Commission on June 9, 1999 Registration Statement No. 333- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------- FORM S-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ---------------- THE FAIRCHILD CORPORATION (Exact name of registrant as specified in its charter) Delaware 3452 34-0728587 (State or other (Primary Standard (I.R.S. Employer jurisdiction of Industrial Identification Number) incorporation or Classification Code organization) Number)
45025 Aviation Drive, Suite 400 Dulles, VA 20166 (703) 478-5800 (Address, including ZIP Code, and telephone number, including area code, of registrant's principal executive offices) ---------------- See Table of Additional Registrants Below ---------------- Donald E. Miller, Esq. Executive Vice President, General Counsel and Secretary The Fairchild Corporation 45025 Aviation Drive, Suite 400 Dulles, VA 20166 (703) 478-5800 (Name, address, including ZIP Code, and telephone number, including area code, of agent for service) with a copy to: James J. Clark, Esq. Cahill Gordon & Reindel 80 Pine Street New York, New York 10005 (212) 701-3000 Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement. If 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. [_] If this Form is filed to register additional securities for an offering pursuant to Rule 426(b) under the Securities Act, check the following and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] CALCULATION OF REGISTRATION FEE - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
Proposed Maximum Title of Each Class of Proposed Aggregate Amount of Securities Amount to be Maximum Offering Registration to be Registered Registered Price Per Unit Price(1) Fee(2) - ------------------------------------------------------------------------------- 10 3/4% Senior Subordinated Notes due 2009............. $225,000,000 100% $225,000,000 $62,550 - ------------------------------------------------------------------------------- Guarantees of 10 3/4% Senior Subordinated Notes due 2009....... (3) (3) (3) (3) - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
(1) Estimated solely for the purpose of computing the registration fee in accordance with Rule 457(f)(2) under the Securities Act of 1933, as amended. (2) Calculated pursuant to Rule 457(f)(2) under the Securities Act. (3) Pursuant to Rule 457(n), no registration fee is required with respect to the Guarantees. 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, or until this registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- ADDITIONAL REGISTRANTS
State or other Primary Standard Exact name of registrant jurisdiction of Industrial as specified in its incorporation or Classification Code I.R.S. Employer charter organization Number Identification No. - ------------------------ ---------------- ------------------- ------------------ A10 Inc................. Delaware -- 54-1813456 Camloc Holdings Inc. ... Delaware -- 39-1648939 Fairchild Data Corporation............ Delaware -- 54-1310286 Fairchild Fasteners Corp................... Delaware -- 34-1617948 Fairchild France, Inc. .................. Delaware -- 31-1333767 Fairchild Holding Corp................... Delaware 3451 54-1794337 Fairchild Retiree Medical Services, Inc. .................. Delaware -- 31-1336560 Kaynar Technologies Inc. .................. Delaware 3452 33-0591091 Mairoll, Inc. .......... Delaware 3451 33-0699886 Meow, Inc. ............. Delaware -- 54-1834938 Quack Quack, Inc. ...... Delaware -- 54-1881792 Recycling Investments, Inc. .................. Delaware -- 34-1611199 Recycling Investments II, Inc. .............. Delaware -- 54-1813457 RHI Holdings, Inc. ..... Delaware -- 34-1545939 Simmonds Mecaero Fasteners, Inc. ....... Delaware 3451 95-3812384 Special-T Fasteners, Inc. .................. Delaware 5072 54-1834940 Suchomimous Terensis, Inc. .................. Delaware -- 54-1857356 VSI Holdings, Inc. ..... Delaware -- 54-1522454 Banner Aerospace, Inc. .................. Delaware 5088 95-2039311 Banner Aerospace Services, Inc. ........ Ohio 5088 34-1616492 Banner Aerospace- Singapore, Inc. ....... Delaware -- 34-1586794 BAR DE, Inc. ........... Delaware -- 51-0382087 D A C International, Inc. .................. Texas 5088 74-2093559 Dallas Aerospace, Inc. .................. Texas 5088 75-1609331 Georgetown Jet Center, Inc. .................. Delaware 4581 74-2581782 Matrix Aviation, Inc. .. Kansas 5088 48-0951308 Nasam Incorporated...... California 5088 94-2666806 PB Herndon Aerospace, Inc. .................. Missouri -- 43-1030308 Professional Aircraft Accessories, Inc. ..... Florida 5088 58-2294305 Professional Aviation Associates............. Georgia 5088 58-1608013 M&M Machine & Tool Co... Delaware 3728 95-2482072 Marcliff Corporation.... Delaware -- 04-2951395 Marson Creative Fastener, Inc. ........ Delaware 3452 04-2433261 Recoil Australia Holdings, Inc. ........ Delaware -- 33-0752208 Recoil Holdings, Inc. .. Delaware -- 33-0752207 Recoil Inc. ............ Delaware -- 33-0829400
The address, including zip code, and telephone number, including area code, of the principal executive offices of the additional registrants listed above is: c/o The Fairchild Corporation, 45025 Aviation Drive, Suite 400, Dulles, Virginia 20166, and the telephone number at that address is (703) 478-5800. ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +The information in this prospectus is not complete and may be changed. We may + +not consummate the exchange offer until the registration statement filed with + +the Securities and Exchange Commission is effective. This prospectus is not + +an offer to sell these notes and is not soliciting an offer to buy these + +notes in any state where the offer or sale is not permitted. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ SUBJECT TO COMPLETION, DATED JUNE 9, 1999 PROSPECTUS The Fairchild Corporation Exchange Offer for $225,000,000 Aggregate Principal Amount of 10 3/4% Senior Subordinated Notes Due 2009 -------- Terms of Exchange Offer .. The exchange offer . The exchange of the expires 5:00 p.m., New outstanding notes will York City time, on not be a taxable 1999, unless exchange for U.S. extended. federal income tax purposes. .. The exchange is subject to certain customary . We will not receive any conditions, which may cash proceeds from the be waived by us. exchange offer. .. All outstanding 10 3/4% . The terms of the notes Senior Subordinated to be issued in Notes due 2009 that are exchange for the validly tendered and outstanding notes are not withdrawn will be substantially identical exchanged. to the outstanding notes, except for .. At any time prior to certain transfer the expiration of this restrictions and exchange offer, you may registration rights withdraw any relating to the outstanding notes you outstanding notes. have tendered. . Any outstanding notes not validly tendered will remain subject to existing transfer restrictions. See "Risk Factors" beginning on page 13 for a discussion of certain factors that should be considered by holders who tender their outstanding notes in the exchange offer. There has not previously been any public market for the exchange notes that will be issued in the exchange offer. We do not intend to list the exchange notes on any national stock exchange or on the Nasdaq Stock Market. There can be no assurance that an active market for such exchange notes will develop. Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved the notes to be distributed in the exchange offer, nor have any of these organizations passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense. , 1999 You should rely only on information contained in this document or to which we have referred you. We have not authorized anyone to provide you with information that is different. This document may only be used where it is legal to sell these securities. The information in this document may only be accurate on the date of this document. ---------------- TABLE OF CONTENTS Page ---- Forward-Looking Statements.......... ii Prospectus Summary.................. 1 The Fairchild Corporation........... 1 Recent Transactions................. 3 Risk Factors........................ 13 Where You Can Find More Information........................ 21 Use of Proceeds..................... 22 Capitalization...................... 23 The Fairchild Corporation Unaudited Pro Forma Consolidated Financial Statements .............. 24 Selected Consolidated Financial Data of the Company..................... 39 Selected Consolidated Financial Data of KTI............................. 41
Page ---- Management's Discussion and Analysis of Results of Operations and Financial Condition............ 42 Industry............................ 57 Business............................ 60 Management.......................... 70 Description of New Credit Facility.. 74 The Exchange Offer.................. 75 Description of the Notes............ 84 Material Federal Tax Considerations..................... 120 Plan of Distribution................ 123 Legal Matters....................... 123 Experts............................. 123 Index to Financial Statements....... F-1
---------------- Incorporation of Certain Information by Reference The Commission allows Fairchild to incorporate by reference information into this prospectus, which means that Fairchild can disclose important information by referring you to another document filed separately with the Commission. Information incorporated by reference is considered part of this prospectus, except to the extent that this prospectus supersedes the information. This prospectus incorporates by reference the information contained in the following documents previously filed by Fairchild with the Commission (Commission file number 1-6560): (a) Fairchild's Annual Report on Form 10-K for the fiscal year ended June 30, 1998; (b) Fairchild's Quarterly Reports on Form 10-Q for the periods ended September 27, 1998, December 27, 1998, as amended by Form 10-Q/A filed March 25, 1999, and March 28, 1999; and (c) Fairchild's Current Reports on Form 8-K dated March 12, 1998, April 23, 1998, June 26, 1998, December 26, 1998, April 9, 1999 and May 5, 1999. Fairchild also incorporates by reference the information contained in all other documents Fairchild files with the Commission after the date of this prospectus. The information contained in any such document will be considered part of this prospectus from the date the document is filed and will supplement or amend the information contained in this prospectus. We will provide you, without charge, a copy of any or all of the information that is incorporated by reference in this prospectus. To obtain timely delivery, requests for copies should be made not later than , 1999 (five business days before the expiration of the exchange offer) to The Fairchild Corporation, 45025 Aviation Drive, Suite 400, Dulles, Virginia 20166, telephone: 703-478-5800. i FORWARD-LOOKING STATEMENTS This prospectus includes and incorporates by reference forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to analyses and other information which are based on forecasts of future results and estimates of amounts not yet determinable. These statements also relate to our future prospects, developments and business strategies. These forward-looking statements are identified by their use of terms and phrases such as "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "plan," "predict," "project," "will" and similar terms and phrases, including references to assumptions. These statements are contained in sections entitled "Summary," "Risk Factors," "Management's Discussion and Analysis of Results of Operations and Financial Condition," "Business" and other sections of this prospectus and in the documents incorporated by reference in this prospectus. These forward-looking statements involve risks and uncertainties, including current trend information, projections for deliveries, backlog and other trend projections, that may cause our actual future activities and results of operations to be materially different from those suggested or described in this prospectus. These risks include: . product demand; . our dependence on the aerospace industry; . reliance on Boeing and the Airbus consortium of companies; . customer satisfaction and qualification issues; . labor disputes; . competition, including recent intense price competition; . our ability to integrate and realize anticipated synergies relating to the merger with Kaynar Technologies Inc.; . our ability to achieve and execute internal business plans; . worldwide political instability and economic growth; . and the impact of any economic downturns and inflation, including the recent weaknesses in the currency, banking and equity markets of countries in South America and in the Asia/Pacific region. Our risks are more specifically described in "Risk Factors" and in our Annual Report on Form 10-K and Quarterly Reports on Form 10-Q, which are incorporated by reference in this prospectus. If one or more of these risks or uncertainties materializes, or if underlying assumptions prove incorrect, our actual results may vary materially from those expected, estimated or projected. We will not update these forward-looking statements, even if new information, future events or other circumstances have made them incorrect or misleading. ii PROSPECTUS SUMMARY The following is a summary of the more detailed information and consolidated financial statements including the notes thereto, appearing elsewhere in, or incorporated by reference into, this prospectus. Except where otherwise indicated and unless the context otherwise requires, all references in this prospectus to (a) the terms "we," "our," "us," the "Company" and "Fairchild" refer to The Fairchild Corporation and its subsidiaries, including KTI, (b) the term "KTI" refers to Kaynar Technologies Inc. and its subsidiaries and (c) references in this prospectus to the term "Note" or "Notes" mean the outstanding notes and the exchange notes. All references to "fiscal" in connection with a year shall mean the 12 months ended June 30. THE FAIRCHILD CORPORATION We are a leading worldwide aerospace and industrial fastener manufacturer and distribution logistics manager and, through our wholly-owned subsidiary, Banner Aerospace, Inc., an international supplier to the aerospace industry, distributing a wide range of aircraft parts and related support services. Through internal growth and strategic acquisitions, we have become one of the leading suppliers of fasteners to aircraft original equipment manufacturers, such as Boeing, the Airbus consortium of companies, and separately Lockheed Martin, British Aerospace, DaimlerChrysler Aerospace, Aerospatiale and CASA, subcontractors to OEMs, independent distributors and the aerospace aftermarket. Concurrently with the offering of the outstanding notes, we acquired KTI, a leading manufacturer and designer of specialty fasteners, fastening systems and related components primarily used by OEMs and their subcontractors in the production of commercial aircraft and defense products. In addition, we manufacture other specialty fasteners and related products for sale in the automotive, electronic and other industrial markets, and their associated aftermarkets. For the twelve months ended March 28, 1999, we had net sales of $620.1 million and EBITDA of $35.8 million, and on a pro forma basis for the acquisition of KTI and certain other transactions our net sales would have been $760.0 million and our EBITDA would have been $95.4 million for the same period. Our business strategy is as follows: Maintain Quality Leadership. The aerospace market is extremely demanding in terms of precision manufacturing and all parts must be certified by OEMs pursuant to the Federal Aviation Administration's ("FAA") regulations and those of other equivalent foreign regulators. Substantially all of our plants are ISO-9000 approved. We have won numerous industry and customer quality awards and are preferred suppliers for major aerospace customers. In order to be named a preferred supplier, a company must qualify its products through a customer specific quality assurance program and adhere to it strictly. Approvals and awards we have obtained include: Boeing D1 9000 Rev A; Boeing (St. Louis) Silver Supplier; Boeing Source Approved; DaimlerChrysler Aerospace Source Approved; General Electric Source Approved; Pratt & Whitney Source Approved; Lockheed Martin Star Supplier; and DISC Large Business Supplier of the Year. Lower Manufacturing Costs. We have invested significantly over the past few years in state-of-the-art machinery, employee training and manufacturing techniques to produce products at the lowest cost while maintaining high quality. This investment in process superiority has resulted in increased capacity, lower break-even levels in the various plants of both companies and faster cycle times, while reducing defect levels and improving turnaround times for customers. For example, the customer rejection rate at our aerospace fasteners segment has fallen from an average of 18.2% in Fiscal 1995 to an average of 1.4% for the first nine months of Fiscal 1999. In addition, scrap and rework costs as a percentage of net sales in our aerospace fasteners segment have fallen from an average of 9.3% in Fiscal 1995 to an average of 4.0% for the first nine months of Fiscal 1999. Our on-time delivery rate in our aerospace fasteners segment has improved significantly since Fiscal 1997, to levels that are currently the best in our operating history. We view these improvements as one of the keys to our business success that will allow us to better manage industry cycles. 1 Supply Logistics Services. Our aerospace industry customers are increasingly requiring additional supply chain management services as they seek to manage inventory and lower their manufacturing costs. In response, we are developing a number of logistics and supply chain management services that we expect will contribute to our growth and add value to our customers. Capitalize on Global Presence. The aerospace industry is global and customers increasingly seek suppliers with the ability to provide reliable and timely service worldwide. Our recent combination with KTI provides us with increased manufacturing and distribution capabilities in the U.S. and Europe and sales offices worldwide. Grow through Acquisitions. Despite a trend toward consolidation, the aerospace components industry remains fragmented. Consolidation has been driven, in part, by the combination of the OEMs as they seek to reduce their procurement costs. We have successfully integrated a number of acquisitions, achieving material synergies in the process, and anticipate further opportunities to do so in the future. Our strategy is based on the following strengths: Complementary Market Share and Expanded Product Range. Historically, both KTI and we have focused on different market segments where economies of scale could be achieved through the ability to produce high quality parts at low cost. As a result of the acquisition of KTI, we have expanded the range of products we offer. This expansion will permit us to provide our customers with more complete fastening solutions, by offering engineering and logistics across the breadth of a customer's aerospace needs. For example, KTI's internally threaded fasteners, such as engine nuts, may now be sold in combination with our externally threaded fasteners, such as bolts and pins, to provide a single fastening system. This will limit the inventory needs of the customer, minimize handling costs and reduce waste. Long-Term Customer Relationships. We have historically worked closely with our customers to provide high quality engineering solutions accompanied by superior service levels. As a result, our customer relationships are generally long-term. For example, in the fall of 1998 we were awarded a series of long- term commitments from Boeing and certain other customers to provide a significant quantity of aircraft fastening components over the next three to five years. We have benefited from the trend of OEMs in reducing their number of suppliers in recent years in an effort to lower costs and to ensure quality and availability. We have become or been retained as a key supplier to the OEMs and increased our overall share of OEM business. OEMs are becoming increasingly demanding in terms of overall service level, including just-in-time delivery of components to the production line. We believe that our focus on customer service will solidify our relationships with our customers. Diverse End Markets. Although a significant proportion of our sales are to OEMs in the commercial aerospace industry, we have significant sales to the defense, aerospace aftermarket and industrial markets. In addition, Banner's distribution business has a very low OEM component. We believe this diversification will help mitigate the effects of the OEM cycle on our results. Experienced Management Teams. We have a management team with many years of experience in the aerospace components industry and a history of improving quality, lowering costs and raising the level of customer service, leading to higher overall profitability. In addition, our management team has achieved growth by successfully integrating a number of acquisitions. 2 RECENT TRANSACTIONS The KTI Acquisition On April 20, 1999 we acquired KTI, through a cash merger of KTI with one of our wholly-owned subsidiaries. We believe the KTI acquisition significantly improves our ability to provide the widest range of products from multiple facilities strategically located near key customers throughout the world. As a result of the KTI acquisition, we now have seventeen manufacturing operations located throughout the United States, Europe and Australia, in addition to a worldwide sales and distribution organization. We believe our worldwide operations have been enhanced and we are well positioned to respond to the increasingly global demands of our industry. During May 1999, we have achieved annual cost savings of approximately $10.0 million, and have announced the consolidation of at least three facilities in the process of integrating KTI's operations with our own. KTI has demonstrated the ability to satisfy its customers' needs with low cost, high quality, on time products and services, which has enabled KTI to expand market share. Additionally, KTI has successfully acquired and assimilated several outstanding companies that fit its strategic growth goals. The November 2, 1998 edition of Forbes Magazine placed KTI eighth on its list of the 200 Best Small Companies in America. KTI supplies products to virtually all major airframe and aircraft engine OEMs, including Boeing, General Electric, the Pratt & Whitney Aircraft business of United Technologies Corporation, Airbus, Lockheed Martin and Rolls Royce PLC, as well as to a global network of distributors. For the year ended December 31, 1998, KTI had net sales and EBITDA of $185.5 million and $35.6 million, respectively, compared to net sales and EBITDA of $150.4 million and $28.4 million, respectively, for the year ended December 31, 1997, representing an increase of 23% and 25%, respectively. See "Business--KTI." We paid approximately $221.6 million for KTI. We also paid $28.0 million for a covenant not to compete from KTI's majority shareholder and assumed approximately $102.8 million of KTI's debt. KTI is now a wholly-owned subsidiary of The Fairchild Corporation. The Banner Merger On April 8, 1999, we acquired the remaining 15% of the outstanding common and preferred stock of Banner not already owned by us, through the merger of Banner with one of our subsidiaries. Under the terms of the Banner merger, each share of Banner's preferred stock was converted into the right to receive one share of Banner common stock and each share of Banner common stock (other than those owned by Fairchild) was converted into the right to receive .7885 shares of our Class A common stock. Banner is now one of our wholly-owned subsidiaries. Solair Divestiture On December 31, 1998, Banner consummated the sale of Solair, Inc., Banner's largest subsidiary in its rotables group, to Kellstrom Industries, Inc. in exchange for approximately $57.0 million in cash and a warrant to purchase 300,000 shares of common stock of Kellstrom. Hardware Business Disposition On January 13, 1998, Banner completed the disposition of substantially all of the assets and certain liabilities of its hardware companies and PacAero unit to subsidiaries of AlliedSignal in exchange for AlliedSignal common stock with an aggregate value equal to approximately $369.0 million. 3 New Credit Facility Simultaneously with the consummation of the KTI acquisition and the sale of the outstanding notes, we entered into a new $325.0 million credit facility which consists of a $225.0 million term loan, and a $100.0 million revolving credit facility of which $30.0 million was drawn upon consummation of the KTI acquisition (excluding approximately $19.0 million of outstanding letters of credit). Offering of outstanding Notes On April 15, 1999, we sold and issued the outstanding notes. The proceeds from the offering, together with borrowings under our new credit facility and certain other cash available to us, were utilized to consummate the KTI acquisition, to repay all amounts outstanding under our existing credit facilities and to repay substantially all indebtedness of KTI. The KTI acquisition, the Banner merger, the sale of the outstanding notes, the sale of Solair and Banner's hardware business, entering into our new credit facility and refinancing of the existing credit facilities and certain KTI indebtedness, together with the payment of related fees and expenses, are collectively referred to in this prospectus as the "Transactions." PRINCIPAL EXECUTIVE OFFICE Our principal executive offices are located at 45025 Aviation Drive, Suite 400, Dulles, VA 20166, and our telephone number is (703) 478-5800. 4 The Exchange Offer Registration Rights......... You are entitled to exchange your outstanding notes for freely tradeable exchange notes with substantially identical terms. The exchange offer is intended to satisfy your exchange rights. After the exchange offer is complete, you will no longer be entitled to any exchange or registration rights with respect to your outstanding notes. Accordingly, if you do not exchange your outstanding notes, you will not be able to reoffer, resell or otherwise dispose of your outstanding notes unless you comply with the registration and prospectus delivery requirements of the Securities Act, or there is an exemption available. The Exchange Offer.......... We are offering to exchange $1,000 principal amount of our 10 3/4% Senior Subordinated Notes due 2009, which have been registered under the Securities Act, for $1,000 principal amount of our outstanding 10 3/4 Senior Subordinated Notes due 2009, which were issued in a private offering on April 20, 1999. As of the date of this prospectus, there are $225.0 million of outstanding notes. We will issue exchange notes promptly after the expiration of the exchange offer. Resales..................... We believe that the exchange notes issued in the exchange offer may be offered for resale, resold or otherwise transferred by you without compliance with the registration and prospectus delivery requirements of the Securities Act provided that: . you are acquiring the exchange notes in the ordinary course of your business; . you are not participating, do not intend to participate and have no arrangement or understanding with any person to participate, in a distribution of the exchange notes; and . you are not an "affiliate" of ours. If you do not meet the above criteria you will have to comply with the registration and prospectus delivery requirements of the Securities Act in connection with any reoffer, resale or other disposition of your exchange notes. Each broker or dealer that receives exchange notes for its own account in exchange for outstanding notes that were acquired as a result of market-making or other trading activities must acknowledge that it will deliver this prospectus in connection with any sale of exchange notes. Expiration Date............. 5:00 p.m., New York City time, on , 1999, unless we extend the expiration date. 5 Accrued interest on the Exchange Notes and The exchange notes and the outstanding notes will Outstanding Notes.......... pay interest at the rate of 10 3/4% per year, payable semi-annually on each April 15 and October 15, beginning October 15, 1999. Interest on the exchange notes will accrue from the date of the original issuance of the outstanding notes or from the date of the last periodic payment of interest on the outstanding notes, whichever is later. No additional interest will be paid on outstanding notes tendered and accepted for exchange. Conditions to the Exchange The exchange offer is subject to certain Offer...................... customary conditions, which may be waived by us. The exchange offer is not conditioned upon any minimum principal amount of outstanding notes being tendered. Procedures for tendering Outstanding Notes.......... If you wish to tender outstanding notes, you must complete, sign and date the letter of transmittal, or a facsimile of it, in accordance with its instructions and transmit the letter of transmittal, together with your notes to be exchanged and other required documentation to The Bank of New York, who is the exchange agent, at the address set forth in the letter of transmittal to arrive by 5:00 p.m. New York City time, on the expiration date. See "The Exchange Offer--Procedures for Tendering." By executing the letter of transmittal, you will represent to us that you are acquiring the exchange notes in the ordinary course of your business, that you are not participating, do not intend to participate and have no arrangement or understanding with any person to participate in the distribution of exchange notes, and that you are not an "affiliate" of ours. See "The Exchange Offer--Procedures for Tendering Outstanding Notes." Special procedures for beneficial holders......... If you are the beneficial holder of outstanding notes that are registered in the name of your broker, dealer, commercial bank, trust company or other nominee, and you wish to tender in the exchange offer you should contact the person in whose name your outstanding notes are registered promptly and instruct such person to tender on your behalf. See "The Exchange Offer-- Procedures for Tendering Outstanding Notes." Guaranteed delivery If you wish to tender your outstanding notes and procedures................. you cannot deliver them, the letter of transmittal or other required documents to the exchange agent before the expiration date, you may tender your outstanding notes according to the guaranteed delivery procedures set forth in "The Exchange Offer--Guaranteed Delivery Procedures." Withdrawal rights........... Tenders may be withdrawn at any time before 5:00 p.m., New York City time, on the expiration date. 6 Acceptance of Outstanding Notes and delivery of Subject to certain conditions, we will accept for Exchange Notes............. exchange any outstanding notes which are properly tendered in the exchange offer before 5:00 p.m., New York City time, on the expiration date. The exchange notes will be delivered promptly after the expiration date. See "The Exchange Offer-- Terms of the Exchange Offer." Material Federal Income Tax Considerations............. The exchange of outstanding notes for exchange notes will not be a taxable event for federal income tax purposes. You will not recognize any taxable gain or loss as a result of exchanging outstanding notes for exchange notes, and you will have the same tax basis and holding period in the exchange notes as you had in the outstanding notes immediately before the exchange. See "Material Federal Income Tax Considerations." Exchange Agent.............. The Bank of New York Trust Company of Florida is serving as exchange agent in connection with the exchange offer. The mailing address of the exchange agent is The Bank of New York Trust Company of Florida, Highwoods Plaza, 3rd Floor, 10161 Centurion Plaza, Jacksonville FL 32256, Attention: John H. Speichert. Deliveries by hand or overnight courier should be addressed to The Bank of New York Trust Company of Florida, Highwoods Plaza, 3rd Floor, 10161 Centurion Plaza, Jacksonville FL 32256, Attention: John H. Speichert. For information about the exchange offer, call the exchange agent at telephone number: (904) 645-1955 or facsimile number: (904) 645-1930. 7 Summary of the Exchange Notes Issuer...................... The Fairchild Corporation. Securities Offered.......... Up to $225,000,000 principal amount of 10 3/4% Senior Subordinated Notes due 2009. Maturity Date............... April 15, 2009. Interest Payment Dates...... We will pay interest on the exchange notes semi- annually on April 15 and October 15 of each year, beginning on the later of October 15, 1999 and the last periodic payment of interest on the outstanding notes. Optional Redemption After Five Years.................. Except in the case of certain equity offerings by us, we cannot choose to redeem the exchange notes until five years have passed from the issue date of the exchange notes. At any one or more times after that date, we may choose to redeem some or all of the exchange notes at certain specified prices, plus accrued and unpaid interest. Optional Redemption After Equity Offerings............ At any one or more times before the third anniversary of the issue date of the exchange notes, we may choose to buy back up to 35% of the original aggregate principal amount of exchange notes with money that we raise in one or more equity offerings, as long as we pay 110.750% of the principal amount of the exchange notes, plus interest, and at least 65% of the original aggregate principal amount of exchange notes remain outstanding afterwards. See "Description of the Notes--Optional Redemption." Change of Control........... Upon the occurrence of certain change of control events, holder may require us to repurchase all or a portion of the exchange notes at 101% of their principal amount, plus accrued and unpaid interest. See "Description of the Notes--Change of Control." Ranking..................... The exchange notes will be our senior subordinated unsecured obligations. They will rank senior to or equal in right of payment with any of our future subordinated indebtedness and subordinated in right of payment to any of our existing and future senior indebtedness. The exchange notes will be effectively subordinated to indebtedness and other liabilities of our subsidiaries which are not guarantors. As of March 28, 1999, on a pro forma basis after giving effect to the Transactions, we, excluding our subsidiaries, would have had approximately $225.0 million of senior indebtedness, and our subsidiaries which are guarantors, including KTI, would have had $244.0 million of senior indebtedness, including $225.0 million of outstanding liabilities as guarantors under the new credit facility, and our subsidiaries which are not guarantors would have had $267.5 million of indebtedness and other liabilities, including $225.0 million of outstanding liabilities as guarantors under our new credit facility. 8 Guarantees.................. Substantially all of our domestic subsidiaries guarantee the exchange notes with unconditional guarantees of payment that effectively rank below their senior debt, but rank equal to their other subordinated debt, in right of payment. Covenants................... The indenture contains covenants that limit what we, and most or all of our subsidiaries, may do. The indenture has covenants that limit our ability to: . incur additional indebtedness; . pay dividends on, redeem or repurchase our capital stock; . make investments; . permit payment or dividend restrictions on certain of our subsidiaries; . sell assets; . create certain liens; . engage in certain transactions with affiliates; and . consolidate or merge or sell all or substantially all of our assets and the assets of our Restricted Subsidiaries. In addition, we are obligated to offer to repurchase the exchange notes at 100% of their principal amount, plus accrued and unpaid interest, if any, to the date of repurchase, in the event of certain asset sales. These restrictions and prohibitions are subject to a number of important qualifications and exceptions. See "Description of the Notes-- Certain Covenants." For more complete information about the exchange notes, see the "Description of the Notes" section of this Prospectus. Risk Factors Your investment in the exchange notes will involve certain risks. You should carefully consider the discussion of risks beginning on page 13 and the other information included in this prospectus prior to tendering your outstanding notes in the exchange offer. 9 Summary Unaudited Pro Forma Financial Data of the Company (Dollars in thousands) The following summary unaudited pro forma financial data are based on our historical financial statements and the historical financial statements of KTI. The following table sets forth unaudited pro forma statement of earnings data for Fiscal 1998, the nine months ended March 28, 1999 and the twelve months ended March 28, 1999. The unaudited pro forma statement of earnings data gives effect to each of the Transactions as if they occurred on July 1, 1997, July 1, 1998 and March 30, 1998. The unaudited pro forma balance sheet data as of March 28, 1999 give effect to each of the Transactions as if they had occurred on that date. The pro forma financial data are presented for informational purposes only and are not intended to be indicative of either future results of operations or results that might have been achieved had the Transactions actually occurred on the dates specified. The summary unaudited consolidated pro forma financial data are qualified by and should be read in conjunction with, the "Unaudited Pro Forma Consolidated Financial Statements," the consolidated financial statements of each of KTI and ourselves, including the related notes thereto, in each case included elsewhere in this prospectus.
Year Ended Nine Months Ended Twelve Months Ended June 30, 1998 March 28, 1999 March 28, 1999 ------------- ----------------- ------------------- Statement of Earnings Data: Net sales................. $784,637 $572,874 $ 759,972 Gross profit.............. 207,411 148,689 203,926 Operating income.......... 64,980 38,303 56,643 Net interest expense...... 47,846 36,512 49,445 Earnings from continuing operations............... 10,110 3,248 10,034 Other Data: EBITDA (1)................ $ 99,960 $ 68,682 $ 95,357 Depreciation and amortization............. 34,980 30,379 38,714 At March 28, 1999 ------------------- Balance Sheet Data: Total assets.............. $1,243,740 Long-term debt, less current maturities....... 465,162 Stockholders' equity...... 445,716 Cash and short-term investments.............. 8,666
- -------- (1) Earnings before interest, taxes, depreciation and amortization ("EBITDA") represents the sum of income before income taxes plus interest expense (including amortization of debt issue costs), depreciation and amortization. We consider EBITDA to be an indicative measure of our operating performance due to the significance of our long-lived assets and because such data are considered useful by the investment community to better understand our results, and can be used to measure our ability to service debt, fund capital expenditures and expand our business. EBITDA is not a measure of financial performance under GAAP, may not be comparable to other similarly titled measures of other companies and should not be considered as an alternative either to net income as an indicator of our operating performance, or to cash flows as a measure of our liquidity. Cash expenditures for various long-term assets, interest expense and income taxes have been, and will be, incurred which are not reflected in the EBITDA presentation. Our investment in Nacanco Paketleme is accounted for as an investment in an affiliate under the equity method. 10 Summary Consolidated Financial Data of the Company (Dollars in thousands) The following table sets forth our summary financial data and should be read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this prospectus. The summary consolidated historical financial data as of and for the three years ended June 30, 1998 have been derived from the consolidated financial statements of Banner, Special-T Fasteners and us, which were audited by Arthur Andersen LLP, our independent accountants and Nacanco Paketleme, which were audited by Basaran (a member of PricewaterhouseCoopers LLP). The summary consolidated historical financial data for the nine months ended March 29, 1998 and March 28, 1999, and for the twelve months ended March 28, 1999 have been derived from our unaudited consolidated financial statements and related notes appearing elsewhere in this prospectus. In our opinion, the summary consolidated historical financial data for the nine months ended March 29, 1998 and March 28, 1999, and for the twelve months ended March 28, 1999 include all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of this information. Since the information presented below is only a summary and does not provide all of the information contained in our financial statements, including the related notes, you should read "Management's Discussion and Analysis of Results of Operations and Financial Condition" and our consolidated financial statements.
Twelve Year Ended June 30, Nine Months Ended Months Ended ------------------------------- --------------------- ------------ March 29, March 28, March 28, 1996 1997 1998 1998 1999(2) 1999(2) -------- ---------- ---------- ---------- ---------- ------------ Statement of Earnings Data(1): Net sales............... $349,236 $ 680,763 $ 741,176 $ 567,142 $ 446,072 $620,106 Gross profit............ 74,101 181,344 186,506 140,941 89,624 135,189 Operating income (loss)................. (11,286) 33,499 45,443 35,026 3,600 14,017 Net interest expense.... 56,459 47,681 42,715 36,526 20,955 27,144 Earnings (loss) from continuing operations.. (32,186) 1,816 52,399 47,042 12,746 18,103 Other Data: EBITDA (3).............. $ 5,931 $ 54,314 $ 66,316 $ 51,506 $ 20,971 $ 35,824 Capital expenditures.... 5,680 15,014 36,029 23,706 18,694 31,017 Depreciation and amortization........... 17,217 20,815 20,873 16,480 17,371 21,807 Balance Sheet Data (at period end): Cash and short-term investments............ $ 50,147 $ 45,067 $ 53,563 $ 68,255 $ 171,123 Total assets............ 993,398 1,052,666 1,157,259 1,137,642 1,014,831 Long-term debt, less current maturities..... 368,589 416,922 295,402 278,140 227,475 Stockholders' equity.... 230,861 232,424 473,559 433,138 421,695
- -------- (1) The results of Banner Aerospace, Inc. are included in the periods since February 25, 1996, when Banner became our majority-owned subsidiary. Prior to February 25, 1996, our investment in Banner was accounted for using the equity method. Fiscal 1998 includes the gain from the disposition of the hardware group of Banner. The results of the hardware group are included in our financial statements from March 1996 through December 1997, until disposition. See note 22 to our consolidated financial statements. These transactions materially affect the comparability of the information reflected in our summary consolidated financial data. (2) Gross profit and operating income (loss) for the nine and twelve months ended March 28, 1999 include a charge of $19.3 million recognized on the sale of Solair. The charge was attributable primarily to the bulk sale of inventory at prices below the carrying amount of the inventory. (3) Earnings before interest, taxes, depreciation and amortization ("EBITDA") represents the sum of income before income taxes plus interest expense (including amortization of debt issue costs), depreciation and amortization. Included in EBITDA are restructuring and unusual charges of $2,319 in Fiscal 1996. EBITDA for the nine months and the twelve months ended March 28, 1999 includes the charge of $19.3 million recognized on the sale of Solair. We consider EBITDA to be an indicative measure of our operating performance due to the significance of our long-lived assets and because such data are considered useful by the investment community to better understand our results, and can be used to measure our ability to service debt, fund capital expenditures and expand our business. EBITDA is not a measure of financial performance under GAAP, may not be comparable to other similarly titled measures of other companies and should not be considered as an alternative either to net income as an indicator of our operating performance, or to cash flows as a measure of our liquidity. Cash expenditures for various long-term assets, interest expense and income taxes have been, and will be, incurred which are not reflected in the EBITDA presentation. See our consolidated financial statements and the related notes thereto appearing elsewhere in this prospectus. Our investment in Nacanco Paketleme is accounted for as an investment in an affiliate under the equity method. 11 Summary Consolidated Financial Data of KTI (Dollars in thousands) The table below sets forth summary consolidated financial data for KTI and should be read in conjunction with the consolidated financial statements of KTI and notes thereto, and other financial information appearing elsewhere in this prospectus relating to KTI. The summary consolidated financial data for the three years ended December 31, 1998 are derived from the consolidated financial statements of KTI that have been audited by Arthur Andersen LLP, independent public accountants.
Year Ended December 31, --------------------------- 1996(1) 1997 1998(2)(3) ------- -------- ---------- Statement of Operations Data: Net sales.......................................... $99,023 $150,429 $185,512 Gross profit....................................... 26,099 46,039 56,289 Operating income................................... 12,836 24,585 28,851 Interest expense, net.............................. 4,011 3,602 4,067 Net earnings....................................... 5,295 12,590 14,870 Other Data: EBITDA (4)......................................... $15,449 $ 28,403 $ 35,623 Capital expenditures............................... $ 6,850 $ 17,909 $ 18,322 Depreciation and amortization...................... 2,613 3,818 6,772 Balance Sheet Data (at period end): Total assets....................................... $73,689 $101,656 $199,359 Total long-term debt, less current maturities...... 45,508 26,856 80,818 Stockholders' equity............................... 10,626 49,433 72,724
- -------- (1) In August 1996, KTI purchased its Recoil business unit, which has been accounted for under the purchase method of accounting and, accordingly, the operating results of Recoil have been included in KTI's results of operations since mid-August 1996. (2) In July 1998, KTI purchased its M & M business unit, which has been accounted for under the purchase method of accounting and, accordingly, the operating results of M & M have been included in KTI's results of operations since late-July 1998. (3) In October 1998, KTI purchased its Marson business unit, which has been accounted for under the purchase method of accounting and, accordingly, the operating results of Marson have been included in KTI's results of operations since late-October 1998. (4) Earnings before interest, taxes, depreciation and amortization ("EBITDA") represents the sum of income before income taxes plus interest expense (including amortization of debt issue costs), depreciation and amortization. EBITDA is considered to be an indicative measure of operating performance due to the significance of KTI's long-lived assets and because such data are considered useful by the investment community to better understand results, and can be used to measure KTI's ability to service debt, fund capital expenditures and expand its business. EBITDA is not a measure of financial performance under GAAP, may not be comparable to other similarly titled measures of other companies and should not be considered as an alternative either to net income as an indicator of KTI's operating performance or to cash flows as a measure of KTI's liquidity. Cash expenditures for various long-term assets, interest expense and income taxes have been, and will be, incurred which are not reflected in the EBITDA presentation. See consolidated financial statements of KTI and the related notes thereto and other financial information relating to KTI appearing elsewhere in this Prospectus. 12 RISK FACTORS An investment in the exchange notes to be issued under or in conjunction with this Prospectus is subject to a number of risks. You should carefully consider each of the following factors and all of the other information set forth in this prospectus. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also adversely affect our business. If any of the following risks and uncertainties develop into actual events, our business, financial condition or results of operations could be materially adversely affected. In such case, we may not be able to make principal and interest payments on the Notes, and you may lose all or part of your investment. Risks Relating to our Company Our significant amounts of debt could limit our operational flexibility or otherwise affect our future. As of April 20, 1999, we had: . total consolidated long-term debt of approximately $520 million. See "Capitalization" and "Use of Proceeds." Our business may not generate sufficient cash flow from operations in the future to service our debt and make necessary capital expenditures. If that is the case, we may seek additional financing, dispose of certain assets or try to refinance some or all of our debt. We may not be able to effect these alternatives on satisfactory terms or on a timely basis or at all. Our ability to pay principal of, and interest on, the Notes and our other debt obligations depend on our future performance, assessments of future performance by prospective financing sources and the performance of our business segments. To a certain extent, our performance is subject to general economic, financial, competitive, legislative, regulatory and other factors beyond our control. If we have difficulty servicing our debt, we may be forced to reduce or delay capital expenditures, sell assets, restructure or refinance our debt or seek equity capital. We might not be able to implement any of these strategies on satisfactory terms or on a timely basis, if at all. See "Management's Discussion and Analysis of Financial Condition and Results of Operations-- Liquidity and Capital Resources." The indenture governing the Notes limits our ability to undertake certain transactions. The indenture restricts our and certain of our subsidiaries' ability to: . incur additional indebtedness; . pay dividends on, redeem or repurchase our capital stock; . make investments; . permit payment or dividend restrictions on certain of our subsidiaries; . sell assets; . create certain liens; . engage in certain transactions with affiliates; and . consolidate or merge or sell all or substantially all our assets and the assets of our Restricted Subsidiaries. These covenants are subject to a number of important exceptions. See "Description of the Notes--Certain Covenants." 13 In addition, we are and expect to remain a party to our new credit facility and may in the future be party to certain additional bank credit facilities. Our new credit facility contains, and any future credit agreements may contain, financial and other restrictive covenants that limit our ability to, among other things, borrow additional money, make payments on subordinated indebtedness, including the Notes, pay dividends, sell or acquire assets or engage in mergers. If we do not comply with these covenants, or covenants under our other debt instruments, or do not repay our debt on time, we would be in default under our debt agreements. Unless our lenders waived that default, the debt could become immediately payable and this could have a material adverse impact on us. See "Description of New Credit Facility." The indenture governing the Notes allows us to enter into new credit agreements or replace our existing credit agreements. Any new credit agreements may contain more or less restrictive covenants than those currently in place. Our level of debt and the limitations imposed on us by our existing or future debt agreements could have important consequences to you, including the following: . we will have to use a portion of our cash flow from operations for debt service, rather than for our operations; . we may not be able to obtain additional debt financing for future working capital, capital expenditures, acquisitions or other corporate purposes; . we could be more vulnerable to economic or industry downturns and less able to take advantage of significant business opportunities and react to changes in market or industry conditions; . less leveraged competitors could have a competitive advantage; and . we might not be able to repurchase all of the Notes tendered to us if we undergo a change of control. See "Description of the Notes-- Change of Control." Industry cycles could impact our business. Our aerospace fasteners and aerospace distribution segments are in historically cyclical industries. These segments are sensitive to general economic conditions and have been adversely affected by past recessions. Conditions generally affecting the aerospace industry also influence performance of the aerospace fasteners and aerospace distribution segments, as well as KTI's aerospace operations. For example, from 1990 to 1994 aerospace- related industries experienced reduced demand for commercial aircraft, a more rapid decline in military spending and the postponement of overhaul and maintenance on existing aircraft. In past years, the aerospace industry has been adversely affected by a number of factors, including increased fuel and labor costs and intense price competition. Countries in the Asia/Pacific region have experienced a weakening in their currency, banking and equity markets. This financial crisis has adversely affected Asian commercial airlines and has led to reduced demand for commercial aircraft by Asian carriers and some carriers serving Asia. On December 1, 1998, Boeing announced that it would reduce production rates for some of its commercial airline programs based on updated assessments of the Asian economic crisis. Additional cancellations or delays in aircraft orders from Boeing and Airbus customers serving Asia would reduce demand for our products, and ultimately could adversely affect our consolidated results of operations. On a pro forma basis, our bookings for fiscal 1999 through February were slightly less than the comparable period for fiscal 1998. We have a few significant customers, the loss of which could have an adverse effect. The loss of any of our significant customers could result in a decrease in our net sales and have a material adverse effect on our business. Although no one customer accounted for more than 10% of our net sales in Fiscal 1998 or for the nine months ended March 28, 1999, the majority of our net sales come from customers providing parts or services to Boeing, including defense sales, and the Airbus consortium, and their subcontractors. Accordingly, we are dependent on the business of those manufacturers. In addition, KTI's direct sales to Boeing accounted for 20% of KTI's net sales for the year ended December 31, 1998. 14 Our failure to successfully integrate KTI or integrate future acquisitions into our operations could adversely affect us. We believe we will realize substantial benefits from the successful integration of KTI. However, there can be no assurance that we will be able to maintain or increase the profitability of KTI or that KTI will be successfully integrated into our operations. We continually evaluate potential acquisitions and intend to actively pursue acquisition opportunities, some of which could be material. We may finance future acquisitions with internally generated funds, bank borrowings, issuances of equity or debt securities, or a combination of the foregoing. There can be no assurance that we will be able to make acquisitions on terms favorable to us. If we complete acquisitions, we will encounter various associated risks. These risks include the possible inability to integrate an acquired business into our operations, increased goodwill amortization, diversion of management's attention and unanticipated problems or liabilities, some or all of which could have a material adverse effect on our operations and financial performance. Our business is very competitive and increased competition could adversely affect us. The markets for our products and services are extremely competitive, and we face competition from a number of sources in most of our product lines. Some of our competitors have financial and other resources greater than ours and are also well established as suppliers to the markets that we serve. Quality, performance, service and price are generally the prime competitive factors. Our markets could attract additional competitors in the future. We have incurred operating losses in our technologies business. We own a technology products unit ("Technologies") which designs, manufactures and markets high performance production equipment and systems required for the manufacture of semiconductor chips and recordable compact discs. For fiscal years 1996, 1997 and 1998 and the first nine months of fiscal 1999, this unit had operating losses of approximately $1.5 million, $3.6 million, $48.7 million and $25.0 million, respectively. With the downturn in the Asian markets, we have experienced delivery deferrals, order cancellations, reduction in backlog, lower margins, staff reductions and increased price competition. Technologies also faces a continuing need for product development. In February 1998, we responded to these problems by adopting a formal plan to enhance the opportunities for disposing of this business, while improving its ability to operate more efficiently. The plan for Technologies includes: .reduction in production capacity and headcount; .pursuit of potential vertical and horizontal integration with peers and competitors; and .discontinued operations accounting treatment; or .a partial or complete shutdown The after-tax operating loss from Technologies exceeded the June 1998 estimate recorded for expected losses by $9.2 million through March 1999. An additional after-tax charge of $19.7 million was recorded in the nine months ended March 28, 1999, based on a current estimate of the remaining losses in connection with the disposition of Technologies. While the Company believes that $19.7 million is a reasonable charge for the remaining losses to be incurred from Technologies, there can be no assurance that this estimate is adequate. During the third quarter of fiscal 1999, the Semiconductor Equipment Group of Technologies ceased all manufacturing activities, began to dispose of its production machinery and existing inventory, informed customers and business partners that it has discontinued operations, significantly reduced its workforce and stepped up the level of discussions and negotiations with other companies regarding the sale of its remaining assets. Technologies is also exploring several alternative transactions with potential successors to the business of its Optical Disc Equipment Group, but has made no definitive arrangement for its disposition. 15 In May 1999, Technologies sold to Apex certain photoresist equipment and licensed certain related technology in Korea and Taiwan in exchange for shares of Apex stock publicly traded in Korea then worth $5.0 million and certain future considerations. [In June 1999, Technologies sold to Suss Microtech AG certain equipment and intellectual property of its semiconductor business in exchange for cash of approximately $8.0 million, royalties based on future sales and 350,000 shares of Suss stock publicly traded on a German stock exchange, then worth 3.5 million Euros.] Mr. Steiner controls Fairchild and his interests may be different from Fairchild's other stockholders. Jeffrey J. Steiner, our Chairman of the Board and Chief Executive Officer, through his control of 2,563,996 shares of the Class B common stock and 3,379,488 shares of the Class A common stock, has approximately 64% of the combined voting power of both classes of common stock. This voting power enables him to elect a majority of the directors of Fairchild and to determine the outcome of any other matter submitted to stockholders for approval except for matters requiring approval of holders of both classes voting separately. The ten-to-one voting rights of the Class B common stock may make Fairchild less attractive as the potential target of a hostile tender offer or other proposal to acquire or merge with Fairchild, even if such actions would be in the best interests of the holders of our Class A common stock. The Class B common stock is convertible into Class A common stock on a share-for-share basis and is subject to certain restrictions on transferability. Failure to complete a proposed spin-off could have an adverse effect on our business. In order to focus our operations on the fastener industry, we have been considering for some time spinning off to our stockholders all or a substantial part of our non-fastener operations. If the spin-off does not occur, we may be required to maintain diverse businesses which complicate our financial reporting and divert resources and management focus. We are still in the process of deciding the exact composition of the assets and liabilities to be included in the spin-off, but those assets are likely to include some real estate interests and our 31.9% interest in Nacanco Paketleme, the largest producer of aluminum cans in Turkey. Our real estate interests and our interest in Nacanco Paketleme will be held in unrestricted subsidiaries pursuant to the terms of the Indenture relating to the Notes and is held in unrestricted subsidiaries under our new credit facility. There is no assurance that we will be able to obtain the necessary consents or waivers from lending, government or third party authorities. In addition, we may postpone the spin-off, and we can make no assurance as to the timing of the spin-off or if it will occur. We may retain some liabilities if the spin-off occurs. If the spin-off does occur, the new entity may indemnify us for liabilities related to the assets distributed in the spin-off. In the event of insolvency, we may have to satisfy such liabilities. The spin-off could have unfavorable tax consequences to us and our stockholders. Depending on the ultimate structure and timing of the spin-off, it may be a taxable transaction to stockholders of Fairchild and could result in a material tax liability to us and our stockholders. The amount of the tax liabilities to us and our stockholders is uncertain. If the tax liability is material to us, we may elect not to consummate the spin-off. Because circumstances may change and provisions of the Internal Revenue Code of 1986, as amended, may be further amended from time to time, we may restructure or delay the timing of the spin- off to minimize the tax consequences to us and our stockholders, or elect not to consummate the spin-off. Customer work stoppages could adversely affect us. Both Boeing and Airbus are served by organized labor, which in certain instances has resorted to work stoppages to achieve its goals. Work stoppages at Boeing and/or Airbus could have a major impact on the performance of both such companies and on us. In addition, any production line stoppages caused by either the 16 FAA or any foreign regulatory authority revoking or investigating the type certification of either Boeing or Airbus aircraft could have a similar impact on us. Changes in government regulation or customer qualifications could adversely affect us. The FAA prescribes standards and licensing requirements for aircraft components and effectively regulates component repair stations worldwide. Comparable agencies also regulate these matters in other countries. If we do not have required FAA authority for one of our products or services or lose such authority previously granted, the sale of that product or service may be prohibited by law until such authority is obtained or reinstated. We believe that we are currently in material compliance with FAA requirements existing on the date of this prospectus. However, changes in FAA regulations could be adopted that, if extensive, could adversely affect our results of operations. In addition, customers also impose various certification requirements on aerospace manufacturers such as us to have facilities and products which meet certain standards and specifications. If we were to fail to meet such certification requirements or lose our certified status with one or more customers, and fail to have such status reinstated, it could adversely affect the results of our operations. The Fastener Quality Act of 1991 regulates the manufacture and distribution of certain high grade industrial fasteners in the United States and imposes testing, certification and record keeping requirements on manufacturers and distributors of these fasteners. As a result of the Fastener Quality Act, we and other distributors of certain types of fasteners will be required to maintain records and product tracking systems. We have implemented tracking and traceability systems that comply with the regulations. Although compliance with the Fastener Quality Act has not materially increased expenses for us, it is possible that future regulations could result in materially increased costs for us. The Fastener Quality Act is currently scheduled to become effective on June 30, 1999. Future events and future results may differ materially from what we expect. We have made forward-looking statements (as that term is defined in Section 27A of the Securities Act and in Section 20A of the Exchange Act) in this prospectus (and in documents that are incorporated by reference in this prospectus) that are subject to risks and uncertainties. These statements are based on our management's current beliefs. Forward-looking statements include the information set forth under "Summary," "Management's Discussion and Analysis of Results of Operations and Financial Condition," "Risk Factors" and "Unaudited Pro Forma Financial Statements", as well as statements elsewhere in this document that are preceded by, followed by or that include the words "believes," "expects," "anticipates," "intends," "plans," "estimates" or similar expressions. By way of example, forward-looking statements include predictions of cost savings or other benefits expected to be realized from the Banner merger and the KTI acquisition. Forward-looking statements are not guaranties of performance. By their nature, they involve risks, uncertainties and assumptions. Our future results may differ materially from those expressed in these forward-looking statements. Many of the factors that will determine these results are beyond our ability to control or predict. You are cautioned not to put undue reliance on any forward-looking statement. Any such statement speaks only as of the date of this prospectus, and we do not have any intention or obligation to update forward-looking statements after we distribute this prospectus, even if new information, future events or other circumstances have made such statements incorrect or misleading. For those statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. We could be adversely affected if year 2000 problems are significant. As the end of the century nears, there is a widespread concern that many existing computer programs that use only the last two digits to refer to a year will not properly recognize a year that begins with the digits "20" instead of "19." If not corrected, many computer applications could fail, create erroneous results, or cause unanticipated systems failures, among other problems. 17 We expect to complete testing of our most critical information technology and related systems by June 30, 1999, and anticipate that we will complete our Year 2000 preparations by October 31, 1999. Most of KTI's significant manufacturing facilities have already been converted to new software systems which we believe are Year 2000 compliant. We expect that all other critical systems at KTI will be compliant by July 1999 and fully tested by September 1999. We could be subject to liability to customers and other third parties if our systems are not Year 2000 compliant, resulting in possible legal actions for breach of contract, breach or warranty, misrepresentation, unlawful trade practices and other harm. In addition, we are continually attempting to assess the level of Year 2000 preparedness of our key suppliers, distributors, customers and service providers. To this end, we have sent, and will continue to send, letters, questionnaires and surveys to our significant business partners inquiring about their Year 2000 efforts. If a significant business partner of ours fails to be Year 2000 compliant, we could suffer a material loss of business or incur material expenses. For a more complete discussion of the issues relating to the Year 2000, see "Management's Discussion and Analysis of Results of Operations and Financial Condition--Year 2000." Risks Relating to the Notes and the Subsidiary Guarantees We must rely on cash from our subsidiaries to make debt payments. Most of our operations are conducted by our subsidiaries, which own a significant portion of our consolidated assets. Consequently, our operating cash flow and our ability to service our indebtedness, including the Notes, depends upon the operating cash flow of our subsidiaries and the payment of funds by them to us in the form of loans, dividends or otherwise. Our subsidiaries are separate legal entities that have no obligation to pay any amounts due pursuant to the Notes other than through the subsidiary guarantees or to make any funds available for that purpose, whether by dividends, interest, loans, advances or other payments. In addition, their ability to pay dividends and make loans, advances and other payments to us depends on any statutory or contractual restrictions, which may include requirements to maintain minimum levels of working capital and other assets. The Notes are effectively junior to all liabilities of our subsidiaries that are not subsidiary guarantors, including indemnities issued by subsidiaries in connection with dispositions they have made. In the event of a bankruptcy, liquidation or dissolution of such a subsidiary and following payment of these liabilities, the subsidiary may not have sufficient assets remaining to make payments to us. As of March 28, 1999, on a pro forma basis after giving effect to the Transactions, the aggregate outstanding liabilities of our subsidiaries, including trade payables, that will not be subsidiary guarantors would have been approximately $267.5 million, including $225.0 million of outstanding liabilities as guarantors under our new credit facility. The indenture governing the Notes permits us and our subsidiaries to incur additional indebtedness, including secured indebtedness under certain circumstances. See "Description of the Notes--Certain Covenants--Limitation on Indebtedness." Your right to receive payment on the Notes is junior to all of our senior indebtedness and possibly all of our future borrowings. The subsidiary guarantees of the Notes are junior to all of the senior indebtedness and possibly all of the future borrowings of the subsidiary guarantors. The Notes and the subsidiary guarantees are unsecured and subordinated to the prior right of payment of all of our and the subsidiary guarantors' existing and future senior debt, other than trade payables, including obligations under the new credit facility. Our indebtedness under our new credit facility will become due prior to the time the principal obligations under the Notes become due. Subject to certain limitations, the indenture relating to the Notes permits us to incur and secure additional senior debt. See "Description of the Notes--Certain Covenants--Limitation on Indebtedness." As a result of the subordination provisions of the Notes and the subsidiary guarantees, in the event of a liquidation or insolvency, our and the subsidiary guarantors' assets are available to pay obligations on the Notes only after all of our and the subsidiary guarantors' senior debt has 18 been paid in full, and there may not be sufficient assets remaining to pay amounts due on any or all of the Notes then outstanding. Claims in respect of the Notes are effectively subordinated to all liabilities, including trade payables, of any of our subsidiaries that are not subsidiary guarantors. At March 28, 1999, on a pro forma basis after giving effect to the Transactions, the aggregate outstanding principal amount of all our (excluding our subsidiaries) senior indebtedness would have been approximately $225.0 million. Our subsidiaries which are guarantors, would have had approximately $244.0 million of senior indebtedness, including $225.0 million of outstanding liabilities as guarantors under our new credit facility. Our subsidiaries which are not guarantors would have had approximately $267.5 million of senior indebtedness and other liabilities, including $225.0 million of outstanding liabilities as guarantors under our new credit facility. Certain events of default under our senior indebtedness prohibit us from making any payments on the Notes. See "Description of New Credit Facility" and "Description of the Notes." We may not be able to purchase Notes upon a change of control. Upon certain change of control events, each holder of Notes may require us to purchase all or a portion of its Notes at a purchase price equal to 101% of the principal amount thereof, plus accrued interest. Our ability to purchase the Notes upon a change of control event will be limited by the terms of our debt agreements. Upon a change of control event, we may be required immediately to repay the outstanding principal, any accrued interest on and any other amounts owed by us under our new credit facility. We cannot assure you that we would be able to repay amounts outstanding under our new credit facility or obtain necessary consents under such facility to purchase the Notes. Any requirement to offer to purchase any outstanding Notes may result in us having to refinance our outstanding indebtedness, which we may not be able to do. In addition, even if we were able to refinance such indebtedness, such financing may be on terms unfavorable to us. The term "change of control" is defined in the "Description of the Notes--Change of Control" section of this prospectus. The trading price of the Notes may be volatile. The trading price of the Notes could be subject to significant fluctuation in response to, among other factors, variations in operating results, developments in the industries in which we do business, general economic conditions and changes in ratings of and securities analysts' recommendations regarding our securities. Such volatility may adversely affect the market price of the Notes. The holders of a majority of the Notes have the right to waive defaults under and otherwise modify the Indenture. Subject to certain limitations specified in the Indenture, the holders of a majority in principal amount of the Notes then outstanding have the right to: . waive certain existing defaults or events of default; . waive compliance with certain provisions of the Indenture or the Notes; . modify or supplement the Indenture; and . direct the time, method and place of conducting any proceeding for any remedy available to the Trustee under the indenture. These provisions of the Indenture could allow actions affecting the Notes to be taken without the approval of all of the holders of the Notes and thus may have an adverse effect on the holders of the Notes who do not approve of such actions. See "Description of the Notes--Events of Default and Remedies" and""--Amendments and Waivers." 19 Federal and state statutes allow courts, under specific circumstances, to void subsidiary guarantees, subordinate claims in respect of the Notes and require Noteholders to return payments received from subsidiary guarantors. Under the federal bankruptcy law and comparable provisions of state fraudulent transfer laws, a subsidiary guarantee could be voided, or claims in respect of the Notes or a subsidiary guarantee could be subordinated to all of our other debts or all other debts of a subsidiary guarantor if, among other things, we or the subsidiary guarantor, at the time it incurred the indebtedness evidenced by its subsidiary guarantee, received less than reasonably equivalent value or fair consideration for the issuance of such subsidiary guarantee, and we or the subsidiary guarantor was insolvent or rendered insolvent by reason of such incurrence, or we or the subsidiary guarantor were engaged in a business or transaction for which our or the subsidiary guarantor's remaining assets constituted unreasonably small capital, or we or the subsidiary guarantor intended to incur or believed that we or it would incur, debts beyond our or its ability to pay such debts as they mature. In addition, any payment by us or that subsidiary guarantor pursuant to its subsidiary guarantee could be voided and required to be returned to us or the subsidiary guarantor, or to a fund for the benefit of our creditors or the creditors of the subsidiary guarantor. The measures of insolvency for purposes of these fraudulent transfer laws will vary depending upon the law applied in any proceeding to determine whether a fraudulent transfer had occurred. Generally, however, a subsidiary guarantor would be considered insolvent if the sum of its debts, including contingent liabilities, were greater than the fair saleable value of all of its assets, or if the fair saleable value of its assets were less than the amount that would have been required to pay its probable liability on its existing debts, including contingent liabilities, as they become absolute and mature, or it could not pay its debts as they become due. On the basis of historical financial information, recent operating history and other factors, we believe that we and each subsidiary guarantor, after giving effect to its guarantee of these Notes, was not insolvent, did not have unreasonably small capital for the business in which it is engaged and had not incurred debts beyond its ability to pay such debts as they mature. There can be no assurance, however, as to what standard a court would apply in making such determinations or that a court would agree with our conclusions in this regard. There is currently no trading market for the exchange notes. The exchange notes will be new securities for which there is currently no public market. We do not intend to list the Exchange Notes on any national securities exchange or quotation system. Accordingly, no market may develop for the exchange notes, and if a market does develop, it may have limited or no liquidity. As outstanding notes are tendered and accepted in the exchange offer, the aggregate principal amount of outstanding notes will decrease, which will decrease their liquidity. Failure to exchange your outstanding notes will leave them subject to transfer restrictions. If you do not exchange your outstanding notes for exchange notes, you will continue to be subject to the restrictions on transfer of your outstanding notes set forth in their legend because the outstanding notes were issued pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act. In general, outstanding 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. We currently do not anticipate registering the outstanding notes under the Securities Act. The exchange notes may be subject to "blue sky" restrictions on resales. In order to comply with the securities laws of certain jurisdictions, the exchange notes may not be offered or resold by any holder unless they have been registered or qualified for sale in such jurisdictions or any exemption from registration or qualifications is available and the requirements of such exemption have been satisfied. We do not currently intend to register or qualify the resale of the exchange 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. 20 WHERE YOU CAN FIND MORE INFORMATION As required by law, Fairchild files reports, proxy statements and other information with the Securities and Exchange Commission. You can inspect and copy these materials at the public reference facilities maintained by the SEC at Room 1024, 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549. For further information concerning the Commission's public reference rooms, you may call the Commission at 1-800-SEC- 0330. Some of this information may also be accessed on the World Wide Web through the Commission's Internet address at "http://www.sec.gov." Fairchild's Class A common stock is listed on the New York Stock Exchange, and materials may also be inspected at the New York Stock Exchange's offices, 20 Broad Street, New York, New York 10005. Fairchild's Class A common stock is also listed on the Pacific Stock Exchange and may be inspected at the Pacific Stock Exchange's offices, 301 Pine Street, San Francisco, California, 94104. We will also provide you, without charge, a copy of any or all of the information that is incorporated by reference in this prospectus. Requests for copies should be directed to The Fairchild Corporation, 45025 Aviation Drive, Suite 400, Dulles, Virginia 20166, telephone: 703-478-5800. 21 USE OF PROCEEDS The exchange offer is intended to satisfy certain of our obligations under the registration rights agreement. We will not receive any cash proceeds from the exchange offer. The net proceeds from the sale of the outstanding notes was approximately $218.9 million. We used the net proceeds from the sale of the outstanding notes, together with proceeds from our new credit facility, and other cash available to us to: . consummate the acquisition of KTI, . pay for a covenant not to compete from KTI's major selling shareholder, . repay existing indebtedness, and . pay fees and expenses related to the acquisition of KTI and the repayment of existing indebtedness. 22 CAPITALIZATION The following table sets forth our cash position and capitalization as of March 28, 1999, on a historical basis and a pro forma basis giving effect to the Transactions. This table should be read in conjunction with our consolidated financial statements, the pro forma financial statements and the related notes thereto and the other financial information included elsewhere in this prospectus.
As of March 28, 1999 --------------------- Actual Pro Forma(1) -------- ------------ (in thousands) Cash and short-term investments.......................... $171,123 $ 8,666 ======== ======== Total debt (including current maturities): Short-term debt.......................................... $ 22,570 $ 25,068 Existing credit facilities .............................. 231,950 -- New Credit Facility...................................... -- 225,000 10 3/4% Senior subordinated notes........................ -- 225,000 Other debt............................................... 6,975 15,162 -------- -------- Total debt............................................... $261,495 $490,230 -------- -------- Stockholders' equity: Class A common stock, $.10 par value; 40,000 shares authorized; 26,747 (actual) and 29,729 pro forma shares issued and 19,257 (actual) and 22,239 pro forma shares outstanding............................................. 2,674 2,972 Class B common stock, $.10 par value; 20,000 shares authorized; 2,622 shares issued and outstanding......... 262 262 Paid-in capital.......................................... 195,679 241,407 Retained earnings........................................ 294,911 277,204 Cumulative other comprehensive income (loss)............. 2,179 (2,119) Treasury stock, at cost, 7,490 shares of Class A common stock................................................... (74,010) (74,010) -------- -------- Total stockholders' equity............................... 421,695 445,716 -------- -------- Total capitalization..................................... $683,190 $935,946 ======== ========
- -------- (1) Gives effect to: (a) the offering and borrowings of $225.0 million under our new credit facility, (b) the use of the proceeds from the offering of the outstanding notes, borrowings under our new credit facility and other available cash to consummate the Transactions, and (c) the issuance of 2,982 shares of our Class A common stock in the Banner merger. 23 THE FAIRCHILD CORPORATION UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS The following unaudited pro forma consolidated financial statements are based on our historical financial statements and the historical financial statements of KTI, in addition to those of certain other entities KTI or we acquired in the respective periods presented. The following sets forth our unaudited pro forma statements of earnings for fiscal 1998, the nine months ended March 28, 1999 and the twelve months ended March 28, 1999. The unaudited pro forma statements of earnings give effect to each of the Transactions as if such Transactions occurred on July 1, 1997, July 1, 1998 and March 30, 1998. The unaudited pro forma balance sheet as of March 28, 1999 gives effect to each of the Transactions as if they had occurred on such date. The pro forma financial statements are presented for informational purposes only and are not intended to be indicative of either future results of operations or results that might have been achieved had the Transactions actually occurred on the dates specified. The summary unaudited consolidated pro forma financial statements are qualified by and should be read in conjunction with, the consolidated financial statements of each of KTI and ourselves, including the related notes thereto, in each case included elsewhere in this Prospectus. 24 THE FAIRCHILD CORPORATION UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS For The Last Twelve Months Ended March 28, 1999 (In thousands, except per share data)
Fairchild KTI KTI Fairchild Adjusted (a) Adjusted (b) Acquisition (i) Refinancing Pro Forma ------------ ------------ --------------- ------------ --------- Net sales............... $545,397 $214,575 $ -- $ -- $759,972 Costs and expenses: Cost of sales.......... 406,054 150,992 (1,000)(d) -- 556,046 Selling, general & administrative........ 101,540 31,559 -- -- 133,099 Amortization of goodwill and intangibles........... 5,627 1,561 6,996 (c) -- 14,184 -------- -------- ------- -------- -------- 513,221 184,112 5,996 -- 703,329 Operating income....... 32,176 30,463 (5,996) -- 56,643 Net interest expense.... (27,144) (7,430) -- (14,871)(e) (49,445) Investment income, net.. 39,294 -- -- (36,882)(f) 2,412 -------- -------- ------- -------- -------- Earnings (loss) before taxes.................. 44,326 23,033 (5,996) (51,753) 9,610 Income tax (provision) benefit................ (13,456) (9,510) 630 (g) 19,589 (g) (2,747) Equity in earnings of affiliates............. 3,147 -- -- -- 3,147 Minority Interest....... 24 -- -- -- 24 -------- -------- ------- -------- -------- Earnings (loss) from continuing operations.. $ 34,041 $ 13,523 $(5,366) $(32,164) $ 10,034 ======== ======== ======= ======== ======== Depreciation & amortization........... $ 21,776 $ 9,942 $ 6,996 $ -- $ 38,714 EBITDA(h)............... 53,952 40,405 1,000 -- 95,357 Earnings per share from continuing operations: Basic.................. $ 1.35 $ 0.40 Diluted................ 1.30 0.38 Weighted average shares outstanding: Basic.................. 25,129 25,129 Diluted................ 26,215 26,215
25 THE FAIRCHILD CORPORATION UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS For The Nine Months Ended March 28, 1999 (In thousands, except per share data)
Fairchild KTI KTI Fairchild Adjusted (a) Adjusted (b) Acquisition (i) Refinancing Pro Forma ------------ ------------ --------------- ----------- --------- Net sales............... $417,753 $155,121 $ -- $ -- $572,874 Costs and expenses: Cost of sales.......... 314,782 110,153 (750)(d) -- 424,185 Selling, general & administrative........ 76,277 23,454 -- -- 99,731 Amortization of goodwill and intangibles........... 4,253 1,155 5,247 -- 10,655 -------- -------- ------- -------- -------- 395,312 134,762 4,497 -- 534,571 -------- -------- ------- -------- -------- Operating income....... 22,441 20,359 (4,497) -- 38,303 Net interest expense.... (20,955) (5,670) -- (9,887)(e) (36,512) Investment income, net.. 37,710 -- -- (35,407)(f) 2,303 -------- -------- ------- -------- -------- Earnings (loss) before taxes.................. 39,196 14,689 (4,497) (45,294) 4,094 Income tax (provision) benefit................ (14,163) (6,025) 228 (g) 17,269 (g) (2,691) Equity in earnings of affiliates............. 1,821 -- -- -- 1,821 Minority interest....... 24 -- -- -- 24 -------- -------- ------- -------- -------- Earnings (loss) from continuing operations.. $ 26,878 $ 8,664 $(4,269) $(28,025) $ 3,248 ======== ======== ======= ======== ======== Depreciation & amortization........... $ 17,419 $ 7,713 $ 5,247 $ -- $ 30,379 EBITDA(h)............... 39,860 28,072 750 -- 68,682 Earnings per share from continuing operations: Basic.................. $ 1.07 $ 0.13 Diluted................ 1.01 0.12 Weighted average shares outstanding: Basic.................. 25,111 25,111 Diluted................ 26,490 26,490
26 THE FAIRCHILD CORPORATION UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS For The Twelve Months Ended June 30, 1998 (In thousands, except per share data)
Fairchild KTI KTI Fairchild Adjusted (a) Adjusted (b) Acquisition (i) Refinancing Pro Forma ------------ ------------ --------------- ----------- --------- Net sales............... $556,652 $227,985 $ -- $ -- $784,637 Costs and expenses: Cost of sales.......... 420,778 157,448 (1,000)(d) -- 577,226 Selling, general & administrative........ 96,805 31,300 -- -- 128,105 Amortization of goodwill and intangibles........... 5,698 1,632 6,996 -- 14,326 -------- -------- ------- -------- -------- 523,281 190,380 5,996 -- 719,657 -------- -------- ------- -------- -------- Operating income....... 33,371 37,605 (5,996) -- 64,980 Net interest expense.... (32,394) (6,857) -- (8,595)(e) (47,846) Investment loss, net.... (3,362) -- -- (1,475)(f) (4,837) -------- -------- ------- -------- -------- Earnings (loss) before taxes.................. (2,385) 30,748 (5,996) (10,070) 12,297 Income tax (provision) benefit................ 2,406 (12,703) 630 (g) 3,524 (g) (6,143) Equity in earnings of affiliates............. 3,956 -- -- -- 3,956 -------- -------- ------- -------- -------- Earnings (loss) from continuing operations.. $ 3,977 $ 18,045 $(5,366) $ (6,546) $ 10,110 ======== ======== ======= ======== ======== Depreciation & amortization........... $ 19,906 $ 8,078 $ 6,996 $ -- $ 34,980 EBITDA(h)............... 53,277 45,683 1,000 -- 99,960 Earnings per share from continuing operations: Basic.................. $ 0.18 $ 0.45 Diluted................ $ 0.16 $ 0.42 Weighted average shares outstanding: Basic.................. 22,531 22,531 Diluted................ 24,239 24,239
27 THE FAIRCHILD CORPORATION UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET March 28, 1999 (In thousands)
Fairchild KTI KTI Fairchild Historical Historical (b) Acquisition (c) Refinancing Pro Forma ----------- -------------- --------------- ----------- ---------- Cash.................... $ 166,245 $ 3,351 $(278,024)(d) $ 113,163 (e) $ 4,735 Short-term investments.. 3,777 154 -- -- 3,931 Accounts receivable, less allowances........ 101,731 28,867 -- -- 130,598 Inventory............... 166,973 50,693 -- -- 217,666 Prepaid and other current assets......... 48,267 4,263 -- -- 52,530 ---------- -------- --------- --------- ---------- Total current assets... 486,993 87,328 (278,024) 113,163 409,460 Net fixed assets........ 122,876 61,863 -- -- 184,739 Net assets held for sale................... 20,625 -- -- -- 20,625 Goodwill ............... 184,548 47,473 167,852 (c) -- 399,873 Investment in affiliates............. 29,209 -- -- -- 29,209 Prepaid pension assets.. 62,597 -- -- -- 62,597 Deferred loan costs..... 6,377 357 -- 4,329 (f) 11,063 Long-term investments... 42,441 -- (20,187)(g) -- 22,254 Other assets............ 75,448 472 28,000 (c) -- 103,920 ---------- -------- --------- --------- ---------- Total assets........... $1,031,114 $197,493 $(102,359) $ 117,492 $1,243,740 ========== ======== ========= ========= ========== Bank notes payable & current maturities of debt................... $ 34,020 $ 23,198 $ -- $ (32,150)(h) $ 25,068 Accounts payable........ 31,942 6,790 -- -- 38,732 Net current liabilities of discontinued operations............. 7,985 7,985 Other accrued expenses.. 86,918 8,053 (9,492)(i) (4,031)(j) 81,448 ---------- -------- --------- --------- ---------- Total current liabilities........... 160,865 38,041 (9,492) (36,181) 153,233 Long-term debt, less current maturities..... 227,475 79,637 -- 158,050 (h) 465,162 Other long-term liabilities............ 26,303 -- -- -- 26,303 Retiree health care liabilities............ 43,356 -- -- -- 43,356 Noncurrent income taxes.................. 104,635 4,576 -- -- 109,211 Minority interest in subsidiaries........... 759 -- -- -- 759 ---------- -------- --------- --------- ---------- Total liabilities...... 563,393 122,254 (9,492) 121,869 798,024 Class A common stock.... 2,972 -- -- -- 2,972 Class B common stock.... 262 -- -- -- 262 Paid-in capital......... 241,407 -- -- -- 241,407 Retained earnings....... 294,911 75,239 (88,569)(k) (4,377)(l) 277,204 Cumulative other comprehensive income... 2,179 -- (4,298)(g) -- (2,119) Treasury stock, at cost................... (74,010) -- -- -- (74,010) ---------- -------- --------- --------- ---------- Total stockholders' equity................ 467,721 75,239 (92,867) (4,377) 445,716 ---------- -------- --------- --------- ---------- Total liabilities & stockholders equity.... $1,031,114 $197,493 $(102,359) $ 117,492 $1,243,740 ========== ======== ========= ========= ==========
28 NOTES TO THE UNAUDITED PRO FORMA STATEMENT OF EARNINGS (a) The following three tables set forth the derivation of the "Fairchild Adjusted" unaudited pro forma results, representing the impact of the Banner Merger (completed in April 1999), Special-T Acquisition (effective January 1998), Solair Divestiture (completed in December 1998), and the Hardware Group Divestiture (completed January 13, 1998), as if these transactions had occurred at the beginning of each period presented: For The Last Twelve Months Ended March 28, 1999 (In thousands, except per share data)
Hardware Solair Banner Fairchild Group Divestiture Merger Fairchild Historical Divestiture (/1/) (/2/) Adjusted ---------- ----------- ----------- ------ --------- Net sales............... $620,106 $ -- $(74,709) $ -- $545,397 Costs and expenses: Cost of sales......... 484,917 -- (78,863) -- 406,054 Selling, general & administrative....... 115,880 -- (14,340) -- 101,540 Amortization of goodwill............. 5,292 -- (100) 435 (/3/) 5,627 -------- ---- -------- ------ -------- 606,089 -- (93,303) 435 513,221 Operating income...... 14,017 -- 18,594 (435) 32,176 Net interest expense.... (27,144) -- -- -- (27,144) Investment income, net.. 39,294 -- -- -- 39,294 Nonrecurring income on disposition of subsidiaries........... 37 (37)(/4/) -- -- -- -------- ---- -------- ------ -------- Earnings (loss) before taxes.................. 26,204 (37) 18,594 (435) 44,326 Income tax (provision) benefit................ (6,622) 13 (6,847) -- (13,456) Equity in earnings of affiliates............. 3,147 -- -- -- 3,147 Minority interest....... (4,626) 8 (/5/) (1,762)(/5/) 6,404 (/5/) 24 -------- ---- -------- ------ -------- Earnings (loss) from continuing operations.. $ 18,103 $(16) $ 9,985 $5,969 $ 34,041 ======== ==== ======== ====== ======== Depreciation & amortization........... $ 21,807(/9/) $ -- $ (466) $ 435 $ 21,776 EBITDA(h)............... 35,824 -- 18,128 -- 53,952 Earnings per share from continuing operations: Basic................. $ 0.82 $ 1.35 Diluted............... 0.81 1.30 Weighted average shares outstanding: Basic................. 22,147 2,982 25,129 Diluted............... 22,360 3,855 26,215
29 NOTES TO THE UNAUDITED PRO FORMA STATEMENT OF EARNINGS--Continued For The Nine Months Ended March 28, 1999 (In thousands, except per share data)
Fairchild Solair Banner Fairchild Historical Divestiture(/1/) Merger(/2/) Adjusted ---------- ---------------- ----------- --------- Net sales............... $446,072 $(28,319) $ -- $417,753 Costs and expenses: Cost of sales......... 356,448 (41,666) -- 314,782 Selling, general & administrative....... 82,022 (5,745) -- 76,277 Amortization of goodwill............. 4,002 (75) 326 (/3/) 4,253 -------- -------- ------ -------- 442,272 (47,486) 326 395,312 -------- -------- ------ -------- Operating income (loss)............... 3,600 19,167 (326) 22,441 Net interest expense.... (20,955) -- -- (20,955) Investment income, net.. 37,710 -- -- 37,710 -------- -------- ------ -------- Earnings (loss) before taxes.................. 20,355 19,167 (326) 39,196 Income tax (provision) benefit................ (7,316) (6,847) -- (14,163) Equity in earnings of affiliates............. 1,821 -- -- 1,821 Minority interest....... (2,114) (2,580)(/5/) 4,718 (/5/) 24 -------- -------- ------ -------- Earnings (loss) from continuing operations.. $ 12,746 $ 9,740 $4,392 $ 26,878 ======== ======== ====== ======== Depreciation & amortization........... $ 17,371(/9/) $ (278) $ 326 $ 17,419 EBITDA(h)............... 20,971 18,889 -- 39,860 Earnings (loss) per share from continuing operations: Basic................. $ 0.58 $ 1.07 Diluted............... 0.57 1.01 Weighted average shares outstanding: Basic................. 22,129 2,982 25,111 Diluted............... 22,552 3,855 26,490
30 NOTES TO THE UNAUDITED PRO FORMA STATEMENT OF EARNINGS--Continued For The Twelve Months Ended June 30, 1998 (In thousands, except per share data)
Hardware Fairchild Special-T Solair Group Banner Air Rights Historical Acquisition (/7/) Divestiture (/1/) Divestiture (/6/) Merger (/2/) Liquidation(/8/) ---------- ----------------- ----------------- ----------------- ------------ ---------------- Net sales......... $741,176 $15,317 $(78,939) $(120,902) $ -- $ -- Fairchild Adjusted ---------- Net sales......... $556,652 Costs and expenses: Cost of sales... 554,670 5,943 (63,645) (76,190) -- -- Selling, general & administrative.. 135,594 5,399 (14,973) (33,610) -- 4,395 Amortization of goodwill....... 5,469 269 (100) (375) 435 (/3/) -- -------- ------- -------- --------- ------ ------- 695,733 11,611 (78,718) (110,175) 435 4,395 -------- ------- -------- --------- ------ ------- Costs and expenses: Cost of sales... 420,778 Selling, general & administrative.. 96,805 Amortization of goodwill....... 5,698 ---------- 523,281 ---------- Operating income......... 45,443 3,706 (221) (10,727) (435) (4,395) Operating income......... 33,371 Net interest expense.......... (42,715) (937) -- 11,258 -- -- Investment loss, net.............. (3,362) -- -- -- -- -- Nonrecurring income on disposition of subsidiary ...... 124,028 -- -- (124,028)(/4/) -- -- -------- ------- -------- --------- ------ ------- Earnings before taxes............ 123,394 2,769 (221) (123,497) (435) (4,395) Income tax (provision) benefit.......... (48,659) (1,290) 163 50,654 -- 1,538 Equity in earnings of affiliates.... 3,956 -- -- -- -- -- Minority interest......... (26,292) -- 10 (/5/) 24,038 (/5/) 2,244 (/5/) -- -------- ------- -------- --------- ------ ------- Earnings (loss) from continuing operations....... $ 52,399 $ 1,479 $ (48) $ (48,805) $1,809 $(2,857) ======== ======= ======== ========= ====== ======= Net interest expense.......... (32,394) Investment loss, net.............. (3,362) Nonrecurring income on disposition of subsidiary ...... -- ---------- Earnings before taxes............ (2,385) Income tax (provision) benefit.......... 2,406 Equity in earnings of affiliates.... 3,956 Minority interest......... -- ---------- Earnings (loss) from continuing operations....... $ 3,977 ========== Depreciation & amortization..... $ 20,873 (/9/) $ 377 $ (534) $ (1,245) $ 435 $ -- EBITDA(h)......... 66,316 4,083 (755) (11,972) -- (4,395) Depreciation & amortization..... $ 19,906 EBITDA(h)......... 53,277 Earnings per share from continuing operations: Basic........... $ 2.78 Diluted......... 2.66 Earnings per share from continuing operations: Basic........... $ 0.18 Diluted......... 0.16 Weighted average shares outstanding: Basic........... 18,834 715 2,982 Diluted......... 19,669 715 3,855 Weighted average shares outstanding: Basic........... 22,531 Diluted......... 24,239
31 NOTES TO THE UNAUDITED PRO FORMA STATEMENT OF EARNINGS--Continued (1) Represents the elimination of Solair's operating results for all periods presented. (2) Represents the effects of the merger between Banner and Fairchild whereby Fairchild acquired the remaining 15% interest of Banner. Fairchild issued approximately 2,982 shares of Fairchild Class A common stock as a result of the merger, resulting in an increase in Fairchild's equity of $46,026. In addition, Fairchild will record approximately $17,384 of goodwill. (3) Represents additional amortization of goodwill related to the merger with Banner. (4) Represents the elimination of Banner's hardware group nonrecurring gain that occurred in January 1998. (5) Reflects the impact on Fairchild's minority interest for each transaction impacting Banner. Minority interest is ultimately reduced to zero due to Fairchild obtaining a 100% interest in Banner. (6) Represents the elimination of Banner's hardware group operating results from July 1, 1997 through the time of divestiture, January 13, 1998. (7) Represents the operating results of Special-T as if the acquisition occurred at the beginning of fiscal 1998. (8) Represents the elimination of non-recurring proceeds received from the involuntary conversion of air rights over a portion of the property Fairchild owns and is developing in Farmingdale, New York. (9) Historical depreciation and amortization for the twelve months ended June 30, 1998 includes the depreciation of fixed assets and the amortization of goodwill. The interest portion of historical depreciation and amortization, which includes the amortization of deferred loan fees and the capitalization of interest, is not used in the calculation of EBITDA. Exclusion of these interest components had the effect of increasing depreciation and amortization, as provided in Fairchild's historical cash flows, by $625 for the trailing twelve months ended March 28, 1999 and $837 for the twelve months ended June 30, 1998. 32 NOTES TO THE UNAUDITED PRO FORMA STATEMENT OF EARNINGS--Continued (b) The following three tables set forth the derivation of the "KTI Adjusted" unaudited pro forma results representing the results of operations that have been adjusted for the acquisition of Marson (acquired October 1998), M&M (acquired July 1998), Eagle (acquired May 1998), and APS (acquired February 1998) as if those transactions had occurred at the beginning of each period presented. For The Last Twelve Months Ended April 4, 1999 (In thousands)
KTI Marson M&M Eagle KTI Historical Acquisition Acquisition Acquisition Adjusted ---------- ----------- ----------- ----------- -------- Net sales............... $191,401 $ 16,085 $ 6,546 $ 543 $214,575 Costs and expenses: Cost of sales......... 135,149 11,217 4,267 358 150,991 Selling, general & administrative....... 28,573 2,458 460 69 31,560 Amortization of goodwill............. 951 461 149 -- 1,561(/1/) -------- -------- -------- -------- -------- 164,673 14,136 4,876 427 184,112 Operating income...... 26,728 1,949 1,670 116 30,463 Net interest expense.... (5,372) (1,564) (486) (8) (7,430)(/2/) -------- -------- -------- -------- -------- Earnings (loss) before taxes.................. 21,356 385 1,184 108 23,033 Income tax (provision) benefit................ (8,543) (388) (533) (46) (9,510) -------- -------- -------- -------- -------- Earnings (loss) from continuing operations.. $ 12,813 $ (3) $ 651 $ 62 $ 13,523 ======== ======== ======== ======== ======== Depreciation & amortization........... $ 8,309 $ 1,119 $ 509 $ 5 $ 9,942 EBITDA(h)............... 35,037 3,068 2,179 121 40,405
33 NOTES TO THE UNAUDITED PRO FORMA STATEMENT OF EARNINGS--Continued For The Nine Months Ended April 4, 1999 (In thousands)
KTI Marson M&M KTI Historical Acquisition Acquisition Adjusted ---------- ----------- ----------- -------- Net sales................... $144,577 $8,965 $1,579 $155,121 Costs and expenses: Cost of sales............. 102,955 6,169 1,029 110,153 Selling, general & administrative........... 22,003 1,342 109 23,454 Amortization of goodwill.. 855 263 37 1,155 (/1/) -------- ------ ------ -------- 125,813 7,774 1,175 134,762 Operating income.......... 18,764 1,191 404 20,359 Net interest expense........ (4,659) (891) (120) (5,670)(/2/) -------- ------ ------ -------- Earnings before taxes....... 14,105 300 284 14,689 Income tax provision........ (5,643) (253) (129) (6,025) -------- ------ ------ -------- Earnings from continuing operations................. $ 8,462 $ 47 $ 155 $ 8,664 ======== ====== ====== ======== Depreciation & amortization............... $ 6,946 $ 640 $ 127 $ 7,713 EBITDA(h)................... 25,710 1,831 531 28,072
34 NOTES TO THE UNAUDITED PRO FORMA STATEMENT OF EARNINGS--Continued For The Twelve Months Ended June 30, 1998 (In thousands)
KTI Marson M&M Eagle APS KTI Historical Acquisition Acquisition Acquisition Acquisition Adjusted ---------- ----------- ----------- ----------- ----------- -------- Net sales............... $173,156 $28,032 $20,220 $2,134 $4,443 $227,985 Costs and expenses: Cost of sales......... 118,875 20,033 13,581 1,558 3,401 157,448 Selling, general & administrative....... 24,494 4,277 1,342 371 816 31,300 Amortization of goodwill............. 369 796 448 -- 19 1,632 (/1/) -------- ------- ------- ------ ------ -------- 143,738 25,106 15,371 1,929 4,236 190,380 -------- ------- ------- ------ ------ -------- Operating income...... 29,418 2,926 4,849 205 207 37,605 Net interest expense.... (2,578) (2,739) (1,384) (42) (114) (6,857)(/2/) -------- ------- ------- ------ ------ -------- Earnings before taxes... 26,840 187 3,465 163 93 30,748 Income tax provision.... (10,726) (353) (1,505) (70) (50) (12,704) -------- ------- ------- ------ ------ -------- Earnings (loss) from continuing operations.. $ 16,114 $ (166) $ 1,960 $ 93 $ 43 $ 18,044 ======== ======= ======= ====== ====== ======== Depreciation & amortization........... $ 4,636 $ 1,946 $ 1,438 $ 23 $ 35 $ 8,078 EBITDA(h)............... 34,054 4,872 6,287 228 242 45,683
- -------- (1) Includes the pro forma incremental goodwill amortization of $368, $162, and $843 for the last twelve months ended April 4, 1999, nine months ended April 4, 1999, and twelve months ended June 30, 1998. (2) Includes the pro forma incremental interest expense of $1,289, $637, and $2,648 for the last twelve months ended April 4, 1999, nine months ended April 4, 1999, and twelve months ended June 30, 1998. 35 NOTES TO THE UNAUDITED PRO FORMA STATEMENT OF EARNINGS--Continued (c) Represents the additional amortization of goodwill and intangible assets related to the acquisition of KTI by Fairchild. (d) The Fairchild/KTI merger savings represent annual cost savings achieved through contractual purchase discounts achieved immediately upon the consummation of the acquisition of KTI. (e) Represents the net change in interest expense from the refinancing of certain debt facilities as follows:
Last Twelve Nine Months Twelve Months Months Ended Ended Ended March 28, 1999 March 28, 1999 June 30, 1998 -------------- -------------- ------------- New Financing: Term Loan..................... $19,045 $14,284 $19,045 Senior Subordinated Notes..... 24,806 18,605 24,806 Other fees.................... 3,115 2,337 3,115 ------- ------- ------- Increase in interest expense..................... 46,966 35,226 46,966 ------- ------- ------- Retired debt: Fairchild credit facility..... 22,258 16,341 13,290 Banner credit facility........ 4,483 4,483 -- KTI revolving line-of-credit.. 639 467 226 KTI term loan................. 4,715 4,048 4,161 Retired public bonds in fiscal 1998......................... -- -- 20,694 ------- ------- ------- Reduction in interest expense..................... 32,095 25,339 38,371 ------- ------- ------- Net change in interest expense....................... $14,871 $ 9,887 $ 8,595 ======= ======= =======
Interest expense under the new credit facility for the term loan is based on LIBOR plus 3.25%, along with amortization of debt financing fees. The pro forma adjustments assumed an effective rate of 8.46%. A variance of 1/8% in the interest rates would impact annual term loan interest expense by approximately $281. (f) Investment income was eliminated to the extent that marketable securities were assumed to be liquidated. Such marketable securities will be liquidated to consummate the KTI acquisition. (g) Represents an income tax benefit assuming an effective rate of 35%. (h) We consider EBITDA to be an indicative measure of our operating performance due to the significance of our long-lived assets and because such data is considered useful by the investment community to better understand our results, and can be used to measure our ability to service debt, fund capital expenditures and expand our business. EBITDA is not a measure of financial performance under GAAP, may not be comparable to other similarly titled measures of other companies and should not be considered as an alternative either to net income as an indicator of our operating performance, or to cash flows as a measure of our liquidity. Cash expenditures for various long-term assets, interest expense and income taxes have been, and will be, incurred which are not reflected in the EBITDA presentation. Our investment in Nacanco Paketleme is accounted for as an investment in an affiliate under the equity method. (i) During May 1999, the Company achieved annual cost savings, not included in the pro forma statements of earnings, of approximately $10.0 million by taking the following actions in connection with integrating the operations of Fairchild with KTI. First, personnel reductions representing approximately $7.0 million in annual cost savings were made in the sales and marketing, corporate office, and manufacturing departments. Second, $3.1 million of annual cost savings were achieved due to negotiated contractual price discounts for raw materials and supplies of the combined businesses. In May 1999, the Company also announced the closing of three manufacturing facilities and the consolidation of various product lines. The Company estimates additional annual cost savings of at least an additional $2.4 million will be achieved through various actions to be taken within the next 90 days aggregating $12.4 million on an annual basis. The Company also expects to incur approximately $20.0 million in one-time charges associated with the implementation of these cost savings. 36 NOTES TO THE UNAUDITED PRO FORMA BALANCE SHEET (a) Represents the effects of the merger between Banner and Fairchild whereby Fairchild acquired the remaining 15% interest of Banner not already owned. Fairchild issued approximately 2,981 shares of Fairchild class A common stock as a result of the merger, resulting in an increase in Fairchild's equity of $46,026. In addition, Fairchild will record approximately $17,384 of goodwill representing the estimated excess of cost paid over fair value. A $1,101 reduction in cash represents the estimated costs of the merger with Banner. The decrease in minority interest liability results from Fairchild acquiring all of the Banner common stock that Fairchild does not presently own. (b) Represents historical KTI balance sheet at April 4, 1999. (c) Reflects the acquisition of KTI as follows:
March 28, 1999 --------- Purchase price: Cash paid for KTI common stock, preferred stock and stock options, including Fairchild's original $13,574 investment...... $235,979 Cash paid for non-compete agreement.............................. 28,000 Transaction fees at closing...................................... 7,112 KTI debt assumed................................................. 102,835 -------- Total purchase price.............................................. 373,926 Net tangible assets acquired, excluding $102,835 debt assumed..... 130,244 -------- Excess purchase price over the preliminary estimated fair value of the net assets acquired.......................................... $243,682 ======== Preliminary allocation to non-compete agreement, amortized over 10 years............................................................ $ 28,000 Preliminary allocation to goodwill, amortized over 40 years (includes KTI goodwill assumed of $47,473) ...................... $215,682 Elimination of KTI's goodwill assumed............................. $ 47,473 Elimination of KTI's deferred loan fees (refinanced debt)......... $ 357 Goodwill recorded in transaction.................................. $167,852
(d) Reflects a $250,024 payment for acquisition of KTI, capitalized transaction fees, expensed internal transaction costs, and $28,000 for the covenant not to compete. (e) Represents the net increase in cash as follows:
March 28, 1999 --------- Cash........................................................... $ 164,860 Net proceeds from issuance of senior subordinated notes........ 218,813 Net cash received from the new credit facility................. 220,125 Reduction in Fairchild credit facility refinanced.............. (231,950) Reduction of KTI credit facilities............................. (92,150) Payment of accrued interest.................................... (1,674) --------- Net cash impact............................................... $ 278,024 =========
37 NOTES TO THE UNAUDITED PRO FORMA BALANCE SHEET--Continued (f) Represents additional deferred loan fees of $11,063 relating to the financing costs of the new credit facility and the Notes, net of the write-off of $6,734 related to deferred loan fees associated with the refinanced credit facilities. (g) Represents elimination of Fairchild's $20,187 investment in KTI as part of the acquisition, and subsequent consolidation, of KTI. The unrealized investment gains of $4,298, net of a $2,315 tax provision, included in cumulative other comprehensive income is eliminated. (h) Represents the net refinancing as follows:
March 28, 1999 --------- Senior subordinated notes.......................................... $225,000 New credit facility term loan...................................... 225,000 -------- Debt issued....................................................... 450,000 -------- Fairchild credit facility.......................................... 231,950 KTI revolving line of credit....................................... 19,000 KTI term loan...................................................... 73,150 -------- Debt retired...................................................... 324,100 -------- Net debt issued.................................................... $125,900 ======== Short term net reduction.......................................... $(32,150) Long term net increase............................................ 158,050
(i) Represents (i) the reversal of $2,315 taxes accrued on unrealized holding gains associated with the Company's investment in KTI and (ii) tax benefits of $7,177 associated with estimated internal transaction costs that will be charged to earnings at closing. (j) Represents the payment and reduction of accrued interest associated with the retired debt and reduction of taxes payable associated with the refinancing expenses. (k) Reflects the $75,239 elimination of KTI's historical retained earnings and Fairchild's estimated internal transaction costs of $13,330, net of $7,177 tax benefit, that will be expensed at closing. (l) Represents the write-off of deferred financing costs, net of tax, associated with the retired debt. 38 SELECTED CONSOLIDATED FINANCIAL DATA OF THE COMPANY (Dollars in thousands) The following table sets forth our selected financial data and should be read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this prospectus. The selected consolidated financial data as of and for the five years ended June 30, 1998 have been derived from the consolidated financial statements of Banner, Special-T Fasteners and us, which were audited by Arthur Andersen LLP, our independent accountants and Nacanco Paketleme, which were audited by Basaran (a member of PricewaterhouseCoopers LLP). The selected consolidated financial data for the nine months ended March 29, 1998 and March 28, 1999, and for the twelve months ended March 28, 1999 have been derived from our unaudited consolidated financial statements and related notes appearing elsewhere in this prospectus. In our opinion, the summary consolidated historical financial data for the nine months ended March 29, 1998 and March 28, 1999, and for the twelve months ended March 28, 1999 include all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of this information. Since the information presented below is only a summary and does not provide all of the information contained in our financial statements, including the related notes, you should read "Management's Discussion and Analysis of Results of Operations and Financial Condition" and our consolidated financial statements.
Twelve Months Year Ended June 30, Nine Months Ended Ended --------------------------------------------------- ---------------------- ------------- March 29, March 28, March 28, 1994 1995 1996 1997 1998 1998 1999(2) 1999(2) -------- -------- -------- ---------- ---------- ---------- ---------- ------------- Statement of Earnings Data(1): Net sales............... $203,456 $220,351 $349,236 $ 680,763 $ 741,176 $ 567,142 $ 446,072 $620,106 Gross profit............ 28,415 26,491 74,101 181,344 186,506 140,941 89,624 135,189 Operating income (loss)................. (46,845) (30,333) (11,286) 33,499 45,443 35,026 3,600 14,017 Net interest expense.... 66,670 64,113 56,459 47,681 42,715 36,526 20,955 27,144 Earnings (loss) from continuing operations.. 4,834 (56,280) (32,186) 1,816 52,399 47,042 12,746 18,103 Other Data: EBITDA (3).............. $(26,331) $ (9,830) $ 5,931 $ 54,314 $ 66,316 $ 51,506 $ 20,971 $ 35,824 Capital expenditures.... $ 4,507 $ 5,383 $ 5,680 $ 15,014 $ 36,029 $ 23,706 $ 18,694 $ 30,017 Ratio of earnings to fixed charges (4)...... 1.39x N.M. N.M. N.M. 3.27x 3.65x 1.72x 1.75x Depreciation and amortization........... 20,514 20,503 17,217 20,815 20,873 16,480 17,371 21,807 Balance Sheet Data (at period end): Cash and short-term investments............ $109,017 $ 75,298 $ 50,147 $ 45,067 $ 53,563 $ 68,255 $ 171,123 Total assets............ 860,943 828,680 993,398 1,052,666 1,157,259 1,137,642 1,014,831 Long-term debt, less current maturities..... 518,718 508,225 368,589 416,922 295,402 278,140 227,475 Stockholders' equity.... 69,494 39,378 230,861 232,424 473,559 433,138 421,695
- -------- (1) The results of Banner are included in the periods since February 25, 1996, when Banner became our majority-owned subsidiary. Prior to February 25, 1996, our investment in Banner was accounted for using the equity method. Fiscal 1994 includes the gain on the sale of Rexnord Corporation stock. Fiscal 1998 includes the gain from Banner's hardware group disposition. The results of the hardware group are included in our financial statements from March 1996 through December 1997, until disposition. These transactions materially affect the comparability of the information reflected in our summary consolidated financial data. (2) Gross profit and operating income (loss) for the nine and twelve months ended March 28, 1999 include a charge of $19.3 million recognized on the sale of Solair. The charge was attributable primarily to the bulk sale of inventory at prices below the carrying amount of the inventory. 39 (3) EBITDA represents the sum of income before income taxes plus interest expense (including amortization of debt issue costs), depreciation and amortization. Included in EBITDA are restructuring and unusual charges of $25,553 and $2,319 in Fiscal 1994 and 1996. EBITDA for the nine months and the twelve months ended March 28, 1999 includes the charge of $19.3 million recognized on the sale of Solair. We consider EBITDA to be an indicative measure of our operating performance due to the significance of our long-lived assets and because such data are considered useful by the investment community to better understand our results, and can be used to measure our ability to service debt, fund capital expenditures and expand our business. EBITDA is not a measure of financial performance under GAAP, may not be comparable to other similarly titled measures of other companies and should not be considered as an alternative either to net income as an indicator of our operating performance, or to cash flows as a measure of our liquidity. Cash expenditures for various long-term assets, interest expense and income taxes have been, and will be, incurred which are not reflected in the EBITDA presentation. See our consolidated financial statements and the related notes thereto appearing elsewhere in this prospectus. Our investment in Nacanco Paketleme is accounted for as an investment in an affiliate under the equity method. (4) For purposes of computing the ratio of earnings to fixed charges, "earnings" consist of earnings before income taxes and fixed charges. "Fixed charges" consist of interest expense, amortization and that portion of rental expense deemed representative of the interest factor. A deficiency of earnings to fixed charges of $76,116, $64,894, and $5,003 resulted for 1995, 1996 and 1997, respectively. 40 SELECTED CONSOLIDATED FINANCIAL DATA OF KTI (Dollars in thousands) The following table sets forth KTI's selected consolidated financial data and should be read in conjunction with the consolidated financial statements of KTI and notes thereto, and other financial information included elsewhere in this prospectus regarding KTI. The selected consolidated financial data for the five years ended December 31, 1998 are derived from the consolidated financial statements of KTI that have been audited by Arthur Andersen LLP, independent public accountants.
Year Ended December 31, ------------------------------------------- 1994 1995 1996(1) 1997 1998(2)(3) ------- ------- ------- -------- -------- Statement of Operations Data: Net sales............... $55,117 $68,781 $99,023 $150,429 $185,512 Gross profit............ 14,000 16,841 26,099 46,039 56,289 Operating income........ 4,952 6,823 12,836 24,585 28,851 Interest expense, net... 2,304 2,935 4,011 3,602 4,067 Net earnings............ 1,519 2,311 5,295 12,590 14,870 Other Data: EBITDA (4).............. $ 6,303 $ 8,577 $15,449 $ 28,403 $ 35,623 Capital expenditures.... 2,423 3,324 6,850 17,909 18,322 Depreciation and amortization........... 1,351 1,754 2,613 3,818 6,772
Balance Sheet Data (at period end): Total assets........................ $35,051 $43,336 $73,689 $101,656 $199,359 Total long-term debt, less current maturities......................... 22,051 24,423 45,508 26,856 80,818 Stockholders' equity................ 2,944 5,157 10,626 49,433 72,724
- -------- (1) In August 1996, KTI purchased its Recoil business unit, which has been accounted for under the purchase method of accounting and, accordingly, the operating results of Recoil have been included in KTI's results of operations since mid-August 1996. (2) In July 1998, KTI purchased its M & M business unit, which has been accounted for under the purchase method of accounting and, accordingly, the operating results of M & M have been included in KTI results of operations since late-July 1998. (3) In October 1998, KTI purchased its Marson business unit, which has been accounted for under the purchase method of accounting and, accordingly, the operating results of Marson have been included in KTI results of operations since late-October 1998. (4) EBITDA represents the sum of income before income taxes plus interest expense (including amortization of debt issue costs), depreciation and amortization. EBITDA is considered to be an indicative measure of operating performance due to the significance of KTI's long-lived assets and because such data are considered useful by the investment community to better understand results, and can be used to measure KTI's ability to service debt, fund capital expenditures and expand its business. EBITDA is not a measure of financial performance under GAAP, may not be comparable to other similarly titled measures of other companies and should not be considered as an alternative either to net income as an indicator of KTI's operating performance or to cash flows as a measure of KTI's liquidity. Cash expenditures for various long-term assets, interest expense and income taxes have been, and will be, incurred which are not reflected in the EBITDA presentation. See consolidated financial statements of KTI and the related notes thereto and other financial information relating to KTI appearing elsewhere in this prospectus. 41 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION The Company was incorporated in October 1969, under the laws of the State of Delaware. On November 15, 1990, the Company changed its name from Banner Industries, Inc. to The Fairchild Corporation. The Company is the owner of 100% of RHI Holdings, Inc. and Banner. RHI is the owner of 100% of Fairchild Holding Corp. The Company's principal operations are conducted through Banner and FHC. The Company holds a significant equity interest in Nacanco, and, during the period covered by this report, held a significant equity interest in Shared Technologies Fairchild Inc. The following discussion and analysis provide information which management believes is relevant to assessment and understanding of the Company's consolidated results of operations and financial condition. The discussion should be read in conjunction with the consolidated financial statements and notes thereto. General The Company is a leading worldwide aerospace and industrial fastener manufacturer and distribution logistics manager and through Banner, an international supplier to the airlines and general aviation businesses, distributing a wide range of aircraft parts and related support services. Through internal growth and strategic acquisitions, we have become one of the leading suppliers of fasteners to aircraft OEM's such as Boeing, Lockheed Martin, Northrop Grumman, and the Airbus consortium, including, Aerospatiale, DaimlerChrysler Aerospace, British Aerospace and CASA. The Company's aerospace business consists of two segments: aerospace fasteners and aerospace parts distribution. The aerospace fasteners segment manufactures and markets high performance fastening systems used in the manufacture and maintenance of commercial and military aircraft. The aerospace parts distribution segment stocks and distributes a wide variety of aircraft parts to commercial airlines and air cargo carriers, fixed-base operators, corporate aircraft operators and other aerospace companies. Cautionary Statement Certain statements in the financial discussion and analysis by management contain forward-looking information that involve risk and uncertainty, including current trend information, projections for deliveries, backlog, and other trend projections. Actual future results may differ materially depending on a variety of factors, including product demand, performance issues with key suppliers; customer satisfaction and qualification issues; labor disputes; governmental export and import policies; worldwide political stability and economic growth; and legal proceedings. Results Of Operations Business Combinations The following summarizes certain business combinations completed by the Company which significantly affect the comparability of the period to period results presented in this Management's Discussion and Analysis of Results of Operations and Financial Condition. Fiscal 1998 Transactions and the First Nine Months of Fiscal 1999 Transactions On November 20, 1997, Shared Technologies Fairchild, the successor in a merger of the Company's telecommunications services and systems businesses with Shared Technologies Inc., entered into a merger agreement with Intermedia Communications Inc. pursuant to which holders of Shared Technologies Fairchild common stock received $15.00 per share in cash. The Company was paid approximately $178.0 million in cash before tax and selling expenses, in exchange for the common and preferred stock of Shared Technologies Fairchild, owned by the Company. The results of Shared Technologies Fairchild have been accounted for as discontinued operations. 42 On November 28, 1997, the Company acquired AS+C GmbH, Aviation Supply + Consulting in a business combination accounted for as a purchase. The total cost of the acquisition was $14.0 million, which exceeded the fair value of the net assets of AS+C by approximately $8.1 million, which is allocated as goodwill and amortized using the straight-line method over 40 years. The Company purchased AS+C with cash borrowings. AS+C is an aerospace parts, logistics and distribution company primarily servicing the European OEM market. On December 19, 1997, the Company completed a secondary offering of public securities. The offering consisted of an issuance of 3,000,000 shares of the Company's Class A common stock at $20.00 per share, which generated $57 million of net proceeds for the Company. On December 19, 1997, immediately following the equity offering, the Company restructured its FHC and RHI credit agreements by entering into a new six-and-a-half year credit facility to provide the Company with a $300 million senior secured credit facility consisting of (i) a $75 million revolving loan with a letter of credit sub- facility of $30 million and a $10 million swing loan sub-facility and (ii) a $225 million term loan. On January 13, 1998, Banner completed the disposition of substantially all of the assets and certain liabilities of certain subsidiaries to two wholly- owned subsidiaries of AlliedSignal, in exchange for shares of AlliedSignal Inc. common stock with an aggregate value equal to $369 million. The assets transferred consisted primarily of Banner's hardware group, which included the distribution of bearings, nuts, bolts, screws, rivets and other types of fasteners, and its PacAero unit. Approximately $196 million of the common stock received from AlliedSignal Inc. was used to repay outstanding term loans of Banner's subsidiaries and related fees. The Company accounts for its remaining investment in AlliedSignal common stock as an available-for-sale security. On February 3, 1998, with the proceeds of the equity offering, term loan borrowings under the credit facility, and a portion of the after tax proceeds the Company received from the Shared Technologies Fairchild merger, the Company refinanced substantially all of its existing indebtedness (other than indebtedness of Banner), consisting of (i) $63.0 million to redeem the 11 7/8% Senior Debentures due 1999; (ii) $117.6 million to redeem the 12% Intermediate Debentures due 2001; (iii) $35.9 million to redeem the 13 1/8% Subordinated Debentures due 2006; (iv) $25.1 million to redeem the 13% Junior Subordinated Debentures due 2007; and (v) accrued interest of $10.6 million. On March 2, 1998, the Company consummated the acquisition of Edwards and Lock Management Corporation, doing business as Special-T Fasteners, in a business combination accounted for as a purchase. The cost of the acquisition was approximately $50.0 million, of which 50.1% of the contractual purchase price for the acquisition was paid in shares of Class A common stock of the Company and 49.9% was paid in cash. The total cost of the acquisition exceeded the fair value of the net assets of Special-T by approximately $23.6 million, which is preliminarily being allocated as goodwill, and amortized using the straight-line method over 40 years. Special-T manages the logistics of worldwide distribution of Company-manufactured precision fasteners to customers in the aerospace industry, government agencies, OEMs and other distributors. On May 11, 1998, the Company commenced an offer to exchange for each properly tendered share of common stock of Banner, a number of shares of the Company's Class A common stock, par value $0.10 per share, equal to the quotient of $12.50 divided by $20.675 up to a maximum of 4,000,000 shares of Banner's common stock. The exchange offer expired on June 9, 1998 and 3,659,364 shares of Banner's common stock were validly tendered for exchange, and the Company issued 2,212,361 shares of Class A common stock to the tendering shareholders. As a result of the exchange offer, the Company's ownership of Banner common stock increased to 83.3%. The Company effected the exchange offer to increase its ownership of Banner to over 80% in order for the Company to include Banner in its United States consolidated corporate income tax return. On December 31, 1998, Banner consummated the sale of Solair, Inc., its largest subsidiary in the rotables group, to Kellstrom Industries, Inc., in exchange for approximately $60.4 million in cash and a warrant to purchase 300,000 shares of common stock of Kellstrom. In December 1998, Banner recorded a $19.3 million pre-tax loss from the sale of Solair. This loss was included in cost of goods sold as it was primarily attributable to the bulk sale of inventory at prices below the carrying amount of inventory. 43 On April 8, 1999, the Company acquired the remaining 15% of the outstanding common and preferred stock of Banner not already owned by it, through the merger of Banner with one of its subsidiaries. Each share of Banner's preferred stock was converted into the right to receive one share of Banner common stock and each share of Banner common stock (other than that owned by Fairchild) was converted into the right to receive .7885 shares of the Company's Class A common stock. Banner is now a wholly-owned subsidiary of the Company. Fiscal 1997 Transactions In February 1997, the Company acquired common shares and convertible debt representing an 84.2% interest, on a fully diluted basis, of Simmonds S.A. The Company then initiated a tender offer to purchase the remaining shares and convertible debt held by the public. By fiscal year-end, the Company had purchased, or placed sufficient cash in escrow to purchase, all the remaining shares and convertible debt of Simmonds. The total purchase price of Simmonds, including the assumption of debt, was approximately $62.0 million, which the Company funded with available cash. The Company recorded approximately $20.5 million in goodwill as a result of this acquisition. Simmonds is one of Europe's leading manufacturers and distributors of aerospace and automotive fasteners. On June 30, 1997, the Company sold all the patents of Fairchild Scandinavian Bellyloading to Teleflex Incorporated for $5.0 million, and immediately thereafter sold all the stock of Scandinavian Bellyloading to a wholly-owned subsidiary of Teleflex for $2.0 million. The Company may receive an additional amount of up to $6.0 million based on future net sales of the patented products and services. In fiscal 1997, the Company recorded a $2.5 million nonrecurring gain as a result of these transactions. Fiscal 1996 Transactions The Company, RHI and Fairchild Industries, Inc., the Company's former subsidiary, entered into an Agreement and Plan of Merger dated as of November 9, 1995 with Shared Technologies Inc. On March 13, 1996, Shared Technologies Inc. succeeded to the Company's telecommunications systems and services business. The transaction was effected by a merger of Fairchild Industries with the surviving company renamed Shared Technologies Fairchild Inc. Prior to the merger, Fairchild Industries transferred all of its assets to, and all of its liabilities were assumed by, Fairchild Holding, except for the assets and liabilities of the Company's telecommunications business, and $223.5 million of Fairchild Industries' existing debt and preferred stock. As a result of the merger, the Company received shares of common stock and preferred stock of Shared Technologies Fairchild, representing approximately a 41% ownership interest in Shared Technologies Fairchild. On February 22, 1996, pursuant to the Asset Purchase Agreement dated January 26, 1996, the Company, through its subsidiaries, completed the sale of certain assets, liabilities and the business of the D-M-E Company to Cincinnati Milacron Inc., for a sales price of approximately $244.3 million, as adjusted. The sales price consisted of $74.0 million in cash, and two 8% promissory notes in the aggregate principal amount of $170.3 million. On July 29, 1996, the notes were paid in full. On January 27, 1996, the Company completed the sale of Fairchild Data Corporation to SSE Telecom, Inc. for book value of approximately $4.4 million and 100,000 shares of SSE's common stock valued at $9.06 per share, or $0.9 million, at January 26, 1996, and warrants to purchase an additional 50,000 shares of SSE's common stock at $11.09 per share. Accordingly, DME and Fairchild Data were accounted for as discontinued operations as of Fiscal 1996. The combined net sales of DME and Fairchild Data totaled $108.1 million, through January 26, 1996, and $180.8 million for Fiscal 1995. Net earnings from discontinued operations were $9.2 million, through January 26, 1996, and $14.0 million for Fiscal 1995. Effective February 25, 1996, the Company completed the transfer of Harco, Inc. to Banner in exchange for 5,386,477 shares of Banner common stock. The exchange increased the Company's ownership of Banner common stock from approximately 47.2% to 59.3%, resulting in the Company becoming the majority shareholder of Banner. Accordingly, the Company has consolidated the results of Banner since February 25, 1996. In June 1997, the Company purchased $28.0 million of newly issued Series A Convertible Paid-in-Kind stock of Banner. 44 Consolidated Results The Company currently reports in two principal business segments: Aerospace Fasteners and Aerospace Distribution. The results of the Gas Springs division are included in the Corporate and Other classification. The following table illustrates the historical sales and operating income of the Company's operations for the nine months ended March 28, 1999 and March 28, 1998, respectively, and for each of the past three fiscal years.
Years Ended June 30, Nine Months Ended ---------------------------- -------------------- March 29, March 28, 1996 1997 1998 1998 1999 -------- -------- -------- --------- --------- (in thousands) Sales by Segment: Aerospace Fasteners (a).................... $218,059 $269,026 $387,236 $270,718 $303,071 Aerospace Distribution.. 129,973 411,765 358,431 303,393 138,448 Corporate and Other..... 7,046 15,185 5,760 4,166 4,553 Intersegment Eliminations (b)....... (5,842) (15,213) (10,251) (11,135) -- -------- -------- -------- -------- -------- TOTAL SALES............. $349,236 $680,763 $741,176 $567,142 $446,072 ======== ======== ======== ======== ======== Operating Results by Segment: Aerospace Fasteners (c).................... $ 135 $ 17,390 $ 32,722 $ 18,560 $ 29,390 Aerospace Distribution.. 5,625 30,891 20,330 19,170 (13,278) Corporate and Other..... (17,046) (14,782) (7,609) (2,704) (12,512) -------- -------- -------- -------- -------- TOTAL OPERATING INCOME (LOSS)................. $(11,286) $ 33,499 $ 45,443 $ 35,026 $ 3,600 ======== ======== ======== ======== ========
- -------- (a) Effective February 25, 1996, the Company became the majority shareholder of Banner Aerospace, Inc. and, accordingly, began consolidating their results as of that date. (b) Represents intersegment sales from the Aerospace Fasteners segment to the Aerospace Distribution segment. (c) Includes restructuring charges of $2.3 million in fiscal 1996. First Nine Months of Fiscal 1999 compared to First Nine Months of Fiscal 1998 Consolidated Results Net sales of $146.4 million in the third quarter of fiscal 1999 decreased by $17.8 million, or 10.9%, compared to sales of $164.2 million in the third quarter of fiscal 1998. Net sales of $446.1 million in the first nine months of fiscal 1999 decreased by $121.1 million, or 21.3%, compared to sales of $567.1 million in the first nine months of fiscal 1998. The decrease is primarily attributable to the loss of revenues resulting from the disposition of Banner's hardware group and Solair. Divestitures decreased growth by approximately 12.8% and 27.0% in the fiscal 1999 third quarter and nine-month periods, respectively. Excluding divestitures, approximately 2.3% of the current nine months sales growth came from the commercial aerospace industry. Recent acquisitions contributed approximately 1.9% and 3.4% to sales growth in the fiscal 1999 third quarter and nine month periods, respectively. On a pro forma basis, net sales increased 1.1% for the nine months ended March 28, 1999 compared to the same period ended March 29, 1998. Gross margin as a percentage of sales was 20.1% and 24.9% for the nine months ended March 28, 1999 and March 29, 1998, respectively. Included in cost of goods sold for the nine months ended March 28, 1999 was a charge of $19.3 million recognized from the sale of Solair. This charge was attributable primarily to the bulk sale of inventory at prices below the carrying amount of the inventory. Excluding this charge, gross margin as a percentage of sales was 24.9% and 24.4% in the first nine months of fiscal 1998 and 1999, respectively. The lower margins in the fiscal 1999 period are attributable to a change in product mix in the Aerospace Distribution segment as a result of the disposition of Banner's hardware group. Partially offsetting the overall lower margins was an improvement in margins within the Aerospace Fasteners segment resulting from acquisitions, efficiencies associated with increased production, improved skills of the work force, and reduction in the payment of overtime. Gross margin as a percentage of sales was 23.0% and 25.2% in the third quarter of fiscal 1998 and 1999, respectively. 45 Selling, general & administrative expense as a percentage of sales was 18.9% and 18.7% in the nine month period of fiscal 1998 and 1999, respectively. The improvement in the fiscal 1999 period is attributable primarily to administrative efficiencies of the Company's ongoing operations. Other income decreased $4.0 million in the first nine months of fiscal 1999, compared to the first nine months of fiscal 1998. The Company recognized $4.4 million of income in the prior period from the involuntary conversion of air rights over a portion of the property the Company owns and is developing in Farmingdale, New York. Operating income for the nine months ended March 28, 1999 decreased $31.4 million from the comparable prior period, of which $19.3 million was a charge attributable primarily to the bulk sale of inventory at prices below the carrying amount of the inventory. Excluding the charge related to the sale of Solair in the current period, operating income would have been $22.9 million in the first nine months of fiscal 1999, a decrease of 34.6% compared to operating income of $35.0 million in the fiscal 1998 nine-month period. Operating income was $8.2 million in the third quarter of fiscal 1999, a decrease of 7.5% compared to operating income of $8.8 million in the third quarter of fiscal 1998. The decreases are primarily attributable to the loss of operating income resulting from the disposition of Banner's hardware group and Solair and the decrease in other income. Net interest expense decreased $2.0 million, or 22.5%, in the third quarter of fiscal 1999, compared to the third quarter of fiscal 1998. Net interest expense decreased $15.6 million, or 42.6%, in first nine months of fiscal 1999, compared to the same period of fiscal 1998. The decreases in the current year were due to a series of transactions completed in fiscal 1998, which significantly reduced the Company's total debt. Nonrecurring income of $124.0 million in the three and nine months ended March 29, 1998 resulted from the disposition of the Banner hardware group. Investment income improved by $42.7 million in the first nine months of fiscal 1999, compared to the same period of fiscal 1998. This improvement was due primarily to recognizing realized gains on investments liquidated in the fiscal 1999 period while recording unrealized holding losses on fair market adjustments of trading securities in the fiscal 1998 period. Minority interest improved by $21.7 million in the first nine months of fiscal 1999 as a result of the $124.0 million nonrecurring pre-tax gain from the disposition of Banner's hardware group in the first nine months of fiscal 1998. An income tax provision of $7.3 million in the first nine months of fiscal 1999 represented a 35.9% effective tax rate on pre-tax earnings from continuing operations. The tax provision was slightly higher than the statutory rate because the amortization of goodwill is not deductible for income tax purposes. The Company reported a $28.9 million loss on disposal of discontinued operations in the fiscal 1999 periods. This charge is the result of the after- tax operating loss from Technologies exceeding the previous estimate for expected losses by $9.2 million through March 1999, and the Company taking an additional $19.7 million after-tax charge based on the current estimate of remaining losses in connection with the disposition. While the Company believes that $19.7 million is a reasonable charge for the remaining losses to be incurred from Technologies, there can be no assurance that this estimate is adequate. In the nine months ended March 29, 1998, the Company recorded a $98.8 million gain, net of tax, on disposal of discontinued operations, from the proceeds received from the Shared Technologies Fairchild merger. In the quarter ended March 29, 1998, the Company recorded a $68.8 million gain, net of tax, on disposal of discontinued operations, from proceeds received for the common stock of Shared Technologies Fairchild. Partially offsetting this gain was an after-tax charge of $22.4 million the Company recorded in the third quarter ended March 29, 1998 in connection with the adoption of a formal plan for disposition of Technologies. In the fiscal 1998 nine month period ended March 29, 1998, the Company recorded a $6.7 million extraordinary loss, net. The extraordinary loss resulted from the write-off of deferred loan fees and original issue discounts associated with the early extinguishment of the Company's indebtedness pursuant to the repayment of the Company's outstanding public debt and a significant modification of the Company's credit facilities. 46 Comprehensive income (loss) includes foreign currency translation adjustments and unrealized holding changes in the fair market value of available-for-sale investment securities. Foreign currency translation adjustments decreased by $6.1 million and increased by $1.4 million in the three and nine months ended March 28, 1999, respectively. The fair market value of unrealized holding securities declined by $12.9 million in the third quarter and $15.6 million in the nine months ended March 28, 1999. The changes reflect primarily realized gains from the liquidation of investments. Segment Results Aerospace Fasteners Segment Sales in the Aerospace Fasteners segment increased by $0.9 million in the third quarter of fiscal 1999 and $32.4 million in the first nine months of fiscal 1999, compared to same periods of fiscal 1998, reflecting growth experienced in the commercial aerospace industry combined with the effect of acquisitions. Approximately 4.8% of the increase in sales resulted from internal growth in the current nine month period, while acquisitions contributed approximately 3.1% and 7.2% of the increase in the current quarter and nine month period, respectively. Internal growth has declined 2.2% in the current quarter. New orders are up 13.2% in the current third quarter compared to the third quarter of the prior year, however, new orders leveled off in the recent quarter as compared to the second quarter of fiscal 1999. Backlog was reduced to $148 million at March 28, 1999, down from $177 million at June 30, 1998. On a pro forma basis, including the results from acquisitions in the prior period, sales increased by 0.9% and 5.6% in the third quarter and first nine months of fiscal 1999, respectively, compared to the same periods of the prior year. Operating income improved by $1.2 million, or 12.9%, in the third quarter and $10.8 million, or 58.4%, in the first nine months of fiscal 1999, compared to the fiscal 1998 periods. Acquisitions and marketing changes contributed to this improvement. Approximately 37.2% of the increase in operating income during the first nine months of fiscal 1999 reflected internal growth, while acquisitions contributed approximately 21.2% to the increase. On a pro forma basis, operating income increased by 12.9% and 32.7%, for the quarter and nine months ended March 28, 1999, respectively, compared to the quarter and nine months ended March 29, 1998. Aerospace Distribution Segment Aerospace Distribution sales decreased by $19.8 million, or 32.5% in the third quarter and $164.9 million, or 54.4%, for the fiscal 1999 nine month period, compared to the fiscal 1998 periods, due primarily to the loss of revenues as a result of the disposition of Banner's hardware group and Solair. Divestitures accounted for approximately 50.4% of the decrease in sales in the current nine-month period, and approximately 3.9% resulted from a decrease in internal growth. On a pro forma basis, excluding sales contributed by dispositions, sales increased 5.4% the third quarter and decreased 9.7% in the first nine months of fiscal 1999, compared to the same periods in the prior year. Operating income for the three and nine months ended March 28, 1999 increased by $0.2 million and decreased by $32.4 million, respectively as compared to the prior periods. Included in the current nine-month results was a charge of $19.3 million attributable primarily to the bulk sale of Solair inventory at prices below the carrying amount of the inventory. Excluding this charge related to the sale of Solair in the current period, operating income would have decreased $13.1 million in the first nine months of fiscal 1999, compared to the same period of the prior year, due primarily to the disposition of Banner's hardware group. On a pro forma basis, excluding results from dispositions, operating income increased 4.1% in the third quarter and decreased 21.7% million in the first nine months of fiscal 1999, compared to the same periods of the prior year. Corporate and Other The Corporate and Other classification includes the Gas Springs division and corporate activities. The group reported a slight improvement in sales in the fiscal 1999 periods, compared to fiscal 1998 periods. An operating loss of $12.5 million in the first nine months of fiscal 1999 was $9.8 million higher than the operating loss of 47 $2.7 million reported in the first nine months of fiscal 1998. The comparable period in the prior year included other income of $4.4 million realized as a result of the sale of air rights over a portion of the property the Company owns and is developing in Farmingdale, New York, and a decline in legal expenses. Fiscal 1998, 1997 and 1996 Consolidated Results Net sales of $741.2 million in 1998 increased by $60.4 million, or 8.9%, compared to sales of $680.8 million in 1997. Sales growth was stimulated by the resurgent commercial aerospace industry and business acquisitions since January 1, 1997, partially offset by the loss of revenues as a result of Banner's hardware group disposition. Approximately 15.8% of the 1998 sales growth was stimulated by the resurgent commercial aerospace industry. Recent acquisitions contributed approximately 8.7% to the sales growth, while dispositions decreased growth by approximately 15.0%. Net sales of $680.8 million in 1997 significantly improved by $331.5 million, or 94.9%, compared to net sales of $349.2 million in 1996. Sales growth was stimulated by the improved commercial aerospace industry, together with the effects of several strategic business acquisitions. Gross margin as a percentage of sales was 21.2%, 26.6% and 25.2% in 1996, 1997, and 1998, respectively. Decreased margins in the fiscal 1998 period was attributable to a change in product mix in the aerospace distribution segment as a result of Banner's hardware group disposition. Partially offsetting overall lower margins were improved margins within the aerospace fasteners segment, resulting from efficiencies associated with increased production, improved skills of the work force, and reduction in the payment of overtime. The increase in 1997 was attributable to higher revenues combined with continued productivity improvements achieved during that year. Selling, general and administrative expense as a percentage of sales was 22.7%, 21.0%, and 19.1% in fiscal 1996, 1997, and 1998, respectively. The improvement in fiscal 1998 was attributable primarily to administrative efficiencies allowed by increased sales. The improvement in fiscal 1997 was also positively affected by administrative efficiencies allowed by increased sales and also benefited from the positive results obtained from restructuring and downsizing programs put in place in prior periods. Other income increased $6.5 million in 1998 as compared to 1997, due primarily to the involuntary conversion of air rights over a portion of the property the Company owns and is developing in Farmingdale, New York. Operating income of $45.4 million in fiscal 1998 increased $11.9 million, or 35.7%, compared to operating income of $33.5 million in fiscal 1997. The increase in operating income was due primarily to the improved results in the Company's Aerospace Fasteners segment. Operating income of $33.5 million in fiscal 1997 increased $44.8 million compared to an operating loss of $11.3 million in fiscal 1996. The fiscal 1997 increase in operating income was due primarily to growth in sales and increased operational efficiencies. Net interest expense decreased 10.4% in fiscal 1998 compared to fiscal 1997, and decreased 15.5% in fiscal 1997 compared to fiscal 1996. The decreases were due to a series of transactions that significantly reduced the Company's total debt. See "--Results of Operations--Business Combinations." Investment income (loss), net, was $4.6 million, $6.7 million, and $(3.4) million in 1996, 1997, and 1998, respectively. The $10.1 million decrease in 1998 was due to recognition of unrealized losses on the fair market adjustments of investments previously classified as trading securities in the fiscal 1998 periods while recording unrealized gains from trading securities in the fiscal 1997 periods. Unrealized holding gains (losses) on available- for-sale investments are marked to market value through stockholders' equity and reported separately as part of comprehensive income (see discussion below). The 45.7% increase in fiscal 1997 was due primarily to gains realized from the sale of investments in fiscal 1997. Nonrecurring income of $124.0 million in 1998 resulted from Banner's hardware group disposition. Nonrecurring income in 1997 includes the $2.5 million gain from the sale of Scandinavian Bellyloading. 48 An income tax provision of $48.7 million in fiscal 1998 represented a 39.4% effective tax rate on pre-tax earnings from continuing operations, excluding equity in earnings of affiliates and minority interest, of $123.4 million. The tax provision was slightly higher than the statutory rate because of goodwill associated with Banner's hardware group disposition, which is not deductible for tax purposes. Income taxes included a $5.7 million tax benefit in fiscal 1997 on a pretax loss of $7.1 million from continuing operations. The tax benefit was due primarily to reversing Federal income taxes previously provided due to a change in the estimate of the required tax accruals. In fiscal 1996, the tax benefit from the loss from continuing operations was $29.8 million. Equity in earnings of affiliates decreased $0.6 million in 1998, compared to 1997, and $0.2 million in 1997, compared to 1996. The current year's decrease is attributable to losses recorded by small start-up ventures. The prior year's decrease was attributable to the lower earnings of Nacanco. Minority interest increased by $22.8 million in fiscal 1998 as a result of the $124.0 million nonrecurring pre-tax gain recognized from Banner's hardware group disposition. Included in earnings (loss) from discontinued operations are the results of Technologies through January 1998, the Company's equity in earnings of Shared Technologies Fairchild prior to the Shared Technologies Fairchild merger, and the results of the Company's telecommunication business, DME and Fairchild Data in fiscal 1996. Losses increased in fiscal 1998 as a result of increased losses recorded at Technologies and lower equity earnings contributed by Shared Technologies Fairchild (see Note 4 to the Company's Consolidated Financial Statements). In 1998, the Company recorded a $96.0 million gain, net of tax, on disposal of discontinued operations, from the proceeds received from the Shared Technologies Fairchild merger. Offsetting this gain was an after-tax charge of $36.2 million the Company recorded in connection with the adoption of a formal plan to enhance the opportunities for disposition of Technologies. Included in this charge was (a) $28.2 million, net of an income tax benefit of $11.8 million, relating to the net losses of Technologies since the measurement date, including the write-down of assets for impairment to estimated realizable value; and (b) $8.0 million, net of an income tax benefit of $4.8 million, relating to a provision for operating losses over the next seven months at Technologies. The Company's results are affected by the operations of Technologies, which may fluctuate because of industry cyclicality, equipment development deficiencies, the volume and timing of orders, the timing of new product shipments, customers' capital spending, and pricing changes by Technologies and its competition. Technologies has experienced a reduction of its backlog, and margin compression during the past year, which combined with the existing cost base, is likely to impact future earnings from Technologies. While the Company believes that $36.1 million is a reasonable charge for the expected losses in connection with the disposition of Technologies, there can be no assurance that this estimate is adequate. In fiscal 1996, the Company recorded a $54.0 million gain on disposal of discontinued operations resulting from the sale of DME to Cincinnati Milacron and a $163.1 million nontaxable gain resulting from the Shared Technologies Fairchild merger. In fiscal 1998, the Company recognized an extraordinary loss of $6.7 million, net of tax, to write off the remaining deferred loan fees and original issue discounts associated with early extinguishment of the Company's indebtedness pursuant to the repayment of publicly-held debt and refinancing of the credit facilities. In fiscal 1996, the Company recognized an extraordinary loss of $10.4 million, net of tax, as a result of premiums paid, redemption costs, consent fees, and the write-off of deferred loan fees associated with the senior notes and bank debt extinguished prior to maturity. Net earnings of $101.1 million in fiscal 1998, improved by $99.8 million, compared to the $1.3 million net earnings recorded in fiscal 1997. This improvement was attributable to a $11.9 million increase in operating income, a $124.0 million non-recurring gain from Banner's hardware group disposition, and the $59.7 million net gain on the disposal of discontinued operations. Partially offsetting this increase was a $54.4 million increase in the income tax provision, a $22.8 million change in minority interest, a $10.0 million decrease in investment income, and the $6.7 million extraordinary loss. Net earnings in fiscal 1997 improved $28.3 million, compared to fiscal 1996, after excluding the $216.7 million net gain on disposal of discontinued operations in 1996. The 1997 increase reflected a $44.8 million improvement in operating profit. 49 Comprehensive income includes foreign currency translation adjustments and unrealized holding changes in the fair market value of available-for-sale investment securities. The fair market value of unrealized holding securities increased $20.6 million in fiscal 1998, primarily as a result of an increase in the value of AlliedSignal common stock which was received from Banner's hardware group disposition. Segment Results Aerospace Fasteners Segment Sales in the Aerospace Fasteners segment increased by $118.2 million to $387.2 million, up 43.9% in fiscal 1998, compared to fiscal 1997, reflecting significant growth in the commercial aerospace industry combined with the effect of acquisitions. New orders have stabilized, resulting in a backlog of $177 million at June 30, 1998, down from $196 million at June 30, 1997. Excluding sales contributed by acquisitions, sales increased approximately 21.9% in fiscal 1998 compared to the prior year. Sales in the Aerospace Fasteners segment increased by $51.0 million to $269.0 million, up 23.4% in fiscal 1997, compared to the fiscal 1996 period, reflecting significant growth in the commercial aerospace industry, combined with the Simmonds acquisition. Operating income improved by $15.3 million, or 88.2%, in fiscal 1998, compared to fiscal 1997. Acquisitions and marketing changes were contributors to this improvement. Excluding the results provided by acquisitions, operating income increased by approximately 30.8% in fiscal 1998, compared to the same period in the prior year. The Company anticipates that manufacturing and productivity efficiencies will further improve operating income in the coming months. Operating income improved from breakeven to $17.4 million during fiscal 1997, compared to fiscal 1996. This improvement was achieved as a result of accelerated growth in the commercial aerospace industry, particularly in the second half of the year. Certain efficiencies achieved during fiscal 1997 continued to have positive effects on operating income. Aerospace Distribution Segment Sales in the aerospace distribution segment decreased by $53.3 million, or 13.0%, in fiscal 1998, compared to fiscal 1997. The exclusion of six months' revenues as a result of Banner's hardware group disposition was primarily responsible for the decrease in the current year, in which sales otherwise reflected a robust aerospace industry. Sales increased $281.8 million because twelve months of activity was reported in fiscal 1997 versus four months of activity in fiscal 1996, when the Company became the majority shareholder of Banner and, accordingly, began consolidating their results. Operating income decreased $10.6 million in fiscal 1998, compared to fiscal 1997, due to Banner's hardware group disposition. Operating income increased $25.3 million in 1997, compared to 1996, as a result of including only four months of activity after consolidation of Banner in 1996. In fiscal 1996, as a result of the transfer of Harco to Banner effective February 25, 1996, the Company recorded four months of sales and operating income of Banner, including Harco as part of the aerospace distribution segment. This segment reported $130.0 million in sales and $5.6 million in operating income for this four-month period ended June 30, 1996. In fiscal 1996, the first eight months of Harco's sales and operating income were included in the aerospace fasteners segment. Corporate and Other The Corporate and Other classification includes the Gas Springs division and corporate activities. The results of Scandinavian Bellyloading, which was sold at fiscal 1997 year end, are included in the prior period results. The group reported a decrease in sales of $9.4 million, in 1998, as compared to 1997, due to the exclusion of Scandinavian Bellyloading's results in the current year. Sales increased in 1997 as a result of improved results contributed by Scandinavian Bellyloading. The operating loss decreased by $7.2 million in 1998, compared to fiscal 1997, as a result of an increase in other income and a decrease in legal expenses. Over the past three years, corporate administrative expense as a percentage of sales has decreased from 4.5% in 1996 to 2.8% in 1997 to 2.2% in 1998. 50 Financial Condition, Liquidity and Capital Resources Total capitalization as of June 30, 1998 and March 28, 1999 amounted to $789.6 million and $683.2 million, respectively. The changes in capitalization included a decrease in debt of $54.6 million and a decrease in equity of $51.9 million. The decrease in debt was the result primarily of proceeds received from the divestiture of Solair and proceeds received from the liquidation of investments used to reduce debt, offset partially from additional borrowings for the purchase of some of the Company's common stock. The decrease in equity was due primarily to a $22.1 million purchase of treasury stock, the $16.1 million reported loss, and a $14.2 million change in cumulative other comprehensive income. The Company maintains a portfolio of investments classified as available- for-sale securities, which had a fair market value of $46.2 million at March 28, 1999. The market value of these investments decreased $15.6 million in the first nine months of fiscal 1999 due primarily to the liquidation of investments in which investment income of $37.7 million was realized. While there is risk associated with market fluctuations inherent in stock investments, and because the Company's diversification of its portfolio is small, large swings in the value of the portfolio should be expected. In the nine months ended March 28, 1999, the Company liquidated substantially all of its AlliedSignal common stock and subsequently has used the proceeds therefrom in connection with the acquisition of KTI. Through the March 1999, the Company sold approximately 4.8 million shares of AlliedSignal common stock for aggregate proceeds of approximately $214.4 million. Net cash used for operating activities for the nine months ended March 29, 1998 and March 28, 1999 was $104.0 million and $20.5 million, respectively. The primary use of cash for operating activities in the first nine months of fiscal 1999 was a decrease of $56.1 million in accounts payable and accrued liabilities and an increase in other non-current assets of $31.4 million. Partially offsetting the use of cash from operating activities was a $50.5 million decrease in inventories and a $18.6 decrease in accounts receivable. In the first nine months of fiscal 1998, the primary use of cash for operating activities was a $33.7 million increase in inventories, $16.6 million increase in other current assets and accounts receivable of $7.3 million and a $35.0 million decrease in accounts payable and other accrued liabilities. Net cash provided from investing activities for the nine months ended March 29, 1998 and March 28, 1999, amounted to $93.8 million and $214.5 million, respectively. In the first nine months of fiscal 1999, the primary source of cash from investing activities was $173.4 million from the liquidation of investment securities and $60.4 million of gross proceeds received from disposition of Solair, partially offset by $18.7 million of capital expenditures. In the first nine months of fiscal 1998, the primary source of cash from investing activities was $168.0 million of net proceeds received from investment liquidations in Shared Technologies Fairchild Inc., offset partially by $58.8 of cash used for acquisitions, including minority interests in subsidiaries, and $23.7 million of capital expenditures. Net cash provided by (used for) financing activities for the nine months ended March 29, 1998 and March 28, 1999, amounted to $55.1 million and $(77.4) million, respectively. Cash used for financing activities in the first nine months of fiscal 1999 included a $135.6 million repayment of debt and the $22.1 million purchase of treasury stock, offset partially by a $80.1 million net increase from the issuance of additional debt. The primary source of cash provided by financing activities in the first nine months of fiscal 1998 was the net proceeds received from the issuance of additional stock of $54.2 million. The Company's principal cash requirements include debt service, capital expenditures, acquisitions, and payment of other liabilities. Other liabilities that require the use of cash include postretirement benefits, environmental investigation and remediation obligations, and litigation settlements and related costs. The Company expects that cash on hand, cash generated from operations, and cash from borrowings and asset sales will be adequate to satisfy cash requirements. 51 Mergers and Financing Activities On April 8, 1999, the Company acquired the remaining 15% of the outstanding common and preferred stock of Banner not already owned by the Company, through a merger with Banner. Under the terms of the Banner merger, each share of Banner's preferred stock was converted into the right to receive one share of Banner common stock and each share of Banner common stock, other than those owned by the Company, was converted into the right to receive 0.7885 shares of the Company's Class A common stock. The Company issued 2,981,412 shares of Class A common stock as a result of the Banner merger. Banner is now the Company's wholly-owned subsidiary. On April 20, 1999, the Company completed the KTI acquisition for approximately $222 million and assumed approximately $103 million of KTI's existing debt. In addition, the Company paid $28 million for a covenant not to compete from KTI's largest shareholder. The acquisition was financed with existing cash, the sale of $225 million of 10 3/4% senior subordinated notes due 2009, and a new bank credit facility. Concurrently with the closing of the acquisition of KTI and the issuance of $225 million 10 3/4% senior subordinated notes due 2009, the Company entered into a new credit facility. The new credit facility provides total lending commitments of $325 million comprised of a $100 million revolving credit facility and a $225 million term loan facility. The term loan bears interest at LIBOR plus 3.25% and the revolving credit facility bears interest at LIBOR plus 3.0%. Additionally, the revolving credit facility is subject to a non-use fee of 0.5%. The term loan matures on April 30, 2006 and the revolving credit facility matures on April 30, 2005. Borrowings under the new credit facility were used to refinance the Company's previous credit facilities and to finance the acquisition of KTI. During May 1999, the Company achieved annual cost savings of approximately $10.0 million by taking the following actions in connection with integrating the operations of Fairchild with KTI. First, personnel reductions representing approximately $7.0 million in annual cost savings were made in the sales and marketing, corporate office, and manufacturing departments. Second, $3.1 million of annual cost savings were achieved due to negotiated contractual price discounts for raw materials and supplies of the combined businesses. In May 1999, the Company also announced the closing of three manufacturing facilities and the consolidation of various product lines. The Company estimates additional annual cost savings of at least an additional $3.4 million will be achieved through various actions to be taken within the next 90 days aggregating $13.4 million on an annual basis. The Company also expects to incur approximately $20.0 million in one-time charges associated with the implementation of these cost savings. Discontinued Operations For the Company's fiscal years ended June 30, 1996, 1997, 1998, and for the first nine months of fiscal 1999, Technologies had pre-tax operating losses of approximately $1.5 million, $3.6 million, $48.7 million, and $25.0 million, respectively. The after-tax operating loss from Technologies exceeded the June 1998 estimate recorded for expected losses on disposal by $9.2 million through March 1999. An additional after-tax charge of $19.7 million was recorded in the nine months ended March 28, 1999, based on a current estimate of the remaining losses in connection with the disposition of Technologies. While the Company believes that $19.7 million is a reasonable charge for the remaining losses of Technologies, there can be no assurance that this estimate is adequate. During the third quarter of fiscal 1999, the Semiconductor Equipment Group of Technologies ceased all manufacturing activities, began to dispose of its production machinery and existing inventory, informed customers and business partners that it has discontinued operations, significantly reduced its workforce, and stepped up the level of discussions and negotiations with other companies regarding the sale of its remaining assets. Technologies is also exploring several alternative transactions with potential successors to the business of its Optical Disc Equipment Group, but has made no definitive arrangement for its disposition. 52 In May 1999, Technologies sold to Apex certain photoresist equipment and licensed certain related Technology in Korea and Taiwan in exchange for shares of Apex stock publicly traded in Korea then worth $5.0 million and certain future considerations. [In June 1999, Technologies sold to Suss Microtech AG certain equipment and intellectual property of its semiconductor business in exchange for cash of approximately $8.0 million, royalties based on future sales and 350,000 shares of Suss stock publicly traded on a German stock exchange, then worth 3.5 million Euros.] Uncertainty of the Spin-Off In order to focus its operations on the fastener industry, the Company has been considering, for some time, distributing (the "spin-off") to its stockholders certain of its assets via distribution of all of the stock of Fairchild Industrial Holdings Corp., which may own all or a substantial part of the Company's non-fastener operations. The Company is still in the process of deciding the exact composition of the assets and liabilities to be included in Fairchild Industrial Holdings, but such assets would be likely to include certain real estate interests and the Company's 31.9% interest in Nacanco Paketleme, the largest producer of aluminum cans in Turkey. The ability of the Company to consummate the spin-off, if it should choose to do so, would be contingent, among other things, on obtaining consents and waivers under the Company's credit facility and all necessary governmental and third party approvals. There is no assurance that the Company will be able to obtain the necessary consents and waivers from its lenders. In addition, the Company may encounter unexpected delays in effecting the spin-off, and the Company can make no assurance as to the timing thereof. There can be no assurance that the spin-off will occur. Depending on the ultimate structure and timing of the spin-off, it may be a taxable transaction to stockholders of the Company and could result in a material tax liability to the Company and its stockholders. The amount of the tax to the Company is uncertain, and if the tax is material to the Company, the Company may elect not to consummate the spin-off. Because circumstances may change and provisions of the Internal Revenue Code of 1986, as amended, may be further amended from time to time, the Company may, depending on various factors, restructure or delay the timing of the spin-off to minimize the tax consequences thereof to the Company and its stockholders, or elect not to consummate the spin-off. Under the spin-off, it is expected that Fairchild Industrial Holdings may assume certain liabilities, including contingent liabilities of the Company and may indemnify the Company for such liabilities. In the event that Fairchild Industrial Holdings is unable to satisfy the liabilities, which it will assume in connection with the spin-off, the Company may have to satisfy such liabilities. Year 2000 As the end of the century nears, there is a widespread concern that many existing data processing devices that use only the last two digits to refer to a year will not properly recognize a year that begins with the digits "20" instead of "19." If not properly modified, these data processing devices could fail, create erroneous results, or cause unanticipated systems failures, among other problems. In response, the Company has developed a worldwide Year 2000 readiness plan that is divided into a number of interrrelated and overlapping phases. These phases include corporate awareness and planning, readiness assessment, evaluation and prioritization of solutions, implementation of remediation, validation testing, and contingency planning. Each phase is discussed below. Awareness. In the corporate awareness and planning phase, the Company formed a Year 2000 project group under the direction of the Company's Chief Financial Officer, identified and designated key personnel within the Company to coordinate its Year 2000 efforts, and retained the services of outside technical review and modification consultants. The project group prepared an overall schedule and working budget for the Company's Year 2000 plan. The Company has completed this phase of its Year 2000 plan. The Company evaluates its information technology applications regularly, and based on such evaluation revises the schedule and budget to reflect the progress of the Company's Year 2000 readiness efforts. The Chief Financial Officer regularly reports to the Company's management and the audit committee of the board of directors on the status of the Year 2000 project. 53 Assessment. In the readiness assessment phase, the Company, in coordination with its technical review consultants, has been evaluating the Company's Year 2000 preparedness in a number of areas, including its information technology infrastructure, external resources, physical plant and production facilities, equipment and machinery, products and inventory. The Company has substantially completed this phase of its Year 2000 Plan. However, the Company is continuing to assess the extent and implications relating to product inventories maintained by Technologies that include embedded data processing technology. In addition, pending the completion of all validation testing, the Company continues to review all aspects of its Year 2000 preparedness on a regular basis. In this respect, we have designated officers at each business segment to provide regular assessment updates to our outside consultants. These consultants are assimilating a range of alternative methods to complete each phase of our Year 2000 plan and are reporting regularly their findings and conclusions to the Company's Chief Financial Officer. Evaluation. In the evaluation and prioritization of solutions phase, the Company seeks to develop potential solutions to the Year 2000 issues identified in the Company's readiness assessment phase, consider those solutions in light of the Company's other information technology and business priorities, prioritize the various remediation tasks, and develop an implementation schedule. This phase is ongoing and will not be completed until after October 31, 1999, when all validation testing is anticipated to be completed. However, identified problems are corrected as soon as practicable after identification. To date, the Company has not identified any major information technology system or non-information technology system that it must replace in its entirety for Year 2000 reasons. The Company has also determined that most of the Year 2000 issues identified in the assessment phase can be addressed satisfactorily through system modifications, component upgrades and software patches. Thus, the Company does not presently anticipate incurring any material systems replacement costs relating to the Year 2000 issues. Implementation. In the implementation of remediation phase, the Company, with the assistance of its technical review and modification consultants, began to implement the proposed solutions to any identified Year 2000 issues. The solutions include equipment and component upgrades, systems and software patches, reprogramming and resetting machines, and other modifications. Substantially all of the material systems within the aerospace fasteners and aerospace distribution segments of the Company's business are currently Year 2000 ready. However, the Company is continuing to evaluate and implement Year 2000 modifications to embedded data processing technology in certain manufacturing equipment used in its aerospace fasteners segment. At Fairchild Technologies, the Company intends, but has no specific plan, to replace and upgrade a number of its systems that are not Year 2000 compliant. Testing. In the validation testing phase, Fairchild seeks to evaluate and confirm the results of its Year 2000 remediation efforts. In conducting its validation testing, the Company is using, among other things, proprietary testing protocols developed internally and by the Company's technical review and modification consultants, as well as testing tools such as Greenwich Mean Time's Check 2000 and SEMATECH's Year 2000 Readiness Testing Scenarios Version 2.0. The Greenwich tools identify potential Year 2000-related software and data problems, and the SEMATECH protocols validate the ability of data processing systems to rollover and hold transition dates. Testing for the aerospace fasteners segment is approximately 20 percent complete, and testing for the aerospace distribution segment is approximately 30 to 40 percent complete. To date, the results of the Company's validation testing have not revealed any new and significant Year 2000 issues or any ineffective remediation. The Company expects to complete testing of its most critical information technology and related systems by June 30, 1999. Contingency Planning. In the contingency planning phase, the Company, together with its technical review consultants, is assessing the Year 2000 readiness of its key suppliers, distributors, customers and service providers. Toward that objective, the Company has sent letters, questionnaires and surveys to its business partners, inquiring about their Year 2000 readiness arrangements. The average response rate to date has been approximately 40%, but all of our most significant business partners have responded to our inquiries. In this phase, the Company also began to evaluate the risks to the Company that its failure or the failure of others to be Year 2000 ready would cause a material disruption to, or have a material effect on, the Company's financial 54 condition, business or operations. So far, we have identified only our aerospace fasteners MRP system as being both mission critical and potentially at risk. In mitigation of this concern, we have engaged a consultant to test and evaluate the manufacturer-designed Year 2000 patches for the system. This testing has only recently commenced, but no significant problems have been identified. The Company also is developing and evaluating contingency plans to deal with events arising from significant Year 2000 issues outside of our infrastructure. In this regard, the Company is considering the advisability of augmenting its inventories of certain raw materials and finished products, securing additional sources for certain supplies and services, arranging for back-up utilities, and exploring alternate distribution and sales channels, among other things. The following chart summarizes the Company's progress, by phase and business segment, in completing its Year 2000 plan: Percentage of Year 2000 Plan Completed (By Phase and Business Segment)
1999 Quarter 1997 Quarter Ended 1998 Quarter Ended Ended ------------------ ------------------------------ ------------ September December March June September December March Work 30 27 31 30 30 27 28 Remaining --------- -------- ----- ---- --------- -------- ------------ --------- Awareness: Aerospace Fasteners... 50% 100% 100% 100% 100% 100% 100% 0% Aerospace Distribution......... 100 100 100 100 100 100 100 0 Assessment: Aerospace Fasteners... 25 50 75 100 100 100 0 Aerospace Distribution......... 0 0 0 50 100 100 0 Evaluation: Aerospace Fasteners... 0 70 90 10 Aerospace Distribution......... 20 100 100 0 Implementation: Aerospace Fasteners... 50 60 40 Aerospace Distribution......... 40 75 25 Testing: Aerospace Fasteners... 20 35 65 Aerospace Distribution......... 30-40 70 30 Contingency Planning: Aerospace Fasteners... 0 20 35 65 Aerospace Distribution......... 25 50 65 35
The following chart summarizes the total costs incurred by the Company as of December 27, 1998, by business segment, to address Year 2000 issues, and the total costs the Company reasonably anticipates incurring during 1999 relating to the Year 2000 issue.
Year 2000 Costs as Anticipated Year 2000 Costs of March 28, 1999 During the Next Nine Months (In Thousands) ------------------ --------------------------- Aerospace Fasteners Segment................ $550 $3,250 Aerospace Distribution Segment................ $550 $ 100
The Company has funded the costs of its Year 2000 plan from general operating funds, and all such costs have been deducted from income. To date, the costs associated with the Company's Year 2000 efforts have not had a material effect on, and have caused no delays with respect to, our other information technology programs or projects. The Company anticipates that it will complete its Year 2000 preparations by October 31, 1999. Although the Company's Year 2000 assessment, evaluation, implementation, testing and contingency planning phases are not yet complete, the Company does not currently believe that Year 2000 issues will materially affect its 55 business, results of operations or financial condition. However, in some international markets in which the Company conducts business, the level of awareness and remediation efforts by third parties, utilities and infrastructure managers relating to the Year 2000 issue may be less advanced than in the United States, which could, despite the Company's efforts, have an adverse effect on us. If the Company's Year 2000 programs are not completed on time, or its mission critical systems are not Year 2000 ready, the Company could be subject to significant business interruptions, and could be liable to customers and other third parties for breach of contract, breach of warranty, misrepresentation, unlawful trade practices and other claims. Recently Issued Accounting Pronouncements In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 131 "Disclosures about Segments of an Enterprise and Related Information." SFAS 131 supersedes Statement of Financial Accounting Standards No. 14 "Financial Reporting for Segments of a Business Enterprise" and requires that a public company report certain information about its reportable operating segments in annual and interim financial reports. Generally, financial information is required to be reported on the basis that is used internally for evaluating segment performance and deciding how to allocate resources to segments. The Company will adopt SFAS 131 in fiscal 1999. In February 1998, the FASB issued Statement of Financial Accounting Standards No. 132 "Employers' Disclosures about Pensions and Other Postretirement Benefits." SFAS 132 revises and improves the effectiveness of current note disclosure requirements for employers' pensions and other retiree benefits by requiring additional information to facilitate financial analysis and eliminating certain disclosures which are no longer useful. SFAS 132 does not address recognition or measurement issues. The Company will adopt SFAS 132 in fiscal 1999. In June 1998, the FASB issued Statement of Financial Accounting Standards No. 133 "Accounting for Derivative Instruments and Hedging Activities." SFAS 133 establishes a new model for accounting for derivatives and hedging activities and supersedes and amends a number of existing accounting standards. It requires that all derivatives be recognized as assets and liabilities on the balance sheet and measured at fair value. The corresponding derivative gains or losses are reported based on the hedge relationship that exists, if any. Changes in the fair value of hedges that are not designated as hedges or that do not meet the hedge accounting criteria in SFAS 133 are required to be reported in earnings. Most of the general qualifying criteria for hedge accounting under SFAS 133 were derived from, and are similar to, the existing qualifying criteria in SFAS 80 "Accounting for Futures Contracts." SFAS 133 describes three primary types of hedge relationships: fair value hedge, cash flow hedge, and foreign currency hedge. The Company will adopt SFAS 133 in fiscal 2001 and is currently evaluating the financial statement impact. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK The table below provides information about the Company's derivative financial instruments and other financial instruments that are sensitive to changes in interest rates, which include interest rate swaps. For interest rate swaps, the table presents notional amounts and weighted average interest rates by expected (contractual) maturity dates. Notional amounts are used to calculate the contractual payments to be exchanged under the contract. Weighted average variable rates are based on implied forward rates in the yield curve at the reporting date. Expected Fiscal Year Maturity Date
1999 2000 2001 2002 2003 Thereafter ---- ------- ------- ---- ---- ---------- Interest Rate Swaps Variable to Fixed................. -- $20,000 $60,000 -- -- $100,000 Average cap rate.................. -- 7.25% 6.81% -- -- 6.49% Average floor rate................ -- 5.84% 5.99% -- -- 6.24% Weighted average rate............. -- 4.99% 4.90% -- -- 5.62% Fair Market Value................. -- (95) (454) -- -- (6,912)
56 INDUSTRY Aerospace Market We estimate that the worldwide market for aerospace fasteners was approximately $1.7 billion in 1998. The aerospace industry has, for the past three years, enjoyed very favorable conditions driven by strong growth in new commercial aircraft orders, an increase in miles flown by existing aircraft and the need to modify and perform additional maintenance on older aircraft. More recently, industry analysts are projecting a softening of demand after a projected record level of deliveries in 1999. On a pro forma basis, giving effect to our acquisitions, our bookings for fiscal 1999 through May are slightly less than the comparable period for fiscal 1998. Management estimates that the total demand for fasteners in the aerospace industry will decline over the next two years, due to a projected reduction in future aircraft deliveries and customer deliveries, particularly at Boeing. Demand for aerospace fasteners and other aerospace parts is closely related to delivery and use rates for commercial and military aircraft. Delivery and use rates are in turn directly related to the actual and projected volume of passenger and freight traffic, average aircraft age, global fleet size and government defense expenditures. Pricing Over time, demand for fasteners is tightly correlated to pounds of aircraft delivered. The pricing outlook for fastener products has improved over the past few years, although not to the level enjoyed prior to the industry down cycle in 1992-1995. Increasingly, OEMs expect that cost savings from consolidation and efficiency will be shared with them through lower prices. At the urging of their customers, manufacturers are now taking steps to hold or reduce prices. Prior to the 1998 Asian downturn, the demand for new aircraft and lower fastener manufacturing capacity caused by downsizing during the 1992-1995 period helped maintain fastener prices. The Company believes that, after rising in 1996, 1997 and the first half of 1998, prices leveled off in the second half of 1998. Certain industry analysts are predicting that aircraft prices for 1999 will decline slightly and as we anticipated, we have begun to see the softening of prices and increasing inventory pressures in the industry. Air Travel and Aircraft Orders Air travel in 1997 continued to grow at a rate above the long-term trend, but grew less quickly in 1998. According to the Boeing 1998 Current Market Outlook, world air traffic grew 6.1% in 1997 compared to 6.8% in 1996. For the industry as a whole, load factors reached record levels in 1997. The International Civil Aviation Organization forecasts show that world air traffic grew at 1% during 1998 and projects world air traffic to grow at approximately 4.9% per year for the next 20 years. To carry this traffic, approximately 13,600 more aircraft will be needed by 2017, even with productivity utilization improvements and higher capacity utilization. Air travel growth and airline profitability led to more aircraft orders in 1996, 1997 and 1998. While aircraft orders have increased for the past four years, aircraft deliveries began to rise in 1996. In 1998, a total of 788 commercial aircraft were delivered by Boeing and Airbus. Strong traffic growth in Europe and sustained profits by U.S. airlines will likely maintain production levels through 1999, and possibly into 2000, as airlines buy aircraft that comply with Stage 3 noise reduction replacement and growth requirements. Thereafter, aircraft requirements may decline to a level that more closely reflects passenger and cargo traffic growth. The Boeing Outlook projects that from 1998 through 2007, domestic and international airlines will lease or purchase over 7,600 new aircraft, thereby increasing the worldwide commercial fleet from approximately 12,300 aircraft at the end of 1997 to approximately 17,700 aircraft, net of retirements through 2004, at the end of 2007. Approximately half of the requirements are projected to be delivered by 2004. Any surplus of projected deliveries over the Boeing Outlook's demand analysis is expected to result from substantially increased retirement rates of aircraft with over 25-30 years in service. Through most of the current cycle, airlines have shown restraint and have not seemed compelled to place large orders simply to secure near-term delivery positions. Manufacturers have helped dampen the order cycle by demonstrating their willingness to raise production rates as much as may be required to deliver new aircraft to customers when they need them. 57 Aircraft Deliveries by Year (Millions of Pounds of Aircraft Delivered) [Insert Graph Here] % Growth 13.1% 0.5% (6.5%) (16.3%) 0.3% 0.4% 25.1% 29.7% 10.2% (17.4%) (11.4%) 2.7% 3.5% Number of Aircraft: Boeing 523 591 568 409 310 256 269 375 559 620 490 435 460 475 Airbus 95 163 157 161 157 173 164 187 229 285 327 312 287 267 --- ---- ------- --- --- --- --- --- --- --- --- --- --- --- Total 618 754 725 570 467 429 433 562 788 905 817 747 747 742
Source: JSA Research, The World Airliner Market, and the Boeing Company. Overview of Aircraft Production We believe that over the next five years airlines will be required to replace a significant portion of their existing fleets as the large number of aircraft delivered in the 1960s become increasingly uneconomic to operate and the deadlines approach for compliance with the stringent noise regulations adopted in the United States and Europe. About 60% of units delivered before January 1, 2000 will be for single-aisle aircraft replacement. Because of a boom in aircraft deliveries to U.S. airlines in the late 1960s, a large number of single-aisle jets have now completed three decades of service. Although airlines are not required to replace these aircraft, operators have considerable economic incentive to do so because older jets are increasingly uneconomical to operate. Future aircraft production is expected to increase due to noise standards. This noise and maintenance driven replacement within the single-aisle fleet accounts for the bulk of the current cycle's replacement orders. U.S. operators have by now completed their plans for complying with the coming regulatory limits, as have most European carriers. Our fastener business benefits from noise reduction modifications because modifying an airplane to comply with the noise regulations requires a substantial number of fasteners. For the past two years, between 50% and 65% of airline fleet planes have had to meet FAA Stage 3 noise limitation requirements. This year the figure must rise to 75% and 100% of airline planes must be Stage 3 compliant by January 1, 2000. The Boeing Outlook projects, however, that average aircraft size should rise slightly through 2007. As airlines seek to serve a growing number of air travelers with existing restrictions on arrival and departure slots, airport gates and ramp capacity, commercial aircraft OEMs are experiencing increased orders for heavier, wide bodied aircraft of intermediate size. Wide bodied aircraft generally require a greater number of fasteners than 58 smaller aircraft. Although Airbus consortium predicts an increase in the number of seats per flight over the next two decades, Boeing reports that the average number of seats per flight has decreased in recent years, and demand for aircraft which are 747-size or larger is projected to stabilize, accounting for only 15% of future sales revenue. Defense Market Declining defense budgets and increasing pressures for cost reductions have precipitated a major consolidation in the defense industry and its subcontractors, including within our and KTI's sectors. We believe that large diversified companies are likely to continue to divest non-strategic defense assets, as noncompetitive cost structures and lack of long-term commitment to the industry have put such diversified companies at a competitive disadvantage. For 1999, the Center for Strategic and Budgetary Assessments projects defense procurement spending to increase by 8.7% or $3.9 billion to $48.7 billion. Industrial Market The Freedonia Group estimated the worldwide fastener market for automotive, electrical and other non-aerospace industries to be $5.3 billion in 1998. Each of these markets is served by a number of small and mid-sized companies. The automotive market represents the single largest end-use market for industrial fasteners, with over 20% of total fastener demand. The Company expects demand for specialty and value added fasteners, such as self-locking fasteners and fasteners fabricated from high performance alloys and composites, to continue to grow. 59 BUSINESS General We are a leading worldwide aerospace and industrial fastener manufacturer and distribution logistics manager and, through our wholly-owned subsidiary, Banner, an international supplier to the aerospace industry, distributing a wide range of aircraft parts and related support services. Through internal growth and strategic acquisitions, we have become one of the leading suppliers of fasteners to aircraft OEMs, such as Boeing, Airbus consortium, Lockheed Martin, British Aerospace and Aerospatiale, subcontractors to OEMs, independent distributors and the aerospace aftermarket. Our aerospace business consists of two segments: aerospace fasteners and aerospace parts distribution. Our aerospace fasteners segment manufactures, markets high performance fastening systems, and tooling and related services used in the manufacture and maintenance of commercial and military aircraft. Our aerospace distribution segment stocks and distributes a wide variety of aircraft parts to commercial airlines and air cargo carriers, fixed-base operators, corporate aircraft operators and other aerospace companies. Our business strategy is as follows: Maintain Quality Leadership. The aerospace market is extremely demanding in terms of precision manufacturing and all parts must be certified by OEMs pursuant to the FAA's regulations and those of other equivalent foreign regulators. Substantially all of our plants are ISO-9000 approved. We have won numerous industry and customer quality awards and are preferred suppliers for major aerospace customers. In order to be named a preferred supplier, a company must qualify its products through a customer specific quality assurance program and adhere to it strictly. Approvals and awards we have obtained include; Boeing D1 9000 Rev A; Boeing (St. Louis) Silver Supplier; Boeing Source Approved; DaimlerChrysler Aerospace Source Approved; General Electric Source Approved; Pratt & Whitney Source Approved; Lockheed-Martin Star Supplier; and DISC Large Business Supplier of the Year. Lower Manufacturing Costs. We have invested significantly over the past few years in state-of-the-art machinery, employee training and manufacturing techniques to produce products at the lowest cost while maintaining high quality. This investment in process superiority has resulted in increased capacity, lower break-even levels in the various plants of both companies and faster cycle times, while reducing defect levels and improving turnaround times for customers. For example, the customer rejection rate at our aerospace fasteners segment has fallen from an average of 18.2% in fiscal 1995 to an average of 1.4% for the first nine months of fiscal 1999. In addition, scrap and rework costs as a percentage of net sales in our aerospace fasteners segment have fallen from an average of 9.3% in fiscal 1995 to an average of 4.0% for the first nine months of fiscal 1999. Our on-time delivery rate in our aerospace fasteners segment has improved significantly since fiscal 1997, to levels that are currently the best in our operating history. We view these improvements as one of the keys to our business success that will allow us to better manage industry cycles. Supply Logistics Services. Our aerospace industry customers are increasingly requiring additional supply chain management services as they seek to manage inventory and lower their manufacturing costs. In response, we are developing a number of logistics and supply chain management services that we expect will contribute to our growth and our value to our customers. Capitalize on Global Presence. The aerospace industry is global and customers increasingly seek suppliers with the ability to provide reliable and timely service worldwide. Our recent combination with KTI provides us with increased manufacturing and distribution capabilities in the U.S. and Europe and sales offices worldwide. Grow through Acquisitions. Despite a trend toward consolidation, the aerospace components industry remains fragmented. Consolidation has been driven, in part, by the combination of the OEMs as they seek to reduce their procurement costs. We have successfully integrated a number of acquisitions, achieving material synergies in the process, and anticipate further opportunities to do so in the future. 60 Our strategy is based on the following strengths: Complementary Market Share and Expanded Product Range. Historically, both KTI and we have focused on different market segments where economies of scale could be achieved through the ability to produce high quality parts at low cost. As a result of the acquisition of KTI, we have expanded the range of products we offer. This expansion will permit us to provide our customers with more complete fastening solutions, by offering engineering and logistics across the breadth of a customer's aerospace needs. For example, KTI's internally threaded fasteners such as engine nuts, may now be sold in combination with our externally threaded fasteners, such as bolts and pins, to provide a single fastening system. This will limit the inventory needs of the customer, minimize handling costs and reduce waste. Long-Term Customer Relationships. We have historically worked closely with our customers to provide high quality engineering solutions accompanied by superior service levels. As a result, our customer relationships are generally long-term. For example, in the fall of 1998 we were awarded a series of long- term commitments from Boeing and certain other customers to provide a significant quantity of aircraft fastening components over the next three to five years. We have benefited from the trend of OEMs in reducing their number of suppliers in recent years in an effort to lower costs and to ensure quality and availability. We have become or been retained as a key supplier to the OEMs and increased our overall share of OEM business. OEMs are becoming increasingly demanding in terms of overall service level, including just-in- time delivery of components to the production line. We believe that our focus on customer service will solidify our relationships with our customers. Diverse End Markets. Although a significant proportion of our sales are to OEMs in the commercial aerospace industry, we have significant sales to the defense, aerospace aftermarket and industrial markets. In addition, Banner's distribution business has a very low OEM component. We believe this diversification will help mitigate the effects of the OEM cycle on our results. Experienced Management Teams. We have a management team with many years of experience in the aerospace components industry and a history of improving quality, lowering costs and raising the level of customer service, leading to higher overall profitability. In addition, our management team has achieved growth by successfully integrating a number of acquisitions. Fairchild Aerospace Fasteners Through our aerospace fasteners segment, we are a leading worldwide manufacturer and distributor of fastening systems, used primarily in the construction and maintenance of commercial and military aircraft. In the past 18 months, we have made a concerted effort to establish a substantial position in the distribution/logistics segment of the aerospace fasteners industry. Through the acquisitions of Special-T Fasteners in the United States and AS+C in Europe, we have created a unique capability that we believe enhances dramatically our status as the premier fastening solutions provider in the industry. The aerospace fastener segment accounted for 50.9% of our net sales in fiscal 1998 and 66.5% of our net sales for the nine months ended March 28, 1999. Products In general, aerospace fasteners we produce are highly engineered, close tolerance, high strength fastening devices. Products range from standard aerospace screws, to more complex systems that fasten airframe structures, and sophisticated latching or quick disconnect mechanisms that allow efficient access to internal parts which require regular servicing or monitoring. Our aerospace fasteners segment produces and sells products under various trade names and trademarks including Voi-Shan(R) (fasteners for aerospace structures), Screwcorp(R) (standard externally threaded products for aerospace applications), RAM(R) (custom designed mechanisms for aerospace applications), Camloc(R) (components for the industrial, electronic, automotive and aerospace markets), Tridair(R) and Rosan(R) (fastening systems for highly-engineered aerospace, military and industrial applications). Our aerospace fasteners segment also manufactures and supplies fastening systems used in non-aerospace industrial, electronic and marine applications. 61 Principal product lines of our aerospace fasteners segment include: Standard Aerospace Airframe Fasteners--These fasteners include those best described by their head style or recess. They are commonly referred to as Hi- Torque Speed Drive(R), Tri-Wing(R), Torq-Set(R), Phillips(R) and Hex Heads(R). Commercial Aerospace Structural and Engine Fasteners--These fasteners consist of more highly engineered permanent or semi-permanent fasteners used in non-critical but more sophisticated airframe and engine applications, which could involve joining more than two materials. These fasteners are generally engineered to specific customer requirements or manufactured to specific customer specifications for special applications, often involving exacting standards. These fasteners include Hi-Lok(R), Veri-Lite(R), Eddie-Bolt2(R) and customer proprietary engine nuts. Proprietary Products and Fastening Systems--These very highly engineered proprietary fasteners are designed by us for specific customer applications and include high performance structural latches and hold down mechanisms. These fasteners are usually proprietary in nature and are primarily used in either commercial aerospace or military applications. These fasteners include Visu-Lok(R), Composi-Lok(R), Keenserts(R), Mark IV(TM), Flatbeam(TM) and RingLock(TM) among others. Highly Engineered Fastening Systems for Industrial Applications--These highly engineered fasteners are designed by us for specific niche applications in the electronic, automotive and durable goods markets and are sold under the Camloc(R) trade name. Sales and Markets The products of our aerospace fasteners segment are sold primarily to domestic and foreign OEMs of airframes, subcontractors to OEMs, engine manufacturers, and to the maintenance and repair market through distributors. We estimate that 51% of our net sales for the twelve months ended March 28, 1999 were to commercial OEMs and the remainder are to defense OEMs, industrial and after-market customers. Approximately 66% of our net sales for fiscal 1998 are believed destined for domestic use. Major customers include OEMs such as Boeing, the Airbus consortium, General Electric, Lockheed Martin, British Aerospace and Aerospatiale and their subcontractors, as well as major aerospace hardware distributors such as AlliedSignal, Tri-Star Aerospace and Wesco Aircraft Hardware. Over the past two years, OEMs have significantly increased their production levels. In addition, OEMs are increasingly interested in programs to reduce inventories. In response, we are expanding our efforts to provide parts and services through our subsidiaries, such as Special-T Fasteners in the United States and AS+C in Europe. Although no one customer accounted for more than 10% of our net sales in fiscal 1998 or for the nine months ended March 28, 1999, the majority of our revenues come from customers providing parts or services to Boeing, including defense sales, and the Airbus consortium and their subcontractors. Accordingly, we are dependent on the business of those manufacturers. Revenues in the aerospace fasteners segment are closely related to aircraft production. As OEMs searched for cost cutting opportunities during the commercial aerospace industry recession of 1993-1995, parts manufacturers, including ourselves, accepted lower profit margins and/or smaller lot sizes to maintain market share, at lower profit margins. However, during recent years, this situation has changed as build rates in the aerospace industry have increased and resulted in capacity constraints. Although lead times have increased, we have been able to provide our major customers with favorable pricing, while maintaining or increasing margins by negotiating for larger minimum lot sizes that are more economic to manufacture. In addition, we have eliminated "make and hold" contracts under which large volume buyers would require current production of parts for long-term unspecified dates of delivery. Overall, existing backlog is anticipated to result in higher margins due to larger and more efficient lot sizes, combined with the utilization of recently acquired customized production capacity, improved profitability arising from training programs for all employees and additional logistic services. Fasteners also have applications in the automotive/industrial markets, where numerous special fasteners are required, such as engine nuts and bolts, wheel bolts and turbocharger tension bolts. We are actively targeting the growing high technology, automotive, high speed rail, heavy truck and other industrial markets. 62 Manufacturing and Production Our aerospace fasteners segment has ten primary manufacturing facilities, of which four are located in the United States and six are located in Europe. Each facility has virtually complete production capability, and subcontracts only those production steps for which outside processors provide a more effective solution. Each plant is designed to produce a specified product or group of products, determined by production process involved and certification requirements. Our largest customers have recognized our quality and operational controls by granting us advanced quality system status such as Boeing's D1-9000A. All of our plants have been ISO-9000 approved and we have won numerous industry and customer quality awards. We have a fully operational modern information system at all of our U.S. facilities, which was expanded to most of our European operations in fiscal 1998. We will expand this information system to the remaining European operations in fiscal 1999. The new system performs detailed and timely cost analysis of production by product and facility. Updated MIS systems also help us to better service our customers. OEMs require each product to be produced in an OEM-qualified/OEM-approved facility. Competition Despite intense competition in the industry, we remain the dominant manufacturer of aerospace fasteners. In 1998, the worldwide aerospace fastener market was approximately $1.7 billion. We estimate that we hold approximately 21% of the market and compete with SPS Technologies, Hi-Shear and the Huck International Division of the Cordant Technologies Corporation, which we believe hold approximately 15%, 12% and 11% of the market, respectively. In Europe, our largest competitors are Blanc Aero and Southco Fasteners. Quality, performance, service and price are generally the prime competitive factors in the aerospace fasteners segment. Our broad product range allows us to more fully serve each OEM and distributor. Our product array is diverse and offers customers a large selection to address various production needs. We seek to maintain our technological edge and competitive advantage over our competitors, and have demonstrated our innovative production methods and new products to meet customer demands. We seek to work closely with OEMs and involve ourselves early in the design process in order that our products may be incorporated into the design of their products. Aerospace Distribution Through Banner, our aerospace distribution segment, we distribute a wide variety of aircraft parts, which we have purchased on the open market or acquired from OEMs as an authorized distributor. No single distributor arrangement is material to our financial condition. Products An extensive inventory of products and a quick response time are essential in providing service to our customers. Another key factor in selling to our customers is Banner's ability to maintain a system that provides traceable parts back to the manufacturer. Products of our aerospace distribution segment are divided into two groups: rotables and engines. Rotables include flight data recorders, radar and navigation systems, instruments and hydraulic and electrical components. Engines include jet engines and engine parts for use on both narrow and wide body aircraft and smaller engines for corporate and commuter aircraft. Banner provides a number of services such as immediate shipment of parts in aircraft- on-ground situations. Banner also buys and sells commercial aircraft from time to time. Rotable parts are sometimes purchased as new parts, but are generally purchased in the aftermarket which are then overhauled for us by outside contractors, including OEMs and FAA-licensed facilities. Rotables are sold in a variety of conditions such as new, overhauled, serviceable and "as is." Rotables may also be exchanged 63 instead of sold. An exchange occurs when an aircraft part in inventory is exchanged for a part from the customer and the customer is charged an exchange fee plus the actual cost to overhaul the part. Engines and engine components are sold "as is," overhauled or disassembled for resale as parts. Sales and Markets Our aerospace distribution segment sells its products in the United States and abroad to commercial airlines and air cargo carriers, fixed base operators, corporate aircraft operators and other aerospace companies. Approximately 70.7% of its net sales for fiscal 1998 were to domestic purchasers, some of whom may represent offshore users. Our aerospace distribution segment conducts marketing efforts through its direct sales forces, outside representatives and, for some product lines, overseas sales offices. Sales in the aviation aftermarket depend on price, service, quality and reputation. Our aerospace distribution segment's business does not experience significant seasonal fluctuations nor depend on a single customer. No single customer accounted for more than 10% of our consolidated net sales in this segment in fiscal 1998 and the nine months ended March 28, 1999. Dallas Aerospace, Banner's largest subsidiary in the engine group, sells jet engines and engine parts for use on both narrow and wide body aircraft and smaller engines for corporate and commuter aircraft. In addition, Dallas Aerospace buys and sells large commercial aircraft from time to time and provides engine repair management services and engine leasing to a variety of airline and air cargo customers. Banner has recently retained an investment banker to facilitate the sale of Dallas Aerospace. Competition The rotables group competes with Air Ground Equipment Services, Duncan Aviation, Stevens Aviation, Inc., OEMs such as Honeywell, Trimble Navigation and Litton, and other fixed based operations and maintenance and repair organizations. The major competitors for Banner's engine group are OEMs such as General Electric and Pratt & Whitney, as well as the engine and engine parts divisions of AAR Corp., Kellstrom Industries, Inc. and Air Ground Equipment Services, and other engine leasing and repair companies. Other Operations Our other operations include our Gas Springs division. We also own Technologies, which designs, manufactures and markets high performance production equipment and systems required for the manufacture of recordable compact discs, and a significant equity interest in Nacanco Paketleme, which manufactures customized cans for the beverage industry in Turkey. Additionally, we also own several parcels of developed and undeveloped land almost entirely representing residuals of operations previously divested or closed. Included among these is an 88 acre site in Farmingdale, New York, of which we are currently developing 69 acres as a shopping center. Technologies and our interest in Nacanco Paketleme will be held in subsidiaries designated as unrestricted subsidiaries pursuant to the new credit facility and the indenture. We also intend, subsequent to the closing date, to place the Farmingdale shopping center in an unrestricted subsidiary. The amount we can invest in unrestricted subsidiaries in the future will be limited. Foreign Operations Our operations are located primarily in the United States and Europe. Inter-area sales are not significant to the total revenue of any geographic area. Export sales are made by our U.S. businesses to customers in non-U.S. countries, whereas foreign sales are made by our non-U.S. subsidiaries. 64 KTI Products and Services KTI's fasteners, tooling systems and related services may be divided into two general categories: those used primarily in the manufacture of commercial aircraft and defense products and those with applications in other industries. Within these two categories, KTI's products may also be grouped by business unit. KTI's Kaynar, Microdot, M & M and K-FAST business units design and manufacture products that are sold principally to the commercial aircraft and defense industries, while KTI's Recoil and Marson business units design and manufacture products used primarily in the automotive, electronical and other non-aerospace industries. Commercial Aircraft and Defense Products Kaynar. KTI, through its Kaynar business unit, is a leading producer of precision, self-locking internally threaded nuts used in the manufacture of commercial aircraft and defense aerospace products. The product line is designed principally for use in harsh, demanding environments and includes wrenchable nuts, K-FAST nuts, anchor nuts, gang channels, shank nuts, barrel nuts, clinch nuts and stake nuts. Kaynar produces fasteners in a wide variety of materials to accommodate each customer's specifications, from lightweight aluminum and titanium nuts for airframes, to high-strength, high-temperature tolerant engine nuts manufactured from materials such as A-286, Waspaloy(R) and Hastelloy(R). Kaynar also produces the commercial aircraft and defense industries' broadest line of lightweight, non-metallic composite fasteners, which may be configured as wrenchable nuts, anchor nuts, gang channels or barrel nuts. These composite fasteners are used primarily for military aircraft and are designed to reduce radar visibility, enhance resistance to lightning strikes and provide galvanic corrosion protection. Kaynar offers a variety of coatings and finishes for its fasteners, including anodizing, cadmium plating, silver plating, aluminum plating, solid film lubricants and water-based cetyl and solvent free lubricants. Kaynar has the number one market share within its served market of aerospace nuts, more than double that of SPS Technologies Inc., its nearest competitor. This business unit accounted for 75% of KTI's total sales for the year ended December 31, 1998. Microdot. Through Microdot, KTI designs and manufactures threaded inserts and studs used principally in the commercial aircraft and defense industries. Microdot's threaded inserts, which are made of high-grade steel and other high-tensile metals, are designed to be installed into softer metals, plastics and composite materials to create bolt-ready holes having strong internal self-locking threads within the softer parent material. Once a bolt is threaded into the installed insert, overall strength of the fastening assembly is substantially enhanced. Microdot inserts can also be used for thread repairs. Microdot's K-Sert(R) inserts include keys that can be used to lock the insert in place and prevent any rotation. Microdot also manufactures Perma-Thread(R) inserts and Thin Wall(R) inserts which are used to create a permanent thread inside a hole and to provide a high degree of thread protection and fastening integrity from a light weight fastener. Microdot also manufactures studs from steel and other high strength materials. Microdot has the number two market share in its served market and accounted for 9% of KTI's total sales for the year ended December 31, 1998. M & M. M & M specializes in precision machined structural components and assemblies for aircraft, including pylons, flap hinges, struts, wing fittings, landing gear parts, spars and many other items. K-FAST. KTI's K-FAST business unit makes tools primarily designed to install Kaynar, Microdot and Recoil fasteners and inserts, but that can also be used to attach other wrenchable nuts, bolts and inserts. Industrial Products and Services Recoil. Through Recoil, KTI produces helically-wound, wire thread, self- locking inserts that increase the strength of fastening assemblies and assist in the reduction of thread wear, which is particularly important when components are assembled and disassembled frequently or where vibrations are severe. Recoil also supplies thread repair kits, high speed steel taps and various electric and pneumatic, manual and semi-automatic insertion tools and related accessories. 65 Marson. Marson designs, manufactures and markets a broad line of blind rivets, threaded inserts and setting tools, primarily for the industrial and automotive markets. Marson is the second largest U.S. manufacturer of blind rivets and related tools. In addition to manufacturing, Marson provides many value-added services such as plating, anodizing and customized product painting. Sales and Markets A significant portion of KTI's business is dependent upon a limited number of large manufacturers of commercial aircraft and defense products. Although KTI's direct sales to Boeing accounted for 20% of sales for the year ended December 31, 1998, no other customer accounted for 10% or more of KTI's net sales for such period. In addition, KTI sells to a global network of independent distributors who sell its products to OEMs, subcontractors and other customers. Manufacturing and Production KTI has seven plants, five in the United States, one in Hungary and one in Australia. KTI has demonstrated capabilities in precision fabrication of components consisting of conventional and hard to work or exotic material such as titanium and composites. KTI is experienced in controlled processes requiring meticulous paper trails such as those required by the FAA and the major defense and aerospace manufacturers. KTI also has a focus on productivity and "continuous improvement" and has established itself as one of the industry's low-cost producers. Over the past three years, KTI has invested over $40 million in capital expenditures, including a new plant in Hungary where KTI can take advantage of low costs and a skilled workforce. Substantially all of KTI's plants are ISO-9000 approved and all of them are qualified by their respective aerospace customers. KTI has won numerous industry and customer quality awards. Competition KTI's commercial aircraft and defense business units compete with a number of producers of aerospace fasteners and fastening systems, including two publicly-held companies, SPS Technologies Inc. and Huck. SPS manufactures high-strength wrenchable nuts, gang channels, plate nuts and other products for certain of the same customers as KTI, including Boeing, Pratt & Whitney and General Electric. Huck produces fasteners and fastening systems that differ substantially from KTI's products in design, but nevertheless often serve comparable functions in airframe and engine construction. KTI also competes with several smaller, privately-owned companies, which generally have lower sales volumes than KTI. KTI believes that competition for sales of fasteners and tooling systems to the commercial aircraft and defense industries is based on product design and quality, turnaround time and responsiveness to customer specifications, product availability and pricing. KTI also believes that it competes favorably with respect to each of these factors. HeliCoil and POP Fastening Systems, which are both units of the Black & Decker Corp., are Recoil and Marson's primary competitors in the industrial market. KTI believes that competition for sales of threaded inserts, blind rivets and setting tools to the markets served by Recoil and Marson is based on turnaround time and responsiveness to customer specifications, product availability and pricing. KTI also believe that it competes favorably with respect to each of these factors. Backlog of Orders Backlog is important for all our operations due to the long-term production requirements of our customers. Our backlog of orders as of December 27, 1998 in our aerospace fasteners segment and aerospace distribution segment amounted to $158.4 million and $4.6 million, respectively. We anticipate that in excess of 95% of the aggregate backlog at December 27, 1998 will be delivered by December 1999. At December 31, 1998, KTI had backlog of approximately $108.8 million. Approximately $97.6 million of KTI's backlog is expected to be delivered during 1999. In the fall of 1998 we were awarded a series of long- term commitments from Boeing to 66 provide a significant quantity of aircraft fastening components over the next three to five years, however, amounts related to such agreements are not included in our backlog until Boeing specifies delivery dates for fasteners ordered. Suppliers We are not materially dependent upon any one supplier, but are dependent upon a wide range of subcontractors, vendors and suppliers of materials to meet our commitments to our customers. From time to time we enter into exclusive supply contracts in return for logistics and price advantages. We do not believe that any one of these contracts would impair our operations if a supplier were unable to perform. Nevertheless, commercial deposits of certain metals, such as titanium and nickel, that are required for the manufacture of several of our products are found only in certain parts of the world. The availability and prices of these metals may be influenced by private or governmental cartels, changes in world politics, unstable governments in exporting nations or inflation. Similarly, supplies of steel and other less exotic metals used by us may also be subject to variation in availability. We purchase raw materials, which include the various metals, composites and finishes used in production, from over twenty different suppliers. We have recently entered several long-term titanium supply contracts. In the past fluctuations in the price of titanium have had an adverse effect on our sales margins. Research and Patents We own patents relating to the design and manufacture of certain of our products and are licensees of technology covered by the patents of other companies. We do not believe that any of our business segments are dependent upon any single patent. Personnel As of May 1, 1999, we had approximately 5,000 employees, of which approximately 4,500 were in our aerospace fasteners segment. Of these, approximately 3,200 and 1,200 of our employees were in the United States and Europe, respectively. Approximately 2.9% of our employees were covered by collective bargaining agreements. Although we have had isolated work stoppages in France in the past, they have not had a material impact on our business. Overall, we believe that our relations with our employees are good. Properties As of June 30, 1998, we owned or leased buildings totaling approximately 1,708,000 square feet, of which approximately 1,022,000 square feet was owned and 686,000 square feet was leased. Our aerospace fasteners segment's properties consisted of approximately 1,084,000 square feet, with principal operating facilities of approximately 922,000 square feet concentrated in Southern California, France and Germany. Our aerospace distribution segment's properties consisted of approximately 370,000 square feet, with principal operating facilities of approximately 126,000 square feet located in Texas. Corporate and Other operating properties consisted of approximately 129,000 square feet, with principal operating facilities of approximately 104,000 square feet located in California and Germany. We own our corporate headquarters building at Washington-Dulles International Airport. As a result of the acquisition of KTI we acquired 13 additional facilities with in excess of 4,000 square feet in the United States, Australia and Europe with a total area of approximately 575,000 square feet, including both owned and leased properties. The following table sets forth the location of the larger properties used in our continuing operations, their square footage, the business segment or groups they serve and their primary use. Each of the properties owned or leased by us is, in management's opinion, generally well maintained. All of our occupied properties are maintained and updated on a regular basis. 67
Owned or Square Business Segment/ Primary Location Leased Footage Group Use - -------- -------- ------- ---------------------- ------------- Saint Cosme, France..... Owned 304,000 Aerospace Fasteners Manufacturing Torrance, California.... Owned 284,000 Aerospace Fasteners Manufacturing Fullerton, California... Leased 200,000 Kaynar Manufacturing City of Industry, California............. Owned 140,000 Aerospace Fasteners Manufacturing Carrollton, Texas....... Leased 126,000 Aerospace Distribution Distribution Dulles, Virginia........ Owned 125,000 Corporate Office Stoughton, Massachusetts.......... Owned 110,000 Marson Manufacturing Fullerton, California... Leased 57,000 K-FAST Manufacturing Toulouse, France........ Owned 56,000 Aerospace Fasteners Manufacturing Fremont, California..... Leased 55,000 Technology Products Manufacturing Kelkheim, Germany....... Owned 52,000 Aerospace Fasteners Manufacturing Santa Ana, California... Owned 50,000 Aerospace Fasteners Manufacturing Vaihingen, Germany...... Leased 49,000 Technology Products Manufacturing Placentia, California... Leased 40,000 Microdot Manufacturing Chatsworth, California.. Leased 36,000 Aerospace Fasteners Distribution
We have several parcels of property which we are attempting to market, lease and/or develop, including: (i) an eighty-eight acre parcel located in Farmingdale, New York, (ii) a six acre parcel in Temple City, California, (iii) an eight acre parcel in Chatsworth, California, and (iv) several other parcels of real estate, primarily located throughout the continental United States. We intend to place certain of these properties in unrestricted subsidiaries pursuant to the terms of the new credit facility and the indenture. The amount we can invest in such properties in the future will be limited. See "Description of the Notes--Certain Covenants." Environmental Matters Our operations are subject to stringent Federal, state and local environmental laws and regulations concerning, among other things, the discharge of materials into the environment and the generation, handling, storage, transportation and disposal of waste and hazardous materials. To date, such laws and regulations have not had a material effect on our financial condition, results of operations, or net cash flows, although we have expended, and can be expected to expend in the future, significant amounts for investigation of environmental conditions and installation of environmental control facilities, remediation of environmental conditions and other similar matters, particularly in our aerospace fasteners segment. In connection with our plans to dispose of certain real estate, we must investigate environmental conditions and may be required to take certain corrective action prior or pursuant to any such disposition. In addition, we have identified several areas of potential contamination at or from other facilities owned, or previously owned, by us, that may require us either to take corrective action or to contribute to a clean-up. We are also a defendant in certain lawsuits and proceedings seeking to require us to pay for investigation or remediation of environmental matters and have been alleged to be a potentially responsible party at various "Superfund" sites. We believe that we have recorded adequate reserves in our financial statements to complete such investigation and take any necessary corrective actions or make any necessary contributions. No amounts have been recorded as due from third parties, including insurers, or set off against, any liability of ours, unless such parties are contractually obligated to contribute and are not disputing such liability. As of March 28, 1999, our consolidated recorded liabilities for environmental matters approximated $8.5 million, which represented the estimated probable exposures for these matters. As of April 4, 1999, KTI's consolidated recorded liabilities for environmental matters approximated $0.6 million, which represented the estimated probable exposures for these matters. It is reasonably possible that our total exposure for these matters could be approximately $1.0 million and $15.0 million, respectively. 68 Legal Proceedings The Corporate Administrative Contracting Officer, based upon the advice of the United States Defense Contract Audit Agency, has made a determination that Fairchild Industries, a former subsidiary of ours, did not comply with Federal Acquisition Regulations and Cost Accounting Standards in accounting for (i) the 1985 reversion to Fairchild Industries of certain assets of terminated defined benefit pension plans, and (ii) pension costs upon the closing of segments of Fairchild Industries business. The ACO has directed Fairchild Industries to prepare cost impact proposals relating to such plan terminations and segment closings and, following receipt of such cost impact proposals, may seek adjustments to contract prices. The ACO alleges that substantial amounts will be due if such adjustments are made. We believe we have properly accounted for the asset reversions in accordance with applicable accounting standards. We have held discussions with the government to attempt to resolve these pension accounting issues. Litigation Regarding the Banner Merger Immediately after the public announcement of the Banner merger , on December 4, 1998, a purported class action lawsuit against The Fairchild Corporation, Banner and Banner's directors was initiated by a Banner stockholder, in Delaware State Court, styled Yassin v. Banner Aerospace, Inc., et al., Civ. A 168 22NC (Del. Ch. New Castle Co.). The complaint alleges that the price offered for the nonaffiliated shares was inadequate and that negotiations leading up to the proposal were not conducted at arm's length. The lawsuit purports to be brought by a holder of nonaffiliated shares on behalf of all holders of nonaffiliated shares, and seeks injunctive relief and unspecified money damages. The plaintiff alleges, among other things, that the defendants breached the fiduciary duties to Banner's minority stockholders, because the initially proposed merger consideration was inadequate and unfair. The Company believes that its actions and those of Banner's directors, in connection with the merger have been in accordance with Delaware law. The time in which the defendants may answer the complaint, or otherwise move, has been extended. The parties have agreed in principle to settle the lawsuit for a sum that would not be material to the Company. The agreement is subject to the plaintiff's right to engage in confirmatory discovery, execution of definitive settlement documents and court approval. The AlliedSignal Claim In connection with the disposition of Banner's hardware business, the Company received notice on January 12, 1999 from AlliedSignal making indemnification claims against the Company for $18.9 million. Although the Company believes that the amount of the claim is far in excess of any amount that AlliedSignal is entitled to recover from the Company, the Company is in the process of reviewing such claims and is unable to predict the ultimate outcome of such matter. We are involved in various other claims and lawsuits incidental to our business, some of which involve substantial amounts. We either on our own or through our insurance carriers, are contesting these matters. In the opinion of management, the ultimate resolution of the legal proceedings, including those discussed above, will not have a material adverse effect on our financial condition, or future results of operations or net cash flows. 69 MANAGEMENT Executive Officers and Directors The following table sets forth information with respect to the directors and executive officers of Fairchild.
Name Age Position ---- --- -------- Jeffrey J. Steiner... 63 Chairman of the Board and Chief Executive Officer Eric I. Steiner...... 37 President, Chief Operating Officer and Director Donald E. Miller..... 52 Executive Vice President and General Counsel Colin M. Cohen....... 48 Senior Vice President-Business Development and Finance, Chief Financial Officer and Director John L. Flynn........ 53 Senior Vice President-Tax Robert A. Sharpe II.. 41 Senior Vice President-Operations and Director Jacques S. Moskovic.. 62 Senior Vice President and Director Michael T. Alcox..... 51 Vice President and Director Melville R. Barlow... 69 Director Mortimer M. Caplin... 82 Director Philip David......... 67 Director Robert E. Edwards.... 50 Executive Vice President-Fairchild Fasteners and Director Harold J. Harris..... 70 Director Daniel Lebard........ 59 Director Herbert S. Richey.... 76 Director Moshe Sanbar......... 73 Director
Jeffrey J. Steiner has served as the Chairman of the Board and the Chief Executive Officer of Fairchild since December 1985, and was its President from July 1, 1991 to November 1998. He was the Chairman of the Board of Banner Aerospace from September, 1993 through April, 1999, and has served as its Chief Executive Officer and President since September 1993. He has served as the Chairman, President and Chief Executive Officer of RHI Holdings since 1988. He served as the Vice Chairman of the Board of Rexnord Corporation from July 1992 to December 1993, and as the Chairman, President and Chief Executive Officer of Fairchild Industries from July 1991 through March 1996. He serves as a director of Corporate Express Inc. and The Copley Fund. He became a director of Fairchild in 1985. He is the father of Dr. Eric I. Steiner.(1)(4) Dr. Eric I. Steiner has served as President of Fairchild since November 1998, as Chief Operating Officer of Fairchild since November 1996, and as President and Chief Executive Officer of Fairchild Fasteners since August 1995. Prior thereto, he served as Executive Vice President of Fairchild from November 1996 to November 1998, as Senior Vice President-Operations of Fairchild from May 1992 through November 1996, and as President of Camloc/RAM Products, one of Fairchild's operating units, from September 1993 to February 1995. He served as Vice President, Business Planning, of Fairchild from March 1991 until May 1992. He also served as Vice President of Fairchild Industries from May 1992 through March 1996. He received an M.B.A. from Insead in France in 1990. Prior thereto, he received an M.D. in 1988 from Faculte De Medicine de Paris and was a medical doctor at Hospitaux De Paris in France until November 1989. He was a director of Banner Aerospace from September 1992 through April 1999, and has served as a Senior Vice President of Banner Aerospace since May 1997. Dr. Steiner became a director of Fairchild in 1988. He is the son of Jeffrey J. Steiner.(1)(4) Donald E. Miller has served as Executive Vice President of Fairchild since September 1998, as General Counsel since January 1991 and as Corporate Secretary since January 1995. He served as Senior Vice President of Fairchild from January 1991 through September 1998. Mr. Miller also served as Vice President and General Counsel of Fairchild Industries from November 1991 through March 1996. 70 Colin M. Cohen has served as the Company's Senior Vice President -- Business Development and Finance, and Chief Financial Officer since October 1, 1996 and as Controller of Fairchild since March 31, 1997. He was a Managing Director of Citicorp Securities, Inc. until September 1996. He served in such capacity for more than five years. Mr. Cohen became a director of Fairchild in September 1996. Pursuant to his employment agreement with Fairchild, Mr. Cohen is to be nominated for election as a director every fiscal year during his term of employment. John L. Flynn has served as Senior Vice President, Tax, of Fairchild since September 1994 and Vice President, Tax, since August 1989. Mr. Flynn also served as Vice President, Tax, of Fairchild Industries from November 1986 through March 1996. Robert A. Sharpe II has served as Senior Vice President, Operations of Fairchild since September 1998. He also serves as Executive Vice President and Chief Financial Officer of Fairchild Fasteners, positions he has held since July 1996. Mr. Sharpe served as a consultant for Fairchild Fasteners from October 1995 through July 1996. He served as Vice President, Corporate Development, of Smithfield Foods, Inc., a pork-products company, from July 1994 through July 1996, where he was responsible for corporate development as well as three of Smithfield's operating subsidiaries. Prior to that time, Mr. Sharpe served as Senior Vice President of NationsBank Corporation and held other management positions with NationsBank. Mr. Sharpe is a director of Capital Associates, Inc. and Capital Associates International, Inc. He became a director of Fairchild in 1995. Jacques S. Moskovic has served as Senior Vice President of Fairchild since October 1996, as President and Chief Executive Officer of Fairchild Technologies since September 1994, and as Chairman of Fairchild Technologies since August 1997. Prior to that, he served as Chairman and President of Compagnie Pour Le Developpement Industriel, a French based company specializing in the production, sales and service of equipment to the electronics industry, which was acquired by Fairchild in 1995. Mr. Moskovic held such position for more than five years. He became a director of Fairchild in 1997. Michael T. Alcox serves as a Vice President of Fairchild, but has not been employed by Fairchild on a full time basis since September 30, 1996. He served as Senior Vice President and the Chief Financial Officer of Fairchild from December 1987 through September 1996. He also served as Treasurer of the Company from September 1990 until November 1991. Mr. Alcox was Vice President and Chief Financial Officer of RHI Holdings, Inc. and as Vice President and Chief Financial Officer of Fairchild Industries from 1990 through March 1996. Mr. Alcox was a director of Banner Aerospace until April 1999. Mr. Alcox also owns and operates travel and real estate businesses. He became a director of Fairchild in 1988.(1) Melville R. Barlow was a consultant to Fairchild from September 1995 through June 1996. From July 1991 through March 1994 he was President of Pilkington Aerospace, Inc., a manufacturer of aircraft transparencies. From June 1984 through March 1991, he was a Corporate Vice President of General Dynamics and General Manager of General Dynamics Electronics Division, a manufacturer of military aircraft automatic test equipment. He became a director of Fairchild in 1996.(2)(3)(5) Mortimer M. Caplin has been a senior member of the law firm of Caplin & Drysdale since 1964. Mr. Caplin serves as a director of Presidential Realty Corporation and Danaher Corporation. He became a director of Fairchild in 1990.(1)(2)(5) Philip David was a consultant to Fairchild from January 1988 to June 1993. He was also an employee of Fairchild from January 1988 to December 1989. He was a Professor of Urban Development at Massachusetts Institute of Technology until June 1988. Dr. David is also a director of IRI International, Inc. He became a director of Fairchild in 1985.(3) Robert E. Edwards serves as an Executive Vice President of Fairchild Fasteners and as Chief Executive Officer of Special-T Fasteners, Inc., a wholly-owned subsidiary of Fairchild. Mr. Edwards has held these positions since Fairchild's acquisition of the Edwards and Lock Management Corporation, d/b/a Special-T 71 Fasteners, in March 1998. Mr. Edwards was a co-founder of Special-T Fasteners and served as such company's President and Chief Executive Officer since 1983. Mr. Edwards became a director of Fairchild in March 1998. Pursuant to the merger agreement, dated January 28, 1998, by which Fairchild acquired Special- T Fasteners, Mr. Edwards is to be nominated for election as a director every fiscal year during such period of time as he continues to own at least 50% of the shares of Fairchild Class A common stock issued to Mr. Edwards pursuant to such merger agreement. Harold J. Harris is President of Wm. H. Harris, Inc. He is a director of Capital Properties Incorporated of Rhode Island. He became a director of Fairchild in 1985.(2)(4) Daniel Lebard is the Chairman of the Board of Daniel Lebard Management Development SA, a consulting firm in Paris, France, which sells management services. He has served in such capacity for more than the last five years. Since 1995, he has also served as Chief Executive Officer of Groupe Sofrecid SA and Kvaerner-Clecim SA, engineering companies whose headquarters are in Paris. He became a director of Fairchild in 1996.(3) Herbert S. Richey served as President of Richey Coal Company, a coal properties-brokerage and consulting company, until December 1993. He became a director of Fairchild in 1977.(1)(2)(3)(5) Moshe Sanbar has served as President of the Israel National Committee in Tel Aviv and as a member of the executive board of the International Chamber of Commerce in Paris since 1996. He served as a Senior Vice President and Financial Advisor for the Eisenberg Group of Companies, an international import-export firm, from 1996 to January 1997. From 1988 through 1995 he was Chairman of the Board of Bank Leumi (Israel) and its group, worldwide. He became a director of Fairchild in 1997. - -------- (1) Member of the Executive Committee. (2) Member of the Audit Committee. (3) Member of the Compensation and Stock Option Committee. (4) Member of the Nominating Committee. (5) Member of the Corporate Ethics and Compliance Committee. Indemnification of Directors and Officers Section 145 of the Delaware General Corporation Law makes provision for the indemnification of officers and directors of corporations in terms sufficiently broad to indemnify the officers and directors of the registrant under certain circumstances for liabilities, including reimbursement of expenses incurred, arising under the Securities Act of 1933, as amended. The registrant's Bylaws provide that the registrant may indemnify any person who was or is 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, other than an action by or in the right of registrant, by reason of the fact that he is or was a director, officer, employee or agent of the registrant or is or was serving at the request of the registrant as a director, officer, employee or agent of another corporation or enterprise, against expenses, including attorneys' fees, judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding. Insofar as indemnification for liabilities arising under the Act may be permitted to directors, officers or persons controlling us pursuant to the foregoing provisions, we have been informed that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is therefore unenforceable. Other Information Articles have appeared in the French press reporting an inquiry by a French magistrate into certain allegedly improper business transactions involving Elf Acquitaine, a French petroleum company, its former chairman and various third parties, including Maurice Bidermann. In connection with this inquiry, the magistrate has made 72 inquiry into allegedly improper transactions between Mr. Jeffrey J. Steiner and that petroleum company. In response to the magistrate's request that Mr. Steiner appear in France as a witness, Mr. Steiner submitted written statements concerning the transactions and appeared in person before the magistrate and others. Mr. Steiner, who has been put under examination (mis en examen) by the magistrate, with respect to this matter, has not been charged. Mr. Steiner appeared before the Tribunal de Grande Instance de Paris to answer a charge of knowingly benefiting in 1990 from a misuse by Mr. Bidermann of corporate assets of Societe Generale Mobiliere et Immobiliere, a French corporation in which Mr. Bidermann is believed to have been the sole shareholder. Mr. Steiner has been assessed a fine of two million French Francs in connection therewith. Both Mr. Steiner and the prosecutor (parquet) have appealed the decision. 73 DESCRIPTION OF NEW CREDIT FACILITY We entered into our new credit facility concurrently with the closing of the KTI acquisition and the offering of the outstanding notes. Our new credit facility provides for total lending commitments of $325 million and is comprised of (i) a $100 million revolving credit facility, and (ii) a $225 million term loan facility. Borrowings under the new credit facility were used to finance, in part, the Transactions. The proceeds of the loans made under the revolving credit facility may also be used to fund our working capital needs, capital expenditures and other general corporate purposes, including the issuance of letters of credit. Borrowings under the new credit facility bear interest annually at the rate of LIBOR plus a spread of 3.00% for the revolving credit facility and LIBOR plus a spread of 3.25% for the term loan facility which spreads will be adjusted under certain circumstances. We also have the ability to borrow under the revolving credit facility and term loan facility at certain base rates. In addition, we must pay a fee on the face amount of each letter of credit outstanding at the LIBOR margin rate. The revolving credit facility matures six years after closing, and the term loan facility matures seven years after closing. The term loan facility has minimal amortization for the first six years after closing. The balance of the term loan facility matures in quarterly increments in the seventh year after closing. Our obligations under the new credit facility are secured by a pledge of all of the capital stock and assets of our principal domestic subsidiaries and by a pledge of 65% of the capital stock of our principal foreign subsidiaries in each case including KTI and its subsidiaries. Our new credit facility contains various covenants that limit, among other things, subject to certain exceptions, indebtedness, liens, transactions with affiliates, restricted payments and investments, mergers, consolidations and dissolutions, sales of assets, dividends and distributions and certain other business activities. Our new credit facility also requires us to maintain certain financial measures and ratios, including minimum EBITDA, interest coverage and fixed charge coverage, maximum leverage and capital expenditures. 74 THE EXCHANGE OFFER Purpose and Effect of the Exchange Offer Exchange Offer Registration Statement. We issued the outstanding notes on April 20, 1999. The initial purchasers to which we issued the outstanding notes have advised us that they subsequently resold the outstanding notes to "qualified institutional buyers" in reliance on Rule 144A under the Securities Act and to certain persons in offshore transactions in reliance on regulations under the Securities Act. As a condition to the offering of the outstanding notes, we entered into a registration rights agreement dated April 15, 1999, pursuant to which we agreed for the benefit of all holders of the outstanding notes, at our own expense, to do the following: (1) to file the registration statement of which this prospectus is a part with the SEC within 60 days after the issued date of the outstanding notes, (2) to use our best efforts to cause the registration statement to be declared effective under the Securities Act within 180 days after the issue date of the outstanding notes, and (3) to use our best efforts to keep the registration statement effective until the closing of the exchange offer. We also agreed that promptly upon the registration statement being declared effective, we would offer to all holders of the outstanding notes an opportunity to exchange the outstanding notes for the exchange notes. Further, we agreed to keep the exchange offer open for acceptance for not less than 30 business days after the date notice of the exchange offer is mailed to the holders of outstanding notes. For each outstanding note validly tendered pursuant to the exchange offer and not withdrawn, the holder of the outstanding note will receive an exchange note having a principal amount equal to that of the tendered outstanding note. Interest on each exchange note will accrue from the last date on which interest was paid on the tendered outstanding note in exchange therefor or, if no interest was paid on such outstanding note, from the issue date. The following is a summary of the registration rights agreement. It does not purport to be complete and it does not contain all of the information you might find useful. For further information you should read the registration rights agreement, a copy of which has been filed as an exhibit to the registration statement. The exchange offer is intended to satisfy certain of our obligations under the registration rights agreement. Transferability. We issued the outstanding notes on April 20, 1999 in a transaction exempt from the registration requirements of the Securities Act and applicable state securities laws. Accordingly, the outstanding notes may not be offered or sold in the United States unless registered or pursuant to an applicable exemption under the Securities Act and applicable state securities laws. Based on no-action letters issued by the staff of the Commission with respect to similar transactions, we believe that the exchange notes issued pursuant to the exchange offer in exchange for outstanding notes may be offered for resale, resold and otherwise transferred by holders of notes who are not our affiliates without further compliance with the registration and prospectus delivery requirements of the Securities Act, provided that: (1) any exchange notes to be received by the holder were acquired in the ordinary course of the holder's business; (2) at the time of the commencement of the exchange offer the holder has no arrangement or understanding with any person to participate in the distribution (within the meaning of the Securities Act) of the exchange notes; and (3) the holder is not an "affiliate" of Fairchild, as defined in Rule 405 under the Securities Act, or, if it is an affiliate, that it will comply with the registration and prospectus delivery requirements of the Securities Act to the extent applicable. However, we have not sought a no-action letter with respect to the exchange offer and we cannot assure you that the staff of the Commission would make a similar determination with respect to the exchange offer. 75 Any holder who tenders his outstanding notes in the exchange offer with any intention of participating in a distribution of exchange notes (1) cannot rely on the interpretation by the staff of the Commission, (2) will not be able to validly tender outstanding notes in the exchange offer and (3) must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any secondary resale transactions. In addition, each broker-dealer that receives exchange 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 exchange notes. The letter of transmittal accompanying this prospectus states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is acting in the capacity of an "underwriter" within the meaning of Section 2(11) 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 exchange notes received in exchange for outstanding notes where the outstanding notes were acquired by such broker-dealer as a result of market-making activities or other trading activities. Pursuant to the registration rights agreement, we agreed to make this prospectus available to any such broker-dealer for use in connection with any such resale. Shelf Registration Statement. We will, at our cost, (a) as promptly as practicable, file with the SEC a shelf registration statement covering resales of the outstanding notes, (b) cause the shelf registration statement to be declared effective under the Securities Act on or prior to the 180th day after the date we become obligated to file the shelf registration statement or receive certain notices from holders and (c) keep the shelf registration statement effective until the earlier of (A) the time when the Notes covered by the shelf registration statement can be sold pursuant to Rule 144 without any limitations under clauses (c), (e), (f) and (h) of Rule 144, (B) two years from the effective date and (C) the date on which all outstanding notes registered thereunder are disposed of in accordance therewith if: (1)there are any changes in law or the applicable interpretations of the staff of the SEC which do not permit us to effect the exchange offer; (2)for any other reason the exchange offer is not consummated within 210 days after the issue date of the outstanding notes; (3)any initial purchaser so requests within 10 days of the consummation of the exchange offer with respect to private notes not eligible to be exchanged for exchange notes in the exchange offer; or (4)there is a request by a holder within 10 days of the consummation of the exchange offer who is not permitted by applicable law to participate in the exchange offer or by a holder who elected to participate in the exchange offer but did not receive fully tradeable exchange notes pursuant to the exchange offer. We will, in the event of the filing of the shelf registration statement, provide to each holder of the outstanding notes copies of the prospectus which is a part of the shelf registration statement, notify each such holder when the shelf registration statement for the outstanding notes has become effective and take certain other action as are required to permit unrestricted resales of the outstanding notes. A holder of outstanding notes who sells such outstanding notes pursuant to the shelf registration statement generally will (1) be required to be named as a selling security holder in the related prospectus, (2) be required to deliver the prospectus to purchasers, (3) be subject to certain of the civil liability provisions under the Securities Act in connection with such sales and (4) be bound by the provisions of the registration rights agreement which are applicable to the holder (including certain indemnification obligations). In addition, each holder of the outstanding notes will be required to 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 outstanding notes included in the shelf registration statement and to benefit from the provisions regarding the increase in interest rate set forth in the following paragraph. Interest Rate Increase. The interest rate borne by the outstanding notes (for each outstanding note which has not been exchanged in the exchange offer) shall be increased by 0.5% per annum if: (1)neither this registration statement nor the shelf registration statement is filed on or prior to June 21, 1999. 76 (2) neither the exchange offer is consummated nor the shelf registration statement is declared effective on or prior to November 16, 1999, or (3) after either the exchange offer registration statement or the shelf registration statement is declared effective, it thereafter ceases to be effective or usable (subject to certain exceptions). The interest rate shall remain increased until the events specified in clauses (1), (2) and (3) (each a registration default) above are no longer occurring; provided, however, that (1) no holder of outstanding notes who is not entitled to the benefits of a shelf registration statement shall be entitled to receive additional interest by reason of a registration default that pertains to a shelf registration statement; and (2) no holder of outstanding notes constituting an unsold allotment from the original sale of the outstanding notes or any other holder of outstanding notes who is entitled to the benefits of a shelf registration statement shall be entitled to receive additional interest by reason of a registration default that pertains to an exchange offer. We will pay such additional interest on regular interest payment dates. Such additional interest will be in addition to any other interest payable from time to time with respect to the outstanding notes and the exchange notes. All references in the indenture, in any context, to any payment of principal, purchase prices in connection with a purchase of outstanding notes, and interest or any other amount payable on or with respect to any of the outstanding notes shall be deemed to include payment of any additional cash interest pursuant to the registration rights agreement. If we effect the exchange offer, we will be entitled to close the exchange offer 30 days after the commencement thereof provided that we have accepted all outstanding notes theretofore validly tendered in accordance with the terms of the exchange offer. Terms of the Exchange Offer Upon satisfaction or waiver of all the conditions of the exchange offer, we will accept, any and all outstanding notes properly tendered and not withdrawn prior to the expiration date and will issue the exchange notes promptly after acceptance of the outstanding notes. See "--Conditions to the Exchange Offer" and "Procedures for Tendering Private Notes." We will issue $1,000 principal amount of exchange notes in exchange for each $1,000 principal amount of outstanding notes accepted in the exchange offer. As of the date of this prospectus, $225,000,000 aggregate principal amount of the outstanding notes are outstanding. Holders may tender some or all of their outstanding notes pursuant to the exchange offer. However, outstanding notes may be tendered only in integral multiples of $1,000. The exchange notes are identical to the outstanding notes except for the elimination of certain transfer restrictions, registration rights, restrictions on holding notes in certificated form and liquidated damages provisions. The outstanding notes will evidence the same debt as the outstanding notes and will be issued pursuant to, and entitled to the benefits of, the indenture pursuant to which the outstanding notes were issued and will be deemed one issue of notes, together with the outstanding notes. This prospectus, together with the letter of transmittal, is being sent to all registered holders and to others believed to have beneficial interests in the outstanding notes. Holders of outstanding notes do not have any appraisal or dissenters' rights under the indenture in connection with the exchange offer. We intend to conduct the exchange offer in accordance with the applicable requirements of the Securities Act, the Exchange Act and the rules and regulations of the Commission promulgated thereunder. For purposes of the exchange offer, we will be deemed to have accepted validly tendered private notes when, and as if we have given oral or written notice thereof to the exchange agent. The exchange agent will act as our agent for the purpose of distributing the exchange notes from us to the tendering holders. If we do not 77 accept any tendered outstanding notes because of an invalid tender, the occurrence of certain other events set forth in this prospectus or otherwise, we will return the unaccepted outstanding notes, without expense, to the tendering holder thereof as promptly as practicable after the expiration date. Holders who tender private notes in the exchange offer will not be required to pay brokerage commissions or fees or, except as set forth below under "-- Transfer Taxes," transfer taxes with respect to the exchange of outstanding notes pursuant to the exchange offer. We 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 , 1999, unless we, in our sole discretion, extend 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, we will notify the exchange agent by oral or written notice and each registered holder by means of press release or other public announcement of any extension, in each case, prior to 9:00 a.m., New York City time, on the next business day after the previously scheduled expiration date. We reserve the right, in our sole discretion, (1) to delay accepting any outstanding notes, (2) to extend the exchange offer, (3) to terminate the exchange offer if the conditions set forth below under "--Conditions" shall not have been satisfied, or (4) to amend the terms of the exchange offer in any manner. We will notify the exchange agent of any delay, extension, termination or amendment by oral or written notice. We will additionally notify each registered holder of any amendment. We will give to the exchange agent written confirmation of any oral notice. Exchange Date As soon as practicable after the close of the exchange offer we will accept for exchange all outstanding notes properly tendered and not validly withdrawn prior to 5:00 p.m., New York City time, on the expiration date in accordance with the terms of this prospectus and the letters of transmittal. Conditions to the Exchange Offer Notwithstanding any other provisions of the exchange offer, and subject to our obligations under the registration rights agreement, we (1) shall not be required to accept any outstanding notes for exchange, (2) shall not be required to issue exchange notes in exchange for any outstanding notes and (3) may terminate or amend the exchange offer, if at any time before the acceptance of such exchange notes for exchange, any of the following events shall occur: (1) any injunction, order or decree shall have been issued by any court or any governmental agency that would prohibit, prevent or otherwise materially impair our ability to proceed with the exchange offer; or (2) the exchange offer shall violate any applicable law or any applicable interpretation of the staff of the Commission. The foregoing conditions are for our sole benefit and may be asserted by us regardless of the circumstances giving rise to any such condition or may be waived by us in whole or in part at any time and from time to time in our sole discretion. Our failure at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right and such right shall be deemed an ongoing right which may be asserted at any time and from time to time. In addition, we will not accept for exchange any outstanding notes tendered, and no exchange notes will be issued in exchange for any such outstanding notes, if at such time any stop order shall be threatened by the Commission or be in effect with respect to the registration statement of which this prospectus is a part or the qualification of the indenture under the Trust Indenture Act of 1939, as amended. The exchange offer is not conditioned on any minimum aggregate principal amount of outstanding notes being tendered for exchange. 78 Consequences of Failure to Exchange Any outstanding notes not tendered pursuant to the exchange offer will remain outstanding and continue to accrue interest. The outstanding notes will remain "restricted securities" within the meaning of the Securities Act. Accordingly, prior to the date that is one year after the later of the issue date and the last date on which we or any of our affiliates was the owner of the outstanding notes, the outstanding notes may be resold only (1) to us, (2) to a person whom the seller reasonably believes is a "qualified institutional buyer" purchasing for its own account or for the account of another "qualified institutional buyer" in compliance with the resale limitations of Rule 144A, (3) to an Institutional Accredited Investor that, prior to the transfer, furnishes to the trustee a written certification containing certain representations and agreements relating to the restrictions on transfer of the notes (the form of this letter can be obtained from the trustee), (4) pursuant to the limitations on resale provided by Rule 144 under the Securities Act, (5) pursuant to the resale provisions of Rule 904 of Regulation S under the Securities Act, (6) pursuant to an effective registration statement under the Securities Act, or (7) pursuant to any other available exemption from the registration requirements of the Securities Act, subject in each of the foregoing cases to compliance with applicable state securities laws. As a result, the liquidity of the market for non-tendered outstanding notes could be adversely affected upon completion of the exchange offer. The foregoing restrictions on resale will no longer apply after the first anniversary of the issue date of the outstanding note or the purchase of the outstanding notes from us or an affiliate. Fees and Expenses We will not make any payments to brokers, dealers or others soliciting acceptances of the exchange offer. The principal solicitation is being made by mail; however, additional solicitations may be made in person or by telephone by our officers and employees. Expenses incurred in connection with the exchange offer will be paid by us and are estimated in the aggregate to be approximately $250,000 which includes the fees and expenses of the trustee and the exchange agent, accounting and legal fees and other miscellaneous fees and expenses. Accounting Treatment We will not recognize any gain or loss for accounting purposes upon the consummation of the exchange offer. We will amortize the expenses of the exchange offer over the term of the exchange notes. Procedures for Tendering Outstanding Notes The tender of outstanding notes pursuant to any of the procedures set forth in this prospectus and in the letter of transmittal will constitute a binding agreement between the tendering holder and us in accordance with the terms and subject to the conditions set forth in this prospectus and in the letter of transmittal. The tender of outstanding notes will constitute an agreement to deliver good and marketable title to all tendered outstanding notes prior to the expiration date free and clear of all liens, charges, claims, encumbrances, interests and restrictions of any kind. Except as provided in "--Guaranteed Delivery Procedures," unless the outstanding notes being tendered are deposited by you with the exchange agent prior to the expiration date and are accompanied by a properly completed and duly executed letter of transmittal, we may, at our option, reject the tender. Issuance of exchange notes will be made only against deposit of tendered outstanding notes and delivery of all other required documents. Notwithstanding the foregoing, DTC participants tendering through its Automated Tender Offer Program ("ATOP") will be deemed to have made valid delivery where the exchange agent receives an agent's message prior to the expiration date. Accordingly, to properly tender outstanding notes, the following procedures must be followed: Notes held through a Custodian. Each beneficial owner holding outstanding notes through a DTC participant must instruct the DTC participant to cause its outstanding notes to be tendered in accordance with the procedures set forth in this prospectus. 79 Notes held through DTC. Pursuant to an authorization given by DTC to the DTC participants, each DTC participant holding outstanding notes through DTC must (1) electronically transmit its acceptance through ATOP, and DTC will then edit and verify the acceptance, execute a book-entry delivery to the exchange agent's account at DTC and send an agent's message to the exchange agent for its acceptance, or (2) comply with the guaranteed delivery procedures set forth below and in a notice of guaranteed delivery. See "-- Guaranteed Delivery Procedures-- Notes held through DTC." The exchange agent will (promptly after the date of this prospectus) establish accounts at DTC for purposes of the exchange offer with respect to outstanding notes held through DTC. Any financial institution that is a DTC participant may make book-entry delivery of interests in outstanding notes into the exchange agent's account through ATOP. However, although delivery of interests in the outstanding notes may be effected through book-entry transfer into the exchange agent's account through ATOP, an agent's message in connection with such book-entry transfer, and any other required documents, must be, in any case, transmitted to and received by the exchange agent at its address set forth under "--Exchange Agent," or the guaranteed delivery procedures set forth below must be complied with, in each case, prior to the expiration date. Delivery of documents to DTC does not constitute delivery to the exchange agent. The confirmation of a book-entry transfer into the exchange agent's account at DTC as described above is referred to herein as a "Book-Entry Confirmation." The term "agent's message" means a message transmitted by DTC to, and received by, the exchange agent and forming a part of the book-entry confirmation, which states that DTC has received an express acknowledgement from each DTC participant tendering through ATOP that such DTC participants have received a letter of transmittal and agree to the bound by the terms of the letter of transmittal and that we may enforce such agreement against such DTC participants. Cede & Co., as the holder of the global note, will tender a portion of the global note equal to the aggregate principal amount due at the stated maturity for which instructions to tender are given by DTC participants. By tendering, each holder and each DTC participant will represent to us that, among other things, (1) it is not our affiliate, (2) it is not a broker- dealer tendering outstanding notes acquired directly from us for its own account, (3) the exchange notes acquired pursuant to the exchange offer are being obtained in the ordinary course of business of such holder and (4) it has no understandings with any person to participate in the exchange offer for the purpose of distributing the exchange notes. We will not accept any alternative, conditional, irregular or contingent tenders (unless waived by us). By executing a letter of transmittal or transmitting an acceptance though ATOP, as the case may be, each tendering holder waives any right to receive any notice of the acceptance for purchase of its outstanding notes. We will resolve all questions as to the validity, form, eligibility (including time of receipt) and acceptance of tendered outstanding notes, and such determination will be final and binding. We reserve the absolute right to reject any or all tenders that are not in proper form or the acceptance of which may, in the opinion of our counsel, be unlawful. We also reserve the absolute right to waive any condition to the exchange offer and any irregularities or conditions of tender as to particular outstanding notes. Our interpretation of the terms and conditions of the exchange offer (including the instructions in the letter of transmittal) will be final and binding. Unless waived, any irregularities in connection with tenders must be cured within such time as we shall determine. We, along with the exchange agent, shall be under no duty to give notification of defects in such tenders and shall not incur liabilities for failure to give such notification. Tenders of outstanding notes will not be deemed to have been made until such irregularities have been cured or waived. Any outstanding notes received by the exchange agent that are not properly tendered and as to which the irregularities have not been cured or waived will be returned by the exchange agent to the tendering holder, unless otherwise provided in the letter of transmittal, as soon as practicable following the expiration date. 80 LETTERS OF TRANSMITTAL AND OUTSTANDING NOTES MUST BE SENT ONLY TO THE EXCHANGE AGENT. DO NOT SEND LETTERS OF TRANSMITTAL OR OUTSTANDING NOTES TO US OR DTC. The method of delivery of outstanding notes, letters of transmittal, any required signature guaranties and all other required documents, including delivery through DTC and any acceptance through ATOP, is at the election and risk of the persons tendering and delivering acceptances or letters of transmittal and, except as otherwise provided in the applicable letter of transmittal, delivery will be deemed made only when actually received by the exchange agent. If delivery is by mail, it is suggested that the holder use properly insured, registered mail with return receipt requested, and that the mailing be made sufficiently in advance of the expiration date to permit delivery to the exchange agent prior to the expiration date. Guaranteed Delivery Procedures Notes held through DTC. DTC participants holding outstanding notes through DTC who wish to cause their outstanding notes to be tendered, but who cannot transmit their acceptances through ATOP prior to the expiration date, may cause a tender to be effected if: (1) guaranteed delivery is made by or through a firm or other entity identified in Rule 17Ad-15 under the Exchange Act, including: . a bank; . a broker, dealer, municipal securities dealer, municipal securities broker, government securities dealer or government securities broker; . a credit union; . a national securities exchange, registered securities association or clearing agency; or . a savings institution that is a participant in a Securities Transfer Association recognized program; (2) prior to the expiration date, the exchange agent receives from any of the above institutions a properly completed and duly executed notice of guaranteed delivery (by mail, hand delivery, facsimile transmission or overnight courier) substantially in the form provided with this prospectus; and (3) book-entry confirmation and an agent's message in connection therewith are received by the exchange agent within three NYSE trading days after the date of the execution of the notice of guaranteed delivery. Notes held by Holders. Holders who wish to tender their outstanding notes but (1) whose outstanding notes are not immediately available and will not be available for tendering prior to the expiration date, or (2) who cannot deliver their outstanding notes, the letter of transmittal, or any other required documents to the exchange agent prior to the expiration date, may effect a tender if: . the tender is made by or through any of the above-listed institutions; . prior to the expiration date, the exchange agent receives from any above-listed institution a properly completed and duly executed notice of guaranteed delivery, whether by mail, hand delivery, facsimile transmission or overnight courier, substantially in the form provided with this prospectus; and . a properly completed and executed letter of transmittal, as well as the certificate(s) representing all tendered outstanding notes in proper form for transfer, and all other documents required by the letter of transmittal, are received by the exchange agent within three NYSE trading days after the date of the execution of the notice of guaranteed delivery. 81 Withdrawal Rights You may withdraw tenders of outstanding notes, or any portion of your outstanding notes in integral multiples of $1,000 principal amount due at the stated maturity, at any time prior to 5:00 p.m., New York City time, on the expiration date. Any outstanding notes properly withdrawn will be deemed to be not validly tendered for purposes of the exchange offer. Notes held through DTC. DTC participants holding outstanding notes who have transmitted their acceptances through ATOP may, prior to 5:00 p.m., New York City time, on the expiration date, withdraw the instruction given thereby by delivering to the exchange agent, at its address set forth under "--Exchange Agent," a written, telegraphic or facsimile notice of withdrawal of such instruction. Such notice of withdrawal must contain the name and number of the DTC participant, the principal amount due at the stated maturity of outstanding notes to which such withdrawal related and the signature of the DTC participant. Receipt of such written notice of withdrawal by the exchange agent effectuates a withdrawal. Notes held by Holders. Holders may withdraw their tender of outstanding notes, prior to 5:00 p.m., New York City time, on the expiration date, by delivering to the exchange agent, at its address set forth under "--Exchange Agent," a written, telegraphic or facsimile notice of withdrawal. Any such notice of withdrawal must (1) specify the name of the person who tendered the outstanding notes to be withdrawn, (2) contain a description of the outstanding notes to be withdrawn and identify the certificate number or numbers shown on the particular certificates evidencing such outstanding notes and the aggregate principal amount due at the stated maturity represented by such outstanding notes and (3) be signed by the holder of such outstanding notes in the same manner as the original signature on the letter of transmittal by which such outstanding notes were tendered (including any required signature guaranties), or be accompanied by (x) documents of transfer in a form acceptable to us, in our sole discretion and (y) a properly completed irrevocable proxy that authorized such person to effect such revocation on behalf of such holder. If the outstanding notes to be withdrawn have been delivered or otherwise identified to the exchange agent, a signed notice of withdrawal is effective immediately upon written, telegraphic or facsimile notice of withdrawal even if physical release is not yet effected. All signatures on a notice of withdrawal must be guaranteed by a recognized participant in the Securities Transfer Agents Medallion Program, the New York Stock Exchange Medallion Signature Program or the Stock Exchange Medallion Program; provided, however, that signatures on the notice of withdrawal need not be guaranteed if the outstanding notes being withdrawn are held for the account of any of the institutions listed above under "--Guaranteed Delivery Procedures." A withdrawal of an instruction or a withdrawal of a tender must be executed by a DTC participant or a holder of outstanding notes, as the case may be, in the same manner as the person's name appears on its transmission through ATOP or letter of transmittal, as the case may be, to which such withdrawal relates. If a notice of withdrawal is signed by a trustee, partner, executor, administrator, guardian, attorney-in-fact, agent, officer of a corporation or other person acting in a fiduciary or representative capacity, such person must so indicate when signing and must submit with the revocation appropriate evidence of authority to execute the notice of withdrawal. A DTC participant or a holder may withdraw an instruction or a tender, as the case may be, only if such withdrawal complies with the provisions of this prospectus. A withdrawal of a tender of outstanding notes by a DTC participant or a holder, as the case may be, may be rescinded only by a new transmission of an acceptance through ATOP or execution and delivery of a new letter of transmittal, as the case may be, in accordance with the procedures described herein. 82 Exchange Agent The Bank of New York Trust Company of Florida has been appointed as exchange agent for the exchange offer. Questions, requests for assistance and requests for additional copies of this prospectus or of the letter of transmittal should be directed to the exchange agent addressed as follows: By Registered or Certified Mail By Hand or By Overnight Courier: The Bank of New York Trust Company of Florida as Exchange Agent Highwoods Plaza, 3rd Floor 10161 Centurion Plaza Jacksonville, FL 32256 Attention: John H. Speichert Facsimile By Telephone: (904) 645-1930 (904) 645-1955
The exchange agent also acts as trustee under the indenture. Transfer Taxes Holders of outstanding notes who tender their outstanding notes for exchange notes will not be obligated to pay any transfer taxes in connection therewith, except that holders who instruct us to register exchange notes in the name of, or request that outstanding notes not tendered or not accepted in the exchange offer be returned to, a person other than the registered tendering holder will be responsible for the payment of any applicable transfer tax thereon. 83 DESCRIPTION OF THE NOTES The outstanding notes were and the exchange notes will be issued under an Indenture (the "Indenture") between itself, the Subsidiary Guarantors and The Bank of New York, as trustee (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 (the "Trust Indenture Act"). Certain terms used in this description are defined under the caption"-- Certain Definitions." In this description, the words "we," "our," "us," "Company" and "Fairchild" refer only to The Fairchild Corporation and not to any of its subsidiaries. The following description is only a summary of the material provisions of the Indenture. A copy of the Indenture is filed as an exhibit to the registration statement. We urge you to read the Indenture because it, and not this description, define your rights as holders of these Notes. Brief Description of the Notes and the Subsidiary Guarantees The Notes These Notes: . are unsecured senior subordinated obligations of the Company; . are subordinated in right of payment to all existing and future Senior Indebtedness of the Company; . are senior in right of payment to any future Subordinated Obligations of the Company; . are subject to registration with the SEC pursuant to the Registration Rights Agreement; and . are unconditionally guaranteed by the Subsidiary Guarantors. Subsidiary Guarantees The Notes are jointly and severally guaranteed, by substantially all of the Company's existing domestic Subsidiaries. The Subsidiary Guarantees of these Notes: . are general obligations of each Subsidiary Guarantor; . are subordinated in right of payment to all existing and future Senior Indebtedness of each Subsidiary Guarantor; and . are senior in right of payment to any future Subordinated Obligations of each Subsidiary Guarantor. Assuming we had completed the offering of these Notes and applied the net proceeds as intended, as of March 28, 1999, the Company would have had total Senior Indebtedness of approximately $225.0 million and the Subsidiary Guarantors would have had $244.0 million of Senior Indebtedness (including $225.0 million of borrowings under the New Credit Facility). As indicated above and as discussed in detail below under the subheading "Subordination," payments on the Notes and under the Subsidiary Guarantees will be subordinated to the payment of Senior Indebtedness. The Indenture will permit us and the Subsidiary Guarantors to incur additional Senior Indebtedness. As of the date of the Indenture, substantially all of our subsidiaries will be "Restricted Subsidiaries." However, under the circumstances described below under the definition of Unrestricted Subsidiaries we will be permitted to designate certain of our subsidiaries as "Unrestricted Subsidiaries." Unrestricted Subsidiaries will not be subject to any of the restrictive covenants in the Indenture. Unrestricted Subsidiaries will not guarantee these Notes. 84 Certain of our "Restricted Subsidiaries," including our Foreign Restricted Subsidiaries, will not guarantee these Notes. In the event of a bankruptcy, liquidation or reorganization of any of these non-guarantor subsidiaries, these non-guarantor subsidiaries will pay the holders of their debt and their trade creditors before they will be able to distribute any of their assets to us. The Subsidiary Guarantors generated approximately 77.1% of our consolidated revenues in the twelve-month period ended March 28, 1999 and held approximately 52.1% of our consolidated assets as of March 28, 1999. In the event of a sale or other disposition of all of the assets of any Subsidiary Guarantor, by way of merger, consolidation or otherwise, or a sale or other disposition of all of the Capital Stock of any Subsidiary Guarantor, by way of merger, consolidation or otherwise, such Subsidiary Guarantor (in the event of a sale or other disposition of all of the Capital Stock of such Subsidiary Guarantor) will be released and relieved of its obligations under its Subsidiary Guarantee and (in the event of a sale or other disposition of all of the assets of such Subsidiary Guarantor complying with the covenant described under "Certain Covenants--Limitation on Asset Dispositions") the Person acquiring the property will not be required to enter into a Subsidiary Guarantee, provided, in each case, that such transaction is carried out pursuant to and in accordance with "--Certain Covenants--Limitation on Asset Dispositions" and, if applicable, "--Merger and Consolidation" below. Principal, Maturity and Interest The Notes will be issued initially for a maximum aggregate principal amount of $225.0 million. The Company will issue the Notes in denominations of $1,000 and any integral multiple of $1,000. The Notes will mature on April 15, 2009. Subject to our compliance with the covenant described under the caption "-- Certain Covenants--Limitation on Indebtedness," we are permitted to issue more Notes under the Indenture in an additional aggregate principal amount of $200.0 million (the "Additional Notes"). Interest on these Notes will accrue at the rate of 10 3/4% per annum and will be payable semiannually in arrears on April 15 and October 15, commencing on October 15, 1999. The Company will make each interest payment to the holders of record of these Notes on the immediately preceding April 1 and October 1. Interest on these Notes will accrue from the date of original issuance or, if interest has already been paid, from the date it was most recently paid. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months. Optional Redemption Except as set forth below, we will not be entitled to redeem the Notes at our option prior to April 15, 2004. On and after April 15, 2004, we will be entitled at our option to redeem all or a part of these Notes 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, if any, to the applicable redemption date, if redeemed during the 12-month period beginning on April 15 in the years indicated below:
Year Percentage ---- ---------- 2004........................................ 105.375% 2005........................................ 103.583 2006........................................ 101.792 2007 and thereafter......................... 100.000
85 In addition, before April 15, 2002, we may at our option on one or more occasions redeem up to 35% of the aggregate original principal amount of Notes (including the original principal amount of any Additional Notes) at a redemption price of 110.750% of the principal amount thereof, plus accrued and unpaid interest to the redemption date, with the net cash proceeds from one or more Public Equity Offerings; provided that (1) at least 65% of the original aggregate principal amount of Notes (including the original principal amount of any Additional Notes) remains outstanding immediately after the occurrence of each such redemption (other than Notes held, directly or indirectly, by the Company or its Affiliates); and (2) each such redemption occurs within 60 days after the date of the related Public Equity Offering. Selection and Notice If we are redeeming less than all the Notes at any time, the Trustee will select Notes in accordance 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 other method as the Trustee in its sole discretion shall deem to be fair and appropriate. We will not redeem Notes of $1,000 or less in part. We will cause notices of redemption to 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 that Note shall state the portion of the principal amount thereof to be redeemed. We will issue a new Note in principal amount equal to the unredeemed portion of the original Note in the name of the holder thereof upon cancellation of the original Note. Notes called for redemption become due on the date fixed for redemption. On and after the redemption date, interest ceases to accrue on Notes or portions of them called for redemption. Subordination The payment of the principal of, premium, if any, and interest on the Notes will be subordinate in right of payment to the prior payment in full of all Senior Indebtedness, including Fairchild's obligations under the New Credit Facility. The obligations of a Subsidiary Guarantor under its Subsidiary Guarantee will be subordinate in right of payment to the prior payment in full of all Senior Indebtedness of such Subsidiary Guarantor. The terms of the subordination provisions described herein with respect to the Company's obligations under the Notes apply equally to a Subsidiary Guarantor and the obligations of such Subsidiary Guarantor under its Subsidiary Guarantee. Only Indebtedness of Fairchild or the Subsidiary Guarantors that is Senior Indebtedness will rank senior to the Notes and the relevant Subsidiary Guarantee in accordance with the provisions of the Indenture. The Notes and the Subsidiary Guarantees will in all respects rank pari passu with all other Senior Subordinated Indebtedness of the Company and the Subsidiary Guarantors, respectively, and will rank senior to all other Subordinated Obligations of the Company and the Subsidiary Guarantors, respectively. As of December 27, 1998, on a pro forma basis after giving effect to the Transactions, the aggregate outstanding principal amount of all our Senior Indebtedness would have been approximately $225.0 million. The Subsidiary Guarantors, would have had approximately $268.4 million of Senior Indebtedness, including $225.0 million of outstanding liabilities as guarantors under the New Credit Facility. Our subsidiaries which are not guarantors would have had approximately $266.9 million of indebtedness and other liabilities, including $225.0 million of outstanding liabilities as guarantors under the New Credit Facility. Although the Indenture contains limitations on the amount of additional Indebtedness that the Company and the Subsidiary Guarantors may incur, under certain circumstances the amount of such Indebtedness could be substantial and, in any case, such Indebtedness may be Senior Indebtedness. See "--Certain Covenants--Limitation on Indebtedness." 86 Most of the Company's operations are conducted through its subsidiaries. Claims of creditors of such subsidiaries generally will have priority with respect to the assets and earnings of such subsidiaries over the claims of creditors of the Company, including holders of the Notes. Accordingly, the Notes will be effectively subordinated to creditors (including trade creditors) and preferred stockholders, if any, of subsidiaries of the Company, except to the extent that the Subsidiary Guarantees may be enforceable by holders of the Notes against the Subsidiary Guarantors. We and the Subsidiary Guarantors have agreed in the Indenture that we will not Incur, directly or indirectly, any Indebtedness that is contractually subordinate or junior in right of payment to our Senior Indebtedness, unless such Indebtedness is Senior Subordinated Indebtedness or is expressly subordinated in right of payment to Senior Subordinated Indebtedness. The Indenture does not treat unsecured Indebtedness as subordinated or junior to Secured Indebtedness merely because it is unsecured. We are not permitted to pay principal of, premium, if any, or interest on the Notes or make any deposit pursuant to the provisions described under "-- Discharge; Defeasance" below and may not repurchase, redeem or otherwise retire any Notes (collectively, "pay the Notes") if: (1) any Designated Senior Indebtedness is not paid when due; or (2) any other default on Designated Senior Indebtedness occurs and the maturity of such Designated Senior Indebtedness is accelerated in accordance with its terms; unless, in either case, the default has been cured or waived and any such acceleration has been rescinded or such Designated Senior Indebtedness has been paid in full. Regardless of the foregoing, we are permitted to pay the Notes if we and the Trustee receive written notice approving such payment from the Representative of any Designated Senior Indebtedness with respect to which either of the events set forth in clause (1) or (2) above has occurred and is continuing. During the continuance of any default (other than a default described in clause (1) or (2) above) with respect to any Designated Senior Indebtedness pursuant to which the maturity thereof may be accelerated either without further notice (except such notice as may be required to effect such acceleration) or after the expiration of any applicable grace periods, we are not permitted to pay the Notes for a period (a "Payment Blockage Period") commencing after the receipt by the Trustee (with a copy to us) of written notice (a "Blockage Notice") of such default from the Representative of the holders of such Designated Senior Indebtedness specifying an election to effect a Payment Blockage Period and ending 179 days thereafter. The Payment Blockage Period will end earlier if such Payment Blockage Period is terminated (1) by written notice to the Trustee and us from the Person or Persons who gave such Blockage Notice; (2) because the default giving rise to such Blockage Notice is cured, waived or otherwise no longer continuing; or (3) because such Designated Senior Indebtedness has been discharged or repaid in full. Notwithstanding the provisions described above, unless the holders of such Designated Senior Indebtedness or the Representative of such holders have accelerated the maturity of such Designated Senior Indebtedness, we are permitted to resume payments on the Notes after the end of such Payment Blockage Period. The Notes shall not be subject to more than one Payment Blockage Period in any consecutive 360-day period. Upon any payment or distribution of the assets of either Fairchild or any Subsidiary Guarantor upon a total or partial liquidation or dissolution or reorganization of or similar proceeding relating to either Fairchild or any Subsidiary Guarantor or its property: (1) the holders of Senior Indebtedness will be entitled to receive payment in full of such Senior Indebtedness before the holders of the Notes are entitled to receive any payment; 87 (2) until the Senior Indebtedness is paid in full, any payment or distribution to which holders of the Notes would be entitled but for the subordination provisions of the Indenture will be made to holders of such Senior Indebtedness as their interests may appear, except that holders of Notes may receive certain Capital Stock and subordinated debt obligations; and (3) if a distribution is made to holders of the Notes that, due to the subordination provisions, should not have been made to them, such holders of the Notes are required to hold it in trust for the holders of Senior Indebtedness and pay it over to them as their interests may appear. If payment of the Notes is accelerated because of an Event of Default, Fairchild or the Trustee shall promptly notify the holders of Designated Senior Indebtedness or the Representative of such holders of the acceleration. By reason of the subordination provisions contained in the Indenture, in the event of a liquidation or insolvency proceeding, creditors of Fairchild or a Subsidiary Guarantor who are holders of Senior Indebtedness of Fairchild or such Subsidiary Guarantor, as the case may be, may recover more, ratably, than the holders of the Notes and creditors of Fairchild or such Subsidiary Guarantor who are not holders of Senior Indebtedness may recover less, ratably, than holders of Senior Indebtedness and may recover more, ratably, than the holders of the Notes. The terms of the subordination provisions described above will not apply to payments from money or the proceeds of U.S. Government Obligations held in trust by the Trustee for the payment of principal of and interest on the Notes pursuant to the provisions described under "--Discharge; Defeasance." Book-Entry, Delivery and Form We will initially issue the Notes in the form of one or more global notes (the "Global Note"). The Global Note will be deposited with, or on behalf of, the Depository and registered in the name of the Depository or its nominee. Except as set forth below, the Global Note may be transferred, in whole and not in part, only to the Depository or another nominee of the Depository. You may hold your beneficial interests in the Global Note directly through the Depository if you have an account with the Depository or indirectly through organizations which have accounts with the Depository. The Depository has advised Fairchild as follows: the Depository is a limited-purpose trust company organized under the laws of the State of New York, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and "a clearing agency" registered pursuant to the provisions of Section 17A of the Exchange Act. The Depository was created to hold securities of institutions that have accounts with the Depository ("participants") and to facilitate the clearance and settlement of securities transactions among its participants in such securities through electronic book-entry changes in accounts of the participants, thereby eliminating the need for physical movement of securities certificates. The Depository's participants include securities brokers and dealers (which may include the Initial Purchasers), banks, trust companies, clearing corporations and certain other organizations. Access to the Depository's book-entry system is also available to others such as banks, brokers, dealers and trust companies (collectively, the "indirect participants") that clear through or maintain a custodial relationship with a participant, whether directly or indirectly. Fairchild expects that pursuant to procedures established by the Depository, upon the deposit of the Global Note with the Depository, the Depository will credit, on its book-entry registration and transfer system, the principal amount of Notes represented by such Global Note to the accounts of participants. The accounts to be credited shall be designated by the Initial Purchasers. Ownership of beneficial interests in the Global Note will be limited to participants or persons that may hold interests through participants. Ownership of beneficial 88 interests in the Global Note will be shown on, and the transfer of those ownership interests will be effected only through, records maintained by the Depository (with respect to participants' interests), the participants and the indirect participants (with respect to the owners of beneficial interests in the Global Note other than participants). The laws of some jurisdictions may require that certain purchasers of securities take physical delivery of such securities in definitive form. Such limits and laws may impair the ability to transfer or pledge beneficial interests in the Global Note. So long as the Depository, or its nominee, is the registered holder and owner of the Global Note, the Depository or such nominee, as the case may be, will be considered the sole legal owner and holder of any related Notes evidenced by the Global Note for all purposes of such Notes and the Indenture. Except as set forth below, as an owner of a beneficial interest in the Global Note, you will not be entitled to have the Notes represented by the Global Note registered in your name, will not receive or be entitled to receive physical delivery of certificated Notes and will not be considered to be the owner or holder of any Notes under the Global Note. We understand that under existing industry practice, in the event an owner of a beneficial interest in the Global Note desires to take any action that the Depository, as the holder of the Global Note, is entitled to take, the Depository would authorize the participants to take such action, and the participants would authorize beneficial owners owning through such participants to take such action or would otherwise act upon the instructions of beneficial owners owning through them. We will make payments of principal of, premium, if any, and interest on Notes represented by the Global Note registered in the name of and held by the Depository or its nominee to the Depository or its nominee, as the case may be, as the registered owner and holder of the Global Note. We expect that the Depository or its nominee, upon receipt of any payment of principal of, premium, if any, or interest on the Global Note will credit participants' accounts with payments in amounts proportionate to their respective beneficial interests in the principal amount of the Global Note as shown on the records of the Depository or its nominee. We also expect that payments by participants or indirect participants to owners of beneficial interests in the Global Note held through such participants or indirect participants will be governed by standing instructions and customary practices and will be the responsibility of such participants or indirect participants. We will not have any responsibility or liability for any aspect of the records relating to, or payments made on account of, beneficial ownership interests in the Global Note for any Note or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests or for any other aspect of the relationship between the Depository and its participants or indirect participants or the relationship between such participants or indirect participants and the owners of beneficial interests in the Global Note owning through such participants. Although the Depository has agreed to the foregoing procedures in order to facilitate transfers of interests in the Global Note among participants of the Depository, it is under no obligation to perform or continue to perform such procedures, and such procedures may be discontinued at any time. Neither the Trustee nor Fairchild will have any responsibility or liability for the performance by the Depository or its participants or indirect participants of their respective obligations under the rules and procedures governing their operations. Certificated Notes Subject to certain conditions, the Notes represented by the Global Note are exchangeable for certificated Notes in definitive form of like tenor in denominations of $1,000 and integral multiples thereof if (1) the Depository notifies Fairchild that it is unwilling or unable to continue as Depository for the Global Note and we are unable to locate a qualified successor within 90 days or if at any time the Depository ceases to be a clearing agency registered under the Exchange Act; (2) Fairchild in its discretion at any time determines not to have all the Notes represented by the Global Note; or (3) a default entitling the holders of the Notes to accelerate the maturity thereof has occurred and is continuing. 89 Any Note that is exchangeable as above is exchangeable for certificated Notes issuable in authorized denominations and registered in such names as the Depository shall direct. Subject to the foregoing, the Global Note is not exchangeable, except for a Global Note of the same aggregate denomination to be registered in the name of the Depository or its nominee. In addition, such certificates will bear the legend referred to under "Transfer Restrictions" (unless we determine otherwise in accordance with applicable law), subject, with respect to such certificated Notes, to the provisions of such legend. Same-Day Payment The Indenture requires us to make payments in respect of Notes (including principal, premium 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. Change of Control Upon the occurrence of any of the following events (each a "Change of Control"), each holder shall have the right to require that the Company purchase such holder's Notes at a purchase price in cash equal to 101% of the principal amount thereof plus accrued and unpaid interest, if any, to the date of purchase (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date): (1) any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act), other than one or more Permitted Holders, becomes the beneficial owner (as defined in Rules 13d-3 and 13d-5 under the Exchange Act), directly or indirectly, of more than 40% of the total voting power of the Voting Stock of the Company; provided, however, that the Permitted Holders beneficially own (as defined above), directly or indirectly, in the aggregate a lesser percentage of the total voting power of the Voting Stock of the Company than such other person and do not have the right or ability by voting power, contract or otherwise to elect or designate for election a majority of the Board of Directors; (2) during any period of two consecutive years, individuals who at the beginning of such period constituted the Board of Directors (together with any new directors whose election by such Board of Directors or whose nomination for election by the stockholders of the Company was approved pursuant to the vote of 66 2/3% of the directors of the Company then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Board of Directors then in office; or (3) the merger or consolidation of the Company with or into another Person (other than a Permitted Holder) or the merger of another Person with or into the Company (other than a Permitted Holder), or the sale of all or substantially all the assets of the Company to another Person (other than a Permitted Holder), and, in the case of any such merger or consolidation, the securities of the Company that are outstanding immediately prior to such transaction and that represent 100% of the aggregate voting power of the Voting Stock of the Company are changed into or exchanged for cash, securities or property, unless pursuant to such transaction such securities are changed into or exchanged for, in addition to any other consideration, securities of the surviving Person that represent, immediately after such transaction, at least a majority of the aggregate voting power of the Voting Stock of the surviving corporation. Within 30 days after any Change of Control, unless notice of redemption of the Notes has been given pursuant to the Indenture, as described under "Optional Redemption," the Company will mail a notice to each holder of Notes at its registered address, with a copy to the Trustee (the "Change of Control Offer") stating: (1) that a Change of Control has occurred and that such holder has the right to require us to purchase such holder's Notes at a purchase price in cash equal to 101% of the principal amount thereof plus accrued and unpaid interest, if any, to the date of purchase (subject to the right of holders of record on the relevant record date to receive interest on the relevant interest payment date); 90 (2) the circumstances and relevant facts regarding such Change of Control (including information with respect to pro forma historical income, cash flow and capitalization after giving effect to such Change of Control); (3) the purchase date (which shall be no earlier than 30 days nor later than 60 days from the date such notice is mailed); and (4) the instructions determined by us, consistent with the covenant described under this caption, that a holder must follow in order to have its Notes purchased. The Company will not be required to make a Change of Control Offer following 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. The Company shall comply, to the extent applicable, with the requirements of Section 14(e) of the Exchange Act and any other securities laws or regulations in connection with the purchase of Notes pursuant to the covenant described under this caption. To the extent that the provisions of any securities laws or regulations conflict with the provisions of the covenant described under this caption, we will comply with the applicable securities laws and regulations and shall not be deemed to have breached our obligations under the covenant described under this caption by virtue thereof. The Change of Control purchase feature of the Notes may in certain circumstances make more difficult or discourage a sale or takeover of Fairchild and, thus, the removal of incumbent management. The Change of Control purchase feature is a result of negotiations between Fairchild and the Initial Purchasers and is not the result of our knowledge of any specific effort to accumulate shares of common stock of the Company or to obtain control of Fairchild by means of a merger, tender offer, solicitation or otherwise, or part of a plan by management to adopt a series of anti-takeover provisions. We have no present intention to engage in a transaction involving a Change of Control, although it is possible that we could decide to do so in the future. Subject to the limitations discussed below, we could, in the future, enter into certain transactions, including acquisitions, refinancings or other recapitalizations, that would not constitute a Change of Control under the Indenture, but that could increase the amount of Indebtedness outstanding at such time or otherwise affect our capital structure or credit ratings. Restrictions on our ability to incur additional Indebtedness are contained in the covenant described under the caption "--Certain Covenants-- Limitation on Indebtedness." Such restrictions can only be waived with the consent of the holders of a majority in principal amount of the Notes then outstanding. Except for the limitations contained in such covenant, however, the Indenture will not contain any covenants or provisions that may afford holders of the Notes protection in the event of a highly leveraged transaction. The New Credit Facility will prohibit us from purchasing any Notes and will also provide that the occurrence of certain Change of Control events with respect to Fairchild would constitute a default thereunder. In the event a Change of Control occurs at a time when we are prohibited from purchasing Notes, we may seek the consent of our lenders to the purchase of Notes or could attempt to refinance the borrowings that contain such prohibition. If we do not obtain such a consent or repay such borrowings, we will remain prohibited from purchasing Notes. In such case, our failure to purchase tendered Notes would constitute an Event of Default under the Indenture which would, in turn, constitute a default under the New Credit Facility. In such circumstances, the subordination provisions in the Indenture would likely restrict payment to the holders of Notes. Future indebtedness that we may incur may contain prohibitions on the occurrence of certain events that would constitute a Change of Control or require us to repurchase such indebtedness upon a Change of Control. Moreover, the exercise by the holders of their right to require the Company to purchase the Notes could cause a default under such indebtedness, even if the Change of Control itself does not, due to the financial effect of such purchase on us. Finally, our ability to pay cash to the holders of Notes following the occurrence of a Change of Control may be limited by our then existing financial resources. There can be no assurance that sufficient funds will be available when necessary to make any required repurchases. 91 Certain Covenants The Indenture contains covenants including, among others, the following: Limitation on Indebtedness. (a) The Company will not, and will not permit any Restricted Subsidiary to, Incur, directly or indirectly, any Indebtedness; provided, however, that the Company or any Restricted Subsidiary may Incur Indebtedness if, on the date of such Incurrence and after giving effect thereto on a pro forma basis, the Consolidated Coverage Ratio would be equal to or greater than 2.0 to 1.0. (b) Notwithstanding the foregoing paragraph (a), the Company and the Restricted Subsidiaries may Incur any or all of the following Indebtedness: (1) Indebtedness Incurred by the Company or any Restricted Subsidiary pursuant to the New Credit Facility; provided, however, that, after giving effect to any such Incurrence, the aggregate principal amount of such Indebtedness then outstanding does not exceed the greater of (x) $375 million and (y) an amount equal to the sum of (i) 80% of the consolidated book value of the net accounts receivable that are owned by the Company or any of its Restricted Subsidiaries as of the most recently ended fiscal quarter for which financial statements are available, plus (ii) 60% of the consolidated book value of the inventory owned by the Company or any of its Restricted Subsidiaries as of such date, all as calculated on a consolidated basis and in accordance with GAAP; (2) Indebtedness Incurred by any Foreign Restricted Subsidiary; provided, however, that, after giving effect to any such Incurrence, the aggregate principal amount of such Indebtedness then outstanding does not exceed $50 million; (3) Indebtedness owed to and held by the Company or any Restricted Subsidiary; provided, however, that (A) any subsequent issuance or transfer of any Capital Stock which results in any such Restricted Subsidiary ceasing to be a Restricted Subsidiary or any subsequent transfer of such Indebtedness (other than to the Company or a Restricted Subsidiary) shall be deemed, in each case, to constitute the Incurrence of such Indebtedness and (B) if the Company is the obligor on such Indebtedness, the payment of such Indebtedness is expressly subordinate to the prior payment in full in cash of all obligations with respect to the Notes; (4) the Notes and the Exchange Notes (other than Additional Notes) and the Subsidiary Guarantees (other than in respect of Additional Notes); (5) Indebtedness (other than the Indebtedness described in clauses (1), (2), (3) or (4) above) outstanding on the Issue Date; (6) Refinancing Indebtedness in respect of Indebtedness Incurred pursuant to paragraph (a) above or pursuant to clause (4) or (5) of this covenant or this clause (6); provided, however, that if such Refinancing Indebtedness directly or indirectly Refinances Indebtedness of a Restricted Subsidiary, such Refinancing Indebtedness shall be Incurred only by such Restricted Subsidiary; (7) Hedging Obligations directly related to Indebtedness permitted to be Incurred by the Company pursuant to the Indenture; (8) Indebtedness, including, Capitalized Lease Obligations and purchase money Indebtedness, Incurred by the Company or its Restricted Subsidiaries to finance the acquisition of tangible assets (or of any Person owning tangible assets) or other capital expenditures, and Indebtedness Incurred by the Company or its Restricted Subsidiaries to Refinance such Capitalized Lease Obligations and purchase money Indebtedness, in an aggregate outstanding principal amount which, when added together with the amount of Indebtedness Incurred pursuant to this clause (8) and then outstanding, does not exceed $35 million at any time; (9) Indebtedness arising from agreements providing for indemnification, adjustment of purchase price or similar obligations, or from guarantees or letters of credit, surety bonds or performance bonds securing any obligations of the Company or any of its Restricted Subsidiaries pursuant to such agreements, in each 92 case incurred in connection with the acquisition or disposition of any business or assets or subsidiaries of the Company permitted by the Indenture; (10) Indebtedness in respect of performance bonds, bankers' acceptance and surety or appeal bonds provided by the Company or any of its Restricted Subsidiaries in the ordinary course of business; (11) any Guarantee by: (x) the Company of Indebtedness or other obligations of any of the Restricted Subsidiaries and (y) any Subsidiary Guarantor of Indebtedness or other obligations of the Company; provided, that in each case such Indebtedness is incurred in accordance with the terms of the Indenture; and (12) Indebtedness of the Company in an aggregate principal amount which, together with all other Indebtedness of the Company outstanding on the date of such Incurrence (other than Indebtedness permitted by clauses (1) through (11) above or paragraph (a)), does not exceed $35 million. (c) Notwithstanding the foregoing, the Company or any Restricted Subsidiary shall not Incur any Indebtedness pursuant to the foregoing paragraph (b) if the proceeds thereof are used, directly or indirectly, to refinance any Subordinated Obligations, unless such Indebtedness shall be subordinated to the Notes to at least the same extent as such Subordinated Obligations. (d) For purposes of determining compliance with the foregoing covenant, (1) in the event that an item of Indebtedness meets the criteria of more than one of the types of Indebtedness described above, the Company, in its sole discretion, will classify such item of Indebtedness and only be required to include the amount and type of such Indebtedness in one of the above clauses and (2) an item of Indebtedness may be divided and classified under more than one of the types of Indebtedness described above. (e) Notwithstanding paragraphs (a) and (b) above, the Company shall not Incur any Indebtedness if such Indebtedness is contractually subordinate or junior in right of payment in any respect to any Senior Indebtedness, unless such Indebtedness is Senior Subordinated Indebtedness or is expressly subordinated in right of payment to Senior Subordinated Indebtedness. (f) Notwithstanding paragraphs (a) and (b) above, no Subsidiary Guarantor shall Incur any Indebtedness if such Indebtedness is contractually subordinate or junior in right of payment in any respect to any Senior Indebtedness, unless such Indebtedness is Senior Subordinated Indebtedness or is expressly subordinated in right of payment to Senior Subordinated Indebtedness. Limitation on Restricted Payments (a) The Company will not, and will not permit any Restricted Subsidiary, directly or indirectly, to make a Restricted Payment if at the time the Company or such Restricted Subsidiary makes such Restricted Payment: (1) a Default shall have occurred and be continuing (or would result therefrom); (2) the Company is not able to Incur an additional $1.00 of Indebtedness pursuant to paragraph (a) of the covenant described under the caption "-- Limitation on Indebtedness" after giving pro forma effect to such Restricted Payment; or (3) the aggregate amount of such Restricted Payment and all other Restricted Payments made since the Issue Date would exceed the sum of (without duplication): (A) 50% of the Consolidated Net Income accrued during the period (treated as one accounting period) from the beginning of the fiscal quarter in which the Issue Date occurs to the end of the most recent fiscal quarter prior to the date of such Restricted Payment for which consolidated income statements of the Company are available (or, in case such Consolidated Net Income is a deficit, less 100% of such deficit); plus (B) 100% of the aggregate Net Cash Proceeds and the fair market value of any securities or property (as determined by the Board of Directors in good faith) received by the Company from the issuance or sale of its Capital Stock (other than Disqualified Stock) subsequent to the Issue Date and on or prior to the date of such Restricted Payment (other than an issuance or sale to a Subsidiary of the 93 Company or an issuance or sale to an employee stock ownership plan or to a trust established by the Company or any of its Subsidiaries for the benefit of their employees if the cash used by such plan or trust to purchase such Capital Stock was borrowed, directly or indirectly, from the Company or a Restricted Subsidiary); plus (C) the amount by which the Indebtedness of the Company or any Restricted Subsidiary is reduced on the Company's balance sheet upon the conversion or exchange (other than by a Subsidiary of the Company) subsequent to the Issue Date and on or prior to the date of such Restricted Payment of any Indebtedness of the Company or any Restricted Subsidiary convertible or exchangeable for Capital Stock (other than Disqualified Stock) of the Company (less the amount of any cash, or the fair value of any other property, distributed by the Company or any Restricted Subsidiary upon such conversion or exchange); plus (D) an amount equal to the sum of (x) the net reduction in Investments in Unrestricted Subsidiaries made after the Issue Date and Investments made after the Issue Date in other Persons constituting a Restricted Payment resulting from dividends, repayments of loans or advances or other transfers of assets, in each case to the Company or any Restricted Subsidiary from such Unrestricted Subsidiaries or other Persons or received by the Company or any Restricted Subsidiary from the disposition of such Investment and (y) the portion (proportionate to the Company's equity interest in such Subsidiary) of the fair market value of the net assets of an Unrestricted Subsidiary (other than Unrestricted Subsidiaries referred to in clause (1) of the definition thereof, except to the extent of Investments made in such Unrestricted Subsidiaries after the Issue Date) at the time such Unrestricted Subsidiary is designated a Restricted Subsidiary or such other Person at the time such other Person becomes a Restricted Subsidiary; provided, however, that the foregoing sum shall not exceed the aggregate amount of Investments previously made (and treated as a Restricted Payment) by the Company or any Restricted Subsidiary. (b) The preceding provisions will not prohibit: (1) any acquisition of any Capital Stock of the Company made by exchange for, or out of the proceeds of the substantially concurrent sale of, Capital Stock of the Company (other than Disqualified Stock and other than Capital Stock issued or sold to a Subsidiary of the Company) or options, warrants or other rights to purchase such Capital Stock; provided, however, that (A) such acquisition shall be excluded in the calculation of the amount of Restricted Payments and (B) the Net Cash Proceeds from such sale shall be excluded from clause (3)(B) of paragraph (a) above to the extent utilized to acquire any Capital Stock of the Company; (2) any purchase, repurchase, redemption, defeasance or acquisition or retirement of Subordinated Obligations made by exchange for, or out of the proceeds of the substantially concurrent sale of, Capital Stock of the Company (other than Disqualified Stock and other than Capital Stock issued or sold to a Subsidiary of the Company) or options, warrants or other rights to purchase such Capital Stock or Subordinated Obligations; provided, however, that (A) such purchase, repurchase, redemption, defeasance or acquisition or retirement shall be excluded in the calculation of the amount of Restricted Payments and (B) the Net Cash Proceeds from such sale shall be excluded from clause (3) (B) of paragraph (a) above to the extent utilized to purchase, repurchase, redeem, defease, acquire or retire Subordinated Obligations; (3) any purchase or redemption of Subordinated Obligations made by exchange for, or out of the proceeds of the substantially concurrent sale of, Indebtedness of the Company which is permitted to be Incurred pursuant to the covenant described under the caption "Limitation on Indebtedness;" provided, however, that such Indebtedness (A) shall have a Stated Maturity not less than the Stated Maturity of the Subordinated Obligations being purchased or redeemed and (B) shall have an Average Life not less than the remaining Average Life of the Subordinated Obligations being purchased or redeemed; provided further, however, that such purchase, repurchase, redemption, defeasance or other acquisition or retirement for value shall be excluded in the calculation of the amount of Restricted Payments; 94 (4) any purchase or redemption of Subordinated Obligations from Net Available Cash to the extent permitted by the covenant described under the caption "Limitation on Asset Disposition;" provided, however, that such purchase or redemption shall be excluded in the calculation of the amount of Restricted Payments; (5) dividends paid within 60 days after the date of declaration thereof if at such date of declaration such dividend would have complied with this covenant; provided, however, that the declaration, but not the payment, of such dividend shall be included in the calculation of the amount of Restricted Payments; (6) so long as no Default shall have occurred and be continuing (or result therefrom), payments with respect to employee or director stock options, stock incentive plans or restricted stock plans of the Company or any Restricted Subsidiary, including any redemption, repurchase, acquisition, cancellation or other retirement for value of shares of Capital Stock of the Company, restricted stock, options on any such shares or similar securities held by directors, officers or employees or former directors, officers or employees or by any Plan upon death, disability, retirement or termination of employment of any such person pursuant to the terms of any such Plan, any employment agreement or any other agreement under which such shares or related rights were issued or acquired; provided, however, that the amount of any such payment for any 12-month period shall not exceed $1 million; provided further, however, that the amount of such Investments shall be excluded in the calculation of Restricted Payments; (7) so long as no Default shall have occurred and be continuing (or result therefrom), any purchase or defeasance of Subordinated Obligations upon a Change of Control or an Asset Disposition to the extent required by the indenture or other agreement or instrument pursuant to which such Subordinated Obligations were issued, but only if the Company (A) in the case of a Change of Control, has first complied with its obligations under the provisions described under the caption "Change of Control" or (B) in the case of an Asset Disposition has complied with its obligations in accordance with the covenant described under the caption "Limitation on Asset Dispositions"; (8) any purchase, repurchase, redemption, defeasance or acquisition or retirement of Disqualified Stock made by exchange for, or out of the proceeds of the substantially concurrent sale of, Disqualified Stock of the Company (other than Disqualified Stock issued or sold to a Subsidiary of the Company)("Refinancing Disqualified Stock"); provided, however, that: (i) the Refinancing Disqualified Stock does not mature or become mandatorily redeemable or subject to purchase pursuant to a sinking fund obligation, upon the occurrence of certain events or otherwise earlier than the Disqualified Capital Stock being purchased, repurchased, redeemed, defeased or acquired; (ii) the amount of all obligations with respect to the redemption, repayment or other repurchase of such Refinancing Disqualified Stock does not exceed the amount of all obligations with respect to the redemption, repayment or other repurchase of the Disqualified Capital Stock being purchased, repurchased, redeemed, defeased or acquired (calculated in each case in accordance with the definition of "Indebtedness"); and (iii) if the Disqualified Stock being purchased, repurchased, redeemed, defeased, acquired or retired is issued by a Restricted Subsidiary, such Refinancing Disqualified Stock shall be issued only by such Restricted Subsidiary; or (9) so long as no Default shall have occurred and be continuing (or result therefrom), Restricted Payments in an aggregate amount not to exceed $50 million; provided, however, that the amount of such Restricted Payments shall be included in the calculation of Restricted Payments. Limitation on Restrictions on Distributions from Restricted Subsidiaries. The Company will not, and will not permit any Restricted Subsidiary to, create or otherwise cause or permit to exist or become effective any consensual encumbrance or restriction on the ability of any Restricted Subsidiary to (a) pay dividends or make any other distributions on its Capital Stock to the Company or a Restricted 95 Subsidiary or pay any Indebtedness or other obligations owed to the Company or a Restricted Subsidiary, (b) make any loans or advances to the Company or any Restricted Subsidiary or (c) transfer any of its property or assets to the Company or any Restricted Subsidiary (collectively "Payment Restrictions"), except: (1) any Payment Restriction imposed by or pursuant to the New Credit Facility, the Indenture, the Notes and any agreement in effect at or entered into on the Issue Date; (2) any Payment Restriction with respect to a Restricted Subsidiary pursuant to an agreement relating to any Indebtedness Incurred by such Restricted Subsidiary on or prior to the date on which such Restricted Subsidiary was acquired by the Company (other than Indebtedness Incurred as consideration in, or to provide all or any portion of the funds or credit support utilized to consummate, the transaction or series of related transactions pursuant to which such Subsidiary became a Subsidiary of, or was acquired by, the Company) and outstanding on such date; (3) any Payment Restriction pursuant to an agreement effecting a Refinancing of Indebtedness Incurred pursuant to an agreement referred to in clause (1) or (2) of this covenant or this clause (3) or contained in any amendment to an agreement referred to in clause (1) or (2) of this covenant or this clause (3); provided, however, that the Payment Restrictions with respect to such Restricted Subsidiary contained in any such refinancing agreement or amendment are no less favorable to the holders of the Notes than those with respect to such Restricted Subsidiary contained in such predecessor agreements; (4) any Payment Restrictions imposed by purchase money Indebtedness for property acquired in the ordinary course of business that only impose limitations upon the property acquired or proceeds therefrom; (5) in the case of clause (c) above any encumbrance or Payment Restriction consisting of (i) customary non-assignment provisions in leases governing leasehold interests to the extent such provisions restrict the transfer of the lease or the property leased thereunder and (ii) customary non-assignment provisions of any contract or licensing agreement; (6) any Payment Restriction with respect to a Restricted Subsidiary imposed pursuant to an agreement entered into for the sale or disposition of all or any material portion of the Capital Stock or assets of such Restricted Subsidiary; (7) any Payment Restriction imposed by the terms of Indebtedness permitted to be incurred by a Foreign Restricted Subsidiary pursuant to clause (2) of paragraph (b) of the covenant described under the caption "-- Certain Covenants--Limitation on Indebtedness"; and (8) any Payment Restriction imposed by applicable law or governmental regulation. Limitation on Asset Dispositions (a) The Company will not, and will not permit any Restricted Subsidiary to, make any Asset Disposition unless (1) the Company or such Restricted Subsidiary receives consideration at the time of such Asset Disposition at least equal to the fair market value (including as to the value of all non-cash consideration) of the shares and assets subject to such Asset Disposition (and if the total proceeds of such sale is greater than $7 million, such transaction shall have been approved by the Board of Directors); (2) at least 75% of the consideration therefor received by the Company or such Restricted Subsidiary is in the form of cash or Fully Traded Common Stock; provided, however, that to the extent that any Fully Traded Common Stock is received pursuant to such Asset Disposition and required to satisfy the 75% requirement of this clause (2), the fair market value of such Fully Traded Common Stock as of the date of disposition shall be treated as Net Available Cash for all purposes of this covenant; and (3) an amount equal to 100% of the Net Available Cash from such Asset Disposition is applied by the Company (or such Restricted Subsidiary, as the case may be) 96 (A) first, to the extent the Company or such Restricted Subsidiary elects (or is required by the terms of any Senior Indebtedness), to prepay, repay or purchase Senior Indebtedness (other than any Preferred and Disqualified Stock) (in each case other than Indebtedness owed to the Company or an Affiliate of the Company) within 270 days from the later of the date of such Asset Disposition or the receipt of such Net Available Cash; provided, however, that if such prepaid, repaid or purchased Senior Indebtedness was Incurred pursuant to a revolver or similar arrangement that makes credit available, the commitment therefor is permanently reduced by such amount; (B) second, to the extent of the balance of such Net Available Cash after application in accordance with clause (A), to the extent the Company or such Restricted Subsidiary elects, to acquire Additional Assets within 270 days from the later of such Asset Disposition or the receipt of such Net Available Cash; (C) third, to the extent of the balance of such Net Available Cash after application in accordance with clauses (A) and (B), to make an offer to the holders of the Notes (and, to the extent required by the instrument governing such Indebtedness, to holders of other Senior Subordinated Indebtedness designated by the Company) to purchase Notes (and such other Senior Subordinated Indebtedness) pursuant to and subject to the conditions contained in the Indenture; and (D) fourth, to the extent of the balance of such Net Available Cash after application in accordance with clauses (A), (B) and (C), for any purpose not prohibited by the terms of the Indenture. For the purposes of the covenant described under this caption, the following shall be deemed to be cash: (x) the assumption of Indebtedness of the Company (other than Preferred Stock and Subordinated Obligations of the Company) or any Restricted Subsidiary and the release of the Company or such Restricted Subsidiary from all liability with respect to such Indebtedness in connection with such Asset Disposition, provided, that the amount of such Indebtedness shall not be deemed to be cash for the purpose of the term "Net Available Cash;" and (y) securities received by the Company or any Restricted Subsidiary from the transferee that are converted by the Company or such Restricted Subsidiary into cash within 90 days or are guaranteed (by means of a letter of credit or otherwise) by an institution specified in the definition of "Temporary Cash Investments." (b) In the event of an Asset Disposition that requires the purchase of the Notes (and other Senior Subordinated Indebtedness) pursuant to clause (a)(3)(C) above, the Company shall purchase Notes tendered pursuant to an offer by the Company for the Notes (and other Senior Subordinated Indebtedness) at a purchase price of 100% of their principal amount (without premium) plus accrued but unpaid interest (or, in respect of such other Senior Subordinated Indebtedness, such lesser price, if any, as may be provided for by the terms of such Senior Subordinated Indebtedness) in accordance with the procedures (including prorating in the event of oversubscription) to be set forth in the Indenture. If the aggregate purchase price of Notes (and any other Senior Subordinated Indebtedness) tendered pursuant to such offer is less than the Net Available Cash allotted to the purchase thereof, the Company will be entitled to apply the remaining Net Available Cash in accordance with clause (a)(3)(D) above. The Company shall not be required to make such an offer to purchase Notes (and other Senior Subordinated Indebtedness) pursuant to the covenant described under this caption if the Net Available Cash available therefor (after application of Net Available Cash in accordance with clauses (A) and (B) of paragraph (a)(3) above) is less than $20 million (which lesser amount shall be carried forward for purposes of determining whether such an offer is required with respect to any subsequent Asset Disposition). (c) The Company will comply, to the extent applicable, with the requirements of Section 14(e) of the Exchange Act and any other securities laws or regulations in connection with the purchase of the Notes pursuant to this covenant. To the extent that the provisions of any securities laws or regulations conflict with provisions of this covenant, the Company will comply with the applicable securities laws and regulations under this clause by virtue thereof. 97 Limitation on Affiliate Transactions. (a) The Company will not, and will not permit any Restricted Subsidiary to enter into or permit to exist any transaction (including the purchase, sale, lease or exchange of any property, employee compensation arrangements or the rendering of any service) with any Affiliate of the Company (an "Affiliate Transaction") unless (1) the Affiliate Transaction is made in (A) good faith and (B) on terms which are fair and reasonable to the Company or such Restricted Subsidiary, as the case may be; (2) if such Affiliate Transaction involves an amount in excess of $5 million, the terms of the Affiliate Transaction are set forth in writing and a majority of the non-employee directors of the Company disinterested with respect to such Affiliate Transactions have determined in good faith that the criteria set forth in clause (1)(B) are satisfied and have approved the relevant Affiliate Transaction as evidenced by a Board Resolution; and (3) if such Affiliate Transaction involves an amount in excess of $15 million, the Board of Directors shall also have received a written opinion from an investment banking firm, an accounting firm or an appraisal firm of national prominence, with experience in evaluating the terms and conditions of such type of business or transactions that is not an Affiliate of the Company to the effect that such Affiliate Transaction is fair from a financial point of view, to the Company and its Restricted Subsidiaries. (b) The provisions of the foregoing paragraph (a) shall not prohibit (1) any Permitted Investment and any Restricted Payment permitted to be paid pursuant to the covenant described under the caption "--Limitation on Restricted Payments;" (2) any issuance of securities, or other payments, awards, or grants in cash, securities or otherwise pursuant to, or the funding of, employment arrangements, stock options and stock ownership plans approved by the disinterested members of the Board of Directors; (3) the payment of reasonable fees to directors of the Company and its Restricted Subsidiaries (including, without limitation, customary directors' fees, indemnification and similar arrangements, consulting fees and incentive arrangements); (4) the grant of stock options or similar rights to employees and directors of the Company pursuant to plans approved by the disinterested members of the Board of Directors; (5) transactions in the ordinary course of business (including expense advances and reimbursements) between the Company or any of its Restricted Subsidiaries, on the one hand, and any employee thereof, on the other hand; (6) the granting and performance of registration rights for shares of Capital Stock of the Company under a written registration rights agreement approved by a majority of directors of the Company that are disinterested with respect to such transactions; (7) transactions with Affiliates solely in their capacity as holders of Indebtedness or Capital Stock of the Company or any of its Subsidiaries where such Affiliates are treated no more favorably than holders of such Indebtedness or such Capital Stock generally; (8) transactions with or among the Company and a Restricted Subsidiary or between or among Restricted Subsidiaries; (9) transactions undertaken pursuant to any arrangements in existence on and publicly disclosed on or prior to the Issue Date, as such arrangements may be amended or restated, renewed, extended, refinanced, refunded or replaced from time to time; provided that such amendment or restatement, renewal, extension, refinancing, refunding or replacement shall be on terms and conditions that are no less favorable to the Company or any of its Restricted Subsidiaries, which, if determined by a majority of the disinterested members of the Board of Directors shall be conclusive; and 98 (10) the repurchase of Capital Stock of the Company from directors, officers or employees of the Company or any Subsidiary permitted by the covenant described under the caption "--Limitation on Restricted Payments". Limitation on Liens Securing Subordinated Indebtedness. The Company will not, and will not permit any Restricted Subsidiary to, create, Incur, assume or suffer to exist any Liens of any kind (other than Permitted Liens) upon any of their respective assets or properties now owned or acquired after the date of the Indenture or any income or profits therefrom securing (i) any Indebtedness of the Company or a Restricted Subsidiary which is contractually subordinated to any other Indebtedness of the Company or such Restricted Subsidiary, as the case may be, unless the Notes or the relevant Subsidiary Guarantee, as the case may be, are equally and ratably secured for so long as such Indebtedness is so secured; provided that, if such Indebtedness which is expressly by its terms subordinate or junior in right of payment to any other Indebtedness of the Company or a Restricted Subsidiary is expressly subordinate or junior to the Notes or the relevant Subsidiary Guarantee, as the case may be, then the Lien securing such subordinated or junior Indebtedness shall be subordinate and junior to the Lien securing the Notes or the relevant Subsidiary Guarantee, as the case may be, with the same relative priority as such subordinated or junior Indebtedness shall have with respect to the Notes or the relevant Subsidiary Guarantee, as the case may be, or (ii) any assumption, guarantee or other liability of the Company or any Restricted Subsidiary in respect of any Indebtedness of the Company or a Restricted Subsidiary which is contractually subordinated to any other Indebtedness of the Company or such Restricted Subsidiary, as the case may be, unless the Notes or the relevant Subsidiary Guarantee, as the case may be are equally and ratably secured for so long as such assumption, guaranty or other liability is so secured; provided that, if such subordinated Indebtedness which is contractually subordinated to any other Indebtedness of the Company or a Restricted Subsidiary is expressly by its terms subordinate or junior to the Notes or the relevant Subsidiary Guarantee, as the case may be, then the Lien securing the assumption, guarantee or other liability of such Subsidiary shall be subordinate and junior to the Lien securing the Notes or the relevant Subsidiary Guarantee, as the case may be, with the same relative priority as such subordinated or junior Indebtedness shall have with respect to the Notes or the relevant Subsidiary Guarantee, as the case may be. Merger and Consolidation. The Company will not consolidate with or merge with or into, or convey, transfer or lease, in one transaction or a series of transactions, all or substantially all its assets (determined on a consolidated basis for the Company and its Restricted Subsidiaries) to, any other Person, unless (1) the resulting, surviving or transferee Person, if other than the Company (the "Successor Company"), shall be organized and existing under the laws of the United States of America, any State thereof or the District of Columbia and shall expressly assume, by an indenture supplemental to the Indenture, executed and delivered to the Trustee, in form satisfactory to the Trustee, all the obligations of the Company under the Notes and the Indenture (and the Subsidiary Guarantees shall be confirmed as applying to such Person's obligations); (2) immediately after giving effect to such transaction (and treating any Indebtedness which becomes an obligation of the Company or the Successor Company, as applicable, or any Subsidiary as a result of such transaction as having been Incurred by the Company or the Successor Company or such Subsidiary at the time of such transaction), no Default shall have occurred and be continuing; (3) immediately after giving effect to such transaction, the Successor Company would be able to Incur an additional $1.00 of Indebtedness pursuant to paragraph (a) of the covenant described under the caption "--Limitation on Indebtedness;" and (4) the Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger or transfer and such supplemental indenture (if any) comply with the Indenture. Nothing contained in the foregoing clause (3) shall prohibit (i) any Restricted Subsidiary from consolidating with, merging with or into, or transferring all or part of its properties and assets to the Company or (ii) the Company from merging with an Affiliate for the purpose of reincorporating the Company in another jurisdiction 99 to realize tax or other benefits; provided, however, that in connection with any such merger, consolidation or asset transfer no consideration, other than common stock in the Successor Company or the Company shall be issued or distributed. The Successor Company shall be the successor to the Company and shall succeed to, and be substituted for and may exercise every right and power of, the Company under the Indenture, but the predecessor Company in the case of a conveyance, transfer or lease shall not be released from the obligation to pay the principal of and interest on the Notes. The Company will not permit any Subsidiary Guarantor to consolidate with or merge with or into, or convey, transfer or lease, in one transaction or a series of transactions, all or substantially all of its assets to, any Person unless: (1) the resulting, surviving or transferee Person (if not such Subsidiary) shall be organized and existing under the laws of the United States of America, any State thereof or the District of Columbia, and shall expressly assume, by executing a Subsidiary Guarantee, all the obligations of such Subsidiary, if any, under its Subsidiary Guarantee; (2) immediately after giving effect to such transaction (and treating any Indebtedness which becomes an obligation of the resulting, surviving or transferee Person as a result of such transaction as having been issued by such Person at the time of such transaction), no Default shall have occurred and be continuing; (3) immediately after giving effect to such transaction, the Company would be able to incur at least $1.00 of Indebtedness pursuant to paragraph (a) of the covenant described under the caption "--Limitation on Indebtedness"; and (4) the Company delivers to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger or transfer and such Subsidiary Guarantee, if any, complies with the Indenture. The provisions of clauses (1), (2) and (3) above shall not apply to any one or more transactions which constitute an Asset Disposition if the Company has complied with the applicable provisions of the covenant described under "-- Limitation on Asset Dispositions" above. The phrase "all or substantially all" of the assets of the Company or a Subsidiary Guarantor will likely be interpreted under applicable state law and will be dependent upon particular facts and circumstances. As a result, there may be a degree of uncertainty in ascertaining whether a sale or transfer of "all or substantially all" of the assets of the Company has occurred. Future Guarantors The Indenture will provide that the Company will not permit any Restricted Subsidiary that is not a Subsidiary Guarantor to Guarantee any other Indebtedness of the Company or any Subsidiary Guarantor unless such Restricted Subsidiary simultaneously executes a supplemental indenture to the Indenture providing for the Guarantee of the payment of the Notes by such Restricted Subsidiary, which Guarantee of the payment of the Notes shall be subordinated to the Guarantee of such other Indebtedness to the same extent as the Notes or the Subsidiary Guarantees, as applicable, are subordinated to such other Indebtedness. Such Restricted Subsidiary shall be deemed released from its obligations under the Guarantee of the payment of the Notes at any such time that such Restricted Subsidiary is released from all of its obligations under its Guarantee of such other Indebtedness unless such release results from the payment under such Guarantee of other Indebtedness. Limitation on Business Activities The Company will not, and will not permit any Restricted Subsidiary to, engage in any business other than Permitted Businesses. 100 SEC Reports Whether or not subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company shall file with the SEC (unless such filing is not permitted under the Exchange Act) within the time periods specified in the SEC's rules and regulations and provide the Trustee and the holders of the Notes with such annual reports and such information, documents and other reports as are specified in Sections 13 and 15(d) of the Exchange Act and applicable to a U.S. corporation subject to such Sections, and make such information available to securities analysts and prospective investors upon request. Events of Default and Remedies Each of the following is an Event of Default: (1) a default for 30 days in the payment when due of interest on the Notes, whether or not prohibited pursuant to the subordination provisions of the Indenture; (2) a default in payment when due of the principal of any Note at its Stated Maturity, upon optional redemption, upon required repurchase, upon acceleration or otherwise, whether or not prohibited pursuant to the subordination provisions of the Indenture; (3) the failure by the Company to comply with its obligations described under the caption "--Certain Covenants--Merger and Consolidation" above; (4) the failure by the Company for 30 days after receipt of written notice to comply with any of its obligations in the covenants described above under the caption "Change of Control" (other than a failure to purchase Notes) or under the caption "--Certain Covenants" under "-- Limitation on Indebtedness," "--Limitation on Restricted Payments," "-- Limitation on Restrictions on Distributions from Restricted Subsidiaries," "--Limitation on Asset Dispositions" (other than a failure to purchase Notes), "--Limitation on Affiliate Transactions," "--Future Guarantors," "--Limitations on Business Activities" or "--SEC Reports;" (5) the failure by the Company for 60 days after receipt of written notice to comply with any of the other agreements contained in the Indenture; (6) Indebtedness of the Company or any Significant Subsidiary is not paid within any applicable grace period after final maturity or is accelerated by the holders thereof because of a default and the total amount of such Indebtedness unpaid or accelerated exceeds $10 million (the "cross acceleration provision"); (7) certain events of bankruptcy, insolvency or reorganization of the Company or a Significant Subsidiary (the "bankruptcy provisions"); (8) any judgment or decree for the payment of money in excess of $10 million is entered against the Company or a Significant Subsidiary, remains outstanding for a period of 60 days following the entry of such judgment or decree and is not discharged, waived or stayed within 20 days after notice (the "judgment default provision"); or (9) any Subsidiary Guarantee by a Significant Subsidiary ceases to be in full force and effect or becomes unenforceable or invalid or is declared null and void (other than in accordance with the terms of the Subsidiary Guarantee) or any Subsidiary Guarantor that is a Significant Subsidiary denies or disaffirms its obligations under its Subsidiary Guarantee. However, a default under clauses (4), (5), (6), (7) (with respect to a Significant Subsidiary) or (8) will not constitute an Event of Default until the Trustee or the holders of 25% in principal amount of the outstanding Notes notify the Company of the default and the Company does not cure such default within the time specified after receipt of such notice. If an Event of Default (other than the bankruptcy provisions relating to the Company) occurs and is continuing, the Trustee or the holders of at least 25% in principal amount of the outstanding Notes may declare the principal of and accrued but unpaid interest on all the Notes to be due and payable. Upon such a declaration, 101 such principal and interest shall be due and payable immediately. If an Event of Default relating to certain events of bankruptcy, insolvency or reorganization of the Company occurs and is continuing, the principal of and interest on all the Notes will ipso facto become and be immediately due and payable without any declaration or other act on the part of the Trustee or any holders of the Notes. Under certain circumstances, the holders of a majority in principal amount of the outstanding Notes may rescind any such acceleration with respect to the Notes and its consequences. of bankruptcy, insolvency or reorganization of the Company occurs and is continuing, the principal of and interest on all the Notes will ipso facto become and be immediately due and payable without any declaration or other act on the part of the Trustee or any holders of the Notes. Under certain circumstances, the holders of a majority in principal amount of the outstanding Notes may rescind any such acceleration with respect to the Notes and its consequences. Notwithstanding the foregoing, in the event of a declaration of acceleration in respect of the Notes because an Event of Default specified in clause (6) above shall have occurred and be continuing, such declaration of acceleration of the Notes and such Event of Default shall be automatically annulled and rescinded and be of no further effect if the Indebtedness that is the subject of such Event of Default has been discharged or paid in full or such Event of Default shall have been cured or waived by the holders of such Indebtedness and if such Indebtedness has been accelerated, then the holders thereof have rescinded their declaration of acceleration in respect of such Indebtedness and written notice of such discharge, cure or waiver and rescission, as the case may be, shall have been given to the Trustee within 30 days after such declaration of acceleration in respect of the Notes by the Company or by the requisite holders of such Indebtedness or a trustee, fiduciary or agent for such holders or other evidence satisfactory to the Trustee of such events is provided to the Trustee and no other Event of Default shall have occurred which has not been cured or waived during such 30- day period. Subject to the provisions of the Indenture relating to the duties of the Trustee, in case an Event of Default occurs and is continuing, the Trustee will be under no obligation to exercise any of the rights or powers under the Indenture at the request or direction of any of the holders of the Notes unless such holders have offered to the Trustee reasonable indemnity or security against any loss, liability or expense. Except to enforce the right to receive payment of principal, premium (if any) or interest when due, no holder of a Note may pursue any remedy with respect to the Indenture or the Notes unless (1) such holder has previously given the Trustee written notice that an Event of Default is continuing; (2) holders of at least 25% in principal amount of the outstanding Notes have requested the Trustee to pursue the remedy; (3) such holders have offered the Trustee reasonable security or indemnity against any loss, liability or expense; (4) the Trustee has not complied with such request within 60 days after the receipt thereof and the offer of security or indemnity; and (5) the holders of a majority in principal amount of the outstanding Notes have not given the Trustee a direction inconsistent with such request within such 60-day period. Subject to certain restrictions, the holders of a majority in principal amount of the outstanding Notes are given the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or of exercising any trust or power conferred on the Trustee. The Trustee, however, may refuse to follow any direction that conflicts with law or the Indenture or that the Trustee determines is unduly prejudicial to the rights of any other holder of a Note or that would involve the Trustee in personal liability. The Indenture provides that if a Default occurs and is continuing and is known to the Trustee, the Trustee must mail to each holder of the Notes notice of the Default within 90 days after it occurs. Except in the case of a Default in the payment of principal of or interest on any Note, the Trustee may withhold notice if and so long as a committee of its trust officers determines that withholding notice is not opposed to the interest of the holders of the Notes. In addition, the Company is required to deliver to the Trustee, within 120 days after the end of 102 each fiscal year, a certificate indicating whether the signers thereof know of any Default that occurred during the previous year. The Company also is required to deliver to the Trustee, within 30 days after the occurrence thereof, written notice of any event which would constitute certain Defaults, their status and what action the Company is taking or proposes to take in respect thereof. Amendments and Waivers Amendments and waivers of the Indenture or the Notes may be made by the Company and the Trustee with the written consent of the holders of at least a majority in principal amount of the Notes; provided, that without the consent of each Holder affected, an amendment or waiver may not (with respect to any Notes held by a non-consenting holder): (1) reduce the principal amount of Notes whose holders must consent to an amendment or waiver; (2) reduce the rate of or extend the time for payment of interest on any Note; (3) reduce the principal of or extend the Stated Maturity of any Note; (4) reduce the amount payable upon the redemption of any Note or change the time at which any Note may be redeemed as described under "--Optional Redemption"; (5) make any Note payable in money other than that stated in the Notes; (6) impair the right of any holder of the Notes to receive payment of principal of and interest on such holder's Notes on or after the due dates therefor or to institute suit for the enforcement of any payment on or with respect to such holder's Notes; (7) make any change in the amendment provisions which require each holder's consent or in the waiver provisions; (8) make any change to the subordination provisions of the Indenture that would adversely affect the holders of Notes; or (9) make any change in any Subsidiary Guarantee that would adversely affect the holders in any material respect. Notwithstanding the preceding, without the consent of any holder of Notes, the Company and the Trustee may amend or supplement the Indenture or the Notes: (1) to cure any ambiguity, omission, defect or inconsistency; (2) to provide for uncertificated Notes in addition to or in place of certificated Notes (provided that the uncertificated Notes are issued in registered form for purposes of Section 163(f) of the Code, or in a manner such that the uncertificated Notes are described in Section 163(f)(2)(B) of the Code); (3) to provide for the assumption by a successor corporation of the obligations of the Company and the Subsidiary Guarantors under the Indenture; (4) to add guarantees with respect to the Notes or to secure the Notes; (5) to add to the covenants of the Company for the benefit of the holders of the Notes or to surrender any right or power conferred upon the Company; (6) to make any change that does not adversely affect in any material respect the legal rights under the Indenture of any such holder; or (7) to comply with requirements of the SEC in order to effect or maintain the qualification of the Indenture under the Trustee Indenture Act. However, no amendment may be made to the subordination provisions of the Indenture that adversely affects the rights of any holder of Senior Indebtedness of Fairchild or any Subsidiary Guarantor then outstanding unless the holders of such Senior Indebtedness (or their Representative) consents to such change. 103 The consent of the holders of the Notes is not necessary under the Indenture to approve the particular form of any proposed amendment. It is sufficient if such consent approves the substance of the proposed amendment. After an amendment under the Indenture becomes effective, the Company is required to mail to holders of the Notes a notice briefly describing such amendment. However, the failure to give such notice to all holders of the Notes, or any defect therein, will not impair or affect the validity of the amendment. Transfer The Notes will be issued in registered form and will be transferable only upon the surrender of the Notes being transferred for registration of transfer. The Company may require payment of a sum sufficient to cover any tax, assessment or other governmental charge payable in connection with certain transfers and exchanges. Discharge; Defeasance The Company may terminate all obligations under the Indenture at any time: (i) by delivering to the Trustee all outstanding Notes for cancellation or (ii) if all outstanding Notes have become due and payable, whether at maturity or as a result of the mailing of a notice of redemption and the Company irrevocably deposits with the Trustee funds sufficient to pay at maturity or upon redemption all outstanding Notes, including interest thereon to maturity or such redemption date and if in either case the Company pays all other sums payable by the Company under the Indenture. The Company at any time may terminate all its obligations under the Notes and the Indenture ("legal defeasance"), except for certain obligations, including those respecting the defeasance trust and obligations to register the transfer or exchange of the Notes, to replace mutilated, destroyed, lost or stolen Notes and to maintain a registrar and paying agent in respect of the Notes. The Company at any time may terminate its obligations described under the caption"--Change of Control" and under the covenants described under the caption "--Certain Covenants" (other than the covenant described under the caption "--Certain Covenants--Merger and Consolidation") (and any omission to comply with such obligations shall not constitute a Default or Event of Default with respect to the Notes), the operation of the cross acceleration provision, the bankruptcy provisions with respect to Significant Subsidiaries and the judgment default provision described under the caption "--Events of Default and Remedies" above and the limitations contained in clause (3) of the covenant described under the caption "--Certain Covenants--Merger and Consolidation" above ("covenant defeasance"). The Company may exercise its legal defeasance option notwithstanding its prior exercise of its covenant defeasance option. If the Company exercises its legal defeasance option, payment of the Notes may not be accelerated because of an Event of Default with respect thereto. In order to exercise either defeasance option, the Company must irrevocably deposit in trust (the "defeasance trust") with the Trustee money or U.S. Government Obligations for the payment of principal and interest on the Notes to redemption or maturity, as the case may be, and must comply with certain other conditions, including delivery to the Trustee of an Opinion of Counsel to the effect that holders of the Notes will not recognize income, gain or loss for Federal income tax purposes as a result of such deposit and defeasance and will be subject to Federal income tax on the same amount and in the same manner and at the same times as would have been the case if such deposit and defeasance had not occurred (and, in the case of legal defeasance only, such Opinion of Counsel must be based on a ruling of the Internal Revenue Service or other change in applicable Federal income tax law). Concerning the Trustee The Bank of New York is to be the Trustee under the Indenture and has been appointed by the Company as Registrar and Paying Agent with regard to the Notes. 104 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 and be continuing, 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 reasonably satisfactory to it against any loss, liability or expense. Certain Definitions "Additional Assets" means any (1) property or assets (other than Indebtedness and Capital Stock) to be used by the Company or a Restricted Subsidiary; (2) Capital Stock of a Person that becomes a Restricted Subsidiary as a result of the acquisition of such Capital Stock by the Company or another Restricted Subsidiary; or (3) Capital Stock constituting a minority interest in any Person that at such time is a Restricted Subsidiary; provided, however, that any such Restricted Subsidiary described in clauses (2) and (3) is primarily engaged in Permitted Businesses. "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 the purposes of this definition, "control" when used with respect to any Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise, and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Asset Disposition" means any direct or indirect sale, lease, transfer, conveyance or other disposition (or series of related sales, leases, transfers, conveyances or dispositions) of shares of Capital Stock of a Restricted Subsidiary (other than directors' qualifying shares), property or other assets (each referred to for the purposes of this definition as a "disposition") by the Company or any Restricted Subsidiary (including any disposition by means of a merger, consolidation or similar transaction) involving an amount in excess of $5 million other than (1) a disposition by a Restricted Subsidiary to the Company or by the Company or a Restricted Subsidiary to a Restricted Subsidiary; (2) a disposition of property or assets at fair market value in the ordinary course of business and consistent with past practices of the Company or any of its Restricted Subsidiaries, as applicable (including. without limitation, sales of products to customers, disposition of excess inventory and dispositions of used, worn-out, obsolete, damaged or replaced equipment); (3) the disposition or grant of licenses to third parties in respect of intellectual property in the ordinary course of business and consistent with past practices of the Company or any of its Restricted Subsidiaries, as applicable; (4) a disposition by the Company or any Subsidiary of assets within 24 months after such assets were directly or indirectly acquired as part of an acquisition of other properties or assets (including Capital Stock) (the "Primary Acquisition"), and the proceeds therefrom are used within 18 months after the date of sale to repay any Indebtedness Incurred in connection with the Primary Acquisition of such assets; (5) for purposes of the covenant described under the caption "--Certain Covenants--Limitation on Asset Dispositions" only, a disposition that constitutes a Restricted Payment permitted by the covenant described under the caption "--Certain Covenants--Limitation on Restricted Payments;" 105 (6) for purposes of the covenant described under the caption "--Certain Covenants--Limitation on Asset Dispositions" only, a disposition of shares of Capital Stock, property or other assets by the Company or any Restricted Subsidiary to any Person as an Investment in such Person provided that (i) the Company or such Restricted Subsidiary receives consideration at the time of such disposition at least equal to the fair market value of such shares, property or other assets, (ii) such Investment is a Permitted Investment described under paragraph (9) of the definition of Permitted Investment and (iii) the amount of any consideration in the form of cash or Temporary Cash Investments shall be treated as Net Cash Proceeds for purposes of such covenant; (7) an Asset Disposition that also constitutes a Change of Control; provided, however, that the Company complies with its obligations described under the caption "--Change of Control;" (8) any disposition of properties or assets that is governed by the provisions described under "--Certain Covenants-Merger and Consolidation;" (9) for purposes of the covenant described under the caption "--Certain Covenants--Limitation on Asset Dispositions", only any trade, exchange or swap of properties or assets by the Company or any Restricted Subsidiary with any other Person; provided, that the fair market value of the assets or properties traded, exchanged or swapped by the Company or such Restricted Subsidiary is reasonably equivalent to the fair market value of the assets or properties received; provided, further, however, that the amount of any cash payment received by the Company or any Restricted Subsidiary shall be treated as Net Cash Proceeds for purposes of such covenant; and (10) the granting or incurrence of any Lien that does not violate the "Limitation on Liens Securing Subordinated Indebtedness" covenant; provided, however, that for purposes of the definition of "Consolidated Coverage Ratio," "Asset Disposition" shall include all such asset dispositions regardless of amount. "Average Life" means, as of the date of determination, with respect to any Indebtedness, the quotient obtained by dividing (x) the sum of the products of the numbers of years from the date of determination to the date of each successive scheduled principal payment of such Indebtedness or scheduled redemption multiplied by the amount of such payment by (y) the sum of all such payments. "Bank Indebtedness" means any and all Indebtedness and other amounts payable under or in respect of the New Credit Facility including principal, premium (if any), interest (including interest accruing at the contract rate specified in the New Credit Facility (including any rate applicable upon default) on or after the filing of any petition in bankruptcy, or the commencement of any similar state, federal or foreign reorganization or liquidation proceeding, relating to the Company and interest that would accrue but for the commencement of such proceeding whether or not a claim for post- filing interest is allowed in such proceedings), fees, charges, expenses, reimbursement obligations, guarantees and all other amounts payable thereunder or in respect thereof. "Board of Directors" means the Board of Directors of the Company or any committee thereof duly authorized to act on behalf of such Board. "Board Resolution" means a duly adopted resolution of the Board of Directors in full force and effect at the time of determination and certified as such by the Secretary or an Assistant Secretary of the Company. "Business Day" means each day which is not a Legal Holiday. "Capital Stock" of any Person means any and all shares, interests, rights to purchase, warrants, options, participations or other equivalents of or interests (including partnership interests) in (however designated) equity of such Person, including any Preferred Stock, but excluding any debt securities convertible into or exchangeable for such equity. 106 "Capitalized Lease Obligation" means an obligation that is required to be classified and accounted for as a capitalized lease for financial reporting purposes in accordance with GAAP. The amount of Indebtedness represented by such obligation shall be the capitalized amount of such obligation determined in accordance with GAAP. The Stated Maturity thereof shall be the date of the last payment of rent or any other amount due under such lease prior to the first date upon which such lease may be terminated by the lessee without payment of a penalty. "Code" means the Internal Revenue Code of 1986, as amended. "Consolidated Coverage Ratio" as of any date of determination (the "Transaction Date") means the ratio of (x) the aggregate amount of EBITDA for the most recent four consecutive fiscal quarters for which financial statements are available to (y) Consolidated Interest Expense for such four fiscal quarters; provided, however, that (1) if the Company or any Restricted Subsidiary has Incurred any Indebtedness since the beginning of such period that remains outstanding on such date of determination or if the transaction giving rise to the need to calculate the Consolidated Coverage Ratio is an Incurrence of Indebtedness, or both, EBITDA and Consolidated Interest Expense for such period shall be calculated after giving effect on a pro forma basis to (a) such Indebtedness as if such Indebtedness had been Incurred on the first day of such period and (b) the discharge of any other Indebtedness repaid, repurchased, defeased or otherwise discharged with the proceeds of such new Indebtedness as if such discharge had occurred on the first day of such period; (2) if the Company or any Restricted Subsidiary has repaid, repurchased, defeased or otherwise discharged any Indebtedness since the beginning of such period or if any Indebtedness is to be repaid, repurchased, defeased or otherwise discharged (in each case other than Indebtedness Incurred under any revolving credit facility unless such Indebtedness has been permanently repaid and has not been replaced) on the date of the transaction giving rise to the need to calculate the Consolidated Coverage Ratio, EBITDA and Consolidated Interest Expense for such period shall be calculated on a pro forma basis as if such discharge had occurred on the first day of such period and as if the Company or such Restricted Subsidiary has not earned the interest income actually earned during such period in respect of cash or Temporary Cash Investments used to repay, repurchase, defease or otherwise discharge such Indebtedness; (3) if since the beginning of such period the Company or any Restricted Subsidiary shall have made any Asset Disposition, the EBITDA for such period shall be reduced by an amount equal to the EBITDA (if positive) directly attributable to the assets which are the subject of such Asset Disposition for such period or increased by an amount equal to the EBITDA (if negative) directly attributable thereto for such period and Consolidated Interest Expense for such period shall be reduced by an amount equal to the Consolidated Interest Expense directly attributable to any Indebtedness of the Company or any Restricted Subsidiary repaid, repurchased, defeased or otherwise discharged with respect to the Company and its continuing Restricted Subsidiaries in connection with such Asset Disposition for such period (or, if the Capital Stock of any Restricted Subsidiary is sold, the Consolidated Interest Expense for such period directly attributable to the Indebtedness of such Restricted Subsidiary to the extent the Company and its continuing Restricted Subsidiaries are no longer liable for such Indebtedness after such sale); (4) if since the beginning of such period the Company or any Restricted Subsidiary (by merger or otherwise) shall have made an Investment in any Restricted Subsidiary (or any Person which becomes a Restricted Subsidiary) or an acquisition of assets, including any acquisition of assets occurring in connection with a transaction causing a calculation to be made hereunder, EBITDA and Consolidated Interest Expense for such period shall be calculated after giving pro forma effect thereto (including the Incurrence of any Indebtedness) as if such Investment or acquisition occurred on the first day of such period; and (5) if since the beginning of such period any Person (that subsequently became a Restricted Subsidiary or was merged with or into the Company or any Restricted Subsidiary since the beginning of such period) shall have made any Asset Disposition or any Investment requiring an adjustment pursuant to clause (3) or 107 (4) above if made by the Company or a Restricted Subsidiary during such period, EBITDA and Consolidated Interest Expense for such period shall be calculated after giving pro forma effect thereto as if such Asset Disposition, Investment or acquisition of assets occurred on the first day of such period. For purposes of this definition, whenever pro forma effect is to be given to an Investment or an acquisition of assets, the amount of income or earnings relating thereto and the amount of Consolidated Interest Expense associated with any Indebtedness Incurred in connection therewith, the pro forma calculations shall be determined in good faith by a responsible financial or accounting officer of the Company. If any Indebtedness bears a floating rate of interest and is being given pro forma effect, the interest expense on such Indebtedness shall be calculated as if the rate in effect on the date of determination had been the applicable rate for the entire period (taking into account any Interest Rate Protection Agreement applicable to such Indebtedness if such Interest Rate Protection Agreement has a remaining term as at the date of determination in excess of 12 months). For purposes of this definition, whenever pro forma effect is to be given to any Indebtedness Incurred pursuant to a revolving credit facility the amount outstanding under such Indebtedness shall be equal to the average of the amount outstanding during the period commencing on the first day of the first of the four most recent fiscal quarters for which financial statements are available and ending on the date of determination. "Consolidated Interest Expense" means, for any period, the sum of (a) total interest expense of the Company and its consolidated Restricted Subsidiaries, including, to the extent not otherwise included in such interest expense (without duplication), and to the extent Incurred by the Company or its Restricted Subsidiaries: (1) interest expense attributable to Capitalized Lease Obligations; (2) amortization of debt discount and debt issuance cost; (3) capitalized interest; (4) non-cash interest expense; (5) accrued interest; (6) amortization of commissions, discounts and other fees and charges owed with respect to letters of credit and bankers' acceptance financing; (7) interest actually paid by the Company or any such Restricted Subsidiary under any Guarantee of Indebtedness or other obligation of any other Person; (8) net costs associated with Hedging Obligations (including amortization of fees); (9) amortization of the interest portion of any deferred obligation; provided, that any accretion of environmental, post-retirement health insurance or other reserves not in respect of Indebtedness shall not be included in Consolidated Interest Expense; (b) Preferred Stock dividends paid during such period in respect of all Preferred Stock of Restricted Subsidiaries of the Company held by Persons other than the Company or a Wholly Owned Subsidiary; and (c) cash contributions to any employee stock ownership plan or other trust for the benefit of employees to the extent such contributions are used by such plan or trust to pay interest or fees to any Person (other than the Company) in connection with Indebtedness Incurred by such plan or trust to purchase Capital Stock of the Company. "Consolidated Net Income" means, for any period, the net income (loss) of the Company, and its consolidated Subsidiaries, provided, however, that there shall not be included in such Consolidated Net Income (1) any net income (loss) of any Person if such Person is not a Restricted Subsidiary, except that 108 (A) the Company's equity in the net income of any such Person for such period shall be included in such Consolidated Net Income up to the aggregate amount of cash that could have been distributed by such Person during such period to the Company or a Restricted Subsidiary as a dividend or other distribution (subject, in the case of a dividend or other distribution to a Restricted Subsidiary, to the limitations contained in clause (3) below); and (B) the Company's equity in a net loss of any such Person for such period shall be included in determining such Consolidated Net Income; (2) any net income (or loss) of any Person acquired by the Company or a Subsidiary in a pooling of interests transaction for any period prior to the date of such acquisition; (3) for purposes of the covenant described under the caption "Certain Covenants--Limitation on Restricted Payments" only, any net income (or loss) of any Restricted Subsidiary if such Restricted Subsidiary is subject to restrictions, directly or indirectly, on the payment of dividends or the making of distributions by such Restricted Subsidiary, directly or indirectly, to the Company, except that (A) the Company's equity in the net income of any such Restricted Subsidiary for such period shall be included in such Consolidated Net Income up to the aggregate amount of cash that could have been distributed by such Restricted Subsidiary (including, but not limited to, amounts that could have been distributed as a result of an existing waiver of the Payment Restrictions) during such period to the Company or another Subsidiary as a dividend or other distribution (subject, in the case of a dividend to another Subsidiary, to the limitation contained in this clause); and (B) the Company's equity in a net loss of any such Restricted Subsidiary for such period shall be included in determining such Consolidated Net Income; (4) any gain or loss realized upon the sale or other disposition of any assets of the Company, its consolidated Subsidiaries or any other Person which is not sold or otherwise disposed of in the ordinary course of business and any gain or loss realized upon the sale or other disposition of any Capital Stock of any Person; (5) any extraordinary gain or loss; and (6) the non-recurring cumulative effect of a change in accounting principles. Notwithstanding the foregoing, for the purposes of the covenant described under the caption "Certain Covenants--Limitation on Restricted Payments" only, there shall be excluded from Consolidated Net Income any dividends, repayments of loans or advances or other transfers of assets from Unrestricted Subsidiaries to the Company or a Restricted Subsidiary to the extent such dividends, repayments or transfers increase the amount of Restricted Payments permitted under such covenant pursuant to clause (a)(3)(D) thereof. "Consolidated Tangible Assets" means, as of any date of determination, the total assets, less goodwill and other intangibles (other than patents, trademarks, copyrights, licenses and other intellectual property) shown on the balance sheet of the Company and its Restricted Subsidiaries for the most recently ended fiscal quarter for which financial statements are available, determined on a consolidated basis in accordance with GAAP. "Currency Exchange Protection Agreement" means, in respect of any Person, any foreign exchange contract, currency swap agreement, currency option or other similar agreement or arrangement designed to protect such Person against fluctuations in currency exchange rates. "Default" means any event which is, or after notice or passage of time or both would be, an Event of Default. "Designated Senior Indebtedness" means (1) the Bank Indebtedness; and 109 (2) any other Senior Indebtedness which, at the date of determination, has an aggregate principal amount outstanding of, or under which, at the date of determination, the holders thereof are committed to lend up to, at least $50 million and is specifically designated by the Company in the instrument evidencing or governing such Senior Indebtedness as "Designated Senior Indebtedness" for purposes of the Indenture. "Disqualified Stock" of a Person, with respect to any Person, means any Capital Stock which by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable at the option of the holder) or upon the happening of any event (1) matures or is mandatorily redeemable pursuant to a sinking fund obligation or otherwise; (2) is convertible or exchangeable at the option of the holder for Indebtedness or Disqualified Stock; or (3) is mandatorily redeemable or must be purchased, upon the occurrence of certain events or otherwise, in whole or in part, in each case on or prior to the first anniversary of the Stated Maturity of the Notes; and any Preferred Stock of a Restricted Subsidiary of such Person, provided, however, that any Capital Stock that would not constitute Disqualified Stock but for provisions thereof giving holders thereof the right to require such Person to purchase or redeem such Capital Stock upon the occurrence of an "asset sale" or "change of control" occurring prior to the first anniversary of the Stated Maturity of the Notes shall not constitute Disqualified Stock if (1) the "asset sale" or "change of control" provisions applicable to such Capital Stock are not more favorable to the holders of such Capital Stock than the terms applicable to the Notes and described under the captions "-- Certain Covenants--Limitation on Asset Dispositions" and "--Certain Covenants--Change of Control;" and (2) any such requirement only becomes operative after compliance with such terms applicable to the Notes, including the purchase of any Notes tendered pursuant thereto. "EBITDA" for any period means the sum of Consolidated Net Income plus the following to the extent deducted in calculating such Consolidated Net Income: (1) all income tax expense of the Company and its consolidated Restricted Subsidiaries; (2) Consolidated Interest Expense; (3) depreciation expense and amortization expense of the Company and its consolidated Restricted Subsidiaries; (4) all other non-cash items of the Company and its consolidated Restricted Subsidiaries (excluding any such non-cash charge to the extent that it represents an accrual of or reserve for cash expenditures in any future period reducing Consolidated Net Income) less all non-cash items increasing Consolidated Net Income; and (5) all bonuses paid to executive officers of the Company in connection with the KTI Acquisition and severance, rationalization, product qualification and other non-recurring transition costs incurred in connection with the KTI Acquisition in each case for such period. "Foreign Restricted Subsidiary" means a Restricted Subsidiary that is incorporated in a jurisdiction other than, and the majority of the assets of which are located outside of, the United States, a State thereof and the District of Columbia. "Fully Traded Common Stock" means Capital Stock issued by any corporation which is listed on either the New York Stock Exchange or the American Stock Exchange or included for trading privileges in the National Market System of the National Association of Securities Dealers Automated Quotation System; provided, however, that (a) either such Capital Stock is freely tradable under the Securities Act (including pursuant to Rule 110 145(d) (1) thereunder) upon issuance or the holder thereof has contractual registration rights that will permit the sale of such Capital Stock pursuant to an effective registration statement not later than nine months after issuance to the Company or one of its Subsidiaries and (b) such Capital Stock is also so listed or included for trading privileges. "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 approved by a significant segment of the accounting profession. "Guarantee" means any obligation, contingent or otherwise, of any Person directly or indirectly guaranteeing any Indebtedness or other obligation of any other Person and any obligation, direct or indirect, contingent or otherwise, of such Person (1) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation of such other Person (whether arising by virtue of partnership arrangements, or by agreement to keep-well, to purchase assets, goods, securities or services, to take-or- pay or to maintain financial statement conditions or otherwise); or (2) entered into for purposes of assuring in any other manner the obligee of such Indebtedness or other obligation of the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part); provided, however, that the term "Guarantee" shall not include (1) endorsements for collection or deposit in the ordinary course of business; or (2) obligations, warranties and indemnities, not with respect to Indebtedness of any Person, that have been or are undertaken or made in the ordinary course of business or in connection with any Asset Disposition permitted by the covenant described under the caption "--Certain Covenants--Limitation on Asset Dispositions" and not for the benefit of or in favor of an Affiliate of the Company or any of its Subsidiaries. The term "Guarantee" used as a verb has a corresponding meaning. "Hedging Obligations" of any Person means the obligations of such Person pursuant to any Interest Rate Protection Agreement or Currency Exchange Protection Agreement or other similar agreement or arrangement involving interest rates, currencies, commodities or otherwise. "Incur" means issue, assume, Guarantee, incur or otherwise become liable for; provided, however, that any Indebtedness of a Person existing at the time such Person becomes a Restricted Subsidiary (whether by merger, consolidation, acquisition or otherwise) shall be deemed to be Incurred by such Restricted Subsidiary at the time it becomes a Restricted Subsidiary; The term "Incurrence" when used as a noun shall have a correlative meaning. The accretion of principal of a non-interest bearing or other discount security shall not be deemed the Incurrence of Indebtedness. "Indebtedness" means, with respect to any Person on any date of determination (without duplication): (1) the principal of and premium (if any such premium is then due and owing) in respect of (A) indebtedness of such Person for money borrowed; and (B) indebtedness evidenced by notes, debentures, bonds or other similar instruments for the payment of which such Person is responsible or liable; (2) all Capitalized Lease Obligations of such Person; (3) all obligations of such Person issued or assumed as the deferred purchase price of property (which purchase price is due more than 180 days after taking title to such property), all conditional sale obligations of such Person and all obligations of such Person under any title retention agreement (but excluding trade accounts payable arising in the ordinary course of business); 111 (4) all obligations of such Person for the reimbursement of any obligor on any letter of credit, banker's acceptance or similar credit transaction (other than obligations with respect to letters of credit securing obligations (other than obligations described in (1) through (3) above) entered into in the ordinary course of business of such Person to the extent such letters of credit are not drawn upon or, if and to the extent drawn upon, such drawing is reimbursed no later than the tenth Business Day following receipt by such Person of a demand for reimbursement following payment on the letter of credit); (5) the amount of all obligations of such Person with respect to the redemption, repayment or other repurchase of any Disqualified Stock of such Person (but excluding, in each case, any accrued dividends); (6) all obligations of the type referred to in clauses (1) through (5) of other Persons and all dividends of other Persons for the payment of which, in either case, such Person is responsible or liable, directly or indirectly, as obligor, guarantor or otherwise, including by means of any Guarantee; (7) all obligations of the type referred to in clauses (1) through (6) of other Persons secured by any Lien on any property or asset of such Person (whether or not such obligation is assumed by such Person), the amount of such obligation being deemed to be the lesser of the value of such property or assets or the amount of the obligation so secured; and (8) to the extent not otherwise included in this definition, Hedging Obligations of such Person. For purposes of this definition, the obligation of such person with respect to the redemption, repayment or repurchase price of any Disqualified Stock that does not have a fixed redemption, repayment or repurchase price shall be calculated in accordance with the terms of such Disqualified Stock as if such Disqualified Stock were redeemed, repaid or repurchased on any date on which Indebtedness shall be required to be determined pursuant to the Indenture; provided, however, that if such Disqualified Stock is not then permitted to be redeemed, repaid or repurchased, the redemption, repayment or repurchase price shall be the book value of such Disqualified Stock as reflected in the most recent financial statements of such Person. The amount of Indebtedness of any Person at any date shall be the outstanding balance at such date of all unconditional obligations as described above and, with respect to contingent obligations, the amount of liability required by GAAP to be accrued or reflected on the most recently published balance sheet of such Person; provided, however, that (1) the amount outstanding at any time of any Indebtedness issued with original issue discount is the face amount of such indebtedness less the remaining unamortized portion of the original issue discount of such Indebtedness at such time as determined in conformity with GAAP; and (2) Indebtedness shall not include any liability for federal, state, local or other taxes. "Interest Rate Protection Agreement" means, in respect of any Person, any interest rate swap agreement, interest rate option agreement, interest rate cap agreement, interest rate collar agreement, interest rate floor agreement or other similar agreement or arrangement designed to protect such Person against fluctuations in interest rates. "Investment" by any Person in any other Person means any direct or indirect advance, loan (other than advances to customers or suppliers in the ordinary course of business that are recorded as accounts receivable on the balance sheet of such former Person) or other extension of credit (including by way of Guarantee or similar arrangement) or capital contribution to (by means of any transfer of cash or other property to others or any payment for property or services for the account or use of others), or any purchase or acquisition of Capital Stock, Indebtedness or other similar instruments issued by such latter Person that are or would be classified as investments on a balance sheet of such former Person prepared in accordance with GAAP. In determining the amount of any Investment in respect of any property or assets other than cash, such property or asset shall be valued at its fair market value at the time of such Investment (unless otherwise specified in this definition), as determined in good faith by the Board of Directors. For purposes of the definition of "Unrestricted Subsidiary", the definitions of "Restricted Payment" and "Permitted Investment" and the covenant described under the caption "--Certain Covenants--Limitation on Restricted Payments," 112 (1) "Investment" shall include the portion (proportionate to the Company's equity interest in such Subsidiary) of the fair market value of the net assets of any Subsidiary of the Company at the time that such Subsidiary is designated an Unrestricted Subsidiary; provided, however, that upon a redesignation of such Subsidiary as a Restricted Subsidiary, the Company shall be deemed to continue to have a permanent "Investment" in an Unrestricted Subsidiary equal to an amount (if positive) equal to (x) the Company's "Investment" in such Subsidiary at the time of such redesignation less (y) the portion (proportionate to the Company's equity interest in such Subsidiary) of the fair market value of the net assets of such Subsidiary at the time of such redesignation; and (2) any property transferred to or from an Unrestricted Subsidiary shall be valued at its fair market value at the time of such transfer, in each case as determined in good faith by the Board of Directors. "Issue Date" means the date on which the outstanding notes were originally issued. "Legal Holiday" means each Saturday, Sunday and each day on which commercial banking institutions are authorized or required by law to close in New York City. "Lenders" has the meaning specified in the New Credit Facility. "Lien" means any mortgage, pledge, security interest, encumbrance, lien or charge of any kind (including any conditional sale or other title retention agreement or lease in the nature thereof). "Net Available Cash" from an Asset Disposition means the aggregate amount of cash or Temporary Cash Investments received in respect of an Asset Disposition (including any cash payments received by way of deferred payment of principal pursuant to a note or installment receivable or otherwise, but only as and when received, but excluding any other consideration received in the form of assumption by the acquiring person of Indebtedness or other obligations relating to such properties or assets or received in any other noncash form) therefrom, in each case net of (1) all legal, title and recording tax expenses, commissions and other fees and expenses incurred (including fees and expenses of counsel and investment bankers), and all Federal, state, provincial, foreign and local taxes required to be paid or accrued as a liability under GAAP as a consequence of such Asset Disposition; (2) all payments made on any Indebtedness which is secured by any assets subject to such Asset Disposition, in accordance with the terms of any Lien upon such assets, or which must by its terms, or in order to obtain a necessary consent to such Asset Disposition, or by applicable law, be repaid out of the proceeds from such Asset Disposition; (3) all distributions and other payments required to be made to minority interest holders in Restricted Subsidiaries or joint ventures as a result of such Asset Disposition; and (4) the deduction of appropriate amounts to be provided by the seller as a reserve, in accordance with GAAP, against any liabilities associated with the assets disposed of in such Asset Disposition and including, pension and other post-employment benefit liabilities, liabilities related to environmental matters and liabilities under any indemnification obligations associated with such Asset Dispositions, all as determined in conformity with GAAP, retained by the Company or any Restricted Subsidiary after such Asset Disposition. "Net Cash Proceeds," with respect to any issuance or sale of Capital Stock, means the cash proceeds of such issuance or sale net of attorneys' fees, accountants' fees, printing costs, underwriters' or placement agents' fees, discounts or commissions and brokerage stock exchange listing fees, consultant and other fees actually incurred in connection with such issuance or sale and net of taxes paid or payable as a result thereof. "New Credit Facility" means (1) one or more credit agreements, loan agreements or similar agreements providing for working capital advances, term loans, letter of credit facilities or similar advances, loan or facilities to the Company, any Restricted Subsidiary, domestic or foreign, or any or all of such Persons, including the Credit 113 Agreement among the Company and certain subsidiaries of the Company, as borrowers, the lenders party thereto and Salomon Smith Barney Inc. and NationsBanc Montgomery Securities LLC, arrangers for the lenders, as the same may be amended, modified, restated or supplemented from time to time, or any other indebtedness referred to in clause (b)(1) of the covenant described under the caption "--Certain Covenants--Limitation on Indebtedness;" and (2) any one or more agreements governing advances, loans or facilities provided to refund, refinance, replace or renew (including subsequent or successive refundings, financings, replacements and renewals) Indebtedness under the agreement or agreements referred to in the foregoing clause (1), as the same may be amended, modified, restated or supplemented from time to time. "Officer's Certificate" means a certificate signed by the Chairman of the Board, the President, an Executive Vice President, a Senior Vice President or a Vice President, and by the Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary, of the Company and delivered to the Trustee. "Opinion of Counsel" means a written opinion of counsel reasonably acceptable to the Trustee, which may be an employee of or counsel for the Company. "Permitted Businesses" means (i) the lines of businesses that the Company or any of the Restricted Subsidiaries were engaged in on the date of the Indenture or that are contemplated by the Offering Circular, (ii) the businesses engaged in by any acquired businesses, provided that a substantial portion of their business at the time of acquisition was related or ancillary to the Company's then existing lines of business, (iii) extensions of the businesses referred to in clauses (i) and (ii), including without limitation, new products and services to its markets or new distribution channels, (iv) any other lines of business or activities that are related or ancillary to the businesses referred to in clauses (i)-(iii), and (v) unrelated lines of business that individually are not material to the Company and the Restricted Subsidiaries taken as a whole. "Permitted Holders" means (i) Jeffrey J. Steiner; (ii) any member of Jeffrey J. Steiner's immediate family or any of his lineal descendants; (iii) any trust or estate the principal beneficiaries of which are persons referred to in clause (i) or (ii); (iv) in the event of the incompetence or death of any of the persons described in clauses (i) and (ii), such person's estate, executor, administrator, committee or other personal representative or beneficiaries, and (v) any Affiliate or associate (as defined in the Exchange Act) of the persons described in clauses (i), (ii), (iii) and (iv). "Permitted Investment" means an Investment in (1) the Company or a Restricted Subsidiary or a Person which will, upon the making of such Investment, become a Restricted Subsidiary; (2) another Person, if as a result of such Investment such other Person is merged or consolidated with or into, or transfers or conveys all or substantially all its assets to, the Company or a Restricted Subsidiary; (3) Temporary Cash Investments; (4) Trade Payables; (5) loans or advances to officers, directors or employees of the Company or any of its Restricted Subsidiaries for travel, transportation, entertainment, and moving and other relocation expenses and other business expenses that are expected at the time of such advances ultimately to be treated as expenses for accounting purposes and that are made in the ordinary course of business; (6) loans or advances to employees made in the ordinary course of business consistent with past practices of the Company or such Restricted Subsidiary, as the case may be; (7) stock, obligations or securities received (A) in settlement of debts created in the ordinary course of business and owing to the Company or any Restricted Subsidiary; 114 (B) in satisfaction of judgments; or (C) as consideration in connection with an Asset Disposition permitted pursuant to the covenant described under the caption "-- Certain Covenants--Limitation on Asset Disposition"; (8) Investments deemed to have been made as a result of the acquisition of a Person that at the time of such acquisition held instruments constituting Investments that were not acquired in contemplation of the acquisition of such Person; (9) Unrestricted Subsidiaries, joint ventures and other Persons provided that at the time such Investment is made the net amount of all Investments made pursuant to this clause (9) after the Issue Date does not exceed 7.5% of Consolidated Tangible Assets. The net amount of such Investments as of any date of determination shall be determined by subtracting (A) the aggregate amount of all payments of interest on Indebtedness, dividends or repayments of loans or other transfers of cash or assets received by the Company or a Restricted Subsidiary as a return of or on such Investment from (B) the aggregate amount of all such Investments made by the Company and the Restricted Subsidiaries pursuant to this clause (9); and (10) the transfer of all of the assets and liabilities of the Optical Disc Equipment Group business of Fairchild Technologies Optical Disc Equipment Group GmbH to an Unrestricted Subsidiary. "Permitted Liens" means, with respect to any Person, (a) pledges or deposits by such Person under workmen's compensation laws, unemployment insurance laws or similar legislation, or good faith deposits in connection with bids, tenders, contracts (other than for the payment of Indebtedness) or leases to which such Person is a party, or deposits to secure public or statutory obligations of such Person or deposits or cash or United States government bonds to secure surety or appeal bonds to which such Person is a party, or deposits as security for contested taxes or import duties or for the payment of rent, in each case Incurred in the ordinary course of business; (b) Liens imposed by law, including carriers', warehousemen's and mechanics' Liens, in each case for sums not yet due or being contested in good faith by appropriate proceedings; or other Liens arising out of judgments or awards against such Person with respect to which such Person shall then be proceeding with an appeal or other proceedings for review; (c) Liens for taxes, assessments or other governmental charges not yet subject to penalties for non-payment or which are being contested in good faith by appropriate proceedings provided appropriate reserves have been taken on the books of the Company; (d) Liens in favor of issuers of surety bonds or letters of credit issued pursuant to the request of and for the account of such Person in the ordinary course of its business; provided, however, that such letters of credit do not constitute Indebtedness; (e) Liens securing an Interest Rate Protection Agreement so long as the related Indebtedness is, and is permitted to be under the Indenture, secured by a Lien on the same property securing the Interest Rate Protection Agreement; (f) Liens for the purpose of securing the payment (or the refinancing of the payment) of all or a part of any purchase money Indebtedness relating to assets or property acquired or constructed in the ordinary course of business provided that (x) the aggregate principal amount of Indebtedness secured by such Liens shall not exceed the cost of the assets or property so acquired or constructed and (y) such Liens shall not encumber any other assets or property of the Company or any Restricted Subsidiary other than such Assets or property and assets affixed or appurtenant thereto; and (g) Liens arising from precautionary Uniform Commercial Code financing statement filings regarding operating leases entered into by the Company and its Subsidiaries in the ordinary course of business. "Person" means any individual, corporation, partnership, limited liability company, joint venture, association, joint-stock company, trust, unincorporated organization, government or any agency or political subdivision thereof or any other entity. "Plans" means any employee benefit plan, retirement plan, deferred compensation plan, restricted stock plan, health, life, disability or other insurance plan or program, employee stock purchase plan, employee stock ownership plan, pension plan, stock option plan or similar plan or arrangement of the Company or any Subsidiary, or any successor thereof and "Plan" shall have a correlative meaning. 115 "Preferred Stock," as applied to the Capital Stock of any corporation, means Capital Stock of any class or classes (however designated) which is preferred as to the payment of dividends, or as to the distribution of assets upon any voluntary or involuntary liquidation or dissolution of such corporation, over shares of Capital Stock of any other class of such corporation. "principal" of a Note means the principal of the Note plus the premium, if any, payable on the Note which is due or overdue or is to become due at the relevant time. "Public Equity Offering" means an underwritten primary public offering of Capital Stock (other than Disqualified Stock) of the Company pursuant to an effective registration statement under the Securities Act. "Refinancing Indebtedness" means Indebtedness that refunds, refinances, replaces, renews, repays or extends (including pursuant to any defeasance or discharge mechanism) (collectively, "refinances," and "refinanced" shall have a correlative meaning) any Indebtedness existing on the Issue Date or Incurred in compliance with the Indenture (including Indebtedness of the Company that refinances Indebtedness of any Restricted Subsidiary) including Indebtedness that refinances Refinancing Indebtedness; provided, however, that (1) the Refinancing Indebtedness has Stated Maturity no earlier than any Stated Maturity of the Indebtedness being refinanced; (2) the Refinancing Indebtedness has an Average Life at the time such Refinancing Indebtedness is Incurred that is equal to or greater than the Average Life of the Indebtedness being refinanced; and (3) such Refinancing Indebtedness is Incurred in an aggregate principal amount (or if issued with original issue discount, an aggregate issue price) that is equal to or less than the sum of (x) the aggregate principal amount (or if issued with original issue discount, the aggregate accreted value) of the Indebtedness being refinanced (including, with respect to both the Refinancing Indebtedness and the Indebtedness being refinanced, amounts then outstanding and amounts available thereunder) plus (y) unpaid interest, prepayment penalties, redemption or repurchase premiums, defeasance costs, fees, expenses and other amounts owing with respect thereto, plus reasonable financing fees and other reasonable out- of-pocket expenses incurred in connection therewith; provided further, however, that (i) Refinancing Indebtedness shall not include Indebtedness of a Restricted Subsidiary that refinances Indebtedness of the Company and (ii) clauses (1) and (2) above will not apply to any Indebtedness that refinances Indebtedness Incurred pursuant to the New Credit Facility. "Representative" means the trustee, agent or other representative (if any) for an issue of Senior Indebtedness. "Restricted Payment" with respect to any Person means (1) the declaration or payment of any dividends or any other distributions of any sort in respect of its Capital Stock (including any payment in connection with any merger or consolidation involving such Person) or similar payment to the direct or indirect holders of its Capital Stock (other than dividends or distributions payable solely in its Capital Stock (other than Disqualified Stock, Capital Stock or assets of a Restricted Subsidiary) and dividends or distributions payable solely to the Company or a Restricted Subsidiary, and other pro rata dividends or other distributions made by a Subsidiary that is not a Wholly Owned Subsidiary to minority stockholders (or owners of an equivalent interest in the case of a Subsidiary that is an entity other than a corporation)); (2) the purchase, redemption or other acquisition or retirement for value of any Capital Stock of the Company held by any Person or of any Capital Stock of any Restricted Subsidiary held by any Affiliate of the Company (other than a Restricted Subsidiary), including the exercise of any option to exchange any Capital Stock (other than into Capital Stock of the Company that is not Disqualified Stock); (3) the purchase, repurchase, redemption, defeasance or other acquisition or retirement for value, prior to scheduled maturity, scheduled repayment or scheduled sinking fund payment of any Subordinated Obligations (other than the purchase, repurchase, or other acquisition of Subordinated Obligations purchased 116 in anticipation of satisfying a sinking fund obligation, principal installment or final maturity, in each case due within one year of the date of acquisition); or Obligations (other than the purchase, repurchase, or other acquisition of Subordinated Obligations purchased in anticipation of satisfying a sinking fund obligation, principal installment or final maturity, in each case due within one year of the date of acquisition); or (4) the making of any Investment in any Person (other than Permitted Investment). "Restricted Subsidiary" means any Subsidiary of the Company that is not an Unrestricted Subsidiary. "Secured Indebtedness" means any Indebtedness of the Company or any Subsidiary Guarantor secured by a Lien. "Senior Indebtedness" means with respect to the Company or any Subsidiary Guarantor (1) all Bank Indebtedness; and (2) all other Indebtedness of the Company or a Subsidiary Guarantor including interest and fees thereon, whether outstanding on the Issue Date or thereafter issued or Incurred, unless in the instrument creating or evidencing the same or pursuant to which the same is outstanding it is provided that such obligations are not superior in right of payment to the Notes or the applicable Subsidiary Guarantee; provided, however, that Senior Indebtedness shall not include (1) any liability for Federal, state, local or other taxes owed or owing by the Company; (2) any Trade Payables; (3) any Indebtedness, Guarantee or obligation of the Company or a Subsidiary Guarantor which is subordinate or junior in any respect to any other Indebtedness, Guarantee or obligation of the Company or such Subsidiary Guarantor including any Senior Subordinated Indebtedness and any Subordinated Obligations; and (4) any obligations with respect to any Capital Stock. "Senior Subordinated Indebtedness" means the Notes and any other Indebtedness of the Company or a Subsidiary Guarantor that specifically provides that such Indebtedness is to rank pari passu with the Notes or the applicable Subsidiary Guarantee in right of payment and is not subordinated by its terms in right of payment to any Indebtedness or other obligation of the Company or such Subsidiary Guarantor which is not Senior Indebtedness. "Significant Subsidiary" means a Restricted Subsidiary of the Company that is a "significant subsidiary" as defined in Rule 1-02 of Regulation S-X promulgated under the Securities Act and the Exchange Act. "Stated Maturity" means, with respect to any security, the date specified in such security as the fixed date on which the payment of principal of such security is due and payable, including pursuant to any mandatory redemption provision (but excluding any provision providing for the repurchase of such security at the option of the holder thereof upon the happening of any contingency beyond the control of the issuer unless such contingency has occurred). "Subordinated Obligation" means any Indebtedness of the Company or a Subsidiary Guarantor (whether outstanding on the Issue Date or thereafter incurred) that is contractually subordinated or junior in right of payment to the Notes or the applicable Subsidiary Guarantee pursuant to a written agreement. "Subsidiary" of any Person means any corporation, association, partnership or other business entity of which more than 50% of the total voting power of shares of Voting Stock is at the time owned or controlled, directly or indirectly, by (1) such Person, 117 (2) such Person and one or more Subsidiaries of such Person or (3) one or more Subsidiaries of such Person. Unless the context requires otherwise, "Subsidiary" shall refer to a Subsidiary of the Company. "Subsidiary Guarantee" means a Guarantee by a Subsidiary Guarantor of the Company's obligations with respect to the Notes. "Subsidiary Guarantor" means any Subsidiary of the Company that Guarantees the Company's Obligations with respect to the Notes. "Temporary Cash Investments" means any of the following: (1) investments in U.S. Government Obligations; (2) investments in time deposit accounts, certificates of deposit and money market deposits maturing within 180 days of the date of acquisition thereof issued by a bank or trust company which is organized under the laws of the United States of America, any State thereof or any foreign country recognized by the United States of America having capital, surplus and undivided profits aggregating in excess of $50 million (or the Dollar Equivalent thereof) and whose long-term debt is rated "A-" or higher according to Moody's Investors Service, Inc. (or such equivalent rating by at least one "nationally recognized statistical rating organization" (as defined in Rule 436 under the Securities Act)); (3) repurchase obligations with a term of not more than 30 days for underlying securities of the types described in clause (1) above entered into with a bank meeting the qualifications described in clause (1) above entered into with a bank meeting the qualifications described in clause (2) above; (4) investments in commercial paper, maturing not more than 90 days after the date of acquisition, issued by a corporation (other than an Affiliate of the Company) organized and in existence under the laws of the United States of America or any foreign country recognized by the United States of America with a rating at the time as of which any investment therein is made of "P-1" (or higher) according to Moody's Investors Service, Inc. or "A-1" (or higher) according to Standard and Poor's Rating Services; and (5) investments in securities with maturities of six months or less from the date of acquisition issued or fully guaranteed by any state, commonwealth or territory of the United States of America, or by any political subdivision or taxing authority thereof, and rated at least "A" by Standard & Poor's Rating Services or "A" by Moody's Investors Service, Inc. "Trade Payables" means, with respect to any Person, any accounts payable or any indebtedness or monetary obligation to trade creditors created, assumed or Guaranteed by such Person arising in the ordinary course of business of such Person in connection with the acquisition of goods or services. "U.S. Government Obligations" means direct obligations (or certificates representing an ownership interest in such obligations) of the United States of America (including any agency or instrumentality thereof) for the payment of which the full faith and credit of the United States of America is pledged and which are not callable at the issuer's option. "Unrestricted Subsidiary" means (1) Fairchild Germany, Inc., Fairchild Technologies USA, Inc., Fairchild Technologies Europe Limited, Fairchild Technologies Korea Limited, Fairchild Technologies Semiconductor Equipment, Convac France SA, Snails, Inc., Fairchild CDI SA, MediaDisc SA, Cutek Research, Inc., Gobble Gobble, Inc. and Warthog, Inc., which Subsidiaries on the Issue Date, hold only the Company's Farmingdale, Long Island project, the interest of the Company in Nacanco Paketleme and substantially all the business and assets of Technologies, plus up to $5.0 million in cash in the aggregate invested in the Subsidiary holding the Farmingdale, Long Island project; 118 (2) any Subsidiary of the Company that at the time of determination shall be or continues to be designated an Unrestricted Subsidiary by the Board of Directors in the manner provided below; and (3) any Subsidiary of an Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary of the Company (including any newly acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary (a "Designation") unless: . a Default shall have occurred and be continuing at the time of or after giving effect to the Designation; . such Subsidiary or any of its Subsidiaries owns any Capital Stock or Indebtedness of, or holds any Lien on any property of, the Company or any other Restricted Subsidiary of the Company that is not a Subsidiary of the Subsidiary to be so designated; and . either (x) the assets of such Subsidiary do not exceed $1,000 or (y) the Company would be permitted under the Indenture to make an Investment at the time of Designation (assuming the effectiveness of such Designation) under the covenant described under the caption "--Certain Covenants-- Limitation on Restricted Payments." The Board of Directors may revoke any designation of a Subsidiary as an Unrestricted Subsidiary (a "Revocation") if: . no Default shall have occurred and be continuing at the time of such Revocation; and . all Liens and Indebtedness of such Unrestricted Subsidiary outstanding immediately following such Revocation would, if Incurred at such time, have been permitted to be Incurred for all purposes of the Indenture and for all purposes of the Indenture shall be deemed to have been Incurred at such time. All Designations and Revocations must be evidenced by resolutions of the Board of Directors delivered to the Trustee certifying compliance with the foregoing provisions. "Voting Stock" of a Person means all classes of Capital Stock or other interests (including partnership interests) of such Person then outstanding and normally entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof. "Wholly Owned Subsidiary" means a Restricted Subsidiary of the Company all the Capital Stock of which (other than directors' qualifying shares) is owned by the Company or another Wholly Owned Subsidiary. 119 MATERIAL FEDERAL TAX CONSIDERATIONS The following is a general discussion of certain U.S. federal income and estate tax considerations relevant to non-U.S. holders of the Notes. This discussion is based upon the Internal Revenue Code of 1986, as amended (the "Code"), Treasury Regulations, Internal Revenue Service rulings and judicial decisions now in effect, all of which are subject to change, possibly with retroactive effect, or different interpretations. There can be no assurance that the IRS will not challenge one or more of the conclusions described herein, and we have not obtained, nor do we intend to obtain, a ruling from the IRS with respect to the U.S. federal income tax consequences of acquiring or holding the Notes. This discussion does not purport to deal with all aspects of U.S. federal income taxation that may be relevant to a particular holder in light of the holder's circumstances, for example, dealers in securities, insurance companies, financial institutions, tax-exempt entities, persons who own Notes through partnerships or other pass-through entities, former citizens or residents of the United States, persons who hold Notes as part of a straddle, hedge or conversion transaction or persons subject to the alternative minimum tax provisions of the Code. The discussion also does not discuss any aspects of state, local or foreign law, or U.S. federal estate and gift tax law, other than U.S. federal estate tax law as applicable to Non-U.S. holders, as defined below. In addition, this discussion is limited to original purchasers of the Notes who acquire the Notes for cash at their original issue price within the meaning of Section 1273 of the Code and who will hold the Notes as "capital assets" within the meaning of Section 1221 of the Code. Except as the context otherwise requires, references in this Section to the Notes shall also apply to the Exchange Notes received therefor (See "Description of the Notes"). PROSPECTIVE PURCHASERS OF THE NOTES ARE ADVISED TO CONSULT THEIR OWN TAX ADVISORS REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE NOTES. Exchange of Notes for Exchange Notes The exchange of the outstanding Notes for the Exchange Notes will be a non- taxable recapitalization under Section 368(a)(1)(E) of the Code. Pursuant to Section 354 of the Code, a holder of the Notes will not recognize any federal taxable gain or loss as a result of exchanging outstanding Notes for Exchange Notes. Under Section 358 of the Code, a holder will have the same tax basis in the Exchange Notes as that holder had in the outstanding Notes immediately prior to the exchange. The following discussion is limited to the U.S. federal income and estate tax consequences relevant to a Non-U.S. holder. As used herein, a "Non-U.S. holder" is any beneficial owner other than (a) a citizen or resident (as defined in Section 7701(b) of the Code) of the United States, (b) a corporation, partnership or other entity formed under the laws of the United States or any political subdivision thereof, (c) an estate, the income of which is subject to U.S. federal income taxation regardless of its source or (d) a trust, if a U.S. court is able to exercise primary supervision over its administration and one or more U.S. persons have the authority to control all substantial decisions of the trust. For purposes of withholding tax on interest discussed below, a Non-U.S. Holder includes a non-resident fiduciary of an estate or trust. For purposes of the following discussion, interest and gain on the sale, exchange or other disposition of the Notes will generally be considered to be "U.S. trade or business income" if such income or gain is (a) effectively connected with the conduct of a U.S. trade or business or (b) in the case of most treaty residents, attributable to a permanent establishment (or, in the case of an individual, a fixed base) in the U.S. Interest Generally, any interest paid, including any original issue discount, to a Non-U.S. holder of the Notes that is not U.S. trade or business income will not be subject to U.S. tax if the interest qualifies as "portfolio interest." Interest on the Notes will generally qualify as portfolio interest if (a) the Non-U.S. Holder does not actually or constructively own 10% or more of the total voting power of all classes of our voting stock and is not a 120 "controlled foreign corporation" with respect to which we are a "related person" within the meaning of the Code, (b) the Non-U.S. Holder is not a bank receiving interest on an extension of credit made pursuant to a loan agreement made in the ordinary course of its trade or business and (c) either (1) the beneficial owner of the Notes certifies, under penalties or perjury, to the paying agent or us, as the case may be, that such owner is a Non-U.S. Holder and provides such owner's name and address or (2) a securities clearing organization, bank or other financial institution that holds customer securities in the ordinary course of its trade or business (a "Financial Institution") and holds the Notes on behalf of a beneficial owner thereof, certifies, under penalties of perjury, that such certificate has been received by it or by a Financial Institution between it and the beneficial owner and furnishes the payor with a copy thereof. Recently adopted Treasury Regulations that will become effective January 1, 2000, (the "New Regulations") provide alternative methods for satisfying the certification requirement described in (iii) above. The New Regulations generally require, in the case of the Notes held by a foreign partnership, that the certificate described in (iii) above be provided by the partners rather than by the foreign partnership and that the partnership provide certain information including a U.S. Taxpayer Identification Number ("TIN"). The gross amount of payments to a Non-U.S. Holder of interest that do not qualify for the portfolio interest exemption and that are not U.S. trade or business income will be subject to withholding of U.S. federal income tax at a 30% rate, unless a U.S. income tax treaty applies to reduce or eliminate such withholding. U.S. trade or business income will be subject to U.S. federal income tax on a net income basis at applicable graduated individual or corporate rates and would be exempt from the 30% withholding tax described above. In the case of a Non-U.S. Holder that is a corporation, such U.S. trade or business income may also, under certain circumstances, be subject to an additional branch profits tax at a 30% rate (or, if applicable, a lower treaty rate). To claim the benefit of a tax treaty or to claim exemption from withholding because interest income is U.S. trade or business income, a Non- U.S. Holder must provide a properly executed Form 1001 or 4224, as applicable, prior to the payment of interest. These forms must be periodically updated. Under the New Regulations, a Holder claiming either such exemption will be required to provide a Form W-8, subject to certain transition rules, and may be required to provide a TIN. Special procedures are provided in the New Regulations for payments through qualified intermediaries. Prospective investors should consult their own tax advisors regarding the effect to them, if any, of the New Regulations. A Non-U.S. Holder of the Notes that is eligible for a reduced rate of U.S. withholding tax pursuant to an income treaty may obtain a refund of any amounts currently withheld by filing an appropriate claim for a refund with the IRS. Disposition of the Notes Subject to the discussion concerning backup withholding, any gain realized by a Non-U.S. Holder on the sale, exchange, retirement or other disposition of the Notes generally will not be subject to U.S. federal income tax, unless (i) such gain is U.S. trade or business income or (ii) subject to certain exceptions, the Non-U.S. Holder is an individual who holds the Notes as a capital asset and is present in the U.S. for 183 days or more in the taxable year of the disposition. Federal Estate Tax Notes that are held, or treated as held, by a non-resident alien individual (as specifically determined under residence rules for U.S. federal estate tax purposes) at the time of death will not be subject to U.S. federal estate tax provided that the interest thereon qualifies as portfolio interest and was not U.S. trade or business income. Information Reporting and Backup Withholding We must report annually to the IRS and to each Non-U.S. Holder any interest that is subject to withholding or that is exempt from U.S. withholding tax pursuant to a tax treaty. We must also report interest that is exempt 121 from U.S. tax under the portfolio interest exception. Copies of these information returns may also be made available under the provisions of a specific treaty or agreement to the tax authorities of the country in which the Non-U.S. Holder resides. Treasury Regulations provide that backup withholding and additional information reporting will not apply to payments on the Notes by us to a Non- U.S. Holder if the holder certifies as to its Non-U.S. status under penalties of perjury or otherwise establishes an exemption (provided that neither we nor our paying agent has actual knowledge that the holder is a U.S. person or that the conditions of any other exemption are not, in fact satisfied). The payment of the proceeds from the disposition of the Notes to or through the U.S. office of any broker, U.S. or foreign, will be subject to information reporting and possible backup withholding unless the owner certifies as to its name, address and Non-U.S. Holder status under penalties of perjury or otherwise establishes an exemption, provided that the broker does not have actual knowledge that the holder is a U.S. person or that the conditions of any other exemption are not, in fact satisfied. The payment of the proceeds from the disposition of the Notes to or through a non-U.S. office of a non- U.S. broker that is not a U.S. related person will not be subject to information reporting or backup withholding. In the case of the payment of proceeds from the disposition of the Notes to or through a non-U.S. office of a broker that is either a U.S. person or a U.S. related person, information reporting is required on the payment unless the broker has documentary evidence in its files that the owner is a Non-U.S. Holder and the broker has no knowledge to the contrary. Backup withholding will not apply to payments made through foreign offices of a broker that is not a U.S. person or a U.S. related person (absent actual knowledge that the payee is a U.S. person). A "U.S. related person" is (i) a "controlled foreign corporation" for U.S. federal income tax purposes, (ii) a foreign person 50% or more of whose gross income from all sources for the three-year period ending with the close of its taxable year preceding the payment (or for such part of the period that the broker has been in existence) is derived from activities that are effectively connected with the conduct of a U.S. trade or business, or (iii) a foreign partnership that, at any time during its taxable year, is 50% or more (by income or capital interest) owned by U.S. persons or is engaged in the conduct of a U.S. trade or business. The New Regulations provide certain presumptions under which a Non-U.S. Holder will be subject to backup withholding and information reporting unless the Non-U.S. Holder provides a certification as to its Non-U.S. Holder status. Any amounts withheld under the backup withholding rules from a payment to a Non-U.S. Holder will be allowed as a refund or a credit against such Non-U.S. Holder's U.S. federal income tax liability, provided that the requisite procedures are followed. THE PRECEDING DISCUSSION OF CERTAIN U.S. FEDERAL INCOME AND ESTATE TAX CONSEQUENCES IS FOR GENERAL INFORMATION ONLY, DOES NOT CONSTITUTE TAX ADVICE AND IS NOT BASED UPON ANY OPINION OF COUNSEL. ACCORDINGLY, EACH INVESTOR SHOULD CONSULT ITS OWN TAX ADVISOR AS TO PARTICULAR TAX CONSEQUENCES TO IT OF PURCHASING, HOLDING AND DISPOSING OF THE NOTES, INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS, AND OF ANY PROPOSED CHANGES IN APPLICABLE LAWS. 122 PLAN OF DISTRIBUTION A broker-dealer that is the holder of outstanding notes that were acquired for the account of such broker-dealer as a result of market-making or other trading activities (other than outstanding notes acquired directly from us or any affiliate of ours) may exchange such outstanding notes for exchange notes pursuant to the exchange offer; PROVIDED, that each broker-dealer that receives exchange notes for its own account in exchange for outstanding notes, where such outstanding notes were acquired by such broker-dealer as a result of market-making or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such exchange notes. 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 exchange notes received in exchange for outstanding notes where such outstanding notes were acquired as a result of market-making activities or other trading activities. We have agreed that for a period of 180 days after consummation of the exchange offer, we will make this prospectus, as it may be amended or supplemented from time to time, available to any broker-dealer for use in connection with any such resale. We will not receive any proceeds from any sale of exchange notes by broker- dealers or any other holder of exchange notes. Exchange 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 exchange 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 exchange notes. Any broker-dealer that resells exchange notes that were received by it for its own account pursuant to the exchange offer and any broker or dealer that participates in a distribution of such exchange notes may be deemed to be an "underwriter" within the meaning of the Securities Act and any profit on any such resale of exchange 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, 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 180 days after consummation of the exchange offer, we will promptly send 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. We have agreed to pay all expenses incident to the exchange offer and to our performance of, or compliance with, the registration rights agreement (other than commissions or concessions of any brokers or dealers) and will indemnify the holders of the notes (including any broker-dealers) against certain liabilities, including liabilities under the Securities Act. LEGAL MATTERS Certain legal matters in connection with the offering of the exchange notes will be passed upon for the Company by Cahill Gordon & Reindel (a partnership including a professional corporation), New York, New York. EXPERTS The consolidated financial statements of the Company as of June 30, 1997 and 1998 and for each of the years in the three-year period ended June 30, 1998 included in this prospectus and registration statement have been audited by Arthur Andersen LLP, independent public accountants, as indicated in their report with respect thereto, and are included herein in reliance upon the authority of said firm as experts in giving said reports. 123 The consolidated financial statements of Edwards and Lock Management Corporation, doing business as Special-T Fasteners, as of March 31, 1997 and 1996 and for each of the years in the three-year period ended March 31, 1997, incorporated by reference in this prospectus and registration statement have been audited by Arthur Andersen LLP, independent public accountants, as indicated in their report with respect thereto, and are included herein in reliance upon the authority of said firm as experts in giving said reports. The financial statements of Nacanco Paketleme for each of the years in the three-year period ended December 31, 1997, incorporated by reference in this prospectus and registration statement have been audited by Basaran Serbest Muhasebeci Maki Musavirlika A.S., independent public accountants, and are included herein in reliance upon the authority of said firm as experts in giving said reports. The consolidated financial statements of KTI as of December 31, 1998 and for each of the years in the three-year period ended December 31, 1998 included in this prospectus and registration statement have been audited by Arthur Andersen LLP, independent public accountants, as indicated in their report with respect thereto, and are included herein in reliance upon the authority of said firm as experts in giving said reports. 124 INDEX TO FINANCIAL STATEMENTS
Page ---- THE FAIRCHILD CORPORATION AND SUBSIDIARIES Report of Independent Public Accountants................................ F-2 Consolidated Balance Sheets as of June 30, 1997 and 1998................ F-3 Consolidated Statements of Earnings for the Years ended June 30, 1996, 1997 and 1998.......................................................... F-5 Consolidated Statements of Stockholders' Equity as of July 1, 1995 and June 30, 1996, 1997 and 1998 .............................................................. F-7 Consolidated Statements of Cash Flows for the Years ended June 30, 1996, 1997 and 1998 ......................................................... F-8 Notes to Consolidated Financial Statements.............................. F-9 Condensed Consolidated Balance Sheets as of June 30, 1998 and March 28, 1999 (Unaudited)....................................................... F-48 Condensed Statements of Earnings (Unaudited) for the Three (3) and Nine (9) Months ended March 29, 1998 and March 28, 1999..................... F-49 Condensed Consolidated Statements of Cash Flows (Unaudited) for the Nine (9) Months ended March 29, 1998 and March 28, 1999..................... F-51 Notes to Condensed Consolidated Financial Statements (Unaudited)........ F-52 KAYNAR TECHNOLOGIES INC. AND SUBSIDIARIES Report of Independent Public Accountants................................ F-61 Consolidated Statements of Income for the Years ended December 31, 1998, 1997 and 1996.......................................................... F-62 Consolidated Balance Sheets as of December 31, 1998 and 1997............ F-63 Consolidated Statements of Stockholders' Equity for the Years ended December 31, 1998, 1997 and 1996............................................................... F-64 Consolidated Statements of Cash Flows for the Years ended December 31, 1998, 1997 and 1996.................................................... F-65 Notes to Consolidated Financial Statements.............................. F-66
F-1 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To The Fairchild Corporation: We have audited the accompanying consolidated balance sheets of The Fairchild Corporation (a Delaware corporation) and consolidated subsidiaries as of June 30, 1997 and 1998, and the related consolidated statements of earnings, stockholders' equity and cash flows for each of the three years in the period ended June 30, 1996, 1997 and 1998. 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 did not audit the financial statements of Nacanco Paketleme (see Note 7), the investment in which is reflected in the accompanying financial statements using the equity method of accounting. The investment in Nacanco Paketleme represents 2 percent of total assets as of June 30, 1998 and 1997, and the equity in its net income represents 17 percent, 257 percent, and 9 percent of earnings from continuing operations. The statements of Nacanco Paketleme were audited by other auditors whose report has been furnished to us and our opinion, insofar as it relates to the amounts included for Nacanco Paketleme, is based on the report of other auditors. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform an 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, based on our audits and the report of other auditors, the financial statements referred to above present fairly, in all material respects, the financial position of The Fairchild Corporation and consolidated subsidiaries as of June 30, 1997 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 1996, 1997 and 1998, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Washington, D.C. September 22, 1998 (except with respect to the matters discussed in Notes 23 and 24, as to which the date is June 8, 1999) F-2 THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands)
June 30, June 30, 1997 1998 ---------- ---------- ASSETS Current Assets: Cash and cash equivalents, $4,839 and $746 restricted.. $ 19,420 $ 49,601 Short-term investments................................. 25,647 3,962 Accounts receivable-trade, less allowances of $6,905 and $5,655............................................ 151,361 120,284 Inventories: Finished goods....................................... 292,441 187,205 Work-in-process...................................... 20,357 20,642 Raw materials........................................ 10,567 9,635 ---------- ---------- 323,365 217,482 Net current assets of discontinued operations............ 17,884 11,613 Prepaid expenses and other current assets................ 34,490 53,081 ---------- ---------- Total current assets............................... 572,167 456,023 Property, plant and equipment, net of accumulated depreciation of $131,646 and $82,968.................... 121,918 118,963 Net assets held for sale................................. 26,147 23,789 Net noncurrent assets of discontinued operations......... 14,495 8,541 Cost in excess of net assets acquired (Goodwill), less accumulated amortization of $36,672 and $42,079......... 154,129 168,307 Investments and advances, affiliated companies........... 55,678 27,568 Prepaid pension assets................................... 59,742 61,643 Deferred loan costs...................................... 9,252 6,362 Long-term investments.................................... 4,120 235,435 Other assets............................................. 35,018 50,628 ---------- ---------- Total assets....................................... $1,052,666 $1,157,259 ========== ==========
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. F-3 THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands)
June 30, June 30, 1997 1998 ---------- ---------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Bank notes payable and current maturities of long- term debt........................................... $ 47,322 $ 20,665 Accounts payable..................................... 75,522 53,859 Accrued liabilities: Salaries, wages and commissions.................... 17,138 23,613 Employee benefit plan costs........................ 1,764 1,463 Insurance.......................................... 15,021 12,575 Interest........................................... 11,213 2,303 Other accrued liabilities.......................... 52,182 52,789 ---------- ---------- 97,318 92,743 Income taxes......................................... 5,863 28,311 ---------- ---------- Total current liabilities........................ 226,025 195,578 Long-term liabilities: Long-term debt, less current maturities.............. 416,922 295,402 Other long-term liabilities.......................... 23,622 23,767 Retiree health care liabilities...................... 43,351 42,103 Noncurrent income taxes.............................. 42,013 95,176 Minority interest in subsidiaries.................... 68,309 31,674 ---------- ---------- Total liabilities................................ 820,242 683,700 Stockholders' equity: Class A common stock, 10 cents par value; authorized 40,000,000 shares, 26,678,561 (20,233,879 in 1997) shares issued and 20,428,591 (13,992,283 in 1997) shares outstanding.................................. 2,023 2,667 Class B common stock, 10 cents par value; authorized 20,000,000 shares, 2,624,716 (2,632,516 in 1997) shares issued and outstanding....................... 263 263 Paid-in capital...................................... 71,015 195,112 Retained earnings.................................... 209,949 311,039 Cumulative other comprehensive income................ 893 16,386 Treasury Stock, at cost, 6,249,970 (6,241,596 in 1997) shares of Class A common stock................ (51,719) (51,908) ---------- ---------- Total stockholders' equity......................... 232,424 473,559 ---------- ---------- Total liabilities and stockholders' equity......... $1,052,666 $1,157,259 ========== ==========
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. F-4 THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (In thousands, except per share data)
For the Years Ended June 30, ------------------------------- 1996 1997 1998 --------- --------- --------- Revenue: Net sales................................... $ 349,236 $ 680,763 $ 741,176 Other income, net........................... 300 28 6,508 --------- --------- --------- 349,536 680,791 747,684 Costs and expenses: Cost of goods sold.......................... 275,135 499,419 554,670 Selling, general & administrative........... 79,295 142,959 141,930 Research and development.................... 94 100 172 Amortization of goodwill.................... 3,979 4,814 5,469 Restructuring............................... 2,319 -- -- --------- --------- --------- 360,822 647,292 702,241 Operating income (loss)....................... (11,286) 33,499 45,443 Interest expense............................ 64,521 52,376 46,007 Interest income............................. (8,062) (4,695) (3,292) --------- --------- --------- Net interest expense........................ 56,459 47,681 42,715 Investment income (loss), net............... 4,575 6,651 (3,362) Non-recurring income (loss)................. (1,724) 2,528 124,028 --------- --------- --------- Earnings (loss) from continuing operations before taxes............................... (64,894) (5,003) 123,394 Income tax (provision) benefit.............. 29,839 5,735 (48,659) Equity in earnings of affiliates, net....... 4,821 4,598 3,956 Minority interest, net...................... (1,952) (3,514) (26,292) --------- --------- --------- Earnings (loss) from continuing operations.. (32,186) 1,816 52,399 Earnings (loss) from discontinued operations, net............................ 15,612 (485) (4,296) Gain on disposal of discontinued operations, net........................................ 216,716 -- 59,717 --------- --------- --------- Earnings (loss) before extraordinary items.. 200,142 1,331 107,820 Extraordinary items, net.................... (10,436) -- (6,730) --------- --------- --------- Net earnings (loss)........................... $ 189,706 $ 1,331 $ 101,090 ========= ========= ========= Other comprehensive income, net of tax: Foreign currency translation adjustments.... (606) (1,514) (5,140) Unrealized holding gains (losses) on securities arising During the period....... -- 74 20,633 --------- --------- --------- Other comprehensive income (loss)........... (606) (1,440) 15,493 --------- --------- --------- Comprehensive income (loss)................... $ 189,100 $ (109) $ 116,583 ========= ========= =========
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. F-5 THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (In thousands, except per share data)
For the Years Ended June 30, ------------------------- 1996 1997 1998 ------- ------- ------- Basic Earnings per Share: Earnings (loss) from continuing operations........ $ (1.98) $ 0.11 $ 2.78 Earnings (loss) from discontinued operations, net.............................................. 0.96 (0.03) (0.23) Gain on disposal of discontinued operations, net.. 13.37 -- 3.17 Extraordinary items, net.......................... (0.64) -- (0.36) ------- ------- ------- Net earnings (loss)............................. $ 11.71 $ 0.08 $ 5.36 ======= ======= ======= Other comprehensive income, net of tax: Foreign currency translation adjustments.......... $ (0.04) $ (0.09) $ (0.27) Unrealized holding gains (losses) on securities arising during the period........................ -- -- 1.10 ------- ------- ------- Other comprehensive income........................ (0.04) (0.09) 0.83 ------- ------- ------- Comprehensive income (loss)..................... $ 11.67 $ (0.01) $ 6.19 ======= ======= ======= Diluted Earnings per Share: Earnings (loss) from continuing operations........ $ (1.98) $ 0.11 $ 2.66 Earnings (loss) from discontinued operations, net.............................................. 0.96 (0.03) (0.22) Gain on disposal of discontinued operations, net.. 13.37 -- 3.04 Extraordinary items, net.......................... (0.64) -- (0.34) ------- ------- ------- Net earnings (loss)............................. $ 11.71 $ 0.08 $ 5.14 ======= ======= ======= Other comprehensive income, net of tax: Foreign currency translation adjustments.......... $ (0.04) $ (0.09) $ (0.26) Unrealized holding gains (losses) on securities arising during the period........................ -- -- 1.05 ------- ------- ------- Other comprehensive income........................ (0.04) (0.09) 0.79 ------- ------- ------- Comprehensive income (loss)..................... $ 11.67 $ (0.01) $ 5.93 ======= ======= ======= Weighted average shares outstanding: Basic............................................. 16,206 16,539 18,834 ======= ======= ======= Diluted........................................... 16,206 17,321 19,669 ======= ======= =======
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. F-6 THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (In thousands)
Cumulative Class A Class B Other Common Common Paid-in Retained Treasury Comprehensive Stock Stock Capital Earnings Stock Income Total ------- ------- -------- -------- -------- ------------- -------- BALANCE, July 1, 1995... $1,965 $270 $ 67,011 $ 18,912 $(51,719) $ 2,939 $ 39,378 Net earnings........... -- -- -- 189,706 -- -- 189,706 Foreign currency translation adjustments........... -- -- -- -- -- (606) (606) Fair market value of stock warrants issued................ -- -- 1,148 -- -- -- 1,148 Proceeds received from options exercised..... 28 -- 1,481 -- -- -- 1,509 Exchange of Class B for Class A common stock.. 7 (7) -- -- -- -- -- Retirement of preferred stock of subsidiary... -- -- (274) -- -- -- (274) ------ ---- -------- -------- -------- ------- -------- BALANCE, June 30, 1996.. 2,000 263 69,366 208,618 (51,719) 2,333 230,861 Net earnings........... -- -- -- 1,331 -- -- 1,331 Foreign currency translation adjustments........... -- -- -- -- -- (1,514) (1,514) Fair market value of stock warrants issued................ -- -- 546 -- -- -- 546 Proceeds received from options exercised (234,935 shares)...... 23 -- 1,103 -- -- -- 1,126 Exchange of Class B for Class A Common stock (1,188 shares)........ -- -- -- -- -- -- -- Net unrealized holding gain on Available-for- sale securities....... -- -- -- -- -- 74 74 ------ ---- -------- -------- -------- ------- -------- BALANCE, June 30, 1997.. 2,023 263 71,015 209,949 (51,719) 893 232,424 Net earnings........... -- -- -- 101,090 -- -- 101,090 Foreign currency translation adjustments........... -- -- -- -- -- (5,140) (5,140) Compensation expense from adjusted terms to warrants and options.. -- -- 5,655 -- -- -- 5,655 Stock issued for Special-T Fasteners acquisition........... 108 -- 21,939 -- -- -- 22,047 Stock issued for Exchange Offer........ 221 -- 42,588 -- -- -- 42,809 Equity Offering........ 300 -- 53,268 -- -- -- 53,568 Proceeds received from stock options exercised (141,259 shares)............... 10 -- 652 -- (189) -- 473 Cashless exercise of warrants (47,283 shares)............... 5 -- (5) -- -- -- -- Exchange of Class B for Class A common stock (7,800 shares)........ -- -- -- -- -- -- -- Net unrealized holding gain on available-for- sale securities....... -- -- -- -- -- 20,633 20,633 ------ ---- -------- -------- -------- ------- -------- BALANCE, June 30, 1998.. $2,667 $263 $195,112 $311,039 $(51,908) $16,386 $473,559 ====== ==== ======== ======== ======== ======= ========
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. F-7 THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
For the Twelve Months Ended ------------------------------- 1996 1997 1998 --------- --------- --------- Cash flows from operating activities: Net earnings................................ $ 189,706 $ 1,331 $ 101,090 Depreciation and amortization............... 21,045 24,307 20,036 Accretion of discount on long-term liabilities................................ 4,686 4,963 3,766 Net gain on the disposition of subsidiaries............................... -- -- (124,041) Net gain on the sale of discontinued operations................................. (216,645) -- (132,787) Extraordinary items, net of cash payments... 4,501 -- 10,347 Provision for restructuring (excluding cash payments of $777 in 1996).................. 1,542 -- -- (Gain) loss on sale of property, plant, and equipment.................................. (9) (72) 246 (Undistributed) distributed earnings of affiliates, net............................ (3,857) (1,055) 1,725 Minority interest........................... 1,952 3,514 26,292 Change in trading securities................ (5,346) (5,733) 9,275 Change in receivables....................... (5,566) (48,693) (12,846) Change in inventories....................... (16,088) (36,868) (54,857) Change in other current assets.............. (2,989) (14,088) (26,643) Change in other non-current assets.......... 3,609 (16,565) (16,562) Change in accounts payable, accrued liabilities and other long-term liabilities................................ (37,477) 6,102 80,677 Non-cash charges and working capital changes of discontinued operations................. 11,985 (17,201) 11,789 --------- --------- --------- Net cash used for operating activities.... (48,951) (100,058) (102,493) Cash flows from investing activities: Proceeds received from (used for) investment securities, net............................ 265 (12,951) (7,287) Purchase of property, plant and equipment... (5,680) (15,014) (36,029) Proceeds from sale of plant, property and equipment.................................. 98 213 336 Equity investment in affiliates............. (2,361) (1,749) (4,343) Minority interest in subsidiaries........... (2,817) (1,610) (26,383) Acquisition of subsidiaries, net of cash acquired................................... -- (55,916) (32,795) Net proceeds received from the sale of discontinued operations.................... 71,559 173,719 167,987 Changes in net assets held for sale......... 5,894 385 2,140 Investing activities of discontinued operations................................. (9,418) (7,102) (2,750) --------- --------- --------- Net cash provided by investing activities............................... 57,540 79,975 60,876 Cash flows from financing activities: Proceeds from issuance of debt.............. 156,501 154,294 275,523 Debt repayments and repurchase of debentures, net............................ (195,420) (155,600) (258,014) Issuance of Class A common stock............ 1,509 1,126 54,041 Financing activities of discontinued operations................................. (2,227) (1,275) 2,538 --------- --------- --------- Net cash provided by (used for) financing activities............................... (39,637) (1,455) 74,088 Effect of exchange rate changes on cash....... (485) 1,309 (2,290) --------- --------- --------- Net change in cash and cash equivalents....... (31,533) (20,229) 30,181 Cash and cash equivalents, beginning of the year......................................... 71,182 39,649 19,420 --------- --------- --------- Cash and cash equivalents, end of the year.... $ 39,649 $ 19,420 $ 49,601 ========= ========= =========
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. F-8 THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except per share data) 1. Summary of Significant Accounting Policies: Corporate Structure: The Fairchild Corporation (the "Company") was incorporated in October 1969, under the laws of the State of Delaware. The Company is the majority owner of Banner Aerospace, Inc., ("Banner"). RHI Holdings, Inc. ("RHI") is a direct subsidiary of the Company. RHI is the owner of 100% of Fairchild Holding Corp. ("FHC"). The Company's principal operations are conducted through FHC and Banner. The Company also holds a significant equity interest in Nacanco Paketleme ("Nacanco"). Prior to March 10, 1998, the Company held an equity interest in Shared Technologies Fairchild Inc. ("STFI"). The Company's investment in STFI resulted from a March 13, 1996 Merger of the Communications Services Segment of the Company with Shared Technologies, Inc. The merger of STFI into Intermedia Communications Inc., as discussed in Note 4, completes the disposition of the Communications Services Segment. In February 1998, the Company adopted a formal plan to dispose of its interest in the Fairchild Technologies segment. Accordingly, the Company's financial statements present the results of the Communications Services Segment, STFI and Fairchild Technologies as discontinued operations. Fiscal Year: The fiscal year ("Fiscal") of the Company ends June 30. All references herein to "1996", "1997", and "1998" mean the fiscal years ended June 30, 1996, 1997 and 1998, respectively. Consolidation Policy: The accompanying consolidated financial statements are prepared in accordance with generally accepted accounting principles and include the accounts of the Company and all of its wholly-owned and majority- owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Investments in companies in which ownership interest range from 20 to 50 percent are accounted for using the equity method (see Note 7). Cash Equivalents/Statements of Cash Flows: For purposes of the Statements of Cash Flows, the Company considers all highly liquid investments with original maturity dates of three months or less as cash equivalents. Total net cash disbursements (receipts) made by the Company for income taxes and interest were as follows:
1996 1997 1998 ------- ------- ------- Interest........................................ $66,716 $48,567 $52,737 Income Taxes.................................... 9,279 (1,926) (987)
Restricted Cash: On June 30, 1997 and 1998, the Company had restricted cash of $4,839 and $746, respectively, all of which is maintained as collateral for certain debt facilities. Cash investments are in short-term certificates of deposit. Investments: Management determines the appropriate classification of its investments at the time of acquisition and reevaluates such determination at each balance sheet date. Trading securities are carried at fair value, with unrealized holding gains and losses included in earnings. Available-for-sale securities are carried at fair value, with unrealized holding gains and losses, net of tax, reported as a separate component of stockholders' equity. Investments in equity securities and limited partnerships that do not have readily determinable fair values are stated at cost and are categorized as other investments. Realized gains and losses are determined using the specific identification method based on the trade date of a transaction. Interest on corporate obligations, as well as dividends on preferred stock, are accrued at the balance sheet date. Inventories: Inventories are stated at the lower of cost or market. Cost is determined using the last-in, first-out ("LIFO") method at principal domestic aerospace fastener manufacturing operations and using the first-in, first-out ("FIFO") method elsewhere. If the FIFO inventory valuation method had been used exclusively, F-9 THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (In thousands, except per share data) inventories would have been approximately $4,868 and $8,706 higher at June 30, 1997 and 1998, respectively. Inventories from continuing operations are valued as follows:
June 30, June 30, 1997 1998 -------- -------- First-in, first-out (FIFO)................................ $293,469 $177,426 Last-in, First-out (LIFO)................................. 29,896 40,056 -------- -------- Total inventories....................................... $323,365 $217,482 ======== ========
Properties and Depreciation: The cost of property, plant and equipment is depreciated over estimated useful lives of the related assets. The cost of leasehold improvements is depreciated over the lesser of the length of the related leases or the estimated useful lives of the assets. Depreciation is computed using the straight-line method for financial reporting purposes and using accelerated depreciation methods for Federal income tax purposes. No interest costs were capitalized in any of the years presented. Property, plant and equipment consisted of the following:
June 30, June 30, 1997 1998 -------- -------- Land......................................................... $ 13,438 $ 11,694 Building and improvements.................................... 54,907 47,579 Machinery and equipment...................................... 152,430 113,669 Transportation vehicles...................................... 864 676 Furniture and fixtures....................................... 25,401 16,362 Construction in progress..................................... 6,524 11,951 -------- -------- Property, plant and equipment at cost........................ 253,564 201,931 Less: Accumulated depreciation............................... 131,646 82,968 -------- -------- Net property, plant and equipment............................ $121,918 $118,963 ======== ========
Amortization of Goodwill: Goodwill, which represents the excess of the cost of purchased businesses over the fair value of their net assets at dates of acquisition, is being amortized on a straight-line basis over 40 years. Deferred Loan Costs: Deferred loan costs associated with various debt issues are being amortized over the terms of the related debt, based on the amount of outstanding debt, using the effective interest method. Amortization expense for these loan costs for 1996, 1997 and 1998 was $3,827, $2,847 and $2,406, respectively. Impairment of Long-Lived Assets: In Fiscal 1997, the Company adopted Statement of Financial Accounting Standards No. 121 ("SFAS 121"), "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of". SFAS 121 establishes accounting standards for the 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 reviews its long-lived assets, including property, plant and equipment, identifiable intangibles and goodwill, for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable. To determine recoverability of its long-lived assets the Company evaluates the probability that future undiscounted net cash flows will be less than the carrying amount of the assets. Impairment is measured based on the difference between the carrying amount of the assets and fair value. The implementation of SFAS 121 did not have a material effect on the Company's consolidated results of operations. F-10 THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (In thousands, except per share data) Foreign Currency Translation: For foreign subsidiaries whose functional currency is the local foreign currency, balance sheet accounts are translated at exchange rates in effect at the end of the period and income statement accounts are translated at average exchange rates for the period. The resulting translation gains and losses are included as a separate component of stockholders' equity. Foreign currency transaction gains and losses are included in other income and were insignificant in Fiscal 1996, 1997 and 1998. Research and Development: Company-sponsored research and development expenditures are expensed as incurred. Capitalization of interest and taxes: The Company capitalizes interest expense and property taxes relating to property being developed. Nonrecurring Income: Nonrecurring income of $124,028 in 1998 resulted from disposition of Banner hardware group (See Note 2). Nonrecurring income of $2,528 in 1997 resulted from the gain recorded from the sale of Fairchild Scandinavian Bellyloading Company ("SBC"), (See Note 2). Nonrecurring expense in 1996 resulted from expenses incurred in 1996 in connection with other, alternative transactions considered but not consummated. Stock-Based Compensation: In Fiscal 1997, the Company implemented Statement of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock- Based Compensation". SFAS 123 establishes financial accounting standards for stock-based employee compensation plans and for transactions in which an entity issues equity instruments to acquire goods or services from non- employees. As permitted by SFAS 123, the Company will continue to use the intrinsic value based method of accounting prescribed by APB Opinion No. 25, for its stock-based employee compensation plans. Fair market disclosures required by SFAS 123 are included in Note 12. 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. Reclassifications: Certain amounts in prior years' financial statements have been reclassified to conform to the 1998 presentation. Recently Issued Accounting Pronouncements: In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 131 ("SFAS 131") "Disclosures about Segments of an Enterprise and Related Information." SFAS 131 supersedes Statement of Financial Accounting Standards No. 14 "Financial Reporting for Segments of a Business Enterprise" and requires that a public company report certain information about its reportable operating segments in annual and interim financial reports. Generally, financial information is required to be reported on the basis that is used internally for evaluating segment performance and deciding how to allocate resources to segments. The Company will adopt SFAS 131 in Fiscal 1999. In February 1998, the FASB issued Statement of Financial Accounting Standards No. 132 ("SFAS 132") "Employers' Disclosures about Pensions and Other Postretirement Benefits." SFAS 132 revises and improves the effectiveness of current note disclosure requirements for employers' pensions and other retiree benefits by requiring additional information to facilitate financial analysis and eliminating certain disclosures which are no F-11 THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (In thousands, except per share data) longer useful. SFAS 132 does not address recognition or measurement issues. The Company will adopt SFAS 132 in Fiscal 1999. In June 1998, the FASB issued Statement of Financial Accounting Standards No. 133 ("SFAS 133") "Accounting for Derivative Instruments and Hedging Activities." SFAS 133 establishes a new model for accounting for derivatives and hedging activities and supersedes and amends a number of existing accounting standards. It requires that all derivatives be recognized as assets and liabilities on the balance sheet and measured at fair value. The corresponding derivative gains or losses are reported based on the hedge relationship that exists, if any. Changes in the fair value of derivative that are not designated as hedges or that do not meet the hedge accounting criteria in SFAS 133 are required to be reported in earnings. Most of the general qualifying criteria for hedge accounting under SFAS 133 were derived from, and are similar to, the existing qualifying criteria in SFAS 80 "Accounting for Futures Contracts." SFAS 133 describes three primary types of hedge relationships: fair value hedge, cash flow hedge, and foreign currency hedge. The Company will adopt SFAS 133 in Fiscal 1999 and is currently evaluating the financial statement impact. 2. Business Combinations The Company has accounted for the following acquisitions by using the purchase method. The respective purchase price is assigned to the net assets acquired based on the fair value of such assets and liabilities at the respective acquisition dates. In December 1997, the Company acquired AS+C GmbH, Aviation Supply + Consulting ("AS&C") in a business combination accounted for as a purchase. The total cost of the acquisition was $13,245, which exceeded the fair value of the net assets of AS&C by approximately $7,350, which is preliminarily being allocated as goodwill and amortized using the straight-line method over 40 years. The Company purchased AS&C with cash borrowings. AS&C is an aerospace parts, logistics, and distribution company primarily servicing the European OEM market. On March 2, 1998, the Company consummated the acquisition of Edwards and Lock Management Corporation, doing business as Special-T Fasteners ("Special- T"), in a business combination to be accounted for as a purchase (the "Special-T Acquisition"). The contractual purchase price for the acquisition was valued at approximately $47,300, of which 50.1% was paid in shares of Class A Common Stock of the Company and 49.9% was paid in cash. The total cost of the acquisition exceeded the fair value of the net assets of Special-T by approximately $21,605, which amount is preliminarily being allocated as goodwill, and amortized using the straight-line method over 40 years. Special- T manages the logistics of worldwide distribution of Company manufactured precision fasteners to customers in the aerospace industry, government agencies, original equipment manufacturers ("OEM's"), and other distributors. In February 1997, the Company completed a transaction (the "Simmonds Acquisition") pursuant to which the Company acquired common shares and convertible debt representing an 84.2% interest, on a fully diluted basis, of Simmonds S.A. ("Simmonds"). The Company then initiated a tender offer to purchase the remaining shares and convertible debt held by the public. By June 30, 1997, the Company had purchased, or placed sufficient cash in escrow to purchase, all the remaining shares and convertible debt of Simmonds. The total purchase price of Simmonds, including the assumption of debt, was approximately $62,000, which the Company funded with available cash and borrowings. The Company recorded approximately $20,453 in goodwill as a result of this acquisition, which will be amortized using the straight-line method over 40 years. Simmonds is one of Europe's leading manufacturers and distributors of aerospace and automotive fasteners. F-12 THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (In thousands, except per share data) On January 13, 1998, certain subsidiaries (the "Selling Subsidiaries"), of Banner, completed the disposition of substantially all of the assets and certain liabilities of the Selling Subsidiaries to two wholly-owned subsidiaries of AlliedSignal Inc. (the "Buyers"), in exchange for shares of AlliedSignal Inc. common stock with an aggregate value equal to $369,000 (the "Banner Hardware Group Disposition"). The purchase price received by the Selling Subsidiaries was based on the consolidated net worth as reflected on an adjusted closing date balance sheet for the assets (and liabilities) conveyed by the Selling Subsidiaries to the Buyers. The assets transferred to the Buyers consist primarily of Banner's hardware group, which includes the distribution of bearings, nuts, bolts, screws, rivets and other type of fasteners, and its PacAero unit. Approximately $196,000 of the common stock received from the Buyers was used to repay outstanding term loans of Banner's subsidiaries and related fees. The Company will account for its remaining investment in AlliedSignal Inc. common stock as an available-for-sale security. Banner effected the Banner Hardware Group Disposition to concentrate its efforts on the rotables and jet engine businesses and because the Banner Hardware Group Disposition presented a unique opportunity to realize a significant return on the disposition of the hardware group. As a result of the Banner Hardware Group Disposition and the repayment of outstanding term loans, the Company recorded non-recurring income of $124,028 for the year ended June 30, 1998. On June 30, 1997, the Company sold all the patents of Fairchild Scandinavian Bellyloading Company ("SBC") to Teleflex Incorporated ("Teleflex") for $5,000, and immediately thereafter sold all the stock of SBC to a wholly owned subsidiary of Teleflex for $2,000. The Company may also receive additional proceeds of up to $7,000 based on future net sales of SBC's patented products and services. 3. Minority Interest in Consolidated Subsidiaries Effective February 25, 1996, the Company completed a transfer of the Company's Harco Division ("Harco") to Banner in exchange for 5,386,477 shares of Banner common stock. The exchange increased the Company's ownership of Banner common stock from approximately 47.2% to 59.3%, resulting in the Company becoming the majority shareholder of Banner. Accordingly, the Company has consolidated the results of Banner since February 25, 1996. The Company recorded a $427 nonrecurring loss from outside expenses incurred for this transaction in 1996. In May 1997, Banner granted all of its stockholders certain rights to purchase Series A Convertible Paid-in-Kind Preferred Stock. In June 1997, Banner received net proceeds of $33,876 and issued 3,710,955 shares of preferred stock. The Company purchased $28,390 of the preferred stock issued by Banner, increasing its voting percentage to 64.0%. On May 11, 1998, the Company commenced an offer to exchange (the "Exchange Offer"), for each properly tendered share of Common Stock of Banner, a number of shares of the Company's Class A Common Stock, par value $0.10 per share, equal to the quotient of $12.50 divided by $20.675 up to a maximum of 4,000,000 shares of Banner's Common Stock. The Exchange Offer expired on June 9, 1998 and 3,659,364 shares of Banner's Common Stock were validly tendered for exchange and the Company issued 2,212,361 shares Class A Common Stock to the tendering shareholders. As a result of the Exchange Offer, the Company's ownership of Banner Common Stock increased to 83.3%. The Company effected the Exchange Offer to increase its ownership of Banner to more than 80% in order for the Company to include Banner in its United States consolidated corporate income tax return. On June 30, 1998, the Company had $31,674 of minority interest, of which $31,665 represents Banner. Minority shareholders hold approximately 16.7% of Banner's outstanding common stock. F-13 THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (In thousands, except per share data) In connection with the Company's December 23, 1993 sale of its interest in Rexnord Corporation to BTR Dunlop Holdings, Inc. ("BTR"), the Company placed shares of Banner, with a fair market value of $5,000, in escrow to secure the Company's remaining indemnification of BTR against a contingent liability. Once the contingent liability is resolved, the escrow will be released. 4. Discontinued Operations and Net Assets Held For Sale The Company, RHI and Fairchild Industries, Inc. ("FII"), RHI's subsidiary, entered into an Agreement and Plan of Merger dated as of November 9, 1995 (as amended, the "Merger Agreement") with Shared Technologies Inc. ("STI"). On March 13, 1996, in accordance with the Merger Agreement, STI succeeded to the telecommunications systems and services business segment operated by the Company's Fairchild Communications Services Company ("FCSC"). The transaction was effected by a Merger of FII with and into STI (the "Merger") with the surviving company renamed Shared Technologies Fairchild, Inc ("STFI"). Prior to the Merger, FII transferred all of its assets to, and all of its liabilities were assumed by FHC, except for the assets and liabilities of FCSC, and $223,500 of FII debt and preferred stock. As a result of the Merger, the Company received shares of Common Stock and Preferred Stock of STFI representing approximately a 41% ownership interest in STFI. The Merger was structured as a reorganization under section 386(a)(1)(A) of the Internal Revenue Code of 1986, as amended. In 1996, the Company recorded a $163,130 gain from this transaction. On November 20, 1997, STFI entered into a merger agreement with Intermedia Communications Inc. ("Intermedia") pursuant to which holders of STFI common stock received $15.00 per share in cash (the "STFI Merger"). The Company was paid approximately $178,000 in cash (before tax and selling expenses) in exchange for the common and preferred stock of STFI owned by the Company. In the nine months ended March 29, 1998, the Company recorded a $95,960 gain, net of tax, on disposal of discontinued operations, from the proceeds received from the STFI Merger, which was completed on March 11, 1998. The results of STFI have been accounted for as discontinued operations. The results of FCSC and STFI have been accounted for as discontinued operations. The net sales of FCSC totaled, $91,290 in 1996. Net earnings from discontinued operations from FCSC and STFI was $7,901 $3,149, and $648 in 1996, 1997, and 1998, respectively. For the Company's fiscal years 1996, 1997, and 1998, Fairchild Technologies ("Technologies") had pre-tax operating losses of approximately $1.5 million, $3.6 million, and $48.7 million, respectively. In addition, as a result of the downturn in the Asian markets, Technologies has experienced delivery deferrals, reduction in new orders, lower margins and increased price competition. In response, in February, 1998 (the "measurement date"), the Company adopted a formal plan to enhance the opportunities for disposition of Technologies, while improving the ability of Technologies to operate more efficiently. The plan includes a reduction in production capacity and headcount at Technologies, and the pursuit of potential vertical and horizontal integration with peers and competitors of the two divisions that constitute Technologies, or the inclusion of those divisions in a spin-off. If the Company elects to include Technologies in a spin-off, the Company believes that it would be required to contribute substantial additional resources to allow Technologies the liquidity necessary to sustain and grow both the Fairchild Technologies' operating divisions. In connection with the adoption of such plan, the Company recorded an after-tax charge of $36,243 in discontinued operations in Fiscal 1998, of which, $28,243 (net of an income tax benefit of $11,772) relating to the net losses of Technologies since the measurement date, including the write down of assets for impairment to F-14 THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (In thousands, except per share data) estimated realizable value; and (ii) $8,000 (net of an income tax benefit of $4,806) relating to a provision for operating losses over the next seven months at Technologies. While the Company believes that $36,243 is a reasonable charge for the expected losses in connection with the disposition of Technologies, there can be no assurance that this estimate is adequate. Earnings from discontinued operations for the twelve months ended June 30, 1996, 1997, and 1998 includes net losses of $1,475, $3,634 and $4,944, respectively, from Technologies until the adoption date of a formal plan on the measurement date. On February 22, 1996, pursuant to an Asset Purchase Agreement dated January 26, 1996, the Company, through one of its subsidiaries, completed the sale of certain assets, liabilities and the business of the D-M-E Company ("DME") to Cincinnati Milacron Inc. ("CMI"), for a sales price of approximately $244,331, as adjusted. The sales price consisted of $74,000 in cash, and two 8% promissory notes in the aggregate principal amount of $170,331 (together, the "8% CMI Notes"). On July 29, 1996, CMI paid in full the 8% CMI Notes. As a result of the sale of DME in 1996, the Company recorded a gain on disposal of discontinued operations of approximately $54,012, net of a $61,929 tax provision. On January 27, 1996, FII completed the sale of Fairchild Data Corporation ("Data") to SSE Telecom, Inc. ("SSE") for book value of approximately $4,400 and 100,000 shares of SSE's common stock valued at $9.06 per share, or $906, at January 26, 1996, and warrants to purchase an additional 50,000 shares of SSE's common stock at $11.09 per share. Accordingly, the results of DME and Data have been accounted for as discontinued operations. The combined net sales of DME and Data totaled $108,131 for 1996. Net earnings from discontinued operations was $9,186, net of $5,695 for taxes in 1996. Net assets held for sale at June 30, 1998, includes two parcels of real estate in California, and several other parcels of real estate located primarily throughout the continental United States, which the Company plans to sell, lease or develop, subject to the resolution of certain environmental matters and market conditions. Also included in net assets held for sale are limited partnership interests in (i) a real estate development joint venture, and (ii) a landfill development partnership. Net assets held for sale are stated at the lower of cost or at estimated net realizable value, which consider anticipated sales proceeds, and other carrying costs to be incurred during the holding period. Interest is not allocated to net assets held for sale. 5. Pro Forma Financial Statements (Unaudited) The following unaudited pro forma information for 1996, 1997 and 1998 provides the results of the Company's operations as though (i) the disposition of the Banner Hardware Group, DME, Data, and SBC (ii) the Merger of FCSC and subsequent disposition of STFI, (iii) the transfer of Harco to Banner, resulting in the consolidation of Banner, and (iv) Exchange Offer had been in effect since the beginning of each period. The pro forma information is based on the historical financial statements of the Company, Banner, DME, FCSC and SBC, giving effect to the aforementioned transactions. In preparing the pro forma data, certain assumptions and adjustments have been made which (i) reduce interest expense for revised debt structures, (ii) increase interest income for notes receivable, and (iii) reduce minority interest from increased ownership in Banner and the preferred stock of a former subsidiary being redeemed. F-15 THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (In thousands, except per share data) The following unaudited pro forma financial information is not necessarily indicative of the results of operations that actually would have occurred if the transactions had been in effect since the beginning of each period, nor is it necessarily indicative of future results of the Company.
1996 1997 1998 -------- -------- -------- Sales........................................ $346,893 $452,527 $620,275 Operating income............................. (13,489) 11,179 34,853 Earnings (loss) from continuing operations... (1,880) 3,616 4,628 Basic and diluted earnings (loss) from continuing operations per share............. (0.10) 0.19 0.21 Net loss..................................... (3,355) (18) (28,438) Basic and diluted net loss per share......... (0.18) (0.00) (1.35)
The pro forma financial information does not reflect nonrecurring income and gains from disposal of discontinued operations that have occurred from these transactions. 6. Investments Investments at June 30, 1998 consist primarily of common stock investments in public corporations, which are classified as available-for-sale securities. Other short-term investments and long-term investments do not have readily determinable fair values and primarily consist of investments in preferred and common stocks of private companies and limited partnerships. A summary of investments held by the Company consists of the following:
June 30, 1997 June 30, 1998 ----------------- ------------------ Aggregate Aggregate Fair Cost Fair Cost Value Basis Value Basis --------- ------- --------- -------- Short-term investments: Trading securities--equity............... $16,094 $ 7,398 $ -- $ -- Available-for-sale equity securities..... -- -- 3,907 5,410 Other investments........................ 9,553 9,553 55 55 ------- ------- -------- -------- $25,647 $16,951 $ 3,962 $ 5,465 ======= ======= ======== ======== Long-term investments: Available-for-sale equity securities..... $ -- $ -- $234,307 $195,993 Other investments........................ 4,120 4,120 1,128 1,128 ------- ------- -------- -------- $ 4,120 $ 4,120 $235,435 $197,121 ======= ======= ======== ========
On June 30, 1998, the Company had gross unrealized holding gains from available-for-sale securities of $38,314 and gross unrealized holding losses from available-for-sale securities of $1,503. Investment income is summarized as follows:
1996 1997 1998 ------- ------ ------- Gross realized gain (loss) from sales............. $(1,744) $1,673 $ 364 Change in unrealized holding gain (loss) from trading securities............................... 5,527 4,289 (5,791) Gross realized loss from impairments.............. -- -- (182) Dividend income................................... 792 689 2,247 ------- ------ ------- $ 4,575 $6,651 $(3,362) ======= ====== =======
F-16 THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (In thousands, except per share data) Subsequent to year-end, the Company's investment in AlliedSignal common stock (included in long-term available-for-sale equity securities) declined in value from $218 million at June 30, 1998 to $177 million at September 17, 1998. Also subsequent to year-end the Company sold calls on 800,000 shares of AlliedSignal common stock for approximately $1.8 million. These calls will be marked to market through current income on a monthly basis until the calls mature. 7. Investments and Advances, Affiliated Companies The following table presents summarized historical financial information on a combined 100% basis of the Company's principal investments, which are accounted for using the equity method.
1996 1997 1998 -------- -------- ------- Statement of Earnings: Net sales.......................................... $295,805 $102,962 $90,235 Gross profit....................................... 89,229 39,041 32,449 Earnings from continuing operations................ 18,289 14,812 14,780 Net earnings....................................... 18,289 14,812 14,780 Balance Sheet at June 30: Current assets..................................... $ 47,546 $33,867 Non-current assets................................. 40,878 39,898 Total assets....................................... 88,424 73,765 Current liabilities................................ 26,218 14,558 Non-current liabilities............................ 740 1,471
The Company owns approximately 31.9% of Nacanco common stock. The Company recorded equity earnings of $5,487, $4,673, and $4,683 from this investment for 1996, 1997 and 1998, respectively. Effective February 25, 1996, the Company increased its percentage of ownership of Banner common stock from 47.2% to approximately 59.3%. Since February 25, 1996, the Company has consolidated Banner's results. Prior to February 25, 1996, the Company accounted for its investment in Banner using the equity method and held its investment in Banner as part of investments and advances, affiliated companies. The Company recorded equity in earnings of $363 from this investment in 1996. The Company's share of equity in earnings of all unconsolidated affiliates for 1996, 1997 and 1998 was $4,821, $4,598, and $3,956, respectively. The carrying value of investments and advances, affiliated companies consists of the following:
June 30, June 30, 1997 1998 -------- -------- Nacanco................................................. $20,504 $19,329 STFI.................................................... 31,978 -- Others.................................................. 3,196 8,239 ------- ------- $55,678 $27,568 ======= =======
On June 30, 1998, approximately $6,103 of the Company's $473,559 consolidated retained earnings are from undistributed earnings of 50 percent or less currently owned affiliates accounted for using the equity method. F-17 THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (In thousands, except per share data) 8. Notes Payable and Long-term Debt At June 30, 1997 and 1998, notes payable and long-term debt consisted of the following:
June 30, 1997 June 30, 1998 ------------- ------------- Bank credit agreements............................. $ 100 $ -- Other short-term notes payable..................... 15,429 17,811 -------- -------- Short-term notes payable (weighted average interest rates of 7.8% and 5.2% in 1997 and 1998, respectively)..................................... $ 15,529 $ 17,811 ======== ======== Bank credit agreements............................. $177,250 $290,800 11 7/8% RHI Senior debentures due 1999............. 85,852 -- 12% Intermediate debentures due 2001............... 115,359 -- 13 1/8% Subordinated debentures due 2006........... 35,188 -- 13% Junior Subordinated debentures due 2007........ 24,834 -- 10.65% Industrial revenue bonds.................... 1,500 1,500 Capital lease obligations, interest from 4.4% to 10.1%............................................. 1,897 923 Other notes payable, collateralized by property, plant and equipment, interest from 3.0% to 10.0%.. 6,835 5,033 -------- -------- 448,715 298,256 Less: Current maturities........................... (31,793) (2,854) -------- -------- Net long-term debt................................. $416,922 $295,402 ======== ========
The Company maintains credit agreements (the "Credit Agreements") with a consortium of banks, which provide revolving credit facilities to the Company and Banner, and a term loan to the Company (collectively the "Credit Facilities"). On December 19, 1997, immediately following the Offering, the Company restructured its FHC and RHI Credit Agreements by entering into a new credit agreement (the "New Credit Agreement") to provide the Company with a $300,000 senior secured credit facility (the "Facility") consisting of (i) a $75,000 revolving loan with a letter of credit sub-facility of $30,000 and a $10,000 swing loan sub-facility, and (ii) a $225,000 term loan. Advances made under the Facility will generally bear interest at a rate of, at the Company's option, either (i) 2% over the Citibank N.A. base rate, or (ii) 3% over the Eurodollar Rate ("LIBOR") for the first nine months following closing, which is subject to change based upon the Company's financial performance thereafter. The New Credit Agreement is subject to a non-use commitment fee of 1/2% of the aggregate unused availability for the first nine months post- closing and is subject to change based upon the Company's financial performance thereafter. Outstanding letters of credit are subject to fees equivalent to the LIBOR margin rate. A borrowing base is calculated monthly to determine the amounts available under the New Credit Agreement. The borrowing base is determined monthly based upon (i) the EBITDA of the Company's Aerospace Fastener business, as adjusted, and (ii) specified percentages of various marketable securities and cash equivalents. The New Credit Agreement will mature on June 18, 2004. The term loan is subject to mandatory prepayment requirements and optional prepayments. The revolving loan is subject to mandatory prepayment requirements and optional commitment reductions. The New Credit Agreement requires the Company to comply with certain financial and non-financial loan covenants, including maintaining a minimum net worth and maintaining certain interest and fixed charge coverage ratios at the end of each Fiscal Quarter. Additionally, the New Credit Agreement restricts annual capital F-18 THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (In thousands, except per share data) expenditures to $35,000 in 1999 and $25,000 in each year thereafter. Substantially all of the Company's assets are pledged as collateral under the New Credit agreement. The New Credit Agreement restricts the payment of dividends to the Company's shareholders to an aggregate of $200 over the life of the agreement. At June 30, 1998, the Company was in compliance with all the covenants under the New Credit Agreement. Banner maintains a credit agreement (the "Banner Credit Agreement") which provides Banner and its subsidiaries with funds for working capital and potential acquisitions. On November 25, 1997, Banner amended its credit agreement to increase its revolving credit facility by $50,000. Immediately following this amendment, the facility under the Banner Credit Agreement consisted of (i) a $55,000 six-year term loan ("Banner Term Loan"); (ii) a $30,000 seven-year term loan ("Tranche B Loan"); (iii) a $40,000 six-year term loan ("Tranche C Loan"); and (iv) a $121,500 six-year revolving credit facility ("Banner Revolver"). On January 13, 1998, in conjunction with the Banner Hardware Group Disposition, the outstanding balances of the Banner Term Loan, Tranche B Loan and Tranche C Loan were fully repaid (See Note 2). Based on the Company's financial performance, the Banner Revolver bears interest at prime plus 1/4% to 1 1/2% or LIBOR plus 1 1/2% to 2 3/4% and is subject to a nonuse fee of 30 to 50 basis points of the unused availability. On June 30, 1998, Banner's performance level resulted in borrowings under the Revolver bearing interest at prime plus 1/4% and LIBOR plus 1 1/2% and a nonuse fee of 30 basis points for the quarter ending September 30, 1998. The Banner Credit Agreement contains certain financial and nonfinancial covenants which Banner is required to meet on a quarterly basis. The financial covenants include minimum net worth and minimum earnings levels, and minimum ratios of interest coverage, fixed charges and debt to earnings before interest, taxes, depreciation and amortization. Banner also has certain limitations on the incurring of additional debt, and has restrictions which limit dividends and distributions on the capital stock of the Company to an aggregate of $150 in any fiscal year. At June 30, 1998, Banner was in compliance with all covenants under the Banner Credit Agreement. Substantially all of the Company's assets are pledged as collateral under the Banner Credit Agreement. On February 3, 1998, with the proceeds of the Offering, term loan borrowings under the Facility, and the after tax proceeds the Company received from the STFI Merger, the Company redeemed (collectively, the "Public Debt Repayment") all of its existing publicly held indebtedness (other than indebtedness of Banner), consisting of (i) $63,000 to redeem the 11 7/8% Senior Debentures due 1999; (ii) $117,600 to redeem the 12% Intermediate Debentures due 2001; (iii) $35,856 to redeem the 13 1/8% Subordinated Debentures due 2006; (iv) $25,063 to redeem the 13% Junior Subordinated Debentures due 2007; and (v) accrued interest of $10,562. The Company recognized an extraordinary loss of $6,730, net of $3,624 tax benefit, to write-off the remaining deferred loan fees and original issue discounts associated with the early extinguishment of the Company's indebtedness pursuant to the Public Debt Repayment and refinancing of the FHC and RHI Credit Agreement facilities. The following table summarizes the Credit Facilities at June 30, 1998:
Outstanding Outstanding Revolving Term Credit Loan Available Facilities Facilities Facilities ----------- ----------- ---------- The Company: Term Loan.................................. $ -- $225,000 $225,000 Revolving credit facility.................. -- -- 75,000 Banner Aerospace, Inc.: Revolving credit facility.................. 65,800 -- 121,500 ------- -------- -------- Total........................................ $65,800 $225,000 $421,500 ======= ======== ========
F-19 THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (In thousands, except per share data) At June 30, 1998, the Company had letters of credit outstanding of $18,658, which were supported by a sub-facility under the Credit Facilities. At June 30, 1998, the Company had unused bank lines of credit aggregating $112,042, at interest rates slightly higher than the prime rate. The Company also has short-term lines of credit relating to foreign operations, aggregating $21,205, against which the Company owed $10,088 at June 30, 1998. The annual maturity of long-term debt obligations (exclusive of capital lease obligations) and bank notes payable for each of the five years following June 30, 1998, are as follows: $20,398 for 1999, $3,210 for 2000, $3,382 for 2001, $70,972 for 2002 and $107,594 for 2003. In September 1995, Banner entered into several interest rate hedge agreements ("Hedge Agreements") to manage its exposure to increases in interest rates on its variable rate debt. The Hedge Agreements provide interest rate protection on $60,000 of debt through September 2000, by providing an interest rate cap of 7% if the 90-day LIBOR rate exceeds 7%. If the 90-day LIBOR rate drops below 5%, Banner will be required to pay interest at a floor rate of approximately 6%. In November 1996, Banner entered into an additional hedge agreement ("Additional Hedge Agreement") with one of its major lenders to provide interest rate protection on $20,000 of debt for a period of three years. Effectively, the Additional Hedge Agreement provides for a cap of 7 1/4% if the 90-day LIBOR exceeds 7 1/4%. If the 90-day LIBOR drops below 5%, Banner will be required to pay interest at a floor rate of approximately 6%. No cash outlay was required to obtain the Additional Hedge Agreement as the cost of the cap was offset by the sale of the floor. In August 1997, the Company entered into a delayed-start swap interest rate lock hedge agreement (the "FHC Hedge Agreement") to reduce its exposure to increases in interest rates on variable rate debt. In December 1997, the Company amended the FHC Hedge Agreement. On February 17, 1998, the FHC Hedge Agreement began to provide interest rate protection on $100,000 of variable rate debt for ten years, with interest being calculated based on a fixed LIBOR rate of 6.715%. On January 14, 1998, the FHC Hedge Agreement was further amended to provide interest rate protection with interest being calculated based on a fixed LIBOR rate of 6.24% from February 17, 1998 to February 17, 2003. On February 17, 2003, the bank will have a one-time option to either (i) elect to cancel the ten-year agreement; or (ii) do nothing and proceed with the transaction, using a fixed LIBOR rate of 6.715% for the period February 17, 2003 to February 19, 2008. No costs were incurred as a result of these transactions. The Company recognizes interest expense under the provisions of the Hedge Agreements and the Additional Hedge Agreement based on the fixed rate. The Company is exposed to credit loss in the event of non-performance by the lenders; however, such non-performance is not anticipated. F-20 THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (In thousands, except per share data) The table below provides information about the Company's derivative financial instruments and other financial instruments that are sensitive to changes in interest rates, which include interest rate swaps. For interest rate swaps, the table presents notional amounts and weighted average interest rates by expected (contractual) maturity dates. Notional amounts are used to calculate the contractual payments to be exchanged under the contract. Weighted average variable rates are based on implied forward rates in the yield curve at the reporting date.
Expected Maturity Date ----------------------------------------- 1999 2000 2001 2002 2003 Thereafter ---- ------ ------ ---- ---- ---------- Interest Rate Swaps: Variable to Fixed................... -- 20,000 60,000 -- -- 100,000 Average cap rate.................... -- 7.25% 6.81% -- -- 6.49% Average floor rate.................. -- 5.84% 5.99% -- -- 6.24% Weighted average rate............... -- 5.71% 5.74% -- -- 5.95% Fair Market Value................... -- (19) (204) -- -- (6,295)
9. Pensions and Postretirement Benefits Pensions The Company and its subsidiaries have defined benefit pension plans covering most of its employees. Employees in foreign subsidiaries may participate in local pension plans, which are in the aggregate insignificant. The Company's funding policy is to make the minimum annual contribution required by applicable regulations. The following table provides a summary of the components of net periodic pension expense (income) for the plans:
1996 1997 1998 -------- -------- -------- Service cost (current period attribution)....... $ 3,513 $ 2,521 $ 2,685 Interest cost of projected benefit obligation... 14,499 15,791 14,476 Actual return on plan assets.................... (39,430) (31,400) (40,049) Amortization of prior service cost.............. 81 (180) (184) Net amortization and deferral................... 21,495 11,157 21,228 -------- -------- -------- 158 (2,111) (1,844) Net periodic pension expense (income) for other plans including foreign plans.................. (118) 142 (108) -------- -------- -------- Net periodic pension expense (income)........... $ 40 $ (1,969) $ (1,952) ======== ======== ========
Assumptions used in accounting for the plans were:
1996 1997 1998 ---- ---- ---- Discount rate.............................................. 8.5% 7.75% 7.0% Expected rate of increase in salaries...................... 4.5% 4.5% 4.5% Expected long-term rate of return on plan assets........... 9.0% 9.0% 9.0%
In Fiscal 1996, the Company recognized one-time charges of $857 from the divestiture of subsidiaries, which resulted in a recognition of prior service costs, and $84 from the early retirement window program at the Company's corporate office. The reduction in liabilities due from the cessation of future salary increases is not F-21 THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (In thousands, except per share data) immediately recognizable in income, but will be used as an offset against existing unrecognized losses. The Company will have a future savings benefit from a lower net periodic pension cost due to the amortization of a smaller unrecognized loss. The following table sets forth the funded status and amounts recognized in the Company's consolidated balance sheets at June 30, 1997 and 1998, for the plans:
June 30, June 30, 1997 1998 -------- -------- Actuarial present value of benefit obligations: Vested............................................... $198,300 $212,837 Nonvested............................................ 7,461 8,120 -------- -------- Accumulated benefit obligation....................... 205,761 220,957 Effect of projected future compensation increases.... 683 1,650 -------- -------- Projected benefit obligation......................... 206,444 222,607 Plan assets at fair value............................ 237,480 261,097 -------- -------- Plan assets in excess of projected benefit obliga- tions............................................... 31,036 38,490 Unrecognized net loss................................ 29,592 23,798 Unrecognized prior service cost...................... (571) (387) Unrecognized net transition assets................... (315) (258) -------- -------- Prepaid pension cost................................. $ 59,742 $ 61,643 ======== ========
Plan assets include Class A Common Stock of the Company valued at a fair market value of $26,287 and $16,167 at June 30, 1997 and 1998, respectively. Substantially all of the plan assets are invested in listed stocks and bonds. Postretirement Health Care Benefits The Company provides health care benefits for most retired employees. Postretirement health care expense from continuing operations totaled $779, $642, and $804 for 1996, 1997 and 1998, respectively. The Company accrual was approximately $34,965 and $33,062 as of June 30, 1997 and 1998, respectively, for postretirement health care benefits related to discontinued operations. This represents the cumulative discounted value of the long-term obligation and includes interest expense of $3,877, $3,349, and $3,714 for the years ended June 30, 1996, 1997 and 1998, respectively. The components of expense in Fiscal 1996, 1997 and 1998 are as follows:
1996 1997 1998 ------ ------ ------ Service cost of benefits earned...................... $ 281 $ 140 $ 166 Interest cost on liabilities......................... 4,377 3,940 3,979 Net amortization and deferral........................ (2) (89) 373 ------ ------ ------ Net periodic postretirement benefit cost............. $4,656 $3,991 $4,518 ====== ====== ======
A one-time credit of $3,938, resulting from the divestitures of subsidiaries, was offset by $4,361 from DME's accumulated postretirement benefit obligation for active employees, which was transferred to CMI as part of the sale. The Company recognized the net effect of $423 as an expense in 1996. F-22 THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (In thousands, except per share data) The following table sets forth the funded status for the Company's postretirement health care benefit plans at June 30:
1997 1998 ------- ------- Accumulated postretirement benefit obligations: Retirees.................................................. $48,145 $54,654 Fully eligible active participants........................ 390 632 Other active participants................................. 2,335 2,911 ------- ------- Accumulated postretirement benefit obligation............. 50,870 58,197 Unrecognized prior service cost........................... -- (935) Unrecognized net loss..................................... 6,173 16,387 ------- ------- Accrued postretirement benefit liability.................. $44,697 $42,745 ======= =======
In Fiscal 1998, the Company amended a former subsidiary's medical plan to increase the retiree's contribution rate to approximately 20% of the negotiated premium, resulting in a $1,003 decrease to unrecognized prior service costs. The accumulated postretirement benefit obligation was determined using a discount rate of 7.0%, and a health care cost trend rate of 6.7% for pre-age- 65 and post-age-65 employees, respectively, gradually decreasing to 5.5% in the year 2003 and thereafter. Increasing the assumed health care cost trend rates by 1% would increase the accumulated postretirement benefit obligation as of June 30, 1998, by approximately $1,666, and increase the net periodic postretirement benefit cost by approximately $129 for Fiscal 1998. 10. Income Taxes The provision (benefit) for income taxes from continuing operations is summarized as follows:
1996 1997 1998 -------- -------- ------- Current: Federal......................................... $(40,640) $ 5,612 $(4,860) State........................................... 1,203 1,197 500 Foreign......................................... (3,805) (49) 3,893 -------- -------- ------- (43,242) 6,760 (467) Deferred: Federal......................................... 17,060 (15,939) 46,092 State........................................... (3,657) 3,444 3,034 -------- -------- ------- 13,403 (12,495) 49,126 -------- -------- ------- Net tax provision (benefit)....................... $(29,839) $ (5,735) $48,659 ======== ======== =======
F-23 THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (In thousands, except per share data) The income tax provision (benefit) for continuing operations differs from that computed using the statutory Federal income tax rate of 35%, in Fiscal 1996, 1997 and 1998, for the following reasons:
1996 1997 1998 -------- ------- ------- Computed statutory amount......................... $(22,713) $(1,751) $43,188 State income taxes, net of applicable federal tax benefit.......................................... 782 778 4,362 Nondeductible acquisition valuation items......... 1,329 1,064 1,204 Tax on foreign earnings, net of tax credits....... 1,711 (1,938) (1,143) Difference between book and tax basis of assets acquired and liabilities assumed................. 1,040 (1,102) 4,932 Revision of estimate for tax accruals............. (3,500) (5,335) (3,905) Other............................................. (8,488) 2,549 21 -------- ------- ------- Net tax provision (benefit)....................... $(29,839) $(5,735) $48,659 ======== ======= =======
The following table is a summary of the significant components of the Company's deferred tax assets and liabilities, and deferred provision or benefit for the following periods:
1996 1997 1998 Deferred Deferred Deferred (Provision) (Provision) June 30, (Provision) June 30, Benefit Benefit 1997 Benefit 1998 ----------- ----------- -------- ----------- --------- Deferred tax assets: Accrued expenses...... $ (1,643) $ 504 $ 6,440 $ (3,853) $ 2,587 Asset basis differences.......... 1,787 (1,492) 572 7,540 8,112 Inventory............. -- 2,198 2,198 (2,198) -- Employee compensation and benefits......... (26) (267) 5,141 (55) 5,086 Environmental reserves............. (737) (1,253) 3,259 207 3,466 Loss and credit carryforward......... (23,229) (8,796) -- -- -- Postretirement benefits............. (1,273) 138 19,472 (1,338) 18,134 Other................. 2,186 2,079 7,598 4,506 12,104 -------- ------- -------- -------- --------- (22,935) (6,889) 44,680 4,809 49,489 Deferred tax liabilities: Asset basis differences.......... 16,602 (3,855) (26,420) (54,012) (80,432) Inventory............. 4,684 2,010 -- (1,546) (1,546) Pensions.............. 1,516 (1,038) (19,281) 95 (19,186) Other................. (13,270) 22,267 (7,240) 1,528 (5,712) -------- ------- -------- -------- --------- 9,532 19,384 (52,941) (53,935) (106,876) -------- ------- -------- -------- --------- Net deferred tax liability.............. $(13,403) $12,495 $ (8,261) $(49,126) $ (57,387) ======== ======= ======== ======== =========
F-24 THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (In thousands, except per share data) The amounts included in the balance sheet are as follows:
June 30, June 30, 1997 1998 -------- -------- Prepaid expenses and other current assets: Current deferred....................................... $11,307 $ -- ======= ======= Income taxes payable: Current deferred....................................... $(2,735) $34,553 Other current.......................................... 8,598 (6,242) ------- ------- $ 5,863 $28,311 ======= ======= Noncurrent income tax liabilities: Noncurrent deferred.................................... $22,303 $22,834 Other noncurrent....................................... 19,710 72,342 ------- ------- $42,013 $95,176 ======= =======
The 1996, 1997 and 1998 net tax benefits include the results of reversing $3,500, $5,335, and $3,905 respectively, of federal income taxes previously provided for due to a change in the estimate of required tax accruals. Domestic income taxes, less available credits, are provided on the unremitted income of foreign subsidiaries and affiliated companies, to the extent the Company intends to repatriate such earnings. No domestic income taxes or foreign withholding taxes are provided on the undistributed earnings of foreign subsidiaries and affiliates, which are considered permanently invested, or which would be offset by allowable foreign tax credits. At June 30, 1998, the amount of domestic taxes payable upon distribution of such earnings was not significant. In the opinion of management, adequate provision has been made for all income taxes and interest, and any liability that may arise for prior periods will not have a material effect on the financial condition or results of operations of the Company. 11. Equity Securities On December 19, 1997, the Company completed a secondary offering of public securities. The offering consisted of the issuance of 3,000,000 shares of the Company's Class A Common Stock at $20.00 per share (the "Offering"). In accordance with the terms of the Special-T Acquisition, the Company issued 1,072,605 restricted shares of the Company's Class A Common Stock in Fiscal 1998. Additionally, the Company established an employee stock plan to issue up to 44,900 additional shares of Class A Common Stock to Special-T employees. On March 13, 1998, the Company issued 47,283 restricted shares of the Company's Class A Common Stock resulting from a cashless exercise of 100,000 warrants by Dunstan Ltd. On May 11, 1998, the Company commenced an offer to exchange (the "Exchange Offer"), for each properly tendered share of Common Stock of Banner, a number of shares of the Company's Class A Common Stock, par value $0.10 per share, equal to the quotient of $12.50 divided by $20.675 up to a maximum of 4,000,000 shares of Banner's Common Stock. The Exchange Offer expired on June 9, 1998 and approximately F-25 THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (In thousands, except per share data) 3,659,364 shares of Banner's Common Stock were validly tendered for exchange and the Company issued approximately 2,212,361 shares Class A Common Stock to the tendering shareholders. As a result of the Exchange Offer, the Company's ownership of Banner Common Stock increased to 83.3%. The Company effected the Exchange Offer to increase its ownership of Banner to more than 80% in order for the Company to include Banner in its United States consolidated corporate income tax return. The Company had 20,428,591 shares of Class A common stock and 2,624,716 shares of Class B common stock outstanding at June 30, 1998. Class A common stock is traded on both the New York and Pacific Stock Exchanges. There is no public market for the Class B common stock. Shares of Class A common stock are entitled to one vote per share and cannot be exchanged for shares of Class B common stock. Shares of Class B common stock are entitled to ten votes per share and can be exchanged, at any time, for shares of Class A common stock on a share-for-share basis. In Fiscal 1998, 141,259 shares of Class A Common Stock were issued as a result of the exercise of stock options and shareholders converted 7,800 shares of Class B common stock into Class A common stock. During Fiscal 1998, the Company issued 36,626 deferred compensation units ("DCU's") pursuant to the Company's stock option deferral plan as a result of a cashless exercise of 45,000 stock options. Each DCU is represented by one share of the Company's Treasury Stock and is convertible into a share of the Company's Class A Common Stock after a specified period of time. 12. Stock Options and Warrants Stock Options The Company's 1986 Non-Qualified and Incentive Stock Option Plan (the "1986 Plan"), authorizes the issuance of 4,541,000 shares of Class A Common Stock upon the exercise of stock options issued under the 1986 Plan. At the 1998 Annual Meeting, stockholders will be asked to approve an amendment to increase the number of shares authorized under the 1986 Plan to 5,141,000 shares of Class A Common Stock. The purpose of the 1986 Plan is to encourage continued employment and ownership of Class A Common Stock by officers and key employees of the Company and its subsidiaries, and provide additional incentive to promote the success of the Company. The 1986 Plan authorizes the granting of options at not less than the market value of the common stock at the time of the grant. The option price is payable in cash or, with the approval of the Company's Compensation and Stock Option Committee of the Board of Directors, in shares of common stock, valued at fair market value at the time of exercise. The options normally terminate five years from the date of grant, subject to extension of up to 10 years or for a stipulated period of time after an employee's death or termination of employment. The 1986 plan expires on April 9, 2006; however, all stock options outstanding as of April 9, 2006 shall continue to be exercisable pursuant to their terms. The Company's ten year 1996 Non-Employee Directors Stock Option Plan (the "1996 NED Plan") authorizes the issuance of 250,000 shares of Class A Common Stock upon the exercise of stock options issued under the 1996 NED Plan. The 1996 NED Plan authorizes the granting of options at the market value of the common stock on the date of grant. An initial stock option grant for 30,000 shares of Class A Common Stock will be made to each person who becomes a new non-employee Director, on such date, with the options to vest 25% each year from the date of grant. On the date of each annual meeting, each person elected as a non-employee Director at such meeting will be granted an option for 1,000 shares of Class A Common Stock, which will vest immediately. The exercise price is payable in cash or, with the approval of the Stock Option Committee, in shares F-26 THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (In thousands, except per share data) of Class A or Class B Common Stock, valued at fair market value at the date of exercise. All options issued under the 1996 NED Plan will terminate five years from the date of grant or a stipulated period of time after a Non-Employee Director ceases to be a member of the Board. The 1996 NED Plan is designed to maintain the Company's ability to attract and retain highly qualified and competent persons to serve as outside directors of the Company. On November 17, 1994, the Company's stockholders approved the grant of stock options of 190,000 shares to outside Directors of the Company to replace expired stock options. These stock options expire five years from the date of the grant. A summary of stock option transactions under the 1986 Plan, the 1996 NED Plan, and prior plans are presented in the following tables:
Weighted Average Exercise Shares Price --------- -------- Outstanding at July 1, 1995.............................. 1,699,781 $ 5.14 Granted................................................ 540,078 4.33 Exercised.............................................. (286,869) 5.26 Expired................................................ (659,850) 6.06 Forfeited.............................................. (19,653) 4.30 --------- ------ Outstanding at June 30, 1996............................. 1,273,487 4.27 Granted................................................ 457,350 14.88 Exercised.............................................. (234,935) 4.79 Expired................................................ (1,050) 4.59 Forfeited.............................................. (9,412) 3.59 --------- ------ Outstanding at June 30, 1997............................. 1,485,440 7.46 Granted................................................ 357,250 24.25 Exercised.............................................. (141,259) 4.70 Forfeited.............................................. (46,650) 7.56 --------- ------ Outstanding at June 30, 1998............................. 1,654,781 $ 7.46 ========= ====== Exercisable at June 30, 1996............................. 399,022 $ 4.59 Exercisable at June 30, 1997............................. 486,855 $ 4.95 Exercisable at June 30, 1998............................. 667,291 $ 6.58
A summary of options outstanding at June 30, 1998 is presented as follows:
Options Outstanding Options Exercisable ----------------------------------- ----------------------- Weighted Average Weighted Average Remaining Average Range of Number Exercise Contract Number Exercise Exercise Prices Outstanding Price Life Exercisable Price --------------- ----------- -------- --------- ----------- -------- $ 3.50 --$8.625 848,791 $ 4.07 1.8 years 516,010 $ 4.05 $13.625 --$16.25 472,240 $14.98 3.4 years 151,281 $15.22 $18.5625--$25.0625 333,750 $24.02 4.1 years -- $ -- - ------------------ --------- ------ --------- ------- ------ $ 3.50 --$25.0625 1,654,781 $ 7.46 3.2 years 667,291 $ 6.58 ================== ========= ====== ========= ======= ======
F-27 THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (In thousands, except per share data) The weighted average grant date fair value of options granted during 1996, 1997, and 1998 was $1.95, $6.90, and $11.18, respectively. The fair value of each option granted is estimated on the grant date using the Black-Scholes option pricing model. The following significant assumptions were made in estimating fair value:
1996 1997 1998 -------- -------- -------- Risk-free interest rate........................ 5.5%-6.6% 6.0%-6.7% 5.4%-6.3% Expected life in years......................... 4.27 4.65 4.66 Expected volatility............................ 46%-47% 43%-45% 44%-45% Expected dividends............................. none none none
The Company recognized compensation expense of $104 as a result of stock options that were modified in 1998. The Company is applying APB Opinion No. 25 in accounting for its stock option plans. Accordingly, no compensation cost has been recognized for the granting of stock options in 1996, 1997 or 1998. If stock options granted in 1996, 1997 and 1998 were accounted for based on their fair value as determined under SFAS 123, pro forma earnings would be as follows:
1996 1997 1998 -------- ------ -------- Net earnings: As reported...................................... $189,706 $1,331 $101,090 Pro forma........................................ 189,460 283 99,817 Basic earnings per share: As reported...................................... $ 11.71 $ 0.08 $ 5.36 Pro forma........................................ 11.69 0.02 5.30 Diluted earnings per share: As reported...................................... $ 11.71 $ 0.08 $ 5.14 Pro forma........................................ 11.69 0.02 5.07
The pro forma effects of applying SFAS 123 are not representative of the effects on reported net earnings for future years. The effect of SFAS 123 is not applicable to awards made prior to 1996 and additional awards in future years are expected. Stock Option Deferral Plan On February 9, 1998, the Board adopted a Stock Option Deferral Plan, subject to approval by the shareholders at the 1998 Annual Meeting. Pursuant to the Stock Option Deferral Plan, certain officers (at their election) may defer payment of the "Compensation" they receive in a particular year or years from the exercise of Company stock options. "Compensation" means the excess value of a stock option, determined by the difference between the fair market value of shares issueable upon exercise of a stock option, and the option price payable upon exercise of the stock option. An officer's deferred Compensation shall be in the form of "Deferred Compensation Units," representing the number of shares of Common Stock that the officer shall be entitled to receive upon expiration of the deferral period. (The number of Deferred Compensation Units issueable to an officer is determined by dividing the amount of the deferred Compensation by the fair market value of the Company's stock as of the date of deferral.) Stock Warrants On April 25, 1997, the Company issued warrants to purchase 100,000 shares of Class A Common Stock, at $12.25 per share, to Dunstan Ltd. as incentive remuneration for the performance of certain investment banking F-28 THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (In thousands, except per share data) services. The warrants were earned on a pro-rata basis over a six-month period ending October 31, 1997. The warrants became exercisable on November 1, 1997, and on March 13, 1998, the Company issued 47,283 restricted shares of the Company's Class A Common Stock resulting from the cashless exercise of these warrants. The Company recorded expenses of $191 and $300 in 1997 and 1998, respectively, for stock warrants earned based on a grant date fair value of $5.46. Effective as of February 21, 1997, the Company approved the continuation of an existing warrant to Stinbes Limited (an affiliate of Jeffrey Steiner) to purchase 375,000 shares of the Company's Class A or Class B Common Stock at $7.67 per share. The warrant was modified to extend the exercise period from March 13, 1997, to March 13, 2002, and to increase the exercise price per share by $.002 for each day subsequent to March 13, 1997, but fixed at $7.80 per share after June 30, 1997. In addition, the warrant was modified to provide that the warrant may not be exercised except within the following window periods: (i) within 365 days after the merger of STFI with AT&T Corporation, MCI Communications, Worldcom Inc., Teleport Communications Group, Inc., or Intermedia Communications Inc.; (ii) within 365 days after a change of control of the Company, as defined in the Company's Credit Agreement; or (iii) within 365 days after a change of control of Banner, as defined in the Banner Credit Agreement. The payment of the warrant price may be made in cash or in shares of the Company's Class A or Class B Common Stock, valued at fair market value at the time of exercise, or combination thereof. In no event may the warrant be exercised after March 13, 2002. As a result of the STFI Disposition, these warrants became exercisable through March 9, 1999. Accordingly, the Company recognized a charge of $5,606 in 1998. On November 9, 1995, the Company issued warrants to purchase 500,000 shares of Class A Common Stock, at $9.00 per share, to Peregrine Direct Investments Limited ("Peregrine"), in exchange for a standby commitment it received on November 8, 1995, from Peregrine. The Company elected not to exercise its rights under the Peregrine commitment. The warrants are immediately exercisable and will expire on November 8, 2000. On February 21, 1996, the Company issued warrants to purchase 25,000 shares of Class A Common Stock, at $9.00 per share, to a non-employee for services provided in connection with the Company's various dealings with Peregrine. The warrants issued are immediately exercisable and will expire on November 8, 2000. The Company recorded nonrecurring expenses of $1,148 for the grant date fair value of the stock warrants issued in 1996. The warrants issued in 1996 were outstanding at June 30, 1998. 13. Earnings Per Share Effective December 28, 1997, the Company adopted Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128"). This statement replaces the previously reported primary and fully diluted earnings (loss) per share with basic and diluted earnings (loss) per share. Unlike primary earnings (loss) per share, basic earnings (loss) per share excludes any diluted effects of options. Diluted earnings (loss) per share is very similar to the previously reported fully diluted earnings (loss) per share. All earnings (loss) per share have been restated to conform to the requirements of SFAS 128. F-29 THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (In thousands, except per share data) The following table illustrates the computation of basic and diluted earnings (loss) per share:
1996 1997 1998 ------------ ------- ------- Basic earnings per share: Earnings (loss) from continuing operations..... $ (32,186) $ 1,816 $52,399 ============ ======= ======= Weighted average common shares outstanding..... 16,206 16,539 18,834 ============ ======= ======= Basic earnings per share: Basic earnings (loss) from continuing operations per share.......................... $ (1.98) $ 0.11 $ 2.78 ============ ======= ======= Diluted earnings per share: Earnings (loss) from continuing operations..... $ (32,186) $ 1,816 $52,399 ============ ======= ======= Weighted average common shares outstanding....... 16,206 16,539 18,834 Diluted effect of options...................... Antidilutive 449 546 Diluted effect of warrants..................... Antidilutive 333 289 ------------ ------- ------- Total shares outstanding....................... 16,206 17,321 19,669 ============ ======= ======= Diluted earnings (loss) from continuing operations per share.......................... $ (1.98) $ 0.11 $ 2.66 ============ ======= =======
The computation of diluted earnings (loss) from continuing operations per share for 1996 excluded the effect of incremental common shares attributable to the potential exercise of common stock options outstanding and warrants outstanding, because their effect was antidilutive. No adjustments were made to earnings per share calculations for discontinued operations and extraordinary items. 14. Fair Value of Financial Instruments Statement of Financial Accounting Standards No. 107 ("SFAS 107"), "Disclosures about Fair Value of Financial Instruments", requires disclosures of fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate that value. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instrument. SFAS 107 excludes certain financial instruments and all non- financial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company. The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments: The carrying amount reported in the balance sheet approximates the fair value for cash and cash equivalents, short-term borrowings, current maturities of long-term debt, and all other variable rate debt (including borrowings under the Credit Agreements). Fair values for equity securities, and long-term public debt issued by the Company are based on quoted market prices, where available. For equity securities not actively traded, fair values are estimated by using quoted market prices of comparable instruments or, if there are no relevant comparable instruments, on pricing models or formulas using current assumptions. The fair value of limited partnerships, other investments, and notes F-30 THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (In thousands, except per share data) receivable are estimated by discounting expected future cash flows using a current market rate applicable to the yield, considering the credit quality and maturity of the investment. The fair value for the Company's other fixed rate long-term debt is estimated using discounted cash flow analyses, based on the Company's current incremental borrowing rates for similar types of borrowing arrangements. Fair values for the Company's other off-balance-sheet instruments (letters of credit, commitments to extend credit, and lease guarantees) are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counter parties' credit standing. The fair value of the Company's other off-balance-sheet instruments at June 30, 1998 was not material. The carrying amounts and fair values of the Company's financial instruments at June 30, 1997 and 1998 are as follows:
June 30, 1997 June 30, 1998 ----------------- ----------------- Carrying Fair Carrying Fair Amount Value Amount Value -------- -------- -------- -------- Cash and cash equivalents.................. $ 19,420 $ 19,420 $ 49,601 $ 49,601 Investment securities: Short-term equity securities............. 16,094 16,122 3,907 3,907 Short-term other investments............. 9,553 9,592 55 193 Long-term equity securities.............. -- -- 234,307 234,307 Long-term other investments.............. 4,120 4,617 1,128 1,128 Notes receivable: Long-term................................ 1,300 1,300 850 850 Short-term debt.......................... 15,529 15,529 17,811 17,811 Long-term debt: Bank credit agreement.................... 177,250 177,250 290,800 290,800 Senior notes and subordinated debentures.............................. 261,233 270,995 -- -- Industrial revenue bonds................. 1,500 1,500 1,500 1,500 Capitalized leases....................... 1,897 1,897 923 923 Other.................................... 6,835 6,835 5,033 5,033
F-31 THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (In thousands, except per share data) 15. Restructuring Charges In Fiscal 1996, the Company recorded restructuring charges in the Aerospace Fasteners segment in the categories shown below. All costs classified as restructuring were the direct result of formal plans to close plants, to terminate employees, or to exit product lines. Substantially all of these plans have been executed. Other than a reduction in the Company's existing cost structure and manufacturing capacity, none of the restructuring charges resulted in future increases in earnings or represented an accrual of future costs. The costs included in restructuring were predominately nonrecurring in nature and consisted of the following significant components: Write down of inventory to net realizable value related to discontinued product lines (a)..................................................... $ 156 Write down of fixed assets related to discontinued product lines....... 270 Severance benefits for terminated employees (substantially all paid within twelve months)................................................. 1,368 Plant closings facility costs (b)...................................... 389 Contract termination claims............................................ 136 ------ $2,319 ======
- -------- (a) Write down was required because product line was discontinued. (b) Includes lease settlements, write-off of leasehold improvements, maintenance, restoration and clean up costs. 16. Extraordinary Items In Fiscal 1998 the Company recognized an extraordinary loss of $6,730, net of tax, to write-off the remaining deferred loan fees and original issue discounts associated with early extinguishment of the Company's indebtedness pursuant to the Public Debt Repayment and refinancing of the FHC and RHI Credit Agreement facilities (See Note 8). During Fiscal 1996, the Company used the Merger transaction and cash available to retire fully all of the FII's 12 1/4% senior notes ("Senior Notes"), FII's 9 3/4% subordinated debentures due 1998, and bank loans under a credit agreement of a former subsidiary of the Company, VSI Corporation. The redemption of the Senior Notes at a premium, consent fees paid to holders of the Senior Notes, the write off of the original issue discount on FII 9 3/4% subordinated debentures and the write off of the remaining deferred loan fees associated with the issuance of the debt retired, resulted in an extraordinary loss of $10,436, net of a tax benefit, in 1996. 17. Related Party Transactions The Company and its subsidiaries are all parties to a tax sharing agreement whereby the Company files a consolidated federal income tax return. Each subsidiary makes payments to the Company based on the amount of federal income taxes, if any, the subsidiary would have paid if it had filed a separate tax return. The Company and Banner paid for a chartered aircraft used from time to time for business related travel. The owner of the chartered aircraft is a company 51% owned by an immediate family member of Mr. Jeffrey Steiner. Cost for such flights charged to the Company and Banner are comparable to those charged in arm's length transactions between unaffiliated third parties. The Company and Banner prepaid hours for a chartered helicopter used from time to time for business related travel. The owner of the chartered helicopter is a company controlled by Mr. Jeffrey Steiner. Cost for such flights charged to the Company and Banner are comparable to those charged in arm's length transactions between unaffiliated third parties. F-32 THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (In thousands, except per share data) Prior to the consolidation of Banner on February 25, 1996, the Aerospace Fasteners segment had sales to Banner of $3,663 in 1996. 18. Leases The Company holds certain of its facilities and equipment under long-term leases. The minimum rental commitments under non-cancelable operating leases with lease-terms in excess of one year, for each of the five years following June 30, 1998, are as follows: $3,174 for 1999, $4,145 for 2000, $3,400 for 2001, $2,217 for 2002 and $1,526 for 2003. Rental expense on operating leases from continuing operations for Fiscal 1996, 1997 and 1998 was $6,197, $4,928, and $8,610, respectively. Minimum commitments under capital leases for each of the five years following June 30, 1998, are $322 for 1999, $275 for 2000, $238 for 2001, $164 for 2002, and $143 for 2003, respectively. At June 30, 1998, the present value of capital lease obligations was $923. At June 30, 1998, capital assets leased, included in property, plant, and equipment consisted of: Buildings and improvements....................................... $ 70 Machinery and equipment.......................................... 5,272 Furniture and fixtures........................................... 197 Less: Accumulated depreciation................................... (2,898) ------- $ 2,641 =======
19. Contingencies Government Claims The Corporate Administrative Contracting Officer (the "ACO"), based upon the advice of the United States Defense Contract Audit Agency, has made a determination that Fairchild Industries, Inc. ("FII"), a former subsidiary of the Company, did not comply with Federal Acquisition Regulations and Cost Accounting Standards in accounting for (i) the 1985 reversion to FII of certain assets of terminated defined benefit pension plans, and (ii) pension costs upon the closing of segments of FII's business. The ACO has directed FII to prepare cost impact proposals relating to such plan terminations and segment closings and, following receipt of such cost impact proposals, may seek adjustments to contract prices. The ACO alleges that substantial amounts will be due if such adjustments are made, however, an estimate of the possible loss or range of loss from the ACO's assertion cannot be made. The Company believes it has properly accounted for the asset reversions in accordance with applicable accounting standards. The Company has held discussions with the government to attempt to resolve these pension accounting issues. Environmental Matters The Company's operations are subject to stringent Government imposed environmental laws and regulations concerning, among other things, the discharge of materials into the environment and the generation, handling, storage, transportation and disposal of waste and hazardous materials. To date, such laws and regulations have not had a material effect on the financial condition, results of operations, or net cash flows of the Company, although the Company has expended, and can be expected to expend in the future, significant amounts for investigation of environmental conditions and installation of environmental control facilities, remediation of environmental conditions and other similar matters, particularly in the Aerospace Fasteners segment. F-33 THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (In thousands, except per share data) In connection with its plans to dispose of certain real estate, the Company must investigate environmental conditions and may be required to take certain corrective action prior or pursuant to any such disposition. In addition, management has identified several areas of potential contamination at or from other facilities owned, or previously owned, by the Company, that may require the Company either to take corrective action or to contribute to a clean-up. The Company is also a defendant in certain lawsuits and proceedings seeking to require the Company to pay for investigation or remediation of environmental matters and has been alleged to be a potentially responsible party at various "Superfund" sites. Management of the Company believes that it has recorded adequate reserves in its financial statements to complete such investigation and take any necessary corrective actions or make any necessary contributions. No amounts have been recorded as due from third parties, including insurers, or set off against, any liability of the Company, unless such parties are contractually obligated to contribute and are not disputing such liability. As of June 30, 1998, the consolidated total recorded liabilities of the Company for environmental matters approximated $8,659, which represented the estimated probable exposures for these matters. It is reasonably possible that the Company's total exposure for these matters could be approximately $14,995. Other Matters The Company is involved in various other claims and lawsuits incidental to its business, some of which involve substantial amounts. The Company, either on its own or through its insurance carriers, is contesting these matters. In the opinion of management, the ultimate resolution of the legal proceedings, including those aforementioned, will not have a material adverse effect on the financial condition, or future results of operations or net cash flows of the Company. F-34 THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (In thousands, except per share data) 20. Business Segment Information The Company reports in two principal business segments. The Aerospace Fasteners segment includes the manufacture of high performance specialty fasteners and fastening systems. The Aerospace Distribution segment distributes a wide range of aircraft parts and related support services to the aerospace industry. The results of Fairchild Technologies, which is primarily engaged in the designing and manufacturing of capital equipment and systems for recordable compact disc and advance semiconductor manufacturing, were previously reported under Corporate and Other, along with the results of two smaller operations. Fairchild Technologies is now recorded in discontinued operations. The Company's financial data by business segment is as follows:
1996 1997 1998 -------- ---------- ---------- Sales: Aerospace Fasteners......................... $218,059 $ 269,026 $ 387,236 Aerospace Distribution (a).................. 129,973 411,765 358,431 Corporate and Other......................... 7,046 15,185 5,760 Eliminations (b)............................ (5,842) (15,213) (10,251) -------- ---------- ---------- Total Sales................................... $349,236 $ 680,763 $ 741,176 ======== ========== ========== Operating Income (Loss): Aerospace Fasteners (c)..................... $ 135 $ 17,390 $ 32,722 Aerospace Distribution (a).................. 5,625 30,891 20,330 Corporate and Other......................... (17,046) (14,782) (7,609) -------- ---------- ---------- Operating Income (Loss)....................... $(11,286) $ 33,499 $ 45,443 ======== ========== ========== Capital Expenditures: Aerospace Fasteners......................... $ 3,841 $ 8,964 $ 31,221 Aerospace Distribution...................... 1,556 4,787 3,812 Corporate and Other......................... 283 1,263 996 -------- ---------- ---------- Total Capital Expenditures.................... $ 5,680 $ 15,014 $ 36,029 ======== ========== ========== Depreciation and Amortization: Aerospace Fasteners......................... $ 14,916 $ 16,112 $ 16,260 Aerospace Distribution...................... 1,341 5,138 3,412 Corporate and Other......................... 4,788 3,057 364 -------- ---------- ---------- Total Depreciation and Amortization........... $ 21,045 $ 24,307 $ 20,036 ======== ========== ========== Identifiable Assets at June 30: Aerospace Fasteners......................... $252,200 $ 346,533 $ 427,927 Aerospace Distribution...................... 329,477 428,436 452,397 Corporate and Other......................... 411,721 277,697 276,935 -------- ---------- ---------- Total Identifiable Assets..................... $993,398 $1,052,666 $1,157,259 ======== ========== ==========
- -------- (a) Effective February 25, 1996, the Company became the majority shareholder of Banner Aerospace, Inc. and, accordingly, began consolidating their results. (b) Represents intersegment sales from the Aerospace Fasteners segment to the Aerospace Distribution segment. (c) Includes restructuring charges of $2.3 million in Fiscal 1996. F-35 THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (In thousands, except per share data) 21. Foreign Operations and Export Sales The Company's operations are located primarily in the United States and Europe. Inter-area sales are not significant to the total sales of any geographic area. The Company's financial data by geographic area is as follows:
1996 1997 1998 -------- ---------- ---------- Sales by Geographic Area: United States............................... $292,136 $ 580,453 $ 613,325 Europe...................................... 56,723 100,310 127,851 Other....................................... 377 -- -- -------- ---------- ---------- Total Sales................................... $349,236 $ 680,763 $ 741,176 ======== ========== ========== Operating Income (Loss) by Geographic Area: United States............................... $(12,175) $ 27,489 $ 28,575 Europe...................................... 1,037 6,010 16,868 Other....................................... (148) -- -- -------- ---------- ---------- Total Operating Income (Loss)................. $(11,286) $ 33,499 $ 45,443 ======== ========== ========== Identifiable Assets by Geographic Area at June 30: United States............................... $929,649 $ 855,233 $ 903,054 Europe...................................... 63,749 197,433 254,205 -------- ---------- ---------- Total Identifiable Assets..................... $993,398 $1,052,666 $1,157,259 ======== ========== ==========
Export sales are defined as sales to customers in foreign countries by the Company's domestic operations. Export sales amounted to the following:
1996 1997 1998 ------- -------- -------- Export Sales Europe.............................................. $27,330 $ 48,187 $ 68,515 Asia (excluding Japan).............................. 6,766 21,221 19,744 Canada.............................................. 8,878 17,797 16,426 Japan............................................... 11,958 19,819 12,056 South America....................................... 2,118 4,414 11,038 Other............................................... 6,447 11,493 10,340 ------- -------- -------- Total Export Sales.................................... $63,497 $122,931 $138,119 ======= ======== ========
F-36 THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (In thousands, except per share data) 22. Quarterly Financial Data (unaudited) The following table of quarterly financial data has been prepared from the financial records of the Company without audit, and reflects all adjustments which are, in the opinion of management, necessary for a fair presentation of the results of operations for the interim periods presented:
Sept. 29 Dec. 29 March 30 June 30 -------- -------- -------- -------- Fiscal 1997 quarters ended Net sales................ $138,244 $152,461 $179,436 $210,622 Gross profit............. 37,092 36,785 47,552 59,915 Earnings (loss) from continuing operations... (3,797) (1,960) (117) 7,690 per basic share........ (0.22) (0.12) (0.01) 0.47 per diluted share...... (0.22) (0.15) (0.01) 0.44 Earnings (loss) from discontinued operations, net..................... (821) (1,017) 157 1,196 per basic share........ (0.05) (0.06) 0.01 0.07 per diluted share...... (0.05) (0.06) 0.01 0.07 Net earnings (loss)...... (4,618) (2,977) 40 8,886 per basic share........ (0.27) (0.18) -- 0.54 per diluted share...... (0.27) (0.18) -- 0.51 Market price range of Class A Stock: High................... 17 17 3/8 15 3/8 18 Low.................... 12 1/4 14 3/8 12 7/8 11 5/8 Close.................. 16 14 5/8 13 3/8 18 Sept. 28 Dec. 28 March 29 June 30 -------- -------- -------- -------- Fiscal 1998 quarters ended Net sales................ $194,362 $208,616 $164,164 $174,034 Gross profit............. 46,329 56,822 37,790 45,565 Earnings (loss) from continuing operations... 1,229 (4,605) 50,418 5,357 per basic share........ 0.07 (0.27) 2.52 0.25 per diluted share...... 0.07 (0.27) 2.41 0.24 Loss from discontinued operations, net......... (737) (1,945) (1,578) (36) Per basic share........ (0.04) (0.11) (0.08) 0.24 Per diluted share...... (0.04) (0.11) (0.08) 0.44 Gain (loss) from disposal of discontinued operations, net......... -- 29,974 46,548 (16,805) Per basic share........ -- 1.75 2.32 (0.78) Per diluted share...... -- 1.75 2.23 (0.76) Extraordinary items, net..................... -- (3,024) (3,701) (5) Per basic share........ -- (0.18) (0.18) - Per diluted share...... -- (0.18) (0.18) - Net earnings (loss)...... 492 20,400 91,687 (11,489) Per basic share........ 0.03 1.19 4.58 (0.53) per diluted share...... 0.03 1.19 4.38 (0.52) Market price range of Class A Stock: High................... 28 3/8 28 11/16 25 23 Low.................... 17 19 5/16 19 7/16 18 3/16 Close.................. 26 7/8 21 1/2 21 1/4 20 3/16
F-37 THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (In thousands, except per share data) 23. Subsequent Events The Solair Disposition On December 31, 1998, Banner consummated the sale of Solair, Inc., its largest subsidiary in the rotables group, to Kellstrom Industries, Inc., in exchange for approximately $60.4 million in cash and a warrant to purchase 300,000 shares of common stock of Kellstrom. In December 1998, Banner recorded a $19.3 million pre-tax loss from the sale of Solair. This loss was included in cost of goods sold as it was primarily attributable to the bulk sale of inventory at prices below the carrying amount of inventory. The AlliedSignal Claim In connection with the disposition of Banner's hardware business, the Company received notice on January 12, 1999 from AlliedSignal making indemnification claims against the Company for $18.9 million. Although the Company believes that the amount of the claim is far in excess of any amount that AlliedSignal is entitled to recover from the Company, the Company is in the process of reviewing such claims and is unable to predict the ultimate outcome of such matter. The KTI Acquisition On April 20, 1999, the Company completed the acquisition of all of Kaynar Technologies, Inc. ("KTI") capital stock for approximately $222 million and assumed approximately $103 million of KTI's existing debt, the majority of which was refinanced at closing. In addition, the Company paid $28 million for a covenant not to compete from KTI's largest preferred shareholder. The acquisition was financed with existing cash, the sale of $225 million of 10 3/4% senior subordinated notes due 2009 (the "Notes") and a new bank credit facility. The Banner Merger On April 8, 1999, the Company acquired the remaining 15% of the outstanding common and preferred stock of Banner not already owned by the Company, through the merger (the "Banner Merger") of Banner with one of the Company's subsidiaries. Under the terms of the Banner Merger, each share of Banner's preferred stock was converted into the right to receive one share of Banner common stock and each share of Banner common stock (other than those owned by the Company) was converted into the right to receive 0.7885 shares of the Company's Class A common stock. The Company issued 2,981,412 shares of Class A common stock as a result of the Banner Merger. Banner is now our wholly-owned subsidiary of the Company. New Credit Facility Simultaneous with the consummation of the KTI Acquisition and the sale of the Notes, we entered into a new $325.0 million credit facility (the "New Credit Facility") which consists of a $225.0 million term loan, and a $100.0 million revolving credit facility of which approximately $31.5 million was drawn upon the acquisition of KTI (excluding approximately $19.0 million of outstanding letters of credit). The term loan bears interest at LIBOR plus 3.25% and the revolving credit facility bears interest at LIBOR plus 3.0%. Additionally, the revolving credit facility is subject to a non-use fee of 1/2%. The term loan matures on April 30, 2006 and the revolving credit facility matures on April 30, 2005. Technologies During the third quarter of 1999, the Technologies semiconductor equipment group ceased all manufacturing activities, informed customers and business partners that it has ceased operations, and significantly reduced its work force. In May 1999, the Technologies semiconductor equipment group sold equipment and licenses to Apex. F-38 THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (In thousands, except per share data) 24. Consolidating Financial Statements The following financial statements separately show The Fairchild Corporation and the subsidiaries of The Fairchild Corporation. These statements are provided to fulfill public reporting requirements and separately present guarantors of the 10 3/4% Senior Subordinated Notes Due 2009 issued by The Fairchild Corporation (the "Parent Company"). The guarantors are primarily composed of The Fairchild Corporation's domestic subsidiaries, excluding Fairchild Technologies, the equity investment in Nacanco, a real estate development venture, and certain other subsidiaries. CONSOLIDATING STATEMENTS OF EARNINGS FOR THE YEAR ENDED JUNE 30, 1998
Parent Non Fairchild Company Guarantors Guarantors Eliminations Historical -------- ---------- ---------- ------------ ---------- Net Sales............... $ -- $613,324 $138,807 $ (10,955) $741,176 Costs and expenses Cost of sales......... -- 464,942 100,683 (10,955) 554,670 Selling, general & administrative....... 3,516 112,447 19,631 -- 135,594 Amortization of goodwill............. 147 4,247 1,075 -- 5,469 -------- -------- -------- --------- -------- 3,663 581,636 121,389 (10,955) 695,733 -------- -------- -------- --------- -------- Operating income...... (3,663) 31,688 17,418 -- 45,443 Net interest expense.... 24,048 14,094 4,573 -- 42,715 Investment (income) loss, net.............. (208) 3,570 -- -- 3,362 Nonrecurring income on disposition of subsidiary............. -- (124,028) -- -- (124,028) -------- -------- -------- --------- -------- Earnings before taxes... (27,503) 138,052 12,845 -- 123,394 Income tax (provision) benefit................ 10,580 (55,769) (3,470) -- (48,659) Equity in earnings of affiliates and subsidiaries........... 118,013 1,525 3,044 (118,626) 3,956 Minority interest....... -- (26,292) -- -- (26,292) -------- -------- -------- --------- -------- Earnings (loss) from continuing operations.. 101,090 57,516 12,419 (118,626) 52,399 Earnings (loss) from discontinued operations............. -- 2,348 (6,644) -- (4,296) Earnings (loss) from disposal of discontinued operations............. -- 95,018 (35,301) -- 59,717 Extraordinary items..... -- (6,730) -- -- (6,730) -------- -------- -------- --------- -------- Net earnings (loss)..... $101,090 $148,152 $(29,526) $(118,626) $101,090 ======== ======== ======== ========= ========
F-39 THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (In thousands, except per share data) CONSOLIDATING BALANCE SHEET JUNE 30, 1998
Parent Non Fairchild Company Guarantors Guarantors Eliminations Historical -------- ---------- ---------- ------------ ---------- Cash.................... $ (96) $ 42,271 $ 7,426 $ -- $ 49,601 Marketable securities... 71 3,891 -- -- 3,962 Accounts Receivable (including intercompany), less allowances............. 400 74,158 45,726 -- 120,284 Inventory, net.......... -- 183,164 34,318 -- 217,482 Prepaid and other current assets......... (1,230) 48,145 6,166 -- 53,081 Net current assets of discontinued operations............. -- -- 11,613 -- 11,613 -------- -------- -------- --------- ---------- Total current assets.............. (855) 351,629 105,249 -- 456,023 Investment in Subsidiaries........... 635,044 -- -- (635,044) -- Net fixed assets........ 677 77,678 40,608 -- 118,963 Net assets held for sale................... -- 23,789 -- -- 23,789 Net noncurrent assets of discontinued operations............. -- -- 8,541 -- 8,541 Investments in affiliates............. (6,447) 14,686 19,329 -- 27,568 Goodwill................ 14,333 120,253 33,721 -- 168,307 Deferred loan costs..... 5,168 1,194 -- -- 6,362 Prepaid pension assets.. -- 61,643 -- -- 61,643 Long-term investments... -- 235,435 -- -- 235,435 Other assets............ 15,863 (8,619) 43,384 -- 50,628 -------- -------- -------- --------- ---------- Total assets......... $663,783 $877,688 $250,832 $(635,044) $1,157,259 ======== ======== ======== ========= ========== Bank notes payable & current maturities of debt................... $ 2,250 $ -- $ 18,415 $ -- $ 20,665 Accounts payable (including intercompany).......... 28 11,293 42,538 -- 53,859 Other accrued expenses.. 10,165 94,453 16,436 -- 121,054 -------- -------- -------- --------- ---------- Total current liabilities......... 12,443 105,746 77,389 -- 195,578 Long-term debt, less current maturities..... 222,750 67,300 5,352 -- 295,402 Other long-term liabilities............ 470 16,428 6,869 -- 23,767 Noncurrent income taxes.................. (45,439) 140,262 353 -- 95,176 Retiree health care liabilities............ -- 38,677 3,426 -- 42,103 Minority interest in subsidiaries........... -- 31,674 -- -- 31,674 -------- -------- -------- --------- ---------- Total liabilities.... 190,224 400,087 93,389 -- 683,700 Class A common stock.... 2,467 200 3,084 (3,084) 2,667 Class B common stock.... 263 -- -- -- 263 Paid-in-capital......... (29,476) 224,588 200,656 (200,656) 195,112 Retained earnings....... 513,204 272,846 (43,707) (431,304) 311,039 Cumulative other comprehensive income... (761) 19,737 (2,590) -- 16,386 Treasury stock, at cost................... (12,138) (39,770) -- -- (51,908) -------- -------- -------- --------- ---------- Total stockholders' equity.............. 473,559 477,601 157,443 (635,044) 473,559 -------- -------- -------- --------- ---------- Total liabilities & stockholders' equity... $663,783 $877,688 $250,832 $(635,044) $1,157,259 ======== ======== ======== ========= ==========
F-40 THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (In thousands, except per share data) CONSOLIDATING STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED JUNE 30, 1998
Parent Non Fairchild Company Guarantors Guarantors Eliminations Historical -------- ---------- ---------- ------------ ---------- Cash Flows from Operating Activities: Net earnings (loss)..... $101,090 $148,152 $(29,526) $(118,626) $101,090 Depreciation and amortization........... 72 14,102 5,862 -- 20,036 Accretion of discount on long-term liabilities.. 3,766 -- -- -- 3,766 Net gain on disposition of subsidiaries........ -- (124,041) -- -- (124,041) Net gain on sale of discontinued operations............. -- (132,787) -- -- (132,787) Extraordinary items net of cash payments....... -- 10,347 -- -- 10,347 (Gain) loss on sale of PP&E................... -- 147 99 -- 246 (Undistributed) distributed earnings of affiliates............. -- 547 1,178 -- 1,725 Minority interest....... -- 26,890 (598) -- 26,292 Change in assets and liabilities............ (185,098) 65,209 (19,693) 118,626 (20,956) Non-cash charges and working capital changes of discontinued operations............. -- -- 11,789 -- 11,789 -------- -------- -------- --------- -------- Net cash (used for) provided by operating activities............. (80,170) 8,566 (30,889) -- (102,493) -------- -------- -------- --------- -------- Cash Flows from Investing Activities: Proceeds received from (used for) investment securities, net........ -- (7,287) -- -- (7,287) Purchase of PP&E........ -- (30,220) (5,809) -- (36,029) Proceeds from sale of PP&E................... -- 336 -- -- 336 Equity investment in affiliates............. (141) (4,202) -- -- (4,343) Minority interest in subsidiaries........... -- (26,383) -- -- (26,383) Acquisition of subsidiaries, net of cash acquired.......... -- (25,445) (7,350) -- (32,795) Net proceeds from sale of discontinued operations............. -- 167,987 -- -- 167,987 Change in net assets held for sale.......... -- 2,140 -- -- 2,140 Investing activities of discontinued operations............. -- -- (2,750) -- (2,750) -------- -------- -------- --------- -------- Net cash (used for) provided by investing activities............. (141) 76,926 (15,909) -- 60,876 -------- -------- -------- --------- -------- Cash Flows from Financing Activities: Proceeds from issuance of debt................ 225,000 50,523 -- -- 275,523 Debt repayment and repurchase of debentures (including intercompany), net..... (198,867) (106,899) 47,752 -- (258,014) Issuance of Class A common stock........... 53,848 193 -- -- 54,041 Financing activities of discontinued operations............. -- -- 2,538 -- 2,538 -------- -------- -------- --------- -------- Net cash (used for) provided by financing activities............. 79,981 (56,183) 50,290 -- 74,088 -------- -------- -------- --------- -------- Effect of exchange rate changes on cash........ -- -- (2,290) -- (2,290) -------- -------- -------- --------- -------- Net change in cash...... (330) 29,309 1,202 -- 30,181 Cash, beginning of the year................... 234 12,962 6,224 -- 19,420 -------- -------- -------- --------- -------- Cash, end of the year... $ (96) $ 42,271 $ 7,426 $ -- $ 49,601 ======== ======== ======== ========= ========
F-41 THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (In thousands, except per share data) CONSOLIDATING STATEMENTS OF EARNINGS FOR THE YEAR ENDED JUNE 30, 1997
Parent Non Fairchild Company Guarantors Guarantors Eliminations Historical -------- ---------- ---------- ------------ ---------- Net Sales............... $ -- $593,819 $90,243 $ (3,299) $680,763 Costs and expenses: Cost of sales......... -- 441,534 61,184 (3,299) 499,419 Selling, general & administrative....... 3,925 117,739 21,367 -- 143,031 Amortization of goodwill............. 130 4,215 469 -- 4,814 -------- -------- ------- -------- -------- 4,055 563,488 83,020 (3,299) 647,264 -------- -------- ------- -------- -------- Operating income...... (4,055) 30,331 7,223 -- 33,499 Net interest expense.... 25,252 21,556 873 -- 47,681 Investment (income) loss, net.............. (16) (6,635) -- -- (6,651) Nonrecurring income on disposition of subsidiary............. -- (2,528) -- -- (2,528) -------- -------- ------- -------- -------- Earnings before taxes... (29,291) 17,938 6,350 -- (5,003) Income tax (provision) benefit................ 15,076 (9,872) 531 -- 5,735 Equity in earnings of affiliates and subsidiaries........... 15,546 1,081 3,037 (15,066) 4,598 Minority interest....... -- (3,514) -- -- (3,514) -------- -------- ------- -------- -------- Earnings (loss) from continuing operations.. 1,331 5,633 9,918 (15,066) 1,816 Earnings (loss) from discontinued operations............. -- 3,149 (3,634) -- (485) -------- -------- ------- -------- -------- Net earnings (loss)..... $ 1,331 $ 8,782 $ 6,284 $(15,066) $ 1,331 ======== ======== ======= ======== ========
F-42 THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (In thousands, except per share data) CONSOLIDATING BALANCE SHEET JUNE 30, 1997
Parent Non Fairchild Company Guarantors Guarantors Eliminations Historical -------- ---------- ---------- ------------ ---------- Cash.................... $ 234 $ 12,962 $ 6,224 $ -- $ 19,420 Marketable securities... 71 25,576 -- -- 25,647 Accounts Receivables (including intercompany), less allowances............. 384 109,971 41,006 -- 151,361 Inventory, net.......... -- 298,952 24,413 -- 323,365 Prepaid and other current assets......... 179 31,154 3,157 -- 34,490 Net current assets of discontinued operations............. -- -- 17,884 -- 17,884 -------- -------- -------- --------- ---------- Total current assets............. 868 478,615 92,684 -- 572,167 Investment in Subsidiaries........... 390,355 -- -- (390,355) -- Net fixed assets........ 486 79,085 42,347 -- 121,918 Net assets held for sale................... -- -- 26,147 -- 26,147 Net noncurrent assets of discontinued operations............. -- -- 14,495 -- 14,495 Investments in affiliates............. 1,435 33,736 20,507 -- 55,678 Goodwill................ 4,133 126,573 23,423 -- 154,129 Deferred loan costs..... 3,394 5,858 -- -- 9,252 Prepaid pension assets.. -- 59,742 -- -- 59,742 Long-term investments... 492 3,628 -- -- 4,120 Other assets............ (1,483) 36,295 206 -- 35,018 -------- -------- -------- --------- ---------- Total assets........ $399,680 $823,532 $219,809 $(390,355) $1,052,666 ======== ======== ======== ========= ========== Bank notes payable & current maturities of debt................... $ -- $ 38,887 $ 8,435 $ -- $ 47,322 Accounts payable (including intercompany).......... 15 47,928 27,579 -- 75,522 Other accrued expenses.. 8,300 68,241 26,640 -- 103,181 -------- -------- -------- --------- ---------- Total current liabilities........ 8,315 155,056 62,654 -- 226,025 Long-term debt, less current maturities..... 190,567 221,090 5,265 -- 416,922 Other long-term liabilities............ 797 21,987 838 -- 23,622 Noncurrent income taxes.................. (29,624) 71,637 -- -- 42,013 Retiree healthcare liabilities............ -- 40,515 2,836 -- 43,351 Minority interest in subsidiaries........... -- 67,711 598 -- 68,309 -------- -------- -------- --------- ---------- Total liabilities... 170,055 577,996 72,191 -- 820,242 Preferred stock......... -- (1,170) 1,170 -- -- Class A common stock.... 2,023 -- 3,545 (3,545) 2,023 Class B common stock.... 263 -- 9 (9) 263 Paid-in-capital......... (151,620) 222,635 154,587 (154,587) 71,015 Retained earnings....... 390,954 61,184 (9,975) (232,214) 209,949 Cumulative other comprehensive income... (46) 2,657 (1,718) -- 893 Treasury stock, at cost................... (11,949) (39,770) -- -- (51,719) -------- -------- -------- --------- ---------- Total stockholders' equity............. 229,625 245,536 147,618 (390,355) 232,424 -------- -------- -------- --------- ---------- Total liabilities & stockholders' equity... $399,680 $823,532 $219,809 $(390,355) $1,052,666 ======== ======== ======== ========= ==========
F-43 THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (In thousands, except per share data) CONSOLIDATING STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED JUNE 30, 1997
Parent Non Fairchild Company Guarantors Guarantors Eliminations Historical -------- ---------- ---------- ------------ ---------- Cash Flows from Operating Activities: Net earnings (loss)..... $ 1,331 $ 8,782 $ 6,284 $(15,066) $ 1,331 Depreciation & amortization........... 179 18,848 5,280 -- 24,307 Accretion of discount on long-term liabilities.. 4,963 -- -- -- 4,963 (Gain) loss on sale of PP&E................... -- (72) -- -- (72) (Undistributed) distributed earnings of affiliates............. -- (1,434) 379 -- (1,055) Minority interest....... -- 2,896 618 -- 3,514 Change in assets and liabilities............ (20,744) (105,842) (4,325) 15,066 (115,845) Non-cash charges and working capital changes of discontinued operations............. -- -- (17,201) -- (17,201) -------- --------- -------- -------- --------- Net cash (used for) operating activities... (14,271) (76,822) (8,965) -- (100,058) -------- --------- -------- -------- --------- Cash Flows from Investing Activities: Proceeds received from (used for) investment securities, net........ -- (12,951) -- -- (12,951) Purchase of PP&E........ -- (12,371) (2,643) -- (15,014) Proceeds from sale of PP&E................... -- 213 -- -- 213 Equity investment in affiliates............. 2,092 (3,841) -- -- (1,749) Minority interest in subsidiaries........... -- (1,610) -- -- (1,610) Acquisition of subsidiaries, net of cash acquired.......... -- -- (55,916) -- (55,916) Net proceeds from sale of discontinued operations............. -- 173,719 -- -- 173,719 Change in net assets held for sale ......... -- 385 -- -- 385 Investing activities of discontinued operations............. -- -- (7,102) -- (7,102) -------- --------- -------- -------- --------- Net cash (used for) provided by investing activities............. 2,092 143,544 (65,661) -- 79,975 -------- --------- -------- -------- --------- Cash Flows from Financing Activities: Proceeds from issuance of debt................ 9,400 144,894 -- -- 154,294 Debt repayment and repurchase of debentures (including intercompany), net..... -- (229,874) 74,274 -- (155,600) Issuance of Class A common stock........... 1,126 -- -- -- 1,126 Financing activities of discontinued operations............. -- -- (1,275) -- (1,275) -------- --------- -------- -------- --------- Net cash (used for) provided by financing activities............. 10,526 (84,980) 72,999 -- (1,455) -------- --------- -------- -------- --------- Effect of exchange rate changes on cash........ -- -- 1,309 -- 1,309 -------- --------- -------- -------- --------- Net change in cash...... (1,653) (18,258) (318) -- (20,229) Cash, beginning of the year................... 1,887 31,220 6,542 -- 39,649 -------- --------- -------- -------- --------- Cash, end of the year... $ 234 $ 12,962 $ 6,224 $ -- $ 19,420 ======== ========= ======== ======== =========
F-44 THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (In thousands, except per share data) CONSOLIDATING STATEMENTS OF EARNINGS FOR THE YEAR ENDED JUNE 30, 1996
Parent Non Fairchild Company Guarantors Guarantors Eliminations Historical -------- ---------- ---------- ------------ ---------- Net Sales............... $ -- $296,959 $53,196 $ (919) $349,236 Costs and expenses: Cost of sales......... -- 239,535 36,519 (919) 275,135 Selling, general & administrative....... 5,148 64,260 12,000 -- 81,408 Amortization of goodwill............. 130 3,594 255 -- 3,979 -------- -------- ------- --------- -------- 5,278 307,389 48,774 (919) 360,522 -------- -------- ------- --------- -------- Operating income...... (5,278) (10,430) 4,422 -- (11,286) Net interest expense.... 28,387 26,398 1,674 -- 56,459 Investment (income) loss, net.............. (1) (4,574) -- -- (4,575) Nonrecurring income on disposition of subsidiary............. 1,064 (694) 1,354 -- 1,724 -------- -------- ------- --------- -------- Earnings before taxes... (34,728) (31,560) 1,394 -- (64,894) Income tax (provision) benefit................ 12,509 18,285 (955) -- 29,839 Equity in earnings of affiliates and subsidiaries........... 211,925 985 3,567 (211,656) 4,821 Minority interest....... -- (1,973) 21 -- (1,952) -------- -------- ------- --------- -------- Earnings (loss) from continuing operations.. 189,706 (14,263) 4,027 (211,656) (32,186) Earnings (loss) from discontinued operations............. -- 17,087 (1,475) -- 15,612 Earnings (loss) from disposal of discontinued operations............. -- 216,716 -- -- 216,716 Extraordinary items..... -- (10,436) -- -- (10,436) -------- -------- ------- --------- -------- Net earnings (loss)..... $189,706 $209,104 $ 2,552 $(211,656) $189,706 ======== ======== ======= ========= ========
F-45 THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (In thousands, except per share data) CONSOLIDATING STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED JUNE 30, 1996
Parent Non Fairchild Company Guarantors Guarantors Eliminations Historical --------- ---------- ---------- ------------ ---------- Cash Flows from Operating Activities: Net earnings (loss)..... $ 189,706 $ 209,104 $ 2,552 $(211,656) $ 189,706 Depreciation & amorization............ 58 18,520 2,467 -- 21,045 Accretion of discount on long-term liabilities.. 4,686 -- -- -- 4,686 Net gain on sale of discontinued operations............. -- (216,645) -- -- (216,645) Extraordinary items, net of cash payment........ -- 4,501 -- -- 4,501 Provision for restructuring.......... -- 1,542 -- -- 1,542 (Gain) loss on sale of PP&E................... -- (242) 233 -- (9) (Undistributed) distributed earnings of affiliates............. -- 717 (4,574) -- (3,857) Minority interest....... -- 2,221 (269) -- 1,952 Change in assets and liabilities............ (157,534) (133,551) 15,572 211,656 (63,857) Non-cash charges and working capital changes of discontinued operations............. -- 9,242 2,743 -- 11,985 --------- --------- -------- --------- --------- Net cash (used for) provided by operating activities............. 36,916 (104,591) 18,724 -- (48,951) --------- --------- -------- --------- --------- Cash Flows from Investing Activities: Proceeds received from (used for) investment securities, net........ -- 265 -- -- 265 Purchase of PP&E........ -- (4,807) (873) -- (5,680) Proceeds from sale of PP&E................... -- 46 52 -- 98 Equity investment in affiliates............. (21) (2,340) -- -- (2,361) Minority interest in subsidiaries........... -- (2,817) -- -- (2,817) Net proceeds from sale of discontinued operations............. -- 71,559 -- -- 71,559 Change in net assets held for sale.......... -- 5,894 -- -- 5,894 Investing activities of discontinued operations............. -- -- (9,418) -- (9,418) Other, net.............. -- -- -- -- -- --------- --------- -------- --------- --------- Net cash (used for) provided by investing activities............. (21) 67,800 (10,239) -- 57,540 --------- --------- -------- --------- --------- Cash Flows from Financing Activities: Proceeds from issuance of debt................ -- 156,501 -- -- 156,501 Debt repayment and repurchase of debentures, (including intercompany) net...... (42,265) (148,361) (4,794) -- (195,420) Issuance of Class A common stock........... 1,509 -- -- -- 1,509 Financing activities of discontinued operations............. -- -- (2,227) -- (2,227) --------- --------- -------- --------- --------- Net cash (used for) provided by financing activities............. (40,756) 8,140 (7,021) -- (39,637) --------- --------- -------- --------- --------- Effect of exchange rate changes on cash........ -- -- (485) -- (485) --------- --------- -------- --------- --------- Net change in cash...... (3,861) (28,651) 979 -- (31,533) Cash, beginning of the year................... 5,748 59,871 5,563 -- 71,182 --------- --------- -------- --------- --------- Cash, end of the year... $ 1,887 $ 31,220 $ 6,542 $ -- $ 39,649 ========= ========= ======== ========= =========
F-46 THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS June 30, 1998 and March 28, 1999 (Unaudited) (In thousands) ASSETS
June 30, March 28, 1998 1999 ---------- ---------- Current assets: (*) Cash and cash equivalents, $746 and $0 restricted...... $ 49,601 $ 167,346 Short-term investments................................. 3,962 3,777 Accounts receivable-trade, less allowances of $5,655 and $3,149............................................ 120,284 101,731 Inventories: Finished goods....................................... 187,205 136,918 Work-in-process...................................... 20,642 21,639 Raw materials........................................ 9,635 8,416 ---------- ---------- 217,482 166,973 Net current assets of discontinued operations.......... 11,613 -- Prepaid expenses and other current assets.............. 53,081 48,267 ---------- ---------- Total current assets............................... 456,023 488,094 Property, plant and equipment, net of accumulated depreciation of $82,968 and $99,896................... 118,963 122,876 Net assets held for sale............................... 23,789 20,625 Net noncurrent assets of discontinued operations....... 8,541 -- Cost in excess of net assets acquired (Goodwill), less accumulated amortization of $42,079 and $46,081....... 168,307 167,164 Investments and advances, affiliated companies......... 27,568 29,209 Prepaid pension assets................................. 61,643 62,597 Deferred loan costs.................................... 6,362 6,377 Long-term investments.................................. 235,435 42,441 Other assets........................................... 50,628 75,448 ---------- ---------- Total assets....................................... $1,157,259 $1,014,831 ========== ==========
- -------- * Condensed from audited financial statements. The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. F-47 THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS JUNE 30, 1998 AND MARCH 28, 1999 (UNAUDITED) (In thousands) LIABILITIES AND STOCKHOLDERS' EQUITY
June 30, March 28, 1998 1999 ---------- ---------- Current liabilities: (*) Bank notes payable and current maturities of long- term debt........................................... $ 20,665 $ 34,020 Accounts payable..................................... 53,859 31,942 Other accrued liabilities............................ 92,743 71,158 Income taxes......................................... 28,311 15,760 Net current liabilities of discontinued operations... -- 7,985 ---------- ---------- Total current liabilities.......................... 195,578 160,865 Long-term liabilities: Long-term debt, less current maturities.............. 295,402 227,475 Other long-term liabilities.......................... 23,767 26,303 Retiree health care liabilities...................... 42,103 43,356 Noncurrent income taxes.............................. 95,176 104,635 Minority interest in subsidiaries.................... 31,674 30,502 ---------- ---------- Total Liabilities.................................. 683,700 593,136 Stockholders' equity: Class A common stock, $0.10 par value; authorized 40,000 shares, 26,747 (26,679 in June) shares issued and 19,257 (20,429 in June) shares outstanding...... 2,667 2,674 Class B common stock, $0.10 par value; authorized 20,000 shares, 2,622 (2,625 in June) shares issued and outstanding....... 263 262 Paid-in capital...................................... 195,112 195,679 Retained earnings.................................... 311,039 294,911 Cumulative other comprehensive income................ 16,386 2,179 Treasury Stock, at cost, 7,490 (6,250 in June) shares of Class A common stock............................. (51,908) (74,010) ---------- ---------- Total stockholders' equity......................... 473,559 421,695 ---------- ---------- Total liabilities and stockholders' equity......... $1,157,259 $1,014,831 ========== ==========
- -------- * Condensed from audited financial statements The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. F-48 THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES CONDENSED STATEMENTS OF EARNINGS (Unaudited) FOR THE THREE (3) AND NINE (9) MONTHS ENDED MARCH 29, 1998 AND MARCH 28, 1999 (In thousands, except per share data)
Three Months Ended Nine Months Ended -------------------- ------------------ 3/29/98 3/28/99 3/29/98 3/28/99 --------- --------- -------- -------- Revenue: Net sales.......................... $ 164,164 $ 146,352 $567,142 $446,072 Other income, net.................. 847 704 5,451 1,473 --------- --------- -------- -------- 165,011 147,056 572,593 447,545 Costs and expenses: Cost of goods sold................. 126,374 109,462 426,201 356,448 Selling, general & administrative.. 28,219 28,049 107,187 83,495 Amortization of goodwill........... 1,573 1,364 4,179 4,002 --------- --------- -------- -------- 156,166 138,875 537,567 443,945 Operating income..................... 8,845 8,181 35,026 3,600 Interest expense................... 9,369 7,075 38,027 22,281 Interest income.................... (587) (267) (1,501) (1,326) --------- --------- -------- -------- Net interest expense............... 8,782 6,808 36,526 20,955 Investment income (loss)........... 234 36,876 (4,946) 37,710 Nonrecurring gain on disposal of subsidiary........................ 123,991 -- 123,991 -- --------- --------- -------- -------- Earnings from continuing operations before taxes...................... 124,288 38,249 117,545 20,355 Income tax provision............... (52,295) (13,749) (48,432) (7,316) Equity in earnings of affiliates, net............................... 330 132 1,709 1,821 Minority interest, net............. (21,905) (4,249) (23,780) (2,114) --------- --------- -------- -------- Earnings from continuing opera- tions............................. 50,418 20,383 47,042 12,746 Loss from discontinued operations, net............................... (1,578) -- (4,260) -- Gain (loss) on disposal of discon- tinued operations, net............ 46,548 (19,694) 76,522 (28,874) Extraordinary items, net........... (3,701) -- (6,725) -- --------- --------- -------- -------- Net earnings (loss).................. $ 91,687 $ 689 $112,579 $(16,128) ========= ========= ======== ======== Other comprehensive income (loss), net of tax: Foreign currency translation ad- justments......................... (2,178) (6,139) (3,750) 1,413 Unrealized holding changes on secu- rities arising during the period.. 14,540 (12,865) 14,540 (15,620) --------- --------- -------- -------- Other comprehensive income (loss).. 12,362 (19,004) 10,790 (14,207) --------- --------- -------- -------- Comprehensive income (loss)...... $ 104,049 $ (18,315) $123,369 $(30,335) ========= ========= ======== ========
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. F-49 THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES CONDENSED STATEMENTS OF EARNINGS (Unaudited) FOR THE THREE (3) AND NINE (9) MONTHS ENDED MARCH 29, 1998 AND MARCH 28, 1999 (In thousands, except per share data)
Three Months Ended Nine Months Ended --------------------- ------------------- 3/29/98 3/28/99 3/29/98 3/28/99 --------- --------- -------- -------- Basic earnings per share: Earnings from continuing operations........................ $ 2.52 $ 0.93 $ 2.62 $ 0.58 Loss from discontinued operations, net............................... (0.08) -- (0.24) -- Gain (loss) on disposal of discontinued operations, net...... 2.32 (0.90) 4.27 (1.30) Extraordinary items, net........... (0.18) -- (0.37) -- --------- --------- -------- -------- Net earnings (loss).............. $ 4.58 $ 0.03 $ 6.28 $ (0.72) ========= ========= ======== ======== Other comprehensive income (loss), net of tax: Foreign currency translation adjustments....................... $ (0.11) $ (0.28) $ (0.21) $ 0.06 Unrealized holding changes on securities arising during the period............................ 0.73 (0.59) 0.81 (0.71) --------- --------- -------- -------- Other comprehensive income (loss).. 0.62 (0.87) 0.60 (0.65) --------- --------- -------- -------- Comprehensive income (loss)...... $ 5.20 $ (0.84) $ 6.88 $ (1.37) ========= ========= ======== ======== Diluted earnings per share: Earnings from continuing operations........................ $ 2.41 $ 0.92 $ 2.50 $ 0.57 Loss from discontinued operations, net............................... (0.08) -- (0.23) -- Gain (loss) on disposal of discontinued operations, net...... 2.22 (0.89) 4.07 (1.28) Extraordinary items, net........... (0.18) -- (0.36) -- --------- --------- -------- -------- Net earnings (loss).............. $ 4.37 $ 0.03 $ 5.98 $ (0.71) ========= ========= ======== ======== Other comprehensive income (loss), net of tax: Foreign currency translation adjustments....................... $ (0.10) $ (0.28) $ (0.20) $ 0.06 Unrealized holding losses on securities arising during the period............................ 0.69 (0.58) 0.77 (0.69) --------- --------- -------- -------- Other comprehensive income (loss).. 0.59 (0.86) 0.57 (0.63) --------- --------- -------- -------- Comprehensive income (loss)...... $ 4.96 $ (0.83) $ 6.55 $ (1.34) ========= ========= ======== ======== Weighted average shares outstanding: Basic.............................. 20,036 21,872 17,938 22,129 ========= ========= ======== ======== Diluted............................ 20,922 22,165 18,813 22,552 ========= ========= ======== ========
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. F-50 THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) FOR THE NINE (9) MONTHS ENDED MARCH 29, 1998 AND MARCH 28, 1999 (In thousands)
For the Nine Months Ended -------------------------- 3/29/98 3/28/99 ------------ ------------ Cash flows from operating activities: Net earnings (loss).............................. $ 112,579 $ (16,128) Depreciation and amortization.................... 16,480 17,371 Amortization of deferred loan fees............... 2,057 888 Accretion of discount on long-term liabilities... 2,744 3,854 Net (gain) loss on divestiture of subsidiaries... (99,766) -- Net gain on the sale of discontinued operations.. (135,736) -- Extraordinary items, net of cash payments........ 6,725 -- Distributed earnings of affiliates, net.......... (165) 3,376 Minority interest................................ 23,780 2,114 Change in assets and liabilities................. (50,735) (44,431) Non-cash charges and working capital changes of discontinued operations......................... 18,083 12,445 ------------ ------------ Net cash used for operating activities........... (103,954) (20,511) Cash flows from investing activities: Purchase of property, plant and equipment........ (23,706) (18,694) Acquisition of minority interest in subsidiaries.................................... (26,383) -- Acquisition of subsidiaries, net of cash acquired........................................ (32,404) (3,940) Net proceeds received from investment securities...................................... 9,202 173,424 Gross proceeds received from the divestiture of subsidiary...................................... -- 60,397 Net proceeds received from the sale of discontinued operations......................... 167,987 -- Changes in net assets held for sale.............. 2,239 3,526 Other, net....................................... 180 283 Investing activities of discontinued operations.. (3,328) (542) ------------ ------------ Net cash provided by investing activities........ 93,787 214,454 Cash flows from financing activities: Proceeds from issuance of debt................... 178,036 80,127 Debt repayments and repurchase of debentures, net............................................. (177,056) (135,569) Issuance of Class A common stock................. 54,176 153 Purchase of treasury stock....................... -- (22,101) Financing activities of discontinued operations.. (100) 30 ------------ ------------ Net cash provided by (used for) financing activities...................................... 55,056 (77,360) Effect of exchange rate changes on cash.......... (2,496) 1,162 ------------ ------------ Net increase in cash and cash equivalents........ 42,393 117,745 Cash and cash equivalents, beginning of the year............................................ 19,420 49,601 ------------ ------------ Cash and cash equivalents, end of the period..... $ 61,813 $ 167,346 ============ ============
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. F-51 THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (In thousands, except share data) 1. Financial Statements The consolidated balance sheet as of March 28, 1999 and the consolidated statements of earnings and cash flows for the nine months ended March 29, 1998 and March 28, 1999 have been prepared by the Company, without audit. In the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows at March 28, 1999, and for all periods presented, have been made. The balance sheet at June 30, 1998 was condensed from the audited financial statements as of that date. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. These consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's June 30, 1998 Annual Report on Form 10-K and the Banner Aerospace, Inc. March 31, 1998 Annual Report on Form 10-K. The results of operations for the period ended March 28, 1999 are not necessarily indicative of the operating results for the full year. Certain amounts in the prior year's quarterly financial statements have been reclassified to conform to the current presentation. 2. Business Combinations The Company has accounted for the following acquisitions by using the purchase method. The respective purchase price is assigned to the net assets acquired based on the fair value of such assets and liabilities at the respective acquisition dates. On November 28, 1997, the Company acquired AS+C GmbH, Aviation Supply + Consulting ("AS+C") in a business combination accounted for as a purchase. The total cost of the acquisition was $14.0 million, which exceeded the fair value of the net assets of AS+C by approximately $8.1 million, which is allocated as goodwill and amortized using the straight-line method over 40 years. The Company purchased AS+C with cash borrowings. AS+C is an aerospace parts, logistics, and distribution company primarily servicing European original equipment manufacturers. On January 13, 1998, Banner completed the disposition of substantially all of the assets and certain liabilities of certain subsidiaries to AlliedSignal Inc., in exchange for shares of AlliedSignal Inc. common stock with an aggregate value of $369 million. The assets transferred to AlliedSignal Inc. consisted primarily of Banner's hardware group, which included the distribution of bearings, nuts, bolts, screws, rivets and other types of fasteners, and its PacAero unit. Approximately $196 million of the common stock received from AlliedSignal Inc. was used to repay outstanding term loans of Banner's subsidiaries and related fees. The Company accounts for its investment in AlliedSignal Inc. common stock as an available-for-sale security. On March 2, 1998, the Company consummated the acquisition of Edwards and Lock Management Corporation, doing business as Special-T Fasteners, in a business combination accounted for as a purchase. The cost of the acquisition was approximately $50.0 million, of which 50.1% of the contractual purchase price was paid in shares of Class A Common Stock of the Company and 49.9% was paid in cash. The total cost of the acquisition exceeded the fair value of the net assets of Special-T by approximately $23.6 million, which is being allocated as goodwill, and amortized using the straight-line method over 40 years. Special-T manages the logistics of worldwide distribution of Company manufactured precision fasteners to customers in the aerospace industry, government agencies, OEMs, and other distributors. On December 31, 1998, Banner consummated the sale of Solair, Inc., its largest subsidiary in the rotables group, to Kellstrom Industries, Inc., in exchange for approximately $60.4 million in cash and a warrant to purchase 300,000 shares of common stock of Kellstrom. In December 1998, Banner recorded a $19.3 million pre-tax loss from the sale of Solair. This loss was included in cost of goods sold as it was primarily attributable to the bulk sale of inventory at prices below the carrying amount of inventory. F-52 THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)--(Continued) (In thousands, except share data) On February 22, 1999, the Company used available cash to acquire 77.3% of SNEP S.A. for approximately $5.0 million, including $1.1 million of debt assumed, in a business combination accounted for as a purchase. The total cost of the acquisition exceeded the fair value of the net assets of SNEP by approximately $3.8 million, which is preliminarily being allocated as goodwill, and amortized using the straight-line method over 40 years. SNEP is a French manufacturer of precision machined self-locking nuts and special threaded fasteners serving the European industrial, aerospace and automotive markets. 3. Discontinued Operations For the Company's fiscal years ended June 30, 1996, 1997, 1998, and for the first nine months of fiscal 1999, Fairchild Technologies ("Technologies") had pre-tax operating losses of approximately $1.5 million, $3.6 million, $48.7 million, and $25.0 million, respectively. The after-tax operating loss from Technologies exceeded the June 1998 estimate recorded for expected losses by $9.2 million through March 1999. An additional after-tax charge of $19.7 million was recorded in the nine months ended March 28, 1999, based on a current estimate of the remaining losses in connection with the disposition of Technologies. While the Company believes that $19.7 million is a reasonable charge for the remaining losses to be incurred from Technologies, there can be no assurance that this estimate is adequate. During the third quarter of fiscal 1999, the Semiconductor Equipment Group of Technologies ceased all manufacturing activities, began to dispose of its production machinery and existing inventory, informed customers and business partners that it has discontinued operations, significantly reduced its workforce, and stepped up the level of discussions and negotiations with other companies regarding the sale of its remaining assets. Technologies is also exploring several alternative transactions with potential successors the business of its Optical Disc Equipment Group, but has made no definitive arrangement for its disposition. Additional information regarding discontinued operations is set forth in Footnote 4 of the Consolidated Financial Statements of the Company's June 30, 1998 Annual Report on Form 10-K. 4. Pro Forma Financial Statements The unaudited pro forma consolidated financial information for the nine months ended March 29, 1998, present the results of the Company's operations as though the divestitures of Banner's hardware group and Solair, and the acquisitions of Special-T and AS+C, had been in effect since the beginning of fiscal 1998. The unaudited pro forma consolidated financial information for the nine months ended March 28, 1999 provide the results of the Company's operations as though the divestiture of Solair had been in effect since the beginning of fiscal 1999. The pro forma information is based on the historical financial statements of the Company, Banner, Special-T, and AS+C giving effect to the aforementioned transactions. In preparing the pro forma data, certain assumptions and adjustments have been made, including changes in interest expense for revised debt structures and estimates of changes to goodwill amortization. The following unaudited pro forma information is not necessarily indicative of the results of operations that would actually have occurred if the transactions had been in effect since the beginning of each period, nor are they indicative of future results of the Company.
For the Nine Months Ended ------------------- March 29, March 28, 1998 1999 --------- --------- Net sales........................................... $413,254 $417,753 Gross profit........................................ 93,670 102,971 Earnings (loss) from continuing operations.......... 1,832 22,461 Earnings (loss) from continuing operations, per basic share........................................ $ 0.10 $ 1.02 Earnings (loss) from continuing operations, per diluted share...................................... $ 0.10 $ 1.00
F-53 THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)--(Continued) (In thousands, except share data) The pro forma financial information has not been adjusted for nonrecurring gains from disposal of discontinued operations, reductions in interest expense and investment income that have occurred or are expected to occur from these transactions within the ensuing year. 5. Equity Securities The Company had 19,257,360 shares of Class A common stock and 2,621,652 shares of Class B common stock outstanding at March 28, 1999. Class A common stock is traded on both the New York and Pacific Stock Exchanges. There is no public market for the Class B common stock. Shares of Class A common stock are entitled to one vote per share and cannot be exchanged for shares of Class B common stock. Shares of Class B common stock are entitled to ten votes per share and can be exchanged, at any time, for shares of Class A common stock on a share-for-share basis. For the nine months ended March 28, 1999, 40,575 and 14,969 shares of Class A Common Stock were issued as a result of the exercise of stock options and the Special-T restricted stock plan, respectively, and shareholders converted 3,064 shares of Class B common stock into Class A common stock. In accordance with terms of the Special-T Acquisition, as amended, during the nine months ended March 28, 1999, the Company issued 9,911 restricted shares of the Company's Class A Common Stock for additional merger consideration. Additionally, the Company's Class A common stock outstanding was effectively reduced as a result of 1,239,750 shares purchased by Banner. The shares purchased by Banner are considered as treasury stock for accounting purposes. 6. Restricted Cash On March 28, 1999, the Company did not have any restricted cash. On June 30, 1998, the Company had restricted cash of approximately $746, all of which was maintained as collateral for certain debt facilities. 7. Summarized Statement of Earnings Information The following table presents summarized historical financial information, on a combined 100% basis, of the Company's principal investments, which are accounted for using the equity method.
For the Nine Months Ended ------------------- March 29, March 28, 1998 1999 --------- --------- Net sales............................................. $63,615 $55,102 Gross profit.......................................... 23,095 18,603 Earnings from continuing operations................... 9,769 10,207 Net earnings.......................................... 9,769 10,207
F-54 THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)--(Continued) (In thousands, except share data) The Company owns approximately 31.9% of Nacanco Paketleme common stock. The Company recorded equity earnings of $2,010 (net of an income tax provision of $1,083) and $2,105 (net of an income tax provision of $1,134) from this investment for the nine months ended March 29, 1998 and March 28, 1999, respectively. 8. MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES On March 28, 1999, the Company had $30,502 of minority interest, of which $29,743 represents Banner. On March 28, 1999, minority shareholders held approximately 17% of Banner's outstanding common stock. For additional information regarding our acquisition of all the remaining stock in Banner the Company did not previously own, please refer to Note 11. 9. EARNINGS PER SHARE The following table illustrates the computation of basic and diluted earnings per share:
Three Months Ended Nine Months Ended ------------------- ----------------- 3/29/98 3/28/99 3/29/98 3/28/99 --------- --------- -------- -------- Basic earnings per share: Earnings from continuing operations........................ $ 50,418 $ 20,383 $ 47,042 $ 12,746 ========= ========= ======== ======== Common shares outstanding.......... 20,036 21,872 17,938 22,129 ========= ========= ======== ======== Basic earnings from continuing operations per share.............. $ 2.52 $ 0.93 $ 2.62 $ 0.58 ========= ========= ======== ======== Diluted earnings per share: Earnings from continuing operations........................ $ 50,418 $ 20,383 $ 47,042 $ 12,746 ========= ========= ======== ======== Common shares outstanding.......... 20,036 21,872 17,938 22,129 Options............................ 595 208 579 128 Warrants........................... 291 85 296 295 --------- --------- -------- -------- === Total shares outstanding........... 20,922 22,165 18,813 22,552 ========= ========= ======== ======== Diluted earnings from continuing operations per share.............. $ 2.41 $ 0.92 $ 2.50 $ 0.57 ========= ========= ======== ========
Subsequent to March 28, 1999 the Company issued 2,981,412 shares of Class A common stock to shareholders' of Banner as a result of the Banner Merger (see Note 11). Additionally, participants in Banner's stock option plans now hold stock options under the Company's plan which entitle them to purchase 870,315 shares of Class A common stock. These shares were not included in the earnings per share calculations for the periods ended March 28, 1999 and could be dilutive in subsequent periods. No adjustments were made to earnings per share calculations for discontinued operations and extraordinary items. 10. CONTINGENCIES Government Claims The Corporate Administrative Contracting Officer (the "ACO"), based upon the advice of the United States Defense Contract Audit Agency, has made a determination that Fairchild Industries, Inc. ("FII"), a former subsidiary of the Company, did not comply with Federal Acquisition Regulations and Cost Accounting Standards in accounting for (i) the 1985 reversion to FII of certain assets of terminated defined benefit pension plans, and (ii) pension costs upon the closing of segments of FII's business. The ACO has directed FII to prepare cost F-55 THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)--(Continued) (In thousands, except share data) impact proposals relating to such plan terminations and segment closings and, following receipt of such cost impact proposals, may seek adjustments to contract prices. The ACO alleges that substantial amounts will be due if such adjustments are made, however, an estimate of the possible loss or range of loss from the ACO's assertion cannot be made. The Company believes it has properly accounted for the asset reversions in accordance with applicable accounting standards. The Company has held discussions with the government to attempt to resolve these pension accounting issues. Environmental Matters The Company's operations are subject to stringent government imposed environmental laws and regulations concerning, among other things, the discharge of materials into the environment and the generation, handling, storage, transportation and disposal of waste and hazardous materials. To date, such laws and regulations have not had a material effect on the financial condition, results of operations, or net cash flows of the Company, although the Company has expended, and can be expected to expend in the future, significant amounts for investigation of environmental conditions and installation of environmental control facilities, remediation of environmental conditions and other similar matters, particularly in the Aerospace Fasteners segment. In connection with its plans to dispose of certain real estate, the Company must investigate environmental conditions and may be required to take certain corrective action prior or pursuant to any such disposition. In addition, management has identified several areas of potential contamination at or from other facilities owned, or previously owned, by the Company, that may require the Company either to take corrective action or to contribute to a clean-up. The Company is also a defendant in certain lawsuits and proceedings seeking to require the Company to pay for investigation or remediation of environmental matters and has been alleged to be a potentially responsible party at various "Superfund" sites. Management of the Company believes that it has recorded adequate reserves in its financial statements to complete such investigation and take any necessary corrective actions or make any necessary contributions. No amounts have been recorded as due from third parties, including insurers, or set off against, any liability of the Company, unless such parties are contractually obligated to contribute and are not disputing such liability. As of March 28, 1999, the consolidated total recorded liabilities of the Company for environmental matters was approximately $8.5 million, which represented the estimated probable exposures for these matters. It is reasonably possible that the Company's total exposure for these matters could be approximately $15.0 million. Other Matters In connection with the disposition of Banner's hardware business, the Company received notice on January 12, 1999 from AlliedSignal making indemnification claims against the Company for $18.9 million. Although the Company believes that the amount of the claim is far in excess of any amount that AlliedSignal is entitled to recover from the Company, the Company is in the process of reviewing such claims and is unable to predict the ultimate outcome of such matter. The Company is involved in various other claims and lawsuits incidental to its business, some of which involve substantial amounts. The Company, either on its own or through its insurance carriers, is contesting these matters. In the opinion of management, the ultimate resolution of the legal proceedings, including those mentioned above, will not have a material adverse effect on the financial condition, or future results of operations or net cash flows of the Company. F-56 THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)--(Continued) (In thousands, except share data) 11. SUBSEQUENT EVENTS The KTI Acquisition On April 20, 1999, the Company completed the acquisition of all of Kaynar Technologies, Inc. ("KTI") capital stock for approximately $222 million and assumed approximately $103 million of KTI's existing debt, the majority of which was refinanced at closing. In addition, the Company paid $28 million for a covenant not to compete from KTI's largest preferred shareholder. The acquisition was financed with existing cash, the sale of $225 million of 10 3/4% senior subordinated notes due 2009 (the "Notes") and a new bank credit facility. The Banner Merger On April 8, 1999, the Company acquired the remaining 15% of the outstanding common and preferred stock of Banner not already owned by the Company, through the merger (the "Banner Merger") of Banner with one of the Company's subsidiaries. Under the terms of the Banner Merger, each share of Banner's preferred stock was converted into the right to receive one share of Banner common stock and each share of Banner common stock (other than those owned by the Company) was converted into the right to receive 0.7885 shares of the Company's Class A common stock. The Company issued 2,981,412 shares of Class A common stock as a result of the Banner Merger. Banner is now our wholly-owned subsidiary of the Company. New Credit Facility Simultaneous with the consummation of the KTI Acquisition and the sale of the Notes, we entered into a new $325.0 million credit facility (the "New Credit Facility") which consists of a $225.0 million term loan, and a $100.0 million revolving credit facility of which approximately $31.5 million was drawn upon the acquisition of KTI (excluding approximately $19.0 million of outstanding letters of credit). The term loan bears interest at LIBOR plus 3.25% and the revolving credit facility bears interest at LIBOR plus 3.0%. Additionally, the revolving credit facility is subject to a non-use fee of 1/2%. The term loan matures on April 30, 2006 and the revolving credit facility matures on April 30, 2005. F-57 THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)--(Continued) (In thousands, except share data) 12. Consolidating Financial Statements The following financial statements separately show The Fairchild Corporation and the subsidiaries of The Fairchild Corporation. These statements are provided to fulfill public reporting requirements and separately present guarantors of the 10 3/4% Senior Subordinated Notes Due 2009 issued by The Fairchild Corporation (the "Parent Company"). The guarantors are primarily composed of The Fairchild Corporation's domestic subsidiaries, excluding Fairchild Technologies, the equity investment in Nacanco, a real estate development venture, and certain other subsidiaries. CONSOLIDATING STATEMENTS OF EARNINGS FOR THE NINE MONTHS ENDED MARCH 28, 1999
Parent Non Fairchild Company Guarantors Guarantors Eliminations Historical -------- ---------- ---------- ------------ ---------- Net Sales............... $ -- $323,011 $124,175 $(1,114) $446,072 Costs and expenses: Cost of sales......... -- 265,810 91,752 (1,114) 356,448 Selling, general & administrative....... 3,412 58,715 19,895 -- 82,022 Amortization of goodwill............. 184 3,159 659 -- 4,002 -------- -------- -------- ------- -------- 3,596 327,684 112,306 (1,114) 442,472 -------- -------- -------- ------- -------- Operating income...... (3,596) (4,673) 11,869 -- 3,600 Net interest expense.... 16,091 3,375 1,489 -- 20,955 Investment (income) loss, net.............. -- (37,710) -- -- (37,710) -------- -------- -------- ------- -------- Earnings before taxes... (19,687) 29,662 10,380 -- 20,355 Income tax (provision) benefit................ 7,076 (10,678) (3,714) -- (7,316) Equity in earnings of affiliates and subsidiaries........... (3,517) (284) 2,105 3,517 1,821 Minority interest....... -- (2,090) (24) -- (2,114) -------- -------- -------- ------- -------- Earnings (loss) from continuing operations.. (16,128) 16,610 8,747 3,517 12,746 Earnings (loss) from discontinued operations............. -- -- (28,874) -- (28,874) -------- -------- -------- ------- -------- Net earnings (loss)..... $(16,128) $ 16,610 $(20,127) $ 3,517 $(16,128) ======== ======== ======== ======= ========
F-58 THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)--(Continued) (In thousands, except share data) CONSOLIDATING BALANCE SHEET MARCH 28, 1999
Parent Non Fairchild Company Guarantors Guarantors Eliminations Historical -------- ---------- ---------- ------------ ---------- Cash.................... $ 20,069 $141,191 $ 6,086 $ -- $ 167,346 Marketable securities... 71 3,706 -- -- 3,777 Accounts Receivable (including intercompany), less allowances............. 351 38,788 62,592 -- 101,731 Inventory, net.......... -- 124,582 42,391 -- 166,973 Prepaid and other current assets......... 681 44,488 3,098 -- 48,267 Net current assets of discontinued operations............. -- -- -- -- -- -------- -------- -------- --------- ---------- Total current assets............. 21,172 352,755 114,167 -- 488,094 Investment in Subsidiaries........... 587,915 -- -- (587,915) -- Net fixed assets........ 620 77,995 44,261 -- 122,876 Net assets held for sale................... -- 20,625 -- -- 20,625 Net noncurrent assets of discontinued operations............. -- -- -- -- -- Investments in affiliates............. (6,615) 19,383 16,441 -- 29,209 Goodwill................ 10,952 120,293 35,919 -- 167,164 Deferred loan costs..... 4,698 1,679 -- -- 6,377 Prepaid pension assets.. -- 62,597 -- -- 62,597 Long-term investments... -- 42,441 -- -- 42,441 Other assets............ 16,199 (9,050) 68,299 -- 75,448 -------- -------- -------- --------- ---------- Total assets........ $634,941 $688,718 $279,087 $(587,915) $1,014,831 ======== ======== ======== ========= ========== Bank notes payable and current maturities of debt................... $ 11,450 $ -- $ 22,570 $ -- $ 34,020 Accounts payable (including intercompany).......... 20 (25,877) 57,799 -- 31,942 Other accrued expenses.. 4,376 72,399 10,143 -- 86,918 Net current liabilities of discontinued operations............. -- -- 7,985 -- 7,985 -------- -------- -------- --------- ---------- Total current liabilities........ 15,846 46,522 98,497 -- 160,865 Long-term debt, less current maturities..... 220,500 1,501 5,474 -- 227,475 Other long-term liabilities............ 405 17,994 7,904 -- 26,303 Noncurrent income taxes.................. (23,505) 127,998 142 -- 104,635 Retiree health care liabilities............ -- 39,434 3,922 -- 43,356 Minority interest in subsidiaries........... -- 29,752 750 -- 30,502 -------- -------- -------- --------- ---------- Total liabilities... 213,246 263,201 116,689 -- 593,136 Class A common stock.... 2,474 200 5,084 (5,084) 2,674 Class B common stock.... 262 -- -- -- 262 Paid-in-capital......... (26,368) 222,047 251,985 (251,985) 195,679 Retained earnings....... 458,229 259,078 (91,550) (330,846) 294,911 Cumulative other comprehensive income... (764) 6,064 (3,121) -- 2,179 Treasury stock, at cost................... (12,138) (61,872) -- -- (74,010) -------- -------- -------- --------- ---------- Total stockholders' equity............. 421,695 425,517 162,398 (587,915) 421,695 -------- -------- -------- --------- ---------- Total liabilities & stockholders' equity... $634,941 $688,718 $279,087 $(587,915) $1,014,831 ======== ======== ======== ========= ==========
F-59 THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)--(Continued) (In thousands, except per share data) CONSOLIDATING STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED MARCH 28, 1999
Parent Non Fairchild Company Guarantors Guarantors Eliminations Historical -------- ---------- ---------- ------------ ---------- Cash Flows from Operating Activities: Net earnings (loss)..... $(16,128) $ 16,610 $ (20,127) $ 3,517 $ (16,128) Depreciation and amortization........... 94 11,975 5,302 -- 17,371 Amortization of deferred loan fees.............. 888 -- -- -- 888 Accretion of discount on long-term liabilities.. 3,854 -- -- -- 3,854 (Undistributed) distributed earnings of affiliates............. -- 488 2,888 -- 3,376 Minority interest....... -- 1,364 750 -- 2,114 Change in assets and liabilities............ (10,791) (9,251) (20,872) (3,517) (44,431) Non-cash charges and working capital changes of discontinued operations............. -- -- 12,445 -- 12,445 -------- --------- --------- ------- --------- Net cash (used for) provided by operating activities............. (22,083) 21,186 (19,614) -- (20,511) -------- --------- --------- ------- --------- Cash Flows from Investing Activities: Proceeds received from (used for) investment securities, net........ -- 173,424 -- -- 173,424 Purchase of PP&E........ -- (10,398) (8,296) -- (18,694) Gross proceeds from divesture of subsidiary............. -- 60,397 -- -- 60,397 Acquisition of subsidiaries, net of cash acquired.......... -- -- (3,940) -- (3,940) Change in net assets held for sale.......... -- 3,526 -- -- 3,526 Investing activities of discontinued operations............. -- -- (542) -- (542) Other, net.............. (234) 517 -- -- 283 -------- --------- --------- ------- --------- Net cash (used for) provided by investing activities............. (234) 227,466 (12,778) -- 214,454 -------- --------- --------- ------- --------- Cash Flows from Financing Activities: Proceeds from issuance of debt................ 52,379 27,748 -- -- 80,127 Debt repayment and repurchase of debentures (including intercompany), net..... (10,050) (155,379) 29,860 -- (135,569) Issuance of Class A common stock........... 153 -- -- -- 153 Purchase of treasury stock.................. -- (22,101) -- -- (22,101) Financing activities of discontinued operations............. -- -- 30 -- 30 -------- --------- --------- ------- --------- Net cash (used for) provided by financing activities............. 42,482 (149,732) 29,890 -- (77,360) -------- --------- --------- ------- --------- Effect of exchange rate changes on cash........ -- -- 1,162 -- 1,162 -------- --------- --------- ------- --------- Net change in cash...... 20,165 98,920 (1,340) -- 117,745 Cash, beginning of the year................... (96) 42,271 7,426 -- 49,601 -------- --------- --------- ------- --------- Cash, end of the year... $ 20,069 $ 141,191 $ 6,086 $ -- $ 167,346 ======== ========= ========= ======= =========
F-60 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors of Kaynar Technologies Inc.: We have audited the accompanying consolidated balance sheets of Kaynar Technologies Inc. (a Delaware corporation) and subsidiaries as of December 31, 1998 and 1997, and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1998. 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, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Kaynar Technologies Inc. and subsidiaries as of December 31, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Orange County, California February 5, 1999 F-61 KAYNAR TECHNOLOGIES INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (In thousands, except per share data)
1998 1997 1996 -------- -------- ------- Net sales (1)....................................... $185,512 $150,429 $99,023 Cost of sales....................................... 129,223 104,390 72,924 -------- -------- ------- Gross profit...................................... 56,289 46,039 26,099 Selling, general and administrative expenses........ 27,438 21,454 13,263 -------- -------- ------- Operating income.................................. 28,851 24,585 12,836 Interest expense, net............................... 4,067 3,602 4,011 -------- -------- ------- Income before provision for income taxes.......... 24,784 20,983 8,825 Provision for income taxes.......................... 9,914 8,393 3,530 -------- -------- ------- Net income........................................ $ 14,870 $ 12,590 $ 5,295 ======== ======== ======= Earnings per share Basic............................................. $ 3.39 $ 4.23 $ 3.26 Diluted........................................... $ 1.64 $ 1.54 $ 0.78 ======== ======== ======= Weighted average number of shares of common stock and common stock equivalents Basic............................................. 4,382 2,967 1,594 Diluted........................................... 9,085 8,173 6,800 ======== ======== =======
- -------- (1) Including $13,038, $12,961 and $11,437 in 1998, 1997 and 1996, respectively, to a related party (see Note 15) The accompanying notes are an integral part of these consolidated financial statements. F-62 KAYNAR TECHNOLOGIES INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1998 AND 1997 (Dollars in thousands)
1998 1997 -------- -------- Current assets: Cash..................................................... $ 1,893 $ 675 Marketable securities.................................... 50 3,079 Accounts receivable (1).................................. 30,421 23,293 Inventories.............................................. 52,778 34,231 Prepaid expenses and other current assets................ 1,430 647 Deferred tax asset....................................... 2,685 1,006 -------- -------- Total current assets................................... 89,257 62,931 -------- -------- Property, plant and equipment, at cost..................... 76,035 41,048 Less accumulated depreciation and amortization........... (14,452) (8,797) -------- -------- 61,583 32,251 -------- -------- Intangible assets, net of accumulated amortization of $1,104 and $480 at December 31, 1998 and 1997, respectively.............................................. 47,958 6,409 Other assets............................................... 561 65 -------- -------- Total assets........................................... $199,359 $101,656 ======== ======== Current liabilities: Revolving line-of-credit, to a related party (see Note 8)...................................................... $ 13,000 $ -- Current portion of long-term debt........................ 4,054 1,021 Current portion of capital lease obligations............. 280 272 Accounts payable......................................... 8,017 9,969 Accrued payroll and related expenses..................... 8,115 8,546 Other accrued expenses................................... 7,874 4,423 -------- -------- Total current liabilities.............................. 41,340 24,231 -------- -------- Long-term liabilities: Long-term debt, primarily to a related party (see Note 8)...................................................... 80,624 26,372 Capital lease obligations................................ 194 484 Deferred tax liability................................... 4,477 1,136 -------- -------- Total long-term liabilities............................ 85,295 27,992 -------- -------- Commitments and contingencies (see Notes 8 and 12) Stockholders' equity: Series C Convertible Preferred stock; $0.01 par value; Authorized--10,000,000; issued and outstanding--4,206,000 and 5,206,000 shares at December 31, 1998 and 1997, respectively............................................ 42 52 Common stock; $0.01 par value; Authorized--20,000,000 shares; issued and outstanding--5,090,142 and 3,694,000 shares at December 31, 1998 and 1997, respectively...... 51 37 Additional paid-in capital............................... 37,821 28,973 Retained earnings........................................ 36,264 21,394 Accumulated other comprehensive income................... (1,454) (1,023) -------- -------- Total stockholders' equity............................. 72,724 49,433 -------- -------- Total liabilities and stockholders' equity............. $199,359 $101,656 ======== ========
- ------- (1) Including $982 and $1,846 in 1998 and 1997, respectively, from a related party (see Note 15), net of allowance for doubtful accounts of $703 and $310 in 1998 and 1997, respectively The accompanying notes are an integral part of these consolidated financial statements. F-63 KAYNAR TECHNOLOGIES INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (Dollars in thousands)
Preferred Stock Series Accumulated C Common Stock Additional Other -------------- ------------- Paid-in Comprehensive Retained Comprehensive Shares Amount Shares Amount Capital Income Earnings Income Total ------ ------ ------ ------ ---------- ------------- -------- ------------- ------- BALANCE, December 31, 1995................... 5,206 $52 1,594 $16 $ 1,432 $ 3,639 $ 18 $ 5,157 Comprehensive Income: Net income............. $ 5,295 5,295 5,295 Currency Translation... 270 270 270 ------- Comprehensive Income... $ 5,565 ======= Dividends declared..... (96) (96) ------ --- ----- --- ------- ------- ------- ------- BALANCE, December 31, 1996................... 5,206 52 1,594 16 1,432 8,838 288 10,626 Comprehensive Income: Net income............. $12,590 12,590 12,590 Currency Translation... (1,311) (1,311) (1,311) ------- Comprehensive Income... $11,279 ======= Common stock issuance.. -- -- 2,100 21 27,541 27,562 Dividends declared..... (34) (34) ------ --- ----- --- ------- ------- ------- ------- BALANCE, December 31, 1997................... 5,206 52 3,694 37 28,973 21,394 (1,023) 49,433 Comprehensive Income: Net income............. $14,870 14,870 14,870 Currency Translation... (431) (431) (431) ------- Comprehensive Income... $14,439 ======= Conversion of Preferred............. (1,000) (10) 1,000 10 -- -- Common stock issuance.. -- -- 396 4 8,848 8,852 ------ --- ----- --- ------- ------- ------- ------- BALANCE, December 31, 1998................... 4,206 $42 5,090 $51 $37,821 $36,264 $(1,454) $72,724 ====== === ===== === ======= ======= ======= =======
The accompanying notes are an integral part of these consolidated financial statements. F-64 KAYNAR TECHNOLOGIES INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (Dollars in thousands)
1998 1997 1996 ------- ------- ------- Cash flows from operating activities: Net income......................................... $14,870 $12,590 $ 5,295 Adjustments to reconcile net income to net cash provided by operating activities-- Depreciation and amortization..................... 6,772 3,818 2,613 Increase (decrease) in deferred income taxes...... 680 (990) 186 (Gain) loss on sale of property, plant and equipment........................................ (124) 154 34 Changes in operating assets and liabilities, net of acquisitions-- (Increase) decrease in accounts receivable........ 962 (7,990) (2,505) Increase in inventories........................... (7,190) (4,346) (6,867) (Increase) decrease in prepaid expenses and other current assets................................... (112) 32 (152) (Increase) decrease in other assets............... (211) 187 181 Increase (decrease) in accounts payable........... (5,657) 3,800 2,361 Increase (decrease) in accrued expenses........... (3,222) 4,946 3,172 ------- ------- ------- Net cash provided by operating activities........ 6,768 12,201 4,318 ------- ------- ------- Cash flows from investing activities: Purchases of property, plant and equipment......... (18,322) (17,909) (6,850) Proceeds from sales of property, plant and equipment......................................... 403 92 43 Net redemptions (purchases) of marketable securities........................................ 3,029 (3,079) -- Acquisitions, net of acquired cash of $421 in 1998.............................................. (49,203) -- (12,160) (Increase) decrease in intangible assets........... (669) 638 (1,231) ------- ------- ------- Net cash used in investing activities............ (64,762) (20,258) (20,198) ------- ------- ------- Cash flows from financing activities: Net borrowings (payments) on line-of-credit, from a related party..................................... 13,000 (746) (3,560) Borrowings on long-term debt, primarily from a related party..................................... 52,882 501 21,245 Payments on long-term debt, primarily from a related party..................................... (6,345) (20,263) (898) Net principal (payments) borrowings on capital lease obligations................................. (303) 795 (55) Net proceeds from issuance of common stock......... -- 27,562 -- ------- ------- ------- Net cash provided by financing activities........ 59,234 7,849 16,732 ------- ------- ------- Effect of exchange rate changes on cash............. (22) (26) 5 ------- ------- ------- Net increase (decrease) in cash..................... 1,218 (234) 857 Cash, beginning of period........................... 675 909 52 ------- ------- ------- Cash, end of period................................. $ 1,893 $ 675 $ 909 ======= ======= ======= Supplemental disclosures of cash flow information: Cash paid during the period for: Interest.......................................... $ 3,094 $ 3,943 $ 3,787 ======= ======= ======= Income taxes...................................... $12,844 $ 8,395 $ 2,841 ======= ======= ======= Noncash financing activities: Capital lease obligations assumed for the purchase of equipment..................................... $ -- $ 507 $ 355 ======= ======= ======= Borrowings on long-term debt for preferred stock dividends........................................ $ -- $ 34 $ 96 ======= ======= ======= Common stock issued in connection with acquisitions of businesses....................... $ 8,852 $ -- $ -- ======= ======= =======
The accompanying notes are an integral part of these consolidated financial statements. F-65 KAYNAR TECHNOLOGIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1998, 1997 AND 1996 (Dollars in thousands, except per share data) 1. Nature of Operations and Recent Developments Kaynar Technologies Inc. (the "Company") is a leading precision fabricator that designs, develops and manufactures a wide range of specialty components and tooling systems and provides related services used primarily by original equipment manufacturers ("OEM's") and their subcontractors to produce aircraft and defense products. In addition, the Company serves the automotive, electrical and other industrial markets and their associated after-markets. On December 26, 1998, the Company entered into a merger agreement with The Fairchild Corporation ("Fairchild") in which the Company will become a wholly owned subsidiary of Fairchild (the "Fairchild Merger"). Upon the effectiveness of the Fairchild Merger, each outstanding share of the Company's common stock, with the exception of shares held by stockholders who properly exercise dissenters' rights under the Delaware General Corporation Law and shares held by Fairchild, will be cancelled and converted into the right to receive $28.75 in cash. The closing of the Fairchild Merger is subject to certain conditions, including regulatory approval, financing and approval of the Company's stockholders. 2. Business Combinations On July 28, 1998, the Company acquired all of the issued and outstanding common stock of M & M Machine & Tool Company Co. ("M & M"). M & M, located in Huntington Beach, California, specializes in the machining of structural components and assemblies for aircraft which include pylons, flap hinges, struts, wing fittings, landing gear parts, spars, and many others. As consideration for this acquisition, the Company paid the M & M stockholders $12,441 in cash and 376,142 shares of the Company's common stock valued at $8,294. In addition, the Company will pay additional consideration of $2,000 (60% in cash and 40% in shares of KTI common stock) based on M & M's recasted earnings before interest, taxes and transaction costs related to the acquisition for its fiscal year ended October 31, 1998 (which was accrued for and included in other accrued expenses as of December 31, 1998). The purchase price exceeded the fair value of the net assets by $17,850, which is being allocated as goodwill and amortized using the straight-line method over 40 years. The M & M acquisition has been accounted for under the purchase method of accounting and, accordingly, the operating results of M & M have been included in the Company's results of operations since late-July 1998. On October 27, 1998, the Company acquired all of the issued and outstanding common stock of Marcliff Corporation which holds all of the issued and outstanding capital stock of Marson Creative Fastener, Inc. ("Marson"). Located in Stoughton, Massachusetts, Marson designs, manufactures, and markets a broad line of blind rivets, threaded inserts, and setting tools primarily for industrial markets. As consideration for this acquisition, the Company paid the Marson stockholders $34,000 in cash (of which $9,058 was used to pay off Marson's outstanding debt as of the acquisition date). In addition, the Company will pay additional consideration of $1,111 based on Marson's closing balance sheet as of the acquisition date (which was accrued for and included in other accrued expenses as of December 31, 1998). The purchase price exceeded the fair value of the net assets by $23,217, which is being allocated as goodwill and amortized using the straight-line method over 40 years. The Marson acquisition has been accounted for under the purchase method of accounting and, accordingly, the operating results of Marson have been included in the Company's results of operations since late-October 1998. F-66 KAYNAR TECHNOLOGIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) DECEMBER 31, 1998, 1997 AND 1996 (Dollars in thousands, except per share data) 3. Pro Forma Financial Information (unaudited) The following unaudited pro forma consolidated statements of income information present the results of the Company's operations for the years ended December 31, 1998 and 1997 as though the acquisitions of M & M and Marson had occurred as of the beginning of each respective calendar year:
1998 1997 -------- -------- Net sales............................................... $220,374 $195,654 Net income.............................................. 15,971 14,047 Earnings per share Basic................................................. 3.42 4.16 Diluted............................................... 1.71 1.64
The pro forma results have been prepared for comparative purposes only and are not necessarily indicative of the actual results of operations had the acquisitions taken place at the beginning of the fiscal year or the results that may occur in the future. The pro forma results include additional interest on borrowed funds, additional amortization of goodwill resulting from the acquisitions and the change in salary and benefit costs of certain officers of the acquired companies. 4. Summary of Significant Accounting Policies a. Use of Estimates in Financial Statements 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. b. Principles of Consolidation The consolidated financial statements include the accounts of Kaynar Technologies Inc. and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated. c. Revenue Recognition Sales and related costs are recorded by the Company upon shipment of product. Revenues related to the rental of the Company's K-FAST tools, which are not significant, are recognized monthly over the term of the lease. Revenues related to the Company's APS business unit, which are not significant, are recognized based on percentage of completion. d. Currency Translation Adjustment Assets and liabilities of the Company's foreign subsidiaries are translated into United States dollars at the year-end rate of exchange. Income and expense items are translated at the average rates of exchange for the period. Gains and losses resulting from translating foreign currency financial statements are accumulated in a separate component of stockholders' equity. Foreign currency transaction gains and losses are included in the consolidated statements of income. F-67 KAYNAR TECHNOLOGIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) DECEMBER 31, 1998, 1997 AND 1996 (Dollars in thousands, except per share data) e. Marketable Securities The Company invests excess cash in a money market fund that invests in short term (maturities of 397 days or less) direct obligations of the U.S. Treasury. f. Inventories Inventories are stated at the lower of cost or market, with cost determined on a first-in, first-out (FIFO) method and market based upon the lower of replacement cost or estimated realizable value. Inventory costs include material, labor and factory overhead. g. Property, Plant and Equipment Depreciation is computed principally on the straight-line method over the estimated useful lives of the depreciable assets (ranging from five to ten years). Cost and accumulated depreciation for property retired or disposed of are removed from the accounts and any gains or losses are reflected in operations. Major renewals and betterments that extend the useful life of an asset are capitalized. h. Intangible Assets Intangible assets primarily represent the excess of purchase price over fair value of net assets acquired and related acquisition costs incurred in the acquisitions of Recoil, M & M and Marson. Intangibles are amortized using the straight-line method from the date of acquisition over the expected period to be benefited, currently estimated between 20 and 40 years. The Company assesses the recoverability of intangible assets in accordance with 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." i. Fair Value of Financial Instruments The carrying amounts of cash, marketable securities, accounts receivable and accounts payable approximate their fair value as of December 31, 1998 and 1997. The carrying amounts of the line-of-credit and long-term debt approximate fair value as the obligations bear interest at rates that fluctuate with the market rate. The carrying amount of the term loans approximates fair value as the obligation compares favorably with fixed rate obligations that would be currently available to the Company. j. Income Taxes The Company accounts for income taxes under SFAS No. 109 "Accounting for Income Taxes," which requires an asset and liability approach in accounting for income taxes payable or refundable at the date of the financial statements as a result of all events that have been recognized in the financial statements and as measured by the provisions of enacted laws. k. Earnings per Share Basic earnings per share is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding. Diluted earnings per share is computed by dividing net income by the weighted average number of common shares outstanding plus the dilutive effect of other F-68 KAYNAR TECHNOLOGIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) DECEMBER 31, 1998, 1997 AND 1996 (Dollars in thousands, except per share data) securities. The Company's other securities are (i) Series C Convertible Preferred stock and (ii) outstanding common stock options. The table below details the components of the basic and diluted earnings per share ("EPS") calculations:
Years ended December 31, --------------------------------------------- 1988 1997 1996 -------------- --------------- -------------- Income Shares Income Shares Income Shares ------- ------ ------- ------ ------ ------ (Amounts in thousands) Basic EPS Net income..................... $14,870 4,382 $12,590 2,967 $5,295 1,594 Less: dividends on previously issued preferred stock........ -- -- (34) -- (96) -- ------- ----- ------- ----- ------ ----- Income available to common stockholders.................. 14,870 4,382 12,556 2,967 5,199 1,594 Effect of Dilutive Securities Series C Convertible Preferred stock......................... -- 4,688 34 5,206 96 5,206 Options and other.............. -- 15 -- -- -- -- ------- ----- ------- ----- ------ ----- Diluted EPS...................... $14,870 9,085 $12,590 8,173 $5,295 6,800 ======= ===== ======= ===== ====== =====
l. New Accounting Pronouncements In June 1998, the FASB issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities," effective for fiscal years beginning after June 15, 1999. The Company does not believe the adoption of this standard will have a material impact on the Company's results of operations. 5. Inventories Inventories consist of the following at December 31, 1998 and 1997:
1998 1997 ------- ------- Raw materials............................................ $ 3,772 $ 2,593 Work in progress......................................... 14,245 11,012 Components............................................... 8,611 5,325 Finished goods........................................... 18,901 9,550 Supplies and small tools................................. 7,249 5,751 ------- ------- $52,778 $34,231 ======= =======
F-69 KAYNAR TECHNOLOGIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) DECEMBER 31, 1998, 1997 AND 1996 (Dollars in thousands, except per share data) 6. Property, Plant and Equipment Property, plant and equipment consists of the following at December 31, 1998 and 1997:
Years of Estimated Useful Life 1998 1997 ---------- -------- ------- Land.............................................. -- $ 1,787 $ 32 Buildings......................................... 20 1,799 -- Machinery and equipment........................... 5 to 10 49,911 20,083 Equipment rented to others........................ 7 8,534 8,581 Leasehold improvements............................ Lease term 5,432 1,315 Construction in progress.......................... -- 8,572 11,037 -------- ------- 76,035 41,048 Accumulated depreciation and amortization......... (14,452) (8,797) -------- ------- $ 61,583 $32,251 ======== =======
7. Income Taxes The components of the net accumulated deferred income tax (asset) liability at December 31, 1998 and 1997 are as follows:
1998 1997 ------- ------- Current deferred tax (asset) liability: Inventory reserves................................... $(1,369) $ (87) Accrued vacation..................................... (706) (449) Other................................................ (610) (470) ------- ------- $(2,685) $(1,006) ======= ======= Long-term deferred tax (asset) liability: Depreciation......................................... $ 4,477 $ 1,136 ======= =======
The provision for income taxes includes income taxes currently payable and those deferred due to temporary differences between the financial statements and tax basis of assets and liabilities. The provision differs from the statutory rates primarily due to permanent differences. The provision for income taxes for the years ended December 31, 1998, 1997 and 1996, consists of the following:
1998 1997 1996 ------ ------ ------ Current provision: Federal........................................... $7,083 $7,716 $2,590 State............................................. 1,500 1,400 720 Foreign........................................... 33 267 -- Deferred provision: Federal........................................... 1,061 (707) 69 State............................................. 237 (283) 151 ------ ------ ------ $9,914 $8,393 $3,530 ====== ====== ======
F-70 KAYNAR TECHNOLOGIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) DECEMBER 31, 1998, 1997 AND 1996 (Dollars in thousands, except per share data) Variations from the federal statutory rate for the years ended December 31, 1998, 1997 and 1996, are as follows:
1998 1997 1996 --------------- --------------- --------------- Amount Percent Amount Percent Amount Percent ------ ------- ------ ------- ------ ------- Federal statutory rate........ $8,675 35.0% $7,344 35.0% $3,001 34.0% State income taxes, net of federal benefit.............. 1,129 4.5 726 3.5 485 5.5 Foreign sales corporation benefit...................... (552) (2.2) (220) (1.0) (141) (1.6) Foreign losses not currently benefited.................... 161 0.6 115 0.5 -- -- Utilization of foreign losses....................... (26) (0.1) (114) (0.5) -- -- Non-deductible expenses....... 212 0.9 173 0.8 94 1.1 Other......................... 315 1.3 369 1.7 91 1.0 ------ ---- ------ ---- ------ ---- $9,914 40.0% $8,393 40.0% $3,530 40.0% ====== ==== ====== ==== ====== ====
8. Debt Arrangements The Company entered into a Third Restated and Amended Credit Agreement on October 23, 1998 (the "Third Credit Agreement") with its primary lender General Electric Capital Corporation ("GECC") which has a wholly owned subsidiary, CFE, Inc. ("CFE"), that owned all of the outstanding shares of the Company's Series C Preferred stock and one million shares of the Company's common stock as of December 31, 1998. The Third Credit Agreement contains significant financial and operating covenants, including limitations on the ability of the Company to incur additional indebtedness and restrictions on, among other things, the Company's ability to pay dividends or take certain other corporate actions. The Third Credit Agreement also requires the Company to be in compliance with certain financial ratios. In addition to the Term Loan under the Third Credit Agreement ("Term Loan"), the Company has entered into promissory notes with other lenders for the purchase of certain property, machinery and equipment ("The Notes"). The following schedule summarizes the future annual minimum principal payments due under the Term Loan and The Notes as of December 31, 1998:
Term The Loan Notes Total ------- ------- ------- 1999.............................................. $ 1,700 $ 2,354 $ 4,054 2000.............................................. 1,700 2,178 3,878 2001.............................................. 1,700 1,495 3,195 2002.............................................. 1,700 1,177 2,877 2003.............................................. 67,200 789 67,989 Thereafter........................................ -- 2,685 2,685 ------- ------- ------- $74,000 $10,678 $84,678 ======= ======= =======
Debt arrangements are described as follows: a. Term Loan On October 23, 1998, the Company entered into the Third Credit Agreement which amended its existing Term Loan with GECC, increasing the borrowing capacity of the Term Loan to $74,000. The Term Loan bears F-71 KAYNAR TECHNOLOGIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) DECEMBER 31, 1998, 1997 AND 1996 (Dollars in thousands, except per share data) interest, payable every 30 to 90 days, at LIBOR rate plus one and one-half percent (which was 6.8 percent at December 31, 1998). Principal payments of $425 are due quarterly through October 1, 2002, with a final payment of $67,200 due January 3, 2003. At December 31, 1998 and 1997, outstanding principal under the Term Loan totaled $74,000 and $25,525, respectively. Interest expense on the Term Loan for the years ended December 31, 1998, 1997 and 1996 was approximately $2,712, $2,498 and $2,400, respectively. The Term Loan is secured by substantially all of the Company's assets. b. The Notes The Company has promissory notes with financing institutions, which are secured by certain property, machinery and equipment. At December 31, 1998 and 1997, the outstanding principal under the Notes was $10,678 and $1,868, respectively. The Notes bear interest at interest rates ranging from 4.9 percent to 10.5 percent per annum. Monthly payments are payable through June 1, 2008. c. Line-of-Credit The line-of-credit with GECC (the "LOC") is a $25,000 revolving credit facility, limited by the lesser of the sum of specified portions of qualified accounts receivable and inventory, and $25,000. Interest is payable every 30 to 90 days at LIBOR rate plus one and one-half percent (which was 7.1 percent at December 31, 1998). The LOC, which expires January 3, 2003, had $13,000 outstanding at December 31, 1998 and had no borrowings at December 31, 1997. Interest expense on LOC for the years ended December 31, 1998, 1997 and 1996 was approximately $497, $129 and $682, respectively. 9. Series C Convertible Preferred Stock Each share of the Series C Preferred stock is convertible at any time into one share of common stock. The conversion rate is subject to certain anti- dilutive adjustments. The Series C Preferred stock will participate in any dividends paid on the common stock as if the Series C Preferred stock had been converted into common stock. In the event of liquidation, dissolution or winding up of the Company, the holders of the Series C Preferred stock will be entitled to receive a liquidation preference out of the assets available for distribution in an amount equal to $0.22 per share, plus any accrued and unpaid dividends, before any distribution is made to the holders of the common stock. On June 26, 1998, CFE elected to convert one million such shares into one million shares of common stock of the Company in accordance with the terms of the Series C preferred stock. 10. Stock Incentive Plan In 1997, the Company adopted the Kaynar Technologies Inc. 1997 Stock Incentive Plan (the "Plan") which authorized 500,000 stock option grants to purchase the Company's common stock. The Company has granted 115,400 options in 1997 and 147,900 options in 1998 with a weighted average exercise price of $24.77 and $11.71, respectively, under the Plan (of which 9,200 options with an exercise price of $25.00 were cancelled during 1998). These options were issued at fair market value at the time of grant. Option grants are made at the discretion of the Board of Directors. Options vest at 25 percent per year (beginning one year from the grant date), may be exercisable in whole or in installments, and expire five years from the F-72 KAYNAR TECHNOLOGIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) DECEMBER 31, 1998, 1997 AND 1996 (Dollars in thousands, except per share data) grant date. The weighted average exercise price of options outstanding as of December 31, 1998 is $17.16. The weighted average contractual life of options outstanding as of December 31, 1998 is 4.3 years. The weighted average exercise price of options exercisable as of December 31, 1998 is $24.75. Characteristics of options outstanding at December 31, 1998 are presented in the table below:
Contractual Options Options Exercise Price Life Outstanding Exercisable -------------- ----------- ----------- ----------- $ 9.25................................ 4.8 years 119,000 -- $14.50................................ 3.3 years 3,000 750 $15.88................................ 4.8 years 12,000 -- $19.00................................ 4.6 years 3,000 -- $25.00................................ 3.7 years 102,000 25,500 $26.75................................ 4.1 years 1,500 -- $27.75................................ 4.2 years 12,400 -- $29.50................................ 3.8 years 1,200 300 ------- ------ 254,100 26,550
The Company accounts for the Plan under APB Opinion No. 25. SFAS No. 123 "Accounting for Stock-Based Compensation" was issued by the FASB in 1995 and, if fully adopted, changes the methods for recognition of cost on plans similar to those of the Company. Adoption of SFAS No. 123 is optional, however pro forma disclosures as if the Company had adopted the cost recognition method are required. Had compensation cost for stock options awarded under the Plan been determined consistent with SFAS No. 123, the Company's net income would have reflected the following pro forma amounts as of December 31, 1998 and 1997:
1998 1997 ------- ------- Net Income: As Reported.. $14,870 $12,590 Pro Forma.... $14,417 $12,439 Basic EPS: As Reported.. $ 3.39 $ 4.23 Pro Forma.... $ 3.29 $ 4.18 Diluted EPS: As Reported.. $ 1.64 $ 1.54 Pro Forma.... $ 1.59 $ 1.52
For the above pro forma disclosures, the fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions: weighted average risk-free interest rate of 5.0 percent; a weighted average volatility of 56.5 percent; estimated option life of 4 years; and no expected dividend yield. The weighted average fair value of the Company's stock options granted in 1998 and 1997 was $5.68 and $12.02, respectively. 11. Savings and Retirement Plan The Company sponsors a defined contribution plan (the "Retirement Plan"), which provides benefits to all employees who have completed six months of service. Employees may make contributions between one and 21 percent of their annual compensation. The Company may make contributions to the Retirement Plan at its discretion. The Company contributed approximately $1,461, $988 and $577 to the Retirement Plan in the years ended December 31, 1998, 1997 and 1996, respectively. F-73 KAYNAR TECHNOLOGIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) DECEMBER 31, 1998, 1997 AND 1996 (Dollars in thousands, except per share data) 12. Commitments and Contingencies a. Operating Leases The Company leases certain facilities and equipment under long-term operating leases with varying terms. The leases generally provide that the Company pay taxes, maintenance and insurance costs, and some leases contain renewal and/or purchase options. Total rental expense under operating leases totaled approximately $1,975, $1,231 and $1,187 in the years ended December 31, 1998, 1997 and 1996, respectively. Minimum rental expenses on commitments for the years subsequent to December 31, 1998, are as follows: Year ending December 31, 1999............................................................ $ 2,125 2000............................................................ 1,927 2001............................................................ 1,696 2002............................................................ 1,519 2003............................................................ 1,006 Thereafter...................................................... 2,108 ------- $10,381 =======
b. Capital Leases The Company has entered into capital lease agreements for equipment. Future lease payments due under the agreements are as follows: Year ending December 31, 1999.............................................................. $307 2000.............................................................. 163 2001.............................................................. 36 ---- 506 Amounts representing interest..................................... (32) ---- 474 Current portion................................................... (280) ---- $194 ====
c. Purchase Commitments The Company has certain one-year purchase commitments which require that all purchases of particular raw materials be purchased from various vendors at a fixed price, none of which exceeded fair market value as of December 31, 1998. d. Contingencies The Company is, from time to time, subject to claims and disputes for legal, environmental and other matters in the normal course of its business. While the results of such matters cannot be predicted with certainty, management does not believe that the final outcome of any pending matters will have a material effect on the consolidated financial position and results of operations. F-74 KAYNAR TECHNOLOGIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) DECEMBER 31, 1998, 1997 AND 1996 (Dollars in thousands, except per share data) 13. Significant Customers For the years ended December 31, 1998, 1997 and 1996, two customers accounted for approximately 20 and 7 percent, 24 and 9 percent and 18 and 12 percent of net sales, respectively. No other customer accounted for 10 percent or more of net sales in any of the three years ended December 31, 1998. Accounts receivable balances from these same two customers accounted for approximately 10 and 7 percent of accounts receivable at December 31, 1998 and 14 and 8 percent of accounts receivable at December 31, 1997. No other customer represents 10 percent or more of the Company's gross accounts receivable at December 31, 1998 and 1997. 14. Geographic Sales Information Net sales for the years ended December 31, 1998, 1997 and 1996 were made to geographic regions as follows:
1998 1997 1996 ---------------- ---------------- --------------- Amount Percent Amount Percent Amount Percent -------- ------- -------- ------- ------- ------- United States................. $156,834 84.5% $126,845 84.4% $85,069 85.9% Europe........................ 16,487 8.9 13,255 8.8 8,378 8.5 Pacific Rim................... 6,683 3.6 5,219 3.4 2,256 2.3 Other......................... 5,508 3.0 5,110 3.4 3,320 3.3 -------- ----- -------- ----- ------- ----- $185,512 100.0% $150,429 100.0% $99,023 100.0% ======== ===== ======== ===== ======= =====
Sales for the Company's foreign operations represented less than 10 percent of net sales during each of the years ended December 31, 1998, 1997 and 1996. 15. Related Party Matters As discussed in Note 8, the primary lender to the Company is GECC which has a wholly-owned subsidiary CFE. CFE owns 100 percent of the outstanding Series C Convertible Preferred Stock and one million shares of the Company's common stock. GECC is also an affiliated entity to a customer (the Aircraft Engines Division of General Electric Co.) that accounted for approximately 7, 9 and 12 percent of 1998, 1997 and 1996 net sales, respectively, and 7 and 8 percent of accounts receivable at December 31, 1998 and 1997, respectively. F-75 KAYNAR TECHNOLOGIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) DECEMBER 31, 1998, 1997 AND 1996 (Dollars in thousands, except per share data) 16. Industry Segment Information The Company is currently segmented into eight business units. The Company's Kaynar, Microdot, M & M, Eagle, APS and K-FAST business units design and manufacture products that are sold principally to the commercial aircraft and defense industries. The Company's Recoil and Marson business units design and manufacture inserts, blind rivets and related installation tools used primarily in the automotive, electrical and other non-aerospace industries. The following table illustrates the Company's financial data by industry segment for the past three years.
For the Years Ended December 31, --------------------------- 1998 1997 1996 -------- -------- ------- Sales by Segment: Commercial Aircraft and Defense (2).............. $169,401 $137,889 $95,156 Industrial (1)(3)................................ 16,111 12,540 3,867 -------- -------- ------- Total Sales........................................ $185,512 $150,429 $99,023 Operating Income by Segment: Commercial Aircraft and Defense (2).............. $ 30,192 $ 25,892 $13,464 Industrial (1)(3)................................ 1,783 1,645 238 Corporate Expenses............................... (3,124) (2,952) (866) -------- -------- ------- Total Operating Income............................. $ 28,851 $ 24,585 $12,836 Depreciation and Amortization by Segment: Commercial Aircraft and Defense (2).............. $ 5,822 $ 3,209 $ 2,304 Industrial (1)(3)................................ 950 609 309 -------- -------- ------- Total Depreciation and Amortization................ $ 6,772 $ 3,818 $ 2,613 Total Assets by Segment: Commercial Aircraft and Defense (2).............. $144,817 $ 86,571 $58,429 Industrial (1)(3)................................ 54,542 15,085 15,260 -------- -------- ------- Total Assets....................................... $199,359 $101,656 $73,689
- -------- (1) In August 1996, the Company purchased its Recoil business unit which has been accounted for under the purchase method of accounting and, accordingly, their operating results have been included in the results of operations since mid-August 1996. (2) In July 1998, the Company purchased its M & M business unit which has been accounted for under the purchase method of accounting and, accordingly, their operating results have been included in the results of operations since late-July 1998. (3) In October 1998, the Company purchased its Marson business unit which has been accounted for under the purchase method of accounting and, accordingly, their operating results have been included in the results of operations since late-October 1998. F-76 KAYNAR TECHNOLOGIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) DECEMBER 31, 1998, 1997 AND 1996 (Dollars in thousands, except per share data) 17. Quarterly Financial Data (unaudited)
Three months ended ---------------------------------- March June September December 29 28 27 31 ------- ------- --------- -------- 1998 Net sales.................................. $45,355 $46,824 $45,293 $48,040 Gross profit............................... 13,881 14,630 13,458 14,320 Net income................................. 4,275 4,351 3,402 2,842 Basic earnings per share................... 1.15 1.16 0.69 0.56 Diluted earnings per share................. 0.48 0.49 0.37 0.31 Stock price per share High..................................... 29.50 34.50 24.00 27.50 Low...................................... 24.00 22.25 11.50 8.00 Three months ended ---------------------------------- March June September December 30 29 28 31 ------- ------- --------- -------- 1997 Net sales.................................. $32,202 $37,250 $37,884 $43,093 Gross profit............................... 9,233 11,036 11,903 13,867 Net income................................. 2,169 2,933 3,388 4,100 Basic earnings per share................... 1.35 1.03 0.92 1.11 Diluted earnings per share................. 0.32 0.36 0.38 0.46 Stock price per share High..................................... -- 19.87 30.25 34.12 Low...................................... -- 14.50 18.50 24.50
F-77 PART II INFORMATION NOT REQUIRED IN PROSPECTUS Item 20. Indemnification of Directors and Officers. Section 145 of the Delaware General Corporation Law makes provision for the indemnification of officers and directors of corporations in terms sufficiently broad to indemnify the officers and directors of the registrant under certain circumstances for liabilities (including reimbursement of expenses incurred) arising under the Securities Act of 1933, as amended. The registrant's Bylaws provide that the registrant may indemnify any person who was or is 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 (other than an action by or in the right of registrant), by reason of the fact that he is or was a director, officer, employee or agent of the registrant or is or was serving at the request of the registrant as a director, officer, employee or agent of another corporation or enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding. Item 21. Exhibits and Financial Statement Schedules. (a) Exhibits
Exhibit No. Description ----------- ----------- 3.1 Registrant's Restated Certificate of Incorporation (incorporated by reference to Exhibit "C" of Registrant's Proxy Statement dated October 27, 1989). 3.2 Registrant's Amended and Restated By-Laws, as amended as of November 21, 1996 (incorporated by reference to the Registrant's quarterly Form 10-Q for the quarter ended December 29, 1996 (the "December 1996 10-Q")). 4.1 Specimen of Class A Common Stock certificate (incorporated by reference to Registration Statement No. 33-15359 on Form S-2). 4.2 Specimen of Class B Common Stock certificate (incorporated by reference to Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1989 (the "1989 10-K")). 4.3 Indenture, dated as of April 20, 1999, between the Company, the Subsidiary Guarantors and The Bank of New York, as Trustee. 4.4 Form of Global Note (to be included in exhibit 4.3). 4.5 Registration Rights Agreement, dated April 15, 1999, between the Company and Credit Suisse First Boston Corporation on behalf of the Initial Purchasers. 4.6 Purchase Agreement, dated April 15, 1999, between the Company, the Subsidiary Guarantors and the Initial Purchasers. 5.1 Opinion of Cahill Gordon & Reindel as to the legality of the Exchange Notes.* 8.1 Opinion regarding tax matters.* 10.1 1988 U.K. Stock Option Plan of Banner Industries, Inc. (incorporated by reference from Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1988) (the "1988 10-K"). 10.2 Description of grants of stock options to non-employee directors of Registrant (incorporated by reference to the 1988 10-K). 10.3 1986 Non-Qualified and Incentive Stock Option Plan (incorporated by reference to Registrant's Proxy Statement dated November 15, 1990).
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Exhibit No. Description ----------- ----------- 10.4 1986 Non-Qualified and Incentive Stock Option Plan (incorporated by reference to Registrant's Proxy Statement dated November 21, 1997). 10.5 1996 Non-Employee Directors Stock Option Plan (incorporated by reference to Registrant's Proxy Statement dated November 21, 1997). 10.6 Stock Option Deferral Plan dated February 9, 1998 (incorporated by reference to Registrant's Quarterly Report on Form 10-Q for the quarter ended March 29, 1998) (the "March 1998 10-Q"). 10.7 Amended and Restated Employment Agreement between Registrant and Jeffrey J. Steiner dated September 10, 1992 (incorporated by reference from Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1993) (the "1993 10-K"). 10.8 Letter Agreement dated September 9, 1996, between Registrant and Colin M. Cohen (incorporated by reference from Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1997) (the "1997 10-K"). 10.9 Employment Agreement between RHI Holdings, Inc., and Jacques Moskovic, dated as of December 29, 1994 (incorporated by reference to the Registrant's Annual Report on Form 10-K/A for the fiscal year ended June 30, 1996) (the "1996 10-K/A"). 10.10 Employment Agreement between Fairchild France, Inc., and Jacques Moskovic, dated as of December 29, 1994 (incorporated by reference to the 1996 10-K/A). 10.11 Employment Agreement between Fairchild France, Inc., Fairchild CDI, S.A., and Jacques Moskovic, dated as of April 18, 1997 (incorporated by reference to the Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1995) (the "1995 10- K"). 10.12 Employment Agreement between Robert Edwards and Fairchild Holding Corp., dated March 2, 1998 (incorporated by reference to the March 1998 10-Q). 10.13 Letter Agreement dated February 27, 1998, between Registrant and John L. Flynn (incorporated by reference to the March 1998 10-Q). 10.14 Letter Agreement dated February 27, 1998, between Registrant and Donald E. Miller (incorporated by reference to the March 1998 10- Q). 10.15 Promissory Note in the amount of $100,000, issued by Robert Sharpe to the Registrant, dated July 1, 1998 (incorporated by reference to the Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1998) (the "1998 10-K"). 10.16 Promissory Note in the amount of $200,000 issued by Robert Sharpe to the Registrant, dated July 1, 1998 (incorporated by reference to the 1998 10-K). 10.17 Credit Agreement dated as of March 13, 1996, among Fairchild Holding Corp. ("FHC"), Citicorp USA, Inc. and certain financial institutions (incorporated by reference from Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1996) (the "1996 10-K"). 10.18 Restated and Amended Credit Agreement dated as of July 26, 1996, (the "FHC Credit Agreement"), among FHC, Citicorp USA, Inc. and certain financial institutions (incorporated by reference to the 1996 10-K). 10.19 Amendment No. 1, dated as of January 21, 1997, to the FHC Credit Agreement dated as of March 13, 1996 (incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 30, 1997) (the "March 1997 10-Q"). 10.20 Amendment No. 2 and Consent, dated as of February 21, 1997, to the FHC Credit Agreement dated as of March 13, 1996 (incorporated by reference to the March 30, 1997 10-Q). 10.21 Amendment No. 3, dated as of June 30, 1997, to the FHC Credit Agreement dated as of March 13, 1996 (incorporated by reference to the 1997 10-K).
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Exhibit No. Description ----------- ----------- 10.22 Second Amended And Restated Credit Agreement dated as of July 18, 1997, to the FHC Credit Agreement dated as of March 13, 1996 (incorporated by reference to the 1997 10-K). 10.23 Restated and Amended Credit Agreement dated as of May 27, 1996, (the "RHI Credit Agreement"), among RHI, Citicorp USA, Inc. and certain financial institutions. (incorporated by reference to the 1996 10-K). 10.24 Amendment No. 1 dated as of July 29, 1996, to the RHI Credit Agreement (incorporated by reference to the 1996 10-K). 10.25 Amendment No. 2 dated as of April 7, 1997, to the RHI Credit Agreement (incorporated by reference to the 1997 10-K). 10.26 Amendment No. 3 dated as of September 26, 1997, to the RHI Credit Agreement (incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 28, 1997) (the "September 1997 10-Q"). 10.27 Third Amended and Restated Credit Agreement, dated as of December 19, 1997, among RHI, FHC, the Registrant, Citicorp USA, Inc. and certain financial institutions (incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the quarter ended December 28, 1997) (the "December 1997 10-Q"). 10.28 Interest Rate Hedge Agreement between Registrant and Citibank, N.A. dated as of August 19, 1997 (incorporated by reference to the September 1997 10-Q). 10.29 Amendment dated as of December 23, 1997, to the Interest Rate Hedge Agreement between Registrant and Registrant and Citibank, N.A. dated as of August 19, 1997 (incorporated by reference to the December 1997 10-Q). 10.30 Amendment dated as of January 14, 1997, to the Interest Rate Hedge Agreement between Registrant and Citibank, N.A. dated as of August 19, 1997 (incorporated by reference to the March 1998 10-Q). 10.31 Form Warrant Agreement (including form of Warrant) issued by the Company to Drexel Burnham Lambert on March 13, 1986, subsequently purchased by Jeffrey Steiner and subsequently assigned to Stinbes Limited (an affiliate Jeffrey Steiner), for the purchase of Class A or Class B Common Stock (incorporated herein by reference to Exhibit 4(c) of Fairchild's Registration Statement No. 33-3521 on Form S-2). 10.32 Form Warrant Agreement issued to Stinbes Limited dated as of September 26, 1997, effective retroactively as of February 21, 1997 (incorporated by reference to the September 1997 10-Q). 10.33 Extension of Warrant Agreement between Registrant and Stinbes Limited for 375,000 shares of Class A or Class B Common Stock dated as of September 26, 1997, effective retroactively as of February 21, 1997 (incorporated by reference to the September 1997 10-Q). 10.34 Amendment of Warrant Agreement dated February 9, 1998, between the Registrant and Stinbes Limited (incorporated by reference to the March 1998 10-Q). 10.35 Agreement and Plan of Reorganization by and among The Fairchild Corporation, Dah Dah, Inc. and Kaynar Technologies Inc. dated as of December 26, 1998 (incorporated by reference to Registrant's Report on Form 8-K dated December 30, 1998). 10.36 Voting and Option Agreement by and among The Fairchild Corporation, Dah Dah, Inc., CFE Inc., and General Electric Capital Corporation dated as of December 26, 1998 (incorporated by reference to Registrant's Report on Form 8-K dated December 30, 1998).
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Exhibit No. Description -------- ----------- 10.37 Voting Agreement by and between The Fairchild Corporation and Jordan A. Law dated as of December 26, 1998 (incorporated by reference to Registrant's Report on Form 8-K dated December 30, 1998). 10.38 Voting Agreement by and between The Fairchild Corporation and David A. Werner dated as of December 26, 1998 (incorporated by reference to Registrant's Report on Form 8-K dated December 30, 1998). 10.39 Voting Agreement by and between The Fairchild Corporation and Robert L. Beers dated as of December 26, 1998 (incorporated by reference to Registrant's Report on Form 8-K dated December 30, 1998). 10.40 Voting Agreement by and between The Fairchild Corporation and LeRoy A. Dack dated as of December 26, 1998 (incorporated by reference to Registrant's Report on Form 8-K dated December 30, 1998). 10.41 Asset Purchase Agreement dated as of December 8, 1997, among Banner Aerospace, Inc. and seven of its subsidiaries (Adams Industries, Inc., Aerospace Bearing Support, Inc., Aircraft Bearing Corporation, Banner Distribution, Inc., Burbank Aircraft Supply, Inc., Harco, Inc. and PacAero), AlliedSignal Inc. and AS BAR LLC (incorporated by reference to Banner Aerospace, Inc.'s Report on Form 8-K dated January 28, 1998). 10.42 Asset Purchase Agreement dated as of December 8, 1997, among Banner Aerospace, Inc. and two of its subsidiaries (PB Herndon Aerospace, Inc. and Banner Aerospace Services, Inc.), AlliedSignal Inc. and AS BAR PBH LLC (incorporated by reference to Banner Aerospace, Inc.'s Report on Form 8-K dated January 28, 1998). 10.43 Registration Rights Agreement between Registrant and Banner Aerospace, Inc., dated as of July 7, 1998 (incorporated by reference to the 1998 10-K). 10.44 Agreement and Plan of Merger dated January 28, 1998, as amended on February 20, 1998, and March 2, 1998, between the Company and the shareholders of Special-T Fasteners (incorporated by reference to Form 8-K dated as of March 2, 1998 filed by Fairchild on March 12, 1998 and as amended on April 23, 1998). 10.45 Stock Purchase Agreement dated November 25, 1997 between RHI Holdings, Inc. and Intermedia Communications Inc. (incorporated by reference to Schedule 13D/A (Amendment No. 4) dated as of November 25, 1997 filed by Fairchild on December 1, 1997). 10.46 Stock Option Agreement dated November 20, 1997 between RHI Holdings, Inc. and Intermedia Communications Inc. (incorporated by reference to Scheduled 13D/A (Amendment No. 4) dated as of November 25, 1997 filed by Fairchild on December 1, 1997). 10.47 Voting Agreement dated as of July 16, 1997, between RHI Holdings, Inc., and Tel-Save Holdings, Inc. (incorporated by reference to the Registrant's Schedule 13D/A, Amendment No. 3, filed July 22, 1997, regarding Registrant's stock ownership in Shared Technologies Fairchild Inc.). 10.48 Agreement and Plan of Merger dated as of November 9, 1995 by and among The Fairchild Corporation, RHI, FII and Shared Technologies, Inc. ("STI Merger Agreement") (incorporated by reference from the Registrant's Form 8-K dated as of November 9, 1995). 10.49 Amendment No. 1 to STI Merger Agreement dated as of February 2, 1996 (incorporated by reference from the Registrant's Form 8-K dated as of March 13, 1996). 10.50 Amendment No. 2 to STI Merger Agreement dated as of February 23, 1996 (incorporated by reference from the Registrant's Form 8-K dated as of March 13, 1996).
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Exhibit No. Description ------- ----------- 10.51 Amendment No. 3 to STI Merger Agreement dated as of March 1, 1996 (incorporated by reference from the Registrant's Form 8-K dated as of March 13, 1996). 10.52 Stock Exchange Agreement between The Fairchild Corporation and Banner Aerospace, Inc. pursuant to which the Registrant exchanged Harco, Inc. for shares of Banner Aerospace, Inc. (incorporated by reference to the Banner Aerospace, Inc. Definitive Proxy Statement dated and filed with the SEC on February 23, 1996 with respect to the Special Meeting of Shareholders of Banner Aerospace, Inc. held on March 12, 1996). 10.53 Asset Purchase Agreement dated as of January 23, 1996, between The Fairchild Corporation, RHI and Cincinnati Milacron, Inc. (incorporated by reference from the Registrant's Form 8-K dated as of January 26, 1996). 10.54 Purchase Agreement by and between BTR Dunlop Holdings, Inc., RHI Holdings, Inc., and Registrant, dated as of December 2, 1993 (incorporated by reference to Registrant's current report on Form 8-K dated December 23, 1993). 10.55 Allocation Agreement dated April 13, 1992 by and among The Fairchild Corporation, RHI, Rex-PT Holdings, Rexnord Corporation, Rexnord Puerto Rico, Inc. and Rexnord Canada Limited (incorporated by reference to 1992 10-K). 10.56 Agreement and Plan of Merger by and between the Fairchild Corporation, MTA, Inc. and Banner Aerospace, Inc. dated as of January 11, 1999 (filed as Appendix "A" to the Proxy Statement/Prospectus included as part of Registrant's Registration Statement No. 333-70673 on Form S- 4). 10.57 Unsecured subordinated Promissory Note, dated February 4, 1999, between The Fairchild Corporation and Banner Aerospace, Inc. incorporated by reference to Registrant's Registration Statement No. 333-70673 on Form S-4. 11.1 Statement Regarding Computations of per share Earnings (incorporated by reference from the Fairchild Form 10-K for the fiscal year ended June 30, 1998). 12.1 Statement Regarding Computation of Ratios. 21.1 List of Subsidiaries of Registrant (incorporated by reference from the Fairchild Form 10-K for the fiscal year ended June 30, 1997). 23.1 Consent of Arthur Andersen LLP, independent public accountants. 23.2 Consent of Arthur Andersen LLP, independent public accountants. 23.3 Consent of Basaran Serbest Muhasebeci Mali Musavirlik A.S., independent public accountants. 23.4 Consent of Cahill Gordon & Reindel (to be included in Exhibit 5.1).* 24.1 Power of Attorney (set forth on the signature page of the Registration Statement). 25.1 Statement of Eligibility of the Trustee.* 99.1 Form of Letter of Transmittal.* 99.2 Form of Notice of Guaranteed Delivery.*
- -------- * To be filed by amendment. II-5 Item 22. Undertakings. The undersigned Registrant hereby undertakes: (1) For purposes of determining any liability under the Securities Act of 1933, each filing of the registrant's annual report pursuant to section 13(a) or section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to section 15(d) of the Securities Exchange Act of 1934) that it incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (2) To deliver or cause to be delivered with the prospectus, to each person to whom the prospectus is sent or given, the latest annual report to security holders that is incorporated by reference in the prospectus and furnished pursuant to and meeting the requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of 1934; and, where interim financial information required to be presented by Article 3 of Regulation S-X is not set forth in the prospectus, to deliver, or cause to be delivered to each person to whom the prospectus is sent or given, the latest quarterly report that is specifically incorporated by reference in the prospectus to provide such interim financial information. (3) 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 S-4 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. (4) 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. (5) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer, or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, subject to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. II-6 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, 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 June 9, 1999. THE FAIRCHILD CORPORATION /s/ Donald E. Miller By: _______________________________ Name:Donald E. Miller Title:Executive Vice President POWER OF ATTORNEY Each person whose signature appears below hereby constitutes and appoints Donald E. Miller and John L. Flynn and each acting alone, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any or all amendments or supplements to this Registration Statement and to file the same with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing necessary or appropriate to be done with this Registration Statement and any amendments or supplements hereto, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
Signature Title Date /s/ Jeffrey J. Steiner Chairman of the June 9, 1999 - ------------------------------------- Board, Chief Jeffrey J. Steiner Executive Officer /s/ Michael T. Alcox Director June 9, 1999 - ------------------------------------- Michael T. Alcox /s/ Melville R. Barlow Director June 9, 1999 - ------------------------------------- Melville R. Barlow /s/ Mortimer M. Caplin Director June 9, 1999 - ------------------------------------- Mortimer M. Caplin /s/ Colin M. Cohen Senior Vice June 9, 1999 - ------------------------------------- President-- Finance Colin M. Cohen and Business Development, Chief Financial Officer, Controller, Principal Accounting Officer and Director /s/ Phillip David Director June 9, 1999
- ------------------------------------- Phillip David II-7 Signature Title Date
/s/ Robert E. Edwards Director June 9, 1999 - ------------------------------------- Robert E. Edwards /s/ Harold J. Harris Director June 9, 1999 - ------------------------------------- Harold J. Harris /s/ Daniel Lebard Director June 9, 1999 - ------------------------------------- Daniel Lebard /s/ Jacques S. Moskovic Senior Vice June 9, 1999 - ------------------------------------- President and Jacques S. Moskovic Director /s/ Herbert S. Richey Director June 9, 1999 - ------------------------------------- Herbert S. Richey /s/ Moshe Sanbar Director June 9, 1999 - ------------------------------------- Moshe Sanbar /s/ Robert A. Sharpe II Senior Vice June 9, 1999 - ------------------------------------- President-- Robert A. Sharpe II Operations and Director /s/ Eric I. Steiner President, Chief June 9, 1999 - ------------------------------------- Operating Officer Eric I. Steiner and Director
II-8 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, 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 June 9, 1999. A10 INC. /s/ Donald E. Miller By: _________________________________ Name:Donald E. Miller Title:Vice President POWER OF ATTORNEY Each person whose signature appears below hereby constitutes and appoints Donald E. Miller and John L. Flynn and each acting alone, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any or all amendments or supplements to this Registration Statement and to file the same with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing necessary or appropriate to be done with this Registration Statement and any amendments or supplements hereto, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated. Signature Title Date /s/ Eric I. Steiner President and June 9, 1999 - ------------------------------------- Principal Executive Eric I. Steiner Officer /s/ Colin M. Cohen Vice President, June 9, 1999 - ------------------------------------- Principal Financial Colin M. Cohen Officer, Principal Accounting Officer and Director /s/ John L. Flynn Vice President and June 9, 1999 - ------------------------------------- Director John L. Flynn /s/ Donald E. Miller Vice President, June 9, 1999 - ------------------------------------- Secretary and Donald E. Miller Director
II-9 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, 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 June 9, 1999. CAMLOC HOLDINGS INC. /s/ Donald E. Miller By: _________________________________ Name:Donald E. Miller Title:Vice President POWER OF ATTORNEY Each person whose signature appears below hereby constitutes and appoints Donald E. Miller and John L. Flynn and each acting alone, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any or all amendments or supplements to this Registration Statement and to file the same with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing necessary or appropriate to be done with this Registration Statement and any amendments or supplements hereto, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated. Signature Title Date /s/ Eric I. Steiner President and June 9, 1999 - ------------------------------------- Principal Executive Eric I. Steiner Officer /s/ Colin M. Cohen Vice President, June 9, 1999 - ------------------------------------- Principal Financial Colin M. Cohen Officer, Principal Accounting Officer and Director /s/ John L. Flynn Vice President and June 9, 1999 - ------------------------------------- Director John L. Flynn /s/ Donald E. Miller Vice President, June 9, 1999 - ------------------------------------- Secretary and Donald E. Miller Director
II-10 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, 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 June 9, 1999. FAIRCHILD DATA CORPORATION /s/ Donald E. Miller By: _________________________________ Name:Donald E. Miller Title:Vice President POWER OF ATTORNEY Each person whose signature appears below hereby constitutes and appoints Donald E. Miller and John L. Flynn and each acting alone, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any or all amendments or supplements to this Registration Statement and to file the same with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing necessary or appropriate to be done with this Registration Statement and any amendments or supplements hereto, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated. Signature Title Date /s/ Eric I. Steiner President and June 9, 1999 - ------------------------------------- Principal Executive Eric I. Steiner Officer /s/ Colin M. Cohen Vice President, June 9, 1999 - ------------------------------------- Principal Financial Colin M. Cohen Officer, Principal Accounting Officer and Director /s/ John L. Flynn Vice President and June 9, 1999 - ------------------------------------- Director John L. Flynn /s/ Donald E. Miller Vice President, June 9, 1999 - ------------------------------------- Secretary and Donald E. Miller Director
II-11 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, 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 June 9, 1999. FAIRCHILD FASTENERS CORP. /s/ Donald E. Miller By: _________________________________ Name:Donald E. Miller Title:Vice President POWER OF ATTORNEY Each person whose signature appears below hereby constitutes and appoints Donald E. Miller and John L. Flynn and each acting alone, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any or all amendments or supplements to this Registration Statement and to file the same with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing necessary or appropriate to be done with this Registration Statement and any amendments or supplements hereto, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated. Signature Title Date /s/ Eric I. Steiner President and June 9, 1999 - ------------------------------------- Principal Executive Eric I. Steiner Officer /s/ Colin M. Cohen Vice President, June 9, 1999 - ------------------------------------- Principal Financial Colin M. Cohen Officer, Principal Accounting Officer and Director /s/ John L. Flynn Vice President and June 9, 1999 - ------------------------------------- Director John L. Flynn /s/ Donald E. Miller Vice President, June 9, 1999 - ------------------------------------- Secretary and Donald E. Miller Director
II-12 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, 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 June 9, 1999. FAIRCHILD FRANCE INC. /s/ Donald E. Miller By: _________________________________ Name:Donald E. Miller Title:Vice President POWER OF ATTORNEY Each person whose signature appears below hereby constitutes and appoints Donald E. Miller and John L. Flynn and each acting alone, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any or all amendments or supplements to this Registration Statement and to file the same with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing necessary or appropriate to be done with this Registration Statement and any amendments or supplements hereto, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated. Signature Title Date /s/ Jeffrey J. Steiner President and June 9, 1999 - ------------------------------------- Principal Executive Jeffrey J. Steiner Officer /s/ Colin M. Cohen Vice President, June 9, 1999 - ------------------------------------- Principal Financial Colin M. Cohen Officer, Principal Accounting Officer and Director /s/ John L. Flynn Vice President and June 9, 1999 - ------------------------------------- Director John L. Flynn /s/ Donald E. Miller Vice President, June 9, 1999 - ------------------------------------- Secretary and Donald E. Miller Director
II-13 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, 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 June 9, 1999. FAIRCHILD HOLDING CORP. /s/ Donald E. Miller By: _________________________________ Name:Donald E. Miller Title:Vice President POWER OF ATTORNEY Each person whose signature appears below hereby constitutes and appoints Donald E. Miller and John L. Flynn and each acting alone, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any or all amendments or supplements to this Registration Statement and to file the same with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing necessary or appropriate to be done with this Registration Statement and any amendments or supplements hereto, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated. Signature Title Date /s/ Eric I. Steiner President and June 9, 1999 - ------------------------------------- Principal Executive Eric I. Steiner Officer /s/ Colin M. Cohen Vice President, June 9, 1999 - ------------------------------------- Principal Financial Colin M. Cohen Officer, Principal Accounting Officer and Director /s/ John L. Flynn Vice President and June 9, 1999 - ------------------------------------- Director John L. Flynn /s/ Donald E. Miller Vice President, June 9, 1999 - ------------------------------------- Secretary and Donald E. Miller Director
II-14 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, 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 June 9, 1999. FAIRCHILD RETIREE MEDICAL SERVICES, INC. /s/ Donald E. Miller By: _________________________________ Name:Donald E. Miller Title:Vice President POWER OF ATTORNEY Each person whose signature appears below hereby constitutes and appoints Donald E. Miller and John L. Flynn and each acting alone, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any or all amendments or supplements to this Registration Statement and to file the same with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing necessary or appropriate to be done with this Registration Statement and any amendments or supplements hereto, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated. Signature Title Date /s/ Eric I. Steiner President and June 9, 1999 - ------------------------------------- Principal Executive Eric I. Steiner Officer /s/ Colin M. Cohen Vice President, June 9, 1999 - ------------------------------------- Principal Financial Colin M. Cohen Officer, Principal Accounting Officer and Director /s/ John L. Flynn Vice President and June 9, 1999 - ------------------------------------- Director John L. Flynn /s/ Donald E. Miller Vice President, June 9, 1999 - ------------------------------------- Secretary and Donald E. Miller Director
II-15 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, 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 June 9, 1999. KAYNAR TECHNOLOGIES INC. /s/ Donald E. Miller By: _________________________________ Name:Donald E. Miller Title:Vice President POWER OF ATTORNEY Each person whose signature appears below hereby constitutes and appoints Donald E. Miller and John L. Flynn and each acting alone, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any or all amendments or supplements to this Registration Statement and to file the same with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing necessary or appropriate to be done with this Registration Statement and any amendments or supplements hereto, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated. Signature Title Date /s/ Eric I. Steiner President and June 9, 1999 - ------------------------------------- Principal Executive Eric I. Steiner Officer /s/ Colin M. Cohen Vice President, June 9, 1999 - ------------------------------------- Principal Financial Colin M. Cohen Officer, Principal Accounting Officer and Director /s/ John L. Flynn Vice President and June 9, 1999 - ------------------------------------- Director John L. Flynn /s/ Donald E. Miller Vice President, June 9, 1999 - ------------------------------------- Secretary and Donald E. Miller Director
II-16 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, 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 June 9, 1999. MAIROLL, INC. /s/ Donald E. Miller By: _________________________________ Name:Donald E. Miller Title:Vice President POWER OF ATTORNEY Each person whose signature appears below hereby constitutes and appoints Donald E. Miller and John L. Flynn and each acting alone, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any or all amendments or supplements to this Registration Statement and to file the same with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing necessary or appropriate to be done with this Registration Statement and any amendments or supplements hereto, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated. Signature Title Date /s/ Eric I. Steiner President and June 9, 1999 - ------------------------------------- Principal Executive Eric I. Steiner Officer /s/ Colin M. Cohen Vice President, June 9, 1999 - ------------------------------------- Principal Financial Colin M. Cohen Officer, Principal Accounting Officer and Director /s/ John L. Flynn Vice President and June 9, 1999 - ------------------------------------- Director John L. Flynn /s/ Donald E. Miller Vice President, June 9, 1999 - ------------------------------------- Secretary and Donald E. Miller Director
II-17 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, 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 June 9, 1999. MEOW, INC. /s/ Donald E. Miller By: _________________________________ Name:Donald E. Miller Title:Vice President POWER OF ATTORNEY Each person whose signature appears below hereby constitutes and appoints Donald E. Miller and John L. Flynn and each acting alone, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any or all amendments or supplements to this Registration Statement and to file the same with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing necessary or appropriate to be done with this Registration Statement and any amendments or supplements hereto, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated. Signature Title Date /s/ Eric I. Steiner President and June 9, 1999 - ------------------------------------- Principal Executive Eric I. Steiner Officer /s/ Colin M. Cohen Vice President, June 9, 1999 - ------------------------------------- Principal Financial Colin M. Cohen Officer, Principal Accounting Officer and Director /s/ John L. Flynn Vice President and June 9, 1999 - ------------------------------------- Director John L. Flynn /s/ Donald E. Miller Vice President, June 9, 1999 - ------------------------------------- Secretary and Donald E. Miller Director
II-18 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, 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 June 9, 1999. QUACK QUACK, INC. /s/ Donald E. Miller By: _________________________________ Name:Donald E. Miller Title:Vice President POWER OF ATTORNEY Each person whose signature appears below hereby constitutes and appoints Donald E. Miller and John L. Flynn and each acting alone, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any or all amendments or supplements to this Registration Statement and to file the same with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing necessary or appropriate to be done with this Registration Statement and any amendments or supplements hereto, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated. Signature Title Date /s/ Eric I. Steiner President and June 9, 1999 - ------------------------------------- Principal Executive Eric I. Steiner Officer /s/ Colin M. Cohen Vice President, June 9, 1999 - ------------------------------------- Principal Financial Colin M. Cohen Officer, Principal Accounting Officer and Director /s/ John L. Flynn Vice President and June 9, 1999 - ------------------------------------- Director John L. Flynn /s/ Donald E. Miller Vice President, June 9, 1999 - ------------------------------------- Secretary and Donald E. Miller Director
II-19 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, 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 June 9, 1999. RECYCLING INVESTMENTS, INC. /s/ Donald E. Miller By: _________________________________ Name:Donald E. Miller Title:Vice President POWER OF ATTORNEY Each person whose signature appears below hereby constitutes and appoints Donald E. Miller and John L. Flynn and each acting alone, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any or all amendments or supplements to this Registration Statement and to file the same with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing necessary or appropriate to be done with this Registration Statement and any amendments or supplements hereto, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated. Signature Title Date /s/ Eric I. Steiner President and June 9, 1999 - ------------------------------------- Principal Executive Eric I. Steiner Officer /s/ Colin M. Cohen Vice President, June 9, 1999 - ------------------------------------- Principal Financial Colin M. Cohen Officer, Principal Accounting Officer and Director /s/ John L. Flynn Vice President and June 9, 1999 - ------------------------------------- Director John L. Flynn /s/ Donald E. Miller Vice President, June 9, 1999 - ------------------------------------- Secretary and Donald E. Miller Director
II-20 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, 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 June 9, 1999. RECYCLING INVESTMENTS II, INC. /s/ Donald E. Miller By: _________________________________ Name:Donald E. Miller Title:Vice President POWER OF ATTORNEY Each person whose signature appears below hereby constitutes and appoints Donald E. Miller and John L. Flynn and each acting alone, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any or all amendments or supplements to this Registration Statement and to file the same with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing necessary or appropriate to be done with this Registration Statement and any amendments or supplements hereto, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated. Signature Title Date /s/ Eric I. Steiner President and June 9, 1999 - ------------------------------------- Principal Executive Eric I. Steiner Officer /s/ Colin M. Cohen Vice President, June 9, 1999 - ------------------------------------- Principal Financial Colin M. Cohen Officer, Principal Accounting Officer and Director /s/ John L. Flynn Vice President and June 9, 1999 - ------------------------------------- Director John L. Flynn /s/ Donald E. Miller Vice President, June 9, 1999 - ------------------------------------- Secretary and Donald E. Miller Director
II-21 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, 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 June 9, 1999. RHI HOLDINGS, INC. /s/ Donald E. Miller By: _________________________________ Name:Donald E. Miller Title:Vice President POWER OF ATTORNEY Each person whose signature appears below hereby constitutes and appoints Donald E. Miller and John L. Flynn and each acting alone, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any or all amendments or supplements to this Registration Statement and to file the same with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing necessary or appropriate to be done with this Registration Statement and any amendments or supplements hereto, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
Signature Title Date /s/ Jeffrey J. Steiner Chairman of the June 9, 1999 - ------------------------------------- Board, President Jeffrey J. Steiner and Principal Executive Officer /s/ Colin M. Cohen Vice President, June 9, 1999 - ------------------------------------- Principal Financial Colin M. Cohen Officer, Principal Accounting Officer and Director II-22 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, 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 June 9, 1999. SIMMONDS MECAERO FASTENERS, INC. /s/ Donald E. Miller By: _________________________________ Name:Donald E. Miller Title:Vice President POWER OF ATTORNEY Each person whose signature appears below hereby constitutes and appoints Donald E. Miller and John L. Flynn and each acting alone, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any or all amendments or supplements to this Registration Statement and to file the same with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing necessary or appropriate to be done with this Registration Statement and any amendments or supplements hereto, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated. Signature Title Date /s/ Eric I. Steiner President and June 9, 1999 - ------------------------------------- Principal Executive Eric I. Steiner Officer /s/ Colin M. Cohen Vice President, June 9, 1999 - ------------------------------------- Principal Financial Colin M. Cohen Officer, Principal Accounting Officer and Director /s/ John L. Flynn Vice President and June 9, 1999 - ------------------------------------- Director John L. Flynn /s/ Donald E. Miller Vice President, June 9, 1999 - ------------------------------------- Secretary and Donald E. Miller Director
II-23 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, 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 June 9, 1999. SPECIAL-T FASTENERS, INC. (f/k/a Bow Wow, Inc.) /s/ Donald E. Miller By: ___________________________________ Name:Donald E. Miller Title:Vice President POWER OF ATTORNEY Each person whose signature appears below hereby constitutes and appoints Donald E. Miller and John L. Flynn and each acting alone, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any or all amendments or supplements to this Registration Statement and to file the same with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing necessary or appropriate to be done with this Registration Statement and any amendments or supplements hereto, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated. Signature Title Date /s/ Eric I. Steiner President and June 9, 1999 - ------------------------------------- Principal Executive Eric I. Steiner Officer /s/ Colin M. Cohen Vice President, June 9, 1999 - ------------------------------------- Principal Financial Colin M. Cohen Officer, Principal Accounting Officer and Director /s/ John L. Flynn Vice President and June 9, 1999 - ------------------------------------- Director John L. Flynn /s/ Donald E. Miller Vice President, June 9, 1999 - ------------------------------------- Secretary and Donald E. Miller Director
II-24 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, 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 June 9, 1999. SUCHOMIMOUS TERENSIS, INC. (f/k/a Oink Oink, Inc.) /s/ Donald E. Miller By: _________________________________ Name:Donald E. Miller Title:Vice President POWER OF ATTORNEY Each person whose signature appears below hereby constitutes and appoints Donald E. Miller and John L. Flynn and each acting alone, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any or all amendments or supplements to this Registration Statement and to file the same with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing necessary or appropriate to be done with this Registration Statement and any amendments or supplements hereto, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated. Signature Title Date /s/ Eric I. Steiner President and June 9, 1999 - ------------------------------------- Principal Executive Eric I. Steiner Officer /s/ Colin M. Cohen Vice President, June 9, 1999 - ------------------------------------- Principal Financial Colin M. Cohen Officer, Principal Accounting Officer and Director /s/ John L. Flynn Vice President and June 9, 1999 - ------------------------------------- Director John L. Flynn /s/ Donald E. Miller Vice President, June 9, 1999 - ------------------------------------- Secretary and Donald E. Miller Director
II-25 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, 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 June 9, 1999. VSI HOLDINGS, INC. /s/ Donald E. Miller By: _________________________________ Name:Donald E. Miller Title:Vice President POWER OF ATTORNEY Each person whose signature appears below hereby constitutes and appoints Donald E. Miller and John L. Flynn and each acting alone, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any or all amendments or supplements to this Registration Statement and to file the same with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing necessary or appropriate to be done with this Registration Statement and any amendments or supplements hereto, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated. Signature Title Date /s/ Eric I. Steiner President and June 9, 1999 - ------------------------------------- Principal Executive Eric I. Steiner Officer /s/ Colin M. Cohen Vice President, June 9, 1999 - ------------------------------------- Principal Financial Colin M. Cohen Officer, Principal Accounting Officer and Director /s/ John L. Flynn Vice President and June 9, 1999 - ------------------------------------- Director John L. Flynn /s/ Donald E. Miller Vice President, June 9, 1999 - ------------------------------------- Secretary and Donald E. Miller Director
II-26 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, 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 June 9, 1999. BANNER AEROSPACE, INC. /s/ Donald E. Miller By: _________________________________ Name:Donald E. Miller Title:Vice President POWER OF ATTORNEY Each person whose signature appears below hereby constitutes and appoints Donald E. Miller and John L. Flynn and each acting alone, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any or all amendments or supplements to this Registration Statement and to file the same with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing necessary or appropriate to be done with this Registration Statement and any amendments or supplements hereto, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated. Signature Title Date /s/ Jeffrey J. Steiner Chief Executive June 9, 1999 - ------------------------------------- Officer, President Jeffrey J. Steiner and Principal Executive Officer /s/ Warren D. Persavich Senior Vice June 9, 1999 - ------------------------------------- President, Chief Warren D. Persavich Operating Officer and Director /s/ Eugene W. Juris Vice President, June 9, 1999 - ------------------------------------- Chief Financial Eugene W. Juris Officer, Principal Financial Officer and Principal Accounting Officer /s/ John L. Flynn Vice President and June 9, 1999 - ------------------------------------- Director John L. Flynn
II-27 Signature Title Date /s/ Donald E. Miller Vice President and June 9, 1999 - ------------------------------------- Director Donald E. Miller /s/ Phillippe Hercot Director June 9, 1999 - ------------------------------------- Phillippe Hercot /s/ Leonard Toboroff Director June 9, 1999 - ------------------------------------- Leonard Toboroff
/s/ Steven L. Gerard Director June 9, 1999 - ------------------------------------- Steven L. Gerard II-28 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, 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 June 9, 1999. BANNER AEROSPACE SERVICES, INC. /s/ Donald E. Miller By: _________________________________ Name:Donald E. Miller Title:Vice President POWER OF ATTORNEY Each person whose signature appears below hereby constitutes and appoints Donald E. Miller and John L. Flynn and each acting alone, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any or all amendments or supplements to this Registration Statement and to file the same with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing necessary or appropriate to be done with this Registration Statement and any amendments or supplements hereto, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated. Signature Title Date /s/ Jeffrey J. Steiner Chief Executive June 9, 1999 - ------------------------------------- Officer, President Jeffrey J. Steiner and Principal Executive Officer /s/ Warren D. Persavich Senior Vice June 9, 1999 - ------------------------------------- President, Chief Warren D. Persavich Operating Officer and Director /s/ Eugene W. Juris Vice President, June 9, 1999 - ------------------------------------- Chief Financial Eugene W. Juris Officer, Principal Financial Officer, Principal Accounting Officer and Director /s/ Bradley T. Lough Treasurer, Secretary June 9, 1999 - ------------------------------------- and Director Bradley T. Lough
II-29 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, 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 June 9, 1999. BANNER AEROSPACE-SINGAPORE, INC. /s/ Donald E. Miller By: _________________________________ Name:Donald E. Miller Title:Vice President POWER OF ATTORNEY Each person whose signature appears below hereby constitutes and appoints Donald E. Miller and John L. Flynn and each acting alone, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any or all amendments or supplements to this Registration Statement and to file the same with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing necessary or appropriate to be done with this Registration Statement and any amendments or supplements hereto, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated. Signature Title Date /s/ Warren D. Persavich Vice President and June 9, 1999 - ------------------------------------- Principal Executive Warren D. Persavich Officer /s/ Bradley T. Lough Treasurer, Secretary June 9, 1999 - ------------------------------------- and Director Bradley T. Lough /s/ Eugene W. Juris Vice President, June 9, 1999 - ------------------------------------- Principal Financial Eugene W. Juris Officer, Principal Accounting Officer and Director
II-30 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, 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 June 9, 1999. BAR DE, INC. /s/ Donald E. Miller By: _________________________________ Name:Donald E. Miller Title:Vice President POWER OF ATTORNEY Each person whose signature appears below hereby constitutes and appoints Donald E. Miller and John L. Flynn and each acting alone, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any or all amendments or supplements to this Registration Statement and to file the same with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing necessary or appropriate to be done with this Registration Statement and any amendments or supplements hereto, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated. Signature Title Date /s/ Warren D. Persavich President, Principal June 9, 1999 - ------------------------------------- Executive Officer Warren D. Persavich and Director /s/ Bradley T. Lough Treasurer, Secretary June 9, 1999 - ------------------------------------- and Director Bradley T. Lough /s/ Eugene W. Juris Vice President, June 9, 1999 - ------------------------------------- Principal Financial Eugene W. Juris Officer, Principal Accounting Officer and Director
II-31 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, 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 June 9, 1999. D A C INTERNATIONAL, INC. /s/ Donald E. Miller By: _________________________________ Name:Donald E. Miller Title:Vice President POWER OF ATTORNEY Each person whose signature appears below hereby constitutes and appoints Donald E. Miller and John L. Flynn and each acting alone, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any or all amendments or supplements to this Registration Statement and to file the same with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing necessary or appropriate to be done with this Registration Statement and any amendments or supplements hereto, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated. Signature Title Date /s/ Michael A. Crouch President, Principal June 9, 1999 - ------------------------------------- Executive Officer Michael A. Crouch and Director /s/ Eugene W. Juris Vice President, June 9, 1999 - ------------------------------------- Principal Financial Eugene W. Juris Officer and Principal Accounting Officer Vice President and June 9, 1999 - ------------------------------------- Director Terry P. Armstrong /s/ Warren D. Persavich Director June 9, 1999 - ------------------------------------- Warren D. Persavich
II-32 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, 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 June 9, 1999. DALLAS AEROSPACE, INC. /s/ Donald E. Miller By: _________________________________ Name:Donald E. Miller Title:Vice President POWER OF ATTORNEY Each person whose signature appears below hereby constitutes and appoints Donald E. Miller and John L. Flynn and each acting alone, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any or all amendments or supplements to this Registration Statement and to file the same with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing necessary or appropriate to be done with this Registration Statement and any amendments or supplements hereto, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated. Signature Title Date /s/ William Thompson President and June 9, 1999 - ------------------------------------- Principal Executive William Thompson Officer /s/ Bradley T. Lough Treasurer, Secretary June 9, 1999 - ------------------------------------- and Director Bradley T. Lough /s/ Eugene W. Juris Vice President, June 9, 1999 - ------------------------------------- Principal Financial Eugene W. Juris Officer and Principal Accounting Officer /s/ Terry Goodnight Director June 9, 1999 - ------------------------------------- Terry Goodnight /s/ Warren D. Persavich Vice President and June 9, 1999 - ------------------------------------- Director Warren D. Persavich
II-33 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, 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 June 9, 1999. GEORGETOWN JET CENTER, INC. /s/ Donald E. Miller By: _________________________________ Name:Donald E. Miller Title:Vice President POWER OF ATTORNEY Each person whose signature appears below hereby constitutes and appoints Donald E. Miller and John L. Flynn and each acting alone, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any or all amendments or supplements to this Registration Statement and to file the same with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing necessary or appropriate to be done with this Registration Statement and any amendments or supplements hereto, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated. Signature Title Date /s/ Michael A. Crouch Vice President, June 9, 1999 - ------------------------------------- Principal Executive Michael A. Crouch Officer and Director /s/ Bradley T. Lough Treasurer, Secretary June 9, 1999 - ------------------------------------- and Director Bradley T. Lough /s/ Eugene W. Juris Vice President, June 9, 1999 - ------------------------------------- Principal Financial Eugene W. Juris Officer and Principal Accounting Officer /s/ Warren D. Persavich Vice President and June 9, 1999 - ------------------------------------- Director Warren D. Persavich
II-34 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, 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 June 9, 1999. MATRIX AVIATION, INC. /s/ Donald E. Miller By: _________________________________ Name:Donald E. Miller Title:Vice President POWER OF ATTORNEY Each person whose signature appears below hereby constitutes and appoints Donald E. Miller and John L. Flynn and each acting alone, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any or all amendments or supplements to this Registration Statement and to file the same with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing necessary or appropriate to be done with this Registration Statement and any amendments or supplements hereto, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated. Signature Title Date /s/ Wayne Grossardt President, Principal June 9, 1999 - ------------------------------------- Executive Officer Wayne Grossardt and Director /s/ Eugene W. Juris Vice President, June 9, 1999 - ------------------------------------- Principal Financial Eugene W. Juris Officer, and Principal Accounting Officer /s/ Keith Bartel Vice President and June 9, 1999 - ------------------------------------- Director Keith Bartel /s/ Warren D. Persavich Vice President and June 9, 1999 - ------------------------------------- Director Warren D. Persavich
II-35 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, 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 June 9, 1999. NASAM INCORPORATED /s/ Donald E. Miller By: _________________________________ Name:Donald E. Miller Title:Vice President POWER OF ATTORNEY Each person whose signature appears below hereby constitutes and appoints Donald E. Miller and John L. Flynn and each acting alone, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any or all amendments or supplements to this Registration Statement and to file the same with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing necessary or appropriate to be done with this Registration Statement and any amendments or supplements hereto, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated. Signature Title Date /s/ Masaaki Sato Chief Executive June 9, 1999 - ------------------------------------- Officer, President, Masaaki Sato Principal Executive Officer and Director /s/ Bradley T. Lough Treasurer, Secretary June 9, 1999 - ------------------------------------- and Director Bradley T. Lough /s/ Eugene W. Juris Vice President, June 9, 1999 - ------------------------------------- Principal Financial Eugene W. Juris Officer and Principal Accounting Officer /s/ Warren D. Persavich Vice President and June 9, 1999 - ------------------------------------- Director Warren D. Persavich
II-36 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, 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 June 9, 1999. PB HERNDON AEROSPACE, INC. /s/ Donald E. Miller By: _________________________________ Name:Donald E. Miller Title:Vice President POWER OF ATTORNEY Each person whose signature appears below hereby constitutes and appoints Donald E. Miller and John L. Flynn and each acting alone, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any or all amendments or supplements to this Registration Statement and to file the same with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing necessary or appropriate to be done with this Registration Statement and any amendments or supplements hereto, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated. Signature Title Date /s/ Warren D. Persavich Vice President, June 9, 1999 - ------------------------------------- Principal Executive Warren D. Persavich Officer and Director /s/ Bradley T. Lough Treasurer, Secretary June 9, 1999 - ------------------------------------- and Director Bradley T. Lough /s/ Eugene W. Juris Vice President, June 9, 1999 - ------------------------------------- Principal Financial Eugene W. Juris Officer and Principal Accounting Officer
II-37 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, 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 June 9, 1999. PROFESSIONAL AIRCRAFT ACCESSORIES, INC. /s/ Donald E. Miller By: _________________________________ Name:Donald E. Miller Title:Vice President POWER OF ATTORNEY Each person whose signature appears below hereby constitutes and appoints Donald E. Miller and John L. Flynn and each acting alone, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any or all amendments or supplements to this Registration Statement and to file the same with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing necessary or appropriate to be done with this Registration Statement and any amendments or supplements hereto, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated. Signature Title Date /s/ Robert Bial President and June 9, 1999 - ------------------------------------- Principal Executive Robert Bial Officer /s/ Eugene W. Juris Vice President, June 9, 1999 - ------------------------------------- Principal Financial Eugene W. Juris Officer and Principal Accounting Officer /s/ Thomas J. Chastain, Jr. Director June 9, 1999 - ------------------------------------- Thomas J. Chastain, Jr. /s/ Jerry E. Cox Director June 9, 1999 - ------------------------------------- Jerry E. Cox /s/ Warren D. Persavich Vice President and June 9, 1999 - ------------------------------------- Director Warren D. Persavich
II-38 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, 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 June 9, 1999. PROFESSIONAL AVIATION ASSOCIATES, INC. /s/ Donald E. Miller By: _________________________________ Name:Donald E. Miller Title:Vice President POWER OF ATTORNEY Each person whose signature appears below hereby constitutes and appoints Donald E. Miller and John L. Flynn and each acting alone, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any or all amendments or supplements to this Registration Statement and to file the same with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing necessary or appropriate to be done with this Registration Statement and any amendments or supplements hereto, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated. Signature Title Date /s/ Thomas J. Chastain, Jr. President, Principal June 9, 1999 - ------------------------------------- Executive Officer Thomas J. Chastain, Jr. and Director /s/ Eugene W. Juris Vice President, June 9, 1999 - ------------------------------------- Principal Financial Eugene W. Juris Officer and Principal Accounting Officer /s/ Jerry E. Cox Vice President and June 9, 1999 - ------------------------------------- Director Jerry E. Cox /s/ Warren D. Persavich Vice President and June 9, 1999 - ------------------------------------- Director Warren D. Persavich
II-39 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, 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 June 9, 1999. M&M MACHINE & TOOL CO. /s/ Donald E. Miller By: _________________________________ Name:Donald E. Miller Title:Vice President POWER OF ATTORNEY Each person whose signature appears below hereby constitutes and appoints Donald E. Miller and John L. Flynn and each acting alone, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any or all amendments or supplements to this Registration Statement and to file the same with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing necessary or appropriate to be done with this Registration Statement and any amendments or supplements hereto, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated. Signature Title Date /s/ Eric I. Steiner President and June 9, 1999 - ------------------------------------- Principal Executive Eric I. Steiner Officer /s/ Colin M. Cohen Vice President, June 9, 1999 - ------------------------------------- Principal Financial Colin M. Cohen Officer, Principal Accounting Officer and Director /s/ John L. Flynn Vice President and June 9, 1999 - ------------------------------------- Director John L. Flynn /s/ Donald E. Miller Vice President, June 9, 1999 - ------------------------------------- Secretary and Donald E. Miller Director
II-40 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, 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 June 9, 1999. MARCLIFF CORPORATION /s/ Donald E. Miller By: _________________________________ Name:Donald E. Miller Title:Vice President POWER OF ATTORNEY Each person whose signature appears below hereby constitutes and appoints Donald E. Miller and John L. Flynn and each acting alone, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any or all amendments or supplements to this Registration Statement and to file the same with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing necessary or appropriate to be done with this Registration Statement and any amendments or supplements hereto, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated. Signature Title Date /s/ Eric I. Steiner President and June 9, 1999 - ------------------------------------- Principal Executive Eric I. Steiner Officer /s/ Colin M. Cohen Vice President, June 9, 1999 - ------------------------------------- Principal Financial Colin M. Cohen Officer, Principal Accounting Officer and Director /s/ John L. Flynn Vice President and June 9, 1999 - ------------------------------------- Director John L. Flynn /s/ Donald E. Miller Vice President, June 9, 1999 - ------------------------------------- Secretary and Donald E. Miller Director
II-41 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, 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 June 9, 1999. MARSON CREATIVE FASTENER, INC. /s/ Donald E. Miller By: _________________________________ Name:Donald E. Miller Title:Vice President POWER OF ATTORNEY Each person whose signature appears below hereby constitutes and appoints Donald E. Miller and John L. Flynn and each acting alone, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any or all amendments or supplements to this Registration Statement and to file the same with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing necessary or appropriate to be done with this Registration Statement and any amendments or supplements hereto, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated. Signature Title Date /s/ Eric I. Steiner President and June 9, 1999 - ------------------------------------- Principal Executive Eric I. Steiner Officer /s/ Colin M. Cohen Vice President, June 9, 1999 - ------------------------------------- Principal Financial Colin M. Cohen Officer, Principal Accounting Officer and Director /s/ John L. Flynn Vice President and June 9, 1999 - ------------------------------------- Director John L. Flynn /s/ Donald E. Miller Vice President, June 9, 1999 - ------------------------------------- Secretary and Donald E. Miller Director
II-42 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, 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 June 9, 1999. RECOIL AUSTRALIA HOLDINGS, INC. /s/ Donald E. Miller By: _________________________________ Name:Donald E. Miller Title:Vice President POWER OF ATTORNEY Each person whose signature appears below hereby constitutes and appoints Donald E. Miller and John L. Flynn and each acting alone, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any or all amendments or supplements to this Registration Statement and to file the same with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing necessary or appropriate to be done with this Registration Statement and any amendments or supplements hereto, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated. Signature Title Date /s/ Eric I. Steiner Vice President and June 9, 1999 - ------------------------------------- Principal Executive Eric I. Steiner Officer /s/ Colin M. Cohen Vice President, June 9, 1999 - ------------------------------------- Principal Financial Colin M. Cohen Officer, Principal Accounting Officer and Director /s/ John L. Flynn Vice President and June 9, 1999 - ------------------------------------- Director John L. Flynn /s/ Donald E. Miller Vice President, June 9, 1999 - ------------------------------------- Secretary and Donald E. Miller Director
II-43 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, 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 June 9, 1999. RECOIL HOLDINGS, INC. /s/ Donald E. Miller By: _________________________________ Name:Donald E. Miller Title:Vice President POWER OF ATTORNEY Each person whose signature appears below hereby constitutes and appoints Donald E. Miller and John L. Flynn and each acting alone, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any or all amendments or supplements to this Registration Statement and to file the same with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing necessary or appropriate to be done with this Registration Statement and any amendments or supplements hereto, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated. Signature Title Date /s/ Eric I. Steiner President and June 9, 1999 - ------------------------------------- Principal Executive Eric I. Steiner Officer /s/ Colin M. Cohen Vice President, June 9, 1999 - ------------------------------------- Principal Financial Colin M. Cohen Officer, Principal Accounting Officer and Director /s/ John L. Flynn Vice President and June 9, 1999 - ------------------------------------- Director John L. Flynn /s/ Donald E. Miller Vice President, June 9, 1999 - ------------------------------------- Secretary and Donald E. Miller Director
II-44 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, 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 June 9, 1999. RECOIL INC. /s/ Donald E. Miller By: _________________________________ Name:Donald E. Miller Title:Vice President POWER OF ATTORNEY Each person whose signature appears below hereby constitutes and appoints Donald E. Miller and John L. Flynn and each acting alone, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any or all amendments or supplements to this Registration Statement and to file the same with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing necessary or appropriate to be done with this Registration Statement and any amendments or supplements hereto, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated. Signature Title Date /s/ Eric I. Steiner President and June 9, 1999 - ------------------------------------- Principal Executive Eric I. Steiner Officer /s/ Colin M. Cohen Vice President, June 9, 1999 - ------------------------------------- Principal Financial Colin M. Cohen Officer, Principal Accounting Officer and Director /s/ John L. Flynn Vice President and June 9, 1999 - ------------------------------------- Director John L. Flynn /s/ Donald E. Miller Vice President, June 9, 1999 - ------------------------------------- Secretary and Donald E. Miller Director
II-45 Until , 1999 all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. EX-4.3 2 INDENTURE DATED APRIL 20, 1999 Exhibit 4.3 THE FAIRCHILD CORPORATION, as Issuer THE SUBSIDIARY GUARANTORS NAMED HEREIN, as Subsidiary Guarantors 10 3/4% Senior Subordinated Notes due 2009 ------------------------------ INDENTURE Dated as of April 20, 1999 ------------------------------ THE BANK OF NEW YORK, as Trustee CROSS-REFERENCE TABLE TIA Indenture SECTION Section 310(a)(1).......................................................... 7.10 (a)(2).......................................................... 7.10 (a)(3).......................................................... N.A. (a)(4).......................................................... N.A. (b)....................................................... 7.08; 7.10 (c)............................................................. N.A. 311(a)............................................................. 7.11 (b)............................................................. 7.11 (c)............................................................. N.A. 312(a)............................................................. 2.05 (b)............................................................. 13.03 (c)............................................................. 13.03 313(a)............................................................. 7.06 (b)............................................................. 7.06 (c)............................................................. 13.02 (d)............................................................. 7.06 314(a)............................................................. 4.02; 13.02 314(a)(4).......................................................... 4.12 (b)............................................................. N.A. (c)(1).......................................................... 13.04 (c)(2).......................................................... 13.04 (c)(3).......................................................... N.A. (d)............................................................. N.A. (e)............................................................. 13.05 (f)............................................................. N.A. 315(a)............................................................. 7.01 (b)........................................................7.05; 13.02 (c)............................................................. 7.01 (d)............................................................. 7.01 (e)............................................................. 6.11 316(a)(last sentence).............................................. 13.06 (a)(1)(A)....................................................... 6.05 (a)(1)(B)....................................................... 6.04 2 (a)(2).......................................................... N.A. (b)............................................................. 6.07 317(a)(1).......................................................... 6.08 (a)(2).......................................................... 6.09 (b)............................................................. 2.04 318(a)............................................................. 13.01 N.A. means Not Applicable. Note: This Cross-Reference Table shall not, for any purpose, be deemed to be part of the Indenture. 3 TABLE OF CONTENTS ARTICLE I DEFINITIONS AND INCORPORATION BY REFERENCE SECTION 1.01. DEFINITIONS ................................................ 1 SECTION 1.02. OTHER DEFINITIONS .......................................... 27 SECTION 1.03. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT .......... 28 SECTION 1.04. RULES OF CONSTRUCTION ...................................... 29 SECTION 1.05. ONE CLASS OF SECURITIES .................................... 30 ARTICLE II THE SECURITIES SECTION 2.01. FORM AND DATING ............................................ 30 SECTION 2.02. EXECUTION AND AUTHENTICATION ............................... 30 SECTION 2.03. REGISTRAR AND PAYING AGENT ................................. 31 SECTION 2.04. PAYING AGENT TO HOLD MONEY IN TRUST ........................ 32 SECTION 2.05. SECURITYHOLDER LISTS ....................................... 32 SECTION 2.06. TRANSFER AND EXCHANGE ...................................... 32 SECTION 2.07. REPLACEMENT SECURITIES ..................................... 33 SECTION 2.08. OUTSTANDING SECURITIES ..................................... 34 SECTION 2.09. TEMPORARY SECURITIES ....................................... 34 SECTION 2.10. CANCELLATION ............................................... 34 SECTION 2.11. DEFAULTED INTEREST ......................................... 35 SECTION 2.12. CUSIP NUMBERS .............................................. 35 SECTION 2.13. ISSUANCE OF ADDITIONAL SECURITIES .......................... 35 ARTICLE III REDEMPTION SECTION 3.01. NOTICES TO TRUSTEE ......................................... 36 SECTION 3.02. SELECTION OF SECURITIES TO BE REDEEMED ..................... 36 SECTION 3.03. NOTICE OF REDEMPTION ....................................... 37 SECTION 3.04. EFFECT OF NOTICE OF REDEMPTION ............................. 38 i SECTION 3.05. DEPOSIT OF REDEMPTION PRICE ................................ 38 SECTION 3.06. SECURITIES REDEEMED IN PART ................................ 38 ARTICLE IV COVENANTS SECTION 4.01. PAYMENT OF SECURITIES ...................................... 38 SECTION 4.02. SEC REPORTS ................................................ 39 SECTION 4.03. LIMITATION ON INDEBTEDNESS ................................. 39 SECTION 4.04. LIMITATION ON RESTRICTED PAYMENTS .......................... 42 SECTION 4.05. LIMITATION ON RESTRICTIONS ON DISTRIBUTIONS FROM RESTRICTED SUBSIDIARIES .............................................. 46 SECTION 4.06. LIMITATION ON ASSET DISPOSITIONS ........................... 48 SECTION 4.07. LIMITATION ON AFFILIATE TRANSACTIONS ....................... 51 SECTION 4.08. [INTENTIONALLY OMITTED] .................................... 53 SECTION 4.09. CHANGE OF CONTROL .......................................... 53 SECTION 4.10. LIMITATION ON BUSINESS ACTIVITIES .......................... 55 SECTION 4.11. LIMITATION ON LIENS SECURING SUBORDINATED INDEBTEDNESS ..... 55 SECTION 4.12. COMPLIANCE CERTIFICATE ..................................... 56 SECTION 4.13. MAINTENANCE OF OFFICE OR AGENCY ............................ 56 SECTION 4.14. CORPORATE EXISTENCE ........................................ 56 SECTION 4.15. PAYMENT OF TAXES AND OTHER CLAIMS .......................... 56 SECTION 4.16. MAINTENANCE OF PROPERTIES AND INSURANCE .................... 57 SECTION 4.17. COMPLIANCE WITH LAWS ....................................... 58 SECTION 4.18. FURTHER INSTRUMENTS AND ACTS ............................... 58 SECTION 4.19. FUTURE GUARANTORS .......................................... 58 ARTICLE V MERGER AND CONSOLIDATION SECTION 5.01. WHEN COMPANY MAY MERGE OR TRANSFER ASSETS .................. 58 SECTION 5.02. WHEN A SUBSIDIARY GUARANTOR MAY MERGE OR TRANSFER ASSET .... 60 ii ARTICLE VI DEFAULTS AND REMEDIES SECTION 6.01. EVENTS OF DEFAULT .......................................... 61 SECTION 6.02. ACCELERATION ............................................... 63 SECTION 6.03. OTHER REMEDIES ............................................. 64 SECTION 6.04. WAIVER OF PAST DEFAULTS .................................... 65 SECTION 6.05. CONTROL BY MAJORITY ........................................ 65 SECTION 6.06. LIMITATION ON SUITS ........................................ 65 SECTION 6.07. RIGHTS OF HOLDERS TO RECEIVE PAYMENT........................ 66 SECTION 6.08. COLLECTION SUIT BY TRUSTEE ................................. 66 SECTION 6.09. TRUSTEE MAY FILE PROOFS OF CLAIM ........................... 66 SECTION 6.10. PRIORITIES ................................................. 66 SECTION 6.11. UNDERTAKING FOR COSTS ...................................... 67 SECTION 6.12. WAIVER OF STAY OR EXECUTION LAWS ........................... 67 ARTICLE VII TRUSTEE SECTION 7.01. DUTIES OF TRUSTEE .......................................... 68 SECTION 7.02. RIGHTS OF TRUSTEE .......................................... 69 SECTION 7.03. INDIVIDUAL RIGHTS OF TRUSTEE ............................... 70 SECTION 7.04. TRUSTEE'S DISCLAIMER ....................................... 70 SECTION 7.05. NOTICE OF DEFAULTS ......................................... 71 SECTION 7.06. REPORTS BY TRUSTEE TO HOLDERS .............................. 71 SECTION 7.07. COMPENSATION AND INDEMNITY ................................. 71 SECTION 7.08. REPLACEMENT OF TRUSTEE ..................................... 72 SECTION 7.09. SUCCESSOR TRUSTEE BY MERGER ................................ 73 SECTION 7.10. ELIGIBILITY; DISQUALIFICATION .............................. 74 SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY .......... 74 iii ARTICLE VIII DISCHARGE DEFEASANCE SECTION 8.01. DISCHARGE OF LIABILITY ON SECURITIES; DEFEASANCE ........... 75 SECTION 8.02. CONDITIONS TO DEFEASANCE ................................... 76 SECTION 8.03. APPLICATION OF TRUST MONEY ................................. 77 SECTION 8.04. REPAYMENT TO COMPANY ....................................... 77 SECTION 8.05. INDEMNITY FOR GOVERNMENT OBLIGATIONS ....................... 78 SECTION 8.06. REINSTATEMENT .............................................. 78 ARTICLE IX AMENDMENTS AND WAIVERS SECTION 9.01. WITHOUT CONSENT OF HOLDERS ................................. 78 SECTION 9.02. WITH CONSENT OF HOLDERS .................................... 79 SECTION 9.03. COMPLIANCE WITH TRUST INDENTURE ACT ........................ 81 SECTION 9.04. REVOCATION AND EFFECT OF CONSENTS AND WAIVERS .............. 81 SECTION 9.05. NOTATION ON OR EXCHANGE OF SECURITIES ...................... 81 SECTION 9.06. TRUSTEE TO SIGN AMENDMENTS ................................. 81 ARTICLE X SUBORDINATION SECTION 10.01. AGREEMENT TO SUBORDINATE .................................. 82 SECTION 10.02. LIQUIDATION, DISSOLUTION, BANKRUPTCY ...................... 82 SECTION 10.03. DEFAULT ON SENIOR INDEBTEDNESS ............................ 82 SECTION 10.04. ACCELERATION OF PAYMENT OF SECURITIES ..................... 84 SECTION 10.05. WHEN DISTRIBUTION MUST BE PAID OVER ....................... 84 SECTION 10.06. SUBROGATION ............................................... 84 SECTION 10.07. RELATIVE RIGHTS ........................................... 84 SECTION 10.08. SUBORDINATION MAY NOT BE IMPAIRED BY COMPANY .............. 85 SECTION 10.09. RIGHTS OF TRUSTEE AND PAYING AGENT ........................ 85 SECTION 10.10. DISTRIBUTION OR NOTICE TO REPRESENTATIVE .................. 85 iv SECTION 10.11. ARTICLE X NOT TO PREVENT EVENTS OF DEFAULT OR LIMIT RIGHT TO ACCELERATE ......................................... 85 SECTION 10.12. TRUST MONEYS NOT SUBORDINATED ............................. 85 SECTION 10.13. TRUSTEE ENTITLED TO RELY .................................. 86 SECTION 10.14. TRUSTEE TO EFFECTUATE SUBORDINATION ....................... 86 SECTION 10.15. TRUSTEE NOT FIDUCIARY FOR HOLDERS OF SENIOR INDEBTEDNESS ......................................................... 86 SECTION 10.16. RELIANCE BY HOLDERS OF SENIOR INDEBTEDNESS ON SUBORDINATION PROVISIONS .......................................... 87 ARTICLE XI GUARANTEES SECTION 11.01. UNCONDITIONAL GUARANTEE ................................... 87 SECTION 11.02. SUBORDINATION OF SUBSIDIARY GUARANTEE ..................... 88 SECTION 11.03. SEVERABILITY .............................................. 89 SECTION 11.04. RELEASE OF SUBSIDIARY GUARANTOR FROM THE SUBSIDIARY GUARANTEE ................................................. 89 SECTION 11.05. LIMITATION ON AMOUNT GUARANTEED; CONTRIBUTION BY SUBSIDIARY GUARANTORS ................................................ 89 SECTION 11.06. WAIVER OF SUBROGATION ..................................... 91 SECTION 11.07. EXECUTION OF SUBSIDIARY GUARANTEE ......................... 92 SECTION 11.08. WAIVER OF STAY OR EXECUTION LAWS ........................... 92 SECTION 11.09. EFFECTIVENESS OF SUBSIDIARY GUARANTEE ..................... 92 ARTICLE XII SUBORDINATION OF GUARANTEE OBLIGATIONS SECTION 12.01. AGREEMENT TO SUBORDINATE .................................. 93 SECTION 12.02. LIQUIDATION, DISSOLUTION, BANKRUPTCY ...................... 93 SECTION 12.03. DEFAULT ON SENIOR INDEBTEDNESS ............................ 94 SECTION 12.04. ACCELERATION OF PAYMENT OF SECURITIES ..................... 95 SECTION 12.05. WHEN DISTRIBUTION MUST BE PAID OVER ....................... 95 SECTION 12.06. SUBROGATION ............................................... 95 SECTION 12.07. RELATIVE RIGHTS ........................................... 96 SECTION 12.08. SUBORDINATION MAY NOT BE IMPAIRED BY A SUBSIDIARY GUARANTOR 96 v SECTION 12.09. RIGHTS OF TRUSTEE AND PAYING AGENT ....................... 96 SECTION 12.10. DISTRIBUTION OR NOTICE TO REPRESENTATIVE ................. 97 SECTION 12.11. ARTICLE XII NOT TO PREVENT EVENTS OF DEFAULT OR LIMIT RIGHT TO ACCELERATE ................................................. 97 SECTION 12.12. TRUST MONEYS NOT SUBORDINATED ............................ 97 SECTION 12.13. TRUSTEE ENTITLED TO RELY ................................. 97 SECTION 12.14. TRUSTEE TO EFFECTUATE SUBORDINATION....................... 98 SECTION 12.15. TRUSTEE NOT FIDUCIARY FOR HOLDERS OF SENIOR INDEBTEDNESS OF SUBSIDIARY GUARANTORS ............................................ 98 SECTION 12.16. RELIANCE BY HOLDERS OF SENIOR INDEBTEDNESS OF SUBSIDIARY GUARANTORS ON SUBORDINATION PROVISIONS ................... 98 ARTICLE XIII MISCELLANEOUS SECTION 13.01. TRUST INDENTURE ACT CONTROLS ............................. 99 SECTION 13.02. NOTICES .................................................. 99 SECTION 13.03. COMMUNICATION BY HOLDERS WITH OTHER HOLDERS .............. 100 SECTION 13.04. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT ....... 100 SECTION 13.05. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION ............ 100 SECTION 13.06. WHEN SECURITIES DISREGARDED .............................. 101 SECTION 13.07. RULES BY TRUSTEE, PAYING AGENT AND REGISTRAR.............. 101 SECTION 13.08. LEGAL HOLIDAYS ........................................... 101 SECTION 13.09. GOVERNING LAW ............................................ 101 SECTION 13.10. NO RECOURSE AGAINST OTHERS ............................... 101 SECTION 13.11. SUCCESSORS ............................................... 102 SECTION 13.12. MULTIPLE ORIGINALS ....................................... 102 SECTION 13.13. TABLE OF CONTENTS; HEADINGS .............................. 102 Rule 144A/Regulation S Appendix Exhibit A - Form of Initial Security Exhibit B - Form of Exchange Security or Private Exchange Security vi INDENTURE dated as of April 20, 1999, between THE FAIRCHILD CORPORATION, a Delaware corporation (the "Company"), the subsidiary guarantors listed on Schedule A hereto (the "Subsidiary Guarantors") and THE BANK OF NEW YORK, a banking corporation organized and validly existing under the laws of the State of New York, as trustee (the "Trustee"). Each party agrees as follows for the benefit of the other parties and for the equal and ratable benefit of the Holders of the Company's Initial Securities, Exchange Securities and Private Exchange Securities (collectively, the "Securities"): ARTICLE I DEFINITIONS AND INCORPORATION BY REFERENCE ------------------------------------------ SECTION 1.01. DEFINITIONS. ----------- "Additional Assets" means any (1) property or assets (other than Indebtedness and Capital Stock) to be used by the Company or a Restricted Subsidiary; (2) Capital Stock of a Person that becomes a Restricted Subsidiary as a result of the acquisition of such Capital Stock by the Company or another Restricted Subsidiary; or (3) Capital Stock constituting a minority interest in any Person that at such time is a Restricted Subsidiary; provided, however, that any such Restricted Subsidiary described in clauses (2) and (3) is primarily engaged in Permitted Businesses. "Additional Securities" means, subject to the Company's compliance with Section 4.03, an additional aggregate principal amount of $200.0 million of 10 3/4% Senior Subordinated Notes due 2009 issued from time to time after the Issue Date under the terms of this Indenture (other than pursuant to Section 2.06, 2.07, 2.09, 3.06 4.06 or 4.09 of this Indenture or Section 2.3 or 2.4 of the Appendix and other than Exchange Securities or Private Exchange Securities issued pursuant to an exchange offer for other Securities outstanding under this Indenture). "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 the purposes of this definition, "control" when used with respect to any Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise, and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Asset Disposition" means any direct or indirect sale, lease, transfer, conveyance or other disposition (or series of related sales, leases, transfers, conveyances or dispositions) of shares of Capital Stock of a Restricted Subsidiary (other than directors' qualifying shares), property or other assets (each referred to for the purposes of this definition as a "disposition") by the Company or any Restricted Subsidiary (including any disposition by means of a merger, consolidation or similar transaction) involving an amount in excess of $5.0 million other than (1) a disposition by a Restricted Subsidiary to the Company or by the Company or a Restricted Subsidiary to a Restricted Subsidiary; (2) a disposition of property or assets at fair market value in the ordinary course of business and consistent with past practices of the Company or any of its Restricted Subsidiaries, as applicable (including, without limitation, sales of products to customers, disposition of excess inventory and dispositions of used, worn-out, obsolete, damaged or replaced equipment); (3) the disposition or grant of licenses to third parties in respect of intellectual property in the ordinary course of business and consistent with past practices of the Company or any of its Restricted Subsidiaries, as applicable; (4) a disposition by the Company or any Subsidiary of assets within 24 months after such assets were directly or indirectly acquired as part of an acquisition of other properties or assets (including Capital Stock) (the "Primary Acquisition"), and the proceeds therefrom are used within 18 months after the date of sale to repay any Indebtedness Incurred in connection with the Primary Acquisition of such assets; (5) for purposes of Section 4.06 only, a disposition that constitutes a Restricted Payment permitted by Section 4.04; (6) for purposes of Section 4.06 only, a disposition of shares of Capital Stock, property or other assets by the Company or any Restricted Subsidiary to any Person as an Investment in such Person, provided that (i) the Company or such Restricted Subsidiary receives consideration at the time of such disposition at least equal to the fair market value of such shares, property or other assets, (ii) such Investment is a Permitted Investment described under paragraph (9) of the definition of "Permitted Investment" 2 and (iii) the amount of any consideration in the form of cash or Temporary Cash Investments shall be treated as Net Cash Proceeds for purposes of such covenant; (7) an Asset Disposition that also constitutes a Change of Control; provided, however, that the Company complies with its obligations described under Section 4.09; (8) any disposition of properties or assets that is governed by the provisions of Section 5.01; (9) for purposes of Section 4.06 only, any trade, exchange or swap of properties or assets by the Company or any Restricted Subsidiary with any other Person; provided, that the fair market value of the assets or properties traded, exchanged or swapped by the Company or such Restricted Subsid iary is reasonably equivalent to the fair market value of the assets or properties received; provided, further, however, that the amount of any cash payment received by the Company or any Restricted Subsidiary shall be treated as Net Cash Proceeds for purposes of such covenant; and (10) the granting or incurrence of any Lien that does not violate Section 4.11; provided, however, that for purposes of the definition of "Consolidated Coverage Ratio", "Asset Disposition" shall include all such asset dispositions regardless of amount. "Average Life" means, as of the date of determination, with respect to any Indebtedness, the quotient obtained by dividing (x) the sum of the products of the numbers of years from the date of determination to the date of each successive scheduled principal payment of such Indebtedness or scheduled redemption multiplied by the amount of such payment by (y) the sum of all such payments. "Bank Indebtedness" means any and all Indebtedness and other amounts payable under or in respect of the New Credit Facility including principal, premium (if any), interest (including interest accruing at the contract rate specified in the New Credit Facility (including any rate applicable upon default) on or after the filing of any petition in bankruptcy, or the commencement of any similar state, federal or foreign reorganization or liquidation proceeding, relating to the Company and interest that would accrue but for the commencement of such proceeding whether or not a claim for post- filing interest 3 is allowed in such proceedings), fees, charges, expenses, reimbursement obligations, guarantees and all other amounts payable thereunder or in respect thereof. "Board of Directors" means the Board of Directors of the Company or any committee thereof duly authorized to act on behalf of such Board. "Board Resolution" means a duly adopted resolution of the Board of Directors in full force and effect at the time of determination and certified as such by the Secretary or an Assistant Secretary of the Company. "Business Day" means each day which is not a Legal Holiday. "Capital Stock" of any Person means any and all shares, interests, rights to purchase, warrants, options, participations or other equivalents of or interests (including partnership interests) in (however designated) equity of such Person, including any Preferred Stock, but excluding any debt securities convertible into or exchangeable for such equity. "Capitalized Lease Obligation" means an obligation that is required to be classified and accounted for as a capitalized lease for financial reporting purposes in accordance with GAAP. The amount of Indebtedness represented by such obligation shall be the capitalized amount of such obligation determined in accordance with GAAP. The Stated Maturity thereof shall be the date of the last payment of rent or any other amount due under such lease prior to the first date upon which such lease may be terminated by the lessee without payment of a penalty. "Change of Control" means the occurrence of any of the following events: (1) any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act), other than one or more Permitted Holders, becomes the beneficial owner (as defined in Rules 13d-3 and 13d-5 under the Exchange Act), directly or indirectly, of more than 40% of the total voting power of the Voting Stock of the Company; provided, however, that the Permitted Holders beneficially own (as defined above), directly or indirectly, in the aggregate a lesser percentage of the total voting power of the Voting Stock of the Company than such other person and do not have the right or ability by voting power, contract or otherwise to elect or designate for election a majority of the Board of Directors; 4 (2) during any period of two consecutive years, individuals who at the beginning of such period constituted the Board of Directors (together with any new directors whose election by such Board of Directors or whose nomination for election by the stockholders of the Company was approved pursuant to the vote of 66 2/3% of the directors of the Company then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Board of Directors then in office; or (3) the merger or consolidation of the Company with or into another Person (other than a Permitted Holder) or the merger of another Person with or into the Company (other than a Permitted Holder), or the sale of all or substantially all the assets of the Company to another Person (other than a Permitted Holder), and, in the case of any such merger or consolidation, the securities of the Company that are outstanding immediately prior to such transaction and that represent 100% of the aggregate voting power of the Voting Stock of the Company are changed into or exchanged for cash, securities or property, unless pursuant to such transaction such securities are changed into or exchanged for, in addition to any other consideration, securities of the surviving Person that represent, immediately after such transaction, at least a majority of the aggregate voting power of the Voting Stock of the surviving corporation. "Code" means the Internal Revenue Code of 1986, as amended. "Company" means the party named as such in this Indenture until a successor replaces it and, thereafter, means the successor and, for purposes of any provision contained herein and required by the TIA, each other obligor on the indenture securities. "Consolidated Coverage Ratio" as of any date of determination (the "Transaction Date") means the ratio of (x) the aggregate amount of EBITDA for the most recent four consecutive fiscal quarters for which financial statements are available to (y) Consolidated Interest Expense for such four fiscal quarters; provided, however, that (1) if the Company or any Restricted Subsidiary has Incurred any Indebted ness since the beginning of such period that remains outstanding on such date of determination or if the transaction giving rise to the need to calcu- 5 late the Consolidated Coverage Ratio is an Incurrence of Indebtedness, or both, EBITDA and Consolidated Interest Expense for such period shall be calculated after giving effect on a pro forma basis to (a) such Indebtedness as if such Indebtedness had been Incurred on the first day of such period and (b) the discharge of any other Indebtedness repaid, repurchased, defeased or otherwise discharged with the proceeds of such new Indebtedness as if such discharge had occurred on the first day of such period; (2) if the Company or any Restricted Subsidiary has repaid, repurchased, defeased or otherwise discharged any Indebtedness since the beginning of such period or if any Indebtedness is to be repaid, repurchased, defeased or otherwise discharged (in each case other than Indebtedness Incurred under any revolving credit facility unless such Indebtedness has been permanently repaid and has not been replaced) on the date of the transaction giving rise to the need to calculate the Consolidated Coverage Ratio, EBITDA and Consolidated Interest Expense for such period shall be calculated on a pro forma basis as if such discharge had occurred on the first day of such period and as if the Company or such Restricted Subsid iary has not earned the interest income actually earned during such period in respect of cash or Temporary Cash Investments used to repay, repurchase, defease or otherwise discharge such Indebtedness; (3) if since the beginning of such period the Company or any Restricted Subsidiary shall have made any Asset Disposition, the EBITDA for such period shall be reduced by an amount equal to the EBITDA (if positive) directly attributable to the assets which are the subject of such Asset Disposition for such period or increased by an amount equal to the EBITDA (if negative) directly attributable thereto for such period and Consolidated Interest Expense for such period shall be reduced by an amount equal to the Consolidated Interest Expense directly attributable to any Indebtedness of the Company or any Restricted Subsidiary repaid, repurchased, defeased or otherwise discharged with respect to the Company and its continuing Restricted Subsidiaries in connection with such Asset Disposition for such period (or, if the Capital Stock of any Restricted Subsidiary is sold, the Consolidated Interest Expense for such period directly attributable to the Indebtedness of such Restricted Subsidiary to the extent the Company and its continuing Restricted Subsidiaries are no longer liable for such Indebtedness after such sale); 6 (4) if since the beginning of such period the Company or any Restricted Subsidiary (by merger or otherwise) shall have made an Investment in any Restricted Subsidiary (or any Person which becomes a Restricted Subsidiary) or an acquisition of assets, including any acquisition of assets occurring in connection with a transaction causing a calculation to be made hereunder, EBITDA and Consolidated Interest Expense for such period shall be calculated after giving pro forma effect thereto (including the Incurrence of any Indebtedness) as if such Investment or acquisition occurred on the first day of such period; and (5) if since the beginning of such period any Person (that subsequently became a Restricted Subsidiary or was merged with or into the Company or any Restricted Subsidiary since the beginning of such period) shall have made any Asset Disposition or any Investment requiring an adjustment pursuant to clause (3) or (4) above if made by the Company or a Restricted Subsidiary during such period, EBITDA and Consolidated Interest Expense for such period shall be calculated after giving pro forma effect thereto as if such Asset Disposition, Investment or acquisition of assets occurred on the first day of such period. For purposes of this definition, whenever pro forma effect is to be given to an Investment or an acquisition of assets, the amount of income or earnings relating thereto and the amount of Consolidated Interest Expense associated with any Indebtedness Incurred in connection therewith, the pro forma calculations shall be determined in good faith by a responsible financial or accounting officer of the Company. If any Indebtedness bears a floating rate of interest and is being given pro forma effect, the interest expense on such Indebtedness shall be calculated as if the rate in effect on the date of determination had been the applicable rate for the entire period (taking into account any Interest Rate Protection Agreement applicable to such Indebtedness if such Interest Rate Protection Agreement has a remaining term as at the date of determination in excess of 12 months). For purposes of this definition, whenever pro forma effect is to be given to any Indebtedness Incurred pursuant to a revolving credit facility the amount outstanding under such Indebtedness shall be equal to the average of the amount outstanding during the period commencing on the first day of the first of the four most recent fiscal quarters for which financial statements are available and ending on the date of determination. "Consolidated Interest Expense" means, for any period, the sum of 7 (a) total interest expense of the Company and its consolidated Restricted Subsidiaries, including, to the extent not otherwise included in such interest expense (without duplication), and to the extent Incurred by the Company or its Restricted Subsidiaries: (1) interest expense attributable to Capitalized Lease Obligations; (2) amortization of debt discount and debt issuance cost; (3) capitalized interest; (4) non-cash interest expense; (5) accrued interest; (6) amortization of commissions, discounts and other fees and charges owed with respect to letters of credit and bankers' acceptance financing; (7) interest actually paid by the Company or any such Restricted Subsidiary under any Guarantee of Indebtedness or other obligation of any other Person; (8) net costs associated with Hedging Obligations (including amortization of fees); (9) amortization of the interest portion of any deferred obligation; provided, that any accretion of environmental, post-retirement health insurance or other reserves not in respect of Indebtedness shall not be included in Consolidated Interest Expense; (b) Preferred Stock dividends paid during such period in respect of all Preferred Stock of Restricted Subsidiaries of the Company held by Persons other than the Company or a Wholly Owned Subsidiary; and (c) cash contributions to any employee stock ownership plan or other trust for the benefit of employees to the extent such contributions are used by such plan or trust to pay interest or fees to any Person (other than the Company) in connection with Indebtedness Incurred by such plan or trust to purchase Capital Stock of the Company. 8 "Consolidated Net Income" means, for any period, the net income (loss) of the Company, and its consolidated Subsidiaries, provided, however, that there shall not be included in such Consolidated Net Income (1) any net income (loss) of any Person if such Person is not a Restricted Subsidiary, except that (A) the Company's equity in the net income of any such Person for such period shall be included in such Consolidated Net Income up to the aggregate amount of cash that could have been distributed by such Person during such period to the Company or a Restricted Subsidiary as a dividend or other distribution (subject, in the case of a dividend or other distribution to a Restricted Subsidiary, to the limitations contained in clause (3) below); and (B) the Company's equity in a net loss of any such Person for such period shall be included in determining such Consolidated Net Income; (2) any net income (or loss) of any Person acquired by the Company or a Subsidiary in a pooling of interests transaction for any period prior to the date of such acquisition; (3) for purposes of Section 4.04 only, any net income (or loss) of any Restricted Subsidiary if such Restricted Subsidiary is subject to restrictions, directly or indirectly, on the payment of dividends or the making of distributions by such Restricted Subsidiary, directly or indirectly, to the Company, except that (A) the Company's equity in the net income of any such Restricted Subsidiary for such period shall be included in such Consolidated Net Income up to the aggregate amount of cash that could have been distributed by such Restricted Subsidiary (including, but not limited to, amounts that could have been distributed as a result of an existing waiver of the Payment Restrictions) during such period to the Company or another Subsidiary as a dividend or other distribution (subject, in the case of a dividend to another Subsidiary, to the limitation contained in this clause); and (B) the Company's equity in a net loss of any such Restricted Subsidiary for such period shall be included in determining such Consolidated Net Income; (4) any gain or loss realized upon the sale or other disposition of any assets of the Company, its consolidated Subsidiaries or any other Person which is not sold or otherwise disposed of in the ordinary course of business 9 and any gain or loss realized upon the sale or other disposition of any Capital Stock of any Person; (5) any extraordinary gain or loss; and (6) the non-recurring cumulative effect of a change in accounting principles. Notwithstanding the foregoing, for the purposes Section 4.04 only, there shall be excluded from Consolidated Net Income any dividends, repayments of loans or advances or other transfers of assets from Unrestricted Subsidiaries to the Company or a Restricted Subsidiary to the extent such dividends, repayments or transfers increase the amount of Restricted Payments permitted under such covenant pursuant to clause (a)(3)(D) thereof. "Consolidated Tangible Assets" means, as of any date of determination, the total assets, less goodwill and other intangibles (other than patents, trademarks, copyrights, licenses and other intellectual property) shown on the balance sheet of the Company and its Restricted Subsidiaries for the most recently ended fiscal quarter for which financial statements are available, determined on a consolidated basis in accordance with GAAP. "Currency Exchange Protection Agreement" means, in respect of any Person, any foreign exchange contract, currency swap agreement, currency option or other similar agreement or arrangement designed to protect such Person against fluctuations in currency exchange rates. "Default" means any event which is, or after notice or passage of time or both would be, an Event of Default. "Designated Senior Indebtedness" means (1) the Bank Indebtedness; and (2) any other Senior Indebtedness which, at the date of determination, has an aggregate principal amount outstanding of, or under which, at the date of determination, the holders thereof are committed to lend up to, at least $50 million and is specifically designated by the Company in the instrument evidencing or governing such Senior Indebtedness as "Designated Senior Indebtedness" for purposes of this Indenture. "Disqualified Stock" of a Person, with respect to any Person, means any Capital Stock which by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable at the option of the holder) or upon the 10 happening of any event (1) matures or is mandatorily redeemable pursuant to a sinking fund obligation or otherwise; (2) is convertible or exchangeable at the option of the holder for Indebtedness or Disqualified Stock; or (3) is mandatorily redeemable or must be purchased, upon the occurrence of certain events or otherwise, in whole or in part, in each case on or prior to the first anniversary of the Stated Maturity of the Securities and any Preferred Stock of a Restricted Subsidiary of such Person; provided, however, that any Capital Stock that would not constitute Disqualified Stock but for provisions thereof giving holders thereof the right to require such Person to purchase or redeem such Capital Stock upon the occurrence of an "asset sale" or "change of control" occurring prior to the first anniversary of the Stated Maturity of the Securities shall not constitute Disqualified Stock if (1) the "asset sale" or "change of control" provisions applicable to such Capital Stock are not more favorable to the holders of such Capital Stock than the terms applicable to the Securities under Sections 4.06 and 4.09; and (2) any such requirement only becomes operative after compliance with such terms applicable to the Securities, including the purchase of any Securities tendered pursuant thereto. "EBITDA" for any period means the sum of Consolidated Net Income plus the following to the extent deducted in calculating such Consolidated Net Income: (1) all income tax expense of the Company and its consolidated Restricted Subsidiaries; (2) Consolidated Interest Expense; (3) depreciation expense and amortization expense of the Company and its consolidated Restricted Subsidiaries; (4) all other non-cash items of the Company and its consolidated Restricted Subsidiaries (excluding any such non-cash charge to the extent that it represents an accrual of or reserve for cash expenditures in any future period reducing Consolidated Net Income) less all non-cash items increasing Consolidated Net Income; and (5) all bonuses paid to executive officers of the Company in connection with the KTI Acquisition and severance, rationalization, product qualification and other non-recurring transition costs incurred in connection with the KTI Acquisition in each case for such period. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Foreign Restricted Subsidiary" means a Restricted Subsidiary that is incorporated in a jurisdiction other than, and the majority of the assets of which are located outside of, the United States, a State thereof and the District of Columbia. "Fully Traded Common Stock" means Capital Stock issued by any corporation which is listed on either the New York Stock Exchange or the American 11 Stock Exchange or included for trading privileges in the National Market System of the National Association of Securities Dealers Automated Quotation System; provided, however, that (a) either such Capital Stock is freely tradable under the Securities Act (including pursuant to Rule 145(d)(1) thereunder) upon issuance or the holder thereof has contractual registration rights that will permit the sale of such Capital Stock pursuant to an effective registration statement not later than nine months after issuance to the Company or one of its Subsidiaries and (b) such Capital Stock is also so listed or included for trading privileges. "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 approved by a significant segment of the accounting profession. "Guarantee" means any obligation, contingent or otherwise, of any Person directly or indirectly guaranteeing any Indebtedness or other obligation of any other Person and any obligation, direct or indirect, contingent or otherwise, of such Person (1) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation of such other Person (whether arising by virtue of partnership arrangements, or by agreement to keep-well, to purchase assets, goods, securities or services, to take-or-pay or to maintain financial statement conditions or otherwise); or (2) entered into for purposes of assuring in any other manner the obligee of such Indebtedness or other obligation of the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part); provided, however, that the term "Guarantee" shall not include (1) endorsements for collection or deposit in the ordinary course of business; or (2) obligations, warranties and indemnities, not with respect to Indebtedness of any Person, that have been or are undertaken or made in the ordinary course of business or in connection with any Asset Disposition permitted by Section 4.06 and not for the benefit of or in favor of an Affiliate of the Company or any of its Subsidiaries. The term "Guarantee" used as a verb has a corresponding meaning. "Hedging Obligations" of any Person means the obligations of such Person pursuant to any Interest Rate Protection Agreement or Currency Exchange Protection Agreement or other similar agreement or arrangement involving interest rates, currencies, commodities or otherwise. "Holder" or "Securityholder" means the Person in whose name a Security is registered on the Registrar's books. 12 "Incur" means issue, assume, Guarantee, incur or otherwise become liable for; provided, however, that any Indebtedness of a Person existing at the time such Person becomes a Restricted Subsidiary (whether by merger, consolidation, acquisition or otherwise) shall be deemed to be Incurred by such Restricted Subsidiary at the time it becomes a Restricted Subsidiary. The term "Incurrence" when used as a noun shall have a correlative meaning. The accretion of principal of a non-interest bearing or other discount security shall not be deemed the Incurrence of Indebtedness. "Indebtedness" means, with respect to any Person on any date of determination (without duplication): (1) the principal of and premium (if any such premium is then due and owing) in respect of (A) indebtedness of such Person for money borrowed; and (B) indebtedness evidenced by notes, debentures, bonds or other similar instruments for the payment of which such Person is responsible or liable; (2) all Capitalized Lease Obligations of such Person; (3) all obligations of such Person issued or assumed as the deferred purchase price of property (which purchase price is due more than 180 days after taking title to such property), all conditional sale obligations of such Person and all obligations of such Person under any title retention agreement (but excluding trade accounts payable arising in the ordinary course of business); (4) all obligations of such Person for the reimbursement of any obligor on any letter of credit, banker's acceptance or similar credit transaction (other than obligations with respect to letters of credit securing obligations (other than obligations described in (1) through (3) above) entered into in the ordinary course of business of such Person to the extent such letters of credit are not drawn upon or, if and to the extent drawn upon, such drawing is reimbursed no later than the tenth Business Day following receipt by such Person of a demand for reimbursement following payment on the letter of credit); (5) the amount of all obligations of such Person with respect to the redemption, repayment or other repurchase of any Disqualified Stock of such Person (but excluding, in each case, any accrued dividends); 13 (6) all obligations of the type referred to in clauses (1) through (5) of other Persons and all dividends of other Persons for the payment of which, in either case, such Person is responsible or liable, directly or indirectly, as obligor, guarantor or otherwise, including by means of any Guarantee; (7) all obligations of the type referred to in clauses (1) through (6) of other Persons secured by any Lien on any property or asset of such Person (whether or not such obligation is assumed by such Person), the amount of such obligation being deemed to be the lesser of the value of such property or assets or the amount of the obligation so secured; and (8) to the extent not otherwise included in this definition, Hedging Obliga tions of such Person. For purposes of this definition, the obligation of such person with respect to the redemption, repayment or repurchase price of any Disqualified Stock that does not have a fixed redemption, repayment or repurchase price shall be calculated in accordance with the terms of such Disqualified Stock as if such Disqualified Stock were redeemed, repaid or repurchased on any date on which Indebtedness shall be required to be determined pursuant to the Indenture; provided, however, that if such Disqualified Stock is not then permitted to be redeemed, repaid or repurchased, the redemption, repayment or repurchase price shall be the book value of such Disqualified Stock as reflected in the most recent financial statements of such Person. The amount of Indebtedness of any Person at any date shall be the outstanding balance at such date of all unconditional obligations as described above and, with respect to contingent obligations, the amount of liability required by GAAP to be accrued or reflected on the most recently published balance sheet of such Person; provided, however, that (1) the amount outstanding at any time of any Indebtedness issued with original issue discount is the face amount of such indebtedness less the remaining unamortized portion of the original issue discount of such Indebtedness at such time as determined in conformity with GAAP; and (2) Indebtedness shall not include any liability for federal, state, local or other taxes. "Indenture" means this Indenture as amended or supplemented from time to time. "Interest Rate Protection Agreement" means, in respect of any Person, any interest rate swap agreement, interest rate option agreement, interest rate cap 14 agreement, interest rate collar agreement, interest rate floor agreement or other similar agreement or arrangement designed to protect such Person against fluctuations in interest rates. "Investment" by any Person in any other Person means any direct or indirect advance, loan (other than advances to customers or suppliers in the ordinary course of business that are recorded as accounts receivable on the balance sheet of such former Person) or other extension of credit (including by way of Guarantee or similar arrangement) or capital contribution to (by means of any transfer of cash or other property to others or any payment for property or services for the account or use of others), or any purchase or acquisition of Capital Stock, Indebtedness or other similar instruments issued by such latter Person that are or would be classified as investments on a balance sheet of such former Person prepared in accordance with GAAP. In determining the amount of any Investment in respect of any property or assets other than cash, such property or asset shall be valued at its fair market value at the time of such Investment (unless otherwise specified in this definition), as determined in good faith by the Board of Directors. For purposes of the definition of "Unrestricted Subsid iary", the definitions of "Restricted Payment" and "Permitted Investment" and Section 4.04, (1) "Investment" shall include the portion (proportionate to the Company's equity interest in such Subsidiary) of the fair market value of the net assets of any Subsidiary of the Company at the time that such Subsidiary is designated an Unrestricted Subsidiary; provided, however, that upon a redesignation of such Subsidiary as a Restricted Subsidiary, the Company shall be deemed to continue to have a permanent "Investment" in an Unrestricted Subsidiary equal to an amount (if positive) equal to (x) the Company's "Investment" in such Subsidiary at the time of such redesignation less (y) the portion (proportionate to the Company's equity interest in such Subsidiary) of the fair market value of the net assets of such Subsidiary at the time of such redesignation; and (2) any property transferred to or from an Unrestricted Subsidiary shall be valued at its fair market value at the time of such transfer, in each case as determined in good faith by the Board of Directors. "Issue Date" means April 20, 1999. "KTI Acquisition" means the acquisition by the Company of Kaynar Technologies Inc., in a cash merger of Kaynar Technologies Inc. with a wholly owned subsidiary of the Company. 15 "Legal Holiday" means each Saturday, Sunday and each day on which commercial banking institutions are authorized or required by law to close in New York City. "Lien" means any mortgage, pledge, security interest, encumbrance, lien or charge of any kind (including any conditional sale or other title retention agreement or lease in the nature thereof). "Net Available Cash" from an Asset Disposition means the aggregate amount of cash or Temporary Cash Investments received in respect of an Asset Disposition (including any cash payments received by way of deferred payment of principal pursuant to a note or installment receivable or otherwise, but only as and when received, but excluding any other consideration received in the form of assumption by the acquiring person of Indebtedness or other obligations relating to such properties or assets or received in any other noncash form) therefrom, in each case net of (1) all legal, title and recording tax expenses, commissions and other fees and expenses incurred (including fees and expenses of counsel and investment bankers), and all Federal, state, provincial, foreign and local taxes required to be paid or accrued as a liability under GAAP as a consequence of such Asset Disposition; (2) all payments made on any Indebtedness which is secured by any assets subject to such Asset Disposition, in accordance with the terms of any Lien upon such assets, or which must by its terms, or in order to obtain a necessary consent to such Asset Disposition, or by applicable law, be repaid out of the proceeds from such Asset Disposition; (3) all distributions and other payments required to be made to minority interest holders in Restricted Subsidiaries or joint ventures as a result of such Asset Disposition; and (4) the deduction of appropriate amounts to be provided by the seller as a reserve, in accordance with GAAP, against any liabilities associated with the assets disposed of in such Asset Disposition and including, pension and other post-employment benefit liabilities, liabilities related to environmental matters and liabilities under any indemnification obligations associated with such Asset Dispositions, all as determined in conformity with GAAP, retained by the Company or any Restricted Subsidiary after such Asset Disposition. "Net Cash Proceeds", with respect to any issuance or sale of Capital Stock, means the cash proceeds of such issuance or sale net of attorneys' fees, accountants' fees, printing costs, underwriters' or placement agents' fees, discounts or commissions and brokerage stock exchange listing fees, consultant and other fees actually incurred in connection with such issuance or sale and net of taxes paid or payable as a result thereof. 16 "New Credit Facility" means (1) one or more credit agreements, loan agreements or similar agreements providing for working capital advances, term loans, letter of credit facilities or similar advances, loan or facilities to the Company, any Restricted Subsidiary, domestic or foreign, or any or all of such Persons, including the Credit Agreement, among the Company and certain subsidiaries of the Company, as borrowers, the lenders party thereto and Salomon Smith Barney Inc. and NationsBanc Montgomery Securities LLC, arrangers for the lenders, as the same may be amended, modified, restated or supplemented from time to time, or any other indebtedness referred to in clause (b)(1) of Section 4.03; and (2) any one or more agreements governing advances, loans or facilities provided to refund, refinance, replace or renew (including subsequent or successive refundings, financings, replacements and renewals) Indebtedness under the agreement or agreements referred to in the foregoing clause (1), as the same may be amended, modified, restated or supplemented from time to time. "Offering Circular" means the Offering Circular, dated as of April 15, 1999 relating to the offering of the Securities. "Officer" means the Chairman of the Board, the President, an Executive Vice President, a Senior Vice President, any Vice President, the Treasurer, any Assistant Treasurer, the Secretary or any Assistant Secretary of the Company. "Officers' Certificate" means a certificate signed by the Chairman of the Board, the President, an Executive Vice President, a Senior Vice President or a Vice President, and by the Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary, of the Company and delivered to the Trustee. "Opinion of Counsel" means a written opinion of counsel reasonably acceptable to the Trustee, which may be an employee of or counsel for the Company. "Permitted Businesses" means (i) the lines of business that the Company or any of the Restricted Subsidiaries were engaged in on the date of the Indenture or that are contemplated by the Offering Circular, (ii) the businesses engaged in by any acquired businesses, provided that a substantial portion of their business at the time of acquisition was related or ancillary to the Company's then existing lines of business, (iii) extensions of the businesses referred to in clauses (i) and (ii), including, without limitation, new products and services to its markets or new distribution channels, (iv) any other lines of business or activities that are related or ancillary to the businesses referred to in clauses (i)-(iii), and (v) unrelated lines of business that individually are not material to the Company and the Restricted Subsidiaries taken as a whole. 17 "Permitted Holders" means (i) Jeffrey J. Steiner; (ii) any member of Jeffrey J. Steiner's immediate family or any of his lineal descendants; (iii) any trust or estate the principal beneficiaries of which are persons referred to in clause (i) or (ii); (iv) in the event of the incompetence or death of any of the persons described in clauses (i) and (ii), such person's estate, executor, administrator, committee or other personal representative or beneficiaries; and (v) any Affiliate or associate (as defined in the Exchange Act) of the persons described in clauses (i), (ii), (iii) and (iv). "Permitted Investment" means an Investment in (1) the Company or a Restricted Subsidiary or a Person which will, upon the making of such Investment, become a Restricted Subsidiary; (2) another Person, if as a result of such Investment such other Person is merged or consolidated with or into, or transfers or conveys all or substantially all its assets to, the Company or a Restricted Subsidiary; (3) Temporary Cash Investments; (4) Trade Payables; (5) loans or advances to officers, directors or employees of the Company or any of its Restricted Subsidiaries for travel, transportation, entertainment, and moving and other relocation expenses and other business expenses that are expected at the time of such advances ultimately to be treated as expenses for accounting purposes and that are made in the ordinary course of business; (6) loans or advances to employees made in the ordinary course of business consistent with past practices of the Company or such Restricted Subsidiary, as the case may be; (7) stock, obligations or securities received (A) in settlement of debts created in the ordinary course of business and owing to the Company or any Restricted Subsidiary; (B) in satisfaction of judgments; or (C) as consideration in connection with an Asset Disposition permitted under Section 4.06; 18 (8) Investments deemed to have been made as a result of the acquisition of a Person that at the time of such acquisition held instruments constituting Investments that were not acquired in contemplation of the acquisition of such Person; (9) Unrestricted Subsidiaries, joint ventures and other Persons, provided that at the time such Investment is made the net amount of all Investments made pursuant to this clause (9) after the Issue Date does not exceed 7.5% of Consolidated Tangible Assets. The net amount of such Investments as of any date of determination shall be determined by subtracting (A) the aggregate amount of all payments of interest on Indebtedness, dividends or repayments of loans or other transfers of cash or assets received by the Company or a Restricted Subsidiary as a return of or on such Investment from (B) the aggregate amount of all such Investments made by the Company and the Restricted Subsidiaries pursuant to this clause (9); and (10) the transfer of all of the assets and liabilities of the Optical Disc Equipment Group business of Fairchild Technologies Optical Disc Equipment Group GmbH to an Unrestricted Subsidiary. "Permitted Liens" means, with respect to any Person, (a) pledges or deposits by such Person under workmen's compensation laws, unemployment insurance laws or similar legislation, or good faith deposits in connection with bids, tenders, contracts (other than for the payment of Indebtedness) or leases to which such Person is a party, or deposits to secure public or statutory obligations of such Person or deposits or cash or United States government bonds to secure surety or appeal bonds to which such Person is a party, or deposits as security for contested taxes or import duties or for the payment of rent, in each case Incurred in the ordinary course of business; (b) Liens imposed by law, including carriers', warehousemen's and mechanics' Liens, in each case for sums not yet due or being contested in good faith by appropriate proceedings; or other Liens arising out of judgments or awards against such Person with respect to which such Person shall then be proceeding with an appeal or other proceedings for review; (c) Liens for taxes, assessments or other governmental charges not yet subject to penalties for non-payment or which are being contested in good faith by appropriate proceedings provided appropriate reserves have been taken on the books of the Com pany; (d) Liens in favor of issuers of surety bonds or letters of credit issued pursuant to the request of and for the account of such Person in the ordinary course of its business; provided, however, that such letters of credit do not constitute Indebtedness; (e) Liens 19 securing an Interest Rate Protection Agreement so long as the related Indebtedness is, and is permitted to be under the Indenture, secured by a Lien on the same property securing the Interest Rate Protection Agreement; (f) Liens for the purpose of securing the payment (or the refinancing of the payment) of all or a part of any purchase money Indebtedness relating to assets or property acquired or constructed in the ordinary course of business provided that (x) the aggregate principal amount of Indebtedness secured by such Liens shall not exceed the cost of the assets or property so acquired or constructed and (y) such Liens shall not encumber any other assets or property of the Company or any Restricted Subsidiary other than such Assets or property and assets affixed or appurtenant thereto; and (g) Liens arising from precautionary Uniform Commercial Code financing statement filings regarding operating leases entered into by the Company and its Subsidiaries in the ordinary course of business. "Person" means any individual, corporation, partnership, limited liability company, joint venture, association, joint-stock company, trust, unincorporated organization, government or any agency or political subdivision thereof or any other entity. "Plans" means any employee benefit plan, retirement plan, deferred compensation plan, restricted stock plan, health, life, disability or other insurance plan or program, employee stock purchase plan, employee stock ownership plan, pension plan, stock option plan or similar plan or arrangement of the Company or any Subsidiary, or any successor thereof and "Plan" shall have a correlative meaning. "Preferred Stock," as applied to the Capital Stock of any corporation, means Capital Stock of any class or classes (however designated) which is preferred as to the payment of dividends, or as to the distribution of assets upon any voluntary or involuntary liquidation or dissolution of such corporation, over shares of Capital Stock of any other class of such corporation. "principal" of a Security means the principal of the Security plus the premium, if any, payable on the Security which is due or overdue or is to become due at the relevant time. "Public Equity Offering" means an underwritten primary public offering of Capital Stock (other than Disqualified Stock) of the Company pursuant to an effective registration statement under the Securities Act. 20 "Refinancing Indebtedness" means Indebtedness that refunds, refinances, replaces, renews, repays or extends (including pursuant to any defeasance or discharge mechanism) (collectively, "refinances," and "refinanced" shall have a correlative meaning) any Indebtedness existing on the Issue Date or Incurred in compliance with the Indenture (including Indebtedness of the Company that refinances Indebtedness of any Restricted Subsidiary) including Indebtedness that refinances Refinancing Indebtedness; provided, however, that (1) the Refinancing Indebtedness has Stated Maturity no earlier than any Stated Maturity of the Indebtedness being refinanced; (2) the Refinancing Indebtedness has an Average Life at the time such Refinancing Indebtedness is Incurred that is equal to or greater than the Average Life of the Indebtedness being refi nanced; and (3) such Refinancing Indebtedness is Incurred in an aggregate princi pal amount (or if issued with original issue discount, an aggre gate issue price) that is equal to or less than the sum of (x) the aggregate principal amount (or if issued with original issue discount, the aggregate accreted value) of the Indebtedness being refinanced (including, with respect to both the Refinancing Indebtedness and the Indebtedness being refinanced, amounts then outstanding and amounts available thereunder) plus (y) unpaid interest, prepayment penalties, redemption or repurchase premiums, defeasance costs, fees, expenses and other amounts owing with respect thereto, plus reasonable financing fees and other reasonable out-of-pocket expenses incurred in connection therewith; provided further, however, that (i) Refinancing Indebtedness shall not include Indebtedness of a Restricted Subsidiary that refinances Indebtedness of the Company and (ii) clauses (1) and (2) above will not apply to any Indebtedness that refinances Indebted ness Incurred pursuant to the New Credit Facility. "Registration Rights Agreement" means the Registration Rights Agree ment dated April 15, 1999, between the Company, the Subsidiary Guarantors and Credit Suisse First Boston Corporation, Donaldson, Lufkin & Jenrette Securities Corporation, 21 Salomon Smith Barney Inc., NationsBanc Montgomery Securities LLC and Warburg Dillon Read LLC. "Representative" means the trustee, agent or other representative (if any) for an issue of Senior Indebtedness. "Restricted Payment" with respect to any Person means (1) the declaration or payment of any dividends or any other distributions of any sort in respect of its Capital Stock (including any payment in connection with any merger or consolidation involving such Person) or similar payment to the direct or indirect holders of its Capital Stock (other than dividends or distributions payable solely in its Capital Stock (other than Disqualified Stock, Capital Stock or assets of a Restricted Subsidiary) and dividends or distributions payable solely to the Company or a Restricted Subsidiary, and other pro rata dividends or other distributions made by a Subsidiary that is not a Wholly Owned Subsidiary to minority stockholders (or owners of an equivalent interest in the case of a Subsidiary that is an entity other than a corporation)); (2) the purchase, redemption or other acquisition or retirement for value of any Capital Stock of the Company held by any Person or of any Capital Stock of any Restricted Subsidiary held by any Affiliate of the Company (other than a Restricted Subsidiary), including the exercise of any option to exchange any Capital Stock (other than into Capital Stock of the Company that is not Disqualified Stock); (3) the purchase, repurchase, redemption, defeasance or other acquisition or retirement for value, prior to scheduled maturity, scheduled repayment or scheduled sinking fund payment of any Subordinated Obligations (other than the purchase, repurchase, or other acquisition of Subordinated Obligations purchased in anticipation of satisfying a sinking fund obligation, principal installment or final maturity, in each case due within one year of the date of acquisition); or (4) the making of any Investment in any Person (other than Permitted Investment). 22 "Restricted Subsidiary" means any Subsidiary of the Company that is not an Unrestricted Subsidiary. "SEC" means the Securities and Exchange Commission. "Secured Indebtedness" means any Indebtedness of the Company or any Subsidiary Guarantor secured by a Lien. "Securities" means the Initial Securities, the Exchange Securities and the Private Exchange Securities, treated as a single class of securities, as amended or supplemented from time to time. "Securities Act" means the Securities Act of 1933, as amended. "Senior Indebtedness" means with respect to the Company or any Subsidiary Guarantor (1) all Bank Indebtedness; and (2) all other Indebtedness of the Company or a Subsidiary Guarantor including interest and fees thereon, whether outstanding on the Issue Date or thereafter issued or Incurred, unless in the instrument creating or evidencing the same or pursuant to which the same is outstanding it is provided that such obligations are not superior in right of payment to the Securities or the applicable Subsidiary Guarantee; provided, however, that Senior Indebtedness shall not include (1) any liability for Federal, state, local or other taxes owed or owing by the Company; (2) any Trade Payables; (3) any Indebtedness, Guarantee or obligation of the Company or a Subsidiary Guarantor which is subordinate or junior in any respect to any other Indebtedness, Guarantee or obligation of the Company or such Subsidiary Guarantor, including any Senior Subordinated Indebtedness and any Subordinated Obligations; and (4) any obligations with respect to any Capital Stock. "Senior Subordinated Indebtedness" means the Securities and any other Indebtedness of the Company or a Subsidiary Guarantor that specifically provides that such Indebtedness is to rank pari passu with the Securities or the applicable Subsidiary Guarantee in right of payment and is not subordinated by its terms in right of payment to any Indebtedness or other obligation of the Company or such Subsidiary Guarantor which is not Senior Indebtedness. "Significant Subsidiary" means a Restricted Subsidiary of the Company that is a "significant subsidiary" as defined in Rule 1-02 of Regulation S-X promulgated under the Securities Act and the Exchange Act. 23 "Stated Maturity" means, with respect to any security, the date specified in such security as the fixed date on which the payment of principal of such security is due and payable, including pursuant to any mandatory redemption provision (but excluding any provision providing for the repurchase of such security at the option of the holder thereof upon the happening of any contingency beyond the control of the issuer unless such contingency has occurred). "Subordinated Obligation" means any Indebtedness of the Company or a Subsidiary Guarantor (whether outstanding on the Issue Date or thereafter incurred) that is contractually subordinated or junior in right of payment to the Securities or the applicable Subsidiary Guarantee pursuant to a written agreement. "Subsidiary" of any Person means any corporation, association, partnership or other business entity of which more than 50% of the total voting power of shares of Voting Stock is at the time owned or controlled, directly or indirectly, by (1) such Person, (2) such Person and one or more Subsidiaries of such Person or (3) one or more Subsidiaries of such Person. Unless the context requires otherwise, "Subsidiary" shall refer to a Subsidiary of the Company. "Subsidiary Guarantee" means a Guarantee by a Subsidiary Guarantor of the Company's obligations with respect to the Securities. "Subsidiary Guarantor" means any Subsidiary of the Company that Guarantees the Company's Obligations with respect to the Securities. "Temporary Cash Investments"means any of the following: (1) investments in U.S. Government Obligations; (2) investments in time deposit accounts, certificates of deposit and money market deposits maturing within 180 days of the date of acquisition thereof issued by a bank or trust company which is organized under the laws of the United States of America, any State thereof or any foreign country recognized by the United States of America having capital, surplus and undivided profits aggregating in excess of $50 million (or the Dollar Equivalent thereof) and whose long-term debt is rated "A-" or higher according to Moody's Investors Service, Inc. (or such equivalent rating by at least one "nationally recognized statistical rating organization" (as defined in Rule 436 under the Securities Act)); 24 (3) repurchase obligations with a term of not more than 30 days for underlying securities of the types described in clause (1) above entered into with a bank meeting the qualifications described in clause (2) above; (4) investments in commercial paper, maturing not more than 90 days after the date of acquisition, issued by a corporation (other than an Affiliate of the Company) organized and in existence under the laws of the United States of America or any foreign country recognized by the United States of America with a rating at the time as of which any investment therein is made of "P-1" (or higher) according to Moody's Investors Service, Inc. or "A-1" (or higher) according to Standard and Poor's Rating Services; and (5) investments in securities with maturities of six months or less from the date of acquisition issued or fully guaranteed by any state, common wealth or territory of the United States of America, or by any political subdivision or taxing authority thereof, and rated at least "A" by Standard & Poor's Rating Services or "A" by Moody's Investors Service, Inc. "Trade Payables" means, with respect to any Person, any accounts payable or any indebtedness or monetary obligation to trade creditors created, assumed or Guaranteed by such Person arising in the ordinary course of business of such Person in connection with the acquisition of goods or services. "TIA" means the Trust Indenture Act of 1939 (15 U.S.C. Sections 77aaa- 77bbbb) as in effect on the Issue Date, except as provided in Section 9.03. "Trustee" means the party named as such in this Indenture until a successor replaces it and, thereafter, means the successor. "Trust Officer" means any officer within the corporate trust department of the Trustee, including any vice president, assistant vice president, assistant secretary, assistant treasurer, trust officer or any other officer of the Trustee who customarily performs functions similar to those performed by the Persons who at the time shall be such officers, respectively, or to whom any corporate trust matter is referred because of such person's knowledge of and familiarity with the particular subject and who shall have direct responsibility for the administration of this Indenture. 25 "Uniform Commercial Code" means the New York Uniform Commercial Code as in effect from time to time. "U.S. Government Obligations" means direct obligations (or certificates representing an ownership interest in such obligations) of the United States of America (including any agency or instrumentality thereof) for the payment of which the full faith and credit of the United States of America is pledged and which are not callable at the issuer's option. "Unrestricted Subsidiary" means (1) Fairchild Germany, Inc., Fairchild Technologies USA, Inc., Fairchild Technologies Europe Limited, Fairchild Technologies Korea Limited, Fairchild Technologies Semiconductor Equipment, Convac France SA, Snails, Inc., Fairchild CDI SA, MediaDisc SA, Cutek Research, Inc., Gobble Gobble, Inc. and Warthog, Inc., which Subsidiaries on the Issue Date, hold only the Company's Farmingdale, Long Island project, the interest of the Company in Nacanco Paketleme and substantially all the business and assets of the Company's technology products unit, plus up to $5.0 million in cash in the aggregate invested in the Subsidiary hold ing the Farmingdale, Long Island project; (2) any Subsidiary of the Company that at the time of determination shall be or continues to be designated an Unrestricted Subsidiary by the Board of Directors in the manner provided below; and (3) any Subsidiary of an Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary of the Company (including any newly acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary (a "Designation") unless: (a) a Default shall have occurred and be continuing at the time of or after giving effect to the Designation; (b) such Subsidiary or any of its Subsidiaries owns any Capital Stock or Indebtedness of, or holds any Lien on any property of, the Company or any other Restricted Subsidiary of the Company that is not a Subsidiary of the Subsidiary to be so designated; and 26 (c) either (x) the assets of such Subsidiary do not exceed $1,000 or (y) the Company would be permitted under the Indenture to make an Investment at the time of Designation (assuming the effectiveness of such Designation) under Section 4.04. The Board of Directors may revoke any designation of a Subsidiary as an Unrestricted Subsidiary (a "Revocation") if: (a) no Default shall have occurred and be continuing at the time of such Revocation; and (b) all Liens and Indebtedness of such Unrestricted Subsidiary outstanding immediately following such Revocation would, if Incurred at such time, have been permitted to be Incurred for all purposes of the Indenture and for all purposes of the Indenture shall be deemed to have been Incurred at such time. All Designations and Revocations must be evidenced by resolutions of the Board of Directors delivered to the Trustee certifying compliance with the foregoing provisions. "Voting Stock" of a Person means all classes of Capital Stock or other interests (including partnership interests) of such Person then outstanding and normally entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof. "Wholly Owned Subsidiary" means a Restricted Subsidiary of the Company all the Capital Stock of which (other than directors' qualifying shares) is owned by the Company or another Wholly Owned Subsidiary. SECTION 1.02. OTHER DEFINITIONS. ----------------- Term Defined in Section - ---- ------------------ "Affiliate Transaction"..................................... 4.07(a) "Bankruptcy Law"............................................ 6.01 "Blockage Notice"........................................... 10.03 "Change of Control Offer"................................... 4.09(b) "covenant defeasance option"................................ 8.01(b) "Custodian"................................................. 6.01 "Depositary".......................................... Appendix - 1.1 "Event of Default".......................................... 6.01 27 tee "Exchange Securities".................................. Appendix - 1.1 "Initial Purchasers"................................... Appendix - 1.1 "Initial Securities"................................... Appendix - 1.1 "legal defeasance option"..................................... 8.01(b) "Legal Holiday"............................................... 13.08 "Notice of Default"........................................... 6.01 "Offer"....................................................... 4.06(b) "Offer Amount"............................................. 4.06(c)(2) "pay the Securities".......................................... 10.03 "Paying Agent"................................................ 2.03 "Payment Blockage Period"..................................... 10.03 "Payment Restrictions"........................................ 4.05 "Private Exchange"..................................... Appendix - 1.1 "Private Exchange Securities".......................... Appendix - 1.1 "Purchase Agreement"................................... Appendix - 1.1 "Purchase Date"........................................ 4.06(c)(1) "QIB".................................................. Appendix - 1.1 "Registered Exchange Offer"............................ Appendix - 1.1 "Registrar"................................................... 2.03 "Securities Custodian"................................. Appendix - 1.1 "Shelf Registration Statement"......................... Appendix - 1.1 "Successor Company"........................................... 5.01 "Successor Guarantor"......................................... 5.02 "Transfer Restricted Securities"....................... Appendix - 1.1 SECTION 1.03. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT. This ------------------------------------------------- Indenture is subject to the mandatory provisions of the TIA which are incorporated by reference in and made a part of this Indenture. The following TIA terms have the following meanings: "Commission" means the SEC; "indenture securities" means the Securities; "indenture security holder" means a Securityholder; "indenture to be qualified" means this Indenture; "indenture trustee" or "institutional trustee" means the Trustee; and 28 "obligor" on the indenture securities means the Company and any other obligor on the indenture securities. All other TIA terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by SEC rule have the meanings assigned to them by such definitions. 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) "including" means including without limitation; (5) words in the singular include the plural and words in the plural include the singular; (6) unsecured Indebtedness shall not be deemed to be subordinate or junior to Secured Indebtedness merely by virtue of its nature as unsecured Indebtedness; (7) the principal amount of any noninterest bearing or other discount security at any date shall be the principal amount thereof that would be shown on a balance sheet of the issuer dated such date prepared in accordance with GAAP; (8) the principal amount of any Preferred Stock shall be (i) the maximum liquidation value of such Preferred Stock or (ii) the maximum mandatory redemption or mandatory repurchase price with respect to such Preferred Stock, whichever is greater; (9) all references to the date the Securities were originally issued shall refer to the Issue Date; and 29 (10) all references to any payment of principal, purchase prices in connection with a purchase of the Securities and interest or any other amount payable on or with respect to such Securities shall be deemed to include payment of any additional cash interest pursuant to the Registration Rights Agreement. SECTION 1.05. ONE CLASS OF SECURITIES. ----------------------- The Initial Securities, the Private Exchange Securities, the Exchange Securities and, if issued in accordance with Section 2.13, the Additional Securities shall vote and consent together on all matters as one class of securities and none of the Initial Securities, the Private Exchange Securities, the Exchange Securities or, if issued in accordance with Section 2.13, the Additional Securities shall have the right to vote or consent as a separate class on any matter. ARTICLE II THE SECURITIES -------------- SECTION 2.01. FORM AND DATING. Provisions relating to the Initial --------------- Securities, the Private Exchange Securities and the Exchange Securities are set forth in the Rule 144A/Regulation S Appendix attached hereto (the "Appendix") which is hereby incorporated in and expressly made part of this Indenture. The Initial Securities and the Trustee's certificate of authentication shall be substantially in the form of Exhibit A which is hereby incorporated in and expressly made a part of this Indenture. The Exchange Securities and the Private Exchange Securities and the Trustee's certificate of authentication shall be substantially in the form of Exhibit B, which is hereby incorporated in and expressly made a part of this Indenture. The Securities may have notations, legends or endorsements required by law, stock exchange rule, agreements to which the Company is subject, if any, or usage (provided that any such notation, legend or endorsement is in a form acceptable to the Company). Each Security shall be dated the date of its authentication. The terms of the Securities set forth in the Appendix and Exhibits A and B are part of the terms of this Indenture. SECTION 2.02. EXECUTION AND AUTHENTICATION. Two Officers shall sign ---------------------------- the Securities for the Company by manual or facsimile signature. 30 If an Officer whose signature is on a Security no longer holds that office at the time the Trustee authenticates the Security, the Security shall be valid nevertheless. A Security shall not be valid until an authorized signatory of the Trustee manually signs the certificate of authentication on the Security. The signature shall be conclusive evidence that the Security has been authenticated under this Indenture. On the Issue Date, the Trustee shall authenticate and deliver $225 million of 10 3/4% Senior Subordinated Notes due 2009 and, at any time and from time to time thereafter, the Trustee shall authenticate and deliver Securities for original issue in an aggregate principal amount specified in such order, in each case upon a written order of the Company signed by two Officers of the Company. Such order shall specify the amount of the Securities to be authenticated and the date on which the original issue of Securities is to be authenticated and, in the case of an issuance of Additional Securities pursuant to Section 2.13 after the Issue Date, shall certify that such issuance is in compliance with Section 4.03. The Trustee may appoint an authenticating agent reasonably acceptable to the Company to authenticate the Securities. Unless limited by the terms of such appointment, an authenticating agent may authenticate Securities 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 any Registrar, Paying Agent or agent for service of notices and demands. SECTION 2.03. REGISTRAR AND PAYING AGENT. The Company shall maintain -------------------------- an office or agency where Securities may be presented for registration of transfer or for exchange (the "Registrar") and an office or agency where Securities may be presented for payment (the "Paying Agent"). The Registrar shall keep a register of the Securities and of their transfer and exchange. The Company may have one or more co-registrars and one or more additional paying agents. The term "Paying Agent" includes any additional paying agent. The Company shall enter into an appropriate agency agreement with any Registrar or Paying Agent or co-registrar not a party to this Indenture, which shall incorporate the terms of the TIA. The agreement shall implement the provisions of this Indenture that relate to such agent. The Company shall notify the Trustee of the name and address of any such agent and any change in the address of such agent. If the Company fails to maintain a Registrar or Paying Agent, the Trustee shall act as such 31 and shall be entitled to appropriate compensation therefor pursuant to Section 7.07. The Company or any of its domestically incorporated Wholly Owned Subsidiaries may act as Paying Agent, Registrar, co-registrar or transfer agent. The Company initially appoints the Trustee as Registrar and Paying Agent in connection with the Securities. SECTION 2.04. PAYING AGENT TO HOLD MONEY IN TRUST. ----------------------------------- On or prior to each due date of the principal and interest on any Security, the Company shall deposit with the Paying Agent a sum sufficient to pay such principal and interest when so becoming due. The Company shall require each Paying Agent (other than the Trustee) to agree in writing that the Paying Agent shall hold in trust for the benefit of Securityholders or the Trustee all money held by the Paying Agent for the payment of principal of or interest on the Securities and shall notify the Trustee of any default by the Company in making any such payment. If the Company or a Subsidiary acts as Paying Agent, it shall segregate the money held by it as Paying Agent and hold it as a separate trust fund. The Company at any time may require a Paying Agent to pay all money held by it to the Trustee and to account for any funds disbursed by the Paying Agent. Upon complying with this Section, the Paying Agent shall have no further liability for the money delivered to the Trustee. SECTION 2.05. SECURITYHOLDER 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 Securityholders. If the Trustee is not the Registrar, the Company shall furnish to the Trustee, in writing at least five Business Days before each interest payment date and at such other times as the Trustee may reasonably 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 Securityholders. SECTION 2.06. TRANSFER AND EXCHANGE. The Securities shall be issued in --------------------- registered form without coupons and shall be transferable only upon the surrender of a Security for registration of transfer. When a Security is presented to the Registrar or a co-registrar with a request to register a transfer, the Registrar shall register the transfer as requested if the requirements of Section 8-401(1) of the Uniform Commercial Code are met. When Securities are presented to the Registrar or a co-registrar with a request to exchange them for an equal principal amount of Securities of other denominations, the Registrar shall make the exchange as requested if the same requirements are met. To permit registration of transfers and exchanges, the Company shall execute and the Trustee shall authenticate Securities at the Registrar's or co- 32 registrar's request. The Company may require payment of a sum sufficient to pay all taxes, assessments or other governmental charges in connection with any transfer or exchange pursuant to this Section. The Company shall not be required to make and the Registrar need not register transfers or exchanges of Securities selected for redemption (except, in the case of Securities to be redeemed in part, the portion thereof not to be redeemed) or any Securities for a period of 15 days before the mailing of a notice of redemption of Securities to be redeemed or 15 days before an interest payment date. Prior to the due presentation for registration of transfer of any Security, the Company, the Trustee, the Paying Agent, the Registrar or any co- registrar may deem and treat the person in whose name a Security is registered as the absolute owner of such Security for the purpose of receiving payment of principal of and interest on such Security and for all other purposes whatsoever, whether or not such Security is overdue, and none of the Company, the Trustee, the Paying Agent, the Registrar or any co-registrar shall be affected by notice to the contrary. All Securities issued upon any transfer or exchange pursuant to the terms of this Indenture shall evidence the same debt and shall be entitled to the same benefits under this Indenture as the Securities surrendered upon such transfer or exchange. The Trustee shall have no obligation or duty to monitor, determine or inquire as to compliance with any restrictions on transfer imposed under this Indenture or under applicable law with respect to any transfer of any interest in any Security (including any transfers between or among a participant in the Depositary or beneficial owners of interests in any Global Security) other than as are expressly required by, and to do so if and when expressly required by the terms of this Indenture. SECTION 2.07. REPLACEMENT SECURITIES. If a mutilated Security is ---------------------- surrendered to the Registrar or if the Holder of a Security claims that the Security has been lost, destroyed or wrongfully taken, the Company shall issue and the Trustee shall authenticate a replacement Security if the requirements of Section 8-405 of the Uniform Commercial Code are met and the Holder satisfies any other reasonable requirements of the Company and the Trustee. If required by the Trustee or the Com pany, such Holder shall furnish an indemnity bond sufficient in the judgment of the Company and the Trustee to protect the Company, the Trustee, the Paying Agent, the Registrar and any co-registrar from any loss which any of them may suffer if a Security is replaced. The Company and the Trustee may charge the Holder for their expenses in replacing a Security. 33 Every replacement Security is an additional obligation of the Company. SECTION 2.08. OUTSTANDING SECURITIES. Securities outstanding at any ---------------------- time are all Securities authenticated by the Trustee except for those canceled by it, those delivered to it for cancellation and those described in this Section as not outstanding. Except as set forth in Section 13.06, a Security does not cease to be outstanding because the Company or an Affiliate of the Company holds the Security. If a Security is replaced pursuant to Section 2.07, it ceases to be out standing unless the Trustee and the Company receive proof satisfactory to them that the replaced Security is held by a bona fide purchaser. If the entire amount of their principal and all accrued and unpaid interest on any Securities are considered paid under Section 4.01 on the date such amounts are due, such Securities shall cease to be outstanding under this Indenture and interest on such Securities shall cease to accrue from and after such date. If the Paying Agent segregates and holds in trust, in accordance with this Indenture, on a redemption date or maturity date money sufficient to pay all principal and interest payable on that date with respect to the Securities (or portions thereof) to be redeemed or maturing, as the case may be, and the Paying Agent is not prohibited from paying such money to the Securityholders on that date pursuant to the terms of this Indenture, then on and after that date such Securities (or portions thereof) cease to be outstanding and interest on them ceases to accrue. SECTION 2.09. TEMPORARY SECURITIES. Until definitive Securities are -------------------- ready for delivery, the Company may prepare and the Trustee shall authenticate temporary Securities. Temporary Securities shall be substantially in the form of definitive Securities but may have variations that the Company considers appropriate for temporary Securities. Without unreasonable delay, the Company shall prepare and the Trustee shall authenticate definitive Securities and deliver them in exchange for temporary Securities. SECTION 2.10. CANCELLATION. The Company at any time may deliver ------------ Securities to the Trustee for cancellation. The Registrar and the Paying Agent shall forward to the Trustee any Securities surrendered to them for registration of transfer, exchange or payment. The Trustee and no one else shall cancel in accordance with its customary practice all Securities surrendered for registration of transfer, 34 exchange, payment or cancellation. The Company may not issue new Securities to replace Securities it has redeemed, paid or delivered to the Trustee for cancellation. SECTION 2.11. DEFAULTED INTEREST. If the Company defaults in a payment ------------------ of interest on the Securities, the Company shall pay defaulted interest (plus interest on such defaulted interest to the extent lawful at the rate per annum borne by the Securities) in any lawful manner. The Company may pay the defaulted interest to the persons who are Securityholders on a subsequent special record date. The Company shall fix or cause to be fixed any such special record date and payment date to the satisfaction of the Trustee and shall promptly mail to each Securityholder a notice within 10 days of fixing or causing to be fixed such special record date that states the special record date (which shall not be more than 20 days from the interest payment date applicable thereto), the payment date and the amount of defaulted interest to be paid. SECTION 2.12. CUSIP NUMBERS. The Company in issuing the Securities may ------------- use "CUSIP" numbers (if then generally in use) and, if so, the Trustee shall use "CUSIP" numbers in notices of redemption as a convenience to Holders; provided, -------- however, that any such notice may state that no representation is made as to the - ------- correctness of such numbers either as printed on the Securities or as contained in any notice of a redemption and that reliance may be placed only on the other identification numbers printed on the Securities, and any such redemption shall not be affected by any defect in or omission of such numbers. The Company will promptly notify the Trustee of any change in CUSIP numbers. SECTION 2.13. ISSUANCE OF ADDITIONAL SECURITIES. The Company shall be --------------------------------- entitled, subject to its compliance with Section 4.03, to issue Additional Securities under this Indenture which shall have identical terms as the Initial Securities issued on the Issue Date, other than with respect to the date of issuance, issue price and amount of interest payable on the first payment date applicable thereto (and, if such Additional Securities shall be issued in the form of Exchange Securities, other than with respect to transfer restrictions). The Initial Securities issued on the Issue Date, any Additional Securities and all Exchange Securities or Private Exchange Securities issued in exchange therefor shall be treated as a single class of securities for all purposes under this Indenture. With respect to any Additional Securities, the Company shall set forth in a resolution of the Board of Directors and an Officers' Certificate, a copy of each which shall be delivered to the Trustee, the following information: 35 (1) the aggregate principal amount of such Additional Securities to be authenticated and delivered pursuant to this Indenture; (2) the issue price, the issue date and the CUSIP number of such Additional Securities and the amount of interest payable on the first payment date applicable thereto; provided, however, that no Additional Securities -------- ------- may be issued at a price that would cause such Additional Securities to have "original issue discount" within the meaning of Section 1273 of the Code; and (3) whether such Additional Securities shall be transfer restricted securities and issued in the form of Initial Securities or shall be issued in the form of Exchange Securities as set forth in the Appendix. ARTICLE III REDEMPTION ---------- SECTION 3.01. NOTICES TO TRUSTEE. If the Company elects to redeem ------------------ Securities pursuant to paragraph 5 of the Securities, it shall notify the Trustee in writing of the redemption date, the principal amount of Securities to be redeemed and the paragraph of the Securities pursuant to which the redemption shall occur. The Company shall give each notice to the Trustee provided for in this Section at least 60 days before the redemption date unless the Trustee consents to a shorter period. Such notice shall be accompanied by an Officers' Certificate and an Opinion of Counsel from the Company to the effect that such redemption shall comply with the conditions herein. SECTION 3.02. SELECTION OF SECURITIES TO BE REDEEMED. If fewer than -------------------------------------- all the Securities are to be redeemed, the Trustee shall select the Securities to be redeemed in accordance with the requirements of the principal national securities exchange, if any, on which the Securities are listed, or if the Securities are not so listed, on a pro rata basis, by lot or by a method as the Trustee in its sole discretion shall deem to be fair and appropriate. The Trustee shall make the selection from outstanding Securities not previously called for redemption. The Trustee may select for redemption portions of the principal of Securities that have denominations larger than $1,000. 36 Securities and portions of them the Trustee selects shall be in amounts of $1,000 or a whole multiple of $1,000. Provisions of this Indenture that apply to Securities called for redemption also apply to portions of Securities called for redemption. The Trustee shall notify the Company promptly of the Securities or portions of Securities to be redeemed. SECTION 3.03. NOTICE OF REDEMPTION. At least 30 days but not more -------------------- than 60 days before a date for redemption of Securities, the Company shall mail a notice of redemption by first-class mail to each Holder of Securities to be redeemed at such Holder's registered address, which notice shall also be given to the Trustee. The notice shall identify the Securities (including CUSIP numbers) to be redeemed and shall state: (1) the redemption date; (2) the redemption price; (3) the name and address of the Paying Agent; (4) that Securities called for redemption must be surrendered to the Paying Agent to collect the redemption price; (5) if fewer than all the outstanding Securities are to be redeemed, the identification and principal amounts of the particular Securities to be redeemed; (6) that, unless the Company defaults in making such redemption payment or the Paying Agent is prohibited from making such payment pursuant to the terms of this Indenture, interest on Securities (or portions thereof) called for redemption ceases to accrue on and after the redemption date; and (7) 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 Securities. At the Company's request, the Trustee shall give the notice of redemp- tion in the Company's name and at the Company's expense. In such event, the Company shall provide the Trustee with the information required by this Section. 37 SECTION 3.04. EFFECT OF NOTICE OF REDEMPTION. Once notice of ------------------------------ redemption is mailed, Securities called for redemption become due and payable on the redemption date and at the redemption price stated in the notice. Upon surrender to the Paying Agent, such Securities shall be paid at the redemption price stated in the notice, plus accrued interest to the redemption date ---- (subject to the right of Holders of record on the relevant record date to receive interest due on the related interest payment date). Failure to give notice or any defect in the notice to any Holder shall not affect the validity of the notice to any other Holder. SECTION 3.05. DEPOSIT OF REDEMPTION PRICE. On or prior to the --------------------------- redemption date, the Company shall deposit with the Paying Agent (or, if the Company or a Subsidiary is the Paying Agent, shall segregate and hold in trust) money sufficient to pay the redemption price of and accrued interest on all Securities to be redeemed on that date other than Securities or portions of Securities called for redemption which have been delivered by the Company to the Trustee for cancellation. SECTION 3.06. SECURITIES REDEEMED IN PART. Upon surrender of a --------------------------- Security that is redeemed in part, the Company shall execute and the Trustee shall authenticate for the Holder (at the Company's expense) a new Security equal in principal amount to the unredeemed portion of the Security surrendered. ARTICLE IV COVENANTS --------- SECTION 4.01. PAYMENT OF SECURITIES. The Company shall promptly pay --------------------- the principal of and interest on the Securities on the dates and in the manner provided in the Securities and in this Indenture. Principal and interest shall be considered paid on the date due if on such date the Trustee or the Paying Agent holds in accordance with this Indenture money sufficient to pay all principal and interest then due and the Trustee or the Paying Agent, as the case may be, is not prohibited from paying such money to the Securityholders on that date pursuant to the terms of this Indenture. The Company shall pay interest on overdue principal at the rate specified therefor in the Securities, and it shall pay interest on overdue installments of interest at the same rate, in each case, to the extent lawful. 38 SECTION 4.02. SEC REPORTS. Whether or not subject to the reporting ----------- requirements of Section 13 or 15(d) of the Exchange Act, the Company shall file with the SEC (unless such filing is not permitted under the Exchange Act) within the time periods specified in the SEC's rules and regulations and provide the Trustee and the Securityholders with such annual reports and such information, documents and other reports as are specified in Sections 13 and 15(d) of the Exchange Act and applicable to a U.S. corporation subject to such Sections and make such information available to securities analysts and prospective investors upon request. The Company also shall comply with the other provisions of TIA (S) 314(a). Delivery of such SEC reports and information and documents to the Trustee is for informational purposes only and the Trustee's receipt of such shall not constitute constructive notice of any information contained therein or determinable from information contained therein, including the Company's compliance with any of its covenants hereunder (as to which the Trustee is entitled to rely exclusively on Officers' Certificates). SECTION 4.03. LIMITATION ON INDEBTEDNESS. (a) The Company will not, -------------------------- and will not permit any Restricted Subsidiary to, Incur, directly or indirectly, any Indebtedness; provided, however, that the Company or any Restricted Subsidiary may Incur Indebtedness if, on the date of such Incurrence and after giving effect thereto on a pro forma basis, the Consolidated Coverage Ratio would be equal to or greater than 2.0 to 1.0. (b) Notwithstanding the foregoing paragraph (a), the Company and the Restricted Subsidiaries may Incur any or all of the following Indebtedness: (1) Indebtedness Incurred by the Company or any Restricted Subsidiary pursuant to the New Credit Facility; provided, however, that, after giving effect to any such Incurrence, the aggregate principal amount of such Indebtedness then outstanding does not exceed the greater of (x) $375 million and (y) an amount equal to the sum of (i) 80% of the consolidated book value of the net accounts receivable that are owned by the Company or any of its Restricted Subsidiaries as of the most recently ended fiscal quarter for which financial statements are available, plus (ii) 60% of the consolidated book value of the inventory owned by the Company or any of its Restricted Subsidiaries as of such date, all as calculated on a consolidated basis and in accordance with GAAP; 39 (2) Indebtedness Incurred by any Foreign Restricted Subsidiary; provided, however, that, after giving effect to any such Incurrence, the aggregate principal amount of such Indebtedness then outstanding does not exceed $50 million; (3) Indebtedness owed to and held by the Company or any Restricted Subsidiary; provided, however, that (A) any subsequent issuance or transfer of any Capital Stock which results in any such Restricted Sub- sidiary ceasing to be a Restricted Subsidiary or any subsequent transfer of such Indebtedness (other than to the Company or a Restricted Subsidiary) shall be deemed, in each case, to constitute the Incurrence of such Indebtedness and (B) if the Company is the obligor on such Indebted ness, the payment of such Indebtedness is expressly subordinate to the prior payment in full in cash of all obligations with respect to the Securities; (4) the Securities and the Exchange Securities (other than Additional Securities) and the Subsidiary Guarantees (other than in respect of Additional Securities); (5) Indebtedness (other than the Indebtedness described in clauses (1), (2), (3) or (4) above) outstanding on the Issue Date; (6) Refinancing Indebtedness in respect of Indebtedness Incurred pursuant to paragraph (a) above or pursuant to clause (4) or (5) of this covenant, or this clause (6); provided, however, that if such Refinancing Indebtedness directly or indirectly Refinances Indebtedness of a Restricted Subsidiary, such Refinancing Indebtedness shall be Incurred only by such Restricted Subsidiary; (7) Hedging Obligations directly related to Indebtedness permitted to be Incurred by the Company pursuant to the Indenture; (8) Indebtedness, including Capitalized Lease Obligations and purchase money Indebtedness, Incurred by the Company or its Restricted Subsid- iaries to finance the acquisition of tangible assets (or of any Person owning tangible assets) or other capital expenditures, and Indebtedness Incurred by the Company or its Restricted Subsidiaries to Refinance such Capitalized Lease Obligations and purchase money Indebtedness, in 40 an aggregate outstanding principal amount which, when added together with the amount of Indebtedness Incurred pursuant to this clause (8) and then outstanding, does not exceed $35 million at any time; (9) Indebtedness arising from agreements providing for indemnification, adjustment of purchase price or similar obligations, or from guarantees or letters of credit, surety bonds or performance bonds securing any obligations of the Company or any of its Restricted Subsidiaries pursuant to such agreements, in each case incurred in connection with the acquisition or disposition of any business or assets or subsidiaries of the Company permitted by this Indenture; (10)Indebtedness in respect of performance bonds, bankers' acceptance and surety or appeal bonds provided by the Company or any of its Restricted Subsidiaries in the ordinary course of business; (11)any Guarantee by: (x) the Company of Indebtedness or other obligations of any of the Restricted Subsidiaries and (y) any Subsidiary Guarantor of Indebtedness or other obligations of the Company; provided, that in each case such Indebtedness is incurred in accordance with the terms of this Indenture; and (12)Indebtedness of the Company in an aggregate principal amount which, together with all other Indebtedness of the Company outstanding on the date of such Incurrence (other than Indebtedness permitted by clauses (1) through (11) above or paragraph (a) above), does not exceed $35 million. (c) Notwithstanding the foregoing, the Company or any Restricted Subsidiary shall not Incur any Indebtedness pursuant to the foregoing paragraph (b) if the proceeds thereof are used, directly or indirectly, to refinance any Subordinated Obligations, unless such Indebtedness shall be subordinated to the Securities to at least the same extent as such Subordinated Obligations. (d) For purposes of determining compliance with this Section 4.03, (1) in the event that an item of Indebtedness meets the criteria of more than one of the types of Indebtedness described above, the Company, in its sole discretion, will classify such item of Indebtedness and only be required to include the amount and type of such Indebtedness in one of the above clauses and (2) an item of Indebtedness may be divided and classified under more than one of the types of Indebtedness described above. 41 (e) Notwithstanding Sections 4.03(a) and 4.03(b), the Company shall not Incur any Indebtedness if such Indebtedness is contractually subordinate or junior in right of payment in any respect to any Senior Indebtedness, unless such Indebtedness is Senior Subordinated Indebtedness or is expressly subordinated in right of payment to Senior Subordinated Indebtedness. (f) Notwithstanding Sections 4.03(a) and 4.03(b), no Subsidiary Guarantor shall Incur any Indebtedness if such Indebtedness is contractually subordinate or junior in right of payment in any respect to any Senior Indebtedness, unless such Indebtedness is Senior Subordinated Indebtedness or is expressly subordinated in right of payment to Senior Subordinated Indebtedness. SECTION 4.04. LIMITATION ON RESTRICTED PAYMENTS. (a) The Company ----------------------------------------------- will not, and will not permit any Restricted Subsidiary, directly or indirectly, to make a Restricted Payment if at the time the Company or such Restricted Subsidiary makes such Restricted Payment: (1) a Default shall have occurred and be continuing (or would result there- from); (2) the Company is not able to Incur an additional $1.00 of Indebtedness pursuant to Section 4.03(a) after giving pro forma effect to such Restricted Payment; or (3) the aggregate amount of such Restricted Payment and all other Re- stricted Payments made since the Issue Date would exceed the sum of (without duplication): (A) 50% of the Consolidated Net Income accrued during the period (treated as one accounting period) from the beginning of the fiscal quarter in which the Issue Date occurs to the end of the most recent fiscal quarter prior to the date of such Restricted Payment for which consolidated income statements of the Company are available (or, in case such Consolidated Net Income is a deficit, less 100% of such deficit); plus (B) 100% of the aggregate Net Cash Proceeds and the fair market value of any securities or property (as determined by the Board of Directors in good faith) received by the Company from the issuance or 42 sale of its Capital Stock (other than Disqualified Stock) subsequent to the Issue Date and on or prior to the date of such Restricted Payment (other than an issuance or sale to a Subsidiary of the Company or an issuance or sale to an employee stock ownership plan or to a trust established by the Company or any of its Subsidiaries for the benefit of their employees if the cash used by such plan or trust to purchase such Capital Stock was borrowed, directly or indirectly, from the Company or a Restricted Subsidiary); plus (C) the amount by which the Indebtedness of the Company or any Restricted Subsidiary is reduced on the Company's balance sheet upon the conversion or exchange (other than by a Subsidiary of the Company) subsequent to the Issue Date and on or prior to the date of such Restricted Payment of any Indebtedness of the Company or any Restricted Subsidiary convertible or exchangeable for Capital Stock (other than Disqualified Stock) of the Company (less the amount of any cash, or the fair value of any other property, distributed by the Company or any Restricted Subsidiary upon such conversion or exchange); plus (D) an amount equal to the sum of (x) the net reduction in Investments in Unrestricted Subsidiaries made after the Issue Date and Investments made after the Issue Date in other Persons constituting a Re- stricted Payment resulting from dividends, repayments of loans or advances or other transfers of assets, in each case to the Company or any Restricted Subsidiary from such Unrestricted Subsidiaries or other Persons or received by the Company or any Restricted Subsidiary from the disposition of such Investment and (y) the portion (proportionate to the Company's equity interest in such Subsidiary) of the fair market value of the net assets of an Unrestricted Subsidiary (other than Unrestricted Subsidiaries referred to in clause (1) of the definition thereof, except to the extent of Investments made in such Unrestricted Subsidiaries after the Issue Date) at the time such Unrestricted Subsidiary is designated a Restricted Subsidiary or such other Person at the time such other Person becomes a Restricted Subsidiary; provided, however, that the foregoing sum shall not exceed the aggregate amount of Investments previously made (and treated as a Restricted Payment) by the Company or any Restricted Subsidiary. (b) The provisions of Section 4.04(a) shall not prohibit: 43 (1) any acquisition of any Capital Stock of the Company made by exchange for, or out of the proceeds of the substantially concurrent sale of, Capital Stock of the Company (other than Disqualified Stock and other than Capital Stock issued or sold to a Subsidiary of the Company) or options, warrants or other rights to purchase such Capital Stock; provided, however, that (A) such acquisition shall be excluded in the calculation of the amount of Restricted Payments and (B) the Net Cash Proceeds from such sale shall be excluded from Section 4.03(a)(3)(B) to the extent utilized to acquire any Capital Stock of the Company; (2) any purchase, repurchase, redemption, defeasance or acquisition or retirement of Subordinated Obligations made by exchange for, or out of the proceeds of the substantially concurrent sale of, Capital Stock of the Company (other than Disqualified Stock and other than Capital Stock issued or sold to a Subsidiary of the Company) or options, warrants or other rights to purchase such Capital Stock or Subordinated Obligations; provided, however, that (A) such purchase, repurchase, redemption, defeasance or acquisition or retirement shall be excluded in the calculation of the amount of Restricted Payments and (B) the Net Cash Proceeds from such sale shall be excluded from Section 4.04(a)(3)(B) above to the extent utilized to purchase, repurchase, redeem, defease, acquire or retire Subordinated Obligations; (3) any purchase or redemption of Subordinated Obligations made by exchange for, or out of the proceeds of the substantially concurrent sale of, Indebtedness of the Company which is permitted to be Incurred pursuant to Section 4.03; provided, however, that such Indebtedness (A) shall have a Stated Maturity not less than the Stated Maturity of the Subordinated Obligations being purchased or redeemed and (B) shall have an Average Life not less than the remaining Average Life of the Subordinated Obligations being purchased or redeemed; provided further, however, that such purchase, repurchase, redemption, defeasance or other acquisition or retirement for value shall be excluded in the calculation of the amount of Restricted Payments; (4) any purchase or redemption of Subordinated Obligations from Net Available Cash to the extent permitted by Section 4.06; provided, 44 however, that such purchase or redemption shall be excluded in the calculation of the amount of Restricted Payments; (5) dividends paid within 60 days after the date of declaration thereof if at such date of declaration such dividend would have complied with this covenant; provided, however, that the declaration, but not the payment, of such dividend shall be included in the calculation of the amount of Restricted Payments; (6) so long as no Default shall have occurred and be continuing (or result therefrom), payments with respect to employee or director stock options, stock incentive plans or restricted stock plans of the Company or any Restricted Subsidiary, including any redemption, repurchase, acquisition, cancellation or other retirement for value of shares of Capital Stock of the Company, restricted stock, options on any such shares or similar securities held by directors, officers or employees or former directors, officers or employees or by any Plan upon death, disability, retirement or termination of employment of any such person pursuant to the terms of any such Plan, any employment agreement or any other agreement under which such shares or related rights were issued or acquired; provided, however, that the amount of any such payment for any 12-month period shall not exceed $1 million; provided, further, however, that the amount of such Investments shall be excluded in the calculation of Restricted Payments; (7) so long as no Default shall have occurred and be continuing (or result therefrom), any purchase or defeasance of Subordinated Obligations upon a Change of Control or an Asset Disposition to the extent required by the indenture or other agreement or instrument pursuant to which such Subordinated Obligations were issued, but only if the Company (A) in the case of a Change of Control, has first complied with its obliga- tions under Section 4.09, or (B) in the case of an Asset Disposition, has complied with its obligations under Section 4.06; (8) any purchase, repurchase, redemption, defeasance or acquisition or retirement of Disqualified Stock made by exchange for, or out of the proceeds of the substantially concurrent sale of, Disqualified Stock of the Company (other than Disqualified Stock issued or sold to a Subsidiary of 45 the Company) ("Refinancing Disqualified Stock"); provided, however, that: (A) the Refinancing Disqualified Stock does not mature or become mandatorily redeemable or subject to purchase pursuant to a sinking fund obligation, upon the occurrence of certain events or otherwise earlier than the Disqualified Capital Stock being purchased, repurchased, redeemed, defeased or acquired; (B) the amount of all obligations with respect to the redemp tion, repayment or other repurchase of such Refinancing Disqualified Stock does not exceed the amount of all obligations with respect to the redemption, repayment or other repurchase of the Disqualified Capital Stock being purchased, repurchased, redeemed, defeased or acquired (calculated in each case in accordance with the definition of "Indebted ness"); and (C) if the Disqualified Stock being purchased, repurchased, redeemed, defeased, acquired or retired is issued by a Restricted Subsidiary, such Refinancing Disqualified Stock shall be issued only by such Restricted Subsidiary; or (9) so long as no Default shall have occurred and be continuing (or result therefrom), Restricted Payments in an aggregate amount not to exceed $50 million; provided, however, that the amount of such Restricted Payments shall be included in the calculation of Restricted Payments. SECTION 4.05. LIMITATION ON RESTRICTIONS ON DISTRIBUTIONS FROM ------------------------------------------------- RESTRICTED SUBSIDIARIES. The Company will not, and will not permit any - ----------------------- Restricted Subsidiary to, create or otherwise cause or permit to exist or become effective any consensual encumbrance or restriction on the ability of any Restricted Subsidiary to (a) pay dividends or make any other distributions on its Capital Stock to the Company or a Restricted Subsidiary or pay any Indebtedness or other obligations owed to the Company or a Restricted Subsidiary, (b) make any loans or advances to the Company or any Restricted Subsidiary or (c) transfer any of its property or assets to the Company or any Restricted Subsidiary (collectively "Payment Restrictions"), except: 46 (1) any Payment Restriction imposed by or pursuant to the New Credit Facility, the Indenture, the Securities and any agreement in effect at or entered into on the Issue Date; (2) any Payment Restriction with respect to a Restricted Subsidiary pursuant to an agreement relating to any Indebtedness Incurred by such Restricted Subsidiary on or prior to the date on which such Restricted Subsidiary was acquired by the Company (other than Indebtedness Incurred as consideration in, or to provide all or any portion of the funds or credit support utilized to consummate, the transaction or series of related transactions pursuant to which such Subsidiary became a Subsidiary of, or was acquired by, the Company) and outstanding on such date; (3) any Payment Restriction pursuant to an agreement effecting a Refinancing of Indebtedness Incurred pursuant to an agreement referred to in Section 4.05(1) or (2) or this clause (3) or contained in any amendment to an agreement referred to in Section 4.05(1) or (2) or this clause (3); provided, however, that the Payment Restrictions with respect to such Restricted Subsidiary contained in any such refinancing agreement or amendment are no less favorable to the holders of the Securities than those with respect to such Restricted Subsidiary contained in such predecessor agreements; (4) any Payment Restrictions imposed by purchase money Indebtedness for property acquired in the ordinary course of business that only impose limitations upon the property acquired or proceeds therefrom; (5) in the case of Section 4.03(c) above, any encumbrance or Payment Restriction consisting of (i) customary non-assignment provisions in leases governing leasehold interests to the extent such provisions restrict the transfer of the lease or the property leased thereunder and (ii) customary non-assignment provisions of any contract or licensing agreement; (6) any Payment Restriction with respect to a Restricted Subsidiary imposed pursuant to an agreement entered into for the sale or disposition of all or any material portion of the Capital Stock or assets of such Restricted Subsidiary; 47 (7) any Payment Restriction imposed by the terms of Indebtedness permitted to be incurred by a Foreign Restricted Subsidiary pursuant to Section 4.03(b)(2); and (8) any Payment Restriction imposed by applicable law or governmental regulation. SECTION 4.06. LIMITATION ON ASSET DISPOSITIONS. (a) The Company will -------------------------------- not, and will not permit any Restricted Subsidiary to, make any Asset Disposition unless (1) the Company or such Restricted Subsidiary receives consideration at the time of such Asset Disposition at least equal to the fair market value (including as to the value of all non-cash consideration) of the shares and assets subject to such Asset Disposition (and if the total proceeds of such sale is greater than $7 million, such transaction shall have been approved by the Board of Directors); (2) at least 75% of the consideration therefor received by the Company or such Restricted Subsidiary is in the form of cash or Fully Traded Common Stock; provided, however, that to the extent that any Fully Traded Common Stock is received pursuant to such Asset Disposition and required to satisfy the 75% requirement of this subsection 4.06(a)(2), the fair market value of such Fully Traded Common Stock as of the date of disposition shall be treated as Net Available Cash for all purposes of this Section 4.06; and (3)an amount equal to 100% of the Net Available Cash from such Asset Disposition is applied by the Company (or such Restricted Subsidiary, as the case may be) (A) first, to the extent the Company or such Restricted Subsid- iary elects (or is required by the terms of any Senior Indebtedness) to prepay, repay or purchase Senior Indebtedness (other than any Preferred and Disqualified Stock) (in each case other than Indebtedness owed to the Company or an Affiliate of the Company) within 270 days from the later of the date of such Asset Disposition or the receipt of such Net Available Cash; provided, however, that if such prepaid, repaid or purchased Senior Indebtedness was Incurred pursuant to a revolver or 48 similar arrangement that makes credit available, the commitment there- fore is permanently reduced by such amount; (B) second, to the extent of the balance of such Net Available Cash after application in accordance with clause (A), to the extent the Company or such Restricted Subsidiary elects, to acquire Additional Assets within 270 days from the later of such Asset Disposition or the receipt of such Net Available Cash; (C) third, to the extent of the balance of such Net Available Cash after application in accordance with clauses (A) and (B), to make an offer to the holders of the Securities (and, to the extent required by the instrument governing such Indebtedness, to holders of other Senior Subordinated Indebtedness designated by the Company) to purchase Securities (and such other Senior Subordinated Indebtedness) pursuant to and subject to the conditions contained in this Indenture; and (D) fourth, to the extent of the balance of such Net Available Cash after application in accordance with clauses (A), (B) and (C), for any purpose not prohibited by the terms of this Indenture. For the purposes of this Section 4.06, the following shall be deemed to be cash: (x) the assumption of Indebtedness of the Company (other than Preferred Stock and Subordinated Obligations of the Company) or any Restricted Subsidiary and the release of the Company or such Restricted Subsidiary from all liability with respect to such Indebtedness in connection with such Asset Disposition, provided, that the amount of such Indebtedness shall not be deemed to be cash for the purpose of the term "Net Available Cash;" and (y) securities received by the Company or any Restricted Subsidiary from the transferee that are converted by the Company or such Restricted Subsidiary into cash within 90 days or are guaranteed (by means of a letter of credit or otherwise) by an institution specified in the definition of "Temporary Cash Investments." (b) In the event of an Asset Disposition that requires the purchase of the Securities (and other Senior Subordinated Indebtedness) pursuant to Section 4.06(a)(3)(C) above, the Company shall purchase Securities tendered pursuant to an offer (the "Offer") by the Company for the Securities (and other Senior Subordinated Indebtedness) at a purchase price of 100% of their principal amount (without premium) plus accrued but unpaid interest (or, in respect of such other Senior Subordinated Indebtedness, such lesser 49 price, if any, as may be provided for by the terms of such Senior Subordinated Indebt edness) in accordance with the procedures (including prorating in the event of oversubscription) set forth in Section 4.06(c). If the aggregate purchase price of Securities (and any other Senior Subordinated Indebtedness) tendered pursuant to such Offer is less than the Net Available Cash allotted to the purchase thereof, the Company will be entitled to apply the remaining Net Available Cash in accordance with Section 4.06(a)(3)(D) above. The Company shall not be required to make such an Offer to purchase Securities (and other Senior Subordinated Indebtedness) pursuant to this Section 4.06 if the Net Available Cash available therefor (after application of Net Available Cash in accordance with Section 4.06(a)(3)(A) and (B)) is less than $20 million (which lesser amount shall be carried forward for purposes of determining whether such an Offer is required with respect to any subsequent Asset Disposition). (c) (1) Promptly, and in any event within 10 days after the Company becomes obli gated to make an Offer, the Company shall be obligated to deliver to the Trustee and send, by first-class mail to each Holder, a written notice stating that the Holder may elect to have his Securities purchased by the Company either in whole or in part (subject to prorating as hereinafter described in the event the Offer is oversubscribed) in integral multiples of $1,000 of principal amount, at the applicable purchase price. The notice shall specify a purchase date not less than 30 days nor more than 60 days after the date of such notice (the "Purchase Date") and shall contain such information concerning the business of the Company which the Company in good faith believes shall enable such Holders to make an informed decision (which at a minimum shall include (i) the most recently filed Annual Report on Form 10-K (including audited consolidated financial statements) of the Company, the most recent subsequently filed Quarterly Report on Form 10-Q and any Current Report on Form 8-K of the Company filed subsequent to such Quarterly Report, other than Current Reports describing Asset Dispositions otherwise described in the offering materials (or corresponding successor reports) and (ii) if material, appropriate pro forma financial information). (2) Not later than the date upon which written notice of an Offer is delivered to the Trustee as provided below, the Company shall deliver to the Trustee an Officers' Certificate as to (i) the amount of the Offer (the "Offer Amount"), (ii) the allocation of the Net Available Cash from the Asset Dispositions pursuant to which such Offer is being made and (iii) the compliance of such allocation with Section 4.06(a). (3) Holders shall be entitled to withdraw their election to have a Security purchased if the Trustee or the Company receives not later than one Business 50 Day prior to the Purchase Date, a facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Security which was delivered for purchase by the Holder and a statement that such Holder is withdrawing his election to have such Security purchased. If at the expiration of the period for which the Offer remains open the aggregate principal amount of Securities (and any other Senior Subordinated Indebtedness included in the Offer) surrendered by holders thereof exceeds the Offer Amount, the Company shall select the Securities and the other Senior Subordinated Indebtedness to be purchased on a pro rata basis (with such adjustments as may be deemed appropriate by the Company so that only Securities and the other Senior Subordinated Indebtedness in denominations of $1,000, or integral multiples thereof, shall be purchased). (d) The Company will comply, to the extent applicable, with the requirements of Section 14(e) of the Exchange Act and any other securities laws or regulations in connection with the purchase of the Securities pursuant to this covenant. To the extent that the provisions of any securities laws or regulations conflict with provisions of this covenant, the Company will comply with the applicable securities laws and regulations under this clause by virtue thereof. SECTION 4.07. LIMITATION ON AFFILIATE TRANSACTIONS. (a) The Company ------------------------------------ will not, and will not permit any Restricted Subsidiary to enter into or permit to exist any transaction (including the purchase, sale, lease or exchange of any property, employee compensation arrangements or the rendering of any service) with any Affiliate of the Company (an "Affiliate Transaction") unless (1) the Affiliate Transaction is made in (A) good faith and (B) on terms which are fair and reasonable to the Company or such Restricted Subsidiary, as the case may be; (2) if such Affiliate Transaction involves an amount in excess of $5 million, the terms of the Affiliate Transaction are set forth in writing and a majority of the non-employee directors of the Company disinterested with respect to such Affiliate Transactions have determined in good faith that the criteria set forth in subsection 4.07(a)(1)(B) are satisfied and have approved the relevant Affiliate Transaction as evidenced by a Board Resolution; and (3) if such Affiliate Transaction involves an amount in excess of $15 mil- lion, the Board of Directors shall also have received a written opinion 51 from an investment banking firm, an accounting firm or an appraisal firm of national prominence, with experience in evaluating the terms and conditions of such type of business or transactions that is not an Affiliate of the Company to the effect that such Affiliate Transaction is fair from a financial point of view, to the Company and its Restricted Subsidiaries. (b) The provisions of Section 4.07(a) shall not prohibit: (1) any Permitted Investment and any Restricted Payment permitted to be paid pursuant to Section 4.04; (2) any issuance of securities, or other payments, awards, or grants in cash, securities or otherwise pursuant to, or the funding of, employment arrangements, stock options and stock ownership plans approved by the disinterested members of the Board of Directors; (3) the payment of reasonable fees to directors of the Company and its Restricted Subsidiaries (including, without limitation, customary directors' fees, indemnification and similar arrangements, consulting fees and incentive arrangements); (4) the grant of stock options or similar rights to employees and directors of the Company pursuant to plans approved by the disinterested members of the Board of Directors; (5) transactions in the ordinary course of business (including expense advances and reimbursements) between the Company or any of its Restricted Subsidiaries, on the one hand, and any employee thereof, on the other hand; (6) the granting and performance of registration rights for shares of Capital Stock of the Company under a written registration rights agreement approved by a majority of directors of the Company that are disinterested with respect to such transactions; (7) transactions with Affiliates solely in their capacity as holders of Indebtedness or Capital Stock of the Company or any of its Subsidiaries where such Affiliates are treated no more favorably than holders of such Indebtedness or such Capital Stock generally; 52 (8) transactions with or among the Company and a Restricted Subsidiary or between or among Restricted Subsidiaries; (9) transactions undertaken pursuant to any arrangements in existence on and publicly disclosed on or prior to the Issue Date, as such arrangements may be amended or restated, renewed, extended, refinanced, refunded or replaced from time to time; provided that such amendment or restatement, renewal, extension, refinancing, refunding or replacement shall be on terms and conditions that are no less favorable to the Com- pany or any of its Restricted Subsidiaries, which, if determined by a majority of the disinterested members of the Board of Directors shall be conclusive; and (10)the repurchase of Capital Stock of the Company from directors, officers or employees of the Company or any Subsidiary permitted by Section 4.04. SECTION 4.08. [INTENTIONALLY OMITTED] --------------------- SECTION 4.09. CHANGE OF CONTROL. (a) Upon the occurrence of a Change ----------------- of Control, each Holder shall have the right to require that the Company purchase such Holder's Securities at a purchase price in cash equal to 101% of the principal amount thereof plus accrued and unpaid interest, if any, to the date of purchase (subject to the right of holders of record on the relevant record date to receive interest on the relevant interest payment date), in accordance with the terms provided in Section 4.09(b). In the event that at the time of such Change of Control the terms of the Senior Indebtedness of the Company restrict or prohibit the purchase of Securities pursuant to this Section, then prior to the mailing of the notice to Holders provided for in Section 4.09(b) below but in any event within 30 days following any Change of Control, the Company shall (1) repay in full all such Senior Indebtedness or offer to repay in full all such Senior Indebtedness and repay such Senior Indebtedness of each lender who has accepted such offer or (2) obtain the requisite consent under the agreements governing such Senior Indebtedness to permit the purchase of the Securities as provided for in Section 4.09(b). (b) Within 30 days following any Change of Control, unless notice of redemption of the Securities has been given pursuant to Section 3.03, the Company shall mail a notice to each Holder with a copy to the Trustee (the "Change of Control Offer") stating: 53 (1) that a Change of Control has occurred and that such Holder has the right to require the Company to purchase such Holder's Securities at a purchase price in cash equal to 101% of the principal amount thereof plus accrued and unpaid interest, if any, to the date of purchase (subject to the right of Holders of record on the relevant record date to receive interest on the relevant interest payment date); (2) the circumstances and relevant facts regarding such Change of Control (including information with respect to pro forma historical income, cash flow and capitalization, after giving effect to such Change of Control); (3) the repurchase date (which shall be no earlier than 30 days nor later than 60 days from the date such notice is mailed); and (4) the instructions determined by the Company and reasonably acceptable to the Trustee, consistent with this Section, that a Holder must follow in order to have its Securities purchased. (c) Holders electing to have a Security purchased shall be required to surrender the Security, with an appropriate form duly completed, to the Company at the address specified in the notice at least three Business Days prior to the purchase date. Holders shall be entitled to withdraw their election if the Trustee or the Company receives not later than one Business Day prior to the purchase date, a telegram, facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Security which was delivered for purchase by the Holder and a statement that such Holder is withdrawing his election to have such Security purchased. (d) On the purchase date, all Securities purchased by the Company under this Section shall be delivered to the Trustee for cancellation, and the Company shall pay the purchase price plus accrued and unpaid interest, if any, to the Holders entitled thereto. (e) Notwithstanding the foregoing provisions of this Section, the Company shall not be required to make a Change of Control Offer following 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 applicable to a Change of Control Offer made by the Company and purchases all Securities validly tendered and not withdrawn under such Change of Control Offer. 54 (f) The Company shall comply, to the extent applicable, with the requirements of Section 14(e) of the Exchange Act and any other securities laws or regulations in connection with the repurchase of Securities pursuant to this Section. To the extent that the provisions of any securities laws or regulations conflict with provisions of this Section, the Company shall comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations under this Section by virtue thereof. SECTION 4.10. LIMITATION ON BUSINESS ACTIVITIES. --------------------------------- The Company will not, and will not permit any Restricted Subsidiary to, engage in any business other than Permitted Businesses. SECTION 4.11. LIMITATION ON LIENS SECURING SUBORDINATED INDEBTEDNESS. ------------------------------------------------------- The Company will not, and will not permit any Restricted Subsidiary to, create, Incur, assume or suffer to exist any Liens of any kind (other than Permitted Liens) upon any of their respective assets or properties now owned or acquired after the date of this Indenture or any income or profits therefrom securing (i) any Indebtedness of the Company or a Restricted Subsidiary which is contractually subordinated to any other Indebtedness of the Company or such Restricted Subsidiary, as the case may be, unless the Securities or the relevant Subsidiary Guarantee, as the case may be, are equally and ratably secured for so long as such Indebtedness is so secured; provided that, if such Indebtedness which is expressly by its terms subordinate or junior in right of payment to any other Indebtedness of the Company or a Restricted Subsidiary is expressly subordinate or junior to the Securities or the relevant Subsidiary Guarantee, as the case may be, then the Lien securing such subordinated or junior Indebtedness shall be subordinate and junior to the Lien securing the Securities or the relevant Subsidiary Guarantee, as the case may be, with the same relative priority as such subordinated or junior Indebtedness shall have with respect to the Securities or the relevant Subsidiary Guarantee, as the case may be or (ii) any assumption, guarantee or other liability of the Company or any Restricted Subsidiary in respect of any Indebtedness of the Company or a Restricted Subsidiary which is contractually subordinated to any other Indebtedness of the Company or such Restricted Subsidiary, as the case may be, unless the Securities or the relevant Subsidiary Guarantee, as the case may be, are equally and ratably secured for so long as such assumption, guarantee or other liability is so secured; provided that, if such subordinated Indebtedness which is contractually subordinated to any other Indebtedness of the Company or a Restricted Subsidiary is expressly by its terms subordinate or junior to the Securities or the relevant Subsidiary Guarantee, as the case may be, then the Lien securing 55 the assumption, guarantee or other liability of such Subsidiary shall be subordinate and junior to the Lien securing the Securities or the relevant Subsidiary Guarantee, as the case may be, with the same relative priority as such subordinated or junior Indebtedness shall have with respect to the Securities or the relevant Subsidiary Guarantee, as the case may be. SECTION 4.12. COMPLIANCE CERTIFICATE. The Company shall deliver to ---------------------- the Trustee within 120 days after the end of each fiscal year of the Company an Officers' Certificate, one of the signers of which shall be the principal executive officer, principal financial officer or principal accounting officer of the Company, stating that in the course of the performance by the signers of their duties as Officers of the Company they would normally have knowledge of any Default and whether or not the signers know of any Default that occurred during such period. If they do, the certificate shall describe the Default, its status and what action the Company is taking or proposes to take with respect thereto. The Company also shall comply with TIA (S) 314(a)(4). SECTION 4.13. MAINTENANCE OF OFFICE OR AGENCY. ------------------------------- The Company shall maintain the office or agency required under Section 2.03. The Company shall give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. 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 address of the Trustee set forth in Section 13.02. SECTION 4.14. CORPORATE EXISTENCE. ------------------- Except as otherwise permitted by Article V, the Company shall do or cause to be done, at its own cost and expense, all things necessary to preserve and keep in full force and effect its corporate existence and the corporate existence of each of its Restricted Subsidiaries in accordance with the respective organizational documents of each of them (as the same may be amended from time to time) and the material rights (charter and statutory) and franchises of the Company and each such Restricted Subsidiary; provided, however, that neither the Company nor any Restricted Subsidiary shall be required to preserve any right or franchise, or the corporate, partnership or other existence of any Restricted Subsidiary, if the Board of Directors of the Company shall reasonably determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and its Subsidiaries, taken as a whole. SECTION 4.15. PAYMENT OF TAXES AND OTHER CLAIMS. --------------------------------- 56 The Company shall pay or discharge or cause to be paid or discharged, before the same shall become delinquent, (i) all material taxes, assessments and governmental charges (including withholding taxes and any penalties, interest and additions to taxes) levied or imposed upon it or any of its Restricted Subsidiaries or properties of it or any of its Restricted Subsidiaries and (ii) all lawful claims for labor, materials and supplies that, if unpaid, might by law become a Lien upon the property of it or any of its Restricted Subsidiaries; provided, however, that the Company shall not be required to pay or discharge or cause to be paid or discharged any such tax, assessment, charge or claim whose amount, applicability or validity is being contested in good faith by appropriate proceedings properly instituted and diligently conducted for which reserves, to the extent required under and in accordance with GAAP, have been taken. SECTION 4.16. MAINTENANCE OF PROPERTIES AND INSURANCE. ---------------------------------------- (a) The Company shall, and shall cause each of its Restricted Subsidiaries to, maintain its material properties in good working order and condition (subject to ordinary wear and tear) and make all necessary repairs, renewals, replace ments, additions, betterments and improvements thereto and actively conduct and carry on its business; provided, however, that nothing in this Section 4.16 shall prevent the Company or any of its Restricted Subsidiaries from discontinuing the operation and maintenance of any of its properties, if such discontinuance is, in the reasonable good faith judgment of the Company or the Restricted Subsidiary, as the case may be, desirable in the conduct of the business of the Company and its Subsidiaries, taken as a whole. (b) The Company shall provide or cause to be provided, for itself and each of its Restricted Subsidiaries, insurance (including reasonably appropriate self-insurance consistent with past practice or the practice of companies similarly situated in the industry) against loss or damage of the kinds that, in the good faith judgment of the Board of Directors of the Company, are adequate and appropriate for the conduct of the business of the Company and such Restricted Subsidiaries in a prudent manner, with reputable insurers or with the government of the United States of America or an agency or instrumentality thereof, in such amounts, with such deductibles, and by such methods as shall be customary, in the reasonable good faith judgment of the Board of Directors of the Company, for companies similarly situated in the industry. 57 SECTION 4.17. COMPLIANCE WITH LAWS. -------------------- The Company shall comply, and shall cause each of its Restricted Subsidiaries to comply, with all applicable statutes, rules, regulations, orders and restrictions of the United States of America, all states and municipalities thereof, and of any governmental department, commission, board, regulatory authority, bureau, agency and instrumentality of the foregoing, in respect of the conduct of their respective businesses and the ownership of their respective properties, except for such noncompliances as are not in the aggregate reasonably likely to have a material adverse effect on the financial condition or results of operations of the Company and its Restricted Subsidiaries, taken as a whole. SECTION 4.18. FURTHER INSTRUMENTS AND ACTS. Upon request of the ---------------------------- Trustee, the Company shall execute and deliver such further instruments and do such further acts as may be reasonably necessary or proper to carry out more effectively the purpose of this Indenture. SECTION 4.19. FUTURE GUARANTORS. The Company will not permit any ----------------- Restricted Subsidiary that is not a Subsidiary Guarantor to Guarantee any other Indebtedness of the Company or any Subsidiary Guarantor unless such Restricted Subsidiary simultaneously executes a supplemental indenture to this Indenture provid ing for the Guarantee of the payment of the Securities by such Restricted Subsidiary, which Guarantee of the payment of the Securities shall be subordinated to the Guarantee of such other Indebtedness to the same extent as the Securities or the Subsidiary Guarantees, as applicable, are subordinated to such other Indebtedness. Such Restricted Subsidiary shall be deemed released from its obligations under the Guarantee of the payment of the Securities at any such time that such Restricted Subsidiary is released from all of its obligations under its Guarantee of such other Indebtedness unless such release results from the payment under such Guarantee of other Indebtedness. ARTICLE V MERGER AND CONSOLIDATION ------------------------ SECTION 5.01. WHEN COMPANY MAY MERGE OR TRANSFER ASSETS. The Company ----------------------------------------- will not consolidate with or merge with or into, or convey, transfer or lease, in one transaction or a series of transactions, all or substantially all its 58 assets (determined on a consolidated basis for the Company and its Restricted Subsidiaries) to, any other Person, unless: (1) the resulting, surviving or transferee Person, if other than the Company (the "Successor Company"), shall be organized and existing under the laws of the United States of America, any State thereof or the District of Columbia and shall expressly assume, by an indenture supplemental hereto, executed and delivered to the Trustee, in form satisfactory to the Trustee, all the obligations of the Company under the Securities and this Indenture (and the Subsidiary Guarantees shall be confirmed as applying to such Person's obligations); (2) immediately after giving effect to such transaction (and treating any Indebtedness which becomes an obligation of the Company or the Successor Company, as applicable, or any Subsidiary as a result of such transaction as having been Incurred by the Company or the Successor Company or such Subsidiary at the time of such transaction), no Default shall have occurred and be continuing; (3) immediately after giving effect to such transaction, the Successor Company would be able to Incur an additional $1.00 of Indebtedness pursuant to Section 4.03(a); and (4) the Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger or transfer and such supplemental inden ture (if any) comply with this Indenture. Nothing contained in clause (3) of this Section 5.01 shall prohibit (i) any Restricted Subsidiary from consolidating with, merging with or into, or transferring all or part of its properties and assets to the Company or (ii) the Company from merging with an Affiliate for the purpose of reincorporating the Company in another jurisdiction to realize tax or other benefits; provided, however, that in connection with any such merger, consolidation or asset transfer no consideration, other than common stock in the Successor Company or the Company shall be issued or distributed. 59 The Successor Company shall be the successor to the Company and shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture, but the predecessor Company in the case of a conveyance, transfer or lease shall not be released from the obligation to pay the principal of and interest on the Securities. SECTION 5.02. WHEN A SUBSIDIARY GUARANTOR MAY MERGE OR TRANSFER ------------------------------------------------- ASSETS. The Company will not permit any Subsidiary Guarantor to consolidate with or merge with or into, or convey, transfer or lease, in one transaction or a series of transactions, all or substantially all its assets to, any other Person, unless: (1) the resulting, surviving or transferee Person (if not such Subsidiary Guarantor) (the "Successor Guarantor"), shall be organized and existing under the laws of the United States of America, any State thereof or the District of Columbia and shall expressly assume, by executing a Subsidiary Guarantee, all the obligations of such Subsidiary, if any, under its Subsidiary Guarantee; (2) immediately after giving effect to such transaction (and treating any Indebtedness which becomes an obligation of the resulting, surviving or transferee Person as a result of such transaction as having been issued by such Person at the time of such transaction), no Default shall have occurred and be continuing; (3) immediately after giving effect to such transaction, the Company would be able to Incur an additional $1.00 of Indebtedness pursuant to Section 4.03(a); and (4) the Company delivers to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger or transfer and such Subsidiary Guarantee, if any, complies with the Indenture. The provisions of clauses (1), (2) and (3) of this Section 5.02 shall not apply to any one or more transactions which constitute an Asset Disposition if the Company has complied with the applicable provisions of Section 4.06 above. 60 The Successor Guarantor shall succeed to, and be substituted for, and may exercise every right and power of, such Subsidiary Guarantor under this Indenture, and the predecessor Subsidiary Guarantor, in the case of a conveyance, transfer or lease, shall be released from the obligations of this Indenture, the Securities and its Subsidiary Guarantee, including the obligation to pay the principal of and interest on the Securities. ARTICLE VI DEFAULTS AND REMEDIES --------------------- SECTION 6.01. EVENTS OF DEFAULT. An "Event of Default" occurs if: ----------------- (1) the Company defaults in any payment of interest on any Security when the same becomes due and payable, whether or not such payment shall be prohibited by Article X, and such default continues for a period of 30 days; (2) the Company (i) defaults in the payment of the principal of any Security when the same becomes due and payable at its Stated Maturity, upon optional redemption, upon acceleration or other wise, whether or not such payment shall be prohibited by Article X or (ii) fails to purchase Securities when required pursuant to this Indenture or the Securities, whether or not such purchase shall be prohibited by Article X; (3) the Company fails to comply with Section 5.01 or Section 5.02; (4) the Company fails to comply with Section 4.02, 4.03, 4.04, 4.05, 4.06, 4.07, 4.09, 4.10 or 4.19 (other than a failure to purchase Securities when required under Section 4.06 or 4.09) and such failure continues for 30 days after receipt of the notice specified below; (5) the Company fails to comply with any of its agreements in the Securities or this Indenture (other than those referred to in clause (1), (2), (3) or (4) above) and such failure continues for 60 days after receipt of the notice specified below; 61 (6) Indebtedness of the Company or any Significant Subsidiary is not paid within any applicable grace period after final maturity or is accelerated by the holders thereof because of a default and the total amount of such Indebtedness unpaid or accelerated exceeds $10 million; (7) the Company or any Significant Subsidiary pursuant to or within the meaning of any Bankruptcy Law: (A) commences a voluntary case; (B) consents to the entry of an order for relief against it in an involuntary case; (C) consents to the appointment of a Custodian of it or for any substantial part of its property; or (D) makes a general assignment for the benefit of its creditors; or takes any comparable action under any foreign laws relating to insolvency; (8) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: (A) is for relief against the Company or any Significant Subsid- iary in an involuntary case; (B) appoints a Custodian of the Company or any Significant Subsidiary or for any substantial part of its property; or (C) orders the winding up or liquidation of the Company or any Significant Subsidiary; or any similar relief is granted under any foreign laws and the order or decree remains unstayed and in effect for 60 days; (9) any judgment or decree for the payment of money in excess of $10 million is entered against the Company or a Significant 62 Subsidiary, remains outstanding for a period of 60 days following the entry of such judgment or decree and is not discharged, waived or stayed within 20 days after the notice specified below; or (10) any Subsidiary Guarantee by a Significant Subsidiary ceases to be in full force and effect or becomes unenforceable or invalid or is declared null and void (other than in accordance with the terms of the Subsidiary Guarantee) or any Subsidiary Guarantor that is a Significant Subsidiary denies or disaffirms its obligations under its Subsidiary Guarantee. The foregoing shall constitute Events of Default whatever the reason for any such Event of Default and whether it is voluntary or involuntary or is effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body. The term "Bankruptcy Law" means Title 11, United States Code, or any ------------------ similar Federal or state law for the relief of debtors. The term "Custodian" means any receiver, trustee, assignee, liquidator, custodian or similar official under any Bankruptcy Law. A Default under clauses (4), (5), (6), (7) and (8) (with respect to a Significant Subsidiary) or (9) is not an Event of Default until the Trustee or the holders of at least 25% in principal amount of the outstanding Securities notify the Company in writing of the Default and the Company does not cure such Default within the time specified after receipt of such notice. Such notice must specify the Default, demand that it be remedied and state that such notice is a "Notice of Default." The Company shall deliver to the Trustee, within 30 days after the occurrence thereof, written notice in the form of an Officers' Certificate of any Event of Default under clause (6) and any event which with the giving of notice or the lapse of time would become an Event of Default under clause (4), (5) or (9), its status and what action the Company is taking or proposes to take with respect thereto. SECTION 6.02. ACCELERATION. If an Event of Default (other than an ------------ Event of Default specified in Section 6.01(7) or (8) with respect to the Company) occurs and is continuing, the Trustee by notice to the Company, or the Holders of at least 25% in principal amount of the outstanding Securities by notice to the Company 63 and the Trustee, may declare the principal of and accrued but unpaid interest on all the Securities to be due and payable. Upon such a declaration, such principal and interest shall be due and payable immediately. If an Event of Default specified in Section 6.01(7) or (8) with respect to the Company occurs and is continuing, the principal of and interest on all the Securities shall ipso facto become and be immediately due and payable without any declaration or - ---- ----- other act on the part of the Trustee or any Securityholders. The Holders of a majority in principal amount of the Securities by notice to the Trustee may rescind an acceleration and its consequences if the rescission would not conflict with any judgment or decree and if all existing Events of Default have been cured or waived except nonpayment of principal or interest that has become due solely because of acceleration. No such rescission shall affect any subsequent Default or impair any right consequent thereto. Notwithstanding the foregoing, in the event of a declaration of acceleration in respect of the Securities because an Event of Default specified in Section 6.01 (6) above shall have occurred and be continuing, such declaration of acceleration of the Securities and such Event of Default shall be automatically annulled and rescinded and be of no further effect if the Indebtedness that is the subject of such Event of Default has been discharged or paid in full or such Event of Default shall have been cured or waived by the holders of such Indebtedness and if such Indebtedness has been accelerated, then the holders thereof have rescinded their declaration of acceleration in respect of such Indebtedness and written notice of such discharge, cure or waiver and rescis sion, as the case may be, shall have been given to the Trustee within 30 days after such declaration of acceleration in respect of the Securities by the Company in an Officers' Certificate or by the requisite holders of such Indebtedness or a trustee, fiduciary or agent for such holders or other evidence satisfactory to the Trustee of such events is provided to the Trustee and no other Event of Default shall have occurred which has not been cured or waived during such 30-day period. 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 of or interest on the Securities or to enforce the performance of any provision of the Securities or this Indenture. The Trustee may maintain a proceeding even if it does not possess any of the Securities or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Securityholder 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 64 acquiescence in the Event of Default. No remedy is exclusive of any other remedy. All available remedies are cumulative to the extent permitted by law. SECTION 6.04. WAIVER OF PAST DEFAULTS. The Holders of a majority in ----------------------- principal amount of the Securities by notice to the Trustee may waive an existing Default and its consequences except (i) a Default in the payment of the principal of or interest on a Security or (ii) a Default in respect of a provision that under Section 9.02 cannot be amended, without, in each case, the consent of each Securityholder affected. When a Default is waived, it is deemed cured, but no such waiver shall extend to any subsequent or other Default or impair any consequent right. SECTION 6.05. CONTROL BY MAJORITY. The Holders of a majority in ------------------- principal amount of the Securities may direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or of exercising any trust or power conferred on the Trustee. However, the Trustee may refuse to follow any direction that conflicts with law or this Indenture or, subject to Section 7.01, that the Trustee determines is unduly prejudicial to the rights of other Securityholders or would involve the Trustee in personal liability; provided, however, that the Trustee may take any other action deemed -------- ------- proper by the Trustee that is not inconsistent with such direction. Prior to taking any action hereunder, the Trustee shall be entitled to security or indemnification reasonably satisfactory to it against all losses and expenses caused by taking or not taking such action. SECTION 6.06. LIMITATION ON SUITS. Except to enforce the right to -------------------- receive payment of principal, premium (if any) or interest when due, no Securityholder may pursue any remedy with respect to this Indenture or the Securities unless: (1) the Holder gives to the Trustee written notice stating that an Event of Default is continuing; (2) the Holders of at least 25% in principal amount of the outstanding Securities make a written request to the Trustee to pursue the remedy; (3) such Holder or Holders offer to the Trustee reasonable security or indemnity against any loss, liability or expense; (4) the Trustee does not comply with the request within 60 days after receipt of the request and the offer of security or indemnity; and 65 (5) the Holders of a majority in principal amount of the outstanding Securities do not give the Trustee a direction inconsistent with the request during such 60-day period. A Securityholder may not use this Indenture to prejudice the rights of another Securityholder or to obtain a preference or priority over another Securityholder. SECTION 6.07. RIGHTS OF HOLDERS TO RECEIVE PAYMENT. Notwithstanding ------------------------------------ any other provision of this Indenture, the right of any Holder to receive payment of principal of and interest on the Securities held by such Holder, on or after the respective due dates expressed in the Securities, 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(1) or (2) occurs and is continuing, the Trustee may recover judgment in its own name and as trustee of an express trust against the Company for the whole amount then due and owing (together with interest on any unpaid interest at the rate per annum borne by the Securities to the extent lawful) and the amounts provided for in Section 7.07. SECTION 6.09. TRUSTEE MAY FILE PROOFS OF CLAIM. The Trustee may file -------------------------------- such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee and the Securityholders allowed in any judicial proceedings relative to the Company, its creditors or its property and, unless prohibited by law or applicable regulations, may vote on behalf of the Holders in any election of a trustee in bankruptcy or other Person performing similar functions, and any Custodian in any such judicial proceeding is hereby authorized by each Holder to make 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 it for the compensation, expenses, disbursements and advances of the Trustee, its agents and its counsel, and any other amounts due the Trustee under Section 7.07. SECTION 6.10. PRIORITIES. If the Trustee collects any money or ---------- property pursuant to this Article VI, it shall pay out the money or property in the following order: 66 FIRST: to the Trustee for amounts due under Section 7.07; SECOND: to holders of Senior Indebtedness of the Company to the extent required by Article X; THIRD: to Securityholders for amounts due and unpaid on the Securities for principal and interest, ratably, without preference or priority of any kind, according to the amounts due and payable on the Securities for principal and interest, respectively; and FOURTH: the balance, if any, to the Company. The Trustee, upon written notice to the Company, may fix a record date and payment date for any payment to Securityholders pursuant to this Section. At least 15 days before such record date, the Company shall mail to each Securityholder and the Trustee a notice that states the record date, the payment date and amount to be paid. SECTION 6.11. UNDERTAKING FOR COSTS. In any suit for the enforcement --------------------- of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as 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 and expenses, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section does not apply to a suit by the Trustee, a suit by a Holder pursuant to Section 6.07 or a suit by Holders of more than 10% in principal amount of the Securities. SECTION 6.12. WAIVER OF STAY OR EXECUTION LAWS. The Company (to the -------------------------------- extent it may lawfully do so) shall not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or execution law wherever enacted, now or at any time hereafter in force, which 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 shall not 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 had been enacted. 67 ARTICLE VII TRUSTEE ------- SECTION 7.01. DUTIES OF TRUSTEE. (a) If an Event of Default has ----------------- occurred and is continuing, the Trustee shall exercise the rights and powers vested in it by this Indenture and use the same degree of care and skill in their exercise as a prudent person would exercise or use under the circumstances in the conduct of such person's own affairs. (b) Except during the continuance of an Event of Default: (1) the Trustee undertakes to perform such duties and only such duties as are specifically set forth in this Indenture and no implied covenants or obligations shall be read into this Indenture against the Trustee; and (2) in the absence of bad faith on its part, the Trustee may 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, in the case of any such certificates or opinions which by any provision hereof are specifically required to be furnished to the Trustee, the Trustee shall examine the certificates and opinions to determine whether or not they conform to the requirements of this Indenture. (c) The Trustee may not be relieved from liability for its own negligent action, its own negligent failure to act or its own wilful misconduct, except that: (1) this paragraph does not limit the effect of paragraph (b) of this Section; (2) the Trustee shall not be liable for any error of judgment made in good faith by a Trust Officer unless it is proved that the Trustee was negligent in ascertaining the pertinent facts; and (3) the Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursu ant to Section 6.05. 68 (d) Every provision of this Indenture that in any way relates to the Trustee is subject to paragraphs (a), (b) and (c) of this Section. (e) 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. (f) All money received by the Trustee shall, until used or applied as herein provided, be held in trust for the purposes for which they were received, but money held in trust by the Trustee need not be segregated from other funds except to the extent required by law. (g) No provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur financial liability in the performance of any of its duties hereunder or in the exercise of any of its rights or powers. (h) Every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee shall be subject to the provisions of this Section and to the provisions of the TIA. SECTION 7.02. RIGHTS OF TRUSTEE. (a) Subject to Section 7.01 hereof, ----------------- the Trustee may conclusively rely on any document believed by it to be genuine and to have been signed or presented by the proper person. The Trustee need not investigate any fact or matter stated in the document. But the Trustee, in its reasonable discretion, may make such further inquiry or investigation into such facts or matters as it may see fit. (b) Before the Trustee acts or refrains from acting, it may require an Officers' Certificate or an Opinion of Counsel. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on the Officers' Certificate or Opinion of Counsel. (c) The Trustee may act through 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 which it believes to be authorized or within its rights or powers; provided, however, that the Trustee's conduct does not constitute wilful -------- ------- misconduct or negligence. 69 (e) The Trustee may consult with counsel of its selection, and the advice or opinion of counsel with respect to legal matters relating to this Indenture and the Securities shall be full and complete authorization and protection from liability in respect to any action taken, omitted or suffered by it hereunder in good faith and in accordance with the advice or opinion of such counsel. (f) The Trustee shall not be deemed to have notice of any Default or Event of Default, except in the case of an Event of Default under Section 6.01(1) and (2) if the Trustee is acting as the Paying Agent, unless and until a Trust Officer of the Trustee receives written notice from the Company or any Holder at the principal corporate trust office of the Trustee that such Default or Event of Default has occurred. (g) The rights, protections, immunities and benefits given to the Trustee, including its right to be indemnified, are extended to, and shall be enforceable by, the Trustee in each of its capacities hereunder, and to each agent, custodian and other Person employed to act hereunder. (h) The Trustee shall not be required to give any note, bond or surety in respect of the execution of the trusts and powers under this Indenture. (i) The permissive rights of the Trustee to take any action enumer- ated in this Indenture shall not be construed as a duty to take such action. SECTION 7.03. INDIVIDUAL RIGHTS OF TRUSTEE. The Trustee in its ---------------------------- individual or any other capacity may become the owner or pledgee of Securities and may otherwise deal with the Company or its Affiliates with the same rights it would have if it were not Trustee. Any Paying Agent, Registrar, co-registrar or co-paying agent may do the same with like rights. However, the Trustee must comply with Sections 7.10 and 7.11. SECTION 7.04. TRUSTEE'S DISCLAIMER. The Trustee shall not be -------------------- responsible for and makes no representation as to the validity or adequacy of this Indenture or the Securities, it shall not be accountable for the Company's use of the proceeds from the Securities or any money paid to the Company or upon the Company's direction under any provision of this Indenture, and it shall not be responsible for any statement of the Company in this Indenture or in any document issued in connection with the sale of the Securities or in the Securities other than the Trustee's certificate of authentication. 70 SECTION 7.05. NOTICE OF DEFAULTS. If a Default occurs and is ------------------ continuing and if it is actually known to the Trustee, the Trustee shall mail to each Securityholder notice of the Default within 90 days after it occurs. Except in the case of a Default in payment of principal of or interest on any Security (including payments pursuant to the mandatory redemption provisions of such Security, if any), the Trustee may withhold the notice if and so long as a committee of its Trust Officers in good faith determines that withholding the notice is not opposed to the interests of Securityholders. SECTION 7.06. REPORTS BY TRUSTEE TO HOLDERS. As promptly as ----------------------------- practicable after each May 15 beginning with the May 15 following the date of the first issuance of Securities under this Indenture, and in any event prior to August 15 in each year, the Trustee shall mail to each Securityholder a brief report dated as of May 15 that complies with TIA (S) 313(a). The Trustee also shall comply with TIA (S) 313(b). A copy of each report at the time of its mailing to Securityholders shall be filed with the SEC and each stock exchange (if any) on which the Securities are listed. The Company agrees to notify promptly the Trustee whenever the Securities become listed on any stock exchange and of any delisting thereof. SECTION 7.07. COMPENSATION AND INDEMNITY. The Company shall pay to -------------------------- the Trustee from time to time such compensation as shall be agreed in writing between the Company and the Trustee for its services. The Trustee's compensa tion shall not be limited by any law on compensation of a trustee of an express trust. The Company shall reimburse the Trustee upon request for all reasonable out-of-pocket expenses and advances incurred or made by it, including costs of collection, in addition to the compensation for its services. Such expenses shall include the reasonable compensation and expenses, disbursements and advances of the Trustee's agents, counsel, accountants and experts. The Company shall indemnify the Trustee and any predecessor Trustee against any and all loss, damage, claim, liability or expense (including attorneys' fees) incurred by it in connection with the acceptance or administration of this trust and the performance of its duties hereunder. The Trustee shall notify the Company promptly of any claim (whether asserted by the Company, any Holder or any other Person) 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 may have separate counsel and the Company shall pay the 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. 71 The Company need not reimburse any expense or indemnify against any loss, liability or expense incurred by the Trustee through the Trustee's own wilful misconduct, negligence or bad faith. The Trustee in its capacity as Registrar and Paying Agent and the officers, directors, shareholders, agents and employees of the Trustee, acting in any capacity hereunder, shall have the full benefit of the foregoing indemnity as well as all other benefits, rights and privileges accorded to the Trustee in this Indenture. To secure the Company's payment obligations in this Section, the Trustee shall have a lien prior to the Securities on all money or property held or collected by the Trustee other than money or property held in trust to pay principal of and interest on particular Securities. The Trustee's right to receive payment of any amounts due under this Indenture shall not be subordinated to any other indebtedness of the Company, and the Securities shall be subordinate to the Trustee's rights to receive such payment. The Company's payment obligations pursuant to this Section shall survive the discharge of this Indenture and the resignation or removal of the Trustee. When the Trustee incurs expenses after the occurrence of a Default specified in Section 6.01(7) or (8) with respect to the Company, the expenses are intended to constitute expenses of administration under the Bankruptcy Law. SECTION 7.08. REPLACEMENT OF TRUSTEE. The Trustee may resign at any ---------------------- time by so notifying the Company. The Holders of a majority in principal amount of the Securities may remove the Trustee by so notifying the Trustee and may appoint a successor Trustee. The Company shall remove the Trustee if: (1) the Trustee fails to comply with Section 7.10; (2) the Trustee is adjudged bankrupt or insolvent; (3) a receiver or other public officer takes charge of the Trustee or its property; or (4) the Trustee otherwise becomes incapable of acting. If the Trustee resigns, is removed by the Company or by the Holders of a majority in principal amount of the Securities and such Holders do not reasonably promptly appoint a successor Trustee, or if a vacancy exists in the office of Trustee for 72 any reason (the Trustee in such event being referred to herein as the retiring Trustee), the Company shall promptly appoint 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 Securityholders. The retiring Trustee shall promptly transfer all property held by it as Trustee to the successor Trustee, subject to the lien provided for in Section 7.07. If a successor Trustee does not take office within 60 days after the retiring Trustee resigns or is removed, the retiring Trustee or the Holders of 10% in principal amount of the Securities may petition, at the expense of the Company, any court of competent jurisdiction for the appointment of a successor Trustee. If the Trustee fails to comply with Section 7.10, any Securityholder may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. Notwithstanding the replacement of the Trustee pursuant to this Section, the Company's obligations under Section 7.07 shall continue for the benefit of the retiring Trustee. SECTION 7.09. SUCCESSOR TRUSTEE BY MERGER. If the Trustee -------------------------- consolidates with, merges or converts into, or transfers all or substantially all its corporate trust business or assets to, another corporation or banking association, the resulting, surviving or transferee corporation without any further act shall be the successor Trustee. In case at the time such successor or successors by merger, conversion or consolidation to the Trustee shall succeed to the trusts created by this Indenture any of the Securities shall have been authenticated but not delivered, any such successor to the Trustee may adopt the certificate of authentication of any predecessor trustee, and deliver such Securities so authenticated; and in case at that time any of the Securities shall not have been authenticated, any successor to the Trustee may authenticate such Securities either in the name of any predecessor hereunder or in the name of the successor to the Trustee; and in all such cases such certificates shall have the full force 73 which it is anywhere in the Securities or in this Indenture provided that the certificate of the Trustee shall have. SECTION 7.10. ELIGIBILITY; DISQUALIFICATION. The Trustee shall at all ----------------------------- times satisfy the requirements of TIA (S) 310(a). The Trustee shall have a combined capital and surplus of at least $50.0 million as set forth in its most recent published annual report of condition. The Trustee shall comply with TIA (S) 310(b); provided, however, that there shall be excluded from the operation -------- ------- of TIA (S) 310(b)(1) any indenture or indentures under which other securities or certificates of interest or participation in other securities of the Company are outstanding if the requirements for such exclusion set forth in TIA (S) 310(b)(1) are met. SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY. The ------------------------------------------------- Trustee shall comply with TIA (S) 311(a), excluding any creditor relationship listed in TIA (S) 311(b). A Trustee who has resigned or been removed shall be subject to TIA (S) 311(a) to the extent indicated. 74 ARTICLE VII DISCHARGE DEFEASANCE -------------------- SECTION 8.01. DISCHARGE OF LIABILITY ON SECURITIES; DEFEASANCE. (a) ------------------------------------------------ When (i) the Company delivers to the Trustee all outstanding Securities (other than Securities replaced pursuant to Section 2.07) for cancellation or (ii) all outstanding Securities have become due and payable, whether at maturity or as a result of the mailing of a notice of redemption pursuant to Article III hereof and the Company irrevocably deposits with the Trustee funds sufficient to pay at maturity or upon redemption all outstanding Securities, including interest thereon to maturity or such redemption date (other than Securities replaced pursuant to Section 2.07), and if in either case the Company pays all other sums payable hereunder by the Company, then this Indenture shall, subject to Section 8.01(c), cease to be of further effect. The Trustee shall acknowledge satisfaction and discharge of this Indenture on demand of the Company accompanied by an Officers' Certificate and an Opinion of Counsel and at the cost and expense of the Company. (b) Subject to Sections 8.01(c) and 8.02, the Company at any time may terminate (i) all its obligations under the Securities and this Indenture ("legal defeasance option") or (ii) its obligations under Sections 4.02, 4.03, 4.04, 4.05, 4.06, 4.07, 4.09, 4.10, 4.11, 4.15, 4.16 and 4.19 (and any omission to comply with such obligations shall not constitute a Default or Event of Default with respect to the Securities) and the operation of Sections 6.01(3), 6.01(4), 6.01(6), 6.01(7), 6.01(8), 6.01(9) and 6.01(10) (but, in the case of Sections 6.01(7) and (8), with respect only to Significant Subsidiaries) and the limitations contained in Sections 5.01(3) and 5.02(3) ("covenant defeasance option"). The Company may exercise its legal defeasance option notwithstanding its prior exercise of its covenant defeasance option. If the Company exercises its legal defeasance option, payment of the Securities may not be accelerated because of an Event of Default with respect thereto. If the Company exercises its covenant defeasance option, payment of the Securities may not be accelerated because of an Event of Default specified in Sections 6.01(3), 6.01(4), 6.01(6), 6.01(7), 6.01(8), 6.01(9) and 6.01(10) (but, in the case of Sections 6.01(7) and (8), with respect only to Significant Subsidiaries) or because of the failure of the Company to comply with Sections 5.01(3) and 5.02(3). If the Company exercises its legal defeasance option or its covenant defeasance option, each Subsidiary Guarantor, if any, shall be released from all its obligations under its Subsidiary Guarantee. 75 Upon satisfaction of the conditions set forth herein and upon request of the Company, the Trustee shall acknowledge in writing the discharge of those obligations that the Company terminates. (c) Notwithstanding clauses (a) and (b) above, the Company's obligations in Sections 2.03, 2.04, 2.05, 2.06, 2.07, 2.08, 7.07 and 7.08 and in this Article VIII of the Indenture and in the Appendix shall survive until the Securities have been paid in full. Thereafter, the Company's obligations in Sections 7.07, 8.04 and 8.05 shall survive. SECTION 8.02. CONDITIONS TO DEFEASANCE. The Company may exercise its ------------------------ legal defeasance option or its covenant defeasance option only if: (1) the Company irrevocably deposits in trust with the Trustee money or U.S. Government Obligations for the payment of principal of and inter- est on the Securities to maturity or redemption, as the case may be; (2) the Company delivers to the Trustee a certificate from a nationally recognized firm of independent accountants expressing their opinion that the payments of principal and interest when due and without reinvestment on the deposited U.S. Government Obligations plus any deposited money without investment shall provide cash at such times and in such amounts as shall be sufficient to pay principal and interest when due on all the Securities to maturity or redemption, as the case may be; (3) 91 days pass after the deposit is made and during the 91-day period no Default specified in Sections 6.01(7) or (8) with respect to the Company occurs which is continuing at the end of the period; (4) the deposit does not constitute a default under any other agreement binding on the Company and is not prohibited by Article X; (5) the Company delivers to the Trustee an Opinion of Counsel to the effect that the trust resulting from the deposit does not constitute, or is qualified as, a regulated investment company under the Investment Company Act of 1940; (6) in the case of the legal defeasance option, the Company shall have delivered to the Trustee an Opinion of Counsel stating that (i) the Com- 76 pany has received from, or there has been published by, the Internal Revenue Service a ruling, or (ii) 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 Securityholders shall not recognize income, gain or loss for Federal income tax purposes as a result of such defeasance and shall 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 defeasance had not occurred; (7) in the case of the covenant defeasance option, the Company shall have delivered to the Trustee an Opinion of Counsel to the effect that the Securityholders shall not recognize income, gain or loss for Federal income tax purposes as a result of such covenant defeasance and shall 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; and (8) the Company delivers to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent to the defeasance and discharge of the Securities as contemplated by this Article VIII have been complied with. Before or after a deposit, the Company may make arrangements satisfac- tory to the Trustee for the redemption of Securities at a future date in accordance with Article III. SECTION 8.03. APPLICATION OF TRUST MONEY. The Trustee shall hold in -------------------------- trust money or U.S. Government Obligations deposited with it pursuant to this Article VIII. It shall apply the deposited money and the money from U.S. Govern ment Obligations through the Paying Agent and in accordance with this Indenture to the payment of principal of and interest on the Securities. Money and securities so held in trust are not subject to Article X. SECTION 8.04. REPAYMENT TO COMPANY. The Trustee and the Paying Agent -------------------- shall promptly turn over to the Company upon written request any excess money or securities held by them at any time. 77 Subject to any applicable abandoned property law, the Trustee and the Paying Agent shall pay to the Company upon written request any money held by them for the payment of principal or interest that remains unclaimed for two years, and, thereafter, Securityholders entitled to the money must look to the Company for payment as general creditors and all liability of the Trustee or Paying Agent with respect to such money shall thereupon cease. SECTION 8.05. INDEMNITY FOR GOVERNMENT OBLIGATIONS. The Company shall ------------------------------------ pay and shall indemnify the Trustee against any tax, fee or other charge imposed on or assessed against deposited U.S. Government Obligations or the principal and interest received on such U.S. Government Obligations. SECTION 8.06. REINSTATEMENT. If the Trustee or Paying Agent is unable ------------- to apply any money or U.S. Government Obligations in accordance with this Article VIII by reason of any legal proceeding or by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, the Company's obligations under this Indenture and the Securities shall be revived and reinstated as though no deposit had occurred pursuant to this Article VIII until such time as the Trustee or Paying Agent is permitted to apply all such money or U.S. Government Obligations in accordance with this Article VIII; provided, however, that, if -------- ------- the Company has made any payment of interest on or principal of any Securities because of the reinstatement of its obligations, the Company shall be subrogated to the rights of the Holders of such Securities to receive such payment from the money or U.S. Government Obligations held by the Trustee or Paying Agent. ARTICLE IX AMENDMENTS AND WAIVERS ---------------------- SECTION 9.01. WITHOUT CONSENT OF HOLDERS. The Company and the Trustee -------------------------- may amend or supplement this Indenture or the Securities without notice to or consent of any Securityholder: (1) to cure any ambiguity, omission, defect or inconsistency; (2) to comply with Article V; (3) to provide for uncertificated Securities in addition to or in place of certificated Securities; provided, however, that the uncertificated -------- ------- Securi- 78 ties are issued in registered form for purposes of Section 163(f) of the Code or in a manner such that the uncertificated Securities are described in Section 163(f)(2)(B) of the Code; (4) to make any change in Article X that would limit or terminate the bene fits available to any holder of Senior Indebtedness of the Company or any Subsidiary Guarantor (or Representatives therefor) under Article X; (5) to add guarantees with respect to the Securities, or to secure the Securities; (6) to add to the covenants of the Company for the benefit of the Holders or to surrender any right or power herein conferred upon the Company; (7) to comply with any requirements of the SEC in order to effect, or main- tain the qualification of, this Indenture under the TIA; or (8) to make any change that does not adversely affect in any material respect the legal rights under this Indenture of any such Securityholder. An amendment under this Section may not make any change that adversely affects the rights under Article X of any holder of Senior Indebtedness of the Company or any Subsidiary Guarantor then outstanding unless the holders of such Senior Indebtedness (or any group or representative thereof authorized to give a consent) consent to such change. After an amendment under this Section becomes effective, the Company shall mail to Securityholders a notice briefly describing such amendment. The failure to give such notice to all Securityholders, or any defect therein, shall not impair or affect the validity of an amendment under this Section. SECTION 9.02. WITH CONSENT OF HOLDERS. The Company and the Trustee ----------------------- may amend or waive this Indenture or the Securities without notice to any Securityholder but with the written consent of the Holders of at least a majority in principal amount of the Securities then outstanding (including consents obtained in connection with a tender offer or exchange for the Securities). However, without the consent of each Securityholder affected thereby, an amendment or waiver may not (with respect to any Securities held by a non-consenting Holder): 79 (1) reduce the principal amount of Securities whose Holders must consent to an amendment or waiver; (2) reduce the rate of or extend the time for payment of interest on any Security; (3) reduce the principal of or extend the Stated Maturity of any Security; (4) reduce the amount payable upon the redemption of any Security or change the time at which any Security may be redeemed in accordance with Article III; (5) make any change to the terms of Article X (including related defini tions) that would adversely affect the Holders of Securities; (6) make any Security payable in money other than that stated in the Security; (7) make any change in Section 6.04 or 6.07 or this second sentence of Section 9.02; or (8) make any change in any Subsidiary Guarantee that would adversely affect the Holders in any material respect. It shall not be necessary for the consent of the Holders under this Section or Section 9.01 to approve the particular form of any proposed amendment, but it shall be sufficient if such consent approves the substance thereof. An amendment under this Section may not make any change that adversely affects the rights under Article X of any holder of Senior Indebtedness of the Company or any Subsidiary Guarantor then outstanding unless the holders of such Senior Indebtedness (or any group or representative thereof authorized to give a consent) consent to such change. After an amendment under this Section becomes effective, the Company shall mail to Securityholders a notice briefly describing such amendment. The failure to give such notice to all Securityholders, or any defect therein, shall not impair or affect the validity of an amendment under this Section. 80 SECTION 9.03. COMPLIANCE WITH TRUST INDENTURE ACT. Every amendment to ----------------------------------- this Indenture or the Securities shall comply with the TIA as then in effect. SECTION 9.04. REVOCATION AND EFFECT OF CONSENTS AND WAIVERS. A --------------------------------------------- consent to an amendment or a waiver by a Holder of a Security shall bind the Holder and every subsequent Holder of that Security or portion of the Security that evidences the same debt as the consenting Holder's Security, even if notation of the consent or waiver is not made on the Security. However, any such Holder or subsequent Holder may revoke the consent or waiver as to such Holder's Security or portion of the Security if the Trustee receives the notice of revocation before the date the amendment or waiver becomes effective. After an amendment or waiver becomes effective, it shall bind every Securityholder. An amendment or waiver becomes effective upon the execution of such amendment or waiver by the Trustee. The Company may, but shall not be obligated to, fix a record date for the purpose of determining the Securityholders entitled to give their consent or take any other action described above or required or permitted to be taken pursuant to this Indenture. If a record date is fixed, then notwithstanding the immediately preceding paragraph, those Persons who were Securityholders at such record date (or their duly designated proxies), and only those Persons, shall be entitled to give such consent or to revoke any consent previously given or to take any such action, whether or not such Persons continue to be Holders after such record date. No such consent shall be valid or effective for more than 120 days after such record date. SECTION 9.05. NOTATION ON OR EXCHANGE OF SECURITIES. If an amendment -------------------------------------- changes the terms of a Security, the Trustee may require the Holder of the Security to deliver it to the Trustee. The Trustee may place an appropriate notation (inform and substance reasonably acceptable to the Company) on the Security regarding the changed terms and return it to the Holder. Alternatively, if the Company or the Trustee so determines, the Company in exchange for the Security shall issue and the Trustee shall authenticate a new Security that reflects the changed terms. Failure to make the appropriate notation or to issue a new Security shall not affect the validity of such amendment. SECTION 9.06. TRUSTEE TO SIGN AMENDMENTS. The Trustee shall sign any -------------------------- amendment authorized pursuant to this Article IX if the amendment does not adversely affect the rights, duties, liabilities or immunities of the Trustee. If it does, the Trustee may but need not sign it. In signing such amendment the Trustee shall 81 receive indemnity reasonably satisfactory to it, and (subject to Section 7.01) shall be fully protected in relying upon, an Officers' Certificate and an Opinion of Counsel stating that such amendment is authorized or permitted by this Indenture. ARTICLE X SUBORDINATION ------------- SECTION 10.01 AGREEMENT TO SUBORDINATE. The Company agrees, and each ------------------------ Securityholder by accepting a Security agrees, that the Indebtedness evidenced by the Securities is subordinated in right of payment, to the extent and in the manner provided in this Article X, to the prior payment of all Senior Indebtedness and that the subordination is for the benefit of and enforceable by the holders of such Senior Indebtedness. The Securities shall in all respects rank pari passu with all other Senior Subordinated Indebtedness of the Company ---- ----- and only Indebtedness which is Senior Indebtedness shall rank senior to the Securities in accordance with the provisions set forth herein. All provisions of this Article X shall be subject to Section 10.12. SECTION 10.02 LIQUIDATION, DISSOLUTION, BANKRUPTCY. Upon any payment ------------------------------------ or distribution of the assets of the Company to creditors upon a total or partial liquidation or a total or partial dissolution of the Company or in a bankruptcy, reorganization, insolvency, receivership or similar proceeding relating to the Company or its property: (1) holders of Senior Indebtedness shall be entitled to receive payment in full of such Senior Indebtedness before Securityholders shall be entitled to receive any payment of principal of or interest on the Securities; and (2) until such Senior Indebtedness is paid in full, any payment or distribution to which Securityholders would be entitled but for this Article X shall be made to holders of such Senior Indebtedness as their interests may appear, except that Securityholders may receive shares of Capital Stock and any debt securities that are subordinated to such Senior Indebtedness to at least the same extent as the Securities. SECTION 10.03 DEFAULT ON SENIOR INDEBTEDNESS. The Company may not pay ------------------------------ the principal of or interest on the Securities or make any deposit 82 pursuant to Section 8.01 and may not repurchase, redeem or otherwise retire any Securities (collectively, "pay the Securities") if (1) any Designated Senior Indebtedness is not paid when due or (2) any other default on Designated Senior Indebtedness occurs and the maturity of such Designated Senior Indebtedness is accelerated in accordance with its terms unless, in either case, (x) the default has been cured or waived and any such acceleration has been rescinded or (y) such Designated Senior Indebtedness has been paid in full; provided, however, -------- ------- that the Company may pay the Securities without regard to the foregoing if the Company and the Trustee receive written notice approving such payment from the Representative of such Designated Senior Indebtedness. During the continuance of any default (other than a default described in clause (1) or (2) of the preceding sentence) with respect to any Designated Senior Indebtedness pursuant to which the maturity thereof may be accelerated either immediately without further notice (except such notice as may be required to effect such acceleration) or after the expira tion of any applicable grace periods, the Company may not pay the Securities for a period (a "Payment Blockage Period") commencing upon the receipt by the Company and the Trustee of written notice (a "Blockage Notice") of such default from the Representative of such Designated Senior Indebtedness specifying an election to effect a Payment Blockage Period and ending 179 days thereafter (or earlier if such Payment Blockage Period is terminated (1) by written notice to the Trustee and the Company from the Person or Persons who gave such Blockage Notice, (2) because the default giving rise to such Blockage Notice is cured, waived or otherwise no longer continuing or (3) because such Designated Senior Indebtedness has been discharged or repaid in full). Notwithstanding the provisions described in the immediately preceding sentence (but subject to the provisions contained in the first sentence of this Section), unless the holders of such Designated Senior Indebtedness or the Representative of such holders shall have accelerated the maturity of such Designated Senior Indebtedness, the Company may resume payments on the Securities after termination of such Payment Blockage Period. Not more than one Blockage Notice may be given in any consecutive 360-day period, irrespective of the number of defaults with respect to Designated Senior Indebtedness during such period. For purposes of this Section, no default or event of default which existed or was continuing on the date of the commencement of any Payment Blockage Period with respect to the Designated Senior Indebtedness initiating such Payment Blockage Period shall be, or be made, the basis of the commencement of a subsequent Payment Blockage Period by the Representative of such Designated Senior Indebtedness, whether or not within a period of 360 consecutive days, unless such default or event of default shall have been cured or waived for a period of not less than 90 consecutive days. 83 SECTION 10.04. ACCELERATION OF PAYMENT OF SECURITIES. If payment of -------------------------------------- the Securities is accelerated because of an Event of Default, the Company or the Trustee shall promptly notify the holders of the Designated Senior Indebtedness (or their Representatives) of the acceleration. The Trustee shall give notice of such acceleration, of which it has actual knowledge, to all holders of Designated Senior Indebtedness. Prior to the Trustee's giving such notice, the Company shall notify the Trustee of the name and address of any such holder of Designated Senior Indebtedness. SECTION 10.05. WHEN DISTRIBUTION MUST BE PAID OVER. If a distribution ----------------------------------- is made to Securityholders that because of this Article X should not have been made to them, the Securityholders who receive the distribution shall hold it in trust for holders of Senior Indebtedness and pay it over to them as their interests may appear and the Trustee shall not be liable to any holders of Senior Indebtedness with respect thereto. With respect to the holders of Senior Indebtedness, the Trustee undertakes to perform or to observe only such of its covenants or obligations as are specifically set forth in this Article X and no implied covenants or obligations with respect to holders of Senior Indebtedness shall be read into this Indenture against the Trustee. SECTION 10.06. SUBROGATION. After all Senior Indebtedness is paid in ----------- full and until the Securities are paid in full, Securityholders shall be subrogated to the rights of holders of such Senior Indebtedness to receive distributions applicable to such Senior Indebtedness. A distribution made under this Article X to holders of such Senior Indebtedness which otherwise would have been made to Securityholders is not, as between the Company and Securityholders, a payment by the Company on such Senior Indebtedness. SECTION 10.07. RELATIVE RIGHTS. This Article X defines the relative --------------- rights of Securityholders and holders of Senior Indebtedness. Nothing in this Indenture shall: (1) impair, as between the Company and Securityholders, the obligation of the Company, which is absolute and unconditional, to pay principal of and interest on the Securities in accordance with their terms; or (2) prevent the Trustee or any Securityholder from exercising its available remedies upon a Default, subject to the rights of holders of Senior Indebtedness to receive distributions otherwise payable to Securityholders. 84 SECTION 10.08. SUBORDINATION MAY NOT BE IMPAIRED BY COMPANY. No right -------------------------------------------- of any holder of Senior Indebtedness to enforce the subordination of the Indebtedness evidenced by the Securities shall be impaired by any act or failure to act by the Company or by its failure to comply with this Indenture. SECTION 10.09. RIGHTS OF TRUSTEE AND PAYING AGENT. Notwithstanding ---------------------------------- Section 10.03, the Trustee or Paying Agent may continue to make payments on the Securities and shall not be charged with knowledge of the existence of facts that would prohibit the making of any such payments unless, not less than two Business Days prior to the date of such payment, a Trust Officer of the Trustee receives notice satisfactory to it that payments may not be made under this Article X. The Company, the Registrar or co-registrar, the Paying Agent, a Representative or a holder of Senior Indebtedness may give the notice; provided, -------- however, that, if an issue of Senior Indebtedness has a Representative, only the - ------- Representative may give the notice. The Trustee in its individual or any other capacity may hold Senior Indebtedness with the same rights it would have if it were not Trustee. The Registrar and co-registrar and the Paying Agent may do the same with like rights. The Trustee shall be entitled to all the rights set forth in this Article X with respect to any Senior Indebtedness which may at any time be held by it, to the same extent as any other holder of such Senior Indebtedness; and nothing in Article VII shall deprive the Trustee of any of its rights as such holder. Nothing in this Article X shall apply to claims of, or payments to, the Trustee under or pursuant to Section 7.07. SECTION 10.10. DISTRIBUTION OR NOTICE TO REPRESENTATIVE. Whenever a ----------------------------------------- distribution is to be made or a notice given to holders of Senior Indebtedness, the distribution may be made and the notice given to their Representative (if any). SECTION 10.11. ARTICLE X NOT TO PREVENT EVENTS OF DEFAULT OR LIMIT --------------------------------------------------- RIGHT TO ACCELERATE. The failure to make a payment pursuant to the Securities by - ------------------- reason of any provision in this Article X shall not be construed as preventing the occurrence of a Default. Nothing in this Article X shall have any effect on the right of the Securityholders or the Trustee to accelerate the maturity of the Securities. SECTION 10.12. TRUST MONEYS NOT SUBORDINATED. Notwithstanding ----------------------------- anything contained herein to the contrary, payments from money or 85 the proceeds of U.S. Government Obligations held in trust under Article VIII by the Trustee for the payment of principal of and interest on the Securities shall not be subordinated to the prior payment of any Senior Indebtedness or subject to the restrictions set forth in this Article X, and none of the Securityholders shall be obligated to pay over any such amount to the Company or any holder of Senior Indebtedness or any other creditor of the Company. SECTION 10.13. TRUSTEE ENTITLED TO RELY. Upon any payment or ------------------------ distribution pursuant to this Article X, the Trustee and the Securityholders shall be entitled to rely (1) upon any order or decree of a court of competent jurisdiction in which any proceedings of the nature referred to in Section 10.02 are pending, (2) upon a certificate of the liquidating trustee or agent or other Person making such payment or distribution to the Trustee or to the Securityholders or (3) upon the Representatives for the holders of Senior Indebtedness for the purpose of ascertaining the Persons entitled to participate in such payment or distribution, the holders of such 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 X. In the event that the Trustee determines, in good faith, that 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 X, the Trustee may request such Person to furnish evidence to the satisfaction of the Trustee as to the amount of such Senior Indebtedness held by such Person, the extent to which such Person is entitled to participate in such payment or distribution and other facts pertinent to the rights of such Person under this Article X, 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. The provisions of Sections 7.01 and 7.02 shall be applicable to all actions or omissions of actions by the Trustee pursuant to this Article X. SECTION 10.14. TRUSTEE TO EFFECTUATE SUBORDINATION. Each ----------------------------------- Securityholder by accepting a Security authorizes and directs the Trustee on his behalf to take such action as may be necessary or appropriate to acknowledge or effectuate the subordination between the Securityholders and the holders of Senior Indebtedness as provided in this Article X and appoints the Trustee as attorney-in-fact for any and all such purposes. SECTION 10.15. TRUSTEE NOT FIDUCIARY FOR HOLDERS OF SENIOR ------------------------------------------- INDEBTEDNESS. The Trustee shall not be deemed to owe any fiduciary duty to the - ------------ holders of Senior Indebtedness and shall not be liable to any such holders if it 86 shall mistakenly pay over or distribute to Securityholders or the Company or any other Person, money or assets to which any holders of Senior Indebtedness shall be entitled by virtue of this Article X or otherwise. SECTION 10.16. RELIANCE BY HOLDERS OF SENIOR INDEBTEDNESS ON ---------------------------------------------- SUBORDINATION PROVISIONS. Each Securityholder by accepting a Security - ------------------------ acknowledges and agrees that the foregoing subordination provisions are, and are intended to be, an inducement and a consideration to each holder of any Senior Indebtedness whether such Senior Indebtedness was created or acquired before or after the issuance of the Securities, to acquire and continue to hold, or to continue to hold, such Senior Indebtedness and such holder of such Senior Indebtedness shall be deemed conclusively to have relied on such subordination provisions in acquiring and continuing to hold, or in continuing to hold, such Senior Indebtedness. ARTICLE XI GUARANTEES SECTION 11.01 UNCONDITIONAL GUARANTEE. Each of the Subsidiary ----------------------- Guarantors hereby unconditionally jointly and severally guarantees (such guarantee to be referred to herein as the "Subsidiary Guarantee") to each Holder of a Security authenticated and delivered by the Trustee and to the Trustee and its successors and assigns, that: (i) the principal of and interest on the Securities will be promptly paid in full when due, subject to any applicable grace period, whether at maturity, by acceleration or otherwise and interest on the overdue principal, if any, and interest on any interest, to the extent lawful, of the Securities and all other obligations of the Company to the Holders or the Trustee under the Indenture or the Securities will be promptly paid in full or performed, all in accordance with the terms hereof and thereof; and (ii) in case of any extension of time of payment or renewal of any Securities or of any such other obligations, the same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, subject to any applicable grace period, whether at stated maturity, by acceleration or otherwise. Each Subsidiary Guarantor further agrees that, as between such Subsid- iary Guarantor on one hand, and the Holders and the Trustee on the other hand, (x) the maturity of the obligations guaranteed hereby may be accelerated as provided in Article VI for the purposes of the Subsidiary Guaranty, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the obligations guaranteed hereby, and (y) in the event of any acceleration of such obligations as provided in 87 Article VI, such obligations (whether or not due and payable) shall forthwith become due and payable by such Subsidiary Guarantor for the purposes of the Subsidiary Guaranty. Each of the Subsidiary Guarantors hereby agrees that its obligations hereunder shall be unconditional, irrespective of the validity, regularity or enforceability of the Securities or this Indenture, the absence of any action to enforce the same, any waiver or consent by any Holder of the Securities with respect to any provisions hereof or thereof, the recovery of any judgment against the Company, any action to enforce the same or any other circumstance which might otherwise constitute a legal or equitable discharge or defense of a guarantor. Each of the Subsidiary Guarantors hereby waives diligence, presentment, demand of payment, filing of claims with a court in the event of insolvency or bankruptcy of the Company, any right to require a proceeding first against the Company, protest, notice and all demands whatsoever and covenants that the Subsidiary Guarantee will not be discharged except by complete performance of the obligations contained in the Securities, this Indenture and in the Subsidiary Guarantee. If any Securityholder or the Trustee is required by any court or otherwise to return to the Company, any Subsidiary Guarantor, or any custodian, trustee, liquidator or other similar official acting in relation to the Company or any Subsidiary Guarantor, any amount paid by the Company or such Subsidiary Guarantor to the Trustee or such Securityholder, the Subsidiary Guarantee, to the extent theretofore discharged, shall be reinstated in full force and effect. Each of the Subsidiary Guarantors hereby agrees that, in the event of default in the payment of principal (or premium, if any) or interest on such Securities, whether at their Stated Maturity, by acceleration, called for redemption, purchase or otherwise, legal proceedings may be instituted by the Trustee on behalf of, or by, the Holder of such Securities, subject to the terms and conditions set forth in this Indenture, directly against each of the Subsidiary Guarantors to enforce the Subsidiary Guarantee without first proceeding against the Company. Each Subsidiary Guarantor agrees that if, after the occurrence and during the continuance of an Event of Default, the Trustee or any Holders are prevented by applicable law from exercising their respective rights to accelerate the maturity of the Securities, to collect interest on the Securities, or to enforce any other right or remedy with respect to the Securities, the Subsidiary Guarantors agree to pay to the Trustee for the account of the Holders, upon demand therefor, the amount that would otherwise have been due and payable had such rights and remedies been permitted to be exercised by the Trustee or any of the Holders. SECTION 11.02. SUBORDINATION OF SUBSIDIARY GUARANTEE. The obligations -------------------------------------- of each Subsidiary Guarantor to the Holders of the Securities and to the Trustee pursuant to the Subsidiary Guarantee and this Indenture are expressly 88 subordinate and subject in right of payment to the prior payment in full of all Senior Indebtedness of such Subsidiary Guarantor, to the extent and in the manner provided in Article XII. SECTION 11.03. SEVERABILITY. In case any provision of the Subsidiary ------------ Guarantee 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 11.04. RELEASE OF SUBSIDIARY GUARANTOR FROM THE SUBSIDIARY --------------------------------------------------- GUARANTEE. Upon the sale or disposition (whether by merger, stock purchase, - --------- asset sale or otherwise) of a Subsidiary Guarantor (or all of its assets) to an entity which is not the Company or a Subsidiary or Affiliate of the Company and which sale or disposition is otherwise in compliance with the terms of this Indenture or pursuant to a foreclosure on the capital stock of such Subsidiary Guarantor in accordance with the New Credit Facility, such Subsidiary Guarantor shall be deemed released from all obligations under this Article XI without any further action required on the part of the Trustee or any Holder. In the event that the Company designates a Restricted Subsidiary as an Unrestricted Subsidiary, subject to and in compliance with the terms and provisions of this Indenture, such Subsidiary shall be deemed released from all obligations under this Article XI without any further action required on the part of the Trustee or any Holder. The Trustee shall deliver an appropriate instrument evidencing such release upon receipt of a request by the Company accompanied by an Officers' Certificate certifying as to the compliance with this Section 11.04. SECTION 11.05. LIMITATION ON AMOUNT GUARANTEED; CONTRIBUTION BY ------------------------------------------------ SUBSIDIARY GUARANTORS. - --------------------- (a) Anything contained in this Indenture or the Subsidiary Guaranty to the contrary notwithstanding, if any Fraudulent Transfer Law (as hereinafter defined) is determined by a court of competent jurisdiction to be applicable to the obligations of any Subsidiary Guarantor under the Subsidiary Guarantee, such obligations of such Subsidiary Guarantor under the Subsidiary Guarantee shall be limited to a maximum aggregate amount equal to the largest amount that would not render its obligations under the Subsidiary Guarantee subject to avoidance as a fraudulent transfer or conveyance under Section 548 of Title 11 of the United States Code or any applicable provisions of comparable state law (collectively, the "Fraudulent Transfer Laws"), in each case after giving effect to all other liabilities of such Subsidiary Guarantor, contingent or other- 89 wise, that are relevant under the Fraudulent Transfer Laws (specifically excluding, however, any liabilities of such Subsidiary Guarantor (x) in respect of intercompany Indebtedness to the Company or other Affiliates of the Company to the extent that such Indebtedness would be discharged in an amount equal to the amount paid by such Subsidiary Guarantor under the Subsidiary Guaranty and (y) under any Guarantee of Subordinated Indebtedness which Guarantee contains a limitation as to maximum amount similar to that set forth in this subsection 11.05(a), pursuant to which the liability of such Subsidiary Guarantor under the Subsidiary Guarantee is included in the liabilities taken into account in determining such maximum amount) and after giving effect as assets to the value (as determined under the applicable provisions of the Fraudulent Transfer Laws) of any rights to subrogation, reimbursement, indemnification or contribution of such Subsidiary Guarantor pursuant to applicable law or pursuant to the terms of any agreement (including without limitation any such right of contribution under subsection 11.05(b)). (b) The Subsidiary Guarantors together desire to allocate among themselves in a fair and equitable manner, their obligations arising under the Subsidiary Guarantee. Accordingly, if any payment or distribution is made on any date by any Subsidiary Guarantor under the Subsidiary Guarantee (a "Funding Subsidiary Guarantor") that exceeds its Fair Share (as defined below) as of such date, that Funding Subsidiary Guarantor shall be entitled to a contribution from each of the other Subsidiary Guarantors in the amount of such other Subsidiary Guarantor's Fair Share Shortfall (as defined below) as of such date, with the result that all such contributions will cause each Subsidiary Guarantor's Aggregate Payments (as defined below) to equal its Fair Share as of such date. "Fair Share" means, with respect to a Subsidiary Guarantor as of any date of determination, an amount equal to (i) the ratio of (x) the Adjusted Maximum Amount (as defined below) with respect to such Subsidiary Guarantor to (y) the aggregate of the Adjusted Maximum Amounts with respect to all Subsidiary Guaran tors, multiplied by (ii) the aggregate amount paid or distributed on or before ---------- -- such date by all Funding Subsidiary Guarantors under the Subsidiary Guarantee in respect of the obligations guarantied. "Fair Share Shortfall" means, with respect to a Subsidiary Guarantor as of any date of determination, the excess, if any, of the Fair Share of such Subsidiary Guarantor over the Aggregate Payments of such Subsidiary Guarantor. "Adjusted Maximum Amount" means, with respect to a Subsidiary Guarantor as of any date of determination, the maximum aggregate amount of the obligations of such Subsidiary Guarantor under the Subsidiary Guarantee, determined as of such date in accordance with subsection 11.05(a); provided that, solely for purposes of calculating the Adjusted Maximum -------- Amount with respect to any Subsidiary Guarantor for purposes of this subsection 11.05(b), any assets or liabilities of such Subsidiary Guarantor arising 90 by virtue of any rights to subrogation, reimbursement or indemnification or any rights to or obligations of contribution hereunder shall not be considered as assets or liabilities of such Subsidiary Guarantor. "Aggregate Payments" means, with respect to a Subsidiary Guarantor as of any date of determination, an amount equal to (i) the aggregate amount of all payments and distributions made on or before such date by such Subsidiary Guarantor in respect of the Subsidiary Guarantee (including, without limitation, in respect of this subsection 11.05(b) minus (ii) the aggregate amount of all payments received on ----- or before such date by such Subsidiary Guarantor from the other Subsidiary Guarantors as contributions under this subsection 11.05(b)). The amounts payable as contributions hereunder shall be determined as of the date on which the related payment or distribution is made by the applicable Funding Subsidiary Guarantor. The allocation among Subsidiary Guarantors of their obligations as set forth in this subsection 11.05(b) shall not be construed in any way to limit the liability of any Subsidiary Guarantor under this Indenture or under the Subsidiary Guaranty. SECTION 11.06. WAIVER OF SUBROGATION. Until payment in full is made --------------------- of the Securities and all other obligations of the Company to the Holders or the Trustee hereunder and under the Securities, each Subsidiary Guarantor hereby irrevocably waives any claim or other rights which it may now or hereafter acquire against the Company that arise from the existence, payment, performance or enforce ment of such Subsidiary Guarantor's obligations under the Subsidiary Guarantee and this Indenture, including without limitation, any right of subrogation, reimbursement, exoneration, indemnification, and any right to participate in any claim or remedy of any Holder of Securities against the Company, whether or not such claim, remedy or right arises in equity, or under contract, statute or common law, including, without limitation, the right to take or receive from the Company, directly or indirectly, in cash or other property or by set-off or any other manner, payment or security on account of such claim or other rights. If any amount shall be paid to any Subsidiary Guarantor in violation of the preceding sentence and the Securities shall not have been paid in full, such amount shall have been deemed to have been paid to such Subsidiary Guarantor for the benefit of, and held in trust for the benefit of, the Holders of the Securities, and shall forthwith be paid to the Trustee for the benefit of such Holders to be credited and applied upon the Securities, whether matured or unmatured, in accordance with the terms of this Indenture. Each Subsidiary Guarantor acknowledges that it will receive direct and indirect benefits from the financing arrangements contemplated by this Indenture and that the waiver set forth in this Section 11.06 is knowingly made in contemplation of such benefits. 91 SECTION 11.07 EXECUTION OF SUBSIDIARY GUARANTEE. To evidence its --------------------------------- guarantee to the Securityholders set forth in this Article XI, each Subsidiary Guarantor hereby agrees to execute the Subsidiary Guarantee in substantially the form included in Exhibits A and Exhibit B, which shall be endorsed on such Security ordered to be authenticated and delivered by the Trustee. Each Subsidiary Guarantor hereby agrees that the Subsidiary Guarantee set forth in this Article XI shall remain in full force and effect notwithstanding any failure to endorse on each Security a notation of the Subsidiary Guarantee. The Subsidiary Guarantee shall be signed on behalf of each Subsidiary Guarantor by one Officer of such Subsidiary Guarantor (each of whom shall, in each case, have been duly authorized by all requisite corporate actions) prior to the authentication of the Security on which it is endorsed, and the delivery of such Security by the Trustee, after the authentication thereof hereunder, shall constitute due delivery of the Subsidiary Guarantee on behalf of such Subsidiary Guarantor. Such signatures upon the Subsidiary Guarantee may be by manual or facsimile signature of such officers and may be imprinted or otherwise reproduced on the Subsidiary Guaran tee, and in case any such Officer who shall have signed the Subsidiary Guarantee shall cease to be such officer before the Security on which the Subsidiary Guarantee is endorsed shall have been authenticated and delivered by the Trustee or disposed of by the Company, such Security nevertheless may be authenticated and delivered or disposed of as though the person who signed the Subsidiary Guarantee had not ceased to be such Officer of such Subsidiary Guarantor. SECTION 11.08 WAIVER OF STAY OR EXECUTION LAWS. Each Subsidiary -------------------------------- Guarantor jointly and severally (to the extent it may lawfully do so) shall not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or execution law wherever enacted, now or at any time hereafter in force, which may affect the covenants or the performance of this Indenture; and (to the extent that it may lawfully do so) each Subsidiary Guarantor hereby expressly waives all benefit or advantage of any such law, and shall not 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 had been enacted. SECTION 11.09. EFFECTIVENESS OF SUBSIDIARY GUARANTEE. The Subsidiary -------------------------------------- Guarantee shall remain in full force and effect and continue to be effective should any petition be filed by or against the Company for liquidation or reorganization, should the Company become insolvent or make an assignment for the benefit of creditors or should a receiver or trustee be appointed for all or any significant 92 part of the Company's assets, and shall, to the fullest extent permitted by law, continue to be effective or be reinstated, as the case may be, if at any time payment and performance of the Securities, is, pursuant to applicable law, rescinded or reduced in amount, or must otherwise be restored or returned by any obligee on the Securities, whether as a "voidable preference," "fraudulent transfer," or otherwise, all as though such a payment or performance had not been made. If any payments, or any part thereof, is rescinded, reduced, restored or returned, the Securities shall, to the fullest extent permitted by law, be reinstituted and deemed reduced only by such amount paid and not so rescinded, reduced, restored or returned. ARTICLE XII SUBORDINATION OF GUARANTEE OBLIGATIONS -------------------------------------- SECTION 12.01. AGREEMENT TO SUBORDINATE. Each Subsid iary Guarantor ------------------------ agrees, and each Securityholder by accepting a Security agrees, that any payment of obligations by each Subsidiary Guarantor in respect of the Subsidiary Guarantee (its "Subsidiary Guarantee Obligations") is subordinated in right of payment, to the extent and in the manner provided in this Article XII, to the prior payment of all Senior Indebtedness of such Subsidiary Guarantor and that the subordination is for the benefit of and enforceable by the holders of such Subsidiary Guarantor's Senior Indebtedness. The Subsidiary Guarantee Obligations shall in all respects rank pari passu with all other Senior Subordinated ---- ----- Indebtedness of such Subsidiary Guarantors and only Indebtedness which is Senior Indebtedness of such Subsidiary Guarantors shall rank senior to the Subsidiary Guarantee Obligations in accordance with the provisions set forth herein. SECTION 12.02. LIQUIDATION, DISSOLUTION, BANKRUPTCY. Upon any payment ------------------------------------ or distribution of the assets of any Subsidiary Guarantor to creditors upon a total or partial liquidation or a total or partial dissolution of such Subsidiary Guarantor or in a bankruptcy, reorganization, insolvency, receivership or similar proceeding relating to such Subsidiary Guarantor or its property: (1) holders of such Subsidiary Guarantor's Senior Indebtedness shall be entitled to receive payment in full of such Senior Indebtedness before Securityholders shall be entitled to receive any payment with respect to the Subsidiary Guarantee; and 93 (2) until such Subsidiary Guarantor's Senior Indebtedness is paid in full, any payment with respect to the Subsidiary Guarantee to which Securityholders would be entitled but for this Article XII shall be made to holders of such Senior Indebtedness as their interests may appear, except that Securityholders may receive shares of Capital Stock and any debt securities that are subordinated to such Subsidiary Guarantor's Senior Indebtedness to at least the same extent as the Subsidiary Guarantee. SECTION 12.03. DEFAULT ON SENIOR INDEBTEDNESS. A Subsidiary Guarantor ------------------------------ may not make any payment with respect to its Subsidiary Guarantee Obligations or make any deposit pursuant to Section 8.01 (collectively, "pay the Subsidiary Guarantee") if (1) any of such Subsidiary Guarantor's Designated Senior Indebtedness is not paid when due or (2) any other default on such Subsidiary Guarantor's Designated Senior Indebtedness occurs and the maturity of such Designated Senior Indebtedness is accelerated in accordance with its terms unless, in either case, (x) the default has been cured or waived and any such acceleration has been rescinded or (y) such Designated Senior Indebtedness has been paid in full; provided, however, that the Subsidiary Guarantor may pay the -------- ------- Subsidiary Guarantee without regard to the foregoing if such Subsidiary Guarantor and the Trustee receive written notice approving such payment from the Representative of such Designated Senior Indebtedness guaranteed by such Subsidiary Guarantor. During the continuance of any default (other than a default described in clause (1) or (2) of the preceding sentence) with respect to any Subsidiary Guarantor's Designated Senior Indebtedness pursuant to which the maturity thereof may be accelerated either immediately without further notice (except such notice as may be required to effect such acceleration) or after the expiration of any applicable grace periods, the Subsidiary Guarantor may not pay the Subsidiary Guarantee for a period (a "Payment Blockage Period") commencing upon the receipt by such Subsidiary Guarantor and the Trustee of written notice (a "Blockage Notice") of such default from the Representative of such Designated Senior Indebtedness guaranteed by such Subsidiary Guarantor specifying an election to effect a Payment Blockage Period and ending 179 days thereafter (or earlier if such Payment Blockage Period is terminated (1) by written notice to the Trustee and such Subsidiary Guarantor from the Person or Persons who gave such Blockage Notice, (2) because the default giving rise to such Blockage Notice is cured, waived or otherwise no longer continuing or (3) because such Designated Senior Indebtedness has been discharged or repaid in full). Notwithstanding the provisions described in the immediately preceding sentence (but subject to the provisions contained in the first sentence of this Section), unless the holders of such Subsidiary Guarantor's Designated Senior Indebtedness or the Repre- 94 sentative of such holders shall have accelerated the maturity of such Subsidiary Guarantor's Designated Senior Indebtedness, the Subsidiary Guarantor may resume payments on the Subsidiary Guarantee after termination of such Payment Blockage Period. Not more than one Blockage Notice may be given in any consecutive 360- day period, irrespective of the number of defaults with respect to such Subsidiary Guarantor's Designated Senior Indebtedness during such period. For purposes of this Section, no default or event of default which existed or was continuing on the date of the commencement of any Payment Blockage Period with respect to the Subsidiary Guarantor's Designated Senior Indebtedness initiating such Payment Blockage Period shall be, or be made, the basis of the commencement of a subsequent Payment Block age Period by the Representative of such Subsidiary Guarantor's Designated Senior Indebtedness, whether or not within a period of 360 consecutive days, unless such default or event of default shall have been cured or waived for a period of not less than 90 consecutive days. SECTION 12.04. ACCELERATION OF PAYMENT OF SECURITIES. If payment of a ------------------------------------- Subsidiary Guarantee is accelerated because of an Event of Default, such Subsidiary Guarantor or the Trustee shall promptly notify the holders of such Subsidiary Guarantor's Designated Senior Indebtedness (or their Representatives) of the acceleration. The Trustee shall give notice of such acceleration, of which it has actual knowledge, to all holders of such Subsidiary Guarantor's Designated Senior Indebtedness. Prior to the Trustee's giving such notice, the Company shall notify the Trustee of the name and address of any such holder of Designated Senior Indebtedness. SECTION 12.05. WHEN DISTRIBUTION MUST BE PAID OVER. If a distribution ----------------------------------- is made to Securityholders that because of this Article XII should not have been made to them, the Securityholders who receive the distribution shall hold it in trust for holders of such Subsidiary Guarantor's Senior Indebtedness and pay it over to them as their interests may appear, and the Trustee shall not be liable to any holders of such Subsidiary Guarantor's Senior Indebtedness. With respect to the holders of such Subsidiary Guarantor's Senior Indebtedness, the Trustee undertakes to perform or to observe only such of its covenants or obligations as are specifically set forth in this Article XII and no implied covenants or obligations with respect to holders of such Subsidiary Guarantor's Senior Indebtedness shall be read into this Indenture against the Trustee. SECTION 12.06. SUBROGATION. After a Subsidiary Guarantor's Senior ----------- Indebtedness is paid in full and until the Subsidiary Guarantees are paid in full, Securityholders shall be subrogated to the rights of holders of such Senior Indebtedness 95 to receive distributions applicable to such Subsidiary Guarantor's Senior Indebtedness. A distribution made under this Article XII to holders of such Subsidiary Guarantor's Senior Indebtedness which otherwise would have been made to Securityholders is not, as between such Subsidiary Guarantor and Securityholders, a payment by such Subsidiary Guarantor on such Senior Indebtedness. SECTION 12.07. RELATIVE RIGHTS. This Article XII defines the relative --------------- rights of Securityholders and holders of a Subsidiary Guarantor's Senior Indebtedness. Nothing in this Indenture shall: (1) impair, as between such Subsidiary Guarantor and Securityholders, the obligation of such Subsidiary Guarantor, which is absolute and uncondi tional, to pay the Subsidiary Guarantee Obligations in accordance with their terms; or (2) prevent the Trustee or any Securityholder from exercising its available remedies upon a Default, subject to the rights of holders of a Subsidiary Guarantor's Senior Indebtedness to receive distributions otherwise payable to Securityholders. SECTION 12.08. SUBORDINATION MAY NOT BE IMPAIRED BY A SUBSIDIARY ------------------------------------------------- GUARANTOR. No right of any holder of a Subsidiary Guarantor's Senior - --------- Indebtedness to enforce the subordination of the Indebtedness evidenced by the Subsidiary Guarantees shall be impaired by any act or failure to act by such Subsidiary Guarantor or by its failure to comply with this Indenture. SECTION 12.09. RIGHTS OF TRUSTEE AND PAYING AGENT. Notwithstanding ---------------------------------- Section 12.03, the Trustee or Paying Agent may continue to make payments in respect of a Subsidiary Guarantee and shall not be charged with knowledge of the existence of facts that would prohibit the making of any such payments unless, not less than two Business Days prior to the date of such payment, a Trust Officer of the Trustee receives notice satisfactory to it that payments may not be made under this Article XII. Such Subsidiary Guarantor, the Registrar or co- registrar, the Paying Agent, a Representative or a holder of such Subsidiary Guarantor's Senior Indebtedness may give the notice; provided, however, that, if -------- ------- an issue of a Subsidiary Guarantor's Senior Indebtedness has a Representative, only the Representative may give the notice. The Trustee in its individual or any other capacity may hold a Subsidiary Guarantor's Senior Indebtedness with the same rights it would have if it were not 96 Trustee. The Registrar and co-registrar, the Paying Agent and any agent of any Subsid iary Guarantor may do the same with like rights. The Trustee shall be entitled to all the rights set forth in this Article XII with respect to any Subsidiary Guarantor's Senior Indebtedness which may at any time be held by it, to the same extent as any other holder of such Subsidiary Guarantor's Senior Indebtedness; and nothing in Article VII shall deprive the Trustee of any of its rights as such holder. Nothing in this Article XII shall apply to claims of, or payments to, the Trustee under or pursuant to Section 7.07. SECTION 12.10. DISTRIBUTION OR NOTICE TO REPRESENTATIVE. Whenever a ----------------------------------------- distribution is to be made or a notice given to holders of a Subsidiary Guarantor's Senior Indebtedness, the distribution may be made and the notice given to their Representative (if any). SECTION 12.11. ARTICLE XII NOT TO PREVENT EVENTS OF DEFAULT OR LIMIT ----------------------------------------------------- RIGHT TO ACCELERATE. The failure to make a payment relating to the Subsidiary - ------------------- Guarantee Obligations by reason of any provision in this Article XII shall not be construed as preventing the occurrence of a Default. Nothing in this Article XII shall have any effect on the right of the Securityholders or the Trustee to accelerate the maturity of the Securities. SECTION 12.12. TRUST MONEYS NOT SUBORDINATED. Notwithstanding ----------------------------- anything contained herein to the contrary, payments from money or the proceeds of U.S. Government Obligations held in trust under Article VIII by the Trustee for the payment of principal of and interest on the Securities shall not be subordinated to the prior payment of any Subsidiary Guarantor's Senior Indebtedness or subject to the restrictions set forth in this Article XII, and none of the Securityholders shall be obligated to pay over any such amount to such Subsidiary Guarantor or any holder of such Subsidiary Guarantor's Senior Indebtedness or any other creditor of such Subsidiary Guarantor. SECTION 12.13. TRUSTEE ENTITLED TO RELY. Upon any payment or ------------------------ distribution pursuant to this Article XII, the Trustee and the Securityholders shall be entitled to rely (1) upon any order or decree of a court of competent jurisdiction in which any proceedings of the nature referred to in Section 12.02 are pending, (2) upon a certificate of the liquidating trustee or agent or other Person making such payment or distribution to the Trustee or to the Securityholders or (3) upon the Representatives for the holders of each Subsidiary Guarantor's Senior Indebtedness for the purpose of ascertaining the Persons entitled to participate in such payment or distribution, the holders of such Subsidiary Guarantor Senior Indebtedness and other Indebted- 97 ness of any Subsidiary Guarantor's, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article XII. In the event that the Trustee determines, in good faith, that evidence is required with respect to the right of any Person as a holder of a Subsidiary Guarantor's Senior Indebtedness to participate in any payment or distribution pursuant to this Article XII, the Trustee may request such Person to furnish evidence to the satisfaction of the Trustee as to the amount of such Subsidiary Guarantor's Senior Indebtedness held by such Person, the extent to which such Person is entitled to participate in such payment or distribution and other facts pertinent to the rights of such Person under this Article XII, 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. The provisions of Sections 7.01 and 7.02 shall be applicable to all actions or omissions of actions by the Trustee pursuant to this Article XII. SECTION 12.14. TRUSTEE TO EFFECTUATE SUBORDINATION. Each ----------------------------------- Securityholder by accepting a Security authorizes and directs the Trustee on his behalf to take such action as may be necessary or appropriate to acknowledge or effectuate the subordination between the Securityholders and the holders of any Subsidiary Guarantor's Senior Indebtedness as provided in this Article XII and appoints the Trustee as attorney-in-fact for any and all such purposes. SECTION 12.15. TRUSTEE NOT FIDUCIARY FOR HOLDERS OF SENIOR ------------------------------------------- INDEBTEDNESS OF SUBSIDIARY GUARANTORS. The Trustee shall not be deemed to owe - ------------------------------------- any fiduciary duty to the holders of any Subsidiary Guarantor's Senior Indebtedness and shall not be liable to any such holders if it shall mistakenly pay over or distribute to Securityholders or any Subsidiary Guarantor or any other Person, money or assets to which any holders of such Subsidiary Guarantor's Senior Indebtedness shall be entitled by virtue of this Article XII or otherwise. SECTION 12.15. RELIANCE BY HOLDERS OF SENIOR INDEBT EDNESS OF ---------------------------------------------- SUBSIDIARY GUARANTORS ON SUBORDINATION PROVISIONS. Each Securityholder by - ------------------------------------------------- accepting a Security acknowledges and agrees that the foregoing subordination provisions are, and are intended to be, an inducement and a consideration to each holder of any Subsidiary Guarantor's Senior Indebtedness whether such Senior Indebtedness was created or acquired before or after the issuance of the Securities, to acquire and continue to hold, or to continue to hold, such Senior Indebtedness and such holder of such Senior Indebtedness shall be deemed conclusively to have relied on such subordination provisions in acquiring and continuing to hold, or in continuing to hold, such Senior Indebtedness. 98 ARTICLE XII MISCELLANEOUS ------------- SECTION 13.01. TRUST INDENTURE ACT CONTROLS. If any provision of this ---------------------------- Indenture limits, qualifies or conflicts with another provision which is required to be included in this Indenture by the TIA, the required provision shall control. SECTION 13.02. NOTICES. Any notice or communication shall be in ------- writing and delivered in person or mailed by first-class mail addressed as follows: if to the Company or any Subsidiary Guarantor: The Fairchild Corporation 45025 Aviation Drive Suite 400 Dulles, Virginia 20166 Attention: General Counsel with a copy to: Cahill Gordon & Reindel 80 Pine Street New York, NY 10005 Attention: James J. Clark, Esq. if to the Trustee: The Bank of New York Highwoods Center 10161 Centurion Parkway Jacksonville, Florida 32256 Attention: Corporate Trust Administration The Company or the Trustee by notice to the other may designate additional or different addresses for subsequent notices or communications. Any notice or communication mailed to a Securityholder shall be mailed to the Securityholder at the Securityholder's address as it appears on the registration 99 books of the Registrar and shall be sufficiently given if so mailed within the time prescribed. Failure to mail a notice or communication to a Securityholder or any defect in it shall not affect its sufficiency with respect to other Securityholders. If a notice or communication is mailed in the manner provided above, it is duly given, whether or not the addressee receives it. SECTION 13.03. COMMUNICATION BY HOLDERS WITH OTHER HOLDERS. ------------------------------------------- Securityholders may communicate pursuant to TIA ss. 312(b) with other Securityholders with respect to their rights under this Indenture or the Securities. The Company, the Subsidiary Guarantors, the Trustee, the Registrar and anyone else shall have the protection of TIA ss. 312(c). SECTION 13.04. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT. -------------------------------------------------- Upon any request or application by the Company to the Trustee to take or refrain from taking any action under this Indenture, the Company shall furnish to the Trustee: (1) an Officers' Certificate in form and substance reasonably satisfactory to the Trustee stating that, in the opinion of the signers, all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with; and (2) an Opinion of Counsel in form and substance reasonably satisfactory to the Trustee stating that, in the opinion of such counsel, all such condi tions precedent have been complied with. SECTION 13.05. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION. Each --------------------------------------------- Officers' Certificate or Opinion of Counsel with respect to compliance with a covenant or condition provided for in this Indenture shall include: (1) a statement that the individual making such Officers' Certificate or Opinion of Counsel has read such covenant or condition; (2) a brief statement as to the nature and scope of the examination or investi gation upon which the statements or opinions contained in such Officers' Certificate or Opinion of Counsel are based; (3) a statement that, in the opinion of such individual, he has made such examination or investigation as is necessary to enable him to express an 100 informed opinion as to whether or not such covenant or condition has been complied with; and (4) a statement as to whether or not, in the opinion of such individual, such covenant or condition has been complied with; provided, however, -------- ------- that with respect to matters of fact any such Opinion of Counsel may be based on reliance upon an Officers' Certificate and as to matters of fact any such Opinion of Counsel or Officers' Certificate may be based on reliance upon certificates of public officials. SECTION 13.06. WHEN SECURITIES DISREGARDED. In determin ing whether --------------------------- the Holders of the required principal amount of Securities have concurred in any direction, waiver or consent, Securities 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 disregarded and deemed not to be outstanding, except that, for the purpose of determining whether the Trustee shall be protected in relying on any such direction, waiver or consent, only Securities which the Trustee knows are so owned shall be so disregarded. Also, subject to the foregoing, only Securities outstanding at the time shall be considered in any such determination. SECTION 13.07. RULES BY TRUSTEE, PAYING AGENT AND REGISTRAR. The -------------------------------------------- Trustee may make reasonable rules for action by or a meeting of Securityholders. The Registrar and the Paying Agent may make reasonable rules for their functions. SECTION 13.08. LEGAL HOLIDAYS. A "Legal Holiday" is a Saturday, a -------------- Sunday or a day on which banking institutions are not required to be open in the State of New York. If a payment date is a Legal Holiday, payment shall be made on the next succeeding day that is not a Legal Holiday, and no interest shall accrue for the intervening period. If a regular record date is a Legal Holiday, the record date shall not be affected. SECTION 13.09. GOVERNING LAW. This Indenture and the Securities (and ------------- the Subsidiary Guarantees relating thereto) shall be governed by, and construed in accordance with, the laws of the State of New York but without giving effect to applicable principles of conflicts of law to the extent that the application of the laws of another jurisdiction would be required thereby. SECTION 13.10. NO RECOURSE AGAINST OTHERS. A director, officer, -------------------------- employee or stockholder, as such, of the Company or any Subsidiary Guarantor 101 shall not have any liability for any obligations of the Company or any Subsidiary Guarantor under the Securities or this Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. By accepting a Security, each Securityholder shall waive and release all such liability. The waiver and release shall be part of the consideration for the issue of the Securities. SECTION 13.11. SUCCESSORS. All agreements of the Company and the ---------- Subsidiary Guarantors in this Indenture and the Securities shall bind its successors. All agreements of the Trustee in this Indenture shall bind its successors. SECTION 13.12. MULTIPLE 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. One signed copy is enough to prove this Indenture. SECTION 13.13. TABLE OF CONTENTS; HEADINGS. The table of contents, --------------------------- cross-reference sheet and headings of the Articles and Sections of this Indenture have been inserted for convenience of reference only, are not intended to be considered a part hereof and shall not modify or restrict any of the terms or provisions hereof. 102 IN WITNESS WHEREOF, the parties have caused this Indenture to be duly executed as of the date first written above. THE FAIRCHILD CORPORATION, by /s/ Donald E. Miller ---------------------------- Name: Title: A10 INC. by /s/ Donald E. Miller ---------------------------- Name: Title: CAMLOC HOLDINGS INC. by /s/ Donald E. Miller ---------------------------- Name: Title: FAIRCHILD DATA CORPORATION by /s/ Donald E. Miller ---------------------------- Name: Title: FAIRCHILD FASTENERS CORP. by /s/ Donald E. Miller ---------------------------- Name: Title: FAIRCHILD FRANCE, INC. by /s/ Donald E. Miller ---------------------------- Name: Title: FAIRCHILD HOLDING CORP. by /s/ Donald E. Miller ---------------------------- Name: Title: FAIRCHILD RETIREE MEDICAL SERVICES, INC. by /s/ Donald E. Miller ---------------------------- Name: Title: MAIROLL, INC. by /s/ Donald E. Miller --------------------------- Name: Title: MEOW, INC. by /s/ Donald E. Miller --------------------------- Name: Title: QUACK QUACK, INC. by /s/ Donald E. Miller -------------------------- Name: Title: RECYCLING INVESTMENTS, INC. by /s/ Donald E. Miller -------------------------- Name: Title: RECYCLING INVESTMENTS II, INC. by /s/ Donald E. Miller --------------------------- Name: Title: RHI HOLDINGS, INC. by /s/ Donald E. Miller -------------------------- Name: Title: SIMMONDS MECAERO FASTENERS, INC. by /s/ Donald E. Miller -------------------------- Name: Title: SPECIAL-T FASTENERS, INC. by /s/ Donald E. Miller -------------------------- Name: Title: SUCHOMIMOUS TERENSIS, INC. by /s/ Donald E. Miller --------------------------- Name: Title: VSI HOLDINGS, INC. by /s/ Donald E. Miller --------------------------- Name: Title: BANNER AEROSPACE, INC. by /s/ Donald E. Miller --------------------------- Name: Title: BANNER AEROSPACE SERVICES, INC. by /s/ Donald E. Miller -------------------------- Name: Title: BANNER AEROSPACE-SINGAPORE, INC. by /s/ Donald E. Miller --------------------------- Name: Title: BAR DE, INC. by /s/ Donald E. Miller --------------------------- Name: Title: D A C INTERNATIONAL, INC. by /s/ Donald E. Miller --------------------------- Name: Title: DALLAS AEROSPACE, INC. by /s/ Donald E. Miller --------------------------- Name: Title: GEORGETOWN JET CENTER, INC. by /s/ Donald E. Miller --------------------------- Name: Title: MATRIX AVIATION, INC. by /s/ Donald E. Miller --------------------------- Name: Title: NASAM INCORPORATED by /s/ Donald E. Miller --------------------------- Name: Title: PB HERNDON AEROSPACE, INC. by /s/ Donald E. Miller --------------------------- Name: Title: PROFESSIONAL AIRCRAFT ACCESSORIES, INC. by /s/ Donald E. Miller --------------------------- Name: Title: PROFESSIONAL AVIATION ASSOCIATES, INC. by /s/ Donald E. Miller ---------------------------- Name: Title: M&M MACHINE & TOOL CO. by /s/ Donald E. Miller ---------------------------- Name: Title: MARCLIFF CORPORATION by /s/ Donald E. Miller ---------------------------- Name: Title: MARSON CREATIVE FASTENER, INC. by /s/ Donald E. Miller ---------------------------- Name: Title: RECOIL AUSTRALIA HOLDINGS, INC. by /s/ Donald E. Miller ---------------------------- Name: Title: RECOIL HOLDINGS, INC. by /s/ Donald E. Miller ---------------------------- Name: Title: RECOIL INC. by /s/ Donald E. Miller ---------------------------- Name: Title: KAYNAR TECHNOLOGIES INC. by /s/ Donald E. Miller --------------------------- Name: Title: THE BANK OF NEW YORK, as Trustee by /s/ John H. Speichert ---------------------------- Name: Title: SCHEDULE A Guarantors ---------- A10 Inc. Camloc Holdings Inc. Fairchild Data Corporation Fairchild Fasteners Corp. Fairchild France, Inc. Fairchild Holding Corp. Fairchild Retiree Medical Services, Inc. Kaynar Technologies Inc. Mairoll, Inc. Meow, Inc. Quack Quack, Inc. Recycling Investments, Inc. Recycling Investments II, Inc. RHI Holdings, Inc. Simmonds Mecaero Fasteners, Inc. Special-T Fasteners, Inc. (f/k/a Bow Wow, Inc.) Suchomimous Terensis, Inc. (f/k/a Oink Oink, Inc.) VSI Holdings, Inc. Banner Aerospace, Inc. Banner Aerospace Services, Inc. Banner Aerospace-Singapore, Inc. BAR DE, Inc. D A C International, Inc. Dallas Aerospace, Inc. Georgetown Jet Center, Inc. Matrix Aviation, Inc. Nasam Incorporated PB Herndon Aerospace, Inc. Professional Aircraft Accessories, Inc. Professional Aviation Associates, Inc. M&M Machine & Tool Co. Marcliff Corporation Marson Creative Fastener, Inc. Recoil Australia Holdings, Inc. Recoil Holdings, Inc. Recoil Inc. 112 RULE 144A/REGULATION S APPENDIX FOR OFFERINGS TO QUALIFIED INSTITUTIONAL BUYERS PURSUANT TO RULE 144A AND TO CERTAIN PERSONS IN OFFSHORE TRANSACTIONS IN RELIANCE ON REGULATION S PROVISIONS RELATING TO INITIAL SECURITIES, ------------------------------------------ PRIVATE EXCHANGE SECURITIES --------------------------- AND EXCHANGE SECURITIES ----------------------- 1. Definitions. ----------- 1.1 Definitions. ----------- For the purposes of this Appendix the following terms shall have the meanings indicated below: "Depositary" means The Depository Trust Company, its nominees and their respective successors and assigns. "Exchange Securities" means (i) the 10 3/4% Senior Subordinated Notes due 2009 to be issued pursuant to this Indenture in connection with a Registered Exchange Offer pursuant to a Registration Rights Agreement and (ii) Additional Securities, if any, issued in the form of 10 3/4% Senior Subordinated Notes due 2009 pursuant to a registration statement filed with the SEC under the Securities Act. "Initial Purchasers" means (i) with respect to the Initial Securities issued on the Issue Date, Credit Suisse First Boston Corporation and Donaldson, Lufkin & Jenrette Securities Corporation, Salomon Smith Barney Inc., NationsBanc Montgomery Securities LLC, and Warburg Dillon Read LLC and (ii) with respect to each issuance of Additional Securities, the Persons purchasing such Additional Securities under the related Purchase Agreement. "Initial Securities" means (i) $225,000,000 principal amount of 10 3/4% Senior Subordinated Notes due 2009, issued on the Issue Date and (ii) Additional Securities, if any, issued in the form of 10 3/4% Senior Subordinated Notes due 2009 in a transaction exempt from the registration requirements of the Securities Act. Ap-1 "Private Exchange" means the offer by the Company, pursuant to a Registration Rights Agreement, to the Initial Purchasers to issue and deliver to each Initial Purchaser, in exchange for the Initial Securities held by the Initial Purchaser as part of its initial distribution, a like aggregate principal amount of Private Exchange Securities. "Private Exchange Securities" means the 10 3/4% Senior Subordinated Private Exchange Notes due 2009, if any, to be issued pursuant to this Indenture to the Initial Purchasers in a Private Exchange. "Purchase Agreement" means (i) with respect to the Initial Securities issued on the Issue Date, the Purchase Agreement dated April 15, 1999, among the Company and the initial purchasers named therein and (ii) with respect to each issuance of Additional Securities, the purchase agreement or underwriting agreement among the Company and the Persons purchasing such Additional Securities. "QIB" means a "qualified institutional buyer" as defined in Rule 144A. "Registered Exchange Offer" means the offer by the Company, pursuant to a Registration Rights Agreement, to certain Holders of Initial Securities to issue and deliver to such Holders, in exchange for such Initial Securities, a like aggregate principal amount of Exchange Securities registered under the Securities Act. "Registration Rights Agreement" means (i) with respect to the Initial Securities issued on the Issue Date, the Registration Rights Agreement dated April 15, 1999 among the Company and the initial purchasers named therein, and (ii) with respect to each issuance of Additional Securities issued in a transaction exempt from the registration requirements of the Securities Act, the registration rights agreement, if any, among the Company and the Persons purchasing such Additional Securities under the related Purchase Agreement. "Securities" means the Initial Securities, the Exchange Securities and the Private Exchange Securities, treated as a single class. "Securities Act" means the Securities Act of 1933, as amended. "Securities Custodian" means the custodian with respect to a Global Security (as appointed by the Depositary), or any successor person thereto and shall initially be the Trustee. Ap-2 "Shelf Registration Statement" means the shelf registration statement issued by the Company, in connection with the offer and sale of Initial Securities, Exchange Securities, or Private Exchange Securities, pursuant to a Registration Rights Agreement. "Transfer Restricted Securities" means Securities that bear or are required to bear the legend set forth in Section 2.3(b) hereto. 1.2 Other Definitions ----------------- Term Defined in Section: ---- ------------------ "Agent Members".............................. 2.1(b) "Global Security"............................ 2.1(a) "Regulation S"............................... 2.1(a) "Rule 144A".................................. 2.1(a) 2. The Securities. -------------- 2.1 Form and Dating. --------------- On the Issue Date, $225,000,000 of the Initial Securities are being offered and sold by the Company pursuant to the Purchase Agreement. (a) Global Securities. Initial Securities offered and sold to a QIB ----------------- in reliance on Rule 144A under the Securities Act ("Rule 144A") or in reliance on Regulation S under the Securities Act ("Regulation S"), in each case as provided in the Purchase Agreement, and Additional Securities, if any, issued in the form of Exchange Securities, shall be issued initially in the form of one or more permanent global Securities in definitive, fully registered form without interest coupons with the global securities legend and restricted securities legend set forth in Exhibit 1 hereto (each, a "Global Security"), which shall be deposited on behalf of the purchasers of the Initial Securities or Additional Securities, as applicable, represented thereby with the Trustee as custodian for the Depositary (or with such other custodian as the Depositary may direct), and registered in the name of the Depositary or a nominee of the Depositary, duly executed by the Company and authenticated by the Trustee as hereinafter provided. The aggregate principal amount of the Global Securities may from time to time be increased or decreased by adjustments made on the records of the Trustee and the Depositary or its nominee as hereinafter provided. Ap-3 (b) Book-Entry Provisions. This Section 2.1(b) shall apply only to a --------------------- Global Security deposited with or on behalf of the Depositary. The Company shall execute and the Trustee shall, in accordance with this Section 2.1(b), authenticate and deliver initially one or more Global Securities that (a) shall be registered in the name of the Depositary for such Global Security or Global Securities or the nominee of such Depositary and (b) shall be delivered by the Trustee to such Depositary or pursuant to such Depositary's instructions or held by the Trustee as custodian for the Depositary. Members of, or participants in, the Depositary ("Agent Members") shall have no rights under this Indenture with respect to any Global Security held on their behalf by the Depositary or by the Trustee as the custodian of the Depositary or under such Global Security, and the Depositary may be treated by the Company, the Trustee and any agent of the Company or the Trustee as the absolute owner of such Global Security for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the Company, the Trustee or any agent of the Company or the Trustee from giving effect to any written certification, proxy or other authorization furnished by the Depositary or impair, as between the Depositary and its Agent Members, the operation of customary practices of such Depositary governing the exercise of the rights of a holder of a beneficial interest in any Global Security. (c) Certificated Securities. Except as provided in this Section 2.1 ----------------------- or Section 2.3 or 2.4 of this Appendix, owners of beneficial interests in Global Securities will not be entitled to receive physical delivery of certificated Securities. 2.2 Authentication. The Trustee shall authenticate and deliver: (1) On the -------------- Issue Date, $225,000,000 million 10 3/4% Senior Subordinated Notes due 2009, (2) any Additional Securities for original issue in an aggregate principal amount specified in the written order of the Company pursuant to Section 2.02 of the Indenture and (3) Exchange Securities or Private Exchange Securities for issue in a Registered Exchange Offer or a Private Exchange, respectively, in exchange for a like principal amount of Initial Securities in each case upon a written order of the Company signed by two Officers. Such order shall specify the amount of the Securities to be authenticated and the date on which the original issue of Securities is to be authenticated and whether the Securities are to be Initial Securities, Exchange Securities or Private Exchange Securities, in the case of an issuance of Additional Securities pursuant to Section 2.13 of the Indenture, shall certify, among other things that such issuance is in compliance with Section 4.03 of the Indenture. Ap-4 2.3 Transfer and Exchange. --------------------- (a) Transfer and Exchange of Global Securities. ------------------------------------------ (i) The transfer and exchange of Global Securities or beneficial interests therein shall be effected through the Depositary, in accordance with this Indenture (including applicable restrictions on transfer set forth herein, if any) and the procedures of the Depositary therefor. A transferor of a beneficial interest in a Global Security shall deliver to the Registrar a written order given in accordance with the Depositary's procedures containing information regarding the participant account of the Depositary to be credited with a beneficial interest in the Global Security. The Registrar shall, in accordance with such instructions instruct the Depositary to credit to the account of the Person specified in such instructions a beneficial interest in the Global Security and to debit the account of the Person making the transfer the beneficial interest in the Global Security being transferred. (ii) Notwithstanding any other provisions of this Appendix (other than the provisions set forth in Section 2.4 of this Appendix), a Global Security 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. (iii) In the event that a Global Security is exchanged for Securities in definitive registered form pursuant to Section 2.4 of this Appendix or Section 2.09 of this Indenture, prior to the consummation of a Registered Exchange Offer or the effectiveness of a Shelf Registration Statement with respect to such Securities, such Securities may be exchanged only in accordance with such procedures as are substantially consistent with the provisions of this Section 2.3 (including the certification requirements set forth on the reverse of the Initial Securities intended to ensure that such transfers comply with Rule 144A or Regulation S, as the case may be) and such other procedures as may from time to time be adopted by the Company. (b) Legend. ------ (i) Except as permitted by the following paragraphs (ii), (iii) and (iv), each Security certificate evidencing Initial Securities and Private Exchange Securities (and all Securities issued in exchange therefor or in substitution thereof, Ap-5 other than Exchange Securities) shall bear a legend in substantially the following form: "THIS NOTE (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER THE UNITED STATES SECURITIES ACT OF 1933 (THE "SECURITIES ACT"), AND THIS NOTE MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THIS NOTE IS HEREBY NOTIFIED THAT THE SELLER OF THIS NOTE MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER. THE HOLDER OF THIS NOTE AGREES FOR THE BENEFIT OF THE ISSUER THAT (A) THIS NOTE MAY BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY (i) INSIDE THE UNITED STATES TO A PERSON WHOM 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, (ii) OUTSIDE THE UNITED STATES IN A TRANSACTION IN ACCORDANCE WITH RULE 903 OR RULE 904 UNDER THE SECURITIES ACT, (iii) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE) OR (iv) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, IN EACH OF CASES (i) THROUGH (iv) IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES, AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER OF THIS NOTE FROM IT OF THE RESALE RESTRICTIONS REFERRED TO IN (A) ABOVE." (ii) Upon any sale or transfer of a Transfer Restricted Security (including any Transfer Restricted Security represented by a Global Security) pursuant to Rule 144 under the Securities Act, the Registrar shall permit the Holder thereof to exchange such Transfer Restricted Security for a certificated Security that does not bear the legend set forth above and rescind any restriction on the transfer of such Transfer Restricted Security, if the Holder certifies in writing to the Ap-6 Registrar that its request for such exchange was made in reliance on Rule 144 (such certification to be in the form set forth on the reverse of the Security). (iii) After a transfer of any Initial Securities or Private Exchange Securities during the period of the effectiveness of a Shelf Registration Statement with respect to such Initial Securities or Private Exchange Securities, as the case may be, all requirements pertaining to legends on such Initial Securities or such Private Exchange Securities will cease to apply, but the requirements requiring such Initial Securities or such Private Exchange Securities issued to certain Holders be issued in global form will continue to apply, and Initial Securities or Private Exchange Securities in global form without legends will be available to the transferee of the Holder of such Initial Securities or Private Exchange Securities upon exchange of such transferring Holder's Initial Securities or Private Exchange Securities or directions to transfer such Holder's interest in the Global Security, as applicable. (iv) Upon the consummation of a Registered Exchange Offer with respect to the Initial Securities pursuant to which Holders of such Initial Securities are offered Exchange Securities in exchange for their Initial Securities, all requirements pertaining to such Initial Securities that Initial Securities issued to certain Holders be issued in global form will continue to apply and Initial Securities in global form with the restricted securities legend set forth in Exhibit 1 hereto will be available to Holders of such Initial Securities that do not exchange their Initial Securities, and Exchange Securities in global form without the restricted securities legend set forth in Exhibit 1 hereto will be available to Holders that exchange such Initial Securities in such Registered Exchange Offer. (v) Upon the consummation of a Private Exchange with respect to the Initial Securities pursuant to which Holders of such Initial Securities are offered Private Exchange Securities in exchange for their Initial Securities, all requirements pertaining to such Initial Securities that Initial Securities issued to certain Holders be issued in global form will still apply, and Private Exchange Securities in global form with the restricted securities legend set forth in Exhibit 1 hereto will be available to Holders that exchange such Initial Securities in such Private Exchange. (c) Cancellation or Adjustment of Global Security. At such time as --------------------------------------------- all beneficial interests in a Global Security have either been exchanged for certificated Securities, redeemed, repurchased or canceled, such Global Security shall be returned to the Depositary for cancellation or retained and canceled by the Trustee. At any time prior Ap-7 to such cancellation, if any beneficial interest in a Global Security is exchanged for certificated Securities, redeemed, repurchased or canceled, the principal amount of Securities represented by such Global Security shall be reduced and an adjustment shall be made on the books and records of the Trustee (if it is then the Securities Custodian for such Global Security) with respect to such Global Security, by the Trustee or the Securities Custodian, to reflect such reduction. (d) Obligations with Respect to Transfers and Exchanges of Securities. ----------------------------------------------------------------- (i) To permit registrations of transfers and exchanges, the Company shall execute and the Trustee shall authenticate certificated Securities and Global Securities at the Registrar's or any co-registrar's request. (ii) No service charge shall be made for any registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any transfer tax, assessments, or similar governmental charge payable in connection therewith (other than any such transfer taxes, assessments or similar governmental charge payable upon exchange or transfer pursuant to Sections 2.10, 3.06, 4.06, 4.09 and Section 9.06 of this Indenture). (iii) The Registrar or any co-registrar shall not be required to register the transfer of or exchange of (a) any certificated Security selected for redemption in whole or in part pursuant to Article III of this Indenture, except the unredeemed portion of any certificated Security being redeemed in part, or (b) any Security for a period beginning 15 days before the mailing of a notice of an offer to repurchase or redeem Securities or 15 days before an Interest Payment Date. (iv) Prior to the due presentation for registration of transfer of any Security, the Company, the Trustee, the Paying Agent, the Registrar or any co-registrar may deem and treat the person in whose name a Security is registered as the absolute owner of such Security for the purpose of receiving payment of principal of and interest on such Security and for all other purposes whatsoever, whether or not such Security is overdue, and none of the Company, the Trustee, the Paying Agent, the Registrar or any co-registrar shall be affected by notice to the contrary. (v) All Securities issued upon any transfer or exchange pursuant to the terms of this Indenture shall evidence the same debt and shall be entitled to the same benefits under this Indenture as the Securities surrendered upon such transfer or exchange. Ap-8 (e) No Obligation of the Trustee. ---------------------------- (i) The Trustee shall have no responsibility or obligation to any beneficial owner of a Global Security, a member of, or a participant in the Depositary or other Person with respect to the accuracy of the records of the Depositary or its nominee or of any participant or member thereof, with respect to any ownership interest in the Securities or with respect to the delivery to any participant, member, beneficial owner or other Person (other than the Depositary) of any notice (including any notice of redemption) or the payment of any amount, under or with respect to such Securities. All notices and communications to be given to the Holders and all payments to be made to Holders under the Securities shall be given or made only to or upon the order of the registered Holders (which shall be the Depositary or its nominee in the case of a Global Security). The rights of beneficial owners in any Global Security shall be exercised only through the Depositary subject to the applicable rules and procedures of the Depositary. The Trustee may rely and shall be fully protected in relying upon information furnished by the Depositary with respect to its members, participants and any beneficial owners. (ii) The Trustee shall have no obligation or duty to monitor, determine or inquire as to compliance with any restrictions on transfer imposed under this Indenture or under applicable law with respect to any transfer of any interest in any Security (including any transfers between or among Depositary participants, members or beneficial owners in any Global Security) other than to require delivery of such certificates and other documentation or evidence as are expressly required by, and to do so if and when expressly required by, the terms of this Indenture, and to examine the same to determine substantial compliance as to form with the express requirements hereof. 2.4 Certificated Securities. ----------------------- (a) A Global Security deposited with the Depositary or with the Trustee as custodian for the Depositary pursuant to Section 2.1 shall be transferred to the beneficial owners thereof in the form of certificated Securities in an aggregate principal amount equal to the principal amount of such Global Security, in exchange for such Global Security, only if such transfer complies with Section 2.3 and (i) the Depositary notifies the Company that it is unwilling or unable to continue as Depositary for such Global Security and a successor depositary is not appointed by the Company within 90 days of such notice or if at any time such Depositary ceases to be a "clearing agency" registered under the Exchange Act, or (ii) Ap-9 an Event of Default has occurred and is continuing or (iii) the Company, in its sole discretion, notifies the Trustee in writing that it elects to cause the issuance of certificated Securities under this Indenture. (b) Any Global Security that is transferable to the beneficial owners thereof pursuant to this Section shall be surrendered by the Depositary to the Trustee, to be so transferred, in whole or from time to time in part, without charge, and the Trustee shall authenticate and deliver, upon such transfer of each portion of such Global Security, an equal aggregate principal amount of certificated Securities of authorized denominations. Any portion of a Global Security transferred pursuant to this Section shall be executed, authenticated and delivered only in denominations of $1,000 and any integral multiple thereof and registered in such names as the Depositary shall direct. Any certificated Initial Security delivered in exchange for an interest in the Global Security shall, except as otherwise provided by Section 2.3(b), bear the restricted securities legend set forth in Exhibit 1 hereto. (c) Subject to the provisions of Section 2.4(b), the registered Holder of a Global Security may grant proxies and otherwise authorize any Person, including Agent Members and Persons that may hold interests through Agent Members, to take any action which a Holder is entitled to take under this Indenture or the Securities. (d) In the event of the occurrence of either of the events specified in Section 2.4(a) above, the Company will promptly make available to the Trustee a reasonable supply of certificated Securities in definitive, fully registered form without interest coupons. Ap-10 EXHIBIT 1 TO RULE 144A/REGULATION S APPENDIX [Global Securities Legend] UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), NEW YORK, NEW YORK, TO THE COMPANY 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 IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO., OR TO SUCH OTHER ENTITY AS IS 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. TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THIS INDENTURE REFERRED TO ON THE REVERSE HEREOF. [Restricted Securities Legend] THIS NOTE (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A TRANS ACTION EXEMPT FROM REGISTRATION UNDER THE UNITED STATES SECURITIES ACT OF 1933 (THE "SECURITIES ACT"), AND THIS NOTE MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THIS NOTE IS HEREBY NOTIFIED THAT THE SELLER OF THIS NOTE MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER. Ap-11 THE HOLDER OF THIS NOTE AGREES FOR THE BENEFIT OF THE ISSUER THAT (A) THIS NOTE MAY BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY (i) INSIDE THE UNITED STATES TO A PERSON WHOM 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, (ii) OUTSIDE THE UNITED STATES IN A TRANSACTION IN ACCORDANCE WITH RULE 903 OR RULE 904 UNDER THE SECURITIES ACT, (iii) PURSUANT TO AN EXEMP TION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE) OR (iv) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, IN EACH OF CASES (i) THROUGH (iv) IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES, AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER OF THIS NOTE FROM IT OF THE RESALE RESTRICTIONS REFERRED TO IN (A) ABOVE. Ap-12 [TO BE ATTACHED TO GLOBAL SECURITIES] SCHEDULE OF INCREASES OR DECREASES IN GLOBAL SECURITY The following increases or decreases in this Global Security have been made:
Amount of decrease Amount of increase in Principal Amount in Principal Amount Principal Amount of this Global Signature of authorized of this Global Secu- of this Global Secu- Security following such decrease officer of Trustee or Se- Date of Exchange rity rity or increase curities Custodian - ---------------------------------------------------------------------------------------------------------------------------------
Ap-13 EXHIBIT A --------- FORM OF INITIAL SECURITY ------------------------ CUSIP No.: THE FAIRCHILD CORPORATION 10 3/4% SENIOR SUBORDINATED NOTE DUE 2009 No. $ THE FAIRCHILD CORPORATION, a Delaware corporation (the "Company," which term includes any successor entity), for value received promises to pay to _______ or registered assigns, the principal sum of Dollars, on April 15, 2009. Interest Payment Dates: April 15 and October 15 Record Dates: April 1 and October 1 Reference is made to the further provisions of this Security contained herein, which will for all purposes have the same effect as if set forth at this place. IN WITNESS WHEREOF, the Company has caused this Security to be signed manually or by facsimile by its duly authorized officers. THE FAIRCHILD CORPORATION By:-------------------------- Name: Title: By:-------------------------- Name: Dated: ____________ Title: A-1 Certificate of Authentication This is one of the 10 3/4% Senior Subordinated Notes due 2009 referred to in the within-mentioned Indenture. THE BANK OF NEW YORK _______________________ as Trustee Dated: ____________ By:_________________________________ Authorized Signatory A-2 [FORM OF REVERSE SIDE OF INITIAL SECURITY] 10 3/4% Senior Subordinated Note due 2009 1. INTEREST -------- The Fairchild Corporation, a Delaware corporation (such corporation, and its successors and assigns under the Indenture hereinafter referred to, being herein called the "Company"), promises to pay interest on the principal amount of this Security at the rate per annum shown above[; provided, however, -------- ------- that if a Registration Default (as defined in the Registration Rights Agreement) occurs, interest will accrue on this Security at a rate of 0.50% per annum from and including the date on which any such Registration Default shall occur to but excluding the date on which all Registration Defaults have been cured, calculated on the principal amount of this Security as of the date on which such interest is payable; provided, however, that (i) no holder of Securities who is -------- ------- not entitled to the benefits of a Shelf Registration Statement shall be entitled to receive additional interest by reason of a Registration Default that pertains to a Shelf Registration Statement; and (ii) no holder of Securities constituting an unsold allotment from the original sale of the Securities or any other holder of Securities who is entitled to the benefits of a Shelf Registration Statement shall be entitled to receive additional interest by reason of a Registration Default that pertains to a Registered Exchange Offer. Such interest is payable in addition to any other interest payable from time to time with respect to this Security]/1/. The Company will pay interest semiannually on April 15 and October 15 of each year. Interest on the Securities will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from April 20, 1999 [date of issuance of any Additional Securities]. Interest will be computed on the basis of a 360-day year of twelve 30-day months. The Company shall pay interest on overdue principal at the rate borne by the Securities, and it shall pay interest on overdue installments of interest at the same rate, in each case, to the extent lawful. 2. METHOD OF PAYMENT ----------------- The Company will pay interest on the Securities (except defaulted interest) to the Persons who are registered holders of Securities at the close of business on the April 1 or October 1 next preceding the interest payment date even if Securities are canceled after the record date and on or before the interest payment date. Holders must surrender Securities to a Paying Agent to collect principal payments. The Company will pay principal and interest in money of the United States that at the time of payment is legal tender for payment of public and private debts. Payments in respect of the Securities represented by - ----------------------------- /1/ To be included in the Initial Securities issued on the Issue Date and, to the extent applicable, any Additional Securities issued in the form of Initial Securities. A-3 a Global Security (including principal, premium and interest) will be made by wire transfer of immediately available funds to the accounts specified by The Depository Trust Company. The Company will make all payments in respect of a certificated Security (including principal, premium and interest) by mailing a check to the registered address of each Holder thereof; provided, however, that -------- ------- payments on a certificated Security will be made by wire transfer to a U.S. dollar account maintained by the payee with a bank in the United States if such Holder elects payment by wire transfer by giving written notice to the Trustee or the Paying Agent to such effect designating such account no later than 30 days immediately preceding the relevant due date for payment (or such other date as the Trustee may accept in its discretion). 3. PAYING AGENT AND REGISTRAR -------------------------- Initially, The Bank of New York, a banking corporation organized and validly existing under the laws of the State of New York, as Trustee ("Trustee"), will act as Paying Agent and Registrar. The Company may appoint and change any Paying Agent, Registrar or co-registrar without notice. The Company or any of its domestically incorporated Restricted Subsidiaries may act as Paying Agent, Registrar or co-registrar. 4. INDENTURE --------- The Company issued the Securities under an Indenture dated as of April 20, 1999 ("Indenture"), among the Company, the Subsidiary Guarantors and the Trustee. The terms of the Securities include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C. Sections 77aaa-77bbbb) as in effect on the date of the Indenture (the "Act"). Terms defined in the Indenture and not defined herein have the meanings ascribed thereto in the Indenture. The Securities are subject to all such terms, and Securityholders are referred to the Indenture and the Act for a statement of those terms. The Securities are general unsecured obligations of the Company. Payment on each Security is guaranteed on a senior subordinated basis by the Subsidiary Guarantors pursuant to Article XI of the Indenture. To the extent of any conflict between the terms of the Securities and the Indenture, the applicable terms of the Indenture shall govern. The Company shall be entitled, subject to its compliance with Section 4.03 of the Indenture, to issue Additional Securities pursuant to Section 2.13 of the Indenture. The Initial Securities issued on the Issue Date, any Additional Securities and all Exchange Securities or Private Exchange Securities issued pursuant to the Indenture will be treated as a single class for all purposes under the Indenture. The Indenture contains certain covenants that, among other things, will limit the ability of the Company and certain of its subsidiaries to (i) incur additional indebtedness, (ii) pay dividends or distributions on, or redeem or repurchase, the Company's capital stock, (iii) make investments, (iv) engage in transactions with affiliates, (v) create liens on the Company's assets to secure certain debt, (vi) transfer or sell assets, (vii) guarantee indebtedness, (viii) make dividend or other payments, (ix) consolidate, A-4 merge or transfer all or substantially all of the Company's assets and the assets of its subsidiaries and (x) engage in unrelated business. These covenants, however, are subject to important exceptions and qualifications. 5. OPTIONAL REDEMPTION ------------------- Except as set forth in the next paragraph, the Securities may not be redeemed prior to April 15, 2004. On and after that date, the Company may redeem the Securities in whole at any time or in part from time to time at the following redemption prices (expressed as percentages of principal amount), plus accrued and unpaid interest thereon, if any, to the applicable redemption date (subject to the right of Holders of record on the relevant record date to receive interest due on the related interest payment date): if redeemed during the 12-month period beginning April 15,
Period Percentage ------ ---------- 2004........................................................ 105.375% 2005........................................................ 103.583 2006........................................................ 101.792 2007 and thereafter......................................... 100.000
In addition, prior to April 15, 2002, the Company may at its option on one or more occasions redeem up to 35% of the aggregate original principal amount of the Securities (including the original principal amount of any Additional Securities) at a redemption price of 110.750% of the principal amount thereof, plus accrued and unpaid interest to the redemption date, with the net cash proceeds from one or more Public Equity Offerings; provided that -------- (1) at least 65% of the original aggregate principal amount of Securities (including the original principal amount of any Additional Securities) remains outstanding immediately after the occurrence of each such redemption (other than Securities held, directly or indirectly, by the Company or its Affiliates); and (2) each such redemption occurs within 60 days after the date of the related Public Equity Offering. 6. NOTICE OF REDEMPTION -------------------- Notice of redemption will be mailed at least 30 days but not more than 60 days before the redemption date to each Holder of Securities to be redeemed at his registered address. Securities in denominations larger than $1,000 may be redeemed in part but only in whole multiples of $1,000. If money sufficient to pay the redemption price of and accrued interest on all Securities (or portions thereof) to be redeemed on the A-5 redemption date is deposited with the Paying Agent on or before the redemption date and certain other conditions are satisfied, on and after such date interest ceases to accrue on such Securities (or such portions thereof) called for redemption. 7. PUT PROVISIONS -------------- Upon a Change of Control, any Holder of Securities will have the right, subject to certain conditions, to cause the Company to repurchase all or any part of the Securities of such Holder at a repurchase price equal to 101% of the principal amount of the Securities to be repurchased plus accrued interest to the date of repurchase (subject to the right of holders of record on the relevant record date to receive interest due on the related interest payment date) as provided in, and subject to the terms of, the Indenture. 8. SUBORDINATION ------------- The Securities are subordinated to Senior Indebtedness, as defined in the Indenture. To the extent provided in the Indenture, Senior Indebtedness must be paid before the Securities may be paid. The Company agrees, and each Securityholder by accepting a Security agrees, to the subordination provisions contained in the Indenture and authorizes the Trustee to give it effect and appoints the Trustee as attorney-in-fact for such purpose. 9. DENOMINATIONS; TRANSFER; EXCHANGE --------------------------------- The Securities are in registered form without coupons in denominations of $1,000 and whole multiples of $1,000. A Holder may transfer or exchange Securities in accordance with the Indenture. The Registrar may require a Holder, among other things, to furnish appropriate endorsements or transfer documents and to pay any taxes and fees required by law or permitted by the Indenture. The Registrar need not register the transfer of or exchange any Securities selected for redemption (except, in the case of a Security to be redeemed in part, the portion of the Security not to be redeemed) or any Securities for a period of 15 days before a selection of Securities to be redeemed or 15 days before an interest payment date. 10. PERSONS DEEMED OWNERS --------------------- The registered Holder of this Security may be treated as the owner of it for all purposes. 11. UNCLAIMED MONEY --------------- If money for the payment of principal or interest remains unclaimed for two years, the Trustee or Paying Agent shall pay the money back to the Company at its request unless an abandoned property law designates another Person. After any such payment, A-6 Holders entitled to the money must look only to the Company and not to the Trustee for payment. 12. DISCHARGE AND DEFEASANCE ------------------------ Subject to certain conditions, the Company at any time may terminate some or all of its obligations under the Securities and the Indenture if the Company deposits with the Trustee money or U.S. Government Obligations for the payment of principal and interest on the Securities to redemption or maturity, as the case may be. 13. AMENDMENT, WAIVER ----------------- Subject to certain exceptions set forth in the Indenture, (i) the Indenture or the Securities may be amended with the written consent of the Holders of at least a majority in principal amount outstanding of the Securities and (ii) any default or noncompliance with any provision may be waived with the written consent of the Holders of a majority in principal amount outstanding of the Securities. Subject to certain exceptions set forth in the Indenture, without the consent of any Securityholder, the Company and the Trustee may amend the Indenture or the Securities to cure any ambiguity, omission, defect or inconsistency, or to comply with Article V of the Indenture, or to provide for uncertificated Securities in addition to or in place of certificated Securities, or to add guarantees with respect to the Securities or to secure the Securities, or to add additional covenants or surrender rights and powers conferred on the Company, or to comply with any requirement of the SEC in connection with qualifying the Indenture under the Act, or to make any change that does not adversely affect in any material respect the rights of any Securityholder. 14. DEFAULTS AND REMEDIES --------------------- Under the Indenture, Events of Default include (i) default for 30 days in payment of interest on the Securities; (ii) default in payment of principal on the Securities at maturity, upon redemption pursuant to paragraph 5 of the Securities, upon acceleration or otherwise, or failure by the Company to purchase Securities when required; (iii) failure by the Company to comply with other agreements in the Indenture or the Securities, in certain cases subject to notice and lapse of time; (iv) certain accelerations (including failure to pay within any grace period after final maturity) of other Indebtedness of the Company or any Significant Subsidiary if the amount accelerated (or so unpaid) exceeds $10 million; (v) certain events of bankruptcy or insolvency with respect to the Company and the Significant Subsidiaries; (vi) certain judgments or decrees for the payment of money in excess of $10 million; and (vii) any denial or disaffirmation of obligations by a Subsidiary Guarantor that is a Significant Subsidiary or any Subsidiary Guarantee by such a Subsidiary Guarantor is not in full force or is unenforceable (other than in accordance with the terms of the Subsidiary Guarantee). If an Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the Securities may declare A-7 all the Securities to be due and payable immediately. Certain events of bankruptcy or insolvency are Events of Default which will result in the Securities being due and payable immediately upon the occurrence of such Events of Default. Securityholders may not enforce the Indenture or the Securities except as provided in the Indenture. The Trustee may refuse to enforce the Indenture or the Securities unless it receives reasonable indemnity or security. Subject to certain limitations, Holders of a majority in principal amount of the Securities may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Securityholders notice of any continuing Default (except a Default in payment of principal or interest) if it determines that withholding notice is in the interest of the Holders. 15. TRUSTEE DEALINGS WITH THE COMPANY --------------------------------- Subject to certain limitations imposed by the Act, the Trustee under the Indenture, in its individual or any other capacity, may become the owner or pledgee of Securities and may otherwise deal with and collect obligations owed to it by the Company or its Affiliates and may otherwise deal with the Company or its Affiliates with the same rights it would have if it were not Trustee. 16. NO RECOURSE AGAINST OTHERS -------------------------- A director, officer, employee or stockholder, as such, of the Company, the Subsidiary Guarantor or the Trustee shall not have any liability for any obligations of the Company under the Securities or the Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. By accepting a Security, each Securityholder waives and releases all such liability. The waiver and release are part of the consideration for the issue of the Securities. 17. AUTHENTICATION -------------- This Security shall not be valid until an authorized signatory of the Trustee (or an authenticating agent) manually signs the certificate of authentication on the other side of this Security. 18. ABBREVIATIONS ------------- Customary abbreviations may be used in the name of a Securityholder or an assignee, such as TEN COM (=tenants in common), TEN ENT (=tenants by the entireties), JT TEN (=joint tenants with rights of survivorship and not as tenants in common), CUST (=custodian), and U/G/M/A (=Uniform Gift to Minors Act). A-8 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 Securities and has directed the Trustee to use CUSIP numbers in notices of redemption as a convenience to Securityholders. No representation is made as to the accuracy of such numbers either as printed on the Securities or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon. [20. REGISTRATION RIGHTS ------------------- Pursuant to the Registration Rights Agreement (as defined in the Indenture), the Company will be obligated to consummate an exchange offer pursuant to which the Holder of this Security shall have the right to exchange this Security for the Company's 10 3/4% Senior Subordinated Notes due 2009 in the form of Exchange Securities, which shall have been registered under the Securities Act, or the Company's 10 3/4% Senior Subordinated Private Exchange Notes due 2009 (the "Private Exchange Securities"), in each case in like principal amount and having terms substantially identical in all material respects to the Initial Securities. The Holders of the Initial Securities shall be entitled to receive certain additional interest payments if such exchange offer is not consummated and upon certain other conditions, all pursuant to and in accordance with the terms of the Registration Rights Agreement. Each Holder of a Security, by acceptance hereof, acknowledges and agrees to the provisions of the Registration Rights Agreement, including the obligations of the Holders with respect to a registration and the indemnification of the Company to the extent provided therein.]/2/ 21. GOVERNING LAW. ------------- THIS SECURITY (AND THE SUBSIDIARY GUARANTEE RELATING THERETO) SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK BUT WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY. The Company will furnish to any securityholder upon written request and without charge to the security holder a copy of the indenture which has in it the text of this security in larger type. Requests may be made to: - -------------------------- /2/ To be included in the Initial Securities issued on the Issue Date and, to the extent applicable, any Additional Securities issued in the form of Initial Securities. A-9 The Fairchild Corporation 45025 Aviation Drive, Suite 400 Dulles, Virginia 20166 Attention: General Counsel A-10 [FORM OF NOTATION ON SECURITY RELATING TO SUBSIDIARY GUARANTEE] SUBSIDIARY GUARANTEE The undersigned subsidiary guarantors (collectively, the "Subsidiary Guarantors"), have each jointly and severally unconditionally guaranteed on a senior subordinated basis (such guarantee by each Subsidiary Guarantor being referred to herein as the "Subsidiary Guarantee") (i) the due and punctual payment of the principal of and interest on the Securities, subject to any applicable grace period, whether at maturity, by acceleration or otherwise, the due and punctual payment of interest on the overdue principal and interest, if any, on the Securities, to the extent lawful, and the due and punctual performance of all other obligations of the Company to the Holders or the Trustee all in accordance with the terms set forth in Article XI of the Indenture and (ii) in case of any extension of time of payment or renewal of any Securities or any of such other obligations, that the same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at stated maturity, subject to any applicable grace period, by acceleration or otherwise. The obligations of each Subsidiary Guarantor to the Holders of Securities and to the Trustee pursuant to the Subsidiary Guarantee and the Indenture are expressly set forth and are senior subordinated obligations of each Subsidiary Guarantor, to the extent and in the manner provided, in Articles XI and XII of the Indenture, and reference is hereby made to such Indenture for the precise terms of the Subsidiary Guarantee therein made. No stockholder, officer, director, employee or incorporator, as such, past, present or future, of each Subsidiary Guarantor shall have any liability under the Subsidiary Guarantee by reason of his or its status as such stockholder, officer, director, employee or incorporator. The Subsidiary Guarantee shall not be valid or obligatory for any purpose until the certificate of authentication on the Securities upon which the Subsidiary Guarantee is noted shall have been executed by the Trustee under the Indenture by the manual signature of one of its authorized officers. A-11 A10 INC. by --------------------------------- Name: Title: CAMLOC HOLDINGS INC. by --------------------------------- Name: Title: FAIRCHILD DATA CORPORATION by --------------------------------- Name: Title: FAIRCHILD FASTENERS CORP. by --------------------------------- Name: Title: FAIRCHILD FRANCE, INC. by --------------------------------- Name: Title: A-12 FAIRCHILD HOLDING CORP. by --------------------------------- Name: Title: FAIRCHILD RETIREE MEDICAL SERVICES, INC. by --------------------------------- Name: Title: MAIROLL, INC. by --------------------------------- Name: Title: MEOW, INC. by --------------------------------- Name: Title: QUACK QUACK, INC. by --------------------------------- Name: Title: A-13 RECYCLING INVESTMENTS, INC. by --------------------------------- Name: Title: RECYCLING INVESTMENTS II, INC. by --------------------------------- Name: Title: RHI HOLDINGS, INC. by --------------------------------- Name: Title: SIMMONDS MECAERO FASTENERS, INC. by --------------------------------- Name: Title: SPECIAL-T FASTENERS, INC. by --------------------------------- Name: Title: A-14 SUCHOMIMOUS TERENSIS, INC. by --------------------------------- Name: Title: VSI HOLDINGS, INC. by --------------------------------- Name: Title: BANNER AEROSPACE, INC. by --------------------------------- Name: Title: BANNER AEROSPACE SERVICES, INC. by --------------------------------- Name: Title: BANNER AEROSPACE-SINGAPORE, INC. by --------------------------------- Name: Title: A-15 BAR DE, INC. by --------------------------------- Name: Title: D A C INTERNATIONAL, INC. by --------------------------------- Name: Title: DALLAS AEROSPACE, INC. by --------------------------------- Name: Title: GEORGETOWN JET CENTER, INC. by --------------------------------- Name: Title: MATRIX AVIATION, INC. by --------------------------------- Name: Title: A-16 NASAM INCORPORATED by --------------------------------- Name: Title: PB HERNDON AEROSPACE, INC. by --------------------------------- Name: Title: PROFESSIONAL AIRCRAFT ACCESSORIES, INC. by --------------------------------- Name: Title: PROFESSIONAL AVIATION ASSOCIATES, INC. by --------------------------------- Name: Title: M&M MACHINE & TOOL CO. by ______________________________________________ Name: Title: A-17 MARCLIFF CORPORATION by ______________________________________________ Name: Title: MARSON CREATIVE FASTENER, INC. by ______________________________________________ Name: Title: RECOIL AUSTRALIA HOLDINGS, INC. by ______________________________________________ Name: Title: RECOIL HOLDINGS, INC. by ______________________________________________ Name: Title: RECOIL INC. by ______________________________________________ Name: Title: A-18 KAYNAR TECHNOLOGIES INC. by ______________________________________________ Name: Title: A-19 ----------------------------------------------------------------------------- ASSIGNMENT FORM To assign this Security, fill in the form below: I or we assign and transfer this Security to - -------------------------------------------------------------------------------- (Print or type assignee's name, address and zip code) - -------------------------------------------------------------------------------- (Insert assignee's soc. sec. or tax I.D. No.) and irrevocably appoint ________________________________ agent to transfer this Security on the books of the Company. The agent may substitute another to act for him. Date: ____________________ Your Signature: _______________________ - ------------------------------------------------------------------------------- Sign exactly as your name appears on the other side of this Security. In connection with any transfer of any of the Securities evidenced by this certificate occurring prior to the expiration of the period referred to in Rule 144(k) under the Securities Act after the later of the date of original issuance of such Securities and the last date, if any, on which such Securities were owned by the Company or any Affiliate of the Company, the undersigned confirms that such Securities are being transferred in accordance with its terms: CHECK ONE BOX BELOW (1) [ ] to the Company; or (2) [ ] pursuant to an effective registration statement under the Securities Act of 1933; or (3) [ ] inside the United States to a "qualified institutional buyer" (as defined in Rule 144A under the Securities Act of 1933) that purchases for its own account or for the account of a qualified institutional buyer to whom notice is given that such transfer is being made in reliance on Rule 144A, A-20 in each case pursuant to and in compliance with Rule 144A under the Securities Act of 1933; or (4) [ ] outside the United States in an offshore transaction within the meaning of Regulation S under the Securities Act in compliance with Rule 903 or Rule 904 under the Securities Act of 1933; or (5) [ ] pursuant to another available exemption from registration provided by Rule 144 under the Securities Act of 1933. Unless one of the boxes is checked, the Trustee will refuse to register any of the Securities evidenced by this certificate in the name of any person other than the registered holder thereof; provided, however, that if box -------- ------- (4) or (5) is checked, the Trustee may require, prior to registering any such transfer of the Securities, such legal opinions, certifications and other information as the Company has reasonably requested to confirm that such transfer is being made pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act of 1933, such as the exemption provided by Rule 144 under such Act. ________________________________ Signature Signature Guarantee: ________________________________ ________________________________ Signature must be guaranteed Signature A-21 --------------------------------------------------------------------------- TO BE COMPLETED BY PURCHASER IF (3) ABOVE IS CHECKED. The undersigned represents and warrants that it is purchasing this Security for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a "qualified institutional buyer" within the meaning of Rule 144A under the Securities Act of 1933, and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Company as the undersigned has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon the undersigned's foregoing representations in order to claim the exemption from registration provided by Rule 144A. Dated: _____________________ _________________________________________ NOTICE: To be executed by an executive officer A-22 OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have this Security purchased by the Company pursuant to Section 4.06 or 4.09 of the Indenture, check the box: [ ] If you want to elect to have only part of this Security purchased by the Company pursuant to Section 4.06 or 4.09 of the Indenture, state the amount in principal amount: $_______________ Date: _________________ Your Signature: _____________________________ (Sign exactly as your name appears on the other side of this Security.) Signature Guarantee: ___________________________________________ (Signature must be guaranteed) A-23 EXHIBIT B --------- FORM OF EXCHANGE SECURITY AND PRIVATE EXCHANGE SECURITY ------------------------------------------------------- CUSIP No.: THE FAIRCHILD CORPORATION 10 3/4% SENIOR SUBORDINATED [PRIVATE EXCHANGE] NOTE DUE 2009 No. ______ $__________ THE FAIRCHILD CORPORATION, a Delaware corporation (the "Company," which term includes any successor entity), for value received promises to pay to _____________________ or registered assigns, the principal sum of _____________ Dollars, on April 15, 2009. Interest Payment Dates: April 15 and October 15 Record Dates: April 1 and October 1 Reference is made to the further provisions of this Security contained herein, which will for all purposes have the same effect as if set forth at this place. IN WITNESS WHEREOF, the Company has caused this Security to be signed manually or by facsimile by its duly authorized officers. THE FAIRCHILD CORPORATION By:_______________________________ Name: Title: By:_______________________________ Name: Dated: ________________ Title: B-1 Certificate of Authentication This is one of the 10 3/4% Senior Subordinated [Private Exchange] Notes due 2009 referred to in the within-mentioned Indenture. THE BANK OF NEW YORK ___________________________ as Trustee Dated: __________________________ By:______________________________ Authorized Signatory [If the Security is to be issued in global form add the Global Securities Legend from Exhibit 1 to the Appendix and the attachment from such Exhibit 1 captioned "[TO BE ATTACHED TO GLOBAL SECURITIES] - SCHEDULE OF INCREASES OR DECREASES IN GLOBAL SECURITY".] [If the Security is a Private Exchange Security issued in a Private Exchange to an Initial Purchaser holding an unsold portion of its initial allotment, add the restricted securities legend from Exhibit 1 to Appendix A and replace the Assignment Form with that included in Exhibit A.] B-2 [FORM OF REVERSE SIDE OF EXCHANGE SECURITY OR PRIVATE EXCHANGE SECURITY] 10 3/4% Senior Subordinated Note due 2009 1. INTEREST -------- The Fairchild Corporation, a Delaware corporation (such corporation, and its successors and assigns under the Indenture hereinafter referred to, being herein called the "Company"), promises to pay interest on the principal amount of this Security at the rate per annum shown above [; provided, however, -------- ------- that if a Registration Default (as defined in the Registration Rights Agreement) occurs, interest will accrue on this Security at a rate of 0.50% per annum from and including the date on which any such Registration Default shall occur to but excluding the date on which all Registration Defaults have been cured, calculated on the principal amount of this Security as of the date on which such interest is payable; provided, however, that (i) no holder of Securities who is -------- ------- not entitled to the benefits of a Shelf Registration Statement shall be entitled to receive additional interest by reason of a Registration Default that pertains to a Shelf Registration Statement; and (ii) no holder of Securities constituting an unsold allotment from the original sale of the Securities or any other holder of Securities who is entitled to the benefits of a Shelf Registration Statement shall be entitled to receive additional interest by reason of a Registration Default that pertains to a Registered Exchange Offer. Such interest is payable in addition to any other interest payable from time to time with respect to this Security]/1/. The Company will pay interest semiannually on April 15 and October 15 of each year. Interest on the Securities will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from April 20, 1999 [date of issuance of any Additional Securities]. Interest will be computed on the basis of a 360-day year of twelve 30-day months. The Company shall pay interest on overdue principal at the rate borne by the Securities, and it shall pay interest on overdue installments of interest at the same rate to the extent lawful. 2. METHOD OF PAYMENT ----------------- The Company will pay interest on the Securities (except defaulted interest) to the Persons who are registered holders of Securities at the close of business on the April 1 or October 1 next preceding the interest payment date even if Securities are canceled after the record date and on or before the interest payment date. Holders must surrender Securities to a Paying Agent to collect principal payments. The Company will pay principal and interest in - --------------------------- /1/ Insert if at the time of issuance of the Exchange Security or Private Exchange Security (as the case may be) neither the Registered Exchange Offer has been consummated nor a Shelf Registration Statement has been declared effective in accordance with the Registration Rights Agreement. B-3 money of the United States that at the time of payment is legal tender for payment of public and private debts. Payments in respect of Securities (including principal, premium and interest) will be made by wire transfer of immediately available funds to the accounts specified by the holders thereof or, if no U.S. dollar account maintained by the payee with a bank in the United States is designated by any holder to the Trustee or the Paying Agent at least 30 days prior to the relevant due date for payment (or such other date as the Trustee may accept in its discretion), by mailing a check to the registered address of such holder. 3. PAYING AGENT AND REGISTRAR -------------------------- Initially, The Bank of New York, a banking corporation organized and validly existing under the laws of the State of New York, as Trustee ("Trustee"), will act as Paying Agent and Registrar. The Company may appoint and change any Paying Agent, Registrar or co-registrar without notice. The Company or any of its domestically incorporated Restricted Subsidiaries may act as Paying Agent, Registrar or co-registrar. 4. INDENTURE --------- The Company issued the Securities under an Indenture dated as of April 20, 1999 ("Indenture"), among the Company, the Subsidiary Guarantors and the Trustee. The terms of the Securities include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C. Sections 77aaa-77bbbb) as in effect on the date of the Indenture (the ------ "Act"). Terms defined in the Indenture and not defined herein have the meanings ascribed thereto in the Indenture. The Securities are subject to all such terms, and Securityholders are referred to the Indenture and the Act for a statement of those terms. The Securities are general unsecured obligations of the Company. Payment on each Security is guaranteed on a senior subordinated basis by the Subsidiary Guarantors pursuant to Article XI of the Indenture. To the extent of any conflict between the terms of the Securities and the Indenture, the applicable terms of the Indenture shall govern. The Company shall be entitled, subject to its compliance with Section 4.03 of the Indenture, to issue Additional Securities pursuant to Section 2.13 of the Indenture. The Initial Securities issued on the Issue Date, any Additional Securities and all Exchange Securities or Private Exchange Securities issued pursuant to the Indenture will be treated as a single class for all purposes under the Indenture. The Indenture contains certain covenants that, among other things will limit the ability of the Company and certain of its subsidiaries to (i) incur additional indebtedness, (ii) pay dividends or distributions on, or redeem or repurchase, the Company's capital stock, (iii) make investments, (iv) engage in transactions with affiliates, (v) create liens on the Company's assets to secure certain debt, (vi) transfer or sell assets, (vii) guarantee indebtedness, (viii) make dividend or other payments, (ix) consolidate, merge or transfer all or substantially all of the Company's assets and the assets of its subsidiaries and (x) engage in unrelated business. These covenants, however, are subject to important exceptions and qualifications. B-4 5. OPTIONAL REDEMPTION ------------------- Except as set forth in the next paragraph, the Securities may not be redeemed prior to April 15, 2004. On and after that date, the Company may redeem the Securities in whole at any time or in part from time to time at the following redemption prices (expressed as percentages of principal amount), plus accrued and unpaid interest thereon, if any, to the applicable redemption date (subject to the right of Holders of record on the relevant record date to receive interest due on the related interest payment date): if redeemed during the 12-month period beginning April 15, Period Percentage - ------ ---------- 2004.................................... 105.375% 2005.................................... 103.583 2006.................................... 101.792 2007 and thereafter..................... 100.000 In addition, prior to April 15, 2002, the Company may at its option on one or more occasions redeem up to 35% of the aggregate original principal amount of the Securities (including the original principal amount of any Additional Securities) at a redemption price of 110.750% of the principal amount thereof, plus accrued and unpaid interest to the redemption date, with the net cash proceeds from one or more Public Equity Offerings; provided, that -------- (1) at least 65% of the original aggregate principal amount of Securities (including the original principal amount of any Additional Securities) remains outstanding immediately after the occurrence of each such redemption (other than Securities held, directly or indirectly, by the Company or its Affiliates); and (2) each such redemption occurs within 60 days after the date of the related Public Equity Offering. 6. NOTICE OF REDEMPTION -------------------- Notice of redemption will be mailed at least 30 days but not more than 60 days before the redemption date to each Holder of Securities to be redeemed at his registered address. Securities in denominations larger than $1,000 may be redeemed in part but only in whole multiples of $1,000. If money sufficient to pay the redemption price of and accrued interest on all Securities (or portions thereof) to be redeemed on the redemption date is deposited with the Paying Agent on or before the redemption date and certain other conditions are satisfied, on and after such date interest ceases to accrue on such Securities (or such portions thereof) called for redemption. B-5 7. PUT PROVISIONS -------------- Upon a Change of Control, any Holder of Securities will have the right, subject to certain conditions, to cause the Company to repurchase all or any part of the Securities of such Holder at a repurchase price equal to 101% of the principal amount of the Securities to be repurchased plus accrued interest to the date of repurchase (subject to the right of holders of record on the relevant record date to receive interest due on the related interest payment date) as provided in, and subject to the terms of, the Indenture. 8. SUBORDINATION ------------- The Securities are subordinated to Senior Indebtedness, as defined in the Indenture. To the extent provided in the Indenture, Senior Indebtedness must be paid before the Securities may be paid. The Company agrees, and each Securityholder by accepting a Security agrees, to the subordination provisions contained in the Indenture and authorizes the Trustee to give it effect and appoints the Trustee as attorney-in-fact for such purpose. 9. DENOMINATIONS; TRANSFER; EXCHANGE --------------------------------- The Securities are in registered form without coupons in denominations of $1,000 and whole multiples of $1,000. A Holder may transfer or exchange Securities in accordance with the Indenture. The Registrar may require a Holder, among other things, to furnish appropriate endorsements or transfer documents and to pay any taxes and fees required by law or permitted by the Indenture. The Registrar need not register the transfer of or exchange any Securities selected for redemption (except, in the case of a Security to be redeemed in part, the portion of the Security not to be redeemed) or any Securities for a period of 15 days before a selection of Securities to be redeemed or 15 days before an interest payment date. 10. PERSONS DEEMED OWNERS --------------------- The registered Holder of this Security may be treated as the owner of it for all purposes. 11. UNCLAIMED MONEY --------------- If money for the payment of principal or interest remains unclaimed for two years, the Trustee or Paying Agent shall pay the money back to the Company at its request unless an abandoned property law designates another Person. After any such payment, Holders entitled to the money must look only to the Company and not to the Trustee for payment. 12. DISCHARGE AND DEFEASANCE ------------------------ B-6 Subject to certain conditions, the Company at any time may terminate some or all of its obligations under the Securities and the Indenture if the Company deposits with the Trustee money or U.S. Government Obligations for the payment of principal and interest on the Securities to redemption or maturity, as the case may be. 13. AMENDMENT, WAIVER ----------------- Subject to certain exceptions set forth in the Indenture, (i) the Indenture or the Securities may be amended with the written consent of the Holders of at least a majority in principal amount outstanding of the Securities and (ii) any default or noncompliance with any provision may be waived with the written consent of the Holders of a majority in principal amount outstanding of the Securities. Subject to certain exceptions set forth in the Indenture, without the consent of any Securityholder, the Company and the Trustee may amend the Indenture or the Securities to cure any ambiguity, omission, defect or inconsistency, or to comply with Article V of the Indenture, or to provide for uncertificated Securities in addition to or in place of certificated Securities, or to add guarantees with respect to the Securities or to secure the Securities, or to add additional covenants or surrender rights and powers conferred on the Company, or to comply with any requirement of the SEC in connection with qualifying the Indenture under the Act, or to make any change that does not adversely affect in any material respect the rights of any Securityholder. 14. DEFAULTS AND REMEDIES --------------------- Under the Indenture, Events of Default include (i) default for 30 days in payment of interest on the Securities; (ii) default in payment of principal on the Securities at maturity, upon redemption pursuant to paragraph 5 of the Securities, upon acceleration or otherwise, or failure by the Company to purchase Securities when required; (iii) failure by the Company to comply with other agreements in the Indenture or the Securities, in certain cases subject to notice and lapse of time; (iv) certain accelerations (including failure to pay within any grace period after final maturity) of other Indebtedness of the Company or any Significant Subsidiary if the amount accelerated (or so unpaid) exceeds $10 million; (v) certain events of bankruptcy or insolvency with respect to the Company and the Significant Subsidiaries; (vi) certain judgments or decrees for the payment of money in excess of $10 million and (vii) any denial or disaffirmation of obligations by a Subsidiary Guarantor that is a Significant Subsidiary or any Subsidiary Guarantee by such a Subsidiary Guarantor is not in full force or is unenforceable (other than in accordance with the terms of the Subsidiary Guarantee). If an Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the Securities may declare all the Securities to be due and payable immediately. Certain events of bankruptcy or insolvency are Events of Default which will result in the Securities being due and payable immediately upon the occurrence of such Events of Default. Securityholders may not enforce the Indenture or the Securities except as provided in the Indenture. The Trustee may refuse to enforce the Indenture or the Securities B-7 unless it receives reasonable indemnity or security. Subject to certain limitations, Holders of a majority in principal amount of the Securities may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Securityholders notice of any continuing Default (except a Default in payment of principal or interest) if it determines that withholding notice is in the interest of the Holders. 15. TRUSTEE DEALINGS WITH THE COMPANY --------------------------------- Subject to certain limitations imposed by the Act, the Trustee under the Indenture, in its individual or any other capacity, may become the owner or pledgee of Securities and may otherwise deal with and collect obligations owed to it by the Company or its Affiliates and may otherwise deal with the Company or its Affiliates with the same rights it would have if it were not Trustee. 16. NO RECOURSE AGAINST OTHERS -------------------------- A director, officer, employee or stockholder, as such, of the Company, any Subsidiary Guarantor or the Trustee shall not have any liability for any obligations of the Company under the Securities or the Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. By accepting a Security, each Securityholder waives and releases all such liability. The waiver and release are part of the consideration for the issue of the Securities. 17. AUTHENTICATION -------------- This Security shall not be valid until an authorized signatory of the Trustee (or an authenticating agent) manually signs the certificate of authentication on the other side of this Security. 18. ABBREVIATIONS ------------- Customary abbreviations may be used in the name of a Securityholder or an assignee, such as TEN COM (=tenants in common), TEN ENT (=tenants by the entireties), JT TEN (=joint tenants with rights of survivorship and not as tenants in common), CUST (=custodian), and U/G/M/A (=Uniform Gift to Minors Act). 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 Securities and has directed the Trustee to use CUSIP numbers in notices of redemption as a convenience to Securityholders. No representation is made as to the accuracy of such numbers B-8 either as printed on the Securities or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon. [20. REGISTRATION RIGHTS ------------------- Pursuant to the Registration Rights Agreement (as defined in the Indenture), the Company will have certain obligations to the Holders of the Exchange Securities and the Private Exchange Securities. The Holders of the Exchange Securities and the Private Exchange Securities shall be entitled to receive certain additional interest payments upon certain conditions, all pursuant to and in accordance with the terms of the Registration Rights Agreement. Each Holder of a Security, by acceptance hereof, acknowledges and agrees to the provisions of the Registration Rights Agreement, including, without limitation, the obligations of the Holders with respect to a registration and the indemnification of the Company to the extent provided therein.]/2/ 21. GOVERNING LAW ------------- THIS SECURITY (AND THE SUBSIDIARY GUARANTEE RELATING THERETO) SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK BUT WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY. The Company will furnish to any Securityholder upon written request and without charge to the security holder a copy of the indenture which has in it the text of this security in larger type. Requests may be made to: The Fairchild Corporation 45025 Aviation Drive, Suite 400 Dulles, Virginia 20166 Attention: General Counsel - -------------------------- /2/ To be included if applicable. B-9 [FORM OF NOTATION ON SECURITY RELATING TO SUBSIDIARY GUARANTEE] SUBSIDIARY GUARANTEE The undersigned subsidiary guarantors (collectively, the "Subsidiary Guarantors"), have each jointly and severally unconditionally guaranteed on a senior subordinated basis (such guarantee by each Subsidiary Guarantor being referred to herein as the "Subsidiary Guarantee") (i) the due and punctual payment of the principal of and interest on the Securities, subject to any applicable grace period, whether at maturity, by acceleration or otherwise, the due and punctual payment of interest on the overdue principal and interest, if any, on the Securities, to the extent lawful, and the due and punctual performance of all other obligations of the Company to the Holders or the Trustee all in accordance with the terms set forth in Article XI of the Indenture and (ii) in case of any extension of time of payment or renewal of any Securities or any of such other obligations, that the same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at stated maturity, subject to any applicable grace period, by acceleration or otherwise. The obligations of each Subsidiary Guarantor to the Holders of Securities and to the Trustee pursuant to the Subsidiary Guarantee and the Indenture are expressly set forth and are senior subordinated obligations of each Subsidiary Guarantor, to the extent and in the manner provided, in Articles XI and XII of the Indenture, and reference is hereby made to such Indenture for the precise terms of the Subsidiary Guarantee therein made. No stockholder, officer, director, employee or incorporator, as such, past, present or future, of each Subsidiary Guarantor shall have any liability under the Subsidiary Guarantee by reason of his or its status as such stockholder, officer, director, employee or incorporator. The Subsidiary Guarantee shall not be valid or obligatory for any purpose until the certificate of authentication on the Securities upon which the Subsidiary Guarantee is noted shall have been executed by the Trustee under the Indenture by the manual signature of one of its authorized officers. B-10 A10 INC. by ______________________________________________ Name: Title: CAMLOC HOLDINGS INC. by ______________________________________________ Name: Title: FAIRCHILD DATA CORPORATION by ______________________________________________ Name: Title: FAIRCHILD FASTENERS CORP. by ______________________________________________ Name: Title: FAIRCHILD FRANCE, INC. by ______________________________________________ Name: Title: B-11 FAIRCHILD HOLDING CORP. by ______________________________________________ Name: Title: FAIRCHILD RETIREE MEDICAL SERVICES, INC. by ______________________________________________ Name: Title: MAIROLL, INC. by ______________________________________________ Name: Title: MEOW, INC. by ______________________________________________ Name: Title: QUACK QUACK, INC. by ______________________________________________ Name: Title: B-12 RECYCLING INVESTMENTS, INC. by ______________________________________________ Name: Title: RECYCLING INVESTMENTS II, INC. by ______________________________________________ Name: Title: RHI HOLDINGS, INC. by ______________________________________________ Name: Title: SIMMONDS MECAERO FASTENERS, INC. by ______________________________________________ Name: Title: SPECIAL-T FASTENERS, INC. by ______________________________________________ Name: Title: B-13 SUCHOMIMOUS TERENSIS, INC. by ______________________________________________ Name: Title: VSI HOLDINGS, INC. by ______________________________________________ Name: Title: BANNER AEROSPACE, INC. by ______________________________________________ Name: Title: BANNER AEROSPACE SERVICES, INC. by ______________________________________________ Name: Title: BANNER AEROSPACE-SINGAPORE, INC. by ______________________________________________ Name: Title: B-14 BAR DE, INC. by ______________________________________________ Name: Title: D A C INTERNATIONAL, INC. by ______________________________________________ Name: Title: DALLAS AEROSPACE, INC. by ______________________________________________ Name: Title: GEORGETOWN JET CENTER, INC. by ______________________________________________ Name: Title: MATRIX AVIATION, INC. by ______________________________________________ Name: Title: B-15 NASAM INCORPORATED by ______________________________________________ Name: Title: PB HERNDON AEROSPACE, INC. by ______________________________________________ Name: Title: PROFESSIONAL AIRCRAFT ACCESSORIES, INC. by ______________________________________________ Name: Title: PROFESSIONAL AVIATION ASSOCIATES, INC. by ______________________________________________ Name: Title: M&M MACHINE & TOOL CO. by ______________________________________________ Name: Title: B-16 MARCLIFF CORPORATION by ______________________________________________ Name: Title: MARSON CREATIVE FASTENER, INC. by ______________________________________________ Name: Title: RECOIL AUSTRALIA HOLDINGS, INC. by ______________________________________________ Name: Title: RECOIL HOLDINGS, INC. by ______________________________________________ Name: Title: RECOIL INC. by ______________________________________________ Name: Title: B-17 KAYNAR TECHNOLOGIES INC. by ______________________________________________ Name: Title: B-18 ASSIGNMENT FORM To assign this Security, fill in the form below: I or we assign and transfer this Security to - -------------------------------------------------------------------------------- (Print or type assignee's name, address and zip code) - -------------------------------------------------------------------------------- (Insert assignee's soc. sec. or tax I.D. No.) and irrevocably appoint ________________________ agent to transfer this Security on the books of the Company. The agent may substitute another to act for him. Date: ____________________ Your Signature:________________________ ----------------------------------------------------------------------------- Sign exactly as your name appears on the other side of this Security. B-19 OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have this security purchased by the company pursuant to section 4.06 or 4.09 of the indenture, check the box: [ ] If you want to elect to have only part of this security purchased by the company pursuant to section 4.06 or 4.09 of the indenture, state the amount: $____________ Date: _____________________ Your Signature: _______________________ (Sign exactly as your name appears on the other side of the Security) Signature Guarantee: __________________________________________ (Signature must be guaranteed by a member firm of the New York stock exchange or a commercial bank or trust company) B-20 EX-4.5 3 REGISTRATION RIGHTS AGREEMENT Exhibit 4.5 $225,000,000 THE FAIRCHILD CORPORATION 10 3/4% Senior Subordinated Notes Due 2009 REGISTRATION RIGHTS AGREEMENT April 15, 1999 Credit Suisse First Boston Corporation Donaldson, Lufkin & Jenrette Securities Corporation Salomon Smith Barney Inc. NationsBanc Montgomery Securities LLC Warburg Dillon Read LLC c/o Credit Suisse First Boston Corporation Eleven Madison Avenue New York, New York 10010-3629 Ladies and Gentlemen: The Fairchild Corporation, a Delaware corporation (the "Issuer"), proposes to issue and sell to Credit Suisse First Boston Corporation ("CSFBC") and Donaldson, Lufkin & Jenrette Securities Corporation, Salomon Smith Barney Inc., NationsBanc Montgomery Securities LLC, and Warburg Dillon Read LLC (collectively, the "Initial Purchasers"), upon the terms set forth in a purchase agreement of even date herewith (the "Purchase Agreement"), $225,000,000 aggregate principal amount of its 10 3/4% Senior Subordinated Notes due 2009 (the "Initial Securities") to be unconditionally guaranteed by the guarantors listed on Schedule A hereto (the "Guarantors" and together with the Issuer, the "Company"). The Initial Securities will be issued pursuant to an Indenture, dated as of April 20, 1999 (the "Indenture"), among the Issuer, the Guarantors and The Bank of New York, as trustee (the "Trustee"). As an inducement to the Initial Purchasers to enter into the Purchase Agreement, the Company agrees with the Initial Purchasers, for the benefit of the holders of the Initial Securities (including, without limitation, the Initial Purchasers), the Exchange Securities (as defined below) and the Private Exchange Securities (as defined below) (collectively the "Holders"), as follows: 1. Registered Exchange Offer. The Company shall, at its own cost, prepare and, not later than 60 days after (or if the 60th day is not a business day, the first business day thereafter) the date of original issue of the Initial Securities (the "Issue Date"), file with the Securities and Exchange Commission (the "Commission") a registration statement (the "Exchange Offer Registration Statement") on an appropriate form under the Securities Act of 1933, as amended (the "Securities Act"), with respect to a proposed offer (the "Registered Exchange Offer") to the Holders of Transfer Restricted Securities (as defined in Section 6 hereof), who are not prohibited by any law or policy of the Commission from participating in the Registered Exchange Offer, to issue and deliver to such Holders, in exchange for the Initial Securities, a like aggregate principal amount of debt securities (the "Exchange Securities") of the Company issued under the Indenture and substantially identical in all material respects to the Initial Securities (except for the transfer restrictions relating to the Initial Securities and the provisions relating to the matters described in Section 6 hereof) that would be registered under the Securities Act. The Company shall use its best efforts to cause such Exchange Offer Registration Statement to become effective under the Securities Act within 180 days (or if the 180/th/ day is not a business day, the first business day thereafter) after the Issue Date of the Initial Securities and shall keep the Exchange Offer Registration Statement effective for not less than 30 days (or longer, if required by applicable law) after the date notice of the Registered Exchange Offer is mailed to the Holders (such period being called the "Exchange Offer Registration Period"). If the Company effects the Registered Exchange Offer, the Company will be entitled to close the Registered Exchange Offer 30 days after the commencement thereof provided that the Company has accepted all the Initial Securities theretofore validly tendered (and not withdrawn) in accordance with the terms of the Registered Exchange Offer. Following the declaration of the effectiveness of the Exchange Offer Registration Statement, the Company shall promptly commence the Registered Exchange Offer, it being the objective of such Registered Exchange Offer to enable each Holder of Transfer Restricted Securities electing to exchange the Initial Securities for Exchange Securities (assuming that such Holder is not an affiliate of the Company within the meaning of the Securities Act, acquires the Exchange Securities in the ordinary course of such Holder's 2 business and has no arrangements with any person to participate in the distribution of the Exchange Securities and is not prohibited by any law or policy of the Commission from participating in the Registered Exchange Offer) to trade such Exchange Securities from and after their receipt without any limitations or restrictions under the Securities Act and without material restrictions under the securities laws of the several states of the United States. Notwithstanding the foregoing, the Initial Purchasers and the Company acknowledge that, pursuant to current interpretations by the Commission's staff of Section 5 of the Securities Act, in the absence of an applicable exemption therefrom, (i) each Holder which is a broker-dealer electing to exchange Initial Securities, acquired for its own account as a result of market making activities or other trading activities, for Exchange Securities (an "Exchanging Dealer"), is required to deliver a prospectus containing the information set forth in (a) Annex A hereto on the cover, (b) Annex B hereto in the "Exchange Offer Procedures" section and the "Purpose of the Exchange Offer" section, and (c) Annex C hereto in the "Plan of Distribution" section of such prospectus in connection with a resale of any such Exchange Securities received by such Exchanging Dealer pursuant to the Registered Exchange Offer and (ii) an Initial Purchaser that elects to sell Exchange Securities acquired in exchange for Initial Securities constituting any portion of an unsold allotment is required to deliver a prospectus containing the information required by Items 507 or 508 of Regulation S-K under the Securities Act, as applicable, in connection with such sale. The Company shall use its best efforts to keep the Exchange Offer Registration Statement effective and to amend and supplement the prospectus contained therein, in order to permit such prospectus to be lawfully delivered by all persons subject to the prospectus delivery requirements of the Securities Act for such period of time as such persons must comply with such requirements in order to resell the Exchange Securities; provided, however, that (i) in the case where such prospectus and any amendment or supplement thereto must be delivered by an Exchanging Dealer or an Initial Purchaser, such period shall be the shorter of 180 days and the period ending on the date on which all Exchanging Dealers and the Initial Purchasers have sold all Exchange Securities held by them (unless such period is extended pursuant to Section 3(j) below) and (ii) the Company shall make such prospectus and any amendment or supplement thereto available to any broker-dealer for use in connection with any resale of any Exchange Securities for a period of not less than 180 days after the consummation of the Registered Exchange Offer (or such shorter period during which such broker-dealer is required by law to deliver such prospectus). 3 If, upon consummation of the Registered Exchange Offer, any Initial Purchaser holds Initial Securities acquired by it as part of its initial distribution, the Company, simultaneously with the delivery of the Exchange Securities pursuant to the Registered Exchange Offer, shall issue and deliver to such Initial Purchaser upon the written request of such Initial Purchaser, in exchange (the "Private Exchange") for the Initial Securities held by such Initial Purchaser, a like principal amount of debt securities of the Company issued under the Indenture and substantially identical in all material respects (including the existence of restrictions on transfer under the Securities Act and the securities laws of the several states of the United States, but excluding provisions relating to the matters described in Section 6 hereof) to the Initial Securities (the "Private Exchange Securities"). The Initial Securities, the Exchange Securities and the Private Exchange Securities are herein collectively called the "Securities." In connection with the Registered Exchange Offer, the Company shall: (a) mail to each Holder a copy of the prospectus forming part of the Exchange Offer Registration Statement, together with an appropriate letter of transmittal ("Letter of Transmittal") and related documents; (b) keep the Registered Exchange Offer open for not less than 30 days (or longer, if required by applicable law) after the date notice thereof is mailed to the Holders; (c) utilize the services of a depositary for the Registered Exchange Offer with an address in the Borough of Manhattan, The City of New York, which may be the Trustee or an affiliate of the Trustee; (d) permit Holders to withdraw tendered Initial Securities at any time prior to the close of business, New York time, on the last business day on which the Registered Exchange Offer shall remain open; and (e) otherwise comply with all applicable laws. As soon as practicable after the close of the Registered Exchange Offer or the Private Exchange, as the case may be, the Company shall: (x) accept for exchange all the Initial Securities validly tendered and not withdrawn pursuant to the Registered Exchange Offer and the Private Exchange; 4 (y) deliver to the Trustee for cancellation all the Initial Securities so accepted for exchange; and (z) cause the Trustee to authenticate and deliver promptly to each Holder of the Initial Securities, Exchange Securities or Private Exchange Securities, as the case may be, equal in principal amount to the Initial Securities of such Holder so accepted for exchange. The Indenture will provide that the Exchange Securities will not be subject to the transfer restrictions set forth in the Indenture and that all the Securities will vote and consent together on all matters as one class and that none of the Securities will have the right to vote or consent as a class separate from one another on any matter. Interest on each Exchange Security and Private Exchange Security issued pursuant to the Registered Exchange Offer and in the Private Exchange will accrue from the last interest payment date on which interest was paid on the Initial Securities surrendered in exchange therefor or, if no interest has been paid on the Initial Securities, from the Issue Date. Each Holder participating in the Registered Exchange Offer shall be required to represent to the Company that at the time of the consummation of the Registered Exchange Offer (i) any Exchange Securities received by such Holder will be acquired in the ordinary course of business, (ii) such Holder will have no arrangements or understanding with any person to participate in the distribution within the meaning of the Securities Act of the Exchange Securities, (iii) such Holder is not an "affiliate," as defined in Rule 405 of the Securities Act, of the Company or if it is an affiliate, such Holder will comply with the registration and prospectus delivery requirements of the Securities Act to the extent applicable, (iv) if such Holder is not a broker- dealer, that it is not engaged in, and does not intend to engage in, the distribution of the Exchange Securities and (v) if such Holder is a broker- dealer, that it will receive Exchange Securities for its own account in exchange for Initial Securities that were acquired as a result of market-making activities or other trading activities and that it will be required to acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Securities. Notwithstanding any other provisions hereof, the Company will use its best efforts ensure that (i) any Exchange Offer Registration Statement and any amendment thereto and any prospectus forming part thereof and any supplement thereto complies in all material respects with the Securities Act and the rules and regulations thereunder, (ii) 5 any Exchange Offer Registration Statement and any amendment thereto does not, when it becomes effective, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading and (iii) any prospectus forming part of any Exchange Offer Registration Statement, and any supplement to such prospectus, does not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. 2. Shelf Registration. If, (i) because of any change in law or in applicable interpretations thereof by the staff of the Commission, the Company is not permitted to effect a Registered Exchange Offer as contemplated by Section 1 hereof, (ii) for any other reason the Registered Exchange Offer is not consummated within 210 days of Issue Date (or, if the 210/th/ day is not a business day, the first business day thereafter), (iii) any Initial Purchaser notifies the Company within 10 business days following consummation of the Registered Exchange Offer that the Transfer Restricted Securities held by it are not eligible to be exchanged for Exchange Securities in the Registered Exchange Offer or (iv) any Holder (other than an Exchanging Dealer) notifies the Company within 10 business days following consummation of the Registered Exchange Offer that it is prohibited by law or Commission policy from participating in the Registered Exchange Offer or, in the case of any Holder (other than an Exchanging Dealer) that participates in the Registered Exchange Offer, that such Holder may not resell the Exchange Securities acquired by it in the Registered 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 by such holder, the Company shall take the following actions: (a) The Company shall, at its cost, as promptly as practicable (but in no event more than 45 days after so required or requested pursuant to this Section 2) file with the Commission and thereafter shall use its best efforts to cause to be declared effective on or prior to the 180/th/ day (or, if such day is not a business day, the first business day thereafter) after the date the Company becomes obligated to so file or receives the notices from Holders described above) a registration statement (the "Shelf Registration Statement" and, together with the Exchange Offer Registration Statement, a "Registration Statement") on an appropriate form under the Securities Act relating to the offer and sale of the Transfer Restricted Securities by the Holders thereof from time to time in accordance with the methods of distribution set forth in the Shelf Registration Statement and Rule 415 under the Securities Act (hereinafter, the "Shelf 6 Registration"); provided, however, that no Holder (other than an Initial Purchaser) shall be entitled to have the Securities held by it covered by such Shelf Registration Statement unless such Holder agrees in writing to be bound by all the provisions of this Agreement applicable to such Holder. (b) The Company shall use its best efforts to keep the Shelf Registration Statement continuously effective in order to permit the prospectus included therein to be lawfully delivered by the Holders of the relevant Securities, for a period of two years (or for such longer period if extended pursuant to Section 3(j) below) from the date of its effectiveness or such shorter period that will terminate when all the Securities covered by the Shelf Registration Statement (i) have been sold pursuant thereto or (ii) when all such Securities may be sold pursuant to Rule 144 without any limitations imposed pursuant to clauses (c), (e), (f) and (h) thereunder (the "Shelf Registration Period"). The Company shall be deemed not to have used its best efforts to keep the Shelf Registration Statement effective during the requisite period if it voluntarily takes any action that would result in Holders of Securities covered thereby not being able to offer and sell such Securities during that period, unless such action is required by applicable law or as otherwise permitted by Section 3(j) hereof. (c) Notwithstanding any other provisions of this Agreement to the contrary, the Company shall use its best efforts to cause the Shelf Registration Statement and the related prospectus and any amendment or supplement thereto, as of the effective date of the Shelf Registration Statement, amendment or supplement, (i) to comply in all material respects with the applicable requirements of the Securities Act and the rules and regulations of the Commission and (ii) not to contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. 3. Registration Procedures. In connection with any Shelf Registration contemplated by Section 2 hereof and, to the extent applicable, any Registered Exchange Offer contemplated by Section 1 hereof, the following provisions shall apply: (a) The Company shall (i) furnish to each Initial Purchaser, prior to the filing thereof with the Commission, a copy of the Registration Statement and each amendment thereof and each supplement, if any, to the prospectus included therein and, in the event that an Initial Purchaser (with respect to any portion of 7 an unsold allotment from the original offering) is participating in the Registered Exchange Offer or the Shelf Registration Statement, the Company shall use its best efforts to reflect in each such document, when so filed with the Commission, such comments as such Initial Purchaser reasonably may on a timely basis propose; (ii) include substantially the information set forth in Annex A hereto on the cover, in Annex B hereto in the "Exchange Offer Procedures" section and the "Purpose of the Exchange Offer" section and in Annex C hereto in the "Plan of Distribution" section of the prospectus forming a part of the Exchange Offer Registration Statement and include the information set forth in Annex D hereto in the Letter of Transmittal delivered pursuant to the Registered Exchange Offer; (iii) if requested by an Initial Purchaser, include the information required by Items 507 or 508 of Regulation S-K under the Securities Act, as applicable, in the prospectus forming a part of the Exchange Offer Registration Statement; (iv) include within the prospectus contained in the Exchange Offer Registration Statement a section entitled "Plan of Distribution," reasonably acceptable to the Initial Purchasers, which shall contain a summary statement of the positions taken or policies made by the staff of the Commission with respect to the potential "underwriter" status of any broker-dealer that is the beneficial owner (as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) of Exchange Securities received by such broker-dealer in the Registered Exchange Offer (a "Participating Broker-Dealer"), whether such positions or policies have been publicly disseminated by the staff of the Commission or such positions or policies, in the reasonable judgment of the Initial Purchasers based upon advice of counsel (which may be in-house counsel), represent the prevailing views of the staff of the Commission; and (v) in the case of a Shelf Registration Statement, include the names of the Holders who propose to sell Securities pursuant to the Shelf Registration Statement as selling securityholders. (b) The Company shall give written notice to the Initial Purchasers, the Holders of the Securities and any Participating Broker-Dealer from whom the Company has received prior written notice that it will be a Participating Broker-Dealer in the Registered Exchange Offer (which notice pursuant to clauses (ii)-(v) hereof shall be accompanied by an instruction to suspend the use of the prospectus until the requisite changes have been made): (i) when the Registration Statement or any amendment thereto has been filed with the Commission and when the Registra- 8 tion Statement or any post-effective amendment thereto has become effective; (ii) of any request by the Commission for amendments or supplements to the Registration Statement or the prospectus included therein or for additional information; (iii) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or the initiation of any proceedings for that purpose; (iv) of the receipt by the Company or its legal counsel of any notification with respect to the suspension of the qualification of the Securities for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose; and (v) of the happening of any event that requires the Company to make changes in the Registration Statement or the prospectus in order that the Registration Statement or the prospectus do not contain an untrue statement of a material fact nor omit to state a material fact required to be stated therein or necessary to make the statements therein (in the case of the prospectus, in light of the circumstances under which they were made) not misleading. (c) The Company shall make every reasonable effort to obtain the withdrawal at the earliest possible time, of any stop order suspending the effectiveness of the Registration Statement. (d) The Company shall furnish to each Holder of Securities included within the coverage of the Shelf Registration, without charge, at least one copy of the Shelf Registration Statement and any post-effective amendment thereto, including financial statements and schedules, and, if the Holder so requests in writing, all exhibits thereto (including those, if any, incorporated by reference). (e) The Company shall deliver to each Exchanging Dealer, each Participating Broker-Dealer and each Initial Purchaser, and to any other Holder who so requests, without charge, at least one copy of the Exchange Offer Registration Statement and any post-effective amendment thereto, including 9 financial statements and schedules, and, if any Initial Purchaser or any such Holder requests, all exhibits thereto (including those incorporated by reference). (f) The Company shall, during the Shelf Registration Period, deliver to each Holder of Securities included within the coverage of the Shelf Registration, without charge, as many copies of the prospectus (including each preliminary prospectus) included in the Shelf Registration Statement and any amendment or supplement thereto as such person may reasonably request. The Company consents, subject to the provisions of this Agreement, to the use of the prospectus or any amendment or supplement thereto by each of the selling Holders of the Securities in connection with the offering and sale of the Securities covered by the prospectus, or any amendment or supplement thereto, included in the Shelf Registration Statement. (g) The Company shall deliver to each Initial Purchaser, any Exchanging Dealer, any Participating Broker-Dealer and such other persons required to deliver a prospectus following the Registered Exchange Offer, without charge, as many copies of the final prospectus included in the Exchange Offer Registration Statement and any amendment or supplement thereto as such persons may reasonably request. The Company consents, subject to the provisions of this Agreement, to the use of the prospectus or any amendment or supplement thereto by any Initial Purchaser, if necessary, any Exchanging Dealer, any Participating Broker-Dealer and such other persons required to deliver a prospectus following the Registered Exchange Offer in connection with the offering and sale of the Exchange Securities covered by the prospectus, or any amendment or supplement thereto, included in such Exchange Offer Registration Statement. (h) Prior to any public offering of the Securities pursuant to any Registration Statement the Company shall register or qualify or cooperate with the Holders of the Securities included therein and their respective counsel in connection with the registration or qualification of the Securities for offer and sale under the securities or "blue sky" laws of such states of the United States as any Holder of the Securities reasonably requests in writing and do any and all other acts or things necessary or advisable to enable the offer and sale in such jurisdictions of the Securities covered by such Registration Statement; provided, however, that the Company shall not be required to (i) qualify generally to do business or as a dealer in securities in any jurisdiction where it is not then so 10 qualified or (ii) take any action which would subject it to general service of process or to taxation in any jurisdiction where it is not then so subject. (i) The Company shall cooperate with the Holders of the Securities to facilitate the timely preparation and delivery of certificates representing the Securities to be sold pursuant to any Registration Statement free of any restrictive legends and in such denominations consistent with the terms of the Indenture and registered in such names as the Holders may request a reasonable period of time prior to sales of the Securities pursuant to such Registration Statement. (j) Upon the occurrence of any event contemplated by paragraphs (ii) through (v) of Section 3(b) above during the period for which the Company is required to maintain an effective Registration Statement, the Company shall promptly prepare and file a post-effective amendment to the Registration Statement or a supplement to the related prospectus and any other required document so that, as thereafter delivered to Holders of the Securities or purchasers of Securities, the prospectus will not contain an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. If the Company notifies the Initial Purchasers, the Holders of the Securities and any known Participating Broker-Dealer in accordance with paragraphs (ii) through (v) of Section 3(b) above to suspend the use of the prospectus until the requisite changes to the prospectus have been made, then the Initial Purchasers, the Holders of the Securities and any such Participating Broker-Dealers shall suspend use of such prospectus, and the period of effectiveness of the Shelf Registration Statement provided for in Section 2(b) above and the Exchange Offer Registration Statement provided for in Section 1 above shall each be extended by the number of days from and including the date of the giving of such notice to and including the date when the Initial Purchasers, the Holders of the Securities and any known Participating Broker-Dealer shall have received such amended or supplemented prospectus pursuant to this Section 3(j). Notwithstanding the foregoing, the Company shall not be required to amend or supplement a Registration Statement, any related prospectus or any document incorporated by reference, for a period not to exceed an aggregate of 60 days in any calendar year, if (i) an event occurs and is continuing as a result of which the Registration Statement would, in the Company's good faith judgment contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in light of the circumstances in which they were made not misleading and (ii) the 11 Company determines in its good faith judgment that the disclosure of such event at such time would have a material adverse effect on the business, operations or prospects of the Company or the disclosure otherwise relates to a pending material business transaction that has not yet been publicly disclosed. (k) Not later than the effective date of the applicable Registration Statement, the Company will provide a CUSIP number for the Initial Securities, the Exchange Securities or the Private Exchange Securities, as the case may be, and provide the applicable trustee with printed certificates for the Initial Securities, the Exchange Securities or the Private Exchange Securities, as the case may be, in a form eligible for deposit with The Depository Trust Company. (l) The Company will comply with all rules and regulations of the Commission to the extent and so long as they are applicable to the Registered Exchange Offer or the Shelf Registration and will make generally available to its security holders (or otherwise provide in accordance with Section 11(a) of the Securities Act) an earnings statement satisfying the provisions of Section 11(a) of the Securities Act, no later than 45 days after the end of a 12-month period (or 90 days, if such period is a fiscal year) beginning with the first month of the Company's first fiscal quarter commencing after the effective date of the Registration Statement, which statement shall cover such 12-month period. (m) The Company shall cause the Indenture to be qualified under the Trust Indenture Act of 1939, as amended, in a timely manner and containing such changes, if any, as shall be necessary for such qualification. In the event that such qualification would require the appointment of a new trustee under the Indenture, the Company shall appoint a new trustee thereunder pursuant to the applicable provisions of the Indenture. (n) The Company may require each Holder of Securities to be sold pursuant to the Shelf Registration Statement to furnish to the Company such information regarding the Holder and the distribution of the Securities as the Company may from time to time reasonably require for inclusion in the Shelf Registration Statement, and the Company may exclude from such registration the Securities of any Holder that unreasonably fails to furnish such information within a reasonable time after receiving such request. (o) The Company shall enter into such customary agreements (including, if requested, an underwriting agreement in customary form) and take 12 all such other action, if any, as any Holder of the Securities shall reasonably request in order to facilitate the disposition of the Securities pursuant to any Shelf Registration. (p) In the case of any Shelf Registration, the Company shall (i) make reasonably available for inspection by the Holders of the Securities, any underwriter participating in any disposition pursuant to the Shelf Registration Statement and any attorney, accountant or other agent retained by the Holders of the Securities or any such underwriter all relevant financial and other records, pertinent corporate documents and properties of the Company and (ii) cause the Company's officers, directors, employees, accountants and auditors to supply all relevant information reasonably requested by the Holders of the Securities or any such underwriter, attorney, accountant or agent in connection with the Shelf Registration Statement, in each case, as shall be reasonably necessary to enable such persons to conduct a reasonable investigation within the meaning of Section 11 of the Securities Act; provided, however, that the foregoing inspection and information gathering shall be coordinated on behalf of the Initial Purchasers by CSFBC and on behalf of the other parties, by one counsel designated by and on behalf of such other parties as described in Section 4 hereof. In connection with the preparation and filing of a Shelf Registration Statement, the Company may require each Holder to agree to keep confidential any non-public information relating to the Company received by such Holders and not to publicly disclose such information until such information has been made generally available to the public. (q) In the case of any Shelf Registration, the Company, if requested by any Holder of Securities covered thereby, shall cause (i) its counsel to deliver an opinion relating to the Securities in customary form addressed to such Holders and the managing underwriters, if any, thereof and dated, in the case of the initial opinion, the effective date of such Shelf Registration Statement; (ii) its officers to execute and deliver all customary documents and certificates and updates thereof requested by any underwriters of the applicable Securities and (iii) its independent public accountants and the independent public accountants with respect to any other entity for which financial information is provided in the Shelf Registration Statement to provide to the selling Holders of the applicable Securities and any underwriter therefor a comfort letter in customary form and covering matters of the type customarily covered in comfort letters in connection with primary underwritten offerings, subject to receipt of appropriate documenta- 13 tion as contemplated, and only if permitted, by Statement of Auditing Standards No. 72. (r) In the case of the Registered Exchange Offer, if requested in writing by any Initial Purchaser or any known Participating Broker-Dealer, the Company shall cause (i) its counsel to deliver to such Initial Purchaser or such Participating Broker-Dealer a signed opinion in the form set forth in Section 6(d)-(e) of the Purchase Agreement with such changes as are customary in connection with the preparation of a Registration Statement and (ii) its independent public accountants and the independent public accountants with respect to any other entity for which financial information is provided in the Registration Statement to deliver to such Initial Purchaser or such Participating Broker-Dealer comfort letters, in customary form, meeting the requirements as to the substance thereof as set forth in Section 6(a)-(b) of the Purchase Agreement, with appropriate date changes. (s) If a Registered Exchange Offer or a Private Exchange is to be consummated, upon delivery of the Initial Securities by Holders to the Company (or to such other Person as directed by the Company) in exchange for the Exchange Securities or the Private Exchange Securities, as the case may be, the Company shall mark, or caused to be marked, on the Initial Securities so exchanged that such Initial Securities are being canceled in exchange for the Exchange Securities or the Private Exchange Securities, as the case may be; in no event shall the Initial Securities be marked as paid or otherwise satisfied. (t) The Company will use its best efforts to if the Initial Securities have been rated prior to the initial sale of such Initial Securities, confirm that such ratings will apply to the Securities covered by a Registration Statement, if so requested by Holders of a majority in aggregate principal amount of Securities covered by such Registration Statement, or by the managing underwriters, if any. (u) In the event that any broker-dealer registered under the Exchange Act shall underwrite any Securities or participate as a member of an underwriting syndicate or selling group or "assist in the distribution" (within the meaning of the Conduct Rules (the "Rules") of the National Association of Securities Dealers, Inc. ("NASD")) thereof, whether as a Holder of such Securities or as an underwriter, a placement or sales agent or a broker or dealer in respect thereof, or otherwise, the Company will assist such broker-dealer in complying with the requirements of such Rules, including, without limitation, by (i) if such Rules, 14 including Rule 2720, shall so require, engaging a "qualified independent underwriter" (as defined in Rule 2720) to participate in the preparation of the Registration Statement relating to such Securities, to exercise usual standards of due diligence in respect thereto and, if any portion of the offering contemplated by such Registration Statement is an underwritten offering or is made through a placement or sales agent, to recommend the yield of such Securities, (ii) indemnifying any such qualified independent underwriter to the extent of the indemnification of underwriters provided in Section 5 hereof and (iii) providing such information to such broker- dealer as may be required in order for such broker-dealer to comply with the requirements of the Rules. (v) The Company shall use its reasonable best efforts to take all other steps necessary to effect the registration of the Securities covered by a Registration Statement contemplated hereby. 4. Registration Expenses. The Company shall bear all fees and expenses incurred in connection with the performance of its obligations under Sections 1 through 3 hereof (including the reasonable fees and expenses, if any, of Skadden, Arps, Slate, Meagher & Flom LLP, counsel for the Initial Purchasers, incurred in connection with the Registered Exchange Offer), whether or not the Registered Exchange Offer or a Shelf Registration is filed or becomes effective, and, in the event of a Shelf Registration, shall bear or reimburse the Holders of the Securities covered thereby for the reasonable fees and disbursements of one firm of counsel designated by the Holders of a majority in principal amount of the Securities covered thereby to act as counsel for the Holders of the Securities in connection therewith. 5. Indemnification. (a) The Company agrees to indemnify and hold harmless each Holder of the Securities, any Participating Broker-Dealer and each person, if any, who controls such Holder or such Participating Broker-Dealer within the meaning of the Securities Act or the Exchange Act (each Holder, any Participating Broker-Dealer and such controlling persons are referred to individually as a "Holder Indemnified Party" and collectively as the "Holder Indemnified Parties") from and against any losses, claims, damages or liabilities, joint or several, or any actions in respect thereof (including, but not limited to, any losses, claims, damages, liabilities or actions relating to purchases and sales of the Securities) to which each Holder Indemnified Party may become subject under the Securities Act, the Exchange Act or otherwise, insofar as such losses, claims, damages, liabilities or actions arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in a Registration Statement or prospectus or in any amendment or supplement thereto or in any 15 preliminary prospectus relating to a Shelf Registration, or arise out of, or are based upon, the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and shall reimburse, as incurred, the Holder Indemnified Parties for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action in respect thereof; provided, however, that (i) the Company shall not be liable in any such case to the extent that such loss, claim, damage, liability or action in respect thereof arises out of or is based upon any untrue statement or alleged untrue statement or omission or alleged omission made in a Registration Statement or prospectus or in any amendment or supplement thereto or in any preliminary prospectus relating to a Shelf Registration in reliance upon and in conformity with written information pertaining to such Holder Indemnified Party and furnished to the Company by or on behalf of such Holder Indemnified Party specifically for inclusion therein and (ii) with respect to any untrue statement or omission or alleged untrue statement or omission made in any preliminary prospectus relating to a Shelf Registration Statement, the indemnity agreement contained in this subsection (a) shall not inure to the benefit of any Holder or Participating Broker-Dealer from whom the person asserting any such losses, claims, damages, liabilities or actions in respect thereof purchased the Securities concerned, to the extent that a prospectus relating to such Securities was required to be delivered by such Holder or Participating Broker- Dealer under the Securities Act in connection with such purchase and any such loss, claim, damage, liability or action in respect thereof of such Holder or Participating Broker-Dealer results from the fact that there was not sent or given to such person, at or prior to the written confirmation of the sale of such Securities to such person, a copy of the final prospectus if the Company had previously furnished copies thereof to such Holder or Participating Broker- Dealer; provided further, however, that this indemnity agreement will be in addition to any liability which the Company may otherwise have to such Holder or Participating Broker-Dealer. The Company shall also indemnify underwriters, their officers and directors and each person who controls such underwriters within the meaning of the Securities Act or the Exchange Act to the same extent as provided above with respect to the indemnification of the Holders of the Securities if requested in writing by such Holders. Any amounts advanced by the Company to a Holder Indemnified Party pursuant to this Section 5(a) as a result of any losses, claims, damages or liabilities (or actions in respect thereof) or expenses shall be immediately returned to the Company if it shall be finally determined by a court of competent jurisdiction in a judgment not subject to appeal or final review that such Holder Indemnified Party was not entitled to indemnification by the Company. 16 (b) Each Holder of the Securities, severally and not jointly, will indemnify and hold harmless the Company and each person, if any, who controls the Company within the meaning of the Securities Act or the Exchange Act from and against any losses, claims, damages or liabilities or any actions in respect thereof, to which the Company or any such controlling person may become subject under the Securities Act, the Exchange Act or otherwise, insofar as such losses, claims, damages, liabilities or actions arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in a Registration Statement or prospectus or in any amendment or supplement thereto or in any preliminary prospectus relating to a Shelf Registration, or arise out of or are based upon the omission or alleged omission to state therein a material fact necessary to make the statements therein not misleading, but in each case only to the extent that the untrue statement or omission or alleged untrue statement or omission was made in reliance upon and in conformity with written information pertaining to such Holder and furnished to the Company by or on behalf of such Holder specifically for inclusion therein; and, subject to the limitation set forth immediately preceding this clause, shall reimburse, as incurred, the Company for any legal or other expenses reasonably incurred by the Company or any such controlling person in connection with investigating or defending any loss, claim, damage, liability or action in respect thereof. This indemnity agreement will be in addition to any liability which such Holder may otherwise have to the Company or any of its controlling persons. Any amounts advanced by any Holder to a indemnified party pursuant to this Section 5(b) as a result of any losses, claims, damages or liabilities (or actions in respect thereof) or expenses shall be immediately returned to such Holder if it shall be finally determined by a court of competent jurisdiction in a judgment not subject to appeal or final review that such indemnified party was not entitled to indemnification by such Holder. (c) Promptly after receipt by an indemnified party under this Section 5 of notice of the commencement of any action or proceeding (including a governmental investigation), such indemnified party will, if a claim in respect thereof is to be made against the indemnifying party under this Section 5, notify the indemnifying party of the commencement thereof; but the omission so to notify the indemnifying party will not, in any event, relieve the indemnifying party from any obligations to any indemnified party other than the indemnification obligation provided in paragraph (a) or (b) above. In case any such action is brought against any indemnified party, and it notifies the indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate therein and, to the extent that it may wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel reasonably satisfactory to such indemnified party (who shall not, except with the consent of the indemnified party, be counsel to the indemnifying party), and after notice from the 17 indemnifying party to such indemnified party of its election so to assume the defense thereof the indemnifying party will not be liable to such indemnified party under this Section 5 for any legal or other expenses, other than reasonable costs of investigation, subsequently incurred by such indemnified party in connection with the defense thereof. In no event shall an indemnifying party be liable for fees and expenses of more than one counsel (in addition to any local counsel) separate from their own counsel for all indemnified parties in connection with any one action or separate but similar or related actions in the same jurisdiction arising out of the same general allegations or circum- stances. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened action in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party unless such settlement includes an unconditional release of such indemnified party from all liability on any claims that are the subject matter of such action. (d) If the indemnification provided for in this Section 5 is unavailable or insufficient to hold harmless an indemnified party under subsections (a) or (b) above, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of the losses, claims, damages or liabilities (or actions in respect thereof) referred to in subsection (a) or (b) above (i) in such proportion as is appropriate to reflect the relative benefits received by the indemnifying party or parties on the one hand and the indemnified party or parties on the other from the exchange of the Securities, pursuant to the Registered Exchange Offer, or (ii) if the allocation provided by the foregoing clause (i) 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 indemnifying party or parties on the one hand and the indemnified party or parties on the other in connection with the statements or omissions that resulted in such losses, claims, damages or liabilities (or actions in respect thereof) as well as any other relevant equitable considerations. The relative fault of the parties 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 such indemnifying party, on the one hand, or such indemnified party, on the other, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The amount paid by an indemnified party as a result of the losses, claims, damages or liabilities referred to in the first sentence of this subsection (d) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any action or claim which is the subject of this subsection (d). Notwithstanding any other provision of this Section 5(d), the Holders of 18 the Securities shall not be required to contribute any amount in excess of the amount by which the net proceeds received by such Holders from the sale of the Securities pursuant to a Registration Statement exceeds the amount of damages which such Holders have 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 Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this paragraph (d), each person, if any, who controls such Holder Indemnified Party within the meaning of the Securities Act or the Exchange Act shall have the same rights to contribution as such Holder Indemnified Party and each person, if any, who controls the Company within the meaning of the Securities Act or the Exchange Act shall have the same rights to contribution as the Company. (e) The agreements contained in this Section 5 shall survive the sale of the Securities pursuant to a Registration Statement and shall remain in full force and effect, regardless of any termination or cancellation of this Agreement or any investigation made by or on behalf of any indemnified party. 6. Additional Interest Under Certain Circumstances. (a) Additional interest (the "Additional Interest") with respect to the Initial Securities and the Private Exchange Securities shall be assessed as follows if any of the following events occur (each such event in clauses (i) through (iii) below a "Registration Default" if: (i) by June 19, 1999 (or if such day is not a business day the first business day thereafter), neither the Exchange Offer Registration Statement nor a Shelf Registration Statement has been filed with the Commission; (ii) by November 16, 1999 (or if such day is not a business day the first business day thereafter), neither the Registered Exchange Offer is consummated nor, if required in lieu thereof, the Shelf Registration Statement is declared effective by the Commission; or (iii) after either the Exchange Offer Registration Statement or the Shelf Registration Statement is declared effective (A) such Registration Statement thereafter ceases to be effective or (B) such Registration Statement or the related prospectus ceases to be usable except or permitted in paragraph (b) of this Section 6 in connection with resales of Transfer Restricted Securities during the periods specified 19 herein because either (1) any event occurs as a result of which the related prospectus forming part of such Registration Statement would include any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein in the light of the circumstances under which they were made not misleading, or (2) it shall be necessary to amend such Registration Statement or supplement the related prospectus, to comply with the Securities Act or the Exchange Act or the respective rules thereunder. Additional Interest shall accrue on the Initial Securities and the Private Exchange Securities over and above the interest set forth in the title of the Securities from and including the date on which any such Registration Default shall occur to but excluding the date on which all such Registration Defaults have been cured, at a rate of 0.50% per annum (the "Additional Interest Rate") until all Registration Defaults have been cured; provided, however, that: (i) no Holder of Securities who is not entitled to the benefits of a Shelf Registration Statement shall be entitled to receive additional interest by reason of a Registration Default that pertains to a Shelf Registration Statement; and (ii) no Holder of Securities constituting an unsold allotment from the original sale of the Initial Securities or any other Holder of Securities who is entitled to the benefits of a Shelf Registration Statement shall be entitled to receive additional interest by reason of a Registration Default that pertains to a Registered Exchange Offer. (b) A Registration Default referred to in Section 6(a)(iii) hereof shall be deemed not to have occurred and be continuing in relation to a Shelf Registration Statement or the related prospectus if (i) such Registration Default has occurred solely as a result of (x) the Company's failure to amend or supplement a Registration Statement during the period referred to and pursuant to the terms and conditions of the last sentence of Section 3(j), (y) the filing of a post-effective amendment to such Shelf Registration Statement to incorporate annual audited financial information with respect to the Company where such post-effective amendment is not yet effective and needs to be declared effective to permit Holders to use the related prospectus or (z) other material events, with respect to the Company that would need to be described in such Shelf Registration Statement or the related prospectus and (ii) in the case of clause (z), the 20 Company is proceeding promptly and in good faith to amend or supplement such Shelf Registration Statement and related prospectus to describe such events; provided, however, that in any case if such Registration Default occurs for a continuous period in excess of 30 days, Additional Interest shall be payable in accordance with the above paragraph from the day such Registration Default occurs until such Registration Default is cured. (c) Any amounts of Additional Interest due pursuant to clause (i), (ii) or (iii) of Section 6(a) above will be payable in cash on the regular interest payment dates with respect to the Securities. The amount of Additional Interest will be determined by multiplying the applicable Additional Interest rate by the principal amount of the applicable Initial Securities or Private Exchange Securities, as the case may be, multiplied by a fraction, the numerator of which is the number of days such Additional Interest rate was applicable during such period (determined on the basis of a 360-day year comprised of twelve 30-day months), and the denominator of which is 360. (d) "Transfer Restricted Securities" means each Security until (i) the date on which such Security has been exchanged by a person other than a broker-dealer for a freely transferable Exchange Security in the Registered Exchange Offer, (ii) following the exchange by a broker-dealer in the Registered Exchange Offer of an Initial Security for an Exchange Security, the date on which such Exchange Security 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 Security 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 Security is distributed to the public pursuant to Rule 144 under the Securities Act or is saleable pursuant to Rule 144(k) or other substantially similar resale exemption promulgated in the future under the Securities Act. 7. Rules 144 and 144A. The Company shall use its best efforts to file the reports required to be filed by it under the Securities Act and the Exchange Act in a timely manner and, if at any time the Company is not required to file such reports, it will, upon the request of any Holder of Securities, make publicly available other information so long as necessary to permit sales of their securities pursuant to Rules 144 and 144A. The Company covenants that it will take such further action as any Holder of Securities may reasonably request in writing, all to the extent required from time to time to enable such Holder to sell Securities without registration under the Securities Act within the 21 limitation of the exemptions provided by Rules 144 and 144A (including the requirements of Rule 144A(d)(4)). The Company will provide a copy of this Agreement to prospective purchasers of Initial Securities identified to the Company in writing by the Initial Purchasers upon request. Upon the request in writing of any Holder of Initial Securities, the Company shall deliver to such Holder a written statement as to whether it has complied with such requirements. Notwithstanding the foregoing, nothing in this Section 7 shall be deemed to require the Company to register any of its securities pursuant to the Exchange Act. 8. Underwritten Registrations. If any of the Transfer Restricted Securities covered by any Shelf Registration are to be sold in an underwritten offering, the investment banker or investment bankers and manager or managers that will administer the offering ("Managing Underwriters") will be selected by the Holders of a majority in aggregate principal amount of such Transfer Restricted Securities to be included in such offering; provided, however, the -------- ------- Company shall have the right to approve such Managing Underwriters which approval shall not be unreasonably withheld. The Issuers shall pay the fees and expenses of such investment bankers and managers only to the extent specifically provided in Section 4. In no event shall the Issuers be responsible for paying any underwriting discounts or commissions in connection with such underwritten offering. No person may participate in any underwritten registration hereunder unless such person (i) agrees to sell such person's Transfer Restricted Securities on the basis reasonably provided in any underwriting arrangements approved by the persons entitled hereunder to approve such arrangements and (ii) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements. 9. Miscellaneous. (a) Amendments and Waivers. The provisions of this Agreement may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, unless the Company has obtained the written consent of the Holders of a majority in principal amount of the Securities affected by such amendment, modification, supplement, waiver or consents. 22 (b) Notices. All notices and other communications provided for or permitted hereunder shall be made in writing by hand delivery, first-class mail, facsimile transmission, or air courier which guarantees overnight delivery: (1) if to a Holder of the Securities, at the most current address given by such Holder to the Company. (2) if to the Initial Purchasers; Credit Suisse First Boston Corporation Eleven Madison Avenue New York, NY 10010-3629 Fax No.: (212) 325-8278 Attention: Transactions Advisory Group with a copy to: Skadden, Arps, Slate, Meagher & Flom LLP 919 Third Avenue New York, NY 10022 Fax No.: (212) 735-2000 Attention: Mark C. Smith, Esq. (3) if to the Company, at its address as follows: The Fairchild Corporation 45025 Aviation Drive, Suite 400 Dulles, Virginia 20166 Fax No.: (703) 478-5775 Attention: Donald E. Miller, Esq. with a copy to: Cahill Gordon & Reindel 80 Pine Street New York, NY 10005 Fax No.: (212) 269-5420 Attention: James J. Clark, Esq. 23 All such notices and communications shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; three business days after being deposited in the mail, postage prepaid, if mailed; when receipt is acknowledged by recipient's facsimile machine operator, if sent by facsimile transmission; and on the day delivered, if sent by overnight air courier guaranteeing next day delivery. (c) No Inconsistent Agreements. The Company has not, as of the date hereof, entered into, nor shall it, on or after the date hereof, enter into, any agreement with respect to its securities that is inconsistent with the rights granted to the Holders herein or otherwise conflicts with the provisions hereof. (d) Successors and Assigns. This Agreement shall be binding upon the Company and its successors and assigns. (e) 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. (f) Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. (g) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS. (h) Severability. If 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. (i) Securities Held by the Company. Whenever the consent or approval of Holders of a specified percentage of principal amount of Securities is required hereunder, Securities held by the Company or its affiliates (other than subsequent Holders of Securities if such subsequent Holders are deemed to be affiliates solely by reason of their holdings of such Securities) shall not be counted in determining whether such consent or approval was given by the Holders of such required percentage. 24 If the foregoing is in accordance with your understanding of our agreement, please sign and return to the Company a counterpart hereof, whereupon this instrument, along with all counterparts, will become a binding agreement among the several Initial Purchasers, the Issuer and the Guarantors in accordance with its terms. Very truly yours, THE FAIRCHILD CORPORATION By: /s/ Donald E. Miller ------------------------------------ Name: Title: A10 INC. By: /s/ Donald E. Miller ------------------------------------ Name: Title: CAMLOC HOLDINGS INC. By: /s/ Donald E. Miller ------------------------------------ Name: Title: FAIRCHILD DATA CORPORATION By: /s/ Donald E. Miller ------------------------------------ Name: Title: FAIRCHILD FASTENERS CORP. By: /s/ Donald E. Miller ------------------------------------ Name: Title: FAIRCHILD FRANCE, INC. By: /s/ Donald E. Miller ------------------------------------ Name: Title: FAIRCHILD HOLDING CORP. By: /s/ Donald E. Miller ------------------------------------ Name: Title: FAIRCHILD RETIREE MEDICAL SERVICES, INC. By: /s/ Donald E. Miller ------------------------------------ Name: Title: MAIROLL, INC. By: /s/ Donald E. Miller ------------------------------------ Name: Title: MEOW, INC. By: /s/ Donald E. Miller ------------------------------------ Name: Title: QUACK, QUACK, INC. By: /s/ Donald E. Miller ------------------------------------ Name: Title: RECYCLING INVESTMENTS, INC. By: /s/ Donald E. Miller ------------------------------------ Name:: Title: RECYCLING INVESTMENTS II, INC. By: /s/ Donald E. Miller ------------------------------------ Name: Title: RHI HOLDINGS, INC. By: /s/ Donald E. Miller ------------------------------------ Name: Title: SIMMONDS MECAERO FASTENERS, INC. By: /s/ Donald E. Miller ------------------------------------ Name: Title: SPECIAL-T FASTENERS, INC. By: /s/ Donald E. Miller ------------------------------------ Name: Title: SUCHOMIMOUS TERENSIS, INC. By: /s/ Donald E. Miller ------------------------------------ Name: Title: VSI HOLDINGS, INC. By: /s/ Donald E. Miller ------------------------------------ Name: Title: BANNER AEROSPACE, INC. By: /s/ Donald E. Miller ------------------------------------ Name:: Title: BANNER AEROSPACE SERVICES, INC. By: /s/ Eugene W. Juris ------------------------------------ Name: Title: BANNER AEROSPACE-SINGAPORE, INC. By: /s/ Eugene W. Juris ------------------------------------ Name: Title: BAR DE, INC. By: /s/ Eugene W. Juris ------------------------------------ Name: Title: D A C INTERNATIONAL, INC. By: /s/ Eugene W. Juris ------------------------------------ Name: Title: DALLAS AEROSPACE, INC. By: /s/ Eugene W. Juris ------------------------------------ Name: Title: GEORGETOWN JET CENTER, INC. By: /s/ Eugene W. Juris ------------------------------------ Name: Title: MATRIX AVIATION, INC. By: /s/ Eugene W. Juris ------------------------------------ Name: Title: NASAM INCORPORATED By: /s/ Eugene W. Juris ------------------------------------ Name: Title: PB HERNDON AEROSPACE, INC. By: /s/ Eugene W. Juris ------------------------------------ Name: Title: PROFESSIONAL AIRCRAFT ACCESSORIES, INC. By: /s/ Eugene W. Juris ------------------------------------ Name: Title: PROFESSIONAL AVIATION ASSOCIATES, INC. By: /s/ Eugene W. Juris ----------------------------------- Name: Title: SCHEDULE A GUARANTORS ---------- A10 Inc. Camloc Holdings Inc. Fairchild Data Corporation Fairchild Fasteners Corp. Fairchild France, Inc. Fairchild Holding Corp. Fairchild Retiree Medical Services, Inc. Kaynar Technologies Inc. Mairoll, Inc. Meow, Inc. Quack Quack, Inc. Recycling Investments, Inc. Recycling Investments II, Inc. RHI Holdings, Inc. Simmonds Mecaero Fasteners, Inc. Special-T Fasteners, Inc. (f/k/a Bow Wow, Inc.) Suchonimous Terensis, Inc. (f/k/a Oink Oink, Inc.) VSI Holdings, Inc. Banner Aerospace, Inc. Banner Aerospace Services, Inc. Banner Aerospace-Singapore, Inc. BAR DE, Inc. D A C International, Inc. Dallas Aerospace, Inc. Georgetown Jet Center, Inc. Matrix Aviation, Inc. Nasam Incorporated PB Herndon Aerospace, Inc. Professional Aircraft Accessories, Inc. Professional Aviation Associates, Inc. M&M Machine & Tool Co. Marcliff Corporation Marson Creative Fastener, Inc. Recoil Australia Holdings, Inc. Recoil Holdings, Inc. Recoil Inc. 32 ANNEX A Each broker-dealer that receives Exchange Securities for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Securities. 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 Exchange Securities received in exchange for Initial Securities where such Initial Securities were acquired by such broker- dealer as a result of market-making activities or other trading activities. The Company has agreed that, for a period of 180 days after the Expiration Date (as defined herein) (or such shorter period during which such broker-dealers are required by law to deliver this Prospectus), it will make this Prospectus available to any broker-dealer for use in connection with any such resale. See "Plan of Distribution." 33 ANNEX B Each broker-dealer that receives Exchange Securities for its own account in exchange for Initial Securities, where such Initial Securities were acquired by such broker-dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Securities. See "Plan of Distribution." 34 ANNEX C PLAN OF DISTRIBUTION Each broker-dealer that receives Exchange Securities for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Securities. 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 Exchange Securities received in exchange for Initial Securities where such Initial Securities were acquired as a result of market-making activities or other trading activities. The Company has agreed that, for a period of 180 days after the Expiration Date (or such shorter period during which such broker-dealers are required by law to deliver 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 , 199 , all dealers effecting transactions in the Exchange Securities may be required to deliver a prospectus./1/ The Company will not receive any proceeds from any sale of Exchange Securities by broker-dealers. Exchange Securities 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 Exchange Securities 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 or the purchasers of any such Exchange Securities. Any broker-dealer that resells Exchange Securities that were received by it for its own account pursuant to the Exchange Offer and any broker or dealer that participates in a distribution of such Exchange Securities may be deemed to be an "underwriter" within the meaning of the Securities Act and any profit on any such resale of Exchange Securities and any commission or concessions received by any such persons may be deemed to be underwriting compensation under the Securities Act. The - --------------- /1/ In addition, the legend required by item 502(e) of Regulation S-K will appear on the back cover page of the Exchange Offer prospectus. 35 Letter of Transmittal states that, by acknowledging that it will deliver 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. For a period of 180 days after the Expiration Date (or such shorter period during which such broker-dealers are required by law to deliver this Prospectus) the Company will promptly send 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 has agreed to pay all expenses incident to the Exchange Offer (including the expenses of one counsel for the Holders of the Securities) other than commissions or concessions of any brokers or dealers and will indemnify the Holders of the Securities (including any broker-dealers) against certain liabilities, including liabilities under the Securities Act. 36 ANNEX D [ ] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO. Name: Address: If the undersigned is not a broker-dealer, the undersigned represents that it is not engaged in, and does not intend to engage in, a distribution of Exchange Securities. If the undersigned is a broker-dealer that will receive Exchange Securities for its own account in exchange for Initial Securities that were acquired as a result of market-making activities or other trading activities, it acknowledges that it will deliver a prospectus in connection with any resale of such Exchange Securities; however, by so acknowledging and by delivering a prospectus, the undersigned will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. 37 SUPPLEMENTAL SIGNATURE PAGE By execution and delivery of this supplemental signature page, each of the undersigned direct and indirect subsidiaries of The Fairchild Corporation, a Delaware corporation (the "Company") agrees (i) to be bound (as a Guarantor (as defined in the Agreement)) by the terms and conditions of the Registration Rights Agreement, dated as of April 15, 1999, among the Company, the subsidiary guarantors party thereto and Credit Suisse First Boston Corporation and Donaldson, Lufkin & Jenrette Securities Corporation, Salomon Smith Barney Inc., NationsBanc Montgomery Securities LLC, and Warburg Dillon Read LLC (the "Agreement") and (ii) for purposes of the Agreement, to be deemed a "Guarantor" as such term is defined in and for all purposes of the Agreement. IN WITNESS WHEREOF, each of the undersigned has executed this Agreement as of April 20, 1999. KAYNAR TECHNOLOGIES INC. By: /s/ Donald E. Miller ---------------------------------- Name: Title: M&M MACHINE & TOOL CO. By: /s/ Donald E. Miller ---------------------------------- Name: Title: MARCLIFF CORPORATION By: /s/ Donald E. Miller ------------------------------ Name: Title: MARSON CREATIVE FASTENER, INC. 2 By: /s/ Donald E. Miller -------------------------------- Name: Title: RECOIL AUSTRALIA HOLDINGS, INC. By: /s/ Donald E. Miller -------------------------------- Name: Title: RECOIL HOLDINGS, INC. By: /s/ Donald E. Miller --------------------------------- Name: Title: RECOIL INC. By: /s/ Donald E. Miller -------------------------------- Name: Title: 3 EX-4.6 4 PURCHASE AGREEMENT Exhibit 4.6 $225,000,000 The Fairchild Corporation 10 3/4% Senior Subordinated Notes Due 2009 PURCHASE AGREEMENT ------------------ April 15, 1999 CREDIT SUISSE FIRST BOSTON CORPORATION DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION SALOMON SMITH BARNEY INC. NATIONSBANC MONTGOMERY SECURITIES LLC WARBURG DILLON READ LLC c/o Credit Suisse First Boston Corporation, Eleven Madison Avenue, New York, New York 10010-3629 Ladies and Gentlemen: 1. Introductory. The Fairchild Corporation, a Delaware corporation (the "Company"), proposes, subject to the terms and conditions stated herein, to issue and sell to the several initial purchasers named in Schedule A hereto (the "Purchasers") U.S. $225,000,000 principal amount of its 10 3/4% Senior Subordinated Notes Due 2009 (the "Notes") to be issued under an indenture dated as of April 20, 1999 (the "Indenture") among the Company, the guarantors named therein and The Bank of New York, as Trustee (the "Trustee"), which Notes will be unconditionally guaranteed by the subsidiaries of the Company set forth on Schedule B hereto (the "Guarantors," and together with the Company, the "Issuers"). For purposes of this agreement, the term "Offered Securities" means the Notes, together with the guarantees (the "Guarantees") thereof by the Guarantors. The United States Securities Act of 1933 is herein referred to as the "Securities Act." Pursuant to the Agreement and Plan of Reorganization dated as of December 26, 1998 (the "Acquisition Agreement"), by and among the Company, Dah Dah, Inc., a wholly owned subsidiary of the Company and Kaynar Technologies, Inc., a Delaware corporation ("KTI"), among other things, (i) Dah Dah, Inc. will merge with and into KTI and (ii) KTI will become a wholly owned subsidiary of the Company (the "Acquisition"). The net proceeds of the offering of the Offered Securities will be used, together with available cash and borrowing a portion of the amounts available under a new credit facility providing for up to $225.0 million of term loan facilities and up to $100.0 million of revolving credit facilities (the "New Credit Facility") with the agents and lenders named therein, (i) to finance the Acquisition, (ii) to repay all amounts outstanding under the existing credit facilities of the Company and Banner Aerospace, Inc., a subsidiary of the Company (the "Existing Credit Facilities") and (iii) to repay substantially all indebtedness of KTI ("KTI Indebtedness"). This Agreement, the Indenture, the Offered Securities, the Registration Rights Agreement, to be dated the date hereof, among the Company, the Guarantors and the Purchasers (the "Registration Rights Agreement"), the Acquisition Agreement, the New Credit Facility and the agreements creating security interests in the assets of the Company for the benefit of the holders of indebtedness arising under the New Credit Facility (together with the New Credit Facility, the "Bank Agreement") are referred to in this Agreement, collectively, as the "Transaction Documents," and the Acquisition, the execution and delivery of the Bank Agreements, the repayment and termination of the Existing Credit Facilities and the repayment of the KTI Indebtedness are referred to herein collectively, as the "Transactions." The Company hereby agrees with the several Purchasers as follows: 2. Representations and Warranties of the Company. Any reference in this Section 2 to the "Issuers" and the "material subsidiaries" shall not include KTI and its subsidiaries. The Company represents and warrants to, and agrees with, the several Purchasers that: (a) A preliminary offering circular dated March 19, 1999 (the "Preliminary Offering Circular") and an offering circular dated April 15, 1999, as amended or supplemented thereafter (including material incorporated by reference therein) (the "Final Offering Circular") relating to the Offered Securities to be offered by the Purchasers has been prepared by the Company. The Preliminary Offering Circular and the Final Offering Circular as both are supplemented as of the date of this Agreement, together with any other documents expressly incorporated by reference herein are hereinafter collectively referred to as the "Offering Document." 2 (b) (i) Each document, if any, filed or to be filed with the Securities and Exchange Commission (the "Commission") pursuant to the Securities Exchange Act of 1934 (the "Exchange Act") and incorporated by reference in the Offering Document (collectively, the "Exchange Act Reports") complied on the date of this Agreement or will comply when so filed in all material respects with the Exchange Act and (ii) each of the Exchange Act Reports and the Offering Document does not contain on the date of this Agreement and, as amended, if applicable, will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading, except that the representations and warranties set forth in clause (ii) of this paragraph do not apply to statements or omissions in the Offering Document based upon information relating to any Purchaser furnished to the Company in writing by such Purchaser through you expressly for use therein, it being understood and agreed that the only such information is that described in Section 7(b) hereof. (c) Each of the Issuers and each of the Company's material subsidiaries set forth on Annex I hereto (the "material subsidiaries") which are not Guarantors has been duly incorporated, is validly existing as a corporation in good standing under the laws of its jurisdiction of incorporation and has the corporate power and authority to carry on its business as described in the Offering Document and to own, lease and operate its properties, and each is duly qualified and is in good standing as a foreign corporation authorized to do business in each jurisdiction in which the nature of its business or its ownership or leasing of property requires such qualification, except where the failure to be so qualified would not have a material adverse effect on the condition (financial or other), business, prospects or results of operations of the Company and its subsidiaries, taken as a whole ("Material Adverse Effect"). (d) All of the outstanding shares of capital stock of each of the Company's subsidiaries have been duly authorized and validly issued and are fully paid and non-assessable; and all of the outstanding shares of capital stock of each of the Company's subsidiaries are owned by the Company (except for (i) 23% of SHEP SA, an (ii) approximately 69% of Nacanco Paketleme), directly or indirectly through one or more subsidiaries, free and clear of any security interest, claim, lien, encumbrance or adverse interest of any nature, except for (i) the liens and security interests granted under the Bank Agreement and the Second Amended and Restated Credit Agreement, dated as of November 25, 1997, between Banner Aerospace, Inc. ("Banner") and the Lenders named therein, (ii) certain repurchase rights of Jacques Moskovic with respect to the shares of Fairchild CDI S.A., (iii) certain shares of common stock of Banner held in escrow to secure a contingent liability on the sale of shares of Rexnord Corporation, and (iv) 11,315 shares of common stock of Simmons, S.A. held as security for payment of a loan from a French bank for 6,250,00FF. 3 (e) The Indenture has been duly authorized by the Issuers; the Offered Securities have been duly authorized by the Issuers; and when the Offered Securities are delivered and paid for pursuant to this Agreement on the Closing Date (as defined below), the Indenture will have been duly executed and delivered by each of the Issuers, such Offered Securities will have been duly executed, authenticated, issued and delivered by each of the Issuers and will conform to the description thereof contained in the Offering Document and the Indenture and such Offered Securities (assuming due authorization, execution and delivery of the Indenture and the Offered Securities by the Trustee) will constitute valid and legally binding obligations of each of the Issuers, enforceable in accordance with their terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles. (f) None of the Issuers nor any of the Company's material subsidiaries which are not Guarantors is (i) in violation of its respective charter or by- laws or (ii) in default in the performance of any obligation, agreement, covenant or condition contained in any indenture, loan agreement, mortgage, lease or other agreement or instrument that is material to the Company and its subsidiaries, taken as a whole, to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries or their respective property is bound except for such defaults in clause (ii) which, singly or in the aggregate, would not have a Material Adverse Effect. (g) The execution, delivery and performance of this Agreement by the Company and the compliance by the Company with all the provisions hereof, the execution, delivery and performance of the other Transaction Documents by the Issuers party thereto and the compliance by the relevant Issuers with all the provisions thereof, the consummation of the transactions contemplated hereby and thereby, and the issuance and sale of the Offered Securities will not (i) require any consent, approval, authorization or other order of, or qualification with, any court or governmental body or agency (except for (x) with respect to the Acquisition, the filing of a Certificate of Merger with the Secretary of State of the State of Delaware, (y) the order of the Commission declaring the Exchange Offer Registration Statement or the Shelf Registration Statement (each as defined in the Registration Rights Agreement and (z) such as have previously been obtained) effective and except such as may be required under the securities or Blue Sky laws of the various states), (ii) conflict with or constitute a breach of any of the terms or provisions of, or a default under (a) the charter or by-laws of the Company or any of its subsidiaries, or (b) any indenture, loan agreement, mortgage, lease or other agreement or instrument that is material to the Company and its subsidiaries, taken as a whole, to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries or their respective property is bound, (iii) violate or conflict with any applicable law or any rule, regulation, judgment, order or decree of any court or any governmental body or agency having jurisdiction over the Company, any 4 of its subsidiaries or their respective property or (iv) result in the suspension, termination or revocation of any Authorization (as defined below) of the Company or any of its subsidiaries or any other impairment of the rights of the holder of any such Authorization except for such actions in clauses (i), (ii)(b), (iii) or (iv) above which singly or in the aggregate, would not have a Material Adverse Effect. (h) There are no legal or governmental proceedings pending or threatened to which Company or any of its subsidiaries is or could be a party or to which any of their respective property is or could be subject that would have been required to be described in the Offering Document if it was a prospectus contained in a registration statement on Form S-1 filed under the Securities Act and are not so described, or any statutes, regulations, contracts or other documents that would have been required to be described in the Offering Document if it was a prospectus contained in a registration statement on Form S-1 filed under the Securities Act that are not so described. (i) Neither the Company nor any of its subsidiaries has violated any foreign, federal, state or local law or regulation relating to the protection of human health and safety, the environment or hazardous or toxic substances or wastes, pollutants or contaminants ("Environmental Laws") or any provisions of the Employee Retirement Income Security Act of 1974, as amended, or the rules and regulations promulgated thereunder, except for such violations which, singly or in the aggregate, would not have a Material Adverse Effect. (j) The Company and its subsidiaries has such permits, licenses, consents, exemptions, franchises, authorizations and other approvals (each, an "Authorization") of, and has made all filings with and notices to, all governmental or regulatory authorities and self-regulatory organizations and all courts and other tribunals, including, without limitation, under any applicable Environmental Laws, as are necessary to own, lease, license and operate its respective properties and to conduct its business, except where the failure to have any such Authorization or to make any such filing or notice would not, singly or in the aggregate, have a Material Adverse Effect. Each such Authorization is valid and in full force and effect and each of the Company and its subsidiaries is in compliance with all the terms and conditions thereof and with the rules and regulations of the authorities and governing bodies having jurisdiction with respect thereto, except where such failure to be valid and in full force and effect or to be in compliance would not, singly or in the aggregate, have a Material Adverse Effect; and no event has occurred (including, without limitation, the receipt of any notice from any authority or governing body) which allows or, after notice or lapse of time or both, would allow, revocation, suspension or termination of any such Authorization or results or, after notice or lapse of time or both, would result in any other impairment of the rights of the holder of any such Authorization, except where such revocation, suspension or termination would not, singly or in the aggregate, have a Material Adverse Effect; 5 and such Authorizations contain no restrictions that are burdensome to the Company or any of its subsidiaries, except where such restriction would not, singly or in the aggregate, have a Material Adverse Effect. (k) Except as disclosed in the Offering Document, there are no costs or liabilities associated with Environmental Laws (including, without limitation, any capital or operating expenditures required for clean-up, closure of properties or compliance with Environmental Laws or any Authorization, any related constraints on operating activities and any potential liabilities to third parties) which would, singly or in the aggregate, have a Material Adverse Effect. (l) This Agreement has been duly authorized, executed and delivered by the Company and the Registration Rights Agreement has been duly authorized, executed and delivered by the Issuers. Each of the other Transaction Documents has been duly authorized by the Issuers party thereto and will conform in all material respects to the description thereof in the Offering Document. When duly executed and delivered by the Purchasers, each of the Transaction Documents (other than this Agreement) (assuming due authorization, execution and delivery by the other parties thereto) will constitute the valid and legally binding obligation of the relevant Issuers, enforceable in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles and, with respect to the Registration Rights Agreement, except to the extent that the enforceability of indemnification and contribution provisions may be limited by Federal and state securities laws or the public policies underlying such laws. (m) Each of the Issuers has full power and authority to issue and sell the Offered Securities as contemplated by this Agreement. (n) Arthur Andersen LLP are independent public accountants with respect to the Company and its subsidiaries and, to the best knowledge of the Company, with respect to KTI and its subsidiaries as required by Rule 101 of the American Institute of Certified Public Accountants' Code of Professional Conduct and its interpretations and rulings. (o) The consolidated financial statements included in the Offering Document (and any amendment or supplement thereto), together with related schedules and notes, present fairly the consolidated financial position, results of operations and changes in financial position of (i) the Company and its subsidiaries and (ii) to the best of the Company's knowledge, KTI and its subsidiaries, on the basis stated therein at the respective dates or for the respective periods to which they apply; such statements and related schedules and notes have been prepared in accordance with generally accepted accounting principles consistently applied throughout the periods involved, except as disclosed therein; the supporting schedules, if any, included in the Offering Document present fairly in accordance with generally accepted 6 accounting principles the information required to be stated therein; and the other financial and statistical information and data set forth in the Offering Document (and any amendment or supplement thereto) are, in all material respects, accurately presented and prepared on a basis consistent with such financial statements and the books and records of the Company or, to the best of the Company's knowledge, KTI, as the case may be. (p) None of the Issuers is nor, after giving effect to the offering and sale of the Offered Securities, the application of the proceeds thereof as described in the Offering Document and the consummation of the Transactions, will be, an "investment company" as such term is defined in the Investment Company Act of 1940, as amended. (q) Since the respective dates as of which information is given in the Offering Document other than as set forth in the Offering Document (exclusive of any amendments or supplements thereto subsequent to the date of this Agreement), (i) there has not occurred any material adverse change or any development involving a prospective material adverse change in the condition, financial or other, or the earnings, business, properties, management or results of operations of the Company and its subsidiaries, taken as a whole, (ii) there has not been any material adverse change or any development involving a prospective material adverse change in the capital stock or in the long-term debt of the Company or any of its subsidiaries and (iii) neither the Company nor any of its subsidiaries has incurred any material liability or obligation, direct or contingent. (r) Each certificate signed by any officer of the Company and delivered to the Purchasers or counsel for the Purchasers shall be deemed to be a representation and warranty by the Company to the Purchasers as to the matters covered thereby. (s) The Company and its subsidiaries have good and marketable title in fee simple to all real property and good and marketable title to all personal property owned by them which is material to the business of the Company and its subsidiaries, in each case free and clear of all liens, encumbrances and defects except such as are described in the Offering Document or in Section 1(d) hereof or such as do not materially affect the value of such property and do not interfere with the use made and proposed to be made of such property by the Company and its subsidiaries; and any 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, in each case except as described in the Offering Document. 7 (t) There is no (i) significant unfair labor practice complaint, grievance or arbitration proceeding pending or threatened against the Company or any of its subsidiaries before the National Labor Relations Board or any state or local labor relations board, (ii) strike, labor dispute, slowdown or stoppage pending or threatened against the Company or any of its subsidiaries or (iii) union representation question existing with respect to the employees of the Company and its subsidiaries, except for such actions specified in clause (i), (ii) or (iii) above, which, singly or in the aggregate, would not have a Material Adverse Effect. (u) The pro forma financial statements of the Company and its subsidiaries and the related notes thereto set forth in the Offering Document (and any amendment or supplement thereto) have been prepared on a basis consistent with the historical financial statements of the Company and its subsidiaries, give effect to the assumptions used in the preparation thereof on a reasonable basis and in good faith and present fairly the historical and proposed transactions contemplated by the Offering Document. Except as disclosed in the Offering Document with respect to the Fairchild/KTI merger savings which do not comply with regulations published by the Commission, such pro forma financial statements have been prepared in accordance with the applicable requirements of Rule 11-02 of Regulation S-X promulgated by the Commission. The other pro forma financial and statistical information and data set forth in the Offering Document (and any amendment or supplement thereto) are, in all material respects, accurately presented and prepared on a basis consistent with the pro forma financial statements. (v) The Company and each of its subsidiaries maintains a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management's general or specific authorizations; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain asset accountability; (iii) access to assets is permitted only in accordance with management's general or specific authorization; and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. (w) No securities of the same class (within the meaning of Rule 144A(d)(3) under the Securities Act) as the Offered Securities are listed on any national securities exchange registered under Section 6 of the Exchange Act or quoted in a U.S. automated inter-dealer quotation system. (x) Assuming the representations of the Purchasers set forth in Section 4 hereof are true and correct in all 8 material respects and that the Purchasers comply in all material respects with the offer and sale procedures set forth herein, the offer and sale of the Offered Securities in the manner contemplated by this Agreement will be exempt from the registration requirements of the Securities Act by reason of Section 4(2) thereof and Regulation S ("Regulation S") thereunder; and it is not necessary to qualify an indenture in respect of the Offered Securities under the United States Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"). (y) Neither the Company, nor any of its affiliates, nor any person acting on its or their behalf (i) has, within the six-month period prior to the date hereof, offered or sold in the United States or to any U.S. person (as such terms are defined in Regulation S) the Offered Securities or any security of the same class or series as the Offered Securities or (ii) has offered or will offer or sell the Offered Securities (A) in the United States by means of any form of general solicitation or general advertising within the meaning of Rule 502(c) under the Securities Act or (B) with respect to any such securities sold in reliance on Rule 903 of Regulation S, by means of any directed selling efforts within the meaning of Rule 902(c) of Regulation S. The Company, its affiliates and any person acting on its or their behalf have complied and will comply with the offering restrictions requirement of Regulation S. Each of the Issuers has not entered and will not enter into any contractual arrangement with respect to the distribution of the Offered Securities except for this Agreement. (z) Except as disclosed in the Offering Document, there are no contracts, agreements or understandings between the Company and any person that would give rise to a valid claim against any Purchaser for a brokerage commission, finder's fee or other like payment in connection with the Transactions or the transactions contemplated by this Agreement. (aa) To the best of the Company's knowledge, the representations and warranties of KTI set forth in the Acquisition Agreement were true and correct as of the date thereof and are true and correct as of the date hereof. 3. Purchase, Sale and Delivery of Offered Securities. On the basis of the representations, warranties and agreements herein contained, but subject to the terms and conditions herein set forth, the Company agrees to sell to the Purchasers, and the Purchasers agree, severally and not jointly, to purchase from the Company, at a purchase price of 97.25% of the principal amount thereof plus accrued interest from April 20, 1999 to the Closing Date (as hereinafter defined), the respective principal amounts of the Offered Securities set forth opposite the names of the several Purchasers in Schedule A hereto. The Company will deliver against payment of the purchase price the Offered Securities in the form of one or more permanent global securities in definitive form (the 9 "Global Securities") deposited with the Trustee as custodian for The Depository Trust Company ("DTC") and registered in the name of Cede & Co., as nominee for DTC. Interests in any permanent global securities will be held only in book-entry form through DTC, except in the limited circumstances described in the Offering Document. Payment for the Offered Securities shall be made by the Purchasers in Federal (same day) funds by wire transfer to an account at a bank designated by the Company and acceptable to CSFBC or by official check or checks drawn to the order of the Company at such place as CSFBC shall designate at 9:00 a.m. (New York time), on April 20, 1999, or at such other time not later than seven full business days thereafter as CSFBC and the Company determine, such time being herein referred to as the "Closing Date," against delivery to the Trustee as custodian for DTC of the Global Securities representing all of the Offered Securities. The Global Securities will be made available for checking at such place as CSFBC shall designate at least 24 hours prior to the Closing Date. 4. Representations by Purchasers; Resale by Purchasers. (a) Each Purchaser severally represents and warrants to the Company that it is an "accredited investor" within the meaning of Regulation D under the Securities Act. (b) Each Purchaser severally acknowledges that the Offered Securities have not been registered under the Securities Act and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons except in accordance with Regulation S or pursuant to an exemption from the registration requirements of the Securities Act. Each Purchaser severally represents and agrees that it has offered and sold the Offered Securities, and will offer and sell the Offered Securities only in accordance with Rule 903 or Rule 144A under the Securities Act ("Rule 144A"). Accordingly, neither such Purchaser nor its affiliates, nor any persons acting on its or their behalf, have engaged or will engage in any directed selling efforts with respect to the Offered Securities, and such Purchaser, its affiliates and all persons acting on its or their behalf have complied and will comply with the offering restrictions requirement of Regulation S and Rule 144A. Terms used in this subsection (b) have the meanings given to them by Regulation S. (c) Each Purchaser severally agrees that it and each of its affiliates has not entered and will not enter into any contractual arrangement with respect to the distribution of the Offered Securities except for any such arrangements with the other Purchasers or affiliates of the other Purchasers or with the prior written consent of the Company. (d) Each Purchaser severally agrees that it and each or its affiliates will not offer or sell the Offered Securities in the United States by means of any form of general solicitation or general advertising within the meaning of Rule 502(c) under the 10 Securities Act, including, but not limited to (i) any advertisement, article, notice or other communication published in any newspaper, magazine or similar media or broadcast over television or radio, or (ii) any seminar or meeting whose attendees have been invited by any general solicitation or general advertising. Each Purchaser severally agrees, with respect to resales made in reliance on Rule 144A of any of the Offered Securities, to deliver either with the confirmation of such resale or otherwise prior to settlement of such resale a notice to the effect that the resale of such Offered Securities has been made in reliance upon the exemption from the registration requirements of the Securities Act provided by Rule 144A. (e) Each of the Purchasers severally represents and agrees that (i) it has not offered or sold and prior to the date six months after the date of issue of the Offered Securities will not offer or sell any Offered Securities to persons in the United Kingdom except to persons whose ordinary activities involve them in acquiring, holding, managing or disposing of investments (as principal or agent) for the purposes of their businesses or otherwise in circumstances which have not resulted and will not result in an offer to the public in the United Kingdom within the meaning of the Public Offers of Securities Regulations 1995; (ii) it has complied and will comply with all applicable provisions of the Financial Services Act 1986 with respect to anything done by it in relation to the Offered Securities in, from or otherwise involving the United Kingdom; and (iii) it has only issued or passed on and will only issue or pass on in the United Kingdom any document received by it in connection with the issue of the Offered Securities to a person who is of a kind described in Article 11(3) of the Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order 1996 or is a person to whom such document may otherwise lawfully be issued or passed on. 5. Certain Agreements of the Company. The Company agrees with the several Purchasers that: (a) The Company will advise CSFBC promptly of any proposal to amend or supplement the Offering Document and will not effect such amendment or supplementation unless such amendment or supplement has been delivered to CSFBC within a reasonable period of time prior to its expected use and the Company has made all reasonable changes requested by CSFBC with respect to such amendment or supplement. If, at any time prior to the completion of the resale of the Offered Securities by the Purchasers, any event occurs as a result of which the Offering Document as then amended or supplemented would include an untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, or if it is necessary at any such time to amend or supplement the Offering Document to comply with any applicable law, the Company promptly will notify CSFBC of such event and promptly will prepare, at its own expense, an amendment or supplement 11 which will correct such statement or omission or effect such compliance. Neither CSFBC's consent to, nor the Purchasers' delivery to offerees or investors of, any such amendment or supplement shall constitute a waiver of any of the conditions set forth in Section 6. (b) The Company will furnish to CSFBC copies of any Preliminary Offering Circular, the Offering Document and all amendments and supplements to such documents, in each case as soon as available and in such quantities as CSFBC reasonably requests. At any time when the Company is not subject to Section 13 or 15(d) of the Exchange Act, the Company will promptly furnish or cause to be furnished to CSFBC and, upon request, to each of the other Purchasers and, upon request of holders and prospective purchasers of the Offered Securities, to such holders and purchasers, copies of the information required to be delivered to holders and prospective purchasers of the Offered Securities pursuant to Rule 144A(d)(4) under the Securities Act (or any successor provision thereto) in order to permit compliance with Rule 144A in connection with resales by such holders of the Offered Securities. The Company will pay the expenses of printing and distributing to the Purchasers all such documents. (c) The Company will arrange for the qualification of the Offered Securities for sale and the determination of their eligibility for investment under the laws of such jurisdictions in the United States and Canada as CSFBC designates and will continue such qualifications in effect so long as required for the resale of the Offered Securities by the Purchasers, provided that the Company will not be required to qualify as a foreign corporation or to file a general consent to service of process in any such state. (d) During the period of two years hereafter or for such shorter period as the Offered Securities are outstanding, the Company will furnish to CSFBC and, upon request, to each of the other Purchasers, as soon as practicable after the end of each fiscal year, a copy of its annual report to stockholders for such year; and the Company will furnish to CSFBC and, upon request, to each of the other Purchasers (i) as soon as available, a copy of each report and any definitive proxy statement of the Company filed with the Commission under the Exchange Act or mailed to stockholders, and (ii) from time to time, such other information concerning the Company as CSFBC may reasonably request. (e) During the period of two years after the Closing Date, the Company will, upon request, furnish to CSFBC, each of the other Purchasers and any holder of Offered Securities a copy of the restrictions on transfer applicable to the Offered Securities. (f) During the period of two years after Closing Date, the Company will not, and will not permit any of its affiliates (as defined in Rule 144 under the Securities Act) to, resell any of the Offered Securities that have been reacquired by any of them. 12 (g) During the period of two years after the Closing Date, the Company will not and will cause the Guarantors not to be or become, an open-end investment company, unit investment trust or face-amount certificate company that is, or is required to be, registered under Section 8 of the Investment Company Act. (h) The Company will pay all expenses incidental to the performance of its obligations under this Agreement, the Indenture, and the Registration Rights Agreement, including (i) the fees and expenses of the Trustee and its professional advisers; (ii) all expenses in connection with the execution, issue, authentication, packaging and initial delivery of the Offered Securities and, as applicable, the Exchange Securities (as defined in the Registration Rights Agreement), the preparation and printing of this Agreement, the Registration Rights Agreement, the Offered Securities, the Indenture, the Offering Document and any amendments and supplements thereto, and any other document relating to the issuance, offer, sale and delivery of the Offered Securities and as applicable, the Exchange Securities; (iii) the cost of qualifying the Offered Securities for trading in The Portal/SM/ Market ("PORTAL") and any expenses incidental thereto; (iv) the cost of any advertising approved by the Company in connection with the issue of the Offered Securities; (v) any expenses (including fees and disbursements of counsel) incurred in connection with qualification of the Offered Securities or the Exchange Securities for sale under the laws of such jurisdictions in the United States and Canada as CSFBC designates and the printing of memoranda relating thereto; (vi) any fees charged by investment rating agencies for the rating of the Securities or the Exchange Securities; and (vii) expenses incurred in distributing Preliminary Offering Circulars and the Offering Document (including any amendments and supplements thereto) to the Purchasers. Each of the Company and the Purchasers will pay their respective travel expenses and any other expenses incurred by them in connection with attending or hosting meetings with prospective purchasers of the Offered Securities from the Purchasers. (i) In connection with the offering of the Offered Securities, until CSFBC shall have notified the Company and the other Purchasers of the completion of the resale of the Offered Securities, neither the Company nor any of its affiliates has or will, either alone or with one or more other persons, bid for or purchase for any account in which it or any of its affiliates has a beneficial interest any Offered Securities or attempt to induce any person to purchase any Offered Securities; and neither it nor any of its affiliates will make bids or purchases for the purpose of creating actual, or apparent, active trading in, or of raising the price of, the Offered Securities. (j) From the date hereof through the Closing Date, except as contemplated in the Offering Document, the Company will not and will cause the Guarantors not to offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, any 13 United States dollar denominated debt securities issued or guaranteed by the Issuers and having a maturity of more than one year from the date of issue, or publicly disclose the intention to make any such offer, sale, pledge or disposition, without the prior written consent of CSFBC. The Company will not and will cause the Guarantors not to at any time offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, any securities under circumstances where such offer, sale, pledge, contract or disposition would cause the exemption afforded by Section 4(2) of the Securities Act or the safe harbor of Regulation S thereunder to cease to be applicable to the offer and sale of the Offered Securities. (k) To use its best efforts to cause the Offered Securities to be designated PORTAL securities in accordance with the rules and regulations of The Nasdaq Stock Market, Inc. (l) To use its best efforts to do and perform all things required or necessary to be done and performed under this Agreement by the Company prior to the Closing Date, as the case may be, and to satisfy all conditions precedent to the delivery of the Offered Securities. 6. Conditions of the Obligations of the Purchasers. The obligations of the several Purchasers to purchase and pay for the Offered Securities on the Closing Date will be subject to the accuracy of the representations and warranties of the Company on the part of the Issuers herein, to the accuracy of the statements of officers of the Company made pursuant to the provisions hereof, to the performance by the Company of its obligations hereunder and to the following additional conditions precedent: (a) The Purchasers shall have received a letter (with respect to the Company and its subsidiaries), dated the date of this Agreement, of Arthur Andersen LLP confirming that they are independent certified public accountants within the meaning of the American Institute of Certified Public Accountants' Code of Professional Conduct, and its interpretations and rulings (the "AICPA Code") and substantially to the effect that: (i) in their opinion the financial statements of the Company and its subsidiaries examined by them and included in the Offering Document and in the Exchange Act Reports comply as to form in all material respects with the applicable accounting requirements of the Securities Act and the applicable published rules and regulations thereunder ("Rules and Regulations"); (ii) they have performed the procedures specified by the American Institute of Certified Public Accountants for a review of 14 interim financial information as described in Statement of Auditing Standards No. 71, Interim Financial Information, on the unaudited financial statements of the Company and its subsidiaries included in the Offering Document and in the Exchange Act Reports; (iii) on the basis of the review referred to in clause (ii) above, a reading of the latest available interim financial statements of the Company, inquiries of officials of the Company who have responsibility for financial and accounting matters and other specified procedures, nothing came to their attention that caused them to believe that: (A) the unaudited financial statements included in the Offering Document or in the Exchange Act Reports do not comply as to form in all material respects with the applicable accounting requirements of the Securities Act and the related published Rules and Regulations or any material modifications should be made to such unaudited financial statements for them to be in conformity with generally accepted accounting principles; (B) at the date of the latest available balance sheet read by such accountants, or at a subsequent specified date not more than three business days prior to the date of this Agreement, there was any change in the capital stock or any increase in long-term debt of the Company and its consolidated subsidiaries or, at the date of the latest available balance sheet read by such accountants, there was any decrease in consolidated total assets or shareholders' equity, as compared with amounts shown on the latest balance sheet included in the Offering Document; or (C) for the period from the closing date of the latest statement of operations included in the Offering Document to the closing date of the latest available statement of operations read by such accountants there were any decreases, as compared with the corresponding period of the previous year and with the period of corresponding length ended the date of the latest statement of operations included in the Offering Document, in consolidated: net sales or net income; except in all cases set forth in clauses 6(a)(iii)(B) and (C) for changes, increases or decreases which the Offering Document and Exchange Act Reports disclose have occurred or may occur or which are described in such letter; and 15 (iv) they have performed the procedures specified therein on the pro forma financial statements included in the Offering Document; (v) on the basis of the review referred to in clause (iv) above, nothing came to their attention that caused them to believe that the pro forma financial statements included in the Offering Document do not comply as to form in all material respects with the applicable accounting requirements of the Securities Act and the related published Rules and Regulations or that the pro forma adjustments have not been properly applied to the historical amounts in the compilation of those statements; and (vi) they have compared specified dollar amounts (or percentages derived from such dollar amounts) and other financial information contained in the Offering Document (in each case to the extent that such dollar amounts, percentages and other financial information are derived from the general accounting records of the Company and its subsidiaries subject to the internal controls of the Company's accounting system or are derived directly from such records by analysis or computation) with the results obtained from inquiries, a reading of such general accounting records and other procedures specified in such letter and have found such dollar amounts, percentages and other financial information to be in agreement with such results, except as otherwise specified in such letter. (b) The Purchasers shall have received a letter (with respect to KTI), dated the date of this Agreement, of Arthur Andersen LLP confirming that they are certified independent public accountants within the meaning of Rule 101 of the AICPA Code and substantially to the effect that: (i) in their opinion the financial statements of KTI and its subsidiaries examined by them and included in the Offering Document comply as to form in all material respects with the applicable accounting requirements of the Securities Act and the related published Rules and Regulations; (ii) on the basis of a reading of the latest available interim financial statements of KTI and its subsidiaries, inquiries of officials of KTI and its subsidiaries who have responsibility for financial and accounting matters and other specified procedures, nothing came to their attention that caused them to believe that: 16 (A) at the date of the latest available balance sheet read by such accountants, or at a subsequent specified date not more than three business days prior to the date of this Agreement, there was any change in the capital stock or any increase in long-term debt of KTI and its consolidated subsidiaries or, at the date of the latest available balance sheet read by such accountants, there was any decrease in consolidated total assets or stockholders' equity, as compared with amounts shown on the latest balance sheet included in the Offering Document; or (B) for the period from the closing date of the latest statement of operations included in the Offering Document to the closing date of the latest available statement of operations read by such accountants there were any decreases, as compared with the corresponding period of the previous year and with the period of corresponding length ended the date of the latest statement of operations included in the Offering Document, in consolidated: net sales or net income; except in all cases set forth in clauses 6(b)(iii)(A) and (B) for changes, increases or decreases which the Offering Document disclose have occurred or may occur or which are described in such letter; and (iii) they have compared specified dollar amounts (or percentages derived from such dollar amounts) and other financial information contained in the Offering Document (in each case to the extent that such dollar amounts, percentages and other financial information are derived from the general accounting records of the KTI and its subsidiaries subject to the internal controls of KTI's accounting system or are derived directly from such records by analysis or computation) with the results obtained from inquiries, a reading of such general accounting records and other procedures specified in such letter and have found such dollar amounts, percentages and other financial information to be in agreement with such results, except as otherwise specified in such letter. (c) Subsequent to the execution and delivery of this Agreement, there shall not have occurred (i) a change in U.S. or international financial, political or economic conditions or currency exchange rates or exchange controls as would, in the judgment of CSFBC, be likely to prejudice materially the success of the proposed issue, sale or distribution of the Offered Securities, whether in the primary market or in respect of dealings in the secondary market, or (ii) (A) any change, or any development or event 17 involving a prospective change, in the condition (financial or other), business, properties or results of operations of the Company and its subsidiaries, taken as one enterprise, which, in the judgment of a majority in interest of the Purchasers including CSFBC, is material and adverse and makes it impractical or inadvisable to proceed with completion of the offering or the sale of and payment for the Offered Securities; (B) any downgrading in the rating of any debt securities of the Company by any "nationally recognized statistical rating organization" (as defined for purposes of Rule 436(g) under the Securities Act), or any public announcement that any such organization has under surveillance or review its rating of any debt securities of the Company (other than an announcement with positive implications of a possible upgrading, and no implication of a possible downgrading, of such rating); (C) any material suspension or material limitation of trading in securities generally on the New York Stock Exchange, or any setting of minimum prices for trading on such exchange, or any suspension of trading of any securities of the Company on any exchange or in the over-the-counter market; (D) any banking moratorium declared by U.S. Federal or New York authorities; or (E) any outbreak or escalation of major hostilities in which the United States is involved, any declaration of war by Congress or any other substantial national or international calamity or emergency if, in the judgment of a majority in interest of the Purchasers including CSFBC, the effect of any such outbreak, escalation, declaration, calamity or emergency makes it impractical or inadvisable to proceed with completion of the offering or sale of and payment for the Offered Securities. (d) The Purchasers shall have received an opinion, dated the Closing Date, of Cahill Gordon & Reindel (a partnership including a professional corporation), counsel for the Company, that: (i) each of the Issuers has been duly incorporated, is validly existing as a corporation in good standing under the laws of its jurisdiction of incorporation and has the corporate power and authority to carry on its business as described in the Offering Document and to own, lease and operate its properties; (ii) the Offered Securities have been duly authorized, executed, authenticated, issued and delivered by the Issuers incorporated under the laws of Delaware and conform to the description thereof contained in the Offering Document and assuming due authorization, execution and delivery by the Issuers that are not incorporated under the laws of Delaware the Indenture and such Offered Securities constitute valid and legally binding obligations of the Issuers, enforceable in accordance with their terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of 18 general applicability relating to or affecting creditors' rights and to general equity principles; (iii) the Purchase Agreement has been duly authorized, executed and delivered by the Company; each of the other Transaction Documents has been duly authorized, executed and delivered by the Issuers that are incorporated under the laws of the State of Delaware party thereto and conforms in all material respects to the description thereof in the Offering Document and; each of the Transaction Documents (other than the Purchase Agreement), assuming due authorization, execution and delivery by the Issuers that are not incorporated under the laws of Delaware, constitute the valid and legally binding obligation of the relevant Issuers, enforceable in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles, and, with respect to the Registration Rights Agreement, except to the extent that the enforceability of indemnification and contribution provisions may be limited by Federal and state securities laws or the public policies underlying such laws; (iv) each of the Issuers that are incorporated under the laws of the State of Delaware has full power and authority to issue and sell the Offered Securities as contemplated by this Agreement; (v) the statements under the captions "Description of New Credit Facility, ""Description of the Notes," "Material Federal Tax Considerations," and "Plan of Distribution", insofar as such statements constitute a summary of the legal matters, documents or proceedings referred to therein, are accurate in all material respects; (vi) none of the Issuers is nor, after giving effect to the offering and sale of the Offered Securities, the application of the proceeds thereof as described in the Offering Document and the consummation of the Transactions, will be, an "investment company" as such term is defined in the Investment Company Act of 1940, as amended; (vii) the execution, delivery and performance of the Purchase Agreement by the Company and the compliance by the Company with all the provisions thereof, the execution, delivery and performance of the other Transaction Documents by the Issuers party thereto and the compliance by the relevant Issuers with all the provisions thereof, the 19 consummation of the transactions contemplated thereby, and the issuance and sale of the Offered Securities will not (A) require any consent, approval, authorization or other order of, or qualification with, any court or governmental body or agency (except for (x) with respect to the Acquisition, the filing of a Certificate of Merger with the Secretary of State of the State of Delaware, (y) the order of the Commission declaring the Exchange Offer Registration Statement or the Shelf Registration Statement (each as defined in the Registration Rights Agreement) effective and except such as may be required under the securities or Blue Sky laws of the various states and (z) such as have previously been obtained), (B) conflict with or constitute a breach of any of the terms or provisions of, or a default under (x) the charter or by-laws of the Company or any of the Guarantors, or (y) any indenture, loan agreement, mortgage, lease or other agreement or instrument that is material to the Company and its material subsidiaries, taken as a whole, and is filed as an exhibit to the Company's Annual Report on Form 10-K for the year ended June 30, 1998 and any other reports filed with the Commission under the Exchange Act since the date of such Form 10-K (it being understood that such counsel is assuming compliance with the financial covenants contained in such documents), or (C) violate or conflict with any federal statute of the United States of America or any statutes of the state of New York or any laws, rules or regulations thereunder that are in our experience applicable to transactions of the type contemplated by the Transaction Documents or, to such counsel's knowledge, decree of any court or any governmental body or agency having jurisdiction over the Company, any of its domestic material subsidiaries or their respective property; and (viii) such counsel have participated in conferences with officers and other representatives of the Company, representatives of the Purchasers, representatives of the independent accountants for the Company, counsel for the Company, representatives of the Purchasers and counsel for the Purchasers at which the contents of the Final Offering Circular and related matters were discussed and, although such counsel is not passing upon and does not assume any responsibility for the accuracy, completeness or fairness of the statements contained or incorporated by reference in the Final Offering Circular (except to the extent stated in subsection (v) above) or the Exchange Act Reports, on the basis of the foregoing (relying as to materiality with respect to factual matters to a large extent upon the opinions of officers and other representatives of the Company), no facts have come to the attention of such counsel which would lead such counsel to believe that the Final 20 Offering Circular, as of its date or as of the date hereof, contained or contains any 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 (it being understood that such counsel has not been requested to and does not make any comment with respect to the financial statements and schedules and other financial and statistical data included or incorporated by reference in the Final Offering Circular); and (ix) assuming the representations of the Purchasers set forth in Section 4 hereof are true and correct in all material respects and that the Purchasers comply in all material respects with the offer and sale procedures set forth herein, it is not necessary in connection with (i) the offer, sale and delivery of the Offered Securities by the Company to the several Purchasers pursuant to this Agreement or (ii) the resales of the Offered Securities by the several Purchasers in the manner contemplated by this Agreement, to register the Offered Securities under the Securities Act or to qualify an indenture in respect thereof under the Trust Indenture Act. In giving such opinions with respect to the matters covered by Section 6(d)(x), Cahill Gordon & Reindel may state that their opinion and belief are based upon their participation in the preparation of the Offering Document and any amendments or supplements thereto and documents incorporated therein by reference and review and discussion of the contents thereof, but is without independent check or verification except as specified. (e) The Purchasers shall have received an opinion, dated the Closing Date, of Donald E. Miller, general counsel for the Company, that: (i) none of the Issuers nor any of the Company's material subsidiaries which are not Guarantors is in violation of its respective charter or by- laws; (ii) to the best of such counsel's knowledge after due inquiry, none of the Issuers nor any of the Company's material subsidiaries which are not Guarantors is in default in the performance of any obligation, agreement, covenant or condition contained in any indenture, loan agreement, mortgage, lease or other agreement or instrument that is material to the Issuers and the Company's material subsidiaries, taken as a whole, to which the Issuers or any of the Company's material subsidiaries is a party or by which the Issuers or any of the Company's 21 material subsidiaries or their respective property is bound except for such defaults as would not, singly or in the aggregate, have a Material Adverse Effect; (iii) after due inquiry, such counsel does not know of any legal or governmental proceedings pending or threatened to which the Company or any of its subsidiaries is or could be a party or to which any of their respective property is or could be subject that would have been required to be described in the Offering Document if it was a prospectus contained in a registration statement on Form S-1 filed under the Securities Act and are not so described, or of any statutes, regulations, contracts or other documents that would have been required to be described in the Offering Document if it was a prospectus contained in a registration statement on Form S-1 filed under the Securities Act that are not so described; (iv) each of the material subsidiaries of the Company has been duly incorporated, is validly existing as a corporation in good standing under the laws of its jurisdiction of incorporation and has the corporate power and authority to carry on its business as described in the Offering Document and to own, lease and operate its properties; and (v) all of the outstanding shares of capital stock of each of the Guarantors and the Company's material subsidiaries which are not Guarantors are owned by the Company (except for (i) 23% of SHEP SA, an (ii) approximately 69% of Nacanco Paketleme), directly or indirectly through one or more subsidiaries, and to the actual knowledge of such counsel are owned, free and clear of any security interest, claim, lien, encumbrance or adverse interest of any nature, except for (i) the liens and security interests granted under the Bank Agreement, (ii) certain repurchase rights of Jacques Moskovic all the respect to the shares of Fairchild CDI, S.A., (iii) certain shares of common stock of Banner held in escrow to secure a contingent liability on the sale of shares of Rexnord Corporation, and (iv) 11,315 shares of common stock of Simmons, S.A. held as security for payment of a loan from a French bank for 6,250,00FF. (f) The Purchasers shall have received from Skadden, Arps, Slate, Meagher & Flom LLP counsel for the Purchasers, such opinion or opinions, dated the Closing Date, with respect to the incorporation of the Company, the validity of the Offered Securities, the Offering Circular, the exemption from registration for the offer and sale of the Offered Securities by the Company to the several Purchasers and the resales by 22 the several Purchasers as contemplated hereby and other related matters as CSFBC may require, and the Company shall have furnished to such counsel such documents as they request for the purpose of enabling them to pass upon such matters. (g) The Purchasers shall have received a certificate, dated the Closing Date, of the President or any Vice President and a principal financial or accounting officer of the Company in which such officers, to the best of their knowledge after reasonable investigation, shall state that the representations and warranties of the Company relating to the Issuers in this Agreement are true and correct, that the Company has complied with all agreements and satisfied all conditions on its part to be performed or satisfied hereunder at or prior to the Closing Date, and that, subsequent to the date of the most recent financial statements in the Offering Document there has been no material adverse change, nor any development or event involving a prospective material adverse change, in the condition (financial or other), business, properties or results of operations of the Company and its subsidiaries taken as a whole except as set forth in or contemplated by the Offering Document or as described in such certificate. (h) The Purchasers shall have received letters, dated the Closing Date, of Arthur Andersen LLP which meet the requirements of subsections (a) and (b) of this Section, except that the specified date referred to in such subsection will be a date not more than three days prior to the Closing Date for the purposes of this subsection. (i) The Company, the Guarantors and the Trustee shall have entered into the Indenture and you shall have received counterparts, conformed as executed, thereof. (j) KTI shall have entered into the Registration Rights Agreement and you shall have received counterparts, conformed as executed, thereof. (k) The Offered Securities shall have been designated PORTAL securities in accordance with the rules and regulations of The Nasdaq Stock Market, Inc. (l) On or prior to the Closing Date, (i)(a) the Company shall have entered into the Bank Agreement and all conditions precedent to the effectiveness thereof shall have been satisfied or waived, (b) all conditions precedent to the Acquisition shall have been satisfied and the Acquisition shall have been, or shall concurrently be, consummated, and (c) the repayment and termination of the Existing Credit Facilities and the repayment of the KTI Indebtedness shall have been, or shall concurrently be, consummated; (ii) such transactions described in the foregoing clause (i) shall continue to be in full force and effect in accordance with the terms thereof; and (iii) the Company shall have provided to each of the Purchasers and counsel to the Purchasers copies of all Transaction Documents delivered to the parties relating to the Transactions (including but not limited to legal opinions relating thereto). 23 (m) The Purchasers shall have been furnished with a copy of the opinions delivered on behalf of the Company in connection with the Transactions, which opinions shall expressly state that the Purchasers are justified in relying upon the opinions therein. (n) The Company will furnish the Purchasers with such conformed copies of such opinions, certificates, letters and documents as the Purchasers reasonably request. CSFBC may in its sole discretion waive on behalf of the Purchasers compliance with any conditions to the obligations of the Purchasers hereunder. 7. Indemnification and Contribution. (a) The Company will indemnify and hold harmless each Purchaser, its directors and officers and each person, if any, who controls such Purchaser within the meaning of Section 15 of the Securities Act (each, a "Purchaser Indemnified Party"), against any losses, claims, damages or liabilities, joint or several, to which such Purchaser Indemnified Party may become subject, under the Securities Act or the Exchange Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the Offering Document, or any amendment or supplement thereto, or any related Preliminary Offering Circular, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, and will reimburse each Purchaser Indemnified Party for any legal or other expenses reasonably incurred by such Purchaser Indemnified Party in connection with investigating or defending any such loss, claim, damage, liability or action as such expenses are incurred; provided, however, that the Company will not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement in or omission or alleged omission from any of such documents in reliance upon and in conformity with written information furnished to the Company by any Purchaser through CSFBC specifically for use therein, it being understood and agreed that the only such information consists of the information described as such in subsection (b) below; provided, however, that the foregoing indemnity agreement with respect to any Preliminary Offering Circular shall not inure to the benefit of any Purchaser who failed to deliver an Offering Circular (as then amended or supplemented, provided by the Company to the several Purchasers in the requisite quantity and on a timely basis to permit proper delivery on or prior to the Closing Date) to the person asserting any losses, claims, damages or liabilities arising out of or based upon any untrue statement or alleged untrue statement of any material fact contained in any Preliminary Offering Circular, or arising out of or based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary in order to make the 24 statements therein, in the light of the circumstances under which they were made, not misleading, if such sale was an initial resale by such Purchaser and if such material misstatement or omission or alleged material misstatement or omission was cured in such Offering Circular. Any amounts advanced by the Company to a Purchaser Indemnified Party pursuant to this Section 7 as a result of any losses, claims, damages or liabilities (or actions in respect thereof) or expenses shall be immediately returned to the Company if it shall be finally determined by a court of competent jurisdiction in a judgment not subject to appeal or final review that such Purchaser Indemnified Party was not entitled to indemnification by the Company. (b) Each Purchaser will severally and not jointly indemnify and hold harmless the Company, its directors and officers and each person, if any, who controls the Company within the meaning of Section 15 of the Securities Act (each, a "Company Indemnified Party"), against any losses, claims, damages or liabilities to which the Company Indemnified Party may become subject, under the Securities Act or the Exchange Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the Offering Document, or any amendment or supplement thereto, or any related Preliminary Offering Circular, or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, in each case to the extent, but only to the extent, that such 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 such Purchaser through CSFBC specifically for use therein, and will reimburse any legal or other expenses reasonably incurred by the Company Indemnified Party in connection with investigating or defending any such loss, claim, damage, liability or action as such expenses are incurred, it being understood and agreed that the only such information furnished by any Purchaser consists of the following information in the Offering Document furnished on behalf of each Purchaser: under the caption "Plan of Distribution" paragraphs three, five, eight and the second sentence of paragraph seven. Any amounts advanced by the Purchasers to a Company Indemnified Party pursuant to this Section 7 as a result of any losses, claims, damages or liabilities (or actions in respect thereof) or expenses shall be immediately returned to the Purchasers if it shall be finally determined by a court of competent jurisdiction in a judgment not subject to appeal or final review that such Company Indemnified Party was not entitled to indemnification by the Purchasers. (c) Promptly after receipt by an indemnified party under this Section of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against the indemnifying party under subsection (a) or (b) above, notify the indemnifying party of the commencement thereof; but the omission 25 so to notify the indemnifying party will not relieve it from any liability which it may have to any indemnified party otherwise than under subsection (a) or (b) above. In case any such action is brought against any indemnified party and it notifies the indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate therein and, to the extent that it may wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel reasonably satisfactory to such indemnified party (who shall not, except with the consent of the indemnified party, be counsel to the indemnifying party), and after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party will not be liable to such indemnified party under this Section for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation. In no event shall the indemnifying parties be liable for fees and expenses of more than one counsel (in addition to any local counsel) separate from their own counsel for all indemnified parties in connection with any one action or separate but similar or related actions in the same jurisdiction arising out of the same allegations or circumstances. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened action in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party unless such settlement includes an unconditional release of such indemnified party from all liability on any claims that are the subject matter of such action and does not include a statement as to and an admission of fault, culpability or failure to act by or on behalf of any indemnified party. (d) If the indemnification provided for in this Section is unavailable or insufficient to hold harmless an indemnified party under subsection (a) or (b) above, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of the losses, claims, damages or liabilities referred to in subsection (a) or (b) above (i) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and the Purchasers on the other from the offering of the Offered Securities 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 Purchasers on the other in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and the Purchasers on the other shall be deemed to be in the same proportion as the total net proceeds from the offering (before deducting expenses) received by the Company bear to the total discounts and commissions received by the Purchasers from the Company under this Agreement. The relative fault 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 26 relates to information supplied by the Company or the Purchasers and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such untrue statement or omission. The amount paid by an indemnified party as a result of the losses, claims, damages or liabilities referred to in the first sentence of this subsection (d) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any action or claim which is the subject of this subsection (d). Notwithstanding the provisions of this subsection (d), no Purchaser shall be required to contribute any amount in excess of the amount by which the total price at which the Offered Securities purchased by it were resold exceeds the amount of any damages which such Purchaser has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. The Purchasers' obligations in this subsection (d) to contribute are several in proportion to their respective purchase obligations and not joint. (e) The obligations of the Company under this Section shall be in addition to any liability which the Company may otherwise have and shall extend, upon the same terms and conditions, to each person, if any, who controls any Purchaser within the meaning of the Securities Act or the Exchange Act; and the obligations of the Purchasers under this Section shall be in addition to any liability which the respective Purchasers may otherwise have and shall extend, upon the same terms and conditions, to each person, if any, who controls the Company within the meaning of the Securities Act or the Exchange Act. 8. Default of Purchasers. If any Purchaser or Purchasers default in their obligations to purchase Offered Securities hereunder and the principal amount of Offered Securities that such defaulting Purchaser or Purchasers agreed but failed to purchase does not exceed 10% of the total principal amount of Offered Securities, CSFBC may make arrangements satisfactory to the Company for the purchase of such Offered Securities by other persons, including any of the Purchasers, but if no such arrangements are made by the Closing Date, the non- defaulting Purchasers shall be obligated severally, in proportion to their respective commitments hereunder, to purchase the Offered Securities that such defaulting Purchasers agreed but failed to purchase. If any Purchaser or Purchasers so default and the principal amount of Offered Securities with respect to which such default or defaults occur exceeds 10% of the total principal amount of Offered Securities and arrangements satisfactory to CSFBC and the Company for the purchase of such Offered Securities by other persons are not made within 36 hours after such default, this Agreement will terminate without liability on the part of any non-defaulting Purchaser or the Company, except as provided in Section 9. As used in this Agreement, the term "Purchaser" includes any person substituted for a Purchaser under this Section. Nothing herein will relieve a defaulting Purchaser from liability for its default. 27 9. Survival of Certain Representations and Obligations. The respective indemnities, agreements, representations, warranties and other statements of the Company or its officers and of the several Purchasers set forth in or made pursuant to this Agreement will remain in full force and effect, regardless of any investigation, or statement as to the results thereof, made by or on behalf of any Purchaser, the Company or any of their respective representatives, officers or directors or any controlling person, and will survive delivery of and payment for the Offered Securities. If this Agreement is terminated pursuant to Section 8 or if for any reason the purchase of the Offered Securities by the Purchasers is not consummated, the Company shall remain responsible for the expenses to be paid or reimbursed by it pursuant to Section 5(h) and the respective obligations of the Company and the Purchasers pursuant to Section 7 shall remain in effect. If the purchase of the Offered Securities by the Purchasers is not consummated for any reason other than solely because of the termination of this Agreement pursuant to Section 8 or the occurrence of any event specified in clause (C), (D) or (E) of Section 6(c)(ii), the Company will reimburse the Purchasers for all out-of-pocket expenses (including fees and disbursements of counsel) reasonably incurred by them in connection with the offering of the Offered Securities. 10. Notices. All communications hereunder will be in writing and, if sent to the Purchasers will be mailed, delivered or telegraphed and confirmed to the Purchasers, c/o Credit Suisse First Boston Corporation, Eleven Madison Avenue, New York, N.Y. 10010-3629, Attention: Investment Banking Department - Transactions Advisory Group, or, if sent to the Issuers, will be mailed, delivered or telegraphed and confirmed to it at The Fairchild Corporation, 45025 Aviation Drive, Suite 400, Dulles, Virginia 20166, Attn: Donald E. Miller, Esq. with a copy to James J. Clark at Cahill Gordon & Reindel, 80 Pine Street, New York, New York 10005; provided, however, that any notice to a Purchaser pursuant to Section 7 will be mailed, delivered or telegraphed and confirmed to such Purchaser. 11. Successors. This Agreement will inure to the benefit of and be binding upon the parties hereto and their respective successors and the controlling persons referred to in Section 7, and no other person will have any right or obligation hereunder, except that holders of Offered Securities shall be entitled to enforce the agreements for their benefit contained in the second and third sentences of Section 5(b) hereof against the Company as if such holders were parties thereto. 12. Representation of Purchasers. You will act for the several Purchasers in connection with this purchase, and any action under this Agreement taken by you will be binding upon all the Purchasers. 28 13. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but all such counterparts shall together constitute one and the same Agreement. 14. Applicable Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York without regard to principles of conflicts of laws. The Company hereby submits to the non-exclusive jurisdiction of the Federal and state courts in the Borough of Manhattan in The City of New York in any suit or proceeding arising out of or relating to this Agreement or the transactions contemplated hereby. 29 If the foregoing is in accordance with the Purchasers' understanding of our agreement, kindly sign and return to us one of the counterparts hereof, whereupon it will become a binding agreement between the Company and the several Purchasers in accordance with its terms. Very truly yours, The Fairchild Corporation By /s/ Donald E. Miller ----------------------------- Executive Vice President The foregoing Purchase Agreement is hereby confirmed and accepted as of the date first above written. Credit Suisse First Boston Corporation Donaldson, Lufkin & Jenrette Securities Corporation Salomon Smith Barney Inc. NationsBanc Montgomery Securities LLC Warburg Dillon Read LLC Acting on behalf of themselves and as the Representatives of the several Purchasers By Credit Suisse First Boston Corporation By Rick Ivers ----------------------------- Managing Director SCHEDULE A Principal Amount of ------------------- Initial Purchaser Offered Securities - ----------------- ------------------ Credit Suisse First Boston Corporation $101,250,000 Donaldson, Lufkin & Jenrette Securities Corporation 56,250,000 Salomon Smith Barney Inc. 31,500,000 NationsBanc Montgomery Securities LLC 18,000,000 Warburg Dillon Read LLC 18,000,000 ============ Total ................................................. $225,000,000 ============ 32 SCHEDULE B Guarantors ---------- A10 Inc. Camloc Holdings Inc. Fairchild Data Corporation Fairchild Fasteners Corp. Fairchild France, Inc. Fairchild Holding Corp. Fairchild Retiree Medical Services, Inc. Kaynar Technologies Inc. Mairoll, Inc. Meow, Inc. Quack Quack, Inc. Recycling Investments, Inc. Recycling Investments II, Inc. RHI Holdings, Inc. Simmonds Mecaero Fasteners, Inc. Special-T Fasteners, Inc. (f/k/a Bow Wow, Inc.) Suchonimous Terensis, Inc. (f/k/a Oink Oink, Inc.) VSI Holdings, Inc. Banner Aerospace, Inc. Banner Aerospace Services, Inc. Banner Aerospace-Singapore, Inc. BAR DE, Inc. D A C International, Inc. Dallas Aerospace, Inc. Georgetown Jet Center, Inc. Matrix Aviation, Inc. Nasam Incorporated PB Herndon Aerospace, Inc. Professional Aircraft Accessories, Inc. Professional Aviation Associates, Inc. M&M Machine & Tool Co. Marcliff Corporation Marson Creative Fastener, Inc. Recoil Australia Holdings, Inc. Recoil Holdings, Inc. Recoil Inc. 33 ANNEX I Material Subsidiaries --------------------- Banner Aerospace, Inc. Banner Aerospace Holding Company I, Inc. RHI Holdings, Inc. Special-T Fasteners, Inc. Banner Aerospace Holding Company II, Inc. RHI Holdings, Inc. Banner Capital Ventures, Inc. Fairchild France, Inc. Northking Insurance Company Limited Gobble Gobble, Inc. Recycling Investments, Inc. Recycling Investments II, Inc. Eagle Environmental, L.P. Eagle Environmental II, L.P. Kaynar Technologies Inc. KTI Fenpari Kft M&M Machine & Tool Co. Recoil Australia Holdings, Inc. Recoil Marketing BVBA Recoil Inc. Kaynar Technologies Ltd. Marcliff Corporation Recoil Holdings, Inc. Recoil (Europe) Ltd. Marson Creative Fastener, Inc. Recoil Pte. Ltd. Recoil Pty Recoil Limited Fairchild Technologies Optical Disc Equipment Group GmbH Camloc Holdings Inc. Fairchild Fasteners Europe - Camloc GmbH Fairchild Fasteners Europe - VSD GmbH Fairchild AS+C oHG Aviation Supply + Consulting (GmbH & Co.) Aviation Full Service (Hong Kong) Limited Fairchild Holding Corp. Simmonds Macaero Fasteners, Inc. Teuza Management and Development (1991) Ltd. Suchonimous Terensis, Inc. 34 Banner Investments (U.K.) Limited VSI Holdings, Inc. Mairoll, Inc. Meow, Inc. Fairchild Germany, Inc. Fairchild Technologies USA, Inc. Fairchild Technologies Europe Limited Fairchild Technologies Korea Limited Fairchild Technologies Semiconductor Equipment Group GmbH Convac France SA Snails, Inc. Fairchild CDI SA MediaDisc SA Cutek Research, Inc. Fairchild Retiree Medical Services, Inc. V&V Redondo Beach Limited Partnership Hartz-Rex Associates Warthog, Inc. Camloc (U.K.) Limited Fairchild Fasteners Europe-Simmonds S.A.R.L. SHEP SA Simmonds S.A. Transfix S.A. Mecaero SNC Eurosim Componentes Mecanicos de Seguranca, Lda. Banner Aerospace Services, Inc. BAR DE, Inc. D A C International, Inc. GCCUS, Inc. Georgetown Jet Center Inc. Matrix Aviation, Inc. Nasam Incorporated Dallas Aerospace, Inc. Professional Aviation Associates, Inc. PB Herndon Aerospace, Inc. Professional Aircraft Accessories, Inc. 35 EX-12.1 5 STATEMENT REGARDING COMPUTATION OF RATIOS The Fairchild Corporation Exhibit 12.1-Fixed Charge Coverage Ratio Calculation (In Thousands)
Last Twelve Months Fiscal Years Ended June 30, Nine Months Ended Ended ---------------------------------------- ------------------------------ 1994 1995 1996 1997 1998 March 28, 1999 March 29, 1998 March 29,1998 ---------------------------------------- ------------------------------ ------------ Earnings Earnings (loss) from continuing operations before taxes 31,286 (76,116) (64,894) (5,003) 123,394 117,545 20,355 26,204 Fixed Charges 79,452 77,116 70,584 58,831 54,343 44,371 28,448 34,997 ------------------------------------------- --------------------------- ------------ Total 110,738 1,720 5,670 53,828 177,737 161,916 48,803 61,201 ------------------------------------------- --------------------------- ------------ Fixed Charges Interest expense 73,057 71,087 64,521 52,376 48,007 38,027 22,261 27,144 Amortization expense (goodwill) 4,396 4,620 3,979 4,814 5,469 4,179 4,002 5,292 Rental expense (interest portion) 2,000 2,229 2,064 1,641 2,867 2,165 2,165 2,561 ------------------------------------------- -------------------- ----------- Total 79,452 77,836 70,584 58,831 54,343 44,371 28,448 34,997 ------------------------------------------ --------------------- ----------- Ratio of Earnings to Fixed Charges 1.39 3.27 3.65 1.72 1.75 ------------------------------------------ --------------------- -----------
EX-23.1 6 CONSENT OF ARTHUR ANDERSEN LLP Exhibit 23.1 Consent of Independent Public Accountants As independent public accountants we hereby consent to the use of our report dated September 22, 1998 (except with respect to the matters discussed in Notes 23 and 24, as to which the date is June 8, 1999) included herein and related to the The Fairchild Corporation annual financial statements, and we hereby consent to the use of our report dated February 5, 1999 included herein and related to the Kaynar Technologies Inc. annual financial statements, and to all references to our Firm included in this Form S-4 registration statement to register $225,000,000 10 3/4% Senior Subordinated Notes due 2009. Arthur Andersen LLP Washington, D.C. June 8, 1999 EX-23.2 7 CONSENT OF ARTHUR ANDERSEN LLP Exhibit 23.2 Consent of Independent Public Accountants As independent public accountants we hereby consent to the incorporation by reference in this registration statement of our reports dated April 9, 1998 and February 7, 1997 related to the Edwards and Lock Management Corporation annual financial statements included in The Fairchild Corporation's Form 8-K, and to all references to our Firm included in this Form S-4 registration statement to register $225,000,000 10 3/4% Senior Subordinated Notes due 2009. Arthur Andersen LLP Washington, D.C. June 8, 1999 EX-23.3 8 CONSENT OF BASARAN SERBEST [LETTERHEAD OF BASARAN SERBEST MUHASEBECI MALI MUSAVIRILIK A.S.] Exhibit 23.3 To the Board of Directors of Nacanco Paketleme Sanayi ve Ticaret A.S. 8 June 1999 We hereby consent to the incorporation by reference in this Registration Statement on Form S-4 of the Fairchild Corporation of our report dated 12 March 1998 on the audit of the financial statements of Nacanco Paketleme Sanayi ve Ticaret A.S. appearing in The Fairchild Corporation Current Report on Form 8-K dated June 26, 1998 and as incorporated by reference in The Fairchild Corporation Annual Report on Form 10-K for the year ended June 30, 1998. Regards /s/Zeynep Uras, SMMM Zeynep Uras, SMMM Partner -----END PRIVACY-ENHANCED MESSAGE-----