-----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, ENUqKA+OkNtd0sXheZ7nxTK3TRukc29WR3/zkCSrK0lOevmY8juzOOKbRrbDP+RQ blyqalDVTmUntbcs5Nca8Q== 0000009779-97-000019.txt : 19970929 0000009779-97-000019.hdr.sgml : 19970929 ACCESSION NUMBER: 0000009779-97-000019 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970926 SROS: NYSE SROS: PSE 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: 0630 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-06560 FILM NUMBER: 97686340 BUSINESS ADDRESS: STREET 1: 300 W SERVICE RD STREET 2: PO BOX 10803 CITY: CHANTILLY STATE: VA ZIP: 22021 BUSINESS PHONE: 7034785800 FORMER COMPANY: FORMER CONFORMED NAME: BANNER INDUSTRIES INC /DE/ DATE OF NAME CHANGE: 19901118 10-K 1 SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 -------------------- FORM 10-K -------------------- ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the year ended June 30, 1997 Commission File Number: 1-6560 ------------- ------ THE FAIRCHILD CORPORATION ------------------------------------------------------ (Exact name of registrant as specified in its charter) Delaware 34-0728587 - ------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) Washington Dulles International Airport 300 West Service Road, P.O. Box 10803 Chantilly, Virginia 20153 - ---------------------------------------- ---------- (Address of principal executive offices) (Zip Code) (703) 478-5800 ---------------------------------------------------- (Registrant's Telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Name of exchange on Title of each class which registered - ------------------- ------------------- Class A Common Stock, par value $.10 per share New York and Pacific Stock Exchange - ------------------------------- ----------------------------------- 13 1/8% Subordinated Debentures due 2006 New York Stock Exchange - ------------------------------- ----------------------------------- 12% Intermediate Subordinated Debentures due 2001 New York Stock Exchange - ------------------------------- ----------------------------------- 13% Junior Subordinated Debentures due 2007 New York Stock Exchange - ------------------------------- ----------------------------------- Securities registered pursuant to Section 12(g) of the Act: None ---- Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ---- ---- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10- K or any amendment to this Form 10-K [ ]. As of September 11, 1997, the aggregate market value of the common shares (based upon the closing price of these shares on the New York Stock exchange) of the Registrant held by nonaffiliates was approximately $195.7 million (excluding shares deemed beneficially owned by affiliates of the Registrant under Commission Rules). As of September 11, 1997, the number of shares outstanding of each of the Registrant's classes of common stock were as follows: Class A common stock, $.10 par value 14,004,317 ------------ Class B common stock, $.10 par value 2,632,516 ------------ DOCUMENTS INCORPORATED BY REFERENCE: Portions of the registrant's definitive proxy statement for the 1997 Annual Meeting of Stockholders' to be held on November 20, 1997 (the "1997 Proxy Statement"), which the Registrant intends to file within 120 days after June 30, 1997, are incorporated by reference into Parts III and IV. THE FAIRCHILD CORPORATION INDEX TO ANNUAL REPORT ON FORM 10-K FOR FISCAL YEAR ENDED JUNE 30, 1997 PART I Page Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . 4 Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . 12 Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . 13 Item 4. Submission of Matters to a Vote of Stockholders . . . . . . . . . . . . . . . . 13 PART II Item 5. Market for the Company's Common Equity and Related Stockholder Matters . . . . . . . . . . . . . . . . . 14 Item 6. Selected Financial Data . . . . . . . . . . . . . . . 15 Item 7. Management's Discussion and Analysis of Results of Operations and Financial Condition . . . . . . . . . . . . . . . . . 16 Item 8. Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . 25 Item 9. Disagreements on Accounting and Financial Disclosure . . . . . . . . . . . . . . . 66 PART III Item 10. Directors and Executive Officers of the Company . . . . . . . . . . . . . . . . . . . . 66 Item 11. Executive Compensation . . . . . . . . . . . . . . . . 66 Item 12. Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . 66 Item 13. Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . 66 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K . . . . . . . . . . 67 PART I ------ ITEM 1. BUSINESS - ----------------- (a) General Development of Business The Fairchild Corporation (the "Company") was incorporated in October 1969, under the laws of the State of Delaware. The Company changed its name from Banner Industries, Inc. to The Fairchild Corporation on November 15, 1990. The Company is a holding company which owns all of the issued and outstanding stock of RHI Holdings, Inc. ("RHI"), and through RHI all of the issued and outstanding stock of Fairchild Holding Corporation ("FHC"). Through RHI, the Company is the majority stockholder of Banner Aerospace, Inc. ("Banner"). The Company's principal operations are primarily conducted in three distinct business units: Aerospace Fasteners, Aerospace Distribution, and Technology Products. The Aerospace Fasteners unit designs, manufactures and markets high performance, specialty fastening systems, primarily for aerospace applications. The Aerospace Distribution unit is a leading international distributor which provides a wide range of aircraft parts and related support services. The Technology Products unit designs, manufactures, and markets high performance production equipment and systems required for the manufacture of semiconductor chips, compact discs, and flat panel displays. For a comparison of the sales of each of the Company's business segments for each of the last three fiscal years, see Item 7, "Management's Discussion and Analysis of Results of Operations and Financial Condition", which is herein incorporated by reference. The Company also owns a significant equity interest in Shared Technologies Fairchild Inc. ("STFI"), which provides telecommunications services and systems domestically, and Nacanco Paketleme ("Nacanco"), which manufactures customized cans for the beverage industry in Turkey. Recent Developments - ------------------- Recent developments of the Company are incorporated herein by reference from "Recent Developments and Significant Business Combinations" included in Item 7 "Management's Discussion and Analysis of Results of Operations and Financial Condition". (b) Financial Information about Business Segments The Company's business segment information is incorporated herein by reference from Note 21 of the Company's consolidated financial statements included in Item 8, "Financial Statements and Supplementary Data". (c) Narrative Description of Business Segments Aerospace Fasteners - ------------------- The Company, through its Aerospace Fasteners segment, is a leading worldwide manufacturer and supplier of fastening systems used in the construction and maintenance of commercial and military aircraft. The Aerospace Fasteners segment accounted for 36.4% of total Company sales for the year ended June 30, 1997. Products -------- In general, aerospace fasteners produced by the Company are used to join materials in applications that are not of themselves critical to flight. 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. The Aerospace Fasteners segment also manufactures and supplies fastening systems used in non-aerospace industrial and electronic niche applications. The Aerospace Fasteners segment produces and sells products under various trade names and trademarks including Voi- Shan7 (fasteners for aerospace structures), Screwcorp7 (standard externally threaded products for aerospace applications), RAM7 (custom designed mechanisms for aerospace applications), Camloc7 (components for the industrial, electronic, automotive and aerospace markets), and Tridair7 and Rosan7 (fastening systems for highly-engineered aerospace, military and industrial applications). Principal product lines of the Aerospace Fasteners segment include: Standard Aerospace Airframe Fasteners - These fasteners consist of standard externally threaded fasteners used in non-critical airframe applications on a wide variety of aircraft. These fasteners include Hi- Torque Speed Drive7, Tri-Wing7, Torq-Set7, Phillips7 and Hex Heads7. 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-Lok7, Veri-Lite7, Eddie- Bolt72 and customer proprietary engine nuts. Proprietary Products and Fastening Systems - These very highly engineered, proprietary fasteners are designed by the Company for specific customer applications and include high performance structural latches and hold down mechanisms. These fasteners are usually proprietary in nature and are used primarily in either commercial aerospace or military applications. These fasteners include Visu-Lok7, Composi-Lok7, Keen-serts7, Mark IVJ, FlatbeamJ and RinglockJ. Highly Engineered Fastening Systems for Industrial Applications - These highly engineered fasteners are designed by the Company for specific niche applications in the electronic, automotive and durable goods markets and are sold under the Camloc7 trade name. Sales and Markets ----------------- The products of the Aerospace Fasteners segment are sold primarily to domestic and foreign original equipment manufacturers ("OEMs"), and to the maintenance and repair market through distributors. Sixty-six percent of its sales are domestic. Major customers include original equipment manufacturers ("OEMs") such as Boeing, McDonnell Douglas and Airbus, and their subcontractors, as well as major distributors such as Burbank Aircraft Supply, Special-T and Wesco. Recently, OEMs have significantly increased their production levels. In addition, OEMs have implemented programs to reduce inventories and pursue just-in-time relationships. This has allowed parts distributors to significantly expand their business due to their ability to better meet OEM objectives. In response, the Company, which formerly supplied the OEMs directly, is expanding efforts to provide parts through distributors, by establishing master distributorship agreements, with Special-T, Wesco and others. No single customer accounts for more than 10% of the Company's consolidated sales. Products are marketed by a direct sales force team, which coordinates efforts with an internal technical sales force team. The direct sales force team is organized by customer and region. The internal sales force is organized by facility and product range and is focused on servicing customers needs, identifying new product applications, and obtaining the approval of new products. All the Company's products are marketed through centralized advertising and promotional activities. Revenues in the Aerospace Fasteners segment bear a strong relationship to aircraft production. As OEMs searched for cost cutting opportunities during the aerospace industry recession, parts manufacturers, including the Company, accepted lower-priced and/or smaller orders to maintain market share, at lower profit margins. However, during the last two years, this situation has improved as build rates in the aerospace industry have increased and resulted in capacity constraints. As lead times have increased, the Company has been able to negotiate contracts with its major customers at more favorable pricing as well as larger minimum lot sizes that are more economic to manufacture. In addition, the Company has 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. Fasteners also have applications in the automotive/industrial markets, where numerous special fasteners are required (such as engine bolts, wheel bolts and turbo charger tension bolts). The Company is actively targeting the automotive market as a hedge against any potential downturn in the aerospace industry. Manufacturing and Production ---------------------------- The Aerospace Fasteners segment has seven primary manufacturing facilities, of which three are located in the United States and four are located in Europe. Each facility has virtually complete production capability, and subcontracts only those orders which exceed capacity. Each plant is designed to produce a specified product or group of products, determined by production process involved and certification requirements. The Company's largest customers have recognized its quality and operational controls by conferring D1-9000A status at all of its U.S. facilities, and D1- 9000 status at all of its European facilities. All of its facilities are "preferred suppliers" and have received all SPC and NADCAP approvals from OEMs. The Company is the first and only aerospace fastener manufacturing company with all facilities holding ISO-9000 approval. The Company has a fully operational modern information system at all of its U.S. facilities and will expand this information system to all its European operations in Fiscal 1998. The new system performs detailed and timely cost analysis of production by product and facility. Updated MIS systems also help the Company to better service its customers. OEMs require each product to be produced in a OEM-qualified/OEM-approved facility. Competition ----------- Despite intense competition in the industry, the Company remains the dominant manufacturer of aerospace fasteners. The worldwide aerospace fastener market is estimated to be $1.3 billion (before distributor resales). The Company holds approximately 20% of the market and competes with SPS Technologies, Hi-Shear, and Huck, which the company believes hold approximately 13%, 11% and 10% of the market, respectively. In Europe, its largest competitors are Blanc Aero and Southco Fasteners. The Company competes primarily in the highly-engineered "systems" segment where its broad product range allow it to more fully serve each OEM and distributor. The Company's product array is diverse and offers customers a large selection to address various production needs. In addition, roughly 45% of the Company's output is unique or is in a market where the Company has a small number of competitors. The Company seeks to maintain its technological edge and competitive advantage over its competitors, and has historically demonstrated its innovative production methods and new products to meet customer demands at fair price levels. Aerospace Distribution - ---------------------- The Company increased its ownership of Banner to a majority interest level in February 1996. The Company, through Banner (its Aerospace Distribution segment), distributes a wide variety of aircraft parts, which it carries in inventory. In addition to selling products that it has purchased on the open market, Banner also acts as a non-exclusive, authorized distributor of many different aerospace related product lines. No single distributor arrangement is material to the Company's financial condition. Through Banner, the Aerospace Distribution segment accounted for 55.8% of total Company sales in Fiscal 1997. Products -------- Banner believes it is the world's largest independent stocking distributor of aircraft hardware, including bearings, nuts, bolts, screws, rivets and other types of fasteners that are used on aircraft. Banner purchases its inventory of hardware principally from manufacturers. An extensive inventory of products and a quick response time are essential in providing service to its customers. Another key factor in selling to its customers is Banner's ability to maintain a system that provides traceable parts back to the manufacturer. Products of the Aerospace Distribution segment are divided into three groups: hardware, rotables and engines. Hardware includes bearings, nuts, bolts, screws, rivets and other types of fasteners. Rotables include flight data recorders, radar and navigation systems, instruments, landing gear 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. The Aerospace Distribution segment also provides products to OEMs in the aerospace industry under just-in-time and inventory management programs. Banner also buys and sells commercial aircraft from time to time. Hardware is purchased new from manufacturers, but may also be purchased from other distributors. Hardware is sold only in new condition. Rotable parts are sometimes purchased as new parts, but are generally purchased as used parts which are then overhauled for the Company by outside contractors, including the original manufacturers 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 instead of sold. An exchange occurs when an overhauled aircraft part in inventory is exchanged for a used 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 ----------------- Subsidiaries of the Aerospace Distributions segment sell their products in the United States and abroad to most of the world's commercial airlines and to air cargo carriers, as well as many OEMs, other distributors, fixed- base operators, corporate aircraft operators and other aerospace and non- aerospace companies. Approximately 70.7% of its sales are to domestic purchasers, some of whom may represent offshore users. The Aerospace Distributions segment markets its products and services through 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. The Aerospace Distribution segment's business does not experience significant seasonal fluctuations nor depend on a single customer. No single customer accounts for more than 10% of the Company's consolidated revenue. Competition ----------- The hardware product group competes with OEMs such as Boeing, which supports the fleet of Boeing-produced aircraft; fastener manufacturers, as well as independent distributors such as Wesco Aircraft Hardware Corp., M&M Aerospace Hardware, Tri-Star Aerospace, Inc. and many other large and small companies. Banner believes it generally has a price advantage over manufacturers in the smaller quantities that it usually deals, and can generally provide more expeditious service. In the rotable group, the major competitors are AAR Corp., Air Ground Equipment Services ("AGES"), Aviation Sales Company, The Memphis Group and other large and small companies in a very fragmented industry. The major competitors for Banner's engine group are OEMs such as General Electric Company and Pratt and Whitney, as well as the engine parts division of AAR Corp., AGES, and many smaller companies. Technology Products - ------------------- Acquired by the Company in June 1994, Fairchild Technologies ("FT") is a global organization that manufactures, markets and services capital equipment for recordable compact disc ("CD-R") and advanced semiconductor manufacturing. FT's products are used worldwide to produce CD-Rs, CDs and CD- ROMs, as well as integrated circuits for the data processing, communications, transportation, automotive and consumer electronic industries, as well as for the military. Products -------- FT is a leader in microlithography manufacturing in Europe and has four product lines, the first being equipment for wafer microlithography processing. This includes the mainstay Series 6000 Flexible Wafer Process Line, consisting of lithographic processing systems with flexible material flow, modular design and high throughput, and the recently designed Falcon Modular Microlithography System for 0.25 micron (65/256 Mbit DRAM) device manufacturing. The Falcon system has a fully modular design and is expandable to accommodate expected technological advancements and specific customer configurations. FT has combined new and proven technology and a number of leading edge components and systems in compact disc processing to recently develop its Compact Disc Recordable ("CD-R10X") manufacturing system. The CD-R10X system is a state of the art design for producing cost effective recordable CDs by combining a high quality injection molding machine with scanning, inspection, and pneumatic handling systems. A third line is modular process equipment for use by the fabricators of liquid crystal displays. FT supplies advanced modular solutions with high throughput, small footprint and minimum cost of ownership. FT is also a leading manufacturer of photolithography processing equipment for photomask and thinfilm products. FT specializes in providing system solutions, and in coating, developing, priming, etching, stripping, cleaning and thermal processing of wafers, substrates and related semiconductor products. Sales and Markets ----------------- With a strong base of controls/clean room technology and software/services engineering, FT is able to provide systems with multiple modular designs for a variety of customer applications. Today, more than 1,000 FT wafer production systems are in operation worldwide. Approximately 60% of the Company's Fiscal 1997 business was derived from wafer related products and services. The remaining 40% was divided between LCD and CD related systems, products, and services. Major customers in the wafer product line include Motorola, Samsung, Siemens, GEC Plessey, Texas Instruments, National Semiconductor, Macronix, and Erso. Other major customers include Philips and Litton for the LCD product line, Sonopress (Bertelsmann), and Krauss Maffei for the CD product line and Hyundai, NEC and Canon for the photomask product line. Approximately 76.3% of FT's sales were to foreign customers. Manufacturing and Production ---------------------------- FT has two manufacturing facilities consisting of Fairchild Technologies GmbH, located in Vaihingen, Germany and Fairchild Technologies USA, Inc. located in Fremont, California. Competition ----------- The wafer product line compete with Tokyo Electron, Dai Nippon Screen and the Silicon Valley Group. Competitors in the CD product line consist of Robi Systems, Leybold and Marubeni. Competition in the photomask product line is provided by Mitsubishi Toyo, Tasmo and Solid State Equipment. Communication Services - ---------------------- On March 13, 1996, the Company's Fairchild Communications Services Company ("FCSC") was merged with STI. As a result of the Merger, the Company is accounting for its investment in STFI using the equity method. Prior to March 13, 1996, the Company consolidated the results of FCSC. Other Operations - ---------------- Other operations consists primarily of two distinct companies operating under the trade names Fairchild Gas Springs Division ("Gas Springs") and Fairchild Scandinavian Bellyloading Company ("SBC"). A Fiscal 1995 start-up operation, Gas Springs manufactures gas load springs and other devices used in raising, lowering or moving of heavy loads. Its products have numerous consumer and industrial applications, including in fitness equipment, sunbeds, furniture, automotive, and agricultural and construction equipment. SBC produces a sliding carpet loading system for installation in the cargo area of commercial aircraft. SBC was recently sold (see Note 2 in Item 8, "Financial Statements and Supplementary Data"). Foreign Operations - ------------------ The Company's 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 U.S. subsidiaries and divisions to customers in non-U.S. countries, whereas foreign sales are made by the Company's non-U.S. subsidiaries. For the Company's sales results by geographic area and export sales, see Note 22 of the Company's consolidated financial statements included in Item 8, Financial Statements and Supplementary Data. Major Customers - --------------- No single customer accounted for more than 10% of consolidated sales in any of the Company's business segments for the year ended June 30, 1997. Backlog of Orders - ----------------- Backlog is significant to all the Company's operations, due to long-term production requirements of its customers. The Company's backlog of orders as of June 30, 1997 in the Aerospace Fasteners segment, Aerospace Distribution segment, and Fairchild Technologies amounted to $195.7 million, $90.9 million, and $63.1 million, respectively, with a "Book-to-Bill" ratio of 1.3, 1.1, and 1.8, respectively. The Company anticipates that approximately 94.8% of the aggregate backlog at June 30, 1997 will be delivered by June 30, 1998. Suppliers - --------- The Company does not consider itself to be materially dependent upon any one supplier, but is dependent upon a wide range of subcontractors, vendors and suppliers of materials to meet its commitments to its customers. Research and Patents - -------------------- The Company's research and development activities have included: applied research; development of new products; testing and evaluation of, and improvements to existing products; improvements in manufacturing techniques and processes; development of product innovations designed to meet government safety and environmental requirements; and development of technical services for manufacturing and marketing. The Company's sponsored research and development expenditures amounted to $7.8 million, $.1 million, and $1.0 million for the years ended June 30, 1997, 1996, and 1995, respectively. The Company owns patents relating to the design and manufacture of certain of its products and is a licensee of technology covered by the patents of other companies. The Company does not believe that any of its business segments are dependent upon any single patent. Personnel - --------- As of June 30, 1997, the Company had approximately 3,900 employees. Approximately 5% of these employees were covered by collective bargaining agreements. The Company believes that its relations with its employees are good. Environmental Matters - --------------------- A discussion of Environmental Matters is included in Note 20 to the Company's Consolidated Financial Statements, included in Item 8, "Financial Statements and Supplementary Data" and is herein incorporated by reference. ITEM 2. PROPERTIES - -------------------- As of June 30, 1997, the Company owned or leased properties totaling approximately 1,644,000 square feet, approximately 831,000 square feet of which was owned and 813,000 square feet was leased. The Aerospace Fasteners segment's properties consisted of approximately 632,000 square feet, with principal operating facilities of approximately 516,000 square feet concentrated in Southern California and Germany. The Aerospace Distribution segment's properties consisted of approximately 703,000 square feet, with principal operating facilities of approximately 473,000 square feet located in California, Florida, Missouri, Texas and Utah. Corporate and Other operating properties consisted of approximately 117,000 square feet, with principal operating facilities of approximately 82,000 square feet located in California and Germany. The Company owns its corporate headquarters at Washington-Dulles International Airport. The Company has several parcels of property which it is attempting to market, lease and/or develop, including: (i) a sixty-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. The following table sets forth the location of the larger properties used in the continuing operations of the Company, their square footage, the business segment or groups they serve and their primary use. Each of the properties owned or leased by the Company is, in management's opinion, generally well maintained, is suitable to support the Company's business and is adequate for the Company's present needs. All of the Company's occupied properties are maintained and updated on a regular basis.
Owned or Square Business Segment/ Primary Location Leased Footage Group Use - -------- -------- ------- ----------------- ------- Torrance, California Owned 284,000 Aerospace Fasteners Manufacturing Carrollton, Texas Leased 173,000 Aerospace Distribution Distribution Sun Valley, California Leased 143,000 Aerospace Distribution Distribution City of Industry, California Owned 140,000 Aerospace Fasteners Manufacturing Chantilly, Virginia Owned 125,000 Corporate Office West Valley City, Utah Owned 81,000 Aerospace Distribution Distribution Suffield, Connecticut Owned 66,000 Aerospace Distribution Distribution Lakeland, Florida Leased 65,000 Aerospace Distribution Distribution Ft. Lauderdale, Florida Leased 57,000 Aerospace Distribution Distribution El Segundo, California Leased 51,000 Aerospace Distribution Distribution Santa Ana, California Owned 50,000 Aerospace Fasteners Manufacturing Earth City, Missouri Leased 50,000 Aerospace Distribution Distribution Vaihingen Germany Leased 49,000 Technology Products Manufacturing Kelkheim, Germany Leased 42,000 Aerospace Fasteners Manufacturing Fremont, California Leased 31,000 Technology Products Manufacturing
Information concerning long-term rental obligations of the Company at June 30, 1997, is set forth in Note 19 to the Company's consolidated financial statements, included in Item 8, "Financial Statements and Supplementary Data", and is incorporated herein by reference. ITEM 3. LEGAL PROCEEDINGS - --------------------------- A discussion of legal proceedings is included in Note 20 to the Company's Consolidated Financial Statements, included in Item 8, "Financial Statements and Supplementary Data" and is incorporated herein by reference. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS - -------------------------------------------------------- None. PART II ------- ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER - ---------------------------------------------------------------------- MATTERS ------- (a) Market Information The Company's Class A Common Stock is traded on the New York Stock Exchange and Pacific Stock Exchange under the symbol FA. The Company's Class B Common Stock is not listed on any exchange and is not publicly traded. Class B Common Stock can be converted to Class A Common Stock at any time. Information regarding the quarterly price range of the Company's Class A Common Stock is incorporated herein by reference from Note 23 of the Company's consolidated financial statements included in Item 8 Financial Statements and Supplementary Data. (b) Holders The Company had approximately 1,300 and 66 record holders of its Class A and Class B Common Stock, respectively, at September 11, 1997. (c) Dividends The Company's current policy is to retain earnings to support the growth of its present operations and to reduce its outstanding debt. Any future payment of dividends will be determined at the discretion of the Company's Board of Directors and will depend on the Company's financial condition, results of operations and restrictive covenants from the Company's indentures and credit agreements. At June 30, 1997, the Company is restricted from paying dividends. (See Note 10 of the Company's consolidated financial statements included in Item 8 Financial Statements and Supplementary Data). (d) Sale of Unregistered Securities 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 services. The warrants are earned on a pro-rata basis over a six-month period ending October 31, 1997. The warrants become exercisable on November 1, 1997 and expire on November 8, 2000. The warrants were sold in reliance of the private placement exemptions under Section 4(2) of the Act. Stinbes Limited (an affiliate of Jeffrey Steiner) holds a warrant (originally acquired by Stinbes Limited on January 4, 1989) to purchase 375,000 shares of Class A or Class B Common Stock, at $7.67 per share. The exercise period was due to expire on March 13, 1997. Effective as of February 21, 1997, the Company approved a continuation of the warrant, with the following modifications: (i) the exercise period was extended to March 13, 2002, (ii) the exercise price was increased by two tenths of one cent ($.002) for each day subsequent to March 13, 1997, but fixed at $7.80 per share after June 30, 1997, and (iii) the exercise period was modified to provide that the warrant may not be exercised except within the following window periods: (a) within 365 days after the merger of STFI with AT&T Corporation, MCI Communications, Worldcom Inc., Tel-Save Holdings, Inc., or Teleport Communications Group Inc., (b) within 365 days after a change of control of the Company, as defined in the FHC Credit Agreement, or (c) within 365 days after a change of control of Banner, as defined in the Banner Credit Agreement. In no event may the warrant be exercised after March 13, 2002. ITEM 6. SELECTED FINANCIAL DATA - -------------------------------- Five-Year Financial Summary (In thousands, except per share data)
For the years ended June 30, 1997 1996 1995 1994 1993 - --------------------------- ---------- ---------- ---------- ---------- --------- Summary of Operations: Net sales........................ $ 738,460 $ 500,810 $ 365,550 $ 277,646 $315,118 Gross profit..................... 205,123 116,891 65,703 50,281 62,241 Operating income (loss).......... 30,517 5,445 (13,419) (30,362) (14,907) Net interest expense............. 47,798 59,040 67,716 69,676 70,338 Earnings (loss) from continuing operations..................... 1,331 137,370 (47,914) 13,594 (54,930) Earnings (loss) per share from continuing operations: Primary...................... .08 8.28 (2.97) .84 (3.41) Fully diluted................ .08 8.03 (2.97) .84 (3.41) Balance Sheet Data: Total assets..................... $1,067,333 $1,009,938 $ 850,294 $ 866,621 $941,675 Long-term debt, less current maturities..................... 416,922 368,589 509,715 522,406 566,491 Redeemable preferred stock of subsidiary..................... -- -- 16,342 17,552 17,732 Stockholders' equity............. 229,625 231,168 40,180 69,494 53,754 per outstanding common share... 13.81 14.10 2.50 4.32 3.34
The results of Banner Aerospace, Inc. are included in the periods since February 25, 1996, when Banner became a majority-owned subsidiary. Prior to February 25, 1996, the Company's investment in Banner was accounted for using the equity method. The nonrecurring gain resulting from the merger of Fairchild Communications Services Company into Shared Technologies Inc. is included in the Fiscal 1996 results. Fiscal 1994 includes the gain on the sale of Rexnord Corporation stock. These transactions materially affect the comparability of the information reflected in the selected financial data. ITEM 7. MANAGEMENT DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND - ------------------------------------------------------------------------ FINANCIAL CONDITION ------------------- The Fairchild Corporation (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 Corpration. RHI Holdings, Inc. ("RHI") is a direct subsidiary of the Company. RHI is the owner of 100% of Fairchild Holding Corp. ("FHC") and the majority owner of Banner Aerospace, Inc. ("Banner"). The Company's principal operations are conducted through RHI and FHC. The Company also holds significant equity interests in Shared Technologies Fairchild Inc. ("STFI") and Nacanco Paketleme ("Nacanco"). CAUTIONARY STATEMENT Certain statements in the financial discussion and analysis by management contain forward-looking information that involves 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. RECENT DEVELOPMENTS AND SIGNIFICANT BUSINESS COMBINATIONS In January 1997, Banner, through its subsidiary, Dallas Aerospace, Inc., acquired PB Herndon Company ("PB Herndon") in a business combination accounted for as a purchase. PB Herndon is a distributor of specialty fastener lines and similar aerospace related components. The total cost of the acquisition was $16.0 million, which exceeded the fair value of the net assets of PB Herndon by approximately $3.5 million. The excess is being amortized using the straight-line method over 40 years. 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 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 $13.0 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 Company ("SBC") to Teleflex Incorporated ("Teleflex") for $5.0 million, and immediately thereafter sold all the stock of SBC to a wholly-owned subsidiary of Teleflex for $2.0 million. The Company may also receive an additional amount of up to $7.0 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. The Company, RHI and Fairchild Industries, Inc. ("FII"), the Company's former 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 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 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 $223.5 million of FII's existing 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. 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 ("DME") to Cincinnati Milacron Inc. ("CMI"), 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 (together, the "8% CMI Notes"). On July 29, 1996, CMI paid in full the 8% CMI Notes. On January 27, 1996, FII completed the sale of Fairchild Data Corporation ("Data") to SSE Telecom, Inc. ("SSE") for book value of approximately $4.4 million and 100,000 shares of SSE's common stock valued at $9.06 per share, or $.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 Data have been accounted for as discontinued operations. The combined net sales of DME and 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 to Banner in exchange for 5,386,477 shares of Banner common stock. The exchange has 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 Preferred Stock of Banner. The Company now controls 64.0% of Banner's voting stock. Banner is a leading international supplier to the aerospace industry as a distributor, providing a wide range of aircraft parts and related support services. RESULTS OF OPERATIONS The Company currently reports in two principal business segments: Aerospace Fasteners and Aerospace Distribution. The Company consolidated pre March 13, 1996 operating results from the Communications Services segment and, effective February 25, 1996, began to consolidate the operating results of the Aerospace Distribution segment. The results of Fairchild Technologies ("FT"), together with the results of Gas Springs and SBC are included in Corporate and Other. The following table illustrates the historical sales and operating income of the Company's operations for the past three years.
For the years ended June 30, (In thousands) -------------------------------- 1997 1996 1995 -------- -------- -------- Sales by Segment: Aerospace Fasteners............... $269,026 $218,059 $215,364 Aerospace Distribution (a)........ 411,765 129,973 -- Communications Services (b)....... -- 91,290 108,710 Corporate and Other(e)............ 72,882 67,330 41,476 Eliminations (c).................. (15,213) (5,842) -- ------- ------- ------- Sales............................... $738,460 $500,810 $365,550 ======= ======= ======= Operating Income (Loss) by Segment: Aerospace Fasteners (d)........... $ 17,390 $ 135 $(11,497) Aerospace Distribution (a)........ 30,891 5,625 -- Communications Services (b)....... -- 14,561 18,498 Corporate and Other (e)........... (17,764) (14,876) (20,420) ------- ------- ------- Operating income (loss)............. $ 30,517 $ 5,445 $(13,419) ======= ======= ======= (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) Effective March 13, 1996, the Company began recording its investment in the Communications Services segment using the equity method. c) Represents intersegment sales from the Aerospace Fasteners segment to the Aerospace Distribution segment. (d) Includes restructuring charges of $2.3 million in Fiscal 1996. (e) Includes sales from Fairchild Technologies of $57.7 million, $60.3 million, and $38.0 million in 1997, 1996 and 1995, respectively, and gross margin from Fairchild Technologies of $23.8 million, $20.8 million, and $11.1 million, respectively.
The following unaudited pro forma table illustrates sales and operating income of the Company's operations by segment, on a pro forma basis, as if the Company had operated in a consistent manner for the past three years. The pro forma results are based on the historical financial statements of the Company, FCSC and Banner, giving effect as though (i) the Merger of FCSC, (ii) the transfer of Harco from the Aerospace Fasteners Segment to the Aerospace distribution segment, and (iii) the consolidation of Banner, had been in effect since the beginning of each period. The 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 is it necessarily indicative of future results of the Company.
For the years ended June 30, (In thousands) -------------------------------- 1997 1996 1995 -------- -------- -------- Pro Forma Sales by Segment: Aerospace Fasteners (a)........... $269,026 $197,099 $190,287 Aerospace Distribution............ 411,765 342,483 255,722 Corporate and Other............... 72,882 67,330 41,476 Eliminations...................... (15,213) (9,505) (5,494) ------- ------- ------- $738,460 $597,407 $481,991 ======= ======= ======= Pro Forma Operating Income (Loss) by Segment: Aerospace Fasteners (a)........... $ 17,390 $ (2,639) $(15,736) Aerospace Distribution ........... 30,891 17,455 9,349 Corporate and Other............... (17,764) (14,876) (20,420) ------- ------- ------- Operating income (loss)............. $ 30,517 $ (60) $(26,807) ======= ======= ======= (a) Fiscal 1997 results include sales of $27.2 million and operating income of $1.2 million provided by Simmonds since its acquisition in February 1997.
Consolidated Results - -------------------- Net sales of $738.5 million in Fiscal 1997 improved significantly by $237.7 million, or 47.5%, compared to sales of $500.8 million in Fiscal 1996. Sales growth was stimulated by the resurgent commercial aerospace industry, together with the effects of several strategic business combinations over the past 18 months. Net sales in Fiscal 1996 were up 37.0% from Fiscal 1995 reflecting strong sales performances from the Aerospace Fasteners segment and FT, included in the Corporate and Other business segment, and the inclusion of four months of sales from the Aerospace Distribution segment. On a pro forma basis, net sales increased 23.6% and 23.9% in Fiscal 1997 and 1996, respectively, as compared to the previous Fiscal periods. Gross Margin as a percentage of sales was 27.8%, 23.3%, and 18.0% in Fiscal 1997, 1996, and 1995, respectively. The increase in the current year was attributable to higher revenues combined with continued productivity improvements achieved during Fiscal 1997. The increase in Fiscal 1996 compared to Fiscal 1995 was due to consolidation of plants, elimination of product lines, substantial downsizing and new productivity programs put in place. Selling, General & Administrative expense as a percentage of sales was 21.8%, 21.0%, and 20.5% in Fiscal 1997, 1996, and 1995, respectively. The increase in the current year was attributable primarily to the increase in selling and marketing costs incurred to support the increase in sales. The decrease in Fiscal 1996 compared to Fiscal 1995 was due primarily to the positive results obtained from restructuring and downsizing programs put in place earlier. Operating income of $30.5 million in Fiscal 1997 increased $25.1 million, or 461%, compared to operating income of $5.4 million in Fiscal 1996. The increase in operating income was due primarily to the current year's growth in sales and increased operational efficiencies. Operating income in Fiscal 1996 improved by $18.9 million over Fiscal 1995 due primarily to improved cost efficiencies applied in the Aerospace Fasteners segment and the sales increase from FT in the Corporate and Other business segment. On a pro forma basis, operating income increased $30.6 million in Fiscal 1997, as compared to Fiscal 1996, and $26.7 million in Fiscal 1996, as compared to Fiscal 1995. Net interest expense decreased 19.0% in Fiscal 1997 compared to Fiscal 1996, and decreased 12.8% in Fiscal 1996 compared to Fiscal 1995. The decreases are due to lower borrowings as a result of the sale of DME and the Merger, both of which significantly reduced the Company's total debt. Investment income, net, was $6.7 million, $4.6 million and $5.7 million in Fiscal 1997, 1996, and 1995, respectively. The 45.4% increase in Fiscal 1997 is due primarily to realized gains from the sale of investments in Fiscal 1997. The 19.8% decrease in Fiscal 1996 resulted from losses realized on the write-off of two foreign investments. Equity in earnings of affiliates increased $2.9 million in Fiscal 1997, compared to Fiscal 1996, and increased $3.3 million in Fiscal 1996, compared to Fiscal 1995. The current year's increase is attributable to the amortization of undervalued investments in STFI as a result of the Merger. The prior year's increase was due primarily to higher earnings from Nacanco, which improved the Company's equity in earnings by $2.6 million. Nonrecurring income in Fiscal 1997 includes the $2.5 million gain from the sale of SBC. Nonrecurring income in Fiscal 1996 includes a $163.1 million nontaxable gain resulting from the Merger. Income Taxes included a $5.2 million tax benefit in Fiscal 1997 on a pre- tax loss of $3.9 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, excluding the nontaxable nonrecurring gain, was $22.1 million. Earnings from discontinued operations, net, include the earnings, net of tax, from DME and Data in Fiscal 1996 and 1995. The $53.6 million gain on disposal of discontinued operations resulted primarily from the sale of DME to CMI in Fiscal 1996. Extraordinary items, net, resulted from premiums paid for, and redemption costs and consent fees associated with, the retirement of the Senior Notes and the write off of deferred loan fees, related primarily to Senior Notes and bank debt extinguished prior to maturity. This totaled $10.4 million, net of a tax benefit, in Fiscal 1996. Net earnings in Fiscal 1997, compared to Fiscal 1996, after excluding the nonrecurring merger gain of $163.1 million and the $53.6 million gain on sale of discontinued operations in 1996, improved $28.3 million, reflecting a $25.1 million improvement in operating profit. The net earnings increased $223.5 million in Fiscal 1996, compared to Fiscal 1995, due primarily to the $163.1 million nonrecurring pre-tax gain recorded from the Merger, and the $53.6 million gain, net of tax, from the sale of discontinued operations. Segment Results - --------------- Aerospace Fasteners Segment - --------------------------- 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. New orders have been strong in recent months resulting in a backlog of $195.7 million at June 30, 1997, up from $109.9 million at June 30, 1996. Sales increased slightly in Fiscal 1996 compared to Fiscal 1995. The Harco division was transferred to the Aerospace Distribution segment on February 25, 1996. On a pro forma basis, excluding Harco's sales, sales increased 36.5% in Fiscal 1997, compared to Fiscal 1996 and 3.6% in Fiscal 1996, compared to Fiscal 1995. 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. Operating income was positive in the Aerospace Fasteners segment, which was an $11.6 million improvement in the Fiscal 1996 period over the corresponding Fiscal 1995 period. During Fiscal 1996, operating losses decreased significantly in the Aerospace Fasteners segment, due primarily to the cost of management changes, consolidation of plants, eliminating unprofitable product lines, pricing adjustments, substantial work force downsizing and new productivity, quality and marketing programs. A restructuring charge of $2.3 million was recorded in Fiscal 1996, primarily for severance pay to employees terminated as a result of further downsizing. On a pro forma basis, excluding Harco, operating income increased $20.0 million in Fiscal 1997, as compared to Fiscal 1996, and $13.1 million in Fiscal 1996, as compared to Fiscal 1995. Aerospace Distribution Segment - ------------------------------ Aerospace Distribution sales were up $281.8 million and operating income was up $25.3 million, primarily the result of reporting twelve months in Fiscal 1997 versus four months in Fiscal 1996. On a twelve-month pro forma basis sales were up $69.3 million, or 20.2%, and operating income was up $13.4 million, or 77.0%. Sales increases in all three groups, hardware, rotables and engines contributed to these strong results. This segment has benefited from the extended service lives of existing aircraft, growth from acquisitions and internal growth, which has increased market share. 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. Communications Services Segment - ------------------------------- As a result of the Merger of the Communications Services segment on March 13, 1996, the Company is accounting for its current investment in STFI, the merged company, using the equity method. Sales of $91.3 million were reported for the Communications Services segment in Fiscal 1996 for 8 1/2 months, compared to a full 12 months sales of $108.7 million in Fiscal 1995. Operating income of $14.6 million was reported for the Communications Services segment in Fiscal 1996 for the 8 1/2 months prior to the Merger, as compared to $18.5 million in Fiscal 1995. Corporate and Other - ------------------- The Corporate and Other segment includes Fairchild Technologies, Camloc Gas Springs Division and Fairchild Scandinavian Bellyloading Co. AB (SBC) (formerly the Technology Products segment). Sales were up at SBC and stable at the other operations. The group reported an increase in sales of 8.2% in Fiscal 1997, as compared to Fiscal 1996, and 62.3% in Fiscal 1996, as compared to Fiscal 1995. Operating loss increased by $2.9 million in Fiscal 1997, compared to Fiscal 1996. Operating income increased $5.5 million in Fiscal 1996, as compared to Fiscal 1995. SBC was sold at Fiscal 1997 year-end. Over the past three years, corporate administrative expense as a percentage of sales has decreased from 3.6% in 1995 to 2.9% in 1996 to 2.2% in 1997. FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES Working capital at June 30, 1997, was $346.1 million, which was $6.7 million lower than at June 30, 1996. The principal reasons for this change included a $175.5 million decrease in cash, investments and notes receivable, offset by a $71.6 million increase in inventory, a $69.5 million increase in accounts receivable, a $14.4 million increase in prepaid and other current assets, and a $13.3 million decrease in current liabilities. 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 post-employment benefits for retirees, 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. The Company maintains credit agreements with a consortium of banks, which provide revolving credit facilities to RHI, FHC and Banner, and term loans to Banner. At June 30, 1997, $54 million was available to be borrowed from the Company's credit agreements. As of June 30, 1997, the Company and Banner were in compliance with all covenants under their respective credit agreements. The Company's management intends to take appropriate action to refinance portions of its debt, if necessary, to meet cash requirements. On July 18, 1997, the FHC Credit Agreement was restructured to provide FHC with a $150 million senior credit facility consisting of (i) up to $75 million in revolving loans, with a letter of credit sub-facility of $12 million, and (ii) a $75 million term loan. (See Note 10 in Item 8, Financial Statements and Supplementary Data). The Company also expects to generate cash from the sale of certain assets and liquidation of investments. At June 30, 1997, net assets held for sale had a carrying value of $26.1 million and included two parcels of real estate in California, two landfill limited partnership projects in Pennsylvania, a real estate joint venture in California, and several other parcels elsewhere, which the Company plans to sell, lease or develop, subject to market conditions or, with respect to certain of the parcels, the resolution of environmental matters. The Company has reclassified its Farmingdale property, with a book value of $28.9 million, from net assets held for sale to other assets as the Company has established and pursued a plan to develop this property as commercial real estate. Property, plant and equipment increased $40.8 million from June 30, 1996, primarily as a result of the Simmonds Acquisition. Goodwill increased by $14.6 million as a result of the Company's acquisitions in the current Fiscal year. On July 16, 1997, STFI entered into a definitive merger agreement (the "STFI/Tel-Save Merger") with Tel-Save Holdings, Inc. ("Tel-Save"), pursuant to which Tel-Save will acquire STFI in a business combination accounted for as a pooling of interests. Upon consummation of the STFI/Tel-Save Merger, the Company will receive shares of Tel-Save's common stock, in exchange for its shares of STFI common stock and STFI cumulative convertible preferred stock, as well as approximately $22.0 million cash in redemption of its shares of STFI special preferred stock. As a result of the transaction, the Company will recognize an estimated gain in excess of $100 million. (See Note 24 in Item 8, "Financial Statements and Supplementary Data"). Management believes it has successfully restructured and repositioned the Company from a diversified industrial company to a focused Aerospace Industry player. As worldwide airlines and aircraft manufacturers increase capacity to meet demand, the Company plans to benefit through internal growth, external growth, and improved productivity. This bodes well for additional improvement of the Company's net income. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS - ----------------------------------------- In October 1996, the American Institute of Certified Public Accountants issued Statement of Position 96-1 ("SOP 96-1") "Environmental Remediation Liabilities". SOP 96-1 provides authoritative guidance on specific accounting issues related to the recognition, measurement, and display and disclosure of environmental remediation liabilities. The Company is required to implement SOP 96-1 in Fiscal 1998. The Company's present policy is similar to the policy prescribed by SOP 96-1, therefore, there will be no effect from implementation. In February 1997, the Financial Accounting Standards Board ("FASB") issued two pronouncements, Statement of Financial Accounting Standards No. 128 ("SFAS 128") "Earnings Per Share", and Statement of Financial Accounting Standards No. 129 ("SFAS 129") "Disclosure of Information about Capital Structure". SFAS 128 establishes accounting standards for computing and presenting earnings per share ("EPS"). SFAS 128 is effective for periods ending after December 15, 1997, including interim periods, and requires restatement of all prior period EPS data presented. Results from the calculation of simple and diluted earnings per share, as prescribed by SFAS 128, would not be materially different from the calculations for primary and fully diluted earnings per share for years ending June 30, 1997 and June 30, 1996. SFAS 129 establishes standards for disclosure of information about the Company's capital structure and becomes effective for periods ending after December 15, 1997. In June 1997, FASB issued two pronouncements, Statement of Financial Accounting Standards No. 130 ("SFAS 130") "Reporting Comprehensive Income", and Statement of Financial Accounting Standards No. 131 ("SFAS 131") "Disclosures about Segments of an Enterprise and Related Information". SFAS 130 establishes standards for reporting and display of comprehensive income and its components in the financial statements. 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 operating segments in annual and interim financial reports. The Company will adopt SFAS 130 and SFAS 131 in Fiscal 1998. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - ---------------------------------------------------- The following consolidated financial statements of the Company and the report of the Company's independent public accountants with respect thereto, are set forth below. Page ---- Consolidated Balance Sheets as of June 30, 1997 and 1996...... 26 Consolidated Statements of Earnings For The Three Years Ended June 30, 1997, 1996, and 1995................................. 28 Consolidated Statements of Stockholders' Equity For The Three Years Ended June 30, 1997, 1996, and 1995..................... 30 Consolidated Statements of Cash Flows For The Three Years Ended June 30, 1997, 1996, and 1995........................... 31 Notes to Consolidated Financial Statements.................... 32 Report of Independent Public Accountants...................... 65 Supplementary data regarding "Quarterly Financial Information (Unaudited)" is set forth under Item 8 in Note 23 to Consolidated Financial Statements. THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands)
June 30, June 30, ASSETS 1997 1996 - ------ -------- -------- Current Assets: Cash and cash equivalents..................... $ 19,420 $ 39,649 (of which $4,839 and $8,224 is restricted) Short-term investments........................ 25,647 10,498 Accounts receivable-trade, less allowances of $8,103 and $6,327........................ 168,163 98,694 Notes receivable.............................. -- 170,384 Inventories: Finished goods............................. 297,223 236,263 Work-in-process............................ 26,887 16,294 Raw materials.............................. 18,626 18,586 --------- --------- 342,736 271,143 Prepaid expenses and other current assets..... 33,631 19,275 --------- --------- Total Current Assets.......................... 589,597 609,643 Property, plant and equipment, net............ 128,712 87,956 Net assets held for sale...................... 26,147 45,405 Cost in excess of net assets acquired, (Goodwill) less accumulated amortization of $36,672 and $31,912.......................... 154,808 140,201 Investments and advances, affiliated companies 55,678 53,471 Deferred loan costs........................... 9,252 7,825 Prepaid pension assets........................ 59,742 57,660 Long-term investments......................... 4,120 585 Notes receivable and other assets............. 39,277 7,192 --------- --------- Total Assets.................................. $1,067,333 $1,009,938 ========= ========= The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. /TABLE THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands, except share data)
June 30, June 30, LIABILITIES AND STOCKHOLDERS' EQUITY 1997 1996 - ------------------------------------ -------- -------- Current Liabilities: Bank notes payable and current maturities of long-term debt........................... $ 47,422 $ 84,892 Accounts payable............................. 84,953 65,478 Accrued salaries, wages and commissions...... 19,166 17,367 Accrued insurance............................ 15,397 16,340 Accrued interest............................. 16,011 10,748 Other........................................ 54,625 37,302 Income taxes................................. 5,881 24,635 --------- --------- Total Current Liabilities.................... 243,455 256,762 Long-term debt............................... 416,922 368,589 Other long-term liabilities.................. 23,622 18,605 Retiree health care liabilities.............. 43,387 44,452 Noncurrent income taxes...................... 42,013 31,737 Minority interest in subsidiaries............ 68,309 58,625 --------- --------- Total Liabilities............................ 837,708 778,770 Stockholders' Equity: Class A common stock, 10 cents par value; authorized 40,000,000 shares, 20,233,879, (19,997,756 in 1996) shares issued, and 13,992,283 (13,756,160 in 1996) shares outstanding................................ 2,023 2,000 Class B common stock, 10 cents par value; authorized 20,000,000 shares, 2,632,516 shares issued and outstanding (2,633,704 in 1996)...................................... 263 263 Paid-in capital.............................. 71,015 69,366 Retained earnings............................ 209,949 208,618 Cumulative translation adjustment............ (1,860) 2,760 Net unrealized holding loss on available-for- sale securities............................ (46) (120) Treasury stock, at cost, 6,241,596 shares of Class A common stock....................... (51,719) (51,719) --------- --------- Total Stockholders' Equity................... 229,625 231,168 --------- --------- Total Liabilities and Stockholders' Equity... $1,067,333 $1,009,938 ========= ========= The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. /TABLE THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (In thousands, except per share data)
For the Years Ended June 30, -------------------------------- 1997 1996 1995 -------- -------- -------- Revenue: Net sales of products...................... $738,460 $445,990 $287,817 Revenues from services..................... -- 54,820 77,733 Other income (expense)..................... (658) 635 1,169 ------- ------- ------- 737,802 501,445 366,719 Costs and expenses: Cost of goods sold......................... 533,337 344,914 245,094 Cost of services........................... -- 39,005 54,753 Selling, general & administrative.......... 161,309 104,981 74,797 Research and development................... 7,807 94 974 Amortization of goodwill................... 4,832 4,687 4,520 Restructuring.............................. -- 2,319 -- ------- ------- ------- 707,285 496,000 380,138 Operating income (loss)...................... 30,517 5,445 (13,419) Interest expense............................. 52,493 67,112 71,087 Interest income.............................. (4,695) (8,072) (3,371) ------- ------- ------- Net interest expense......................... 47,798 59,040 67,716 Investment income, net....................... 6,651 4,575 5,705 Equity in earnings of affiliates............. 7,747 4,871 1,607 Minority interest............................ (3,514) (1,952) (2,293) ------- ------- ------- Loss from continuing operations before nonrecurring income and taxes.............. (6,397) (46,101) (76,116) Nonrecurring income.......................... 2,528 161,406 -- ------- ------- ------- Earnings (loss) from continuing operations before taxes.................... (3,869) 115,305 (76,116) Income tax benefit........................... 5,200 22,065 28,202 ------- ------- ------- Earnings (loss) from continuing operations... 1,331 137,370 (47,914) Earnings from discontinued operations, net... -- 9,186 13,994 Gain (loss) on disposal of discontinued operations, net............................ -- 53,586 (259) ------- ------- ------- Earnings (loss) before extraordinary items... 1,331 200,142 (34,179) Extraordinary items, net..................... -- (10,436) 355 ------- ------- ------- Net earnings (loss).......................... $ 1,331 $189,706 $(33,824) ======= ======= ======= The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. /TABLE THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (In thousands, except per share data)
For the Years Ended June 30, -------------------------------- 1997 1996 1995 -------- -------- -------- Primary Earnings (Loss) Per Share: Earnings (loss) from continuing operations........................... $ .08 $ 8.28 $ (2.97) Earnings from discontinued operations, net.................................. -- .55 .87 Gain (loss) on disposal of discontinued operations, net...................... -- 3.23 (.02) ------- ------- ------- Earnings (loss) before extraordinary items................................ .08 12.06 (2.12) Extraordinary items, net............... -- (.63) .02 ------- ------- ------- Net earnings (loss) per share.......... $ .08 $ 11.43 $ (2.10) ======= ======= ======= Fully Diluted Earnings (Loss) Per Share: Earnings (loss) from continuing operations........................... $ .08 $ 8.03 $ (2.97) Earnings from discontinued operations, net.................................. -- .54 .87 Gain (loss) on disposal of discontinued operations, net...................... -- 3.13 (.02) ------- ------- ------- Earnings (loss) before extraordinary items................................ .08 11.70 (2.12) Extraordinary items, net............... -- (.61) .02 ------- ------- ------- Net earnings (loss) per share.......... $ .08 $ 11.09 $ (2.10) ======= ======= ======= Weighted Average Number of Shares used in Computing Earnings Per Share: Primary.................................. 17,230 16,600 16,103 Fully diluted............................ 17,321 17,100 16,103 The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (In thousands)
Class A Class B Cumulative Common Common Paid-in Retained Translation Treasury Stock Stock Capital Earnings Adjustment Stock Other Total ----- ----- ------- -------- ----------- ------- ------ ------- Balance, July 1, 1994 $1,965 $ 270 $66,775 $52,736 $ 872 $(51,719) $(1,405) $69,494 Net loss.............. - - - (33,824) - - - (33,824) Cumulative translation adjustment, net...... - - - - 2,989 - - 2,989 Gain on purchase of preferred stock of subsidiary........... - - 236 - - - - 236 Reduction of minimum liability for pensions - - - - - - 1,405 1,405 Net unrealized holding loss on available-for- sale securities...... - - - - - - (120) (120) ----- ---- ------ ------ ------ ------- ------ ------- Balance, June 30, 1995 1,965 270 67,011 18,912 3,861 (51,719) (120) 40,180 Net earnings.......... - - - 189,706 - - - 189,706 Cumulative translation adjustment, net...... - - - - (1,101) - - (1,101) 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) - - - - - - Gain realized on retirement of preferred stock of subsidiary........... - - (274) - - - - (274) ----- ---- ------ ------- ------ ------- ------ ------- Balance, June 30, 1996 2,000 263 69,366 208,618 2,760 (51,719) (120) 231,168 Net earnings.......... - - - 1,331 - - - 1,331 Cumulative translation adjustment, net...... - - - - (4,620) - - (4,620) Fair market value of stock warrants issued - - 546 - - - - 546 Proceeds received from options exercised.... 23 - 1,103 - - - - 1,126 Net unrealized holding gain on available-for- sale securities...... - - - - - - 74 74 ----- ---- ------ ------- ------ ------- ------ ------- Balance, June 30, 1997 $2,023 $ 263 $71,015 $209,949 $(1,860) $(51,719) $ (46) $229,625 ===== ==== ====== ======= ====== ======= ====== ======= The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. /TABLE THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
For the Years Ended June 30, -------------------------------- 1997 1996 1995 -------- -------- -------- Cash flows from operating activities: Net earnings (loss)................................... $ 1,331 $ 189,706 $ (33,824) Adjustments to reconcile net earnings (loss) to net cash used for operating activities: Depreciation and amortization..................... 25,935 29,717 31,208 Accretion of discount on long-term liabilities.... 4,963 4,686 4,773 Net gain on the merger of subsidiaries............ -- (162,703) -- Net gain on the sale of discontinued operations... -- (53,942) -- Extraordinary items, net of cash payments......... -- 4,501 -- Provision for restructuring (excluding cash payments of $777 in 1996)....................... -- 1,542 -- (Gain) loss on sale of property, plant and equipment....................................... (72) (9) 655 Undistributed earnings of affiliates.............. (1,055) (3,857) (500) Minority interest................................. 3,514 1,952 2,293 Change in trading securities...................... (5,733) (5,346) 1,879 Change in receivables............................. (55,965) (5,999) (14,414) Change in inventories............................. (46,389) (10,744) (9,611) Change in other current assets.................... (14,237) (615) (2,928) Change in other non-current assets................ (17,859) (1,089) 4,469 Change in accounts payable, accrued liabilities, and other long-term liabilities................. 8,610 (36,537) (13,093) Non-cash charges and working capital changes of discontinued operations......................... -- -- 3,568 -------- -------- -------- Net cash used for operating activities................ (96,957) (48,737) (25,525) Cash flows from investing activities: Proceeds received from (used for) investment securities, net..................................... (12,951) 265 12,281 Purchase of property, plant and equipment............. (22,116) (15,122) (16,260) Proceeds from sale of property, plant and equipment... 213 122 151 Equity investments in affiliates...................... (1,749) (2,361) (1,051) Minority interest in subsidiaries..................... (1,610) (2,817) -- Acquisition of subsidiaries, net of cash acquired..... (55,916) -- (12,157) Net proceeds from the sale of discontinued operations. 173,719 71,559 -- Changes in net assets held for sale................... 385 5,894 1,441 Investing activities of discontinued operations....... -- -- (3,561) -------- -------- -------- Net cash (used for) provided by investing activities. 79,975 57,540 (19,156) Cash flows from financing activities: Proceeds from issuance of debt........................ 154,394 157,877 71,712 Debt repayments and repurchase of debentures.......... (156,975) (198,761) (59,367) Issuance of Class A common stock...................... 1,126 1,509 -- -------- -------- -------- Net cash provided by (used for) financing activities.. (1,455) (39,375) 12,345 Effect of exchange rate changes on cash............... (1,792) (961) 1,150 Net decrease in cash and cash equivalents............. (20,229) (31,533) (31,186) Cash and cash equivalents, beginning of the year...... 39,649 71,182 102,368 -------- -------- -------- Cash and cash equivalents, end of the year............ $ 19,420 $ 39,649 $ 71,182 ======== ======== ======== The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. /TABLE 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. RHI Holdings, Inc. ("RHI") is a direct subsidiary of the Company. RHI is the owner of 100% of Fairchild Holding Corp. ("FHC") and the majority owner of Banner Aerospace, Inc., ("Banner"). The Company's principal operations are conducted through FHC and Banner. The Company also holds significant equity interests in Shared Technologies Fairchild Inc. ("STFI") and Nacanco Paketleme ("Nacanco"). Fiscal Year: The fiscal year ("Fiscal") of the Company ends June 30. All references herein to "1997", "1996", and "1995" mean the fiscal years ended June 30, 1997, 1996 and 1995, 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 9). 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:
1997 1996 1995 -------- -------- -------- Interest....................... $ 48,684 $ 66,843 $ 66,262 Income Taxes................... (1,926) 9,279 (3,056)
Restricted Cash: On June 30, 1997 and 1996, the Company had restricted cash of $4,839 and $8,224, 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 manufacturing operations and using the first-in, first-out ("FIFO") method elsewhere. If the FIFO inventory valuation method had been used exclusively, inventories would have been approximately $4,868 and $4,756 higher at June 30, 1997 and 1996, respectively. Inventories from continuing operations are valued as follows:
June 30, June 30, (In thousands) 1997 1996 -------- -------- First-in, first-out (FIFO)................. $ 312,840 $ 239,800 Last-in, first-out (LIFO).................. 29,896 31,343 -------- -------- Total inventories.......................... $ 342,736 $ 271,143 ======== ========
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 1996 -------- -------- Land....................................... $ 13,438 $ 10,408 Buildings and improvements................. 56,124 40,853 Machinery and equipment.................... 158,944 94,406 Transportation vehicles.................... 899 767 Furniture and fixtures..................... 26,815 18,466 Construction in progress................... 6,524 2,329 ------- ------- 262,744 167,229 Less: Accumulated depreciation............ (134,032) (79,273) ------- ------- Net property, plant and equipment.......... $128,712 $ 87,956 ======= =======
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 1997, 1996 and 1995 was $2,847, $3,827, and $3,794, 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. 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 transaction gains and losses are included in other income and were insignificant in Fiscal 1997, 1996 and 1995. Research and Development: The Company capitalizes software development costs upon the establishment of technological feasibility. The establishment of technological feasibility and the ongoing assessment of recoverability require considerable judgment by management with respect to certain external factors, including anticipated future revenues, estimated economic life and changes in software and hardware technologies. Software development costs are amortized on a straight-line basis over the lesser of five years or the expected life of the product. All other Company-sponsored research and development expenditures are expensed as incurred. Capitalized software development costs were $3,651 at June 30, 1997. Capitalization of interest and taxes: The Company capitalizes interest expense and property taxes relating to property being developed. Nonrecurring Income: Nonrecurring income in 1997 resulted from the $2,528 gain recorded from the sale of Fairchild Scandinavian Bellyloading Company ("SBC"), (See Note 2). Nonrecurring income for 1996 was $161,406 and includes a $163,130 nontaxable gain resulting from the merger of Fairchild Communications Services Company into Shared Technologies Inc. (See Note 3). Expenses incurred in 1996 in connection with other, alternative transactions considered but not consummated were netted against the above gain in 1996. Earnings Per Share: Primary and fully diluted earnings per share are computed by dividing net income available to holders of the Company's common stock, by the weighted average number of shares and share equivalents outstanding during the period. To compute the incremental shares resulting from stock options and warrants for primary earnings per share, the average market price of the Company's stock during the period is used. To compute the incremental shares resulting from stock options and warrants for fully diluted earnings per share, the greater of the ending market price or the average market price of the Company's stock is used. In computing primary and fully diluted earnings per share for 1997 and in computing fully diluted earnings per share for 1996, the conversion of options and warrants was assumed, as the effect was dilutive. In computing primary earnings per share for Fiscal 1996, only the dilutive effect from the conversion of options was assumed, as the effect from the conversion of warrants alone was antidilutive. In computing primary and fully diluted earnings per share for Fiscal 1995, the conversion of options and warrants was not assumed, as the effect was antidilutive. 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 15. 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 1997 presentation. Recently Issued Accounting Pronouncements: In October 1996, the American Institute of Certified Public Accountants issued Statement of Position 96-1 ("SOP 96-1") "Environmental Remediation Liabilities". SOP 96-1 provides authoritative guidance on specific accounting issues related to the recognition, measurement, and the display and disclosure of environmental remediation liabilities. The Company is required to implement SOP 96-1 in Fiscal 1998. The Company's present policy is similar to the policy prescribed by SOP 96-1; therefore there will be no effect from implementation. In February 1997, the Financial Accounting Standards Board ("FASB") issued two pronouncements, Statement of Financial Accounting Standards No. 128 ("SFAS 128") "Earnings Per Share", and Statement of Financial Accounting Standards No. 129 ("SFAS 129") "Disclosure of Information about Capital Structure". SFAS 128 establishes accounting standards for computing and presenting earnings per share ("EPS"). SFAS 128 is effective for periods ending after December 15, 1997, including interim periods, and requires restatement of all prior period EPS data presented. Results from the calculation of simple and diluted earnings per share, as prescribed by SFAS 128, would not differ materially from the calculations for primary and fully diluted earnings per share for the years ending June 30, 1997, 1996 and 1995. SFAS 129 establishes standards for disclosure of information about the Company's capital structure and becomes effective for periods ending after December 15, 1997. In June 1997, FASB issued two pronouncements, Statement of Financial Accounting Standards No. 130 ("SFAS 130") "Reporting Comprehensive Income", and Statement of Financial Accounting Standards No. 131 ("SFAS 131") "Disclosures about Segments of an Enterprise and Related Information". SFAS 130 establishes standards for reporting and display of comprehensive income and its components in the financial statements. 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 operating segments in annual and interim financial reports. The Company will adopt SFAS 130 and SFAS 131 in Fiscal 1998. 2. ACQUISITIONS ------------ The Company's acquisitions described in this section have been accounted for using the purchase method. The purchase prices assigned to the net assets acquired were based on the fair value of such assets and liabilities at the respective acquisition dates. In January 1997, Banner, through its subsidiary, Dallas Aerospace, Inc., acquired PB Herndon Company ("PB Herndon") in a business combination accounted for as a purchase. PB Herndon is a distributor of specialty fastener lines and similar aerospace related components. The total cost of the acquisition was $16,000, which exceeded the fair value of the net assets of PB Herndon by approximately $3,451. The excess is being amortized using the straight-line method over 40 years. The Company purchased PB Herndon with available cash. 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 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 $62,000, which the Company funded with available cash. The Company recorded approximately $13,000 in goodwill as a result of this acquisition. Simmonds is one of Europe's leading manufacturers and distributors of aerospace and automotive fasteners. In September 1994, the Company acquired all of the outstanding common stock of Fairchild Scandinavian Bellyloading Company AB ("SBC") for the assumption of a minimal amount of debt. SBC is a designer and manufacturer of a patented cargo loading system, which is installed in the cargo area of commercial aircraft. On June 30, 1997, the Company sold all the patents of 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 an additional amount of up to $7,000 based on future net sales of SBC's patented products and services. In Fiscal 1997, the Company recorded a $2,528 nonrecurring gain as a result of these transactions. On November 28, 1994, the Company's former Communications Services segment completed the acquisition of substantially all of the telecommunications assets of JWP Telecom, Inc. ("JWP") for approximately $11,000, plus the assumption of approximately $3,000 of liabilities. JWP is a telecommunications system integrator, specializing in the distribution, installation and maintenance of voice and data communications equipment. Pro forma information is not required for these acquisitions. 3. MERGER AGREEMENT ---------------- 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 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 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 the FII's existing 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 nonrecurring gain from this transaction. 4. MAJORITY INTEREST BUSINESS COMBINATION -------------------------------------- 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. Banner is a leading international supplier to the aerospace industry as a distributor, providing a wide range of aircraft parts and related support services. Harco is a distributor of precision fasteners to the aerospace industry. 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%. 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. 5. DISCONTINUED OPERATIONS AND NET ASSETS HELD FOR SALE ---------------------------------------------------- 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 and $180,773 for 1996 and 1995, respectively. Net earnings from discontinued operations was $9,186, net of $5,695 for taxes in 1996, and $13,994, net of $10,183 for taxes in 1995. Net assets held for sale at June 30, 1997, 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 reflect anticipated sales proceeds, and other carrying costs to be incurred during the holding period. Interest is not allocated to net assets held for sale. 6. PRO FORMA FINANCIAL STATEMENTS (UNAUDITED) ----------------------------------------- The following unaudited pro forma information for the twelve months ended June 30, 1996 and June 30, 1995, provides the results of the Company's operations as though (i) the disposition of DME and Data, (ii) the Merger of FCSC, and (iii) the transfer of Harco to Banner, resulting in the consolidation of Banner, had been in effect since the beginning of each period. The pro forma information is based on the historical financial statements of the Company, DME, FCSC and Banner, 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, (iii) reduce minority interest from Series C Preferred Stock of FII being redeemed, and (iv) adjust equity in earnings of affiliates to include the estimated results of STFI. 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 1995 ---------- ---------- Sales................................... $597,407 $481,991 Loss from continuing operations......... (15,766) (32,972) Primary loss from continuing operations per share............................. (.96) (2.05) Net loss................................ (15,766) (32,876) Primary net loss per share............ (.96) (2.04)
The pro forma financial information has not been adjusted for nonrecurring income and gains from disposal of discontinued operations that have occurred from these transactions. 7. EXTRAORDINARY ITEMS ------------------- 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. During Fiscal 1995, the Company recognized extraordinary gains and losses from the early extinguishment of debt resulting from repurchases of its debentures on the open market or in negotiated transactions, and the write- offs of certain deferred costs associated with the issuance of securities repurchased. Early extinguishment of the Company's debt resulted in an extraordinary gain of $355, net of a tax provision, in 1995. 8. INVESTMENTS ----------- Short-term investments at June 30, 1997, consist primarily of common stock investments in public corporations which are classified as trading securities. All other short-term investments and all 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:
1997 1996 ------------------- ------------------ Aggregate Aggregate Name of Issuer or Fair Cost Fair Cost Type of Each Issue Value Basis Value Basis - ------------------- --------- ------- ---------- -------- Short-term investments: - ----------------------- Trading securities: Common stock.................... $16,094 $ 7,398 $10,362 $ 5,954 Other investments................. 9,553 9,553 136 136 ------ ------ ------ ------ $25,647 $16,951 $10,498 $ 6,090 ====== ====== ====== ====== Other long-term investments: - ---------------------------- Other investments................. $ 4,120 $ 4,120 $ 585 $ 585 ====== ====== ====== ======
Investment income is summarized as follows:
1997 1996 1995 ------- ------- ------- Gross realized gain (loss) from sales.. $ 1,673 $ (1,744) $ 3,948 Change in unrealized holding gain (loss) from trading securities....... 4,289 5,527 (36) Gross realized loss from impairments... -- -- (652) Dividend income........................ 689 792 2,445 ------- ------- ------- $ 6,651 $ 4,575 $ 5,705 ======= ======= =======
9. 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.
1997 1996 1995 -------- -------- -------- Statement of Earnings: Net sales............................ $292,049 $351,695 $313,888 Gross profit......................... 133,734 114,248 100,644 Earnings from continuing operations.. 10,216 15,183 9,623 Discontinued operations, net......... (1) -- -- Net earnings......................... 10,215 15,183 9,623 Balance Sheet at June 30,: Current assets....................... $ 89,408 $ 93,925 Non-current assets................... 369,464 377,547 Total assets......................... 458,872 471,472 Current liabilities.................. 75,090 87,858 Non-current liabilities.............. 281,301 275,025
The Company owns approximately 31.9% of Nacanco common stock. The Company recorded equity earnings of $4,673, $5,487, and $2,859 from this investment for 1997, 1996 and 1995, respectively. Since March 13, 1996, as a result of the Merger in which the Company received a 41% interest in STFI, the Company has accounted for its investment in STFI using the equity method. Prior to March 13, 1996, the Company consolidated the results of FCSC, which was merged into STFI (see Note 3). The Company recorded equity earnings of $3,149 and $50 from this investment in 1997 and 1996, respectively. On June 30, 1997, the Company's investments in STFI consisted of (i) $21,985 carrying value for the $25,000 face value 6% cumulative Convertible Preferred Stock, (ii) $11,156 carrying value for the $20,000 face value Special Preferred Stock, and (iii) $(1,163) carrying value for 6,225,000 shares of common stock of STFI. At the close of trading on June 30, 1997, STFI's common stock was quoted at $7.75 per share. Based on this price, the Company's 39.3% investment in STFI common stock had an approximate market value of $48,244. The Company is amortizing its discounted investment in each issuance of STFI over the 11 and 12 year life of such issuance. Included in 1997 and 1996 equity earnings was $4,104 and $939, respectively, from such amortization. (See Note 24 for subsequent events). 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 and $138 from this investment for 1996 and 1995, respectively. The Company is accounting for an investment in a public fund, which is controlled by an affiliated investment group of the Company, at market value. The amortized cost basis of the investment was $923 and had been written down by $71, before tax, to market value. The Company recorded a gross unrealized holding gain (loss) of $114 and $(120) from this investment in 1997 and 1995, respectively. The Company's share of equity in earnings of all unconsolidated affiliates for 1997, 1996 and 1995 was $7,747, $4,871, and $1,607, respectively. The carrying value of investments and advances, affiliated companies consists of the following:
June 30, June 30, 1997 1996 -------- -------- Nacanco............................ $ 20,504 $ 20,886 STFI............................... 31,978 30,559 Others............................. 3,196 2,026 ------- ------- $ 55,678 $ 53,471 ======= =======
On June 30, 1997, approximately $9,056 of the Company's $209,949 consolidated retained earnings was from undistributed earnings of 50 percent or less currently owned affiliates accounted for by the equity method. 10. NOTES PAYABLE AND LONG-TERM DEBT -------------------------------- At June 30, 1997 and 1996, notes payable and long-term debt consisted of the following:
June 30, June 30, 1997 1996 -------- -------- Bank credit agreements....................... $ 100 $ 73,500 Other short-term notes payable............... 15,529 3,035 ------- ------- Short-term notes payable (weighted average interest rates of 7.8% and 8.6% in 1997 and 1996, respectively)..................... $ 15,629 $ 76,535 ======= ======= Bank credit agreements....................... $177,250 $112,500 11 7/8% RHI Senior debentures due 1999....... 85,852 85,769 12% Intermediate debentures due 2001......... 115,359 114,495 13 1/8% Subordinated debentures due 2006..... 35,188 35,061 13% Junior Subordinated debentures due 2007.. 24,834 24,800 10.65% Industrial revenue bonds.............. 1,500 1,500 Capital lease obligations, interest from 4.4% to 10.5%.............................. 1,897 65 Other notes payable, collateralized by property, plant and equipment, interest from 4.3% to 10.0%......................... 6,835 2,756 ------- ------- 448,715 376,946 Less: Current maturities..................... (31,793) (8,357) ------- ------- Net long-term debt........................... $416,922 $368,589 ======= =======
Bank Credit Agreements: The Company maintains credit agreements (the "Credit Agreements") with a consortium of banks, which provide revolving credit facilities to RHI, FHC and Banner, and term loans to Banner (collectively the "Credit Facilities"). On July 26, 1996, the Company amended and restated the terms and provisions of FHC's credit agreement, in their entirety (the "FHC Credit Agreement"). The FHC Credit Agreement extends to July 28, 2000, the maturity of FHC's revolving credit facility (the "FHC Revolver"). The FHC Revolver has a borrowing limit of $52,000, however, availability is determined monthly by calculation of a borrowing base comprised of specified percentages of FHC's accounts receivable, inventories and the appraised value of equipment and real property. The FHC Revolver generally bears interest at a base rate of 1 1/2% over the greater of (i) Citibank New York's base rate, or (ii) the Federal Funds Rate plus 1 1/2% for domestic borrowings and at 2 1/2% over Citibank London's base rate for foreign borrowings. FHC's Revolver is subject to a non-use commitment fee of 1/2% on the average unused availability; and outstanding letters of credit are subject to fees of 2 3/4% per annum. The FHC Credit Agreement was further amended on February 21, 1997 to permit the Simmonds Acquisition. Terms modified by the February 21, 1997 amendment included a provision in which the borrowing rate on the FHC Revolver will increase by 1/4% on each of September 30, 1997 and December 31, 1997, in the event that the FHC Credit Agreement is not restructured or refinanced by such date. The FHC Credit Agreement requires FHC to comply with certain financial and non-financial loan covenants, including maintaining a minimum net worth of $150,000 and maintaining certain interest and fixed charge coverage ratios at the end of each Fiscal Quarter. Additionally, the FHC Credit Agreement restricts annual capital expenditures of FHC to $12,000. Substantially all of FHC's assets are pledged as collateral under the FHC Credit Agreement. At June 30, 1997, FHC was in compliance with all the covenants under the FHC Credit Agreement. FHC may transfer available cash as dividends to the Company. However, the FHC Credit Agreement restricts the Company from paying any dividends to stockholders. On July 18, 1997, the FHC Credit Agreement was restructured to provide FHC with a $150,000 senior secured credit facility (the "FHC Facility") consisting of (i) up to $75,000 in revolving loans, with a letter of credit sub-facility of $12,000, and (ii) a $75,000 term loan. Advances made under the FHC Facility would generally bear interest at a rate of, at the Company's option, (i) 2% over the Citibank N.A. base rate, or (ii) 3 1/4% over the Eurodollar Rate ("LIBOR"). The FHC Facility is subject to a non-use commitment fee of 1/2% of the aggregate unused availability; and outstanding letters of credit are subject to fees of 3 1/2% per annum. A borrowing base is calculated monthly to determine the amounts available under the FHC Facility. The borrowing base is determined monthly based upon specified percentages of (i) FHC's accounts receivable, inventories, and the appraised value of equipment and real property, and (ii) assets pledged by RHI to secure the facility. The FHC Facility matures on July 28, 2000. The FHC Facility provides that on December 31, 1998, the Company must repay the term loan, in full, together with an amount necessary to reduce the outstanding revolving loans to $52,000, if the Company has not complied with certain financial covenant requirements as of September 30, 1998. The Credit Agreements provide RHI with a $4,250 revolving credit facility (the "RHI Credit Agreement") which (i) generally bears a base interest rate of 1/2% over the prime rate, (ii) requires a commitment fee of 1/2%, and (iii) matures on August 12, 1998. RHI's Credit Agreement requires RHI to comply with specified covenants and maintain a consolidated net worth of $175,000. Additionally, RHI's capital expenditures are restricted, except for certain leasehold improvements, to $2,000 per annum plus the selling price of fixed assets for such Fiscal Year. The Company was in compliance with all the covenants under RHI's Credit Agreement at June 30, 1997. Banner has a credit agreement (the "Banner Credit Agreement") which provides Banner and its subsidiaries with funds for working capital and potential acquisitions. The facilities under the Banner Credit Agreement consist of (i) a $55,000 six-year term loan (the "Banner Term Loan"), (ii) a $30,000 seven-year term loan (the "Tranche B Loan"), (iii) a $40,000 six-year term loan (the "Tranche C Loan"), and (iv) a $71,500 revolving credit facility (the "Banner Revolver"). The Banner Credit Agreement requires certain semiannual term loan payments. The Banner Term Loan and the Banner Revolver bear interest at prime plus 1 1/4% or LIBOR plus 2 1/2% and may increase by 1/4% or decrease by up to 1% based upon certain performance criteria. As a result of Banner's performance level through March 31, 1997, borrowings under the Banner Term Loan and the Banner Revolver bore an interest rate of prime plus 3/4% and LIBOR plus 2% for the quarter ending June 30, 1997. The Tranche B Loan bears interest at prime plus 1 3/4% or LIBOR plus 3%. The Tranche C Loan initially bears interest at prime plus 1 1/2% or LIBOR plus 2 3/4% and may decrease by 1/4% based upon certain performance criteria. The Banner Credit Agreement requires that loans made to Banner can not exceed a defined borrowing base, which is based upon a percentage of eligible inventories and accounts receivable. Banner's revolving credit facility is subject to a non-use fee of 55 basis points of the unused availability. The Banner Credit Agreement requires quarterly compliance with various financial and non-financial loan covenants, including maintenance of minimum net worth, and minimum ratios of interest coverage, fixed charge coverage, and debt to earnings before interest, taxes, depreciation and amortization. Banner also has certain limitations on the incurrence of additional debt. As of June 30, 1997, Banner was in compliance with all covenants under the Banner Credit Agreement. Substantially all of Banner's assets are pledged as collateral under the Banner Credit Agreement. 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. 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. The following table summarizes the Credit Facilities under the Credit Agreements at June 30, 1997:
Revolving Term Total Credit Loan Available Facilities Facilities Facilities ---------- ---------- ---------- RHI Holdings, Inc. Revolving credit facility........... $ 100 $ -- $ 4,250 Fairchild Holding Corp. Revolving credit facility........... 30,900 -- 52,000 Banner Aerospace, Inc. Revolving credit facility........... 32,000 -- 71,500 Term Loan........................... -- 44,500 44,500 Tranche B Loan...................... -- 29,850 29,850 Tranche C Loan...................... -- 40,000 40,000 ------- ------- ------- Total $ 63,000 $114,350 $242,100 ======= ======= =======
At June 30, 1997, the Company had outstanding letters of credit of $10,811, which were supported by the Credit Agreement and other bank facilities on an unsecured basis. At June 30, 1997, the Company had unused bank lines of credit aggregating $53,939, at interest rates slightly higher than the prime rate. The Company also has short-term lines of credit relating to foreign operations, aggregating $9,350, against which the Company owed $5,967 at June 30, 1997. Summarized below are certain items and other information relating to the debt outstanding at June 30, 1997:
12% 13% 11 7/8% 13 1/8% Intermediate Junior RHI Senior Subordinated Subordinated Subordinated Subordinated Debentures Debentures Debentures Debentures ------------ ------------ ------------ ------------ Date Issued March 1986 Oct. 1986 March 1987 March 1987 Face Value $ 75,000 $160,000 $102,000 $126,000 Balance June 30, 1997 $ 35,188 $115,359 $ 24,834 $ 85,852 Percent Issued at 95.769 93.470 98.230 99.214 Bond Discount $ 3,173 $ 10,448 $ 1,805 $ 990 Amortization 1997 $ 127 $ 864 $ 34 $ 82 1996 $ 118 $ 761 $ 30 $ 82 1995 $ 103 $ 687 $ 27 $ 94 Yield to Maturity 13.80% 13.06% 13.27% 12.01% Interest Payments Semi-Annual Semi-Annual Semi-Annual Semi-Annual Sinking Fund Start Date 3/15/97 10/15/97 3/1/98 3/1/97 Sinking Fund Installments $ 7,500 $ 32,000 $ 10,200 $ 31,500 Fiscal Year Maturity 2006 2002 2007 1999 Callable Option on 3/15/89 10/15/89 3/1/92 3/1/92
Under the most restrictive covenants of the above indentures, the Company's consolidated net worth, as defined, must not be less than $35,000. RHI's consolidated net worth must not be less than $125,000. At June 30, 1997, consolidated net worth was $229,625 at the Company and $438,830 at RHI. At the present time, none of the Company's consolidated retained earnings are available for capital distributions due to a cumulative earnings restriction. The indentures also provide restrictions on the amount of additional borrowings by the Company. The annual maturity of long-term debt obligations (exclusive of capital lease obligations) for each of the five years following June 30, 1997, are as follows: $31,207 for 1998, $93,544 for 1999, $42,288 for 2000, $77,407 for 2001, and $77,772 for 2002. 11. 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:
1997 1996 1995 -------- -------- -------- Service cost (current period attribution).. $ 2,521 $ 3,513 $ 3,917 Interest cost of projected benefit obligation............................... 15,791 14,499 14,860 Actual return on plan assets............... (31,400) (39,430) (14,526) Amortization of prior service cost......... (180) 81 81 Net amortization and deferral.............. 11,157 21,495 (4,341) ------- ------- ------- (2,111) 158 (9) Net periodic pension expense (income) for other plans including foreign plans...... 142 (118) 78 ------- ------- ------- Net periodic pension expense (income)...... $ (1,969) $ 40 $ 69 ======= ======= =======
Assumptions used in accounting for the plans were:
1997 1996 1995 -------- -------- -------- Discount rate............................ 7.75% 8.5% 8.5% 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 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 1996, for the plans:
June 30, June 30, 1997 1996 -------- -------- Actuarial present value of benefit obligation: Vested................................................ $183,646 $164,819 Nonvested............................................. 7,461 6,169 ------- ------- Accumulated benefit obligation........................ 191,107 170,988 Effect of projected future compensation increases..... 683 905 ------- ------- Projected benefit obligation............................ 191,790 171,893 Plan assets at fair value............................... 237,480 224,692 ------- ------- Plan assets in excess of projected benefit obligations.. 45,690 52,799 Unrecognized net loss................................... 29,592 20,471 Unrecognized prior service cost......................... (571) (354) Unrecognized net transition assets...................... (315) (608) ------- ------- Prepaid pension cost prior to SFAS 109 implementation... 74,396 72,308 Effect of SFAS 109 implementation....................... (14,654) (14,648) ------- ------- Prepaid pension cost.................................... $ 59,742 $ 57,660 ======= =======
Plan assets include Class A Common Stock of the Company valued at a fair market value of $26,287 and $11,094 at June 30, 1997 and 1996, 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 $642, $779, and $701 for 1997, 1996 and 1995, respectively. The Company has accrued approximately $34,965 and $36,995 as of June 30, 1997 and 1996, 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 $3,349, $3,877, and $3,872 for the years ended June 30, 1997, 1996 and 1995, respectively. The components of expense in Fiscal 1997, 1996 and 1995 are as follows:
1997 1996 1995 ------ ------ ------ Service cost of benefits earned............ $ 140 $ 281 $ 321 Interest cost on liabilities............... 3,940 4,377 4,385 Net amortization and deferral.............. (89) (2) (133) ------ ------ ------ Net periodic postretirement benefit cost... $3,991 $4,656 $4,573 ====== ====== ======
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. The following table sets forth the funded status for the Company's postretirement health care benefit plans at June 30,:
1997 1996 ------- ------- Accumulated postretirement benefit obligations: Retirees........................................ $ 48,145 $ 46,846 Fully eligible active participants.............. 390 347 Other active participants....................... 2,335 1,887 ------- ------- Accumulated postretirement benefit obligation..... 50,870 49,080 Unrecognized net loss............................. 6,173 2,086 ------- ------- Accrued postretirement benefit liability.......... $ 44,697 $ 46,994 ======= =======
The accumulated postretirement benefit obligation was determined using a discount rate of 7.75%, and a health care cost trend rate of 7.0% 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, 1997, by approximately $1,871, and increase the net periodic postretirement benefit cost by approximately $132 for Fiscal 1997. 12 INCOME TAXES ------------ The provision (benefit) for income taxes from continuing operations is summarized as follows:
1997 1996 1995 -------- -------- -------- Current: Federal.......................... $ 6,143 $ (41,595) $ (8,315) State............................ 1,197 1,203 424 Foreign.......................... (45) 669 1,191 -------- -------- -------- 7,295 (39,723) (6,700) Deferred: Federal......................... (15,939) 21,315 (19,450) State........................... 3,444 (3,657) (2,052) -------- -------- -------- (12,495) 17,658 (21,502) -------- -------- -------- Net tax benefit.................... $ (5,200) $ (22,065) $ (28,202) ======== ======== ========
The income tax provision (benefit) for continuing operations differs from that computed using the statutory Federal income tax rate of 35%, in Fiscal 1997, 1996 and 1995, for the following reasons:
1997 1996 1995 -------- -------- -------- Computed statutory amount.......... $ (1,354) $ 40,357 $ (26,641) State income taxes, net of applicable federal tax benefit... 778 782 (1,794) Nondeductible acquisition valuation items.................. 1,064 1,329 1,420 Tax on foreign earnings, net of tax credits...................... (1,938) 1,711 2,965 Difference between book and tax basis of assets acquired and liabilities assumed.............. (1,102) 1,040 1,366 Nontaxable gain related to the Merger........................... -- (60,681) -- Revision of estimate for tax accruals......................... (5,335) (3,500) (5,000) Other.............................. 2,687 (3,103) (518) --------- --------- -------- Net tax benefit.................... $ (5,200) $ (22,065) $ (28,202) ========= ========= ======== /TABLE 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:
1997 1996 1995 Deferred Deferred Deferred June 30, (Provision) June 30, (Provision)(Provision) 1997 Benefit 1996 Benefit Benefit -------- ---------- -------- ----------- ----------- Deferred tax assets: Accrued expenses................... $ 6,440 $ 504 $ 5,936 $ (1,643) $ (2,218) Asset basis differences............ 572 (1,492) 2,064 1,787 (7,292) Inventory.......................... 2,198 2,198 -- -- -- Employee compensation and benefits. 5,141 (267) 5,408 (26) 106 Environmental reserves............. 3,259 (1,253) 4,512 (737) (1,202) Loss and credit carryforward....... -- (8,796) 8,796 (23,229) 17,991 Postretirement benefits............ 19,472 138 19,334 (1,273) 514 Other.............................. 7,598 2,079 5,519 2,186 1,530 ------- ------- ------- ------- ------- 44,680 (6,889) 51,569 (22,935) 9,429 Deferred tax liabilities: Asset basis differences............ (26,420) (3,855) (22,565) 16,602 4,129 Inventory.......................... -- 2,010 (2,010) 4,684 3,176 Pensions........................... (19,281) (1,038) (18,243) 1,516 1,074 Other.............................. (7,240) 22,267 (29,507) (17,525) 3,694 ------- ------- ------- ------- ------- (52,941) 19,384 (72,325) 5,277 12,073 ------- ------- ------- ------- ------- Net deferred tax liability........... $ (8,261) $ 12,495 $(20,756) $(17,658) $ 21,502 ======= ======= ======= ======= =======
The amounts included in the balance sheet are as follows:
June 30, June 30, 1997 1996 -------- -------- Prepaid expenses and other current assets: Current deferred..................... $ 11,307 $ 8,012 ======= ======= Income taxes payable: Current deferred..................... $ (2,735) $ 20,797 Other current........................ 8,616 3,838 ------- ------- $ 5,881 $ 24,635 ======= ======= Noncurrent income tax liabilities: Noncurrent deferred.................. $ 22,303 $ 7,971 Other noncurrent..................... 19,710 23,766 ------- ------- $ 42,013 $ 31,737 ======= =======
The 1997, 1996 and 1995 net tax benefits include the results of reversing $5,335, $3,500 and $5,000, 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 that such earnings are intended to be repatriated. 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, 1997, 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. 13. MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES ---------------------------------------------- Included in the Company's $68,309 of minority interest at June 30, 1997, is $67,649, representing approximately 40.7% of Banner's common stock effectively outstanding on a consolidated basis. 14. EQUITY SECURITIES ----------------- The Company had 13,992,283 shares of Class A common stock and 2,632,516 shares of Class B common stock outstanding at June 30, 1997. 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 1997, 234,935 shares of Class A Common Stock were issued as a result of the exercise of stock options and shareholders converted 1,188 shares of Class B common stock into Class A common stock. RHI holds an investment of 4,319,423 shares of the Company's Class A common stock. At June 30, 1997, RHI's market value was approximately $78,649. The Company accounts for the Class A common stock held by RHI as Treasury Stock. 15. STOCK OPTIONS AND WARRANTS -------------------------- Stock Options ------------- The Company's 1986 Non-Qualified and Incentive Stock Option Plan (the "1986 Plan"), authorizes the issuance of 4,320,000 shares of Class A Common Stock upon the exercise of stock options issued under the 1986 Plan. 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. At the Company's 1996 annual meeting, the Company's stockholders approved an extension of the expiration date of the 1986 Plan from April 9, 1996 to April 9, 2006. 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. At the Company's 1996 annual meeting, the Company's stockholders approved the 1996 Non-Employee Directors Stock Option Plan (the "1996 NED Plan"). The ten year 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 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. Summaries 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, 1994 1,520,706 $ 5.57 Granted 356,600 3.78 Expired (116,875) 5.44 Forfeited (60,650) 5.94 ----------- -------- Outstanding at June 30, 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 =========== ======== Exercisable at June 30, 1995 1,159,306 $ 5.68 Exercisable at June 30, 1996 399,022 $ 4.59 Exercisable at June 30, 1997 486,855 $ 4.95
A summary of options outstanding at June 30, 1997 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 1,022,700 $ 4.10 2.6 years 452,509 $ 4.10 $13.625 - 16.25 462,740 $14.89 4.4 years 34,346 $16.19 - --------------- ----------- -------- --------- ----------- -------- $ 3.50 - 16.25 1,485,440 $ 7.46 3.2 years 486,855 $ 4.95 =============== =========== ======== ========= =========== ========
The weighted average grant date fair value of options granted during 1997 and 1996 was $6.90 and $1.95, 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:
Assumption 1997 1996 - ---------- ----------- ----------- Risk-free interest rate 6.0% - 6.7% 5.5% - 6.6% Expected life in years 4.65 4.27 Expected volatility 43% - 45% 46% - 47% Expected dividends none none
The Company applies APB Opinion 25 in accounting for its stock option plans. Accordingly, no compensation cost has been recognized for the stock option plans in 1997 or 1996. If stock options granted in 1997 and 1996 were accounted for based on their fair value as determined under SFAS 123, pro forma earnings would be as follows:
1997 1996 -------- -------- Net earnings: As reported $ 1,331 $189,706 Pro forma 283 189,460 Primary earnings per share: As reported $ .08 $ 11.43 Pro forma .02 11.41 Fully diluted earnings per share: As reported $ .08 $ 11.09 Pro forma .02 11.08
The pro forma effects of applying SFAS 123 are not representative of the effects on reported net earnings for future years. SFAS 123 does not apply to awards made prior to 1996, and additional awards in future years are expected. 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 services. The warrants may be earned on a pro-rata basis over a six-month period ending October 31, 1997. The warrants become exercisable on November 1, 1997 and expire on November 8, 2000. The Company recorded a selling, general & administrative expense of $191 in 1997 for stock warrants earned in 1997 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 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 Mach 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., Tel-Save Holdings, Inc., or Teleport Communications Group,Inc.; (ii) within 365 days after a change of control of the Company, as defined in the FHC Credit Agreement; or (iii) within 365 days after a change of control of Banner, as defined in the Banner Credit Agreement. In no event may the warrant be exercised after March 13, 2002. 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, 1997. 16. 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 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 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 off-balance-sheet instruments at June 30, 1997, was not material. The carrying amounts and fair values of the Company's financial instruments at June 30, 1997 and 1996, are as follows:
June 30, 1997 June 30, 1996 --------------------- --------------------- Carrying Fair Carrying Fair Amount Value Amount Value -------- -------- -------- -------- Cash and cash equivalents......... $ 19,420 $ 19,420 $ 39,649 $ 39,649 Investment securities: Short-term equity securities.... 16,094 16,122 10,362 10,362 Short-term other investments.... 9,553 9,592 136 167 Long-term other investments..... 4,120 4,617 585 1,451 Notes receivable: Current......................... -- -- 170,384 170,384 Long-term....................... 1,300 1,300 3,702 3,702 Short-term debt................... 15,629 15,629 76,535 76,535 Long-term debt: Bank credit agreement........... 177,250 177,250 112,500 112,500 Senior notes and subordinated debentures.................... 261,233 270,995 260,125 264,759 Industrial revenue bonds........ 1,500 1,500 1,500 1,500 Capitalized leases.............. 1,897 1,897 65 65 Other........................... 6,835 6,835 2,756 2,756
17. 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 ======
Write down was required because product line was discontinued. Includes lease settlements, write-off of leasehold improvements, maintenance, restoration and clean up costs. 18. RELATED PARTY TRANSACTIONS -------------------------- Corporate office administrative expense recorded by FHC and its predecessors was billed to the Company on a monthly basis during 1997, 1996 and 1995. These costs represent the cost of services incurred on behalf of affiliated companies. Each of these affiliated companies has reimbursed FHC for such services. The Company and its wholly-owned 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. Prior to the consolidation of Banner on February 25, 1996, the Aerospace Fasteners segment had sales to Banner of $3,663 and $5,494 in Fiscal 1996, and 1995, respectively. 19. 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, 1997, are as follows: $5,182 for 1998, $4,127 for 1999, $2,937 for 2000, $2,271 for 2001, and $1,732 for 2002. Rental expense on operating leases from continuing operations for Fiscal 1997, 1996 and 1995 was $4,928, $6,197, and $6,695, respectively. Minimum commitments under capital leases for each of the five years following June 30, 1997, was $651 for 1998, $693 for 1999, $262 for 2000, $210 for 2001, and $137 for 2002, respectively. At June 30, 1997, the present value of capital lease obligations was $1,897. At June 30, 1997, capital assets leased, included in property, plant, and equipment consisted of:
Buildings and improvements....... $ 1,396 Machinery and equipment.......... 8,017 Furniture and fixtures........... 114 Less: Accumulated depreciation... (7,700) ------ $ 1,827 ======
20. CONTINGENCIES ------------- CL Motor Freight ("CL") Litigation ---------------------------------- The Workers Compensation Bureau of the State of Ohio is seeking reimbursement from the Company for up to $5,400 for CL workers compensation claims which were insured under a self-insured program of CL. The Company has contested a significant portion of this claim and believes that the ultimate disposition of this claim will not be material. 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 FII 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. 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 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 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 June 30, 1997, the consolidated total recorded liabilities of the Company for environmental matters approximated $8,420, 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 $13,200 on an undiscounted basis. 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. 21. 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, are reported under Corporate and Other, along with results two smaller operations. Prior to the Merger on March 13, 1996, the Company operated in the Communications Services segment. The Company's financial data by business segment is as follows:
1997 1996 1995 --------- --------- --------- Sales: Aerospace Fasteners.............. $ 269,026 $ 218,059 $ 215,364 Aerospace Distribution (a)....... 411,765 129,973 -- Communications Services (b)...... -- 91,290 108,710 Corporate and Other.............. 72,882 67,330 41,476 Eliminations (c)................. (15,213) (5,842) -- --------- --------- --------- Total Sales........................ $ 738,460 $ 500,810 $ 365,550 ========= ========= ========= Operating Income (Loss): Aerospace Fasteners (d).......... $ 17,390 $ 135 $ (11,497) Aerospace Distribution (a)....... 30,891 5,625 -- Communications Services (b)...... -- 14,561 18,498 Corporate and Other.............. (17,764) (14,876) (20,420) --------- --------- --------- Operating Income (Loss)............ $ 30,517 $ 5,445 $ (13,419) ========= ========= ========= Capital Expenditures: Aerospace Fasteners.............. $ 8,964 $ 3,841 $ 4,974 Aerospace Distribution........... 4,787 1,556 -- Communications Services.......... -- 8,500 10,349 Corporate and Other.............. 8,365 1,225 937 --------- --------- --------- Total Capital Expenditures......... $ 22,116 $ 15,122 $ 16,260 ========= ========= ========= Depreciation and Amortization: Aerospace Fasteners.............. $ 16,112 $ 14,916 $ 15,619 Aerospace Distribution........... 5,138 1,341 -- Communications Services.......... -- 8,064 10,329 Corporate and Other.............. 4,685 5,396 5,260 --------- --------- --------- Total Depreciation and Amortization $ 25,935 $ 29,717 $ 31,208 ========= ========= ========= Identifiable Assets at June 30,: Aerospace Fasteners.............. $ 346,533 $ 252,200 $ 290,465 Aerospace Distribution........... 428,436 329,477 -- Communications Services.......... -- -- 108,666 Corporate and Other.............. 292,364 428,261 451,163 --------- --------- --------- Total Identifiable Assets.......... $1,067,333 $1,009,938 $ 850,294 ========= ========= ========= (a) Effective February 25, 1996, the Company became the majority shareholder of Banner Aerospace, Inc. and, accordingly, began consolidating their results. (b) Effective March 13, 1996, the Company's investment in the Communications Services segment was recorded using the equity method. (c) Represents intersegment sales from the Aerospace Fasteners segment to the Aerospace Distribution segment. (d) Includes restructuring charges of $2.3 million in Fiscal 1996.
22. 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:
1997 1996 1995 --------- --------- --------- Sales by Geographic Area: United States.................... $ 601,834 $ 393,247 $ 283,811 Europe........................... 136,626 107,186 80,945 Other............................ -- 377 794 --------- --------- --------- Total Sales........................ $ 738,460 $ 500,810 $ 365,550 ========= ========= ========= Operating Income by Geographic Area: United States.................... $ 24,299 $ (342) $ (13,024) Europe........................... 6,218 5,935 (432) Other............................ -- (148) 37 --------- --------- --------- Total Operating Income............. $ 30,517 $ 5,445 $ (13,419) ========= ========= ========= Identifiable Assets by Geographic Area at June 30,: United States.................... $ 857,943 $ 932,311 $ 763,734 Europe........................... 209,390 77,627 85,668 Other............................ -- -- 892 --------- --------- --------- Total Identifiable Assets.......... $1,067,333 $1,009,938 $ 850,294 ========= ========= =========
Export sales are defined as sales to customers in foreign countries by the Company's domestic operations. Export sales amounted to the following:
1997 1996 1995 --------- --------- --------- Export Sales Europe........................... $ 48,490 $ 27,330 $ 13,329 Asia (excluding Japan)........... 29,145 8,920 1,526 Japan............................ 19,819 11,958 4,140 Canada........................... 17,955 8,878 2,810 Other............................ 15,907 8,565 911 --------- --------- --------- Total Export Sales................. $ 131,316 $ 65,651 $ 22,716 ========= ========= ========= /TABLE 23. 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:
- --------------------------------------------------------------------------------------------- Fiscal 1997 quarters ended Sept. 29 Dec. 29 Mar. 30 June 30 - --------------------------------------------------------------------------------------------- Net sales.......................... $146,090 $159,912 $190,782 $241,676 Gross profit....................... 39,810 38,775 52,788 73,750 Earnings (loss) from continuing operations........................ (4,618) (2,977) 40 8,886 per share...................... (.28) (.18) -- .51 Net earnings (loss)................ (4,618) (2,977) 40 8,886 per share...................... (.28) (.18) -- .51 Market price of Class A Stock: High............................. 17 17 3/4 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
- --------------------------------------------------------------------------------------------- Fiscal 1996 quarters ended Oct. 1 Dec. 31 March 31 June 30 - --------------------------------------------------------------------------------------------- Net sales.......................... $107,926 $103,450 $135,451 $153,983 Gross profit....................... 23,591 23,036 29,846 40,418 Earnings (loss) from continuing operations....................... (9,286) (9,016) 155,095 577 per share...................... (.58) (.56) 9.27 .03 Earnings from discontinued operations, net.................. 3,870 3,420 1,769 127 per share...................... .24 .21 .11 .01 Gain (loss) from disposal of discontinued operations, net..... (20) (7) 61,286 (7,673) per share...................... -- -- 3.66 (.45) Extraordinary items, net........... -- -- (10,436) -- per share...................... -- -- (.62) -- Net earnings (loss)................ (5,436) (5,603) 207,714 (6,969) per share...................... (.34) (.35) 12.42 (.41) Market price range of Class A Stock High............................. 6 8 3/4 9 7/8 15 7/8 Low.............................. 2 7/8 4 3/4 8 9 1/4 Close............................ 5 1/8 8 1/2 9 3/8 14 5/8
Included in earnings (loss) from continuing operations are (i) a $2,528 nonrecurring gain from the sale of SBC in the fourth quarter of Fiscal 1997, (ii) charges to reflect the cost of restructuring the Company's Aerospace Fasteners segment, of $285, $959 and $1,075 in the second, third and fourth quarters of Fiscal 1996, respectively, and (iii) nonrecurring income of $161,406 resulting primarily from the gain on the merger of FCSC with STI in the third quarter of Fiscal 1996. Earnings from discontinued operations, net, includes the results of DME and Data in each Fiscal 1996 quarter. Extraordinary items relate to the early extinguishment of debt by the Company. (See Note 7). 24. SUBSEQUENT EVENTS ----------------- On July 16, 1997, STFI entered into a definitive merger agreement (the "STFI/Tel-Save Merger") with Tel-Save Holdings, Inc. ("Tel-Save"), pursuant to which Tel-Save plans to acquire STFI in a business combination accounted for as a pooling of interests. Upon consummation of the STFI/Tel-Save Merger, the Company will receive shares of Tel-Save's common stock in exchange for its shares of STFI common stock and STFI cumulative convertible preferred stock. The price to be paid by Tel-Save is $11.25 for each share of STFI. This price may increase depending on the price of Tel-Save prior to the effective date of the merger. In addition, the Company will receive approximately $22,000 cash in redemption for its shares of STFI special preferred stock. The Company expects the merger to be consummated prior to December 31, 1997. As a result of the transaction, the Company will recognize an estimated gain in excess of $100,000. 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 subsidiaries as of June 30, 1997 and 1996, and the related consolidated statements of earnings, stockholders' equity and cash flows for the years ended June 30, 1997, 1996 and 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform 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, the financial statements referred to above present fairly, in all material respects, the financial position of The Fairchild Corporation and subsidiaries as of June 30, 1997 and 1996, and the results of their operations and their cash flows for the years ended June 30, 1997, 1996 and 1995, in conformity with generally accepted accounting principles. Arthur Andersen LLP Washington, D.C. September 5, 1997 ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE - ------------------------------------------------------------- None. PART III -------- ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY - --------------------------------------------------------- The information required by this Item is incorporated herein by reference from the 1997 Proxy Statement. ITEM 11. EXECUTIVE COMPENSATION - -------------------------------- The information required by this Item is incorporated herein by reference from the 1997 Proxy Statement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT - ------------------------------------------------------------------------ The information required by this Item is incorporated herein by reference from the 1997 Proxy Statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - -------------------------------------------------------- The information required by this Item is incorporated herein by reference from the 1997 Proxy Statement. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K - ------------------------------------------------------------------------- The following documents are filed as part of this Report: (a)(1) Financial Statements. All financial statements of the registrant as set forth under Item 8 of this report on Form 10-K (see index on Page 26). (a)(2) Financial Statement Schedules and Report of Independent Public Accountants. Schedule Number Description Page Number --------------- ----------- ----------- II Valuation and Qualifying Accounts 77 All other schedules are omitted because they are not required. Report of Independent Public Accountants ---------------------------------------- To The Fairchild Corporation: We have audited in accordance with generally accepted auditing standards, the consolidated financial statements of The Fairchild Corporation and subsidiaries included in this Form 10-K and have issued our report thereon dated September 5, 1997. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed in the index on the preceding page is the responsibility of the Company's management and is presented for the purpose of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. Arthur Andersen LLP Washington, D.C. September 5, 1997 (a)(3) Exhibits. 3 (a) Registrant's Restated Certificate of Incorporation (incorporated by reference to Exhibit "C" of Registrant's Proxy Statement dated October 27, 1989). (b) Registrant's Amended and Restated By-Laws, as amended as of November 21, 1996 (incorporated by reference to the December 29, 1996 10-Q). 4 (a) Specimen of Class A Common Stock certificate (incorporated by reference to Registration Statement No. 33-15359 on Form S-2). (b) Specimen of Class B Common Stock certificate (incorporated by reference from Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1989 (the "1989 10-K")). (c) Form of Indenture between Registrant and J. Henry Schroder Bank & Trust Company, pursuant to which Registrant's 13-1/8% Subordinated Debentures due 2006 (the "Senior Debentures") were issued (the "Debenture Indenture"), and specimen of Senior Debenture (incorporated by reference to Registration Statement No. 33-3521 on Form S-2). (d) First Supplemental Indenture dated as of November 26, 1986, to the Debenture Indenture (incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the quarter ended December 31, 1986 (the "December 1986 10-Q"). (e) Form of Indenture between Registrant and Manufacturers Hanover Trust Company pursuant to which Registrant's 12-1/4% Senior Subordinated Notes due 1996 (the "Senior Notes") were issued (the"Note Indenture"), and specimen of Senior Note (incorporated by reference to Registration Statement No. 33-03521 on Form S-2). (f) First Supplemental Indenture dated as of November 26, 1986, to the Note Indenture (incorporated by reference to the December 1986 10-Q). (g) Indenture between Registrant and Connecticut National Bank (as successor to National Westminster Bank) dated as of October 15, 1986, pursuant to which Registrant's Intermediate Subordinated Debentures due 2001 (the "Intermediate Debentures") were issued, and specimen of Intermediate Debenture (incorporated by reference to Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1986 (the "September 1986 10-Q")). (h) Indenture between Rexnord Acquisition Corp. ("RAC") and Bank of New York (as successor to Irving Trust Company) dated as of March 2, 1987, pursuant to which RAC's Senior Subordinated Debentures due 1999 (the "Rexnord Senior Debentures") were issued (the "Rexnord Senior Indenture"), and specimen of Rexnord Senior Debenture incorporated by reference from Registrants Annual Report on Form 10-K for fiscal year ended June 30, 1987 (the "1987 10-K"). (i) First Supplemental Indenture between Rexnord Inc. ("Rexnord") (as successor to RAC) and Irving Trust Company dated as of July 1, 1987, to the Rexnord Senior Indenture (incorporated by reference to Registration Statement No. 33-15359 on Form S-2). (j) Second Supplemental Indenture between Rexnord Holdings Inc., now know as RHI Holdings, Inc. ("RHI") (as successor to Rexnord) and Irving Trust Company dated as of August 16, 1988, to the Rexnord Senior Indenture (incorporated by reference to Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1988 (the "1988 10-K")). (k) Indenture between Registrant and Norwest Bank Minneapolis, N.A. dated as of March 2, 1987, pursuant to which Registrant's Junior Subordinated Debentures due 2007 (the "Junior Debentures") were issued, and specimen of Junior Debenture (incorporated by reference to Final Amendment to Tender Offer Statement on Schedule 14D-1 of Banner Acquisition Corp. ("BAC") dated March 9, 1987). (l) First Supplemental Indenture between Registrant and Norwest Bank, Minnesota Bank, N.A., dated as of February 28, 1991, to Indenture dated as of March 2, 1987, relating to the Junior Debentures (incorporated by reference to the 1991 10-K). (m) Securities Purchase Agreement dated as of October 15, 1986, by and among Registrant and each of the Purchasers of the Intermediate Debentures (incorporated by reference to the September 1986 10-Q). (n) Securities Purchase Agreement dated as of March 2, 1987, by and among Registrant, RAC and each of the Purchasers of the Junior Debentures, the Rexnord Senior Debentures and other securities (incorporated by reference to the 1987 10-K). (o) Registration Rights Agreement dated as of October 15, 1986, by and among Registrant and each of the purchasers of the Intermediate Debentures (incorporated by reference to the September 1986 10-Q). (p) Registration Rights Agreement dated as of March 2, 1987, by and among Registrant, RAC and each of the purchasers of the Junior Debentures, the Rexnord Senior Debentures and other securities (incorporated by reference to Registrant's Report on Form 8-K dated March 17, 1987). 10 (a) Deferred Compensation Agreement between Registrant and Samuel J. Krasney dated July 14, 1972, as amended November 17, 1978, September 3, 1985 (the "Krasney Deferred Compensation Agreement") (incorporated by reference to Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1985). (b) Amendment to the Krasney Deferred Compensation Agreement dated September 6, 1990 (incorporated by reference to 1991 10-K). (c) Amended and Restated Employment Agreement between Registrant and Samuel J. Krasney dated April 24, 1990 (incorporated by reference to the 1990 10-K). (d) Letter Agreements dated August 4, 1993 among Samuel J. Krasney, The Fairchild Corporation and Jeffrey J. Steiner (incorporated by reference to 1993 10-K). (e) 1988 U.K. Stock Option Plan of Banner Industries, Inc. (incorporated by reference to the 1988 10-K). (f) Description of grants of stock options to non-employee directors of Registrant (incorporated by reference to the 1988 10-K). (g) Amended and Restated Employment Agreement between Registrant and Jeffrey J. Steiner dated September 10, 1992 (incorporated by reference to 1993 10-K). (h) Letter Agreement dated October 23, 1991 between Registrant and Eric Steiner (incorporated by reference to 1992 10-K). (i) Letter Agreement dated October 23, 1991 between Registrant and John D. Jackson (incorporated by reference to 1992 10-K). (j) Letter Agreement dated October 23, 1991 between Registrant and Michael T. Alcox (incorporated by reference to 1992 10-K). (k) Letter Agreement dated October 23, 1991 between Registrant and Donald E. Miller (incorporated by reference to 1992 10-K). (l) Letter Agreement dated October 23, 1991 between Registrant and John L. Flynn (incorporated by reference to 1992 10-K). (m) Letter Agreement dated April 8, 1993 between Registrant and Thomas Flaherty (incorporated by reference to 1993 10-K). (n) 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). (o) Letter Agreement dated October 21, 1994, as amended December 21, 1994, between Registrant and Eric Steiner (incorporated by reference to the 1995 10-K). (p) Letter Agreement dated October 21, 1994, as amended December 21, 1994, between Registrant and Michael T. Alcox (incorporated by reference to the 1995 10-K). (q) Letter Agreement dated October 21, 1994, as amended December 21, 1994, between Registrant and Donald E. Miller (incorporated by reference to the 1995 10-K). (r) Letter Agreement dated October 21, 1994, as amended December 21, 1994, between Registrant and John L Flynn (incorporated by reference to the 1995 10-K). (s) Letter Agreement dated October 21, 1994, as amended December 21, 1994, between Registrant and Thomas J. Flaherty (incorporated by reference to the 1995 10-K). *(t) Letter Agreement dated September 9, 1996, between Registrant and Colin M. Cohen. (u)(i) 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). (u)(ii) 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). (u)(iii) 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). (u)(iv) 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). (v) 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). (w) Credit Agreement dated as of March 13, 1996, among Fairchild Holding Corporation ("FHC"), Citicorp USA, Inc. and certain financial institutions (incorporated by reference to the 1996 10-K). (x)(i) Restated and Amended Credit Agreement dated as of July 26, 1996, (the "FHC Credit Agreement"), among FHC, Citicorp USA, Inc. and certain financial institutions. (x)(ii) 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 March 30, 1997 10-Q). (x)(iii) 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). *(x)(iv) Amendment No. 3, dated as of June 30, 1997, to the FHC Credit Agreement dated as of March 13, 1996. *(x)(v) Second Amended And Restated Credit Agreement dated as of July 18, 1997, to the FHC Credit Agreement dated as of March 13, 1996. (y)(i) 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). (y)(ii) Amendment No. 1 dated as of July 29, 1996, to the RHI Credit Agreement dated as of May 27, 1996 (incorporated by reference to the 1996 10-K). *(y)(iii) Amendment No. 2 dated as of April 7, 1997, to the RHI Credit Agreement dated as of May 27, 1996. (z)(i) 1986 Non-Qualified and Incentive Stock Option Plan (incorporated by reference to Registrant's Proxy Statement dated November 15, 1990). (z)(ii) 1986 Non-Qualified and Incentive Stock Option Plan (incorporated by reference to Registrant's Proxy Statement dated November 21, 1997). (aa) 1996 Non-Employee Directors Stock Option Plan (incorporated by reference to Registrant's Proxy Statement dated November 21, 1997). (ab) 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). (ac)(i) Employment Agreement between RHI Holdings, Inc., and Jacques Moskovic, dated as of December 29, 1994. (incorporated by reference to the 1996 10-K/A). (ac)(ii) Employment Agreement between Fairchild France, Inc., and Jacques Moskovic, dated as of December 29, 1994. (incorporated by reference to the 1996 10-K/A). *(ac)(iii) Employment Agreement between Fairchild France, Inc., Fairchild CDI, S.A., and Jacques Moskovic, dated as of April 18, 1997. (ad) 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.). (ae) 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 (incorporate by reference to 1992 10-K). (af) Form Warrant Agreement (including form of Warrant) originally 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 of Jeffrey Steiner), for the purchase of 200,000 shares (now 375,000 share after adjustment for June 1989 two-for-one stock split) of Class A or Class B Common Stock (incorporated herein by reference to Exhibit 4(c) of the Company's Registration Statement No. 33-3521 on Form S-2). 11 Computation of earnings per share (found at Note 1 in Item 8 to Registrant's Consolidated Financial Statements for the fiscal year ended June 30, 1997). *21 List of subsidiaries of Registrant. *23 Consent of Arthur Andersen LLP, independent public accountants. *27 Financial Data Schedules 99(a) Financial statements, related notes thereto and Auditors' Report of Banner Aerospace, Inc. for the fiscal year ended March 31, 1997 (incorporated by reference to the Banner Aerospace, Inc. Form 10-K for fiscal year ended March 31, 1997). 99(b) Financial statements, related notes thereto and Auditors' Report of Shared Technologies Fairchild, Inc. for the fiscal year ended December 31, 1996 (incorporated by reference to the Shared Technologies Fairchild, Inc. Form 10-K for fiscal year ended December 31, 1996). *Filed herewith. (b) Reports on Form 8-K Registrant filed no reports on Form 8-K during the last quarter of Fiscal 1997. SIGNATURES ---------- Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. THE FAIRCHILD CORPORATION By: Colin M. Cohen Senior Vice President and Chief Financial Officer Date: September 23, 1997 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant, in their capacities and on the dates indicated. Name, Title, Capacity Date --------------------- ---- Jeffrey J. Steiner September 23, 1997 Chairman, Chief Executive Officer, President and Director Samuel J. Krasney September 23, 1997 Vice Chairman and Director Michael T. Alcox September 23, 1997 Vice President and Director Melville R. Barlow September 23, 1997 Director Mortimer M. Caplin September 23, 1997 Director Colin M. Cohen September 23, 1997 Senior Vice President, Chief Financial Officer and Director Philip David September 23, 1997 Director Harold J. Harris September 23, 1997 Director Daniel Lebard September 23, 1997 Director Jacques S. Moskovic September 23, 1997 Senior Vice Pesident Herbert S. Richey September 23, 1997 Director Moshe Sanbar September 23, 1997 Director Robert A. Sharpe, II September 23, 1997 Executive Vice President and Chief Financial Officer, Fairchild Fasteners, and Director Eric I. Steiner September 23, 1997 Executive Vice President, Chief Operating Officer and Director SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS - ----------------------------------------------- Changes in the allowance for doubtful accounts are as follows:
For the Years Ended June 30, (In thousands) ---------------------------------- 1997 1996 1995 -------- -------- -------- Beginning balance................. $ 6,327 $ 3,971 $ 2,284 Charged to cost and expenses...... 1,999 2,099 1,868 Charges to other accounts (a)..... 491 1,970 (86) Amounts written off............... (714) (1,713) (95) ------- ------- ------- Ending balance.................... $ 8,103 $ 6,327 $ 3,971 ======= ======= ======= (a) Recoveries of amounts written off in prior periods, foreign currency translation and the change in related noncurrent taxes.
Included in Fiscal 1996 is $2,348 relating to the consolidation of Banner Aerospace, Inc. and $(309) from the deconsolidation of the Fairchild Communications Services Company as a result of the Merger. EX-10 2 AMENDMENT NO. 2 Dated as of April 7, 1997 to RESTATED AND AMENDED CREDIT AGREEMENT Dated as of May 27, 1996 This Amendment No. 2 ("Amendment") dated as of April 7, 1997 is entered into between RHI Holdings, Inc., a Delaware corporation ("RHI") and Citicorp North America, Inc., as the sole "Senior Lender" (as defined in the Credit Agreement identified below) of RHI. Capitalized terms used herein without definition are used herein as defined in the Credit Agreement. PRELIMINARY STATEMENT: RHI, Citicorp North America, Inc., as Senior Lender, and the Administrative Agent are parties to that certain Restated and Amended Credit Agreement dated as of May 27, 1996, as amended (the "Credit Agreement"). RHI has requested an amendment to the Credit Agreement to extend the Commitment Period beyond May 26, 1998. Subject to the terms and conditions stated herein, RHI and the sole Senior Lender of RHI have agreed to amend the Credit Agreement as set forth in Section 1. SECTION 1. Amendment to the Credit Agreement. Effective as of April 7, 1997, subject to the satisfaction of the conditions precedent set forth in Section 3 hereof, the Credit Agreement is hereby amended to delete the definition of "Commitment Period" in ite entirety and substitute the follwoing therefor: "Commitment Period" shall mean the period during which the Senior Lenders have committed hereunder to make, subject to the terms and conditions contained herein, Loans and other extensions of credit provided for herein to the Borrower, which period shall commence on the Closing Date and end on August 12, 1998. SECTION 2. Condition Precedent to Effectiveness of this Amendment. This Amendment shall become effective as of April 7, 1997 if, and only if, the Administrative Agent shall have received on or before April 7, 1997, an original copy of this Amendment executed by RHI and the sole Senior Lender. SECTION 3. Representations and Warranties. RHI hereby represents and warrants as follows: 3.1 This Amendment and the Credit Agreement as previously executed and amended and as amended hereby constitute legal, valid and binding obligations of RHI and are enforceable against RHI in accordance with their terms. 3.2 No Event of Default or Potential Event of Default exists or would result from any of the transactions contemplated by this Amendment. 3.3 Upon the effectiveness of this Amendment, RHI hereby reaffirms all covenants, representations and warranties made by it in the Credit Agreement to the extent the same are not amended hereby and agrees that all such covenants, representations and warranties shall be deemed to have been remade as of the date this Amendment becomes effective (unless a representation and warranty is stated to be given on and as of a specific date, in which case such representation and warranty shall be true, correct and complete as of such date). SECTION 4. Reference to and Effect on the Credit Agreement. 4.1 Upon the effectiveness of this Amendment, each reference in the Credit Agreement to "this Agreement", "hereunder", "hereof", "herein" or words of like import shall mean and be a reference to the Credit Agreement, as amended hereby, and each reference to the Credit Agreement in any other document, instrument or agreement executed and/or delivered in connection with the Credit Agreement shall mean and be a reference to the Credit Agreement as amended hereby. 4.2 Except as specifically amended above or in the note modification agreement referenced in Section 3 above, the Credit Agreement, the Notes and all other Loan Documents shall remain in full force and effect and are hereby ratified and confirmed. 4.3 The execution, delivery and effectiveness of this Amendment shall not operate as a waiver of any right, power or remedy of any Senior Lender or Agent or the Administrative Agent under the Credit Agreement, the Notes or any of the other Loan Documents, nor constitute a waiver of any provision contained therein, except as specifically set forth herein. SECTION 5. Execution in Counterparts. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute but one and the same instrument. Delivery of an executed counterpart of this Amendment by telecopier shall be effective as delivery of a manually executed counterpart of this Amendment. SECTION 6. Governing Law. This Amendment shall be governed by and construed in accordance with the laws of the State of New York. SECTION 7. Headings. Section headings in this Amendment are included herein for convenience of reference only and shall not constitute a part of this Amendment for any other purpose. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective officers thereunto duly authorized as of the date first above written. RHI HOLDINGS, INC. CITICORP NORTH AMERICA, INC. By: Karen L. Schneckenburger By: Timothy L. Freeman Treasurer Vice President EX-10 3 AMENDMENT NO. 3 and CONSENT to AMENDED AND RESTATED CREDIT AGREEMENT Dated as of July 26, 1996 THIS AMENDMENT NO. 3 and CONSENT ("Amendment") is entered into as of June 16, 1997 by and among Fairchild Holding Corp., a Delaware corporation (the "U.S. Borrower"), Fairchild Finance Company (f/k/a Kaysel), a private unlimited liability company formed under the laws of The Republic of Ireland (the "U.K. Borrower"), and the institutions identified on the signature pages hereof as Lenders. Capitalized terms used herein but not defined herein shall have the meanings provided in the Credit Agreement (as defined below). W I T N E S S E T H: WHEREAS, the U.S. Borrower, the U.K. Borrower, and the Lenders are parties to that certain Amended and Restated Credit Agreement dated as of July 26, 1996, as amended (together with the Exhibits and Schedules thereto, the "Credit Agreement"), pursuant to which the Lenders have agreed to provide certain financial accommodations to the Borrowers; WHEREAS, the U.S. Borrower has informed the Administrative Agent and Lenders of its desire (i) to form a new Wholly-Owned Subsidiary, Oink Oink, Inc., a Delaware corporation, (ii) upon its becoming a holder of the Capital Stock of Fairchild CDI S.A., a corporation organized under the laws of France and currently a Subsidiary of TFC ("CDI S.A."), to transfer such Capital Stock to VSI Holdings, Inc., a Wholly-Owned Subsidiary of the U.S. Borrower, and for VSI Holdings, Inc. to transfer such Capital Stock to Technologies, and (iii) thereafter to cause CDI S.A. to merge with and into Convac France S.A., a corporation organized under the laws of France and a Wholly-Owned Subsidiary of Technologies ("Convac France"); and WHEREAS, the U.S. Borrower has requested certain consents in connection with the aforesaid proposed Subsidiary formation, stock transfer and Subsidiary merger and a further amendment of Section 10.01 of the Credit Agreement; NOW, THEREFORE, in consideration of the premises set forth above, the terms and conditions contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: 1. Amendment to Credit Agreement. Effective as of June 16, 1997, upon satisfaction of the conditions precedent set forth in Section 3 below, the Credit Agreement is hereby amended as follows: 1.1 Section 10.01 is amended to delete the provisions of Section 10.01(g) in their entirety and substitute the following therefor: (g) Indebtedness arising from (i) intercompany loans from the U.S. Borrower to any of its Subsidiaries which is a Guarantor (other than Fairchild Technologies USA, Inc.) or from any such Subsidiary to the U.S. Borrower or any other such Subsidiary, (ii) those certain intercompany loans identified on Schedule 10.01-G attached hereto and made a part hereof incurred on or before February 21, 1997 or under promissory notes identified on Schedule 10.01-G evidencing Indebtedness owing (A) between the U.S. Borrower and Fairchild Retiree Medical Services, Inc. and (B) by the U.K. Borrower to the U.S. Borrower upon the assignment by the U.S. Borrower of the promissory note executed on February 20, 1997 by Simmonds Holding to the U.K. Borrower as referenced on Schedule 10.01-G, (iii) Indebtedness incurred after February 21, 1997 in addition to that permitted under clause (i) above, in an amount not to exceed $12,000,000 in the aggregate, exclusive of fees and interest with respect thereto, arising from intercompany loans (A) from the U.S. Borrower to Fairchild Technologies USA, Inc. and any of the U.S. Borrower's Subsidiaries which are not Guarantors or from any such Subsidiary of the U.S. Borrower to the U.S. Borrower or any other such Subsidiary and (B) from the U.K. Borrower to any Subsidiary of the U.S. Borrower, and (iv) from RHI to the U.S. Borrower; provided that such loans are subordinated to the payment and performance of the Obligations and are evidenced by promissory notes in form and substance satisfactory to the Administrative Agent, which terms of such promissory notes executed with respect to loans from RHI to the U.S. Borrower on or after February 21, 1997, the proceeds of which are used, directly or indirectly, to effect the acquisition of Capital Stock and convertible bonds of Simmonds, S.A. and compliance with the requirements of the Support Agreement, shall include, without limitation, provisions stating that such loans are not payable until the Obligations are satisfied in full, in cash, and that interest payable with respect thereto shall not be payable in cash, but only in kind, and provided further that (1) the amount of Indebtedness permitted in clause (iii) hereof shall be in addition to the amount of proceeds of loans permitted in clause (iv) hereof which are in turn loaned by the U.S. Borrower to a Subsidiary of the U.S. Borrower or by such a Subsidiary to another such Subsidiary and (2) the amount of proceeds of loans made as permitted by clause (iii)(A) and included for purposes of determining usage of the aforesaid $12,000,000 limitation which are in turn loaned by Fairchild Technologies USA, Inc. or a Subsidiary of the U.S. Borrower which is not a Guarantor to any other such Subsidiary shall not be double counted for purposes of calculating compliance with the aforesaid $12,000,000 limitation; 2. Consents. The Lenders signatory hereto hereby consent to: 2.1 the formation by the U.S. Borrower of a new Subsidiary to be named Oink Oink, Inc., under the laws of Delaware, provided that (a) 100% of the Capital Stock of Oink Oink, Inc. is pledged to the Administrative Agent, (b) Oink Oink, Inc. becomes a Guarantor and grants a security interest to the Administrative Agent for the benefit of the Holders in all of its assets to secure the Obligations and its obligations as a Guarantor, in each instance, on terms and conditions and subject to agreements satisfactory to the Administrative Agent; 2.2 the transfer by capital contribution of the Capital Stock of CDI S.A. (a) by the U.S. Borrower to VSI Holdings, Inc. and (b) by VSI Holdings, Inc. to Technologies; and 2.3 the merger of CDI S.A. with and into Convac France, with Convac France being the surviving corporation and, thereafter, the change of Convac France's name; provided that the U.S. Borrower notifies the Administrative Agent of such name change promptly upon its becoming effective. 3. Conditions to Effectiveness. The provisions of this Amendment shall become effective as of June 16, 1997 upon receipt by the Administrative Agent, by no later than 5:00 p.m. (New York time) on June 16, 1997, of executed counterparts of this Amendment signed on behalf of the Borrowers and the Requisite Lenders. 4. Representations, Warranties and Covenants. 4.1 The Borrowers hereby represent and warrant that this Amendment and the Credit Agreement, as amended hereby, constitute the legal, valid and binding obligations of the Borrowers and are enforceable against the Borrowers in accordance with their terms. 4.2 The Borrowers hereby represent and warrant that, before and after giving effect to this Amendment, no Event of Default or Potential Event of Default has occurred and is continuing. 4.3 Each Borrower hereby reaffirms all agreements, covenants, representations and warranties made in the Credit Agreement, to the extent the same are not amended hereby, and made in the other Loan Documents to which it is a party; and agrees that all such agreements, covenants, representations and warranties shall be deemed to have been remade as of the effective date of this Amendment. To the extent the Credit Agreement is amended hereby to modify or add agreements, covenants and/or representations and warranties, such agreements, covenants and/or representations and warranties are made as of the date on which this Amendment becomes effective with respect thereto. 5. Reference to and Effect on the Credit Agreement. 5.1 Upon the effectiveness of this Amendment, each reference in the Credit Agreement to "this Agreement", "hereunder", "hereof", "herein" or words of like import shall mean and be a reference to the Credit Agreement as amended hereby. 5.2 Except as specifically amended above, the Credit Agreement shall remain in full force and effect, and is hereby ratified and confirmed. 5.3 The execution, delivery, and effectiveness of this Amendment shall not, except as expressly provided herein, operate as a waiver of any right, power or remedy of the Administrative Agent or Lenders, or constitute a waiver of any provision of any of the Loan Documents. 6. Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. 7. Headings. Section headings in this Amendment are included herein for convenience of reference only and shall not constitute a part of this Amendment for any other purpose. 8. Counterparts. This Amendment may be executed by one or more of the parties hereto on any number of separate counterparts, each of which shall be deemed an original and all of which, taken together, shall be deemed to constitute one and the same instrument. Delivery of an executed counterpart of this Amendment by facsimile transmission shall be effective as delivery of a manually executed counterpart hereof. IN WITNESS WHEREOF, this Amendment has been duly executed as of the day and year first above written. FAIRCHILD HOLDING CORP. By: Karen L. Schneckenburger Vice President & Treasurer FAIRCHILD FINANCE COMPANY (f/k/a KAYSEL) By: Karen L. Schneckenburger Attorney CITICORP USA, INC. By: Timothy L. Freeman Attorney-in-Fact NATIONSBANK, N.A. By: Michael R. Heredia Title: Senior Vice President CAISSE NATIONALE DE CREDIT AGRICOLE By: Katherine I. Abbott Title: First Vice President UNION BANK OF CALIFORNIA By: Cary Moore Title: Vice President SCHEDULE 10.01-G to Amended and Restated Credit Agreement Dated as of July 26, 1996 Intercompany Indebtedness Outstanding as of February 21, 1997 Indebtedness Owing by U.S. Borrower to a Subsidiary of U.S. Borrower: Principal Subsidiary Amount Evidenced By U.K. Borrower $1,450,000 Promissory Note dated February 12, 1997 Fairchild Retiree $1,500,000 Promissory Note dated Medical Services, December 31, 1996 Inc. Fairchild $2,000,000 Promissory Note dated Retiree Medical December 31, 1996 Services, Inc. Indebtedness Owing by Subsidiaries of U.S. Borrower to U.S. Borrower Principal Subsidiary Amount Evidenced By Fairchild Tech- DM15,370,956.69 Books & records nologies GmbH Fairchild Tech- $1,485,512 Books & records nologies GmbH Fairchild Retiree $2,000,000 Promissory Note dated Medical Services, December 31, 1996 Inc. Fairchild Fasteners Fr45,100,000 Promissory Note dated Europe-Simmonds February 20, 1997 S.A.R.L. Indebtedness Owing by a Subsidiary of the U.S. Borrower to Another Subsidiary of the U.S. Borrower: Principal Obligor Obligee Amount Evidenced By VSI Holdings, Fairchild $35,600,000 Promissory Note Inc. Retiree Medical dated December 31, Services, Inc. 1996 Fairchild Camloc DM13,569,000 Share Purchase Technologies Holdings, Inc. Agreement dated GmbH July 1, 1992 Fairchild Fairchild DM716,684 Books and records Technologies Technologies USA, Inc. GmbH Voi-Shan VSI Holdings, DM1,860,000 Promissory Note Diessel GmbH Inc. dated March 1, 1994 Voi-Shan Fairchild DM231,428 Promissory Note Diessel GmbH Technologies dated March 1, 1994 GmbH Voi-Shan Fairchild $281,814.01 Promissory Note Diessel GmbH Technologies dated October 30, GmbH 1996 Voi-Shan Camloc GmbH DM1,800,000 Loan Agreement dated Diessel GmbH May 24, 1996 Voi-Shan Fairchild DM738,397.90 Promissory Note Diessel GmbH Fasteners dated December 9, France S.A.R.L. 1996 Camloc GmbH Fairchild DM300,000 Loan Agreement dated Fasteners May 29, 1996 France S.A.R.L. Banner JJS Limited GBP2,070,314 Books and records Investments (UK) PLC EX-10 4 September 9, 1996 VIA TELEFAX: (630) 527-8392. Mr. Colin M. Cohen 2105 Keim Drive Naperville, Illinois 60565 Dear Colin: This will confirm the terms and conditions under which The Fairchild Corporation is offering to employ you as a Senior Vice President - Business Development and Finance, until such time as the current Chief Financial Officer resigns as Chief Financial Officer, at which time you will become Chief Financial Officer and retain your title as Senior Vice President - Business Development and Finance. This agreement is subject to the approval of the Board of Directors and the Compensation and Stock Option Committee of The Fairchild Corporation. Parties: The Fairchild Corporation ("Fairchild") and Colin M. Cohen. All references to "you" shall mean Colin M. Cohen. Position: Your position will be Senior Vice President - Business Development and Finance, and Chief Financial Officer, reporting directly to the Chief Executive Officer. Compensation: Your base salary ("base salary") will be at a rate not less than $225,000 per year, payable bi-weekly in accordance with Fairchild's usual payroll policies. Commencing as of July 1, 1996, you will be eligible to participate in Fairchild's Executive Incentive Compensation Plan, and to receive additional compensation ("incentive bonus") at a factor of 50% of your base salary, your base salary as of the first day of each fiscal year being the benchmark for such computation for the entire fiscal year, irrespective of any increase in base salary during such fiscal year. Subject to Compensation [Cont.]: termination for cause, your incentive bonus for fiscal 1997 shall in no event be less than $112,500, irrespective of whether targets are met. In addition to the incentive bonus, you will be entitled to receive such special bonuses as shall be approved from time to time by Fairchild's Stock Option and Compensation Committee (the "Compensation Committee"). Your base salary will be reviewed annually by the Compensation Committee, and increases, if any, to your base salary will be at the discretion of the Board of Directors. Stock Options: You will be granted an option to acquire up to 50,000 shares of Class A Common Stock of Fairchild, in accordance with the 1986 Non-Qualified and Incentive Stock Option Plan of Fairchild, as amended (the "1986 Stock Option Plan), subject to the approval of the Compensation Committee, Fairchild's Board of Directors and the approval of its shareholders of the extension of the 1986 Stock Option Plan; provided, however, that notwithstanding the provisions of the 1986 Stock Option Plan, options to acquire 25,000 shares shall be deemed vested immediately upon grant, 12,500 shall be deemed vested upon the first anniversary of grant, and 12,500 shall be deemed vested on the second anniversary of grant. Additional Stock Options: While you are in the employ of Fairchild, you may be granted additional stock option awards under the 1986 Stock Option Plan, as determined from time to time by the Compensation Committee. Lost Compensation Reimbursement: Fairchild acknowledges that in accepting Fairchild employment at this time, you will be forfeiting substantial compensation to which you would otherwise be entitled. To recompense you Lost Compensation Reimbursement [Cont.]: for such compensation, Fairchild shall pay you $150,000 upon commencement of the Initial Term (hereinafter defined). The obligations of Fairchild under this section are absolute and unconditional, and will survive your death or disability, or the termination of your Fairchild employment, for any reason (whether such termination is during or after the term of your employment). Automotive Allowance: You will be eligible to participate in the Fairchild Executive Automobile Ownership Plan at a reimbursement rate ($650 per month) equal to that of other senior officers of Fairchild, other than the Chief Executive Officer. Reimbursement Of Business Expenses: Fairchild will reimburse you for reasonable business-related expenses that you incur in connection with the performance of your duties to Fairchild. Reimbursement for travel expenses shall be consistent with Fairchild's policies, with such exceptions as the Chief Executive Officer may, from time to time, approve. Supplementary Executive Retirement Plan: You shall be entitled to participate in Fairchild's Supplementary Executive Retirement Plan (the "SERP"). Notwithstanding the provisions of the SERP, for purposes of determining years of service with Fairchild, you shall be credited with two years of service for each of the first ten years you remain an active Fairchild employee, but the foregoing shall not affect vesting requirements which shall remain in accordance with the SERP. Other Benefits: You will be eligible to participate in all Fairchild employee benefit plans including Fairchild's Group Health Insurance Plan, Fairchild's Pension Plan, Fairchild's Retiree Medical Plan, Fairchild's Other Benefits [Cont.]: Long Term Disability Plan, and Fairchild's Savings Plan (401(k)), and to receive Fairchild paid group life insurance (up to three times base salary), and to participate in Fairchild's Executive Life Insurance Plan, pursuant to which you will have the option to obtain additional insurance on terms and conditions no less favorable to you than the terms and conditions on which any other executive, other than the Chief Executive Officer, has obtained such insurance. Physical Examination: You will be entitled to go to the Greenbrier Clinic for an annual physical examination at Fairchild expense. Vacation: You will be entitled to not less than four weeks vacation per year, in accordance with the Fairchild vacation policy, as the same shall be amended from time to time. In no event, however, will any such amendment diminish the aggregate amount of vacation to which you are entitled in each year to less than four weeks. Fairchild agrees that, for the calendar year 1996, you shall be entitled to receive up to three weeks of vacation, which may be taken at any time after the commencement of the Initial Term. Board Nomination: You will be nominated to serve on the Board of Directors of Fairchild and such other subsidiaries and affiliates of Fairchild as you deem appropriate for the performance of your duties. Relocation: You will be entitled to participate in the Fairchild Relocation Plan, under which, so long as you are a Fairchild employee at the time you incur any of the relocation expenses contemplated by this section, Fairchild will (i) reimburse you for reasonable moving expenses from Naperville, Illinois, to an area reasonably proximate to Fairchild's corporate offices in Chantilly, Virginia, i.e. the Greater Washington D.C. Metropolitan area ("Fairchild's Environs"), which reasonable moving expenses will include all Relocation [Cont.]: expenses in respect of the packing and transporting of all of your family's household effects and two automobiles from your current residence (the "Naperville House") to your new residence in Fairchild's Environs, (ii) provide you with a "drapery allowance", (iii) pending your family's move from the Naperville House to Fairchild's Environs, but in no event beyond April 30, 1997, reimburse you for temporary living/travel expenses incurred by you and your immediate family, (iv) if you acquire a new residence in Fairchild's Environs prior to selling the Naperville House, Fairchild will make utility, monthly mortgage and real estate tax payments on the Naperville House until you sell the Naperville House, but not for more than seven months, (v) reimburse you for reasonable closing costs (including brokerage, commission and reasonable attorneys' fees) in connection with the sale of the Naperville House, and (vi) reimburse you for reasonable title closing and financing closing costs (including mortgage origination fees or discounts, i.e. "points", so called, not to exceed one point) in connection with your purchase of a primary residence in Fairchild's Environs. If any amount paid or reimbursed to you pursuant to this section is subject to income tax, Fairchild will pay you an additional amount such that the net amount received by you, after the payment of such taxes (and additional taxes attributable to such payment), are the amounts set forth in this section; subject to confirmation by Fairchild's Tax Counsel and/or Tax Auditors, your determination of the additional amount required to be paid to you pursuant to this sentence will be conclusive. Fairchild agrees to withhold from any reimbursement of relocation expenses that may constitute taxable income to you, such amount as may be required by law. Term: The initial term of your employment shall commence as of the date you are formally placed on Fairchild's payroll (which date is anticipated to be October 1, 1996), and ending September 30, Term [Cont.]: 1999 (the "Initial Term"). Unless sooner terminated pursuant to the terms hereof, commencing on October 1, 1999, and on each anniversary thereafter, the term of your employment shall automatically be extended for one additional year ("extended term") unless, not later than 180 days preceding such date, you or Fairchild shall give written notice to the other that you or it does not wish to extend the term of employment for such additional one year period. Termination: If at any time during the Initial Term, Fairchild shall terminate your employment for reasons other than Cause (hereinafter defined), or if you terminate your employment for Good Reason (hereinafter defined), you or your estate will be entitled post-termination to a continuation of your base salary, at its then current rate, through and until the later of (i) the end of the Initial Term, or (ii) a period of twenty-four (24) months from the date of the notice of termination (which date of the notice shall be deemed and hereinafter referred to as the "effective date of termination"). Further, you will be entitled to the incentive bonus, if any, which you would have been paid (but for such termination), during the period post the effective date of termination during which your base salary is continued, pro rated for any partial fiscal year. If Fairchild elects not to extend the term of your employment for any additional one year period for any reason other than Cause, or if your employment shall be terminated during any extended term, either by Fairchild for any reason other than Cause, or by you for Good Reason, you or your estate shall be entitled to receive as severance, the continuation of your base salary for a period of twenty-four months from the effective date of termination, and shall be entitled to the incentive bonus, if any, during the period post the effective date of termination during which your base salary is continued, pro rated for any partialfiscal year. Termination [Cont.]: Upon any termination, either by Fairchild for any reason other than Cause, or by you for Good Reason, you will be entitled to continue to participate in Fairchild's Group Health Insurance Plan, and Fairchild's Group Life Insurance Plan, for a period of one year after the effective date of termination. Thereafter, you will be eligible for COBRA benefits. These termination payments and benefits shall be in full settlement of any claim you may have to compensation in any form, except for your Relocation Expenses and Lost Compensation Reimbursement. Change of Control: As a senior officer of Fairchild, you will be covered by a "Change in Control" provision including the same "triggers", and at the same level as other senior officers of Fairchild, other than the CEO, a copy of which is attached as Schedule A. Following a Change of Control, if you are the prevailing party in a suit or proceeding against Fairchild, or its successors, to enforce your rights under this Agreement, you shall be entitled to recover from Fairchild, your reasonable attorneys' fees and other costs and expenses in connection with such suit or proceeding. Parachute Payments: In no event shall any amounts payable pursuant to this letter agreement which are deemed to constitute "parachute payments" (as defined in Section 280G of the Internal Revenue Service Code, as amended (the "Code"), when added to any other payments which are deemed to constitute "parachute payments", as defined in the Code, exceed 2.99 times your "base amount" (as defined in the Code). Duties: As Chief Financial Officer and Senior Vice President - Business Development and Finance, you shall perform such duties, reasonably Duties [Cont.]: consistent with your position as Chief Financial Officer and Senior Vice President - Business Development and Finance, as you shall be directed to perform by the Chief Executive Officer and/or the Board of Directors. These duties shall include, but not be limited to, administrative direction of financial and strategic business operations conducted from Fairchild's facility in Chantilly, Virginia, having direct authority over treasury, corporate financial (including all capital markets), accounting, planning and, subject to the overriding authority of the Chief Executive Officer, strategic development functions of Fairchild and participation in the development of new projects for Fairchild. You acknowledge that your office will require your fulltime efforts and attention, and that you shall not, during the Initial Term or any extension, engage in any other business activity, whether or not such other business activity is for your own behalf or for any other person, firm, corporation or other entity (together, a "Person") and whether or not such other Person is in competition with Fairchild. Notwithstanding the foregoing, you shall be allowed to manage and oversee passive investments in noncompeting businesses, provided that such management and oversight does not interfere with the performance of your duties for Fairchild. In addition, you shall have discretion to perform such other duties as are required by law. Confidentiality: You shall enter into a Confidentiality Agreement and an Agreement to Assign to Fairchild inventions and designs, whether patentable or not, conceived or improved by you during the Initial Term or during any extension thereof. Cause: Your employment may be terminated by Fairchild at any time for Cause, which is hereby defined as (i) conduct, at any time, which has involved criminal dishonesty, conviction of any felony, or conviction of any lesser crime or Cause [Cont.]: offense involving the property of Fairchild, or any of its subsidiaries or affiliates, significant conflict of interest, misappropriation of any money or other assets or properties of Fairchild, or that of its subsidiaries or affiliates, (ii) willful violation in any material respect of specific and written lawful directions from the Fairchild's CEO or its Board of Directors, that are consistent with the duties of your office, or willful misconduct or gross negligence in connection with the performance of any of your material duties, (iii) chronic alcoholism or drug addiction, (iv) any other acts or conduct which would constitute a material breach of your obligations to Fairchild, and (v) your death, or your disability as defined pursuant to Fairchild's Long Term Disability Plan. Good Reason: "Good Reason" is hereby defined as any of the following, if undertaken without Cause: (i) breach by Fairchild of any material provision of this Agreement, unless such breach is remedied with reasonable promptness, following written notice from you; (ii) failure by the Board of Directors, at any time, to elect you to, or your removal at any time from, the office of Chief Financial Officer, or the office of Senior Vice President - Business Development and Finance; (iii) diminution in the material duties of your office, or interference in the performance of your material duties with Fairchild, unless the same is remedied, following written notice from you. Move to Fairchild Environs: You agree that you will establish for you and your family your primary residence in Fairchild's Environs, within a reasonable period of time following execution of this Agreement. Indemnification: Fairchild agrees to indemnify you and hold you harmless from, actions, suits or proceedings, in accordance with the lawful provisions of its by-laws, as the same shall be amended and in effect from time to time. Conflicting Arrangements: You represent and warrant to Fairchild that there is no agreement to which you are a party or under which you are bound which would prohibit your employment by Fairchild, or which would in any other manner interfere with the performance by you of your duties for Fairchild, its affiliates and subsidiaries. Governing Law: Our understandings shall be governed by the laws of the Commonwealth of Virginia, exclusive of its choice of law provisions. Binding Effect: This Agreement supersedes all prior negotiations and represents the entire Agreement of the parties, and our signatures hereon will bind us hereto. This Agreement inures to the benefit of Fairchild, its successors and assigns, and will be binding upon, and enforceable against, Fairchild and its successors, including any successor by merger or consolidation, and any entity or entities that acquire all, or substantially all, of Fairchild's assets. This Agreement will inure to the benefit of, and be enforceable by you and your heirs, legatees, executors, and personal representatives and, to the extent that they are entitled to receive any compensation, benefit or payment or reimbursement under any provision of this Agreement, your spouse and any other beneficiary; provided, however, that after your acceptance of this Agreement, you will have the right at any time to amend, modify or terminate this Agreement and any provision hereof (including any provision of this Agreement granting any rights to your spouse or any other beneficiary), without the consent or approval of your spouse or any other beneficiary. If the foregoing is acceptable to you, please sign and return a copy to me. Welcome aboard! Very truly yours, Donald E. Miller Senior Vice President, Corporate Secretary and General Counsel Accepted: Colin M. Cohen Dated: September 9, 1996. DEM/cdd DEM\COLINCO3.doc SCHEDULE A If a "change of control" (as defined in the attached Exhibit A) of Fairchild occurs during a three year period from the date of this letter while you are still an employee of Fairchild, you shall be entitled to receive a sum equal to two times your then current total annual compensation (including base salary and incentive compensation target, earned or unearned), payable one-half on the date of change of control (the "first change of payment") and, as long as your employment continues, one-half over a one year period in four equal quarterly installments, commencing three months after the date of change of control (the "second change payments"), except that in the event of your employment is terminated without cause during said one year period (or, in the event you terminate your employment during said one year period for "good reason", as defined below), you shall be entitled to receive immediately the first change payment (if not already paid), any second change payments accrued to date of termination but not yet paid, and the severance payment, if applicable, referred to in the section of this letter entitled "Termination", but shall not be entitled to any further second change payments not then due and payable. For purposes of this section only, "good reason" includes any action by Fairchild (or a successor company) which results in a reduction in your compensation, position, authority, duties or responsibilities, such that your senior management opportunities are substantially lessened, or which results in your primary place of employment being relocated more than 35 miles from the current Dulles Airport location. No sum payable to you upon change of control shall limit or affect your entitlement to base salary or incentive compensation for all periods during which you are employed by Fairchild. EX-10 5 WITH JACQUES S. MOSKOVIC THIS AGREEMENT ("Agreement") dated as of April 18, 1997 is enteredinto by JACQUES S. MOSKOVIC ("Moskovic"), FAIRCHILD FRANCE, INC.("Fairchild France") and Fairchild CDI, S.A. (previously known as COMPANY POURLE DEVELOPPEMENT INDUSTRIEL) ("CDI"). RECITALS By Employment Agreement between Moskovic and Fairchild France dated January 12, 1995, amended by First Amendment to Employment Agreement (collectively, the Original Agreement"), Moskovic is employed by Fairchild France to serve as Manager of Coordination, reporting directly to The Fairchild Corporation ("Fairchild"). Without limitation, Moskovic's duties under the Original Agreement include the supervision of Fairchild's "Fairchild Technologies" division in France. Since the date of the Original Agreement, Fairchild acquired substantially all of the stock of CDI. CDI is now part of Fairchild's "Fairchild Technologies" division in France. The parties wish to amend the Original Agreement to include compensation to Moskovic for his services with respect to CDI. As between Fairchild France and Moskovic, this Agreement constitutes an amendment to the Original Agreement, and, as between CDI and Moskovic, this Agreement constitutes an Employment Agreement. AGREEMENT NOW, THEREFORE, the parties agree as follows: 1. Additional Duties. In addition to his duties under the Original Agreement, Moskovic shall serve as Technical Manager and Chairman of CDI, reporting directly to Fairchild's Chairman of the Board. 2. Compensation. In addition to the compensation provided for in the Original Agreement, as consideration for his services with respect to CDI (or successor), monthly installments in accordance with CDI's usual payroll policies: a) For Fiscal Year 1995: 408,000 French Francs per year (receipt of which is hereby acknowledged by Moskovic). b) For Fiscal Year 1996: 408,000 French Francs per year (receipt of which is hereby acknowledged by Moskovic). c) For Fiscal Year 1997: 408,000 French Francs per year. d) Thereafter, base salary for CDI services will be reviewed annually by the Fairchild Board of Directors (Compensation Committee), and adjustments (if any) to Moskovic's base salary will be at the discretion of the Fairchild Board of Directors (Compensation Committee). 3. Payment of Compensation. The above-indicated compensation shall be paid by CDI. 4. Retroactive Date. This Agreement is retroactive to the commencement of Fiscal Year 1995. 5. Ratification. Except as specifically modified hereby, the Original Agreement remains in full force and effect. References in the Original Agreement to "this Agreement" shall mean the Original Agreement as modified by the First Amendment to Employment Agreement and as further modified by this Agreement. 6. Amendment. This Agreement may not be amended except by written agreement of all the parties hereto (Fairchild France, CDI and Moskovic). FAIRCHILD FRANCE, INC. FAIRCHILD CDI, S.A. By: Donald E. Miller By: Jacques S. Moskovic Vice President Director EX-21 6 The Fairchild Corporation Subsidiaries as of June 30, 1997: Aircraft Tire Corporation [Del.] Banner Aerospace Holding Company I, Inc.[Del] Banner Aerospace Holding Company II, Inc.[Del] Banner Energy Corporation of Kentucky, Inc. [Del] Jenkins Coal Dock Company, Inc.[Del] KenCoal Associates {Partnership} [Ohio] Faircraft Sales Ltd. [Del] Banner Industrial Products, Inc.[Del] Bow Wow, Inc. [Del] Fairchild CDI S.A. [France] Fairchild Export Sales Corporation [Barbados] Fairchild Titanium Technologies, Inc.[Del] Plymouth Leasing Company [Del] RHI Holdings, Inc.[Del] Banner Aerospace, Inc.[Del] (36.3% by RHI) Adams Industries, Inc. [CN] Aero International, Inc. [Ohio] Aerospace Bearing Support, Inc. [CA] Aircraft Bearing Corporation [CA] BAI, Inc. [CA] Banner Aerospace Foreign Sales Corporation [US Virgin Islands] Banner Aerospace Services, Inc. [Ohio] Banner Aerospace-Singapore, Inc. [Del] Banner Distribution, Inc. [Del] Burbank Aircraft Supply, Inc. [Del] Burbank Aircraft International, Inc. [Del] Burbank Aircraft International, GmbH [Germany] DAC International, Inc. [TX] Dallas Aerospace, Inc. [TX] P. B. Herndon Company [Missouri] Discontinued Aircraft, Inc. [TX] Discontinued Services, Inc.[Del] GCCUS, Inc. [CA] Georgetown Jet Center, Inc. [Del] Harco, Inc. [Del] Harco Aerospace Fasteners, Ltd. [Canada] Harco Northern Ireland, Ltd. [N. Ireland--UK] Matrix Aviation, Inc. [KS] Nasam Incorporated [CA] PacAero [CA] Banner Aero (Australia) Pty, Ltd. [Australia] Professional Aviation Associates, Inc. [GA] Professional Aircraft Accessories, Inc. [FL] Solair, Inc. [FL] Banner Aerospace (U.K.) Limited [U.K.] Tri-Fast SARL [France] Banner Capital Ventures, Inc.[Del] Banner Industrial Distribution, Inc.[Del] F. F. Handels GmbH [Germany] Fairchild France, Inc.[Del] Fairchild Holding Corp. [Delaware] A10 Inc. [Del] Fairchild Retiree Medical Services, Inc. [Del] Banner Aerospace, Inc. [Del]{23.0% by FHC} Banner Investments (U.K.) Limited [U.K.] Fairchild Fastener Group Ltd. [U.K.] Camloc (U.K.) Ltd. [U.K.] JJS Limited [United Kingdom] Fairchild Arms International Ltd. [Canada] Fairchld Data Corporation [Del] Fairchild Fasteners Corp.[Del] Fairchild Finance Company [Republic of Ireland] Fairchild Germany, Inc. [Del] Convac USA, Inc. [Del] Fairchild Technologies USA, Inc. [Calif] Mairoll, Inc. [Del] Simmonds Mecaero Fasteners, Inc.[DL] Meow, Inc. [Del] Fairchild Fasteners Europe--Simmonds S.A.R.L Simmonds S.A. [France] Eurosim Componentes Mecanicos de Seguranca, Lda. [Portugal] Mecaero S.A. [France] Transfix S.A. [France] Oink Oink, Inc. [Del.] VSI Holdings, Inc. [Del] Camloc Holdings Inc. [Del.] Fairchild Technologies Gmbh [Germany] Convac Dresden GmbH [Germany] Convac France S.A. [France] Fairchild Fasteners Europe--Camloc GmbH [Germany] Fairchild Fasteners France S.A.R.L. [France] Fairchild Fasteners Europe--VSD GmbH [West Germany] Fairchild Technologies UK Ltd. [U.K.] Fairchild Scandinavian Bellyloading Company Aktiebolag MTA, Inc. [Del] Northking Insurance Company Limited [Bermuda] Recycling Investments, Inc. [Del] Recycling Investments II, Inc. [Del] Scandinavian Bellyloading International, Inc. [CA] Sovereign Air Limited [Del] EX-27 7
5 1,000 12-MOS JUN-30-1997 JUN-30-1997 19,420 25,647 176,266 (8,103) 342,736 589,597 262,744 134,032 1,067,333 243,455 416,922 0 0 2,286 227,339 1,067,333 738,460 737,802 533,337 707,285 0 0 47,798 (3,869) (5,200) 1,331 0 0 0 1,331 0.08 0.08
EX-10 8 ================================================================= SECOND AMENDED AND RESTATED CREDIT AGREEMENT Dated as of July 18, 1997 among FAIRCHILD HOLDING CORP. as Borrower RHI HOLDINGS, INC. as a Guarantor THE INSTITUTIONS FROM TIME TO TIME PARTY HERETO AS LENDERS THE INSTITUTIONS FROM TIME TO TIME PARTY HERETO AS ISSUING BANKS CITICORP USA, INC. as Administrative Agent and Collateral Agent NATIONSBANK, N.A. as Syndication Agent and SALOMON BROTHERS INC as Documentation Agent ================================================================= ARTICLE I DEFINITIONS 1.01. Certain Defined Terms 2 1.02. Computation of Time Periods 38 1.03. Accounting Terms 38 1.04. Other Terms 38 1.05. Dollar Equivalents 39 ARTICLE II AMOUNTS AND TERMS OF LOANS 2.01. Revolving Credit and Term Loan Facilities 40 2.02. General Terms 41 2.03. Authorized Officers and Administrative Agent 43 2.04. Use of Proceeds of Loans 43 ARTICLE III LETTERS OF CREDIT 3.01. Letters of Credit 44 3.02. Transitional Provisions 51 3.03. Obligations Several 51 ARTICLE IV PAYMENTS AND PREPAYMENTS 4.01. Prepayments; Reductions in Commitments 52 4.02. Payments 54 4.03. Promise to Repay; Evidence of Indebtedness 59 4.04. Proceeds of Collateral; Concentration Account Arrangements 60 4.05. Cash Collateral Account 61 4.06. Post-Default Withdrawals from the Concentration Account and Cash Collateral Account 62 ARTICLE V INTEREST AND FEES 5.01. Interest on the Loans and other Obligations 64 5.02. Special Provisions Governing Eurodollar Rate Loans 66 5.03. Fees 68 ARTICLE VI CONDITIONS TO LOANS AND LETTERS OF CREDIT 6.01. Conditions Precedent to the Initial Loans and Letters of Credit 71 6.02. Conditions Precedent to All Loans and Letters of Credit 73 ARTICLE VII REPRESENTATIONS AND WARRANTIES 7.01. Representations and Warranties of the Borrower and RHI 75 ARTICLE VIII REPORTING COVENANTS 8.01. Financial Statements; Communications with Accountants 85 8.02. Events of Default 88 8.03. Lawsuits 88 8.04. Schedules of Intercompany Transfers 89 8.05. Intentionally omitted 89 8.06. Environmental Notices 89 8.07. Other Reports 90 8.08. Other Information 90 8.09. Borrowing Base Certificates 91 ARTICLE IX AFFIRMATIVE COVENANTS 9.01. Corporate Existence, Etc 92 9.02. Corporate Powers; Conduct of Business 92 9.03. Compliance with Laws, Etc. 92 9.04. Payment of Taxes and Claims; Tax Consolidation 92 9.05. Insurance 93 9.06. Inspection of Property; Books and Records; Discussions 93 9.07. Insurance and Condemnation Proceeds 94 9.08. ERISA Compliance 95 9.09. Foreign Employee Benefit Plan Compliance 95 9.10. Intentionally omitted 95 9.11. Maintenance of Property 95 9.12. Condemnation 95 9.13. Tax Allocation Agreement 95 9.14. Performance of Material Contracts 95 9.15. Further Assurances; Appraisals 96 ARTICLE X NEGATIVE COVENANTS 10.01. Indebtedness 97 10.02. Sales of Assets 99 10.03. Liens 101 10.04. Investments 102 10.05. Accommodation Obligations 103 10.06. Restricted Junior Payments 104 10.07. Conduct of Business; Accounting and Reporting Practices 107 10.08. Transactions with Shareholders and Affiliates 107 10.09. Restriction on Fundamental Changes 107 10.10. Sales and Leasebacks 108 10.11. Margin Regulations; Securities Laws 108 10.12. ERISA 108 10.13. Issuance of Equity Securities 109 10.14. Organizational Documents; Material Contractual Obligations 109 10.15. Bank Accounts 110 10.16. Fiscal Year; Fiscal Months 110 10.17. Transactions with Technologies Companies 110 ARTICLE XI FINANCIAL COVENANTS 11.01. Interest Coverage Ratio 111 11.02. Capital Expenditures 111 11.03. Minimum Net Worth 111 11.04. Indebtedness to EBITDA Ratio 111 11.05. Minimum EBITDA 112 11.06. Mandatory Prepayment Tests 112 ARTICLE XII EVENTS OF DEFAULT; RIGHTS AND REMEDIES 12.01. Events of Default 113 12.02. Rights and Remedies 116 ARTICLE XIII THE ADMINISTRATIVE AGENT 13.01. Appointment 119 13.02. Nature of Duties 119 13.03. Rights, Exculpation, Etc 120 13.04. Reliance 121 13.05. Indemnification 121 13.06. Citicorp Individually 122 13.07. Successor Administrative Agents 122 13.08. Relations Among Lenders 123 13.09. Concerning the Collateral and the Loan Documents 123 ARTICLE XIV YIELD PROTECTION 14.01. Taxes 126 14.02. Increased Capital 128 14.03. Changes; Legal Restrictions 129 14.04. Illegality 130 14.05. Compensation 130 14.06. Limitation on Additional Amounts Payable by the Borrower 131 14.07. Change in Lending Office 131 14.08. Judgment Currency 131 ARTICLE XV MISCELLANEOUS 15.01. Assignments and Participations 133 15.02. Expenses 135 15.03. Indemnity 137 15.04. Change in Accounting Principles 138 15.05. Setoff 138 15.06. Ratable Sharing 139 15.07. Amendments and Waivers 140 15.08. Notices 142 15.09. Survival of Warranties and Agreements 142 15.10. Failure or Indulgence Not Waiver; Remedies Cumulative 142 15.11. Marshalling; Payments Set Aside 142 15.12. Severability 143 15.13. Headings 143 15.14. Governing Law 143 15.15. Limitation of Liability 143 15.16. Successors and Assigns 143 15.17. Certain Consents and Waivers of the Borrower143 15.18. Counterparts; Effectiveness; Inconsistencies145 15.19. Limitation on Agreements 145 15.20. Confidentiality 145 15.21. Entire Agreement 146 15.22. Advice of Counsel 146 SECOND AMENDED AND RESTATED CREDIT AGREEMENT This Second Amended and Restated Credit Agreement dated as of July 18, 1997 (as amended, supplemented or modified from time to time, the "Agreement") is entered into among Fairchild Holding Corp., a Delaware corporation ("Borrower"), RHI Holdings, Inc., a Delaware corporation, the institutions from time to time a party hereto as Lenders, whether by execution of this Agreement or an Assignment and Acceptance, the institutions from time to time a party hereto as Issuing Banks, whether by execution of this Agreement or an Assignment and Acceptance or by appointment as provided in this Agreement, and Citicorp USA, Inc., a Delaware corporation ("Citicorp"), in its capacity as administrative agent for the Lenders and the Issuing Banks hereunder (in such capacity, the "Administrative Agent"). W I T N E S S E T H: WHEREAS, the Borrower entered into that certain Credit Agreement dated as of March 13, 1996 with certain financial institutions as "Lenders" and "Issuing Banks" and Citicorp in the capacity as administrative agent for such "Lenders" and "Issuing Banks" (the "Original Credit Agreement"), which Original Credit Agreement was amended and restated in its entirety as evidenced by that certain Amended and Restated Credit Agreement dated as of July 26, 1996 among the Borrower, certain financial institutions as "Lenders" and "Issuing Banks" and Citicorp as administrative agent for such "Lenders" and "Issuing Banks" (the "First Amended Credit Agreement") pursuant to which Original Credit Agreement and First Amended Credit Agreement certain loans have heretofore been made to the Borrower and certain letters of credit have heretofore been issued for the account of the Borrower and certain of its Subsidiaries; WHEREAS, the Borrower has requested that the First Amended Credit Agreement be amended to, among other things, increase the financial accommodations afforded the Borrower thereunder and RHI, in its capacity as a Guarantor, has agreed to become a party to this Agreement; WHEREAS, in view of the foregoing, the Borrower, the "Lenders" and "Issuing Banks" under the First Amended Credit Agreement, and other financial institutions a party hereto as Lenders have agreed to enter into this Agreement in order to (i) restate and amend the terms and provisions of the First Amended Credit Agreement in their entirety and (ii) set forth the terms and conditions under which the Lenders will hereafter extend Loans and the Issuing Banks will continue letters of credit issued under the Original Credit Agreement and First Amended Credit Agreement and hereafter issue Letters of Credit to or for the benefit of the Borrower and its Subsidiaries; and WHEREAS, the parties hereto intend that this Agreement be included within the definition of the term "Loan Facility" set forth in the "11 7/8% Senior Subordinated Debenture Indenture" (as defined in this Agreement); NOW, THEREFORE, the parties hereto hereby agree as follows: ARTICLE I DEFINITIONS 1.01. Certain Defined Terms. The following terms used in this Agreement shall have the following meanings, applicable both to the singular and the plural forms of the terms defined: "Accommodation Obligation" means any Contractual Obligation, contingent or otherwise, of one Person with respect to any Indebtedness, obligation or liability of another, if the primary purpose or intent thereof by the Person incurring the Accommodation Obligation is to provide assurance to the obligee of such Indebtedness, obligation or liability of another that such Indebtedness, obligation or liability will be paid or discharged, or that any agreements relating thereto will be complied with, or that the holders thereof will be protected (in whole or in part) against loss in respect thereof including, without limitation, direct and indirect guarantees, endorsements (except for collection or deposit in the ordinary course of business), notes co-made or discounted, recourse agreements, take-or-pay agreements, keep-well agreements, put options, agreements to purchase or repurchase such Indebtedness, obligation or liability or any security therefor or to provide funds for the payment or discharge thereof, agreements to maintain solvency, assets, level of income, or other financial condition, and agreements to make payment other than for value received. The amount of any Accommodation Obligation shall be equal to the amount of the Indebtedness, obligation or liability so guaranteed or otherwise supported; provided, that (i) if the liability of the Person extending such guaranty or support is limited with respect thereto to an amount less than the Indebtedness, obligation or liability guaranteed or supported, or is limited to recourse against a particular asset or assets of such Person, the amount of the corresponding Accommodation Obligation shall be limited (in the case of a guaranty or other support limited by amount) to such lesser amount or (in the case of a guaranty or other support limited by recourse to a particular asset or assets) to the higher of the Fair Market Value of such asset or assets at the date for determination of the amount of the Accommodation Obligation or the value at which such asset or assets would, in conformity with GAAP, be reflected on or valued for the purposes of preparing a consolidated balance sheet of such Person as at such determination date; and (ii) if any obligation or liability is guaranteed or otherwise supported jointly and severally by a Person and others, then the amount of the obligation or liability of such Person with respect to such guaranty or other support to be included in the amount of such Person's Accommodation Obligation shall be the whole principal amount so guaranteed or otherwise supported. "Administrative Agent" means Citicorp and each successor Administrative Agent appointed pursuant to the terms of Article XIII of this Agreement. "Affiliate", as applied to any Person, means any other Person that directly or indirectly controls, is controlled by, or is under common control with, that Person. For purposes of this definition, "control" (including, with correlative meanings, the terms "controlling", "controlled by" and "under common control with"), as applied to any Person, means the possession, directly or indirectly, of the power to vote ten percent (10.0%) or more of the Securities having voting power for the election of directors of such Person or otherwise to direct or cause the direction of the management and policies of that Person, whether through the ownership of voting Securities or by contract or otherwise. "Agreement" is defined in the preamble hereto. "Applicable Lending Office" means, with respect to a particular Lender, its Eurodollar Lending Office in respect of provisions relating to Eurodollar Rate Loans and its Domestic Lending Office in respect of provisions relating to Base Rate Loans. "Appraised Value" means (i) with respect to Equipment, the orderly liquidation value determined by the appraisers identified on Schedule 1.01.1 attached hereto and made a part hereof in the equipment appraisals identified on such Schedule and (ii) with respect to Real Property, the value determined by the appraisers identified on Schedule 1.01.1 in the real estate appraisals identified on such Schedule. "Assignment and Acceptance" means an Assignment and Acceptance in substantially the form of Exhibit A attached hereto and made a part hereof (with blanks appropriately completed) delivered to the Administrative Agent in connection with an assignment of a Lender's interest under this Agreement in accordance with the provisions of Section 15.01. "Availability" means, at any time of determination thereof, the amount by which the lesser of (i) the amount by which the Revolving Credit Commitments at such time exceeds the sum of (a) the Revolving Credit Obligations at such time plus (b) the outstanding balance of Protective Advances at such time or (ii) the amount by which the Borrowing Base at such time exceeds the sum of (a) the Revolving Credit Obligations at such time plus (b) the outstanding balance of Protective Advances at such time plus (c) the outstanding balance of the Term Loans at such time. "Bankruptcy Code" means Title 11 of the United States Code (11 U.S.C. '' 101 et seq.), as amended from time to time, and any successor statute. "Banner" means Banner Aerospace, Inc., a Delaware corporation. "Banner Preferred" means Series A Convertible Paid-in-Kind Preferred Stock of Banner, par value $.01 per share, and having a liquidation value of $9.20 per share. "Base Eurodollar Rate" means, with respect to any Eurodollar Interest Period applicable to a Borrowing of Eurodollar Rate Loans, an interest rate per annum determined by the Administrative Agent to be the average (rounded upward to the nearest whole multiple of one sixteenth of one percent (0.0625%) per annum if such average is not such a multiple) of the rates per annum specified by notice to the Administrative Agent by Citibank as the rate per annum at which deposits in Dollars are offered by the principal office of Citibank in London, England to major banks in the London interbank market at approximately 11:00 a.m. (London time) on the Eurodollar Interest Rate Determination Date for such Eurodollar Interest Period for a period equal to such Eurodollar Interest Period and in an amount substantially equal to the amount of the Eurodollar Rate Loan to be outstanding from Citicorp for such Eurodollar Interest Period. "Base Rate" means, for any period, a fluctuating interest rate per annum as shall be in effect from time to time, which rate per annum shall at all times be equal to the higher of: (i) the rate of interest announced publicly by Citibank in New York, New York from time to time, as Citibank's base rate; and (ii) the sum of (a) one-half of one percent (0.50%) per annum plus (b) the Federal Funds Rate in effect from time to time during such period. "Base Rate Loans" means all Loans which bear interest at a rate determined by reference to the Base Rate and Base Rate Margin as provided in Section 5.01(a). "Base Rate Margin" means a rate equal to two percent (2.00%) per annum. "Benefit Plan" means a defined benefit plan as defined in Section 3(35) of ERISA (other than a Multiemployer Plan or Foreign Employee Benefit Plan) in respect of which the Borrower or any ERISA Affiliate is, or within the immediately preceding five (5) years was, an "employer" as defined in Section 3(5) of ERISA. "Borrower" is defined in the preamble hereto. "Borrowing" means a borrowing consisting of Loans of the same type made, continued or converted on the same day and, in the case of Eurodollar Rate Loans, having the same Eurodollar Interest Period. "Borrowing Base" means, as of any date of determination, an amount designated on a Borrowing Base Certificate dated as of such date of determination, equal to the sum of up to: (i) eighty-five percent (85%) of Eligible Receivables plus (ii) sixty percent (60%) of Eligible Inventory (calculated at the lesser of cost or market value on a first-in-first-out basis) plus (iii) seventy percent (70%) of the Appraised Value of Equipment comprising part of the Collateral against which the Administrative Agent has perfected a senior Lien plus (iv) fifty percent (50%) of the Appraised Value of Real Property comprising part of the Collateral against which the Administrative Agent has perfected a senior Lien plus, prior to the earlier to occur of December 31, 1998 or the date on which the Term Loans are repaid in full and the Revolving Credit Commitments are less than or equal to $52,000,000 and provided that the issuer of the Capital Stock described below has not filed, or had filed against it, any proceeding in bankruptcy or is otherwise being liquidated or dissolved, (v) the sum of (a) fifty percent (50%) of the market value, as stated on the applicable Borrowing Base Certificate, of the common Capital Stock of Banner which comprises part of the Collateral, plus (b) fifty percent (50%) of the market value, as stated on the applicable Borrowing Base Certificate, of the common Capital Stock of STFI which comprises part of the Collateral or STFI Substituted Stock which comprises part of the Collateral, plus (c) fifty percent (50%) of the market value, as stated on the applicable Borrowing Base Certificate, of the common Capital Stock of Shared Technologies Cellular, Inc. which comprises part of the Collateral, plus (d) sixty-five percent (65%) of the liquidation value of the Banner Preferred which comprises part of the Collateral, plus (e) sixty-five percent (65%) of the greater of (1) the amount of the "Liquidation Preference" (as defined in the certificate of designation for the STFI Series I Preferred) plus the "Additional Amount" (as defined in the certificate of designation for the STFI Series I Preferred) for the STFI Series I Preferred which comprises part of the Collateral or (2) the "Conversion Price" (as defined in the certificate of designation for the STFI Series I Preferred) for the STFI Series I Preferred which comprises part of the Collateral, plus (f) sixty-five percent (65%) of the amount of the "Liquidation Preference" (as defined in the certificate of designation for the STFI Series J Preferred) for the STFI Series J Preferred which comprises part of the Collateral. For purposes of this definition, Eligible Receivables and Eligible Inventory shall be determined after deduction of all Eligibility Reserves then in effect. "Borrowing Base Certificate" means a certificate, in substantially the form of Exhibit B attached hereto and made a part hereof, setting forth, as of the end of each Fiscal Month, Eligible Receivables, Eligible Inventory, the Appraised Value of Equipment comprising part of the Collateral and Appraised Value of Real Property comprising part of the Collateral, the market value of the common Capital Stock of Banner, STFI (or STFI Substituted Stock), and Shared Technologies Cellular, Inc. (in each instance as determined based on the average closing price for the five (5) days immediately preceding the date of the certificate), the liquidation value of the Banner Preferred, and, if applicable, the values of the STFI Series I Preferred and the STFI Series J Preferred described in the definition of "Borrowing Base", the respective advance percentages with respect to each of the foregoing, and the calculation of the resultant Borrowing Base as of the date of such certificate. "Business Activity Report" means (A) a Notice of Business Activities Report from the State of New Jersey Division of Taxation or (B) a Minnesota Business Activity Report from the Minnesota Department of Revenue. "Business Day" means a day, in the applicable local time, which is not a Saturday or Sunday or a legal holiday and on which banks are not required or permitted by law or other governmental action to close (i) in New York, New York, (ii) in the case of Eurodollar Rate Loans, in London, England and (iii) in the case of Letter of Credit transactions for a particular Issuing Bank, in the place where its office for issuance or administration of the pertinent Letter of Credit is located. "Capital Expenditures" means, for any period, the aggregate of all expenditures (whether paid in cash or other Property or accrued as a liability (but without duplication)) during such period that, in conformity with GAAP, are required to be included in or reflected by the Borrower's or any of its Subsidiaries' fixed asset accounts as reflected in the consolidated balance sheet of the Borrower and its Subsidiaries; provided, however, (i) Capital Expenditures shall include, whether or not such a designation would be in conformity with GAAP, that portion of Capital Leases which is capitalized on the consolidated balance sheet of the Borrower and its Subsidiaries and (ii) Capital Expenditures shall exclude, whether or not such a designation would be in conformity with GAAP, expenditures made in connection with the replacement or restoration of Property, to the extent reimbursed or financed from insurance or other recoveries received on account of the loss of or damage to the Property being replaced or restored or from condemnation awards arising from the taking by condemnation or eminent domain of such Property being replaced. "Capital Lease" means any lease of any property (whether real, personal or mixed) by a Person as lessee which, in conformity with GAAP, is accounted for as a capital lease on the balance sheet of that Person. "Capital Stock" means, with respect to any Person, any capital stock of such Person, regardless of class or designation, and all warrants, options, purchase rights, conversion or exchange rights, voting rights, calls or claims of any character with respect thereto. "Cash" means money, currency, or a credit balance in a Deposit Account. "Cash Collateral" means cash or Cash Equivalents held by the Administrative Agent, any of the Issuing Banks, or any of the Lenders as security for the Obligations. "Cash Collateral Account" means an interest bearing account at Citibank's offices in New York, New York designated by the Administrative Agent into which Cash Collateral shall be deposited. The Cash Collateral Account shall be under the sole dominion and control of the Administrative Agent, provided that all amounts deposited therein shall be held by the Administrative Agent for the benefit of the Holders and shall be subject to the terms of Sections 4.05 and 4.06. "Cash Equivalents" means (i) marketable direct obligations issued or unconditionally guaranteed by the United States govern- ment and backed by the full faith and credit of the United States government; (ii) marketable direct obligations issued by any state of the United States or any political subdivision of any such state or any public instrumentality thereof which, at the time of acquisition thereof, are rated either A-1 (or better) by Standard & Poor's Rating Group, a division of McGraw-Hill, Inc. ("S&P") or P-1 (or better) by Moody's Investors Service, Inc. (or if not then rating such obligations, the highest rating obtainable from such other nationally recognized rating services as are reasonably acceptable to the Administrative Agent); (iii) commercial paper which, at the time of acquisition thereof, is rated either A-1 (or better) by S&P or P-1 (or better) by Moody's Investors Service, Inc. (or if not then rating such obligations, the highest rating obtainable from such other nationally recognized rating services as are reasonably acceptable to the Administrative Agent); (iv) domestic certificates of deposit and time deposits, bankers' acceptances and floating rate certificates of deposit issued by any Lender or any commercial bank organized under the laws of the United States, any state thereof, or the District of Columbia and having a combined capital and surplus in excess of $250,000,000, which, at the time of acquisition, are rated A-1 (or better) by S&P or P-1 (or better) by Moody's Investors Service, Inc.; and (v) any agreement involving U.S. Government securities, certificates of deposit or "eligible" bankers' acceptances which provides for the transfer of such securities against payment in funds and which contains an agreement by the seller to repurchase the securities at a specified date not more than ninety (90) days after the date of such agreement; provided, that the maturities of such Cash Equiva- lents shall not exceed ninety (90) days. "Cash Interest Expense" means, for any Person for any period, total interest expense of such Person and its Subsidiaries, whether paid or accrued, but without duplication, (including, without limitation, the interest component of Capital Leases, all commissions, discounts and other fees and charges owed with respect to letters of credit and bankers' acceptance financing and net of the difference between payments received by such Person on all Hedge Agreements and payments made by such Person on all Hedge Agreements; and excluding, interest expense not payable in cash (including amortization of discount and fees) and interest expense with respect to liabilities which are not Indebtedness), which is payable in cash, all as determined in conformity with GAAP except to the extent adjustments with respect to Hedge Agreements would not be in conformity with GAAP. "CERCLA" means the Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C. '' 9601 et seq., any amendments thereto, any successor statutes, and any regulations promulgated thereunder. "Change of Control" means either of (i) Jeffrey J. Steiner and his "associates" (as defined in the Securities Exchange Act) ceasing to control the voting power attendant to at least forty percent (40%) (on a fully diluted basis) of the voting Capital Stock of TFC at any time when any other Person controls the voting power attendant to ten percent (10%) or more (on a fully diluted basis) of the voting Capital Stock of TFC or (ii) TFC ceasing to control the voting power attendant to at least fifty percent (50%) of the Capital Stock of the Borrower, RHI and the other Guarantors. "Citibank" means Citibank, N.A., a national banking association. "Citicorp" is defined in the preamble hereto. "Claim" means any claim or demand, by any Person, of whatsoever kind or nature for any alleged Liabilities and Costs, whether based in contract, tort, implied or express warranty, strict liability, criminal or civil statute, Permit, ordinance or regulation, common law or otherwise. "Collateral" means all property and interests in property now owned or hereafter acquired by RHI, the Borrower or any of the Borrower's Subsidiaries upon which a Lien is granted under any of the Loan Documents. "Collection Account" means each lockbox and blocked depository account maintained by the Borrower or any Guarantor subject to a Collection Account Agreement for the collection of Receivables and other proceeds of Collateral. "Collection Account Agreement" means a written agreement, substantially in the form attached hereto as Exhibit C with such modifications as the Administrative Agent, from time to time, deems acceptable, among the Borrower or a Guarantor, the Administrative Agent, and the respective bank at which the Borrower or Guarantor maintains a Collection Account. "Commercial Letter of Credit" means any documentary letter of credit issued by an Issuing Bank pursuant to Section 3.01 for the account of the Borrower or for the account of any of the Domestic Subsidiaries if the Borrower is jointly and severally liable for reimbursement of amounts drawn under such letter of credit, which is drawable upon presentation of documents evidencing the sale or shipment of goods purchased by the Borrower or such Domestic Subsidiary in the ordinary course of its business. "Commission" means the Securities and Exchange Commission and any Person succeeding to the functions thereof. "Commitment Fee" is defined in Section 5.03(c). "Commitment Letter" means that certain letter addressed to the Borrower from Citicorp Securities, Inc., NationsBank, N.A., Salomon Brothers Inc, and Salomon Brothers Holding Company Inc dated June 16, 1997 and accepted by the Borrower on June 18, 1997. "Compliance Certificate" is defined in Section 8.01(d)(ii). "Concentration Account" means the depository account maintained at Citibank in New York, New York, or such other financial institution designated for such purpose by the Administrative Agent into which collections of Receivables of the Borrower and the Domestic Subsidiaries, other proceeds of Collateral and other amounts are transferred pursuant to the terms of the Collection Account Agreements or otherwise as described in Section 4.04. "Consolidated Fixed Charge Coverage Ratio" means, for any period, the ratio of (i) EBITDA of TFC for such period minus taxes paid by TFC and its Subsidiaries in cash in such period minus Capital Expenditures made by TFC and its Subsidiaries in such period to (ii) the sum of (a) Cash Interest Expense of TFC for such period plus (b) the amount paid by TFC in dividends in such period plus (c) the amount of all scheduled principal payments paid in such period other than sinking fund payments on Indebtedness for borrowed money of TFC paid, directly or indirectly, from the proceeds of Loans or by tender for cancellation of Securities evidencing such Indebtedness for borrowed money of TFC. "Consolidated Indebtedness to EBITDA Ratio" means, for any period, the ratio of (i) Indebtedness for borrowed money of TFC and its Subsidiaries (other than Banner and STFI) to (ii) EBITDA of TFC. "Contaminant" means any waste, pollutant, hazardous substance, toxic substance, hazardous waste, special waste, petroleum or petroleum-derived substance or waste, radioactive materials, asbestos (in any form or condition), polychlorinated biphenyls (PCBs), lead paint, or any constituent of any such substance or waste, and includes, but is not limited to, these terms as defined in federal, state or local laws or regulations. "Contingent Fee" is defined in Section 5.03(d). "Contractual Obligation", as applied to any Person, means any provision of any Securities issued by that Person or any indenture, mortgage, deed of trust, security agreement, pledge agreement, guaranty, contract, undertaking, agreement or instrument to which that Person is a party or by which it or any of its properties is bound, or to which it or any of its properties is subject. "Cure Loans" is defined in Section 4.02(f)(iii). "Customary Permitted Liens" means (i) Liens (other than Environmental Liens and Liens in favor of the PBGC) with respect to the payment of taxes, assessments or governmental charges in all cases which are not yet due or which are being contested in good faith by appropriate proceedings and with respect to which adequate reserves or other appropriate provisions are being maintained in accordance with GAAP; (ii) statutory Liens of landlords and Liens of suppliers, mechanics, carriers, materialmen, warehousemen or workmen and other Liens imposed by law created in the ordinary course of business for amounts not yet due or which are being contested in good faith by appropriate proceedings and with respect to which adequate reserves or other appropriate provisions are being maintained in accordance with GAAP; (iii) Liens (other than any Lien in favor of the PBGC) incurred or deposits made in the ordinary course of business in connection with worker's compensation, unemployment insurance or other types of social security benefits or to secure the performance of bids, tenders, sales, contracts (other than for the repayment of borrowed money), surety, appeal and performance bonds; provided that (A) all such Liens do not in the aggregate materially detract from the value of Borrower's or any of its Subsidiaries' assets or Property or materially impair the use thereof in the operation of their respective businesses, and (B) all Liens of attachment or judgment and Liens securing bonds to stay judgments or in connection with appeals do not secure at any time an aggre- gate amount exceeding $1,000,000; and (iv) Liens arising with respect to zoning restrictions, easements, licenses, reservations, covenants, rights-of-way, utility easements, building restrictions and other similar charges or encumbrances on the use of Real Property which do not interfere with the ordinary conduct of the business of the Borrower or any of its Subsidiaries. "Deposit Account" means a demand, time, savings, passbook or like account with a bank, savings and loan association, credit union or like organization, other than an account evidenced by a negotiable certificate of deposit. "Designated Prepayment" means each mandatory prepayment required by clauses (i), (ii), and (iii) of Section 4.01(b). "Documentation Agent" means Salomon Brothers Inc. "DOL" means the United States Department of Labor and any Person succeeding to the functions thereof. "Dollars" and "$" mean the lawful money of the United States. "Domestic Lending Office" means, with respect to any Lender, such Lender's office, located in the United States, specified as the "Domestic Lending Office" under its name on the signature pages hereof or on the Assignment and Acceptance by which it became a Lender or such other United States office of such Lender as it may from time to time specify by written notice to the Borrower and the Administrative Agent. "Domestic Subsidiaries" means those Subsidiaries of the Borrower domiciled within the United States of America, its states, districts and possessions. "EBITDA" means, for any Person for any period, the amount calculated, without duplication, for such period as (i) the sum of amounts for such period of such Person's (a) Net Income plus (b) depreciation, amortization expense and other non-cash charges plus (c) all interest expense determined in accordance with GAAP plus (d) federal, state, local and foreign income taxes deducted from Net Income in accordance with GAAP plus (e) minority interest in earnings of Subsidiaries of such Person deducted from Net Income in accordance with GAAP minus (ii) extraordinary gains (or plus extraordinary losses) from asset sales calculated pursuant to GAAP for such period to the extent such gains or losses were included in the calculation of Net Income minus interest or investment income. For purposes of calculating EBITDA, in addition to the determination of Net Income as set forth in the definition of such term, where applicable, Banner and STFI shall be accounted for using the equity method of accounting and excluding the equity in earnings of Banner and STFI. "Effective Date" means July 18, 1997. "11 7/8% Senior Subordinated Debenture Indenture" means the Indenture between Rexnord Acquisition Corp. and Irving Trust Company, as trustee, dated as of March 2, 1987, pursuant to which Senior Subordinated Debentures in the aggregate original principal amount of $126,000,000 were issued, as supplemented by the First Supplemental Indenture dated as of July 1, 1987 between Rexnord Corporation and Irving Trust Company, as trustee, and the Second Supplemental Indenture dated as of August 16, 1988, between RHI and Irving Trust Company, as trustee. "Eligible Assignee" means (i) a Lender or any Affiliate thereof; (ii) a commercial bank having total assets in excess of $2,500,000,000; (iii) the central bank of any country which is a member of the Organization for Economic Cooperation and Development; or (iv) a finance company, insurance company, other financial institution or fund, acceptable to the Administrative Agent, which is regularly engaged in making, purchasing or investing in loans and having total assets in excess of $300,000,000. "Eligible Inventory" means, as of the date of determination therefor, all Inventory of the Borrower which, when scheduled to the Administrative Agent and at all times thereafter, does not consist of: (i) work-in-process unless specifically approved by the Administrative Agent; or (ii) obsolete goods or goods otherwise not currently saleable in the ordinary course of the Borrower's business; or (iii) damaged or rejected goods; or (iv) goods not located at one of the Borrower's manufacturing, warehouse or distribution facilities located within the United States and set forth on Schedule 1.01.2 attached hereto and made a part hereof or such other location of the Borrower of which the Administrative Agent is notified in writing in accordance with the requirements of the Loan Documents; or (v) goods in transit; or (vi) packaging materials, labels, name plates or supplies; or (vii) returned goods; or (viii) goods held on consignment or any similar arrangement, including, without limitation, goods held by the Borrower but owned by a customer of the Borrower; or (ix) goods (a) with respect to which the Administrative Agent does not have a senior perfected security interest or (b) which, if located on premises which are not owned by the Borrower, are subject to a Lien in favor of a landlord, bailee, or consignee and a landlord's waiver, bailee agreement, or consignee agreement in form and substance satisfactory to the Administrative Agent has not been obtained with respect to such Lien and the Administrative Agent's rights with respect to the goods located on such premises. "Eligible Receivables" means each Receivable of the Borrower which, when scheduled to the Administrative Agent and at all times thereafter, is not of any of the types set forth below: (i) it is due or unpaid more than ninety (90) days after the date of the original invoice issued by the Borrower with respect to the sale giving rise thereto; or (ii) it arises out of a sale not made in the ordinary course of the Borrower's business or a sale to a Person which is an Affiliate of the Borrower or controlled by an Affiliate of the Borrower; or (iii) it fails to meet or violates any warranty, representation or covenant contained in this Agreement or any of the other Loan Documents relating directly or indirectly to the Receivables of the Borrower; or (iv) the account debtor is also the Borrower's supplier or creditor and the Receivable is or may become subject to any right of setoff by the account debtor, and such account debtor has not entered into an agreement with the Administrative Agent with respect to the waiver of rights of setoff which is in form and substance satisfactory to the Administrative Agent; or the account debtor has disputed liability with respect to such Receivable, or made any claim with respect to any other Receivable due from such account debtor to the Borrower, in which case the Receivable shall be ineligible to the extent of such dispute, claim or setoff; or (v) the account debtor has filed a petition for bankruptcy or any other petition for relief under the Bankruptcy Code or any similar statute (unless the account debtor is a debtor-in-possession in a Chapter 11 case and has available debtor-in-possession financing from sources and under terms reasonably acceptable to the Administrative Agent and the Receivable is entitled to priority under Section 507 of the Bankruptcy Code as an administrative expense allowed under Section 503(b) of the Bankruptcy Code), made an assignment for the benefit of creditors, or if any petition or other application for relief under the Bankruptcy Code or any similar statute has been filed against the account debtor, or if the account debtor has failed, suspended its business operations, become insolvent, suffered a receiver or a trustee to be appointed for any of its assets or affairs, or is generally failing to pay its debts as they become due; or (vi) the sale is to an account debtor outside the United States, unless the account debtor's obligations (or that portion of such obligations which is acceptable to the Administrative Agent) with respect to such sale is secured by a letter of credit, guaranty or eligible bankers' acceptance having terms, and from such issuers and confirmation banks, as are acceptable to the Administrative Agent; or (vii) the sale is on a bill-and-hold, guaranteed sale, sale-and-return, sale on approval, consignment, or any other repurchase or return basis; or (viii) the Administrative Agent believes, in the exercise of its reasonable credit judgment, that collection of such Receivable is insecure or that such Receivable may not be paid by reason of the account debtor's financial inability to pay; or (ix) the account debtor is the United States of America or any department, agency or instrumentality thereof, unless the Borrower or its applicable Subsidiary assigns its right to payment of such Receivable to the Administrative Agent pursuant to the Assignment of Claims Act of 1940, as amended, (31 U.S.C. ' 3727); or (x) the goods, the sale of which has given rise to such Receivable, have not been shipped and delivered to and accepted by the account debtor or the services, the performance of which has given rise to such Receivable, have not been performed by the Borrower and accepted by the account debtor; or (xi) the Receivable(s) of the respective account debtor exceed(s) a credit limit determined by the Agent, in the exercise of its reasonable credit judgment, at any time or times hereafter, in which case such Receivable(s) shall be ineligible to the extent such Receivable(s) exceed(s) such limit; or (xii) the Administrative Agent does not have a senior perfected security interest in such Receivable; or (xiii) the account debtor is located in the state of New Jersey or Minnesota and the Borrower has not filed and maintained effective (unless exempt from the requirements for filing) a current Business Activity Report with the appropriate Governmental Authority in the states of Minnesota and/or New Jersey, as applicable; or (xiv) the Receivable(s) of the respective account debtor exceed(s) twenty percent (20%) of the aggregate Receivables of all account debtors of the Borrower, in which case the Receivable(s) in excess of such twenty percent (20%) shall be ineligible; provided, however that such limitation shall not apply to Receivables owing by The Boeing Company or Airbus Industrie. "Eligibility Reserves" means, as of three (3) Business Days after the date of written notice of any determination thereof to the Borrower by the Administrative Agent, such amounts as the Administrative Agent, in the exercise of its reasonable credit judgment, may from time to time establish against the gross amounts of Eligible Receivables and Eligible Inventory to reflect material changes in risks or contingencies arising after the Effective Date which may affect such items. "Environmental, Health or Safety Requirements of Law" means all Requirements of Law derived from or relating to any federal, state or local law, ordinance, rule, regulation, Permit, license or other binding determination of any Governmental Authority relating to, imposing liability or standards concerning, or otherwise addressing, the environment, health and/or safety, including, but not limited to the Clean Air Act, the Clean Water Act, CERCLA, RCRA, any so-called "Superfund" or "Superlien" law, the Toxic Substances Control Act, OSHA, and public health codes, each as from time to time in effect. "Environmental Lien" means a Lien in favor of any Governmental Authority for any (i) liabilities under any Environmental, Health or Safety Requirement of Law, or (ii) damages arising from, or costs incurred by such Governmental Authority in response to, a Release or threatened Release of a Contaminant into the environ- ment. "Equipment" means, with respect to any Person, all of such Person's present and future (i) equipment, including, without limitation, machinery, manufacturing, distribution, selling, data processing and office equipment, assembly systems, tools, molds, dies, fixtures, appliances, furniture, furnishings, vehicles, vessels, aircraft, aircraft engines, and trade fixtures, (ii) other tangible personal property (other than such Person's Inventory), and (iii) any and all accessions, parts and appurtenances attached to any of the foregoing or used in connection therewith, and any substitutions therefor and replacements, products and proceeds thereof. "ERISA" means the Employee Retirement Income Security Act of 1974, 29 U.S.C. '' 1000 et seq., any amendments thereto, any successor statutes, and any regulations or guidance promulgated thereunder. "ERISA Affiliate" means (i) any corporation which is a member of the same controlled group of corporations (within the meaning of Section 414(b) of the Internal Revenue Code) as the Borrower; (ii) a partnership or other trade or business (whether or not incorporated) which is under common control (within the meaning of Section 414(c) of the Internal Revenue Code) with the Borrower; and (iii) a member of the same affiliated service group (within the meaning of Section 414(m) of the Internal Revenue Code) as the Borrower, any corporation described in clause (i) above or any partnership or trade or business described in clause (ii) above. "ERISA Event" means (i) the occurrence with respect to a Plan of a Reportable Event, (ii) the provision by the administrator of any Plan of a notice of intent to terminate such Plan, pursuant to Section 4041(a)(2) of ERISA (including any such notice with respect to a plan amendment referred to in Section 4041(e) of ERISA), (iii) the cessation of operations at a facility of the Borrower or any ERISA Affiliate in the circumstances described in Section 4062(e) of ERISA, (iv) the withdrawal by the Borrower or an ERISA Affiliate from a Multiemployer Plan during a plan year for which it was a substantial employer, as defined in Section 4001(a)(2) of ERISA, (v) the conditions set forth in Section 302(f)(1)(A) and (B) of ERISA to the creation of a Lien upon Property or rights to Property of the Borrower or any ERISA Affiliate for failure to make a required payment to a Plan are satisfied, (vi) the adoption of an amendment to a Plan requiring the provision of security to such Plan, pursuant to Section 307 of ERISA, or (vii) the institution by the PBGC of proceedings to terminate a Plan, pursuant to Section 4042 of ERISA, or the occurrence of any event or condition described in Section 4042 of ERISA that constitutes grounds for the termination of, or the appointment of a trustee to administer, a Plan. "Eurodollar Affiliate" means, with respect to each Lender, the Affiliate of such Lender (if any) set forth below such Lender's name under the heading "Eurodollar Affiliate" on the signature pages hereof or on the signature pages of the Assignment and Acceptance by which it became a Lender or such Affiliate of a Lender as it may from time to time specify by written notice to the Borrower and the Administrative Agent. "Eurodollar Interest Payment Date" means, with respect to any Eurodollar Rate Loan, the last day of each Eurodollar Interest Period applicable to such Loan and, if such applicable Eurodollar Interest Period is longer than three (3) months in duration, on the first Business Day of each successive three (3) month period commencing with the first such day following the day on which such Eurodollar Rate Loan was made, continued or converted and ending with the first Business Day of the three (3) month period ending on the last day of the applicable Eurodollar Interest Period. "Eurodollar Interest Period" is defined in Section 5.02(b). "Eurodollar Interest Rate Determination Date" is defined in Section 5.02(c). "Eurodollar Lending Office" means, with respect to any Lender, the office or offices of such Lender (if any) set forth below such Lender's name under the heading "Eurodollar Lending Office" on the signature pages hereof or on the signature pages of the Assignment and Acceptance by which it became a Lender (or, if no such office is specified, its Domestic Lending Office), or such office or offices of such Lender as it may from time to time specify by written notice to the Borrower and the Administrative Agent. "Eurodollar Rate" means, with respect to any Eurodollar Inter- est Period applicable to a Eurodollar Rate Loan, an interest rate per annum obtained by dividing (i) the Base Eurodollar Rate applicable to that Eurodollar Interest Period by (ii) a percentage equal to 100% minus the Eurodollar Rate Reserve Percentage in effect on the relevant Eurodollar Interest Rate Determination Date. "Eurodollar Rate Loans" means those Loans outstanding which bear interest at a rate determined by reference to a Eurodollar Rate and the Eurodollar Rate Margin as provided in Section 5.01(a). "Eurodollar Rate Margin" means a rate equal to three and one- quarter percent (3.25%) per annum. "Eurodollar Rate Reserve Percentage" means, for any Lender for the Eurodollar Interest Period for any Eurodollar Rate, the reserve percentage which is applicable three (3) Business Days before the first day of such Eurodollar Interest Period under the regulations issued from time to time by the Federal Reserve Board for determining the actual reserve requirement (including, without limitation, any emergency, supplemental or other marginal reserve requirement) for a member bank of the Federal Reserve System in New York, New York with deposits exceeding Five Billion Dollars ($5,000,000,000) with respect to liabilities or assets consisting of or including "Eurodollar Liabilities" (or with respect to any other category of liabilities which includes deposits by reference to which the interest rate on Eurodollar Rate Loans is determined) having a term equal to such Eurodollar Interest Period. "Event of Default" means any of the occurrences set forth in Section 12.01 after the expiration of any applicable grace period, as expressly provided in Section 12.01. "Exchange Rate" means, in relation to the purchase of one currency (for the purposes of this definition, the "first currency") with another currency (for the purposes of this definition, the "second currency") on a given date, Citibank's spot rate of exchange for the amount in question in the London interbank market at 11:00 a.m. (London time) on such date for the purchase of the first currency with the second currency, for delivery two (2) Business Days later. "Fair Market Value" means, with respect to any asset, the value of the consideration obtainable in a sale of such asset in the open market, assuming a sale by a willing seller to a willing purchaser dealing at arm's length and arranged in an orderly manner over a reasonable period of time, each having reasonable knowledge of the nature and characteristics of such asset, neither being under any compulsion to act. "Federal Funds Rate" means, for any period, a fluctuating interest rate per annum equal for each day during such period to the weighted average of the rates on overnight federal funds trans- actions with members of the Federal Reserve System arranged by federal funds brokers, as published for such day (or, if such day is not a Business Day in New York, New York, for the next preceding Business Day) in New York, New York by the Federal Reserve Bank of New York, or if such rate is not so published for any day which is a Business Day in New York, New York, the average of the quotations for such day on such transactions received by the Administrative Agent from three federal funds brokers of recognized standing selected by the Administrative Agent. "Federal Reserve Board" means the Board of Governors of the Federal Reserve System or any Governmental Authority succeeding to its functions. "Fee Letter" means that certain fee letter addressed to Citicorp USA, Inc. from the Borrower dated June 16, 1997. "FII" means Fairchild Industries, Inc., a Delaware corporation. "Financial Statements" means (i) statements of income and retained earnings, statements of cash flow, and balance sheets, (ii) such other financial statements as TFC, RHI, the Borrower and its Subsidiaries shall routinely and regularly prepare, and (iii) such other financial statements as the Administrative Agent or the Requisite Lenders may from time to time reasonably specify. "First Amended Credit Agreement" is defined in the premises. "Fiscal Month" means each of the month periods ending on the dates set forth on Schedule 1.01.3 attached hereto and made a part hereof. "Fiscal Year" means the fiscal year of the Borrower and its Subsidiaries for accounting and tax purposes, which shall be the 12-month period ending on June 30 of each calendar year. "Foreign Employee Benefit Plan" means any employee benefit plan as defined in Section 3(3) of ERISA which is maintained or contributed to for the benefit of the employees of the Borrower, any of its Subsidiaries or any of its ERISA Affiliates and is not covered by ERISA pursuant to ERISA Section 4(b)(4). "Foreign Pension Plan" means any employee benefit plan as defined in Section 3(3) of ERISA which (i) is maintained or contributed to for the benefit of employees of the Borrower, any of its Subsidiaries or any of its ERISA Affiliates, (ii) is not covered by ERISA pursuant to Section 4(b)(4) of ERISA, and (iii) under applicable local law, is required to be funded through a trust or other funding vehicle. "Fronting Fee" is defined in Section 5.03(b). "Funding Date" means, with respect to any Loan, the date of funding of such Loan. "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the American Institute of Certified Public Accountants' Accounting Principles Board and Financial Accounting Standards Board or in such other statements by such other entity as may be in general use by significant segments of the accounting profession as in effect on the date hereof (unless otherwise specified herein as in effect on another date or dates). "General Intangibles" means, with respect to any Person, all of such Person's present and future (i) general intangibles, (ii) rights, interests, choses in action, causes of action, claims and other intangible Property of every kind and nature (other than Receivables), (iii) corporate and other business records, (iv) loans, royalties, and other obligations receivable, (v) trademarks, registered trademarks, trademark applications, service marks, registered service marks, service mark applications, patents, registered patents, patent applications, trade names, rights of use of any name, labels, fictitious names, inventions, designs, trade secrets, computer programs, software, printouts and other computer materials, goodwill, registrations, copyrights, copyright applications, permits, licenses, franchises, customer lists, credit files, correspondence, and advertising materials, (vi) customer and supplier contracts, firm sale orders, rights under license and franchise agreements, rights under tax sharing agreements, and other contracts and contract rights, (vii) interests in partnerships and joint ventures, (viii) tax refunds and tax refund claims, (ix) right, title and interest under leases, subleases, licenses and concessions and other agreements relating to property, (x) deposit accounts (general or special) with any bank or other financial institution, (xi) credits with and other claims against third parties (including carriers and shippers), (xii) rights to indemnification and with respect to support and keep-well agreements, (xiii) reversionary interests in pension and profit sharing plans and reversionary, beneficial and residual interests in trusts, (xiv) letters of credit, guarantees, Liens, security interests and other security held by or granted to such Person, (xvi) uncertificated securities and (xvii) investment securities. "Governmental Authority" means any nation or government, any federal, state, local or other political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "Guarantors" means RHI, each of the Subsidiaries of the Borrower identified on Schedule 1.01.4 attached hereto and made a part hereof as of the Effective Date, and any other Person executing and delivering a guaranty of payment and performance of all or any portion of the Obligations after the Effective Date. "Hedge Agreement" means any agreement, including, without limitation, interest rate exchange, swap, collar or cap agreement, interest rate future or option contract, currency swap agreement, currency future or option contract, and other similar agreement, evidencing an agreement or arrangement intended to protect against fluctuation in interest rates and/or foreign exchange rates or conversion rates for conversion of foreign currencies to Dollars. "Holder" means any Person entitled to enforce any of the Obligations, whether or not such Person holds any evidence of Indebtedness, including, without limitation, the Administrative Agent, each Lender and each Issuing Bank. "Indebtedness", as applied to any Person, means, at any time, without duplication, (a) all indebtedness, obligations or other liabilities of such Person (i) for borrowed money or evidenced by debt Securities, debentures, acceptances, notes or other similar instruments, and any accrued interest, fees and charges relating thereto, (ii) under profit payment agreements or in respect of obligations to redeem, repurchase or exchange any Securities of such Person or to pay dividends in respect of any Capital Stock, (iii) with respect to letters of credit issued for such Person's account, (iv) to pay the deferred purchase price of property or services, except accounts payable and accrued expenses arising in the ordinary course of business, (v) in respect of Capital Leases, (vi) which are Accommodation Obligations or (vii) under warranties and indemnities; (b) all indebtedness, obligations or other liabilities of such Person or others secured by a Lien on any property of such Person, whether or not such indebtedness, obligations or liabilities are assumed by such Person, all as of such time; (c) all indebtedness, obligations or other liabilities of such Person in respect of interest rate contracts, Hedge Agreements and foreign exchange contracts, net of liabilities owed to such Person by the counterparties thereon; (d) all preferred stock subject (upon the occurrence of any contingency or otherwise) to mandatory redemption; and (e) all contingent Contractual Obligations with respect to any of the foregoing. "Indemnified Matters" is defined in Section 15.03. "Indemnitees" is defined in Section 15.03. "Interest Coverage Ratio" means, for any period, the ratio of (i) EBITDA of the Borrower for such period to (ii) Cash Interest Expense of the Borrower for such period. "Internal Revenue Code" means the Internal Revenue Code of 1986, as amended to the date hereof and from time to time hereafter, any successor statute and any regulations or guidance promulgated thereunder. "Inventory" means, with respect to any Person, all of such Person's present and future (i) inventory, (ii) goods, merchandise and other personal property furnished or to be furnished under any contract of service or intended for sale or lease, and all consigned goods and all other items which have previously constituted Equipment of such Person but are then currently being held for sale or lease in the ordinary course of such Person's business, (iii) raw materials, work-in-process and finished goods, (iv) materials and supplies of any kind, nature or description used or consumed in such Person's business or in connection with the manufacture, production, packing, shipping, advertising, finishing or sale of any of the property described in clauses (i) through (iii) above, (v) goods in which such Person has a joint or other interest or right of any kind (including, without limitation, goods in which such Person has an interest or right as consignee), and (vi) goods which are returned to or repossessed by such Person; in each case whether in the possession of such Person, a bailee, a consignee, or any other Person for sale, storage, transit, processing, use or otherwise, and any and all documents for or relating to any of the foregoing. "Investment" means, with respect to any Person, (i) any purchase or other acquisition by that Person of Securities, or of a beneficial interest in Securities, issued by any other Person, (ii) any purchase by that Person of all or substantially all of the assets of a business conducted by another Person, and (iii) any loan, advance (other than deposits with financial institutions available for withdrawal on demand, prepaid expenses, accounts receivable, advances to employees and similar items made or incurred in the ordinary course of business) or capital contribution by that Person to any other Person, including all Indebtedness to such Person arising from a sale of property by such Person other than in the ordinary course of its business and all Indebtedness to such Person which is not a current asset. The amount of any Investment shall be the original cost of such Investment, plus the cost of all additions thereto less the amount of any return of capital or principal to the extent such return is in cash with respect to such Investment without any adjustments for increases or decreases in value or write-ups, write-downs or write- offs with respect to such Investment. "IRS" means the Internal Revenue Service and any Person succeeding to the functions thereof. "Issuing Banks" means Citibank and each Lender designated as an "Issuing Bank" on the signature pages hereof or the signature page of the Assignment and Acceptance by which it became a Lender and each other Lender approved by the Administrative Agent and the Borrower who has agreed to become an Issuing Bank for the purpose of issuing Letters of Credit pursuant to Section 3.01. "Lender" means, as of the Effective Date, each financial institution a signatory hereto as a Lender and, at any other given time, each financial institution which is a party hereto as a Lender, whether as a signatory hereto or pursuant to an Assignment and Acceptance. "Letter of Credit" means any Commercial Letter of Credit or Standby Letter of Credit. "Letter of Credit Fee" is defined in Section 5.03(b). "Letter of Credit Obligations" means, at any particular time, the sum of (i) all outstanding Reimbursement Obligations, plus (ii) the aggregate Dollar equivalent of the undrawn face amount of all outstanding Letters of Credit, plus (iii) the aggregate Dollar equivalent of the face amount of all Letters of Credit requested by the Borrower but not yet issued (unless the request for an unissued Letter of Credit has been denied by the designated Issuing Bank as referenced in Section 3.01(c)(i)). "Letter of Credit Reimbursement Agreement" means, with respect to a Letter of Credit, such form of application therefor and form of reimbursement agreement therefor (whether in a single or several documents, taken together) as the Issuing Bank from which the Letter of Credit is requested may employ in the ordinary course of business for its own account, with such modifications thereto as may be agreed upon by the Issuing Bank and the Borrower and as are not materially adverse (in the judgment of the Issuing Bank and Administrative Agent) to the interests of the Lenders; provided, however, in the event of any conflict between the terms of any Letter of Credit Reimbursement Agreement and this Agreement, the terms of this Agreement shall control. "Liabilities and Costs" means all liabilities, obligations, responsibilities, losses, damages, personal injury, death, punitive damages, economic damages, consequential damages, treble damages, intentional, willful or wanton injury, damage or threat to the environment, natural resources or public health or welfare, costs and expenses (including, without limitation, attorney, expert and consulting fees and costs and fees and costs associated with any investigation, feasibility or Remedial Action studies), fines, penalties and monetary sanctions, interest, direct or indirect, known or unknown, absolute or contingent, past, present or future. "Lien" means any mortgage, deed of trust, pledge, hypothecation, assignment, conditional sale agreement, deposit arrangement, security interest, encumbrance, lien (statutory or other and including, without limitation, any Environmental Lien), deed of charge, preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever in respect of any property of a Person, whether granted voluntarily or imposed by law, and includes the interest of a lessor under a Capital Lease or under any financing lease having substantially the same economic effect as any of the foregoing and the filing of any financing statement or similar notice (other than a financing statement filed by a "true" lessor pursuant to ' 9-408 of the Uniform Commercial Code), naming the owner of such property as debtor, under the Uniform Commercial Code or other comparable law of any jurisdiction. "Loan Account" is defined in Section 4.03(b). "Loan Documents" means this Agreement, the Notes, Hedge Agreements to which any Lender or any Affiliate of a Lender is a party, foreign exchange contracts to which any Lender or any Affiliate of a Lender is a party, and all other instruments, agreements and written Contractual Obligations between the Borrower or any Subsidiary of the Borrower and any of the Administrative Agent, any Lender or any Issuing Bank delivered to either the Administrative Agent, such Lender or such Issuing Bank pursuant to or in connection with the transactions contemplated hereby. "Loans" means all Revolving Loans and Term Loans, whether Base Rate Loans or Eurodollar Rate Loans. "Margin Stock" means "margin stock" as such term is defined in Regulation U and Regulation G. "Material Adverse Effect" means a material adverse effect upon (i) the financial condition, operations, assets or prospects of TFC, RHI, or the Borrower and its Subsidiaries on a consolidated basis, (ii) the ability of TFC, RHI, or the Borrower or any of its Subsidiaries to perform its respective obligations under the Loan Documents, or (iii) the ability of the Lenders, the Issuing Banks, or the Administrative Agent to enforce any of the Loan Documents. "MIS" means computerized management information system for recording and maintenance of information regarding purchases, sales, aging, categorization, and locations of Inventory, creation and aging of Receivables, and accounts payable (including agings thereof). "Multiemployer Plan" means a "multiemployer plan" as defined in Section 4001(a)(3) of ERISA (other than a Foreign Employee Benefit Plan) which (i) is, or within the immediately preceding six (6) years was, contributed to by either the Borrower or any ERISA Affiliate or in respect of which the Borrower or any ERISA Affiliate has assumed any liability and (ii) is not a Foreign Employee Benefit Plan. "Net Cash Proceeds of Issuance of Equity Securities" means net cash proceeds (including cash, equivalents readily convertible into cash, and such proceeds of any notes received as consideration or any other non-cash consideration) received by TFC, RHI or any of its Subsidiaries (other than Banner and STFI), the Borrower or any of its Subsidiaries at any time after the Effective Date on account of: (i) the issuance of equity Securities other than (a) equity Securities of Banner, STFI or any Technologies Company; (b) equity Securities of a Subsidiary of (1) TFC issued to TFC, (2) RHI issued to RHI, or (3) the Borrower issued by a Subsidiary of the Borrower; and (c) equity Securities of a Subsidiary of (1) TFC issued to another Subsidiary of TFC, (2) RHI issued to another Subsidiary of RHI, or (3) the Borrower issued to another Subsidiary of the Borrower) or (ii) a contribution to its capital by any Person (other than another "Fairchild Affiliate"). For purposes of this definition, "Fairchild Affiliate" means TFC and any direct or indirect Subsidiary of TFC and for purposes of Section 11.06, each reference herein to TFC shall be deemed to mean TFC and its Subsidiaries other than Banner and STFI. Notwithstanding the foregoing, (i) the exclusions of Banner and STFI set forth above shall not be effective in the event proceeds of the types described herein with respect to Banner and/or STFI are transferred by dividend or otherwise to RHI or the Borrower and (ii) the exclusion of the Technologies Companies set forth above shall not be effective in the event the proceeds of the types described herein with respect to any Technologies Company are not required for the conduct of the business of the Technologies Companies or are transferred, as a dividend, loan, repayment of Indebtedness (other than a repayment of Indebtedness owing by a Technologies Company to the Borrower which was incurred after the Effective Date in accordance with the provisions of Section 10.01(g)), or otherwise, to the Borrower, TFC, or RHI. "Net Cash Proceeds of Issuance of Indebtedness" means net cash proceeds (including cash, equivalents readily convertible into cash, and such proceeds of any notes received as consideration or any other non-cash consideration) of Indebtedness for borrowed money (other than such Indebtedness permitted under Section 10.01) of TFC, RHI, any Subsidiary of RHI (other than Banner or STFI), the Borrower or any Subsidiary of the Borrower (other than the Technologies Companies), in each case net of all transaction costs and underwriters' discounts with respect thereto. Notwithstanding the foregoing, (i) the exclusions of Banner and STFI set forth above shall not be effective in the event such proceeds of such Indebtedness of Banner and/or STFI are transferred by dividend or otherwise to TFC, RHI or the Borrower and (ii) the exclusion of the Technologies Companies set forth above shall not be effective in the event such proceeds of such Indebtedness of any Technologies Company are not required for the conduct of the business of the Technologies Companies or are transferred, as a dividend, loan, repayment of Indebtedness (other than a repayment of Indebtedness owing by a Technologies Company to the Borrower which was incurred after the Effective Date in accordance with the provisions of Section 10.01(g)), or otherwise, to the Borrower, TFC, or RHI. For purposes of Section 11.06, references herein to TFC shall be deemed to mean TFC and its Subsidiaries. "Net Cash Proceeds of Sale" means: (i) cash proceeds (including cash, equivalents readily convertible into cash, and such proceeds of any notes received as consideration or any other non-cash consideration) from the sale, assignment or other disposition of (but not the lease or license of) any Property, net of (a) the costs of sale, assignment or other disposition, (b) any income, franchise, transfer or other tax liability arising from such transaction and (c) amounts applied to the repayment of Indebtedness (other than the Obligations) secured by a Lien permitted by Section 10.03 on the asset disposed of, whether such net proceeds arise from any individual sale, assignment or other disposition or from any group of related sales, assignments or other dispositions: (1) received by the Borrower or any of its Subsidiaries, other than proceeds of sales permitted under clauses (b) through (e) and (k) of Section 10.02; and (2) received by RHI, other than proceeds (A) of assets held as cash collateral for RHI's secured credit facility under its Restated and Amended Credit Agreement dated as of May 27, 1996, as amended, and (B) of the sale of any of the RHI Excluded Property; and (ii) to the extent provided in Section 9.07(b), proceeds of insurance on account of the loss of or damage to any such Property or Properties, and payments of compensation for any such Property or Properties taken by condemnation or eminent domain. For purposes of this definition, the provisions of Section 9.07(b) shall be deemed to apply to insurance proceeds with respect to loss or damage to property of RHI and its Subsidiaries as well as property of the Borrower and its Subsidiaries and, for purposes of Section 11.06, Net Cash Proceeds of Sale shall be deemed to include proceeds to the extent described in clauses (i) and (ii) above of transactions described therein pertaining to assets of TFC and its Subsidiaries. "Net Income" means, for any Person for any period, the net income (or loss) after taxes of such Person and its Subsidiaries on a consolidated basis (and, if applicable, accounting for Banner and STFI using the equity method of accounting and excluding the equity in the earnings of Banner and STFI) for such period taken as a single accounting period determined in conformity with GAAP. "Net Worth" means, as of the date of determination thereof, the sum of the Borrower's shareholders' equity as of such date of determination plus the amount of the outstanding balance of Indebtedness arising from loans or other advances made by RHI to the Borrower and its Subsidiaries as of such date of determination minus the amount of the outstanding balance of Indebtedness arising from loans or other advances made by the Borrower to RHI. "Non Pro Rata Loan" is defined in Section 4.02(f). "Note" means a promissory note in the form attached hereto as Exhibit D payable to a Lender, evidencing certain of the Obligations of the Borrower to such Lender and executed by the Borrower as required by Section 4.03(a), as the same may be amended, supplemented, modified or restated from time to time, and any promissory note issued in substitution therefor; "Notes" means, collectively, all of such Notes outstanding at any given time. "Notice of Borrowing" means a notice substantially in the form of Exhibit E attached hereto and made a part hereof. "Notice of Conversion/Continuation" means a notice substantially in the form of Exhibit F attached hereto and made a part hereof with respect to a proposed conversion or continuation of a Loan pursuant to Section 5.01(c). "Obligations" means all Loans, advances, debts, liabilities, obligations, covenants and duties owing by the Borrower, individually or collectively, to the Administrative Agent, any Lender, any Issuing Bank, any Affiliate of the Administrative Agent, any Lender or any Issuing Bank, or any Person entitled to indemnification pursuant to Section 15.03 of this Agreement, of any kind or nature, present or future, whether or not evidenced by any note, guaranty or other instrument, arising under this Agreement, the Notes or any other Loan Document, whether or not for the payment of money, whether arising by reason of an extension of credit, opening or amendment of a Letter of Credit or payment of any draft drawn thereunder, loan, guaranty, indemnification, foreign exchange contract, Hedge Agreement or in any other manner, whether direct or indirect (including those acquired by assignment), absolute or contingent, due or to become due, now existing or hereafter arising and however acquired. The term includes, without limitation, all interest, charges, expenses, fees, attorneys' fees and disbursements and any other sum charge- able to the Borrower under this Agreement or any other Loan Document. "Officer's Certificate" means, as to a corporation, a certificate executed on behalf of such corporation by the chairman or vice-chairman of its board of directors (if an officer of such corporation) or its president, any of its vice presidents, or its treasurer. "Operating Lease" means, as applied to any Person, any lease of any property (whether real, personal or mixed) by that Person as lessee which is not a Capital Lease. "Operating Units" means, collectively, those segments of the Borrower's business known as (i) Fairchild Fasteners as more particularly described on Schedule 1.01.5 attached hereto and made a part hereof, (ii) Camloc (UK) Gas Spring Division as more particularly described on Schedule 1.01.5, and (iii) Fairchild Technologies Group as more particularly described on Schedule 1.01.5; and each of the foregoing is an "Operating Unit". "Organizational Documents" means, with respect to any corporation, limited liability company, unlimited liability company, or partnership (i) the articles/certificate of incorporation or articles of association (or the equivalent organizational documents) of such corporation, limited liability company, or unlimited liability company, (ii) the partnership agreement executed by the partners in the partnership, (iii) the by-laws (or the equivalent governing documents) of the corporation, limited liability company, unlimited liability company, or partnership, and (iv) any document setting forth the designation, amount and/or relative rights, limitations and preferences of any class or series of such corporation's Capital Stock or such limited liability company's, unlimited liability company's or partnership's equity or ownership interests. "Original Credit Agreement" is defined in the premises. "OSHA" means the Occupational Safety and Health Act of 1970, 29 U.S.C. '' 651 et seq., any amendments thereto, any successor statutes and any regulations or guidance promulgated thereunder. "PBGC" means the Pension Benefit Guaranty Corporation and any Person succeeding to the functions thereof. "Permits" means any permit, approval, authorization license, variance, or permission required from a Governmental Authority or other Person under an applicable Requirement of Law. "Permitted Dispositions" means the sale, lease, transfer or other disposition of the operations and/or assets and/or Investments identified on Schedule 1.01.6 attached hereto and made a part hereof. "Permitted Equity Securities Options" means the subscriptions, options, warrants, rights, convertible securities and other agreements or commitments relating to the issuance of equity Securities identified on Schedule 1.01.7 attached hereto and made a part hereof. "Permitted Existing Accommodation Obligations" means those Accommodation Obligations of the Subsidiaries of the Borrower identified on Schedule 1.01.8 attached hereto and made a part hereof. "Permitted Existing Indebtedness" means the Indebtedness of the Borrower and its Subsidiaries identified on Schedule 1.01.9 attached hereto and made a part hereof. "Permitted Existing Investments" means those Investments identified as such on Schedule 1.01.10 attached hereto and made a part hereof. "Permitted Existing Liens" means the Liens on assets of the Subsidiaries of the Borrower identified on Schedule 1.01.11 attached hereto and made a part hereof. "Person" means any natural person, corporation, limited liability company, unlimited liability company, limited partnership, general partnership, joint stock company, joint venture, association, company, trust, bank, trust company, land trust, business trust or other organization, whether or not a legal entity, and any Governmental Authority. "Plan" means an employee benefit plan defined in Section 3(3) of ERISA (other than a Foreign Employee Benefit Plan) (i) in respect of which the Borrower or any ERISA Affiliate is, or within the immediately preceding six (6) years was, an "employer" as defined in Section 3(5) of ERISA or the Borrower or any ERISA Affiliate has assumed any liability and (ii) which is not a Foreign Employee Benefit Plan. "Potential Event of Default" means an event which, with the giving of notice or the lapse of time, or both, would constitute an Event of Default. "Process Agent" is defined in Section 15.17(a)(i). "Pro Forma Balance Sheet" means the unaudited pro forma estimated opening balance sheet as of June 30, 1997 of Borrower and its Subsidiaries attached hereto as Exhibit G, prepared in accordance with GAAP, dated the Effective Date, and giving effect to the extensions of credit contemplated hereby and the payment of Restricted Junior Payments contemplated on the Effective Date. "Projections" means the financial projections for TFC, RHI, the Borrower and its Subsidiaries (including, without limitation, capital expenditure budget) and assumptions prepared by the Borrower attached hereto as Exhibit H. "Property" means any Real Property or personal property, plant, building, facility, structure, underground storage tank or unit, Equipment, Inventory, General Intangible, Receivable, or other asset owned, leased or operated by the Borrower or any Subsidiary of the Borrower, as applicable, (including any surface water thereon, and soil and groundwater thereunder). "Pro Rata Share" means, with respect to any Lender, the percentage obtained by dividing (i) the sum of such Lender's Revolving Credit Commitments (in each case, as adjusted from time to time in accordance with the provisions of this Agreement or any Assignment and Acceptance to which such Lender is a party) plus the outstanding principal balance of such Lenders' Term Loan by (ii) the sum of the aggregate amount of all of the Revolving Credit Commitments (notwithstanding the termination of any such Commitments) plus the aggregate outstanding balance of all Term Loans. "Protective Advance" is defined in Section 13.09(a). "RCRA" means the Resource Conservation and Recovery Act of 1976, 42 U.S.C. '' 6901 et seq., any amendments thereto, any successor statutes, and any regulations promulgated thereunder. "Real Property" means, with respect to any Person, all of such Person's present and future right, title and interest (including, without limitation, any leasehold estate) in (i) any plots, pieces or parcels of land, (ii) any improvements, buildings, structures and fixtures now or hereafter located or erected thereon or attached thereto of every nature whatsoever (the rights and interests described in clauses (i) and (ii) above being the "Premises"), (iii) all easements, rights of way, gores of land or any lands occupied by streets, ways, alleys, passages, sewer rights, water courses, water rights and powers, and public places adjoining such land, and any other interests in property constituting appurtenances to the Premises, or which hereafter shall in any way belong, relate or be appurtenant thereto, (iv) all hereditaments, gas, oil, minerals (with the right to extract, sever and remove such gas, oil and minerals), and easements, of every nature whatsoever, located in or on the Premises and (v) all other rights and privileges thereunto belonging or appertaining and all extensions, additions, improvements, betterments, renewals, substitutions and replacements to or of any of the rights and interests described in clauses (iii) and (iv) above. "Receivables" means, with respect to any Person, all of such Person's present and future (i) accounts, (ii) contract rights, chattel paper, instruments, documents, deposit accounts, and other rights to payment of any kind, whether or not arising out of or in connection with the sale or lease of goods or the rendering of services, and whether or not earned by performance, (iii) any of the foregoing which are not evidenced by instruments or chattel paper, (iv) intercompany receivables, and any security documents executed in connection therewith, (v) proceeds of any letters of credit or insurance policies on which such Person is named as beneficiary, (vi) claims against third parties for advances and other financial accommodations and any other obligations whatsoever owing to such Person, (vii) rights in and to all security agreements, leases, guarantees, instruments, securities, documents of title and other contracts securing, evidencing, supporting or otherwise relating to any of the foregoing, together with all rights in any goods, merchandise or Inventory which any of the foregoing may represent, and (viii) rights in returned and repossessed goods, merchandise and Inventory which any of the same may represent, including, without limitation, any right of stoppage in transit. "Register" is defined in Section 15.01(c). "Regulation A" means Regulation A of the Federal Reserve Board as in effect from time to time. "Regulation G" means Regulation G of the Federal Reserve Board as in effect from time to time. "Regulation T" means Regulation T of the Federal Reserve Board as in effect from time to time. "Regulation U" means Regulation U of the Federal Reserve Board as in effect from time to time. "Regulation X" means Regulation X of the Federal Reserve Board as in effect from time to time. "Reimbursement Date" is defined in Section 3.01(d)(i)(A). "Reimbursement Obligations" means the aggregate Dollar equivalent of the non- contingent reimbursement or repayment obligations of the Borrower with respect to amounts drawn under Letters of Credit. "Release" means any release, spill, emission, leaking, pumping, pouring, dumping, injection, deposit, disposal, abandonment, or discarding of barrels, containers or other receptacles, discharge, emptying, escape, dispersal, leaching or migration into the indoor or outdoor environment or into or out of any Property, including the movement of Contaminants through or in the air, soil, surface water, groundwater or Property. "Remedial Action" means actions required to (i) clean up, remove, treat or in any other way address Contaminants in the indoor or outdoor environment; (ii) prevent the Release or threat of Release or minimize the further Release of Contaminants; or (iii) investigate and determine if a remedial response is needed and to design such a response and post-remedial investigation, monitoring, operation and maintenance and care. "Replacement Proceeds" means the amount of (i) proceeds of insurance paid on account of the loss of or damage to any Property and awards of compensation for Property taken by condemnation or eminent domain to the extent actually used to replace, rebuild or restore the Property so lost, damaged or taken, provided that Borrower shall have delivered written notice to the Administrative Agent that it or its applicable Subsidiary intends to so replace, rebuild or restore such Property within 90 days after the Administrative Agent's receipt of the proceeds of such insurance payment or condemnation award if such proceeds exceed $500,000 and (ii) insurance paid on account of a business interruption occurrence to the extent actually used in the restoration or conduct of the business interrupted. "Reportable Event" means any of the events described in Section 4043(c) of ERISA and the regulations promulgated thereunder as in effect from time to time other than an event for which the thirty (30) day notice requirement has been waived by the PBGC. "Requirements of Law" means, as to any Person, the charter and by-laws or other organizational or governing documents of such Person, and any law, rule or regulation, or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject including, without limitation, the Securities Act, the Securities Exchange Act, Regulations G, T, U and X, ERISA, the Fair Labor Standards Act, the Worker Adjustment and Retraining Notification Act, Americans with Disabilities Act of 1990, and any certificate of occupancy, zoning ordinance, building, environmental or land use requirement or Permit and Environmental, Health or Safety Requirement of Law. "Requisite Lenders" means Lenders whose Pro Rata Shares, in the aggregate, are greater than fifty-one percent (51%); provided, however, that, in the event any of the Lenders shall have failed to fund its Pro Rata Share of any Loan requested by the Borrower which such Lenders are obligated to fund under the terms of this Agreement and any such failure has not been cured, then for so long as such failure continues, "Requisite Lenders" means Lenders (excluding all Lenders whose failure to fund their respective Pro Rata Shares of such Loans have not been so cured) whose Pro Rata Shares represent more than fifty-one percent (51%) of the aggregate Pro Rata Shares of such Lenders; provided, further, however, that, in the event that the Revolving Credit Commitments have been terminated pursuant to the terms of this Agreement, "Requisite Lenders" means Lenders (without regard to such Lenders' performance of their respective obligations hereunder) whose aggregate ratable shares (stated as a percentage) of the aggregate outstanding principal balance of all Loans are greater than fifty-one percent (51%). "Restricted Junior Payment" means (i) any dividend or other distribution, direct or indirect, on account of any shares of any class of Capital Stock of the Borrower or any of its Subsidiaries now or hereafter outstanding, except a dividend payable solely in shares of that class of stock or in any junior class of stock to the holders of that class, (ii) any redemption, retirement, sinking fund or similar payment, purchase or other acquisition for value, direct or indirect, of any shares of any class of equity Securities of the Borrower or any of its Subsidiaries now or hereafter outstanding, (iii) any payment or prepayment of principal of, premium, if any, or interest, fees or other charges on or with respect to, and any redemption, purchase, retirement, defeasance, sinking fund or similar payment and any claim for rescission with respect to, any Indebtedness for borrowed money other than the Obligations, and (iv) any payment made to redeem, purchase, repurchase or retire, or to obtain the surrender of, any outstand- ing warrants, options or other rights to acquire shares of any class of Capital Stock or other equity Securities of the Borrower or any of its Subsidiaries now or hereafter outstanding. "Revolving Credit Commitment" means, with respect to any Lender, the obligation of such Lender to make Revolving Loans and to participate in Letters of Credit pursuant to the terms and conditions of this Agreement, in an aggregate amount at any time outstanding which shall not exceed the principal amount set forth opposite such Lender's name under the heading "Revolving Credit Commitment" on the signature pages hereof or the signature page of the Assignment and Acceptance by which it became a Lender, as modified from time to time pursuant to the terms of this Agreement or to give effect to any applicable Assignment and Acceptance, and "Revolving Credit Commitments" means the aggregate principal amount of the Revolving Credit Commitments of all the Lenders, the maximum amount of which shall be $75,000,000, as reduced from time to time pursuant to Section 4.01. "Revolving Credit Obligations" means, at any particular time, the sum of (i) the outstanding principal amount of the Revolving Loans at such time, plus (ii) the Letter of Credit Obligations at such time. "Revolving Credit Pro Rata Share" means, with respect to any Lender, the percentage obtained by dividing (i) such Lender's Revolving Credit Commitment (in each case, as adjusted from time to time in accordance with the provisions of this Agreement or any Assignment and Acceptance to which such Lender is a party) by (ii) the aggregate Revolving Credit Commitments. "Revolving Credit Termination Date" means the earliest to occur of (i) July 28, 2000 (or, if not a Business Day, the next preceding Business Day), (ii) the date of termination of the Revolving Credit Commitments pursuant to the terms of this Agreement, and (iii) the date of acceleration of the Obligations pursuant to Section 12.02. "Revolving Lender" means each Lender having a Revolving Credit Commitment. "Revolving Loans" is defined in Section 2.01(a). "RHI" means RHI Holdings, Inc., a Delaware corporation. "RHI Excluded Property" means (i) the following Real Property owned by RHI: (a) the Brady Lane Real Property located in Lafayette, Indiana; (b) the 22-acre parcel of Real Property located in West Milwaukee, Wisconsin; and (c) the Burlington/Bellofram Real Property located in Burlington Massachusetts; (ii) assets related to "Eagle Environmental" consisting of Banner Capital Ventures, Inc., a Subsidiary of RHI; a note receivable in the amount of $7,933,608 held by Banner Capital Ventures, Inc. and payable by Eagle Environmental, L.P.; Recycling Investments, Inc., a Subsidiary of RHI; the equity investment in Eagle Environmental, L.P. held by Recycling Investments, Inc.; and Recycling Investments II, Inc., a Subsidiary of RHI formed in connection with the "Eagle Environmental" transaction to hold an investment in "Eagle Environmental" for Royal Oaks Landfill; (iii) the Capital Stock or assets of MISAT Ltd., a corporation organized under the laws of Israel and a developer and producer of new generation satellite communication terminals; and (iv) Capital Stock of Medical Resources, Inc. and National R.V. Holdings, Inc. "Schedule of Intercompany Transfers" is defined in Section 8.04. "Securities" means any Capital Stock, shares, voting trust certificates, limited partnership certificates, bonds, debentures, notes or other evidences of indebtedness, secured or unsecured, convertible, subordinated or otherwise, or in general any instruments commonly known as "investment securities" or "securities", including, without limitation, any "security" as such term is defined in Section 8-102 of the Uniform Commercial Code, whether certificated or uncertificated, or any certificates of interest, shares, or participations in temporary or interim certificates for the purchase or acquisition of, or any right to subscribe to, purchase or acquire any of the foregoing, but shall not include the Notes or any other evidence of the Obligations. "Securities Act" means the Securities Act of 1933, as amended from time to time, and any successor statute. "Securities Exchange Act" means the Securities Exchange Act of 1934, as amended from time to time, and any successor statute. "Solvent", when used with respect to any Person, means that at the time of determination: (i) the Fair Market Value of its assets is in excess of the total amount of its liabilities (including, without limitation, contingent liabilities); and (ii) the present fair saleable value of its assets is greater than its probable liability on its existing debts as such debts become absolute and matured; and (iii) it is then able and expects to be able to pay its debts (including, without limitation, contingent debts and other commitments) as they mature; and (iv) it has capital sufficient to carry on its business as conducted and as proposed to be conducted. "Standby Letter of Credit" means any letter of credit issued by an Issuing Bank pursuant to Section 3.01 for the account of the Borrower or for the account of any of the Borrower's Subsidiaries if the Borrower is jointly and severally liable for reimbursement of amounts drawn under such letter of credit, which is not a Commercial Letter of Credit. "STFI" means Shared Technologies Fairchild, Inc., a Delaware corporation. "STFI Series I Preferred" means Series I 6% Cumulative Convertible Preferred Stock of STFI, par value $.01 per share. "STFI Series J Preferred" means Series J Special Preferred Stock of STFI, par value $.01 per share. "STFI Substituted Stock" means unrestricted voting common Capital Stock traded on a national exchange in the United States of any one of AT&T Corporation, MCI Communications Corp. (or successor corporation in the event of a merger of MCI Communications Corp. and British Telecommunications PLC), Worldcom, Inc., Tele-Save Holdings, Inc., or Teleport Communications Group, having a market value at the time of RHI's acquisition thereof of at least $50,000,000 and comprising no more than twelve percent (12%), on a fully diluted basis, of the voting common Capital Stock of such Person. "Subsidiary" of a Person means any corporation, limited liability company, unlimited liability company, general or limited partnership, or other entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other Persons performing similar functions with respect to such entity are at the time directly or indirectly owned or controlled by such Person, one or more of the other subsidiaries of such Person or any combination thereof. Notwithstanding the foregoing, (i) for purposes of this Agreement, Banner shall not be included as a Subsidiary of the Borrower or RHI and (ii) for purposes of Article IX and Article X, unless otherwise specifically referred to in the provisions thereof, no Technologies Company shall be included as a Subsidiary of the Borrower or RHI. "Super-Majority Lenders" means Lenders whose Pro Rata Shares, in the aggregate, are greater than sixty-seven percent (67%); provided, however, that, in the event any of the Lenders shall have failed to fund its Pro Rata Share of any Loan requested by the Borrower which such Lenders are obligated to fund under the terms of this Agreement and any such failure has not been cured, then for so long as such failure continues, "Super-Majority Lenders" means Lenders (excluding all Lenders whose failure to fund their respective Pro Rata Shares of such Loans have not been so cured) whose Pro Rata Shares represent more than sixty-seven percent (67%) of the aggregate Pro Rata Shares of such Lenders. "Syndication Agent" means NationsBank, N.A. "Tax Allocation Agreement" means that certain Eleventh Amended and Restated Tax Allocation Agreement dated as of July 18, 1997 among TFC, RHI, the Borrower and certain Affiliates thereof, as in effect on the Effective Date. "Taxes" is defined in Section 14.01(a). "Technologies Companies" means, collectively, the operating Subsidiaries of the Borrower engaged in the manufacture and sale of equipment used in the manufacture of semiconductors and optical discs and consisting of Technologies Germany and the other Persons identified on Schedule 1.01.5 under the heading "Fairchild Technologies Group" and those Persons engaged in such activities which may be acquired or formed by a Technology Company after the Effective Date; and "Technologies Company" means any of the Technologies Companies, individually. "Technologies Germany" means Fairchild Technologies GmbH Gerate zur Halbleitertechnologie, a corporation formed under the laws of the Republic of Germany. "Term Lender" means a Lender having a Term Loan Commitment. "Term Loan Commitment" means, with respect to any Lender, the obligation of such Lender to make a Term Loan pursuant to the terms and conditions of this Agreement on the Effective Date in an amount which shall not exceed the principal amount set forth opposite such lender's name under the heading "Term Loan Commitment" on the signature pages hereof. "Term Loan Pro Rata Share" means, with respect to any Term Lender, the percentage obtained by dividing (i) the outstanding principal amount of the Term Loan payable to such Lender by (ii) the aggregate outstanding principal amount of all Term Loans. "Term Loans" is defined in Section 2.01(b). "Termination Event" means (i) a Reportable Event with respect to any Benefit Plan; (ii) the withdrawal of the Borrower or any ERISA Affiliate from a Benefit Plan during a plan year in which the Borrower or such ERISA Affiliate was a "substantial employer" as defined in Section 4001(a)(2) of ERISA or the cessation of operations which results in the termination of employment of 20% of Benefit Plan participants who are employees of the Borrower or any ERISA Affiliate; (iii) the imposition of an obligation on the Borrower or any ERISA Affiliate under Section 4041 of ERISA to provide affected parties written notice of intent to terminate a Benefit Plan in a distress termination described in Section 4041(c) of ERISA; (iv) the institution by the PBGC or any similar foreign Governmental Authority of proceedings to terminate a Benefit Plan or a Foreign Pension Plan; (v) any event or condition which could reasonably be expected to constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Benefit Plan; (vi) the appointment by a foreign Governmental Authority of, or the institution of proceedings by a foreign Governmental Authority to appoint, a trustee to administer any Foreign Pension Plan; or (vii) the partial or complete withdrawal of the Borrower or any ERISA Affiliate from a Multiemployer Plan or a Foreign Pension Plan. "TFC" means The Fairchild Corporation, a Delaware corporation. "TFC Indentures" means that certain (i) Indenture dated as of March 13, 1986 between Banner Industries, Inc. and J. Henry Schroder Bank & Trust Company, as Trustee, with respect to $75,000,000 13 1/8% Subordinated Debentures due 2006, (ii) Indenture dated as of October 15, 1986 between Banner Industries, Inc. and National Westminster Bank USA, as Trustee, with respect to $160,000,000 12% Intermediate Subordinated Debentures due 2001, and (iii) Indenture dated as of March 2, 1987 between Banner Industries, Inc. and Norwest Bank Minneapolis, N.A., as Trustee, with respect to $102,000,000 13% Junior Subordinated Debentures due 2007. "Uniform Commercial Code" means the Uniform Commercial Code as enacted in the State of New York, as it may be amended from time to time. "VSI" means VSI Corporation, a Delaware corporation. "Wholly-Owned Subsidiary" means a corporation (i) one hundred percent (100%) of the Capital Stock or other equity Securities of which is owned by the Borrower or any Subsidiary of the Borrower or (ii) greater than ninety-five percent (95%) of the Capital Stock or other equity Securities of which is owned by the Borrower or a Subsidiary of the Borrower and the remainder of which Capital Stock or other equity Securities is owned by a nominee of the Borrower or such Subsidiary solely to comply with the Requirements of Law of the jurisdiction governing such corporation's organization and existence. 1.02. Computation of Time Periods. In this Agreement, in the computation of periods of time from a specified date to a later specified date, the word "from" means "from and including" and the words "to" and "until" each mean "to but excluding". Periods of days referred to in this Agreement shall be counted in calendar days unless Business Days are expressly prescribed. Any period determined hereunder by reference to a month or months or year or years shall end on the day in the relevant calendar month in the relevant year, if applicable, immediately preceding the date numerically corresponding to the first day of such period; provided that if such period commences on the last day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month during which such period is to end), such period shall, unless otherwise expressly required by the other provisions of this Agreement, end on the last day of the calendar month. 1.03. Accounting Terms. Subject to Section 15.04, for purposes of this Agreement, all accounting terms not otherwise defined herein shall have the meanings assigned to them in conformity with GAAP. 1.04. Other Terms. All other terms contained in this Agreement shall, unless the context indicates otherwise, have the meanings assigned to such terms by the Uniform Commercial Code to the extent the same are defined therein. 1.05. Dollar Equivalents. For purposes of Dollar designations or Dollar equivalent designations in this Agreement, all calculations thereof shall be determined, with respect to amounts otherwise denominated in a non-U.S. currency, based on the amount of Dollars required to purchase such amount of non-U.S. currency at the exchange rate therefor which is in effect on the date of determination. ARTICLE II AMOUNTS AND TERMS OF LOANS 2.01. Revolving Credit and Term Loan Facilities. (a) Revolving Loans. Subject to the terms and conditions set forth in this Agreement, each Revolving Lender hereby severally and not jointly agrees to make revolving loans, in Dollars (each individually, a "Revolving Loan" and, collectively, the "Revolving Loans") to the Borrower from time to time during the period from the Effective Date to the Business Day next preceding the Revolving Credit Termination Date, in an amount not to exceed such Lender's Revolving Credit Pro Rata Share of the amount equal to Availability. All Revolving Loans comprising the same Borrowing under this Agreement shall be made by the Lenders simultaneously and proportionately to their then respective Revolving Credit Pro Rata Shares, it being understood that no Lender shall be responsible for any failure by any other Lender to perform its obligation to make a Loan hereunder nor shall the Revolving Credit Commitment of any Lender be increased or decreased as a result of any such failure. Subject to the provisions of this Agreement, the Borrower may repay any outstanding Revolving Loan on any day which is a Business Day and any amounts so repaid may be reborrowed, up to the amount available under this Section 2.01(a) at the time of such Borrowing, until the Business Day next preceding the Revolving Credit Termination Date; provided, however, the Borrower shall, without notice or demand of any kind, immediately make such repayments of the Revolving Loans and Term Loans, pro rata based on the respective outstanding principal balances thereof, to the extent necessary to reduce the aggregate outstanding principal amount of the Loans to an amount no greater than the difference between the Availability as of any given time and the Letter of Credit Obligations as of such time and the Term Loans so repaid may not be reborrowed. Each requested Borrowing of Revolving Loans funded on any Funding Date therefor shall be (i) if Base Rate Loans, in a principal amount of at least $100,000 and in integral multiples of $100,000 in excess of that amount and (ii) if Eurodollar Rate Loans, in a principal amount of at least $1,000,000 and in integral multiples of $100,000 in excess of that amount. (b) Term Loans. Subject to the terms and conditions set forth in this Agreement, each Term Lender hereby severally and not jointly agrees to make term loans, in Dollars (each individually, a "Term Loan" and, collectively, the "Term Loans") to the Borrower on the Effective Date in the amount of its Term Loan Commitment. All Term Loans shall be made by the Term Lenders simultaneously, it being understood that no Lender shall be responsible for any failure by any other Lender to perform its obligation to make a Term Loan hereunder nor shall the Term Loan Commitment of any Lender be increased or decreased as a result of any such failure. 2.02. General Terms. (a) Notice of Borrowing. When the Borrower desires to borrow under Section 2.01, the Borrower shall deliver to the Administrative Agent a Notice of Borrowing, signed on behalf of the Borrower, (i) on the Effective Date, in the case of a Borrowing on the Effective Date, (ii) no later than 11:00 a.m. (New York time) on the proposed Funding Date therefor, in the case of a Borrowing of Base Rate Loans after the Effective Date, and (iii) no later than 11:00 a.m. (New York time) at least three (3) Business Days in advance of the proposed Funding Date therefor, in the case of a Borrowing of Eurodollar Rate Loans after the Effective Date. Such Notice of Borrowing shall specify (i) the proposed Funding Date (which shall be a Business Day), (ii) the amount of the proposed Borrowing and whether the Borrowing is of Term Loans or Revolving Loans, (iii) the Availability as of the date of such Notice of Borrowing, (iv) whether the proposed Borrowing will be of Base Rate Loans or Eurodollar Rate Loans, (v) in the case of Eurodollar Rate Loans, the requested Eurodollar Interest Period, (vi) the instructions for the disbursement of the proceeds of the proposed Borrowing, and (vii) the portion of the proposed Borrowing, if any, which will be used to pay a dividend on the Borrower's Capital Stock or to make a loan or other advance to any Affiliate of the Borrower. The Loans made on the Effective Date shall initially be Base Rate Loans and thereafter may be continued as Base Rate Loans or converted into Eurodollar Rate Loans, in the manner provided in Section 5.01(c) and subject to the conditions therein set forth and in Section 5.02. In lieu of delivering such a Notice of Borrowing (except with respect to a Borrowing of Loans on the Effective Date), the Borrower may give the Administrative Agent telephonic notice of any proposed Borrowing by the time required under this Section 2.02(a), if the Borrower confirms such notice by delivery of the required Notice of Borrowing to the Administrative Agent by facsimile transmission promptly, but in no event later than 5:00 p.m. (New York time) on the same day, the original of which facsimile copy shall be delivered to the Administrative Agent within fourteen (14) days after the date of such transmission. Any Notice of Borrowing (or telephonic notice in lieu thereof) given pursuant to this Section 2.02(a) shall be irrevocable. (b) Making of Loans. (i) Promptly after receipt of a Notice of Borrowing under Section 2.02(a) (or telephonic notice in lieu thereof), the Administrative Agent shall notify each Term Lender or each Revolving Lender, as applicable, by telecopy, or other similar form of transmission, of the proposed Borrowing. Each Lender obligated to make a Loan with respect to the requested Borrowing shall deposit an amount equal to its Term Loan Pro Rata Share or Revolving Credit Pro Rata Share, as applicable, of the respective Term Loan or Revolving Loan amount requested with the Administrative Agent at its office in New York, New York, in immediately available funds not later than 1:00 p.m. (New York time) on the applicable Funding Date therefor. Subject to the fulfillment of the conditions precedent set forth in Section 6.01 or Section 6.02, as applicable, the Administrative Agent shall make the proceeds of such amounts received by it with respect to Loans available to the Borrower at the Administrative Agent's office in New York, New York on such Funding Date (or on the date received if later than such Funding Date) and shall disburse such proceeds in accordance with the Borrower's disbursement instructions set forth in the applicable Notice of Borrowing. The failure of any Lender to deposit the amount described above with the Administrative Agent on the applicable Funding Date shall not relieve any other Lender of its obligations hereunder to make its Loan on such Funding Date. In the event the conditions precedent set forth in Section 6.01 or 6.02, as applicable, are not fulfilled as of the proposed Funding Date for any Borrowing, the Administrative Agent shall promptly return, by wire transfer of immediately available funds, the amount deposited by each Lender to such Lender. (ii) Unless the Administrative Agent shall have been notified by any Lender (A) on the Business Day immediately preceding the applicable Funding Date in respect of any Borrowing of Loans which are Eurodollar Rate Loans or (B) prior to the time of funding thereof as specified in Section 2.02(a) in respect of any Borrowing of Loans which are Base Rate Loans, that such Lender does not intend to fund its Loan requested to be made on such Funding Date, the Administrative Agent may assume that such Lender has funded its Loan and is depositing the proceeds thereof with the Administrative Agent on the Funding Date therefor, and the Administrative Agent, in its sole discretion may, but shall not be obligated to, disburse a corresponding amount to the Borrower on the applicable Funding Date. If the Loan proceeds corresponding to that amount are advanced to the Borrower by the Administrative Agent but are not in fact deposited with the Administrative Agent by such Lender on or prior to the applicable Funding Date, such Lender agrees to pay, and in addition the Borrower agrees to repay, to the Administrative Agent, forthwith on demand such corresponding amount, together with interest thereon, for each day from the date such amount is disbursed to or for the benefit of the Borrower until the date such amount is paid or repaid to the Administrative Agent (A) in the case of the Borrower, at the interest rate applicable to such Borrowing and (B) in the case of such Lender, at the Federal Funds Rate for the first Business Day after the applicable Funding Date, and thereafter at the interest rate applicable to such Borrowing. If such Lender shall pay to the Administrative Agent the corresponding amount, the amount so paid shall constitute such Lender's Loan, and if both such Lender and the Borrower shall pay and repay such corresponding amount, the Administrative Agent shall promptly pay to the Borrower such corresponding amount. This Section 2.02(b) does not relieve any Lender of its obligation to make its Loan on any applicable Funding Date. (c) Revolving Credit Termination Date. The Revolving Credit Commitments shall terminate on the Revolving Credit Termination Date. Each Revolving Lender's obligation to make Revolving Loans shall terminate on the Business Day next preceding the Revolving Credit Termination Date. All outstanding Obligations shall be paid in full (or, in the case of unmatured Letter of Credit Obligations, provision for payment in cash shall be made to the satisfaction of the Issuing Banks and the Requisite Lenders) (i) if the Revolving Credit Commitments are terminated pursuant to Section 4.01, on the date such termination is effective, and (ii) otherwise, on the earlier to occur of (A) July 28, 2000 or, if not a Business Day, the next preceding Business Day, and (B) the date of acceleration of the Obligations pursuant to Section 12.02. 2.03. Authorized Officers and Administrative Agent. On the Effective Date the Borrower shall deliver, and from time to time thereafter the Borrower may deliver, to the Administrative Agent an Officer's Certificate setting forth the names of the officers, employees and agents authorized to request Loans and Letters of Credit and to request a conversion/continuation of any Loan, in each instance containing a specimen signature of each such officer, employee or agent. The officers, employees and agents so authorized shall also be authorized to act for the Borrower in respect of all other matters relating to the Loan Documents. The Administrative Agent, Lenders and Issuing Banks shall be entitled to rely conclusively on such officer's, employee's, or agent's authority to request such Loan or Letter of Credit or such conver- sion/continuation until the Administrative Agent, Lenders and Issuing Banks receive written notice to the contrary. None of the Administrative Agent, the Lenders, or the Issuing Banks shall have any duty to verify the authenticity of the signature appearing on any such Officer's Certificate, written Notice of Borrowing or Notice of Conversion/Continuation, or any other document, and, with respect to an oral request for such a Loan or Letter of Credit or such conversion/continuation, the Administrative Agent shall have no duty to verify the identity of any person representing himself or herself as one of the officers, employees or agents authorized to make such request or otherwise to act on behalf of the Borrower. None of the Administrative Agent, any Lender or any Issuing Bank shall incur any liability to the Borrower or any other Person in acting upon any telephonic or facsimile notice referred to above which the Administrative Agent, such Lender, or such Issuing Bank believes to have been given by a duly authorized officer or other person authorized to borrow on behalf of the Borrower. 2.04. Use of Proceeds of Loans. The proceeds of the Loans shall be used for working capital in the ordinary course of the respective businesses of the Borrower and its Subsidiaries or for other lawful general corporate purposes not prohibited by the terms of this Agreement, including, without limitation, the payment of dividends, but excluding, in accordance with the provisions of Section 10.11, the purchasing or carrying of Margin Stock within the meaning of Regulation U and Regulation G. ARTICLE III LETTERS OF CREDIT 3.01. Letters of Credit. Subject to the terms and conditions set forth in this Agreement, each Issuing Bank hereby severally agrees to issue for the account of the Borrower, or for the account of any of the Borrower's Subsidiaries if the Borrower is jointly and severally liable for reimbursement of amounts drawn under such Letter of Credit, one or more Letters of Credit, subject to the following provisions: (a) Types and Amounts. An Issuing Bank shall not have any obligation to issue, amend or extend, and shall not issue, amend or extend, any Letter of Credit at any time: (i) if the aggregate Letter of Credit Obligations with respect to such Issuing Bank, after giving effect to the issuance, amendment or extension of the Letter of Credit requested hereunder, shall exceed any limit imposed by law or regulation upon such Issuing Bank; (ii) if the Issuing Bank receives written notice from the Administrative Agent at or before 11:00 a.m. (New York time) on the date of the proposed issuance, amendment or extension of such Letter of Credit that (A) immediately after giving effect to the issuance, amendment or extension of such Letter of Credit, (I) the Letter of Credit Obligations at such time would exceed $12,000,000, or (II) the Availability at such time would be less than zero, or (B) one or more of the conditions precedent contained in Sections 6.01 or 6.02, as applicable, would not on such date be satisfied, unless such conditions are thereafter satisfied and written notice of such satisfaction is given to the Issuing Bank by the Administrative Agent (and an Issuing Bank shall not otherwise be required to determine that, or take notice whether, the conditions precedent set forth in Sections 6.01 or 6.02, as applicable, have been satisfied); (iii) which is in a currency other than a currency in which such Issuing Bank is then issuing letters of credit; or (iv) which has an expiration date later than the earlier to occur of (A) the date one (1) year after the date of issuance (without regard to any automatic renewal provisions thereof) and (B) the Revolving Credit Termination Date; provided, however, that on the Revolving Credit Termination Date, Borrower shall deposit with the Administrative Agent (or respective Issuing Bank(s) at the direction of the Administrative Agent) Cash Collateral for deposit in the Cash Collateral Account or under other agreements satisfactory to the Administrative Agent and Issuing Bank(s) and in an amount equal to one hundred five percent (105%) of the then undrawn face amount of all Letters of Credit denominated in Dollars and one hundred twenty percent (120%) of the then undrawn face amount of all Letters of Credit denominated in any currency other than Dollars, in each instance for all Letters of Credit which will continue outstanding after the Revolving Credit Termination Date, plus Letter of Credit Fees with respect to such Letters of Credit for the period commencing on the Revolving Credit Termination Date through the expiry date of such Letters of Credit. (b) Conditions. In addition to being subject to the satisfaction of the conditions precedent contained in Sections 6.01 and 6.02, as applicable, the obligation of an Issuing Bank to issue, amend or extend any Letter of Credit is subject to the satisfaction in full of the following conditions: (i) if the Issuing Bank so requests, the Borrower or, in the case of Letters of Credit issued for the account of any of the Borrower's Subsidiaries, the Borrower and such Subsidiary shall have executed and delivered to such Issuing Bank and the Administrative Agent a Letter of Credit Reimbursement Agreement and such other documents and materials as may be required pursuant to the terms thereof; and (ii) the terms of the proposed Letter of Credit shall be satisfactory to the Issuing Bank in its sole discretion. (c) Issuance of Letters of Credit. (i) The Borrower shall give an Issuing Bank and the Administrative Agent written notice that it has selected such Issuing Bank to issue a Letter of Credit not later than 11:00 a.m. (New York time) on the third (3rd) Business Day preceding the requested date for issuance thereof under this Agreement, or such shorter notice as may be acceptable to such Issuing Bank and the Administrative Agent. Such notice shall be irrevocable unless and until such request is denied by the applicable Issuing Bank and shall specify (A) that the requested Letter of Credit is either a Commercial Letter of Credit or a Standby Letter of Credit, (B) that such Letter of Credit is solely for the account of the Borrower or the name of the Subsidiary of the Borrower which is jointly and severally applying for such Letter of Credit, (C) the stated amount of the Letter of Credit requested, (D) the effective date (which shall be a Business Day) of issuance of such Letter of Credit, (E) the date on which such Letter of Credit is to expire (which shall be a Business Day and no later than the Business Day immediately preceding the scheduled Revolving Credit Termination Date), (F) the Person for whose benefit such Letter of Credit is to be issued, (G) other relevant terms of such Letter of Credit, (H) the Availability at such time, and (I) the amount of the then outstanding Letter of Credit Obliga- tions. Such Issuing Bank shall notify the Administrative Agent immediately upon receipt of a written notice from the Borrower requesting that a Letter of Credit be issued, or that an existing Letter of Credit be extended or amended and, upon the Administrative Agent's request therefor, send a copy of such notice to the Administrative Agent. (ii) The Issuing Bank shall give (A) the Administrative Agent written notice, or telephonic notice confirmed promptly thereafter in writing, of the issuance, amendment or extension of a Letter of Credit and (B) promptly after issuance thereof, provide the Administrative Agent with a copy of each Letter of Credit issued and each amendment thereto. (d) Reimbursement Obligations; Duties of Issuing Banks. (i) Notwithstanding any provisions to the contrary in any Letter of Credit Reimbursement Agreement: (A) the Borrower shall reimburse, or cause its Subsidiary for whose account a Letter of Credit is issued to reimburse, the Issuing Bank for amounts drawn under such Letter of Credit, in Dollars, no later than the date (the "Reimbursement Date") which is the earlier of (I) the time specified in the applicable Letter of Credit Reimbursement Agreement and (II) one (1) Business Day after the Borrower receives written notice from the Issuing Bank that payment has been made under such Letter of Credit by the Issuing Bank; and (B) all Reimbursement Obligations with respect to any Letter of Credit shall bear interest at the rate applicable to Base Rate Loans in accordance with Section 5.01(a) from the date of the relevant drawing under such Letter of Credit until the Reimbursement Date and thereafter at the rate applicable to Base Rate Loans in accordance with Section 5.01(d). (ii) The Issuing Bank shall give the Administrative Agent written notice, or telephonic notice confirmed promptly thereafter in writing, of all drawings under a Letter of Credit and the payment (or the failure to pay when due) by the Borrower or its applicable Subsidiary on account of a Reimbursement Obligation (which notice the Administrative Agent shall promptly transmit by telegram, telex, telecopy or similar transmission to each Lender). (iii) No action taken or omitted in good faith by an Issuing Bank under or in connection with any Letter of Credit shall put such Issuing Bank under any resulting liability to any Lender, the Borrower or any of its Subsidiaries or, so long as it is not issued in violation of Section 3.01(a), relieve any Lender of its obligations hereunder to such Issuing Bank. Solely as between the Issuing Banks and the Lenders, in determining whether to pay under any Letter of Credit, the respective Issuing Bank shall have no obligation to the Lenders other than to confirm that any documents required to be delivered under a respective Letter of Credit appear to have been delivered and that they appear on their face to comply with the requirements of such Letter of Credit. (e) Participations. (i) Immediately upon issuance by an Issuing Bank of any Letter of Credit in accordance with the procedures set forth in this Section 3.01 and on the Effective Date with respect to the Letters of Credit identified on Schedule 3.02 attached hereto and made a part hereof, each Revolving Lender shall be deemed to have irrevocably and unconditionally purchased and received from that Issuing Bank, without recourse or warranty, an undivided interest and participation in such Letter of Credit to the extent of such Lender's Revolving Credit Pro Rata Share, including, without limitation, all obligations of the Borrower with respect thereto (other than amounts owing to the Issuing Bank under Section 3.01(g) and Section 5.03(b)) and any security therefor and guaranty pertaining thereto. (ii) If any Issuing Bank makes any payment under any Letter of Credit and the Borrower or the Subsidiary of the Borrower for whose account the Letter of Credit was issued does not repay such amount to the Issuing Bank on the Reimbursement Date, the Issuing Bank shall promptly notify the Administrative Agent, which shall promptly notify each Lender, and each Revolving Lender shall promptly and unconditionally pay to the Administrative Agent for the account of such Issuing Bank, in immediately available funds, the amount of such Lender's Revolving Credit Pro Rata Share of such payment (net of that portion of such payment, if any, made by such Lender in its capacity as an Issuing Bank), and the Administrative Agent shall promptly pay to the Issuing Bank such amounts received by it, and any other amounts received by the Administrative Agent for the Issuing Bank's account, pursuant to this Section 3.01(e). All amounts so paid to the Issuing Bank shall be deemed to constitute Borrower Loans. If a Lender does not make its Revolving Credit Pro Rata Share of the amount of such payment available to the Administrative Agent, such Lender agrees to pay to the Administrative Agent for the account of the Issuing Bank, forthwith on demand, such amount together with interest thereon, for the first Business Day after the date such payment was first due at the Federal Funds Rate, and thereafter at the interest rate then applicable to Base Rate Loans in accordance with Section 5.01(a). The failure of any Lender to make available to the Administrative Agent for the account of an Issuing Bank its Revolving Credit Pro Rata Share of any such payment shall neither relieve any other Lender of its obligation hereunder to make available to the Administrative Agent for the account of such Issuing Bank such other Lender's Revolving Credit Pro Rata Share of any payment on the date such payment is to be made nor increase the obligation of any other Lender to make such payment to the Administrative Agent. (iii) Whenever an Issuing Bank receives a payment on account of a Reimbursement Obligation, including any interest thereon, as to which the Administrative Agent has previously received payments from any Revolving Lender for the account of such Issuing Bank pursuant to this Section 3.01(e), such Issuing Bank shall promptly pay to the Administrative Agent and the Administrative Agent shall promptly pay to such Lender an amount equal to such Lender's Revolving Credit Pro Rata Share thereof. Each such payment shall be made by such Issuing Bank or the Administrative Agent, as the case may be, on the Business Day on which such Person receives the funds paid to such Person pursuant to the preceding sentence, if received prior to 11:00 a.m. (New York time) on such Business Day, and otherwise on the next succeeding Business Day. (iv) Upon the request of any Lender, an Issuing Bank shall furnish such Lender copies of any Letter of Credit or Letter of Credit Reimbursement Agreement to which such Issuing Bank is party and such other documentation as reasonably may be requested by such Lender. (v) The obligations of a Lender to make payments to the Administrative Agent for the account of any Issuing Bank with respect to a Letter of Credit shall be irrevocable, shall not be subject to any qualification or exception whatsoever except willful misconduct or gross negligence of such Issuing Bank, and shall be honored in accordance with this Article III (irrespective of the satisfaction of the conditions described in Sections 6.01 and 6.02, as applicable) under all circumstances, including, without limitation, any of the following circumstances: (A) any lack of validity or enforceability of this Agreement or any of the other Loan Documents; (B) the existence of any claim, setoff, defense or other right which the Borrower may have at any time against a beneficiary named in a Letter of Credit or any transferee of a beneficiary named in a Letter of Credit (or any Person for whom any such transferee may be acting), the Administrative Agent, the Issuing Bank, any Lender, or any other Person, whether in connection with this Agreement, any Letter of Credit, the transactions contemplated herein or any unrelated transactions (including any underlying transactions between the account party and beneficiary named in any Letter of Credit); (C) any draft, certificate or any other document presented under the Letter of Credit having been determined to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; (D) the surrender or impairment of any security for the performance or observance of any of the terms of any of the Loan Documents; (E) any failure by that Issuing Bank to make any reports required pursuant to Section 3.01(h) or the inaccuracy of any such report; or (F) the occurrence of any Event of Default or Potential Event of Default. (f) Payment of Reimbursement Obligations. (i) The Borrower unconditionally agrees to pay, or cause its Subsidiary for whose account a Letter of Credit is issued to pay, to each Issuing Bank, in Dollars, the amount of all Reimbursement Obligations, interest and other amounts payable to such Issuing Bank under or in connection with the Letters of Credit when such amounts are due and payable, irrespective of any claim, setoff, defense or other right which the Borrower may have at any time against any Issuing Bank or any other Person. (ii) In the event any payment by the Borrower or such Subsidiary received by an Issuing Bank with respect to a Letter of Credit and distributed by the Administrative Agent to the Revolving Lenders on account of their participations is thereafter set aside, avoided or recovered from such Issuing Bank in connection with any receivership, liquidation or bankruptcy proceeding, each such Lender which received such distribution shall, upon demand by such Issuing Bank, contribute such Lender's Revolving Credit Pro Rata Share of the amount set aside, avoided or recovered together with interest at the rate required to be paid by such Issuing Bank upon the amount required to be repaid by it. (g) Issuing Bank Charges. The Borrower shall pay, or cause its Subsidiary for whose account a Letter of Credit is issued to pay, to each Issuing Bank, solely for its own account, the standard charges assessed by such Issuing Bank in connection with the issuance, administration, amendment and payment or cancellation of Letters of Credit and such compensation in respect of such Letters of Credit for the Borrower's or such Subsidiary's account, as applicable, as may be agreed upon by the Borrower and such Issuing Bank from time to time. (h) Issuing Bank Reporting Requirements. Each Issuing Bank shall, no later than the first (1st) Business Day following the last day of each calendar month, provide to the Administrative Agent, the Borrower, and, if requested by a Lender, such Lender separate schedules for Commercial Letters of Credit and Standby Letters of Credit issued as Letters of Credit, in form and substance reasonably satisfactory to the Administrative Agent, setting forth the aggregate Letter of Credit Obligations outstanding to it at the end of each day during such month and, to the extent not otherwise provided in accordance with the provisions of Section 3.01(c)(ii), any information requested by the Administrative Agent or the Borrower relating to the date of issue, account party, amount, expiration date and reference number of each Letter of Credit issued by it. (i) Indemnification; Exoneration. (i) In addition to all other amounts payable to an Issuing Bank, the Borrower hereby agrees to defend, indemnify, and save the Administrative Agent, each Issuing Bank and each Lender harmless from and against any and all claims, demands, liabilities, penalties, damages, losses (other than loss of profits), costs, charges and expenses (including reasonable attorneys' fees but excluding taxes) which the Administrative Agent, such Issuing Bank or such Lender may incur or be subject to as a consequence, direct or indirect, of (A) the issuance of any Letter of Credit other than as a result of the gross negligence or willful misconduct of the Issuing Bank, as determined by a court of competent jurisdiction, or (B) the failure of the Issuing Bank issuing a Letter of Credit to honor a drawing under such Letter of Credit as a result of any act or omission, whether rightful or wrongful, of any present or future de jure or de facto government or Governmental Authority. (ii) As between the Borrower and any of its Subsidiaries for whose account a Letter of Credit is issued on the one hand and the Administrative Agent, the Lenders and the Issuing Banks on the other hand, the Borrower assumes all risks of the acts and omissions of, or misuse of Letters of Credit by, the respective beneficiaries of the Letters of Credit. In furtherance and not in limitation of the foregoing, subject to the provisions of the Letter of Credit Reimbursement Agreements, the Issuing Banks and the Lenders shall not be responsible for: (A) the form, validity, legality, sufficiency, accuracy, genuineness or legal effect of any document submitted by any party in connection with the application for and issuance of the Letters of Credit, even if it should in fact prove to be in any or all respects invalid, insufficient, inaccurate, fraudulent or forged; (B) the validity, legality or sufficiency of any instrument transferring or assigning or purporting to transfer or assign a Letter of Credit or the rights or benefits thereunder or proceeds thereof, in whole or in part, which may prove to be invalid or ineffective for any reason; (C) failure of the beneficiary of a Letter of Credit to comply duly with conditions required in order to draw upon such Letter of Credit; (D) errors, omissions, interruptions or delays in transmission or delivery of any messages, by mail, cable, telegraph, telex or otherwise, whether or not they be in cipher; (E) errors in interpretation of technical terms; (F) any loss or delay in the transmission or otherwise of any document required in order to make a drawing under any Letter of Credit or of the proceeds thereof; (G) the misapplication by the beneficiary of a Letter of Credit of the proceeds of any drawing under such Letter of Credit; and (H) any consequences arising from causes beyond the control of the Administrative Agent, the Issuing Banks or the Lenders. 3.02. Transitional Provisions. Schedule 3.02 contains a schedule of certain Letters of Credit issued prior to the Effective Date by Citibank for the account of the Borrower or for the account of a Subsidiary of the Borrower and on which the Borrower is jointly and severally liable for reimbursement of amounts drawn thereunder. Such Letters of Credit shall continue to be Letters of Credit issued pursuant to this Agreement and be subject to the provisions hereof. 3.03. Obligations Several. The obligations of each Issuing Bank and each Lender under this Article III are several and not joint, and no Issuing Bank or Lender shall be responsible for the obligation to issue Letters of Credit or participation obligation hereunder, respectively, of any other Issuing Bank or Lender. ARTICLE IV PAYMENTS AND PREPAYMENTS 4.01. Prepayments; Reductions in Commitments. (a) Voluntary Prepayments/Commitment Reductions. (i) Prepayments. The Borrower may prepay the Revolving Loans in whole or in part, at any time and from time to time, subject to the right to reborrow the same in accordance with the provisions of Section 2.01(a). The Borrower may permanently prepay the Revolving Loans and Term Loans in whole or in minimum amounts of $1,000,000 and integral multiples of $1,000,000 in excess of that amount at any time upon at least three (3) Business Days' prior written notice as provided in clause (ii) below. (ii) Voluntary Commitment Reductions. The Borrower, upon at least three (3) Business Days' prior written notice to the Administrative Agent from the Borrower (which the Administrative Agent shall promptly transmit to each Lender), shall have the right, at any time and from time to time, to terminate in whole or permanently reduce in part the Revolving Credit Commitments; provided that, the Borrower shall have made whatever payment may be required to reduce the outstanding principal amount of the Revolving Loans by the aggregate amount required such that the Revolving Credit Obligations, after giving effect to such payment, will equal an amount less than or equal to the Revolving Credit Commitments as reduced or terminated. Any partial reduction of the Revolving Credit Commitments shall be in an aggregate minimum amount of $1,000,000 and integral multiples of $1,000,000 in excess of that amount. Each reduction of the Revolving Credit Commitments shall reduce the Revolving Credit Commitment of each Revolving Lender proportionately in accordance with its Revolving Credit Pro Rata Share. Any notice of termination or reduction given to the Administrative Agent under this Section 4.01(a)(ii) shall specify the date (which shall be a Business Day) of such termination or reduction and, with respect to a partial reduction, the aggregate principal amount thereof. When notice of termination or reduction is delivered as provided herein, the principal amount of the Revolving Loans specified in the notice shall become due and payable on the date specified in such notice. (iii) Prepayment Fee. The prepayments and payments in respect of reductions and terminations described in this Section 4.01 may be made without premium or penalty (except as provided in Article XIV). (b) Mandatory Prepayments/Commitment Reductions. (i) Net Cash Proceeds of Sale. The Borrower shall make or cause to be made a mandatory prepayment of the Obligations in an amount equal to one hundred percent (100%) of the Net Cash Proceeds of Sale received by the Borrower, RHI, or any of Borrower's Subsidiaries within (A) three (3) Business Days after such Person's receipt of the Net Cash Proceeds of Sale with respect to sales, assignments, or other dispositions of assets within the U.S. and (B) fourteen (14) days after such Person's receipt of Net Cash Proceeds of Sale with respect to sales, assignments, or other dispositions of assets outside of the U.S. (ii) Net Cash Proceeds of Issuance of Equity Securities. Immediately upon TFC's, RHI's, any Subsidiary of RHI's, the Borrower's or any Subsidiary of the Borrower's receipt of any Net Cash Proceeds of Issuance of Equity Securities, the Borrower shall make or cause to be made a mandatory prepayment in an amount equal to one hundred percent (100%) of such Net Cash Proceeds of Issuance of Equity Securities. (iii) Net Cash Proceeds of Issuance of Indebtedness. Immediately upon TFC's, RHI's, any Subsidiary of RHI's, the Borrower's or any Subsidiary of the Borrower's receipt of any Net Cash Proceeds of Issuance of Indebtedness, the Borrower shall make or cause to be made a mandatory prepayment in an amount equal to one hundred percent (100%) of such Net Cash Proceeds of Issuance of Indebtedness. (iv) Performance Tests. In the event of any failure in compliance, as of September 28, 1998, with any of the requirements set forth in Section 11.06, the Borrower shall make a mandatory prepayment on December 31, 1998 in the amount equal to the sum of the then outstanding balance of the Term Loans and all accrued and unpaid interest thereon plus the amount by which the outstanding principal balance of the Revolving Credit Obligations exceeds $52,000,000. The payment required under this clause (iv) with respect to Revolving Loans shall be allocated and applied to the Revolving Loans which are Base Rate Loans until paid in full and then to Revolving Loans which are Eurodollar Rate Loans and shall permanently reduce the respective Revolving Credit Commitments of each Revolving Lender proportionately in accordance with its Revolving Credit Pro Rata Share. (v) Exceptions to Mandatory Prepayments; No Waiver or Consent. Notwithstanding the provisions of clauses (i) through (iii) hereinabove, no mandatory prepayment need be made due to the receipt of the first $2,000,000 in any Fiscal Year of Net Cash Proceeds of Sale, Net Cash Proceeds of Issuance of Equity Securities, and Net Cash Proceeds of Issuance of Indebtedness with respect to sales or dispositions of assets, including, without limitation, Capital Stock of a Person held by the selling or disposing Person, or issuance of equity Securities or issuance of debt Securities which is otherwise in compliance with the terms of this Agreement. Nothing in this Section 4.01(b) shall be construed to constitute the Lenders' consent to any transaction referenced in clauses (i) and (iii) above which is not expressly permitted by Article X. (vi) Notice. The Borrower shall give the Administrative Agent prior written notice or telephonic notice promptly confirmed in writing (each of which the Administrative Agent shall promptly transmit to each Lender), when a Designated Prepayment will be made (which date of prepayment shall be no later than the date on which such Designated Payment becomes due and payable pursuant to this Section 4.01(b)). (vii) Application of Designated Prepayments. Designated Prepayments shall be allocated and applied to the Obligations as follows: (A) in the event both Term Loans and Revolving Loans are outstanding as of the date a Designated Prepayment is required to be made, the amount of such Designated Prepayment shall be applied in equal amounts to the outstanding principal balances of the Term Loans and Revolving Loans, with each application being made first to the respective Term Loans and Revolving Loans which are Base Rate Loans until paid in full and then to the respective Term Loans and Revolving Loans which are Eurodollar Rate Loans until the outstanding balance of the Revolving Loans is paid in full and the respective Revolving Credit Commitments of each Revolving Lender shall be permanently reduced by the amount of such Designated Prepayment applied to its Revolving Loans until such time as the Revolving Credit Commitments are reduced to $52,000,000; and (B) following the payment in full of the Revolving Loans or in the event there are no Revolving Loans outstanding as of the date a Designated Prepayment is required to be made, the remaining balance of (or entire amount of, in the event there are no Revolving Loans outstanding as of such required payment date) each Designated Prepayment shall be applied solely to the outstanding balances of the Term Loans in the order described in clause (A) above until paid in full. 4.02. Payments. (a) Manner and Time of Payment. All payments of principal of and interest on the Loans and Reimbursement Obligations and other Obligations (including, without limitation, fees and expenses) which are payable to the Administrative Agent, the Lenders or any Issuing Bank shall be made without condition, setoff, or reservation of right, and, with respect to payments made other than from application of deposits in a Concentration Account, in immediately available funds, delivered to the Administrative Agent (or, in the case of Reimbursement Obligations, to the pertinent Issuing Bank), not later than 11:00 a.m. (New York time) on the date and at the place due, to such account of the Administrative Agent (or such Issuing Bank) as it may designate; in each instance, for the account of the Administrative Agent, the Lenders or such Issuing Bank, as the case may be. Funds received by the Administrative Agent, including, without limitation, funds in respect of any Loans to be made on that date, not later than 11:00 a.m. (New York time) on any given Business Day shall be credited against payment to be made that day and funds received by the Administrative Agent after that time shall be deemed to have been paid on the next succeeding Business Day. Payments actually received by the Administrative Agent for the account of the Lenders or the Issuing Banks, or any of them, shall be paid to them by the Administrative Agent promptly after receipt thereof. (b) Pre-Default Apportionment of Payments. Subject to the provisions of Section 4.01 and Section 4.02(f), all payments of principal and interest in respect of outstanding Loans, all payments in respect of Reimbursement Obligations, all payments of fees and all other payments in respect of any other Obligations, shall be allocated among such of the Lenders and Issuing Banks as are entitled thereto, and, if Lenders, in proportion to their respective Revolving Credit Pro Rata Shares or Term Loan Pro Rata Shares, as applicable, or otherwise as provided herein. Except as provided in Section 4.02(c) with respect to payments and proceeds of Collateral received after the occurrence of an Event of Default, all other payments, proceeds of Collateral, and other amounts received by the Administrative Agent from or for the benefit of the Borrower shall be applied (i) first, to pay principal of and interest on any portion of the Loans which the Administrative Agent may have advanced on behalf of any Lender (other than Citicorp if the Administrative Agent is Citicorp) for which the Administrative Agent has not then been reimbursed by such Lender or the applicable Borrower, (ii) second, to pay principal of and interest on any Protective Advance for which the Administrative Agent has not then been paid by the Borrower or reimbursed by the Lenders, (iii) third, to pay the principal of the Loans then due and payable in the order described hereinbelow and interest on such Loans then due and payable, ratably, based on the then outstanding balances of the such Loans, (iv) fourth, to pay all other Obligations then due and payable, ratably, and (v) fifth, as the Borrower so designates. All such principal and interest payments in respect of Loans shall be applied first, to repay outstanding Base Rate Loans and then to repay outstanding Eurodollar Rate Loans with those Eurodollar Rate Loans which have earlier expiring Eurodollar Interest Periods being repaid prior to those which have later expiring Eurodollar Interest Periods. (c) Post-Default Apportionment of Payments. After the occurrence of an Event of Default and while the same is continuing, the Administrative Agent shall apply all payments in respect of any Obligations and all proceeds of Collateral in the following order: (i)first, to pay principal of and interest on any portion of the Loans which the Administrative Agent may have advanced on behalf of any Lender (other than Citicorp if the Administrative Agent is Citicorp) for which the Administrative Agent has not then been reimbursed by such Lender or the Borrower; (ii) second, to pay principal of and interest on any Protective Advance for which the Administrative Agent has not then been paid by the Borrower or reimbursed by the Lenders; (iii) third, to pay Obligations in respect of any fees, expense reimbursements or indemnities then due to the Administrative Agent; (iv) fourth, to pay Obligations in respect of any fees, expense reimbursements or indemnities then due to the Lenders and the Issuing Banks; (v) fifth, to pay interest due in respect of the Loans, ratably, in accordance with the Lenders' respective Revolving Credit Pro Rata Shares and Term Loan Pro Rata Shares, as applicable; (vi) sixth, to the ratable payment or prepayment of principal outstanding on all Loans, Hedge Agreements to which any of the Lenders or any Affiliate of any of the Lenders is a party, and principal of and interest on Letter of Credit Obligations (or, to the extent Letter of Credit Obligations are contingent, deposited in the Cash Collateral Account to provide Cash Collateral in respect of such Obligations), in accordance with the Lender's respective Revolving Credit Loan Pro Rata Shares and Term Loan Pro Rata Shares, as applicable; and (vii) seventh, to the ratable payment of all other Obligations. For purposes of clause (vi) above, Obligations with respect to Hedge Agreements to which an Affiliate of a Lender is a party, such Obligations shall be attributable to such Lender. (d) Administrative Agent Authority to Apply Funds. The Administrative Agent, in its sole discretion subject only to the terms of this Section 4.02(d), may pay from the proceeds of Loans made to the Borrower hereunder, whether made following a request by the Borrower pursuant to Section 2.02 or a deemed request as provided in this Section 4.02(d), all amounts payable by the Borrower hereunder, including, without limitation, amounts payable with respect to payments of principal, interest, Reimbursement Obligations and fees and all reimbursements for expenses pursuant to Section 15.02. The Borrower hereby irrevocably authorizes the Revolving Lenders to make Revolving Loans to it, which Revolving Loans shall be Base Rate Loans upon notice from the Administrative Agent as described in the following sentence for the purpose of paying principal, interest, Reimbursement Obligations and fees due from the Borrower, reimbursing expenses pursuant to Section 15.02 and paying any and all other amounts due and payable by the Borrower hereunder or under the Notes, and agrees that all such Loans so made shall be deemed to have been requested by it pursuant to Section 2.02 as of the date of the aforementioned notice. The Administrative Agent shall request Loans on behalf of the Borrower as described in the preceding sentence by notifying the Lenders by telecopy, telegram or other similar form of transmission (which notice the Administrative Agent shall thereafter promptly transmit to the Borrower), of the amount and Funding Date of the proposed Borrowing and that such Borrowing is being requested on the Borrower's behalf pursuant to this Section 4.02(d). On the proposed Funding Date for such Loan, the Lenders shall make the requested Loans in accordance with the procedures and subject to the conditions specified in Section 2.02. (e) Priorities and Distributions of Payments. The orders of priority set forth in Sections 4.02(b) and (c) and the related provisions of this Agreement are set forth solely to determine the rights and priorities of the Administrative Agent, the Lenders, the Issuing Banks and other Holders as among themselves. Subject to Section 4.02(f), the Administrative Agent shall promptly distribute to each Lender and Issuing Bank at its primary address set forth on the appropriate signature page hereof or the signature page to the Assignment and Acceptance by which it became a Lender or Issuing Bank, or at such other address as a Lender, an Issuing Bank or other Holder may request in writing, such funds as such Person may be entitled to receive, subject to the provisions of Article XIV; provided that the Administrative Agent shall under no circumstances be bound to inquire into or determine the validity, scope or priority of any interest or entitlement of any Holder and may suspend all payments or seek appropriate relief (including, without limitation, instructions from the Requisite Lenders or an action in the nature of interpleader) in the event of any doubt or dispute as to any apportionment or distribution contemplated hereby. (f) Defaulting Lenders. In the event that any Lender fails to fund its Revolving Credit Pro Rata Share of any Revolving Loan or its Term Loan Pro Rata Share of any Term Loan requested by the Borrower which such Lender is obligated to fund under the terms of this Agreement (the funded portion of such Loan being hereinafter referred to as a "Non Pro Rata Loan"), until the earlier of such Lender's cure of such failure and the termination of the Revolving Credit Commitments, the proceeds of all amounts thereafter repaid to the Administrative Agent by the Borrower and otherwise required to be applied to such Lender's share of all other Obligations pursuant to the terms of this Agreement shall be advanced to the Borrower by the Administrative Agent on behalf of such Lender to cure, in full or in part, such failure by such Lender, but shall nevertheless be deemed to have been paid to such Lender in satisfaction of such other Obligations. Notwithstanding anything in this Agreement to the contrary: (i) the foregoing provisions of this Section 4.02(f) shall apply only with respect to the proceeds of payments of Obligations and shall not affect the conversion or continuation of Loans pursuant to Section 5.01(c); (ii) a Lender shall be deemed to have cured its failure to fund its Revolving Credit Pro Rata Share or Term Loan Pro Rata Share of any Loan at such time as an amount equal to such Lender's original Revolving Credit Loan Pro Rata Share or Term Loan Pro Rata Share of the requested principal portion of such Loan is fully funded to the Borrower, whether made by such Lender itself or by operation of the terms of this Section 4.02(f), and whether or not the Non Pro Rata Loan with respect thereto has been repaid, converted or continued; (iii) amounts advanced to the Borrower to cure, in full or in part, any such Lender's failure to fund its Revolving Loan Pro Rata Share of any Revolving Loan ("Cure Loans") shall bear interest at the rate in effect from time to time pursuant to Section 5.01 and for all other purposes of this Agreement shall be treated as if they were Base Rate Loans; and (iv) regardless of whether or not an Event of Default has occurred or is continuing, and notwithstanding the instructions of the Borrower as to its desired application, all repayments of principal which, in accordance with the other terms of this Section 4.02, would be applied to the outstanding Loans which are Base Rate Loans shall be applied first, ratably to all such Base Rate Loans constituting Non Pro Rata Loans, second, ratably to such Base Rate Loans other than those constituting Non Pro Rata Loans or Cure Loans and, third, ratably to such Base Rate Loans constituting Cure Loans. (g) Payments on Non-Business Days. Whenever any payment to be made by the Borrower hereunder or under the Notes is stated to be due on a day which is not a Business Day, the payment shall instead be due on the next succeeding Business Day (except as set forth in Section 5.02(b)(iii) with respect to payments due on the next preceding Business Day), and any such extension of time shall be included in the computation of the payment of interest and fees hereunder. 4.03. Promise to Repay; Evidence of Indebtedness. (a) Promise to Repay. The Borrower hereby agrees to pay when due the principal amount of each Loan which is made to it, and further agrees to pay all unpaid interest accrued thereon, in accordance with the terms of this Agreement and the Notes. The Borrower shall execute and deliver to each Lender on the Effective Date promissory notes, in form and substance acceptable to the Administrative Agent and such Lender, evidencing the Loans made from time to time hereunder by such Lender and thereafter shall execute and deliver such other promissory notes as are necessary to evidence Loans owing to the Lenders after giving effect to any assignment thereof pursuant to Section 15.01, all in form and substance acceptable to the Administrative Agent and the parties to such assignment. (b) Loan Account. Each Lender shall maintain in accordance with its usual practice an account or accounts (a "Loan Account") evidencing the Indebtedness of the Borrower to such Lender resulting from each Loan owing to such Lender from time to time, including the amount of principal and interest payable and paid to such Lender from time to time hereunder and under the Notes. (c) Control Account. The Register maintained by the Administrative Agent pursuant to Section 15.01(c) shall include a control account, and a subsidiary account for each Lender, in which accounts (taken together) shall be recorded (i) the date and amount of each Borrowing made hereunder, the type of Loan comprising such Borrowing and any Eurodollar Interest Period applicable thereto, (ii) the effective date and amount of each Assignment and Acceptance delivered to and accepted by it and the parties thereto, (iii) the amount of any principal or interest due and payable or to become due and payable from the Borrower to each Lender hereunder or under the Notes, and (iv) the amount of any sum received by the Administrative Agent from the Borrower hereunder and each Lender's share thereof. (d) Entries Binding. The entries made in the Register and each Loan Account shall be conclusive and binding for all purposes, absent manifest error. 4.04. Proceeds of Collateral; Concentration Account Arrangements. (a) Establishment. The Borrower shall establish and maintain, and shall cause the Guarantors to establish and maintain, Collection Accounts into which all collections of Receivables shall be deposited. All amounts deposited in Collection Accounts established by the Borrower and the Domestic Subsidiaries shall be promptly transferred directly to the Concentration Account established at Citibank in New York, New York. The Borrower shall cause all other proceeds of Collateral to be deposited in the appropriate Concentration Account or pursuant to other similar arrangements for the collection of such amounts established by the Borrower and the Administrative Agent. All collections of Receivables and other proceeds of Collateral which are received directly by the Borrower or any Domestic Subsidiary shall be deemed to have been received by the Borrower or such Domestic Subsidiary as the Administrative Agent's trustee and, upon the Borrower's or such Domestic Subsidiary's receipt thereof, the Borrower or such Domestic Subsidiary shall immediately transfer, or cause to be transferred, all such amounts into the appropriate Concentration Account in their original form. All collections of Receivables, all payments, and all proceeds of other Collateral received by the Administrative Agent, whether through payment, deposit in a Concentration Account as described above, or otherwise, will be deemed received by the Administrative Agent, will be the sole property of the Administrative Agent, and will be held by the Administrative Agent, for the benefit of the Holders (i) for application to the Obligations pursuant to Section 4.02 and (ii) thereafter, as Cash Collateral for the Obligations, subject to the rights of the Borrower set forth in Section 4.04(b) and the rights of the Administrative Agent set forth in Section 4.06. (b) Pre-Default Withdrawals from Concentration Account. If requested by the Borrower, the Administrative Agent shall, so long as no Event of Default shall have occurred and be continuing or unwaived, from time to time, (i) apply funds in the Concentration Accounts promptly after deposit therein to payment of the Loans and to payment of other Obligations of the Borrower as they become due and payable, (ii) after giving effect to the aforesaid payments, invest funds on deposit in the Concentration Accounts and accrued interest thereon, reinvest proceeds of any such investments which may mature or be sold, and invest interest or other income received from such investments, in such Cash Equivalents as the Borrower may select, and (iii) upon the Borrower's request therefor after giving effect to the payments described in clause (i) above, transfer funds on deposit in the Concentration Accounts to Borrower' or their Subsidiaries' designated accounts. Such funds, interest, proceeds, or income which are not so disbursed, invested or reinvested shall be deposited and held in the Concentration Account for the benefit of the Holders as provided in Section 4.04(a). None of the Administrative Agent, any Lender or any Issuing Bank shall be liable to the Borrower or any Subsidiary of the Borrower for, or with respect to, any decline in value of amounts on deposit in the Concentration Accounts which shall have been invested pursuant to this Section 4.04(b). Cash Equivalents from time to time purchased and held pursuant to this Section 4.04(b) shall constitute Cash Collateral and shall, for purposes of this Agreement, be deemed to be part of the funds held in the respective Concentration Accounts in amounts equal to their respective outstanding principal amounts. (c) Reasonable Care. The Administrative Agent shall exercise reasonable care in the custody and preservation of any funds held in the Concentration Accounts and shall be deemed to have exercised such care if such funds are accorded treatment substantially equivalent to that which the Administrative Agent accords its own like property, it being understood that the Administrative Agent shall not have any responsibility for taking any steps necessary to preserve rights against any parties with respect to any such funds but may do so at its option. All reasonable expenses incurred in connection therewith shall be for the sole account of the Borrower and shall constitute Obligations hereunder. 4.05. Cash Collateral Account. (a) Investments. If requested by the Borrower, the Administrative Agent shall, so long as no Event of Default shall have occurred and be continuing, from time to time invest funds on deposit in the Cash Collateral Account and accrued interest thereon, reinvest proceeds of any such investments which may mature or be sold, and invest interest or other income received from any such Investments, in each case in such Cash Equivalents as the Borrower may select; provided, however, that such accrued interest and other income received from any such Investments, upon the request of the Borrower, shall be remitted to the Borrower. Such funds, interest, proceeds or income which are not so invested or reinvested in Cash Equivalents shall, except as otherwise provided above or in Section 4.05(b) and Section 4.06, be deposited and held by the Administrative Agent in the Cash Collateral Account. None of the Administrative Agent, any Lender or any Issuing Bank shall be liable to the Borrower for, or with respect to, any decline in value of amounts on deposit in the Cash Collateral Account which shall have been invested pursuant to this Section 4.05(a) at the direction of the Borrower. Cash Equivalents from time to time purchased and held pursuant to this Section 4.05(a) shall constitute Cash Collateral and shall, for purposes of this Agreement, be deemed to be part of the funds held in the Cash Collateral Account in amounts equal to their respective outstanding principal amounts. (b) Withdrawal Rights. Neither the Borrower nor any Person or entity claiming on behalf of or through the Borrower shall have any right to withdraw any of the funds held in the Cash Collateral Account, except that, upon the later to occur of (i) the expiration or termination of all of the Letters of Credit in accordance with their respective terms and (ii) the payment in full in cash of the Obligations, any funds remaining in the Cash Collateral Account shall be returned by the Administrative Agent to the Borrower or paid to whomever may be legally entitled thereto. (c) Additional Deposits. If at any time the Administrative Agent determines that any funds held in the Cash Collateral Account are subject to any interest, right, claim or Lien of any Person other than the Administrative Agent, the Borrower will, forthwith upon demand by the Administrative Agent, pay to the Administrative Agent, as additional funds to be deposited and held in the Cash Collateral Account, an amount equal to the amount of funds subject to such interest, right, claim or Lien. (d) Reasonable Care. The Administrative Agent shall exercise reasonable care in the custody and preservation of any funds held in the Cash Collateral Account and shall be deemed to have exercised such care if such funds are accorded treatment substantially equivalent to that which the Administrative Agent accords its own like property, it being understood that the Administrative Agent shall not have any responsibility for taking any necessary steps to preserve rights against any parties with respect to any such funds but may do so at its option. All expenses incurred in connection therewith shall be for the sole account of the Borrower and shall constitute Obligations hereunder. (e) Foreign Exchange Requirements. In the event deposits have been made to the Cash Collateral Account to secure Letter of Credit Obligations denominated in a non-U.S. currency, the Borrower shall enter into a Hedge Agreement for a forward foreign exchange contract reasonably satisfactory to the Administrative Agent to protect against fluctuation in the Exchange Rate for the amount of such Letter of Credit Obligations until the same are paid in full. 4.06. Post-Default Withdrawals from the Concentration Account and Cash Collateral Account. Notwithstanding any other provision of this Agreement, from and after (a) the occurrence of an Event of Default described in Section 12.01(a) and for so long as the same is continuing unwaived or (b) the occurrence of any other Event of Default and the Administrative Agent's receipt of written notice from the Requisite Lenders that no further withdrawals may be made from the Concentration Accounts other than for application on the Obligations for so long as the same is continuing unwaived, neither the Borrower nor any other Person or entity claiming on behalf of or through the Borrower shall have any right to withdraw any of the funds held in a Concentration Account. The Administrative Agent may, at any time during the period clause (a) or clause (b) above is applicable, sell or cause to be sold any Cash Equivalents being held by the Administrative Agent in the Concentration Accounts or as Cash Collateral at any broker's board or at public or private sale, in one or more sales or lots, at such price as the Administrative Agent may deem best, without assumption of any credit risk, and the purchaser of any or all such Cash Equivalents so sold shall thereafter own the same, absolutely free from any claim, encumbrance or right of any kind whatsoever. The Administrative Agent or any Holder may, in its own name or in the name of a designee or nominee, buy such Cash Equivalents at any public sale and, if permitted by applicable law, buy such Cash Equivalents at any private sale. The Administrative Agent shall apply the proceeds of any such sale, net of any reasonable expenses incurred in connection therewith, and any other funds deposited in the Concentration Accounts or Cash Collateral Account to the payment of the Obligations in accordance with Section 4.02(c), other than amounts which are being held as Cash Collateral for Reimbursement Obligations, which shall be applied to such Reimbursement Obligations without regard to Section 4.02(c). The Borrower agrees that any sale of Cash Equivalents conducted in conformity with reasonable commercial practices of banks, commercial finance companies, insurance companies or other financial institutions disposing of property similar to such Cash Equivalents shall be deemed to be commercially reasonable and any requirements of reasonable notice shall be met if such notice is given by the Administrative Agent within a commercially reasonable time prior to such disposition, the time of delivery of which notice the parties hereto agree shall in no event be required to be greater than five (5) Business Days before the date of the intended sale or disposition. Any other requirement of notice, demand or advertisement for sale is waived to the extent permitted by law. The Administrative Agent may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor and such sale may, without further notice, be made at the time and place to which it was so adjourned. ARTICLE V INTEREST AND FEES 5.01. Interest on the Loans and other Obligations. (a) Rate of Interest. (i) All Loans and the outstanding principal balance of all other Obligations shall bear interest on the unpaid principal amount thereof from the date such Loans are made and such other Obligations are incurred until paid in full, except as otherwise provided in Section 5.01(d) or Section 14.04, as follows: (A) If a Base Rate Loan or such other Obligation, at a rate per annum equal to the sum of (1) the Base Rate, as in effect from time to time as interest accrues plus (2) the Base Rate Margin; and (B) If a Eurodollar Rate Loan, at a rate per annum equal to the sum of (1) the applicable Eurodollar Rate determined for such Eurodollar Rate Loan for the applicable Eurodollar Interest Period, plus (2) the Eurodollar Rate Margin. (ii) The applicable basis for determining the rate of interest on the Loans shall be selected by the Borrower at the time a Notice of Borrowing or a Notice of Conversion/Continuation is delivered by the Borrower to the Administrative Agent; provided, however, the Borrower may not select a Eurodollar Rate as the applicable basis for determining the rate of interest on such a Loan if (A) such Loan is to be made on the Effective Date or (B) at the time of such selection an Event of Default or a Potential Event of Default would occur or has occurred and is continuing. If on any day any Loan is outstanding with respect to which notice has not been timely delivered to the Administrative Agent in accordance with the terms of this Agreement specifying the basis for determining the rate of interest on that day, then for that day interest on that Loan shall be determined by reference to clause (i)(A) above. (b) Interest Payments. (i) Interest accrued on each Base Rate Loan shall be payable in arrears (A) on the first Business Day of each calendar quarter, commencing with the calendar quarter following the calendar quarter in which such Loan was made and (B) if not theretofore paid in full, at maturity (whether by acceleration or otherwise) of such Base Rate Loan. (ii) Interest accrued on each Eurodollar Rate Loan shall be payable in arrears (A) on each Eurodollar Interest Payment Date applicable to such Loan, (B) upon the payment or prepayment thereof in full or in part, and (C) if not theretofore paid in full, at maturity (whether by acceleration or otherwise) of such Eurodollar Rate Loan. (iii) Interest accrued on the principal balance of all other Obligations shall be payable in arrears (A) on the first day of each calendar quarter, commencing with the calendar quarter following the calendar quarter in which such Obligation was incurred, (B) upon repayment thereof in full or in part, and (C) if not theretofore paid in full, at the time such other Obligation becomes due and payable (whether by acceleration or otherwise). (c) Conversion or Continuation. (i) The Borrower shall have the option (A) to convert at any time all or any part of outstanding Base Rate Loans to Eurodollar Rate Loans; (B) to convert all or any part of outstanding Eurodollar Rate Loans having Eurodollar Interest Periods which expire on the same date to Base Rate Loans on such expiration date; or (C) to continue all or any part of outstanding Eurodollar Rate Loans having Eurodollar Interest Periods which expire on the same date as Eurodollar Rate Loans, and the succeeding Eurodollar Interest Period of such continued Loans shall commence on such expiration date; provided, however, no such outstanding Loan may be continued as, or be converted into, a Eurodollar Rate Loan (i) if such continuation of, or conversion into, would violate any of the provisions of Section 5.02 or (ii) if an Event of Default or a Potential Event of Default would occur or has occurred and is continuing. Any conversion into or continuation of Eurodollar Rate Loans under this Section 5.01(c) shall be in a minimum amount of $1,000,000 and in integral multiples of $100,000 in excess of that amount except in the case of a conversion into or a continuation of an entire Borrowing of Non Pro Rata Loans. (ii) To convert or continue a Loan under Section 5.01(c)(i), the Borrower shall deliver a Notice of Conversion/Continuation to the Administrative Agent no later than 11:00 a.m. (New York time) at least three (3) Business Days in advance of the proposed conversion/continuation date. A Notice of Conversion/Continuation shall specify (A) the proposed conversion/continuation date (which shall be a Business Day), (B) the aggregate principal amount of the respective Loans to be converted/continued, (C) whether such Loans shall be converted and/or continued, and (D) in the case of a conversion to, or continuation of, a Eurodollar Rate Loan, the requested Eurodollar Interest Period. In lieu of delivering a Notice of Conversion/Continuation, the Borrower may give the Administrative Agent telephonic notice of any proposed conversion/continuation by the time required under this Section 5.01(c)(ii), and such notice shall be confirmed in writing delivered to the Administrative Agent by facsimile transmission promptly (but in no event later than 5:00 p.m. (New York time) on the same day), the original of which facsimile copy shall be delivered to the Administrative Agent within three (3) days after the date of such transmission. Promptly after receipt of a Notice of Conversion/Continuation under this Section 5.01(c)(ii) (or telephonic notice in lieu thereof), the Administrative Agent shall notify each applicable Lender, by telecopy or other similar form of transmission, of the proposed conversion/continuation. Any Notice of Conversion/Continuation for conversion to, or continuation of, a Loan (or telephonic notice in lieu thereof) shall be irrevocable, and the Borrower shall be bound to convert or continue in accordance therewith. (d) Default Interest. Notwithstanding the rates of interest specified in Section 5.01(a), effective immediately upon the occurrence of an Event of Default (except an Event of Default resulting from the gross negligence or willful misconduct of the Administrative Agent) and for as long thereafter as such Event of Default shall be continuing unwaived, the principal balance of all Obligations, including, to the extent permitted by applicable law, accrued interest unpaid when due, shall bear interest, payable on demand, at a rate which is two percent (2.0%) per annum in excess of the rate of interest specified in Section 5.01(a)(i). (e) Computation of Interest. Interest on all Obligations shall be computed on the basis of the actual number of days elapsed in the period during which interest accrues and a year of 360 days. In computing interest on any Loan, the date of the making of the Loan or the first day of a Eurodollar Interest Period, as the case may be, shall be included and the date of payment or the expiration date of a Eurodollar Interest Period, as the case may be, shall be excluded; provided, however, if a Loan is repaid on the same day on which it is made, one (1) day's interest shall be paid on such Loan. 5.02. Special Provisions Governing Eurodollar Rate Loans. With respect to Eurodollar Rate Loans: (a) Amount of Eurodollar Rate Loans. Each Borrowing of Eurodollar Rate Loans shall be for a minimum amount of $1,000,000 and in integral multiples of $100,000 in excess of that amount. (b) Determination of Eurodollar Interest Period. By giving notice as set forth in Section 2.02(b) (with respect to a Borrowing of Eurodollar Rate Loans) or Section 5.01(c) (with respect to a conversion into or continuation of Eurodollar Rate Loans), the Borrower shall have the option, subject to the other provisions of this Section 5.02, to select an interest period (each, a "Eurodollar Interest Period") to apply to the Loans described in such notice, subject to the following provisions: (i) The Borrower may only select, as to a particular Borrowing of Eurodollar Rate Loans, a Eurodollar Interest Period of one, two, three or six months in duration (or such intermediate periods to which the Lenders may agree in their sole discretion, provided that, for purposes of determining the interest rate with respect to such intermediate periods, such periods shall be rounded up to the next nearest period of full months); (ii) In the case of immediately successive Eurodollar Interest Periods applicable to a Borrowing of Eurodollar Rate Loans, each successive Eurodollar Interest Period shall commence on the day on which the next preceding Eurodollar Interest Period expires; (iii) If any Eurodollar Interest Period would otherwise expire on a day which is not a Business Day, such Eurodollar Interest Period shall be extended to expire on the next succeeding Business Day if the next succeeding Business Day occurs in the same calendar month, and if there will be no succeeding Business Day in such calendar month, the Eurodollar Interest Period shall expire on the immediately preceding Business Day; (iv) The Borrower may not select a Eurodollar Interest Period as to any Loan if such Eurodollar Interest Period terminates later than the scheduled Revolving Credit Termination Date; and (v) There shall be no more than six (6) Eurodollar Interest Periods in effect at any one time. (c) Determination of Interest Rate. As soon as practicable on the second Business Day prior to the first day of each Eurodollar Interest Period (the "Eurodollar Interest Rate Determination Date"), the Administrative Agent shall determine (pursuant to the procedures set forth in the definition of "Eurodollar Rate") the interest rate which shall apply to the Eurodollar Rate Loans for which an interest rate is then being determined for the applicable Eurodollar Interest Period and shall promptly give notice thereof (in writing or by telephone confirmed in writing) to the Borrower and to each Lender. The Administrative Agent's determination shall be presumed to be correct, absent manifest error, and shall be binding upon the Borrower. (d) Interest Rate Unascertainable, Inadequate or Unfair. In the event that at least one (1) Business Day before the Eurodollar Interest Rate Determination Date: (i) the Administrative Agent is advised by Citibank that deposits in Dollars (in the applicable amounts) are not being offered by Citibank in the London interbank market for such Eurodollar Interest Period; or (ii) the Administrative Agent determines that adequate and fair means do not exist for ascertaining the applicable interest rates by reference to which the Eurodollar Rate then being determined is to be fixed; or (iii) the Requisite Lenders advise the Administrative Agent that the Eurodollar Rate for Eurodollar Rate Loans comprising such Borrowing will not adequately reflect the cost to such Requisite Lenders of obtaining funds in Dollars in the London interbank market in the amount substantially equal to such Lenders' Eurodollar Rate Loans and for a period equal to such Eurodollar Interest Period; then the Administrative Agent shall forthwith give notice thereof to the Borrower, whereupon (until the Administrative Agent notifies the Borrower that the circumstances giving rise to such suspension no longer exist) the right of the Borrower to elect to have Loans bear interest based upon the Eurodollar Rate shall be suspended and each outstanding Eurodollar Rate Loan shall be converted into a Base Rate Loan on the last day of the then current Eurodollar Interest Period therefor, notwithstanding any prior election by the Borrower to the contrary. (e) Booking of Eurodollar Rate Loans. Any Lender may make, carry or transfer Eurodollar Rate Loans at, to, or for the account of, its Eurodollar Lending Office or Eurodollar Affiliate or its other offices or Affiliates. No Lender shall be entitled, however, to receive any greater amount under Article XIV as a result of the transfer of any such Eurodollar Rate Loan to any office (other than such Eurodollar Lending Office) or any Affiliate (other than such Eurodollar Affiliate) than such Lender would have been entitled to receive immediately prior thereto, unless (i) the transfer occurred at a time when circumstances giving rise to the claim for such greater amount did not exist and (ii) such claim would have arisen even if such transfer had not occurred. (f) Affiliates Not Obligated. No Eurodollar Affiliate or other Affiliate of any Lender shall be deemed a party to this Agreement or shall have any liability or obligation under this Agreement. 5.03. Fees. (a) Administrative Agent's Fee. The Borrower shall pay to the Administrative Agent, solely for the account of the Administrative Agent, the fee provided in the Fee Letter as and when set forth therein during the term of this Agreement. (b) Fronting Fee and Letter of Credit Fee. In addition to any charges paid pursuant to Section 3.01(g), the Borrower shall pay (i) to the Issuing Bank, a fee accruing at the rate of one quarter of one percent (0.25%) on the undrawn face amount of each outstanding Letter of Credit issued by such Issuing Bank (the "Fronting Fee") and (ii) to the Administrative Agent, for the account of the Revolving Lenders based on their respective Revolving Credit Pro Rata Shares, a fee (the "Letter of Credit Fee") accruing at a per annum rate equal to the Eurodollar Rate Margin on the undrawn face amount of each outstanding Letter of Credit, which Fronting Fee and Letter of Credit Fee shall be payable quarterly, in arrears, on the first day of each calendar quarter and on the Revolving Credit Termination Date; provided, however, that upon the occurrence of an Event of Default, the rate at which the Letter of Credit Fee shall accrue and be payable shall be equal to two percent (2.0%) per annum plus the Eurodollar Rate Margin. (c) Commitment Fee. (i) The Borrower shall pay to the Administrative Agent, for the account of the Revolving Lenders in accordance with their respective Revolving Credit Pro Rata Shares, a fee (the "Commitment Fee"), accruing at the rate of one-half of one percent (0.50%) per annum on the average amount by which the Revolving Credit Commitments exceed the sum of the Revolving Credit Obligations, such Commitment Fee being payable quarterly, in arrears, commencing on the first day of the calendar quarter next succeeding the Effective Date and on the Revolving Credit Termination Date. (ii) Notwithstanding the foregoing, in the event that any Lender fails to fund its Revolving Credit Pro Rata Share of any Revolving Loan which such Lender is obligated to fund under the terms of this Agreement, (A) such Lender shall not be entitled to any Commitment Fee with respect to its Revolving Credit Commitment until such failure has been cured in accordance with Section 4.02(f)(ii) and (B) until such time, the Commitment Fee shall accrue in favor of the Lenders which have funded their respective Revolving Credit Pro Rata Shares of such requested Revolving Loan, shall be allocated among such performing Lenders ratably based upon their respective Revolving Credit Commitments, and shall be calculated based upon the average amount by which the aggregate of such Revolving Credit Commitments of such performing Lenders exceeds the sum of (1) the Revolving Credit Obligations owing to such performing Lenders, plus (2) the aggregate participation interests of such performing Lenders arising pursuant to Section 3.01(e) with respect to undrawn and outstanding Letters of Credit. (d) Contingent Fee. The Borrower shall pay to the Administrative Agent on June 30, 1998, for the account of the Lenders in accordance with their respective Pro Rata Shares, a fee (the "Contingent Fee") in an amount equal to $3,000,000 in the event the Borrower has failed, by June 30, 1998, to commence, in a manner and to an extent reasonably acceptable to the Administrative Agent and either the Syndication Agent or the Documentation Agent, a transaction acceptable to the Administrative Agent and either the Syndication Agent or Documentation Agent, consisting of a combination of asset sales and capital raising initiatives the proceeds of which, in the aggregate, will enable the Borrower, on or before December 31, 1998, to repay the Term Loans in full and reduce the Revolving Credit Commitments to a maximum of $52,000,000. In the event either of NationsBank or Salomon Brothers Holding Company Inc is not a Lender on June 30, 1998, the aforesaid determinations shall be made by the Administrative Agent and either the Syndication Agent or Documentation Agent which is, or whose Affiliate is, then a Lender and, if neither NationsBank nor Salomon Brothers Holding Company Inc is a Lender on June 30, 1998, the aforesaid determinations shall be made by the Administrative Agent. (e) Calculation and Payment of Fees. The Commitment Fee, Fronting Fee, and Letter of Credit Fee shall be calculated on the basis of the actual number of days elapsed in a 360-day year. All such fees and the Contingent Fee shall be payable in addition to, and not in lieu of, interest, compensation, expense reimbursements, indemnification and other Obligations payable under this Agreement, to the Administrative Agent at its office in New York, New York in immediately available funds. All such fees and the Contingent Fee shall be fully earned and nonrefundable when paid. All fees specified or referred to in this Agreement due to the Administrative Agent, any Issuing Bank or any Lender, including, without limitation, those referred to in this Section 5.03, shall bear interest, if not paid when due, at the interest rate for Base Rate Loans set forth in Section 5.01(d), shall constitute Obligations and shall be secured by all of the Collateral in which Liens are granted by the Borrower and Domestic Subsidiaries. ARTICLE VI CONDITIONS TO LOANS AND LETTERS OF CREDIT 6.01. Conditions Precedent to the Initial Loans and Letters of Credit. The effectiveness of this Agreement, the obligation of each Lender on the Effective Date to make the Loan requested to be made by it, and the agreement of each Issuing Bank on the Effective Date to issue or continue Letters of Credit, shall be subject to the satisfaction of all of the following conditions precedent on or before the Effective Date: (a) Documents. The Administrative Agent shall have received on or before the Effective Date all of the following: (i) this Agreement, the Notes and all other agreements, documents and instruments relating to the loan and other credit transactions contemplated by this Agreement and described in the List of Closing Documents attached hereto as Exhibit I and made a part hereof, each duly executed where appropriate and in form and substance satisfactory to the Administrative Agent; without limiting the foregoing, the Borrower hereby directs its counsel, Cahill, Gordon & Reindel, and its General Counsel, Donald L. Miller, to prepare and deliver to the Administrative Agent, the Lenders, the Issuing Banks and Sidley & Austin, the opinions referred to in such List of Closing Documents; (ii) the Pro Forma Balance Sheet and Projections, in form and substance satisfactory to the Administrative Agent, the Documentation Agent and the Syndication Agent; (iii) an Officer's Certificate executed and delivered by the president or vice president of the Borrower certifying that all conditions precedent have been met; (iv) the Tax Allocation Agreement in form and substance satisfactory to the Administrative Agent; (v) a solvency opinion relating to RHI and the Borrower rendered by Valuation Research Corporation, dated the Effective Date and giving effect to the financing transactions contemplated hereby and all intercompany advances, loans, dividends and other distributions to be made on the Effective Date, supported by such analyses, valuations, appraisals, reviews, projections and other documentation as the Administrative Agent deems appropriate; and (vi) such additional documentation as the Administrative Agent may reasonably request. (b) Perfection of Liens. Evidence to the satisfaction of the Administrative Agent shall have been received by the Administrative Agent that all financing statements, mortgages, leasehold mortgages, and other required notices relating to the Collateral located in the United States have been filed or recorded, certificates representing Capital Stock comprising part of the Collateral have been delivered to the Administrative Agent (with duly executed stock powers), and all title charges, recording fees and filing taxes have been paid. (c) Financial Statements. The Administrative Agent, Documentation Agent and Syndication Agent shall have determined the Financial Statements of the Borrower and its Subsidiaries for the period ending May 25, 1997 to be satisfactory in all respects. (d) Due Diligence. The Administrative Agent and its counsel shall have completed their updated due diligence review of the financial condition, business, operations, assets, liabilities (environmental, by way of indemnification, ERISA, and otherwise), pending and threatened litigation, insurance coverage, corporate, capital, legal and management structure and Contractual Obligations of Borrower and its Subsidiaries, the results of which shall have provided the Administrative Agent, each Lender and each Issuing Bank with results and information which, in the judgment of such Person, are satisfactory to permit the Administrative Agent, each Lender and each Issuing Bank to enter into the financing transactions contemplated hereby. All Schedules to this Agreement shall be acceptable to the Administrative Agent and Lenders. (e) No Legal Impediments. No law, regulation, order, judgment or decree of any Governmental Authority shall, and the Administrative Agent shall not have received any notice that litigation is pending or threatened which is likely to, (i) enjoin, prohibit or restrain the making of the Loans and/or the issuance or continuation of Letters of Credit on the Effective Date or (ii) result in a Material Adverse Effect. (f) No Change in Condition. No change in the business, assets, management, operations, financial condition or prospects of the Operating Units or any business, assets, management, operations, financial condition or prospects of the Borrower's Subsidiaries shall have occurred since June 30, 1996, which change, in the judgment of the Requisite Lenders, will, or is reasonably likely to, result in a Material Adverse Effect. (g) No Loss of Material Agreements and Licenses. No agreement or license which, in the judgment of the Requisite Lenders, is material to the business, operations or employee relations of the Borrower or any Subsidiary of the Borrower (other than a Technologies Company) shall have been terminated, modified, revoked, breached or declared to be in default. (h) No Market Changes. Since June 16, 1997, no material adverse change shall have occurred in the conditions in the capital markets or the market for loan syndications generally. (i) No Default. No Event of Default or Potential Event of Default shall have occurred and be continuing or would result from the making of the Loans and no "Event of Default" (as defined in the First Amended Credit Agreement) shall have occurred and be continuing unwaived. (j) Representations and Warranties. All of the representations and warranties contained in Section 7.01, in any of the other Loan Documents, or otherwise provided to the Administrative Agent, Lenders and Issuing Banks shall be true and correct in all material respects on and as of the Effective Date. (k) Fees and Expenses Paid. There shall have been paid to the Administrative Agent, for the accounts of the Lenders, Issuing Banks, and the Administrative Agent, Documentation Agent, and Syndication Agent, as applicable, all fees and expenses due and payable on or before the Effective Date, whether under the terms of the Commitment Letter or fee letters described therein. (l) Fees and Expenses Under First Amended Credit Agreement Paid. All unpaid fees, interest and expenses accrued under the terms of the First Amended Credit Agreement and other agreements referred to therein through the Effective Date, shall have been paid in full in immediately available funds. 6.02. Conditions Precedent to All Loans and Letters of Credit. The obligation of each Lender to make any Loan requested to be made by it on any Funding Date and the agreement of each Issuing Bank to issue any Letter of Credit on any date is subject to the following conditions precedent as of each such date, both before and after giving effect to the Loans to be made and/or the Letter of Credit to be issued on such date: (a) Representations and Warranties. All of the representations and warranties of the Borrower contained in Section 7.01 and in any other Loan Document (other than representations and warranties which expressly speak as of a different date) shall be true and correct in all material respects. (b) No Defaults. No Event of Default or Potential Event of Default shall have occurred and be continuing or would result from the making of the requested Loan or issuance of the requested Letter of Credit. (c) No Legal Impediments. No law, regulation, order, judgment or decree of any Governmental Authority shall, and the Administrative Agent shall not have received from any Lender or Issuing Bank notice that, in the judgment of such Lender or Issuing Bank, litigation is pending or threatened which is likely to, enjoin, prohibit or restrain, or impose or result in the imposition of any material adverse condition upon, (i) such Lender's making of the requested Loan or participation in the requested Letter of Credit or (ii) such Issuing Bank's issuance of the requested Letter of Credit. (d) No Material Adverse Effect. No event shall have occurred since the date of this Agreement which has resulted, or is reasonably likely to result, in a Material Adverse Effect. (e) Notice of Borrowing and Borrowing Base Certificate. The Borrower shall have executed and delivered to the Administrative Agent a Notice of Borrowing in accordance with the provisions of Section 2.02 together with a Borrowing Base Certificate dated no more than thirty (30) calendar days prior to the date of such Notice of Borrowing. Each submission by the Borrower to the Administrative Agent of a Notice of Borrowing with respect to any Loan or a Notice of Conversion/Continuation with respect to any Loan, each acceptance by the Borrower of the proceeds of each Loan made, converted or continued hereunder, each submission by the Borrower to an Issuing Bank of a request for issuance of a Letter of Credit and the issu- ance of such Letter of Credit, shall constitute a representation and warranty by the Borrower as of the Funding Date in respect of such Loan, the date of conversion or continuation and the date of issuance of such Letter of Credit, that all the conditions contained in this Section 6.02 have been satisfied or waived in accordance with Section 15.07. ARTICLE VII REPRESENTATIONS AND WARRANTIES 7.01. Representations and Warranties of the Borrower and RHI. In order to induce the Lenders and the Issuing Banks to enter into this Agreement and to make the Loans and the other financial accommodations to the Borrower and to issue the Letters of Credit described herein, RHI and the Borrower hereby represent and warrant to each Lender, each Issuing Bank and the Administrative Agent that the following statements are true, correct and complete: (a) Organization; Corporate Powers. (i) RHI, the Borrower and each Subsidiary of the Borrower (A) is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, (B) is duly qualified to do business as a foreign corporation and is in good standing under the laws of each jurisdiction in which failure to be so qualified and in good standing will have or is reasonably likely to have a Material Adverse Effect, and (C) has all requisite corporate power and authority to own, operate and encumber its Property and to conduct its business as presently conducted and as proposed to be conducted in connection with and following the consummation of the transactions contemplated by this Agreement. RHI, the Borrower and each Subsidiary of the Borrower which is a Domestic Subsidiary has filed and maintained effective (unless exempt from the requirements for filing) a current Business Activity Report with the appropriate Governmental Authority in the states of Minnesota and New Jersey. (ii) True, correct and complete copies of the Organizational Documents identified on Schedule 7.01 A attached hereto have been delivered to the Administrative Agent, each of which is in full force and effect, has not been modified or amended except to the extent indicated therein and, to the best of the Borrower's knowledge, there are no defaults under such Organizational Documents and no events which, with the passage of time or giving of notice or both, would constitute a default under such Organizational Documents. (b) Authority. (i) RHI, the Borrower and each Subsidiary of the Borrower has the requisite corporate power and authority (A) to execute, deliver and perform each of the Loan Documents which have been executed by it as required by this Agreement on or prior to the Effective Date and (B) to file or record the Loan Documents which have been filed or recorded by it with any Governmental Authority as required by this Agreement on or prior to the Effective Date. (ii) The execution, delivery, performance and filing or recording, as the case may be, of each of the Loan Documents which have been executed, filed or recorded as required by this Agreement on or prior to the Effective Date and to which RHI, the Borrower or any Subsidiary of the Borrower is party and the consummation of the transactions contemplated thereby, have been duly approved by the respective boards of directors (or substantially similar governance bodies, as applicable) and, if necessary, the shareholders of such Person and such approvals have not been rescinded. No other corporate action or proceedings on the part of RHI, the Borrower or any Subsidiary of the Borrower is necessary to consummate such transactions. (iii) Each of the Loan Documents to which RHI, the Borrower or any Subsidiary of the Borrower is a party (A) has been duly executed, delivered, filed or recorded, as the case may be, by it, (B) where applicable, creates valid and perfected first Liens in the Collateral covered thereby securing the payment of all of the Obligations purported to be secured thereby, (C) constitutes such Person's respective legal, valid and binding obligation, enforceable against it in accordance with its terms, and (D) is in full force and effect and no material term or condition thereof has been amended, modified or waived from the terms and conditions contained therein as delivered to the Administrative Agent pursuant to Section 6.01(a) without the prior written consent of the Requisite Lenders. All parties to the Loan Documents have performed and complied with all the terms, provisions, agreements and conditions set forth therein and required to be performed or complied with by such parties on or before the Effective Date, all filings and recordings and other actions which are necessary or desirable to perfect and protect the Liens granted pursuant to the Loan Documents and preserve their required priority have been duly taken, and no Potential Event of Default, Event of Default or breach of any covenant by any such party exists thereunder. (c) Subsidiaries; Ownership of Equity Securities. Schedule 7.01 C attached hereto and as the same may be amended from time to time (i) contains a diagram indicating the corporate structure of RHI, the Borrower, their respective Subsidiaries and any other Person in which RHI, the Borrower or any of their respective Subsidiaries holds a direct or indirect partnership, joint venture or other equity interest and indicates the nature of such interest with respect to each Person included in such diagram; and (ii) accurately sets forth (A) the correct legal name of such Person, the jurisdiction of its incorporation or organization and the jurisdictions in which it is qualified to transact business as a foreign corporation or otherwise and (B) the authorized, issued and outstanding shares or interests of each class of equity Securities of RHI, the Borrower and each of their respective Subsidiaries and the owners of such shares or interests. None of such issued and outstanding equity Securities is subject to any vesting, redemption, or repurchase agreement, and there are no warrants, puts, or options (other than Permitted Equity Securities Options) outstanding with respect to such equity Securities other than as disclosed on Schedule 7.01-C as attached hereto or amended from time to time. The outstanding equity Securities of RHI, the Borrower and each of their respective Subsidiaries are duly authorized, validly issued, fully paid and nonassessable free and clear of any Liens, except for the Liens granted pursuant to the Loan Documents, and are not Margin Stock except as specifically identified on Schedule 7.01-C. (d) No Conflict. The execution, delivery and performance of each of the Loan Documents to which RHI, the Borrower or any Subsidiary of RHI or the Borrower is a party do not and will not (i) conflict with the Organizational Documents of such Person, (ii) constitute a tortious interference with any Contractual Obligation of any Person or conflict with, result in a breach of or constitute (with or without notice or lapse of time or both) a default under any Requirement of Law or Contractual Obligation of such Person, or require termination of any Contractual Obligation, the consequences of which violation, breach, default or termination, singly or in the aggregate, will, or is reasonably likely to, result in a Material Adverse Effect or may subject the Administrative Agent, any of the Lenders or any of the Issuing Banks to any liability, (iii) result in or require the creation or imposition of any Lien whatsoever upon any of the Property or assets of such Person, other than Liens contemplated by the Loan Documents, or (iv) require any approval of such Person's shareholders, which has not been obtained. (e) Governmental Consents. The execution, delivery and performance of each of the Loan Documents to which RHI, the Borrower or any Subsidiary of RHI or the Borrower is a party do not and will not require any registration with, consent or approval of, or notice to, or other action to, with or by any Governmental Authority, except (i) filings, consents or notices which have been made, obtained or given and (ii) filings necessary to create or perfect the Administrative Agent's security interests in the Collateral. (f) Governmental Regulation. Neither RHI nor the Borrower, nor any Subsidiary of RHI or the Borrower, is subject to regulation under the Public Utility Holding Company Act of 1935, the Federal Power Act, the Interstate Commerce Act, or the Investment Company Act of 1940, or any other federal or state statute or regulation or other Requirement of Law which limits its ability to incur indebtedness or its ability to consummate the transactions contemplated hereby or by the Loan Documents. (g) Restricted Junior Payments. The Borrower has not directly or indirectly declared, ordered, paid or made or set apart any sum or Property for any Restricted Junior Payment or agreed to do so, except as permitted pursuant to Section 10.06. (h) Intentionally omitted. (i) Pro Forma Financials. The Pro Forma Balance Sheet, copies of which have been furnished to the Lenders on the Effective Date, fairly presents on a pro forma basis the financial condition of the Operating Units as of the date designated therein. The Projections and the assumptions expressed in the Pro Forma Balance Sheet are reasonable based on the information available to the Borrower at the time so furnished. (j) Indebtedness. Schedule 1.01.9 attached hereto or as amended from time to time sets forth all Indebtedness for borrowed money of RHI, the Borrower and the Borrower's Subsidiaries and there are no defaults in the payment of principal or interest on any such Indebtedness and no payments thereunder have been deferred or extended beyond their stated maturity (except as disclosed on such Schedule). (k) Litigation; Adverse Effects. Except as set forth in Schedule 7.01-K attached hereto, there is no action, suit, proceeding, Claim, investigation or arbitration before or by any Governmental Authority or private arbitrator pending or, to the knowledge of RHI, the Borrower or any of the Borrower's Subsidiaries, threatened against VSI or FII (with respect to which the Borrower or any of its Subsidiaries may have successor liability), TFC, RHI, the Borrower or any Subsidiary of the Borrower or any of the Property (i) challenging the validity or the enforceability of any of the Loan Documents, (ii) which will, or is reasonably likely to, result in any Material Adverse Effect, or (iii) under the Racketeering Influenced and Corrupt Organizations Act or any similar federal or state statute where such Person is a defendant in a criminal indictment that provides for the forfeiture of assets to any Governmental Authority as a criminal penalty. There is no material loss contingency within the meaning of GAAP which has not been reflected in the Pro Forma Balance Sheet or, after the Effective Date, the consolidated Financial Statements of RHI or the Borrower. None of TFC, RHI, the Borrower or any Subsidiary of the Borrower is (A) in violation of any applicable Requirements of Law which violation will result, or is reasonably likely to result, in a Material Adverse Effect, or (B) subject to or in default with respect to any final judgment, writ, injunction, restraining order or order of any nature, decree, rule or regulation of any court or Governmental Authority which will, or is reasonably likely to, result in a Material Adverse Effect. (l) No Material Adverse Effect. Since June 30, 1996, there has occurred no event with respect to the Borrower or any Affiliate of the Borrower which has resulted, or is reasonably likely to result, in a Material Adverse Effect. (m) Tax Examinations. The IRS has examined (or is foreclosed from examining by applicable statutes) the consolidated federal income tax returns of TFC for all tax periods prior to and including the taxable year ending June 30, 1993. All deficiencies which have been asserted against RHI, the Borrower or any of the Borrower's Subsidiaries as a result of any federal, state, local or foreign tax examination for each taxable year in respect of which an examination has been conducted have been fully paid or finally settled or are being contested in good faith, and no issue has been raised in any such examination which, by application of similar principles, reasonably can be expected to result in assertion of a material deficiency for any other year not so examined which has not been reserved for in the Borrower's consolidated Financial Statements heretofore delivered to the Administrative Agent to the extent, if any, required by GAAP. None of RHI, the Borrower or any Subsidiary of the Borrower has taken any reporting positions for which it does not have a reasonable basis and does not anticipate any further material adverse tax liability with respect to the years which have not been closed pursuant to applicable law and which are not reserved in the Financial Statements described above or the Financial Statements of RHI, as applicable. (n) Payment of Taxes. All tax returns and reports of each of TFC, RHI, the Borrower and their Subsidiaries (or the respective predecessors in interest of the Borrower and its Subsidiaries) required to be filed have been timely filed, and all taxes, assessments, fees and other charges of Governmental Authorities thereupon and upon or relating to their respective Property, assets, income and franchises which are shown in such returns or reports to be due and payable have been paid, except to the extent (i) such taxes, assessments, fees and other charges are being contested in good faith by an appropriate proceeding diligently pursued as permitted by the terms of Section 9.04 and (ii) non- payment of the amounts thereof would not, individually or in the aggregate, result in a Material Adverse Effect. Neither RHI nor the Borrower has any knowledge of any proposed tax assessment against TFC, RHI, the Borrower or any Subsidiary of the Borrower (or the respective predecessors in interest of the Borrower and its Subsidiaries) that will, or is reasonably likely to, result in a Material Adverse Effect. (o) Performance. None of RHI, the Borrower, any Subsidiary of the Borrower, or any predecessor in interest of the Borrower or any of its Subsidiaries, has received any notice, citation, or allegation, nor has actual knowledge, that (i) it is in default in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any Contractual Obligation applicable to it, (ii) any Property of RHI, the Borrower or any Subsidiary of the Borrower is in violation of any Requirement of Law, or (iii) any condition exists which, with the giving of notice or the lapse of time or both, would constitute a default with respect to any such Contractual Obligation, in each case, except where such default or defaults, if any, will not, or is not reasonably likely to, result in a Material Adverse Effect. (p) Disclosure. The representations and warranties of RHI, the Borrower and the Borrower's Subsidiaries contained in the Loan Documents, and all certificates and other documents delivered to the Administrative Agent pursuant to the terms thereof, do not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements contained herein or therein, in light of the circumstances under which they were made, not misleading. Neither RHI nor the Borrower has intentionally withheld any fact from the Administrative Agent, the Issuing Banks or the Lenders in regard to any matter which will, or is reasonably likely to, result in a Material Adverse Effect. (q) Requirements of Law. RHI, the Borrower and each Subsidiary of the Borrower, respectively, is in compliance with all Requirements of Law applicable to it and its respective businesses, in each case where the failure to so comply individually or in the aggregate will, or is reasonably likely to, result in a Material Adverse Effect. (r) Environmental Matters. (i) Except as disclosed on Schedule 7.01-R attached hereto: (A) neither the Borrower nor any Domestic Subsidiary (or any of their respective predecessors in interest) has received any unresolved notice from any federal, state or local agency to the effect that its operations are not in compliance with any applicable Environmental, Health or Safety Requirements of Law or the subject of any federal or state investigation evaluating whether any remedial action is needed to respond to a Release of a Contaminant into the environment; (B) to the knowledge of the Borrower, none of the Borrower, the Domestic Subsidiaries (or any of their respective predecessors in interest), or any of its their respective present or past Property or operations, are subject to or the subject of any judicial or administrative proceeding, order, judgment, decree, dispute, negotiations, agreement, or settlement respecting (I) any Environmental, Health or Safety Requirements of Law, (II) any Remedial Action, (III) any Claims or Liabilities and Costs arising from the Release or threatened Release of a Contaminant into the environment, or (IV) any violation of or liability under any Environmental, Health or Safety Requirement of Law that the Borrower or Domestic Subsidiaries reasonably believe will result in a material expenditure of money; (C) none of the Borrower, any Domestic Subsidiary, or any of their respective predecessors in interest has filed any notice under any applicable Requirement of Law (I) reporting a Release of a Contaminant where remedial action has not been conducted to the satisfaction of the appropriate Governmental Authority; or (II) reporting a violation of any applicable Environmental, Health or Safety Requirement of Law where such violation has not been corrected to the satisfaction of the appropriate Governmental Authority; (D) none of the Borrower's or the Domestic Subsidiaries' present or past Property is listed or, to the knowledge of the Borrower, proposed for listing on the National Priorities List ("NPL") pursuant to CERCLA or on the Comprehensive Environmental Response Compensation Liability Information System List ("CERCLIS") or any similar state list of sites requiring Remedial Action; (E) to the knowledge of the Borrower, neither the Borrower nor any Domestic Subsidiary has any material contingent liability in connection with any Release or threatened Release of any Contaminants into the environment; and (F) no Environmental Lien has attached to any Property. (ii) the Borrower and each Domestic Subsidiary are conducting and will continue to conduct their respective business and operations in an environmentally responsible manner in material compliance with Environmental, Health or Safety Requirements of Law, and the Borrower and its Subsidiaries, taken as a whole, have not been, and have no reason to believe that they will be, subject to Liabilities and Costs arising out of or relating to environmental, health or safety matters that have or will result in material cash expenditures by the Borrower and the Domestic Subsidiaries in the aggregate for the Fiscal Year ending June 30, 1998 in excess of the reserves established therefor. (s) ERISA. None of RHI, the Borrower or any Subsidiary of the Borrower contributes to any Benefit Plan, Multiemployer Plan or Foreign Pension Plan. No ERISA Event has occurred or is reasonably expected to occur that has resulted or is reasonably likely to result in a material liability of RHI, the Borrower or any Subsidiary of the Borrower. Schedule B (Actuarial Information) to the 1995 annual report (Form 5500 Series) for each Benefit Plan, copies of which have been filed with the Internal Revenue Service and furnished to the Administrative Agent, is complete and accurate and fairly presents the funding status of such Benefit Plan, and since the date of such Schedule B there has been no material adverse change in such funding status. Neither the Borrower nor any ERISA Affiliate has incurred or is reasonably expected to incur any withdrawal liability to any Multiemployer Plan. Neither the Borrower nor any ERISA Affiliate has been notified by the sponsor of a Multiemployer Plan that such Multiemployer Plan is in reorganization or has been terminated, within the meaning of Title IV of ERISA, and no Multiemployer Plan is reasonably expected to be in reorganization or to be terminated, within the meaning of Title IV of ERISA. The aggregate annualized cost (including, without limitation, the cost of insurance premiums) with respect to post- retirement benefits under Benefit Plans for which RHI and/or the Borrower is liable does not exceed $10,000,000. (t) Foreign Employee Benefit Matters. Each Foreign Employee Benefit Plan is in compliance in all material respects with all laws, regulations and rules applicable thereto and the respective requirements of the governing documents for such Plan. The aggregate of the liabilities to provide all of the accrued benefits under any Foreign Pension Plan does not exceed the current fair market value of the assets held in the trust or other funding vehicle for such Plan. With respect to any Foreign Employee Benefit Plan maintained or contributed to by the Borrower, any of its Subsidiaries or any ERISA Affiliate (other than a Foreign Pension Plan), reasonable reserves have been established in accordance with prudent business practice or where required by ordinary accounting practices in the jurisdiction in which such Plan is maintained. The aggregate unfunded liabilities, after giving effect to any reserves for such liabilities, with respect to such Plans does not exceed the current fair market value of the assets held in the trust or other funding vehicle for such Plan. There are no actions, suits or claims (other than routine claims for benefits) pending or, to the best knowledge of the Borrower, threatened against the Borrower, any Subsidiary of the Borrower or any ERISA Affiliate with respect to any Foreign Employee Benefit Plan. (u) Labor Matters. Schedule 7.01-U accurately sets forth all labor contracts, other than national union agreements to which any Subsidiary of the Borrower domiciled in Europe is a party, to which RHI, the Borrower or any Subsidiary of the Borrower is a party on the date hereof and the expiration date of each such contract. There are no strikes, lockouts or other grievances relating to any collective bargaining or similar agreement to which RHI, the Borrower or any Subsidiary of the Borrower is a party. (v) Securities Activities. None of RHI, the Borrower or any Subsidiary of the Borrower is engaged in the business of extending credit for the purpose of purchasing or carrying Margin Stock. (w) Solvency. After giving effect to the Loans to be made and Letters of Credit to be issued or continued on the Effective Date or such other date as Loans requested hereunder are made or Letters of Credit requested hereunder are issued, the disbursement of the proceeds of such Loans pursuant to the Borrower's instructions, and the making of any intercompany advance or loan, dividend or other distribution, RHI, the Borrower and each Subsidiary of the Borrower is Solvent. (x) Patents, Trademarks, Permits, Etc.; Government Approvals. (i) RHI, the Borrower and each Subsidiary of the Borrower, as applicable, owns, is licensed or otherwise has the lawful right to use, or has all Permits and other governmental approvals, patents, trademarks, trade names, copyrights, technology, know-how, permits and processes used in or necessary for the conduct of its respective business as currently conducted which are material to its condition (financial or otherwise), operations, performance and prospects, taken as a whole. Except as set forth on Schedule 7.01-X attached hereto, no claims are pending or, to the best of RHI's and the Borrower's knowledge following diligent inquiry, threatened that RHI, the Borrower or any Subsidiary of the Borrower is infringing or otherwise adversely affecting the rights of any Person with respect to such Permits and other governmental approvals, patents, trademarks, trade names, copyrights, technology, know-how, permits and processes, except for such claims and infringements as do not, in the aggregate, give rise to any liability on the part of RHI, the Borrower or any Subsidiary of the Borrower which will, or is reasonably likely to, result in a Material Adverse Effect. (ii) The consummation of the transactions contemplated by the Loan Documents will not impair the ownership of or rights under (or the license or other right to use, as the case may be) any Permits and governmental approvals, patents, trademarks, trade names, copyrights, technology, know-how, permits or processes by RHI, the Borrower or any Subsidiary of the Borrower in any manner which will, or is reasonably likely to, result in a Material Adverse Effect. (y) Assets and Properties. RHI, the Borrower and each Subsidiary of the Borrower has good and marketable title to all of the assets and Property (tangible and intangible) owned by it (except insofar as marketability may be limited by any laws or regulations of any Governmental Authority affecting such assets), and all such assets and Property are free and clear of all Liens except Liens securing the Obligations and Liens permitted under Section 10.03. Substantially all of the assets and Property owned by, leased to, or used by RHI, the Borrower and/or each Subsidiary of the Borrower in their respective businesses is in adequate operating condition and repair, ordinary wear and tear excepted, is free and clear of any known defects except such defects as do not substantially interfere with the continued use thereof in the conduct of normal operations, and is able to serve the function for which they are currently being used, except in each case where the failure of such asset to meet such requirements would not, or is not reasonably likely to, result in a Material Adverse Effect. Neither this Agreement nor any other Loan Document, nor any transaction contemplated under any such agreement, will affect any right, title or interest of RHI, the Borrower or any Subsidiary of the Borrower in and to any of such assets in a manner that would, or is reasonably likely to, result in a Material Adverse Effect. (z) Insurance. Schedule 7.01-Z attached hereto or as amended from time to time accurately sets forth as of the date of such Schedule all insurance policies and programs in effect with respect to the respective Property and assets and business of RHI, the Borrower and the Borrower's Subsidiaries, specifying for each such policy and program, (i) the amount thereof, (ii) the risks insured against thereby, (iii) the name of the insurer and each insured party thereunder, (iv) the policy or other identification number thereof, and (v) the expiration date thereof. The Borrower has delivered to the Administrative Agent copies of all such insurance policies. Such insurance policies and programs are currently in full force and effect, in compliance with the requirements of Section 9.05 and are in amounts sufficient to cover the replacement value of the respective Property and assets of RHI, the Borrower and the Borrower's Subsidiaries. (aa) Pledge of Capital Stock. The grant and perfection of the security interest in the Capital Stock of the Borrower and the Subsidiaries of the Borrower constituting a portion of the Collateral for the benefit of the Holders, as contemplated by the terms of the Loan Documents, is not made in violation of the registration provisions of the Securities Act, any applicable provisions of other federal securities laws, state securities or "Blue Sky" law, foreign securities law, or applicable general corporation law or in violation of any other Requirement of Law. (bb) Liquidity. The unused Revolving Credit Commitments, together with the remaining liquidity sources available to the Borrower and RHI is sufficient to fund all of RHI's and the Borrower's cash requirements through December 31, 1998, including, without limitation, cash requirements of TFC, in accordance with all Requirements of Law. ARTICLE VIII REPORTING COVENANTS The Borrower covenants and agrees that so long as any Revolving Credit Commitments are outstanding and thereafter until payment in full of all of the Obligations (other than indemnities not yet due), unless the Requisite Lenders shall otherwise give their prior written consent thereto: 8.01. Financial Statements; Communications with Accountants. The Borrower shall maintain, and cause each of its Subsidiaries to maintain, a system of accounting established and administered in accordance with sound business practices to permit preparation of consolidated Financial Statements in conformity with GAAP and each of the Financial Statements described below shall be prepared from such system and records. (a) Monthly Financial Reports. (i) The Borrower shall deliver or cause to be delivered to the Administrative Agent and the Lenders during the period commencing on the Effective Date and ending on February 22, 1998, (A) "preliminary reports" (in the form attached hereto as Exhibit J and made a part hereof) for each Operating Unit for each Fiscal Month ending in June, July or August of each Fiscal Year and for the Fiscal Year to the date ending on the last day of such Fiscal Month, as soon as practicable and in any event within seventy-five (75) days after the end of each Fiscal Month ending in June and sixty (60) days after the end of each such Fiscal Month ending in July or August, (B) consolidated balance sheets of each Operating Unit and the related consolidated statements of income (in the forms attached hereto as Exhibit J) for each Fiscal Month and for the Fiscal Year to date ending on the last day of such Fiscal Month, as soon as practicable, and in any event within (1) one hundred (100) days after the end of each Fiscal Month ending in June, (2) ninety (90) days after the end of each Fiscal Month ending in July, (3) seventy-five (75) days after each Fiscal Month ending in August, and (4) fifty-five (55) days after the end of each other Fiscal Month, in each case for the Fiscal Month then ending. (ii) The Borrower shall deliver or cause to be delivered to the Administrative Agent and the Lenders from and after February 23, 1998 consolidated and consolidating balance sheets and income statements and consolidated cash flow statements for the Borrower and its Subsidiaries for each Fiscal Month (commencing with the Fiscal Month ending February 22, 1998) and on a Fiscal Year to date basis as soon as practicable and in any event within forty-five (45) days after the end of each Fiscal Month. (b) Quarterly Financial Reports. The Borrower shall deliver or cause to be delivered to the Administrative Agent and the Lenders (i) consolidated and consolidating balance sheets of (A) TFC and its Subsidiaries, related consolidated and consolidating statements of income, and related consolidated statements of cash flow and stockholders' equity on a quarterly and Fiscal Year to date basis, (B) RHI and its Subsidiaries, related consolidated and consolidating statements of income, and related consolidated statements of cash flow and stockholders' equity on a quarterly and Fiscal Year to date basis, and (C) the Borrower and its Subsidiaries, related consolidated and consolidating statements of income, and related consolidated statements of cash flow and stockholders' equity on a quarterly and Fiscal Year to date basis, and (ii) schedules of the Investments of each of TFC and RHI as of the end of the applicable Fiscal Quarter then ending, in each event as soon as practicable, and in any event (1) within fifty-five (55) days after the end of each of the first three Fiscal Quarters in each Fiscal Year for the Fiscal Quarter then ending and (2) within one hundred (100) days after the end of the fourth Fiscal Quarter in each Fiscal Year for the Fiscal Quarter then ending. (c) Annual Financial Statements. The Borrower shall deliver or cause to be delivered to the Administrative Agent and the Lenders for each Fiscal Year ending on June 30, 1997 and thereafter (i) consolidated and consolidating balance sheets of each of TFC and its consolidated Subsidiaries, RHI and its consolidated Subsidiaries, and the Borrower and each of its consolidated Subsidiaries as at the end of such Fiscal Year and (ii) the related consolidated and consolidating statements of income and consolidated statements of stockholder's equity and cash flow for such Fiscal Year, as soon as practicable and in any event within one hundred (100) days after the end of each Fiscal Year. The consolidated Financial Statements of TFC, RHI and the Borrower shall be accompanied by a report thereon of Arthur Andersen LLP or other independent certified public accountants of recognized national standing satisfactory to the Requisite Lenders, which report shall be unqualified and shall state that such consolidated financial statements present fairly the financial position of the applicable Persons, as at the dates indicated and the results of their operations and changes in their financial position for the periods indicated in conformity with GAAP applied on a basis consistent with prior years (or, in the event of a change in accounting principles, such accountants' concurrence with such change) and that the examination by such accountants in connection with such consolidated financial statements has been made in accordance with generally accepted auditing standards. (d) Officer's Certificates. (i) An Officer's Certificate of TFC substantially in the form of Exhibit K attached hereto and made a part hereof shall accompany the Financial Statements referenced in clauses (b) and (c) above and an Officer's Certificate of the Borrower substantially in the form of Exhibit K shall accompany the Financial Statements referenced in clause (a) above certifying that such Financial Statements fairly present the financial position of the respective Operating Units or Persons, as applicable, as at the dates indicated and the results of their operations for the periods indicated in accordance with GAAP, subject to normal year end adjustments, and stating that the officer of the Borrower signatory thereto has reviewed the terms of the Loan Documents, and has made, or caused to be made under his/her supervision, a review in reasonable detail of the transactions and consolidated financial condition of the Operating Units during the accounting period covered by such Financial Statements, that such review has not disclosed the existence during or at the end of such accounting period, and that such Person does not have knowledge of the existence as at the date of such Officer's Certificate, of any condition or event which constitutes an Event of Default or Potential Event of Default, or, if any such condition or event existed or exists, specifying the nature and period of existence thereof and what action RHI, the Borrower or the Borrower's Subsidiaries has/have taken, is/are taking and proposes/propose to take with respect thereto. (ii) The appropriate Financial Statements referenced above shall also be accompanied by a certificate (the "Compliance Certificate"), signed by the treasurer or vice president of the Borrower, setting forth calculations (with such specificity as the Administrative Agent may reasonably request) for the period then ended which demonstrate compliance with the provisions of Article XI, including, without limitation, the amount of Capital Expenditures made, on a cumulative basis since the beginning of the respective Fiscal Year; provided, however, that, during the period commencing on the Effective Date and ending on February 22, 1998, calculations with respect to compliance with Sections 11.02 and 11.03 shall only be required to be provided in the Compliance Certificate for the Fiscal Months ending on September 28, 1997, December 31, 1997 and February 22, 1998. From and after September 28, 1997, the Financial Statements described in clauses (a), (b) and (c) above shall set forth, in comparative form, the figures for the like period in the previous Fiscal Year. The Financial Statements described in clauses (b) and (c) above shall set forth, in comparative form, the figures for the period for which the report is submitted set forth (A) in the Projections prior to delivery of an updated business plan as described in Section 8.01(e), or (B) in the most recently dated business plan delivered as described in Section 8.01(e), in each instance, all in reasonable detail. (e) Other Financial Information. With reasonable promptness, the Borrower shall deliver such other information, reports, filings, and data with respect to the Borrower and their Subsidiaries as from time to time may be reasonably requested by any Lender. With reasonable promptness after the Borrower's preparation thereof, the Borrower shall deliver to the Administrative Agent and Lenders an annual business plan. (f) Communications with Accountants. The Borrower authorizes (i) the Administrative Agent, after giving the Borrower reasonable prior written notice of its intent to do so, to communicate directly with Borrower's independent certified public accountants concerning the Financial Statements; provided that the Borrower is not precluded by the Administrative Agent from being present for such communication and (ii) such independent certified public accountants, upon the Administrative Agent's written request with a copy to the Borrower, to provide to the Administrative Agent copies of any financial schedules prepared by such accountants for the Borrower or Subsidiaries of the Borrower. 8.02. Events of Default. Promptly upon any of the president, any vice president, or the treasurer of the Borrower obtaining knowledge (a) of any condition or event which constitutes an Event of Default or Potential Event of Default, or becoming aware that any Lender or the Administrative Agent has given any notice with respect to a claimed Event of Default or Potential Event of Default under this Agreement, (b) that any Person has given any notice to the Borrower or any Subsidiary of the Borrower or taken any other action with respect to a claimed default or event or condition of the type referred to in Section 12.01(e), or (c) of any condition or event which has resulted, or is reasonably likely to result, in a Material Adverse Effect or affect the value of, or the Administrative Agent's interest in, the Collateral in any material respect, the Borrower shall deliver to the Administrative Agent and the Lenders an Officer's Certificate specifying (i) the nature and period of existence of any such claimed default, Event of Default, Potential Event of Default, condition or event, (ii) the notice given or action taken by such Person in connection therewith, and (iii) what action the Borrower or Subsidiary of the Borrower has taken, is taking and proposes to take with respect thereto. 8.03. Lawsuits. Promptly upon the Borrower obtaining knowledge of the institution of, or written threat of, any action, suit, proceeding, governmental investigation or arbitration against or affecting the Borrower or any Subsidiary of the Borrower or any of the Property not previously disclosed pursuant to Section 7.01(k), which action, suit, proceeding, governmental investigation or arbitration exposes, or in the case of multiple actions, suits, proceedings, governmental investigations or arbitrations arising out of the same general allegations or circumstances which expose, in the Borrower's reasonable judgment, the Borrower and/or any Subsidiary of the Borrower to liability in an amount aggregating $5,000,000 or more (exclusive of claims covered by insurance policies of the Borrower and its Subsidiaries unless the insurers of such claims have disclaimed coverage or reserved the right to disclaim coverage on such claims), the Borrower shall give written notice thereof to the Administrative Agent and the Lenders and provide such other information as may be reasonably available to enable each Lender and the Administrative Agent and its counsel to evaluate such matters. The Borrower upon request of the Administrative Agent or the Requisite Lenders shall promptly give written notice of the status of any action, suit, proceeding, governmental investigation or arbitration covered by a report delivered in accordance herewith and provide such other information as may be reasonably available to it to enable each Lender and the Administrative Agent and its counsel to evaluate such matters. 8.04. Schedules of Intercompany Transfers. On the Effective Date, the Borrower shall deliver to the Administrative Agent and each Lender a schedule of dividends and other distributions on the Capital Stock of the Borrower, loans and other advances made by the Borrower to RHI, repayments of such loans and other advances, and interest payments with respect to such loans and other advances in accordance with the terms of the promissory notes evidencing the same in the form attached hereto as Schedule 8.04 and made a part hereof (a "Schedule of Intercompany Transfers") anticipated to be made in each of the four (4) consecutive Fiscal Quarters commencing on July 1, 1997. By no later than the fifth (5th) Business Day prior to the end of the last Fiscal Quarter included on a given Schedule of Intercompany Transfers, the Borrower shall deliver to the Administrative Agent and each Lender a Schedule of Intercompany Transfers for the four (4) consecutive Fiscal Quarters commencing on the first day of the Fiscal Quarter immediately succeeding such last Fiscal Quarter. In the event the Borrower intends to pay any dividend or make any other distribution on the Capital Stock of the Borrower, make any loan and other advance to RHI, repay any such loan or other advance, or make any interest payment with respect to such loans and other advances, in each instance which are not identified on the Schedule of Intercompany Transfers then in effect, the Borrower shall provide to the Administrative Agent written notification thereof (or telephonic notice promptly confirmed in writing) no less than thirty (30) days prior to the payment date therefor or date of funding such loan or other advance, as applicable. Nothing in this Section 8.04 shall be construed to permit, or constitute the Lenders' consent to, any transaction of the type described herein which is not expressly permitted by Article X. 8.05. Intentionally omitted. 8.06. Environmental Notices. The Borrower shall notify the Administrative Agent and the Lenders in writing, promptly upon the Borrower's learning thereof, of any: (i) notice or claim to the effect that the Borrower or any Subsidiary of the Borrower is subject to investigation or may be subject to investigation or liable in an amount exceeding $2,000,000 to any Person as a result of the Release or threatened Release of any Contaminant into the environment; (ii) notice that any Property is subject to an Environmental Lien; and (iii) notice to the Borrower or any Subsidiary of the Borrower of any material violation of any Environmental, Health or Safety Requirement of Law or the commencement or threat of any judicial or administrative proceeding alleging such a material violation by the Borrower or any Subsidiary of the Borrower. Concurrently with the annual delivery to the independent accountants of the Borrower of a letter relating to financial exposure of the Borrower and its Subsidiaries with respect to Environmental Liabilities and Costs substantially in the form of that letter dated August 28, 1996 addressed to Arthur Andersen & Co., a copy of which has been delivered to the Administrative Agent prior to the Effective Date, the Borrower shall deliver a like letter addressed to the Administrative Agent; provided, however, that in the event no such letter is provided to the independent accountants of the Borrower with respect to any given Fiscal Year, such letter shall be prepared with respect to such Fiscal Year and delivered to the Administrative Agent on October 31 of the calendar year in which such Fiscal Year ends. 8.07. Other Reports. The Borrower shall deliver or cause to be delivered to the Administrative Agent and the Lenders copies of all Financial Statements, reports and notices, if any, sent or made available generally by TFC, RHI, or the Borrower to its Securities holders or filed with the Commission and all press releases made available generally by TFC, RHI, the Borrower or any Subsidiary of the Borrower to the public concerning material developments in the business of the Borrower or any Subsidiary of the Borrower, and all notifications received by the Borrower or any Subsidiary of the Borrower pursuant to the Securities Exchange Act and the rules promulgated thereunder, in each instance, promptly upon the making of such reports, giving of such notices or press releases, filings with the Commission, and receipt of such notifications. In any event, the Borrower shall deliver or cause to be delivered to the Administrative Agent and the Lenders copies of all reports on Form 10-Q filed by TFC or RHI with the Commission within fifty-five (55) days after the end of the quarter to which such reports pertain and all reports on Form 10-K filed by TFC or RHI with the Commission within one hundred (100) days after the end of each Fiscal Year. 8.08. Other Information. Promptly upon receiving a request therefor from the Administrative Agent or the Requisite Lenders, the Borrower shall prepare and deliver to the Administrative Agent and the Lenders such other information with respect to the Borrower, any of their Subsidiaries, or the Collateral, including, without limitation, schedules identifying and describing the Collateral and any dispositions thereof, as from time to time may be reasonably requested by the Administrative Agent or the Requisite Lenders. 8.09. Borrowing Base Certificates. The Borrower shall prepare and deliver to the Administrative Agent and the Lenders a Borrowing Base Certificate dated as of the end of each Fiscal Month within fourteen (14) calendar days after the end of such Fiscal Month. ARTICLE IX AFFIRMATIVE COVENANTS RHI and the Borrower covenant and agree that so long as any Revolving Credit Commitment is outstanding and thereafter until payment in full of all of the Obligations (other than indemnities not yet due), unless the Requisite Lenders shall otherwise give prior written consent: 9.01. Corporate Existence, Etc. RHI and the Borrower shall, and shall cause each of their respective Subsidiaries to, at all times maintain its corporate existence and preserve and keep, or cause to be preserved and kept, in full force and effect its rights and franchises material to its businesses, except where the loss or termination of such rights and franchises is not likely to result in a Material Adverse Effect. 9.02. Corporate Powers; Conduct of Business. RHI and the Borrower shall, and shall cause each of their respective Subsidiaries to, qualify and remain qualified to do business and maintain its good standing in each jurisdiction in which the nature of its business and the ownership of its Property requires it to be so qualified and in good standing. 9.03. Compliance with Laws, Etc. RHI and the Borrower shall, and shall cause each of their respective Subsidiaries to, (a) comply with all Requirements of Law and all restrictive covenants affecting it or its business, Property, assets or operations and (b) obtain as needed all Permits necessary for its operations and maintain such Permits in good standing, except in the case where noncompliance with either clause (a) or (b) above is not reasonably likely to result in a Material Adverse Effect. 9.04. Payment of Taxes and Claims; Tax Consolidation. RHI and the Borrower shall, and shall cause each of their respective Subsidiaries to, pay (a) all taxes, assessments and other governmental charges imposed upon it or on any of its Property or assets or in respect of any of its franchises, business, income or Property before any penalty or interest accrues thereon, and (b) all Claims (including, without limitation, claims for labor, services, materials and supplies) for sums which have become due and payable and which by law have or may become a Lien (other than a Lien permitted by Section 10.03) upon any Property or assets of RHI, the Borrower or any such Subsidiary, prior to the time when any penalty or fine shall be incurred with respect thereto; provided, however, that no such taxes, assessments and governmental charges referred to in clause (a) above or Claims referred to in clause (b) above need be paid if being contested in good faith by appropriate proceedings diligently instituted and conducted and if such reserve or other appropriate provision, if any, as shall be required in conformity with GAAP shall have been made therefor. Neither RHI nor the Borrower will, nor will either permit any of its Subsidiaries to, file or consent to the filing of any consolidated income tax return with any Person (other than TFC and its Subsidiaries). 9.05. Insurance. RHI and the Borrower shall maintain for itself and its respective Subsidiaries, or shall cause each of its respective Subsidiaries to maintain, in full force and effect the insurance policies and programs listed on Schedule 7.01-Z or substantially similar policies and programs or other policies and programs as are reasonably acceptable to the Administrative Agent. All such policies and programs shall be maintained with responsible and reputable insurers of companies engaged in similar businesses and owning similar property in the same general geographic areas in which RHI, the Borrower and/or their Subsidiaries, as applicable, operate. Each certificate and policy relating to Property damage, boiler and machinery and/or business interruption coverage shall contain an endorsement, in form and substance reasonably acceptable to the Administrative Agent, showing loss payable to the Administrative Agent, for the benefit of the Holders, and, if required by the Administrative Agent, naming the Administrative Agent as an additional insured under such policy. Each certificate and policy relating to coverage other than the foregoing shall, if required by the Administrative Agent, contain an endorsement naming the Administrative Agent as an additional insured or mortgagee payee, as applicable, under such policy. Such endorsement or an independent instrument furnished to the Administrative Agent shall provide that the insurance companies will give the Administrative Agent at least thirty (30) days' written notice before any such policy or policies of insurance shall be altered adversely to the interests of the Holders or canceled and that no act, whether willful or negligent, or default of RHI, the Borrower, any Subsidiary of the Borrower or any other Person shall affect the right of the Administrative Agent to recover under such policy or policies of insurance in case of loss or damage. In the event RHI, the Borrower or any of its Subsidiaries, at any time or times hereafter shall fail to obtain or maintain any of the policies or insurance required herein or to pay any premium in whole or in part relating thereto, then the Administrative Agent, without waiving or releasing any obligations or resulting Event of Default hereunder, may at any time or times thereafter (but shall be under no obligation to do so) obtain and maintain such policies of insurance and pay such premiums and take any other action with respect thereto which the Administrative Agent deems advisable. All sums so disbursed by the Administrative Agent shall constitute Protective Advances hereunder and be part of the Obligations, payable as provided in this Agreement. 9.06. Inspection of Property; Books and Records; Discussions. RHI and the Borrower shall, and shall cause each of their respective Subsidiaries to, permit any authorized representative(s) designated by either the Administrative Agent or any Lender to visit and inspect, whether by access to RHI's, the Borrower's and such Subsidiaries' MIS or otherwise, any of the Property, to examine, audit, check and make copies of its respective financial and accounting records, books, journals, orders, receipts and any correspondence (other than privileged correspondence with legal counsel) and other data relating to their respective businesses or the transactions contemplated hereby or referenced herein (including, without limitation, in connection with environmental compliance, hazard or liability), and to discuss their affairs, finances and accounts with their officers, management personnel, and independent certified public accountants, all upon reasonable written notice and at such reasonable times during normal business hours, as often as may be reasonably requested. Each such visitation and inspection (i) by or on behalf of any Lender shall be at such Lender's expense and (ii) by or on behalf of the Administrative Agent shall be at the Borrower's expense. RHI and the Borrower shall keep and maintain, and cause each of their respective Subsidiaries to keep and maintain, in all material respects on its MIS and otherwise proper books of record and account in which entries in conformity with GAAP shall be made of all dealings and transactions in relation to its respective businesses and activities, including, without limitation, transactions and other dealings with respect to the Collateral. If an Event of Default has occurred and is continuing, RHI and the Borrower, upon the Administrative Agent's request, shall, and shall cause each of their respective Subsidiaries to, turn over any such records to the Administrative Agent or its representatives; provided, however, that RHI and the Borrower may, in their discretion, retain copies of such records. 9.07. Insurance and Condemnation Proceeds. (a) Direction to Insurers. RHI and the Borrower hereby direct (and, if applicable, shall cause the Subsidiaries of the Borrower to direct) all insurers under policies of property damage, boiler and machinery and business interruption insurance and payors of any condemnation claim or award relating to the Property of such Persons to pay all proceeds payable under such policies or with respect to such claim or award directly to the Administrative Agent, for the benefit of the Administrative Agent and the other Holders. In no case shall such proceeds be payable to RHI, the Borrower or one or more of the Borrower's Subsidiaries and the Administrative Agent. (b) Application of Proceeds. The Administrative Agent shall, upon receipt of such proceeds, apply all of the proceeds so received in repayment of the Obligations in the manner set forth in Section 4.01(b)(vii). Notwithstanding the foregoing, in the event proceeds of insurance received by the Administrative Agent under property damage, boiler and machinery policies or business interruption insurance policies (i) is less than $500,000 or (ii) constitutes Replacement Proceeds, the Administrative Agent shall, upon receipt of such proceeds, remit the amount so received to RHI, the Borrower or a Subsidiary of the Borrower, as applicable provided that there shall not then exist an Event of Default which is continuing unwaived. 9.08. ERISA Compliance. The Borrower shall, and shall cause each of its Subsidiaries and ERISA Affiliates to, establish, maintain and operate all Plans to comply in all material respects with the provisions of ERISA, the Internal Revenue Code, all other applicable laws, and the regulations and interpretations thereunder and the respective requirements of the governing documents for such Plans. 9.09. Foreign Employee Benefit Plan Compliance. The Borrower shall, and shall cause each of its Subsidiaries and ERISA Affiliates to, establish, maintain and operate all Foreign Employee Benefit Plans to comply in all material respects with all laws, regulations and rules applicable thereto and the respective requirements of the governing documents for such Plans. 9.10. Intentionally omitted. 9.11. Maintenance of Property. RHI and the Borrower shall, and shall cause each of their respective Subsidiaries to, maintain in all material respects all of its respective owned and leased Property in good, safe and insurable condition and repair, and not permit, commit or suffer any waste or abandonment of any such Property and from time to time shall make or cause to be made all material repairs, renewal and replacements thereof, including, without limitation, any capital improvements which may be required; provided, however, that such Property may be altered or renovated in the ordinary course of RHI's, the Borrower's or such Subsidiaries' business. 9.12. Condemnation. Immediately upon learning of the institution of any proceeding for the condemnation or other taking of any of the owned or leased Real Property of RHI, the Borrower or any Subsidiary of RHI or the Borrower, the Borrower shall notify the Administrative Agent of the pendency of such proceeding, and permit the Administrative Agent to participate in any such proceeding, and from time to time will deliver to the Administrative Agent all instruments reasonably requested by the Administrative Agent to permit such participation. 9.13. Tax Allocation Agreement. RHI and the Borrower shall maintain or cause to be maintained, in full force and effect, the Tax Allocation Agreement, without amendment or modification unless consented to by the Requisite Lenders. 9.14. Performance of Material Contracts. RHI and the Borrower shall, and shall cause each of their respective Subsidiaries to, perform and observe all the terms and provisions of each material Contractual Obligation to be performed or observed by it, maintain each such material Contractual Obligation in full force and effect, enforce each such material Contractual Obligation in accordance with its terms, take all such action to such end as may be from time to time requested by the Administrative Agent and, upon request of the Administrative Agent, make to each other party to each such material Contractual Obligation such demands and requests for information and reports or for action as RHI, the Borrower or such Subsidiary is entitled to make under such material Contractual Obligation. 9.15. Further Assurances; Appraisals. Upon the request of the Administrative Agent, the Borrower shall, and shall cause each Guarantor to: (a) execute and deliver to the Administrative Agent, for the benefit of the Holders, such other agreements, documents, and instruments which the Administrative Agent deems necessary or desirable, in form and substance satisfactory to the Administrative Agent, to enable the Administrative Agent to perfect, or maintain perfected, Liens in the Collateral and (b) obtain and deliver to the Administrative Agent updates of the Appraised Values of the Borrower's and its Subsidiaries' Equipment and Real Property, including, without limitation, Equipment and Real Property acquired after the date of the appraisals identified on Schedule 1.01.1, from appraisers satisfactory to the Administrative Agent and performed on a basis consistent with the Appraised Values. ARTICLE X NEGATIVE COVENANTS RHI and the Borrower covenant and agree that, so long as any Revolving Credit Commitments are outstanding and thereafter until payment in full of all of the Obligations (other than indemnities not yet due), unless the Requisite Lenders shall otherwise give prior written consent: 10.01. Indebtedness. RHI and the Borrower shall not and shall not permit any of the Borrower's Subsidiaries to directly or indirectly create, incur, assume or otherwise become or remain directly or indirectly liable with respect to any Indebtedness, except: (a) the Obligations; (b) Indebtedness for trade payables, wages and other accrued expenses incurred in the ordinary course of business; (c) Permitted Existing Indebtedness and any extensions, renewals, refundings or replacements thereof, provided that any such extension, renewal, refunding or replacement is in an aggregate principal amount not greater than the principal amount of, and is on terms no less favorable to the Borrower or the applicable Subsidiary than the terms of, the Permitted Existing Indebtedness so extended, renewed, refunded or replaced; (d) to the extent permitted by Article XI and in any event in an aggregate amount not to exceed $15,000,000 at any time, Indebtedness of the Borrower and its Subsidiaries with respect to Capital Leases and purchase money Indebtedness incurred by the Borrower and its Subsidiaries to finance the acquisition of fixed assets, and Indebtedness incurred by the Borrower and its Subsidiaries to refinance such Capital Leases and purchase money Indebtedness; provided, however, that prior to incurring Capital Lease obligations owing to any one lessor or group of affiliated or related lessors or purchase money Indebtedness owing to any one holder or group of affiliated or related holders thereof, which in either case aggregate(s) more than $2,000,000, the Borrower shall obtain, or cause such Subsidiary to obtain, from such lessor(s) or holder(s) a duly executed intercreditor agreement in form and substance reasonably satisfactory to the Administrative Agent; (e) Indebtedness in respect of the Tax Allocation Agreement and taxes, assessments, governmental charges and Claims for labor, materials or supplies, to the extent that payment thereof is not required pursuant to Section 9.04; (f) Indebtedness, without duplication, constituting Accommodation Obligations permitted by Section 10.05; (g) Indebtedness arising from the following intercompany loans: (i) from the Borrower to any of its Subsidiaries which is a Guarantor (other than Fairchild Technologies USA, Inc.) or from any such Subsidiary to the Borrower or any other such Subsidiary, (ii) from RHI to the Borrower; provided that such loans are subordinated to the payment and performance of the Obligations and are evidenced by promissory notes in form and substance satisfactory to the Administrative Agent, (iii) from the Borrower or its Subsidiaries to RHI prior to the occurrence of an Event of Default or Potential Event of Default; provided that such loans are identified on a Schedule of Intercompany Transfers or notice with respect thereto is given to the Administrative Agent as required by Section 8.04, (iv) from the Borrower or any Subsidiary of the Borrower which is a Guarantor, directly or indirectly, to any Subsidiary of the Borrower which is not a Guarantor which, in the aggregate, do not exceed $3,000,000 in any Fiscal Year, and (v) from any Subsidiary of the Borrower which is not a Guarantor to any other Subsidiary of the Borrower which is not a Guarantor; (h) Indebtedness in respect of profit sharing plans to the extent permitted under Section 10.04; (i) Indebtedness in respect of Hedge Agreements in respect of interest rates or foreign exchange contracts so long as the Indebtedness thereunder receives "hedge accounting" treatment in accordance with the regulations promulgated by the Commission and staff interpretations thereof and such Hedge Agreements are not entered into for speculative purposes; (j) Indebtedness with respect to reasonable warranties and indemnities made under any agreements for asset sales permitted under Section 10.02 and Contractual Obligations of RHI, the Borrower or any Subsidiary of the Borrower entered into in the ordinary course of its business; (k) Indebtedness under appeal bonds in connection with judgments which do not result in an Event of Default or a Potential Event of Default or any other breach hereunder, or bid or performance bonds, provided that the aggregate amount of all such Indebtedness does not exceed $2,000,000; (l) Indebtedness of Fairchild Retiree Medical Services, Inc. arising from intercompany loans from the Borrower and Indebtedness of the Borrower arising from intercompany loans from Fairchild Retiree Medical Services, Inc. in an aggregate net amount not to exceed $2,000,000 at any time outstanding, which Indebtedness shall be evidenced by promissory notes in form and substance satisfactory to the Administrative Agent and endorsed to the Administrative Agent as part of the Collateral; (m) RHI's Indebtedness under that certain Restated and Amended Credit Agreement dated as of May 27, 1996; (n) Indebtedness of RHI for borrowed money on terms and conditions satisfactory to the Administrative Agent and Syndication Agent or Documentation Agent as provided in Section 5.03(d); provided that the Borrower complies with the mandatory prepayment provisions set forth in Section 4.01(b); and (o) in addition to the Indebtedness permitted by clauses (a) through (n) above, other unsecured Indebtedness in an aggregate amount which, when combined with outstanding Accommodation Obligations permitted under Section 10.05(d), does not exceed $10,000,000 outstanding. 10.02. Sales of Assets. RHI and the Borrower shall not and shall not permit any of the Borrower's Subsidiaries to sell, assign, transfer, lease, convey or otherwise dispose of any Property, whether now owned or hereafter acquired by it, or any income or profits therefrom, or enter into any agreement to do so, except: (a) the sale, assignment, transfer, lease, conveyance or other disposition of any Property having a Fair Market Value, in the case of an individual asset sale, assignment, transfer, lease, conveyance or other disposition, not exceeding $1,000,000 or, in the case of aggregate asset sales, assignments, transfers, leases, conveyances and other dispositions in any Fiscal Year, not exceeding $5,000,000, for consideration not less than the Fair Market Value thereof so long as (i) any non-cash consideration resulting from such sale, assignment, transfer, lease, conveyance or other disposition shall be pledged or assigned to the Administrative Agent, for the benefit of the Holders, pursuant to an instrument in form and substance acceptable to the Administrative Agent and (ii) the Borrower complies with the mandatory prepayment provisions set forth in Section 4.01(b) and the conditions to the release of Collateral described in Section 13.09(c); (b) the sale of Inventory in the ordinary course of the Borrower's and its Subsidiaries' respective businesses; (c) the disposition of Equipment if such Equipment is traded in for credit against the purchase price of replacement Equipment or the proceeds of such disposition are reasonably promptly applied to the purchase price of such replacement Equipment, is obsolete, or is no longer useful in the ordinary course of RHI's, the Borrower's or a Subsidiary of the Borrower's business; (d) the sale of Investments in Cash Equivalents permitted pursuant to Section 10.04(a); (e) the sale, lease, transfer or other disposition of Permitted Dispositions and RHI Excluded Property; (f) the transfer of the Capital Stock of Fairchild Technologies UK, Ltd. by Technologies Germany to Banner Investments (U.K.) Limited for book value; (g) the transfer permitted pursuant to Section 10.09(b)(ii); (h) the sale, transfer or other disposition (including, without limitation, by merger) of Capital Stock of STFI held by RHI, provided that, (i) in the event such sale, transfer or other disposition is, in whole or in part, for cash, the Borrower complies with the mandatory prepayment provisions set forth in Section 4.01(b), (ii) in the event such sale, transfer or other disposition is, in whole or in part, for non-cash consideration, such non-cash consideration is STFI Substituted Stock, and (iii) the aggregate consideration therefor (whether all cash, part cash and part STFI Substituted Stock, or all STFI Substituted Stock, in each instance with the value of the STFI Substituted Stock being determined as of the date of such sale, transfer or other disposition) received upon consummation of such sale, transfer or other disposition, is not less than $50,000,000; (i) the sale of STFI Substituted Stock; provided that the Borrower complies with the mandatory prepayment provisions set forth in Section 4.01(b); (j) the sale of any assets or Capital Stock of the Technologies Companies, or any of them; provided that the Borrower complies with the mandatory prepayment provisions set forth in Section 4.01(b); and (k) the sale by RHI of any Indebtedness issued under the TFC Indentures to TFC; provided that such sale is in accordance with Section 10.08; and (l) the sale by RHI of its Investment in the Capital Stock of Sabanci Holding described in Section 10.04(f)(ii). 10.03. Liens. RHI and the Borrower shall not and shall not permit any of the Borrower's Subsidiaries to directly or indirectly create, incur, assume or permit to exist any Lien or negative pledge on or with respect to any of their respective Property or assets except: (a) Liens created pursuant to the Loan Documents; (b) Permitted Existing Liens and Liens against those shares of STFI Substituted Stock issued in exchange for the STFI Series I Preferred which is subject to a Permitted Existing Lien to secure only those obligations which are secured by such Permitted Existing Lien as of the Effective Date; (c) Customary Permitted Liens; (d) Liens arising due to the creation of escrows of proceeds from any sale, assignment, lease, transfer or other disposition permitted under Section 10.02; (e) Liens securing appeal bonds permitted under Section 10.01(k); and (f) Liens securing purchase money Indebtedness permitted under Section 10.01(d); provided, that such Liens do not attach to any property other than that purchased with the proceeds of such purchase money Indebtedness. 10.04. Investments. RHI and the Borrower shall not and shall not permit any of the Borrower's Subsidiaries to directly or indirectly make or own any Investment except: (a) Investments in Cash Equivalents; (b) Permitted Existing Investments, in each case increased or decreased as required under GAAP as a result of annual adjustments made to Investments accounted for under the equity method, and additional Investments required to be made pursuant to the terms of the Permitted Existing Investments as disclosed on Schedule 1.01.10; (c) Investments in the form of loans to employees in an aggregate amount not to exceed $250,000 at any time; provided that such Investments shall be evidenced by a promissory note; (d) Investments received in connection with the ankruptcy or reorganization of suppliers and customers and in settlement or composition of delinquent obligations of, and other disputes with, customers and suppliers arising in the ordinary course of business; (e) Investments by the Borrower in its Subsidiaries which, if in the form of intercompany loans, would be permitted under Section 10.01(g); (f) Investments by RHI in: (i) the Borrower; provided that, if such Investments are in the form of intercompany loans, they comply with Section 10.01(g), (ii) Sabanci Holding, a corporation organized under the laws of Turkey; provided that such Investments shall not exceed $1,000,000 in the aggregate, (iii) Indebtedness of TFC issued under the TFC Indentures; provided that the amount of such Investment made at any given time does not exceed the amount of Restricted Junior Payments permitted to be made by RHI to TFC under Section 10.06(d) at such time, and (iv) STFI Substituted Stock acquired as permitted pursuant to Section 10.02(h); (g) Investments by the Borrower and its Subsidiaries in RHI permitted under Section 10.01(g); (h) Investments by the Borrower and its Subsidiaries in an aggregate amount not to exceed $7,000,000 made in connection with acquisitions of assets or equity Securities of any Person engaged in a business substantially similar to a business in which the Borrower and its Subsidiaries are engaged as of the Effective Date; provided that after giving effect to the making of such Investment, no Potential Event of Default or Event of Default would occur; (i) Investments made in connection with the acquisition of outstanding minority interests in Transfix S.A. and Mecaero S.A.; (j) Investments in the form of notes or equity Securities payable to (i) the Borrower or any of its Subsidiaries in connection with a Permitted Disposition, (ii) RHI in connection with RHI Excluded Property, or (iii) a transaction permitted under Section 10.02(a); (k) Investments in an amount not to exceed $100,000 in the aggregate in Subsidiaries of the Borrower formed after the Effective Date; (l) Investments by the Borrower in Banner Investments U.K. Limited in amounts aggregating $1,000,000 in any given Fiscal Year; (m) Investments to effect the acquisition from RHI by Fairchild Fasteners Europe - Simmonds S.A.R.L. of 298 shares of the Capital Stock of Simmonds S.A. and Indebtedness in the form of bonds convertible into Capital Stock of Simmonds S.A.; (n) the contribution of the Capital Stock of Fairchild CDI S.A. by the Borrower to VSI Holdings, Inc. and, thereupon, by VSI Holdings, Inc. to Technologies Germany; and (o) an Investment by RHI in STFI Substituted Stock acquired as and when described in Section 10.02(h). In no event shall RHI, the Borrower or any of the Borrower's Subsidiaries form, create or establish any additional Subsidiaries or become a partner in any Person without the prior written consent of the Administrative Agent other than in connection with the sale, lease, transfer or other disposition of Permitted Dispositions and subject to the limitations set forth in clause (k) above; provided, however, that, notwithstanding the foregoing, in no event shall RHI, the Borrower or any of the Borrower's Subsidiaries become a general partner in any Person without the prior written consent of the Administrative Agent. No other provision of this Agreement shall be deemed to prohibit any Investment which is specifically permitted by this Section 10.04. 10.05. Accommodation Obligations. RHI and the Borrower shall not and shall not permit any of the Borrower's Subsidiaries to directly or indirectly create or become or be liable with respect to any Accommodation Obligation, except: (a) recourse obligations resulting from endorsement of negotiable instruments for collection in the ordinary course of its business; (b) Permitted Existing Accommodation Obligations and any extensions, renewals or replacements thereof, provided that the aggregate Indebtedness under any such extension, renewal or replacement is not greater than the Indebtedness under, and shall be on terms no less favorable to RHI, the Borrower or the applicable Subsidiary of the Borrower than the terms of, the Permitted Existing Accommodation Obligation so extended, renewed or replaced; (c) Accommodation Obligations arising under the Loan Documents; (d) Accommodation Obligations arising with respect to guarantees provided by banks organized under the laws of jurisdictions outside of the United States on behalf of Subsidiaries of the Borrower which are not Domestic Subsidiaries in an aggregate amount not to exceed $5,000,000 at any time outstanding; (e) Accommodation Obligations arising with respect to appeal, bid or performance bonds otherwise permitted under this Agreement which bonds are supported by Letters of Credit issued under this Agreement; (f) Accommodation Obligations arising with respect to Indebtedness permitted under Section 10.01(j); and (g) in addition to the Accommodation Obligations permitted by clauses (a) through (f) above, other unsecured Accommodation Obligations in an aggregate amount which, when combined with outstanding Indebtedness permitted by Section 10.01(o), does not exceed $5,000,000 at any time outstanding. 10.06. Restricted Junior Payments. RHI and the Borrower shall not and shall not permit any of the Borrower's Subsidiaries to declare or make any Restricted Junior Payment, except: (a) dividends or distributions to the Borrower on the Capital Stock of any of its Wholly-Owned Subsidiaries or to any of the Borrower's Wholly-Owned Subsidiaries from any other Wholly-Owned Subsidiary or any Subsidiary of the Borrower existing on the date of this Agreement; and (b) dividends or distributions by the Borrower to RHI on its Capital Stock (i) on or after the Effective Date in the amount (including principal, interest and fees) required (A) by RHI to repurchase $23,000,000 in face amount of Indebtedness of RHI issued under the 11 7/8% Senior Subordinated Debenture Indenture and (B) to facilitate TFC's repurchase of up to $22,000,000 in face amount of Indebtedness of TFC issued under the Indenture dated as of October 15, 1986 between Banner Industries, Inc. aand National Westminster Bank USA, as Trustee, with respect to $160,000,000 of 12% Intermediate Subordinated Debentures due 2001; (ii) if the purpose thereof is to provide TFC with funds necessary to service Indebtedness (as defined in the 11 7/8% Senior Subordinated Debenture Indenture) of TFC, but only to the extent TFC does not have Cash, Cash Equivalents or readily marketable Securities available to provide funds to otherwise service such Indebtedness, after taking into account reasonable working capital needs of TFC and its Subsidiaries; provided that the exception set forth in this clause (b) shall not be effective if and to the extent and during the period that the holders of TFC's 13 1/8% Subordinated Debentures due 2006 have waived the benefits of Section 4.05 of the Indenture dated as of March 13, 1986 pursuant to which such Debentures were issued and the holders of TFC's Intermediate Subordinated Debentures due 2001 have waived the benefits of Section 4.05 of the Indenture dated as of October 15, 1986 pursuant to which such Debentures were issued; and provided, further, that such exception shall be available in any event only so long as at least one of the Indentures described above remains in effect and continues to restrict TFC from permitting any of its Subsidiaries from entering into an agreement restricting the payment of dividends or the making of other distributions on any Subsidiary's Capital Stock which are necessary to service Indebtedness of TFC; and (iii) to provide RHI with funds necessary for its corporate expenses and its share of TFC's consolidated corporate expenses incurred in the ordinary course of its business and to enable RHI to provide TFC with funds equivalent to TFC's share of its consolidated corporate expenses incurred in the ordinary course of its business; (c) cancellations of intercompany Indebtedness which are treated as dividends; and (d) dividends or distributions by RHI on its Capital Stock (i) if the purpose thereof is to provide TFC with funds necessary to service Indebtedness (as defined in the 11 7/8% Senior Subordinated Debenture Indenture) of TFC, but only to the extent TFC does not have Cash, Cash Equivalents or readily marketable Securities available to provide funds to otherwise service such Indebtedness, after taking into account reasonable working capital needs of TFC and its Subsidiaries; provided that the exception set forth in this clause (d)(i) shall not be effective if and to the extent and during the period that the holders of TFC's 13 1/8% Subordinated Debentures due 2006 have waived the benefits of Section 4.05 of the Indenture dated as of March 13, 1986 pursuant to which such Debentures were issued and the holders of TFC's Intermediate Subordinated Debentures due 2001 have waived the benefits of Section 4.05 of the Indenture dated as of October 15, 1986 pursuant to which such Debentures were issued; and provided, further, that such exception shall be available in any event only so long as at least one of the Indentures described above remains in effect and continues to restrict TFC from permitting any of its Subsidiaries from entering into an agreement restricting the payment of dividends or the making of other distributions on any Subsidiary's Capital Stock which are necessary to service Indebtedness of TFC; (ii) to provide TFC with funds required for its consolidated corporate expenses incurred in the ordinary course of business, but only to the extent TFC does not have Cash, Cash Equivalents or readily marketable Securities available to pay such corporate expenses; and (iii) in the amount (including principal, interest and fees) required by TFC to repurchase up to $22,000,000 in face amount of Indebtedness of TFC issued under the Indenture dated as of October 15, 1986 between Banner Industries, Inc. and National Westminster Bank USA, as Trustee, with respect to $160,000,000 of 12% Intermediate Subordinated Debentures due 2001. Notwithstanding anything to the contrary contained herein, so long as a majority of the Borrower's common stock is owned by RHI, any payment of a dividend or other distribution with respect to the Borrower's Capital Stock shall be permitted hereunder only to the extent disclosed on a Schedule of Intercompany Transactions or the written notice as and when required by the provisions of Section 8.04 has been delivered to the Administrative Agent and provided that before and after giving effect to each such payment, the Borrower is Solvent. 10.07. Conduct of Business; Accounting and Reporting Practices. The Borrower shall not and shall not permit any of the Borrower's Subsidiaries (including, without limitation, any Technologies Company) to (a) engage in any business other than (i) the businesses engaged in by the Borrower and the Borrower's Subsidiaries on the Effective Date and (ii) any business or activities which are substantially similar, related or incidental thereto, or (b) change any of its or their accounting or financial reporting policies or practices from those in effect on the Effective Date, except to the extent required to provide the financial reporting described in Section 8.01(a)(ii). 10.08. Transactions with Shareholders and Affiliates. RHI and the Borrower shall not and shall not permit any of the Borrower's Subsidiaries (including, without limitation, any Technologies Company) to directly or indirectly enter into or permit to exist any transaction (including, without limitation, the purchase, sale, lease or exchange of any property or the rendering of any service) with any Affiliate on terms that are less favorable to RHI, the Borrower or such Subsidiary, as applicable, than those that might be obtained in an arm's length transaction at the time from Persons who are not an Affiliate. Nothing contained in this Section 10.08 shall prohibit (a) any transaction expressly permitted by Sections 10.05 and 10.06; (b) increases in compensation and benefits for, or payment of bonuses to, officers and employees of RHI, the Borrower or any of the Borrower's Subsidiaries which are customary in the industry or consistent with the past business practice of RHI, the Borrower or such Subsidiary, provided that no Event of Default or Potential Event of Default has occurred and is continuing; (c) payment of customary directors' fees and indemnities of officers and directors; (d) performance of any obligations arising under the Tax Allocation Agreement or (e) any transaction between a Technologies Company and an Affiliate which is also a Technologies Company (other than Fairchild Technologies USA, Inc.). 10.09. Restriction on Fundamental Changes. RHI and the Borrower shall not and shall not permit any of the Borrower's Subsidiaries to (a) enter into any merger or consolidation, or liquidate, windup or dissolve (or suffer any liquidation or dissolution), or (b) convey, lease, sell, transfer or otherwise dispose of, in one transaction or series of transactions, all or substantially all of such Person's business or Property, whether now or hereafter acquired, except: (i) the liquidation or dissolution of Fairchild Fastener Group Ltd. and JJS Limited; (ii) the transfer of the Capital Stock of Camloc (U.K.) Ltd. by Fairchild Fastener Group Ltd. to Banner Investments (U.K.) Limited; (iii) the merger or liquidation of any Subsidiary of the Borrower with and into the Borrower or any Guarantor; (iv) the sale, lease, transfers or other dispositions described in Sections 10.02 (e) and (f); (v) the dissolution of Mecair, a Canadian Subsidiary of Mecaero, S.A.; and (vi) the liquidation or merger of Simmonds Mecaero Fasteners, Inc. into the Borrower. 10.10. Sales and Leasebacks. RHI and the Borrower shall not and shall not permit any of the Borrower's Subsidiaries to become liable, directly, by assumption or by Accommodation Obligation, with respect to any lease, whether an Operating Lease or a Capital Lease, of any Property (whether real or personal or mixed) which such Person (a) sold or transferred or is to sell or transfer to any other Person, or (b) intends to use for substantially the same purposes as any other Property which has been or is to be sold or transferred by such Person to any other Person, in either instance, in connection with such lease. 10.11. Margin Regulations; Securities Laws. RHI and the Borrower shall not or permit any of the Borrower's Subsidiaries to use all or any portion of the proceeds of any credit extended under this Agreement to purchase or carry Margin Stock or for purposes other than those described in Section 2.04. 10.12. ERISA. RHI and the Borrower shall not: (a) engage, or permit any of the Borrower's Subsidiaries to engage, in any prohibited transaction described in Sections 406 of ERISA or 4975 of the Internal Revenue Code for which a statutory or class exemption is not available or a private exemption has not been previously obtained from the DOL; (b) permit to exist any accumulated funding deficiency (as defined in Sections 302 of ERISA and 412 of the Internal Revenue Code), with respect to any Benefit Plan, whether or not waived; (c) fail, or permit any ERISA Affiliate to fail, to pay timely required contributions or annual installments due with respect to any waived funding deficiency to any Benefit Plan; (d) terminate, or permit any ERISA Affiliate to terminate, any Benefit Plan which would result in any liability of the Borrower or any ERISA Affiliate under Title IV of ERISA; (e) fail to make any contribution or payment to any Multiemployer Plan which the Borrower or any ERISA Affiliate may be required to make under any agreement relating to such Multiemployer Plan, or any law pertaining thereto; (f) fail, or permit any ERISA Affiliate to fail, to pay any required installment or any other payment required under Section 412 of the Internal Revenue Code on or before the due date for such installment or other payment; (g) amend, or permit any ERISA Affiliate to amend, a Benefit Plan resulting in an increase in current liability for the plan year such that the Borrower or any ERISA Affiliate is required to provide security to such Plan under Section 401(a)(29) of the Internal Revenue Code; (h) permit any unfunded liabilities with respect to any Foreign Pension Plan; or (i) fail, or permit any of its Subsidiaries or ERISA Affiliates to fail, to pay any required contributions or payments to a Foreign Pension Plan on or before the due date for such required installment or payment if such event results, either singly or in the aggregate, after taking into account all other such events and any liabilities associated therewith, in an aggregate liability in excess of $2,000,000. For purposes of this Section 10.12, the Technologies Companies shall be included as Subsidiaries of RHI. 10.13. Issuance of Equity Securities. RHI and the Borrower shall not and shall not permit any of the Borrower's Subsidiaries to issue any equity Securities except equity Securities of the Borrower pursuant to Permitted Equity Securities Options. 10.14. Organizational Documents; Material Contractual Obligations. RHI and the Borrower shall not and shall not permit any of the Borrower's Subsidiaries to amend, modify or otherwise change any of the terms or provisions in any of (a) their respective Organizational Documents as in effect on the Effective Date, except (i) with respect to which written notice shall have been provided to the Administrative Agent no less than ten (10) days prior to the effective date of any such amendment, modification or change and (ii) if no Event of Default or Potential Event of Default would result therefrom or (b) Contractual Obligations evidencing any debt Securities or other material Contractual Obligations other than the Restated and Amended Credit Agreement dated as of May 27, 1996 to which RHI is a party. 10.15. Bank Accounts. The Borrower shall not and shall not permit any of its Subsidiaries to establish or maintain any Deposit Account into which collections of Receivables and proceeds of other Collateral are deposited other than (a) those identified as existing on the Effective Date and disclosed on Schedule 10.15 attached hereto or (b) which are established after the Effective Date in the United States by the Borrower and its Subsidiaries which are in amounts aggregating no more than $5,000,000 at any given time are on deposit, without the prior written consent of the Administrative Agent and which (other than with respect to the accounts referenced in clause (b) above), if collections of Receivables or proceeds of Collateral are deposited therein, are subject to Collection Account Agreements or other arrangements satisfactory to the Administrative Agent. 10.16. Fiscal Year; Fiscal Months. The Borrower shall not and shall not permit any of its Subsidiaries (other than Banner Aerospace, Inc. in the event it becomes a Subsidiary, Fairchild Europe - Simmonds S.A.R.L., and Simmonds S.A.) to change its Fiscal Year for accounting or tax purposes from a period consisting of the 12-month period ending on June 30 of each calendar year or to change the ending dates for any Fiscal Month. 10.17. Transactions with the Technologies Companies. Notwithstanding anything in the contrary contained in this Article X, no Technologies Company shall, directly or indirectly, incur Indebtedness from, receive the benefit of Accommodation Obligations incurred by, or receive the benefit of Investments made by the Borrower or any Subsidiary of the Borrower, after the Effective Date, in an amount exceeding $20,000,000 in the aggregate at any time outstanding, exclusive of fees and interest with respect thereto. ARTICLE XI FINANCIAL COVENANTS The Borrower covenants and agrees that so long as any Revolving Credit Commitments are outstanding and thereafter until payment in full of all of the Obligations (other than indemnities not yet due): 11.01. Interest Coverage Ratio. The Borrower and its Subsidiaries shall have, as of the end of each Fiscal Quarter (commencing with the Fiscal Quarter ending September 28, 1997) for the four (4) Fiscal Quarters then ending, an Interest Coverage Ratio of no less than 4.0 to 1.0. 11.02. Capital Expenditures. The Borrower and its Subsidiaries shall not make Capital Expenditures in any Fiscal Year (commencing with the Fiscal Year ending June 30, 1998) in excess of $25,000,000. 11.03. Minimum Net Worth. The Borrower and its Subsidiaries shall maintain a Net Worth of no less than the respective amount set forth below opposite the respective Fiscal Month end set forth below, in each instance, as determined as of the end of the Fiscal Month ending on such respective date: Fiscal Month Ending Minimum Net Worth June 30, 1997 through $170,000,000 June 29, 1998 June 30, 1998 through $180,000,000 March 27, 1999 March 28, 1999 through $185,000,000 June 29, 1999 June 30, 1999 through $190,000,000 April 1, 2000 April 2, 2000 and each $195,000,000 Fiscal Month thereafter 11.04. Indebtedness to EBITDA Ratio. The Borrower and its Subsidiaries shall have, as of the end of each Fiscal Quarter set forth below, a ratio of (a) Indebtedness for borrowed money (other than Indebtedness arising with respect to intercompany loans) as of the end of such Fiscal Quarter to (b) EBITDA of the Borrower for the four (4) Fiscal Quarters then ending of no more than the ratio set forth opposite such Fiscal Quarter end set forth below: Fiscal Quarter EndingMaximum Ratio September 28, 1997 4.00 to 1.0 December 28, 1997 3.50 to 1.0 March 29, 1998 3.00 to 1.0 June 30, 1998 2.75 to 1.0 September 27,1998 and each 2.50 to 1.0 Fiscal Quarter thereafter 11.05. Minimum EBITDA. The Borrower shall have, as of the end of each Fiscal Quarter set forth below for the four (4) Fiscal Quarters then ending, EBITDA of no less than the amount set forth below opposite such Fiscal Quarter end set forth below: Fiscal Quarter Ending Minimum EBITDA September 28, 1997 $33,000,000 December 28, 1997 $40,000,000 March 29, 1998 $45,000,000 June 30, 1998 $47,000,000 September 27, 1998 $50,000,000 December 27, 1998 $53,000,000 March 28, 1999 $57,000,000 June 30, 1999 $61,000,000 October 3, 1999 $62,000,000 January 2, 2000 $63,000,000 April 2, 2000 $64,000,000 11.06. Mandatory Prepayment Tests. The Borrower will make the mandatory prepayment required under Section 4.01(b)(iv) unless, as of September 28, 1998: (a) the Consolidated Fixed Charge Coverage Ratio for the four (4) Fiscal Quarters ended September 28, 1998 is at least 1.5 to 1.0; (b) the sum of the Net Cash Proceeds of Sale received by TFC and its Subsidiaries (other than Banner and STFI) after June 18, 1997, plus the Net Cash Proceeds of Issuance of Equity Securities received by TFC and its Subsidiaries (other than Banner and STFI) after the Effective Date, plus the amount of dividends paid in cash and other returns of capital on shares of Capital Stock of Banner and STFI which is common stock is at least equal to $100,000,000; and (c) the Consolidated Indebtedness to EBITDA Ratio for the four (4) Fiscal Quarters ended September 28, 1998 is no greater than 2.75 to 1.0. ARTICLE XII EVENTS OF DEFAULT; RIGHTS AND REMEDIES 12.01. Events of Default. Each of the following occurrences shall constitute an Event of Default under this Agreement: (a) Failure to Make Payments When Due. The Borrower shall fail to pay (i) when due any principal of any Loan or any Reimbursement Obligation for which it is obligated hereunder or (ii) within one (1) Business Day after the due date therefor, any other Obligation for which it is obligated. (b) Breach of Certain Covenants. The Borrower shall fail duly and punctually to perform or observe any agreement, covenant or obligation under Sections 9.01, 9.02, 9.03, 9.04, 9.06, 9.13 or 9.15, Article X or Article XI. (c) Breach of Representation or Warranty. Any representation or warranty made or deemed made by RHI or the Borrower to the Administrative Agent, any Lender or any Issuing Bank herein or by RHI or the Borrower or any Subsidiary of the Borrower in any of the other Loan Documents or in any statement or certificate at any time given by any such Person pursuant to any of the Loan Documents shall be false or misleading in any material respect on the date as of which made (or deemed made). (d) Other Defaults. RHI or the Borrower shall default in the performance of or compliance with any term contained in this Agreement (other than as identified in clauses (a), (b) or (c) of this Section 12.01) applicable thereto or any default or event of default shall occur under any of the other Loan Documents, and such default or event of default shall continue for fifteen (15) days after the occurrence thereof. (e) Default as to Other Indebtedness. The Borrower or any of its Subsidiaries shall fail to make any payment when due (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise) with respect to any other Indebtedness (other than an Obligation) of the Borrower and its Subsidiaries aggregating $1,000,000 or more; or any breach, default or event of default shall occur, or any other condition shall exist under any instrument, agreement or indenture pertaining to any such Indebtedness, if the effect thereof is to cause an acceleration, mandatory redemption or other required repurchase of such Indebtedness, or permit the holder(s) of such Indebtedness to accelerate the maturity of any such Indebtedness or require a redemption or other repurchase of such Indebtedness; or any such Indebtedness shall be otherwise declared to be due and payable (by acceleration or otherwise) or required to be prepaid, redeemed or otherwise repurchased by the Borrower or any of its Subsidiaries (other than by a regularly scheduled required prepayment) prior to the stated maturity thereof. (f) Involuntary Bankruptcy; Appointment of Receiver, Etc. (i) An involuntary case shall be commenced against the Borrower, any Subsidiary of the Borrower, TFC or RHI and the petition shall not be (A) controverted within ten (10) days after the filing thereof and (B) dismissed, stayed, bonded or discharged within sixty (60) days after commencement of the case; or a court having jurisdiction in the premises shall enter a decree or order for relief in respect of the Borrower, any Subsidiary of the Borrower, TFC or RHI in an involuntary case, under any applicable bankruptcy, insolvency or other similar law now or hereinafter in effect; or any other similar relief shall be granted under any applicable federal, state, local or foreign law. (ii) A decree or order of a court having jurisdiction in the premises for the appointment of a receiver, liquidator, sequestrator, trustee, custodian or other officer having similar powers over the Borrower, any Subsidiary of the Borrower, TFC or RHI or over all or a substantial part of the Property of any such Person shall be entered; or an interim receiver, trustee or other custodian of the Borrower, any Subsidiary of the Borrower, TFC, or RHI or of all or a substantial part of the Property of any such Person shall be appointed or a warrant of attachment, execution or similar process against any substantial part of the Property of the Borrower, any Subsidiary of the Borrower, TFC or RHI shall be issued and any such event shall not be stayed, dismissed, bonded or discharged within thirty (30) days after entry, appointment or issuance. (g) Voluntary Bankruptcy; Appointment of Receiver, Etc. The Borrower, any Subsidiary of the Borrower, TFC or RHI shall commence a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or shall consent to the entry of an order for relief in an involuntary case, or to the conversion of an involuntary case to a voluntary case, under any such law, or shall consent to the appointment of or taking possession by a receiver, trustee or other custodian for all or a substantial part of its Property; or any such Person shall make any assignment for the benefit of creditors or shall be unable or fail, or admit in writing its inability, to pay its debts as such debts become due; or the board of directors (or equivalent) of any such Person (or any committee thereof) adopts any resolution or otherwise authorizes any action to approve any of the foregoing. (h) Dissolution. Any order, judgment or decree shall be entered against the Borrower, any Subsidiary of the Borrower, TFC, or RHI decreeing its involuntary dissolution or split up and such order shall remain undischarged and unstayed for a period in excess of sixty (60) days; or any such Person shall otherwise dissolve, be dissolved, or cease to exist except as specifically permitted by this Agreement. (i) Loan Documents; Failure of Security. At any time, for any reason, (i) any Loan Document ceases to be in full force and effect or the Borrower or any of its Subsidiaries party thereto seeks to repudiate its obligations thereunder or the Liens intended to be created thereby are, or the Borrower or any such Subsidiary seeks to render such Liens, invalid or unperfected, or (ii) Liens in favor of the Administrative Agent for the benefit of the Holders contemplated by the Loan Documents shall, at any time, for any reason, be invalidated or otherwise cease to be in full force and effect, or such Liens shall be subordinated or shall not have the priority contemplated by this Agreement or the Loan Documents. (j) Judgments and Attachments. Any money judgment (other than a money judgment covered by insurance as to which the insurance company has acknowledged coverage), writ or warrant of attachment, or similar process against the Borrower or any of its Subsidiaries or any of their respective assets involving in any case an amount in excess of $1,000,000 is entered and shall remain undischarged, unvacated, unbonded or unstayed for a period of thirty (30) days or in any event later than five (5) days prior to the date of any proposed sale thereunder; provided, however, if any such judgment, writ or warrant of attachment or similar process is in excess of $7,500,000, the entry thereof shall immediately constitute an Event of Default hereunder. (k) Termination Event. Any Termination Event occurs which could reasonably be expected to subject the Borrower or any ERISA Affiliate to liability in excess of $2,000,000, for which adequate reserves are not maintained. (l) Waiver Application. The plan administrator of any Benefit Plan applies under Section 412(d) of the Code for a waiver of the minimum funding standards of Section 412(a) of the Internal Revenue Code and the Administrative Agent believes that the substantial business hardship upon which the application for the waiver is based could subject the Borrower or any ERISA Affiliate to liability in excess of $2,000,000, for which adequate reserves are not maintained. (m) Change in Control. A Change of Control shall occur. (n) Material Adverse Effect. An event shall occur which results in a Material Adverse Effect. (o) Public Debt Cross-Default. TFC shall fail to make any payment when due on any Indebtedness of TFC owing with respect to its (i) 12% Intermediate Subordinated Debentures due 2001, (ii) 13 1/8% Subordinated Debentures due 2006, or (iii) 13% Junior Subordinated Debentures due 2007; or RHI shall fail to make any payment when due on any Indebtedness of RHI with respect to the 11 7/8% Senior Subordinated Debentures due 1999; or any breach, default or event of default shall occur under any instrument, agreement or indenture pertaining to any Indebtedness of TFC or RHI described above, if the effect thereof (with or without the giving of notice or lapse of time or both) is to accelerate (as distinguished from imposing a requirement to offer to purchase), or permit the holder(s) of such Indebtedness to accelerate (as distinguished from imposing a requirement to offer to purchase), the maturity of any such Indebtedness. (p) TFC. TFC shall (i) pay dividends on or redeem any of its shares of common stock or any Indebtedness not identified on Schedule 12.01-P attached hereto and made a part hereof prior to its stated maturity or (ii) issue equity Securities, incur Indebtedness for borrowed money, or sell, lease, transfer, convey or otherwise dispose of any assets not identified on Schedule 12.01-P without transferring the proceeds of such equity Securities, Indebtedness or such assets to the Borrower to enable the Borrower to repay the principal of, and all accrued interest on, the Term Loans in full and repay the Revolving Loans by an amount sufficient to reduce the outstanding principal amount thereof to no more than $52,000,000 and reduce the Revolving Credit Commitments to an amount no more than $52,000,000. An Event of Default shall be deemed "continuing" until cured or waived in writing in accordance with Section 15.07. 12.02. Rights and Remedies. (a) Acceleration and Termination. Upon the occurrence of any Event of Default described in Sections 12.01(f) or 12.01(g), the Lenders' respective obligations to make Loans under the Revolving Credit Commitments shall automatically and immediately terminate and the unpaid principal amount of, and any and all accrued interest on, the Obligations and all accrued fees shall automatically become immediately due and payable, without presentment, demand, or protest or other requirements of any kind (including, without limitation, valuation and appraisement, diligence, presentment, notice of intent to demand or accelerate and of acceleration), all of which are hereby expressly waived by the Borrower; and upon the occurrence and during the continuance of any other Event of Default, the Administrative Agent shall at the request, or may with the consent, of the Requisite Lenders, by written notice to the Borrower, (i) declare that the Lenders' respective obligations to make Revolving Loans under the Revolving Credit Commitments are terminated, whereupon such obligation of each such Lender to make any Loan hereunder and of each such Lender or Issuing Bank to issue or participate in any Letter of Credit not then issued shall immediately terminate, and/or (ii) declare the unpaid principal amount of and any and all accrued and unpaid interest on the Obligations to be, and the same shall thereupon be, immediately due and payable, without presentment, demand, or protest or other requirements of any kind (including, without limitation, valuation and appraisement, diligence, presentment, notice of intent to demand or accelerate and of acceleration), all of which are hereby expressly waived by the Borrower. (b) Deposit for Letters of Credit. In addition, after the occurrence and during the continuance of an Event of Default, the Borrower shall, promptly upon demand by the Administrative Agent, deliver to the Administrative Agent, Cash Collateral in such form as requested by the Administrative Agent for deposit in the Cash Collateral Account, together with such endorsements, and execution and delivery of such documents and instruments, as the Administrative Agent may request in order to perfect or protect the Administrative Agent's Lien with respect thereto, in an aggregate principal amount equal to the then outstanding Letter of Credit Obligations. (c) Rescission. If at any time after termination of the Lenders' obligations to make Revolving Loans under the Revolving Credit Commitments and/or acceleration of the maturity of the Loans, the Borrower shall pay all arrears of interest and all payments on account of principal of the Loans and Reimbursement Obligations which shall have become due otherwise than by acceleration (with interest on principal and, to the extent permitted by law, on overdue interest, at the rates specified in this Agreement) and all Events of Default and Potential Events of Default (other than nonpayment of principal of and accrued interest on the Loans due and payable solely by virtue of acceleration) shall be remedied or waived pursuant to Section 15.07, then upon the written consent of the Requisite Lenders and written notice to the Borrower, the termination of the Lenders' respective obligations to make Revolving Loans under the Revolving Credit Commitments and the respective Lenders' and Issuing Banks' obligations to participate in or issue Letters of Credit and/or the aforesaid acceleration and its consequences may be rescinded and annulled; but such action shall not affect any subsequent Event of Default or Potential Event of Default or impair any right or remedy consequent thereon. The provisions of the preceding sentence are intended merely to bind the Lenders and the Issuing Banks to a decision which may be made at the election of the Requisite Lenders; they are not intended to benefit the Borrower and do not give the Borrower the right to require the Lenders to rescind or annul any termination of the aforesaid obligations of the Lenders or Issuing Banks or any acceleration hereunder, even if the conditions set forth herein are met. (d) Enforcement. The Borrower acknowledges that in the event the Borrower or any of its Subsidiaries fails to perform, observe or discharge any of their respective obligations or liabilities under this Agreement or any other Loan Document, any remedy of law may prove to be inadequate relief to the Administrative Agent, the Issuing Banks and the Lenders; therefore, the Borrower agrees that the Administrative Agent, the Issuing Banks and the Lenders shall be entitled to temporary and permanent injunctive relief in any such case without the necessity of proving actual damages. ARTICLE XIII THE ADMINISTRATIVE AGENT 13.01. Appointment. (a) Each Lender and each Issuing Bank hereby designates and appoints Citicorp as the Administrative Agent of such Lender or such Issuing Bank under this Agreement and each Lender and each Issuing Bank hereby irrevocably authorizes the Administrative Agent to take such action on its behalf under the provisions of this Agreement and the Loan Documents and to exercise such powers as are set forth herein or therein together with such other powers as are reasonably incidental thereto. The Administrative Agent hereby agrees to act in the aforesaid capacities on the express conditions contained in this Article XIII. (b) The provisions of this Article XIII are solely for the benefit of the Administrative Agent, the Lenders and Issuing Banks, and neither the Borrower nor any Subsidiary of the Borrower shall have any rights to rely on or enforce any of the provisions hereof (other than as expressly set forth in Section 13.07). In performing its functions and duties under this Agreement, the Administrative Agent shall act solely as Administrative Agent of the Lenders and the Issuing Banks and does not assume and shall not be deemed to have assumed any obligation or relationship of agency, trustee or fiduciary with or for the Borrower or any Affiliate of the Borrower. The Administrative Agent may perform any of its respective duties hereunder, or under the other Loan Documents, by or through its agents or employees. 13.02. Nature of Duties. The Administrative Agent shall not have any duties or responsibilities other than those expressly set forth in this Agreement or in the Loan Documents. The duties of the Administrative Agent shall be mechanical and administrative in nature. The Administrative Agent shall not have, by reason of this Agreement, any fiduciary relationship in respect of any Holder. Nothing in this Agreement or any of the Loan Documents, expressed or implied, is intended to or shall be construed to impose upon the Administrative Agent any obligations in respect of this Agreement or any of the other Loan Documents other than as expressly set forth herein or therein. Each Lender and each Issuing Bank shall make its own independent investigation of the financial condition and affairs of the Borrower and its Affiliates in connection with the making and the continuance of the Loans hereunder and with the issuance of the Letters of Credit and shall make its own appraisal of the creditworthiness of the Borrower and Guarantors initially and on a continuing basis, and the Administrative Agent shall not have any duty or responsibility, either initially or on a continuing basis, to provide any Holder with any credit or other information with respect thereto (except for reports required to be delivered by the Administrative Agent under the terms of this Agreement). If the Administrative Agent seeks the consent or approval of the Lenders to the taking or refraining from taking of any action hereunder, the Administrative Agent shall send notice thereof to each Lender. The Administrative Agent shall promptly notify each Lender at any time that the Lenders so required hereunder have instructed the Administrative Agent to act or refrain from acting pursuant hereto. As to any matters not expressly provided for by this Agreement (including, without limitation, enforcement or collection of the Notes or any amount payable under any provision of Article IV or Article V when due) or the other Loan Documents, the Administrative Agent shall not be required to exercise any discretion or take any action. Notwithstanding the foregoing, the Administrative Agent shall be required to act or refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the instructions of the Requisite Lenders (unless the instructions or consent of all of the Lenders is required hereunder or thereunder) and such instructions shall be binding upon all Lenders, Issuing Banks and Holders; provided, however, the Administrative Agent shall not be required to take any action which (i) the Administrative Agent reasonably believes will expose it to personal liability unless the Administrative Agent receives an indemnification satisfactory to it from the Lenders with respect to such action or (ii) is contrary to this Agreement, the other Loan Documents or applicable law. 13.03. Rights, Exculpation, Etc. (a) Liabilities; Responsibilities. None of the Administrative Agent, any Affiliate of the Administrative Agent, or any of their respective officers, directors, employees or agents shall be liable to any Holder for any action taken or omitted by them hereunder or under any of the Loan Documents, or in connection therewith, except that no Person shall be relieved of any liability imposed by law for gross negligence or willful misconduct. The Administrative Agent shall not be liable for any apportionment or distribution of payments made by it in good faith pursuant to Section 4.02(b), and, if any such apportionment or distribution is subsequently determined to have been made in error, the sole recourse of any Holder to whom payment was due, but not made, shall be to recover from other Holders any payment in excess of the amount to which they are determined to have been entitled. The Administrative Agent shall not be responsible to any Holder for any recitals, statements, representations or warranties herein or for the execution, effectiveness, genuineness, validity, legality, enforceability, collectibility, or sufficiency of this Agreement or any of the other Loan Documents or the transactions contemplated thereby, or for the financial condition of the Borrower or any of its Affiliates or the Guarantors. The Administrative Agent shall not be required to make any inquiry concerning either the performance or observance of any of the terms, provisions or conditions of this Agreement or any of the other Loan Documents, or the financial condition of the Borrower or any of its Affiliates or the Guarantors, or the existence or possible existence of any Potential Event of Default or Event of Default. (b) Right to Request Instructions. The Administrative Agent may at any time request instructions from the Lenders with respect to any actions or approvals which by the terms of any of the Loan Documents the Administrative Agent is permitted or required to take or to grant, and shall be absolutely entitled to refrain from taking any action or to withhold any approval and shall not be under any liability whatsoever to any Person for refraining from any action or withholding any approval under any of the Loan Documents until it shall have received such instructions from those Lenders from whom the Administrative Agent is required to obtain such instructions for the pertinent matter in accordance with the Loan Documents. Without limiting the generality of the foregoing, no Holder shall have any right of action whatsoever against the Administrative Agent as a result of the its acting or refraining from acting under the Loan Documents in accordance with the instructions of the Requisite Lenders or, where required by the express terms of this Agreement, a greater proportion of the Lenders. 13.04. Reliance. The Administrative Agent shall be entitled to rely upon any written notices, statements, certificates, orders or other documents or any telephone message believed by it in good faith to be genuine and correct and to have been signed, sent or made by the proper Person, and with respect to all matters pertaining to this Agreement or any of the Loan Documents and its duties hereunder or thereunder, upon advice of legal counsel (including counsel for the Borrower), independent public accountants and other experts selected by it. 13.05. Indemnification. To the extent that the Administrative Agent is required to be reimbursed and indemnified by the Borrower but is not reimbursed and indemnified by the Borrower, the Lenders will reimburse and indemnify the Administrative Agent for and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may be imposed on, incurred by, or asserted against it in any way relating to or arising out of the Loan Documents or any action taken or omitted by the Administrative Agent under the Loan Documents, in proportion to each Lender's Pro Rata Share. The obligations of the Lenders under this Section 13.05 shall survive the payment in full of the Loans, the Reimbursement Obligations and all other Obligations and the termination of this Agreement. 13.06. Citicorp Individually. With respect to its Pro Rata Share of the Revolving Credit Commitments hereunder, and the Loans made by it, Citicorp shall have and may exercise the same rights and powers hereunder and is subject to the same obligations and liabilities as and to the extent set forth herein for any other Lender. The terms "Lenders" or "Requisite Lenders" or any similar terms shall, unless the context clearly otherwise indicates, include Citicorp in its individual capacity as a Lender or one of the Requisite Lenders. Citicorp and its Affiliates may accept deposits from, lend money to, and generally engage in any kind of banking, trust or other business with the Borrower or any of its Affiliates as if it were not acting as the Administrative Agent pursuant hereto. 13.07. Successor Administrative Agents. (a) Resignation. The Administrative Agent may resign from the performance of all its functions and duties hereunder at any time by giving at least thirty (30) Business Days' prior written notice to the Borrower and the Lenders. Such resignation shall take effect upon the acceptance by a successor Administrative Agent of appointment pursuant to this Section 13.07. (b) Appointment by Requisite Lenders. Upon any such notice of resignation, the Requisite Lenders shall have the right to appoint a successor Administrative Agent selected from among the Lenders which appointment shall be subject to the prior written approval of the Borrower (which may not be unreasonably withheld, and shall not be required upon the occurrence and during the continuance of an Event of Default). (c) Appointment by Retiring Administrative Agent. If a successor Administrative Agent shall not have been appointed within the thirty (30) Business Day period provided in clause (a) of this Section 13.07, the retiring Administrative Agent, with the consent of the Borrower (which may not be unreasonably withheld, and shall not be required upon the occurrence and during the continuance of an Event of Default), shall then appoint a successor Administrative Agent who shall serve as such until such time, if any, as the Requisite Lenders appoint a successor Administrative Agent as provided above. (d) Rights of the Successor and Retiring Administrative Agents. Upon the acceptance of any appointment as Administrative Agent hereunder by a successor Administrative Agent, such successor Administrative Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Administrative Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations under this Agreement. After any retiring Administrative Agent's resignation hereunder as Administrative Agent, the provisions of this Article XIII shall inure to its benefit as to any actions taken or omitted to be taken by it while it was the Administrative Agent under this Agreement. 13.08. Relations Among Lenders. Each Lender and each Issuing Bank agrees (except as provided in Section 15.05) that it will not take any legal action, nor institute any actions or proceedings, against the Borrower or any other obligor hereunder or under the other Loan Documents with respect to any Collateral, without the prior written consent of the Requisite Lenders. Without limiting the generality of the foregoing, no Lender may accelerate or otherwise enforce its portion of the Obligations, or unilaterally terminate its Revolving Loan Commitment except in accordance with Section 12.02(a). 13.09. Concerning the Collateral and the Loan Documents. (a) Protective Advances. The Administrative Agent may from time to time, before or after the occurrence of an Event of Default, make such disbursements and advances pursuant to the Loan Documents which the Administrative Agent, in its sole discretion, deems necessary or desirable to preserve or protect the Collateral or any portion thereof or to enhance the likelihood or maximize the amount of repayment of the Loans and other Obligations ("Protective Advances"). The Administrative Agent shall promptly notify the Borrower and each Lender in writing of each such Protective Advance, which notice shall include a description of the purpose of such Protective Advance. The Borrower agrees to pay the Administrative Agent, upon demand, the principal amount of all outstanding Protective Advances, together with interest thereon at the rate from time to time applicable to Base Rate Loans from the date of such Protective Advance until the outstanding principal balance thereof is paid in full. If the Borrower fails to make payment in respect of any Protective Advance within one (1) Business Day after the date the Borrower receives written demand therefor from the Administrative Agent, the Administrative Agent shall promptly notify each Lender and each Lender agrees that it shall thereupon make available to the Administrative Agent, in Dollars in immediately available funds, the amount equal to such Lender's Pro Rata Share of such Protective Advance. If such funds are not made available to the Administrative Agent by such Lender within one (1) Business Day after the Administrative Agent's demand therefor, the Administrative Agent will be entitled to recover any such amount from such Lender together with interest thereon at the Federal Funds Rate for the first day after the date of such demand and at the interest rate applicable to Base Rate Loans for each day during the period commencing on the second day after the date of such demand and ending on the date such amount is received. The failure of any Lender to make available to the Administrative Agent its Pro Rata Share of any such Protective Advance shall neither relieve any other Lender of its obligation hereunder to make available to the Administrative Agent such other Lender's Pro Rata Share of such Protective Advance on the date such payment is to be made nor increase the obligation of any other Lender to make such payment to the Administrative Agent. All outstanding principal of, and interest on, Protective Advances shall constitute Obligations secured by the Collateral until paid in full by the Borrower. (b) Authority. Each Lender and each Issuing Bank authorizes and directs the Administrative Agent to enter into the Loan Documents relating to the Collateral for the benefit of the Lenders and the Issuing Banks. Each Lender and each Issuing Bank agrees that any action taken by the Administrative Agent or the Requisite Lenders (or, where required by the express terms of this Agreement, a greater proportion of the Lenders) in accordance with the provisions of this Agreement or the other Loan Documents, and the exercise by the Administrative Agent or the Requisite Lenders (or, where so required, such greater proportion) of the powers set forth herein or therein, together with such other powers as are reasonably incidental thereto, shall be authorized and binding upon all of the Lenders and Issuing Banks. Without limiting the generality of the foregoing, the Administrative Agent shall have the sole and exclusive right and authority to (i) act as the disbursing and collecting agent for the Lenders and the Issuing Banks with respect to all payments and collections of the Obligations of the Borrower arising in connection with this Agreement and the Loan Documents or relating to the Collateral; (ii) execute and deliver each Loan Document relating to the Collateral and accept delivery of each such agreement delivered by the Borrower, any Subsidiary of the Borrower, or any Guarantor a party thereto; (iii) act as collateral agent for the Lenders and the Issuing Banks for purposes of the perfection of all security interests and Liens created by such agreements and all other purposes stated therein; provided, however, the Administrative Agent hereby appoints, authorizes and directs the Lenders and the Issuing Banks to act as collateral sub-agent for the Administrative Agent, the Lenders and the Issuing Banks for purposes of the perfection of all security interests and Liens with respect to the Property at any time in the possession of such Lender or such Issuing Bank, including, without limitation, Deposit Accounts maintained with, and cash and Cash Equivalents held by, such Lender or such Issuing Bank; (iv) manage, supervise and otherwise deal with the Collateral; (v) take such action as is necessary or desirable to maintain the perfection and priority of the security interests and liens created or purported to be created by the Loan Documents; and (vi) except as may be otherwise specifically restricted by the terms of this Agreement or any other Loan Document, exercise all remedies given to the Administrative Agent, the Lenders or the Issuing Banks with respect to the Collateral under the Loan Documents relating thereto, applicable law or otherwise. (c) Release of Collateral. (i) Each Lender and each Issuing Bank hereby directs, in accordance with the terms of this Agreement, the Administrative Agent to release any Lien held by the Administrative Agent for the benefit of the Holders: (A) against all of the Collateral, upon final and indefeasible payment in full of the Obligations and termination of this Agreement; (B) against any part of the Collateral sold or disposed of by a Borrower or any of its Subsidiaries, if such sale or disposition is permitted by Section 10.02 or is otherwise consented to by the Requisite Lenders, as certified to the Administrative Agent by the Borrower in an Officer's Certificate; and/or (C) against any part of the Collateral consisting of a promissory note, upon final and indefeasible payment in full of the Indebtedness evidenced thereby. (ii) Each Lender and each Issuing Bank hereby directs the Administrative Agent to execute and deliver or file such termination and partial release statements and do such other things as are necessary to release Liens to be released pursuant to this Section 13.09(c) promptly upon the effectiveness of any such release. ARTICLE XIV YIELD PROTECTION 14.01. Taxes. (a) Payment of Taxes. Any and all payments by the Borrower hereunder or under any Note or other document evidencing any Obligations shall be made, in accordance with Section 4.02, free and clear of and without reduction for any and all present or future taxes, levies, imposts, deductions, charges, withholdings, and all stamp or documentary taxes, excise taxes, ad valorem taxes and other taxes imposed on the value of the Property, charges or levies which arise from the execution, delivery or registration, or from payment or performance under, or otherwise with respect to, any of the Loan Documents or the Revolving Credit Commitments and all other liabilities with respect thereto excluding, in the case of each Lender, each Issuing Bank and the Administrative Agent, taxes imposed on or measured by net income or overall gross receipts and capital and franchise taxes imposed on it by (i) the United States, (ii) the Governmental Authority of the jurisdiction in which such Lender's Applicable Lending Office is located or any political subdivision thereof or (iii) the Governmental Authority in which such Person is organized, managed and controlled or any political subdivision thereof (all such non- excluded taxes, levies, imposts, deductions, charges and withholdings being hereinafter referred to as "Taxes"). If the Borrower shall be required by law to withhold or deduct any Taxes from or in respect of any sum payable hereunder or under any such Note or document to any Lender, any Issuing Bank or the Administrative Agent, (x) the sum payable to such Lender, Issuing Bank, or the Administrative Agent shall be increased as may be necessary so that after making all required withholding or deductions (including withholding or deductions applicable to additional sums payable under this Section 14.01) such Lender, such Issuing Bank or the Administrative Agent (as the case may be) receives an amount equal to the sum it would have received had no such withholding or deductions been made, (y) the Borrower shall make such withholding or deductions, and (z) the Borrower shall pay the full amount withheld or deducted to the relevant taxation authority or other authority in accordance with applicable law. (b) Indemnification. The Borrower will indemnify each Lender, each Issuing Bank and the Administrative Agent against, and reimburse each on demand for, the full amount of all Taxes (including, without limitation, any Taxes imposed by any Governmental Authority on amounts payable under this Section 14.01 and any additional income or franchise taxes resulting therefrom) incurred or paid by such Lender, such Issuing Bank or the Administrative Agent (as the case may be) or any of their respective Affiliates and any liability (including penalties, interest, and out-of-pocket expenses paid to third parties) arising therefrom or with respect thereto, whether or not such Taxes were lawfully payable. A certificate as to any additional amount payable to any Person under this Section 14.01 submitted by it to the Borrower shall, absent manifest error, be final, conclusive and binding upon all parties hereto. Each Lender and each Issuing Bank agrees, within a reasonable time after receiving a written request from the Borrower, to provide the Borrower and the Administrative Agent with such certificates as are reasonably required, and take such other actions as are reasonably necessary to claim such exemptions as such Lender or such Issuing Bank may be entitled to claim in respect of all or a portion of any Taxes which are otherwise required to be paid or deducted or withheld pursuant to this Section 14.01 in respect of any payments under this Agreement or under the Notes. (c) Receipts. Within thirty (30) days after the date of any payment of Taxes by the Borrower, it will furnish to the Administrative Agent, at its address referred to in Section 15.08, the original or a certified copy of a receipt evidencing payment thereof. (d) Foreign Bank Certifications. (i) Each Lender that is not created or organized under the laws of the United States or a political subdivision thereof shall deliver to the Borrower and the Administrative Agent on the Effective Date or the date on which such Lender becomes a Lender pursuant to Section 15.01 hereof a true and accurate certificate executed in duplicate by a duly authorized officer of such Lender to the effect that such Lender is eligible to receive payments hereunder and under the Notes without deduction or withholding of United States federal income tax (I) under the provisions of an applicable tax treaty concluded by the United States (in which case the certificate shall be accompanied by two duly completed copies of IRS Form 1001 (or any successor or substitute form or forms)), (II) under Sections 1442(c)(1) and 1442(a) of the Internal Revenue Code (in which case the certificate shall be accompanied by two duly completed copies of IRS Form 4224 (or any successor or substitute form or forms)), or (III) due to such Lender's not being a "bank" as such term is used in Section 881(c)(3)(A) of the Internal Revenue Code (in which case, the certificate shall be accompanied by two accurate and complete original signed copies of IRS Form W-8 (or any successor or substitute form or forms)). (ii) Each Lender further agrees to deliver to the Borrower and the Administrative Agent from time to time, a true and accurate certificate executed in duplicate by a duly authorized officer of such Lender before or promptly upon the occurrence of any event requiring a change in the most recent certificate previously delivered by it to the Borrower and the Administrative Agent pursuant to this Section 14.01(d). Each certificate required to be delivered pursuant to this Section 14.01(d)(ii) shall certify as to one of the following: (A) that such Lender can continue to receive payments hereunder and under the Notes without deduction or withholding of United States federal income tax; (B) that such Lender cannot continue to receive payments hereunder and under the Notes without deduction or withholding of United States federal income tax as specified therein but does not require additional payments pursuant to Section 14.01(a) because it is entitled to recover the full amount of any such deduction or withholding from a source other than the Borrower; or (C) that such Lender is no longer capable of receiving payments hereunder and under the Notes without deduction or withholding of United States federal income tax as specified therein and that it is not capable of recovering the full amount of the same from a source other than the Borrower. Each Lender agrees to deliver to the Borrower and the Administrative Agent further duly completed copies of the above-mentioned IRS forms on or before the earlier of (x) the date that any such form expires or becomes obsolete or otherwise is required to be resubmitted as a condition to obtaining an exemption from withholding from United States federal income tax and (y) fifteen (15) days after the occurrence of any event requiring a change in the most recent form previously delivered by such Lender to the Borrower and Administrative Agent, unless any change in treaty, law, regulation, or official interpretation thereof which would render such form inapplicable or which would prevent the Lender from duly completing and delivering such form has occurred prior to the date on which any such delivery would otherwise be required and the Lender promptly advises the Borrower that it is not capable of receiving payments hereunder and under the Notes without any deduction or withholding of United States federal income tax. 14.02. Increased Capital. If after the date hereof any Lender or Issuing Bank determines that (i) the adoption or implementation of or any change in or in the interpretation or administration of any law or regulation or any guideline or request from any central bank or other Governmental Authority or quasi- governmental authority exercising jurisdiction, power or control over any Lender, Issuing Bank or banks or financial institutions generally (whether or not having the force of law), compliance with which affects or would affect the amount of capital required or expected to be maintained by such Lender or Issuing Bank or any Person controlling such Lender or Issuing Bank and (ii) the amount of such capital is increased by or based upon (A) the making or maintenance by any Lender of its Loans, any Lender's participation in or obligation to participate in the Loans, Letters of Credit or other advances made hereunder or the existence of any Lender's obligation to make Loans or (B) the issuance or maintenance by any Issuing Bank of, or the existence of any Issuing Bank's obligation to issue, Letters of Credit, then, in any such case, upon written demand by such Lender or Issuing Bank (with a copy of such demand to the Administrative Agent), the Borrower shall immediately pay to the Administrative Agent for the account of such Lender or Issuing Bank, from time to time as specified by such Lender or Issuing Bank, additional amounts sufficient to compensate such Lender or Issuing Bank or such Person therefor. Such demand shall be accompanied by a statement as to the amount of such compensation and include a brief summary of the basis for such demand. Such statement shall be conclusive and binding for all purposes, absent manifest error. 14.03. Changes; Legal Restrictions. If after the date hereof any Lender or Issuing Bank determines that the adoption or implementation of or any change in or in the interpretation or administration of any law or regulation or any guideline or request from any central bank or other Governmental Authority or quasi- governmental authority exercising jurisdiction, power or control over any Lender, Issuing Bank or over banks or financial institutions generally (whether or not having the force of law), compliance with which: (a) does or will subject a Lender or an Issuing Bank (or its Applicable Lending Office or Eurodollar Affiliate) to charges (other than taxes) of any kind which such Lender or Issuing Bank reasonably determines to be applicable to the Revolving Credit Commitments of the Lenders and/or the Issuing Banks to make Eurodollar Rate Loans or issue and/or participate in Letters of Credit or change the basis of taxation of payments to that Lender or Issuing Bank of principal, fees, interest, or any other amount payable hereunder with respect to Eurodollar Rate Loans or Letters of Credit; or (b) does or will impose, modify, or hold applicable, in the determination of a Lender or an Issuing Bank, any reserve (other than reserves taken into account in calculating the Eurodollar Rate), special deposit, compulsory loan, FDIC insurance or similar requirement against assets held by, or deposits or other liabilities (including those pertaining to Letters of Credit) in or for the account of, advances or loans by, commitments made, or other credit extended by, or any other acquisition of funds by, a Lender or an Issuing Bank or any Applicable Lending Office or Eurodollar Affiliate of that Lender or Issuing Bank; and the result of any of the foregoing is to increase the cost to that Lender or Issuing Bank of making, renewing or maintaining the Loans or its Revolving Credit Commitment with respect to, or issuing or participating in, the Letters of Credit or to reduce any amount receivable thereunder; then, in any such case, upon written demand by such Lender or Issuing Bank (with a copy of such demand to the Administrative Agent), the Borrower shall immediately pay to the Administrative Agent for the account of such Lender or Issuing Bank, from time to time as specified by such Lender or Issuing Bank, such amount or amounts as may be necessary to compensate such Lender or Issuing Bank or its Eurodollar Affiliate for any such additional cost incurred or reduced amount received. Such demand shall be accompanied by a statement as to the amount of such compensation and include a brief summary of the basis for such demand. Such statement shall be conclusive and binding for all purposes, absent manifest error. 14.04. Illegality. (i) If at any time any Lender determines (which determination shall, absent manifest error, be final and conclusive and binding upon all parties) that the making or continuation of or conversion into any Eurodollar Rate Loan has become unlawful or impermissible by compliance by that Lender with any law, governmental rule, regulation or order of any Governmental Authority (whether or not having the force of law and whether or not failure to comply therewith would be unlawful or would result in costs or penalties), then, and in any such event, such Lender may give notice of that determination, in writing, to the Borrower and the Administrative Agent, and the Administrative Agent shall promptly transmit the notice to each other Lender. (ii) When notice is given by a Lender under Section 14.04(i), (A) the Borrower's right to request from such Lender and such Lender's obligation, if any, to make Eurodollar Rate Loans shall be immediately suspended, and such Lender shall make a Base Rate Loan as part of any requested Borrowing of Eurodollar Rate Loans and (B) if the affected Eurodollar Rate Loan or Loans are then outstanding, the Borrower shall immediately, or if permitted by applicable law, no later than the date permitted thereby, upon at least one (1) Business Day's prior written notice to the Administrative Agent and the affected Lender, convert each such Loan into a Base Rate Loan. (iii) If at any time after a Lender gives notice under Section 14.04(i) such Lender determines that it may lawfully make Eurodollar Rate Loans, such Lender shall promptly give notice of that determination, in writing, to the Borrower and the Administrative Agent, and the Administrative Agent shall promptly transmit the notice to each other Lender. The Borrower's right to request, and such Lender's obligation, if any, to make Eurodollar Rate Loans shall thereupon be restored. 14.05. Compensation. In addition to all amounts required to be paid by the Borrower pursuant to Section 5.01, the Borrower shall compensate each Lender, upon demand, for all losses, expenses and liabilities (including, without limitation, any loss or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Lender to fund or maintain such Lender's Eurodollar Rate Loans to the Borrower but excluding any loss of Applicable Eurodollar Rate Margin on the relevant Loans) which that Lender may sustain (i) if for any reason a Borrowing, conversion into or continuation of Eurodollar Rate Loans does not occur on a date specified therefor in a Notice of Borrowing or a Notice of Conversion/Continuation given by the Borrower or in a telephonic request by it for borrowing or conversion/continuation or a successive Eurodollar Interest Period does not commence after notice therefor is given pursuant to Section 5.01(c), including, without limitation, pursuant to Section 5.02(e), (ii) if for any reason any Eurodollar Rate Loan is prepaid (including, without limitation, mandatorily pursuant to Section 4.01) on a date which is not the last day of the applicable Eurodollar Interest Period, (iii) as a consequence of a required conversion of a Eurodollar Rate Loan to a Base Rate Loan as a result of any of the events indicated in Section 5.02(e), or (iv) as a consequence of any failure by the Borrower to repay Eurodollar Rate Loans made to it when required by the terms of this Agreement. The Lender making demand for such compensation shall deliver to the Borrower concurrently with such demand a written statement in reasonable detail as to such losses, expenses and liabilities, and this statement shall be conclusive as to the amount of compensation due to that Lender, absent manifest error. 14.06. Limitation on Additional Amounts Payable by the Borrower. Notwithstanding the provisions of Section 14.01(a), the Borrower shall not be required to pay any additional amounts hereunder to a Lender or Issuing Bank if (a) the obligation to pay such additional amounts would not have arisen but for a failure by the Lender or Issuing Bank to comply with the requirements described in Section 14.01 or (b) the Lender or Issuing Bank shall not have furnished the Borrower with such forms or shall not have taken such other action as reasonably may be available to it under applicable tax laws and any applicable tax treaty to obtain an exemption from, or reduction (to the lowest applicable rate) of withholding of such United States federal income tax; provided, however, the Borrower's obligation to pay such additional amounts shall be reinstated upon receipt of such forms or evidence that action with respect to obtaining such exemption or reduction has been taken. 14.07. Change in Lending Office. Any Lender claiming any additional amounts payable pursuant to Section 14.01 shall use reasonable efforts (consistent with its internal policy and legal and regulatory restrictions) to change the Domestic Lending Office designated by it for purposes of this Agreement to a Domestic Lending Office in another jurisdiction, if the making of such a change would avoid the need for, or reduce the amount of, any such additional amounts which may thereafter accrue and would not, in the judgment of such Lender, be otherwise disadvantageous to such Lender. 14.08. Judgment Currency. If for the purposes of obtaining judgment in any court it is necessary to convert a sum due under this agreement or any Note in any currency (the "first currency") into another currency (the "second currency"), the parties hereto agree, to the fullest extent permitted by law, that the Exchange Rate used shall be that determined on the Business Day preceding that on which final judgment is given. To the fullest extent permitted by applicable law, the Obligation in respect of any sum due in a first currency shall, notwithstanding any judgment in a second currency, be discharged only to the extent that on the Business Day following receipt by any of the Administrative Agent, any Lender or any Issuing Bank of any sum adjudged to be so due in the second currency, such Person may purchase the first currency with the second currency at the Exchange Rate determined on the date of such purchase; if the amount of the first currency so purchased is less than the sum originally due to such Person in the first currency, the Borrower agrees, as a separate obligation and notwithstanding any such judgment, to indemnify such Person against such loss, and if the amount of the first currency so purchases exceeds the sum originally due to such Person in the first currency, such Person agrees to remit to the Borrower such excess. ARTICLE XV MISCELLANEOUS 15.01. Assignments and Participations. (a) Assignments. No assignments or participations of any Lender's rights or obligations under this Agreement shall be made except in accordance with this Section 15.01. Each Lender may assign to one or more Eligible Assignees all or a portion of its rights and obligations under this Agreement (including all of its rights and obligations with respect to the Loans and the Letters of Credit) in accordance with the provisions of this Section 15.01. (b) Limitations on Assignments. Each assignment shall be subject to the following conditions: (i) each such assignment may be of any of the following: (A) all of a Lender's outstanding Term Loan, (B) all of a Lender's Revovling Credit Commitment (together with its Revolving Loans and participations in outstanding Letters of Credit), and (C) in the event the outstanding balance of the assigning Lender's Term Loan is greater than $5,000,000 or the amount of the assigning Lender's Revolving Credit Commitment is greater than $5,000,000 and such Lender desires to assign a portion of either its Term Loan or Revolving Credit Commitment, such assignment shall be in a minimum principal amount of $5,000,000, (ii) each such assignment shall be of a constant, and not a varying, ratable percentage of all of the assigning Lender's rights and obligations under this Agreement which are subject to such assignment, (iii) each such assignment shall be to an Eligible Assignee consented to by the Issuing Banks, which consent shall not be unreasonably withheld or delayed, (iv) the Borrower shall have the right to approve each such Eligible Assignee which is not another Lender or an Affiliate of a Lender, which approval shall not be unreasonably withheld or delayed and (v) the parties to each such assignment shall execute and deliver to the Administrative Agent, for its acceptance and recording in the Register, an Assignment and Acceptance. Upon such execution, delivery, acceptance and recording in the Register, from and after the effective date specified in each Assignment and Acceptance and agreed to by the Administrative Agent, (A) the assignee thereunder shall, in addition to any rights and obligations hereunder held by it immediately prior to such effective date, if any, have the rights and obligations hereunder that have been assigned to it pursuant to such Assignment and Acceptance and shall, to the fullest extent permitted by law, have the same rights and benefits hereunder as if it were an original Lender hereunder, (B) the assigning Lender shall, to the extent that rights and obligations hereunder have been assigned by it pursuant to such Assignment and Acceptance, relinquish its rights and be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all or the remaining portion of such assigning Lender's rights and obligations under this Agreement, the assigning Lender shall cease to be a party hereto), and (C) the Borrower shall execute and deliver to the assignee thereunder one or more Notes, as applicable, evidencing its obligations to such assignee with respect to the Loans. (c) The Register. The Administrative Agent shall maintain at its address referred to in Section 15.08 a copy of each Assignment and Acceptance delivered to and accepted by it and a register (the "Register") for the recordation of the names and addresses of the Lenders and their respective Revolving Credit Commitments, and the principal amount of the Loans owing to, each Lender from time to time and whether such Lender is an original Lender or the assignee of another Lender pursuant to an Assignment and Acceptance. The entries in the Register shall be conclusive and binding for all purposes, absent manifest error, and the Borrower and each of their Subsidiaries, the Administrative Agent, and the Lenders may treat each Person whose name is recorded in the Register as a Lender hereunder for all purposes of this Agreement. The Register shall be available for inspection by the Borrower or any Lender at any reasonable time and from time to time upon reasonable prior notice. (d) Fee. Upon its receipt of an Assignment and Acceptance executed by the assigning Lender and an Eligible Assignee and a processing and recordation fee of $3,000 (payable by the assigning Lender or the assignee, as shall be agreed between them), the Administrative Agent shall, if such Assignment and Acceptance has been completed and is in compliance with this Agreement and in substantially the form of Exhibit A, (i) accept such Assignment and Acceptance, (ii) record the information contained therein in the Register and (iii) give prompt notice thereof to the Borrower and the other Lenders. (e) Participations. Each Lender may sell participations to one or more other financial institutions in or to all or a portion of its rights and obligations under and in respect of any and all facilities under this Agreement (including, without limitation, all or a portion of any or all of its Revolving Credit Commitment hereunder and the Loans owing to it and its undivided interest in the Letters of Credit); provided, however, that (i) such Lender's obligations under this Agreement (including, without limitation, its Revolving Credit Commitments hereunder) shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, (iii) the Borrower, the Administrative Agent, and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement and (iv) such participant's rights to agree or to restrict such Lender's ability to agree to the modification, waiver or release of any of the terms of the Loan Documents or to the release of any Collateral covered by the Loan Documents, to consent to any action or failure to act by any party to any of the Loan Documents or any of their respective Affiliates, or to exercise or refrain from exercising any powers or rights which any Lender may have under or in respect of the Loan Documents or any Collateral, shall be limited to the right to consent to (A) increase in the Commitment of the Lender from whom such participant purchased a participation, (B) reduction of the principal of, or rate or amount of interest on the Loans(s) subject to such participation (other than by the payment or prepayment thereof), (C) postponement of any date fixed for any payment of principal of, or interest on, the Loan(s) subject to such participation and (D) release of any Guarantor or all or a substantial portion of the Collateral except as provided in Section 13.09(c). (f) Payment to Participants. Anything in this Agreement to the contrary notwithstanding, in the case of any participation, all amounts payable by the Borrower under the Loan Documents shall be calculated and made in the manner and to the parties required hereby as if no such participation had been sold; provided, however, that each participant shall be the beneficiary of the provisions of Article XIV to the extent amounts payable thereunder do not exceed the amounts payable thereunder to the Lender from which such participation has been purchased. (g) Lenders' Creation of Security Interests. Notwithstanding any other provision set forth in this Agreement, any Lender may at any time create a security interest in all or any portion of its rights under this Agreement (including, without limitation, Obligations owing to it and any Notes held by it) in favor of any Federal Reserve bank in accordance with Regulation A of the Federal Reserve Board. (h) Assignments by Citicorp. If Citicorp ceases to be a Lender under this Agreement by virtue of any assignment made pursuant to this Section 15.01, then, as of the effective date of such cessation, Citibank's obligations to issue Letters of Credit pursuant to Section 3.01 shall terminate and Citibank shall be an Issuing Bank hereunder only with respect to outstanding Letters of Credit issued prior to such date. (i) Information Regarding the Borrower. Any Lender may, in connection with any assignment or participation or proposed assignment or participation pursuant to this Section 15.01, disclose to the assignee or participant or proposed assignee or participant, any information relating to the Borrower or their Subsidiaries furnished to such Lender by the Administrative Agent or by or on behalf of the Borrower; provided that, prior to any such disclosure, such assignee or participant, or proposed assignee or participant, shall agree to preserve in accordance with Section 15.20 the confidentiality of any confidential information described therein. 15.02. Expenses. (a) Generally. The Borrower agrees upon demand to pay, or reimburse the Administrative Agent for, all of the Administrative Agent's reasonable internal and external audit, legal, appraisal, valuation, filing, document duplication and reproduction and investigation expenses and for all other out-of- pocket costs and expenses of every type and nature (including, without limitation, the reasonable fees, expenses and disbursements of Sidley & Austin, local legal counsel, auditors, accountants, appraisers, printers, insurance and environmental advisers, and other consultants and agents) incurred by the Administrative Agent in connection with (i) the Administrative Agent's review and investigation of the Borrower and its Affiliates and the Collateral in connection with the preparation, negotiation, and execution of the Loan Documents and the Administrative Agent's periodic reviews and audits of the Borrower and Guarantors; (ii) the preparation, negotiation, execution and interpretation of this Agreement (including, without limitation, the satisfaction or attempted satisfaction of any of the conditions set forth in Article VI) and the other Loan Documents and the making of the Loans hereunder; (iii) the creation, perfection or protection of the Liens under the Loan Documents (including, without limitation, any reasonable fees and expenses for local counsel in various jurisdictions); (iv) the ongoing administration of this Agreement, the other Loan Documents, and the Loans, including, without limitation, consultation with attorneys in connection therewith and with respect to the Administrative Agent's rights and responsibilities under this Agreement and the other Loan Documents; (v) the protection, collection or enforcement of any of the Obligations or the enforcement of any of the Loan Documents; (vi) the commencement, defense or intervention in any court proceeding relating in any way to the Obligations, the Property, the Borrower, any of their Subsidiaries, this Agreement or any of the other Loan Documents; (vii) the response to, and preparation for, any subpoena or request for document production with which the Administrative Agent is served or deposition or other proceeding in which the Administrative Agent is called to testify, in each case, relating in any way to the Obligations, the Property, the Borrower, any of their Subsidiaries, this Agreement or any of the other Loan Documents; and (viii) any amendments, consents, waivers, assignments, restatements, or supplements to any of the Loan Documents and the preparation, negotiation, and execution of the same. (b) After Default. The Borrower further agrees to pay or reimburse the Administrative Agent, the Issuing Banks and the Lenders upon demand for all out-of-pocket costs and expenses, including, without limitation, reasonable attorneys' fees (including allocated costs of internal counsel and costs of settlement) incurred by any of them after the occurrence of an Event of Default (i) in enforcing any Loan Document or Obligation or any security therefor or exercising or enforcing any other right or remedy available by reason of such Event of Default; (ii) in connection with any refinancing or restructuring of the credit arrangements provided under this Agreement in the nature of a "work-out" or in any insolvency or bankruptcy proceeding; (iii) in commencing, defending or intervening in any litigation or in filing a petition, complaint, answer, motion or other pleadings in any legal proceeding relating to the Obligations, the Property, the Borrower or any of its Subsidiaries and related to or arising out of the transactions contemplated hereby or by any of the other Loan Documents; and (iv) in taking any other action in or with respect to any suit or proceeding (bankruptcy or otherwise) described in clauses (i) through (iii) above. 15.03. Indemnity. The Borrower further agrees (a) to defend, protect, indemnify, and hold harmless the Administrative Agent and each and all of the Lenders and Issuing Banks and each of their respective officers, directors, employees, attorneys and agents (including, without limitation, those retained in connection with the satisfaction or attempted satisfaction of any of the conditions set forth in Article VI) (collectively, the "Indemnitees") from and against any and all liabilities, obligations, losses (other than loss of profits), damages, penalties, actions, judgments, suits, claims, costs, expenses and disbursements of any kind or nature whatsoever (excluding any taxes and including, without limitation, the fees and disbursements of counsel for such Indemnitees in connection with any investigative, administrative or judicial proceeding, whether or not such Indemnitees shall be designated a party thereto), imposed on, incurred by, or asserted against such Indemnitees in any manner relating to or arising out of (i) this Agreement or the other Loan Documents or any act, event or transaction related or attendant thereto, the making of the Loans and the issuance of and participation in Letters of Credit hereunder, the management of such Loans or Letters of Credit, the use or intended use of the proceeds of the Loans or Letters of Credit hereunder, or any of the other transactions contemplated by any of the Loan Documents, or (ii) any Liabilities and Costs relating to any violation by the Borrower, its Subsidiaries, or the Guarantors, or their respective predecessors-in-interest of any Environmental, Health or Safety Requirements of Law, the past, present or future operations of the Borrower, its Subsidiaries, any Guarantor, or any of their respective predecessors in interest, or, the past, present or future environmental, health or safety condition of any respective past, present or future Property of the Borrower, any of its Subsidiaries, or any Guarantor, the presence of asbestos-containing materials at any respective past, present or future Property of the Borrower, any of its Subsidiaries, or any Guarantor, or the Release or threatened Release of any Contaminant into the environment by the Borrower, its Subsidiaries, any Guarantor, or their respective predecessors-in-interest, or the Release or threatened Release of any Contaminant into the environment from or at any facility to which the Borrower, any of its Subsidiaries, or any Guarantor, or their respective predecessors-in-interest sent or directly arranged the transport of any Contaminant (collectively, the "Indemnified Matters"); provided, however, the Borrower shall have no obligation to an Indemnitee hereunder with respect to Indemnified Matters caused by or resulting from the willful misconduct or gross negligence of such Indemnitee, as determined by a court of competent jurisdiction and (b) not to assert any claim against any of the Indemnified Parties on any theory of liability for special, indirect, consequential or punitive damages arising out of, or in any way in connection with, the Revolving Credit Commitments, the Obligations or any other matters governed by this Agreement and/or the other Loan Documents. To the extent that the undertaking to indemnify, pay and hold harmless set forth in the preceding sentence may be unenforceable because it is violative of any law or public policy, the Borrower shall contribute the maximum portion which it is permitted to pay and satisfy under applicable law, to the payment and satisfaction of all Indemnified Matters incurred by the Indemnitees. The Administrative Agent, Lenders and the Issuing Banks agree to notify the Borrower of the institution or assertion of any Indemnified Matter, but the parties hereto hereby agree that the failure to so notify the Borrower shall not release the Borrower from its obligations hereunder. 15.04. Change in Accounting Principles. If any change in the accounting principles used in the preparation of the most recent Financial Statements referred to in Section 8.01 are hereafter required or permitted by the rules, regulations, pronouncements and opinions of the Financial Accounting Standards Board or the American Institute of Certified Public Accountants (or successors thereto or agencies with similar functions) and are adopted by the Borrower with the agreement of its independent certified public accountants and such changes result in a change in the method or result of calculation of any of the covenants, standards or terms found in Article IX, Article X, and Article XI, the parties hereto agree to enter into negotiations in order to amend such provisions so as to equitably reflect such changes with the desired result that the criteria for evaluating compliance with such covenants, standards and terms by the Borrower and its Subsidiaries shall be the same after such changes as if such changes had not been made; provided, however, no change in such accounting principles that would affect the method of calculation of any of the covenants, standards or terms shall be given effect in such calculations until such provisions are amended, in a manner satisfactory to the Requisite Lenders and the Borrower, to so reflect such change in accounting principles. 15.05. Setoff. In addition to any Liens granted under the Loan Documents and any rights now or hereafter granted under applicable law, upon the occurrence and during the continuance of any Event of Default, each Lender, each Issuing Bank and any Affiliate of any Lender or Issuing Bank is hereby authorized by the Borrower at any time or from time to time, without notice to any Person (any such notice being hereby expressly waived) to set off and to appropriate and to apply any and all deposits (general or special, including, but not limited to, indebtedness evidenced by certificates of deposit, whether matured or unmatured (but not including trust accounts)) and any other Indebtedness at any time held or owing by such Lender, Issuing Bank or any of their Affiliates to or for the credit or the account of the Borrower against and on account of the Obligations of the Borrower to such Lender, Issuing Bank or any of their Affiliates, including, but not limited to, all Loans and Letters of Credit and all claims of any nature or description arising out of or in connection with this Agreement, irrespective of whether or not (i) such Lender or Issuing Bank shall have made any demand hereunder or (ii) the Administrative Agent, at the request or with the consent of the Requisite Lenders, shall have declared the principal of and interest on the Loans and other amounts due hereunder to be due and payable as permitted by Article XII and even though such Obligations may be contingent or unmatured. Each Lender and each Issuing Bank agrees that it shall not, without the express consent of the Requisite Lenders, and that it shall, to the extent it is lawfully entitled to do so, upon the request of the Requisite Lenders, exercise its setoff rights hereunder against any accounts of the Borrower, any of its Subsidiaries, or a Guarantor now or hereafter maintained with such Lender, Issuing Bank or any Affiliate of such Lender or Issuing Bank. 15.06. Ratable Sharing. The Lenders agree among themselves that (i) with respect to all amounts received by them which are applicable to the payment of the Obligations (excluding the fees described in Section 5.03 and Article XIV), equitable adjustment will be made so that, in effect, all such amounts will be shared among them ratably in accordance with their Pro Rata Shares, whether received by voluntary payment, by the exercise of the right of setoff or banker's lien, by counterclaim or cross-action or by the enforcement of any or all of the Obligations (excluding the fees described in Section 5.03 and Article XIV) or the Collateral, (ii) if any of them shall by voluntary payment or by the exercise of any right of counterclaim, setoff, banker's lien or otherwise, receive payment of a proportion of the aggregate amount of the Obligations held by it, which is greater than the amount which such Lender is entitled to receive hereunder, the Lender receiving such excess payment shall purchase, without recourse or warranty, an undivided interest and participation (which it shall be deemed to have done simultaneously upon the receipt of such payment) in such Obligations owed to the others so that all such recoveries with respect to such Obligations shall be applied ratably in accordance with their Pro Rata Shares; provided, however, that if all or part of such excess payment received by the purchasing party is thereafter recovered from it, those purchases shall be rescinded and the purchase prices paid for such participations shall be returned to such party to the extent necessary to adjust for such recovery, but without interest except to the extent the purchasing party is required to pay interest in connection with such recovery. The Borrower agrees that any Lender so purchasing a participation from another Lender pursuant to this Section 15.06 may, to the fullest extent permitted by law, exercise all its rights of payment (including, subject to Section 15.05, the right of setoff) with respect to such participation as fully as if such Lender were the direct creditor of the Borrower in the amount of such participation. 15.07. Amendments and Waivers. (a) General Provisions. Unless otherwise provided for or required in this Agreement, no amendment or modification of any provision of this Agreement or any of the other Loan Documents shall be effective without the written agreement of the Requisite Lenders (which the Requisite Lenders shall have the right to grant or withhold in their sole discretion) and the Borrower. No termination or waiver of any provision of this Agreement or any of the other Loan Documents, or consent to any departure by the Borrower therefrom, shall be effective without the written concurrence of the Requisite Lenders, which the Requisite Lenders shall have the right to grant or withhold in their sole discretion. All amendments, modifications, waivers and consents not specifically reserved to Lenders, Issuing Banks, and the Administrative Agent in Section 15.07(b), Section 15.07(c) and in other provisions of this Agreement shall require only the approval of the Requisite Lenders. Any waiver or consent shall be effective only in the specific instance and for the specific purpose for which it was given. No notice to or demand on the Borrower in any case shall entitle the Borrower to any other or further notice or demand in similar or other circumstances. (b) Amendments, Consents and Waivers by Super- Majority Lenders. Any amendment, modification, termination, waiver or consent with respect to any of the provisions of Section 4.01(b) of this Agreement shall be effective only by a written agreement signed by the Super-Majority Lenders. (c) Amendments, Consents and Waivers by All Lenders. Any amendment, modification, termination, waiver or consent with respect to any of the following provisions of this Agreement shall be effective only by a written agreement, signed by each Lender: (i) increase in the amount of any of the Revolving Credit Commitments, (ii) reduction of the principal of, rate or amount of interest on the Loans, the Reimbursement Obligations, or any fees or other amounts payable to the Lenders or Issuing Banks (other than by the payment or prepayment thereof), (iii) postponement of the Revolving Credit Termination Date or any date fixed for any payment of principal of, or interest on, the Loans, the Reimbursement Obligations or any fees or other amounts payable to the Lenders or the Issuing Banks, except to the extent provided for in clause (b) above, (iv) the orders of priority of applications set forth in Section 4.01, (v) change in the definitions of the Revolving Credit Commitments, Term Loans, Requisite Lenders or Super-Majority Lenders; (vi) waiver of any of the conditions specified in Sections 6.01 or 6.02 or the covenant set forth in Section 9.15, (vii) release of any Guarantor or all or a substantial portion of the Collateral (except as provided in Section 13.09(c)), (viii) change in the aggregate Pro Rata Share of the Lenders which shall be required for the Lenders or any of them to take action under this Agreement or the other Loan Documents, (ix) amendment of Section 15.01 or this Section 15.07, (x) assignment of any right or interest in or under this Agreement or any of the other Loan Documents by the Borrower, and (xi) waiver of any Event of Default described in Sections 12.01(a), (f), (g), (h), and (n). (d) Administrative Agent Authority. The Administrative Agent may, but shall have no obligation to, with the written concurrence of any Lender, execute amendments, modifications, waivers or consents on behalf of that Lender. Notwithstanding anything to the contrary contained in this Section 15.07, no amendment, modification, waiver or consent shall affect the rights or duties of the Administrative Agent under this Agreement or the other Loan Documents, unless made in writing and signed by the Administrative Agent in addition to the Lenders required above to take such action; and the order of priority set forth in clauses (A) through (C) of Section 4.02(b) may be changed only with the prior written consent of the Administrative Agent. Notwithstanding anything herein to the contrary, in the event that the Borrower shall have requested, in writing, that any Lender agree to an amendment, modification, waiver or consent with respect to any particular provision or provisions of this Agreement or the other Loan Documents, and such Lender shall have failed to state, in writing, that it either agrees or disagrees (in full or in part) with all such requests (in the case of its statement of agreement, subject to satisfactory documentation and such other conditions it may specify) within thirty (30) days after such request, then such Lender shall be deemed to not have approved such amendment, modification, waiver or consent and the Administrative Agent shall thereupon determine whether the Lenders required above to take the requested action have approved the same within the required time and communicate such determination to the Borrower and the Lenders. 15.08. Notices. Unless otherwise specifically provided herein, any notice or other communication herein required or permitted to be given shall be in writing and may be personally served, sent by facsimile transmission or courier service or United States certified mail and shall be deemed to have been given when delivered in person or by courier service, upon receipt of a facsimile transmission, or four (4) Business Days after deposit in the United States mail with postage prepaid and properly addressed. Notices to the Administrative Agent pursuant to Articles II, IV or XIII shall not be effective until received by the Administrative Agent. For the purposes hereof, the addresses of the parties hereto (until notice of a change thereof is delivered as provided in this Section 15.08) shall be as set forth below each party's name on the signature pages hereof or the signature page of any applicable Assignment and Acceptance, or, as to each party, at such other address as may be designated by such party in a written notice to all of the other parties to this Agreement. 15.09. Survival of Warranties and Agreements. All representations and warranties made herein and all covenants and other obligations of the Borrower in respect of taxes, indemnification and expense reimbursement shall survive the execution and delivery of this Agreement and the other Loan Documents, the making and repayment of the Loans, the issuance and discharge of Letters of Credit hereunder and the termination of this Agreement and shall not be limited in any way by the passage of time or occurrence of any event and shall expressly cover time periods when the Administrative Agent, any of the Issuing Banks or any of the Lenders may have come into possession or control of any of the Borrower's or its Subsidiaries' Property. 15.10. Failure or Indulgence Not Waiver; Remedies Cumulative. No failure or delay on the part of the Administrative Agent, any Lender or any Issuing Bank in the exercise of any power, right or privilege under any of the Loan Documents shall impair such power, right or privilege or be construed to be a waiver of any default or acquiescence therein, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privilege. All rights and remedies existing under the Loan Documents are cumulative to and not exclusive of any rights or remedies otherwise available. 15.11. Marshalling; Payments Set Aside. None of the Administrative Agent, any Lender or any Issuing Bank shall be under any obligation to marshall any assets in favor of the Borrower or any other Person or against or in payment of any or all of the Obligations. To the extent that the Borrower makes a payment or payments to the Administrative Agent, the Lenders or the Issuing Banks or any of such Persons receives payment from the proceeds of the Collateral or exercises its rights of setoff, and such payment or payments or the proceeds of such enforcement or setoff or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside or required to be repaid to a trustee, receiver or any other party, then to the extent of such recovery, the obligation or part thereof originally intended to be satisfied, and all Liens, right and remedies therefor, shall be revived and continued in full force and effect as if such payment had not been made or such enforcement or setoff had not occurred. 15.12. Severability. In case any provision in or obligation under this Agreement or the other Loan Documents shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby. 15.13. Headings. Section headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement or be given any substantive effect. 15.14. Governing Law. THIS AGREEMENT SHALL BE INTERPRETED, AND THE RIGHTS AND LIABILITIES OF THE PARTIES HERETO DETERMINED, IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. 15.15. Limitation of Liability. No claim may be made by the Borrower, any Lender, any Issuing Bank, the Administrative Agent, or any other Person against the Administrative Agent, any other Issuing Bank or any other Lender or the Affiliates, directors, officers, employees, attorneys or agents of any of them for any special, consequential or punitive damages in respect of any claim for breach of contract or any other theory of liability arising out of or related to the transactions contemplated by this Agreement, or any act, omission or event occurring in connection therewith; and the Borrower, each Lender, each Issuing Bank, and the Administrative Agent hereby waives, releases and agrees not to sue upon any such claim for any such damages, whether or not accrued and whether or not known or suspected to exist in its favor. 15.16. Successors and Assigns. This Agreement and the other Loan Documents shall be binding upon the parties hereto and their respective successors and assigns and shall inure to the benefit of the parties hereto and the successors and permitted assigns of the Lenders and the Issuing Banks. The rights hereunder of the Borrower, or any interest therein, may not be assigned without the written consent of all Lenders. 15.17. Certain Consents and Waivers of the Borrower. (a) Personal Jurisdiction. (i) EACH OF THE ADMINISTRATIVE AGENT, THE LENDERS, THE ISSUING BANKS, THE BORROWER IRREVOCABLY AND UNCONDITIONALLY SUBMITS, FOR ITSELF AND ITS PROPERTY, TO THE NONEXCLUSIVE JURISDICTION OF ANY NEW YORK STATE COURT OR FEDERAL COURT SITTING IN NEW YORK, NEW YORK, AND ANY COURT HAVING JURISDICTION OVER APPEALS OF MATTERS HEARD IN SUCH COURTS, IN ANY ACTION OR PROCEEDING ARISING OUT OF, CONNECTED WITH, RELATED TO OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, WHETHER ARISING IN CONTRACT, TORT, EQUITY OR OTHERWISE, OR FOR RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT, AND EACH OF THE PARTIES HERETO IRREVOCABLY AND UNCONDITIONALLY AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH STATE COURT OR, TO THE EXTENT PERMITTED BY LAW, IN SUCH FEDERAL COURT. THE BORROWER IRREVOCABLY DESIGNATES AND APPOINTS TFC, 110 EAST 59TH STREET, 30TH FLOOR, NEW YORK, NEW YORK 10022, AS ITS AGENT (THE "PROCESS AGENT") FOR SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDING IN ANY SUCH COURT, SUCH SERVICE BEING HEREBY ACKNOWLEDGED TO BE EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT. EACH OF THE ADMINISTRATIVE AGENT, THE LENDERS, THE ISSUING BANKS, AND THE BORROWER AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. THE BORROWER WAIVES IN ALL DISPUTES ANY OBJECTION THAT IT MAY HAVE TO THE LOCATION OF THE COURT CONSIDERING THE DISPUTE. (ii) THE BORROWER AGREES THAT THE ADMINISTRATIVE AGENT SHALL HAVE THE RIGHT TO PROCEED AGAINST IT OR ITS PROPERTY IN A COURT IN ANY LOCATION TO ENABLE THE ADMINISTRATIVE AGENT, THE ISSUING BANKS AND THE LENDERS TO REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER ENTERED IN FAVOR OF THE ADMINISTRATIVE AGENT, ANY ISSUING BANK OR ANY LENDER. THE BORROWER AGREES THAT IT WILL NOT ASSERT ANY PERMISSIVE COUNTERCLAIMS IN ANY PROCEEDING BROUGHT BY THE ADMINISTRATIVE AGENT, ANY LENDER OR ANY ISSUING BANK TO REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF THE ADMINISTRATIVE AGENT, ANY LENDER OR ANY ISSUING BANK. THE BORROWER WAIVES ANY OBJECTION THAT IT MAY HAVE TO THE LOCATION OF THE COURT IN WHICH THE ADMINISTRATIVE AGENT, ANY ISSUING BANK OR ANY LENDER MAY COMMENCE A PROCEEDING DESCRIBED IN THIS SECTION. (b) Service of Process. THE BORROWER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO THE PROCESS AGENT OR THE BORROWER'S NOTICE ADDRESS SPECIFIED BELOW, SUCH SERVICE TO BECOME EFFECTIVE FIVE (5) DAYS AFTER SUCH MAILING. THE BORROWER IRREVOCABLY WAIVES ANY OBJECTION (INCLUDING, WITHOUT LIMITATION, ANY OBJECTION OF THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS) WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY SUCH ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT IN ANY JURISDICTION SET FORTH ABOVE. NOTHING HEREIN SHALL AFFECT THE RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT OF THE ADMINISTRATIVE AGENT TO BRING PROCEEDINGS AGAINST THE BORROWER IN THE COURTS OF ANY OTHER JURISDICTION. (c) Waiver of Jury Trial. EACH OF THE ADMINISTRATIVE AGENT, LENDERS, ISSUING BANKS, AND THE BORROWER IRREVOCABLY WAIVES TRIAL BY JURY IN ANY ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT. ANY OF THE BORROWER, THE ADMINISTRATIVE AGENT, LENDERS, OR ISSUING BANKS MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY. 15.18. Counterparts; Effectiveness; Inconsistencies. This Agreement and any amendments, waivers, consents, or supplements hereto may be executed in counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument. This Agreement shall become effective against the Borrower, each Lender, each Issuing Bank, and the Administrative Agent on the Effective Date, whereupon the terms and provisions of the First Amended Agreement shall be and hereby are amended, superseded and restated in their entirety by the terms and provisions of this Agreement. This Agreement shall not constitute a novation. This Agreement and each of the other Loan Documents shall be construed to the extent reasonable to be consistent one with the other, but to the extent that the terms and conditions of this Agreement are actually inconsistent with the terms and conditions of any other Loan Document, this Agreement shall govern. 15.19. Limitation on Agreements. All agreements between and among the Borrower, the Administrative Agent, each Lender and each Issuing Bank in the Loan Documents are hereby expressly limited so that in no event shall any of the Loans or other amounts payable by the Borrower under any of the Loan Documents constitute "purpose credit" within the meaning of Regulation U or G. 15.20. Confidentiality. Subject to Section15.01(f), the Lenders and the Issuing Banks shall hold all nonpublic information obtained pursuant to the requirements of this Agreement and identified as such by the Borrower in accordance with such Lender's or such Issuing Bank's customary procedures for handling confidential information of this nature and in accordance with safe and sound banking practices and in any event may make disclosure (a) to its Affiliates or (b) as is reasonably required by a bona fide offeree, transferee or participant in connection with a contemplated assignment, transfer or participation permitted under Section 15.01 or (c) as required or requested by any Governmental Authority or representative thereof or pursuant to legal process or (d) to any direct or indirect contractual counterparties in swap agreements or such contractual counterparties' professional advisors, provided that such offeree, transferee, participant, contractual counterparty or professional advisor to such contractual counterparty agrees, in writing, to keep such information confidential to the same extent required of the Lenders hereunder. In no event shall any Lender or any Issuing Bank be obligated or required to return any materials furnished by the Borrower; provided, however, each offeree shall be required to agree that if it does not become a transferee or participant it shall return all materials furnished to it by the Borrower in connection with this Agreement. Any and all confidentiality agreements entered into between any Lender or any Issuing Bank and the Borrower shall survive the execution of this Agreement. 15.21. Entire Agreement. This Agreement, taken together with all of the other Loan Documents, embodies the entire agreement and understanding among the parties hereto and supersedes all prior agreements and understandings, written and oral, relating to the subject matter hereof. 15.22. Advice of Counsel. The Borrower and each Lender and Issuing Bank understand that the Administrative Agent's counsel represents only the Administrative Agent's and its Affiliates' interests and that the Borrower, other Lenders and other Issuing Banks are advised to obtain their own counsel. The Borrower represents and warrants to the Administrative Agent and the other Holders that it has discussed this Agreement with its counsel. IN WITNESS WHEREOF, this Agreement has been duly executed as of the date first above written. BORROWER: FAIRCHILD HOLDING CORP. By: Colin M. Cohen Vice President GUARANTOR: RHI HOLDINGS, INC. By: Colin M. Cohen Vice President and Chief Financial Officer Notice Address for Borrower & Guarantor: 300 West Service Road Chantilly, Virginia 20153 Attn: Colin M. Cohen Telecopier No. (703) 478-5767 and Donald E. Miller Telecopier No. (703) 478-5775 with a copy to: Cahill Gordon & Reindel Eighty Pine Street New York, New York 10005-1702 Attn: James J. Clark Telecopier No. (212) 269-5420 ADMINISTRATIVE AGENT: CITICORP USA, INC., as Administrative Agent By: Timothy L. Freeman Attorney-in-Fact Notice Address: Citicorp USA, Inc. c/o Citicorp Securities, Inc. 399 Park Avenue 6th Floor, Zone 4 New York, New York 10043 Attn: Timothy L. Freeman Telecopier No. (212) 793-1290 with a copy to: Sidley & Austin One First National Plaza Chicago, Illinois 60603 Attn: DeVerille A. Huston Telecopier No. (312) 853-7036 ISSUING BANK: CITIBANK, N.A. By: Timothy L. Freeman Attorney-in-Fact Notice Address: Citibank, N.A. 399 Park Avenue 10th Floor, Zone 3 New York, New York 10043 Attn: Melissa Motelson Telecopier No. (212) 793-4806 LENDER: CITICORP USA, INC. By: Timothy L. Freeman Attorney-in-Fact Notice Address: Citicorp USA, Inc. c/o Citicorp Securities, Inc. 399 Park Avenue 6th Floor, Zone 4 New York, New York 10043 Attn: Timothy L. Freeman Telecopier No. (212) 793-1290 Domestic Lending Office and Eurodollar Lending Office or Eurodollar Affiliate: Citicorp USA, Inc. c/o Citibank, N.A. 399 Park Avenue 10th Floor, Zone 3 New York, New York 10043 Attn: Melissa Motelson Telecopier No. (212) 793-4806 Pro Rata Share: 5.833% Revolving Credit Commitment: $4,629,629.60 Revolving Credit Pro Rata Share: 6.173% Term Loan Commitment: $4,120,370.40 Term Loan Pro Rata Share: 5.494% LENDER AND ISSUING BANK: NATIONSBANK, N.A. By: Michael R. Heredia Senior Vice President Notice Address and Domestic and Eurodollar Lending Office: NationsBank, N.A. 6610 Rockledge Drive 6th Floor Bethesda, Maryland 20817-1876 Attn: Michael R. Heredia Telecopier No. (301) 571-0719 Pro Rata Share: 16.833% Revolving Credit Commitment: $13,359,788.35 Revolving Credit Pro Rata Share: 17.813% Term Loan Commitment: $11,890,211.65 Term Loan Pro Rata Share: 15.854% LENDER: SALOMON BROTHERS HOLDING COMPANY INC By: Mavis B. Taintor Managing Director Notice Address and Domestic and Eurodollar Lending Office: Salomon Brothers Holding Company Inc Seven World Trade Center 33rd Floor New York, New York 10048 Attn: Townsend U. Weekes Telecopier No. (212) 783-2823 Pro Rata Share: 11.333% Revolving Credit Commitment: $8,994,708.98 Revolving Credit Pro Rata Share: 11.993% Term Loan Commitment: $8,005,291.02 Term Loan Pro Rata Share: 10.674% LENDER: BANKERS TRUST COMPANY By: Mary Jo Jolly Assistant Vice President Notice Address: Bankers Trust Company c/o BT Securities, Inc. 300 South Grand Avenue Los Angeles, California 90071 Attn: Wade Winter Telecopier No. (213) 620-8484 Domestic Lending Office and Eurodollar Lending Office or Eurodollar Affiliate: Bankers Trust Company 1 Bankers Trust Plaza 130 Liberty Street New York, New York 10006 Pro Rata Share: 5.500% Revolving Credit Commitment: $4,365,079.37 Revolving Credit Pro Rata Share: 5.820% Term Loan Commitment: $3,884,920.63 Term Loan Pro Rata Share: 5.180% LENDER: DLJ CAPITAL FUNDING, INC. By: Marc C. Buonomo Senior Vice President Notice Address: DLJ Capital Funding, Inc. 277 Park Avenue 9th Floor New York, New York 10172 Attn: Tom Hendrix Telecopier No. (212) 892-5286 Domestic Lending Office and Eurodollar Lending Office or Eurodollar Affiliate: DLJ Capital Funding, Inc. Newport Tower 525 Washington Blvd. Jersey City, New Jersey 07310 Attn: Ed Vowinkel Telecopier No. (201) 610-1965 Pro Rata Share: 5.500% Revolving Credit $4,365,079.37 Commitment: Revolving Credit Pro Rata Share: 5.820% Term Loan Commitment: $3,884,920.63 Term Loan Pro Rata Share: 5.180% LENDER: PRIME INCOME TRUST By: Rafael Scolari Title: Notice Address: Dean Witter Inter Capital 2 World Trade Center 72nd Floor New York, New York 10048 Attn: Louis Pisteccia Telecopier No.: 212-392-5345 Domestic Lending Office and Eurodollar Lending Office or Eurodollar Affiliate: Dean Witter Inter Capital 2 World Trade Center 72nd Floor New York, New York 10048 Attn: Louis Pisteccia Telecopier No.: 212-392-5345 Pro Rata Share: 5.500% Revolving Credit Commitment: $4,365,079.37 Revolving Credit Pro Rata Share: 5.820% Term Loan Commitment: $3,884,920.63 Term Loan Pro Rata Share: 5.180% LENDER: CAISSE NATIONALE DE CREDIT AGRICOLE By: David Bouhl FVP Head of Corporate Banking, Chicago Notice Address: Caisse Nationale de Credit Agricole 55 East Monroe Street Suite 4700 Chicago, Illinois 60603 Attn: William Jeffers Telecopier No.: 312-372-3724 Domestic Lending Office and Eurodollar Lending Office or Eurodollar Affiliate: Caisse Nationale de Credit Agricole 55 East Monroe Street Suite 4700 Chicago, Illinois 60603 Attn: William Jeffers Telecopier No.: 312-372-3724 Pro Rata Share: 5.500% Revolving Credit Commitment: $4,365,079.37 Revolving Credit Pro Rata Share: 5.820% Term Loan Commitment: $3,884,920.63 Term Loan Pro Rata Share: 5.180% LENDER: UNION BANK OF CALIFORNIA, N.A. By: Cary Moore Vice President Notice Address: Union Bank of California, N.A. 445 South Figueroa Street 16th Floor Los Angeles, California 90071 Attn: Cedric M. Henley Telecopier No.: 213-236-7814 Domestic Lending Office and Eurodollar Lending Office or Eurodollar Affiliate: Union Bank of California, N.A. 445 South Figueroa Street 16th Floor Los Angeles, California 90071 Pro Rata Share: 5.500% Revolving Credit Commitment: $4,365,079.37 Revolving Credit Pro Rata Share: 5.820% Term Loan Commitment: $3,884,920.63 Term Loan Pro Rata Share: 5.180% LENDER: VAN KAMPEN AMERICAN CAPITAL PRIME RATE INCOME TRUST By: Jeffrey W. Maillet Senior Vice President & Director Notice Address: Van Kampen American Capital One Parkview Plaza Oakbrook Terrace, Illinois 60181 Attn: Jeffrey W. Maillet Telecopier No.: 630-684-6740 with a copy to: State Street Bank and Trust Corporate Trust Department P.O. Box 778 Boston, Massachusetts 02102 Attn: Laura Magazu Telecopier No.: 617-664-5366 Domestic Lending Office and Eurodollar Lending Office or Eurodollar Affiliate: Van Kampen American Capital One Parkview Plaza Oakbrook Terrace, Illinois 60181 Pro Rata Share: 5.500% Revolving Credit Commitment: $4,365,079.37 Revolving Credit Pro Rata Share: 5.820% Term Loan Commitment: $3,884,920.63 Term Loan Pro Rata Share: 5.180% LENDER: PILGRIM AMERICA PRIME RATE TRUST By: Michael J. Bacevich Vice President Notice Adddress: Pilgrim America Prime Rate Trust Two Renaissance Square 40 North Central Avenue Suite 1200 Phoenix, Arizona 85004-3444 Attn: Bill Nutting Telecopier No.: 602-417-8321 with a copy to: State Street Bank and Trust Company Alternative Structures Unit Two International Place Boston, Massachusetts 02110 Attn: Debbie Jessee Telecopier No.: 617-664-5366 Domestic Lending Office and Eurodollar Lending Office or Eurodollar Affiliate: Pilgrim America Prime Rate Trust Two Renaissance Square 40 North Central Avenue Suite 1200 Phoenix, Arizona 85004-3444 Pro Rata Share: 5.500% Revolving Credit Commitment: $4,365,079.37 Revolving Credit Pro Rata Share: 5.820% Term Loan Commitment: $3,884,920.63 Term Loan Pro Rata Share: 5.180% LENDER: MCDONNELL DOUGLAS FINANCE CORPORATION By: James C. Hammersmith Director of Operations Notice Address: McDonnell Douglas Finance Corporation 4060 Lakewood Boulevard Bldg. 801, 6th Floor Long Beach, California 90808 Attn: April Wakeman, Esquire Telecopier No.: 562-627-3002 Domestic Lending Office and Eurodollar Lending Office or Eurodollar Affiliate: McDonnell Douglas Finance Corporation 4060 Lakewood Boulevard Bldg. 801, 6th Floor Long Beach, California 90808 Attn: April Wakeman, Esquire Telecopier No.: 562-627-3002 Pro Rata Share: 5.500% Revolving Credit Commitment: $0 Revolving Credit Pro Rata Share: 0% Term Loan Commitment: $8,250,000.00 Term Loan Pro Rata Share: 11.00% LENDER: CIBC INC. By: William Swenson CIBC Wood Gundy Securities Corp., As Agent Notice Address: CIBC INC. 425 Lexington Avenue 7th Floor New York, New York 10025 Attn: William Swenson Telecopier No.: 212-856-3799 Domestic Lending Office and Eurodollar Lending Office or Eurodollar Affiliate: CIBC INC. 2 Paces West Suite 1200 2727 Paces Ferry Road Atlanta, Georgia 30339 Attn: Layne Fudge Telecopier No.: 770-319-4955 Pro Rata Share: 5.500% Revolving Credit Commitment: $4,365,079.37 Revolving Credit Pro Rata Share: 5.820% Term Loan Commitment: $3,884,920.63 Term Loan Pro Rata Share: 5.180% LENDER: CRESCENT/MACH I PARTNERS, L.P. By TCW Asset Management Company Its Investment Manager By: Justin L. Driscoll Senior Vice President Notice Address: TCW Asset Management Company 200 Park Avenue Suite 2200 New York, New York 10166-0228 Attn: Mark L. Gold Telecopier No.: 212-297-4159 with a copy to: Crescent/Mach I Partners, L.P. c/o State Street Bank & Trust Co. Two International Place Boston, Massachusetts 02110 Attn: Jackie Kilroy Telecopier No.: 617-664-5367 Domestic Lending Office and Eurodollar Lending Office or Eurodollar Affiliate: Crescent/Mach I Partners, L.P. c/o TCW Asset Management Company 200 Park Avenue, Suite 2200 New York, New York 10166-0228 Attn: Mark L. Gold Telecopier No.: 212-297-4159 Pro Rata Share: 1.000% Revolving Credit Commitment: $0 Revolving Credit Pro Rata Share: 0% Term Loan Commitment: $1,500,000.00 Term Loan Pro Rata Share: 2.000% LENDER: KZH-CRESCENT CORPORATION By: Robert Goodwin Authorized Agent Notice Address: KZH-Crescent Corporation c/o The Chase Manhattan Bank 450 West 33rd Street 15th Floor New York, New York 10001 Attn: Virginia Conway Telecopier No.: 212-946-7776 with a copy to: Orrick, Herrington & Sutcliffe LLP 666 Fifth Avenue New York, New York 10103-0001 Attn: Patricia Seddon Telecopier No.: 212-506-5151 Domestic Lending Office and Eurodollar Lending Office or Eurodollar Affiliate: KZH-Crescent Corporation c/o The Chase Manhattan Bank 450 West 33rd Street 15th Floor New York, New York 10001 Attn: Virginia Conway Telecopier No.: 212-946-7776 Pro Rata Share: 4.500% Revolving Credit Commitment: $4,365,079.37 Revolving Credit Pro Rata Share: 5.820% Term Loan Commitment: $2,384,920.63 Term Loan Pro Rata Share: 3.180% LENDER: MERRILL LYNCH CAPITAL CORPORATION By: Christopher K. Stout Vice President Notice Address: Merrill Lynch Capital Corporation World Financial Center North Tower, 7th Floor 225 Liberty Street New York, New York 10080-6114 Attn: Christopher K. Stout Telecopier No.: 212-449-8230 Domestic Lending Office and Eurodollar Lending Office or Eurodollar Affiliate: Merrill Lynch Capital Corporation World Financial Center North Tower, 7th Floor 225 Liberty Street New York, New York 10080-6114 Attn: Christopher K. Stout Telecopier No.: 212-449-8230 Pro Rata Share: 5.500% Revolving Credit Commitment: $4,365,079.37 Revolving Credit Pro Rata Share: 5.820% Term Loan Commitment: $3,884,920.63 Term Loan Pro Rata Share: 5.180% LENDER: CANADIAN IMPERIAL BANK OF COMMERCE By: William Swenson CIBC Wood Gundy Securities Corp., As Agent Notice Address: Canadian Imperial Bank of Commerce 425 Lexington Avenue 7th Floor New York, New York 10025 Attn: William Swenson Telecopier No.: 212-856-3799 Domestic Lending Office and Eurodollar Lending Office or Eurodollar Affiliate: Canadian Imperial Bank of Commerce 2 Paces West Suite 1200 2727 Paces Ferry Road Atlanta, Georgia 30339 Attn: Layne Fudge Telecopier No.: 770-319-4955 Pro Rata Share: 5.500% Revolving Credit Commitment: $4,365,079.37 Revolving Credit Pro Rata Share: 5.820% Term Loan Commitment: $3,884,920.63 Term Loan Pro Rata Share: 5.180% EXHIBITS Exhibit A -- Form of Assignment and Acceptance Exhibit B -- Form of Borrowing Base Certificate Exhibit C -- Form of Collection Account Agreement Exhibit D -- Forms of Notes Exhibit E -- Form of Notice of Borrowing Exhibit F -- Form of Notice of Conversion/Continuation Exhibit G -- Pro Forma Balance Sheet Exhibit H -- Projections Exhibit I -- List of Closing Documents Exhibit J -- Forms of Financial Reports Exhibit K -- Form of Officer's Certificate to Accompany Reports SCHEDULES Schedule 1.01.1 -- Appraisals of Equipment and Real Property Schedule 1.01.2 -- Eligible Inventory Locations Schedule 1.01.3 -- Fiscal Month End Dates Schedule 1.01.4 -- Subsidiary Guarantors as of the Effective Date Schedule 1.01.5 -- Operating Units Schedule 1.01.6 -- Permitted Dispositions Schedule 1.01.7 -- Permitted Equity Securities Options Schedule 1.01.8 -- Permitted Existing Accommodation Obligations Schedule 1.01.9 -- Permitted Existing Indebtedness Schedule 1.01.10 -- Permitted Existing Investments Schedule 1.01.11 -- Permitted Existing Liens Schedule 3.02 -- Existing Letters of Credit Schedule 7.01-A -- Organizational Documents Schedule 7.01-C -- Organizational Structure Schedule 7.01-K -- Pending Actions Schedule 7.01-R -- Environmental Matters Schedule 7.01-U -- Labor Contracts Schedule 7.01-X -- Patent, Trademark & Permit Claims Pending Schedule 7.01-Z -- Insurance Policies Schedule 8.04 -- Form of Schedule of Intercompany Transfers Schedule 10.15 -- Collection Accounts Schedule 12.01-P -- Permitted Payments/Redemptions of TFC Indebtedness and Permitted Dispositions of TFC Assets EX-23 9 Consent of the Independent Public Accountants As independent public accountants, we hereby consent to the use of our reports on the consolidated financial statements of The Fairchild Corporation and Subsidiaries for the year ended June 30, 1997 (and all references to our Firm) included in or made a part of the Company's S-3 registration statement no. 34-0728587 Washington, DC September 24, 1997 Consent of the Independent Public Accountants As independent public accountants, we hereby consent to the use of our reports on the consolidated financial statements of The Fairchild Corporation and Subsidiaries for the year ended June 30, 1997 (and all references to our Firm) included in or made a part of the Company's previously filed form S-8 registration statements nos. 35-27317, 33-21698, and 33-06183. Washington, DC September 24, 1997 -----END PRIVACY-ENHANCED MESSAGE-----