August 31, 1997

-----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, JCXw78+fajJxzEUfA/MgzuAP/+WKz593duLk5cW/U60FR9pLrkW4n6fyOWHnfYu0 2DDu8QTQ/9+N9ouWeYNv3Q== 0000009779-00-000005.txt : 20000516 0000009779-00-000005.hdr.sgml : 20000516 ACCESSION NUMBER: 0000009779-00-000005 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20000402 FILED AS OF DATE: 20000515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FAIRCHILD CORP CENTRAL INDEX KEY: 0000009779 STANDARD INDUSTRIAL CLASSIFICATION: BOLTS, NUTS, SCREWS, RIVETS & WASHERS [3452] IRS NUMBER: 340728587 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-06560 FILM NUMBER: 634588 BUSINESS ADDRESS: STREET 1: 45025 AVIATION DR STREET 2: STE 400 CITY: DULLES STATE: VA ZIP: 20166 BUSINESS PHONE: 7034785800 MAIL ADDRESS: STREET 1: 45025 AVIATION DRIVE STREET 2: SUITE 400 CITY: DULLES STATE: VA ZIP: 20166 FORMER COMPANY: FORMER CONFORMED NAME: BANNER INDUSTRIES INC /DE/ DATE OF NAME CHANGE: 19901118 10-Q 1 August 31, 1997 UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended April 2, 2000

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 Identification No.)

Incorporation or organization)

45025 Aviation Drive, Suite 400

Dulles, VA 20166

(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code (703) 478-5800

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 ninety (90) days.

YES X NO

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

Outstanding at

Title of Class April 2, 2000

Class A Common Stock, $0.10 Par Value 22,414,722

Class B Common Stock, $0.10 Par Value 2,621,652

THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES

INDEX

Page

PART I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Balance Sheets as of April 2, 2000 (Unaudited) and

June 30, 1999 3

Consolidated Statements of Earnings (Unaudited) for the Three and Nine

Months ended April 2, 2000 and March 28, 1999 5

Condensed Consolidated Statements of Cash Flows (Unaudited) for the Nine

Months ended April 2, 2000 and March 28, 1999 7

Notes to Condensed Consolidated Financial Statements (Unaudited) 8

Item 2. Management's Discussion and Analysis of Results of Operations and

Financial Condition 19

Item 3. Quantitative and Qualitative Disclosure About Market Risk 27

PART II. OTHER INFORMATION

Item 1. Legal Proceedings 28

Item 2.Changes in Securities and Use of Proceeds 28

Item 4.Submission of Matters to a Vote of Security Holders 28

Item 5.Other Information 28

Item 6. Exhibits and Reports on Form 8-K 28

All references in this Quarterly Report on Form 10-Q to the terms ''we,'' ''our,'' ''us,'' the ''Company'' and ''Fairchild'' refer to The Fairchild Corporation and its subsidiaries. All references to ''fiscal'' in connection with a year shall mean the 12 months ended June 30.

PART I. FINANCIAL INFORMATION

<TABLE>

ITEM 1. FINANCIAL STATEMENTS

THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

April 2, 2000 (Unaudited) and June 30, 1999

(In thousands)

ASSETS

	April 2,	June 30,
ASSETS	2000	1999
		(*)
CURRENT ASSETS:
<S>	<C>	<C>
Cash and cash equivalents, $52,987 and $15,752 restricted	$ 85,605	$ 54,860
Short-term investments	13,164	13,094
Accounts receivable-trade, less allowances of $4,427 and $6,442	121,733	130,121
Inventories:
Finished goods	138,719	137,807
Work-in-process	34,957	38,316
Raw materials	11,201	14,116
	184,877	190,239
Prepaid expenses and other current assets	64,660	73,926
Total Current Assets	470,039	462,240

Property, plant and equipment, net of accumulated
depreciation of $138,997 and $103,556	181,872	184,065
Net assets held for sale	20,058	21,245
Cost in excess of net assets acquired (Goodwill), less
accumulated amortization of $56,729 and $40,307	429,244	447,722
Investments and advances, affiliated companies	10,242	31,791
Prepaid pension assets	64,104	63,958
Deferred loan costs	15,079	13,077
Real estate investment	108,859	83,791
Long-term investments	12,773	15,844
Other assets	7,373	5,053
TOTAL ASSETS	$1,319,643	$1,328,786

*Condensed from audited financial statements.

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

</TABLE>

<TABLE>

THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

April 2, 2000 (Unaudited) and June 30, 1999

(In thousands)

LIABILITIES AND STOCKHOLDERS' EQUITY

	April 2,	June 30,
LIABILITIES AND STOCKHOLDERS' EQUITY	2000	1999
CURRENT LIABILITIES:		(*)
<S>	<C>	<C>
Bank notes payable and current maturities of long-term debt	$ 29,201	$ 28,860
Accounts payable	51,751	72,271
Accrued liabilities:
Salaries, wages and commissions	41,345	43,095
Employee benefit plan costs	7,818	5,204
Insurance	9,916	14,216
Interest	13,057	7,637
Other accrued liabilities	46,457	50,984
	118,593	121,136
Net current liabilities of discontinued operations	6,082	10,999
Total Current Liabilities	205,627	233,266

LONG-TERM LIABILITES:
Long-term debt, less current maturities	489,581	495,283
Other long-term liabilities	24,345	25,904
Retiree health care liabilities	46,251	44,813
Noncurrent income taxes	138,584	121,961
Minority interest in subsidiaries	64	59
TOTAL LIABILITIES	904,452	921,286

STOCKHOLDERS' EQUITY:
Class A common stock, $0.10 par value; authorized
40,000 shares, 30,064 (29,754 in June) shares issued and
22,415 (22,259 in June) shares outstanding	3,006	2,975
Class B common stock, $0.10 par value; authorized 20,000
shares, 2,622 shares issued and outstanding	262	262
Paid-in capital	231,046	229,038
Retained earnings	265,682	252,030
Cumulative other comprehensive income	(9,296)	(2,703)
Treasury stock, at cost, 7,649 (7,496 in June) shares of Class A common stock	(75,509)	(74,102)
TOTAL STOCKHOLDERS' EQUITY	415,191	407,500
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$1,319,643	$1,328,786

*Condensed from audited financial statements

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

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<TABLE>

THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES

CONDENSED STATEMENTS OF EARNINGS (Unaudited)

For The Three (3) and Nine (9) Months Ended April 2, 2000 and March 28, 1999

(In thousands, except per share data)

	Three Months Ended		Nine Months Ended
	04/02/00	03/28/99		04/02/00	03/28/99
REVENUE:
<S>	<C>	<C>		<C>	<C>
Net sales	$158,029	$146,352		$474,782	$446,072
Other income, net	2,031	704		9,641	1,473
	160,060	147,056		484,423	447,545
COSTS AND EXPENSES:
Cost of goods sold	117,527	109,462		353,261	356,448
Selling, general & administrative	31,325	28,049		98,530	83,495
Amortization of goodwill	3,082	1,364		9,190	4,002
Restructuring	1,399	-		7,456	-
	153,333	138,875		468,437	443,945
OPERATING INCOME	6,727	8,181		15,986	3,600
Interest expense	13,717	7,075		38,045	22,281
Interest income	(2,041)	(267)		(3,598)	(1,326)
Net interest expense	11,676	6,808		34,447	20,955
Investment income	6,272	36,876		9,150	37,710
Nonrecurring gain	852	-		28,855	-
Earnings from continuing operations before taxes	2,175	38,249		19,544	20,355
Income tax provision	(156)	(13,749)		(5,422)	(7,316)
Equity in earnings (loss) of affiliates, net	603	132		(470)	1,821
Minority interest, net	-	(4,249)		-	(2,114)
Earnings from continuing operations	2,622	20,383		13,652	12,746
Loss on disposal of discontinued operations, net	-	(19,694)		-	(28,874)
NET EARNINGS (LOSS)	$ 2,622	$ 689		$ 13,652	$(16,128)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	(3,660)	(6,139)		(6,742)	1,413
Unrealized holding changes on securities arising during the period	(1,690)	(12,865)		149	(15,620)
Other comprehensive loss	(5,350)	(19,004)		(6,593)	(14,207)
COMPREHENSIVE INCOME (LOSS)	$(2,728)	$(18,315)		$ 7,059	$(30,335)

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

</TABLE>

<TABLE>

THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES

CONDENSED STATEMENTS OF EARNINGS (Unaudited)

For The Three (3) and Nine (9) Months Ended April 2, 2000 and March 28, 1999

(In thousands, except per share data)

	Three Months Ended			Nine Months Ended
	04/02/00	03/28/99	04/02/00		03/28/99
BASIC EARNINGS PER SHARE:
<S>	<C>	<C>	<C>		<C>
Earnings from continuing operations	$ 0.10	$ 0.93	$ 0.55		$ 0.58
Loss on disposal of discontinued operations, net	-	(0.90)	-		(1.30)
NET EARNINGS (LOSS)	$ 0.10	$ 0.03	$ 0.55		$ (0.72)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	$ (0.15)	$ (0.28)	$ (0.27)		$ 0.06
Unrealized holding changes on securities arising during the period	(0.07)	(0.59)	0.01		(0.71)
Other comprehensive loss	(0.22)	(0.87)	(0.26)		(0.65)
COMPREHENSIVE INCOME (LOSS)	$ (0.12)	$ (0.84)	$ 0.29		$ (1.37)

DILUTED EARNINGS PER SHARE:
Earnings from continuing operations	$ 0.10	$ 0.92	$ 0.54		$ 0.57
Loss on disposal of discontinued operations, net	-	(0.89)	-		(1.28)
NET EARNINGS (LOSS)	$ 0.10	$ 0.03	$ 0.54		$ (0.71)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	$ (0.14)	$ (0.28)	$ (0.27)		$ 0.06
Unrealized holding changes on securities arising during the period	(0.07)	(0.58)	0.01		(0.69)
Other comprehensive loss	(0.21)	(0.86)	(0.26)		(0.63)
COMPREHENSIVE INCOME (LOSS)	$ (0.11)	$ (0.83)	$ 0.28		$ (1.34)
Weighted average shares outstanding:
Basic	24,975	21,872	24,922		22,129
Diluted	25,297	22,165	25,416		22,552

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

</TABLE>

<TABLE>

THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

For The Nine (6) Months Ended April 2, 2000 and March 28, 1999

(In thousands)

	For the Nine Months Ended
	04/02/2000	03/28/1999
Cash flows from operating activities:
<S>	<C>	<C>
Net earnings	$ 13,652	$(16,128)
Depreciation and amortization	30,314	17,371
Accretion of discount on long-term liabilities	2,845	3,854
Amortization of deferred loan fees	902	888
Net gain on divestiture of investment in affiliates	(26,598)	-
Net gain on divestiture of subsidiary	(2,256)	-
Distributed (undistributed) earnings of affiliates, net	723	3,376
Minority interest	-	2,114
Change in assets and liabilities	(52,293)	(19,907)
Non-cash charges and working capital changes of discontinued operations	(12,535)	12,445
Net cash provided by (used for) operating activities	(45,246)	4,013
Cash flows from investing activities:
Purchase of property, plant and equipment	(24,805)	(18,694)
Acquisition of subsidiaries, net of cash acquired	-	(3,940)
Net proceeds received from investment securities	13,571	173,424
Net proceeds received from divestiture of investment in affiliates	46,886	-
Net proceeds received from divestiture of subsidiaries	61,906	60,397
Real estate investment	(26,419)	(24,524)
Investment in equity affiliates	(2,476)	-
Proceeds received from net assets held for sale	4,672	3,526
Other, net	-	283
Investing activities of discontinued operations	7,100	(542)
Net cash provided by investing activities	80,435	189,930
Cash flows from financing activities:
Proceeds from issuance of debt	198,172	80,127
Debt repayments	(201,453)	(135,569)
Issuance of Class A common stock	286	153
Purchase of treasury stock	(486)	(22,101)
Financing activities of discontinued operations	-	30
Net cash used for financing activities	3,481)	(77,360)
Effect of exchange rate changes on cash	(963)	1,162
Net change in cash and cash equivalents	30,745	117,745
Cash and cash equivalents, beginning of the year	54,860	49,601
Cash and cash equivalents, end of the period	$ 85,605	$ 167,346

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

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THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(In thousands, except share data)

FINANCIAL STATEMENTS

The consolidated balance sheet as of April 2, 2000 and the consolidated statements of earnings and cash flows for the nine months ended April 2, 2000 and March 28, 1999 have been prepared by us, without audit. In the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows at April 2, 2000, and for all periods presented, have been made. The balance sheet at June 30, 1999 was condensed from the audited financial statements as of that date.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. These consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in our June 30, 1999 Annual Report on Form 10-K. The results of operations for the period ended April 2, 2000 are not necessarily indicative of the operating results for the full year. Certain amounts in the prior year's quarterly financial statements have been reclassified to conform to the current presentation.

DIVESTITURES

On December 1, 1999, we disposed of substantially all of the assets and certain liabilities of our Dallas Aerospace subsidiary to United Technologies Inc. for approximately $57.0 million. No gain or loss was recognized from this transaction, as the proceeds received approximated the net carrying value of the assets. Approximately $37.0 million of the proceeds from this disposition will be used to reduce our term indebtedness.

On September 3, 1999, we completed the disposal of our Camloc Gas Springs division to a subsidiary of Arvin Industries Inc. for approximately $2.7 million. In addition, we received $2.4 million from Arvin Industries for a covenant not to compete. We recognized a $2.3 million nonrecurring gain from this disposition. We used the net proceeds from the disposition to reduce our indebtedness.

On July 29, 1999, we sold our 31.9% interest in Nacanco Paketleme to American National Can Group, Inc. for approximately $48.2 million. In the nine months ended April 2, 2000, we recognized a $25.7 million nonrecurring gain from this divestiture. We also agreed to provide consulting services over a three-year period, at an annual fee of approximately $1.5 million. We used the net proceeds from the disposition to reduce our indebtedness.

DISCONTINUED OPERATIONS

In 1998, we adopted a formal plan to dispose of Fairchild Technologies. Based on this plan, we have sold the Fairchild Technologies' businesses, including most of its intellectual property, through a series of transactions. On April 14, 1999, we disposed of Fairchild Technologies photoresist deep-ultraviolet track equipment machines, spare parts and testing equipment to Apex Co., Ltd. in exchange for 1,250,000 shares of Apex stock valued at approximately $5.1 million. On June 15, 1999, we received from Suess Microtec AG $7.9 million and the right to receive 350,000 shares of Suess Microtec stock, or at least approximately $3.5 million, by September 2000 in exchange for certain inventory, fixed assets, and intellectual property of Fairchild Technologies' semiconductor equipment group. On May 1, 1999, we sold Fairchild CDI for a nominal amount. In July 1999, we received approximately $7.1 million from Novellus Systems, Inc. in exchange for Fairchild Technologies' Low-K dielectric product line and certain intellectual property. On April 14, 2000, we completed the disposition of Fairchild Technologies' optical disc equipment group to Convac Technologies Ltd. for a nominal amount (See Note 12).

As of April 2, 2000, we have a remaining accrual of $4.4 million, net of an income tax benefit of $3.2 million, for our current estimate of the remaining losses in connection with the disposition of Fairchild Technologies' businesses when the Optical Disc Equipment Group was sold to Convac Technologies. While we believe that $4.4 million is a reasonable estimate of the remaining losses to be incurred from Fairchild Technologies, this estimate may prove to be inadequate.

PRO FORMA FINANCIAL STATEMENTS

The following table sets forth the derivation of the unaudited pro forma results, representing the impact of our acquisition of Kaynar Technologies (April 1999), our merger with Banner Aerospace (April 1999), and our dispositions of Dallas Aerospace (December 1999), Solair (December 1998) and the investment in Nacanco (July 1999), as if these transactions had occurred at the beginning of each of our fiscal periods. The pro forma information is based on the historical financial statements of these companies, giving effect to the aforementioned transactions. In preparing the pro forma data, certain assumptions and adjustments have been made which increase interest expense based on revised debt structures; increase goodwill amortization expense for the acquisition of Kaynar Technologies; and reduce minority interest as a result of our merger with Banner Aerospace. The unaudited pro forma information is not intended to be indicative of either future results of our operations or results that might have been achieved if these transactions had been in effect since the beginning of these fiscal periods.

<TABLE>

For the nine months ended:	April 2,	March 28,
	2000	1999
<S>	<C>	<C>
Net sales	$ 453,088	$ 516,574
Gross profit	117,465	138,264
Net earnings (loss)	(4,417)	22,033
Net earnings (loss), per basic share	$ (0.18)	$ 0.88
Net earnings (loss), per diluted share	$ (0.18)	$ 0.83

</TABLE>

EQUITY SECURITIES

We had 22,414,722 shares of Class A common stock and 2,621,652 shares of Class B common stock outstanding at April 2, 2000. 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. The shares of Class A common stock are entitled to one vote per share and cannot be exchanged for shares of Class B common stock. The shares of Class B common stock are entitled to ten votes per share and can be exchanged, at any time, for shares of Class A common stock on a share-for-share basis. For the nine months ended April 2, 2000, 85,795 and 14,968 shares of Class A common stock were issued as a result of the exercise of stock options and the Special-T restricted stock plan, respectively. Under the terms of our acquisition of Special-T, we issued 44,079 restricted shares of our Class A common stock during the nine months ended April 2, 2000, as additional merger consideration. On February 23, 2000, we issued 63,300 restricted shares of Class A common stock as a result of a cashless exercise of 250,000 warrants. In addition, our Class A common stock outstanding was reduced as a result of 52,000 shares purchased by us during the first nine months of fiscal 2000, which are considered as treasury stock for accounting purposes.

During the nine months ended April 2, 2000, we issued 121,244 deferred compensation units pursuant to our stock option deferral plan, as a result of the exercise of 228,891 stock options. Each deferred compensation unit is represented by one share of our treasury stock and is convertible into one share of Class A common stock after a specified period of time.

RESTRICTED CASH

On April 2, 2000 and June 30, 1999, we had restricted cash of $52,987 and $15,752, respectively, all of which is maintained as collateral for certain debt facilities and escrow arrangements.

NEW TERM LOAN AGREEMENT

On March 23, 2000, we entered into a $30,750 term loan agreement with Morgan Guaranty Trust Company of New York. The loan is secured by all of the rental property of the Fairchild Airport Plaza shopping center located in Farmingdale, New York, including tenant leases and mortgage escrows. Borrowings under this agreement will mature on April 1, 2003, and bear interest at the rate of LIBOR plus 3.5% per annum. If our debt coverage ratio at any time reaches a threshold of 1.4 or greater, the interest rate will be reduced to LIBOR plus 3.1%. We may borrow up to an additional $19,250 at the same terms dependent on our ability to meet certain operating ratios on or before July 17, 2000.

In conjunction with this loan, we purchased an interest rate cap agreement for $183 from the lender, which provides for a maximum rate of interest of 11.625% and will mature on April 1, 2003. The cost of this agreement is being amortized as additional interest expense over the life of the loan.

EARNINGS PER SHARE

The following table illustrates the computation of basic and diluted earnings per share:

<TABLE>

	Three Months Ended			Nine Months Ended
	04/02/2000	03/28/1999	04/02/2000		03/28/1999
Basic earnings per share:
<S>	<C>	<C>	<C>		<C>
Earnings from continuing operations	$ 2,622	$ 20,383	$ 13,652		$ 12,746
Common shares outstanding	24,975	21,872	24,922		22,129
Basic earnings from continuing operations per share	$ 0.10	$ 0.93	$ 0.55		$ 0.58

Diluted earnings per share:
Earnings from continuing operations	$ 2,622	$ 20,383	$ 13,652		$ 12,746
Common shares outstanding	24,975	21,872	24,922		22,129
Options	138	208	214		128
Warrants	184	85	280		295
Total shares outstanding	25,297	22,165	25,416		22,552
Diluted earnings from continuing operations per share	$ 0.10	$ 0.92	$ 0.54		$ 0.57

</TABLE>

Stock options entitled to purchase 1,820,014 shares of Class A common stock were antidilutive and not included in the earnings per share calculation for the three and nine months ended April 2, 2000. These shares could be dilutive in subsequent periods.

RESTRUCTURING CHARGES

In the nine months ended April 2, 2000, we recorded $7.5 million of restructuring charges as a result of the continued integration of Kaynar Technologies into our aerospace fasteners segment. All of the charges recorded during the current nine months were a direct result of product and plant integration costs incurred as of April 2, 2000. These costs were classified as restructuring and were the direct result of formal plans to move equipment, close plants and to terminate employees. Such costs are nonrecurring in nature. Other than a reduction in our existing cost structure, none of the restructuring charges resulted in future increases in earnings or represented an accrual of future costs. As of April 2, 2000, the majority of the integration plans have been executed. During the next three months, we expect to incur additional restructuring charges for product integration costs at our aerospace fasteners segment. We anticipate that our integration process will be substantially complete by the end of fiscal 2000.

CONTINGENCIES

Government Claims

The Corporate Administrative Contracting Officer, based upon the advice of the United States Defense Contract Audit Agency, alleged that a former subsidiary of ours did not comply with Federal Acquisition Regulations and Cost Accounting Standards in accounting for (i) the 1985 reversion of certain assets of terminated defined benefit pension plans, and (ii) pension costs upon the closing of segments of our former subsidiary's business. In January 2000, we paid the government $1.1 million to settle these pension accounting issues.

Environmental Matters

Our operations are subject to stringent government imposed environmental laws and regulations concerning, among other things, the discharge of materials into the environment and the generation, handling, storage, transportation and disposal of waste and hazardous materials. To date, such laws and regulations have not had a material effect on our financial condition, results of operations, or net cash flows, although we have expended, and can be expected to expend in the future, significant amounts for the investigation of environmental conditions and installation of environmental control facilities, remediation of environmental conditions and other similar matters, particularly in our aerospace fasteners segment.

In connection with our plans to dispose of certain real estate, we must investigate environmental conditions and we may be required to take certain corrective action prior or pursuant to any such disposition. In addition, we have identified several areas of potential contamination related to other facilities owned, or previously owned, by us, that may require us either to take corrective action or to contribute to a clean-up. We are also a defendant in certain lawsuits and proceedings seeking to require us to pay for investigation or remediation of environmental matters and we have been alleged to be a potentially responsible party at various "superfund" sites. We believe that we have recorded adequate reserves in our financial statements to complete such investigation and take any necessary corrective actions or make any necessary contributions. No amounts have been recorded as due from third parties, including insurers, or set off against, any environmental liability, unless such parties are contractually obligated to contribute and are not disputing such liability.

As of April 2, 2000, the consolidated total of our recorded liabilities for environmental matters was approximately $9.3 million, which represented the estimated probable exposure for these matters. It is reasonably possible that our total exposure for these matters could be approximately $16.5 million.

Other Matters

On January 12, 1999, AlliedSignal asserted indemnification claims against us for $18.9 million, arising from the disposition of Banner Aerospace's hardware business to AlliedSignal. We believe that the amount of the claim is far in excess of any amount that AlliedSignal is entitled to recover from us.

We are involved in various other claims and lawsuits incidental to our business. We, either on our own or through our insurance carriers, are contesting these matters. In the opinion of management, the ultimate resolution of the legal proceedings, including those mentioned above, will not have a material adverse effect on our financial condition, future results of operations or net cash flows.

CONSOLIDATING FINANCIAL STATEMENTS

The following unaudited financial statements separately show The Fairchild Corporation and the subsidiaries of The Fairchild Corporation. These financial statements are provided to fulfill public reporting requirements and separately present guarantors of the 10 3/4% senior subordinated notes due 2009 issued by The Fairchild Corporation (the "Parent Company"). The guarantors are composed primarily of our domestic subsidiaries, excluding Fairchild Technologies, a real estate development venture, and certain other subsidiaries.

<TABLE>

CONSOLIDATING STATEMENTS OF EARNINGS
For the Nine Months Ended
April 2, 2000
	Parent Company	Guarantors	Non Guarantors	Eliminations	Fairchild Historical
	Parent Company	Guarantors	Non Guarantors	Eliminations	Fairchild Historical
<S>	<C>	<C>	<C>	<C>	<C>
Net Sales	$ -	$ 349,717	$ 126,853	$ (1,788)	$ 474,782
Costs and expenses
Cost of sales	-	263,174	91,875	(1,788)	353,261
Selling, general & administrative	3,861	66,859	18,169	-	88,889
Restructuring	-	7,456	-	-	7,456
Amortization of goodwill	385	8,040	765	-	9,190
	4,246	345,529	110,809	(1,788)	458,796
Operating income (loss)	(4,246)	4,188	16,044	-	15,986

Net interest expense	37,283	(8,568)	5,732	-	34,447
Investment (income) loss, net	(6)	(9,144)	-	-	(9,150)
Intercompany dividends	-	-	18,515	(18,515)	-
Nonreucrring income on
Disposition of subsidiary	-	(3,123)	(25,732)	-	(28,855)
Earnings (loss) before taxes	(41,523)	25,023	17,529	18,515	19,544
Income tax (provision) benefit	(4,476)	(137)	(809)	-	(5,422)
Equity in earnings of
affiliates and subsidiaries	59,651	-	-	(60,121)	(470)
Minority interest	-	-	-	-	-
Earnings (loss) from continuing operations	13,652	24,886	16,720	(41,606)	13,652
Earnings (loss) from disposal of discontinued operations	-	-	-	-	-
Net earnings (loss)	$ 13,652	$ 24,886	$ 16,720	$ (41,606)	$ 13,652

</TABLE>

<TABLE>

CONSOLIDATING BALANCE SHEET
April 2, 2000
	Parent Company	Guarantors	Non Guarantors	Eliminations	Fairchild Historical
	Parent Company	Guarantors	Non Guarantors	Eliminations	Fairchild Historical
<S>	<C>	<C>	<C>	<C>	<C>
Cash	$ 133	$ 67,932	$ 17,540	$ -	$ 85,605
Marketable securities	71	13,093	-	-	13,164
Accounts receivable (including intercompany),
less allowances	2,811	76,120	42,802	-	121,733
Inventory, net	-	137,786	47,091	-	184,877
Prepaid and other current assets	344	58,736	5,580	-	64,660
Net current assets of discontinued operations	-	-	-	-	-
Total current assets	3,359	353,667	113,013	-	470,039

Investment in Subsidiaries	946,237	-	-	(946,237)	-
Net fixed assets	523	138,907	42,442	-	181,872
Net assets held for sale	-	20,058	-	-	20,058
Investments in affiliates	945	9,297	-	-	10,242
Goodwill	5,175	391,014	33,055	-	429,244
Deferred loan costs	13,536	23	1,520	-	15,079
Prepaid pension assets	-	64,104	-	-	64,104
Real estate investment	-	-	108,859	-	108,859
Long-term investments	355	12,418	-	-	12,773
Other assets	18,305	(11,504)	572	-	7,373
Total assets	$ 988,435	$ 977,984	$ 299,461	$ (946,237)	$ 1,319,643

Bank notes payable & current maturities of debt	$ 2,250	$ 2,133	$ 24,818	$ -	$ 29,201
Accounts payable (including intercompany)	239	37,043	14,468	-	51,750
Other accrued expenses	(12,786)	110,265	21,114	-	118,593
Net current liabilities of discontinued operations	-	-	6,082	-	6,082
Total current liabilities	(10,297)	149,441	66,482	-	205,626

Long-term debt, less current maturities	445,650	8,241	35,690	-	489,581
Other long-term liabilities	405	17,259	6,681	-	24,345
Noncurrent income taxes	137,486	878	220	-	138,584
Retiree health care liabilities	-	41,722	4,529	-	46,251
Minority interest in subsidiaries	-	19	46	-	65
Total liabilities	573,244	217,560	113,648	-	904,452

Class A common stock	2,995	-	5,195	(5,184)	3,006
Class B common stock	262	-	-	-	262
Paid-in-capital	5,041	226,005	252,111	(252,111)	231,046
Retained earnings	482,678	535,929	(63,983)	(688,942)	265,682
Cumulative other comprehensive income	(764)	(1,022)	(7,510)	-	(9,296)
Treasury stock, at cost	(75,021)	(488)	-	-	(75,509)
Total stockholders' equity	415,191	760,424	185,813	(946,237)	415,191
Total liabilities & stockholders' equity	$ 988,435	$ 977,984	$ 299,461	$ (946,237)	$ 1,319,643

</TABLE>

<TABLE>

CONSOLIDATING STATEMENTS OF CASH FLOWS
For the Nine Months Ended
April 2, 2000
	Parent Company	Guarantors	Non Guarantors	Eliminations	Fairchild Historical
	Parent Company	Guarantors	Non Guarantors	Eliminations	Fairchild Historical
Cash Flows from Operating Activities:
<S>	<C>	<C>	<C>	<C>	<C>
Net earnings (loss)	$13,652	$ 24,886	$ 16,720	$ (41,606)	$ 13,652
Depreciation and amortization	478	23,430	6,406	-	30,314
Amortization of deferred loan fees	894	2	6	-	902
Accretion of discount on long-term liabilities	-	2,845	-	-	2,845
(Gain) on sale of affiliate investment and divestiture of subsidiary	-	-	(28,854)	-	(28,854)
Undistributed loss (earnings) of affiliates	-	723	-	-	723
Change in assets and liabilities	20,001	(103,237)	(10,663)	41,606	(52,293)
Non-cash charges and working capital changes of discontinued operations	-	-	(12,535)	-	(12,535)
Net cash (used for) provided by operating activities	35,025	(51,351)	(28,920)	-	(45,246)

Cash Flows from Investing Activities:
Net proceeds from (used for) investments	-	13,571	-	-	13,571
Purchase of property, plant and equipment	(5)	(19,326)	(5,474)	-	(24,805)
Equity investment in affiliates	-	2,476)	-	-	(2,476)
Net proceeds from sale of affiliate investements and divestiture of subsidiaries	-	57,000	51,792	-	108,792
Real estate investment	-	-	(26,419)	-	(26,419)
Proceeds from net assets held for sale	-	4,672	-	-	4,672
Investing activities of discontinued operations	-	-	7,100	-	7,100

Net cash (used for) provided by investing activities	(5)	53,441	26,999	-	80,435

Cash Flows from Financing Activities:
Proceeds from issuance of debt	45,600	110,570	42,002	-	198,172
Debt repayment and repurchase of debentures (including intercompany), net	(80,800)	(86,049)	(34,604)	-	(201,453)
Issuance of Class A common stock	286	-	-	-	286
Purchase of treasury stock	-	(486)	-	-	(486)
Financing activities of discontinued operations	-	-	-	-	-
Net cash (used for) provided by financing activities	(34,914)	24,035	7,398	-	(3,481)
Effect of exchange rate changes on cash	-	14	(977)	-	(963)
Net change in cash and cash equivalents	106	26,139	4,500	-	30,745
Cash and cash equivalents, beginning of the year	27	41,793	13,040	-	54,860
Cash and cash equivalents, end of the year	$ 133	$ 67,932	$ 17,540	$ -	$ 85,605

</TABLE>

<TABLE>

CONSOLIDATING STATEMENTS OF EARNINGS
For the Nine Months Ended
March 28, 1999
	Parent Company	Guarantors	Non Guarantors	Eliminations	Fairchild Historical
	Parent Company	Guarantors	Non Guarantors	Eliminations	Fairchild Historical
<S>	<C>	<C>	<C>	<C>	<C>
Net Sales	$ -	$ 323,011	$ 123,631	$ (570)	$ 446,072
Costs and expenses
Cost of sales	-	265,769	91,249	(570)	356,448
Selling, general & administrative	3,412	58,715	19,895	-	82,022
Amortization of goodwill	184	3,159	659	-	4,002
	3,596	327,643	111,803	(570)	442,472

Operating income (loss)	(3,596)	(4,632)	11,828	-	3,600

Net interest expense	16,091	3,375	1,489	-	20,955
Investment (income) loss, net	-	(37,710)	-	-	(37,710)
Earnings (loss) before taxes	(19,687)	29,703	10,339	-	20,355

Income tax (provision) benefit	7,076	(10,678)	(3,714)	-	(7,316)
Equity in earnings of affiliates and subsidiaries	(3,517)	(284)	2,105	3,517	1,821
Minority interest	-	(2,090)	(24)	-	(2,114)
Earnings (loss) from continuing operations	(16,128)	16,651	8,706	3,517	12,746
Earnings (loss) from disposal of discontinued operations	-	-	(28,874)	-	(28,874)
Net earnings (loss)	$(16,128)	$ 16,651	$ (20,168)	$ 3,517	$ (16,128)

</TABLE>

<TABLE>

CONSOLIDATING BALANCE SHEET
June 30, 1999
	Parent Company	Guarantors	Non Guarantors	Eliminations	Fairchild Historical
<S>	<C>	<C>	<C>	<C>	<C>
Cash	$ 27	$ 41,793	$ 13,040	$ -	$ 54,860
Marketable securities	71	13,023	-	-	13,094
Accounts Receivable (including intercompany),less allowances	549	52,929	76,643	-	130,121
Inventory, net	(182)	145,080	45,341	-	190,239
Prepaid and other current assets	1,297	69,000	3,629	-	73,926
Total current assets	1,762	321,825	138,653	-	462,240

Investment in Subsidiaries	841,744	-	-	(841,744)	-
Net fixed assets	611	137,852	45,602	-	184,065
Net assets held for sale	-	21,245	-	-	21,245
Investments in affiliates	1,300	13,135	17,356	-	31,791
Goodwill	5,533	402,595	39,594	-	447,722
Deferred loan costs	13,029	26	22	-	13,077
Prepaid pension assets	-	63,958	-	-	63,958
Real estate investment	-	-	83,791	-	83,791
Long-term investments	-	15,844	-	-	15,844
Other assets	16,244	(11,865)	674	-	5,053
Total assets	$880,223	$ 964,615	$ 325,692	$ (841,744)	$ 1,328,786
Total assets
Bank notes payable & current maturities of debt	$ 2,250	$ 2,548	$ 24,062	$ -	$ 28,860
Accounts payable (including intercompany)	972	12,824	58,475	-	72,271
Other accrued expenses	7,272	99,669	14,195	-	121,136
Net current liabilities of discontinued operations	-	-	10,999	-	10,999
Total current liabilities	10,494	115,041	107,731	-	233,266
Total current liabilities
Long-term debt, less current maturities	480,850	9,908	4,525	-	495,283
Other long-term liabilities	405	18,138	7,361	-	25,904
Noncurrent income taxes	(19,026)	140,749	238	-	121,961
Retiree health care liabilities	-	40,189	4,624	-	44,813
Minority interest in subsidiaries	-	9	50	-	59
Total liabilities	472,723	324,034	124,529	-	921,286
Class A common stock	2,775	200	5,085	(5,085)	2,975
Class B common stock	262	-	-	-	262
Paid-in-capital	2,138	226,900	263,058	(263,058)	229,038
Retained earnings	477,191	413,483	(65,043)	(573,601)	252,030
Cumulative other comprehensive income	(764)	(2)	(1,937)	-	(2,703)
Treasury stock, at cost	(74,102)	-	-	-	(74,102)
Total stockholders' equity	407,500	640,581	201,163	(841,744)	407,500
Total liabilities & stockholders' equity	$880,223	$ 964,615	$ 325,692	$ (841,744)	$ 1,328,786

</TABLE>

<TABLE>

CONSOLIDATING STATEMENTS OF CASH FLOWS
For the Nine Months Ended
March 28, 1999
	Parent Company	Guarantors	Non Guarantors	Eliminations	Fairchild Historical
	Parent Company	Guarantors	Non Guarantors	Eliminations	Fairchild Historical
Cash Flows from Operating Activities:
<S>	<C>	<C>	<C>	<C>	<C>
Net earnings (loss)	$(16,128)	$ 16,651	$ (20,168)	$ 3,517	$ (16,128)
Depreciation and amortization	278	11,791	5,302	-	17,371
Amortization of deferred loan fees	888	-	-	-	888
Accretion of discount on long-term liabilities	-	3,854	-	-	3,854
Undistributed loss (earnings) of affiliates	-	488	2,888	-	3,376
Minority interest	-	1,364	750	-	2,114
Change in assets and liabilities	27,964	(48,047)	3,693	(3,517)	(19,907)
Non-cash charges and working capital changes of discontinued operations	-	-	12,445	-	12,445
Net cash (used for) provided by operating activities	13,002	(13,899)	4,910	-	4,013

Cash Flows from Investing Activities:
Net proceeds from (used for) investments	-	173,424	-	-	173,424
Purchase of property, plant and equipment	(37)	(10,361)	(8,296)	-	(18,694)
Net proceeds from divestiture of subsidiaries	-	60,397	-	-	60,397
Acquisition of subsidiaries, net of cash acquired	-	-	(3,940)	-	(3,940)
Proceeds from net assets held for sale	-	3,526	-	-	3,526
Real estate investment	-	-	(24,524)	-	(24,524)
Investing activities of discontinued operations	-	-	(542)	-	(542)
Other, net	-	283	-	-	283
Net cash (used for) provided by investing activities	(37)	227,269	(37,302)	-	189,930

Cash Flows from Financing Activities:
Proceeds from issuance of debt	17,000	63,127	-	-	80,127
Debt repayment and repurchase of debentures (including intercompany), net	(10,050)	(155,379)	29,860	-	(135,569)
Issuance of Class A common stock	154	(1)	-	-	153
Purchase of treasury stock	-	(22,101)	-	-	(22,101)
Financing activities of discontinued operations	-	-	30	-	30
Net cash (used for) provided by financing activities	7,104	(114,354)	29,890	-	(77,360)
Effect of exchange rate changes on cash	-	-	1,162	-	1,162
Net change in cash and cash equivalents	20,069	99,016	(1,340)	-	117,745
Cash and cash equivalents, beginning of the year	-	42,175	7,426	-	49,601
Cash and cash equivalents, end of the year	$ 20,069	$ 141,191	$ 6,086	$ -	$ 167,346

</TABLE>

SUBSEQUENT EVENTS

On April 13, 2000, we completed a spin-off to our stockholders of the shares of Fairchild (Bermuda) Ltd. On April 14, 2000, Fairchild (Bermuda) sold to Convac Technologies Ltd. the Optical Disc Equipment Group business formerly owned by Fairchild Technologies. Subsequently, on April 14, 2000, Fairchild (Bermuda), renamed Global Sources Ltd., completed an exchange of approximately 95% of its shares for 100% of the shares of Trade Media Holdings Limited, an Asian based, Business-to-Business online and traditional marketplace services provider. After the share exchange, our stockholders owned 1,183,081 shares of the 26,152,308 issued shares of Global Sources. Global Sources shares are listed on the NASDAQ under the symbol "GSOL".

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF

RESULTS OF OPERATIONS AND FINANCIAL CONDITION

The Fairchild Corporation was incorporated in October 1969, under the laws of the State of Delaware, under the name of Banner Industries, Inc. On November 15, 1990, we changed our name from Banner Industries, Inc. to The Fairchild Corporation. We are the owner of 100% of RHI Holdings, Inc. and Banner Aerospace, Inc. RHI is the owner of 100% of Fairchild Holding Corp. Our principal operations are conducted through Fairchild Holding and Banner Aerospace.

The following discussion and analysis provide information which management believes is relevant to assessment and understanding of our consolidated results of operations and financial condition. The discussion should be read in conjunction with the consolidated financial statements and notes thereto.

GENERAL

We are a leading worldwide aerospace and industrial fastener manufacturer and distribution logistics manager and, through Banner Aerospace, an international supplier to airlines and general aviation businesses, distributing a wide range of aircraft parts and related support services. Through internal growth and strategic acquisitions, we have become one of the leading suppliers of fasteners to aircraft OEMs, such as Boeing, Lockheed Martin, Northrop Grumman, and the Airbus consortium of Aerospatiale, DaimlerChrysler Aerospace, BAE Systems and CASA.

Our aerospace business consists of two segments: aerospace fasteners and aerospace distribution. The aerospace fasteners segment manufactures and markets high performance fastening systems used in the manufacture and maintenance of commercial and military aircraft. The aerospace distribution segment stocks and distributes a wide variety of aircraft parts to commercial airlines and air cargo carriers, fixed-base operators, corporate aircraft operators and other aerospace companies.

CAUTIONARY STATEMENT

Certain statements in this financial discussion and analysis by management contain certain "forward-looking statements", within the meaning of the Private Securities Litigation Reform Act of 1995, with respect to our financial condition, results of operation and business. These statements relate to analyses and other information which are based on forecasts of future results and estimates of amounts not yet determinable. These statements also relate to our future prospects, developments and business strategies. These forward-looking statements are identified by their use of terms and phrases such as ''anticipate,'' ''believe,'' ''could,'' ''estimate,'' ''expect,'' ''intend,'' ''may,'' ''plan,'' ''predict,'' ''project,'' ''will'' and similar terms and phrases, including references to assumptions. These forward-looking statements involve risks and uncertainties, including current trend information, projections for deliveries, backlog and other trend projections, that may cause our actual future activities and results of operations to be materially different from those suggested or described in this Quarterly Report on Form 10-Q. These risks include: product demand; our dependence on the aerospace industry; reliance on Boeing and the Airbus consortium of companies; customer satisfaction and quality issues; labor disputes; competition, including recent intense price competition; our ability to integrate and realize anticipated synergies relating to the acquisition of Kaynar Technologies Inc.; our ability to achieve and execute internal business plans; worldwide political instability and economic growth; and the impact of any economic downturns and inflation, including recent weaknesses in the currency, banking and equity markets of countries in South America and in the Asia/Pacific region.

If one or more of these risks or uncertainties materializes, or if underlying assumptions prove incorrect, our actual results may vary materially from those expected, estimated or projected. Given these uncertainties, users of the information included in this financial discussion and analysis by management, including investors and prospective investors are cautioned not to place undue reliance on such forward-looking statements. We do not intend to update the forward-looking statements contained in this Quarterly Report, even if new information, future events or other circumstances have made them incorrect or misleading.

RESULTS OF OPERATIONS

Business Transactions

The following summarizes certain business combinations and transactions which significantly affect the comparability of the period to period results presented in this Management's Discussion and Analysis of Results of Operations and Financial Condition.

Fiscal 2000 Transactions

On December 1, 1999, we disposed of substantially all of the assets and certain liabilities of our Dallas Aerospace subsidiary to United Technologies Inc. for approximately $57.0 million. No gain or loss was recognized from this transaction, as the proceeds received approximated the net carrying value of these assets. Approximately $37.0 million of the proceeds from this disposition will be used to reduce our term indebtedness.

Fiscal 1999 Transactions

On December 31, 1998, Banner Aerospace consummated the sale of Solair, Inc., its largest subsidiary in the rotables group of the aerospace distribution segment, to Kellstrom Industries, Inc., in exchange for approximately $60.4 million in cash and a warrant to purchase 300,000 shares of common stock of Kellstrom. In December 1998, Banner Aerospace recorded a $19.3 million pre-tax loss from the sale of Solair. This loss was included in cost of goods sold, as it was attributable primarily to the bulk sale of inventory at prices below its carrying amount.

On February 22, 1999, we used available cash to acquire 77.3% of SNEP S.A. By June 30, 1999, we had purchased substantially all of the remaining shares of SNEP. The total amount paid was approximately $8.0 million, including $1.1 million of debt assumed, in a business combination accounted for as a purchase. The total cost of the acquisition exceeded the fair value of the net assets of SNEP by approximately $4.3 million, which is being allocated as goodwill, and amortized over 40 years using the straight-line method. SNEP is a French manufacturer of precision machined self-locking nuts and special threaded fasteners serving the European industrial, aerospace and automotive markets.

On April 8, 1999, we acquired the remaining 15% of the outstanding common and preferred stock of Banner Aerospace, Inc. not already owned by us, through the merger of Banner Aerospace with one of our subsidiaries. Under the terms of the merger with Banner Aerospace, we issued 2,981,412 shares of our Class A common stock to acquire all of Banner Aerospace's common and preferred stock (other than those already owned by us). Banner Aerospace is now our wholly-owned subsidiary.

On April 20, 1999, we completed the acquisition of all the capital stock of Kaynar Technologies Inc. for approximately $222 million and assumed approximately $103 million of Kaynar Technologies debt, the majority of which was refinanced at closing. In addition, we paid $28 million for a covenant not to compete from the largest preferred shareholder of Kaynar Technologies. The total cost of the acquisition exceeded the fair value of the net assets of Kaynar Technologies by approximately $269.7 million, which is preliminarily being allocated as goodwill, and amortized over 40 years using the straight-line method. The acquisition was financed with existing cash, the sale of $225 million of 10 3/4% senior subordinated notes due 2009 and proceeds from a new bank credit facility.

On June 18, 1999, we completed the acquisition of Technico S.A. for approximately $4.1 million and assumed approximately $2.2 million of Technico's existing debt. The total cost of the acquisition exceeded the fair value of the net assets of Technico by approximately $2.9 million, which is preliminarily being allocated as goodwill, and amortized over 40 years using the straight-line method. The acquisition was financed with additional borrowings from our credit facility.

Consolidated Results

We currently report in two principal business segments: aerospace fasteners and aerospace distribution. The results of the Gas Springs division, prior to its disposition, were included in the Corporate and Other classification. The following table illustrates the historical sales and operating income of our operations for the three and nine months ended April 2, 2000 and March 28, 1999, respectively.

<TABLE>

Actual Segment Results

(In thousands)	Three Months Ended			Nine Months Ended
	4/2/2000	3/28/1999	4/2/2000		3/28/1999
<S>	<C>	<C>	<C>		<C>
Sales by Segment:
Aerospace Fasteners	$ 138,134	$ 103,749	$ 396,697		$ 303,071
Aerospace Distribution	19,895	41,082	77,346		138,448
Corporate and Other	-	1,521	739		4,553
TOTAL SALES	$ 158,029	$ 146,352	$ 474,782		$ 446,072
Operating Results by Segment:
Aerospace Fasteners (a)	$ 10,466	$ 10,913	$ 22,256		$ 29,390
Aerospace Distribution	1,652	2,289	5,991		(13,278)
Corporate and Other	(5,391)	(5,021)	(12,261)		(12,512)
OPERATING INCOME	$ 6,727	$ 8,181	$ 15,986		$ 3,600

(a) - Includes restructuring charges of $1.4 million and $7.5 million in the three and nine months ended April 2, 2000, respectively.

</TABLE>

The following table illustrates sales and operating income of our operations by segment, on an unaudited pro forma basis, for the three and nine months ended April 2, 2000 and March 28, 1999, respectively, as if we had operated in a consistent manner in each of the reported periods. The pro forma results represent the impact of our acquisition of Kaynar Technologies (April 1999), our merger with Banner Aerospace (April 1999), and our dispositions of Dallas Aerospace (December 1999) and Solair (December 1998), as if these transactions had occurred at the beginning of each of our fiscal periods. The pro forma information is based on the historical financial statements of these companies, giving effect to the aforementioned transactions. 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 fiscal 1999, nor are they necessarily indicative of our future results.

<TABLE>

Pro Forma Segment Results

(In thousands)	Three Months Ended			Nine Months Ended
	4/2/2000	3/28/1999	4/2/2000		3/28/1999
<S>	<C>	<C>	<C>		<C>
Sales by Segment:
Aerospace Fasteners	$ 138,134	$ 154,993	$ 396,697		$ 458,192
Aerospace Distribution	19,895	19,669	55,652		53,829
Corporate and Other	-	1,521	739		4,553
TOTAL SALES	$ 158,029	$ 176,183	$ 453,088		$ 516,574
Operating Results by Segment:
Aerospace Fasteners	$ 10,466	$ 14,757	$ 22,256		$ 44,502
Aerospace Distribution	1,652	304	3,913		1,737
Corporate and Other	(5,391)	(5,021)	(12,234)		(12,422)
OPERATING INCOME (LOSS)	$ 6,727	$ 10,040	$ 13,935		$ 33,817

</TABLE>

Net sales of $158.0 million in the third quarter of fiscal 2000 increased by $11.7 million, or 7.4%, compared to sales of $146.4 million in the third quarter of fiscal 1999. Net sales of $474.8 million in the first nine months of fiscal 2000 increased by $28.7 million, or 6.4%, compared to sales of $446.1 million in the first nine months of fiscal 1999. The improvement is attributable primarily to the additional revenues provided by the acquisition of Kaynar Technologies, offset partially from the dispositions of Solair and Dallas Aerospace. On a pro forma basis, net sales decreased 10.3% and 12.3% for the three and nine months ended April 2, 2000, respectively, compared to the same periods ended March 28, 1999, reflecting weakening demand for our products by domestic aerospace manufacturers and distributors.

Gross margin as a percentage of sales was 25.6% and 25.2% in the third quarter of fiscal 2000 and fiscal 1999, and 25.6% and 20.1% for the first nine months of fiscal 2000 and fiscal 1999, respectively. Included in cost of goods in the nine month period ended March 28, 1999, was a charge of $19.3 million that was recognized in the aerospace distribution segment from the bulk sale of inventory at prices below its carrying amount. Excluding this charge, gross margin as a percentage of sales would have been 24.4% in the nine months ended March 28, 1999. The higher margins in the fiscal 2000 period are attributable to cost improvement initiatives, offset partially by lower prices. In addition, our aerospace fasteners segment also benefited as a result of the acquisition of Kaynar Technologies and efficiencies achieved from the integration process of facilities.

Selling, general & administrative expense as a percentage of sales was 19.8% and 19.2% in the third quarter of fiscal 2000 and 1999, respectively, and 20.8% and 18.7% in the first nine months of fiscal 2000 and 1999, respectively. The increase is due primarily to our decision to maintain our sales and marketing infrastructure on lower sales volume.

Other income increased $8.2 million in the first nine months of fiscal 2000, compared to the first nine months of fiscal 1999. The increase is due primarily to $3.1 million of income recognized from the disposition of non-core property during the current period and a $2.8 million increase in rental income.

Operating income for the third quarter ended April 2, 2000 decreased by $1.5 million as compared to the same period of the prior year, due primarily to restructuring charges of $1.4 million recognized in the current quarter. Operating income for the nine months ended April 2, 2000 improved by $12.4 million as compared to the same period of the prior year. The increase in the current period is due primarily to a charge of $19.3 million that was recognized in December 1998, from the bulk sale of inventory at prices below carrying amount, offset partially by $7.5 million of restructuring charges recognized in the nine months ended April 2, 2000.

Net interest expense increased $13.5 million in the first nine months of fiscal 2000, compared to the first nine months of fiscal 1999. We expect the trend of reporting increased interest expense to continue throughout fiscal 2000, as a result of additional debt we incurred through financing the acquisition of Kaynar Technologies and the financing of our Farmingdale real estate as well as the increase in interest rates.

Investment income of $9.2 million and $37.7 million in the first nine months of fiscal 2000 and fiscal 1999, respectively, was due primarily to recognizing realized gains on investments liquidated. Investment income of $6.3 million and $36.9 million in the first three months of fiscal 2000 and fiscal 1999, respectively, was due primarily to recognizing realized gains on investments liquidated.

Nonrecurring income of $28.9 million in the nine months ended April 2, 2000 resulted from the disposition of two of our equity investments including Nacanco Paketleme, and the disposition of our Camloc Gas Springs division.

An income tax provision of $5.4 million in the first nine months of fiscal 2000 represented a 27.7% effective tax rate on pre-tax earnings from continuing operations. The tax provision was lower than the statutory rate resulting from lower tax rates in jurisdictions of some of our foreign operations.

Comprehensive income (loss) includes foreign currency translation adjustments and unrealized holding changes in the fair market value of available-for-sale investment securities. For the nine months ended April 2, 2000, foreign currency translation adjustments decreased by $6.7 million and the fair market value of unrealized holding gains on investment securities we own increased by $0.1 million.

Segment Results

Aerospace Fasteners Segment

Sales by our Aerospace Fasteners segment increased by $34.4 million, or 33.1%, in the third quarter of fiscal 2000 and $93.6 million, or 30.9%, in the first nine months of fiscal 2000, as compared to the same periods of fiscal 1999. These improvements reflected growth from acquisitions, offset partially by weakened demand for our products in the commercial aerospace industry. On April 2, 2000, backlog was $204 million compared to $220 million at June 30, 1999. On a pro forma basis, sales decreased by 13.4% in the first nine months of fiscal 2000, as compared to the same period of the prior year. Our operations in the United States continue to be negatively impacted by reduced bookings caused by inventory reduction efforts at Boeing and its ripple effect on prices.

Operating income decreased by $0.4 million and $7.1 million in the third quarter and first nine months of fiscal 2000, respectively, compared to the fiscal 1999 periods. Included in our current quarter and nine months results are restructuring charges incurred of $1.4 million and $7.5 million, respectively, due to the integration of Kaynar Technologies into our Aerospace Fasteners business. Excluding restructuring charges, operating income increased by $1.0 million and $0.3 million in the third quarter and first nine months of fiscal 2000, respectively, compared to the fiscal 1999 periods, reflecting cost improvement initiatives and acquisitions made during fiscal 1999, offset partially by reduced margins due to pricing pressures. Operating expenses continue to be reviewed at all operations as management attempts to reduce operating costs to improve margins in the short term, without adversely affecting operating income on a long term basis. On a pro forma basis and excluding restructuring charges, operating income decreased by $14.8 million for the nine months ended April 2, 2000, compared to the nine months ended March 28, 1999, due to lower sales levels associated with the weak commercial aerospace industry.

We believe the demand for aerospace fasteners in calendar 2000 will remain relatively stable in Europe and will continue to be soft in the United States commercial aerospace market. We anticipate that the negative impact on us of Boeing's inventory reduction program will diminish in the latter part of calendar 2000. We believe that the integration savings from the Kaynar merger and production efficiency improvements will partially offset the weakened demand for our products.

Aerospace Distribution Segment

Sales in our aerospace distribution segment decreased by $21.2 million, or 51.6%, in the third quarter and $61.1 million, or 44.1%, in the first nine months of fiscal 2000, compared to the fiscal 1999 periods. The decrease was due to the loss of revenues as a result of the disposition of Solair and Dallas Aerospace. On a pro forma basis, sales increased $1.8 million, or 3.4%, in the current nine-month period.

Operating income decreased by $0.6 million in the third quarter and increased by $19.3 million in the fiscal 2000 nine-month period, compared to the fiscal 1999 periods. Included in the prior year periods, was a charge of $19.3 million attributable to the bulk sale of Solair inventory at prices below the carrying amount of inventory. On a pro forma basis, operating income increased by $2.2 million in the first nine months ended April 2, 2000, compared to the first nine months ended March 28, 1999, reflecting increases in margins and a reduction in corporate overhead.

Corporate and Other

The Corporate and Other classification included the Camloc Gas Springs division, prior to its disposition, and corporate activities. The group reported a decrease in sales in the third quarter and first nine months of fiscal 2000, compared to the fiscal 1999 periods, as a result of the disposition of the Camloc Gas Springs division in September 1999. An operating loss of $12.3 million in the first nine months of fiscal 2000 was a $0.2 million improvement, compared to the operating loss of $12.5 million reported in the first nine months of fiscal 1999. The current period included other income of $9.0 million due primarily to income recognized from the disposition of non-core property and rental income earned at our shopping center in Farmingdale, New York.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

Total capitalization as of April 2, 2000 and June 30, 1999 amounted to $934.0 million and $931.6 million, respectively. The changes in capitalization included an increase of $7.7 million in equity due primarily to our reported net earnings, offset partially by a reduction in comprehensive income. Debt decreased by $5.4 million in the nine months ended April 2, 2000. This reflected a $37.5 million decrease in term loan borrowing with our primary lenders, as a result of the proceeds received from the divestiture of assets, offset partially by $30.8 million of cash borrowed from a new term loan facility used to support our operations and finance construction costs to complete a shopping center being developed in Farmingdale, New York.

We maintain a portfolio of investments classified primarily as available-for-sale securities, which had a fair market value of $25.9 million at April 2, 2000. The market value of these investments increased by $0.1 million in the nine months ended April 2, 2000. While there is risk associated with market fluctuations inherent in stock investments, and because our portfolio is not diversified, large swings in its value should be expected.

Net cash provided by (used for) operating activities for the nine months ended April 2, 2000 and March 28, 1999 was $(45.2) million and $4.0 million, respectively. The primary use of cash for operating activities in the first nine months of fiscal 2000 was a $28.2 million increase in inventories and a $17.9 million decrease in accounts payable and other accrued liabilities, offset partially by a $8.3 million decrease in accounts receivable. The primary use of cash for operating activities in the first nine months of fiscal 1999 was a $56.1 million decrease in accounts payable and accrued liabilities and a $31.4 million increase in other non-current assets, offset partially by a $50.5 million decrease in inventories and a $18.6 decrease in accounts receivable.

Net cash provided by investing activities for the nine months ended April 2, 2000 and March 28, 1999, amounted to $80.4 million and $189.9 million, respectively. In the first nine months of fiscal 2000, the primary source of cash from investing activities was $108.8 million of net proceeds received from the dispositions of Dallas Aerospace, Nacanco and the Camloc Gas Springs division and $13.6 million received from the sale of investments, offset partially by capital expenditures of $24.8 million and investments in real estate of $26.4 million. In the first nine months of fiscal 1999, the primary source of cash from investing activities was $173.4 million from the liquidation of investment securities and $60.4 million of gross proceeds received from disposition of Solair, Inc., partially offset by investments in real estate of $24.5 million and capital expenditures of $18.7 million.

Net cash used for financing activities for the nine months ended April 2, 2000 and March 28, 1999, was $3.5 million and $77.4 million, respectively. Cash used for financing activities in the first nine months of fiscal 2000 included debt repayment of $201.5 million and a $0.5 million purchase of treasury stock, offset partially by $198.2 million of proceeds from the issuance of debt and $0.3 million from the issuance of stock. Cash used for financing activities in the first nine months of fiscal 1999 included a $135.6 million repayment of debt and the $22.1 million purchase of treasury stock, offset partially by a $80.1 million net increase from the issuance of additional debt.

Our principal cash requirements include debt service, capital expenditures, acquisitions, real estate development, and payment of other liabilities. Other liabilities that require the use of cash include postretirement benefits, environmental investigation and remediation obligations, and litigation settlements and related costs. We expect that cash on hand, cash generated from operations, cash from borrowings and additional financing and asset sales will be adequate to satisfy our cash requirements in fiscal 2000.

Our credit agreement requires us to comply with financial covenants at the end of each quarter, including:

Maintaining an interest coverage ratio

Maintaining a minimum consolidated fixed charge coverage ratio

Maintaining a ratio of consolidated debt to earnings before interest, taxes, depreciation and amortization

Maintaining a ratio of senior debt to earnings before interest, taxes, depreciation and amortization

On April 2, 2000, we were in compliance with the credit agreement. Despite the recent downturn in the aerospace industry, we anticipate that we will be able to meet these covenant requirements for our fiscal year ending June 30, 2000, however there can be no assurance that we will be able to comply with these covenants in the future. Noncompliance with any of the financial covenants without cure or waiver would constitute an event of default under the credit agreement. An event of default resulting from a breach of a financial covenant can result, at the option of lenders holding a majority of the loans, in an acceleration of the principal and interest outstanding, and a termination of the revolving credit line.

Discontinued Operations

In 1998, we adopted a formal plan to dispose of Fairchild Technologies. Based on this plan, we have sold the Fairchild Technologies' businesses, including most of its intellectual property, through a series of transactions. On April 14, 1999, we disposed of Fairchild Technologies photoresist deep-ultraviolet track equipment machines, spare parts and testing equipment to Apex Co., Ltd. in exchange for 1,250,000 shares of Apex stock valued at approximately $5.1 million. On June 15, 1999, we received from Suess Microtec AG $7.9 million, and the right to receive 350,000 shares of Suess Microtec stock, or at least approximately $3.5 million, by September 2000 in exchange for certain inventory, fixed assets, and intellectual property of Fairchild Technologies' semiconductor equipment group. On May 1, 1999, we sold Fairchild CDI for a nominal amount. In July 1999, we received approximately $7.1 million from Novellus Systems, Inc. in exchange for Fairchild Technologies' Low-K dielectric product line and certain intellectual property. On April 14, 2000, we completed the disposition of Fairchild Technologies' optical disc equipment group to Convac Technologies Ltd. for a nominal amount (See Note 12).

As of April 2, 2000, we have a remaining accrual of $4.4 million, net of an income tax benefit of $3.2 million, for our current estimate of the remaining losses in connection with the disposition of Fairchild Technologies' businesses when the Optical Disc Equipment Group was sold to Convac Technologies. While we believe that $4.4 million is a reasonable estimate for the remaining losses to be incurred from Fairchild Technologies, this estimate may prove to be inadequate.

Spin-Off

Year 2000

To date, we have not experienced any material problems as a result of the Year 2000 turnover or in connection with the leap year date of February 29, 2000.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In June 1998, the FASB issued Statement of Financial Accounting Standards No. 133 "Accounting for Derivative Instruments and Hedging Activities." SFAS 133 establishes a new model for accounting for derivatives and hedging activities and supersedes and amends a number of existing accounting standards. It requires that all derivatives be recognized as assets and liabilities on the balance sheet and measured at fair value. The corresponding derivative gains or losses are reported based on the hedge relationship that exists, if any. Changes in the fair value of derivative instruments that are not designated as hedges or that do not meet the hedge accounting criteria in SFAS 133, are required to be reported in earnings. Most of the general qualifying criteria for hedge accounting under SFAS 133 were derived from, and are similar to, the existing qualifying criteria in SFAS 80 "Accounting for Futures Contracts." SFAS 133 describes three primary types of hedge relationships: fair value hedge, cash flow hedge, and foreign currency hedge. In June 1999, the FASB issued Statement of Financial Accounting Standards No. 137 to defer the required effective date of implementing SFAS 133, from fiscal years beginning after June 15, 1999 to fiscal years beginning after June 15, 2000. We will adopt SFAS 133 in fiscal 2001, and are currently evaluating the financial statement impact.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

The table below provides information about our derivative financial instruments and other financial instruments that are sensitive to changes in interest rates, which include interest rate swaps. For interest rate swaps, the table presents notional amounts and weighted average interest rates by expected (contractual) maturity dates. Notional amounts are used to calculate the contractual payments to be exchanged under the contract. Weighted average variable rates are based on implied forward rates in the yield curve at the reporting date.

(In thousands)

Expected Fiscal Year Maturity Date	2003	2008 (a)
Interest Rate Hedges:
Variable to Fixed	$30,750	$100,000
Average cap rate	11.625%	6.49%
Average floor rate	N/A	6.24%
Weighted average rate	10.39%	7.09%
Fair Market Value	$183	$(370)

(a) - On February 17, 2003, the bank with which we entered into the interest rate swap agreement will have a one-time option to elect to cancel this agreement.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

The information required to be disclosed under this Item is set forth in Footnote 10 (Contingencies) of the Consolidated Financial Statements (Unaudited) included in this Report.

Item 2. Changes in Securities and Use of Proceeds

Our stock option deferral plan allows officers and directors who are accredited investors to defer the gain upon exercise of stock options by receiving deferred compensation units instead of shares of stock. The deferred compensation units may be deemed securities issued by us. The shares issued to an officer or director upon expiration of the deferral period (in exchange for deferred compensation units) have been registered pursuant to a registration statement on form S-8. Under our stock option deferral plan, an aggregate of 2,940 deferred compensation units were issued in February 2000 to the following officers: John Flynn (630 deferred compensation units), Donald Miller (1,050 deferred compensation units), and Eric Steiner (1,260 deferred compensation units).

On February 23, 2000, we issued 63,300 restricted shares of Class A common stock as a result of a cashless exercise of 250,000 warrants. The warrants were originally issued in 1995 pursuant to a privately negotiated transactoin. The shares issued pursuant to the warrant are deemed to have been owned more than two years, and may be traded by the holder in compliance with Rule 144. The holder of the shares is not an officer, director or affiliate of the Company.

Item 5. Other Information

Articles have appeared in the French press reporting an inquiry by a French magistrate into certain allegedly improper business transactions involving Elf Acquitaine, a French petroleum company, its former chairman and various third parties. In connection with this inquiry, the magistrate has made inquiry into allegedly improper transactions between Mr. Steiner and that petroleum company. In response to the magistrate's request that Mr. Steiner appear in France as a witness, Mr. Steiner submitted written statements concerning the transactions and appeared in person before the magistrate and others. The magistrate has put Mr. Steiner under examination (mis en examen) with respect to this matter and imposed a surety (caution) of ten million French francs which has been paid. Mr. Steiner has not been charged.

Item 6. Exhibits and Reports on Form 8-K

Exhibits:

*3.1 Amendment to the Company's By-Laws, dated February 17, 2000, together with Charter for the Board's Audit Committee, adopted February 17, 2000.

*10.1 Amendment No. 2, dated as of March 10, 2000 to the Credit Agreement dated as of April 20, 1999.

*10.2 Mortgage and Security Agreement with Morgan Guaranty Trust Company of New York dated March 23, 2000.

*27 Financial Data Schedules.

* - Filed herewith

Reports on Form 8-K:

There were no reports filed on Form 8-K during the quarter ended April 2, 2000 for which this report is filed.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to the signed on its behalf by the undersigned hereunto duly authorized.

For THE FAIRCHILD CORPORATION

(Registrant) and as its Chief

Financial Officer:

By: Colin M. Cohen

Senior Vice President and

Chief Financial Officer

Date: May 15, 2000

EX-27 2
5 1000 6-MOS JUN-30-2000 APR-2-2000 85,605 13,164 126,160 4,427 184,877 470,039 320,869 138,997 1,319,643 205,627 489,581 0 0 3,268 411,923 1,319,643 474,782 484,423 353,261 468,437 0 0 34,447 19,544 5,422 13,652 0 0 0 13,652 0.54 0.54

EX-10 3 AMENDMENT NO

AMENDMENT NO. 2 and CONSENT

dated as of March 10, 2000
to

CREDIT AGREEMENT

Dated as of April 20, 1999

THIS AMENDMENT NO. 2 and Consent ("Amendment") is entered into as of March 10, 2000 by and among The Fairchild Corporation, a Delaware corporation (the "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 Borrower and the Lenders and Issuing Banks are parties to that certain Credit Agreement dated as of April 20, 1999, as heretofore amended (together with the Exhibits and Schedules thereto, the "Credit Agreement"), pursuant to which the Lenders and Issuing Banks have agreed to provide certain financial accommodations to the Borrower; and

WHEREAS, the Borrower has requested certain amendments to Section 8.06 and Section 10.01(f) of the Credit Agreement and the consent of the Requisite Lenders with respect to the proposed sale of certain Real Property located in Santa Ana, California;

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 March 10, 2000, upon satisfaction of the conditions precedent set forth in Section 3 below, the Credit Agreement is hereby amended as follows:

1.1 Section 1.01 is amended to (i) delete the definitions of "Farmingdale Property" and "Unrestricted Subsidiaries Net Investment Amount" in their entirety and substitute the following therefor:

"Farmingdale Property" means the Real Property located in Farmingdale, New York identified on Schedule 1.01.1 attached hereto and made a part hereof, and all improvements thereto or thereon.

"Unrestricted Subsidiaries Net Investment Amount" means, as of any date of determination, the amount equal to sum of (i) the aggregate principal amount of all intercompany loans made to, and Accommodation Obligations incurred for the benefit of, all Unrestricted Subsidiaries by the Borrower and its Restricted Subsidiaries (without duplication) during the period commencing on the Closing Date and ending on such date of determination, plus (ii) the aggregate amount of all capital contributions (whether made in cash or property valued at its Fair Market Value at the time of contribution) made, directly or indirectly, by the Borrower to all Unrestricted Subsidiaries during the period commencing on the Closing Date and ending on such date of determination minus (a) the aggregate amount of all repayments in cash of principal of such intercompany loans made and the aforesaid Accommodation Obligations released after the Closing Date through such date of determination, and (b) all returns on capital paid in cash after the Closing Date through such date of determination, in respect of such capital contributions; provided, however, that in the case of dividends paid by an Unrestricted Subsidiary, the amount of such dividends shall not be included in the aforesaid calculation if the same are, or have ever been, included in the determination of EBITDA as provided in the definition of such term. For purposes of the aforesaid calculation, (1) no loans or capital contributions to any Technologies Company or repayments of loans or returns on capital paid in cash by any Technologies Company shall in any event be included in such calculation and (2) the subject Unrestricted Subsidiaries shall include all Unrestricted Subsidiaries (other than Technologies Companies) as of the time of determination after giving effect to the designation specified in the notice delivered under Section 8.06.

and (ii) to add the following definitions:

"Amendment No. 2" means that certain Amendment No. 2 and Consent to this Agreement dated as of March 10, 2000.

"Net Cash Proceeds of Sale of the Farmingdale Property" means 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 of) the Farmingdale 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.

1.2 Section 4.01(b)(i)(B) is amended to delete the provisions thereof in their entirety and substitute the following therefor:

(B) The Borrower shall make or cause to be made a mandatory prepayment of the Obligations upon the Borrower's or any Subsidiary of the Borrower's receipt of (1) Net Cash Proceeds of Sale of Permitted Dispositions and Net Cash Proceeds of Sale of Banner Companies and/or (2) Net Cash Proceeds of Sale of the Farmingdale Property in an amount equal to (a) one hundred percent (100%) of the first $25,000,000 of Net Cash Proceeds of Sale of Permitted Dispositions, Net Cash Proceeds of Sale of Banner Companies and Net Cash Proceeds of Sale of the Farmingdale Property received and (b) fifty percent (50%) of the next $50,000,000 of Net Cash Proceeds of Sale of Permitted Dispositions, Net Cash Proceeds of Sale of Banner Companies received and Net Cash Proceeds of Sale of the Farmingdale Property.

1.3 Section 8.06 is amended to delete the provisions thereof in their entirety and substitute the following therefor:

8.06. Unrestricted Subsidiaries. The Borrower may designate, by written notice to the Collateral Agent, any of its Subsidiaries which is a Restricted Subsidiary, other than Kaynar, Banner and any Subsidiary which is part of the Operating Unit known as Fairchild Fasteners Group, as an Unrestricted Subsidiary at any time and from time to time; provided that at the time of such designation and after giving effect to the designation specified in such notice, (a) the Unrestricted Subsidiaries Net Investment Amount does not exceed $20,000,000 as of the date of any such designation, (b) no Event of Default or Potential Event of Default has occurred and is continuing unwaived, (c) on a pro forma basis, determined for the four (4) Fiscal Quarters immediately preceding the date of any such designation giving effect to such designation as though it had occurred on the first day of such four Fiscal Quarter period, no breach of any covenant included in Article XI would have occurred as evidenced by written confirmation of the calculation of the covenants included in Article XI for such period delivered to the Collateral Agent concurrent with the related notice of such designation, (d) the sum of (i) the amount of cash held by the Borrower and the Restricted Subsidiaries at such time after giving effect to such designation plus (ii) the amount of Availability at such time equals at least $25,000,000, (e) the Restricted Subsidiary the Borrower wishes to designate as an Unrestricted Subsidiary has no Subsidiary which is part of the Fairchild Fasteners Group Operating Unit or an Investment in a Person which is part of the Fairchild Fasteners Group Operating Unit and (f) the Collateral Agent has consented to such designation. For purposes of the aforesaid provisions, (A) the "date of designation" shall be deemed to be the date on which the Borrower's notice states that the subject Restricted Subsidiary shall become an Unrestricted Subsidiary and (B) no cash or Cash Equivalents on deposit in the Cash Collateral Account shall be included in the calculation described in clause (d) above. The designation of a Restricted Subsidiary as an Unrestricted Subsidiary as provided above shall have no retroactive effect on compliance with any provisions of this Agreement.

1.4 Section 10.01(f) is amended to delete the reference therein to "January 31, 2000" and substitute therefor "March 31, 2000".

1.5 Section 10.04 is amended to delete the provisions of clauses (d), (f), (j) and (k) thereof in their entirety and substitute the following therefor:

(d) Investments made on and after the effective date of Amendment No. 2 by the Borrower and Restricted Subsidiaries in connection with acquisitions of assets or equity Securities of any Person (other than the Technologies Companies) in an aggregate amount not to exceed $1,000,000 in cash or assumed Indebtedness; provided that:

(i) no Event of Default or Potential Event of Default has occurred and is continuing unwaived or, after giving effect to the making of any such Investment, no Potential Event of Default or Event of Default would occur and

(ii) on a pro forma basis, determined for the four (4) Fiscal Quarters immediately preceding any such Investment, giving effect to such Investment as though it occurred at the commencement of such four (4) Fiscal Quarter period, no breach of any covenant included in Article XI would have occurred;

(f) Intentionally omitted.

(j) Intentionally omitted.

(k) Investments in the form of capital contributions by the Borrower, directly or through Wholly-Owned Subsidiaries of the Borrower, in Banner Investments UK (i) in an amount not to exceed the Dollar equivalent of French Francs 910,000 in any calendar year for the express purpose of enabling Banner Investments UK to perform its obligations under the consulting agreement entered into by Banner Investments UK with Didier Beaupere in connection with the acquisition of SNEP S.A. and (ii) in addition to that permitted by clause (i) hereof, in an amount not to exceed $3,000,000 in the aggregate, in either instance, provided that no Event of Default shall have occurred and be continuing unwaived;

1.6 Section 10.07 is amended to add the following provision at the end thereof:

The Borrower shall not permit any Unrestricted Subsidiary which is an owner or operator of the Farmingdale Property to engage in any business other than that of owning, developing and operating such Farmingdale Property or Real Property adjacent thereto improved for use of a nature substantially similar to the Farmingdale Property.

1.7 Article X is amended to add the following provision as Section 10.16:

10.16. Net Cash Proceeds of Sale of the Farmingdale Property. The Borrower shall not, and shall not permit any of the Borrower's Subsidiaries to, use the Net Cash Proceeds of Sale of the Farmingdale Property for any purpose other than (a) to pay a dividend (directly or through intervening Subsidiaries) or repay intercompany Indebtedness owing to the Borrower or Restricted Subsidiaries to enable the Borrower to make the Designated Prepayment described in Section 4.01(b)(i)(B) upon receipt of Net Cash Proceeds of Sale of the Farmingdale Property, (b) to make Investments for the development and operation of the Farmingdale Property, and (c) to pay dividends (directly or through intervening Subsidiaries) to the Borrower or repay intercompany Indebtedness owing to the Borrower or Restricted Subsidiaries.

2. Consents.

2.1 The Collateral Agent hereby consents, subject to the satisfaction of the conditions set forth in Section 3 below, to the designation of Warthog, Inc. as an Unrestricted Subsidiary as of the date on which the Indebtedness permitted under Section 10.01(f) is incurred by Warthog, Inc., as the owner of the Farmingdale Property; provided that (i) a notice of designation of the Borrower in substantially the form attached hereto and made a part hereof and completed in all respects is delivered to the Collateral Agent on such date; (ii) all conditions set forth in Section 8.06 shall have been satisfied in full on such date of designation (i.e., the date on which Warthog, Inc. would become an Unrestricted Subsidiary as stated in such notice of designation) as provided therein and (iii) on the date on which Warthog, Inc. becomes an Unrestricted Subsidiary, it shall have paid a dividend in the amount of $15,000,000 to the Borrower and the Borrower shall have remitted the same to the Collateral Agent for application to the Revolving Credit Obligations outstanding on such date.

2.2 The Lenders a party hereto constituting at least the Requisite Lenders hereby consent to the sale by Fairchild Holding Corp. of the Real Property more particularly described on Schedule 1 attached hereto and made a part hereof; provided that (i) the gross cash consideration received in connection approximates $3,500,000, (ii) the Indebtedness owing by RHI Holdings, Inc. to Industrial Development Authority of the City of Santa Ana secured by such Real Property in the amount of $1,500,000 plus accrued and unpaid interest thereon is repaid in full from such cash consideration, and (iii) the balance of such cash consideration (including cash, equivalents readily convertible into cash, and such proceeds of any notes received as consideration or any other non-cash consideration), net of (a) the costs of sale, assignment or other disposition and (b) any income, franchise, transfer or other tax liability arising from such transaction, is remitted to the Collateral Agent for application as a Designated Prepayment to the Term Loan as provided in Section 4.01(b)(i)(A).

3. Conditions to Effectiveness. The provisions of this Amendment shall become effective as of March 10, 2000, upon receipt by the Collateral Agent, of (i) executed counterparts of this Amendment signed on behalf of the Borrower, the Requisite Lenders, and the Collateral Agent and (ii) a fee for the account of each Lender that executes and delivers this Amendment as and when aforesaid in an amount equal to 0.02% of the sum of such Lender's (a) Revolving Credit Commitment as of March 10, 2000 and (b) Term Loan outstanding as of March 10, 2000.

4. Representations, Warranties and Covenants.

4.1 The Borrower hereby represents and warrants that this Amendment and the Credit Agreement, as amended hereby, constitute the legal, valid and binding obligations of the Borrower and are enforceable against the Borrower in accordance with their terms.

4.2 The Borrower hereby represents and warrants 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 The 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 Collateral 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.

THE FAIRCHILD CORPORATION CITICORP USA, INC., as

a Lender and as Collateral Agent

Karen L. Schneckenburger Suzanne Crymes

Vice President & Treasurer Vice President

BOEING CAPITAL CORPORATION BANK OF AMERICA, N.A.

James C. Hammersmith Michael R. Heredia

Senior Documentation Officer Senior Vice President

CITIBANK, N.A. CREDIT SUISSE FIRST BOSTON

Claudio Phillips Bill O'Daly Kristin Lepri

Vice President/Managing Director Vice President Associate

CREDIT INDUSTRIEL ET CREDIT AGRICOLE INDOSUEZ

COMMERCIAL

Brian O'Leary Anthony Rock Richard Drennan Charles Hiatt

Vice President Vice President Vice President Vice President/Manager

SEQUILS 1, LTD. CRESCENT/MACH I PARTNERS, L.P.
Mark L. Gold Justin L. Driscoll Mark L. Gold

Managing Director Sr. Vice President Managing Director

FRANKLIN FLOATING RATE TRUST OPPENHEIMER SENIOR FLOATING

RATE FUND

Chauncy Lufkin David Foxhoven

Vice President A.V.P.

HIGHLAND CLO 1999-1 LTD. HIGHLAND LEGACY LIMITED

By___________________________ By____________________________

Name: Name:

Title: Title:

KZH WATERSIDE LLC KZH SHOSHONE LLC

Peter Chin Peter Chin

Authorized Agent Authorized Agent

MERRILL LYNCH PRIME RATE MERRILL LYNCH SENIOR FLOATING

PORTFOLIO RATE FUND, INC.

Colleen M. Cunniffe Colleen M. Cunniffe

Authorized Signatory Authorized Signatory

MERILL LYNCH SENIOR FLOATING MORGAN STANLEY DEAN WITTER

RATE FUND II, INC. PRIME INCOME TRUST

Colleen M. Cunniffe Peter Gewirtz

Authorized Signatory Vice President

NATEXIS BANK NUVEEN SENIOR FLOATING RATE FUND

Pieter J. van Tulder By_____________________________

VP and Manager Name:

Title:

Christian Dirringer

Assistant Vice President

OAK MOUNTAIN LIMITED PROVIDENT BANK OF MARYLAND

Kenneth G. Ostmann Jennifer L. Kissner

Vice President Commercial Banking Officer

RIGGS BANK

Douglas H. Klamfoth

Vice President

SENIOR DEBT PORTFOLIO SRV-HIGHLAND, INC.
By Boston Management and Research By Highland Capital Management, as

as Investment Adviser Investment Advisor

Payson F. Swaffield By:________________________________

Vice President Name:

Title:

THE FIRST NATIONAL BANK OF VAN KAMPEN SENIOR FLOATING

CHICAGO RATE FUND

By Van Kampen Investment Advisory Corp.

By___________________________ Darvin D. Pierce

Name: Vice President

Title:

VAN KAMPEN PRIME RATE INCOME VAN KAMPEN CLO II, LIMITED

TRUST By Van Kampen Management, Inc.,

By Van Kampen Investment Advisory Corp. as Collateral Manager

Darvin D. Pierce Darvin D. Pierce

Vice President Vice President

ATTACHMENT

to

Amendment No. 2 and Consent

dated as of March 10, 2000

Form of Notice of Designation

(Attached)

SCHEDULE 1

to

Amendment No. 2 and Consent

dated as of March 10, 2000

Real Estate Description

3130 W. Harvard Street, Santa Ana, California

Parcel 1: Lots 11 and 12 of Tract No. 3561, in the City of Santa Ana, County of Orange, State of California, as per map recorded in Book 142, Pages 27 to 29 inclusive of Miscellaneous Maps, in the Office of the County Recorder of said County.

Parcel 2: Parcel 3, in the City of Santa Ana, County of Orange, State of California, as shown on a Map filed in Book 64, Page 37 of Parcel Maps, in the Office of the County Recorder of said County.

EX-10 4

Loan No. V__04130

WARTHOG, INC.,

a Delaware corporation, as mortgagor

(Borrower)

to

MORGAN GUARANTY TRUST COMPANY OF NEW YORK,

a New York banking corporation, as mortgagee

(Lender)

MORTGAGE AND

SECURITY AGREEMENT

Dated: March 23, 2000

Location: Farmingdale, New York

County: Suffolk

Table of Contents

Page

ARTICLE 1 - GRANTS OF SECURITY 1

Section 1.1 Property Mortgaged 1

Section 1.2 Assignment of Rents 4

Section 1.3 Security agreement 4

Section 1.4 Pledge of Monies Held 4

ARTICLE 2 - DEBT AND OBLIGATIONS SECURED 5

Section 2.1 Debt 5

Section 2.2 Other Obligations 5

Section 2.3 Debt and Other Obligations 6

Section 2.4 Payments 6

ARTICLE 3 - BORROWER COVENANTS 6

Section 3.1 Incorporation by Reference 6

Section 3.2 Insurance 6

Section 3.3 Payment of Taxes. Etc. 12

Section 3.4 Condemnation 13

Section 3.5 Use and Maintenance of Property 14

Section 3.6 Waste 14

Section 3.7 Compliance with Laws; Alterations 15

Section 3.8 Books and Records. 15

Section 3.9 Payment for Labor and Materials 16

Section 3.10 Performance of Other Agreements 17

ARTICLE 4 - SPECIAL COVENANTS 17

Section 4.1 Property Use 17

Section 4.2 ERISA 17

Section 4.3 Single Purpose Entity 17

Section 4.4 Independent Director 20

ARTICLE 5 - REPRESENTATIONS AND WARRANTIES 20

Section 5.1 Borrower's Representations 21

Section 5.2 Warranty of Title. 21

Section 5.3 Status of Property 21

Section 5.4 No Foreign Person 22

Section 5.5 Separate Tax Lot 22

ARTICLE 6 - OBLIGATIONS AND RELIANCES 22

Section 6.1 Relationship of Borrower and Lender 22

Section 6.2 No Reliance on Lender 22

Section 6.3 No Lender Obligations. 23

Section 6.4 Reliance 23

ARTICLE 7 - FURTHER ASSURANCES 23

Section 7.1 Recording Fees 23

Section 7.2 Further acts 24

Section 7.3 Changes in Tax. Debt Credit and Documentary Stamp Laws. 24

Section 7.4 Confirmation Statement. 24

Section 7.5 Splitting of Security Instrument 25

Section 7.6 Replacement Documents. 25

ARTICLE 8 - DUE ON SALE/ENCUMBRANCE 26

Section 8.1 Lender Reliance. 26

Section 8.3 Excluded and Permitted Transfers. 27

Section 8.4 No Implied future Consent 28

Section 8.5 Costs of Consent 28

Section 8.6 Continuing Separateness Requirements 29

ARTICLE 9 - DEFAULT 29

Section 9.1 Events of Default. 29

Section 9.2 Default Interest 31

ARTICLE 10 - RIGHTS AND REMEDIES 31

Section 10.1 Remedies 31

Section 10.2 Right of Entry 38

ARTICLE 11 - INDEMNIFICATION; SUBROGATION 38

Section 11.1 General Indemnification. 38

Section 11.2 Environmental Indemnification 39

Section 11.3 Excluded Occurrences 42

Section 11.4 Duty to Defend and Attorneys and Other Fees and Expenses 42

Section 11.5 Survival of Indemnities 43

ARTICLE 12 - SECURITY AGREEMENT 43

Section 12.1 Security Agreement 43

ARTICLE 13 - WAIVERS 44

Section 13.1 Marshalling and Other Matters 44

Section 13.2 Waiver of Notice 44

Section 13.3 Sole Discretion of Lender 44

Section 13.4 Survival 44

Section 13.5 Waiver Of Trial By Jury. 45

Section 13.6 Waiver Of Automatic or Supplemental Stay. 45

ARTICLE 14 - NOTICES 46

Section 14.1 Notices 46

ARTICLE 15-APPLICABLE LAW 47

Section 15.1 Governing Law 47

Section 15.2 Usury Laws 47

Section 15.3 Provisions Subject To Applicable Law 47

ARTICLE 16 - SECONDARY MARKET 47

Section 16.1 Transfer of Loan 47

ARTICLE 17 - COSTS 48

Section 17.1 Performance at Borrower's Expense 48

Section 17.2 Attorneys' Fees for enforcement 48

ARTICLE 18 - DEFINITIONS 49

Section 18.1 General Definitions 49

ARTICLE 19 - MISCELLANEOUS PROVISIONS 49

Section 19.1 No Oral Change 49

Section 19.2 Liability 49

Section 19.3 Inapplicable Provisions 49

Section 19.4 Headings. Etc. 49

Section 19.5 Duplicate Originals; Counterparts 49

Section 19.6 Number and Gender 50

Section 19.7 Subrogation 50

Section 19.8 Entire Agreement 50

Section 19.9 Limitation on Liability 50

ARTICLE 20 - SPECIAL STATE OF NEW YORK PROVISIONS 50

20.1 Construction of Security Instrument 50

20.2 Remedies 50

20.3 Lien Law 50

20.4 Insurance 50

Index of Defined Terms

Page

"ADA" 14

"Applicable Laws" 14

"Attorneys' Fees" 45

"Attorneys" 36

"Bankruptcy Code" 2

"Borrower" 1, 45

"Business Day" 43

"Collateral" 39

"Counsel Fees" 45

"Debt" 5

"Default Rate" 29

"Enforcement" 7

"Environmental Indemnity" 6

"Environmental Law" 37

"Environmental Lien" 37

"ERISA" 16

"Escrow Agreement" 3

"Event of Default" 27

"Event" 44

"Exculpated Portion" 35

"Family Members" 26

"Fees and Expenses" 36

"Full Replacement Cost" 6

"Guarantor" 18

"Hazardous Substances" 37

"Improvements" 1

"Indemnified Parties" 38

"Indemnitor" 6

"Insurance Premiums" 9

"Insured Casualty" 10

"Intangibles" 3

"Investor" 44

"Land" 1

"Lease" 2

"Leases" 2

"Legal Fees" 45

"Lender" 1, 45

"Loan Documents" 6

"Loan" 26

"Losses" 38

"Note" 1, 45

"Obligations" 5

"Ordinance or Law Coverage 7

"Original Principal" 25

"Other Charges" 12

"Other Loan Documents" 6

"Other Obligations" 5

"Permitted Exceptions" 19

"Personal Property" 4

"Person" 45

"Policies" 8

"Policy" 8

"Property" 1, 45

"Qualified Insurer" 8

"Rating Agency" 44

"Release" 38

"Remediation" 38

"Rents" 2

"Securities" 44

"Security Instrument" 1

"Taxes" 12

"Uniform Commercial Code" 2

THIS MORTGAGE AND SECURITY AGREEMENT (this "Security Instrument") is made as of the 20^th day of March, 2000, by WARTHOG, INC., a Delaware corporation, having its principal place of business c/o The Fairchild Corporation, 45025 Aviation Drive, Suite 400, Dulles, Virginia 20166-7516, as mortgagor ("Borrower") to MORGAN GUARANTY TRUST COMPANY OF NEW YORK, a New York banking corporation, having its principal place of business at 60 Wall Street, New York, New York 10260-0060, as mortgagee ("Lender").

RECITALS:

Borrower, by its Promissory Note of even date herewith given to Lender, is indebted to Lender in the principal sum of $30,750,000.00 (the "Mortgage Amount") in lawful money of the United States of America (such Promissory Note, together with all extensions, renewals, modifications, substitutions and amendments thereof, shall collectively be referred to as the "Note"), with interest from the date thereof at the rates set forth in the Note, principal and interest to be payable in accordance with the terms and conditions provided in the Note.

Borrower desires to secure the payment of the Debt (as defined in Article 2) and the performance of all of its obligations under the Note and the Other Obligations (as defined in Article 2). Notwithstanding anything contained herein to the contrary, the maximum amount of principal indebtedness secured by this Security Instrument at execution or which under any contingency may become secured hereby is the Mortgage Amount, plus interest thereon and all additional interest and late payment and prepayment charges in respect thereof, plus all amounts expended by Lender following a default hereunder in respect of insurance premiums and real estate taxes, and all legal costs or expenses of collection of the debt secured hereby or of the defense or prosecution of the rights and lien created by this Security Instrument.

ARTICLE 1 - GRANTS OF SECURITY

Section 1.1 Property Mortgaged . Borrower does hereby irrevocably, unconditionally and absolutely mortgage, grant, bargain, sell, pledge, enfeoff, assign, warrant, transfer and convey to Lender (with power of sale), and does hereby grant a first priority security interest to Lender in, the following property, rights, interests and estates now owned, or hereafter acquired, by Borrower (collectively, the "Property"):

(a) Land. The real property situate in the County of Suffolk in the State of New York described in Exhibit A attached hereto and made a part hereof (collectively, the "Land"), together with additional lands, estates and development rights hereafter acquired by Borrower for use in connection with the development, ownership or occupancy of such real property, and all additional lands and estates therein which may, from time to time, by supplemental mortgage or otherwise be expressly made subject to the lien of this Security Instrument;

(b) Improvements. The buildings, structures, fixtures, additions, accessions, enlargements, extensions, modifications, repairs, replacements and improvements now or hereafter erected or located on the Land (the "Improvements");

(c) Easements. All easements, rights-of-way or use, rights, strips and gores of land, streets, ways, alleys, passages, sewer rights, water, water courses, water rights and powers, air rights and development rights, and all estates, rights, titles, interests, privileges, liberties, servitudes, tenements, hereditaments and appurtenances of any nature whatsoever, in any way now or hereafter belonging, relating or pertaining to the Land and the Improvements and the reversion and reversions, remainder and remainders, and all land lying in the bed of any street, road or avenue, opened or proposed, in front of or adjoining the Land, to the center line thereof and all the estates, rights, titles, interests, dower and rights of dower, courtesy and rights of courtesy, property, possession, claim and demand whatsoever, both at law and in equity, of Borrower of, in and to the Land and the Improvements and every part and parcel thereof, with the appurtenances thereto;

(d) Fixtures and Personal Property. All machinery, equipment, goods, inventory, consumer goods, fixtures (including, but not limited to, all heating, air conditioning, plumbing, lighting, communications and elevator fixtures) and other property of every kind and nature whatsoever owned by Borrower, or in which Borrower has or shall have an interest, now or hereafter located upon the Land and the Improvements, or appurtenant thereto, and usable in connection with the present or future use, maintenance, enjoyment, operation and occupancy of the Land and the Improvements and all building equipment, materials and supplies of any nature whatsoever owned by Borrower, or in which Borrower has or shall have an interest, now or hereafter located upon the Land and the Improvements, or appurtenant thereto, or usable in connection with the present or future operation and occupancy of the Land and the Improvements, and the right, title and interest of Borrower in and to any of the Personal Property (as hereinafter defined) which may be subject to any security interests, as defined in the Uniform Commercial Code, as adopted and enacted by the state or states where any of the Property is located (the "Uniform Commercial Code"), superior in lien to the lien of this Security Instrument and all proceeds and products of the above;

(e) Leases and Rents. All leases and other agreements affecting the use, enjoyment or occupancy of the Land and the Improvements heretofore or hereafter entered into, whether before or after the filing by or against Borrower of any petition for relief under 11 U.S.C. 101 et seq., as the same may be amended from time to time or any similar federal or state law (the "Bankruptcy Code") (individually, a "Lease"; collectively, the "Leases") and all right, title and interest of Borrower, its successors and assigns therein and thereunder, including, without limitation, cash or securities deposited thereunder to secure the performance by the lessees of their obligations thereunder and all rents (including all tenant security and other deposits), additional rents, revenues, issues and profits (including all oil and gas or other mineral royalties and bonuses) from the Land and the Improvements whether paid or accruing before or after the filing by or against Borrower of any petition for relief under the Bankruptcy Code (collectively the "Rents") and all proceeds from the sale or other disposition of the Leases and the right to receive and apply the Rents to the payment of the Debt;

(f) Condemnation Awards. All awards or payments, including interest thereon, which may heretofore or hereafter be made with respect to the Property, whether from the exercise of the right of eminent domain (including but not limited to any transfer made in lieu of or in anticipation of the exercise of the right), or for a change of grade, or for any other injury to or decrease in the value of the Property;

(g) Insurance Proceeds. All proceeds of and any unearned premiums on any insurance policies covering the Property, including, without limitation, the right to receive and apply the proceeds of any insurance, judgments, or settlements made in lieu thereof, for damage to the Property;

(h) Tax Certiorari. All refunds, rebates or credits in connection with a reduction in real estate taxes and assessments charged against the Property as a result of tax certiorari or any applications or proceedings for reduction;

(i) Conversion. All proceeds of the conversion, voluntary or involuntary, of any of the foregoing including without limitation, proceeds of insurance and condemnation awards, into cash or liquidation claims;

(j) Rights. The right, in the name and on behalf of Borrower, to appear in and defend any action or proceeding brought with respect to the Property and to commence any action or proceeding to protect the interest of Lender in the Property;

(k) Agreements. All agreements, contracts (including purchase, sale, option, right of first refusal and other contracts pertaining to the Property), certificates, instruments, franchises, permits, licenses, approvals, consents, plans, specifications and other documents, now or hereafter entered into, and all rights therein and thereto, respecting or pertaining to the use, occupation, construction, management or operation of the Property (including any Improvements or respecting any business or activity conducted on the Land and any part thereof) and all right, title and interest of Borrower therein and thereunder, including, without limitation, the right, upon the happening of any default hereunder, to receive and collect any sums payable to Borrower thereunder;

(1) Trademarks. All tradenames, trademarks, service marks, logos, copyrights, goodwill, books and records and all other general intangibles relating to or used in connection with the operation of the Property;

(m) Accounts. All accounts, accounts receivable, escrows (including, without limitation, all escrows, deposits, reserves and impounds established pursuant to that certain Escrow Agreement for Reserves and Impounds of even date herewith between Borrower and Lender; hereinafter, the "Escrow Agreement"), documents, instruments, chattel paper, claims, reserves (including deposits) representations, warranties and general intangibles, as one or more of the foregoing terms may be defined in the Uniform Commercial Code, and all contract rights, franchises, books, records, plans, specifications, permits, licenses (to the extent assignable), approvals, actions, chooses, claims, suits, proofs of claim in bankruptcy and causes of action which now or hereafter relate to, are derived from or are used in connection with the Property, or the use, operation, maintenance, occupancy or enjoyment thereof or the conduct of any business or activities thereon (hereinafter collectively called the "Intangibles"); and

(n) Other Rights. Any and all other rights of Borrower in and to the Property and any accessions, renewals, replacements and substitutions of all or any portion of the Property and all proceeds derived from the sale, transfer, assignment or financing of the Property or any portion thereof.

Section 1.2 Assignment of Rents . Borrower hereby absolutely and unconditionally assigns to Lender all of Borrower's right, title and interest in and to all current and future Leases and Rents; it being intended by Borrower that this assignment constitutes a present, absolute and unconditional assignment and not an assignment for additional security only. Unless provided to the contrary in the Cash Management Agreement between Borrower and Lender of even date herewith (the "Cash Management Agreement"), all payments due under the Leases shall be paid directly by the tenant thereunder to an account controlled by the Lender when such amounts are due and payable. All such payments received by Lender shall be applied as set forth in the Cash Management Agreement. The payment of amounts due under the Leases directly to an account controlled by Lender as required by the Cash Management Agreement, this Section 1.2 and the terms and conditions of that certain Assignment of Rents and Leases, of even date herewith between Borrower and Lender, shall not limit, reduce or otherwise affect Borrower's obligations to make payments of amounts due hereunder and under the other Loan Documents, if the amounts received by Lender are insufficient to make such payments.

Section 1.3 Security agreement . This Security Instrument is both a real property mortgage and a "security agreement" within the meaning of the Uniform Commercial Code. The Property includes both real and personal property and all other rights and interests, whether tangible or intangible in nature, of Borrower in the Property. For purposes of this Security Instrument, the Property identified in Subsections 1.1 (d) through 1.1 (n) inclusive, shall be collectively referred to herein as the "Personal Property". By executing and delivering this Security Instrument, Borrower hereby grants to Lender, as security for the Obligations (defined in Section 2.3), a first-priority security interest in the Personal Property.

Section 1.4 Pledge of Monies Held . Borrower hereby pledges to Lender any and all monies now or hereafter held by Lender, including, without limitation, any sums deposited in the Funds (as defined in the Escrow Agreement), all insurance proceeds described in Section 3.2 and condemnation awards or payments described in Section 3.4 as additional security for the Obligations until expended or applied as provided in this Security Instrument.

CONDITIONS TO GRANT

TO HAVE AND TO HOLD the above granted and described Property unto and to the use and benefit of Lender, and the successors and assigns of Lender, forever;

PROVIDED, HOWEVER, these presents are upon the express condition that, if Borrower shall well and truly pay to Lender the Debt at the time and in the manner provided in the Note and this Security Instrument, shall well and truly perform the Other Obligations as set forth in this Security Instrument and shall well and truly abide by and comply with each and every covenant and condition set forth herein and in the Note, these presents and the estate hereby granted shall cease, terminate and be void and shall be canceled of record at the request and expense of Borrower; provided however, that Borrower's obligation to indemnify and hold harmless Lender pursuant to the provisions hereof with respect to matters relating to any period of time during which this Security Instrument was in effect shall survive any such payment or release.

ARTICLE 2 - DEBT AND OBLIGATIONS SECURED

Section 2.1 Debt . This Security Instrument and the grants, assignments and transfers made in Article 1 are given for the purpose of securing the following in such order of priority as Lender may determine in its sole discretion (the "Debt"):

(a) the payment of the indebtedness evidenced by the Note in lawful money of the United States of America;

(b) the payment of interest, default interest, late charges and other sums, as provided in the Note, this Security Instrument or the Other Loan Documents (as hereinafter defined);

(c) the payment of all other moneys agreed or provided to be paid by Borrower in the Note, this Security Instrument or the Other Loan Documents;

(d) the payment of all sums advanced pursuant to this Security Instrument to protect and preserve the Property and the lien and the security interest created hereby, and

(e) the payment of any other sums advanced and costs and expenses incurred by Lender under the Note, this Security Instrument or any Other Loan Document in connection with the Debt or any part thereof, any renewal, extension, or change of or substitution for the Debt or any part thereof, or the acquisition or perfection of the security therefor, whether made or incurred at the request of Borrower or Lender.

Section 2.2 Other Obligations . This Security Instrument and the grants, assignments and transfers made in Article 1 are also given for the purpose of securing the following (the "Other Obligations"):

(a) the performance of all other obligations of Borrower contained herein;

(b) the performance of each obligation of Borrower contained in any other agreement given by Borrower to Lender which is for the purpose of further securing the obligations secured hereby, and any amendments, modifications and changes thereto; and

(c) the performance of each obligation of Borrower contained in any renewal, extension, amendment, modification, consolidation, change of, or substitution or replacement for, all or any part of the Note, this Security Instrument or the Other Loan Documents.

Section 2.3 Debt and Other Obligations . Borrower's obligations for the payment of the Debt and the performance of the Other Obligations shall be referred to collectively herein as the "Obligations".

Section 2.4 Payments . Unless payments are made in the required amount in immediately available funds at the place where the Note is payable, remittances in payment of all or any part of the Debt shall not, regardless of any receipt or credit issued therefor, constitute payment until the required amount is actually received by Lender in funds immediately available at the place where the Note is payable (or any other place as Lender, in Lender's sole discretion, may have established by delivery of written notice thereof to Borrower) and shall be made and accepted subject to the condition that any check or draft may be handled for collection in accordance with the practice of the collecting bank or banks. Acceptance by Lender of any payment in an amount less than the amount then due shall be deemed an acceptance on account only, and the failure to pay the entire amount then due shall be and continue to be an Event of Default (as hereinafter defined).

ARTICLE 3 - BORROWER COVENANTS

Borrower covenants and agrees that:

Section 3.1 Incorporation by Reference . All the covenants, conditions and agreements contained in (a) the Note, and (b) all and any of the documents other than the Note or this Security Instrument now or hereafter executed by Borrower and/or others and by or in favor of Lender in connection with the creation of the Obligations, the payment of any other sums owed by Borrower to Lender pursuant to the Obligations or the performance of any Obligations (collectively the "Other Loan Documents"), are hereby made a part of this Security Instrument to the same extent and with the same force as if fully set forth herein. The term "Loan Documents" as used herein shall individually and collectively refer to the Note, this Security Instrument and the Other Loan Documents; provided, however, that notwithstanding any provision of this Security Instrument to the contrary, the Obligations of Borrower and the indemnitor(s) under that certain Environmental Indemnity Agreement of even date herewith executed by Borrower, The Fairchild Corporation ("Indemnitor") in favor of Lender (the "Environmental Indemnity") shall not be deemed or construed to be secured by this Security Instrument or otherwise restricted or affected by the foreclosure of the lien hereof or any other exercise by Lender of its remedies hereunder or under any other Loan Document, such Environmental Indemnity being intended by the signatories thereto to be its (or their) unsecured obligation.

Section 3.2 Insurance .

(a) Borrower shall obtain and maintain, and shall pay all premiums in accordance with Subsection 3.2(b) below for, insurance for Borrower and the Property providing at least the following coverages:

(i) comprehensive all risk insurance (including without limitation, riot and civil commotion, vandalism, malicious mischief, water, fire, burglary and theft) on the Improvements and the Personal Property and in each case (A) in an amount equal to the lesser of the principal balance of the Note or 100% of the "Full Replacement Cost", which for purposes of this Security Instrument shall mean actual replacement value (exclusive of costs of excavations, foundations, underground utilities and footings) with a waiver of depreciation; (B) containing an agreed amount endorsement with respect to the Improvements and Personal Property waiving all co-insurance provisions; (C) providing that the deductible shall not exceed the lesser of $10,000.00 or one percent (1%) of the face value of the policy; and (D) containing Demolition Costs, Increased Cost of Construction and "Ordinance or Law Coverage" or "Enforcement" endorsements if any of the Improvements or the use of the Property shall at any time constitute legal non-conforming structures or uses or the ability to rebuild the Improvements is restricted or prohibited. The Full Replacement Cost may be redetermined from time to time by an appraiser or contractor designated and paid by Lender or by an engineer or appraiser in the regular employ of the insurer. No omission on the part of Lender to request any such appraisals shall relieve Borrower of any of its obligations under this Subsection;

(ii) comprehensive general liability insurance against claims for personal injury, bodily injury, death or property damage occurring upon, in or about the Property, such insurance (A) to be on the so-called "occurrence" form with a combined single limit of not less than $1,000,000 (or $3,000,000 for properties with elevators and $2,000,000 of liquor license insurance for properties where operations thereon require a liquor license); (B) to continue at not less than the aforesaid limit until required to be changed by Lender in writing by reason of changed economic conditions making such protection inadequate; (C) to cover at least the following hazards: (1) premises and operations; (2) products and completed operations on an "if any" basis; (3) independent contractors; (4) blanket contractual liability for all written and oral contracts; (5) contractual liability covering the indemnities contained in Article 11 hereof to the extent the same is available; and (D) to be without deductible;

(iii) business income insurance (A) with loss payable to Lender; (B) covering losses of income and Rents derived from the Property and any non-insured property on or adjacent to the Property resulting from any risk or casualty whatsoever; (C) containing an extended period of indemnity endorsement which provides that after the physical loss to the Improvements and Personal Property has been repaired, the continued loss of income will be insured until such income either returns to the same level it was at prior to the loss, or the expiration of twelve (12) months from the date of the loss, whichever first occurs, and notwithstanding that the policy may expire prior to the end of such period; and (D) in an amount equal to 100% of the projected gross income from the Property for a period of twelve (12) months. The amount of such business income insurance shall be determined by Lender prior to the date hereof and at least once each year thereafter based on Borrower's reasonable estimate of the gross income from the Property for the succeeding twelve (12) month period. All insurance proceeds payable to Lender pursuant to this Subsection 3.2(a) shall be held by Lender and shall be applied to the obligations secured hereunder from time to time due and payable hereunder and under the Note; provided; however, that nothing herein contained shall be deemed to relieve Borrower of its obligations to pay the obligations secured hereunder on the respective dates of payment provided for in the Note except to the extent such amounts are actually paid out of the proceeds of such business income insurance;

(iv) at all times during which structural construction, repairs or alterations are being made with respect to the Improvements: (A) owner's contingent or protective liability insurance covering claims not covered by or under the terms or provisions of the above mentioned commercial general liability insurance policy; and (B) the insurance provided for in Subsection 3.2(a)(i) written in a so-called builder's risk completed value form (1) on a non-reporting basis, (2) against all risks insured against pursuant to Subsection 3.2(a)(i), (3), including permission to occupy the Property, and (4) with an agreed amount endorsement waiving co-insurance provisions;

(v) workers' compensation, subject to the statutory limits of the state in which the Property is located, and employer's liability insurance with a limit of at least $1,000,000.00 per accident and per disease per employee, and $1,000,000.00 for disease aggregate in respect of any work or operations on or about the Property, or in connection with the Property or its operation (if applicable);

(vi) if required by Lender, and if available in the area where the Property is located, earthquake or sinkhole insurance in the amount reasonably required by Lender (lender acknowledging that earthquake insurance will only be required where the "probable maximum loss" is 20% or greater);

(vii) comprehensive boiler and machinery insurance (without exclusion for explosion), if applicable, in amounts as shall be reasonably required by Lender and covering all boilers or other pressure vessels, machinery and equipment located at or about the Property (including, without limitation, electrical equipment, sprinkler systems, heating and air conditioning equipment, refrigeration equipment and piping);

(viii) flood hazard insurance if any portion of the Improvements is currently or at any time in the future located in a federally designated "special flood hazard area," flood hazard insurance in an amount equal to the lesser of (a) the outstanding principal balance of the Note, (b) the Full Replacement Cost, or (c) the maximum amount of such insurance available under the National Flood Insurance Act of 1968, the Flood Disaster Protection Act of 1973 or the National Flood Insurance Reform Act of 1994, as each may be amended;

(ix) in the event the credit rating of Home Depot U.S.A., Inc. or any successor or assign under that certain Ground Lease of a portion of the Land dated August 11, 1998, falls below BBB or a comparable rating by any nationally recognized rating agency, Borrower shall obtain and maintain insurance complying with the requirements of subsection (i) of this Section 3.2(a) on any buildings, improvements and structures located on the parcel described in such ground lease; and

(x) such other insurance and in such amounts as Lender from time to time may reasonably request against such other insurable hazards which at the time are commonly insured against for property similar to the Property located in or around the region in which the Property is located, including without limitation, earthquake insurance (in the event the Property is located in an area with a high degree of seismic activity), mine subsidence insurance and environmental insurance.

(b) All insurance provided for in Subsection 3.2(a) hereof shall be obtained under valid and enforceable policies (the "Policies" or in the singular, the "Policy"), in such forms and, from time to time after the date hereof, in such amounts as may from time to time be satisfactory to Lender, issued by financially sound and responsible insurance companies authorized to do business in the state in which the Property is located as admitted or unadmitted carriers which, in either case, have been approved by Lender and which have a general policy rating of A- or better and a financial class of VIII or better by A.M. Best Co. or claims paying ability rating of A or better issued by Standard & Poor's Ratings Group (each such insurer shall be referred to below as a "Qualified Insurer"). Such Policies shall not be subject to invalidation due to the use or occupancy of the Property for purposes more hazardous than the use of the Property at the time such Policies were issued. Not less than thirty (30) days prior to the expiration dates of the Policies theretofore furnished to Lender pursuant to Subsection 3.2(a), certified copies of the Policies marked "premium paid" or accompanied by evidence satisfactory to Lender of payment of the premiums due thereunder (the "Insurance Premiums"), shall be delivered by Borrower to Lender; provided, however, that in the case of renewal Policies, Borrower may furnish Lender with binders therefor to be followed by the original Policies when issued.

(c) Borrower shall not obtain (i) separate insurance concurrent in form or contributing in the event of loss with that required in Subsection 3.2(a) to be furnished by, or which may be reasonably required to be furnished by, Borrower, or (ii) any umbrella or blanket liability or casualty Policy unless, in each case, Lender's interest is included therein as provided in this Security Instrument and such Policy is issued by a Qualified Insurer. If Borrower obtains separate insurance or an umbrella or a blanket Policy, Borrower shall notify Lender of the same and shall cause certified copies of each Policy to be delivered as required in Subsection 3.2(a). Any blanket insurance Policy shall specifically allocate to the Property the amount of coverage from time to time required hereunder and shall otherwise provide the same protection as would a separate Policy insuring only the Property in compliance with the provisions of Subsection 3.2(a).

(d) All Policies of insurance provided for or contemplated by Subsection 3.2(a) shall name Lender, its successors and assigns, including any servicers, trustees or other designees of Lender, and Borrower as the insured or additional insured, as their respective interests may appear, and in the case of property damage, boiler and machinery, and flood insurance, shall contain a so-called New York standard non-contributing Lender clause in favor of Lender providing that the loss thereunder shall be payable to Lender.

(e) All Policies of insurance provided for in Subsection 3.2(a) shall contain clauses or endorsements to the effect that:

(i) no act or negligence of Borrower, or anyone acting for Borrower, or of any tenant under any Lease or other occupant, or failure to comply with the provisions of any Policy which might otherwise result in a forfeiture of the insurance or any part thereof, shall in any way affect the validity or enforceability of the insurance insofar as Lender is concerned;

(ii) the Policy shall not be materially changed (other than to increase the coverage provided on the Property thereby) or canceled without at least thirty (30) days' prior written notice to Lender and any other party named therein as an insured;

(iii) each Policy shall provide that the issuers thereof shall give written notice to Lender if the Policy has not been renewed thirty (30) days prior to its expiration; and

(iv) Lender shall not be liable for any Insurance Premiums thereon or subject to any assessments thereunder.

(f) Borrower shall furnish to Lender within ten (10) calendar days after Lender's request therefor, a statement certified by Borrower or a duly authorized officer of Borrower of the amounts of insurance maintained in compliance herewith, of the risks covered by such insurance and of the insurance company or companies which carry such insurance and, if requested by Lender, verification of the adequacy of such insurance by an independent insurance broker or appraiser acceptable to Lender.

(g) If at any time Lender is not in receipt of written evidence that all insurance required hereunder is in full force and effect, Lender shall have the right but not the obligation, without notice to Borrower in the event that any such insurance would, in Lender's sole judgment, lapse or be materially reduced within the next ten (10) Business Days, or upon two (2) Business Days prior written notice to Borrower if Lender determines that such insurance would not lapse or be materially reduced within the next ten (10) Business Days, to take such action as Lender deems necessary to protect its interest in the Property, including, without limitation, the obtaining of such insurance coverage as Lender in its sole discretion deems appropriate, and all expenses incurred by Lender in connection with such action or in obtaining such insurance and keeping it in effect shall be paid by Borrower to Lender upon demand and until paid shall be secured by this Security Instrument and shall bear interest at the Default Rate (as hereinafter defined).

(h) If the Property shall be damaged or destroyed, in whole or in part, by fire or other casualty, Borrower shall give prompt notice thereof to Lender.

(i) In case of loss covered by Policies, Lender may either (1) settle and adjust any claim without the consent of Borrower, or (2) allow Borrower to agree with the insurance company or companies on the amount to be paid upon the loss; provided that Borrower may adjust losses aggregating not in excess of $500,000.00 if such adjustment is carried out in a competent and timely manner, and provided that in any case Lender shall and is hereby authorized to collect and receive any such insurance proceeds; and the expenses incurred by Lender in the adjustment and collection of insurance proceeds shall become part of the Debt and be secured hereby and shall be reimbursed by Borrower to Lender upon demand (unless deducted by and reimbursed to Lender from such proceeds).

(ii) In the event of any insured damage to or destruction of the Property or any part thereof (herein called an "Insured Casualty"), if (A) in the reasonable judgment of Lender, the Property can be restored by the earlier of (x) six (6) months after insurance proceeds are made available or (y) the Maturity Date under and as defined in the Note, to an economic unit not less valuable (including an assessment by Lender of the impact of the termination of any Leases due to such Insured Casualty) and not less useful than the same was prior to the Insured Casualty, and after such restoration will adequately secure the outstanding balance of the Debt, and (B) no Event of Default (hereinafter defined) shall have occurred and be then continuing, then the proceeds of insurance shall be applied to reimburse Borrower for the cost of restoring, repairing, replacing or rebuilding the Property or part thereof subject to Insured Casualty, as provided below; and Borrower hereby covenants and agrees forthwith to commence and diligently to prosecute such restoring, repairing, replacing or rebuilding; provided, however, in any event Borrower shall pay all costs (and if required by Lender, Borrower shall deposit the total thereof with Lender in advance) of such restoring, repairing, replacing or rebuilding in excess of the net proceeds of insurance made available pursuant to the terms hereof.

(iii) Except as provided above, the proceeds of insurance collected upon any Insured Casualty shall, at the option of Lender in its sole discretion, be applied to the payment of the Debt or applied to reimburse Borrower for the cost of restoring, repairing, replacing or rebuilding the Property or part thereof subject to the Insured Casualty, in the manner set forth below. Any such application to the Debt shall not be considered a voluntary prepayment requiring payment of the prepayment consideration provided in the Note, and shall not reduce or postpone any payments otherwise required pursuant to the Note, other than the final payment on the Note.

(iv) If proceeds of insurance, if any, are made available to Borrower for the restoring, repairing, replacing or rebuilding of the Property, Borrower hereby covenants to restore, repair, replace or rebuild the same to be of at least equal value and of substantially the same character as prior to such damage or destruction, all to be effected in accordance with applicable law and plans and specifications approved in advance by Lender.

(v) If Borrower is entitled to reimbursement out of insurance proceeds held by Lender, such proceeds shall be disbursed from time to time upon Lender being furnished with (1) evidence reasonably satisfactory to it (which evidence may include inspections of the work performed) that the restoration, repair, replacement and rebuilding covered by the disbursement has been completed in accordance with plans and specifications approved by Lender, (2) evidence reasonably satisfactory to it of the estimated cost of completion of the restoration, repair, replacement and rebuilding (3) funds, or, at Lender's option, assurances reasonably satisfactory to Lender that such funds are available, sufficient in addition to the proceeds of insurance to complete the proposed restoration, repair, replacement and rebuilding, and (4) such architect's certificates, waivers of lien, contractor's sworn statements, title insurance endorsements, bonds, plats of survey and such other evidences of cost, payment and performance as Lender may reasonably require and approve; and Lender may, in any event, require that all plans and specifications for such restoration, repair, replacement and rebuilding be submitted to and approved by Lender prior to commencement of work. With respect to disbursements to be made by Lender: (A) no payment made prior to the final completion of the restoration, repair, replacement and rebuilding shall exceed ninety percent (90%) of the value of the work performed from time to time; (B) funds other than proceeds of insurance shall be disbursed prior to disbursement of such proceeds; and (C) at all times, the undisbursed balance of such proceeds remaining in the hands of Lender, together with funds deposited for that purpose or irrevocably committed to the satisfaction of Lender by or on behalf of Borrower for that purpose, shall be at least sufficient in the reasonable judgment of Lender to pay for the cost of completion of the restoration, repair, replacement or rebuilding, free and clear of all liens or claims for lien and the costs described in Subsection 3.2(h)(vi) below. Any surplus which may remain out of insurance proceeds held by Lender after payment of such costs of restoration, repair, replacement or rebuilding shall be paid to any party entitled thereto. In no event shall Lender assume any duty or obligation for the adequacy, form or content of any such plans and specifications, nor for the performance, quality or workmanship of any restoration, repair, replacement and rebuilding.

(vi) Notwithstanding anything to the contrary contained herein, the proceeds of insurance reimbursed to Borrower in accordance with the terms and provisions of this Security Instrument shall be reduced by the reasonable costs (if any) incurred by Lender in the adjustment and collection thereof and in the reasonable costs incurred by Lender of paying out such proceeds (including, without limitation, reasonable attorneys' fees and costs paid to third parties for inspecting the restoration, repair, replacement and rebuilding and reviewing the plans and specifications therefor). Lender shall endeavor, but shall be under no obligation, to consult with Borrower in order minimize duplication of costs and efforts between Borrower and Lender in connection with the adjustment and collection of any such claim.

Section 3.3 Payment of Taxes. Etc.

(a) Borrower shall pay all taxes, assessments, water rates, sewer rents, governmental impositions, and other charges, including without limitation, vault charges and license fees for the use of vaults, chutes and similar areas adjoining the Land, now or hereafter levied or assessed or imposed against the Property or any part thereof (the "Taxes"), all ground rents, maintenance charges and similar charges, now or hereafter levied or assessed or imposed against the Property or any part thereof (the "Other Charges"), and all charges for utility services provided to the Property as same become due and payable. Borrower will deliver to Lender, promptly upon Lender's request, evidence satisfactory to Lender that the Taxes, Other Charges and utility service charges have been so paid or are not then delinquent. Borrower shall not allow and shall promptly cause to be paid and discharged any lien or charge whatsoever which may be or become a lien or charge against the Property. Except to the extent sums sufficient to pay all Taxes and Other Charges have been deposited with Lender in accordance with the terms of this Security Instrument, Borrower shall furnish to Lender paid receipts for the payment of the Taxes and Other Charges prior to the date the same shall become delinquent.

(b) After prior written notice to Lender, Borrower, at its own expense, may contest by appropriate legal proceeding, promptly initiated and conducted in good faith and with due diligence, the amount or validity or application in whole or in part of any of the Taxes, provided that (i) no Event of Default has occurred and is continuing under the Note, this Security Instrument or any of the Other Loan Documents, (ii) Borrower is permitted to do so under the provisions of any other mortgage, deed of trust or deed to secure debt affecting the Property, (iii) such proceeding shall suspend the collection of the Taxes from Borrower and from the Property or Borrower shall have paid all of the Taxes under protest, (iv) such proceeding shall be permitted under and be conducted in accordance with the provisions of any other instrument to which Borrower is subject and shall not constitute a default thereunder, (v) neither the Property nor any part thereof or interest therein will be in danger of being sold, forfeited, terminated, canceled or lost, (vi) Borrower shall have set aside and deposited with Lender adequate reserves (which may be in the form of a bond) for the payment of the Taxes, together with all interest and penalties thereon, unless Borrower has paid all of the Taxes under protest, and (vii) Borrower shall have furnished the security as may be required in the proceeding, or as may be requested by Lender to insure the payment of any contested Taxes, together with all interest and penalties thereon.

Section 3.4 Condemnation . Borrower shall promptly give Lender notice of the actual or threatened commencement of any condemnation or eminent domain proceeding and shall deliver to Lender copies of any and all papers served in connection with such proceedings. Lender is hereby irrevocably appointed as Borrower's attorney-in-fact, coupled with an interest, with exclusive power to collect, receive and retain any award or payment for said condemnation or eminent domain and to make any compromise or settlement in connection with such proceeding, subject to the provisions of this Security Instrument. Notwithstanding the foregoing, provided no Event of Default is continuing, Borrower shall have the right to compromise and settle any such proceeding so long as the portion of the Property affected by such proceeding (i) is unimproved, (ii) does not exceed five percent (5%) of the gross area of the Property and (iii) does not affect ingress to, egress from or the number of parking spaces located in, the Property. Any settlement or compromise under the preceding sentence shall be subject to Lender's approval, which approval shall not be unreasonably withheld or delayed. Notwithstanding any taking by any public or quasi-public authority through eminent domain or otherwise (including but not limited to any transfer made in lieu of or in anticipation of the exercise of such taking), Borrower shall continue to pay the Debt at the time and in the manner provided for its payment in the Note and in this Security Instrument and the Debt shall not be reduced until any award or payment therefor shall have been actually received and applied by Lender, after the deduction of expenses of collection, to the reduction or discharge of the Debt. Lender shall not be limited to the interest paid on the award by the condemning authority but shall be entitled to receive out of the award interest at the rate or rates provided herein or in the Note. Borrower shall cause the award or payment made in any condemnation or eminent domain proceeding, which is payable to Borrower, to be paid directly to Lender. Lender may apply any award or payment to the reduction or discharge of the Debt whether or not then due and payable (such application to be free from any prepayment consideration provided in the Note, except that if an Event of Default, or an event which with notice and/or the passage of time, or both, would constitute an Event of Default, has occurred, then such application shall be subject to the full prepayment consideration computed in accordance with the Note). If the Property is sold, through foreclosure or otherwise, prior to the receipt by Lender of the award or payment, Lender shall have the right, whether or not a deficiency judgment on the Note shall have been sought, recovered or denied, to receive the award or payment, or a portion thereof sufficient to pay the Debt.

Section 3.5 Use and Maintenance of Property . Borrower shall cause the Property to be maintained and operated in a good and safe condition and repair and in keeping with the condition and repair of properties of a similar use, value, age, nature and construction. Borrower shall not use, maintain or operate the Property in any manner which constitutes a public or private nuisance or which makes void, voidable, or cancelable, or increases the premium of, any insurance then in force with respect thereto. The Improvements and the Personal Property shall not be removed, demolished or materially altered (except for normal replacement of the Personal Property with items of the same utility and of equal or greater value) without the prior written consent of Lender. Borrower shall promptly repair, replace or rebuild any part of the Property which may be destroyed by any casualty, or become damaged, worn or dilapidated or which may be affected by any proceeding of the character referred to in Section 3.4 hereof and shall complete and pay for any structure at any time in the process of construction or repair on the Land. Borrower shall not initiate, join in, acquiesce in, or consent to any change in any private restrictive covenant, zoning law or other public or private restriction, limiting or defining the uses which may be made of the Property or any part thereof. If under applicable zoning provisions the use of all or any portion of the Property is or shall become a nonconforming use, Borrower will not cause or permit the nonconforming use to be discontinued or abandoned without the express written consent of Lender. Borrower shall not take any steps whatsoever to convert the Property, or any portion thereof, to a condominium or cooperative form of management.

Section 3.6 Waste . Borrower shall not commit or suffer any waste of the Property or, without first obtaining such additional insurance as may be necessary to cover a proposed change in use of the Property, make any change in the use of the Property which will in any way materially increase the risk of fire or other hazard arising out of the operation of the Property, or take any action that might invalidate or give cause for cancellation of any Policy, or do or permit to be done thereon anything that may in any way impair the value of the Property or the security of this Security Instrument. Borrower will not, without the prior written consent of Lender, permit any drilling or exploration for or extraction, removal, or production of any minerals from the surface or the subsurface of the Land, regardless of the depth thereof or the method of mining or extraction thereof.

Section 3.7 Compliance with Laws; Alterations .

(a) Borrower shall promptly comply with all existing and future federal, state and local laws, orders, ordinances, governmental rules and regulations or court orders affecting or which may be interpreted to affect the Property, or the use thereof, including, but not limited to, the Americans with Disabilities Act (the "ADA") (collectively "Applicable Laws").

(b) Notwithstanding any provisions set forth herein or in any document regarding Lender's approval of alterations of the Property, Borrower shall not alter the Property in any manner which would increase Borrower's responsibilities for compliance with Applicable Laws without the prior written approval of Lender. Lender's approval of the plans, specifications, or working drawings for alterations of the Property shall create no responsibility or liability on behalf of Lender for their completeness, design, sufficiency or their compliance with Applicable Laws. The foregoing shall apply to tenant improvements constructed by Borrower or by any of its tenants. Lender may condition any such approval upon receipt of a certificate of compliance with Applicable Laws from an independent architect, engineer, or other person acceptable to Lender.

(c) Borrower shall give prompt notice to Lender of the receipt by Borrower of any notice related to a violation of any Applicable Laws and of the commencement of any proceedings or investigations which relate to compliance with Applicable Laws.

(d) Borrower shall take appropriate measures to prevent and will not engage in or knowingly permit any illegal activities at the Property.

Section 3.8 Books and Records.

(a) Borrower shall keep accurate books and records of account in accordance with sound accounting principles in which full, true and correct entries shall be promptly made with respect to Borrower, the Property and the operation thereof, and will permit all such books and records (including without limitation all contracts, statements, invoices, bills and claims for labor, materials and services supplied for the construction, repair or operation to Borrower of the Improvements) to be inspected or audited and copies made by Lender and its representatives during normal business hours and at any other reasonable times. Borrower represents that its chief executive office is as set forth in the introductory paragraph of this Security Instrument and that all books and records pertaining to the Property are maintained at the Property or such other location as may be expressly disclosed to Lender in writing. Borrower will furnish, or cause to be furnished, to Lender on or before forty-five (45) calendar days after the end of each calendar quarter the following items, each certified by Borrower as being true and correct, in such format and in such detail as Lender or its servicer may request:

(i) a written statement (rent roll) dated as of the last day of each such calendar quarter identifying each of the Leases by the term, space occupied, rental required to be paid (including percentage rents and tenant sales), security deposit paid, any rental concessions, all rent escalations, any rents paid more than one (1) month in advance, any special provisions or inducements granted to tenants, any taxes, maintenance and other common charges paid by tenants, all vacancies and identifying any defaults or payment delinquencies thereunder; and

(ii) quarterly and year-to-date operating statements prepared for each calendar quarter during each such reporting period detailing the total revenues received, total expenses incurred, total cost of all capital improvements, total debt service and total cash flow.

(b) Within ninety (90) calendar days following the end of each calendar year, Borrower shall furnish a statement of the financial affairs and condition of the Borrower and the Property including a statement of profit and loss for the Property in such format and in such detail as Lender or its servicer may request, and setting forth the financial condition and the income and expenses for the Property for the immediately preceding calendar year prepared by an independent certified public accountant. Borrower shall deliver to Lender copies of all consolidated income tax returns, requests for extension and other similar items contemporaneously with its delivery of same by Borrower or Guarantor to the Internal Revenue Service, provided, however, that portions of such consolidated tax returns relating to other subsidiaries of the Guarantor shall not be delivered to Lender.

(c) Borrower will permit representatives appointed by Lender, including independent accountants, agents, attorneys, appraisers and any other persons, to visit and inspect during its normal business hours and at any other reasonable times any of the Property and to make photographs thereof, and to write down and record any information such representatives obtain, and shall permit Lender or its representatives to investigate and verify the accuracy of the information furnished to Lender under or in connection with this Security Instrument or any of the Other Loan Documents and to discuss all such matters with its officers, employees and representatives. Borrower will furnish to Lender at Borrower's expense all evidence which Lender may from time to time reasonably request as to the accuracy and validity of or compliance with all representations and warranties made by Borrower in the Loan Documents and satisfaction of all conditions contained therein. Any inspection or audit of the Property or the books and records of Borrower, or the procuring of documents and financial and other information, by or on behalf of Lender, shall be for Lender's protection only, and shall not constitute any assumption of responsibility or liability by Lender to Borrower or anyone else with regard to the condition, construction, maintenance or operation of the Property, nor Lender's approval of any certification given to Lender nor relieve Borrower of any of Borrower's obligations.

Section 3.9 Payment for Labor and Materials . Borrower will promptly pay when due all bills and costs for labor, materials, and specifically fabricated materials incurred in connection with the Property and never permit to exist beyond the due date thereof in respect of the Property or any part thereof any lien or security interest, even though inferior to the liens and the security interests hereof, and in any event never permit to be created or exist in respect of the Property or any part thereof any other or additional lien or security interest other than the liens or security interests hereof, except for the Permitted Exceptions (as hereinafter defined).

Section 3.10 Performance of Other Agreements . Borrower shall observe and perform each and every term to be observed or performed by Borrower pursuant to the terms of any agreement or recorded instrument affecting or pertaining to the Property, or given by Borrower to Lender for the purpose of further securing an obligation secured hereby and any amendments, modifications or changes thereto.

ARTICLE 4 - SPECIAL COVENANTS

Borrower covenants and agrees that:

Section 4.1 Property Use . The Property shall be used only for retail, dining and family entertainment, golf training, conference center and child care purposes, and for no other use without the prior written consent of Lender, which consent may be withheld in Lender's sole and absolute discretion.

Section 4.2 ERISA .

(a) It shall not engage in any transaction which would cause any obligation, or action taken or to be taken, hereunder (or the exercise by Lender of any of its rights under the Note, this Security Instrument and the Other Loan Documents) to be a non-exempt (under a statutory or administrative class exemption) prohibited transaction under the Employee Retirement Income Security Act of 1974, as amended ("ERISA").

(b) It shall deliver to Lender such certifications or other evidence from time to time throughout the term of this Security Instrument, as requested by Lender in its sole discretion, that (i) Borrower is not an "employee benefit plan" as defined in Section 3(3) of ERISA, which is subject to Title I of ERISA, or a "governmental plan" within the meaning of Section 3(32) of ERISA; (ii) Borrower is not subject to state statutes regulating investments and fiduciary obligations with respect to governmental plans; and (iii) one or more of the following circumstances is true:

(i) Equity interests in Borrower are publicly offered securities, within the meaning of 29 C.F.R. 2510.3-101 (b)(2);

(ii) Less than twenty-five percent (25%) of each outstanding class of equity interests in Borrower are held by "benefit plan investors" within the meaning of 29 C.F.R. 2510.3-101(f)(2); or

(iii) Borrower qualifies as an "operating company" or a "real estate operating company" within the meaning of 29 C.F.R. 2510.3-101(c) or (e) or an investment company registered under The Investment Company Act of 1940.

Section 4.3 Single Purpose Entity . Borrower covenants and agrees that it has not and shall not:

(a) with respect to Borrower, engage in any business or activity other than the acquisition, ownership, operation and maintenance of the Property, and activities incidental thereto;

(b) with respect to Borrower, acquire or own any material asset other than (i) the Property, and (ii) such incidental Personal Property as may be necessary for the operation of the Property;

(c) merge into or consolidate with any person or entity or dissolve, terminate or liquidate in whole or in part, transfer or otherwise dispose of all or substantially all of its assets or change its legal structure, without in each case Lender's consent;

(d) fail to preserve its existence as an entity duly organized, validly existing and in good standing (if applicable) under the laws of the jurisdiction of its organization or formation, or without the prior written consent of Lender, amend, modify, terminate or fail to comply with the provisions of Borrower's Partnership Agreement, Articles or Certificate of Incorporation, Articles of Organization, Operating Agreement or similar organizational documents, as the case may be, whichever is applicable;

(e) own any subsidiary or make any investment in or acquire the obligations or securities of any other person or entity without the consent of Lender other than investments in cash equivalents made in the ordinary course of business;

(f) commingle its assets with the assets of any of its affiliates or of any other person or entity;

(g) with respect to Borrower, incur any debt, secured or unsecured, direct or contingent (including guaranteeing any obligation), other than the Debt, except in the ordinary course of its business of owning and operating the Property, provided that such debt is not evidenced by a note and is paid when due (it being acknowledged, however, that Borrower has previously executed and delivered a guaranty (the "Released Guaranty") in connection with a credit facility in favor of Guarantor which guaranty has been fully released and discharged as of the date hereof without any liability to Borrower);

(h) fail to pay its debts and liabilities from its own assets;

(i) fail to maintain its records, books of account and bank accounts separate and apart from those of the general partners, members, principals and affiliates of Borrower, the affiliates of a general partner or member of Borrower and any other person or entity;

(j) enter into any contract or agreement with any general partner, member, principal or affiliate of Borrower any guarantor of all or a portion of the Debt (a "Guarantor") or Indemnitor, or any general partner, member, principal or affiliate thereof, except upon terms and conditions that are intrinsically fair and substantially similar to those that would be available on an arms-length basis with third parties other than any general partner, member, principal or affiliate of Borrower, Guarantor or Indemnitor, or any general partner, member, principal or affiliate thereof;

(k) seek the dissolution or winding up in whole, or in part, of Borrower;

(1) fail to describe itself as a separate legal entity and not as a division or department of any Guarantor or Indemnitor;

(m) except for the Released Guaranty, hold itself out to be responsible (or pledge its assets as security) for the debts of another person;

(n) make any loans or advances to any third party, including any general partner, member, principal or affiliate of Borrower or any general partner, member, principal or affiliate thereof, except loans or advances made in the ordinary course of business for tenant improvement work;

(o) fail to maintain its separate corporate identity (it being understood, however, that the Borrower and The Fairchild Corporation may continue to file consolidated federal income tax returns and publish consolidated or consolidating financial statements so long as Lender shall be able to distinguish between the assets and liabilities of the Borrower and those of The Fairchild Corporation on such consolidated or consolidating financial reports);

(p) agree to, enter into or consummate any transaction which would render Borrower unable to furnish the certification or other evidence referred to in Subsection 4.2(b) hereof;

(q) fail either to hold itself out to the public as a legal entity separate and distinct from any other entity or person or to conduct its business solely in its own name in order not (i) to mislead others as to the identity with which such other party is transacting business, or (ii) to suggest that Borrower is responsible for the debts of any third party (including any general partner, member, principal or affiliate of Borrower or any general partner, member, principal or affiliate thereof);

(r) fail to allocate fairly and reasonably among Borrower and any third party (including, without limitation, Guarantor) any overhead for shared office space (it being acknowledged, however, that Borrower may share office space with Guarantor without charge by Guarantor to Borrower);

(s) fail to pay the salaries of its own employees and maintain a sufficient number of employees for its contemplated business operations (it being understood, however, that (I) Borrower has no employees of its own and may enter into service agreements with The Fairchild Corporation to provide legal, tax and accounting services and agreements with other parties to provide other services, all of which agreements shall otherwise comply with the requirements of this Section 4.3, (II) the Borrower and The Fairchild Corporation share common offices and (III) certain officers and directors of the Borrower are also officers and directors of The Fairchild Corporation);

(t) fail to maintain adequate capital for the normal obligations reasonably foreseeable in a business of its size and character and in light of its contemplated business operations;

(u) file or consent to the filing of any petition, either voluntary or involuntary, to take advantage of any applicable insolvency, bankruptcy, liquidation or reorganization statute, or make an assignment for the benefit of creditors; or

(v) share any common logo with or hold itself out as or be considered as a department or division of (i) any general partner, principal, member or affiliate of Borrower, (ii) any affiliate of a general partner of Borrower or (iii) any other person or entity, provided, however, that the use of The Fairchild Corporation logo in conjunction with the phrase "a subsidiary of The Fairchild Corporation", or the use of such phrase alone, on the Borrower's letterhead shall be permissible.

Nothing contained in this Section 4.3 shall be deemed to prohibit the payment of dividends by the Borrower to its shareholders so long as no Event of Default exists hereunder and provided that the payment of such dividends will not result in the Borrower being inadequately capitalized for the normal obligations reasonably foreseeable in a business of its size and character and in light of its contemplated business operations.

Section 4.4 Independent Director . Borrower covenants and agrees that it shall appoint and maintain, so long as the Debt is outstanding, an Independent Director (as defined below) to its board of directors. An "Independent Director" is defined as an individual who is not at the time of initial appointment and has not been at any time during the preceding five (5) years: (a) a stockholder, director, officer, employee or member of Borrower or any affiliate of Borrower; (b) a customer, supplier or other person who purchases any goods or services from or derives any revenues from its activities with Borrower or any affiliate of Borrower; (c) a person or other entity controlling or under common control with any such stockholder, member, customer, supplier or other person; (d) an attorney or counsel to Borrower or any affiliate of Borrower; or (e) a member of the immediate family of any such stockholder, director, officer, employee, member, customer, supplier or other person. For purposes of this definition of Independent Director, the term "affiliate" means any person controlling, under the common control with, or controlled by the person in question, and the term "control" means the possession, directly or indirectly, of the power to direct or cause the direction of management, policies or activities of a person or entity, whether through ownership of voting securities, by contract or otherwise. The Independent Director does not owe any fiduciary duty or other obligation to the shareholders of Borrower but owes such fiduciary duty and other obligations to Borrower (including its creditors). The Independent Director will not be removed unless a successor is elected.

ARTICLE 5 - REPRESENTATIONS AND WARRANTIES

Section 5.1 Borrower's Representations . Borrower represents and warrants to Lender that each of the representations and warranties set forth in that certain Closing Certificate of even date herewith executed by Borrower in favor of Lender are true and correct as of the date hereof and are hereby incorporated and restated in this Security Instrument by this reference.

Section 5.2 Warranty of Title. Borrower has good and marketable title to the Property and has the right to mortgage, grant, bargain, sell, pledge, assign, warrant, transfer and convey the same and that Borrower possesses an unencumbered fee simple absolute estate in the Land and the Improvements and that it owns the Property free and clear of all liens, encumbrances and charges whatsoever except for those exceptions shown in the title insurance policy insuring the lien of this Security Instrument (the "Permitted Exceptions"). Borrower shall, at its sole cost and expense, forever warrant, defend and preserve the title and the validity and priority of the lien of this Security Instrument and shall, at its sole cost and expense, forever warrant and defend the same to Lender against the claims of all persons whomsoever.

Section 5.3 Status of Property .

(a) No portion of the Improvements is located in an area identified by the Secretary of Housing and Urban Development or any successor thereto as an area having special flood hazards pursuant to the National Flood Insurance Act of 1968 or the Flood Disaster Protection Act of 1973, as amended, or any successor law, or, if located within any such area, Borrower has obtained and will maintain the insurance prescribed in Section 3.2 hereof.

(b) Borrower has obtained all necessary certificates, permits, licenses and other approvals, governmental and otherwise, necessary for the use, occupancy and operation of the Property and the conduct of its business (including, without limitation, certificates of completion and certificates of occupancy) and all required zoning, building code, land use, environmental and other similar permits or approvals, all of which are in full force and effect as of the date hereof and not subject to revocation, suspension, forfeiture or modification.

(c) The Property and the present and contemplated use and occupancy thereof are to the best knowledge of Borrower in full compliance with all Applicable Laws, including without limitation, zoning ordinances, building codes, land use and environmental laws, laws relating to the disabled (including, but not limited to, the ADA) and other similar laws.

(d) The Property is served by all utilities required for the current or contemplated use thereof. All utility service is provided by public utilities and the Property has accepted or is equipped to accept such utility service.

(e) All public roads and streets necessary for service of and access to the Property for the current or contemplated use thereof have been completed, are serviceable and are physically and legally open for use by the public.

(f) The Property is served by public water and sewer systems.

(g) The Property is free from damage caused by fire or other casualty. There are no pending or, to the best knowledge of Borrower, threatened condemnation proceedings affecting the Property or any portion thereof.

(h) All costs and expenses of any and all labor, materials, supplies and equipment used in the construction of the Improvements have been paid in full and no notice of any mechanics' or materialmen's liens or of any claims of right to any such liens have been received.

(i) Borrower has paid in full for, and is the owner of, all furnishings, fixtures and equipment (other than tenants' property) used in connection with the operation of the Property, free and clear of any and all security interests, liens or encumbrances, except the lien and security interest created hereby.

(j) All liquid and solid waste disposal, septic and sewer systems located on the Property are to the best knowledge of Borrower in a good and safe condition and repair and in compliance with all Applicable Laws.

(k) All Improvements lie within the boundary of the Land.

Section 5.4 No Foreign Person . Borrower is not a "foreign person" within the meaning of Section 1445(f)(3) of the Internal Revenue Code of 1986, as amended, and the related Treasury Department regulations, including temporary regulations.

Section 5.5 Separate Tax Lot . The Property is assessed for real estate tax purposes as one or more wholly independent tax lot or lots, separate from any adjoining land or improvements not constituting a part of such lot or lots, and no other land or improvements is assessed and taxed together with the Property or any portion thereof.

ARTICLE 6 - OBLIGATIONS AND RELIANCES

Section 6.1 Relationship of Borrower and Lender . The relationship between Borrower and Lender is solely that of debtor and creditor, and Lender has no fiduciary or other special relationship with Borrower, and no term or condition of any of the Note, this Security Instrument and the other Loan Documents shall be construed so as to deem the relationship between Borrower and Lender to be other than that of debtor and creditor.

Section 6.2 No Reliance on Lender . Either the Borrower's representatives and managers or the general partners, members, principals and (if Borrower is a trust) beneficial owners of Borrower are experienced in the ownership and operation of properties similar to the Property, and Borrower and Lender are relying solely upon such expertise and business plan in connection with the ownership and operation of the Property. Borrower is not relying on Lender's expertise, business acumen or advice in connection with the Property.

Section 6.3 No Lender Obligations.

(a) Notwithstanding the provisions of Subsections 1.1(e) and 1.1(i) or Section 1.2, Lender is not undertaking (i) any obligations under the Leases; or (ii) any obligations with respect to such agreements, contracts, certificates, instruments, franchises, permits, trademarks, licenses and other documents.

(b) By accepting or approving anything required to be observed, performed or fulfilled or to be given to Lender pursuant to this Security Instrument, the Note or the Other Loan Documents, including without limitation, any officer's certificate, balance sheet, statement of profit and loss or other financial statement, survey, appraisal, or insurance policy, Lender shall not be deemed to have warranted, consented to, or affirmed the sufficiency, legality or effectiveness of same, and such acceptance or approval thereof shall not constitute any warranty or affirmation with respect thereto by Lender.

Section 6.4 Reliance . Borrower recognizes and acknowledges that in accepting the Note, this Security Instrument and the Other Loan Documents, Lender is expressly and primarily relying on the truth and accuracy of the warranties and representations set forth in Article 5 and that certain Closing Certificate of even date herewith executed by Borrower, without any obligation to investigate the Property and notwithstanding any investigation of the Property by Lender; that such reliance existed on the part of Lender prior to the date hereof; that such warranties and representations are a material inducement to Lender in accepting the Note, this Security Instrument and the Other Loan Documents; and that Lender would not be willing to make the Loan (as hereinafter defined) and accept this Security Instrument in the absence of the warranties and representations as set forth in Article 5 and such Closing Certificate.

ARTICLE 7 - FURTHER ASSURANCES

Section 7.1 Recording Fees . Borrower will pay all taxes, filing, registration or recording fees, and all expenses incident to the preparation, execution, acknowledgment and/or recording of the Note, this Security Instrument, the Other Loan Documents, any note or mortgage supplemental hereto, any security instrument with respect to the Property and any instrument of further assurance, and any modification or amendment of the foregoing documents, and all federal, state, county and municipal taxes, duties, imposts, assessments and charges arising out of or in connection with the execution and delivery of this Security Instrument, any mortgage supplemental hereto, any security instrument with respect to the Property or any instrument of further assurance, and any modification or amendment of the foregoing documents, except where prohibited by law so to do.

Section 7.2 Further acts . Borrower will, at the cost of Borrower, and without expense to Lender, do, execute, acknowledge and deliver all and every such further acts, deeds, conveyances, mortgages, assignments, notices of assignments, transfers and assurances as Lender shall, from time to time, reasonably require, for the better assuring, conveying, assigning, transferring, and confirming unto Lender the property and rights hereby mortgaged, granted, bargained, sold, conveyed, confirmed, pledged, assigned, warranted and transferred or intended now or hereafter so to be, or which Borrower may be or may hereafter become bound to convey or assign to Lender, or for carrying out the intention or facilitating the performance of the terms of this Security Instrument or for filing, registering or recording this Security Instrument, or for complying with all Applicable Laws. Borrower, on demand, will execute and deliver and hereby authorizes Lender to execute in the name of Borrower or without the signature of Borrower to the extent Lender may lawfully do so, one or more financing statements, chattel mortgages or other instruments, to evidence more effectively the security interest of Lender in the Property. Borrower grants to Lender an irrevocable power of attorney coupled with an interest for the purpose of exercising and perfecting any and all rights and remedies available to Lender at law and in equity, including without limitation such rights and remedies available to Lender pursuant to this Section 7.2.

Section 7.3 Changes in Tax. Debt Credit and Documentary Stamp Laws.

(a) If any law is enacted or adopted or amended after the date of this Security Instrument which imposes a tax, either directly or indirectly, on the Debt or Lender's interest in the Property, requires revenue or other stamps to be affixed to the Note, this Security Instrument, or the Other Loan Documents, or imposes any other tax or charge on the same, Borrower will pay the same, with interest and penalties thereon, if any. If Lender is advised by counsel chosen by it that the payment of tax by Borrower would be unlawful or taxable to Lender or unenforceable or provide the basis for a defense of usury, then Lender shall have the option, by written notice of not less than ninety (90) calendar days, to declare the Debt immediately due and payable.

(b) Borrower will not claim or demand or be entitled to any credit or credits on account of the Debt for any part of the Taxes or Other Charges assessed against the Property, or any part thereof, and no deduction shall otherwise be made or claimed from the assessed value of the Property, or any part thereof, for real estate tax purposes by reason of this Security Instrument or the Debt. If such claim, credit or deduction shall be required by law, Lender shall have the option, by written notice of not less than ninety (90) calendar days, to declare the Debt immediately due and payable.

Section 7.4 Confirmation Statement.

(a) After request by Lender, Borrower, within ten (10) days, shall furnish Lender or any proposed assignee with a statement, duly acknowledged and certified, confirming to Lender (or its designee) (i) the amount of the original principal amount of the Note, (ii) the unpaid principal amount of the Note, (iii) the rate of interest of the Note, (iv) the terms of payment and maturity date of the Note, (v) the date installments of interest and/or principal were last paid, and (vi) that, except as provided in such statement, there are no defaults or events which with the passage of time or the giving of notice or both, would constitute an event of default under the Note or this Security Instrument; provided, however, Lender shall not be entitled hereunder to receive more than one (1) such statement in each calendar year.

(b) Subject to the provisions of the Leases, Borrower shall deliver to Lender, promptly upon request (but not more frequently than once annually so long as Borrower is not in default hereunder), duly executed estoppel certificates from any one or more lessees as required by Lender attesting to such facts regarding the Lease as Lender may require, including but not limited to attestations that each Lease covered thereby is in full force and effect with no defaults thereunder on the part of any party, that none of the Rents have been paid more than one month in advance, and that the lessee claims no defense or offset against the full and timely performance of its obligations under the Lease.

(c) Upon any transfer or proposed transfer contemplated by Section 16.1 hereof, at Lender's request, Borrower, any Guarantors and any Indemnitors shall provide an estoppel certificate to the Investor (defined in Section 16.1 ) or any prospective Investor in such form, substance and detail as Lender, such Investor or prospective Investor may require.

Section 7.5 Splitting of Security Instrument . This Security Instrument and the Note shall, at any time until the same shall be fully paid and satisfied, at the sole election of Lender, be split or divided into two or more notes and two or more security instruments, each of which shall cover all or a portion of the Property to be more particularly described therein. To that end, Borrower, upon written request of Lender, shall execute, acknowledge and deliver, or cause to be executed, acknowledged and delivered by the then owner of the Property, to Lender and/or its designee or designees substitute notes and security instruments in such principal amounts, aggregating not more than the then unpaid principal amount of Debt, and containing terms, provisions and clauses similar to those contained herein and in the Note, and such other documents and instruments as may be required by Lender. In no event shall this Security Instrument and the Note be split or divided such that upon such split or division, any lender will hold less than ten (10%) percent of the then unpaid principal amount of Debt. Borrower shall not be responsible for any costs incurred in connection with any such splitting of the notes other than Borrower's own legal fees and expenses, and in the event of any such splitting, Borrower's liability hereunder for attorneys' fees in connection with any enforcement action shall be limited to attorneys' fees and expenses incurred by one counsel representing all lenders.

Section 7.6 Replacement Documents. Upon receipt of an affidavit of an officer of Lender as to the loss, theft, destruction or mutilation of the Note or any Other Loan Document which is not of public record, and, in the case of any such mutilation, upon surrender and cancellation of such Note or Other Loan Document, Borrower, at its expense, will issue, in lieu thereof, a replacement Note or Other Loan Document, dated the date of such lost, stolen, destroyed or mutilated Note or Other Loan Document in the same principal amount thereof and otherwise of like tenor.

ARTICLE 8 - DUE ON SALE/ENCUMBRANCE

Section 8.1 Lender Reliance. Borrower acknowledges that Lender has examined and relied on the creditworthiness of Borrower and experience of Borrower and its general partners, members, principals and (if Borrower is a trust) beneficial owners in owning and operating properties such as the Property in agreeing to make the Loan, and will continue to rely on Borrower's ownership of the Property as a means of maintaining the value of the Property as security for repayment of the Debt and the performance of the Other Obligations Borrower acknowledges that Lender has a valid interest in maintaining the value of the Property so as to ensure that, should Borrower default in the repayment of the Debt or the performance of the Other Obligations, Lender can recover the Debt by a sale of the Property.

Section 8.2 no sale/encumbrance.

(a) Borrower agrees that Borrower shall not, without the prior written consent of Lender, sell, convey, mortgage, grant, bargain, encumber, pledge, assign, or otherwise transfer the Property or any part thereof or permit the Property or any part thereof to be sold, conveyed, mortgaged, granted, bargained, encumbered, pledged, assigned, or otherwise transferred. Lender shall not be required to demonstrate any actual impairment of its security or any increased risk of default hereunder in order to declare the Debt immediately due and payable upon Borrower's sale, conveyance, mortgage, grant, bargain, encumbrance, pledge, assignment, or transfer of the Property without Lender's consent.

(b) Subsection 8.2(a) shall apply to: (i) an installment sales agreement wherein Borrower agrees to sell the Property or any part thereof for a price to be paid in installments; (ii) an agreement by Borrower leasing all or a substantial part of the Property for other than actual occupancy by a space tenant thereunder or a sale, assignment or other transfer of, or the grant of a security interest in, Borrower's right, title and interest in and to any Leases or any Rents; (iii) if Borrower, Guarantor, any managing member of Borrower or any general partner of Borrower or Guarantor is a corporation, any merger, consolidation or the voluntary or involuntary sale, conveyance or transfer of such corporation's stock (or the stock of any corporation directly or indirectly controlling such corporation by operation of law or otherwise) or the creation or issuance of new stock in one or a series of transactions by which an aggregate of more than ten percent (10%) of such corporation's stock shall be vested in a party or parties who are not now stockholders (provided, however, in no event shall this subpart (iii) apply to any Guarantor whose stock, shares or partnership interests are traded on a nationally recognized stock exchange); (iv) if Borrower, Guarantor, any managing member of Borrower or any general partner of Borrower or Guarantor is a limited liability company or limited partnership, the voluntary or involuntary sale, conveyance or transfer by which an aggregate of more than fifty percent (50%) of the ownership interest in such limited liability company or more than fifty percent (50%) of the limited partnership interests in such limited partnership shall be vested in parties not having an ownership interest as of the date of this Security Instrument; and (v) if Borrower, any Guarantor, any managing member of Borrower or any general partner of Borrower or any Guarantor is a limited or general partnership, joint venture or limited liability company, the change, removal or resignation of a general partner, managing partner, joint venturer or managing member or the transfer of all or any portion of the partnership interest of any general partner, managing partner, joint venturer or managing member.

Section 8.3 Excluded and Permitted Transfers.

(a) A sale, conveyance, alienation, mortgage, encumbrance, pledge or transfer within the meaning of this Article 8 shall not include (i) transfers made by devise or descent or by operation of law upon the death of a joint tenant, partner, member or shareholder, subject, however, to all the following requirements: (A) written notice of any transfer under this Section 8.3, whether by will, trust or other written instrument, operation of law or otherwise, is provided to Lender or its servicer, together with copies of such documents relating to the transfer as Lender or its servicer may reasonably request, (B) control over the management and operation of the Property is retained by one or more of The Fairchild Corporation (the "Original Principal", whether one or more) at all times prior to the death or legal incapacity of the Original Principal and is thereafter assumed by persons who are acceptable in all respects to Lender in its sole and absolute discretion, (C) no such transfer by the Original Principal will release the respective estate from any liability as a Guarantor, and (D) no such transfer, death or other event has any adverse effect either on the bankruptcy-remote status of Borrower under the requirements of any national rating agency for the Securities (hereinafter defined) or on the status of Borrower as a continuing legal entity liable for the payment of the Debt and the performance of all other obligations secured hereby, (ii) transfers otherwise by operation of law in the event of a bankruptcy, or (iii) a Lease of a portion of the Property to a space tenant.

(b) Notwithstanding any provision of this Security Instrument to the contrary, the prohibitions in Subsection 8.2(a) shall not apply to (i) an inter vivos or testamentary transfer of all or any portion of the Property to one or more family members of Borrower, Original Principal or a trust in which all of the beneficial interest is held by one or more family members or Original Principal or a partnership or limited liability company in which a majority of the capital and profits interests are held by one or more family members of Original Principal, or (ii) any inter vivos or testamentary transfer or issuance of capital stock in Borrower or the general partner of Borrower to one or more family members of Original Principal, or trust in which all of the beneficial interest is held by one or more family members of Original Principal or a partnership or limited liability company in which a majority of the capital and profits interests are held by one or more family members of Original Principal; provided, that any inter vivos transfer of all or any portion of the Property or any inter vivos transfer or issuance of capital stock in Borrower or Borrower's general partner is made in connection with Original Principal bona fide, good faith estate planning and that the person(s) with voting control of Borrower or the management of the Property are (i) the same person(s) who had such voting control and management rights immediately prior to the transfer in question, or (ii) reasonably acceptable to Lender. Lender acknowledges that Original Principal and/or Original Principal's spouse are acceptable to exercise voting control of Borrower and the management of the Property. As used herein, "family members" shall include the spouse, children and grandchildren and any lineal descendants.

(c) Notwithstanding the provisions of Section 8.2 above, Lender will give its consent to a sale or transfer of Property, if (but only if) no Event of Default under the Loan Documents has occurred and is continuing, and if each of the following conditions precedent have been fully satisfied (as determined in Lender's sole and absolute discretion): (i) the grantee's or transferee's integrity, reputation, financial condition, character and management ability are satisfactory to Lender in its sole discretion, (ii) the grantee's or transferee's (and its sole general partner's) single purpose and bankruptcy remote character are satisfactory to Lender in its sole discretion, (iii) Lender has obtained such estoppels from any guarantors of the Note or replacement guarantors and such other legal opinions and similar matters as Lender may require, (iv) all of Lender's costs and expenses associated with the sale or transfer (including reasonable attorneys' fees) are paid by Borrower or the grantee or transferee, (v) the payment of a transfer fee not to exceed 0.5% of the then unpaid principal balance of the loan evidenced by the Note and secured hereby (the "Loan"), (vi) the execution and delivery to Lender of a written assumption agreement and substitute guaranty (in its sole and absolute discretion) and such modifications to the Loan Documents executed by such parties and containing such terms and conditions as Lender may require in its sole and absolute discretion prior to such sale or transfer (provided that in the event the Loan is included in a REMIC and is a performing Loan, no modification to the terms and conditions shall be made or permitted that would cause (A) any adverse tax consequences to the REMIC or any holders of any Mortgage-Backed Pass-Through Securities, (B) this Security Instrument to fail to be a Qualifying Security Instrument under applicable federal law relating to REMIC's, or (C) result in a taxation of the income from the Loan to the REMIC or cause a loss of REMIC status), and (vii) the delivery to Lender of an endorsement (at Borrower's sole cost and expense) to Lender's policy of title insurance then insuring the lien created by this Security Instrument in form and substance acceptable to Lender in its sole judgment.

(d) Without limiting the foregoing, if Lender shall consent to any such transfer, the written assumption agreement described in Subsection 8.3(c)(vi) above shall provide for the release of Borrower and, if approved by Lender, each Guarantor and Indemnitor of personal liability under the Note and Other Loan Documents, but only as to acts or events occurring, or obligations arising, after the closing of such transfer.

Section 8.4 No Implied future Consent . Lender's consent to one sale, conveyance, alienation, mortgage, encumbrance, pledge or transfer of the Property shall not be deemed to be a waiver of Lender's right to require such consent to any future occurrence of same. Any sale, conveyance, alienation, mortgage, encumbrance, pledge or transfer of the Property made in contravention of this Article 8 shall be null and void and of no force and effect.

Section 8.5 Costs of Consent . Borrower agrees to bear and shall pay or reimburse Lender on demand for all reasonable expenses (including, without limitation, all recording costs, reasonable attorneys' fees and disbursements and title search costs) incurred by Lender in connection with the review, approval and documentation of any such sale, conveyance, alienation, mortgage, encumbrance, pledge or transfer.

Section 8.6 Continuing Separateness Requirements . In no event shall any of the terms and provisions of this Article 8 amend or modify the terms and provisions contained in Section 4.3 herein.

ARTICLE 9 - DEFAULT

Section 9.1 Events of Default. The occurrence of any one or more of the following events shall constitute an "Event of Default":

(a) if any portion of the Debt is not paid prior to the tenth ( l0th) calendar day after the same is due or if the entire Debt is not paid on or before the maturity date, along with applicable prepayment premiums, if any;

(b) a violation or breach under (i) any of the provisions of Article 8, under clauses (a), (b), (c), (d), (e), (f), (g), (i), (k), (m), (o), (p) or (t) of Section 4.3 or under Section 4.4 which continues uncured for thirty (30) days after the occurrence thereof, provided, however, in the event of a sale or transfer of the Property in accordance with Section 8.3(c) and (d) hereof which results in the release of The Fairchild Corporation from its liability under the Guaranty of even date herewith, such thirty (30) day cure period shall no longer apply or (ii) a violation or breach under clauses (h), (j), (l), (n), (q), (r), (s) or (v) of Section 4.3 which materially adversely affects Lender or the Loan and which continues uncured for sixty (60) days after the occurrence thereof;

(c) if Borrower or any Guarantor or any Indemnitor shall make an assignment for the benefit of creditors or if Borrower or any Guarantor shall admit in writing its inability to pay, or Borrower's or any Guarantor's failure to pay its debts as they become due;

(d) if (i) Borrower or any subsidiary or general partner of Borrower, or any Guarantor or any Indemnitor shall commence any case, proceeding or other action (A) under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization, conservatorship or relief of debtors, seeking to have an order for relief entered with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with respect to it or its debts, or (B) seeking appointment of a receiver, trustee, custodian, conservator or other similar official for it or for all or any substantial part of its assets, or Borrower or any subsidiary or general partner or member of Borrower, or any Guarantor or any Indemnitor shall make a general assignment for the benefit of its creditors; or (ii) there shall be commenced against Borrower or any subsidiary or general partner or member of Borrower, or any Guarantor or any Indemnitor any case, proceeding or other action of a nature referred to in clause (i) above which (A) results in the entry of an order for relief or any such adjudication or appointment or (B) remains undismissed, undischarged or unbonded for a period of sixty (60) calendar days; or (iii) there shall be commenced against Borrower or any subsidiary or general partner or member of Borrower or any Guarantor or any Indemnitor any case, proceeding or other action seeking issuance of a warrant of attachment, execution, distraint or similar process against all or any substantial part of its assets which results in the entry of any order for any such relief which shall not have been vacated, discharged, or stayed or bonded pending appeal within sixty (60) calendar days from the entry thereof; or (iv) Borrower or any subsidiary or general partner or member of Borrower, or any Guarantor or any Indemnitor shall take any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the acts set forth in clause (i), (ii) or (iii) above; or (v) Borrower or any subsidiary or general partner or member of Borrower, or any Guarantor or any Indemnitor shall generally not, or shall be unable to, or shall admit in writing its inability to, pay its debts as they become due;

(e) subject to Borrower's right to contest certain liens as provided in this Security Instrument, if the Property becomes subject to any mechanic's, materialman's or other lien other than a lien for local real estate taxes and assessments not then due and payable and the lien shall remain undischarged of record (by payment, bonding or otherwise) for a period of thirty (30) calendar days;

(f) if any federal tax lien is filed against Borrower, any general partner or member of Borrower or the Property, or if any federal tax lien in excess of $100,000 is filed against any Guarantor or any Indemnitor, and same is not discharged of record within thirty (30) calendar days after same is filed;

(g) except as permitted in this Security Instrument, the actual or threatened alteration, improvement, demolition or removal of any of the Improvements without the prior consent of Lender;

(h) damage to the Property in excess of $100,000 which is not covered by insurance, which lack of coverage arises solely as a result of Borrower's failure to maintain the insurance required under this Security Instrument;

(i) without Lender's prior consent (which consent shall not be unreasonably withheld), (i) the ownership, management or control of the managing agent is transferred to a person or entity other than the general partner, managing partner or managing member of the Borrower, or (ii) there is any material change in the property management agreement of the Property;

(j) this Security Instrument shall cease to constitute a first-priority lien on the Property (other than in accordance with its terms);

(k) seizure or forfeiture of the Property, or any portion thereof, or Borrower's interest therein, resulting from criminal wrongdoing or other unlawful action of Borrower, its affiliates, or any tenant in the Property under any federal, state or local law;

(1) if Borrower consummates a transaction which would cause this Security Instrument or Lender's exercise of its rights under this Security Instrument, the Note or the Other Loan Documents to constitute a nonexempt prohibited transaction under ERISA or result in a violation of a state statute regulating governmental plans, subjecting Lender to liability for a violation of ERISA or a state statute;

(m) if any default occurs under the Environmental Indemnity given by Borrower and Indemnitor to Lender and other Indemnified Parties (as hereinafter defined) and such default continues after the expiration of applicable notice and grace periods, if any;

(n) if any default occurs under any guaranty or indemnity executed in connection herewith and such default continues after the expiration of applicable grace periods, if any; or

(o) if Borrower, any Guarantor or any Indemnitor, as the case may be, shall continue to be in default under any other term, covenant or condition of this Security Instrument or any Other Loan Documents (excluding the Note) for thirty (30) calendar days after notice from Lender; provided that if such default cannot reasonably be cured within such thirty (30) calendar day period and Borrower (or such Guarantor or Indemnitor as the case may be) shall have commenced to cure such default within such thirty (30) calendar day period and thereafter diligently and expeditiously proceeds to cure the same, such thirty (30) calendar day period shall be extended for so long as it shall require Borrower (or such Guarantor or Indemnitor as the case may be) in the exercise of due diligence to cure such default, it being agreed that no such extension shall be for a period in excess of ninety (90) calendar days.

Section 9.2 Default Interest . Borrower will pay, from the date of an Event of Default through the earlier of the date upon which the Event of Default is cured or the date upon which the Debt is paid in full, interest on the unpaid principal balance of the Note at a per annum rate equal to the Default Rate (as said term is defined in the Note).

ARTICLE 10 - RIGHTS AND REMEDIES

Section 10.1 Remedies . Upon the occurrence of any Event of Default, Borrower agrees that Lender may take such action, without notice or demand, as it deems advisable to protect and enforce its rights against Borrower and in and to the Property, including, but not limited to, the following actions, each of which may be pursued concurrently or otherwise, at such time and in such order as Lender may determine, in its sole discretion, without impairing or otherwise affecting the other rights and remedies of Lender:

(a) Right to Perform Borrower's Covenants. If Borrower has failed to keep or perform any covenant whatsoever contained in this Security Instrument or the Other Loan Documents, Lender may, but shall not be obligated to any person to do so, perform or attempt to perform said covenant and any payment made or expense incurred in the performance or attempted performance of any such covenant, together with any sum expended by Lender that is chargeable to Borrower or subject to reimbursement by Borrower under the Loan Documents, shall be and become a part of the "Debt", and Borrower promises, upon demand, to pay to Lender, at the place where the Note is payable, all sums so incurred, paid or expended by Lender, with interest from the date when paid, incurred or expended by Lender at the Default Rate.

(b) Right of Entry. Lender may, prior or subsequent to the institution of any foreclosure proceedings, enter upon the Property, or any part thereof, and take exclusive possession of the Property and of all books, records, and accounts relating thereto and to exercise without interference from Borrower any and all rights which Borrower has with respect to the management, possession, operation, protection, or preservation of the Property, including without limitation the right to rent the same for the account of Borrower and to deduct from such Rents all costs, expenses, and liabilities of every character incurred by Lender in collecting such Rents and in managing operating maintaining protecting or preserving the Property and to apply the remainder of such Rents on the Debt in such manner as Lender may elect. All such costs, expenses, and liabilities incurred by Lender in collecting such Rents and in managing, operating, maintaining, protecting, or preserving the Property, if not paid out of Rents as hereinabove provided, shall constitute a demand obligation owing by Borrower and shall bear interest from the date of expenditure until paid at the Default Rate, all of which shall constitute a portion of the Debt. If necessary to obtain the possession provided for above, Lender may invoke any and all legal remedies to dispossess Borrower, including specifically one or more actions for forcible entry and detainer, trespass to try title, and restitution. In connection with any action taken by Lender pursuant to this Subsection 10.1 (b), Lender shall not be liable for any loss sustained by Borrower resulting from any failure to let the Property, or any part thereof, or from any other act or omission of Lender in managing the Property unless such loss is caused by the willful misconduct of Lender, nor shall Lender be obligated to perform or discharge any obligation, duty, or liability under any Lease or under or by reason hereof or the exercise of rights or remedies hereunder. Borrower shall and does hereby agree to indemnify Lender for, and to hold Lender harmless from, any and all liability, loss, or damage, which may or might be incurred by Lender under any such Lease or under or by reason hereof or the exercise of rights or remedies hereunder, and from any and all claims and demands whatsoever which may be asserted against Lender by reason of any alleged obligations or undertakings on its part to perform or discharge any of the terms, covenants, or agreements contained in any such Lease. Should Lender incur any such liability, the amount thereof, including without limitation costs, expenses, and reasonable attorneys' fees, together with interest thereon from the date of expenditure until paid at the Default Rate, shall be secured hereby, and Borrower shall reimburse Lender therefor immediately upon demand. Nothing in this Subsection 10.1 (b) shall impose any duty, obligation, or responsibility upon Lender for the control, care, management, leasing or repair of the Property, nor for the carrying out of any of the terms and conditions of any such Lease; nor shall it operate to make Lender responsible or liable for any waste committed on the Property by the tenants or by any other parties, or for any hazardous substances or environmental conditions on or under the Property, or for any dangerous or defective condition of the Property or for any negligence in the management, leasing, upkeep, repair, or control of the Property resulting in loss or injury or death to any tenant, licensee, employee, or stranger. Borrower hereby assents to, ratifies, and confirms any and all actions of Lender with respect to the Property taken under this subsection.

(c) Right to Accelerate. Lender may, without notice (except as provided in Section 9.1(o) above) demand, presentment, notice of nonpayment or nonperformance, protest, notice of protest, notice of intent to accelerate, notice of acceleration, or any other notice or any other action, all of which are hereby waived by Borrower and all other parties obligated in any manner whatsoever on the Debt, declare the entire unpaid balance of the Debt immediately due and payable, and upon such declaration, the entire unpaid balance of the Debt shall be immediately due and payable.

(d) Foreclosure-Power of Sale. Lender may institute a proceeding or proceedings, judicial, or nonjudicial, by advertisement or otherwise, for the complete or partial foreclosure of this Security Instrument or the complete or partial sale of the Property under power of sale or under any applicable provision of law. Lender may sell the Property, and all estate, right, title, interest, claim and demand of Borrower therein, and all rights of redemption thereof, at one or more sales, as an entirety or in parcels, with such elements of real and/or personal property, and at such time and place and upon such terms as it may deem expedient, or as may be required by applicable law, and in the event of a sale, by foreclosure or otherwise, of less than all of the Property, this Security Instrument shall continue as a lien and security interest on the remaining portion of the Property.

(e) Rights Pertaining to Sales. Subject to the requirements of applicable law and except as otherwise provided herein, the following provisions shall apply to any sale or sales of all or any portion of the Property under or by virtue of Subsection 10.1(d) above, whether made under the power of sale herein granted or by virtue of judicial proceedings or of a judgment or decree of foreclosure and sale:

(i) Lender may conduct any number of sales from time to time. The power of sale set forth above shall not be exhausted by any one or more such sales as to any part of the Property which shall not have been sold, nor by any sale which is not completed or is defective in Lender's opinion, until the Debt shall have been paid in full.

(ii) Any sale may be postponed or adjourned by public announcement at the time and place appointed for such sale or for such postponed or adjourned sale without further notice.

(iii) After each sale, Lender or an officer of any court empowered to do so shall execute and deliver to the purchaser or purchasers at such sale a good and sufficient instrument or instruments granting, conveying, assigning and transferring all right, title and interest of Borrower in and to the property and rights sold and shall receive the proceeds of said sale or sales and apply the same as specified in the Note. Lender is hereby appointed the true and lawful attorney-in-fact of Borrower, which appointment is irrevocable and shall be deemed to be coupled with an interest, in Borrower's name and stead, to make all necessary conveyances, assignments, transfers and deliveries of the property and rights so sold, Borrower hereby ratifying and confirming all that said attorney or such substitute or substitutes shall lawfully do by virtue thereof. Nevertheless, Borrower, if requested by Lender, shall ratify and confirm any such sale or sales by executing and delivering to Lender or such purchaser or purchasers all such instruments as may be advisable, in Lender's judgment, for the purposes as may be designated in such request.

(iv) Any and all statements of fact or other recitals made in any of the instruments referred to in Subsection 10.1(e)(iii) given by Lender shall be taken as conclusive and binding against all persons as to evidence of the truth of the facts so stated and recited.

(v) Any such sale or sales shall operate to divest all of the estate, right, title, interest, claim and demand whatsoever, whether at law or in equity, of Borrower in and to the properties and rights so sold, and shall be a perpetual bar both at law and in equity against Borrower and any and all persons claiming or who may claim the same, or any part thereof or any interest therein, by, through or under Borrower to the fullest extent permitted by applicable law.

(vi) Upon any such sale or sales, Lender may bid for and acquire the Property and, in lieu of paying cash therefor, may make settlement for the purchase price by crediting against the Debt the amount of the bid made therefor, after deducting therefrom the expenses of the sale, the cost of any enforcement proceeding hereunder, and any other sums which Lender is authorized to deduct under the terms hereof, to the extent necessary to satisfy such bid.

(vii) Upon any such sale, it shall not be necessary for Lender or any public officer acting under execution or order of court to have present or constructively in its possession any of the Property.

(f) Lender's Judicial Remedies. Lender may proceed by suit or suits, at law or in equity, to enforce the payment of the Debt to foreclose the liens and security interests of this Security Instrument as against all or any part of the Property, and to have all or any part of the Property sold under the judgment or decree of a court of competent jurisdiction. This remedy shall be cumulative of any other nonjudicial remedies available to Lender under this Security Instrument or the Other Loan Documents. Proceeding with a request or receiving a judgment for legal relief shall not be or be deemed to be an election of remedies or bar any available nonjudicial remedy of Lender.

(g) Lender's Right to Appointment of Trustee, Receiver, Liquidator or Conservator. Lender, as a matter of right and (i) without regard to the sufficiency of the security for repayment of the Debt and without notice to Borrower, (ii) without any showing of insolvency, fraud, or mismanagement on the part of Borrower, (iii) without the necessity of filing any judicial or other proceeding other than the proceeding for appointment of a receiver, and (iv) without regard to the then value of the Property, shall be entitled to the appointment of a trustee, receiver, liquidator or conservator for the protection, possession, control, management and operation of the Property, including (without limitation), the power to collect the Rents, enforce this Security Instrument and, in case of a sale and deficiency, during the full statutory period of redemption (if any), whether there be a redemption or not, as well as during any further times when Borrower, except for the intervention of such receiver, would be entitled to collection of such Rents. Borrower hereby irrevocably consents to the appointment of such trustee, receiver, liquidator or conservator. Any receiver appointed pursuant to the provisions of this subsection shall have the usual powers and duties of receivers in such matters.

(h) Commercial Code Remedies. Lender may exercise any and all rights and remedies granted to a secured party upon default under the Uniform Commercial Code, including, without limiting the generality of the foregoing: (i) the right to take possession of the Personal Property or any part thereof, and to take such other measures as Lender may deem necessary for the care, protection and preservation of the Personal Property, and (ii) request Borrower at its expense to assemble the Personal Property and make it available to Lender at a convenient place acceptable to Lender. Any notice of sale, disposition or other intended action by Lender with respect to the Personal Property sent to Borrower in accordance with the provisions hereof at least five (5) days prior to such action, shall constitute commercially reasonable notice to Borrower.

(i) Apply Escrow Funds. Lender may apply any Funds (as defined in the Escrow Agreement) and any other sums held in escrow or otherwise by Lender in accordance with the terms of this Security Instrument or any Other Loan Document to the payment of the following items in any order in its uncontrolled discretion:

(i) Taxes and Other Charges;

(ii) Insurance Premiums;

(iii) Interest on the unpaid principal balance of the Note;

(iv) Amortization of the unpaid principal balance of the Note; and

(v) All other sums payable pursuant to the Note, this Security Instrument and the Other Loan Documents, including without limitation advances made by Lender pursuant to the terms of this Security Instrument.

(j) Other Rights. Lender (i) may surrender the Policies maintained pursuant to this Security Instrument or any part thereof, and upon receipt shall apply the unearned premiums as a credit on the Debt, and, in connection therewith, Borrower hereby appoints Lender as agent and attorney-in-fact (which is coupled with an interest and is therefore irrevocable) for Borrower to collect such premiums; and (ii) may apply the Tax and Insurance Escrow Fund (as defined in the Escrow Agreement) and/or the Replacement Escrow Fund (as defined in the Escrow Agreement) and any other funds held by Lender toward payment of the Debt; and (iii) shall have and may exercise any and all other rights and remedies which Lender may have at law or in equity, or by virtue of any of the Loan Documents, or otherwise.

(k) Right to Complete. Borrower acknowledges that construction is ongoing on a portion of the Land secured by this Security Instrument which construction is not being financed by the proceeds of the Loan. Notwithstanding the foregoing, upon occurrence of any Event of Default, Lender may, in addition to any other remedies Lender may have under this Security Instrument or any of the Loan Documents or by statute or by rule of law, enter upon the Property and construct, equip, repair and complete the Improvements in accordance with the plans and specifications for the construction of the Improvements with such changes therein as Lender may from time to time and in its reasonable discretion deem appropriate, all at the cost and expense of Borrower. In exercising such rights, Lender shall have the right at any and all times to discontinue any work commenced by it in respect of the Improvements or to change any course of action undertaken by it and shall not be bound by any limitations or requirements of time whether set forth herein or otherwise. In exercising such rights, Lender shall have the right and power (but shall not be obligated) to assume any design or construction contract made by or on behalf of Borrower in any way relating to the Improvements and to take over and use all or any part or parts of the labor, materials, supplies and equipment contracted for by or on behalf of Borrower, whether or not previously incorporated into the Improvements, all in the sole and absolute discretion of Lender. In connection with any construction of the Improvements undertaken by Lender pursuant to the provisions of this subsection, Lender may (a) engage builders, contractors, architects, engineers and others for the purpose of furnishing labor, materials and equipment in connection with any construction of the Improvements, (b) pay, settle or compromise all bills or claims that have or may become liens against the Property, or any portion thereof, or that have been or may be incurred in any manner in connection with the construction, repairing, completion and equipping of the Improvements or for the discharge of liens or other defects in the title of the Property, and (c) take such other action (including the employment of watchmen to protect the Improvements) or refrain from acting under this Security Instrument as Lender may in its sole and absolute discretion from time to time determine without any limitation whatsoever. Borrower shall be liable to Lender for all sums paid or incurred by Lender, as the case may be, for the construction, repairing, completion and equipping of the Improvements, whether the same shall be paid or incurred pursuant to the provisions of this Section 10.1(k) or otherwise, and all payments made or liabilities incurred by Lender under this Security Instrument or any of the Loan Documents of any kind whatsoever, including, without limitation, all fees, costs and expenses incurred by Lender in accordance with this Security Instrument or any other Loan Document, shall be paid by Borrower to Lender upon demand with interest at the Default Rate from the date such payment or liability was incurred to the date of payment to Lender and all of the foregoing, including interest, shall be deemed and shall constitute advances under this Security Instrument and be secured by this Security Instrument. Upon the occurrence of any Event of Default, the rights, powers and privileges provided in this Section 10.1(k) and all other remedies available to Lender under this Security Instrument may be exercised by Lender at any time and from time to time whether or not the indebtedness evidenced by the Note and secured by this Security Instrument shall be declared by Lender to be due and payable, and whether or not Lender shall have instituted any foreclosure or other action for the enforcement of this Security Instrument. For the purpose of carrying out the provisions and exercising the rights, powers and privileges granted by this Section 10.1(k), Borrower hereby irrevocably constitutes and appoints Lender its true and lawful attorney-in-fact to execute, acknowledge and deliver any instruments and to do and perform any acts such as are referred to in this Section 10.1(k) in the name and on behalf of Borrower. This power of attorney is a power coupled with an interest and cannot be revoked.

(l) Discontinuance of Remedies. In case Lender shall have proceeded to invoke any right, remedy, or recourse permitted under the Loan Documents and shall thereafter elect to discontinue or abandon same for any reason, Lender shall have the unqualified right so to do and, in such event, Borrower and Lender shall be restored to their former positions with respect to the Debt, the Loan Documents, the Property or otherwise, and the rights, remedies, recourses and powers of Lender shall continue as if same had never been invoked.

(m) Remedies Cumulative. All rights, remedies, and recourses of Lender granted in the Note, this Security Instrument and the Other Loan Documents, any other pledge of collateral, or otherwise available at law or equity: (i) shall be cumulative and concurrent; (ii) may be pursued separately, successively, or concurrently against Borrower, the Property, or any one or more of them, at the sole discretion of Lender; (iii) may be exercised as often as occasion therefor shall arise, it being agreed by Borrower that the exercise or failure to exercise any of same shall in no event be construed as a waiver or release thereof or of any other right, remedy, or recourse; (iv) shall be nonexclusive; (v) shall not be conditioned upon Lender exercising or pursuing any remedy in relation to the Property prior to Lender bringing suit to recover the Debt; and (vi) in the event Lender elects to bring suit on the Debt and obtains a judgment against Borrower prior to exercising any remedies in relation to the Property, all liens and security interests, including the lien of this Security Instrument, shall remain in full force and effect and may be exercised thereafter at Lender's option

(n) Bankruptcy Acknowledgment. In the event the Property or any portion thereof or any interest therein becomes property of any bankruptcy estate or subject to any state or federal insolvency proceeding, then Lender shall immediately become entitled, in addition to all other relief to which Lender may be entitled under this Security Instrument, to obtain (i) an order from the Bankruptcy Court or other appropriate court granting immediate relief from the automatic stay pursuant to 362 of the Bankruptcy Code so to permit Lender to pursue its rights and remedies against Borrower as provided under this Security Instrument and all other rights and remedies of Lender at law and in equity under applicable state law, and (ii) an order from the Bankruptcy Court prohibiting Borrower's use of all "cash collateral" as defined under 363 of the Bankruptcy Code. In connection with such Bankruptcy Court orders, Borrower shall not contend or allege in any pleading or petition filed in any court proceeding that Lender does not have sufficient grounds for relief from the automatic stay. Any bankruptcy petition or other action taken by the Borrower to stay, condition, or inhibit Lender from exercising its remedies are hereby admitted by Borrower to be in bad faith and Borrower further admits that Lender would have just cause for relief from the automatic stay in order to take such actions authorized under state law.

(o) Application of Proceeds. The proceeds from any sale, lease, or other disposition made pursuant to this Security Instrument, or the proceeds from the surrender of any insurance policies pursuant hereto, or any Rents collected by Lender from the Property, or the Tax and Insurance Escrow Fund or the Replacement Escrow Fund (as defined in the Escrow Agreement) or proceeds from insurance which Lender elects to apply to the Debt pursuant to Article 3 hereof, shall be applied by Lender, as the case may be, to the Debt in the following order and priority: (1) to the payment of all expenses of advertising, selling, and conveying the Property or part thereof, and/or prosecuting or otherwise collecting Rents, proceeds, premiums or other sums including reasonable attorneys' fees not to exceed five percent (5%) of the proceeds thereof or sums so received; (2) to that portion, if any, of the Debt with respect to which no person or entity has personal or entity liability for payment (the "Exculpated Portion"), and with respect to the Exculpated Portion as follows: first, to accrued but unpaid interest, second, to matured principal, and third, to unmatured principal in inverse order of maturity, (3) to the remainder of the Debt as follows: first, to the remaining accrued but unpaid interest, second, to the matured portion of principal of the Debt, and third, to prepayment of the unmatured portion, if any, of principal of the Debt applied to installments of principal in inverse order of maturity, (4) the balance, if any or to the extent applicable, remaining after the full and final payment of the Debt to the holder or beneficiary of any inferior liens covering the Property, if any, in order of the priority of such inferior liens (Lender shall hereby be entitled to rely exclusively on a commitment for title insurance issued to determine such priority); and (5) the cash balance, if any, to the Borrower. The application of proceeds of sale or other proceeds as otherwise provided herein shall be deemed to be a payment of the Debt like any other payment. The balance of the Debt remaining unpaid, if any, shall remain fully due and owing in accordance with the terms of the Note and the other Loan Documents.

Section 10.2 Right of Entry . Lender and its agents shall have the right to enter and inspect the Property at all reasonable times.

ARTICLE 11 - INDEMNIFICATION; SUBROGATION

Section 11.1 General Indemnification.

(a) Borrower shall indemnify, defend and hold Lender harmless against: (i) any and all claims for brokerage, leasing, finder's or similar fees which may be made relating to the Property or the Debt, and (ii) any and all liability, obligations, losses, damages, penalties, claims, actions, suits, costs and expenses (including Lender's reasonable attorneys' fees, together with reasonable appellate counsel fees, if any) of whatever kind or nature which may be asserted against, imposed on or incurred by Lender in connection with the Debt, this Security Instrument, the Property, or any part thereof, or the exercise by Lender of any rights or remedies granted to it under this Security Instrument or the performance by or on behalf of Borrower of any construction on the Property; provided, however, that nothing herein shall be construed to obligate Borrower to indemnify, defend and hold harmless Lender from and against any and all liabilities, obligations, losses, damages, penalties, claims, actions, suits, costs and expenses enacted against, imposed on or incurred by Lender by reason of Lender's willful misconduct or gross negligence.

(b) If Lender is made a party defendant to any litigation or any claim is threatened or brought against Lender concerning the secured indebtedness, this Security Instrument, the Property, or any part thereof, or any interest therein, or the construction, maintenance, operation or occupancy or use thereof, then Lender shall notify Borrower of such litigation or claim and Borrower shall indemnify, defend and hold Lender harmless from and against all liability by reason of said litigation or claims, including reasonable attorneys' fees (together with reasonable appellate counsel fees, if any). The right to such attorneys' fees (together with reasonable appellate counsel fees, if any) and expenses incurred by Lender in any litigation or claim, of the type described in this Subsection 11.1(b), whether or not any such litigation or claim is prosecuted to judgment, shall be deemed to have accrued on the commencement of such claim or action and shall be enforceable whether or not such claim or action is prosecuted to judgment. Notwithstanding the foregoing, in the event any such claim, litigation or other action is brought against Lender, Borrower and Lender agree that Lender shall utilize counsel designated by Borrower, at Borrower's sole cost and expense, which counsel must be satisfactory to Lender, provided, however, that (i) no settlement of any such claim, litigation or other action shall be made without the Lender's prior written consent and (ii) in the event that Lender or such counsel determines that a conflict of interest exists, Lender shall have the right to retain separate counsel, the reasonable fees and expenses of which shall be borne by Borrower. If Lender commences an action against Borrower to enforce any of the terms hereof or to prosecute any breach by Borrower of any of the terms hereof or to recover any sum secured hereby, Borrower shall pay to Lender its reasonable attorneys' fees (together with reasonable appellate counsel fees, if any) and expenses. If Borrower breaches any term of this Security Instrument, Lender may engage the services of an attorney or attorneys to protect its rights hereunder, and in the event of such engagement following any breach by Borrower, Borrower shall pay Lender reasonable attorneys' fees (together with reasonable appellate counsel fees, if any) and expenses incurred by Lender, whether or not an action is actually commenced against Borrower by reason of such breach. All references to "attorneys" in this Subsection 11.1(b) and elsewhere in this Security Instrument shall include without limitation any attorney or law firm engaged by Lender and Lender's in-house counsel, and all references to "fees and expenses" in this Subsection 11.1(b) and elsewhere in this Security Instrument shall include without limitation any fees of such attorney or law firm.

(c) A waiver of subrogation shall be obtained by Borrower from its insurance carrier and, consequently, Borrower waives any and all right to claim or recover against Lender, its officers, employees, agents and representatives, for loss of or damage to Borrower, the Property, Borrower's property or the property of others under Borrower's control from any cause insured against or required to be insured against by the provisions of this Security Instrument.

Section 11.2 Environmental Indemnification . Borrower shall, at its sole cost and expense, protect, defend, indemnify, release and hold harmless the Indemnified Parties from and against any and all Losses (as hereinafter defined) imposed upon or incurred by or asserted against any Indemnified Parties (other than those arising solely from a state of facts that first came into existence after Lender acquired title to the Property through foreclosure or a deed in lieu thereof), and directly or indirectly arising out of or in any way relating to any one or more of the following: (a) any presence of any Hazardous Substances (as hereinafter defined) in, on, above, or under the Property; (b) any past, present or future Release (as hereinafter defined) of Hazardous Substances in, on, above, under or from the Property, (c) any activity by Borrower, any person or entity affiliated with Borrower, and any tenant or other user of the Property in connection with any actual, proposed or threatened use, treatment, storage, holding, existence, disposition or other Release, generation, production, manufacturing, processing, refining, control, management, abatement, removal, handling, transfer or transportation to or from the Property of any Hazardous Substances at any time located in, under, on or above the Property; (d) any activity by Borrower, any person or entity affiliated with Borrower, and any tenant or other user of the Property in connection with any actual or proposed Remediation (as hereinafter defined) of any Hazardous Substances at any time located in, under, on or above the Property, whether or not such Remediation is voluntary or pursuant to court or administrative order, including but not limited to any removal, remedial or corrective action; (e) any past, present or threatened non-compliance or violations of any Environmental Law (as hereinafter defined) (or permits issued pursuant to any Environmental Law) in connection with the Property or operations thereon, including but not limited to any failure by Borrower, any person or entity affiliated with Borrower, and any tenant or other user of the Property to comply with any order of any governmental authority in connection with any Environmental Laws; (f) the imposition, recording or filing or the future imposition, recording or filing of any Environmental Lien (as hereinafter defined) encumbering the Property; (g) any administrative processes or proceedings or judicial proceedings in any way connected with any matter addressed in this Section 11.2; (h) any misrepresentation or inaccuracy in any representation or warranty or material breach or failure to perform any covenants or other obligations under the Environmental Indemnity, and (i) any diminution in value of the Property in any way connected with any occurrence or other matter referred to in this Section 11.2.

The term "Environmental Law" means any present and future federal, state and local laws, statutes, ordinances, rules and regulations, as well as common law, relating to protection of human health or the environment, relating to Hazardous Substances, relating to liability for or costs of Remediation or prevention of Releases of Hazardous Substances or relating to liability for or costs of other actual or threatened danger to human health or the environment. The term "Environmental Law" includes, but is not limited to, the following statutes, as amended, any successor thereto, and any regulations promulgated pursuant thereto, and any state or local statutes, ordinances, rules and regulations addressing similar issues: the Comprehensive Environmental Response, Compensation and Liability Act; the Emergency Planning and Community Right-to-Know Act; the Hazardous Substances Transportation Act; the Resource Conservation and Recovery Act (including but not limited to Subtitle I relating to underground storage tanks); the Solid Waste Disposal Act; the Clean Water Act; the Clean Air Act; the Toxic Substances Control Act; the Safe Drinking Water Act; the Occupational Safety and Health Act; the Federal Water Pollution Control Act; the Federal Insecticide, Fungicide and Rodenticide Act; the Endangered Species Act; the National Environmental Policy Act; and the River and Harbors Appropriation Act. The term "Environmental Law" also includes, but is not limited to, any present and future federal, state and local laws, statutes, ordinances, rules and regulations, as well as common law, conditioning transfer of property upon a negative declaration or other approval of a governmental authority of the environmental condition of the Property, requiring notification or disclosure of Releases of Hazardous Substances or other environmental condition of the Property to any governmental authority or other person or entity, whether or not in connection with transfer of title to or interest in property; or imposing conditions or requirements in connection with permits or other authorization for lawful activity; relating to nuisance, trespass or other causes of action related to the Property.

The term "Environmental Lien" includes but is not limited to any lien or other encumbrance imposed pursuant to Environmental Law, whether due to any act or omission of Borrower or any other person or entity.

The term "Hazardous Substances" includes but is not limited to any and all substances (whether solid, liquid or gas) defined, listed, or otherwise classified as pollutants, hazardous wastes, hazardous substances, hazardous materials, extremely hazardous wastes, or words of similar meaning or regulatory effect under any present or future Environmental Laws or that may have a negative impact on human health or the environment, including but not limited to petroleum and petroleum products, asbestos and asbestos-containing materials, polychlorinated biphenyls, lead, lead-based paints, radon, radioactive materials, flammables and explosives.

The term ''Indemnified Parties" includes but is not limited to Lender, any person or entity who is or will have been involved in originating the Loan evidenced by the Note, any person or entity who is or will have been involved in servicing the Loan, any person or entity in whose name the encumbrance created by this Security Instrument is or will have been recorded, persons and entities who may hold or acquire or will have held a full or partial interest in the Loan (including but not limited to those who may acquire any interest in Securities, as well as custodians, trustees and other fiduciaries who hold or have held a full or partial interest in the Loan for the benefit of third parties), as well as the respective directors, officers, shareholders, partners, employees, agents, servants, representatives, contractors, subcontractors, affiliates, subsidiaries, participants, successors and assign of any and all of the foregoing (including but not limited to any other person or entity who holds or acquires or will have held a participation or other full or partial interest in the Loan or the Property, whether during the term of the Loan or as part of or following foreclosure pursuant to the Loan) and including but not limited to any successors by merger, consolidation or acquisition of all or a substantial part of Lender's assets and business.

The term "Losses" includes but is not limited to any claims, suits, liabilities (including but not limited to strict liabilities), administrative or judicial actions or proceedings, obligations, debts, damages, losses, costs, expenses, diminutions in value (but only to the extent of any deficiency suffered by Lender in connection with a foreclosure of the Property or subsequent sale following a foreclosure or comparable conversion of the Property), fines, penalties, charges, fees, expenses, costs of Remediation (whether or not performed voluntarily), judgments, award, amounts paid in settlement, litigation costs, reasonable attorneys' fees, engineer's fees, environmental consultants' fees and investigation costs (including but not limited to costs for sampling, testing and analysis of soil, water, air, building materials, and other materials and substances whether solid, liquid or gas), of whatever kind or nature, and whether or not incurred in connection with any judicial or administrative proceedings.

The term "Release" with respect to any Hazardous Substance includes but is not limited to any release, deposit, discharge, emission, leaking, leaching, spilling, seeping, migrating, injecting, pumping pouring, emptying, escaping, dumping, disposing or other movement of Hazardous Substances.

The term "Remediation" includes but is not limited to any response, remedial, removal, or corrective action; any activity to cleanup, detoxify, decontaminate, contain or otherwise remediate any Hazardous Substance; any actions to prevent, cure or mitigate any Release of any Hazardous Substance; any action to comply with any Environmental Laws or with any permits issued pursuant thereto; any inspection, investigation, study, monitoring, assessment, audit, sampling and testing, laboratory or other analysis, or evaluation relating to any Hazardous Substances or to anything referred to in this Article 11.

Section 11.3 Excluded Occurrences . Notwithstanding any provision of this Security Instrument to the contrary, where after the date of this Security Instrument there shall occur an event (including without limitation, a Release) for which Borrower would have an obligation under this Security Instrument to indemnify, defend, protect or hold harmless the Indemnified Parties, then Borrower shall have no such obligation to indemnify, defend, protect, release and hold harmless the Indemnified Parties from and against Losses for acts or omissions the cause(s) of which is outside or beyond the control of Borrower. For purposes of this Section 11.3, Borrower shall be deemed and construed to have control over the acts and omissions of all tenants and subtenants of the Property and each of their respective agents, vendors, guests, invitees, licensees, servants, employees, officers, directors, representatives, contractors, subcontractors, affiliates and subsidiaries.

Section 11.4 Duty to Defend and Attorneys and Other Fees and Expenses . Borrower shall defend any Indemnified Party (if requested by any Indemnified Party, in the name of the Indemnified Party) by attorneys and other professionals approved by the Indemnified Parties. The Indemnified Parties shall, except as expressly provided below, utilize counsel designated by Borrower, at Borrower's sole cost and expense, which counsel must be satisfactory to the Indemnified Parties, provided, however, that (i) no settlement of any such claim, litigation or other action shall be made without the Indemnified Parties' prior written consent and (ii) in the event that any Indemnified Party or such counsel determines that a conflict of interest exists, any Indemnified Party with respect to which such conflict exists shall have the right to retain separate counsel, the reasonable fees and expenses of which shall be borne by the Borrower. Notwithstanding the foregoing, if an Event of Default exists hereunder, any Indemnified Parties may, in their sole and absolute discretion, engage their own attorneys and other professionals to defend or assist them, and, at the option of Indemnified Parties, their attorneys shall control the resolution of claim or proceeding. Upon demand, Borrower shall pay or, in the sole and absolute discretion of the Indemnified Parties, reimburse, the Indemnified Parties for the payment of reasonable fees and disbursements of attorneys, engineers, environmental consultants, laboratories and other professionals in connection therewith.

Section 11.5 Survival of Indemnities . Notwithstanding any provision of this Security Instrument or any other Loan Document to the contrary, the provisions of Section 11.1 and Section 11.2, and Borrower's obligations thereunder, shall survive (a) the repayment of the Note, (b) the foreclosure of this Security Instrument, and (c) the release (or reconveyance, as applicable) of the lien of this Security Instrument.

ARTICLE 12 - SECURITY AGREEMENT

Section 12.1 Security Agreement . This Security Instrument is both a real property mortgage or deed of trust and a "security agreement" within the meaning of the Uniform Commercial Code. The Property includes both real and personal property and all other rights and interests, whether tangible or intangible in nature, of Borrower in the Property. Borrower by executing and delivering this Security Instrument has granted and hereby grants to Lender, as security for the Debt, a security interest in the Property to the full extent that the Property may be subject to the Uniform Commercial Code (said portion of the Property so subject to the Uniform Commercial Code being called in this paragraph the "Collateral"). Borrower hereby agrees with Lender to execute and deliver to Lender, in form and substance satisfactory to Lender, such financing statements, continuation statements, other uniform commercial code forms and shall pay all expenses and fees in connection with the filing and recording thereof, and such further assurances as Lender may from time to time, reasonably consider necessary to create, perfect, and preserve Lender's security interest herein granted. This Security Instrument shall also constitute a "fixture filing" for the purposes of the Uniform Commercial Code. All or part of the Property are or are to become fixtures. Information concerning the security interest herein granted may be obtained from the parties at the addresses of the parties set forth in the first paragraph of this Security Instrument. If an Event of Default shall occur, Lender, in addition to any other rights and remedies which they may have, shall have and may exercise immediately and without demand, any and all rights and remedies granted to a secured party upon default under the Uniform Commercial Code, including, without limiting the generality of the foregoing, the right to take possession of the Collateral or any part thereof, and to take such other measures as Lender may deem necessary for the care, protection and preservation of the Collateral. Upon request or demand of Lender, Borrower shall at its expense assemble the Collateral and make it available to Lender at a convenient place acceptable to Lender. Borrower shall pay to Lender on demand any and all expenses, including legal expenses and attorneys' fees, incurred or paid by Lender in protecting the interest in the Collateral and in enforcing the rights hereunder with respect to the Collateral. Any notice of sale, disposition or other intended action by Lender with respect to the Collateral sent to Borrower in accordance with the provisions hereof at least five (5) days prior to such action, shall constitute commercially reasonable notice to Borrower. The proceeds of any disposition of the Collateral, or any part thereof, may be applied by Lender to the payment of the Debt in such priority and proportions as Lender in its discretion shall deem proper. In the event of any change in name, identity or structure of any Borrower, such Borrower shall notify Lender thereof, it being understood and agreed, however, that no such additional documents shall increase Borrower's obligations under the Note, this Security Instrument and the Other Loan Documents. Borrower hereby irrevocably appoints Lender as its attorney-in-fact, coupled with an interest, to file with the appropriate public office on its behalf any financing or other statements signed only by Lender, as Borrower's attorney-in-fact, in connection with the Collateral covered by this Security Instrument. Notwithstanding the foregoing, Borrower shall appear and defend in any action or proceeding which affects or purports to affect the Property and any interest or right therein, whether such proceeding effects title or any other rights in the Property (and in conjunction therewith, Borrower shall fully cooperate with Lender in the event Lender is a party to such action or proceeding).

ARTICLE 13 - WAIVERS

Section 13.1 Marshalling and Other Matters . Borrower hereby waives, to the extent permitted by law, the benefit of all appraisement, valuation, stay, extension, reinstatement and redemption laws now or hereafter in force and all rights of marshalling in the event of any sale hereunder of the Property or any part thereof or any interest therein. Further, Borrower hereby expressly waives any and all rights of redemption from sale under any order or decree of foreclosure of this Security Instrument on behalf of Borrower, and on behalf of each and every person acquiring any interest in or title to the Property subsequent to the date of this Security Instrument and on behalf of all persons to the extent permitted by applicable law.

Section 13.2 Waiver of Notice . Borrower shall not be entitled to any notices of any nature whatsoever from Lender except with respect to matters for which this Security Instrument specifically and expressly provides for the giving of notice by Lender to Borrower and except with respect to matters for which Lender is required by applicable law to give notice, and Borrower hereby expressly waives the right to receive any notice from Lender with respect to any matter for which this Security Instrument does not specifically and expressly provide for the giving of notice by Lender to Borrower.

Section 13.3 Sole Discretion of Lender . Wherever pursuant to this Security Instrument Lender exercises any right given to it to approve or disapprove, or any arrangement or term is to be satisfactory to Lender, the decision of Lender to approve or disapprove or to decide that arrangements or terms are satisfactory or not satisfactory shall be in the sole discretion of Lender and shall be final and conclusive, except as may be otherwise expressly and specifically provided herein.

Section 13.4 Survival . The indemnifications made pursuant to Article 11, shall continue indefinitely in full force and effect and shall survive and shall in no way be impaired by any satisfaction or other termination of this Security Instrument, any assignment or other transfer of all or any portion of this Security Instrument or Lender's interest in the Property (but, in such case, shall benefit both Indemnified Parties and any assignee or transferee), any exercise of Lender's rights and remedies pursuant hereto including but not limited to foreclosure or acceptance of a deed in lieu of foreclosure, any exercise of any rights and remedies pursuant to the Note or any of the Other Loan Documents, any transfer of all or any portion of the Property (whether by Borrower or by Lender following foreclosure or acceptance of a deed in lieu of foreclosure or at any other time), any amendment to this Security Instrument, the Note or the Other Loan Documents, and any act or omission that might otherwise be construed as a release or discharge of Borrower from the obligations pursuant hereto.

Section 13.5 Waiver Of Trial By Jury.

BORROWER HEREBY AGREES NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY JURY, AND WAIVES ANY RIGHT TO TRIAL BY JURY FULLY TO THE EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER EXIST WITH REGARD TO THIS SECURITY INSTRUMENT OR THE OTHER LOAN DOCUMENTS, OR ANY CLAIM, COUNTERCLAIM OR OTHER ACTION ARISING IN CONNECTION THEREWITH INCLUDING, BUT NOT LIMITED TO THOSE RELATING TO (A) ALLEGATIONS THAT A PARTNERSHIP EXISTS BETWEEN LENDER AND BORROWER; (B) USURY OR PENALTIES OR DAMAGES THEREFOR; (C) ALLEGATIONS OF UNCONSCIONABLE ACTS, DECEPTIVE TRADE PRACTICE, LACK OF GOOD FAITH OR FAIR DEALING, LACK OF COMMERCIAL REASONABLENESS, OR SPECIAL RELATIONSHIPS (SUCH AS FIDUCIARY, TRUST OR CONFIDENTIAL RELATIONSHIP); (D) ALLEGATIONS OF DOMINION, CONTROL, ALTER EGO, INSTRUMENTALITY, FRAUD, REAL ESTATE FRAUD, MISREPRESENTATION, DURESS, COERCION, UNDUE INFLUENCE, INTERFERENCE OR NEGLIGENCE; (E) ALLEGATIONS OF TORTIOUS INTERFERENCE WITH PRESENT OR PROSPECTIVE BUSINESS RELATIONSHIPS OR OF ANTITRUST; OR (F) SLANDER, LIBEL OR DAMAGE TO REPUTATION. THIS WAIVER OF RIGHT TO TRIAL BY JURY IS GIVEN KNOWINGLY AND VOLUNTARILY BY BORROWER, AND IS INTENDED TO ENCOMPASS INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH. THE RIGHT TO A TRIAL BY JURY WOULD OTHERWISE ACCRUE. LENDER IS HEREBY AUTHORIZED TO FILE A COPY OF THIS PARAGRAPH IN ANY PROCEEDING AS CONCLUSIVE EVIDENCE OF THIS WAIVER BY BORROWER.

THE PROVISIONS OF THIS SECURITY INSTRUMENT AND THE LOAN DOCUMENTS MAY BE AMENDED OR REVISED ONLY BY AN INSTRUMENT IN WRITING SIGNED BY THE BORROWER AND LENDER THIS SECURITY INSTRUMENT AND ALL THE OTHER LOAN DOCUMENTS EMBODY THE FINAL, ENTIRE AGREEMENT OF BORROWER AND LENDER AND SUPERSEDE ANY AND ALL PRIOR COMMITMENTS, AGREEMENTS, REPRESENTATIONS AND UNDERSTANDINGS, WHETHER WRITTEN OR ORAL, RELATING TO THE SUBJECT MATTER HEREOF AND THEREOF AND MAY NOT BE CONTRADICTED OR VARIED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OR DISCUSSIONS OF BORROWER AND LENDER. THERE ARE NO ORAL AGREEMENTS BETWEEN BORROWER AND LENDER.

Section 13.6 Waiver Of Automatic or Supplemental Stay. In the event of the filing of any voluntary or involuntary petition under the Bankruptcy Code by or against Borrower (other than an involuntary petition filed by or joined in by Lender), the Borrower shall not assert, or request any other party to assert, that the automatic stay under 362 of the Bankruptcy Code shall operate or be interpreted to stay, interdict, condition, reduce or inhibit the ability of Lender to enforce any rights it has by virtue of this Security Instrument, or any other rights that Lender has, whether now or hereafter acquired, against any guarantor of the Debt. Further, Borrower shall not seek a supplemental stay or any other relief, whether injunctive or otherwise, pursuant to 105 of the Bankruptcy Code or any other provision therein to stay, interdict, condition, reduce or inhibit the ability of Lender to enforce any rights it has by virtue of this Security Instrument against any guarantor of the Debt. The waivers contained in this paragraph are a material inducement to Lender's willingness to enter into this Security Instrument and Borrower acknowledges and agrees that no grounds exist for equitable relief which would bar, delay or impede the exercise by Lender of Lender's rights and remedies against Borrower or any guarantor of the Debt.

ARTICLE 14 - NOTICES

Section 14.1 Notices . All notices or other written communications hereunder shall be deemed to have been properly given (i) upon delivery, if delivered in person or by facsimile transmission with receipt acknowledged, (ii) one (1) Business Day after having been deposited for overnight delivery with any reputable overnight courier service, or (iii) three (3) Business Days after having been deposited in any post office or mail depository regularly maintained by the U.S. Postal Service and sent by registered or certified mail, postage prepaid, addressed as follows:

If to Borrower: Warthog, Inc.

c/o The Fairchild Corporation

45025 Aviation Drive, Suite 400

Dulles, Virginia 20166-7516

Attention: Colin M. Cohen

Facsimile No.: (703) 478-5775

With a copy to: The Fairchild Corporation

45025 Aviation Drive, Suite 400

Dulles, Virginia 20166-7516

Attention: Ernesto Beckford, Esq.

Facsimile No.: (703) 478-5767

If to Lender: Morgan Guaranty Trust Company of New York

60 Wall Street

New York, New York 10260-0060

Attention: Nancy Alto, Commercial Mortgage Finance Group

Loan Servicing

Facsimile No.: (212) 648-5274

With a copy to: Swidler Berlin Shereff Friedman, LLP

3000 K Street, N.W., Suite 300

Washington, D. C. 20007

Attention: Jeffrey Scharff, Esq.

Facsimile No.: (202) 424-7643

or addressed as such party may from time to time designate by written notice to the other parties.

Either party by notice to the other may designate additional or different addresses for subsequent notices or communications.

For purposes of this Subsection, "Business Day" shall mean a day on which commercial banks are not authorized or required by law to close in New York, New York.

ARTICLE 15-APPLICABLE LAW

Section 15.1 Governing Law . This Security Instrument shall be governed by and construed in accordance with applicable federal law and the laws of the state where the Property is located, without reference or giving effect to any choice of law doctrine.

Section 15.2 Usury Laws . This Security Instrument and the Note are subject to the express condition that at no time shall Borrower be obligated or required to pay interest on the Debt at a rate which could subject the holder of the Note to either civil or criminal liability as a result of being in excess of the maximum interest rate which Borrower is permitted by applicable law to contract or agree to pay. If by the terms of this Security Instrument or the Note, Borrower is at any time required or obligated to pay interest on the Debt at a rate in excess of such maximum rate, the rate of interest under this Security Instrument and the Note shall be deemed to be immediately reduced to such maximum rate and the interest payable shall be computed at such maximum rate and all prior interest payments in excess of such maximum rate shall be applied and shall be deemed to have been payments in reduction of the principal balance of the Note. All sums paid or agreed to be paid to Lender for the use, forbearance, or detention of the Debt shall, to the extent permitted by applicable law, be amortized, prorated, allocated, and spread throughout the full stated term of the Note until payment in full so that the rate or amount of interest on account of the Debt does not exceed the maximum lawful rate of interest from time to time in effect and applicable to the Debt for so long as the Debt is outstanding.

Section 15.3 Provisions Subject To Applicable Law . All rights, powers and remedies provided in this Security Instrument may be exercised only to the extent that the exercise thereof does not violate any applicable provisions of law and are intended to be limited to the extent necessary so that they will not render this Security Instrument invalid, unenforceable or not entitled to be recorded, registered or filed under the provisions of any applicable law. If any term of this Security Instrument or any application thereof shall be invalid or unenforceable, the remainder of this Security Instrument and any other application of the term shall not be affected thereby.

ARTICLE 16 - SECONDARY MARKET

Section 16.1 Transfer of Loan . Lender may, at any time, sell, transfer or assign the Note, this Security Instrument and the Other Loan Documents, and any or all servicing rights with respect thereto, or grant participations therein or issue mortgage pass-through certificates or other securities evidencing a beneficial interest in a rated or unrated public offering or private placement (the "Securities"). Lender may forward to each purchaser, transferee, assignee, servicer, participant, investor in such Securities or any Rating Agency (as hereinafter defined) rating such Securities (collectively, the "Investor") and each prospective Investor, all documents and information which Lender now has or may hereafter acquire relating to the Debt and to Borrower, any Guarantor, any Indemnitor and the Property, whether furnished by Borrower, any Guarantor, any Indemnitor or otherwise, as Lender determines necessary or desirable. The term "Rating Agency" shall mean each statistical rating agency that has assigned a rating to the Securities.

ARTICLE 17 - COSTS

Section 17.1 Performance at Borrower's Expense. Borrower acknowledges and confirms that Lender shall impose certain reasonable administrative processing and/or commitment fees in connection with (a) the extension, renewal, modification, amendment and termination (excluding the scheduled maturity of the Note) of its loans, (b) the release or substitution of collateral therefor, or (c) obtaining certain consents, waivers and approvals with respect to the Property (the occurrence of any of the above shall be called an "Event"). Borrower hereby acknowledges and agrees to pay, promptly upon demand, all such fees (as the same may be increased or decreased from time to time), and any additional reasonable fees of a similar type or nature which may be imposed by Lender from time to time, upon the occurrence of any Event.

Section 17.2 Attorneys' Fees for enforcement. (a) Borrower shall pay all reasonable legal fees incurred by Lender in connection with (i) the preparation of the Note, this Security Instrument and the Other Loan Documents and (ii) the items set forth in Section 17.1 above, and (b) Borrower shall pay to Lender on demand any and all expenses, including reasonable legal expenses and attorneys' fees, reasonably incurred or paid by Lender in protecting its interest in the Property or Personal Property and/or collecting any amount payable or in enforcing its rights hereunder with respect to the Property or Personal Property, whether or not any legal proceeding is commenced hereunder or thereunder and whether or not any default or Event of Default shall have occurred and is continuing, together with interest thereon at the Default Rate from the date of payment or incurring by Lender until paid by Borrower.

ARTICLE 18 - DEFINITIONS

Section 18.1 General Definitions. Unless the context clearly indicates a contrary intent or unless otherwise specifically provided herein, words used in this Security Instrument may be used interchangeably in singular or plural form and the word "Borrower" shall mean "each Borrower and any subsequent owner or owners of the Property or any part thereof or any interest therein," the word "Lender" shall mean "Lender and any subsequent holder of the Note," the word "Note" shall mean "the Note and any other evidence of indebtedness secured by this Security Instrument," the word "person" shall include an individual, corporation, partnership, trust, unincorporated association, government, governmental authority, and any other entity, the word "Property" shall include any portion of the Property and any interest therein, and the phrases "attorneys' fees", "legal fees" and "counsel fees" shall include any and all attorneys', paralegal and law clerk fees and disbursements, including, but not limited to, fees and disbursements at the pre-trial, trial and appellate levels reasonably incurred or paid by Lender in protecting its interest in the Property, the Leases and the Rents and enforcing its rights hereunder.

ARTICLE 19 - MISCELLANEOUS PROVISIONS

Section 19.1 No Oral Change . This Security Instrument, and any provisions hereof, may not be modified, amended, waived, extended, changed, discharged or terminated orally or by any act or failure to act on the part of Borrower or Lender, but only by an agreement in writing signed by the party against whom enforcement of any modification, amendment, waiver, extension, change, discharge or termination is sought.

Section 19.2 Liability . If Borrower consists of more than one person, the obligations and liabilities of each such person hereunder shall be joint and several. This Security Instrument shall be binding upon and inure to the benefit of Borrower and Lender and their respective successors and assigns forever.

Section 19.3 Inapplicable Provisions . If any term, covenant or condition of the Note or this Security Instrument is held to be invalid, illegal or unenforceable in any respect, the Note and this Security Instrument shall be construed without such provision.

Section 19.4 Headings. Etc. The headings and captions of various Sections of this Security Instrument are for convenience of reference only and are not to be construed as defining or limiting, in any way, the scope or intent of the provisions hereof.

Section 19.5 Duplicate Originals; Counterparts . This Security Instrument may be executed in any number of duplicate originals and each duplicate original shall be deemed to be an original. This Security Instrument may be executed in several counterparts, each of which counterparts shall be deemed an original instrument and all of which together shall constitute a single Security Instrument. The failure of any party hereto to execute this Security Instrument, or any counterpart hereof, shall not relieve the other signatories from their obligations hereunder.

Section 19.6 Number and Gender . Whenever the context may require, any pronouns used herein shall include the corresponding masculine, feminine or neuter forms. and the singular form of nouns and pronouns shall include the plural and vice versa.

Section 19.7 Subrogation . If any or all of the proceeds of the Note have been used to extinguish, extend or renew any indebtedness heretofore existing against the Property, then, to the extent of the funds so used, Lender shall be subrogated to all of the rights, claims, liens, titles, and interests existing against the Property heretofore held by, or in favor of, the holder of such indebtedness and such former rights, claims, liens, titles, and interests, if any, are not waived but rather are continued in full force and effect in favor of Lender and are merged with the lien and security interest created herein as cumulative security for the repayment of the Debt, the performance and discharge of Borrower's obligations hereunder, under the Note and the Other Loan Documents and the performance and discharge of the Other Obligations.

Section 19.8 Entire Agreement . The Note, this Security Instrument and the Other Loan Documents constitute the entire understanding and agreement between Borrower and Lender with respect to the transactions arising in connection with the Debt and supersede all prior written or oral understandings and agreements between Borrower and Lender with respect thereto. Borrower hereby acknowledges that, except as incorporated in writing in the Note, this Security Instrument and the Other Loan Documents, there are not, and were not, and no persons are or were authorized by Lender to make, any representations, understandings, stipulations, agreements or promises, oral or written, with respect to the transaction which is the subject of the Note, this Security Instrument and the Other Loan Documents.

Section 19.9 Limitation on Liability . The liability of Borrower hereunder is limited to the extent provided in Section 4.12 of the Note.

ARTICLE 20 - SPECIAL STATE OF NEW YORK PROVISIONS

20.1 Construction of Security Instrument . In the event of any conflict between any of the terms and provisions the Security Instrument and this Article 20, the terms and provisions of this Article 20 shall govern and control .

20.2 Remedies . The rights of Lender specified in Article 10 hereof shall be in addition to Lenders's rights under Section 254 of the Real Property Law of New York.

20.3 Lien Law . Borrower will receive advances hereunder subject to the trust fund provisions of Section 13 of the Lien Law.

20.4 Insurance . The following sentence is hereby added to Section 3.2 above:

(i) The provisions of Subsection 4 of Section 254 of the Real Property Law of New York covering the insurance of buildings against loss by fire shall not apply to this Security Instrument.

20.5 Not Residential. The real property is not principally improved or to be improved by one or more structures containing in the aggregate not more than six residential dwelling units, each dwelling unit having its own separate cooking facilities.

IN WITNESS WHEREOF, THIS SECURITY INSTRUMENT has been executed by Borrower the day and year first above written.

WARTHOG, INC., a Delaware corporation

By:______________________________

Name:____________________________

Title:_____________________________

The precise address of the Lender is:

MORGAN GUARANTY TRUST COMPANY

OF NEW YORK

60 Wall Street

New York, New York 10260-0060

Attn: Nancy Alto

Loan No. V_04130

PROMISSORY NOTE

Date of Note: March 20, 2000

Note Amount: $30,750,000.00

FOR VALUE RECEIVED, the undersigned, as maker (the "Borrower"), hereby promises to pay to the order of MORGAN GUARANTY TRUST COMPANY OF NEW YORK ("Lender"), on or before April 1, 2003, at its office located at 60 Wall Street, l8th Floor, New York, New York 10260 or to such other location or account as Lender shall specify to the Borrower from time to time, in federal or other immediately available funds in lawful money of the United States, the principal amount of THIRTY MILLION SEVEN HUNDRED FIFTY THOUSAND AND NO/100 DOLLARS ($30,750,000.00) or, if less, the unpaid principal balance hereof (the "Principal Amount"), together with interest thereon as hereinafter provided.
SECTION 1 DEFINITIONS

As used herein, the following terms shall have the meanings herein specified unless the context otherwise requires. Defined terms in this Note shall include in the singular number the plural and in the plural number the singular. All capitalized terms not otherwise defined herein shall have the meaning ascribed to them in the Security Instrument (as defined below).

"Adjusted LIBOR" means, at any date of determination, the quotient of (i) the LIBOR Rate then in effect divided by (ii) the difference between (A) 1.0, minus (B) the reserve percentage (expressed as a decimal) applicable during such Interest Accrual Period (or if more than one such percentage shall be so applicable, the daily average of such percentages for those days in such Interest Accrual Period during which any such percentage shall be so applicable) under regulations issued from time to time by the Board for determining the maximum reserve requirement (including, any emergency, supplemental or other marginal reserve requirement) of Lender with respect to liabilities or assets consisting of or including "Eurocurrency liabilities" (as such term is defined in Regulation D of the Board) having a term equal to such Interest Accrual Period.

"Adjusted LIBOR Rate" means the sum of (i) Adjusted LIBOR plus (ii) the Applicable Margin.

"Applicable Interest Rate" means, the Adjusted LIBOR Rate or, if the Base Rate is in effect pursuant to Section 2.6 or 2.7 below, the Base Rate, as applicable. Notwithstanding the foregoing, the Applicable Interest Rate shall not at any time exceed _____ percent (____%) per annum, provided, however, the foregoing limit on the maximum Applicable Interest Rate that may be in effect hereunder shall not be given effect if the Applicable Interest Rate is being determined by reference to the Base Rate, if an Event of Default has occurred.

"Applicable Margin" shall mean three and 50/100 percent (3.50%) per annum, subject to reduction in accordance with Section 2.1.4 below.

"Base Rate" means, for any day, the Federal Funds Rate for such day plus the Applicable Margin.

"Board" means the Board of Governors of the Federal Reserve System, and any successor thereof.

"Business Day" means any day other than (a) a Saturday or Sunday, or (b) a day on which banking and savings and loan institutions in the State of New York are authorized or obligated by law or executive order to be closed, or at any time during which the Loan is an asset of a securitization, the cities, states and/or commonwealths used in the comparable definition of "Business Day" in the securitization documents, or when used in the context of any portion of the Loan bearing interest at the LIBOR Rate, is also a day of trading by and between banks in the London interbank market.

"Capital Adequacy Rule" means any law, rule or regulation regarding capital adequacy, or any interpretation or administration thereof by any Governmental Authority, central bank or comparable agency charged with the interpretation or administration thereof, or any request or directive regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency.

"Dollar" and the sign "$" means lawful money of the United States of America.

"Federal Funds Rate" means, for any date, the rate set forth in the weekly statistical release designated as H.15(519) or any successor publication, published by the Board for such day opposite the caption "Federal Funds Effective Rate". If on the relevant day such rate is not yet so published, the rate for such date will be the rate set forth in the daily statistical release designated as the Composite 3:30 p.m. Quotations for U.S. Government Securities, or any successor publication, published by the Federal Reserve Bank of New York for such date under the caption "Federal Funds Effective Rate". If on any relevant date the appropriate rate for such date is not yet published in either of the foregoing publications, the rate for such day will be the arithmetic mean (rounded upwards if necessary, to the nearest 1/l00th of one percent) of the rates for the last transaction in overnight Federal Funds arranged prior to 9:00 a.m. (New York City time) on that day by three leading brokers or dealers of Federal Funds transactions in New York City, selected by Lender.

"Governmental Authority" shall mean, with respect to any person, any federal or state government or other political subdivision thereof and any entity, including any regulatory or administrative authority or court, exercising executive, legislative, judicial, regulatory or administrative or quasi-administrative functions of or pertaining to government, and any arbitration board or tribunal in each case, having jurisdiction over such applicable person or such person's property and any stock exchange on which shares of capital stock of such person are listed or admitted for trading.

"Interest Accrual Period" means each one-month period commencing on the first day of each calendar month and ending on the last day of such calendar month; provided that, if the proceeds of the Loan are disbursed by Lender on a day other than the first day of a calendar month, then the first Interest Accrual Period shall be deemed to have begun on the date the Loan proceeds are so disbursed and shall end on the last day of the calendar month in which the Loan proceeds are so disbursed. Notwithstanding the foregoing, (a) if any Interest Accrual Period would otherwise commence before and end after the Maturity Date, such Interest Accrual Period shall end on the Maturity Date; and (b) each Interest Accrual Period which would otherwise end on a day which is not a Business Day shall end on the next succeeding day which is a Business Day (or if such next succeeding Business Day falls in the next succeeding calendar month, such Interest Accrual Period shall end on the next preceding Business Day) and the first day of the next succeeding Interest Accrual Period shall be adjusted to fall on the last day of such preceding Interest Accrual Period.

"LIBOR Lending Office" means the office of Lender located at Nassau, Bahamas or such other branch (or Affiliate) of Lender as Lender may designate as its LIBOR Lending Office.

"LIBOR Rate" means the rate per annum at which deposits in Dollars appear with respect to the applicable Interest Accrual Period on the Telerate Page 3750 (or any successor page), in each case as of 11:00 a.m. (London time) two (2) Business Days prior to the beginning of such Interest Accrual Period, or if such rate is not available, then the average (rounded upwards, if necessary, to the nearest 1/16 of 1%) of the rates quoted to Lender in the London Interbank market at or about 11:00 a.m. (London time) two (2) Business Days prior to the first day of the applicable Interest Accrual Period for the offering to Lender of Dollar deposits for such Interest Accrual Period in an amount approximately equal to the Principal Amount hereof on the first day of such Interest Accrual Period and with a maturity equal to such Interest Accrual Period.

"Loan" shall mean that certain loan made by Lender to Borrower in the original principal amount of this Note.

"Maturity Date" shall mean April 1, 2003.

"Parent" means, with respect to Lender, any Person controlling Lender.

"Payment Date" shall mean, with respect to each month, the first calendar day in such month, or if such day is not a Business Day, the next following Business Day.

SECTION 2 PAYMENT TERMS

Section 2.1 Principal and Interest Payments.

2.1.1 Borrower shall pay interest (computed on the basis of the actual number of days elapsed in a year of 360 days) on the Principal Amount hereof from the date of disbursement by Lender until the Principal Amount hereof shall be paid in full, at a rate per annum equal to the Applicable Interest Rate.

2.1.2 The initial payment of interest covering the period from and including the date hereof through and including the last day of the month in which the closing occurs shall be paid by Borrower on the date hereof. Thereafter, interest on the Loan shall be payable in arrears monthly, commencing with the Payment Date in May, 2000, and on each subsequent Payment Date through and including the Payment Date in March, 2003. Thereafter, the entire outstanding principal amount of this Note, together with all accrued and unpaid interest and any other charges hereon, shall be due and payable on the Maturity Date.

2.1.3 Lender shall determine the LIBOR Rate, Adjusted LIBOR Rate, Base Rate, and Federal Funds Rate as in effect from time to time, and each such determination of the LIBOR Rate, Adjusted LIBOR Rate, Base Rate and Federal Funds Rate shall be conclusive and binding absent manifest error.

2.1.4 The Applicable Margin, as set forth above, shall be reduced to three and 10/100 percent (3.10%) at such time, if any, as Lender determines that the Debt Coverage Ratio (as hereinafter defined) with respect to the Property equals or exceeds 1.40 and provided no Event of Default is then continuing. Lender shall calculate the Debt Coverage Ratio once per month commencing May 1, 2000, on or about the first day of each month, until such time as the Debt Coverage Ratio has reached 1.40 or greater and the reduction in the Applicable Margin shall be effective as of the date Lender makes such determination that the Debt Coverage Ratio has reached 1.40 or greater. For purposes hereof the term "Debt Coverage Ratio" shall mean the ratio of Net Operating Income (as defined below) to annual debt service (i.e., principal (if any) and interest payments) due under this Note and the Additional Note (as defined below)(utilizing solely for purposes of calculating the projected Debt Coverage Ratio an assumed interest rate equal to the Applicable Interest Rate in effect on the date of determination of the Debt Coverage Ratio). Net Operating Income shall be determined by Lender in a manner substantially the same as that utilized by Lender generally in underwriting loans secured by similar property types at the time of determination of the Debt Coverage Ratio. Without limiting the foregoing, gross income shall be adjusted by applying occupancy rates at the lower of actual, market or as otherwise applied by nationally recognized rating agencies, and expenses for capital replacements and repairs, tenant improvements and leasing commissions used in the calculations shall be the greater of actual or minimum amounts per square foot of the Property required by Lender and/or nationally recognized rating agencies for properties of similar types, location and condition.

Net Operating Income shall mean:

(i) all gross receipts received or (with respect to a projected Debt Coverage Ratio) anticipated from the Property, including, without limitation, from tenants (a) in occupancy at the Property, (b) paying rent under approved leases and (c) open for business for not less than thirty (30) days, in effect during the applicable twelve-month period, calculated on a cash basis which reflects only the income actually received during the previous twelve-month period as of the date of such calculation, and for a projected Debt Coverage Ratio any income anticipated to be received during the following twelve-month period based on leases in effect as of the date of calculation, for such time as those leases are contracted to remain in effect without expiration by their terms or optional termination by the tenant (unless the tenant has waived its termination rights in writing or the term of the lease has been extended in writing), including without limitation all amounts to be received from tenants as payment of operating expenses but not including refundable deposits, late fees or charges, lease termination payments, excess tenant improvement and leasing commission payments included as additional rent, principal or interest payments received by Borrower on loans to tenants and fees and reimbursements for work performed for tenants by Borrower, less:

(ii) all expenses (without duplication), calculated on a cash basis, incurred for the operation or maintenance of the Property for the applicable twelve-month period, including ground rents, the cost of property management (which shall be the greater of the actual management fee payable under a management contract in effect for the applicable twelve (12) month period or 4% of gross collections), marketing, franchise fees, maintenance, cleaning, security, landscaping, parking maintenance and utilities, real estate taxes and assessments and other taxes related to the operation of the Property, insurance premiums, necessary repairs and future replacements of equipment and other costs and expenses incurred by Borrower during the applicable period and for a projected Debt Coverage Ratio amounts reasonably estimated by Lender for each of the foregoing items. Payments under this Note, the Additional Note and non-cash deductions for income tax purposes shall not be deducted in determining Net Operating Income.

Section 2.2 Prepayments.

2.2.1 The principal balance of this Note may not be prepaid in whole or in part (except with respect to the application of casualty or condemnation proceeds) prior to the Payment Date occurring in April, 2001. On the Payment Date occurring in April, 2001, or at any time thereafter, provided no Event of Default exists, the principal balance of this Note may be prepaid, in whole but not in part (except with respect to the application of casualty or condemnation proceeds), on any Payment Date upon not less than thirty (30) days nor more than ninety (90) days prior written notice to Lender specifying the Payment Date on which prepayment is to be made (the "Prepayment Date") and upon payment of (i) interest accrued and unpaid on the principal balance of this Note to and including the Prepayment Date, and (ii) all other sums then due under this Note and the other Loan Documents. If any such notice of prepayment is given, the principal balance of this Note and the other sums required under this paragraph shall be due and payable on the Prepayment Date. If prepayment of this Note, in whole or in part, results from Lender's exercise of its rights upon Borrower's default and acceleration of the Maturity Date of this Note (irrespective of whether foreclosure proceedings have been commenced) prior to the Payment Date occurring in April, 2001, Borrower shall also pay to Lender a prepayment fee equal to 1% of the principal amount of this Note prepaid, and such prepayment fee shall be in addition to any other sums due hereunder or under any of the other Loan Documents.

2.2.2 If the prepayment results from the application to the Debt of the casualty or condemnation proceeds from the Property, no prepayment consideration will be imposed. Partial prepayments of principal resulting from the application of casualty or condemnation proceeds to the Debt shall not change the amounts of subsequent monthly installments nor change the dates on which such installments are due, unless Lender shall otherwise agree in writing.

Section 2.3 Funds; Manner of Payment; Taxes.

2.3.1 Each payment of principal of and interest on the Loan, and each payment on account of any other fees, charges or other amounts payable under this Note or under any of the other Loan Documents shall be paid by the Borrower, without set-off or counterclaim, by wire transfer to Lender at its office set forth in the preamble hereof or to such other location or account as Lender may specify to the Borrower from time to time, in Federal or other immediately available funds in lawful money of the United States of America, not later than 3:00 p.m., New York City time, on the date on which any such payment is payable. If any payment hereunder or under any of the other Loan Documents becomes due and payable on a day (the "Due Date") other than a Business Day, such payment shall not be payable until the next succeeding Business Day. If the date for any payment of principal is extended on account of the foregoing or on account of operation of law or otherwise, interest thereon shall be payable at the then applicable rate during such extension.

2.3.2 All payments made by Borrower under this Note and any of the Loan Documents shall be made free and clear of, and without reduction for or on account of, any present or future income, stamp or other taxes, levies, imposts, duties, charges, fees, deductions or withholdings, now or hereafter imposed, levied, collected, withheld or assessed by any Governmental Authority, excluding income, overall gross receipts, capital and franchise taxes of the United States of America or any political subdivision or taxing authority thereof or therein or of the LIBOR Lending Office (such non-excluded taxes being called "Additional Taxes"). If any Additional Taxes are required to be withheld from any amounts payable to Lender hereunder or under any of the other Loan Documents, the amounts so payable to Lender shall be increased to the extent necessary to yield to Lender (after payment of all Additional Taxes) interest or any such other amounts payable hereunder at the rates or in the amounts specified in this Note.

Section 2.4 Indemnity. Borrower agrees to indemnify Lender and to hold it harmless from any actual cost, loss or expense which Lender may sustain or incur as a consequence of (a) Borrower making a payment or prepayment of principal on the Loan on a day which is not the first day of an Interest Accrual Period with respect thereto, (b) default by Borrower in making any prepayment after Borrower has given a notice of prepayment, and (c) any acceleration of the maturity of the Loan by Lender in accordance with the terms of this Note following an Event of Default, including, but not limited to, any such reasonable cost, loss or expense arising in liquidating the Loan.

Section 2.5 Increased Cost and Reduced Return.

2.5.1 If, on or after the date hereof, the adoption of any applicable law, rule or regulation, or any change in any applicable law, rule or regulation, or any change in the interpretation or administration thereof by any Governmental Authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by Lender (or its LIBOR Lending Office) with any request or directive (whether or not having the force of law) of any such Governmental Authority, central bank or comparable agency shall impose, modify or deem applicable any reserve (including, without limitation, any such requirement imposed by the Board (but excluding with respect to any such requirement reflected in the then effective LIBOR Rate)), special deposit, insurance assessment or similar requirement against assets of, deposits with or for the account of, or credit extended by, Lender (or its LIBOR Lending Office) or shall impose on Lender (or its LIBOR Lending Office) or on the London interbank market any other condition affecting the Loan or any portion thereof bearing interest at the Adjusted LIBOR Rate, and the result of any of the foregoing is to increase the actual cost to Lender (or its LIBOR Lending Office) of making or maintaining the Loan or any portion thereof at the Adjusted LIBOR Rate, or to reduce the amount of any sum received or receivable by Lender (or its LIBOR Lending Office) under this Note, by an amount deemed by Lender to be material, then, within ninety (90) days after written demand by Lender, the Borrower shall pay to Lender such additional amount or amounts as will compensate Lender for such increased cost or reduction.

2.5.2 If Lender shall have reasonably determined that, after the date hereof, the adoption of any Capital Adequacy Rule has the effect of reducing the rate of return on capital of Lender (or its Parent) as a consequence of Lender's obligations hereunder to a level below that which Lender (or its Parent) could have achieved but for such adoption (taking into consideration its policies with respect to capital adequacy) by an amount deemed by Lender to be material, then from time to time, within sixty (60) days after written demand by Lender, the Borrower shall pay to Lender such additional amount or amounts as will compensate Lender (or its Parent) for such reduction.

2.5.3 Lender will promptly notify the Borrower of any event of which it has knowledge, occurring after the date hereof, which will entitle Lender to compensation pursuant to this Section 2.5 and will designate a different LIBOR Lending Office if such designation will avoid the need for, or reduce the amount of, such compensation and will not, in the reasonable judgment of Lender, be otherwise disadvantageous to Lender. A certificate of Lender claiming compensation under either Section 2.5.1 or 2.5.2 and setting forth the additional amount or amounts to be paid to it hereunder shall be conclusive in the absence of manifest error; provided that any certificate delivered by Lender pursuant to this Section 2.5.3 shall (i) in the case of a certificate in respect of amounts payable pursuant to Section 2.5.1, set forth in reasonable detail the basis for and the calculation of such amounts, and (ii) in the case of a certificate in respect of amounts payable pursuant to Section 2.5.2, (A) set forth at least the same amount of detail in respect of the calculation of such amount as Lender provides in similar circumstances to other similarly situated borrowers from Lender, and (B) include a statement by Lender that it has allocated to the Loan a proportionately equal amount of any reduction of the rate of return on Lender's capital due to a Capital Adequacy Rule as it has allocated to each of its other commitments to lend or to each of its other outstanding loans that are affected similarly by such Capital Adequacy Rule.

Section 2.6 Deposits Unavailable. In the event, and on each occasion, that (i) Lender shall have reasonably determined that dollar deposits in the principal amounts of the Loan as a whole are not generally available to Lender in the London interbank market, for such periods and amounts then outstanding hereunder or that reasonable means do not exist for ascertaining the LIBOR Rate, or (ii) Lender reasonably determines that the rate at which such dollar deposits are being offered will not adequately and fairly reflect the cost to Lender of making or maintaining the Loan at the Adjusted LIBOR Rate during such month, Lender shall, as soon as practicable thereafter, give written notice of such determination to the Borrower. In the event of any such determination, until the circumstances giving rise to such notice no longer exist, the Loan shall bear interest at the Base Rate.

Section 2.7 Illegality. If, on or after the date of this Note, the adoption of any applicable law, rule or regulation, or any change in any applicable law, rule or regulation, or any change in the interpretation or administration thereof by any Governmental Authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by Lender (or its LIBOR Lending Office) with any request or directive (whether or not having the force of law) of any such authority, central bank or comparable agency shall make it unlawful or impossible for Lender (or its LIBOR Lending Office) to make, maintain or fund the Loan or any portion thereof at the Adjusted LIBOR Rate, Lender shall forthwith give notice thereof to the Borrower, whereupon until Lender notifies the Borrower that the circumstances giving rise to such suspension no longer exist, the obligation of Lender to make the Loan at the Adjusted LIBOR Rate shall be suspended. Before giving any notice to the Borrower pursuant to this Section 2.7, Lender shall designate a different LIBOR Lending Office if such designation will avoid the need for giving such notice and will not, in the reasonable judgment of Lender, be otherwise disadvantageous to Lender. If Lender shall reasonably determine that it may not lawfully continue to maintain and fund the Loan at the Adjusted LIBOR Rate to maturity and shall so specify in such notice, the interest rate on the Loan shall be immediately converted to the Base Rate.

Section 2.8 Late Fee.

If any installment payable under this Note (including the final installment due on the Maturity Date) is not received by Lender within ten (10) days after the date on which it is due (without regard to any applicable cure and/or notice period), Borrower shall pay to Lender upon demand an amount equal to the lesser of (a) five percent (5%) of such unpaid sum or (b) the maximum amount permitted by applicable law to defray the expenses incurred by Lender in handling and processing such delinquent payment and to compensate Lender for the loss of the use of such delinquent payment, and such amount shall be secured by the Loan Documents.

SECTION 3 SECURITY; DEFAULTS; REMEDIES

Section 3.1 Security.

This Note is secured by, and Lender is entitled to the benefits of, the Security Instrument, the Assignment, the Environmental Agreement, and the other Loan Documents (hereinafter defined). The term "Security Instrument" means the Mortgage and Security Agreement dated the date hereof given by Borrower for the use and benefit of Lender covering the estate of Borrower in certain premises as more particularly described therein (which premises, together with all properties, rights, titles, estates and interests now or hereafter securing the Debt and/or other obligations of Borrower under the Loan Documents, are collectively referred to herein as the "Property"). The term "Assignment" means the Assignment of Leases and Rents of even date herewith executed by Borrower in favor of Lender. The term "Environmental Agreement" means the Environmental Indemnity Agreement of even date herewith executed by Borrower and the indemnitors named therein in favor of Lender. The term "Loan Documents" refers collectively to this Note, the Security Instrument, the Assignment, the Environmental Agreement, and any and all other documents executed in connection with this Note or now or hereafter executed by Borrower and/or others and by or in favor of Lender, which wholly or partially secure or guarantee payment of this Note or pertains to indebtedness evidenced by this Note.

Section 3.2 Events of Default and Acceleration.

So long as an Event of Default exists, Lender may, at its option, without notice or demand to Borrower, declare the Debt immediately due and payable. All remedies hereunder, under the Loan Documents and at law or in equity shall be cumulative. In the event that it should become necessary to employ counsel to collect the Debt or to protect or foreclose the security for the Debt or to defend against any claims asserted by Borrower arising from or related to the Loan Documents, Borrower also agrees to pay to Lender on demand all costs of collection or defense incurred by Lender, including reasonable attorneys' fees for the services of counsel whether or not suit be brought.

Section 3.3 Default Interest.

Upon the occurrence of an Event of Default Borrower shall pay interest on the entire unpaid principal sum and any other amounts due under the Loan Documents at the rate equal to the lesser of (a) the maximum rate permitted by applicable law, or (b) the greater of (i) five percent (5%) above the Applicable Interest Rate or (ii) five percent (5%) above the Prime Rate (hereinafter defined), in effect at the time of the occurrence of the Event of Default (the "Default Rate"). The term "Prime Rate" means the prime rate reported in the Money Rates section of The Wall Street Journal. In the event that The Wall Street Journal should cease or temporarily interrupt publication, the term "Prime Rate" shall mean the daily average prime rate published in another business newspaper, or business section of a newspaper, of national standing and general circulation chosen by Lender. In the event that a prime rate is no longer generally published or is limited, regulated or administered by a governmental or quasi-governmental body, then Lender shall select a comparable interest rate index which is readily available and verifiable to Borrower but is beyond Lender's control. The Default Rate shall be computed from the occurrence of the Event of Default until the actual receipt and collection of a sum of money determined by Lender to be sufficient to cure the Event of Default. Amounts of interest accrued at the Default Rate shall constitute a portion of the Debt, and shall be deemed secured by the Loan Documents. This clause, however, shall not be construed as an agreement or privilege to extend the date of the payment of the Debt, nor as a waiver of any other right or remedy accruing to Lender by reason of the occurrence of any Event of Default.

Section 3.4 Reinstated Obligations

To the extent that Borrower makes a payment or Lender receives any payment or proceeds for Borrower's benefit, which are subsequently invalidated, declared to be fraudulent or preferential, set aside or required to be repaid to a trustee, debtor in possession, receiver, custodian or any other party under any bankruptcy law, common law or equitable cause, then, to such extent, the obligations of the Borrower hereunder intended to be satisfied shall be revived and continue as if such payment or proceeds had not been received by Lender.

SECTION 4 MISCELLANEOUS

Section 4.1 Further Assurances.

Borrower shall execute and acknowledge (or cause to be executed and acknowledged) and deliver to Lender all documents, and take all actions, reasonably required by Lender from time to time to confirm the rights created or now or hereafter intended to be created under this Note and the other Loan Documents, to protect and further the validity, priority and enforceability of this Note and the other Loan Documents, to subject to the Loan Documents any property of Borrower intended by the terms of any one or more of the Loan Documents to be encumbered by the Loan Documents, or otherwise carry out the purposes of the Loan Documents and the transactions contemplated thereunder; provided, however, that no such further actions, assurances and confirmations shall increase Borrower's obligations under this Note.

Section 4.2 Modification, Waiver in Writing.

The provisions of this Note and the Loan Documents may be amended or revised only by an instrument in writing signed by the Borrower and Lender. This Note and all the other Loan Documents embody the final, entire agreement of Borrower and Lender and supersede any and all prior commitments, agreements, representations and understandings, whether written or oral, relating to the subject matter hereof and thereof and may not be contradicted or varied by evidence of prior, contemporaneous or subsequent oral agreements or discussions of Borrower and Lender. There are no oral agreements between Borrower and Lender.

Section 4.3 Maximum Amount.

4.3.1 It is the intention of the Borrower and Lender to conform strictly to the usury and similar laws relating to interest from time to time in force, and all agreements between the Borrower and Lender, whether now existing or hereafter arising and whether oral or written, are hereby expressly limited so that in no contingency or event whatsoever, whether by acceleration of maturity hereof or otherwise, shall the amount paid or agreed to be paid in the aggregate to Lender as interest hereunder or under the other Loan Documents or in any other security agreement given to secure the Debt, or in any other document evidencing, securing or pertaining to the Debt, exceed the maximum amount permissible under applicable usury or such other laws (the "Maximum Amount"). If under any circumstances whatsoever fulfillment of any provision hereof, or any of the other Loan Documents, at the time performance of such provision shall be due, shall involve transcending the Maximum Amount, then ipso facto, the obligation to be fulfilled shall be reduced to the Maximum Amount. For the purposes of calculating the actual amount of interest paid and/or payable hereunder, in respect of laws pertaining to usury or such other laws, all sums paid or agreed to be paid to the holder hereof for the use, forbearance or detention of the Debt, outstanding from time to time shall, to the extent permitted by applicable law, be amortized, prorated, allocated and spread from the date of disbursement of the proceeds of this Note until payment in full of all of the Debt, so that the actual rate of interest on account of the Debt is uniform through the term hereof. The terms and provisions of this Section 4.3 shall control and supersede every other provision of all agreements between Borrower or any endorser and Lender.

4.3.2 If under any circumstances Lender shall ever receive an amount which would exceed the Maximum Amount, such amount shall be deemed a payment in reduction of the Principal Amount owing hereunder and any other obligation of the Borrower in favor of Lender, and shall be so applied in accordance with Section 2.1 hereof, or if such excessive interest exceeds the unpaid balance of this Note and any other obligation of the Borrower in favor of Lender, the excess shall be deemed to have been a payment made by mistake and shall be refunded to the Borrower.

Section 4.4 Waiver of Trial by Jury.

BORROWER HEREBY AGREES NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY JURY, AND WAIVES ANY RIGHT TO TRIAL BY JURY FULLY TO THE EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER EXIST WITH REGARD TO THIS NOTE OR THE OTHER LOAN DOCUMENTS, OR ANY CLAIM, COUNTERCLAIM OR OTHER ACTION ARISING IN CONNECTION THEREWITH INCLUDING, BUT NOT LIMITED TO, THOSE RELATING TO (A) ALLEGATIONS THAT A PARTNERSHIP EXISTS BETWEEN LENDER AND BORROWER; (B) USURY OR PENALTIES OR DAMAGES THEREFOR; (C) ALLEGATIONS OF UNCONSCIONABLE ACTS, DECEPTIVE TRADE PRACTICE, LACK OF GOOD FAITH OR FAIR DEALING, LACK OF COMMERCIAL REASONABLENESS, OR SPECIAL RELATIONSHIPS (SUCH AS FIDUCIARY, TRUST OR CONFIDENTIAL RELATIONSHIP); (D) ALLEGATIONS OF DOMINION, CONTROL, ALTER EGO, INSTRUMENTALITY, FRAUD, REAL ESTATE FRAUD, MISREPRESENTATION, DURESS, COERCION, UNDUE INFLUENCE, INTERFERENCE OR NEGLIGENCE; (E) ALLEGATIONS OF TORTIOUS INTERFERENCE WITH PRESENT OR PROSPECTIVE BUSINESS RELATIONSHIPS OR OF ANTITRUST; OR (F) SLANDER, LIBEL OR DAMAGE TO REPUTATION. THIS WAIVER OF RIGHT TO TRIAL BY JURY IS GIVEN KNOWINGLY AND VOLUNTARILY BY BORROWER, AND IS INTENDED TO ENCOMPASS INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THE RIGHT TO A TRIAL BY JURY WOULD OTHERWISE ACCRUE. LENDER IS HEREBY AUTHORIZED TO FILE A COPY OF THIS PARAGRAPH IN ANY PROCEEDING AS CONCLUSIVE EVIDENCE OF THIS WAIVER BY BORROWER.

Section 4.5 Governing Law.

This Note shall be governed by and construed in accordance with the laws of the state in which the real property encumbered by the Security Instrument is located (without regard to any conflict of laws or principles) and the applicable laws of the United States of America.

Section 4.6 Headings.

The Section headings in this Note are included herein for convenience of reference only and shall not constitute a part of this Note for any other purpose.

Section 4.7 Transfers.

Lender shall have the unrestricted right at any time or from time to time to sell this Note and the loan evidenced by this Note and the Loan Documents or participation interests therein. Borrower shall execute, acknowledge and deliver any and all instruments requested by Lender to satisfy such purchasers or participants that the unpaid indebtedness evidenced by this Note is outstanding upon the terms and provisions set out in this Note and the other Loan Documents. To the extent, if any, specified in such assignment or participation, such assignee(s) or participant(s) shall have the rights and benefits with respect to this Note and the other Loan Documents as such assignee(s) or participant(s) would have if they were the Lender hereunder.

Section 4.8 Severability.

Wherever possible, each provision of this Note shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Note shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Note.

Section 4.9 Notices.

All notices or other communications required or permitted to be given pursuant hereto shall be given in the manner and be effective as specified in the Security Instrument, directed to the parties at their respective addresses as provided therein.

Section 4.10 Authority.

Borrower (and the undersigned representative of Borrower, if any) represents that Borrower has full power, authority and legal right to execute, deliver and perform its obligations pursuant to this Note and the other Loan Documents and that this Note and the other Loan Documents constitute legal, valid and binding obligations of Borrower. Borrower further represents that the loan evidenced by the Loan Documents was made for business or commercial purposes and not for personal, family or household use.

Section 4.11 Jurisdiction.

BORROWER HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY COURT OF COMPETENT JURISDICTION LOCATED IN THE STATE IN WHICH THE PROPERTY IS LOCATED IN CONNECTION WITH ANY PROCEEDING ARISING OUT OF OR RELATING TO THIS NOTE.

Section 4.12 Limitation on Liability.

(a) Notwithstanding anything in the Loan Documents to the contrary, but subject to the qualifications below, Lender and Borrower agree that:

(i) Borrower shall be liable upon the Debt and for the other obligations arising under the Loan Documents to the full extent (but only to the extent) of the security therefor; provided, however, that in the event (A) of fraud, wilful misconduct or material misrepresentation by Borrower, its general partners, if any, its members, if any, its principals, its affiliates, its agents or its employees or by any Guarantor or any Indemnitor in connection with the loan evidenced by this Note, (B) of Borrower's breach or default under clauses (a), (b), (c), (d), (e), (f), (g), (i), (k), (m), (o), (p), (s) or (t) of Section 4.3 of the Security Instrument or of Section 8.2 of the Security Instrument, (C) of Borrower's breach or default under clause (h), (j), (l), (n), (q), (r) or (v) of Section 4.3 of the Security Instrument which materially adversely affects Lender or the Loan or (D) the Property or any part thereof becomes an asset in a voluntary bankruptcy or insolvency proceeding, the limitation on recourse set forth in this Subsection 4.12(a) will be null and void and completely inapplicable, and this Note shall be with full recourse to Borrower.

(ii) If a default occurs in the timely and proper payment of all or any part of the Debt, Lender shall not enforce the liability and obligation of Borrower to perform and observe the obligations contained in this Note or the Security Instrument by any action or proceeding wherein a money judgment shall be sought against Borrower, except that Lender may bring a foreclosure action, action for specific performance or other appropriate action or proceeding to enable Lender to enforce and realize upon the Security Instrument, the Other Loan Documents and the interest in the Property, the Rents and any other collateral given to Lender created by the Security Instrument and the Other Loan Documents; provided, however, that any judgment in any action or proceeding shall be enforceable against Borrower only to the extent of Borrower's interest in the Property, in the Rents and in any other collateral given to Lender. Lender, by accepting this Note and the Security Instrument, agrees that it shall not, except as otherwise herein provided, sue for, seek or demand any deficiency judgment against Borrower in any action or proceeding, under or by reason of or under or in connection with this Note, the Other Loan Documents or the Security Instrument.

(iii) The provisions of this Subsection 4.12(a) shall not (A) constitute a waiver, release or impairment of any obligation evidenced or secured by this Note, the Other Loan Documents or the Security Instrument; (B) impair the right of Lender to name Borrower as a party defendant in any action or suit for judicial foreclosure and sale under the Security Instrument; (C) affect the validity or enforceability of any indemnity, guaranty, master lease or similar instrument made in connection with this Note, the Security Instrument, or the Other Loan Documents; (D) impair the right of Lender to obtain the appointment of a receiver; (E) impair the enforcement of the Assignment executed in connection herewith; (F) impair the right of Lender to enforce the provisions of Article 11 of the Security Instrument; or (G) impair the right of Lender to obtain a deficiency judgment or judgment on this Note against Borrower if necessary to obtain any insurance proceeds or condemnation awards to which Lender would otherwise be entitled under the Security Instrument; provided, however, Lender shall only enforce such judgment against the insurance proceeds and/or condemnation awards.

(iv) Notwithstanding the provisions of this Section 4.12 to the contrary, Borrower shall be personally liable to Lender for the Losses it incurs due to: (A) the misapplication or misappropriation of Rents; (B) the misapplication or misappropriation of insurance proceeds or condemnation awards; (C) Borrower's failure to return or to reimburse Lender for all Personal Property taken from the Property by or on behalf of Borrower and not replaced with Personal Property of the same utility and of the same or greater value; (D) any act of actual waste or arson by Borrower, any principal, affiliate, general partner or member thereof or by any Indemnitor or any Guarantor; (E) any fees or commissions paid by Borrower to any principal, affiliate, general partner or member of Borrower, any Indemnitor or any Guarantor in violation of the terms of this Note, the Security Instrument or the Other Loan Documents; (F) Borrower's failure to comply with the provisions of Section 11.2 of the Security Instrument; or (G) any breach of the Environmental Indemnity.

(b) Nothing herein shall be deemed to be a waiver of any right which Lender may have under Sections 506(a), 506(b), 1111(b) or any other provisions of the Bankruptcy Code to file a claim for the full amount of the Debt or to require that all collateral shall continue to secure all of the Debt, owing to Lender in accordance with this Note, the Security Instrument and the Other Loan Documents.

Section 4.13 Waivers.

(a) Except as specifically provided in the Loan Documents, Borrower and any endorsers, sureties or guarantors hereof jointly and severally waive presentment and demand for payment, notice of intent to accelerate maturity, notice of acceleration of maturity, protest and notice of protest and non-payment, all applicable exemption rights, valuation and appraisement, notice of demand, and all other notices in connection with the delivery, acceptance, performance, default or enforcement of the payment of this Note and the bringing of suit and diligence in taking any action to collect any sums owing hereunder or in proceeding against any of the rights and collateral securing payment hereof. Borrower and any surety, endorser or guarantor hereof agree (i) that the time for any payments hereunder may be extended from time to time without notice and consent, (ii) to the acceptance by Lender of further collateral, (iii) the release by Lender of any existing collateral for the payment of this Note, (iv) to any and all renewals, waivers or modifications that may be granted by Lender with respect to the payment or other provisions of this Note, and/or (v) that additional Borrowers, endorsers, guarantors or sureties may become parties hereto all without notice to them and without in any manner affecting their liability under or with respect to this Note. No extension of time for the payment of this Note or any installment hereof shall affect the liability of Borrower under this Note or any endorser or guarantor hereof even though the Borrower or such endorser or guarantor is not a party to such agreement.

(b) Failure of Lender to exercise any of the options granted herein to Lender upon the happening of one or more of the events giving rise to such options shall not constitute a waiver of the right to exercise the same or any other option at any subsequent time in respect to the same or any other event. The acceptance by Lender of any payment hereunder that is less than payment in full of all amounts due and payable at the time of such payment shall not constitute a waiver of the right to exercise any of the options granted herein to Lender at that time or at any subsequent time or nullify any prior exercise of any such option without the express written acknowledgment of the Lender.

Section 4.14 Deferred Commitment Fee.

In addition to all other fees and expenses paid by Borrower in connection with the Loan, Borrower shall pay to Lender a fully earned and nonrefundable commitment fee (the "Deferred Commitment Fee") in an amount equal to one percent (1%) of the original principal balance of this Note (as increased by any further advances), which shall be due and payable upon the earlier of (i) the payment by Borrower of all amounts due hereunder and under the other Loan Documents, or (ii) the Maturity Date (or any acceleration thereof upon an Event of Default). Notwithstanding the foregoing, the Deferred Commitment Fee shall be waived by Lender in the event Borrower refinances the Loan with a new permanent (i.e., ten year term) fixed rate loan from Lender or its affiliates (which may be provided by Lender or its affiliates in their sole discretion). The Deferred Commitment Fee shall not be due with respect to payments of principal resulting from the application of casualty or insurance proceeds to the Debt.

[The balance of this page is intentionally left blank]

IN WITNESS WHEREOF, this Note has been duly executed by Borrower as of the day and year first written above.

WARTHOG, INC., a Delaware corporation

By:______________________________

Name:____________________________

Title:_____________________________

EX-3 5 TFC Bylaws
AMENDED AND RESTATED??

BY-LAWS

OF

THE FAIRCHILD CORPORATION

(As Amended and Restated on November 21, 1996

and As Amended Further on February 12, 1999

and As Amended Further on February 17, 2000)

ARTICLE I

Offices

Section 1. The registered office shall be in the City of Wilmington, County of New Castle, State of Delaware.

Section 2. The corporation may also have offices at such other places both within and without the State of Delaware as the board of directors may from time to time determine or the business of the corporation may require.

ARTICLE II

Meetings of Stockholders

Section 1. All meetings of the stockholders for the election of directors shall be held in the City of Cleveland, State of Ohio, at such place as may be fixed from time to time by the board of directors, or at such other place either within or without the State of Delaware as shall be designated from time to time by the board of directors and stated in the notice of the meeting. Meetings of stockholders for any other purpose may be held at such time and place, within or without the State of Delaware, as shall be stated in the notice of the meeting or in a duly executed waiver of notice thereof.

Section 2. Annual meeting of stockholders, commencing with the year 1972, shall be held on the third Thursday of November, if not a legal holiday, and if a legal holiday, then on the next secular day following, at 2:00 P.M., EST, or at such other date and time as shall be designated from time to time by the board of directors and stated in the notice of the meeting, at which the stockholders shall elect, by a plurality vote and by written ballot, a board of directors, and transact such other business as may properly be brought before the meeting.

Section 3. Written notice of the annual meeting stating the place, date and hour of the meeting shall be given to each stockholder entitled to vote at such meeting not less than ten or more than sixty days before the date of the meeting.

Section 4. The officer who has charge of the stock ledger of the corporation shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present.

Section 5. Special meetings of the stockholders, for any purpose or purposes, unless otherwise prescribed by statute or by the certificate of incorporation, may be called by the chairman of the board or president, and shall be called by the chairman of the board, president or secretary at the request in writing of a majority of the board of directors, or at the request in writing of stockholders owning shares representing a majority of the votes entitled to be cast at such meeting. Such request shall state the purpose or purposes of the proposed meeting.

Section 6. Written notice of a special meeting stating the place, date and hour of the meeting and the purpose or purposes for which the meeting is called, shall be given not less than ten nor more than sixty days before the date of the meeting, to each stockholder entitled to vote at such meeting.

Section 7. Business transacted at any special meeting of stockholders shall be limited to the purposes stated in the notice.

Section 8. The holders of issued and outstanding stock present in person or represented by proxy constituting a majority of the votes entitled to be cast at a meeting of stockholders shall constitute a quorum and the votes that are necessary for the transaction of any business, except as otherwise required by statute or the certificate of incorporation. If, however, such quorum shall not be present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall by a majority of votes cast have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally notified. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting.

Section 9. The affirmative vote of a majority of votes entitled to be cast at a meeting of stockholders by holders of shares present in person or represented by proxy at the meeting shall be the act of the stockholders, except as otherwise required by statute or the certificate of incorporation. Where a separate vote by class or series of a class is required, the affirmative vote of a majority of votes entitled to be cast on such matter at a meeting of stockholders by holders of shares present in person or represented by proxy at the meeting shall be the act of the stockholders of such class or series, except as otherwise required by statute or the certificate of incorporation.

Section 10. Unless otherwise provided in the certificate of incorporation, any action required to be taken at any annual or special meeting of stockholders of the corporation, or any action which may be taken at any annual or special meeting of such stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing.

ARTICLE III

Directors

Section 1. The number of directors which shall constitute the whole board shall be not less than three nor more than fifteen. The first board shall consist of seven directors. Thereafter, within the limits above specified, the number of directors shall be determined by resolution of the board of directors or by the stockholders at the annual meeting. The directors shall be elected at the annual meeting of the stockholders, except as provided in Section 2 of this Article, and each director elected shall hold office until his successor is elected and qualified. Directors need not be stockholders.

Section 2. Vacancies and newly created directorships resulting from any increase in the authorized number of directors may be filled by a majority of the directors then in office, though less than a quorum, or by a sole remaining director, and the directors so chosen shall hold office until the next annual election and until their successors are duly elected and shall qualify, unless sooner displaced. If there are no directors in office, then an election of directors may be held in the manner provided by statute. If, at the time of filling any vacancy or any newly created directorship, the directors then in office shall constitute less than a majority of the whole board (as constituted immediately prior to any such increase), the Court of Chancery may, upon application of any stockholder or stockholders holding at least ten percent of the total number of the shares at the time outstanding having the right to vote for such directors, summarily order an election to be held to fill any such vacancies or newly created directorships, or to replace the directors chosen by the directors then in office.

Section 3. The business of the corporation shall be managed by its board of directors, which may exercise all such powers of the corporation and do all such lawful acts and things as are not by statute or by the certificate of incorporation or by these By-laws directed or required to be exercised or done by the stockholders.

Meetings of the Board of Directors

Section 4. The board of directors of the corporation may hold meetings, both regular and special, either within or without the State of Delaware.

Section 5. The first meeting of each newly elected board of directors shall be held at such time and place as shall be fixed by the vote of the stockholders at the annual meeting and no notice of such meeting shall be necessary to the newly elected directors in order legally to constitute the meeting, provided a quorum shall be present. In the event of the failure of the stockholders to fix the time or place of such first meeting of the newly elected board of directors, or in the event such meeting is not held at the time and place so fixed by the stockholders, the meeting may be held at such time and place as shall be specified in a notice given as hereinafter provided for special meetings of the board of directors, or as shall be specified in a written waiver signed by all of the directors.

Section 6. Regular meetings of the board of directors may be held without notice at such time and at such place as shall from time to time be determined by the board.

Section 7. Special meetings of the board may be called by the chairman of the board or the president on at least 24 hours' notice to each director, either personally or by mail, by telegram or by telephone; special meetings shall be called by the chairman of the board, president or secretary in like manner and on like notice on the written request of two directors. Notice of any such meeting need not be given to any director who shall, either before or after the meeting, submit a signed waiver of notice or who shall attend such meeting without protesting before or at its commencement the lack of notice to him. A notice or waiver of notice of any regular or special meeting of the board need not state the purpose of or the business to be transacted at such meeting.

Section 8. At all meetings of the board, one-third of the total number of directors then serving shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the board of directors, except as may be otherwise specifically provided by statute or by the certificate of incorporation. If a quorum shall not be present at any meeting of the board of directors the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present.

Section 9. Unless otherwise restricted by the certificate of incorporation or these By-laws, any action required or permitted to be taken at any meeting of the board of directors or of any committee thereof may be taken without a meeting, if all members of the board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the board or committee.

Executive Committee

Section 10. The corporation shall have an executive committee (the "Executive Committee") consisting of not less than three members of the board of directors of the corporation. The members of the Executive Committee shall be designated by the Board of Directors. The Executive Committee shall have authority to exercise, by a meeting or by the unanimous written consent of its members, during intervals between meetings of the board of directors, all the powers and authority of such board in the management and business and affairs of the corporation, however conferred. The chairman of the board of the corporation shall call, and cause to be held, at least six meetings of the Executive Committee during each full fiscal year of the corporation.

Audit Committee

Section 11. The Corporation shall have an audit committee (the "Audit Committee"), the charter of which shall be as adopted, revised or amended from time to time by action of the Board of Directors.

Other Committees of Directors

Section 12. In addition to the Executive Committee and the Audit Committee, the board of directors may designate one or more other committees, each such other committee to consist of one or more of the directors of the corporation. Any such other committee, to the extent provided in the resolution of the board of directors, shall have and may exercise all the powers and authority of the board of directors in the management of the business and affairs of the corporation and may authorize the seal of the corporation to be affixed to all papers which may require it. Such other committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the board of directors.

General Provisions and Restrictions

Applicable to All Committees of Directors

Section 13. With respect to any committee of the board of directors (including, but not by way of limitation, the Executive Committee and the Audit Committee), the board of directors may designate one or more directors meeting the qualifications, if any, specified for membership on such committee as alternative members of such committee, who may replace any absent or disqualified member at a meeting of such committee. In the event of the absence or disqualification of a member of a committee, and in the event no director has been designated as an alternative member thereof, the member or members of such committee present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the board of directors meeting the qualifications, if any, specified for membership on such committee to act at the meeting in the place of any such absent or disqualified member.

Section 14. Notwithstanding anything contained in these By-laws to the contrary, neither the Executive Committee, the Audit Committee nor any other committee of the board of directors shall have any power or authority (i) to approve or adopt or recommend to the stockholders any action or matter expressly required by the Delaware General Corporate Law to be submitted to stockholders for approval, or (ii) to adopt, amend or repeal any by-law of the corporation. If the resolution establishing a particular committee so provides, such committee shall have the power or authority to declare a dividend or to authorize the issuance of stock. The board of directors may (but shall not be obligated to) designate one member of any committee (including the Executive Committee and the Audit Committee) as its chairman. The duties and responsibilities of the members of any committee of the board of directors shall be in addition to those duties set forth for a member of the board of directors of the corporation.

Compensation of Directors

Section 15. Unless otherwise restricted by the certificate of incorporation, the board of directors shall have the authority to fix the compensation of directors. The directors may be paid their expenses, if any, of attendance at each meeting of the board of directors and may be paid a fixed sum for attendance at each meeting of the board of directors or a stated salary as director. No such payment shall preclude any director from serving the corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for attending committee meetings.

ARTICLE IV

Notices

Section 1. Whenever, under the provisions of the statutes, of the certificate of incorporation, of any certificate duly filed in the State of Delaware pursuant to Section 151 of the Delaware General Corporation Law or of these By-laws, notice is required to be given to any director or stockholder, it shall not be construed to mean personal notice, but such notice may be given in writing, by mail, addressed to such director or stockholder at his address as it appears on the records of the corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail. Notice to directors may also be given by telegram or telephone.

Section 2. Whenever any notice is required to be given under the provisions of the statutes, of the certificate of incorporation, of any certificate duly filed in the State of Delaware pursuant to Section 151 of the Delaware General Corporation Law or of these By-laws, a waiver thereof in writing, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto.

ARTICLE V

Officers

Section 1. The officers of the corporation shall be chosen by the board of directors and shall be a chairman of the board, a president, one or more vice-presidents (one or more of whom may be designated Executive Vice-President or Senior Vice-President), a secretary and a treasurer. The board of directors may also choose a controller and one or more assistant secretaries and assistant treasurers. Any number of offices may be held by the same person, unless the certificate of incorporation or these By-laws otherwise provide.

Section 2. The board of directors at its first meeting after each annual meeting of stockholders shall choose a chairman of the board, a president, one or more vice-presidents, a secretary and a treasurer.

Section 3. The board of directors may appoint such other officers and agents as it shall deem necessary who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the board.

Section 4. The salaries of all officers and agents of the corporation shall be fixed by the board of directors, provided that the board may delegate to the chairman of the board or the president the power to fix from time to time the compensation of such officers and agents as the board shall designate. No officer shall be prevented from receiving such salary because he is also a director.

Section 5. The officers of the corporation shall hold office until their successors are chosen and qualify. Any officer elected or appointed by the board of directors may be removed at any time by the affirmative vote of a majority of the board of directors. Any vacancy occurring in any office of the corporation shall be filled by the board of directors.

The Chairman of the Board

Section 6. The chairman of the board shall be the chief executive officer of the corporation, shall preside at all meetings of the stockholders and the board of directors, shall have general and active management of the business of the corporation and shall see that all orders and resolutions of the board of directors are carried into effect. He shall execute bonds, mortgages and other contracts requiring a seal, under the seal of the corporation, except where required or permitted by law to be otherwise signed and executed and except where the signing and execution thereof shall be expressly delegated by the board of directors to some other officer or agent of the corporation.

The President

Section 7. The president shall be the chief operating officer of the corporation, and shall have the duties and responsibilities as assigned by the chairman and chief executive officer or the board of directors. He shall preside at any meetings of the stockholders and of the board of directors if the chairman of the board is unavailable. He may sign, with the secretary or treasurer or any other proper officer thereunto authorized by the board of directors, certificates for shares of the corporation, any deeds, mortgages, bonds, contracts or other instruments which the board of directors has authorized to be executed, except in cases where the signing and execution thereof shall be expressly delegated by the board of directors or by these By-laws to some other officer or agent of the corporation, or shall be required by law to be otherwise signed or executed; and in general, shall perform all duties incident to the office of the president and such other duties as may be prescribed by the board of directors from time to time.

The Vice-Presidents

Section 8. In the absence of the president or in the event of his inability or refusal to act, the vice-president (or in the event there be more than one vice-president, the vice-presidents in the order designated, or in the absence of any designation, then in the order of their election) shall perform the duties of the president, and when so acting, shall have all the powers of and be subject to all the restrictions upon the president. The vice-presidents shall perform such other duties and have such other powers as the board of directors may from time to time prescribe.

The Secretary and Assistant Secretary

Section 9. The secretary shall attend all meetings of the board of directors and all meetings of the stockholders and record all the proceedings of the meetings of the corporation and of the board of directors in a book to be kept for that purpose and shall perform like duties for the standing committees when required. He shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the board of directors, and shall perform such other duties as may be prescribed by the board of directors, chairman of the board or president, under whose supervision he shall be. He shall have custody of the corporate seal and he, or an assistant secretary, shall have authority to affix the same to any instrument requiring it and, when so affixed, it may be attested by his signature or by the signature of such assistant secretary. The board of directors may give general authority to any other officer to affix the corporate seal and to attest the affixing by his signature.

Section 10. The assistant secretary, or if there be more than one, the assistant secretaries in the order determined by the board of directors (or if there be no such determination, then in the order of their election), shall, in the absence of the secretary or in the event of his inability or refusal to act, perform the duties and exercise the powers of the secretary and shall perform such other duties and have such other powers as the board of directors may from time to time prescribe.

The Treasurer and Assistant Treasurers

Section 11. The treasurer shall have the custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the corporation in such depositories as may be designated by the board of directors.

Section 12. He shall disburse the funds of the corporation as may be ordered by the board of directors, taking proper vouchers for such disbursements, and shall render to the board of directors, at its regular meetings, or when the board of directors so requires, an account of all his transactions as treasurer and of the financial condition of the corporation.

Section 13. If required by the board of directors, he shall give the corporation a bond (which shall be renewed every six years) in such sum and with such surety or sureties as shall be satisfactory to the board of directors for the faithful performance of the duties of his office and for the restoration to the corporation, in case of his death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his possession or under his control belonging to the corporation.

Section 14. The assistant treasurer, or if there shall be more than one, the assistant treasurers in the order determined by the board of directors (or if there be no such determination, then in the order of their election), shall, in the absence of the treasurer or in the event of his inability or refusal to act, perform the duties and exercise the powers of the treasurer and shall perform such other duties and have such other powers as the board of directors may from time to time prescribe.

The Controller

Section 15. The controller shall be the chief accounting officer of the corporation and shall perform the duties and exercise the powers generally incident to such position and such other duties and powers as the board of directors may from time to time prescribe.

ARTICLE VI

Certificates of Stock

Section 1. Every holder of stock in the corporation shall be entitled to have a certificate, signed by, or in the name of the corporation by, the chairman or vice-chairman of the board of directors, or the president or a vice-president and the treasurer or an assistant treasurer, or the secretary or an assistant secretary of the corporation, certifying the number of shares owned by him in the corporation. If the corporation shall be authorized to issue more than one class of stock or more than one series of any class, the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate which the corporation shall issue to represent such class or series of stock, provided that, except as otherwise provided in Section 202 of the Delaware General Corporation Law, in lieu of the foregoing requirements, there may be set forth on the face or back of the certificate which the corporation shall issue to represent such class or series of stock, a statement that the corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights.

Section 2. Where a certificate is countersigned (1) by a transfer agent other than the corporation or its employee, or (2) by a registrar other than the corporation or its employee, any other signature on the certificate may be facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if he were such officer, transfer agent or registrar at the date of the issue.

Lost Certificates

Section 3. The board of directors may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate or certificates, the board of directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or certificates, or his legal representative, to advertise the same in such manner as it shall require and/or to give the corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the corporation with respect to the certificate alleged to have been lost, stolen or destroyed.

Transfer of Stock

Section 4. Upon surrender to the corporation or the transfer agent of the corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books.

Fixing Record Date

Section 5. In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the board of directors may fix, in advance, a record date, which shall not be more than sixty nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the board of directors may fix a new record date for the adjourned meeting.

Registered Stockholders

Section 6. The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware.

ARTICLE VII

General Provisions

Section 1. Dividends upon the capital stock of the corporation, subject to the provisions of the certificate of incorporation, if any, may be declared by the board of directors at any regular or special meeting, pursuant to law. Dividends may be paid in cash, in property, or in shares of the capital stock, subject to the provisions of the certificate of incorporation.

Section 2. Before payment of any dividend, there may be set aside out of any funds of the corporation available for dividends such sum or sums as the directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the corporation, or for such other purpose as the directors shall think conducive to the interest of the corporation, and the directors may modify or abolish any such reserve in the manner in which it was created.

Indemnification

Section 3.1. Right to Indemnification. The corporation shall indemnify and hold harmless, to the fullest extent permitted by applicable law as it presently exists or may hereafter be amended, any person who was or is made or is threatened to be made a party or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (a "proceeding") by reason of the fact that he, or a person for whom he is the legal representative, is or was a director, officer, employee or agent of the corporation or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust, enterprise or non-profit entity, including service with respect to employee benefit plans, against all liability and loss suffered and expenses reasonably incurred by such person. The corporation shall be required to indemnify a person in connection with a proceeding initiated by such person only if the proceeding was authorized by the Board of Directors of the corporation.

Section 3.2. Prepayment of Expenses. The corporation shall pay the expenses (including, without limitation, reasonable attorneys' fees) incurred in defending any proceeding in advance of its final disposition, as they become due; provided, however, that the payment of expenses incurred by a claimant in advance of the final disposition of the proceeding shall be made only upon receipt of an undertaking by the claimant to repay all amounts advanced if it should be ultimately determined that the claimant is not entitled to be indemnified under this Article VII, Section 3 or otherwise.

Section 3.3. Claims. Any claim for indemnification must be made pursuant to a written request, including documentation and information which is available to the claimant and is reasonably necessary for the corporation to determine whether and to what extent the claimant is entitled to indemnification. If a claim for indemnification or payment of expenses under this Article VII, Section 3 is not paid in full within sixty days after a written claim therefor has been received by the corporation, the claimant may file suit to recover the unpaid amount of such claim and, if successful in whole or in part, shall be entitled to be paid the expense of prosecuting such claim. In any such action the corporation shall have the burden of proving that the claimant was not entitled to the requested indemnification or payment of expenses under applicable law.

Section 3.4. Non-Exclusivity of Rights. The rights conferred on any person by this Article VII, Section 3 shall not be exclusive of any other rights which such person may have or hereafter acquire under any statute, provision of the stockholders or disinterested directors or otherwise.

Section 3.5. No Offsets. A claimant's right to indemnification and prepayment of expenses pursuant to this Article VII, Section 3 shall not be subject to any offset or reduction for amounts due or claimed to be due to the corporation from the claimant. The corporation may stop paying expenses and otherwise stop indemnifying a claimant with respect to any claim in which it has been ultimately determined that the claimant is not entitled to be indemnified under this Article VII, Section 3 or under applicable law; and the claimant shall reimburse all amounts advanced by the corporation on such claim, as per the undertaking executed by the claimant under Section 3.2 above.

Section 3.6. Other Indemnification. The corporation's obligation, if any, to indemnify any person who was or is serving at its request as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, enterprise or non-profit entity shall be reduced by any amount such person may collect as indemnification from such other corporation, partnership, joint venture, trust, enterprise or non-profit enterprise.

Section 3.7. Amendment or Repeal. Any repeal or modification of the foregoing provisions of this Article VII, Section 3 shall not adversely affect any right or protection hereunder of any person in respect of any act or omission occurring prior to the time of such repeal or modification.

Contracts and Loans

Section 4. Except as otherwise required by statute, the certificate of incorporation or these By-laws, any contracts or other instruments may be executed and delivered in the name and on behalf of the corporation by such officer or officers (including any assistant officer) of the corporation as the board may from time to time direct. Such authority may be general or confined to specific instances. No loans shall be contracted on behalf of the corporation, no pledge of its credit shall be made and no evidences of indebtedness shall be issued in its name unless authorized by a resolution of the board of directors. Such authority may be general or confined to specific instances.

Securities of Other Corporations

Section 5. Any shares or other securities of another corporation owned by this corporation may be voted on behalf of this corporation by the chairman of the board, the president or any vice-president in accordance with proper authorization of the board of directors. Unless otherwise provided by resolution adopted by the board of directors, any such officer may from time to time appoint an attorney or attorneys or agent or agents of the corporation, in the name and on behalf of the corporation, to cast the votes which the corporation may be entitled to cast as the holder of stock or other securities in any other corporation held by the corporation, at meetings of the holders of the stock or other securities of such other corporation, or to consent in writing, in the name of the corporation as such holder, to any action by such other corporation, and may instruct the person or persons so appointed as to the manner of casting such votes or giving such consent, and may execute or cause to be executed in the name and on behalf of the corporation and under its corporate seal, or otherwise, all such written proxies or other instruments as he may deem necessary or proper.

Banking

Section 6. All funds of the corporation not otherwise employed shall be deposited from time to time to the credit of the corporation in such banks, trust companies, or other depositories as the board of directors may select. All checks or demands for money and notes of the corporation shall be signed by such officer or officers or such other person or persons as the board of directors may from time to time designate.

Fiscal Year

Section 7. The fiscal year of the corporation shall be fixed by resolution of the board of directors.

Annual Statement

Section 8. The board of directors shall present at each annual meeting, and at any special meeting of the stockholders when called for by vote of the stockholders, a full and clear statement of the business and condition of the corporation.

Seal

Section 9. The corporate seal shall have inscribed thereon the name of the corporation, the year of its organization and the words "Corporate Seal, Delaware". The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise.

ARTICLE VIII

Amendments

Section 1. These By-laws may be altered, amended or repealed or new By-laws may be adopted by the stockholders or by the board of directors at any regular meeting of the stockholders or of the board of directors or at any special meeting of the stockholders or of the board of directors if notice of such alteration, amendment, repeal or adoption of new By-laws be contained in the notice of such special meeting.

CHARTER OF THE AUDIT COMMITTEE

Adopted by Board of Directors on February 17, 2000

1. General (Structure, Process and Membership Requirements).

(a) Membership. The Fairchild Corporation (the "Corporation") shall have an audit committee (the "Audit Committee") comprised of at least three members ("Members") of the Corporation's Board of Directors. Each Member of the Audit Committee shall be independent of the Corporation's management and shall be free from any relationship that would interfere with the exercise of judgment independent of the Corporation's management.

Members of the Audit Committee shall meet the following criteria:

(i) Independence of Audit Committee Members: Each Member must be independent. "Independent" is defined as having no relationship with the Corporation that may interfere with the Member's exercise of his independence from management of the Corporation.

(ii) Each Member must be financially literate (as interpreted by the Corporation's Board of Directors in its business judgment).

(iii) Accounting or Related Financial Management Expertise: At least one Member of the Audit Committee must have accounting or related financial management expertise (as interpreted by the Corporation's Board of Directors in its business judgment).

(iv) No Employment of Audit Committee Members: Neither the Member nor anyone in his immediate family may be an officer or employee of the Corporation (or any of its affiliates) or have been an officer or employee of the Corporation (or any of its affiliates) in the last three years.

(v) No Business Relationship Between Audit Committee Members and the Corporation: If a Member (or any organization in which such Member is a partner, controlling shareholder or executive officer) has (or in the last three years, has had) a business relationship with the Corporation (including a commercial, industrial banking, consulting, legal, accounting or other relationship), the Board of Directors must specifically determine that (in the Board of Directors' business judgment) such business relationship does not interfere with the Member's exercise of his independent judgment. In making this determination, the Board shall consider, among other things, the materiality of the relation to the Corporation, to the Member and, if applicable, to the organization with which the director is affiliated.

(vi) No Cross Compensation Links: If any executive officer of the Corporation is a member of the audit committee of another organization, then no executive officer of such other organization may serve as a Member of the Corporation's Audit Committee.

(b) Purpose. The purpose of the Audit Committee shall be to assist the Corporation's Board of Directors in discharging its responsibilities with respect to (i) the Corporation's internal accounting, auditing and financial reporting controls, policies, procedures and practices (collectively, "Internal Controls"), and (ii) the Corporation's outside auditors.

(c) Appointment and Term. The Chairman and each other Member of the Audit Committee shall be appointed by the Corporation's Board of Directors to serve a term of one year or until their successors have been duly appointed and assume office.

(d) Committee Meetings. The Audit Committee shall hold at least four regular meetings each year, and such additional meetings as the Chairman or a majority of the Members of the Audit Committee may deem necessary or advisable.

The Audit Committee may require the presence and participation of any officer or employee of the Corporation, the Corporation's internal auditors, or the Corporation's outside auditors at any meeting of the Audit Committee.

(e) Minutes. The Audit Committee shall prepare and approve minutes of its meetings, and such minutes shall be submitted to the Corporation's Board of Directors for review and to the Corporation's Secretary for inclusion in the Corporation's minute books.

(f) Reports of Actions. The Audit Committee shall promptly report all actions it has taken to the Corporation's Board of Directors for ratification.

2. Responsibilities of the Audit Committee (Scope of Audit Committee's Responsibilities and How It Carries Out These Responsibilities).

(a) Internal Controls. The Audit Committee shall review the actions taken by the Corporation's management to ensure that the Corporation adopts, maintains and adheres to a system of Internal Controls that provides reasonable assurances that (1) all transactions of the Corporation are properly authorized and are reflected in the books and records of the Corporation, (2) the risk of financial misconduct is minimized and any such misconduct is promptly detected and reported, (3) the Corporation is able to prepare and publish financial statements that are fairly presented, have been prepared in accordance with generally accepted accounting principles, and comply with all applicable requirements, and (4) the internal and external audits of the Corporation are adequate and comply with all applicable requirements. The Audit Committee shall review with the Corporation's Chief Financial Officer and outside auditors at least annually the adequacy and effectiveness of the Corporation's Internal Controls.

(b) Financial Statements. The Audit Committee shall review the Corporation's published financial statements, including without limitation (1) any unusual or non-recurring items therein, (2) the accounting principles applied therein, (3) any changes in previously applied accounting principles, and (4) management's report accompanying the Corporation's annual financial statements included in the Corporation's Annual Report to Shareholders.

(c) Internal Audit. The Audit Committee shall review (1) the Corporation's internal audit plans with management and the Corporation's outside auditors (which review shall be conducted at least annually), (2) management's appointment, replacement, reassignment or dismissal of the Corporation's internal auditors, (3) the progress and key findings of the Corporation's internal audits, (4) the compensation paid by the Corporation to its internal auditors for all services rendered (which review shall be conducted at least annually), (5) all reports, criticisms, problems, issues, recommendations or other matters submitted or raised by the Corporation's internal auditors, and management's responses, actions and follow-up with respect thereto, and (6) all disagreements between management and the Corporation's internal auditors.

(d) Independent Outside Auditors. The Audit Committee shall annually review (1)management's recommendation with respect to the selection of the Corporation's outside auditors, and provide to the Corporation's Board of Directors a recommendation with respect to such selection, (2) the scope of the Corporation's annual examination and audit with the Corporation's outside auditors, (3) management's evaluation of the independence of the Corporation's outside auditors, (4) the letter from the Corporation's outside auditors with respect to their independence from the Corporation's management and their unrestricted access to the Audit Committee, (5) the report from the Corporation's outside auditors with respect to the services that they have provided to the Corporation and other related matters, (6) the compensation paid by the Corporation to its outside auditors for all services rendered, (7) all reports, criticisms, problems, issues, recommendations or other matters submitted or raised by the Corporation's outside auditors, and management's responses, actions and follow-up with respect thereto, and (8) all disagreements between management and the Corporation's independent public accounts.

The outside auditors of the Corporation are ultimately accountable to the Board of Directors and the Audit Committee. The Audit Committee and the Board of Directors have the ultimate authority and responsibility to select, evaluate and, where appropriate, replace the outside auditors (or to nominate the outside auditors to be proposed for shareholder approval in any proxy statement).

The Audit Committee is responsible for:

(i) Ensuring that the outside auditors submit on a periodic basis to the Audit Committee a formal written statement delineating all relationships between the auditors and the Corporation;

(ii) Actively engaging in a dialogue with the outside auditors with respect to any disclosed relationships or services that may impact the objectivity and independence of the outside auditors; and

(iii) Recommending that the Board of Directors take appropriate action in response to the outside auditors' report to satisfy itself of the outside auditors' independence.

(e) Second Opinions. The Audit Committee shall review decisions by management to obtain second opinions on significant accounting issues and any actions taken by management in reliance on such opinions.

(f) Meetings. The Audit Committee shall meet at least annually with (1) appropriate officers and employees of the Corporation to discuss tax matters affecting the Corporation, and (2) in-house counsel to discuss legal matters affecting the Corporation.

3. Annual Consultation with Outside Auditors. In order to ensure that the Audit Committee receives all the information necessary to carry out its responsibilities, the Audit Committee shall request, at least annually, confirmation from the Corporation's outside auditors that they have informed the Audit Committee as to (a) the initial selection of and changes in significant accounting policies and their application, (b) the process used in formulating sensitive accounting estimates, (c) adjustments proposed by the auditor but not recorded by the Corporation that could cause future financial statements to be materially misstated, (d) disagreements with management and whether or not satisfactorily resolved, (e) cases when management consulted with other accountants about auditing and accounting matters, (f) difficulties encountered in performing the annual audit, and (g) any other significant Internal Control or financial reporting matter.

4. Preparation of Annual Financial Statements. Each year, prior to releasing the Corporation's audited financial statements, the Audit Committee shall take the following actions:

(a) The Audit Committee shall review and discuss the audited financial statements with management;

(b) The Audit Committee shall discuss with the Corporation's independent auditors the matters required to be discussed by SAS 61, as may be modified or supplemented;

(c) The Audit Committee shall receive and review the written disclosures and the letter from the independent auditors required by ISB Standard No. 1, as may be modified or supplemented, and shall discuss with the auditors the auditors' independence;

(d) Based on the review and discussions referred to in sub-paragraphs (a) through (c) above, the Audit Committee shall determine (and shall report in the Corporation's Annual Proxy Statement) if it recommends to the Board of Directors that the financial statements be included in the Annual Report on Form 10-K;

(e) Each Member of the Audit Committee shall provide such information as may be reasonably requested by the Corporation in order to enable the Board to review whether the Members of the Audit Committee are independent, as defined in NYSE listing standards and as defined in Section 1 of this Charter;

(f) The Audit Committee shall review its own compliance with the policies and procedures of this Charter, including without limitation compliance with the following Sections:

Section 2(a) (review with the CFO and outside auditors the adequacy and effectiveness of the Corporation's internal controls);

Section 2(b) (review the Corporation's financial statements);

Section 2(c) (review with management and outside auditors the Corporation's internal audit plans);

Section 2(d) (review recommendation and selection of outside auditors; determine that the outside auditors are independent );

Section 2(e) (review any decisions by management to obtain second opinions on significant accounting issues);

Section 2(f) (meet with officers and employees to discuss tax and legal matters); and

Section 3 (annual consultation with outside auditors).

g) The Corporation shall provide to the NYSE written confirmation regarding:

(i) The Board's annual determination regarding the independence of Members of the Audit Committee;

(ii) The financial literacy of the Audit Committee Members;

(iii) The determination that at least one Audit Committee Member has accounting or related financial management expertise; and

(iv) The Board's annual review and reassessment of the adequacy of this Charter.

5. Compliance with NYSE Requirements. Sections 1(a), 2(d) and 4(g) of this Charter are intended to comply with Rules 303.01 and 303.02 of the NYSE Listed Company Manual (as last modified on 12/20/99). In the event of any amendments to such Rules, the Board shall consider parallel amendments to this Charter.

This Charter was approved by the Corporation's Board of Directors on February 17, 2000.
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