-----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, BwujJpslSORl92c4BfLLNII5qFHLPZ3rMoLpZWca2R5RNmnbTKu1Syeb04U4+9Ab t3/KvzytSsVGXxqzpG47DA== 0000009779-99-000027.txt : 19991227 0000009779-99-000027.hdr.sgml : 19991227 ACCESSION NUMBER: 0000009779-99-000027 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 14 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990928 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-K SEC ACT: SEC FILE NUMBER: 001-06560 FILM NUMBER: 99718476 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-K 1 13 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Year Ended June 30, 1999 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 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: Title of each class Name of exchange on which registered Class A Common Stock, par value New York and Pacific Stock Exchange $.10 per share SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past ninety (90) days [X]. Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K [ ]. On September 15, 1999, the aggregate market value of the common shares held by nonaffiliates of the Registrant (based upon the closing price of these shares on the New York Stock exchange) was approximately $156 million (excluding shares deemed beneficially owned by affiliates of the Registrant under Commission Rules). As of September 15, 1999, the number of shares outstanding of each of the Registrant's classes of common stock were as follows: Class A common stock, $.10 par value 22,265,322 Class B common stock, $.10 par value 2,621,652 DOCUMENTS INCORPORATED BY REFERENCE: Portions of the registrant's definitive proxy statement for the 1999 Annual Meeting of Stockholders' to be held on November 18, 1999 (the "1999 Proxy Statement"), which the Registrant intends to file within 120 days after June 30, 1999, are incorporated by reference into Parts III and IV. THE FAIRCHILD CORPORATION INDEX TO ANNUAL REPORT ON FORM 10-K FOR FISCAL YEAR ENDED JUNE 30, 1999 PART I Page Item 1. Business 4 Item 2. Properties 11 Item 3. Legal Proceedings 12 Item 4. Submission of Matters to a Vote of Stockholders 12 PART II Item 5. Market for Our Common Equity and Related Stockholder Matters 13 Item 6. Selected Financial Data 14 Item 7. Management's Discussion and Analysis of Results of Operations and Financial Condition 15 Item 7A. Quantitative and Qualitative Disclosure about Market Risk 27 Item 8. Financial Statements and Supplementary Data 28 Item 9. Disagreements on Accounting and Financial Disclosure 74 PART III Item 10. Directors and Executive Officers of the Company 74 Item 11. Executive Compensation 74 Item 12. Security Ownership of Certain Beneficial Owners and Management 74 Item 13. Certain Relationships and Related Transactions 74 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 75 FORWARD-LOOKING STATEMENTS Except for any historical information contained herein, the matters discussed in this Annual Report on Form 10-K 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 Annual Report on Form 10-K. 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 cost savings relating to our 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 the 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 Annual Report on Form 10-K, 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 included in this Annual Report, even if new information, future events or other circumstances have made them incorrect or misleading. PART I All references in this Annual Report on Form 10-K 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. Item 1. BUSINESS General We are a leading worldwide aerospace and industrial fastener manufacturer and distribution logistics manager and, through our wholly-owned subsidiary, Banner Aerospace, Inc., an international supplier to the aerospace industry, distributing a wide range of aircraft parts and related support services. Through internal growth and strategic acquisitions, we have become one of the leading suppliers of fasteners to aircraft original equipment manufacturers (such as Boeing, the Airbus consortium, Lockheed Martin, British Aerospace and Aerospatiale), as well as one of the leading aerospace subcontractors to OEMs, independent distributors and the aerospace aftermarket. Our aerospace business consists of two segments: aerospace fasteners and aerospace parts distribution. Our aerospace fasteners segment manufactures and markets high performance fastening systems used in the manufacture and maintenance of commercial and military aircraft. Our aerospace distribution segment stocks and distributes a wide variety of aircraft parts to commercial airlines and air cargo carriers, fixed-base operators, corporate aircraft operators and other aerospace companies. Our business strategy is as follows: Maintain Quality Leadership. The aerospace market is extremely demanding in terms of precision manufacturing and all parts must be certified by OEMs pursuant to the Fedral Aviation Administration's regulations and those of other equivalent foreign regulators. Substantially all of our plants are ISO-9000 approved. We have won numerous industry and customer quality awards and are a preferred supplier for major aerospace customers. In order to be named a preferred supplier, a company must qualify its products through a customer specific quality assurance program and adhere to it strictly. Approvals and awards we have obtained include: Boeing D1 9000 Rev A; Boeing (St. Louis) Silver Supplier; Boeing Source Approved; DaimlerChrysler Aerospace Source Approved; General Electric Source Approved; Pratt & Whitney Source Approved; Lockheed- Martin Star Supplier; and DISC Large Business Supplier of the Year. Lower Manufacturing Costs. We have invested significantly over the past few years in state-of-the-art machinery, employee training and manufacturing techniques to produce products at the lowest cost while maintaining high quality. This investment in process superiority has resulted in increased capacity, lower break-even levels and faster cycle times, while reducing defect levels and improving turnaround times for customers. For example, the customer rejection rate at our aerospace fasteners segment has fallen from an average of 18.2% in fiscal 1995 to an average of 1.7% for fiscal 1999. In addition, scrap and rework costs as a percentage of net sales in our aerospace fasteners segment have fallen from an average of 9.3% in fiscal 1995 to an average of 3.9% for fiscal 1999. Our on-time delivery rate in our aerospace fasteners segment has improved significantly since fiscal 1997, to levels that are currently the best in our operating history. We view these improvements as one of the keys to our business success that will allow us to better manage industry cycles. Supply Logistics Services. Our aerospace industry customers are increasingly requiring additional supply chain management services as they seek to manage inventory and lower their manufacturing costs. In response, we are developing a number of logistics and supply chain management services that we expect will contribute to our growth and our value to our customers. Capitalize on Global Presence. The aerospace industry is global and customers increasingly seek suppliers with the ability to provide reliable and timely service worldwide. The acquisition of Kaynar Technologies has resulted in increased manufacturing and distribution capabilities in the U.S. and Europe, and sales offices worldwide. Growth through Acquisitions. Despite a trend toward consolidation, the aerospace components industry remains fragmented. Consolidation has been driven, in part, by the combination of the OEMs as they seek to reduce their procurement costs. We have successfully integrated a number of acquisitions, achieving material synergies in the process, and anticipate further opportunities to do so in the future. Our strategy is based on the following strengths: Complementary Market Share and Expanded Product Range. Kaynar Technologies Inc. focused on different market segments than us, although we each focused on segments where we could achieve economies of scale through the ability to produce high quality parts at low cost. As a result of the acquisition of Kaynar Technologies, we greatly expanded the range of products we offer. This expansion permits us to provide our customers with more complete fastening solutions, by offering engineering and logistics across the breadth of a customer's aerospace needs. For example, Kaynar Technologies's internally threaded fasteners such as engine nuts, are now be sold in combination with our externally threaded fasteners, such as bolts and pins, to provide a single fastening system. This will limit the inventory needs of the customer, minimize handling costs and reduce waste. Long-Term Customer Relationships. We work closely with our customers to provide high quality engineering solutions accompanied by superior service levels. As a result, our customer relationships are generally long-term. For example, in the Fall of 1998 we were awarded a series of long-term commitments from Boeing and certain other customers to provide a significant quantity of aircraft fastening components over the next three to five years. We have benefited from the trend of OEMs in reducing their number of suppliers in recent years in an effort to lower costs and to ensure quality and availability. We have become or been retained as a key supplier to the OEMs and increased our overall share of OEM business. OEMs are becoming increasingly demanding in terms of overall service level, including just-in-time delivery of components to the production line. We believe that our focus on quality and customer service will remain the cornerstone of our relationships with our customers. Diverse End Markets. Although a significant proportion of our sales are to OEMs in the commercial aerospace industry, we have significant sales to the defense, aerospace aftermarket and industrial markets. In addition, our distribution business has a very low OEM component. We believe this diversification will help mitigate the effects of the OEM cycle on our results. Experienced Management Teams. We have management teams with many years of experience in the aerospace components industry and a history of improving quality, lowering costs and raising the level of customer service, leading to higher overall profitability. In addition, our management teams have achieved growth by successfully integrating a number of acquisitions. Recent Developments Our recent developments are incorporated herein by reference from "Recent Developments and Significant Business Combinations" included in Item 7 "Management's Discussion and Analysis of Results of Operations and Financial Condition". Financial Information about Business Segments Our business segment information is incorporated herein by reference from Note 19 of our Consolidated Financial Statements included in Item 8, "Financial Statements and Supplementary Data" Narrative Description of Business Segments Aerospace Fasteners Through our aerospace fasteners segment, we are a leading worldwide manufacturer and distributor of fastening systems, used primarily in the construction and maintenance of commercial and military aircraft, as well as applications in other industries, including the automotive, electronic and other non-aerospace industries. Our April 20, 1999 acquisition of Kaynar Technologies has expanded our product range to provide our customers with more complete fastening solutions by offering engineering and logistics across the breadth of a customer's aerospace needs. In the past 20 months, we have made a concerted effort to establish a substantial position in the distribution/logistics segment of the aerospace fasteners industry. Through the acquisitions of Special-T Fasteners in the United States and AS+C in Europe, we have created a unique capability that we believe enhances dramatically our status as the premier fastening solutions provider in the industry. The aerospace fastener segment accounted for 71.7% of our net sales in fiscal 1999. Products (1) (see note below) In general, the aerospace fasteners we produce are highly engineered, close tolerance, high strength fastening devices designed for use in harsh, demanding environments. Products range from standard aerospace screws, precision self- locking internally threaded nuts, to more complex systems that fasten airframe structures, and sophisticated latching or quick disconnect mechanisms that allow efficient access to internal parts which require regular servicing or monitoring. Our aerospace fasteners segment produces and sells products under various trade names and trademarks. The trademarks discussed below either belong to us or to third parties, which have licensed us to use such trademarks. These trade names and trademarks include: Voi-Shan (fasteners for aerospace structures), Screwcorp (standard externally threaded products for aerospace applications), K-FAST nuts (anchor nuts, gang channels, shank nuts, barrel nuts, clinch nuts and stake nuts for defense and aerospace applications), K- Sert (inserts that include keys to lock the insert in place and prevent any rotation), RAM (custom designed mechanisms for aerospace applications), Perma- Thread and Thin Wall (inserts that create a thread inside a hole and provide a high degree of thread protection and fastening integrity), Camloc?? (components for the industrial, electronic, automotive and aerospace markets), and Tridair and Rosan (fastening systems for highly-engineered aerospace, military and industrial applications). Our aerospace fasteners segment also manufactures and supplies fastening systems used in non-aerospace industrial, electronic and marine applications. Principal product lines of the aerospace fasteners segment include: Standard Aerospace Airframe Fasteners - These fasteners consist of standard externally threaded fasteners used in non-critical airframe applications on a wide variety of aircraft. These fasteners include Hi-Torque Speed Drive, Tri- Wing, Torq-Set and Phillips. We offer the broadest line of lightweight, non-metallic composite fasteners, used primarily for military aircraft as they are designed to reduce radar visibility, enhance resistance to lightning strikes and provide galvanic corrosion protection. We also offer a variety of coatings and finishes for our fasteners, including anodizing, cadmium plating, silver plating, aluminum plating, solid film lubricants and water-based cetyl and solvent free lubricants. Commercial Aerospace Self-Locking Nuts - These precision, self-locking internally threaded nuts are used in the manufacture of commercial aircraft and aerospace defense products and are designed principally for use in harsh, demanding environments and include wrenchable nuts, K-Fast nuts, anchor nuts, gang channels, shank nuts, barrel nuts, clinch nuts and stake nuts. Commercial Aerospace Structural and Engine Fasteners - These fasteners consist of more highly engineered, permanent or semi-permanent fasteners used in non-critical but more sophisticated airframe and engine applications, which could involve joining more than two materials. These fasteners are generally engineered to specific customer requirements or manufactured to specific customer specifications for special applications, often involving exacting standards. We produce fasteners from a variety of materials, including lightweight aluminum and titanium nuts for airframes, to high-strength, high- temperature tolerant engine nuts manufactured from materials such as A-286, Waspaloy and Hastelloy. These fasteners include Hi-Lok, Veri-Lite, Eddie-Bolt and customer proprietary engine nuts. Proprietary Products and Fastening Systems - These very highly engineered, proprietary fasteners are designed by us for specific customer applications and include high performance structural latches and hold down mechanisms. These fasteners are usually proprietary in nature and are used primarily in either commercial aerospace or military applications. They include Visu-Lok??, Composi- Lok, Keen-serts, Mark IV, Flatbeam, and Ringlock. Threaded Inserts - These threaded inserts are used principally in the commercial aerospace and defense industries are made of high-grade steel and other high-tensile metals which are intended to be installed into softer metals, plastics and composite materials to create bolt-ready holes. Highly Engineered Fastening Systems for Industrial Applications - These highly engineered fasteners are designed by us for specific niche applications in the electronic, automotive and durable goods markets and are sold under the Camloc trade name. Precision Machined Structural Components and Assemblies - These precision machined structural components and assemblies are used for aircraft, including pylons, flap hinges, struts, wings fittings, landing gear parts, spares and many other items Fastener Tools - These tools are designed primarily to install the fasteners and inserts that we manufacture, but can also be used to attach other wrenchable nuts, bolts and inserts. - -------------------------------------------------------------------------------- (1) - Note on the use of registered trademarks. The trademarks discussed herein either belong to the Company or to third parties who have licensed the Company to use such trademarks. Tri-Wing, Torq-set and Phillips are registered trademarks of Phillips Screw Company. Waspaloy is a trademark of Carpenter Technologies Corporation. Hastelloy is a registered trademark of Haynes International, Inc. Hi-Lok is registered trademark of Hi-Shear Corporation. Visul-lok and Composi-lok are registered trademarks of Monogram Aerospace Fasteners, Inc. - -------------------------------------------------------------------------------- Sales and Markets The products of our aerospace fasteners segment are sold primarily to domestic and foreign OEMs of airframes and engine assemblies, as well as to subcontractors to OEMs, and to the maintenance and repair market through distributors. Sixty-six percent of its sales are domestic. Major customers include OEMs such as Boeing, the Airbus consortium, and Aerospatiale and their subcontractors, as well as major distributors such as AlliedSignal, Tri-Star Aerospace and Wesco Aircraft Hardware. In addition, OEMs have implemented programs to reduce inventories and pursue just-in-time relationships. This has allowed parts distributors to expand significantly their business due to their ability to better meet OEM objectives. In response, we are expanding efforts to provide parts through our global customer services units which include recently acquired distributors formely know as Special-T Fasteners in the United States and AS+C GmbH in Europe. Although no one customer accounted for more than 10% of our consolidated sales in fiscal 1999, a large portion of our revenues come from customers providing parts or services to Boeing, including defense sales, and the Airbus consortium and their subcontractors. Accordingly, we are dependent on the business of those manufacturers. Revenues in our aerospace fasteners segment are closely related to aircraft production. As OEMs searched for cost cutting opportunities during the aerospace industry recession of 1993-1995, parts manufacturers, including ourselves, accepted lower-priced orders and/or smaller quantity orders to maintain market share, at lower profit margins. However, during recent years, this situation has improved as build rates in the aerospace industry have increased and resulted in capacity constraints. Although lead times have increased, we have been able to provide our major customers with favorable pricing, while maintaining or increasing margins by negotiating for larger minimum lot sizes that are more economic to manufacture. Fasteners also have applications in the automotive/industrial markets, where numerous special fasteners are required, such as engine bolts, wheel bolts and turbo charger tension bolts. We are actively targeting the automotive market as a hedge against the downturn in the aerospace industry. Manufacturing and Production Our aerospace fasteners segment has fifteen primary manufacturing facilities, of which eight are located in the United States, six are located in Europe and one is located in Australia. Each facility has virtually complete production capability, and subcontracts only those production steps which exceed capacity. Each plant is designed to produce a specified product or group of products, determined by the production process involved and certification requirements. Our aerospace fasteners segments largest customers have recognized its quality and operational controls by conferring their advanced quality systems certifications at all of our facilities (e.g. Boeing's D1-900A). All of its aerospace manufacturing facilities are "preferred suppliers". We have recently received all necessary quality and product approval from OEMs. We have a modern information system at all of our U.S. facilities, which was expanded to most of our European operations in fiscal 1999. The new system performs detailed and timely cost analysis of production by product and facility. Updated MIS systems also help us to better service our customers. OEMs require each product to be produced in an OEM-qualified/OEM-approved facility. Competition Despite intense competition in the industry, we remain the dominant manufacturer of aerospace fasteners. Based on calendar 1998 information, the worldwide aerospace fastener market is estimated to be $1.7 billion (before distributor resales). We hold approximately 30% of the market and compete with SPS Technologies, GFI Industries, and the Huck International division of the Cordant Technologies Corporation, which we believe hold approximately 15%, 11% and 10% of the market, respectively. Quality, performance, service and price are generally the prime competitive factors in the aerospace fasteners segment. Our broad product range allows us to more fully serve each OEM and distributor. Our product array is diverse and offers customers a large selection to address various production needs. We seek to maintain our technological edge and competitive advantage over our competitors, and have demonstrated our innovative production methods and new products to meet customer demands. We seek to work closely with OEMs and involve ourselves early in the design process in order that our products may be incorporated into the design of their products. Aerospace Distribution We distribute a wide variety of aircraft parts, which we purchase on the open market or acquire from OEMs as an authorized distributor. No single distributor arrangement is material to our financial condition. The aerospace distribution segment accounted for 27.3% of our total sales in fiscal 1999. Products An extensive inventory of products and a quick response time are essential in providing service to our customers. Another key factor in selling to our customers is our ability to maintain a system that traces a part back to the manufacturer or repair facility. Products of the aerospace distribution segment are divided into two groups: rotables and engines. Rotables include flight data recorders, radar and navigation systems, instruments and hydraulic and electrical components. Engines include jet engines and engine parts for use on both narrow and wide body aircraft and smaller engines for corporate and regional aircraft. We provide a number of services such as immediate shipment of parts in aircraft-on- ground situations. We also buy and sell aircraft from time to time. Rotable parts are sometimes purchased as new parts, but are generally purchased in the aftermarket and are then overhauled by us or for us by outside contractors, including OEMs or FAA-licensed facilities. Rotables are sold in a variety of conditions such as new, overhauled, serviceable and "as is". Rotables may also be exchanged instead of sold. An exchange occurs when an item in inventory is exchanged for a customers part and the customer is charged an exchange fee plus the actual cost to overhaul the part. Engines and engine components are sold "as is", overhauled or disassembled for resale as parts. Sales and Markets Our aerospace distribution segment sells its products in the United States and abroad to commercial airlines and air cargo carriers, fixed-base operators, corporate aircraft operators, distributors and other aerospace companies. Approximately 72.7% of our sales are to domestic purchasers, some of whom may represent offshore users. Our aerospace distribution segment conducts marketing efforts through its direct sales force, outside representatives and, for some product lines, overseas sales offices. Sales in the aviation aftermarket depend on price, service, quality and reputation. Our aerospace distribution segment's business does not experience significant seasonal fluctuations nor depend on a single customer. No single customer accounts for more than 10% of our consolidated revenue. Dallas Aerospace, Inc., our aerospace distribution's largest subsidiary, sells jet engines and engine parts for use on both narrow and wide body aircraft. In addition, Dallas Aerospace provides engine repair management services and engine leasing to a variety of airline and air cargo customers and has bought and sold large commercial aircraft from time to time. We have expressed our intent to sell, and are attempting to reach agreement with a possible purchaser of Dallas Aerospace. Competition The rotables group competes with Air Ground Equipment Services, Duncan Aviation, Stevens Aviation, OEMs such as Honeywell, Rockwell Collins, Raytheon, and Litton, and other fixed based operators and maintenance repair organizations. The major competitors for our engine group are OEMs such as General Electric Company and Pratt & Whitney, as well as the engine parts division of AAR Corp., Kellstrom Industries, and Air Ground Equipment Services, and many smaller companies. Other Operations Our other operations included a company operating under the trade name of Fairchild Gas Springs, which we sold subsequent to June 30, 1999. We also own Fairchild Technologies, a technology products unit which designs, manufactures and markets high performance production equipment and systems required for the manufacture of recordable compact discs. Additionally, we also own several parcels of developed and undeveloped land almost entirely representing residuals of operations previously divested or closed. Included among these is an 88-acre site in Farmingdale, New York, on which we are currently developing as a shopping center. We are pursuing the liquidation of the remaining components of Fairchild Technologies. Foreign Operations Our operations are located throughout the world. Inter-area sales are not significant to the total revenue of any geographic area. Export sales are made by U.S. businesses to customers in non-U.S. countries, whereas foreign sales are made by our non-U.S. subsidiaries. For our sales results by geographic area and export sales, see Note 20 of our Consolidated Financial Statements included in Item 8, "Financial Statements and Supplementary Data". Backlog of Orders Backlog is important for all our operations, due to the long-term production requirements of our customers. Our backlog of orders as of June 30, 1999 in the aerospace fasteners segment and aerospace distribution segment amounted to $215.3 million and $12.5 million, respectively. We anticipate that in excess of 87% of the aggregate backlog at June 30, 1999 will be delivered by June 30, 2000. In the fall of 1998, we were awarded a series of long-term commitments from Boeing to provide a significant quantity of aircraft fastening components over the next three to five years, however, amounts related to such agreements are not included in our backlog until Boeing specifies delivery dates for fasteners ordered. Suppliers We are not materially dependent upon any one supplier, but are dependent upon a wide range of subcontractors, vendors and suppliers of materials to meet our commitments to our customers. From time to time, we enter into exclusive supply contracts in return for logistics and price advantages. We do not believe that any one of these contracts would impair our operations if a supplier failed to perform. Nevertheless, commercial deposits of certain metals, such as titanium and nickel, which are required for the manufacture of several of our products, are found only in certain parts of the world. The availability and prices of these metals may be influenced by private or governmental cartels, changes in world politics, unstable governments in exporting nations or inflation. Similarly, supplies of steel and other less exotic metals used by us may also be subject to variation in availability. We purchase raw materials, which include the various metals, composites, and finishes used in production, from over twenty different suppliers. We have recently entered into several long-term titanium and alloy supply contracts. In the past, fluctuations in the price of titanium have had an adverse effect on our sales margins. Research and Patents We own patents relating to the design and manufacture of certain of our products and are licensees of technology covered by the patents of other companies. We do not believe that any of our business segments are dependent upon any single patent. Personnel As of June 30, 1999, we had approximately 5,200 employees. Of these, approximately 3,400 and of our employees are based in the United States and 1,800 are based in Europe and elsewhere. Approximately 20% of our employees were covered by collective bargaining agreements. Although we have had isolated work stoppages in France in the past, these stoppages have not had a material impact on our business. Overall, we believe that our relations with our employees are good. Environmental Matters A discussion of our environmental matters is included in Note 18, "Contingencies", to our Consolidated Financial Statements, included in Part II, Item 8, "Financial Statements and Supplementary Data" and is incorporated herein by reference. ITEM 2. PROPERTIES As of June 30, 1999, we owned or leased buildings totaling approximately 2,100,000 square feet, of which approximately 1,246,000 square feet was owned and 854,000 square feet was leased. Our aerospace fasteners segment's properties consisted of approximately 1,722,000 square feet, with principal operating facilities of approximately 1,543,000 square feet concentrated in Southern California, Massachusetts, France and Germany. The aerospace distribution segment's properties consisted of approximately 233,000 square feet, with principal operating facilities of approximately 155,000 square feet located in Texas and Georgia. We own our corporate headquarters building at Washington-Dulles International Airport. The following table sets forth the location of the larger properties used in our continuing operations, their square footage, the business segment or groups they serve and their primary use. Each of the properties owned or leased by us is, in our opinion, generally well maintained. All of our occupied properties are maintained and updated on a regular basis.
Owned Square or Business Primary Location Leased Footage Segment/Group Use Saint Cosme, Owned 304,000 Aerospace France Fasteners Manufacturing Torrance, Owned 284,000 Aerospace California Fasteners Manufacturing Fullerton, Owned 255,000 Aerospace California Fasteners Manufacturing City of Industry, Owned 140,000 Aerospace California Fasteners Manufacturing Carrollton, Texas Leased 126,000 Aerospace Distribution Distribution Dulles, Virginia Owned 125,000 Corporate Office Stoughton, Leased 120,000 Aerospace Massachusetts Fasteners Manufacturing Huntington Beach, Owned 86,000 Aerospace California Fasteners Manufacturing Montbrison, France Owned 63,000 Aerospace Fasteners Manufacturing Hildesheim, Owned 57,000 Aerospace Germany Fasteners Manufacturing Toulouse, France Owned 56,000 Aerospace Fasteners Manufacturing Kelkheim, Germany Owned 52,000 Aerospace Fasteners Manufacturing Chatsworth, Leased 36,000 Aerospace California Fasteners Distribution Atlanta, Georgia Leased 29,000 Aerospace Distribution Distribution
We have several parcels of property which we are attempting to market, lease and/or develop, including: (i) an eighty-eight acre parcel located in Farmingdale, New York, (ii) a six acre parcel in Temple City, California, (iii) an eight acre parcel in Chatsworth, California, and (iv) several other parcels of real estate, located primarily throughout the continental United States. Information concerning our long-term rental obligations at June 30, 1999, is set forth in Note 17 to our Consolidated Financial Statements, included in Item 8, "Financial Statements and Supplementary Data", and is incorporated herein by reference. ITEM 3. LEGAL PROCEEDINGS A discussion of our legal proceedings is included in Note 18, "Contingencies", to our Consolidated Financial Statements, included in Part II, Item 8, "Financial Statements and Supplementary Data", of this annual report and is incorporated herein by reference. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS There were no matters submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this report. PART II ITEM 5 MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS Market Information Our Class A common stock is traded on the New York Stock Exchange and Pacific Stock Exchange under the symbol FA. Our Class B common stock is not listed on any exchange and is not publicly traded. Class B common stock can be converted to Class A common stock at any time at the option of the holder. Information regarding the quarterly price range of our Class A common stock is incorporated herein by reference from Note 21 of our Consolidated Financial Statements included in Item 8, "Financial Statements and Supplementary Data". Holders of Record We had approximately 1,325 and 39 record holders of our Class A and Class B common stock, respectively, at September 15, 1999. Dividends Our current policy is to retain earnings to support the growth of our present operations and to reduce our outstanding debt. Any future payment of dividends will be determined by our Board of Directors and will depend on our financial condition, results of operations and by restrictive covenants in our credit agreement and 10 ??% senior subordinated notes that limit the payment of dividends over their respective terms. See Note 8 of our Consolidated Financial Statements included in Item 8, "Financial Statements and Supplementary Data". Sale of Unregistered Securities In fiscal 1998, we adopted a stock option deferral plan for officers and directors, pursuant to which recipients of stock options may elect to defer the gain on exercise of stock options. The "gain" is the difference between the market value of the shares issued to an officer or director upon exercise of the stock option, and the price paid by the officer or director for the exercise of such stock option. An officer's or director's deferred gain is issued in the form of "deferred compensation units." Each deferred compensation unit entitles the recipient to receive one share of Class A common stock upon expiration of the "deferral period" for the stock options exercised. The deferred compensation units may be deemed our securities. Only officers and directors who are accredited investors are allowed to elect to receive deferred compensation units. 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 the stock option deferral plan, in fiscal 1998 J. Flynn, deferred $85,313 in exchange for 4,027 deferred compensation units; D. Miller, deferred $85,313 in exchange for 4,027 deferred compensation units; E. Steiner, deferred $573,750 in exchange for 24,545 deferred compensation units; and in fiscal 1999 D. Miller deferred $135,000 in exchange for 8,852 deferred compensation units. ITEM 6. SELECTED FINANCIAL DATA
Five-Year Financial Summary (In thousands, except per share data) For the years ended June 30, Summary of Operations: 1999 1998 1997 1996 1995 Net sales 617,322 741,176 680,763 349,236 220,351 Gross profit 112,429 186,506 181,344 74,101 26,491 Operating income (loss) (45,911) 45,443 33,499 (11,286)(30,333) Net interest expense 30,346 42,715 47,681 56,459 64,113 Earnings (loss) from (23,507) 52,399 1,816 (32,186)(56,280) continuing operations Earnings (loss) per share from continuing operations: Basic (1.03) 2.78 0.11 (1.98) (3.49) Diluted (1.03) 2.66 0.11 (1.98) (3.49) Other Data: EBITDA (20,254) 66,316 54,314 5,931 (9,830) Capital expenditures 30,142 36,029 15,014 5,680 5,383 Cash provided by (used for) 23,268 (85,231) (93,321)(48,951)(25,040) operating activities Cash provided by (used for) (99,157) 43,614 73,238 57,540 (19,156) investing activities Cash provided by (used for) 81,218 74,088 (1,455)(39,637) 12,345 financing activities Balance Sheet Data: Total assets 1,328,786 1,157,259 1,052,666 993,398 828,680 Long-term debt, less current 495,283 295,402 416,922 368,589 508,225 maturities Redeemable preferred stock of -- -- -- -- 16,342 subsidiary Stockholders' equity 407,500 473,559 232,424 230,861 39,278 per outstanding common share 16.38 20.54 13.98 14.10 2.50
The results of Banner Aerospace, Inc. are included in the periods since February 25, 1996, when Banner Aerospace became a majority-owned subsidiary. Prior to February 25, 1996, our investment in Banner Aerospace was accounted for using the equity method. Fiscal 1998 includes the gain from the disposition of Banner Aerospace's hardware group. The results of the hardware group are included in the periods from March 1996 through December 1997, until disposition. Fiscal 1999 includes the loss on the disposition of Banner Aerospace's Solair subsidiary and the loss recognized on the potential sale of Dallas Aerospace. The results of Solair are included in the periods from March 1996 through December 1998, until disposition. These transactions materially affect the comparability of the information reflected in the selected financial data. EBITDA represents the sum of operating income before depreciation and amortization. Included in EBITDA are restructuring and unusual charges of $6,374 and $2,319 in fiscal 1999 and 1996, respectively. We consider EBITDA to be an indicative measure of our operating performance due to the significance of our long-lived assets and because such data is considered useful by the investment community to better understand our results, and can be used to measure our ability to service debt, fund capital expenditures and expand our business. EBITDA is not a measure of financial performance under GAAP, may not be comparable to other similarly titled measures of other companies and should not be considered as an alternative either to net income as an indicator of our operating performance, or to cash flows as a measure of our liquidity. Cash expenditures for various long-term assets, interest expense, and income taxes have been, and will be incurred which are not reflected in the EBITDA presentation. ITEM 7. 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 FHC and Banner Aerospace. During the periods presented, we held significant equity interests in Nacanco Paketleme and Shared Technologies Fairchild Inc. 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, including, Aerospatiale, DaimlerChrysler Aerospace, British Aerospace 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 Annual Report on Form 10-K. 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 the 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 these forward-looking statements in this Annual 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 we completed 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 1999 Transactions On December 31, 1998, Banner 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 recorded a $19.3 million pre-tax loss from the sale of Solair. This loss was included in cost of goods sold as it was primarily attributable to the bulk sale of inventory at prices below the carrying amount of inventory. On February 22, 1999, we used available cash to acquire 77.3% of SNEP S.A. By June 30, 1999, we had purchased significantly 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 preliminarily being allocated as goodwill, and amortized using the straight-line method over 40 years. SNEP is a French manufacturer of precision machined self-locking nuts and special threaded fasteners serving the European industrial, aerospace and automotive markets. 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 with one of our subsidiaries. Under the terms of the merger with Banner, we issued 2,981,412 shares of our Class A common stock to acquire all of Banner's common and preferred stock (other than those already owned by us). Banner 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's existing debt, the majority of which was refinanced at closing. In addition, we paid $28 million for a covenant not to compete from Kaynar Technologies's largest preferred shareholder. 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 using the straight-line method over 40 years. 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 using the straight-line method over 40 years. The acquisition was financed with additional borrowings from our credit facility. Fiscal 1998 Transactions On March 11, 1998, Shared Technologies Fairchild Inc. merged into Intermedia Communications Inc. Under the terms of the merger, holders of Shared Technologies Fairchild common stock received $15.00 per share in cash. We received approximately $178.0 million in cash (before tax and selling expenses) in exchange for the common and preferred stock of Shared Technologies Fairchild we owned. In fiscal 1998, we recorded a $96.0 million gain, net of tax, on disposal of discontinued operations, from the proceeds received from the merger of Shared Technologies Fairchild with Intermedia. The results of Shared Technologies Fairchild have been accounted for as discontinued operations. On November 28, 1997, we acquired AS+C GmbH, Aviation Supply + Consulting in a business combination accounted for as a purchase. The total cost of the acquisition was $14.0 million, which exceeded the fair value of the net assets of AS+C by approximately $8.1 million, which is allocated as goodwill and amortized using the straight-line method over 40 years. We purchased AS+C with cash borrowings. AS+C is an aerospace parts, logistics, and distribution company primarily servicing the European OEM market. On December 19, 1997, we completed a secondary offering of public securities. The offering consisted of an issuance of 3,000,000 shares of our Class A common stock at $20.00 per share, which generated $57 million of net proceeds. On December 19, 1997, immediately following the Offering, we restructured our FHC and RHI credit agreements by entering into a new six-and-a- half-year credit facility to provide us with a $300 million senior secured credit facility consisting of (i) a $75 million revolving loan with a letter of credit sub-facility of $30 million and a $10 million swing loan sub-facility, and (ii) a $225 million term loan. On January 13, 1998, Banner Aerospace completed the disposition of substantially all of the assets and certain liabilities of certain of its subsidiaries to two wholly-owned subsidiaries of AlliedSignal Inc., in exchange for shares of AlliedSignal common stock with an aggregate value of $369 million. The assets transferred to AlliedSignal consisted primarily of Banner Aerospace's hardware group, which included the distribution of bearings, nuts, bolts, screws, rivets and other types of fasteners, and its PacAero unit. Approximately $196 million of the common stock received from AlliedSignal Inc. was used to repay outstanding term loans of Banner Aerospace's subsidiaries, and related fees. On February 3, 1998, with the proceeds of the equity offering, term loan borrowings under the credit facility, and a portion of the after tax proceeds we received from the Shared Technologies Fairchild, we refinanced substantially all of our then existing indebtedness (other than indebtedness of Banner), consisting of (i) $63.0 million to redeem 11 7/8% Senior Debentures due 1999; (ii) $117.6 million to redeem 12% Intermediate Debentures due 2001; (iii) $35.9 million to redeem 13 1/8% Subordinated Debentures due 2006; (iv) $25.1 million to redeem 13% Junior Subordinated Debentures due 2007; and (vi) accrued interest of $10.6 million. On March 2, 1998, we acquired Edwards and Lock Management Corporation, doing business as Special-T Fasteners, in a business combination accounted for as a purchase. The cost of the acquisition was approximately $50.0 million, of which 50.1% of the contractual purchase price was paid in shares of our Class A common stock and 49.9% was paid in cash. The total cost of the acquisition exceeded the fair value of the net assets of Special-T by approximately $23.3 million, which is being allocated as goodwill, and amortized using the straight- line method over 40 years. Special-T manages the logistics of worldwide distribution of Company-manufactured precision fasteners to customers in the aerospace industry, government agencies, OEMs, and other distributors. On May 11, 1998, we commenced an offer to exchange, for each properly tendered share of common stock of Banner, a number of shares of our Class A common stock, par value $0.10 per share, equal to the quotient of $12.50 divided by $20.675 up to a maximum of 4,000,000 shares of Banner Aerospace's common stock. The exchange offer expired on June 9, 1998 and 3,659,364 shares of Banner Aerospace's common stock were validly tendered for exchange and we issued 2,212,361 shares Class A common stock to the tendering shareholders. Fiscal 1997 Transactions In February 1997, we completed a transaction pursuant to which we acquired common shares and convertible debt representing an 84.2% interest, on a fully diluted basis, of Simmonds S.A. We then initiated a tender offer to purchase the remaining shares and convertible debt held by the public. By June 30, 1997, we had purchased, or placed sufficient cash in escrow to purchase, all the remaining shares and convertible debt of Simmonds. The total purchase price of Simmonds, including the assumption of debt, was approximately $62.0 million, which we funded with available cash and borrowings. We recorded approximately $20.5 million in goodwill as a result of this acquisition, which is being amortized using the straight-line method over 40 years. Simmonds is one of Europe's leading manufacturers and distributors of aerospace and automotive fasteners. On June 30, 1997, we sold all the patents of Fairchild Scandinavian Bellyloading Company to Teleflex Incorporated for $5.0 million, and immediately thereafter sold all the stock of Fairchild Scandinavian Bellyloading Company to a wholly-owned subsidiary of Teleflex for $2.0 million. Consolidated Results We currently report in two principal business segments: aerospace fasteners and aerospace distribution. The results of the Gas Springs division are included in the Corporate and Other classification. The following table illustrates the historical sales and operating income of our operations for the past three years.
(In thousands) For the years ended June 30, 1999 1998 1997 Sales by Segment: Aerospace Fasteners $442,722 $387,236 $269,026 Aerospace Distribution 168,336 358,431 411,765 Corporate and Other 6,264 5,760 15,185 Eliminations (a) - (10,251) (15,213) Total Sales $617,322 $741,176 $680,763 Operating Income (Loss) by Segment: Aerospace Fasteners 38,956 32,722 17,390 Aerospace Distribution (40,003) 20,330 30,891 Corporate and Other (44,864) (7,609) (14,782) Total Operating Income (Loss) (b) $(45,911) $45,443 $33,499 (a) Represents intersegment sales from our aerospace fasteners segment to our aerospace distribution segment. (b) Fiscal 1999 results include an inventory impairment charges of $41,465 in the aerospace distribution segment, costs relating to acquisitions of $23,604 and restructuring charges of $5,526 in the aerospace fasteners segment, $348 in the aerospace distribution segment, and $500 at corporate.
The following unaudited pro forma table illustrates sales and operating income of our operations by segment, on a pro forma basis, as if we had operated in a consistent manner for the past three years. The pro forma results represent the impact of our merger with Kaynar Technologies (completed in April 1999), our merger with Banner Aerospace (completed in April 1999), our acquisition of Special-T (effective January 1998), our disposition of Solair (completed in December 1998), our disposition of the hardware group (completed January 13, 1998), the disposition of Shared Technologies Fairchild (completed in March 1998), and our disposition of Fairchild Scandinavian Bellyloading Company (completed June 30, 1997), as if these transactions had occurred at the beginning of each period presented. 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 each period, nor are they necessarily indicative of our future results.
For the years ended June 30, 1999 1998 1997 Sales by Segment: Aerospace Fasteners $610,200 $630,538 $468,082 Aerospace Distribution 140,017 148,339 117,781 Corporate and Other 6,264 5,760 5,118 Total Sales $756,481 $784,637 $590,981 Operating Income (Loss) by Segment: Aerospace Fasteners 54,426 68,037 32,992 Aerospace Distribution (20,836) 9,382 8,235 Corporate and Other (24,396) (12,439) (16,385) Total Operating Income (Loss) (a) $ 9,194 $ 64,980 $ 24,842 (a) Fiscal 1999 results include an inventory impairment charge of $22,145 in the aerospace distribution segment, costs relating to acquisitions of $23,604 and restructuring charges of $5,526 in the aerospace fasteners segment, $348 in the aerospace distribution segment, and $500 at corporate.
Net sales of $617.3 million in 1999 decreased by $123.9 million, or 16.7%, compared to sales of $741.2 million in 1998. The decrease is attributable primarily to the loss of revenues resulting from the disposition of Banner Aerospace's hardware group and Solair. Approximately 7.3% of the current year's sales growth came from acquisitions in the aerospace fasteners segment. Divestitures decreased our growth by approximately 21.0% and our internal growth was down 6.2%. Net sales of $741.2 million in 1998 increased by $60.4 million, or 8.9%, compared to sales of $680.8 million in 1997. Sales growth was stimulated by the resurgent commercial aerospace industry and business acquisitions, partially offset by the loss of revenues as a result of the disposition of Banner Aerospace's hardware group. Approximately 15.8% of the 1998 sales growth was stimulated by the resurgent commercial aerospace industry. On a pro forma basis, net sales decreased 3.6% and increased 32.8% in 1999 and 1998, respectively, as compared to the previous fiscal periods. Gross margin as a percentage of sales was 18.2%, 25.2% and 26.6% in 1999, 1998, and 1997, respectively. Included in cost of goods sold for 1999 was a charge of $41.5 million recognized in our aerospace distribution segment from the disposition of Solair and the potential disposition of Dallas Aerospace. Of this charge, $19.3 million was attributable to Solair's bulk sale of inventory at prices below this carrying amount. Excluding these charges, gross margin as a percentage of sales was 24.9% in fiscal 1999. The lower margins in the fiscal 1999 period are attributable to a change in product mix in our aerospace distribution segment as a result of the dispositions. Partially offsetting the overall lower margins was an improvement in margins within our aerospace fasteners segment resulting from acquisitions, efficiencies associated with increased production, improved skills of the work force, and reduction in the payment of overtime. Decreased margins in the fiscal 1998 period were attributable to a change in product mix in the aerospace distribution segment as a result of the disposition of Banner' Aerospace's hardware group. Selling, general & administrative expense as a percentage of sales was 24.2%, 19.1%, and 21.0% in fiscal 1999, 1998, and 1997, respectively. Included in selling, general & administrative expense in fiscal 1999 were $23.6 million of one-time costs associated primarily with the acquisition of Kaynar Technologies. Excluding these costs, selling, general & administrative expense as a percentage of sales would have been 20.4% in 1999. This increase in 1999 is attributable to increased environmental expenses. The improvement in fiscal 1998 was attributable primarily to administrative efficiencies allowed by increased sales. Other income decreased $2.6 million in 1999 as compared to 1998, and increased $6.5 million in 1998 as compared to 1997. These changes are due primarily to the fiscal 1998 sale of air rights over a portion of the property we own and are developing in Farmingdale, New York. In fiscal 1999, we recorded $6.4 million of restructuring charges. Of this amount, $0.5 million was recorded at our corporate office for severance benefits and $0.3 million was recorded at our aerospace distribution segment for the write-off of building improvements from premises vacated. The remaining $5.5 million was recorded as a result of the Kaynar Technologies merger integration process at our aerospace fasteners segment for severance benefits, product integration expenses incurred as of June 30, 1999, and the write down of redundant fixed assets. As of June 30, 1999, approximately one-third of the integration process has been executed. We expect to incur additional restructuring charges for product integration costs during the next twelve months at our aerospace fasteners segment. We anticipate that our integration process will be substantially completed by the second quarter of fiscal 2000. We reported an operating loss of $45.9 million in fiscal 1999 which was a decrease from operating income of $45.4 million reported in fiscal 1998. The current year was affected by $71.4 million of expenses recognized for inventory impairment, restructuring and costs related to acquisitions. Operating income of $45.4 million in fiscal 1998 increased $11.9 million, or 35.7%, compared to operating income of $33.5 million in fiscal 1997. The increase in operating income was due primarily to the improved results in our aerospace fasteners segment. Net interest expense decreased 29.0% in fiscal 1999 compared to fiscal 1998 and decreased 10.4% in fiscal 1998 compared to fiscal 1997. The decreases were due to a series of transactions occurring in fiscal 1998 that significantly reduced our total debt. We expect interest expense to increase significantly in the next year as a result of additional debt we incurred to finance the acquisition of Kaynar Technologies. Investment income (loss), net, was $39.8 million, $(3.4) million, and $6.7 million in 1999, 1998, and 1997, respectively. We recognized a large gain in 1999 from the liquidation of our position in AlliedSignal to raise funds to acquire Kaynar Technologies. The $10.1 decrease in 1998 was due to recognition of unrealized losses on the fair market adjustments of investments previously classified as trading securities in the fiscal 1998 periods, while recording unrealized gains from trading securities in the fiscal 1997 periods. Unrealized holding gains (losses) on available-for-sale investments are marked to market value through stockholders' equity and reported separately as part of comprehensive income. Nonrecurring income of $124.0 million in 1998 resulted from the disposition of Banner Aerospace's hardware group. Nonrecurring income in 1997 included the $2.5 million gain from the sale of Scandinavian Bellyloading Company. We recorded an income tax benefit of $13.2 million in fiscal 1999 representing a 36.3% effective tax rate on pre-tax losses from continuing operations. The tax benefit approximates the statutory rate. The income tax provision of $47.3 million reported in fiscal 1998 represents a 38.3% effective tax rate on pre-tax earnings from continuing operations (excluding equity in earnings of affiliates and minority interest) of $123.4 million. The tax provision was slightly higher than the statutory rate because of goodwill associated with the disposition of Banner Aerospace's hardware group, which is not deductible for tax purposes. Income taxes included a $7.3 million tax benefit in Fiscal 1997 on a pre-tax loss of $5.0 million from continuing operations. Equity in earnings of affiliates decreased $0.8 million in 1999, compared to 1998, and $0.4 million in 1998, compared to 1997. The decreases are primarily attributable to losses recorded by small start-up ventures. In July 1999, we divested our 31.9% interest in Nacanco. This will likely reduce our future equity earnings. Minority interest decreased by $24.2 million in 1999 and increased by $22.8 million in 1998 as a result of the $124.0 million nonrecurring pre-tax gain recognized in 1998 from the disposition of Banner Aerospace's hardware group. On April 8, 1999, we completed a merger with Banner Aerospace, which will effectively reduce our future minority interest effects to immaterial amounts. Included in earnings (loss) from discontinued operations are the results of Fairchild Technologies through January 1998, and our equity in earnings of Shared Technologies Fairchild prior to the merger of Shared Technologies Fairchild. Losses increased in fiscal 1998 as a result of increased losses recorded at Fairchild Technologies and lower equity earnings contributed by Shared Technologies Fairchild. (See Note 4 to our Consolidated Financial Statements). In 1998, we recorded a $96.0 million gain, net of tax, on disposal of discontinued operations, from the proceeds received from the merger of Shared Technologies Fairchild. This gain was partially offset in connection with the adoption of a formal plan to enhance the opportunities for disposition of Fairchild Technologies. Under this plan we recorded an after-tax charge of $31.3 million and $36.2 million on disposal of discontinued operations in fiscal 1999 and 1998, respectively. Included in the fiscal 1998 charge, was $28.2 million (net of an income tax benefit of $11.8 million) for the net losses of Fairchild Technologies through June 30, 1998 and $8.0 million (net of an income tax benefit of $4.8 million) for the estimated operating losses of Fairchild Technologies. The fiscal 1999 after-tax operating loss from Fairchild Technologies exceeded the June 1998 estimate recorded for expected losses by $28.6 million (net of an income tax benefit of $8.1 million) through June 1999. An additional after-tax charge of $2.8 million (net of an income tax benefit of $2.4 million) was recorded in fiscal 1999, based on a current estimate of the remaining losses in connection with the disposition of Fairchild Technologies. While we believe that $2.8 million is a reasonable charge for the remaining losses to be incurred from Fairchild Technologies, there can be no assurance that this estimate is adequate. In fiscal 1999, we recognized an extraordinary loss of $4.2 million, net of tax, to write-off the remaining deferred loan fees associated with the early extinguishment of our indebtedness pursuant to our acquisition of Kaynar Technologies (See Note 8). In fiscal 1998 we recognized an extraordinary loss of $6.7 million, net of tax, to write-off the remaining deferred loan fees and original issue discounts associated with early extinguishment of our indebtedness pursuant the repayment of all our public debt and refinancing of credit facilities. Comprehensive income (loss) includes foreign currency translation adjustments and unrealized holding changes in the fair market value of available-for-sale investment securities. The fair market value of unrealized holding securities declined by $16.5 million in fiscal 1999 and increased by $20.6 million in 1998. The 1999 changes reflect primarily gains realized from the liquidation of investments, primarily AlliedSignal common stock. The 1998 increase was primarily the result of an increase in the value of AlliedSignal common stock which we received from the disposition of Banner Aerospace's hardware group. Foreign currency translation adjustments decreased by $2.5 million and $5.1 million in fiscal 1999 and 1998, respectively. Segment Results Aerospace Fasteners Segment Sales in the aerospace fasteners segment increased by $55.5 million to $442.7 million, up 14.3% in fiscal 1999, compared to fiscal 1998, reflecting growth due primarily to the acquisition of Kaynar Technologies. New orders stabilized in 1999 reflecting a plateau during fiscal 1999 and ultimately a slight downturn in the commercial aerospace industry in the fourth quarter of fiscal 1999. Backlog increased by $38 million in fiscal 1999 to $215 million at June 30, 1999, reflecting the acquisition of Kaynar Technologies. Excluding $90 million of backlog contributed by Kaynar Technologies, our backlog decreased $52 million. Sales in the aerospace fasteners segment increased by $118.2 million to $387.2 million, up 43.9% in fiscal 1998, compared to fiscal 1997, reflecting growth in the commercial aerospace industry combined with the effect of acquisitions. On a pro forma basis reflecting acquisitions in comparable periods, sales decreased 3.2% in fiscal 1999, compared to fiscal 1998, and increased 34.7% in fiscal 1998 compared to fiscal 1997 Operating income increased by $6.2 million, or 19.1%, in fiscal 1999, compared to fiscal 1998. Included in our 1999 results are restructuring charges of $5.5 million for integration costs and severance from the integration of our business with the Kaynar Technologies business. Excluding restructuring charges, operating income increased $11.7 million in fiscal 1999 compared to fiscal 1998. Excluding restructuring charges, internal growth was 7.9% in fiscal 1999 at operations we owned entirely during the period, compared to the fiscal 1998 results of these same operations on a pro forma basis. Operating income improved by $15.3 million, or 88.2%, in fiscal 1998, compared to fiscal 1997. Acquisitions and marketing changes were contributing factors to the fiscal 1998 improvement. We anticipate that cost savings resulting from the manufacturing integration of the Kaynar Technologies business with our own business will further improve operating results in fiscal 2000. On a pro forma basis, operating income decreased $13.6 million in fiscal 1999, as compared to fiscal 1998 and increased $35.0 million in fiscal 1998, as compared to fiscal 1997. We believe the demand for aerospace fasteners in fiscal 2000 will remain relatively high in Europe, and expect sluggish demand in the United States. We anticipate that order rates may start increasing again during the ladder part of fiscal 2000. In the meantime, we believe production volume on a worldwide basis will remain at reasonable levels. We expect that our merger integration savings and production efficiency improvements will allow us to generate an increase in margin. Aerospace Distribution Segment Sales in our aerospace distribution segment decreased by $190.1 million, or 53.0%, in fiscal 1999, compared to the fiscal 1998 period, due primarily to the loss of revenues as a result of the disposition of the hardware group and Solair. Sales decreased by $53.3 million, or 13.0% in fiscal 1998, compared to fiscal 1997. The exclusion of six months' revenues as a result of the hardware group disposition was responsible primarily for the decrease in 1998, in which sales otherwise reflected a robust aerospace industry. On a twelve-month pro forma basis, sales decreased $8.3 million, or 5.6%, in 1999 compared to 1998, and increased $30.6 million, or 25.9%, in 1998 compared to 1997. Operating income decreased by $60.3 million, in fiscal 1999, as compared to fiscal 1998. A charge of $41.4 million is included in the current year results, in connection with the sale of Solair and the potential sale of Dallas Aerospace. Excluding these charges, operating income would have decreased $18.9 million in fiscal 1999, compared to the same period of the prior year, due primarily to the disposition of Solair and the hardware group. Operating income decreased $10.6 million in fiscal 1998, compared to fiscal 1997, due to the hardware group disposition. On a twelve-month pro forma basis, operating income decreased $30.2 million in fiscal 1999, compared to fiscal 1998, and was stable in fiscal 1998 compared to fiscal 1997. Corporate and Other The Corporate and Other classification includes the Gas Springs division and corporate activities. The group reported an 8.8% improvement in sales in fiscal 1999, compared to fiscal 1998. An operating loss of $44.9 million in fiscal 1999 was $37.3 million higher than the operating loss of $7.6 million reported in fiscal 1998. The current year includes $23.6 million of one-time costs associated primarily with the acquisition of Kaynar Technologies, restructuring charges, and increased environmental, legal and travel expenses. Also, the prior year included other income of $8.6 million, including $4.4 million realized as a result of the condemnation of air rights over a portion of the property we own and are developing in Farmingdale, New York. The group reported a decrease in sales of $9.4 million, in 1998, as compared to 1997, due to the exclusion of Fairchild Scandinavian Bellyloading results in fiscal 1998. The operating loss decreased by $7.2 million in 1998, compared to fiscal 1997, as a result of an increase in other income and a decrease in legal expenses. FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES Total capitalization as of June 30, 1999 and 1998 amounted to $931.6 million and $789.6 million, respectively. The changes in capitalization included an increase of $208.1 million in debt and a decrease of $66.1 million in equity. The increase in debt was a result of the acquisition of Kaynar Technologies. The decrease in equity was due primarily to a $22.1 million purchase of treasury stock, the $59.0 million reported loss, and a $19.0 million change in cumulative other comprehensive income, offset partially by the issuance of $22.2 million of our Class A common stock resulting from the merger with Banner Aerospace. We maintain a portfolio of investments classified primarily as available- for-sale securities, which had a fair market value of $28.9 million at June 30, 1999. The market value of these investments decreased $16.5 million in 1999 due primarily to the liquidation of investments in which investment income of $39.8 million was realized. While there is risk associated with market fluctuations inherent in stock investments, and because our portfolio it not diversified, large swings in its value should be expected. In 1999, we liquidated substantially all of our AlliedSignal common stock, using the proceeds therefrom in connection with the acquisition of Kaynar Technologies. In fiscal 1999, we sold approximately 4.9 million shares of AlliedSignal common stock for aggregate proceeds of approximately $219.9 million. We have an 88-acre site in Farmingdale, New York, of which we are developing as a shopping center. We have invested (cash and interest) of approximately $40.4 million, $17.3 million and $6.7 million into this project in 1999, 1998 and 1997, respectively. We estimate funding of approximately $20.0 million is needed to complete this project. Net cash provided by operating activities for fiscal 1999 was $23.3 million. The primary use of cash for operating activities in fiscal 1999 was an increase in accounts payable, accrued liabilities and other long-term liabilities of $45.9 million, partially offset by our net loss and non-cash adjustments of $16.8 million. Net cash used for operating activities for fiscal 1998 was $85.2 million. The primary use of cash for operating activities in fiscal 1998 was a $54.9 million increase in inventories. Net cash used for investing activities for fiscal 1999 was $99.2 million and included $274.4 million used for acquisitions, partially offset by $189.4 million received from the liquidation of investments. Net cash provided from investing activities for fiscal 1998 was $43.6 million and included proceeds received from the disposition of discontinued operations, including Shared Technologies Fairchild, of $168.0 million. This was slightly offset by cash used for the acquisition of subsidiaries and minority interests of $32.8 million and $26.4 million, respectively. Net cash provided by financing activities in fiscal 1999 and 1998 was $81.2 million and $74.1 million, respectively. Cash provided by financing activities in fiscal 1999 included the issuance of additional debt of $483.2 million offset partially by $380.0 million of debt repayments and $22.1 million of treasury stock purchased. We increased our debt in fiscal 1999, as a result of the acquistion of Kaynar Technologies. Cash provided by financing activities in fiscal 1998 included the issuance $53.8 million of stock from our 1998 equity offering and $275.5 million from the issuance of additional debt partially offset by the repayment of debt and the repurchase of debentures of $258.0 million. Our principal cash requirements include debt service, capital expenditures, acquisitions, and payment of other liabilities. Other liabilities that require the use of cash include postretirement benefits, environmental investigation and remediation obligations, real estate development, and litigation settlements and related costs. We expect that cash on hand, cash generated from operations, and cash from borrowings and asset sales will be adequate to satisfy our cash requirements in fiscal 2000. Discontinued Operations In fiscal 1999, 1998, and 1997, Fairchild Technologies had pre-tax operating losses of approximately $49.5 million, $48.7 million, and $3.6 million, respectively. In addition, as a result of the downturn in the Asian markets, Fairchild Technologies experienced delivery deferrals, reduction in new orders, lower margins and increased price competition. In response, in February 1998, we adopted a formal plan for the disposition of Fairchild Technologies. The plan called for a reduction in production capacity and headcount at Fairchild Technologies and the pursuit of potential vertical and horizontal integration with peers and competitors of the two divisions that constitute Fairchild Technologies. During the fourth quarter of fiscal 1999, we liquidated a significant portion of Fairchild Technologies mostly consisting of our semiconductor equipment group through several transactions. On April 14, 1999, we disposed of our 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 $7.9 million from Suess Microtec AG and the right to receive 350,000 shares of Suess Microtec stock (or approximately $3.5 million) by June 2000 in exchange for all of the fixed assets and inventory of Fairchild Technologies SEG GmbH and certain intellectual property. On May 1, 1999, we sold Fairchild CDI for a nominal amount. Subsequent to June 30, 1999, we received approximately $7.1 million from Novellus in exchange for our Low-K dielectric product line and certain intellectual property. We are also exploring several alternative transactions regarding the Fairchild Technologies optical disc equipment group business, but we have not made any definitive arrangement for its ultimate disposition. Uncertainty of the Spin-Off In order to focus our operations on the aerospace industry, we have been considering for some time distributing to our stockholders certain of our assets via distribution of all of the stock of a new entity, which may own all or a substantial part of our non-aerospace operations. We are still in the process of deciding the exact composition of the assets and liabilities to be included in the spin-off, but such assets would be likely to include certain real estate interests. Our ability to consummate the spin-off, if we should choose to do so, would be contingent, among other things, on attaining certain milestones under our credit facility, or waivers thereof, and all necessary governmental and third party approvals. There is no assurance that we will be able to reach such milestones or obtain the necessary waivers from our lenders. In addition, we may encounter unexpected delays in effecting the spin-off, and we can make no assurance as to the timing thereof, or as to whether the spin-off will ever occur. Depending on the ultimate structure and timing of the spin-off, it may be a taxable transaction to our stockholders and could result in a material tax liability to us as well as our stockholders. The amount of the tax to us is uncertain, and if the tax is material to us, we may elect not to consummate the spin-off. Because circumstances may change and provisions of the Internal Revenue Code of 1986, as amended, may be further amended from time to time, we may, depending on various factors, restructure or delay the timing of the spin- off to minimize the tax consequences to us and our stockholders, or elect not to consummate the spin-off. Under the spin-off, it is expected that that the newly created entity may assume certain of our liabilities, including contingent liabilities, and may indemnify us for such liabilities. In the event this entity is unable to satisfy the liabilities, which it will assume in connection with the spin-off, we may have to satisfy such liabilities. Year 2000 As the end of the century nears, there is a widespread concern that many existing data processing devices that use only the last two digits to refer to a year will not properly recognize a year that begins with the digits ''20'' instead of ''19.'' If not properly modified, these data processing devices could fail, create erroneous results, or cause unanticipated systems failures, among other problems. In response, we have developed a worldwide Year 2000 readiness plan that is divided into a number of interrelated and overlapping phases. These phases include corporate awareness and planning, readiness assessment, evaluation and prioritization of solutions, implementation of remediation, validation testing, and contingency planning. Each is discussed below. Awareness. In the corporate awareness and planning phase, we formed a Year 2000 project group under the direction of our Chief Financial Officer and Chief Information Officer, identified and designated key personnel within the company to coordinate our Year 2000 efforts, and retained the services of outside technical review and modification consultants. The project group prepared an overall schedule and working budget for our Year 2000 plan. We have completed this phase of our Year 2000 plan. We evaluate our information technology applications regularly, and based on such evaluation revise the schedule and budget to reflect the progress of our Year 2000 readiness efforts. The Chief Financial Officer and Chief Information Officer regularly report to our management and to our audit committee on the status of the Year 2000 project. Assessment. In the readiness assessment phase, we, in coordination with our technical review consultants, have been evaluating our Year 2000 preparedness in a number of areas, including our information technology infrastructure, external resources, physical plant and production facilities, equipment and machinery, products and inventory. We have completed this phase of our Year 2000 Plan. Pending the completion of all validation testing, we continue to review on a regular basis all aspects of our Year 2000 preparedness. In this respect, we have designated officers at each of our business segments to provide regular assessment updates to our Chief Information Officer and outside consultants, who have assimilated a range of alternative methods to complete each phase of our Year 2000 plan and are reporting regularly their findings and conclusions to our management. Evaluation. In the evaluation and prioritization of solutions phase, we seek to develop potential solutions to the Year 2000 issues identified in our readiness assessment phase, consider those solutions in light of our other information technology and business priorities, prioritize the various remediation tasks, and develop an implementation schedule. This phase is largely complete. However, we will continue to evaluate our Year 2000 readiness status through November 15, 1999, when all validation testing is anticipated to be complete. However, identified problems will be corrected as soon as practicable after identification. To date, we have not identified any major information technology system or non-information technology system that must be replaced in its entirety for Year 2000 reasons. We have also determined that most of the Year 2000 issues identified in the assessment phase can be addressed satisfactorily through system modifications, component upgrades and software patches. Thus, we do not presently anticipate incurring any material systems replacement costs relating to the Year 2000 issues. Implementation. In the implementation of remediation phase, we, with the assistance of our technical review and modification consultants, began to implement the proposed solutions to any identified Year 2000 issues. The solutions include equipment and component upgrades, systems and software patches, reprogramming and resetting machines, and other modifications. Substantially all of the material systems within the aerospace fasteners and aerospace distribution segments of our business are currently Year 2000 ready. However, we are continuing to evaluate and implement Year 2000 modifications to embedded data processing technology in certain manufacturing equipment used in our aerospace fasteners segment. Testing. In the validation testing phase, we seek to evaluate and confirm the results of our Year 2000 remediation efforts. In conducting our validation testing, we are using, among other things, proprietary testing protocols developed internally and by our technical review and modification consultants, as well as testing tools such as Greenwich Mean Time's Check 2000 and SEMATECH's Year 2000 Readiness Testing Scenarios Version 2.0. The Greenwich tools identify potential Year 2000-related software and data problems, and the SEMATECH protocols validate the ability of data processing systems to rollover and hold transition dates. Testing for both the aerospace fasteners segment and the aerospace distribution segment is approximately 90 percent complete. To date, the results of our validation testing have not revealed any new and significant Year 2000 issues or any ineffective remediation. We have completed testing of our most critical information technology and related systems. Contingency Planning. In the contingency planning phase, we, together with our technical review consultants, are assessing the Year 2000 readiness of our key suppliers, distributors, customers and service providers. Toward that objective, we have sent letters, questionnaires and surveys to our business partners, inquiring about their Year 2000 readiness arrangements. The average response rate has been approximately 55 percent, including our most significant business partners have responded to our inquiries. In this phase, we have evaluated the risks that our failure or the failure of others to be Year 2000 ready would cause a material disruption to, or have a material effect on, our financial condition, business or operations. So far, we have identified only our aerospace fasteners MRP system as being both mission critical and potentially at risk. In mitigation of this concern, we have engaged a consultant to test, evaluate and implement the manufacturer-designed Year 2000 patches for the system. We are also developing and evaluating contingency plans to deal with events arising from significant Year 2000 issues outside of our infrastructure. In this regard, we are considering the advisability of augmenting our inventories of certain raw materials and finished products, securing additional sources for certain supplies and services, arranging for back-up utilities, and exploring alternate distribution and sales channels, among other things. The following chart summarizes our progress, by phase and business segment, in completing the Year 2000 plan:
Percentage of Year 2000 Plan Completed (By Phase and Business Segment) Quarter Ended Sept.Dec. Mar. June Sept. Dec. Mar. June Work 28, 28, 29, 30, 27, 27, 28, 30, Remaining 1997 1997 1998 1998 1998 1998 1999 1999 Awareness: Aerospace 50% 100% 100% 100% 100% 100% 100% 100% 0% Fasteners Aerospace 100 100 100 100 100 100 100 100 0 Distribution Assessment: Aerospace 25 50 75 100 100 100 100 0 Fasteners Aerospace 0 0 0 50 100 100 100 0 Distribution Evaluation: Aerospace 0 70 100 100 0 Fasteners Aerospace 20 100 100 100 0 Distribution Implementation: Aerospace 50 60 90 10 Fasteners Aerospace 40 75 95 5 Distribution Testing: Aerospace 20 35 90 10 Fasteners Aerospace 30-40 70 90 10 Distribution Contingency Planning: Aerospace 0 20 35 90 10 Fasteners Aerospace 25 50 65 90 10 Distribution
The chart below summarizes costs we incurred through June 30, 1999, by segment, to address Year 2000 issues, and the total costs we reasonably anticipate incurring during the remainder of 1999 relating to the Year 2000 issue.
(In thousands) Year 2000 Costs Anticipated Year 2000 as of Costs June 30, 1999 During the Next Six Months Aerospace Fasteners $685 $400 Aerospace Distribution $600 $50
We have funded the costs of our Year 2000 plan from general operating funds, and all such costs have been deducted from income. To date, the costs associated with our Year 2000 efforts have not had a material effect on, and have caused no delays with respect to, our other information technology programs or projects. We anticipate that we will complete our Year 2000 preparations by November 15, 1999. Although our Year2000 implementation, testing and contingency planning phases are not yet complete, we do not currently believe that Year 2000 issues will materially affect our business, results of operations or financial condition. However, in some international markets in which we conduct business, the level of awareness and remediation efforts by third parties, utilities and infrastructure managers relating to the Year 2000 issue may be less advanced than in the United States, which could, despite our efforts, have an adverse effect on us. If our mission critical systems are not Year 2000 ready, we could be subject to significant business interruptions, and could be liable to customers and other third parties for breach of contract, breach of warranty, misrepresentation, unlawful trade practices and other claims. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In June 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 we are currently evaluating the financial statement impact. ITEM 7A. 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.
Expected Maturity Date 2000 2001 2002 2003 2004 Thereafter Interest Rate Swaps: Variable to fixed 20,000 60,000 - - - 100,000 Average cap rate 7.25% 6.81% - - - 6.49% Average floor 5.84% 5.99% - - - 6.24% rate Weighted average 5.71% 5.74% - - - 6.12% rate Fair market value (44) (99) - - - (3,709)
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The following consolidated financial statements of the Company and the report of our independent public accountants with respect thereto, are set forth below. Page Report of Independent Public Accountants 29 Consolidated Balance Sheets as of June 30, 1999 and 1998 30 Consolidated Statements of Earnings for each of the Three Years Ended June 30, 1999, 1998, and 1997 32 Consolidated Statements of Stockholders' Equity for each of the Three Years Ended June 30, 1999, 1998, and 1997 34 Consolidated Statements of Cash Flows for each of the Three Years Ended June 30, 1999, 1998, and 1997 35 Notes to Consolidated Financial Statements 36 Supplementary information regarding "Quarterly Financial Data (Unaudited)" is set forth under Item 8 in Note 21 to Consolidated Financial Statements. Report of Independent Public Accountants To The Fairchild Corporation and Consolidated Subsidiaries: We have audited the accompanying consolidated balance sheets of The Fairchild Corporation (a Delaware corporation) and consolidated subsidiaries as of June 30, 1999 and 1998, and the related consolidated statements of earnings, stockholders' equity and cash flows for each of the three years in the period ended June 30, 1999, 1998 and 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements of Nacanco Paketleme (see Note 7), the investment in which is reflected in the accompanying financial statements using the equity method of accounting. The investment in Nacanco Paketleme represents 1 percent and 2 percent of total assets as of June 30, 1999 and 1998, respectively, and the equity in its net income represents 11 percent, 9 percent, and 257 percent of earnings from continuing operations as of June 30, 1999, 1998, and 1997, respectively. The statements of Nacanco Paketleme were audited by other auditors whose report has been furnished to us and our opinion, insofar as it relates to the amounts included for Nacanco Paketleme, is based on the report of other auditors. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, based on our audits and the report of other auditors, the financial statements referred to above present fairly, in all material respects, the financial position of The Fairchild Corporation and consolidated subsidiaries as of June 30, 1999 and 1998, and the results of their operations and their cash flows for each of the three years ended June 30, 1999, 1998 and 1997, in conformity with generally accepted accounting principles. Arthur Andersen LLP Vienna, VA September 15, 1999
THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands) June 30, June 30, ASSETS 1999 1998 CURRENT ASSETS: Cash and cash equivalents, $15,752 and $746 restricted $ 54,860 $ 49,601 Short-term investments 13,094 3,962 Accounts receivable-trade, less allowances 130,121 120,284 of $6,442 and $5,655 Inventories: Finished goods 137,807 187,205 Work-in-process 38,316 20,642 Raw materials 14,116 9,635 190,239 217,482 Net current assets of discontinued operations - 11,613 Prepaid expenses and other current assets 73,926 53,081 TOTAL CURRENT ASSETS 462,240 456,023 Property, plant and equipment, net of accumulated depreciation of $103,556 and $82,968 184,065 118,963 Net assets held for sale 21,245 23,789 Net noncurrent assets of discontinued 8,541 operations - Cost in excess of net assets acquired (Goodwill), less accumulated amortization of $40,307 and 447,722 168,307 $42,079 Investments and advances, affiliated 31,791 27,568 companies Prepaid pension assets 63,958 61,643 Deferred loan costs 13,077 6,362 Real estate investment 83,791 43,440 Long-term investments 15,844 235,435 Other assets 5,053 7,188 TOTAL ASSETS $1,328,786 $1,157,259 The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands) June 30, June 30, LIABILITIES AND STOCKHOLDERS' EQUITY 1999 1998 CURRENT LIABILITIES: Bank notes payable and current maturities of long-term debt $ 28,860 $ 20,665 Accounts payable 72,271 53,859 Accrued liabilities: Salaries, wages and commissions 43,095 23,613 Employee benefit plan costs 5,204 1,463 Insurance 14,216 12,575 Interest 7,637 2,303 Other accrued liabilities 50,984 52,789 121,136 92,743 Net current liabilities of discontinued operations 10,999 - Income taxes 28,311 - TOTAL CURRENT LIABILITIES 233,266 195,578 LONG-TERM LIABILITES: Long-term debt, less current maturities 495,283 295,402 Other long-term liabilities 25,904 23,767 Retiree health care liabilities 44,813 42,103 Noncurrent income taxes 121,961 95,176 Minority interest in subsidiaries 59 31,674 TOTAL LIABILITIES 921,286 683,700 STOCKHOLDERS' EQUITY: Class A common stock, 10 cents par value; authorized 40,000,000 shares, 29,754,448 (26,678,561 in 1998) shares issued and 22,258,580 (20,428,591 in 1998) shares 2,975 2,667 outstanding Class B common stock, 10 cents par value; authorized 20,000,000 shares, 2,621,652 (2,624,716 in 1998) 262 263 shares issued and outstanding Paid-in capital 229,038 195,112 Retained earnings 252,030 311,039 Cumulative other comprehensive income (2,703) 16,386 Treasury Stock, at cost, 7,495,868 (6,249,970 in 1998) shares of Class A common stock (74,102) (51,908) TOTAL STOCKHOLDERS' EQUITY 407,500 473,559 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,328,786 $1,157,259 The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (In thousands, except per share data) For the Years Ended June 30, 1999 1998 1997 REVENUE: Net sales $617,322 $741,176 $680,763 Other income, net 3,899 6,508 28 621,221 747,684 680,791 COSTS AND EXPENSES: Cost of goods sold, including inventory impairment adjustments of $41,465 in 1999 504,893 554,670 499,419 relating to the disposition of Solair and the potential disposition of Dallas Aerospace Selling, general & administrative 149,348 142,102 143,059 Amortization of goodwill 6,517 5,469 4,814 Restructuring 6,374 - - 667,132 702,241 647,292 OPERATING INCOME (LOSS) (45,911) 45,443 33,499 Interest expense 33,162 46,007 52,376 Interest income (2,816) (3,292) (4,695) Net interest expense 30,346 42,715 47,681 Investment income (loss), net 39,800 (3,362) 6,651 Non-recurring income - 124,028 2,528 Earnings (loss) from continuing operations before taxes (36,457) 123,394 (5,003) Income tax (provision) benefit 13,245 (47,274) 7,344 Equity in earnings of affiliates, net 1,795 2,571 2,989 Minority interest, net (2,090) (26,292) (3,514) Earnings (loss) from continuing operations (23,507) 52,399 1,816 Loss from discontinued operations, net - (4,296) (485) Gain (loss) on disposal of discontinued operations, net (31,349) 59,717 - Earnings (loss) before extraordinary items (54,856) 107,820 1,331 Extraordinary items, net (4,153) (6,730) - NET EARNINGS (LOSS) $(59,009) $101,090 $ 1,331 Other comprehensive income, net of tax: Foreign currency translation adjustments (2,545) (5,140) (1,514) Unrealized holding gains (losses) on secruities arising during the period (16,544) 20,633 74 Other comprehensive income (loss) (19,089) 15,493 (1,440) COMPREHENSIVE INCOME (LOSS) $(78,098)$116,583 $ (109) The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (In thousands, except per share data) For the Years Ended June 30, 1999 1998 1997 BASIC EARNINGS PER SHARE: Earnings (loss) from continuing operations $ $ $ $ (1.03) $ 2.78 $ 0.11 Loss from discontinued operations, net - (0.23) (0.03) Gain (loss) on disposal of discontinued operations, net (1.38) 3.17 - Extraordinary items, net (0.18) (0.36) - NET EARNINGS (LOSS) $ (2.59) $ 5.36 $ 0.08 Other comprehensive income, net of tax: Foreign currency translation adjustments $ (0.11) $(0.27) $ (0.09) Unrealized holding gains (losses) on securities arising during the period (0.73) 1.10 - Other comprehensive income (0.84) 0.83 (0.09) COMPREHENSIVE INCOME (LOSS) $(3.43) $ 6.19 $(0.01) DILUTED EARNINGS PER SHARE: Earnings (loss) from continuing operations $ (1.03) $ 2.66 $ 0.11 Loss from discontinued operations, net - (0.22) (0.03) Gain (loss) on disposal of discontinued operations, net (1.38) 3.04 - Extraordinary items, net (0.18) (0.34) - NET EARNINGS (LOSS) $ (2.59) $ 5.14 $ 0.08 Other comprehensive income, net of tax: Foreign currency translation adjustments $ (0.11) $(0.26) $ (0.09) Unrealized holding gains (losses) on securities arising during the period (0.73) 1.05 - Other comprehensive income (0.84) 0.79 (0.09) COMPREHENSIVE INCOME (LOSS) $(3.43) $ 5.93 $(0.01) Weighted average shares outstanding: Basic 22,766 18,834 16,539 Diluted 22,766 19,669 17,321 The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (In thousands) Class Class A B Cumulative Common Common Paid Other in Retained Treasury Comprehensive Stock Stock Capital Earnings Stock Income Total Balance, July 1, 1996 $2,000 $263 $69,366 $208,618 $(51,719) $2,333 $230,861 Net earnings - - - 1,331 - - 1,331 Foreign currency translation adjustments - - - - - (1,514) (1,514) Fair market value of stock warrants issued - - 546 - - - 546 Proceeds received from options exercised (234,935 shares) 23 - 1,103 - - - 1,126 Net unrealized holding gain on available-for-sale securities - - - - - 74 74 Balance, June 30, 1997 2,023 263 71,015 209,949 (51,719) 893 232,424 Net earnings - - - 101,090 - - 101,090 Foreign currency translation adjustments - - - - - (5,140) (5,140) Compensation expense from adjusted terms to warrants and options - - 5,655 - - - 5,655 Stock issued for Special- T acquisition 108 - 21,939 - - - 22,047 Stock issued for Exchange Offer 221 - 42,588 - - - 42,809 Equity Offering 300 - 53,268 - - - 53,568 Proceeds received from stock options exercised (141,259 shares) 10 - 652 - (189) - 473 Cashless exercise of warrants (47,283 shares) 5 - (5) - - - - Net unrealized holding gain on available-for-sale securities - - - - - 20,633 20,633 Balance, June 30, 1998 2,667 263 195,112 311,039 (51,908) 16,386 473,559 Net Loss - - - (59,009) - - (59,009) Foreign currency translation adjustments - - - - - (2,545) (2,545) Stock issued for Special- T acquistion 1 - 132 - - - 133 Stock issued for Banner Aerospace merger 298 - 33,093 - - - 33,391 Proceeds received from stock options exercised (75,383 shares) 7 - 266 - (92) - 181 Restricted stock plan issuance (14,969 shares) 1 - (1) - - - Purchase of treasury shares (1,239,750 shares) - - - - (22,102) - (22,102) Exchange of Class B for Class A common stock (3,064 1 (1) - - - - - shares) Compensation expense from stock options - - 436 - - - 436 Net unrealized holding loss on available-for-sale securities - - - - -(16,544)(16,544) Balance, June 30, 1999 2,975 262 229,038 252,030 (74,102)(2,703)407,500 The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) For the Years Ended June 30, 1999 1998 1997 Cash flows from operating activities: Net earnings (loss) $ (59,009)101,090 1,331 Depreciation and amortization 25,657 20,873 20,815 Deferred loan fee amortization 1,100 2,406 2,847 Accretion of discount on long-term liabilities 5,270 3,766 4,963 Net gain on the disposition of subsidiaries - (124,041) - Net gain on the sale of discontinued operations - (132,787) - Extraordinary items, net of cash payments 6,389 10,347 - Provision for restructuring (excluding cash payments of $2,600 in 1999) 3,774 - - (Gain) loss on sale of property, plant, and equipment 400 246 (72) (Undistributed) distributed earnings of affiliates, net 3,433 1,725 (1,055) Minority interest 2,090 26,292 3,514 Change in trading securities (1,254) 9,275 (5,733) Change in receivables 8,632 (12,846)(48,693) Change in inventories 14,727 (54,857)(36,868) Change in other current assets (22,365)(26,643)(14,088) Change in other non-current assets (26,741) 700 (9,828) Change in accounts payable, accrued liabilities and other long-term liabilities 45,906 77,434 6,747 Non-cash charges and working capital changes of discontinued operations 15,259 11,789 (17,201) Net cash provided by (used for) operating activities 23,268 (85,231)(93,321) Cash flows from investing activities: Proceeds received from (used for) investment securities, net 189,379 (7,287)(12,951) Purchase of property, plant and equipment (30,142)(36,029)(15,014) Proceeds from sale of plant, property and equipment 844 336 213 Equity investment in affiliates (7,678) (4,343) (1,749) Minority interest in subsidiaries - (26,383) (1,610) Acquisition of subsidiaries, net of cash acquired (274,427)(32,795)(55,916) Net proceeds received from sale of subsidiary 60,396 - - Net proceeds received from the sale of discontinued operations - 167,987 173,719 Changes in real estate investment (40,351)(17,262) (6,737) Changes in net assets held for sale 3,134 2,140 385 Investing activities of discontinued operations (312) (2,750) (7,102) Net cash provided by (used for) investing activities (99,157) 43,614 73,238 Cash flows from financing activities: Proceeds from issuance of debt 483,222 275,523 154,294 Debt repayments and repurchase of debentures, net (380,083)(258,014)(155,600) Issuance of Class A common stock 181 54,041 1,126 Purchase of treasury stock (22,102) - - Financing activities of discontinued operations - 2,538 (1,275) Net cash provided by (used for) financing activities 81,218 74,088 (1,455) Effect of exchange rate changes on cash (70) (2,290) 1,309 Net change in cash and cash equivalents 5,259 30,181 (20,229) Cash and cash equivalents, beginning of the year 49,601 19,420 39,649 Cash and cash equivalents, end of the year $54,860 $49,601 $19,420 The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except per share data) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: General: All references in the notes to the consolidated financial statements to the terms "we," "our," "us," the "Company" and "Fairchild" refer to The Fairchild Corporation and its subsidiaries. Corporate Structure: The Fairchild Corporation was incorporated in October 1969, under the laws of the State of Delaware. Effective April 8, 1999, we became the sole owner of Banner Aerospace, Inc. RHI Holdings, Inc. is a direct subsidiary of us. RHI is the owner of 100% of Fairchild Holding Corp. Our principal operations are conducted through Fairchild Holding Corp. and Banner Aerospace. During the periods covered by these financial statements we held significant equity interests in Nacanco Paketleme and Shared Technologies Fairchild Inc. In February 1998, we adopted a formal plan to dispose of our interest in our technologies products segment operating under the name of Fairchild Technologies. Accordingly, our financial statements present the results of our former communications services segment, Shared Technologies Fairchild and Fairchild Technologies as discontinued operations. Fiscal Year: Our fiscal year ends June 30. All references herein to "1999", "1998", and "1997" mean the fiscal years ended June 30, 1999, 1998 and 1997, respectively. Consolidation Policy: The accompanying consolidated financial statements are prepared in accordance with generally accepted accounting principles and include our accounts and all of the accounts of our wholly-owned and majority- owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Investments in companies in which ownership interest range from 20 to 50 percent are accounted for using the equity method (see Note 7). Revenue Recognition: Sales and related costs are recognized upon shipment of product and performance of services. Sales and related cost of sales on long- term contracts are recognized as products are delivered and services performed, determined by the percentage of completion method. Lease and rental revenue are recognized as earned. Cash Equivalents/Statements of Cash Flows: For purposes of the Statements of Cash Flows, we consider all highly liquid investments with original maturity dates of three months or less as cash equivalents. Total net cash disbursements (receipts) made by us for income taxes and interest were as follows:
1999 1998 1997 Interest $29,200 $52,737 $48,567 Income Taxes (21,304) (987) (1,926)
Restricted Cash: On June 30, 1999 and 1998, we had restricted cash of $15,752 and $746, respectively, all of which is maintained as collateral for certain debt facilities. Cash investments are in short-term treasury bills and certificates of deposit. Investments: Management determines the appropriate classification of our investments at the time of acquisition and reevaluates such determination at each balance sheet date. Trading securities are carried at fair value, with unrealized holding gains and losses included in earnings. Available-for-sale securities are carried at fair value, with unrealized holding gains and losses, net of tax, reported as a separate component of stockholders' equity. Investments in equity securities and limited partnerships that do not have readily determinable fair values are stated at cost and are categorized as other investments. Realized gains and losses are determined using the specific identification method based on the trade date of a transaction. Interest on corporate obligations, as well as dividends on preferred stock, are accrued at the balance sheet date. Inventories: Inventories are stated at the lower of cost or market. Cost is determined using the last-in, first-out ("LIFO") method at several of our domestic aerospace fastener manufacturing operations and using the first-in, first-out ("FIFO") method elsewhere. If the FIFO inventory valuation method had been used exclusively, inventories would have been approximately $3,018 and $8,706 higher at June 30, 1999 and 1998, respectively. Inventories from continuing operations are valued as follows
June 30, June 30, 1999 1998 First-in, first-out (FIFO) $162,797 $177,426 Last-in, First-out (LIFO) 27,442 40,056 Total inventories $190,239 $217,482
Properties and Depreciation: The cost of property, plant and equipment is depreciated over estimated useful lives of the related assets. The cost of leasehold improvements is depreciated over the lesser of the length of the related leases or the estimated useful lives of the assets. In fiscal 1999, we changed the estimated useful life for depreciating our machinery and equipment from 8 to 10 years. Depreciation is computed using the straight-line method for financial reporting purposes and accelerated depreciation methods for Federal income tax purposes. No interest costs were capitalized in any of the years presented. Property, plant and equipment consisted of the following:
June 30, June 30, 1999 1998 Land $ 13,325 $ 11,694 Building and improvements 56,790 47,579 Machinery and equipment 173,791 113,669 Transportation vehicles 1,062 676 Furniture and fixtures 22,439 16,362 Construction in progress 20,214 11,951 Property, plant and equipment at 287,621 201,931 cost Less: Accumulated depreciation 103,556 82,968 Net property, plant and equipment $184,065 $118,963
Amortization of Goodwill: Goodwill, which represents the excess of the cost of purchased businesses over the fair value of their net assets at dates of acquisition, is being amortized on a straight-line basis over 40 years. Deferred Loan Costs: Deferred loan costs associated with various debt issues are being amortized over the terms of the related debt, based on the amount of outstanding debt, using the effective interest method. Amortization expense for these loan costs for 1999, 1998 and 1997 was $1,100, $2,406 and $2,847, respectively. Impairment of Long-Lived Assets: We review our long-lived assets, including property, plant and equipment, identifiable intangibles and goodwill, for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable. To determine recoverability of our long-lived assets we evaluate the probability that future undiscounted net cash flows will be less than the carrying amount of our assets. Impairment is measured based on the difference between the carrying amount of our assets and their fair value. Foreign Currency Translation: For foreign subsidiaries whose functional currency is the local foreign currency, balance sheet accounts are translated at exchange rates in effect at the end of the period, and income statement accounts are translated at average exchange rates for the period. The resulting translation gains and losses are included as a separate component of stockholders' equity. Foreign currency transaction gains and losses are included in other income and were insignificant in fiscal 1999, 1998 and 1997. Research and Development: Company-sponsored research and development expenditures are expensed as incurred. Capitalization of interest and taxes: We capitalize interest expense and property taxes relating to certain real estate property being developed in Farmingdale, New York. Interest of $4,671, $3,078 and $2,356 was capitalized in 1999, 1998 and 1997, respectively. Nonrecurring Income: Nonrecurring income of $124,028 in 1998 resulted from the disposition of our aerospace distribution segment's hardware group (See Note 2). Nonrecurring income of $2,528 in 1997 resulted from the gain recorded from the sale of Fairchild Scandinavian Bellyloading Company, (See Note 2). Stock-Based Compensation: In fiscal 1997, we implemented Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation". SFAS 123 establishes financial accounting standards for stock- based employee compensation plans and for transactions in which an entity issues equity instruments to acquire goods or services from non-employees. As permitted by SFAS 123, we will continue to use the intrinsic value based method of accounting prescribed by APB Opinion No. 25, for our stock-based employee compensation plans. Fair market disclosures required by SFAS 123 are included in Note 12. Fair Value of Financial Instruments: The carrying amount reported in the balance sheet approximates the fair value for our cash and cash equivalents, investments, short-term borrowings, current maturities of long-term debt, and all other variable rate debt (including borrowings under our credit agreements). The fair value for our other fixed rate long-term debt is estimated using discounted cash flow analyses, based on our current incremental borrowing rates for similar types of borrowing arrangements. Fair values of our off-balance- sheet instruments (hedging agreements, letters of credit, commitments to extend credit, and lease guarantees) are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counter parties' credit standing. These instruments are described in Note 8. Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities, concerning the disclosure of contingent assets and liabilities, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Reclassifications: Certain amounts in our prior years' financial statements have been reclassified to conform to the 1999 presentation. 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 we are currently evaluating the financial statement impact. BUSINESS COMBINATIONS Aquisitions We have accounted for the following acquisitions by using the purchase method. The respective purchase price is assigned to the net assets acquired, based on the fair value of such assets and liabilities at the respective acquisition dates. On June 18, 1999, we completed the acquisition of Technico S.A. for approximately $4.1 million and assummed 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 using the straight-line method over 40 years. The acquisition was financed with additional borrowings from our credit facility. 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's existing debt, the majority of which was refinanced at closing. In addition, we paid $28 million for a covenant not to compete from Kaynar Technologies's largest preferred shareholder. 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 using the straight-line method over 40 years. 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 February 22, 1999, we used available cash to acquire 77.3% of SNEP S.A. By June 30, 1997, we had purchased significantly all of the remaining shares 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 preliminarily being allocated as goodwill, and amortized using the straight-line method over 40 years. SNEP is a French manufacturer of precision machined self-locking nuts and special threaded fasteners serving the European industrial, aerospace and automotive markets. On March 2, 1998, we acquired Edwards and Lock Management Corporation, doing business as Special-T Fasteners, in a business combination accounted for as a purchase. The cost of the acquisition was approximately $50.0 million, of which 50.1% of the contractual purchase price was paid in shares of our Class A common stock and 49.9% was paid in cash. The total cost of the acquisition exceeded the fair value of the net assets of Special-T by approximately $23.3 million, which is being allocated as goodwill, and amortized using the straight- line method over 40 years. Special-T manages the logistics of worldwide distribution of our manufactured precision fasteners to our customers in the aerospace industry, government agencies, OEMs, and other distributors. On November 28, 1997, we acquired AS+C GmbH, Aviation Supply + Consulting in a business combination accounted for as a purchase. The total cost of the acquisition was $14.0 million, which exceeded the fair value of the net assets of AS+C by approximately $8.1 million, which is being allocated as goodwill and amortized using the straight-line method over 40 years. We purchased AS+C with cash borrowings. AS+C is an aerospace parts, logistics, and distribution company primarily servicing European customers. In February 1997, we completed a transaction pursuant to which we acquired common shares and convertible debt representing an 84.2% interest, on a fully diluted basis, of Simmonds S.A. We then initiated a tender offer to purchase the remaining shares and convertible debt held by the public. By June 30, 1997, we had purchased, or placed sufficient cash in escrow to purchase, all the remaining shares and convertible debt of Simmonds. The total purchase price of Simmonds, including the assumption of debt, was approximately $62.0 million, which we funded with available cash and borrowings. We recorded approximately $20.5 million in goodwill as a result of this acquisition, which is being amortized using the straight-line method over 40 years. Simmonds is one of Europe's leading manufacturers of aerospace and automotive fasteners. Divestitures On December 31, 1998, Banner Aerospace consummated the sale of Solair, Inc., its largest subsidiary in the rotables group, to Kellstrom Industries, Inc., in exchange for approximately $60.4 million in cash and a warrant to purchase 300,000 shares of common stock of Kellstrom. In December 1998, Banner 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 the carrying amount of that inventory. On January 13, 1998, Banner Aeropsace completed the disposition of substantially all of the assets and certain liabilities of certain subsidiaries to AlliedSignal Inc., in exchange for shares of AlliedSignal Inc. common stock with an aggregate value of $369 million. The assets transferred to AlliedSignal consisted primarily of Banner Aerospace's hardware group, which included the distribution of bearings, nuts, bolts, screws, rivets and other types of fasteners, and its PacAero unit. Approximately $196 million of the common stock received from AlliedSignal was used to repay outstanding term loans of Banner Aerospace's subsidiaries, and related fees. On June 30, 1997, we sold all the patents of Fairchild Scandinavian Bellyloading Company to Teleflex Incorporated for $5.0 million, and immediately thereafter sold for $2.0 million, all the stock of Fairchild Scandinavian Bellyloading Company to a wholly-owned subsidiary of Teleflex. Nonrecurring income in 1997 included the $2.5 million gain from the sale of Scandinavian Bellyloading Company. 3. MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES Outstanding minority interest in our subsidiaries at June 30, 1999 and June 30, 1998 were $59 and $31,674 respectively. 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, 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 June 9, 1998 we exchanged 3,659,364 shares of Banner Aerospace's common stock for 2,212,361 newly issued shares of our Class A common stock. As a result of the exchange offer, our ownership of Banner common stock increased to 83.3%. In May 1997, Banner Aerospace granted all of its stockholders certain rights to purchase Series A convertible paid-in-kind preferred stock. In June 1997, Banner Aerospace received net proceeds of $33,876 and issued 3,710,955 shares of preferred stock. We purchased $28,390 of the preferred stock issued by Banner Aerospace, increasing our voting percentage to 64.0%.. 4. DISCONTINUED OPERATIONS AND NET ASSETS HELD FOR SALE On March 11, 1998, Shared Technologies Fairchild Inc. merged into Intermedia Communications Inc. Under the terms of the merger, holders of Shared Technologies Fairchild common stock received $15.00 per share in cash. We received approximately $178.0 million in cash (before tax and selling expenses) in exchange for the common and preferred stock of Shared Technologies Fairchild we owned. In fiscal 1998, we recorded a $96.0 million gain, net of tax, on disposal of discontinued operations, from the proceeds received from the merger of Shared Technologies Fairchild with Intermedia. The results of Shared Technologies Fairchild have been accounted for as discontinued operations. Net earnings from discontinued operations for Shared Technologies Fairchild was $648 and $3,149 in 1998 and 1997, respectively. In fiscal 1999, 1998, and 1997, Fairchild Technologies had pre-tax operating losses of approximately $49.5 million, $48.7 million, and $3.6 million, respectively. In addition, as a result of the downturn in the Asian markets, Fairchild Technologies experienced delivery deferrals, reduction in new orders, lower margins and increased price competition. In response, in February 1998, we adopted a formal plan for disposition of Fairchild Technologies. The plan called for a reduction in production capacity and headcount at Fairchild Technologies and the pursuit of potential vertical and horizontal integration with peers and competitors of the two divisions that constitute Fairchild Technologies. During the fourth quarter of fiscal 1999, we liquidated a significant portion of Fairchild Technologies, mostly consisting of our semiconductor equipment group through several transactions. On April 14, 1999, we disposed of our 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 $7.9 million from Suess Microtec AG and the right to receive 350,000 shares of Suess Microtec stock (or approximately $3.5 million) by September 2000 in exchange for all of the shares of Fairchild Technologies SEG GmbH and certain intellectual property. On May 1, 1999, we sold Fairchild CDI for a nominal amount. Subsequent to June 30, 1999, we received approximately $7.1 million from Novellus in exchange for our Low-K dielectric product line and certain intellectual property. We are also exploring several alternative transactions regarding the Fairchild Technologies optical disc equipment group business, but we have not made any definitive arrangements for its ultimate disposition. In connection with the adoption of such plan, we recorded an after-tax charge of $31.3 million and $36.2 million in discontinued operations in fiscal 1999 and 1998, respectively. Included in the fiscal 1998 charge, was $28.2 million, net of an income tax benefit of $11.8 million, for the net losses of Fairchild Technologies through June 30, 1998 and $8.0 million, net of an income tax benefit of $4.8 million, for the estimated remaining operating losses of Fairchild Technologies. The fiscal 1999 after-tax operating loss from Fairchild Technologies exceeded the June 1998 estimate recorded for expected losses by $28.6 million, net of an income tax benefit of $8.1 million, through June 1999. An additional after-tax charge of $2.8 million, net of an income tax benefit of $2.4 million, was recorded in fiscal 1999, based on a current estimate of the remaining losses in connection with the disposition of Fairchild Technologies. While we believe that $2.8 million is a reasonable charge for the remaining losses to be incurred from Fairchild Technologies, there can be no assurance that this estimate is adequate. Earnings from discontinued operations for the twelve months ended June 30, 1998 and 1997 includes net losses of $4,944 and $3,634, respectively, from Fairchild Technologies until the adoption date of a formal plan for its discontinuance. Net assets held for sale at June 30, 1999, includes two parcels of real estate in California, and several other parcels of real estate located primarily throughout the continental United States, which we plan to sell, lease or develop, subject to the resolution of certain environmental matters and market conditions. Also included in net assets held for sale are limited partnership interests in a real estate development joint venture and a landfill development partnership. Net assets held for sale are stated at the lower of cost or at estimated net realizable value, which consider anticipated sales proceeds. Interest is not allocated to net assets held for sale. 5. PRO FORMA FINANCIAL STATEMENTS (UNAUDITED) The following table set forth the derivation of the unaudited pro forma results, representing the impact of our acquisition of Kaynar Technologies (completed in April 1999), our merger with Banner Aerospace (completed in April 1999), our acquisition of Special-T (effective January 1998), our disposition of Solair (completed in December 1998), our disposition of the hardware group of Banner Aerospace (completed January 13, 1998), the disposition of Shared Technologies Fairchild (completed in March 1998), and our divestiture of Fairchild Scandianvian Bellyloading Company (completed June 30, 1997), as if these transactions had occurred at the beginning of each period presented. 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 reduce interest expense and investment income from our revised debt structures and reduce minority interest from our merger with Banner Aerospace. The pro forma financial information does not reflect nonrecurring income and gains from the disposal of discontinued operations that have occurred from these transactions. 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 each period
1999 1998 1997 Sales $ 756,481 $784,637 $ 590,981 Operating income (a) 9,194 64,980 24,842 Earnings (loss) from continuing operations (a, b) (13,268) 10,110 (5,400) Basic earnings (loss) from continuing operations per share (0.58) 0.45 (0.28) Diluted earnings (loss) from continuing operations per share (0.58) 0.42 (0.28) Net earnings (loss) (48,770) 58,801 (5,885) Basic earnings (loss) per share (2.14) 2.61 (0.30) Diluted earnings (loss) per share (2.14) 2.43 (0.30) (a) - Fiscal 1999 pro forma results includes pre-tax charges recorded for the write-down of inventory and allowances for the doubtful collection of certain accounts receivable of $25,045, costs relating to acquisitions of $23,604 and restructuring charges of $6,374. (b) - Excludes pre-tax investment income of $35,407 from the liquidation of certain investments.
6. INVESTMENTS Investments at June 30, 1999 consist primarily of common stock investments in public corporations, which are classified as trading securities or available-for-sale securities. Other short-term investments and long-term investments do not have readily determinable fair values and consist primarily of investments in preferred and common shares of private companies and limited partnerships. A summary of investments held by us follows:
June 30, 1999 June 30, 1998 Aggregate Aggregate Fair Cost Fair Cost Value Basis Value Basis Short-term investments: Trading securities - equity $ 1,254 $ 1,221 $ - $ - Available-for-sale equity 11,618 9,573 3,907 5,410 securities Other investments 222 222 55 55 $13,094 $11,016 $3,962 $5,465 Long-term investments: Available-for-sale equity securities $14,616 $ 7,342 $234,307 $195,993 Other investments 1,228 1,228 1,128 1,128 $15,844 $ 8,570 $235,435 $197,121
On June 30, 1999, we had gross unrealized holding gains from available-for- sale securities of $13,649 and gross unrealized holding losses from available- for-sale securities of $4,330. Investment income is summarized as follows:
1999 1998 1997 Gross realized gain from sales $36,677 $ 364 $1,673 Change in unrealized holding gain (loss) from trading securities 33 (5,791) 4,289 Gross realized loss from impairments - (182) - Dividend income 3,090 2,247 689 $39,800 $(3,362) $6,651
7. INVESTMENTS AND ADVANCES, AFFILIATED COMPANIES The following table summarizes historical financial information on a combined 100% basis of our principal investments, which are accounted for using the equity method.
1999 1998 1997 Statement of Earnings: Net sales $ 75,495 $ 90,235 $102,962 Gross profit 25,297 32,449 39,041 Earnings from continuing operations 13,119 14,780 14,812 Net earnings 13,119 14,780 14,812 Balance Sheet at June 30: Current assets $ 26,942 $ 33,867 Non-current assets 38,661 39,898 Total assets 65,603 73,765 Current liabilities 12,249 14,558 Non-current liabilities 1,828 1,471
On June 30, 1999 we owned approximately 31.9% of Nacanco Paketleme common stock. We recorded equity earnings of $4,153, $4,683, and $4,673 from this investment for 1999, 1998 and 1997, respectively. Our share of equity in earnings, net of tax, of all unconsolidated affiliates for 1999, 1998 and 1997 was $1,795, $2,571, and $2,989, respectively. The carrying value of investments and advances, affiliated companies consists of the following:
June June 30, 30, 1999 1998 Nacanco $17,356 $19,329 Others 14,435 8,239 $31,791 $27,568
On June 30, 1999, approximately $2,698 of our $252,030 consolidated retained earnings were from undistributed earnings of 50 percent or less currently owned affiliates accounted for using the equity method. 8. NOTES PAYABLE AND LONG-TERM DEBT At June 30, 1999 and 1998, notes payable and long-term debt consisted of the following:
June 30, June 30, 1999 1998 Short-term notes payable (weighted average interest rates of 3.6% $ 22,924 $ 17,811 and 5.2% in 1999 and 1998, respectively) Bank credit agreements $258,100 $290,800 10 3/4 % Senior subordinated notes due 2009 225,000 - 10.65% Industrial revenue bonds 1,500 1,500 Capital lease obligations, interest from 6.9% to 10.1% 2,873 923 Other notes payable, collateralized by property, plant and equipment, interest from 3.5% to 10.5% 13,746 5,033 501,219 298,256 Less: Current maturities (5,936) (2,854) Net long-term debt $495,283 $295,402
Credit Agreements We maintain credit facilities with a consortium of banks, providing us with a term loan and revolving credit facilities. On April 20, 1999, simultaneous with our acquisition of Kaynar Technologies, we restructured our then existing credit facilities by entering into a new credit agreement to provide us with a $325,000 senior secured credit facility. The new credit facilities consist of a $225,000 term loan and a $100,000 revolving loan with a $40,000 letter of credit sub-facility and a $15,000 swing loan sub-facility. Borrowings under the term loan will generally bear interest at a rate of, at our option, either 2% over the Citibank N.A. base rate, or 3% over the Eurodollar rate until March 31, 2000, and is subject to change based upon our financial performance thereafter. Advances made under the revolving credit facilities will generally bear interest at a rate of, at our option, either (i) 2% over the Citibank N.A. base rate, or (ii) 3% over the Eurodollar rate until March 31, 2000, and is subject to change based upon our financial performance thereafter. The new credit facilities are subject to a non-use commitment fee on the aggregate unused availability, of 1/2% if greater than half of the revolving loan is being utilized or 3/4% if less than half of the revolving loan is being utilized. Outstanding letters of credit are subject to fees equivalent to the Eurodollar margin rate. The new credit facilities will mature on April 30, 2006. The term loan is subject to mandatory prepayment requirements and optional prepayments. The revolving loan is subject to mandatory prepayment requirements and optional commitment reductions. We are required under the new credit agreement to comply with certain financial and non-financial loan covenants, including maintaining certain interest and fixed charge coverage ratios and maintaining certain indebtedness to EBITDA ratios at the end of each fiscal quarter. Additionally, the new credit agreement restricts annual capital expenditures to $40,000 during the life of the facility. Except for non-guarantor assets, substantially all of our assets are pledged as collateral under the new credit agreement. The new credit agreement restricts the payment of dividends to our shareholders to an aggregate of the lesser of $0.01 per share or $400 over the life of the agreement. At June 30, 1999, we were in compliance with all the covenants under the credit agreement. At June 30, 1999, we had borrowings outstanding of $33,100 under the revolving credit facilities and we had letters of credit outstanding of $17,677, which were supported by a sub-facility under the revolving credit facilities. At June 30, 1999, we had unused bank lines of credit aggregating $49,223, at interest rates slightly higher than the prime rate. We also had short-term lines of credit relating to foreign operations, aggregating $25,857, against which we owed $12,295 at June 30, 1999. Senior Subordinated Notes On April 20, 1999, in conjunction with the acquisition of Kaynar Technologies, we issued, at par value, $225,000 of 10 3/4% senior subordinated notes that mature on April 15, 2009. We will pay interest on these notes semi- annually on April 15 and October 15 of each year, beginning on October 15, 1999. Except in the case of certain equity offerings by us, we cannot choose to redeem these notes until five years have passed from the issue date of the notes. At any one or more times after that date, we may choose to redeem some or all of the notes at certain specified prices, plus accrued and unpaid interest. Upon the occurrence of certain change of control events, each holder may require us to repurchase all or a portion of the notes at 101% of their principal amount, plus accrued and unpaid interest. The notes are our senior subordinated unsecured obligations. They rank senior to or equal in right of payment with any of our future subordinated indebtedness, and subordinated in right of payment to any of our existing and future senior indebtedness. The notes are effectively subordinated to indebtedness and other liabilities of our subsidiaries which are not guarantors. Substantially all of our domestic subsidiaries guarantee the notes with unconditional guarantees of payment that will effectively rank below their senior debt, but will rank equal to their other subordinated debt, in right of payment. The indenture under which the notes were issued contains covenants that limit what we (and most or all of our subsidiaries) may do. The indenture contains covenants that limit our ability to: incur additional indebtedness; pay dividends on, redeem or repurchase our capital stock; make investments; sell assets; create certain liens; engage in certain transactions with affiliates; and consolidate or merge or sell all or substantially all of our assets or the assets of certain of our subsidiaries. In addition, we will be obligated to offer to repurchase the notes at 100% of their principal amount, plus accrued and unpaid interest, if any, to the date of repurchase, in the event of certain asset sales. These restrictions and prohibitions are subject to a number of important qualifications and exceptions. Debt Maturity Information The annual maturity of our bank notes payable and long-term debt obligations (exclusive of capital lease obligations) for each of the five years following June 30, 1999, are as follows: $27,690 for 2000, $5,189 for 2001, $4,113 for 2002, $3,632 for 2003 and $2,988 for 2004. Hedge Agreements In September 1995, we entered into several interest rate hedge agreements to manage our exposure to increases in interest rates on our variable rate debt. The hedge agreements provide interest rate protection on $60,000 of debt through September 2000, by providing an interest rate cap of 7% if the 90-day LIBOR rate exceeds 7%. If the 90-day LIBOR rate drops below 5%, we will be required to pay interest at a floor rate of approximately 6%. In November 1996, we entered into an additional hedge agreement to provide interest rate protection on $20,000 of debt through November 1999. The hedge agreement provides for a cap of 7 1/4% if the 90-day LIBOR exceeds 7 1/4%. If the 90-day LIBOR drops below 5%, we will be required to pay interest at a floor rate of approximately 6%. No cash outlay was required to obtain this hedge agreement, as the cost of the cap was offset by the sale of the floor. In fiscal 1998 we entered into a series of interest rate hedge agreements to reduce our exposure to increases in interest rates on variable rate debt. The ten-year hedge agreements provides us with interest rate protection on $100,000 of variable rate debt, with interest being calculated based on a fixed LIBOR rate of 6.24% to February 17, 2003. On February 17, 2003, the bank will have a one-time option to elect to cancel the agreement or to do nothing and proceed with the transaction, using a fixed LIBOR rate of 6.715% for the period February 17, 2003 to February 19, 2008. No costs were incurred as a result of these transactions. We recognize interest expense under the provisions of the hedge agreements based on the fixed rate. We are exposed to credit loss in the event of non- performance by the lenders; however, such non-performance is not anticipated. The table below provides information about our derivative financial instruments and other financial instruments that are sensitive to changes in interest rates, including interest rate swaps. For interest rate swaps, the table presents notional amounts and weighted average interest rates by expected (contractual) maturity dates. Notional amounts are used to calculate the contractual payments to be exchanged under the contract. Weighted average variable rates are based on implied forward rates in the yield curve at the reporting date.
Expected Maturity Date 2000 2001 2002 2003 2004 Thereafter Interest Rate Swaps: Variable to fixed 20,000 60,000 - - - 100,000 Average cap rate 7.25% 6.81% - - - 6.49% Average floor 5.84% 5.99% - - - 6.24% rate Weighted average 5.71% 5.74% - - - 6.12% rate Fair market value (44) (99) - - - (3,709)
The fair value of our other off-balance-sheet financial instruments is not material at June 30, 1999. The fair value of our fixed rate debt approximates our carrying balance at June 30, 1999. 9. PENSIONS AND POSTRETIREMENT BENEFITS Pensions In February 1998, the FASB issued Statement of Financial Accounting Standards No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits." This statement amends and eliminates certain disclosures previously required as well as adds certain new disclosures. This statement does not change the way pension costs and liabilities are measured or recognized in the financial statements. To conform to Statement No. 132, we have presented and, where necessary, restated our disclosure in these consolidated financial statements. We have defined benefit pension plans covering most of our employees. Employees in our foreign subsidiaries may participate in local pension plans, for which our liability is in the aggregate insignificant. Our funding policy is to make the minimum annual contribution required by the Employee Retirement Income Security Act of 1974 or local statutory law. The changes in the pension plans' benefit obligations were as follows:
1999 1998 Projected benefit obligation at July 1, $222,607 $206,444 Service cost 3,454 2,685 Interest cost 14,328 14,518 Actuarial (gains) / losses (5,003) 15,364 Benefit payments (14,236) (16,366) Plan amendment 837 - Foreign currency translation (2) (38) Projected benefit obligation at June 30, $221,985 $222,607
The changes in the fair values of the pension plans' assets were as follows:
1999 1998 Plan assets at July 1, $261,097$237,480 Actual return on plan assets 11,995 41,102 Administrative expenses (1,190) (1,024) Benefit payments (14,236)(16,366) Foreign currency translation (4) (95) Plan assets at June 30, $257,662$261,097
The following table sets forth the funded status and amounts recognized in our consolidated balance sheets at June 30, 1999 and 1998, for the plans:
June 30,June 30, 1999 1998 Plan assets in excess of projected benefit obligations $ 35,677 $ 38,490 Unrecognized net loss 27,867 23,797 Unrecognized prior service cost/(credit) 634 (387) Unrecognized transition (asset) (220) (257) Prepaid pension expense recognized in the balance sheet $ 63,958 $ 61,643
The net prepaid pension expense recognized in the consolidated balance sheets consisted entirely of a prepaid pension asset. A summary of the components of total pension expense is as follows:
1999 1998 1997 Service cost - benefits earned during the period $ 3,454 $ 2,685 $ 2,521 Interest cost on projected benefit obligation 14,328 14,518 15,833 Expected return on plan assets (21,694)(20,455)(21,294) Amortization of net loss 1,813 1,522 928 Amortization of prior service credit (184) (184) (180) Amortization of transition (asset) (36) (38) (39) Loss recognized due to curtailment - - 142 Net periodic pension (income) $(2,319)$(1,952)$(2,089)
Weighted average assumptions used in accounting for the defined benefit pension plans as of June 30, 1999 and 1998 were as follows:
1999 1998 Discount rate 7.25% 7.0% Expected rate of increase in 4.5% 4.5% salaries Expected long-term rate of return 9.0% 9.0% on plan assets
Plan assets include an investment in our Class A common stock, valued at a fair market value of $8,178 and $16,167 at June 30, 1999 and 1998, respectively. Substantially all of the other plan assets are invested in listed stocks and bonds. Postretirement Health Care Benefits We provide health care benefits for most of our retired employees. Postretirement health care benefit expense from continuing operations totaled $951, $804, and $642 for 1999, 1998 and 1997, respectively. Our accrual was approximately $33,155 and $33,062 as of June 30, 1999 and 1998, respectively, for postretirement health care benefits related to discontinued operations. This represents the cumulative discounted value of the long-term obligation and includes interest expense of $3,902, $3,714, and $3,349 for the years ended June 30, 1999, 1998 and 1997, respectively. The changes in the accumulated postretirement benefit obligation of the plans were as follows:
1999 1998 Accumulated postretirement benefit obligation at July 1, $ 58,197$ 50,870 Service cost 227 166 Interest cost 3,860 3,979 Actuarial (gains) / losses (2,718) 10,696 Benefit payments (4,539) (6,511) Plan amendment - (1,003) Accumulated postretirement benefit obligation at June 30, $ 55,027$ 58,197
In fiscal 1998, we amended a former subsidiary's medical plan to increase the retirees' contribution rate to approximately 20% of the negotiated premium. Such plan amendment resulted in a $1,003 decrease to the accumulated postretirement benefit obligation and is being amortized as an unrecognized prior service credit over the average future lifetime of the respective retirees. The following table sets forth the funded status and amounts recognized in the Company's consolidated balance sheets at June 30, 1999 and 1998, for the plans:
1999 1998 Accumulated postretirement benefit obligation $ 55,027$ 58,197 Unrecognized prior service credit (866) (935) Unrecognized net loss 12,833 16,387 Accrued postretirement benefit liability $ 43,060$ 42,745
The accumulated postretirement benefit obligation was determined using a discount rate of 7.25% at June 30, 1999 and 7.0% at June 30, 1998. The effect of such change resulted in a decrease to the accumulated postretirement benefit obligation in fiscal 1999. For measurement purposes, a 6.0% annual rate of increase in the per capita claims cost of covered health care benefits was assumed for fiscal 1999. The rate was assumed to decrease gradually to 4.0% for fiscal 2003 and remain at that level thereafter. A summary of the components of total postretirement expense is as follows:
1999 1998 1997 Service cost - benefits earned during the period $ 227 $ 166 $ 140 Interest cost on accumulated postretirement benefit obligation 3,860 3,979 3,940 Amortization of prior service credit (69) (69) - Amortization of net (gain) / loss 835 442 (89) Net periodic postretirement benefit cost $ 4,853 $ 4,518 $3,991
Assumed health care cost trend rates have a significant effect on the amounts reported for health care plans. A one percentage-point change in assumed health care cost trend rates would have the following effects as of and for the fiscal year ended June 30, 1999:
One Percentage-Point Increase Decrease Effect on service and interest components of net periodic cost $ 126 $ (122) Effect on accumulated postretirement 1,604 (1,513) benefit obligation
10. INCOME TAXES The provision (benefit) for income taxes from continuing operations is summarized as follows:
1999 1998 1997 Current: Federal $ 3,416 $ (6,245) $ 4,003 State 140 500 1,197 Foreign 3,994 3,893 (49) 7,550 (1,852) 5,151 Deferred: Federal (10,731) 46,092 (15,939) State (10,064) 3,034 3,444 (20,795) 49,126 (12,495) Net tax provision (benefit)$(13,245) $47,274 $(7,344)
The income tax provision (benefit) for continuing operations differs from that computed using the statutory Federal income tax rate of 35%, in fiscal 1999, 1998 and 1997, for the following reasons:
1999 1998 1997 Computed statutory amount $(12,760) $43,188 $(1,751) State income taxes, net of applicable federal tax benefit 2,488 4,362 778 Nondeductible acquisition valuation items 1,903 1,204 1,064 Tax on foreign earnings, net of tax credits (2,392) (1,143) (1,938) Difference between book and tax basis of assets acquired and (53) 4,932 (1,102) liabilities assumed Revision of estimate for tax accruals (1,790) (3,905) (5,335) Other (641) (1,364) 940 Net tax provision (benefit) $(13,245) $47,274 $(7,344)
The following table is a summary of the significant components of our deferred tax assets and liabilities, and deferred provision or benefit, for the following periods:
1999 1998 1997 Deferred Deferred Deferred June 30,(Provision)June 30,(Provision)(Provision) 1999 Benefit 1998 Benefit Benefit Deferred tax assets: Accrued expenses $ 14,159 $ 11,572 $ 2,587 $(3,853) $ 504 Asset basis differences 8,822 710 8,112 7,540 (1,492) Inventory 11,117 11,117 - (2,198) 2,198 Employee compensation and benefits 13,587 8,501 5,086 (55) (267) Environmental reserves 3,975 509 3,466 207 (1,253) Loss and credit carryforward - - - - (8,796) Postretirement benefits 16,428 (1,706) 18,134 (1,338) 138 Other 4,639 (7,465) 12,104 4,506 2,079 72,727 23,238 49,489 4,809 (6,889) Deferred tax liabilities: Asset basis differences (84,386) (3,954)(80,432) (54,012)(3,855) Inventory - 1,546 (1,546) (1,546) 2,010 Pensions (19,614) (428)(19,186) 95 (1,038) Other (5,319) 393 (5,712) 1,528 22,267 (109,319) (2,443)(106,876)(53,935)19,384 Net deferred tax liability $(36,592) $20,795 $(57,387)$(49,126)$12,495
The amounts included in the balance sheet are as follows:
June June 30, 30, 1999 1998 Prepaid expenses and other current assets: Current deferred $5,999 $ - Income taxes payable: Current deferred $ - $34,553 Other current - (6,242) $ - $28,311 Noncurrent income tax liabilities: Noncurrent deferred $42,591 $22,834 Other noncurrent 79,370 72,342 $121,961 $95,176
The 1999, 1998 and 1997 net tax benefits include the results of reversing $1,790, $3,905, and $5,335 respectively, of federal income taxes previously provided for, due to a change in the estimate of required tax accruals. Domestic income taxes, less available credits, are provided on the unremitted income of foreign subsidiaries and affiliated companies, to the extent we intend to repatriate such earnings. No domestic income taxes or foreign withholding taxes are provided on the undistributed earnings of foreign subsidiaries and affiliates, which are considered permanently invested, or which would be offset by allowable foreign tax credits. At June 30, 1999, the amount of domestic taxes payable upon distribution of such earnings was not significant. In the opinion of our management, adequate provision has been made for all income taxes and interest; and any liability that may arise for prior periods will not have a material effect on our financial condition or our results of operations. 11. EQUITY SECURITIES We had 22,258,580 shares of Class A common stock and 2,621,652 shares of Class B common stock outstanding at June 30, 1999. Class A common stock is traded on both the New York and Pacific Stock Exchanges. There is no public market for the Class B common stock. Shares of Class A common stock are entitled to one vote per share and cannot be exchanged for shares of Class B common stock. Shares of Class B common stock are entitled to ten votes per share and can be exchanged, at any time, for shares of Class A common stock on a share-for-share basis. In fiscal 1999, 75,383 and 14,969 shares of Class A common stock were issued as a result of the exercise of stock options and the Special-T restricted stock plan, respectively, and shareholders converted 3,064 shares of Class B common stock into Class A common stock. In accordance with terms of our acquisition of Special-T, as amended, we issued 9,911 restricted shares of our Class A common stock in fiscal 1999 as additional merger consideration. Additionally, our Class A common stock outstanding was reduced as a result of 1,239,750 shares purchased by Banner Aerospace, which are considered as treasury stock for accounting purposes. On April 8, 1999, we acquired the remaining 15% of the outstanding common and preferred stock of Banner Aerospace 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 shares already owned by us. During fiscal 1999, we issued 8,852 deferred compensation units pursuant to our stock option deferral plan as a result of a cashless exercise of 15,000 stock options. Each deferred compensation unit is represented by one share of our treasury stock and is convertible into one share of our Class A common stock after a specified period of time. 12. STOCK OPTIONS AND WARRANTS Stock Options We are authorized to issue 5,141,000 shares of our Class A common stock, upon the exercise of stock options issued under our 1986 non-qualified and incentive stock option plan. The purpose of the 1986 stock option plan is to encourage continued employment and ownership of Class A common stock by our officers and key employees, and to provide additional incentive to promote success. The 1986 stock option plan authorizes the granting of options at not less than the market value of the common stock at the time of the grant. The option price is payable in cash or, with the approval of our compensation and stock option committee of the Board of Directors, in shares of common stock, valued at fair market value at the time of exercise. The options normally terminate five years from the date of grant, subject to extension of up to 10 years or for a stipulated period of time after an employee's death or termination of employment. The 1986 plan expires on April 9, 2006; however, all stock options outstanding as of April 9, 2006 shall continue to be exercisable pursuant to their terms. We are authorized to issue 250,000 shares of our Class A common stock upon the exercise of stock options issued under the ten year 1996 non-employee directors stock option plan. The 1996 non-employee directors stock option plan authorizes the granting of options at the market value of the common stock on the date of grant. An initial stock option grant for 30,000 shares of Class A common stock is made to each person who becomes a new non-employee Director, with the options vesting 25% each year from the date of grant. On the date of each annual meeting, each person elected as a non-employee Director will be granted an option for 1,000 shares of Class A common stock that vest immediately. The exercise price is payable in cash or, with the approval of our compensation and stock option committee, in shares of Class A or Class B common stock, valued at fair market value at the date of exercise. All options issued under the 1996 non-employee directors stock option plan will terminate five years from the date of grant or a stipulated period of time after a non-employee Director ceases to be a member of the Board. The 1996 non-employee directors stock option plan is designed to maintain our ability to attract and retain highly qualified and competent persons to serve as our outside directors. Upon our April 8, 1999 merger with Banner Aerospace, all of Banner Aerospace's stock options then issued and outstanding were converted into the right to receive 870,315 shares of our common stock. On November 17, 1994, our stockholders approved the grant of stock options of 190,000 shares to our outside Directors to replace expired stock options. These stock options expire five years from the date of the grant. A summary of stock option transactions under our stock option plans is presented in the following tables:
Weighted Average Exercise Shares Price Outstanding at July 1, 1996 1,273,487 $ 4.27 Granted 457,350 14.88 Exercised (234,935) 4.79 Expired (1,050) 4.59 Forfeited (9,412) 3.59 Outstanding at June 30, 1997 1,485,440 7.46 Granted 357,250 24.25 Exercised (141,259) 4.70 Forfeited (46,650) 7.56 Outstanding at June 30, 1998 1,654,781 7.46 Granted 338,000 14.36 Plans assumption from 870,315 4.25 Banner merger Exercised (75,383) 5.21 Expired (500) 3.50 Forfeited (650) 12.16 Outstanding at June 30, 1999 2,786,563 $ 11.05 Exercisable at June 30, 1997 486,855 $ 4.95 Exercisable at June 30, 1998 667,291 $ 6.58 Exercisable at June 30, 1999 1,867,081 $ 8.75
A summary of options outstanding at June 30, 1999 is presented as follows:
Options Outstanding Opertions Exercisable Weighted Average Weighted Average Remaining Average Range of Number Exercise Contracted Number Exercise Exercise Prices Outstanding Price Life Exercisable Price $3.50 - $8.625 1.4 1,149,787 $ 4.76 years1,017,490 $ 4.84 $8.72 - $13.48 4.6 396,741 $ 9.56 years 386,741 $ 9.47 $13.625 - $16.25 3.5 906,285 $14.77 years 379,412 $15.07 $18.5625 - $25.0625 3.2 333,750 $24.02 years 83,438 $24.14 $3.50 - $25.0625 4.1 2,786,563 $11.05 years 1,867,081 $ 8.75
The weighted average grant date fair value of options granted during 1999, 1998, and 1997 was $6.48, $11.18, and $6.90, respectively. The fair value of each option granted is estimated on the grant date using the Black-Scholes option pricing model. The following significant assumptions were made in estimating fair value:
1999 1998 1997 Risk-free interest rate 4.3% - 5.4% 5.4% - 6.3% 6.0% - 6.7% Expected life in years 4.66 4.66 4.65 Expected volatility 45% - 46% 44% - 45% 43% - 45% Expected dividends none none none
We recognized compensation expense of $23 from stock options issued to a consultant and $414 from an employee stock plan that was established with our acquisition of Special-T Fasteners in 1998. We recognized compensation expense of $104 as a result of stock options that were modified in 1998. We are applying APB Opinion No. 25 in accounting for its stock option plans. Accordingly, no compensation cost has been recognized for the granting of stock options to our employees in 1999, 1998 or 1997. If stock options granted in 1999, 1998 and 1997 were accounted for based on their fair value as determined under SFAS 123, pro forma earnings would be as follows:
1999 1998 1997 Net earnings (loss): As reported $(59,009) $101,090 $ 1,331 Pro forma (60,682) 99,817 283 Basic earnings (loss) per share: As reported $ (2.59) $ 5.36 $ 0.08 Pro forma (2.66) 5.30 0.02 Diluted earnings (loss) per share: As reported $ (2.59) $ 5.14 $ 0.08 Pro forma (2.66) 5.07 0.02
The pro forma effects of applying SFAS 123 are not representative of the effects on reported net earnings for future years. The effect of SFAS 123 is not applicable to awards made prior to 1996. Additional awards are expected in future years. Stock Option Deferral Plan On November 17, 1998, our shareholders approved a stock option deferral plan. Pursuant to the stock option deferral plan, certain officers (at their election) may defer payment of the "compensation" they receive in a particular year or years from the exercise of stock options. "Compensation" means the excess value of a stock option, determined by the difference between the fair market value of shares issueable upon exercise of a stock option, and the option price payable upon exercise of the stock option. An officer's deferred compensation is payable in the form of "deferred compensation units," representing the number of shares of common stock that the officer is entitled to receive upon expiration of the deferral period. The number of deferred compensation units issueable to an officer is determined by dividing the amount of the deferred compensation by the fair market value of our stock as of the date of deferral. Stock Warrants Effective as of February 21, 1997, we approved the continuation of an existing warrant to Stinbes Limited (an affiliate of Jeffrey Steiner) to purchase 375,000 shares of our Class A or Class B common stock at $7.80 per share. The warrant has been modified to permit exercise within certain window periods including, within two years after the merger of Shared Technologies Fairchild Inc. with certain companies. The warrant's exercise price per share increases by $.002 for each day subsequent to March 13, 1999. The payment of the warrant price may be made in cash or in shares of our Class A or Class B common stock, valued at fair market value at the time of exercise, or combination thereof. In no event may the warrant be exercised after March 13, 2002, but as a result of certain events is now exercisable only through March 9, 2000. As a result of certain modifications to the warrant, we recognized a charge of $5,606 in 1998. On February 21, 1996, we issued warrants to purchase 25,000 shares of Class A common stock, at $9.00 per share, to a non-employee for services provided in connection with our various dealings with Peregrine Direct Investments Limited. The warrants issued are immediately exercisable and will expire on November 8, 2000. On November 9, 1995, we issued warrants to purchase 500,000 shares of Class A Common Stock, at $9.00 per share, to Peregrine Direct Investments Limited, in exchange for a standby commitment it received on November 8, 1995, from Peregrine. We elected not to exercise our rights under the Peregrine commitment. The warrants are immediately exercisable and will expire on November 8, 2000. 13. EARNINGS PER SHARE The following table illustrates the computation of basic and diluted earnings (loss) per share:
1999 1998 1997 Basic earnings per share: Earnings (loss) from continuing operations $(23,507) $52,399 $ 1,816 Weighted average common shares outstanding 22,766 18,834 16,539 Basic earnings per share: Basic earnings (loss) from continuing operations per share $ (1.03) $ 2.78 $ 0.11 Diluted earnings per share: Earnings (loss) from continuing operations $(23,507) $ 52,399 $ 1,816 Weighted average common shares outstanding 22,766 18,834 16,539 Diluted effect of options Antidilutive 546 449 Diluted effect of warrants Antidilutive 289 333 Total shares outstanding 22,766 19,669 17,321 Diluted earnings (loss) from continuing operations per share $ (1.03) $ 2.66 $ 0.11
The computation of diluted loss from continuing operations per share for 1999 excluded the effect of incremental common shares attributable to the potential exercise of common stock options outstanding and warrants outstanding, because their effect was antidilutive. No adjustments were made to share information in the calculation of earnings per share for discontinued operations and extraordinary items. 14. RESTRUCTURING CHARGES In fiscal 1999, we recorded $6,374 of restructuring charges. Of this amount, $500 was recorded at our corporate office for severance benefits and $348 was recorded at our aerospace distribution segment for the write-off of building improvements from premises vacated. The remainder, $5,526 was recorded as a result of the Kaynar Technologies initial integration in our aerospace fasteners segment, i.e. for severance benefits ($3,932), for product integration costs incurred as of June 30, 1999 ($1,334), and for the write down of fixed assets ($260). All costs classified as restructuring were the direct result of formal plans to close plants and to terminate employees. The costs included in restructuring were predominately nonrecurring in nature. Other than a reduction in our existing cost structure and manufacturing capacity, none of the restructuring charges resulted in future increases in earnings or represented an accrual of future costs. As of June 30, 1999, approximately one-third of the integration plans has been executed. We expect to incur additional restructuring charges for product integration costs during the next twelve months at our aerospace fasteners segment. We anticipate that our integration process will be substantially completed in the second quarter of fiscal 2000. 15. EXTRAORDINARY ITEMS In fiscal 1999, we recognized an extraordinary loss of $4,153, net of tax, to write-off the remaining deferred loan fees associated with the early extinguishment of our indebtedness in connection with our acquisition of Kaynar Technologies (See Note 8). In fiscal 1998, we recognized an extraordinary loss of $6,730, net of tax, to write-off the remaining deferred loan fees and original issue discounts associated with early extinguishment of our indebtedness when we repaid all our public debt and refinanced our credit facilities. 16. RELATED PARTY TRANSACTIONS We paid for a chartered aircraft used from time to time for business related travel. The owner of the chartered aircraft is a company 51% owned by an immediate family member of Mr. Jeffrey Steiner. Cost for such flights that are charged to us are comparable to those charged in arm's length transactions between unaffiliated third parties'. We pay for a chartered helicopter used from time to time for business related travel. The owner of the chartered helicopter is a company controlled by Mr. Jeffrey Steiner. Cost for such flights that are charged to us are comparable to those charged in arm's length transactions between unaffiliated third parties'. In 1999, we entered into a $300 loan agreement with one of our senior vice president's who was relocated. At June 30, 1999, a balance of $200 was outstanding. 17. LEASES Operating Leases We hold certain of our facilities and equipment under long-term leases. The minimum rental commitments under non-cancelable operating leases with lease terms in excess of one year, for each of the five years following June 30, 1999, are as follows: $5,200 for 2000, $3,549 for 2001, $2,784 for 2002, $2,043 for 2003, and $1,164 for 2004. Rental expense on operating leases from continuing operations for fiscal 1999, 1998 and 1997 was $9,485, $8,610, and $4,928, respectively. Capital Leases Minimum commitments under capital leases for each of the five years following June 30, 1999, are $1,324 for 2000, $808 for 2001, $498 for 2002, $380 for 2003, and $254 for 2004, respectively. At June 30, 1999, the present value of capital lease obligations was $2,874. At June 30, 1999, capital assets leased and included in property, plant, and equipment consisted of:
Land $ 86 Buildings and improvements 2,180 Machinery and equipment 6,282 Furniture and fixtures 33 Less: Accumulated depreciation (2,250) $6,331
Leasing Operations In fiscal 1999, we began leasing retail space to tenants under operating leases at completed sections of a shopping center we are developing in Farmingdale, New York. Rental revenue is recognized as lease payments are due from tenants and the related costs are amortized over their estimated useful life. Accumulated depreciation on finished sections of the shopping center and leased to others is $100 at June 30, 1999. The future minimum lease payments to be received from noncancellable operating leases on June 30, 1999 were $3,246 in 2000, $4,678 in 2001, $4,678 in 2002, $4,684 in 2003, $4,706 in 2004 and $47,350 thereafter. Subsequent to June 30, 1999, we have entered into several new agreements to lease additional retail space at our shopping center. 18. CONTINGENCIES Government Claims The Corporate Administrative Contracting Officer (the "ACO"), based upon the advice of the United States Defense Contract Audit Agency, has made a determination that 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 subsidiaries business. The ACO has directed us to prepare cost impact proposals relating to such plan terminations and segment closings and, following receipt of such cost impact proposals, may seek adjustments to contract prices. The ACO alleges that substantial amounts will be due if such adjustments are made, however, an estimate of the possible loss or range of loss from the ACO's assertion cannot be made. We believe that management of our former subsidiary properly accounted for the asset reversions in accordance with applicable accounting standards. We intend to enter into mediation with the government to attempt to resolve 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 of us, although we have expended, and can be expected to expend in the future, significant amounts for investigation of environmental conditions and installation of environmental control facilities, remediation of environmental conditions and other similar matters, particularly in our aerospace fasteners segment. In connection with our plans to dispose of certain real estate, we must investigate environmental conditions and 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 at or from other facilities owned, or previously owned, by us, that may require us to 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 June 30, 1999, the consolidated total of our recorded liabilities for environmental matters was approximately $10.3 million, which represented the estimated probable exposure for these matters. It is reasonably possible that our total exposure for these matters could be approximately $17.5 million. Other Matters On January 12, 1999, AlliedSignal made indemnification claims against us for $18.9 million, arising from the disposition to AlliedSignal of Banner Aerospace's hardware business. 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, some of which involve substantial amounts. We, either on our own or through our insurance carriers, are contesting these matters. In the opinion of management, the ultimate resolution of the legal proceedings, including those mentioned above, will not have a material adverse effect on our financial condition, future results of operations or net cash flows. 19. BUSINESS SEGMENT INFORMATION In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information." SFAS 131 supersedes Statement of Financial Accounting Standards No. 14 "Financial Reporting for Segments of a Business Enterprise" and requires that a public company report certain information about its reportable operating segments in annual and interim financial reports. Generally, financial information is required to be reported on the basis that is used internally for evaluating segment performance and deciding how to allocate resources to segments. We adopted SFAS 131 in fiscal 1999. We reports in two principal business segments. The aerospace fasteners segment includes the manufacture of high performance specialty fasteners and fastening systems. The aerospace distribution segment distributes a wide range of aircraft parts and related support services to the aerospace industry. The results of Fairchild Technologies, which is primarily engaged in the designing and manufacturing of capital equipment and systems for recordable compact disc and advance semiconductor manufacturing, were previously reported under Corporate and Other, along with the results of two smaller operations. Fairchild Technologies is now recorded in discontinued operations. Our financial data by business segment is as follows:
1999 1998 1997 Sales: Aerospace Fasteners $442,722 $387,236 $269,026 Aerospace Distribution 168,336 358,431 411,765 Corporate and Other 6,264 5,760 15,185 Eliminations (a) - (10,251) (15,213) Total Sales $617,322 $741,176 $680,763 Operating Income (Loss): Aerospace Fasteners $ 38,956 $ 32,722 $ 17,390 Aerospace Distribution (40,003) 20,330 30,891 Corporate and Other (44,864) (7,609) (14,782) Operating Income (Loss) (b) $(45,911)$ 45,443 $ 33,499 Capital Expenditures: Aerospace Fasteners $ 27,414 $ 31,221 $ 8,964 Aerospace Distribution 1,951 3,812 4,787 Corporate and Other 777 996 1,263 Total Capital Expenditures $ 30,142 $ 36,029 $ 15,014 Depreciation and Amortization: Aerospace Fasteners $ 22,459 $ 16,260 $ 15,506 Aerospace Distribution 1,871 3,412 4,139 Corporate and Other 1,327 1,201 1,170 Total Depreciation and Amortization $ 25,657 $ 20,873 $ 20,815 Identifiable Assets at June 30: Aerospace Fasteners $655,714 $427,927 $346,533 Aerospace Distribution 291,281 452,397 428,436 Corporate and Other 381,791 276,935 277,697 Total Identifiable Assets $1,328,786 $1,157,259 $1,052,666 (a) - Represents intersegment sales from our aerospace fasteners segment to our aerospace distribution segment. (b) - Fiscal 1999 results include an inventory impairment charges of $41,465 in the aerospace distribution segment, costs relating to acquisitions of $23,604 and restructuring charges of $5,526 in the aerospace fasteners segment, $348 in the aerospace distribution segment, and $500 at corporate.
20. FOREIGN OPERATIONS AND EXPORT SALES Our operations are located primarily in the United States and Europe. Inter- area sales are not significant to the total sales of any geographic area. Our financial data by geographic area is as follows:
1999 1998 1997 Sales by Geographic Area: United States $440,447 $613,325 $580,453 Europe 176,315 127,851 100,310 Australia 417 - - Other 143 - - Total Sales $617,322 $741,176 $680,763 Operating Income (Loss) by Geographic Area: United States $(66,245)$ 28,575 $ 27,489 Europe 19,989 16,868 6,010 Australia 331 - - Other 14 - - Total Operating Income (Loss) $(45,911)$ 45,443 $ 33,499 Identifiable Assets by Geographic Area at June 30: United States $1,011,993 $903,054 $855,233 Europe 306,156 254,205 197,433 Australia 10,176 - - Other 461 - - Total Identifiable Assets $1,328,786 $1,157,259 $1,052,666
Export sales are defined as sales by our domestic operations to customers in foreign countries. Export sales were as follows:
1999 1998 1997 Export Sales Europe $ 42,891 $ 68,515 $ 48,187 Japan 14,147 12,056 19,819 Canada 12,460 16,426 17,797 Asia (excluding Japan) 6,337 19,744 21,221 South America 3,556 11,038 4,414 Other 14,694 10,340 11,493 Total Export Sales $ 94,085 $138,119 $122,931
21. QUARTERLY FINANCIAL DATA (UNAUDITED) The following table of quarterly financial data has been prepared from our financial records, without audit, and reflects all adjustments which are, in the opinion of our management, necessary for a fair presentation of the results of operations for the interim periods presented.
Fiscal 1999 quarters ended Sept. 27 Dec. 27 March 28June 30 Net sales $148,539 $151,181$146,352 $171,250 Gross profit 34,672 18,062 36,890 22,805 Earnings (loss) from continuing 1,190 (8,827) 20,383 (36,253) per basic share 0.05 (0.40) 0.93 (1.46) per diluted share 0.05 (0.40) 0.92 (1.46) Loss from disposal of discontinued - (9,180)(19,694) (2,475) operations, net per basic share - (0.42) (0.90) (0.10) per diluted share - (0.42) (0.89) (0.10) Extraordinary items, net - - - (4,153) Per basic share - - - (0.17) Per diluted share - - - (0.17) Net earnings (loss) 1,190 (18,007) 689 (42,881) per basic share 0.05 (0.82) 0.03 (1.73) per diluted share 0.05 (0.82) 0.03 (1.73) Market price range of Class A Stock: High 23 7/8 16 1/4 16 3/16 15 Low 12 3/8 10 3/8 10 1/2 10 Close 13 5/8 13 7/8 10 11/16 12 3/4
Fiscal 1998 quarters ended Sept. 28 Dec. 28 March 29June 30 Net sales $194,362 $208,616$164,164 $174,034 Gross profit 46,329 56,822 37,790 45,565 Earnings (loss) from continuing operations 1,229 (4,605) 50,418 5,357 per basic share 0.07 (0.27) 2.52 0.25 per diluted share 0.07 (0.27) 2.41 0.24 Loss from discontinued operations, net (737) (1,945) (1,578) (36) Per basic share (0.04) (0.11) (0.08) 0.24 Per diluted share (0.04) (0.11) (0.08) 0.44 Gain (loss) from disposal of discontinued operations, net - 29,974 46,548 (16,805) Per basic share - 1.75 2.32 (0.78) Per diluted share - 1.75 2.23 (0.76) Extraordinary items, net - (3,024) (3,701) (5) Per basic share - (0.18) (0.18) - Per diluted share - (0.18) (0.18) - Net earnings (loss) 492 20,400 91,687 (11,489) Per basic share 0.03 1.19 4.58 (0.53) per diluted share 0.03 1.19 4.38 (0.52) Market price range of Class A Stock: High 28 3/8 28 11/16 25 23 Low 17 19 5/16 19 7/16 18 3/16 Close 26 7/8 21 1/2 21 1/4 20 3/16
Gross profit was reduced for inventory impairment adjustments of $19,320 and $22,145 in the second and fourth quarter of fiscal 1999, respectively, relating to the disposition of Solair and the potential disposition of Dallas Aerospace. Gain (loss) on disposal of discontinued operations includes losses of $9,180, $19,694, and $2,475 in the second, third and fourth quarters of fiscal 1999, respectively, and $22,352 and $13,891 in the third and fourth quarter of fiscal 1998, respectively, resulting from the estimated loss on disposal of Fairchild Technologies. Gain (loss) on disposal of discontinued operations includes gains (losses) of $29,974, $68,900, and $(2,914) in the second, third and fourth quarter of fiscal 1998, respectively, from the Shared Technologies Fairchild divestiture. Earnings from discontinued operations, net, includes the results of Fairchild Technologies and Shared Technologies Fairchild (until disposition) in each quarter. Extraordinary items relate to the early extinguishment of our debt. 22. CONSOLIDATING FINANCIAL STATEMENTS (UNAUDITED) 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 primarily composed of our domestic subsidiaries, excluding Fairchild Technologies, the equity investment in Nacanco, a real estate development venture, and certain other subsidiaries.
CONSOLIDATING STATEMENTS OF EARNINGS FOR THE YEAR ENDED JUNE 30, 1999 Parent Elimi- Fairchild Company Guarantors Guarantors nations Historical Net Sales $ - $448,495 $169,720 $ (893) $617,322 Costs and expenses Cost of sales - 381,912 123,874 (893) 504,893 Selling, general & administrative 8,114 113,167 24,168 - 145,449 Restructuring - 6,374 - - 6,374 Amortization of goodwill 248 5,228 1,041 - 6,517 8,362 506,681 149,083 (893) 663,233 Operating income (loss) (8,362) (58,186) 20,637 - (45,911) Net interest expense 27,130 (4,283) 7,499 - 30,346 Investment (income) loss, net - (39,800) - - (39,800) Earnings(loss) before taxes (35,492) (14,103) 13,138 - (36,457) Income tax (provision) benefit 21,481 (6,936) (1,300) - 13,245 Equity in earnings of affiliates and subsidiaries (44,998) (516) 1,344 45,965 1,795 Minority interest - (2,090) - - (2,090) Earnings (loss) from continuing operations (59,009) (23,645) 13,182 45,965 (23,507) Earnings (loss) from disposal of discontinued operations - - (31,349) - (31,349) Extraordinary items - (4,153) - - (4,153) Net earnings (loss) $(59,009) $(27,798)$(18,167) $45,965 $(59,009)
CONSOLIDATING BALANCE SHEET JUNE 30, 1999 Parent Non Fairchild Company Guarantors Guarantors Eliminatins Historical Cash $ 27 $ 41,793 $ 13,040 $ - $ 54,860 Short-term investments 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 - 72,926 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 Investment if 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 $(842,744) $1,328,786 Bank notes payable & current maturities of debt $ 2,250 $ 2,548 $ 24,062 $ - $ 28,860 Accounts payable (including inter- company) 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 liabilities 10,494 115,041 107,731 - 233,266 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 (deficit) 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
CONSOLIDATING STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED JUNE 30, 1999 Parent Non Elimina- Fairchild Company Guarantors Guarantors tions Historical Cash Flows from Operating Activities: Net earnings (loss) $(59,009) $(27,798) $(18,167) $ 45,965 $(59,009) Depreciation & amortization 127 17,610 7,920 - 25,657 Amortization of deferred loan fees 1,100 - - - 1,100 Accretion of discount on long-term liabilities 5,270 - - - 5,270 Extraordinary items net of cash paid - 6,389 - - 6,389 Provision for restructuring - 3,774 - - 3,774 Loss on sale of PP&E - 307 93 - 400 Distributed earnings of affiliates - 1,460 1,973 - 3,433 Minority interest - 2,826 (736) - 2,090 Change in assets and liabilities 15,030 52,898 (3,058) (45,965) 18,905 Non-cash charges and working capital changes of discontinued operations - - 15,259 - 15,259 Net cash (used for) provided by operating activities (37,482) 57,466 3,284 - 23,268 Cash Flows from Investing Activities: Proceeds received from investment securities - 189,379 - - 189,379 Purchase of PP&E (61) (19,162) (10,919) - (30,142) Proceeds from sale of PP&E - 656 188 - 844 Equity investment in affiliates 630 (8,308) - - (7,678) Gross proceeds from divestiture of subsidiary - 60,396 - - 60,396 Acquisition of subsidiaries, net of cash acquired (221,467) (45,287) (7,673) - (274,427) Change in real estate investment - - (40,351) - (40,351) Change in net assets held for sale - 3,134 - - 3,134 Investing activities of discontinued operations - - (312) - (312) Net cash (used for) provided by investing activities (220,898) 180,808 (59,067) - (99,157) Cash Flows from Financing Activities: Proceeds from issuance of debt 483,100 (3,241) 3,363 - 483,222 Debt repayment (including intercompany), net (225,000) (213,187) 58,104 - (380,083) Issuance of Class A common stock 126 (126) - - - Proceeds from exercised stock options 181 - - - 181 Purchase of treasury stock - (22,102) - - (22,102) Net cash (used for) provided by financing activities 258,407 (238,656) 61,467 - 81,218 Exchange rate effect on cash - - (70) - (70) Net change in cash 27 (382) 5,614 - 5,259 Cash, beginning of the year - 42,175 7,426 - 49,601 Cash, end of the year $ 27 $ 41,793 $ 13,040 $ - $ 54,860
CONSOLIDATING STATEMENTS OF EARNINGS FOR THE YEAR ENDED JUNE 30, 1998 Parent Non Elimina- Fairchild Company Guarantors Guarantors tion Historical Net Sales $ - $613,324 $138,807 $(10,955) $741,176 Cost and expenses Cost of sales - 464,942 100,683 (10,955) 554,670 Selling, general & administrative 3,516 112,447 19,631 - 135,594 Amortization of goodwill 147 4,247 1,075 - 5,469 3,663 581,636 121,389 (10,955) 695,733 Operating income (loss) (3,663) 31,688 17,418 - 45,443 Net interest expense 24,048 14,094 4,573 - 42,715 Investment (income) loss, net (208) 3,570 - - 3,362 Nonrecurring income on disposition of subsidiary - (124,028) - - (124,028) Earnings (loss) before taxes (27,503) 138,052 12,845 - 123,394 Income tax (provision) benefit 10,580 (54,384) (3,470) - (47,274) Equity in earnings of affiliates and subsidiaries 118,013 140 3,044 (118,626) 2,571 Minority interest - (26,292) - - (26,292) Earnings (loss) from continuing operations 101,090 57,516 12,419 (118,626) 52,399 Earnings (loss) from discontinued operations - 2,348 (6,644) - (4,296) Earnings (loss) from disposal of discontinued operations - 95,018 (35,301) - 59,717 Extraordinary items - (6,730) - - (6,730) Net earnings (loss) $101,090 $148,152$(29,526) $(118,626) $101,090
CONSOLIDATING BALANCE SHEET JUNE 30, 1998 Parent Non Elimina- Fairchild Company Guarantors Guarantors tions Historical Cash $ - $ 42,175 $ 7,426 $ - $ 49,601 Short-term investments 71 3,891 - - 3,962 Accounts Receivable (including intercompany), less allowances 400 74,158 45,726 - 120,284 Inventory, net - 183,164 34,318 - 217,482 Prepaid and other current assets (1,230) 48,145 6,166 - 53,081 Net current assets of discontinued operations - - 11,613 - 11,613 Total current assets (759) 351,533 105,249 - 456,023 Investment in Subsidiaries 627,634 - - (627,634) - Net fixed assets 677 77,678 40,608 - 118,963 Net assets held for sale - 23,789 - - 23,789 Net noncurrent of discontinued operations - - 8,541 - 8,541 Investment in affiliates 963 7,276 19,329 - 27,568 Goodwill 14,333 120,253 33,721 - 168,307 Deferred loan cost 5,168 1,194 - - 6,362 Prepaid pension assets - 61,643 - - 61,643 Real estate investment - 214 43,226 - 43,440 Long-term investments - 235,435 - - 235,435 Other assets 15,863 (8,833) 158 - 7,188 Total assets $663,879 $870,182 $250,832 $(627,634)$1,157,259 Bank notes payable & current maturities of debt $ 2,250 $ - $ 18,415 $ - $ 20,665 Accounts payable (including intercompany) 124 11,197 42,538 - 53,859 Other accrued expenses 10,165 94,453 16,436 - 121,054 Total current liabilities 12,539 105,650 77,389 - 195,578 Long-term debt, less current maturities 222,750 67,300 5,352 - 295,402 Other long-term liabilities 470 16,428 6,869 - 23,767 Noncurrent income tax (45,439) 140,262 353 - 95,176 Retiree health care liabilities - 38,677 3,426 - 42,103 Minority interest in subsidiaries - 31,674 - - 31,674 Total liabilities 190,320 399,991 93,389 - 683,700 Class A common stock 2,467 200 3,084 (3,084) 2,667 Class B common stock 263 - - - 263 Paid-in-capital (29,476) 224,588 200,656 (200,656) 195,112 Retained earnings 513,204 265,436 (43,707) (423,894) 311,039 Cumulative other comprehensive income (761) 19,737 (2,590) - 16,386 Treasury stock, at cost (12,138) (39,770) - - (51,908) Total stockholders' equity 473,559 470,191 157,443 (627,634) 473,559 Total liabilities and stockholders' equity $663,879 $870,182 $250,832 $(627,634) $1,157,259
CONSOLIDATING STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED JUNE 30, 1998 Parent Non Elimina- Fairchild Company Guarantors Guarantors tion Historical Cash Flows from Operating Activities: Net earnings (loss) $101,090 $148,152 $(29,526) $(118,626) $101,090 Depreciation & amortization 72 14,939 5,862 - 20,873 Amortization of deferred loan fees 2,406 - - - 2,406 Accretion of discount on long-term liabilities 3,766 - - - 3,766 Net gain on disposition of subsidiaries - (124,041) - - (124,041) Net gain on sale of discontinued operations - (132,787) - - (132,787) Extraordinary items net of cash paid - 10,347 - - 10,347 Loss on sale of PP&E - 147 99 - 246 Distributed earnings of affiliates - 547 1,178 - 1,725 Minority interest - 26,890 (598) - 26,292 Change in assets and liabilities (187,408) 64,276 (2,431) 118,626 (6,937) Non-cash charges and working capital changes of discontinued operations - - 11,789 - 11,789 Net cash (used for) provided by operating activities (80,074) 8,470 (13,627) - (85,231) Cash Flows from Investing Activities: Proceeds used for investment securities - (7,287) - - (7,287) Purchase of PP&E - (30,220) (5,809) - (36,029) Proceeds from sale of PP&E - 336 - - 336 Equity investment in affiliates (141) (4,202) - - (4,343) Minority interest in subsidiaries - (26,383) - - (26,383) Acquisition of subsidiaries, net of cash acquired - (25,445) (7,350) - (32,795) Net proceeds from sale of discontinued operations - 167,987 - - 167,987 Change in real estate investment - - (17,262) - (17,262) Change in net assets held for sale - 2,140 - - 2,140 Investing activities of discontinued operations - - (2,750) - (2,750) Net cash (used for) provided by investing activities (141) 76,926 (33,171) - 43,614 Cash Flows from Financing Activities: Proceeds from issuance of debt 225,000 50,523 - - 275,523 Debt repayment (including intercompany), net (198,867)(106,899) 47,752 - (258,014) Issuance of Class A common stock 53,848 193 - - 54,041 Financing activities of discontinued operations - - 2,538 - 2,538 Net cash provided by (used) for financing Activities 79,981 (56,183) 50,290 - 74,088 Exchange rate effect on cash - - (2,290) - (2,290) Net change in cash (234) 29,213 1,202 - 30,181 Cash, beginning of the year 234 12,962 6,224 - 19,420 Cash, end of year $ - $42,175 $7,426 $ - $49,601
CONSOLIDATING STATEMENTS OF EARNINGS FOR THE YEAR ENDED JUNE 30, 1997 Parent Non Elimina- Fairchild Company Guarantors Guarantors tions Historical Net Sales $ - $593,819 $90,243 $(3,299) $680,763 Costs and Expense: Cost of sales - 441,534 61,184 (3,299) 499,419 Selling, general & administrative 3,925 117,739 21,367 - 143,031 Amortization of goodwill 130 4,215 469 - 4,814 4,055 563,488 83,020 (3,299) 647,264 Operating income (loss) (4,055) 30,331 7,223 - 33,499 Net interest expense 25,252 21,556 873 - 47,681 Investment income, net (16) (6,635) - - (6,651) Nonrecurring income on disposition of subsidiary - (2,528) - - (2,528) Earnings (loss) before taxes (29,291) 17,938 6,350 - (5,003) Income tax (provision) benefit 15,076 (8,263) 531 - 7,344 Equity in earnings of affiliates and subsidiaries 15,546 (528) 3,037 (15,066) 2,989 Minority interest - (3,514) - - (3,514) Earnings (loss) from continuting operations 1,331 5,633 9,918 (15,066) 1,816 Earnings (loss) from discontinued operations - 3,149 (3,634) - (485) Net earnings (loss) $ 1,331 $ 8,782 $ 6,284 $(15,066) $1,331
CONSOLIDATING STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED JUNE 30, 1997 Parent Non Elimina- Fairchild Company Guarantors Guarantors tions Historical Cash Flows from Operating Activities: Net earnings (loss) $ 1,331 $ 8,782 $6,284 $(15,066) $ 1,331 Depreciation & amoritzation 179 15,356 5,280 - 20,815 Amortization of deferred loan fees 2,847 - - - 2,847 Accretion of discount on long-term liabilities 4,963 - - - 4,963 Gain on sale of PP&E - (72) - - (72) (Undistributed) distributed earnings of affiliates - (1,434) 379 - (1,055) Minority interest - 2,896 618 - 3,514 Change in assets and liabilities (23,591) (102,350) 2,412 15,066 (108,463) Non-cash charges and working capital changes of discontinued operations - - (17,201) - (17,201) Net cash used for operating activities (14,271) (76,822) (2,228) - (93,321) Cash Flows from Investing Activities: Proceeds used for investment securities - (12,951) - - (12,951) Purchase of PP&E - (12,371) (2,643) - (15,014) Proceeds from sale of PP&E - 213 - - 213 Equity investment in affiliates 2,092 (3,841) - - (1,749) Minority interest in subsidiaries - (1,610) - - (1,610) Acquisitin of subsidiaries, net of cash acquired - - (55,916) - (55,916) Net proceeds from sale of discontinued operations - 173,719 - - 173,719 Change in real estate investment - - (6,737) - (6,737) Change in net assets held for sale - 385 - - 385 Investing activities of discontinued operations - - (7,102) - (7,102) Net cash (used for) provided by investing activities 2,092 143,544 (72,398) - 73,238 Cash Flows from Financing Activities: Proceeds from issuance of debt 9,400 144,894 - - 154,294 Debt repayment(including intercompany), net - (229,874) 74,274 - (155,600) Issuance of Class A common stock 1,126 - - - 1,126 Financing activities of discontinued operations - - (1,275) - (1,275) Net cash (used for) provided by financing activities 10,526 (84,980) 72,999 - (1,455) Exchange rate effect on cash - - 1,309 - 1,309 Net change in cash (1,653) (18,258) (318) - (20,229) Cash, beginning of the year 1,887 31,220 6,542 - 39,649 Cash, end of year $ 234 $12,962 $ 6,224 $ - $ 19,420
23. SUBSEQUENT EVENTS On July 29, 1999, we sold our 31.9% interest in Nacanco Paketleme to American National Can Group, Inc. for approximately $48.2 million. 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. In September 1999, we have expressed our intent to sell Dallas Aeropsace, Inc. to a prospective acquirer. If the sale is consummated we intend to use the proceeds to reduce our indebtedness or to grow our business at our aerospace fastener segment. ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III 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, including Maurice Bidermann. 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. Mr. Steiner, who has been put under examination (mis en examen) by the magistrate, with respect to this matter, has not been charged. Mr. Steiner appeared before the Tribunal de Grande Instance de Paris to answer a charge of knowingly benefiting in 1990 from a misuse by Mr. Bidermann of corporate assets of Societe Generale Mobiliere et Immobiliere, a French corporation in which Mr. Bidermann is believed to have been the sole shareholder. Mr. Steiner was assessed a fine of two million French Francs in connection therewith. Both Mr. Steiner and the prosecutor (parquet) have appealed the decision. ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY The information required by this Item is incorporated herein by reference from the 1999 Proxy Statement. ITEM 11. EXECUTIVE COMPENSATION The information required by this Item is incorporated herein by reference from the 1999 Proxy Statement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this Item is incorporated herein by reference from the 1999 Proxy Statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this Item is incorporated herein by reference from the 1999 Proxy Statement. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K The following documents are filed as part of this Report: (a)(1) Financial Statements. All financial statements of the registrant as set forth under Item 8 of this report on Form 10-K (see index on Page 15). (a)(2) Financial Statement Schedules and Report of Independent Public Accountants. Schedule Number Description Page I Condensed Financial Information of Parent Company 77 II Valuation and Qualifying Accounts 81 All other schedules are omitted because they are not required. Report of Independent Public Accountants To The Fairchild Corporation: We have audited in accordance with generally accepted auditing standards, the consolidated financial statements of The Fairchild Corporation and subsidiaries included in this Form 10-K and have issued our report thereon dated September 15, 1999. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedules listed in the index on the preceding page are the responsibility of the Company's management and are presented for the purpose of complying with the Securities and Exchange Commission's rules and are not part of the basic financial statements. These schedules have been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly state in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. Arthur Andersen LLP Vienna, VA September 15, 1999
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT THE FAIRCHILD CORPORATION CONDENSED FINANCIAL STATEMENTS OF THE PARENT COMPANY BALANCE SHEETS (NOT CONSOLIDATED) (In thousands) June 30, June 30, ASSETS 1999 1998 Current assets: Cash and cash equivalents $ 27 $ -- Marketable Securities 71 71 Accounts receivable 549 400 Inventory (182) --- Prepaid expenses and other current assets 1,297 (1,230) Total current assets 1,762 (759) Property, plant and equipment, less accumulated depreciation 611 677 Investments in subsidiaries 841,744 627,634 Investments and advances, affiliated companies 1,300 963 Goodwill 5,533 14,333 Noncurrent tax assets 19,026 45,439 Deferred loan fees 13,029 5,168 Other assets 16,244 15,863 Total assets $899,249 $709,318 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable $ 2,250 $ 2,250 Accounts payable 972 124 Accrued Salaries 497 5,929 Accrued Insurance 213 213 Accrued Interest 7,049 1,082 Other Accrued 1,990 967 Accrued Income Taxes (2,477) 1,974 Total current liabilities 10,494 12,539 Long-term debt 480,850 222,750 Other long-term liabilities 405 470 Total liabilities 491,749 235,759 Stockholders' equity: Class A common stock 2,775 2,467 Class B common stock 262 263 Treasury stock (74,102) (12,138) Cumulative comprehensive Income (764) (761) Additional paid in capital 2,138 (29,476) Retained earnings 477,191 513,204 Total stockholders' equity 407,500 473,559 Total liabilities and stockholders' equity $899,249 $709,318 The accompanying notes are an integral part of these condensed financial statements.
Schedule I THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES CONDENSED FINANCIAL STATEMENTS OF THE COMPANY STATEMENT OF EARNINGS (NOT CONSOLIDATED) (In thousands) For the Years Ended June 30, 1999 1998 1997 Costs and Expenses: Selling, general & administrative $ 8,114 $ 3,516 $ 3,925 Amortization of goodwill 248 147 130 8,362 3,663 4,055 Operating loss (8,362) (3,663) (4,055) Net interest expense 27,130 24,048 25,252 Investment income, net -- 208 16 Equity in earnings of affiliates 967 (613) 480 Loss from continuing operations before taxes (34,525) (28,116) (28,811) Income tax provision (benefit) (21,481) (10,580) (15,076) Loss before equity in earnings (loss) of subsidiaries (13,044) (17,536) (13,735) Equity in earnings (loss) of subsidiaries (45,965) 118,626 15,066 Net earnings (loss) $(59,009)$101,090 $ 1,331 The accompanying notes are an integral part of these condensed financial statements.
Schedule I THE FAIRCHILD CORPORATION CONDENSED FINANCIAL STATEMENTS OF THE PARENT COMPANY STATEMENT OF CASH FLOWS (NOT CONSOLIDATED) (IN THOUSANDS) For the Years Ended June 30, 1999 1998 1997 Cash provided by (used for) operation $(37,482)$(80,074)$(14,271) Investing activities: Acquisition of subsidiaries (221,467) -- -- Purchase of PP&E (61) -- -- Equity investments in affiliates 630 (141) 2,092 Other -- -- -- (220,898) (141) 2,092 Financing activities: Proceeds from issuance of debt, including intercompany 483,100 225,000 9,400 Debt repayments (225,000)(198,867) - Issuance of common stock 307 53,848 1,126 Other -- -- -- 258,407 79,981 10,526 Net increase (decrease) in cash $ 27 $ (234) $(1,653) The accompanying notes are an integral part of these condensed financial statements.
Schedule I THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES CONDENSED FINANCIAL STATEMENTS OF THE COMPANY NOTES TO FINANCIAL STATEMENTS (NOT CONSOLIDATED) (In thousands) 1. BASIS OF PRESENTATION In accordance with the requirements of Regulation S-X of the Securities and Exchange Commission, our financial statements are condensed and omit many disclosures presented in the consolidated financial statements and the notes thereto. 2. LONG-TERM DEBT
June 30, June 30, 1999 1998 Bank Credit Agreement $258,100 $225,000 10 3/4% Senior subordinated Notes Due 2009 225,000 -- Total Debt $483,100 $225,000 Less: Current Maturities (2,250) (2,250) Total Long-Term Debt $480,850 $222,750
Maturities of long-term debt for the next five years are as follows: $2,250 in 2000, $2,250 in 2001, $2,250 in 2002, $2,250 in 2003, and $2,250 in 2004. 3. DIVIDENDS FROM SUBSIDIARIES Cash dividends paid to The Fairchild Corporation by its consolidated subsidiaries were, $47,742, $42,100 and $10,000 in 1999, 1998 and 1997, respectively. In 1999, The Fairchild Corporation received dividends of its stock with a fair market value of $22,102 and Banner Aerospace's stock with a fair market value of $187,424 from its subsidiaries. We are involved in various other claims and lawsuits incidental to our business, some of which involve substantial amounts. We, either on our own or through our insurance carriers, are contesting these matters. In our opinion, the ultimate resolution of the legal proceedings will not have a material adverse effect on our financial condition, future results of operations or net cash flows. 4. CONTINGENCIES We are involved in various other claims and lawsuits incidental to its business, some of which involve substantial amounts. We, either on our own or through our insurance carriers, is contesting these matters. In the opinion of management, the ultimate resolution of the legal proceedings will not have a material adverse effect on our financial condition, or future results of operations or net cash flows. SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS Changes in the allowance for doubtful accounts are as follows:
For the Years Ended June 30, 1999 1998 1997 Beginning balance $ 5,655 $ 6,905 $ 5,449 Charges to cost and expenses 3,426 2,240 1,978 Charges to other accounts (a) (2,940) (2,642) 445 Acquired companies 616 - - Amounts written off (315) (848) (967) Ending Balance $ 6,442 $ 5,655 $ 6,905 (a) Recoveries of amounts written off in prior periods, foreign currency translation and the change in related noncurrent taxes. Fiscal 1998 includes a reduction of $2,801 relating to the assets disposed as a result the disposition of Banner Aerospace's hardware group.
(a)(3) Exhibits. Articles of Incorporation, Bylaws, and Instruments Defining Rights of Securities 3.1 Registrant's Restated Certificate of Incorporation (incorporated by reference to Exhibit "C" of Registrant's Proxy Statement dated October 27, 1989). *3.2 Registrant's By-Laws, amended and restated as of February 12, 1999. 4.1 Specimen of Class A Common Stock certificate (incorporated by reference to Registration Statement No. 33-15359 on Form S-2). 4.2 Specimen of Class B Common Stock certificate (incorporated by reference to Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1989). 4.3 Indenture dated as of April 20, 1999, between the Company and Subsidiary Guarantors and The Bank of New York, as Trustee (relating to the Company's 10 3/4% Senior Subordinated Notes Due 2009) (incorporated by reference to Registrant's Registration Statement No. 333-80311 on Form S-4, declared effective August 9, 1999). 4.4 Form of Global Note (relating to the Company's 10 3/4% Senior Subordinated Notes Due 2009) (incorporated by reference to Registrant's Registration Statement No. 333-80311 on Form S-4, declared effective August 9, 1999). 4.5 Registration Rights Agreement, dated April 15, 1999, between the Company and Credit Suisse First Boston Corporation on behalf of the Initial Purchasers (relating to the Company's 10 3/4% Senior Subordinated Notes Due 2009) (incorporated by reference to Registrant's Registration Statement No. 333-80311 on Form S-4, declared effective August 9, 1999). 4.6 Purchase Agreement, dated as of April 15, 1999, between the Company, the Subsidiary Guarantors and the Initial Purchasers (relating to the Company's 10 3/4% Senior Subordinated Notes Due 2009) (incorporated by reference to Registrant's Registration Statement No. 333-80311 on Form S-4, declared effective August 9, 1999). (a)(3) Exhibits (continued) 10. Material Contracts (Stock Option Plans) 10.1 1988 U.K. Stock Option Plan of Banner Industries, Inc. (incorporated by reference to Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1988). 10.2 Description of grants of stock options to non-employee directors of Registrant (incorporated by reference to Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1988). 10.3 Amended and Restated 1986 Non-Qualified and Incentive Stock Option Plan, dated as of February 9, 1998 (incorporated by reference to Exhibit B of Registrant's Proxy Statement dated October 9, 1998). 10.4 Amendment Dated May 7, 1998 to the 1986 Non-Qualified and Incentive Stock Option Plan (incorporated by reference to Exhibit A of Registrant's Proxy Statement dated October 9, 1998). 10.5 1996 Non-Employee Directors Stock Option Plan (incorporated by reference to Exhibit B of Registrant's Proxy Statement dated October 7, 1996). 10.6 Stock Option Deferral Plan dated February 9, 1998 (for the purpose of allowing deferral of gain upon exercise of stock options) (incorporated by reference to Registrant's Quarterly Report on From 10-Q for the quarter ended March 29, 1998). *10.7 Amendment dated May 21, 1999, amending the 1996 Non-Employee Directors Stock Option Plan (for the purpose of allowing deferral of gain upon exercise of stock options). (Employee Agreements) 10.8 Amended and Restated Employment Agreement between Registrant and Jeffrey J. Steiner dated September 10, 1992 (incorporated by reference to Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1993). 10.9 Employment Agreement between RHI Holdings, Inc., and Jacques Moskovic, dated as of December 29, 1994 (incorporated by reference to Registrant's Annual Report on Form 10-K/A for the fiscal year ended June 30, 1996). 10.10 Employment Agreement between Fairchild France, Inc., and Jacques Moskovic, dated as of December 29, 1994 (incorporated by reference to Registrant's Annual Report on Form 10-K/A for the fiscal year ended June 30, 1996). 10.11 Employment Agreement between Fairchild France, Inc., Fairchild CDI, S.A., and Jacques Moskovic, dated as of April 18, 1997 (incorporated by reference to the Registrant's Annual Report on From 10-K for the fiscal year ended June 30, 1995). 10.12 Letter Agreement dated September 9, 1996, between Registrant and Colin M. Cohen (incorporated by reference to Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1997). *10.13 Banner Aerospace, Inc. Deferred Bonus Plan, dated January 21, 1998 (as amended), to allow the deferral of bonuses in connection with 1998 or 1999 Extraordinary Transactions. 10.14 Letter Agreement dated February 27, 1998, between Registrant and John L. Flynn (incorporated by reference to Registrant's Quarterly Report on From 10-Q for the quarter ended March 29, 1998). 10.15 Letter Agreement dated February 27, 1998, between Registrant and Donald E. Miller (incorporated by reference to Registrant's Quarterly Report on From 10-Q for the quarter ended March 29, 1998). 10.16 Employment Agreement between Robert Edwards and Fairchild Holding Corp., dated March 2, 1998 (incorporated by reference to Registrant's Quarterly Report on From 10-Q for the quarter ended March 29, 1998). 10.17 Promissory Note in the amount of $100,000, issued by Robert Sharpe to the Registrant, dated July 1, 1998 (incorporated by reference to Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1998). 10.18 Promissory Note in the amount of $200,000 issued by Robert Sharpe to the Registrant, dated July 1, 1998 (incorporated by reference to Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1998). *10.19 Officer Loan Program, dated as of February 5, 1999, lending up to $750,000 to officers for the purchase of Company Stock. *10.20 Employment Agreement between Jordan Law and Fairchild Holding Corp., dated as of April 20, 1999. *10.21 Employment Agreement between LeRoy A. Dack and Fairchild Holding Corp., dated as of April 20, 1999. *10.22 Director and Officer Loan Program, dated as of August 12, 1999, lending up to $2,000,000 to officers and directors for the purchase of Company Stock. (Credit Agreements) Fairchild Holding Corp. Credit Agreement 10.23 Credit Agreement dated as of March 13, 1996, among Fairchild Holding Corp., Citicorp USA, Inc. and certain financial institutions (incorporated by reference to Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1996). 10.24 Restated and Amended Credit Agreement dated as of July 26, 1996, among Fairchild Holding Corp, Citicorp USA, Inc. and certain financial institutions (the "FHC Credit Agreement") (incorporated by reference to Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1996). 10.25 Amendment No. 1, dated as of January 21, 1997, to the FHC Credit Agreement dated as of March 13, 1996 (incorporated by reference to Registrant's Quarterly Report on From 10-Q for the quarter ended March 30, 1997). 10.26 Amendment No. 2 and Consent, dated as of February 21, 1997, to the FHC Credit Agreement dated as of March 13, 1996 (incorporated by reference to Registrant's Quarterly Report on From 10-Q for the quarter ended March 30, 1997). 10.27 Amendment No. 3, dated as of June 30, 1997, to the FHC Credit Agreement dated as of March 13, 1996 (incorporated by reference to Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1997). 10.28 Second Amended And Restated Credit Agreement dated as of July 18, 1997, to the FHC Credit Agreement dated as of March 13, 1996 (incorporated by reference to Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1997). RHI Credit Agreement 10.29 Restated and Amended Credit Agreement dated as of May 27, 1996, (the "RHI Credit Agreement"), among RHI Holdings, Inc., Citicorp USA, Inc. and certain financial institutions. (incorporated by reference to Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1996). 10.30 Amendment No. 1 dated as of July 29, 1996, to the RHI Credit Agreement dated as of May 27, 1996 (incorporated by reference to Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1996). 10.31 Amendment No. 2 dated as of April 7, 1997, to the RHI Credit Agreement dated as of May 27, 1996 (incorporated by reference to Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1997). 10.32 Amendment No. 3 dated as of September 26, 1997, to the RHI Credit Agreement dated as of May 27, 1996 (incorporated by reference to Registrant's Quarterly Report on Form 10-Q for the quarter ended September 28, 1997). Fairchild Corporation Credit Agreement 10.33 Third Amended and Restated Credit Agreement, dated as of December 19, 1997, among RHI Holdings, Inc., Fairchild Holding Corp., the Registrant, Citicorp USA, Inc. and certain financial institutions (incorporated by reference to Registrant's Quarterly Report on Form 10-Q for the quarter ended December 28, 1997). 10.34 Amendment No. 1 dated as of January 29, 1999 to Third Amended and Restated Credit Agreement dated as of December 19, 1997 (incorporated by reference to Registrant's Quarterly Report on Form 10-Q for the quarter ended March 28, 1999). *10.35 Credit Agreement dated as of April 20, 1999, among The Fairchild Corporation (as Borrower), Citicorp. USA, Inc. and certain financial institutions. Interest Rate Hedge Agreements 10.36 Interest Rate Hedge Agreement between Registrant and Citibank, N.A. dated as of August 19, 1997 (incorporated by reference to Registrant's Quarterly Report on Form 10-Q for the quarter ended September 28, 1997). 10.37 Amendment dated as of December 23, 1997, to the Interest Rate Hedge Agreement between Registrant and Registrant and Citibank, N.A. dated as of August 19, 1997(incorporated by reference to (incorporated by reference to Registrant's Quarterly Report on Form 10-Q for the quarter ended December 28, 1997). 10.38 Amendment dated as of January 14, 1997, to the Interest Rate Hedge Agreement between Registrant and Citibank, N.A. dated as of August 19, 1997 (incorporated by reference to Registrant's Quarterly Report on From 10-Q for the quarter ended March 29, 1998). (Warrants to Steiner Affiliate) 10.39 Form Warrant Agreement (including form of Warrant) issued by the Company to Drexel Burnham Lambert on March 13, 1986, subsequently purchased by Jeffrey Steiner and subsequently assigned to Stinbes Limited (an affiliate of Jeffrey Steiner), for the purchase of Class A or Class B Common Stock (incorporated herein by reference to Exhibit 4(c) of the Company's Registration Statement No. 33-3521 on Form S-2). 10.40 Form Warrant Agreement issued to Stinbes Limited dated as of September 26, 1997, effective retroactively as of February 21, 1997 (incorporated by reference to Registrant's Quarterly Report on Form 10-Q for the quarter ended September 28, 1997). 10.41 Extension of Warrant Agreement between Registrant and Stinbes Limited for 375,000 shares of Class A or Class B Common Stock dated as of September 26, 1997, effective retroactively as of February 21, 1997 (incorporated by reference to Registrant's Quarterly Report on Form 10-Q for the quarter ended September 28, 1997). 10.42 Amendment of Warrant Agreement dated February 9, 1998, between the Registrant and Stinbes Limited (incorporated by reference to Registrant's Quarterly Report on From 10-Q for the quarter ended March 29, 1998). 10.43 Amendment of Warrant Agreement dated December 12, 1998, effective retroactively as of September 7, 1998, between Registrant and Stinbes Limited (incorporated by reference to Registrant's Quarterly Report on From 10-Q for the quarter ended March 29, 1999). (Other Material Contracts) 10.44 Asset Purchase Agreement dated as of January 23, 1996, between The Fairchild Corporation, RHI Holdings, Inc. and Cincinnati Milacron, Inc. (incorporated by reference to the Registrant's Report on Form 8-K dated January 26, 1996). 10.45 Agreement and Plan of Merger dated as of November 9, 1995 by and among The Fairchild Corporation, RHI Holdings, Inc., Fairchild Industries, Inc. and Shared Technologies, Inc. ("STI Merger Agreement") (incorporated by reference to Registrant's Report on Form 8-K dated November 9, 1995). 10.46 Amendment No. 1 to STI Merger Agreement dated as of February 2, 1996 (incorporated by reference to Registrant's Report on Form 8-K dated March 13, 1996). 10.47 Amendment No. 2 to STI Merger Agreement dated as of February 23, 1996 (incorporated by reference to Registrant's Report on Form 8-K dated March 13, 1996). 10.48 Amendment No. 3 to STI Merger Agreement dated as of March 1, 1996 (incorporated by reference to the Registrant's Report on Form 8-K dated March 13, 1996). 10.49 Voting Agreement dated as of July 16, 1997, between RHI Holdings, Inc., and Tel-Save Holdings, Inc. (regarding voting Registrant's stock in Shared Technologies Fairchild Inc.) (incorporated by reference to the Registrant's Schedule 13D/A, Amendment No. 3, filed July 22, 1997). 10.50 Stock Option Agreement dated November 20, 1997 between RHI Holdings, Inc. and Intermedia Communications Inc. (incorporated by reference to Schedule 13D/A, Amendment No. 4, dated as of November 25, 1997, filed by the Company on December 1, 1997). 10.51 Stock Purchase Agreement dated November 25, 1997 between RHI Holdings, Inc. and Intermedia Communications Inc. (incorporated by reference to Schedule 13D/A, Amendment No. 4, dated as of November 25, 1997, filed by the Company on December 1, 1997). 10.52 Asset Purchase Agreement dated as of December 8, 1997, among Banner Aerospace, Inc. and seven of its subsidiaries (Adams Industries, Inc., Aerospace Bearing Support, Inc., Aircraft Bearing Corporation, Banner Distribution, Inc., Burbank Aircraft Supply, Inc., Harco, Inc. and PacAero), AlliedSignal Inc. and AS BAR LLC (incorporated by reference to Banner Aerospace, Inc.'s Report on Form 8-K dated January 28, 1998). 10.53 Asset Purchase Agreement dated as of December 8, 1997, among Banner Aerospace, Inc. and two of its subsidiaries (PB Herndon Aerospace, Inc. and Banner Aerospace Services, Inc.), AlliedSignal Inc. and AS BAR PBH LLC (incorporated by reference to Banner Aerospace, Inc.'s Report on Form 8-K dated January 28, 1998). 10.54 Agreement and Plan of Merger dated January 28, 1998, as amended on February 20, 1998, and March 2, 1998 (the "Special-T Fasteners Merger Agreement), between the Company and the shareholders' of Special-T Fasteners, regarding the merger of Special-T into Fairchild (incorporated by reference to Registrant's Report on Form 8-K dated March 2, 1998, filed on March 12, 1998). 10.55 Third Amendment dated September 25, 1998 to the Special-T Fasteners Merger Agreement (incorporated by reference to Registrant's Quarterly Report on From 10-Q for the quarter ended September 27, 1998). 10.56 Agreement and Plan of Reorganization by and among The Fairchild Corporation, Dah Dah, Inc. and Kaynar Technologies Inc., dated as of December 26, 1998, regarding the merger of Kaynar into Fairchild (incorporated by reference to Registrant's Registration Statement on Form S-4 filed on January 15, 1999). 10.57 Voting and Option Agreement by and among The Fairchild Corporation, Dah Dah, Inc., CFE Inc., and general Electric Capital Corporation dated as of December 26, 1998, regarding voting of Kaynar stock for the Kaynar- Fairchild merger (incorporated by reference to Registrant's Report on Form 8-K dated December 30, 1998). 10.58 Voting Agreements by and between The Fairchild Corporation and each of the following individuals: Jordan Law, David A. Werner, Robert L. Beers and LeRoy A. Dack, each agreement dated as of December 26, 1998, regarding voting of Kaynar stock for the Kaynar-Fairchild merger(incorporated by reference to Registrant's Report on Form 8-K dated December 30, 1998). 10.59 Agreement and Plan of Merger between The Fairchild Corporation, MTA, Inc. and Banner Aerospace, Inc., dated as of January 11, 1999, regarding the merger of Banner into Fairchild (incorporated by reference to "Appendix A" of Registrant's Proxy Statement/Prospectus included as part of Registrant's Registration Statement No. 333-70673 on Form S-4 declared effective March 25, 1999). *10.60 Share Purchase Agreement dated as of July 27, 1999 between a Company subsidiary and Jeffrey Steiner (as Sellers) and American National Can Group, Inc. (as Buyer), for the sale of all stock of Nacanco Paketleme A.S. owned by the Sellers. (a)(3) Exhibits (continued) Other Exhibits 11. Computation of earnings per share (found at Note 13 in Item 8 to Registrant's Consolidated Financial Statements for the fiscal years ended June 30, 1999, 1998 and 1997). *22 List of subsidiaries of Registrant. *23.1 Consent of Arthur Andersen LLP, independent public accountants. *23.2 Consent of Price Waterhouse Coopers, independent public accountants. *27 Financial Data Schedules. 99.1 Financial statements, related notes thereto and Auditors' Report of Nacanco Paketleme for the fiscal year ended December 31, 1998 (incorporated by reference to the Registrant's Report on Form 8-K filed on June 26, 1999). - ------------------------- *Filed herewith. (b) Reports on Form 8-K On April 8, 1999, the Company filed a Form 8-K to report (Item 5) the completion of the merger with Banner Aerospace, Inc. and to report additional losses taken at Fairchild Technologies. On May 5, 1999, the Company filed a Form 8-K to report the acquisition of Kaynar Technologies Inc. to report (Item 7) audited financial statements of Kaynar Technologies Inc., and unaudited pro forma consolidate financial statements giving effect to the acquisition of Kaynar Technologies Inc. On June 25, 1999, the Company filed a Form 8-K to report (Item 5) audited financial statements for the years ended December 31, 1998, 1997 and 1996 for Nacanco Paketleme, formerly a 32% owned equity affiliate. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, we have duly caused this report to be signed on our behalf by the undersigned, thereunto duly authorized. THE FAIRCHILD CORPORATION By: Colin M. Cohen Senior Vice President and Chief Financial Officer Date: September 28, 1999 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant, in their capacities and on the dates indicated. By: JEFFREY J. STEINER Chairman, Chief Executive MICHAEL T. ALCOX Vice President and Director September 28, By: /s/ 1999 Michael T. Alcox MELVILLE R. BARLOW Director By: Melville R. Barlow MORTIMER M. CAPLIN Director September 28, By: /s/ 1999 Mortimer M. Caplin COLIN M. COHEN Senior Vice President, September 28, By: /s/ Chief 1999 Colin M. Cohen Financial Officer and Director PHILIP DAVID Director By: Philip David ROBERT EDWARDS Executive Vice President September 28, By: /s/ 1999 Robert Edwards And Director HAROLD J. HARRIS Director September 28, By: /s/ 1999 Harold J. Harris DANIEL LEBARD Director September 28, By: /s/ 1999 Daniel Lebard JACQUES S. MOSKOVIC Senior Vice President September 28, By: /s/ 1999 Jacques S. Moskovic And Director HERBERT S. RICHEY Director By: Herbert S. Richey MOSHE SANBAR Director September 28, By: /s/ 1999 Moshe Sanbar ROBERT A. SHARPE II Senior Vice President, By: Robert A. Sharpe II Operations and Director ERIC I. STEINER President, Chief Operating By: Eric I. Steiner Officer and Director EX-10 2 ?? ================================================================= CREDIT AGREEMENT Dated as of April 20, 1999 among THE FAIRCHILD CORPORATION as Borrower THE INSTITUTIONS FROM TIME TO TIME PARTY HERETO AS LENDERS THE INSTITUTIONS FROM TIME TO TIME PARTY HERETO AS ISSUING BANKS CITICORP USA, INC. as an Administrative Agent and Collateral Agent NATIONSBANK, N.A. as an Administrative Agent and CREDIT SUISSE FIRST BOSTON as Documentation Agent and SALOMON SMITH BARNEY INC. and NATIONSBANC MONTGOMERY SECURITIES, LLC as Co-Arrangers and as Co-Book Managers ================================================================= ARTICLE IDEFINITIONS1.01. Certain Defined Terms 1 1.02. Computation of Time Periods. 39 1.03. Accounting Terms; Financial Term Definitions. 40 1.04. Other Terms. 40 1.05. Dollar Equivalents. 40 ARTICLE IIAMOUNTS AND TERMS OF LOANS2.01. Revolving Credit, Term Loan and Swing Loan Facilities. 40 2.02. General Terms. 43 2.03. Authorized Officers and Collateral Agent. 46 2.04. Use of Proceeds of Loans. 46 ARTICLE IIILETTERS OF CREDIT3.01. Letters of Credit. 47 3.02. Transitional Provisions. 54 3.03. Obligations Several. 54 ARTICLE IVPAYMENTS AND PREPAYMENTS4.01. Prepayments; Reductions in Commitments.55 4.02. Payments. 58 4.03. Promise to Repay; Evidence of Indebtedness. 63 4.04. Proceeds of Collateral; Concentration Account Arrangements. 64 4.05. Cash Collateral Account. 65 4.06. Post-Default Withdrawals from the Concentration Account and Cash Collateral Account. 66 ARTICLE VINTEREST AND FEES5.01. Interest on the Loans and other Obligations. 68 5.02. Special Provisions Governing Eurodollar Rate Loans. 70 5.03. Fees. 72 5.04. Determination of Applicable Base Rate Margin, Eurodollar Rate Margin and Commitment Fee Rate. 74 ARTICLE VICONDITIONS TO LOANS AND LETTERS OF CREDIT6.01. Conditions Precedent to the Initial Loans and Letters of Credit. 75 6.02. Conditions Precedent to All Loans and Letters of Credit. 77 ARTICLE VIIREPRESENTATIONS AND WARRANTIES7.01. Representations and Warranties of the Borrower. 79 ARTICLE VIII REPORTING COVENANTS 8.01. Financial Statements; Communications with Accountants. 89 8.02. Events of Default. 91 8.03. Lawsuits. 91 8.04. Environmental Notices 92 8.05. Other Reports and Information. 93 8.06. Unrestricted Subsidiaries. 93 8.07. Corporate Organization; Indebtedness for Borrowed Money. 94 ARTICLE IX AFFIRMATIVE COVENANTS 9.01. Corporate Existence, Etc. 95 9.02. Corporate Powers; Conduct of Business. 95 9.03. Compliance with Laws, Etc. 95 9.04. Payment of Taxes and Claims; Tax Consolidation. 95 9.05. Insurance. 96 9.06. Inspection of Property; Books and Records; Discussions. 96 9.07. Insurance and Condemnation Proceeds.. 97 9.08. ERISA Compliance. 97 9.09. Foreign Employee Benefit Plan Compliance 98 9.10. Maintenance of Property. 98 9.11. Condemnation. 98 9.12. Subsidiaries Acquired or Formed after the Closing Date; Guarantors. 98 9.13. Performance of Material Contracts. 98 9.14. Further Assurances. 99 9.15. Use of Proceeds of the Term Loans and the Senior Notes. 99 9.16. Required Hedge Agreements. 99 9.17. Year 2000. 99 ARTICLE X NEGATIVE COVENANTS 10.01. Indebtedness. 101 10.02. Sales of Assets. 103 10.03. Liens. 105 10.04. Investments. 106 10.05. Restricted Junior Payments. 108 10.06. Restriction on Fundamental Changes. 109 10.07. Conduct of Business; Accounting and Reporting Practices. 109 10.08. Transactions with Shareholders and Affiliates. 110 10.09. Sales and Leasebacks. 110 10.10. Margin Regulations; Securities Laws. 110 10.11. ERISA. 110 10.12. Issuance of Equity Securities. 111 10.13. Organizational Documents; Material Contractual Obligations. 112 10.14. Bank Accounts. 112 10.15. Fiscal Year; Fiscal Quarters. 112 ARTICLE XI FINANCIAL COVENANTS 11.01. Interest Coverage Ratio. 113 11.02. Capital Expenditures. 113 11.03. Consolidated Senior Indebtedness to EBITDA Ratio. 114 11.04. Consolidated Indebtedness to EBITDA Ratio. 114 11.05. Minimum Consolidated Fixed Charge Coverage Ratio. 114 11.06. EBITDA Calculations. 115 ARTICLE XIIEVENTS OF DEFAULT; RIGHTS AND REMEDIES 12.01. Events of Default. 116 12.02. Rights and Remedies. 119 ARTICLE XIIITHE ADMINISTRATIVE AGENTS AND COLLATERAL AGENT 13.01. Appointment. 122 13.02. Nature of Duties. 122 13.03. Rights, Exculpation, Etc. 123 13.04. Reliance. 124 13.05. Indemnification. 124 13.06. Citicorp Individually. 124 13.07. Successor Collateral Agents 125 13.08. Relations Among Lenders 125 13.09. Concerning the Collateral and the Loan Documents. 126 ARTICLE XIVYIELD PROTECTION14.01. Taxes. 129 14.02. Increased Capital. 131 14.03. Changes; Legal Restrictions. 132 14.04. Illegality. 133 14.05. Compensation. 133 14.06. Limitation on Additional Amounts Payable by the Borrower. 134 14.07. Change in Lending Office. 134 14.08. Judgment Currency. 134 ARTICLE XVMISCELLANEOUS15.01. Assignments and Participations. 136 15.02. Expenses. 139 15.03. Indemnity. 140 15.04. Change in Accounting Principles 141 15.05. Setoff. 141 15.06. Ratable Sharing. 142 15.07. Amendments and Waivers 143 15.08. Notices. 145 15.09. Survival of Warranties and Agreements. 145 15.10. Failure or Indulgence Not Waiver; Remedies Cumulative. 145 15.11. Marshalling; Payments Set Aside. 145 15.12. Severability. 146 15.13. Headings. 146 15.14. Governing Law. 146 15.15. Limitation of Liability. 146 15.16. Successors and Assigns. 146 15.17. Certain Consents and Waivers of the Borrower. 147 15.18. Counterparts; Effectiveness; Inconsistencies. 148 15.19. Limitation on Agreements. 148 15.20. Confidentiality. 148 15.21. Entire Agreement. 149 15.22. Advice of Counsel. 149 CREDIT AGREEMENT This Credit Agreement dated as of April 20, 1999 (as amended, supplemented or modified from time to time, the "Agree- ment") is entered into among The Fairchild Corporation, a Delaware corporation (the "Borrower"), the institutions from time to time a party hereto as Lenders, whether by execution of this Agreement or an Assignment and Acceptance, the institutions from time to time a party hereto as Issuing Banks, whether by execution of this Agreement or an Assignment and Acceptance or by appointment as provided in this Agreement, Citicorp USA, Inc., a Delaware corporation ("Citicorp"), in its capacity as an administrative agent for the Lenders and the Issuing Banks hereunder (in such capacity, an "Administrative Agent") and as the collateral agent for the Lenders and the Issuing Banks hereunder (in such capacity, the "Collateral Agent"), NationsBank, N.A., a national banking association, in its capacity as an administrative agent for the Lenders and the Issuing Banks hereunder (in such capacity, an "Administrative Agent"), and Credit Suisse First Boston, a bank organized under the laws of Switzerland, acting through its New York Branch, in its capacity as documentation agent hereunder (in such capacity, the "Documentation Agent". ARTICLE I DEFINITIONS 1.01. Certain Defined Terms.?? The following terms used in this Agreement shall have the following meanings, applicable both to the singular and the plural forms of the terms defined: "Accommodation Obligation" means any Contractual Obliga- tion, contingent or otherwise, of one Person with respect to any Indebtedness, obligation or liability of another, if the primary purpose or intent thereof by the Person incurring the Accommodation Obligation is to provide assurance to the obligee of such Indebtedness, obligation or liability of another that such Indebtedness, obligation or liability will be paid or discharged, or that any agreements relating thereto will be complied with, or that the holders thereof will be protected (in whole or in part) against loss in respect thereof includ-ing, without limitation, direct and indirect guarantees, endorse-ments (except for collection or deposit in the ordinary course of busi- ness), notes co-made or discounted, recourse agreements, take-or- pay agreements, keep-well agreements, put options, agreements to purchase or repurchase such Indebtedness, obligation or liability or any security therefor or to provide funds for the payment or dis-charge thereof, agreements to maintain solvency, assets, level of income, or other financial condition, and agreements to make payment other than for value received. The amount of any Accom-modation Obligation shall be equal to the amount of the Indebtedness, obliga-tion or liability so guaranteed or otherwise supported; provided, that (i) if the liability of the Person extending such guaranty or support is limited with respect thereto to an amount less than the Indebtedness, obliga-tion or liability guaranteed or supported, or is limited to recourse against a particular asset or assets of such Person, the amount of the corresponding Accommodation Obligation shall be limited (in the case of a guaranty or other support limited by amount) to such lesser amount or (in the case of a guaranty or other support limited by recourse to a particular asset or assets) to the higher of the Fair Market Value of such asset or assets at the date for determination of the amount of the Accommodation Obliga- tion or the value at which such asset or assets would, in con- formity with GAAP, be reflected on or valued for the purposes of preparing a consolidated balance sheet of such Person as at such determination date; (ii) if any obligation or liability is guaranteed or otherwise supported jointly and severally by a Person and others, then the amount of the obligation or liabil- ity of such Person with respect to such guaranty or other support to be included in the amount of such Person's Accommodation Obligation shall be the whole principal amount so guaranteed or otherwise supported; and (iii) in the event the Person incurring the Accommodation Obligation has no obligation thereunder which is dischargeable by the payment of money, such Accommodation Obligation shall not be included for purposes of determining compliance with the provisions of Section 10.01. "Administrative Agent" means each of Citicorp and NationsBank and "Administrative Agents" means Citicorp and NationsBank, collectively. "Affiliate", as applied to any Person, means any other Person that directly or indirectly controls, is controlled by, or is under common control with, that Person. For purposes of this definition, "control" (including, with correlative meanings, the terms "controlling", "controlled by" and "under common control with"), as applied to any Person, means the possession, directly or indirectly, of the power to vote ten percent (10.0%) or more of the Securities having voting power for the election of directors of such Person or otherwise to direct or cause the direction of the management and policies of that Person, whether through the ownership of voting Securities or by contract or otherwise. For purposes of this definition as it pertains to Lenders, "Affiliate" shall include, with respect to any Term Lender that is a fund that invests in commercial loans, any other fund that invests in commercial loans and is managed or advised by the same investment advisor as such Term Lender or by an Affiliate of such investment advisor. "Agreement" is defined in the preamble hereto. "Applicable Lending Office" means, with respect to a particular Lender, its Eurodollar Lending Office in respect of provisions relating to Eurodollar Rate Loans and its Domestic Lending Office in respect of provisions relating to Base Rate Loans. "Assignment and Acceptance" means an Assignment and Acceptance in substantially the form of Exhibit A attached hereto and made a part hereof (with blanks appropriately completed) delivered to the Collateral Agent in connection with an assignment of a Lender's or Issuing Bank's interest under this Agreement in accordance with the provisions of Section 15.01. "Availability" means, at any time of determination thereof, the amount by which the Revolving Credit Commitments at such time exceed the sum of (a) the Revolving Credit Obligations at such time plus (b) the outstanding balance of Protective Advances at such time plus (c) the Swing Loan Reserve. "Bankruptcy Code" means Title 11 of the United States Code (11 U.S.C. '' 101 et seq.), as amended from time to time, and any successor statute. "Banner" means Banner Aerospace, Inc., a Delaware corporation. "Banner Companies" means, collectively, those Persons and investments in Persons identified on Schedule 1.01.5 under the heading "Banner Aerospace, Inc." and their respective Capital Stock and assets; and "Banner Company" means any of the Banner Companies, individually. "Banner Credit Agreement" means that certain Second Amended and Restated Credit Agreement dated as of December 12, 1996, as amended, among Banner, certain of its Subsidiaries, Citicorp, as administrative agent, Citicorp and NationsBank as lenders, and Citibank, as issuing bank thereunder. "Banner Distribution" means, collectively, that certain dividend paid by Banner to the Borrower and that certain intercompany loan made by Banner to the Borrower, in each event after the Banner Exchange and on or before the Closing Date and in an aggregate amount of approximately $115,000,000. "Banner Exchange" means the merger of MTA, Inc., a Wholly-Owned Subsidiary of the Borrower, with and into Banner (with Banner being the surviving corporation), whereupon each share of common stock, par value $1.00 per share, of Banner issued and outstanding immediately prior to the effective time of such merger not owned by the Borrower or any Affiliate of the Borrower was converted into the right to receive a certain number of validly issued, fully paid and nonassessable shares of common stock, par value $0.10 per share, of the Borrower, as more particularly described in the Banner Exchange Proxy. "Banner Exchange Proxy" means that certain Proxy Statement of Banner dated March 25, 1999. "Base Eurodollar Rate" means, with respect to any Eurodollar Interest Period applicable to a Borrowing of Eurodollar Rate Loans, the rate of interest per annum determined by the Collateral Agent to be the offered rate per annum at which deposits in Dollars appears on Telerate page 3750 (or any successor page) as of 11:00 a.m. (London time), or in the event such offered rate is not available from the Telerate page, the rate offered on deposits in Dollars by Citibank's London Office to prime banks in the London interbank market at 11:00 a.m. (London time), on the Eurodollar Interest Rate Determination Date for such Eurodollar Interest Period and in an amount substantially equal to the amount of the Eurodollar Rate Loan to be outstanding from Citicorp for such Eurodollar Interest Period. "Base Rate" means, for any period, a fluctuating interest rate per annum as shall be in effect from time to time, which rate per annum shall at all times be equal to the higher of: (i) the rate of interest announced publicly by Citibank in New York, New York from time to time, as Citibank's base rate; and (ii) the sum of (a) one-half of one percent (0.50%) per annum plus (b) the Federal Funds Rate in effect from time to time during such period. "Base Rate Loans" means all Loans which bear interest at a rate determined by reference to the Base Rate and Base Rate Margin as provided in Section 5.01(a). "Base Rate Margin" means, as of any date of determination, a per annum rate equal to the rate set forth below opposite the then attained compliance with a Consolidated Indebtedness to EBITDA Ratio, for the then most recently ended four (4) Fiscal Quarter period, by the Borrower and its Subsidiaries, on a consolidated basis, measured as of the end of each Fiscal Quarter commencing with the Fiscal Quarter ending December 27, 1999: Consolidated Indebtedness to Revolver Base EBITDA Ratio Rate Margin Less than 3.50 to 1.00 0.75% Less than 4.25 to 1.00 and equal 1.25% to or greater than 3.50 to 1.00 Less than 5.00 to 1.00 and equal 1.50% to or greater than 4.25 to 1.00 Less than 5.75 to 1.00 and equal 1.75% to or greater than 5.00 to 1.00 Equal to or greater than 5.75 to 2.25% 1.00 Consolidated Indebtedness to Term Base EBITDA Ratio Rate Margin Less than 4.25 to 1.00 1.75% Less than 5.00 to 1.00 and equal 2.00% to or greater than 4.25 to 1.00 Equal to or greater than 5.00 to 2.25% 1.00 provided, however, that, notwithstanding the foregoing, the Revolver Base Rate Margin during the period commencing on the Closing Date and ending on March 31, 2000 shall be equal to two percent (2.00%) per annum and the Term Base Rate Margin during the period commencing on the Closing Date and ending on March 31, 2000 shall be equal to two and one-quarter percent (2.25%) per annum. "Benefit Plan" means a defined benefit plan as defined in Section 3(35) of ERISA (other than a Multiemployer Plan or Foreign Employee Benefit Plan) in respect of which the Borrower or any ERISA Affiliate is, or within the immediately preceding five (5) years was, an "employer" as defined in Section 3(5) of ERISA. "Borrower" is defined in the preamble hereto. "Borrowing" means a borrowing consisting of Loans of the same type made, continued or converted on the same day and, in the case of Eurodollar Rate Loans, having the same Eurodollar Interest Period. "Business Activity Report" means (A) a Notice of Business Activities Report from the State of New Jersey Division of Taxation or (B) a Minnesota Business Activity Report from the Minnesota Department of Revenue. "Business Day" means a day, in the applicable local time, which is not a Saturday or Sunday or a legal holiday and on which banks are not required or permitted by law or other govern- mental action to close (i) in New York, New York, (ii) in the case of Eurodollar Rate Loans, in London, England and (iii) in the case of Letter of Credit transactions for a particular Issuing Bank, in the place where its office for issuance or adminis-tra-tion of the pertinent Letter of Credit is located. "Capital Expenditures" means, for any period and without duplication, the aggre-gate of all expenditures made (whether paid in cash or other Property) or accrued as a liability during such period that, in conformity with GAAP, are required to be included in or reflected in the fixed asset accounts of the consolidated balance sheet of the Borrower and its Subsidiaries; provided, however, (i) Capital Expenditures shall include, whether or not such a designation would be in conformity with GAAP, that portion of Capital Leases which is capitalized on the consol-idated balance sheet of the Borrower and its Sub-sidi-aries, (ii) Capital Expenditures shall exclude, whether or not such a designation would be in conformity with GAAP, (a) expenditures made in con-nec-tion with the replacement or restora-tion of Property, to the extent reimbursed or financed from insur-ance or other recoveries received on account of the loss of or damage to the Property being replaced or restored or from condemnation awards arising from the taking by condemnation or eminent domain of such Property being replaced, (b) expenditures which would otherwise be included as aforesaid which are expenditures made by an Unrestricted Subsidiary or by any Technologies Company, whether or not then an Unrestricted Subsidiary, and (c) expenditures which would otherwise be included as aforesaid which are expenditures made with respect to completion of development of the Farmingdale Property, and (iii) such expenditures made in any Fiscal Year shall be net of any proceeds of sales of Equipment by the Borrower and its Subsidiaries. "Capital Lease" means any lease of any property (whether real, personal or mixed) by a Person as lessee which, in conformity with GAAP, is accounted for as a capital lease on the balance sheet of that Person. "Capital Stock" means, with respect to any Person, any capital stock of such Person, regardless of class or designation, and all warrants, options, purchase rights, conversion or ex- change rights, voting rights, calls or claims of any character with respect thereto. "Cash" means money, currency, or a credit balance in a Deposit Account. "Cash Collateral" means cash or Cash Equivalents held by the Collateral Agent, an Issuing Bank, or any of the Lenders as security for the Obligations. "Cash Collateral Account" means an interest bearing account at Citibank's offices in New York, New York designated by the Collateral Agent into which Cash Collateral shall be deposited. The Cash Collateral Account shall be under the sole dominion and control of the Collateral Agent, provided that all amounts deposited therein shall be held by the Collateral Agent for the benefit of the Holders and shall be subject to the terms of Sections 4.05 and 4.06. "Cash Equivalents" means (i) marketable direct obligations issued or uncondi-tionally guaranteed by the United States govern-ment and backed by the full faith and credit of the United States government; (ii) marketable direct obligations issued by any state of the United States or any political subdivision of any such state or any public instrumentality thereof which, at the time of acquisition thereof, are rated either A-1 (or better) by Standard & Poor's Rating Group, a division of McGraw-Hill, Inc. ("S&P") or P-1 (or better) by Moody's Investors Service, Inc. (or if not then rating such obligations, the highest rating obtainable from such other nationally recognized rating services as are reasonably acceptable to the Collateral Agent); (iii) commercial paper which, at the time of acquisition thereof, is rated either A-1 (or better) by S&P or P-1 (or better) by Moody's Investors Service, Inc. (or if not then rating such obligations, the highest rating obtainable from such other nationally or internationally recognized rating services as are reasonably acceptable to the Collateral Agent); (iv) domestic or European certificates of deposit and time deposits, bankers' acceptances and floating rate certificates of deposit issued by any commercial bank organized under the laws of the United States, any state thereof, the District of Columbia or any member state of the European Union and having a combined capital and surplus in excess of $250,000,000, which, at the time of acquisition, are rated A-1 (or better) by S&P or P-1 (or better) by Moody's Investors Service, Inc. (or if not then rating such obligations, the highest rating obtainable from such other nationally or internationally recognized rating services as are reasonably acceptable to the Collateral Agent); (v) any agreement involving U.S. Government securities, certificates of deposit or "eligible" bankers' acceptances which provides for the transfer of such securities against payment in funds and which contains an agreement by the seller to repurchase the securities at a specified date not more than ninety (90) days after the date of such agreement; and (vi) freely redeemable shares in money market funds which money market funds, at the time of acquisition, are rated either A-1 (or better) by S&P or P-1 (or better) by Moody's Investors Service, Inc. (or if not then rating such obligations, the highest rating obtainable from such other nationally or internationally recognized rating services as are reasonably acceptable to the Collateral Agent); provided, that the maturities of such Cash Equiva-lents shall not exceed ninety (90) days. "Cash Interest Expense" means, for the Borrower and its Subsidiaries for any period, total interest expense of the Borrower and its Subsidiaries, which is payable in cash, whether paid or accrued, but without duplication, net of (i) the difference between payments received by the Borrower and Restricted Subsidiaries on all Hedge Agreements and payments made by the Borrower and Restricted Subsidiaries on all Hedge Agreements, (ii) interest income received in cash by the Borrower and Restricted Subsidiaries and (iii) total interest expense of Unrestricted Subsidiaries; (including, without limitation, the interest component of Capital Leases, all commissions, discounts and other fees and charges owed with respect to letters of credit and bankers' acceptance financing and excluding, interest expense not payable in cash (including amortization of discount and fees) and interest expense with respect to liabilities which are not Indebtedness for Borrowed Money), all as determined in conformity with GAAP except to the extent adjustments with respect to Hedge Agreements would not be in conformity with GAAP. "CERCLA" means the Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C. '' 9601 et seq., any amendments thereto, any successor statutes, and any regulations promulgated thereunder. "Change of Control" means any of (i) any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act), other than one or more Permitted Holders becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Securities Exchange Act), directly or indirectly, of more than forty percent (40%) of the total voting power of the Voting Stock of the Borrower; provided, however, that the Permitted Holders beneficially own (as defined above), directly or indirectly, in the aggregate a lesser percentage of the total voting power of the Voting Stock of the Borrower than such other Person and do not have the right or ability by voting power, contract or otherwise to elect or designate for election a majority of the Board of Directors of the Borrower; or (ii) during any period of two (2) consecutive years, individuals who at the beginning of such period constituted the Board of Directors of the Borrower (together with any new directors whose election by such Board of Directors or whose nomination for election by the stockholders of the Borrower was approved pursuant to the vote of 66 2/3% of the directors of the Borrower then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Board of Directors of the Borrower then in office; or (iii) the merger or consolidation of the Borrower with or into another Person (other than a Permitted Holder) or the merger of another Person (other than a Permitted Holder) with or into the Borrower, or the sale of all or substantially all of the assets of the Borrower to another Person (other than a Permitted Holder), and, in the case of any such merger or consolidation, the Capital Stock of the Borrower that is outstanding immediately prior to such transaction and that represents 100% of the aggregate voting power of the Voting Stock of the Borrower is changed into or exchanged for cash, Securities or property, unless pursuant to such transaction such Securities are changed into or exchanged for, in addition to other consideration, Securities of the surviving Person that represent, immediately after such transaction, at least a majority of the aggregate voting power of the Voting Stock of the surviving corporation. "Citibank" means Citibank, N.A., a national banking association. "Citicorp" is defined in the preamble hereto. "Claim" means any claim or demand, by any Person, of whatsoever kind or nature for any alleged Liabili-ties and Costs, whether based in contract, tort, implied or express warranty, strict liability, criminal or civil statute, Permit, ordinance or regulation, common law or otherwise. "Closing Date" means April 20, 1999. "Collateral" means all property and interests in prop- erty now owned or hereafter acquired by the Borrower or any Subsidiary of the Borrower upon which a Lien is granted under any of the Loan Documents. "Collateral Agent" means Citicorp and each successor Collateral Agent appointed pursuant to the terms of Article XIII. "Collection Account" means each lock-box and blocked depository account maintained by the Borrower or any Guarantor subject to a Collection Account Agreement for the collection of Receivables and other proceeds of Collateral. "Collection Account Agreement" means a written agreement, in form and substance satisfactory to the Collateral Agent, granting the Collateral Agent certain rights with respect to proceeds of Collateral deposited in the subject Collection Account and executed by the Borrower or a Guarantor, the Collateral Agent, and the respective bank at which the Borrower or such Guarantor maintains a Collection Account. "Commercial Letter of Credit" means any documentary letter of credit issued by an Issuing Bank pursuant to Section 3.01 for the account of the Borrower or for the account of any Guarantor or any Subsidiary of the Borrower if the Borrower is jointly and severally liable for reimbursement of amounts drawn under such letter of credit, which is drawable upon presentation of documents evidencing the sale or shipment of goods purchased by the Borrower, a Guarantor, or such Subsidiary of the Borrower in the ordinary course of its busi-ness. "Commission" means the Securities and Exchange Commis- sion and any Person succeeding to the functions thereof. "Commitment" means, with respect to a given Lender, the sum of such Lender's Revolving Credit Commitment plus such Lender's Term Loan Commitment. "Commitment Fee" is defined in Section 5.03(c). "Commitment Fee Rate" means (i) one-half of one percent (0.5%) per annum in the event the Revolving Credit Obligations equal or exceed fifty percent (50%) of the Revolving Credit Commitments and (ii) three-quarters of one percent (0.75%) per annum in the event the Revolving Credit Obligations are less than fifty percent (50%) of the Revolving Credit Commitments. "Commitment Letter" means that certain commitment letter addressed to the Borrower from Salomon Smith Barney Inc., NationsBanc Montgomery Securities, Inc., NationsBank, N.A., and Credit Suisse First Boston dated March 17, 1999. "Compliance Certificate" is defined in Section 8.01(d)(ii). "Concentration Account" means a depository account maintained at Citibank in New York, New York, or such other financial institution designated for such purpose by the Collateral Agent into which collections of Receivables of the Borrower and the Domestic Subsidiaries, other proceeds of Collateral and other amounts are transferred pursuant to the terms of the Collection Account Agreements or otherwise as described in Section 4.04. "Consolidated Fixed Charge Coverage Ratio" means, for any period, the ratio of (i) EBITDA for such period minus Capital Expenditures made in such period to (ii) the sum of (a) Cash Interest Expense for such period plus (b) the amount of all scheduled principal payments paid in such period by the Borrower and its Subsidiaries (other than Unrestricted Subsidiaries). "Consolidated Indebtedness to EBITDA Ratio" means, for any period, the ratio of (i) Consolidated Total Debt as of the last day of such period to (ii) EBITDA for such period. "Consolidated Senior Indebtedness to EBITDA Ratio" means, for any period, the ratio of (i) Consolidated Total Senior Debt as of the last day of such period to (ii) EBITDA for such period. "Consolidated Total Debt" means the amount equal to (i) the principal amount of total funded debt of the Borrower and its Subsidiaries, to the extent the same would be reflected on a balance sheet of the Borrower and its Subsidiaries prepared in accordance with GAAP, plus (ii) the principal amount of total debt attributable to discontinued operations of the Restricted Subsidiaries, to the extent the same would be reflected on a balance sheet of the Restricted Subsidiary the operations of which have been discontinued, prepared in accordance with GAAP, minus (iii) total debt of Unrestricted Subsidiaries to the extent the same would be reflected on a balance sheet of the Borrower and its Subsidiaries prepared in accordance with GAAP, and minus (iv) the amount of cash and Cash Equivalents of the Borrower and its Subsidiaries (other than Unrestricted Subsidiaries) reflected on a balance sheet of the Borrower and its Subsidiaries. "Consolidated Total Senior Debt" means the amount equal to (i) the Consolidated Total Debt minus (ii) the principal amount outstanding under the Senior Subordinated Notes or, in the event the Senior Subordinated Notes are permitted under the terms of this Agreement to be, and are, refinanced on terms and conditions no less favorable to the interests of the Lenders than the terms pursuant to which the Senior Subordinated Notes have been issued, the principal amount outstanding under such Indebtedness refinancing the Senior Subordinated Notes minus (iii) the principal amount outstanding with respect to Indebtedness for Borrowed Money which is permitted to be incurred under the terms of Section 10.01 and is subordinated to or pari passu with the Indebtedness for Borrowed Money described in clause (ii) above. "Contaminant" means any waste, pollutant, hazardous substance, toxic substance, hazardous waste, special waste, petroleum or petroleum-derived substance or waste, radioactive materials, asbestos (in any form or condition), polychlorinated biphenyls (PCBs), lead paint, or any constituent of any such substance or waste, and includes, but is not limited to, these terms as defined in federal, state or local laws or regulations. "Contractual Obligation", as applied to any Person, means any provision of any Securities issued by that Person or any inden-ture, mortgage, deed of trust, security agreement, pledge agreement, guaranty, contract, undertaking, agreement or instrument to which that Person is a party or by which it or any of its properties is bound, or to which it or any of its properties is subject. "Cure Loans" is defined in Section 4.02(f)(iii). "Customary Permitted Liens" means (i) Liens (other than Environmental Liens and Liens in favor of the PBGC) with respect to the payment of taxes, assessments or governmental charges in all cases which are not yet due or which are being contested in good faith by appropriate proceedings and with respect to which adequate reserves or other appropriate provisions are being maintained in accordance with GAAP; (ii) statutory Liens of landlords and Liens of suppliers, mechanics, carriers, materialmen, warehousemen or workmen and other Liens imposed by law created in the ordinary course of business for amounts not yet due or which are being contested in good faith by appropriate proceedings and with respect to which adequate reserves or other appropriate provisions are being maintained in accordance with GAAP; (iii) Liens (other than any Lien in favor of the PBGC) incurred or deposits made in the ordinary course of business in connection with worker's compen-sation, unemploy-ment insurance or other types of social security benefits or to secure the performance of bids, tenders, sales, contracts (other than for the repayment of borrowed money), surety, appeal and performance bonds; provided that (A) all such Liens do not in the aggregate materially detract from the value of the Borrower's or any of its Subsidiaries' assets or Property or materially impair the use thereof in the opera-tion of their respective businesses, and (B) all Liens of attachment or judgment and Liens securing bonds to stay judgments or in con-nec-tion with appeals do not secure at any time an aggre-gate amount exceeding $1,000,000; and (iv) Liens arising with respect to zoning restrictions, easements, licenses, reservations, covenants, rights-of-way, utility ease-ments, building restrictions and other similar charges or encumbrances on the use of Real Property which do not materially interfere with the ordinary conduct of the business of the Borrower or any of the Borrower's Subsidiaries. "Deposit Account" means a demand, time, savings, passbook or like account with a bank, savings and loan association, credit union, brokerage house, or like organization, other than an account evidenced by a negotiable certificate of deposit. "Designated Prepayment" means each mandatory prepayment required by clauses (i) - (iv) of Section 4.01(b). "DOL" means the United States Department of Labor and any Person succeeding to the functions thereof. "Dollars" and "$" mean the lawful money of the United States. "Domestic Lending Office" means, with respect to any Lender, such Lender's office, located in the United States, specified as the "Domestic Lend-ing Office" under its name on the signature pages hereof or on the Assignment and Acceptance by which it became a Lender or such other United States office of such Lender as it may from time to time specify by written notice to the Borrower and the Collateral Agent. "Domestic Subsidiaries" means those Subsidiaries of the Guarantors or the Borrower domiciled within the United States of America, its states, districts and possessions. "EBITDA" means, for any period, the amount calculated, without duplication, for such period as the sum of amounts for such period of the Borrower's and its Subsidiaries' (other than Unrestricted Subsidiaries' and the Technologies Companies'(whether or not the same are Unrestricted Subsidiaries)) net income plus (to the extent deducted in calculating net income): (a) income tax expense (or minus income tax benefits) (b) interest expense (net of interest income) (c) depreciation expense and amortization expense (d) the amount of all other non-cash charges (less non- cash credits), subtracting therefrom (adding thereto) the amount of all cash payments (receipts) in such period arising from non-cash charges (credits) added back (deducted from) in any previous period (e) the amount of all cash distributions from Unrestricted Subsidiaries to the Borrower and Restricted Subsidiaries to the extent such distributions do not decrease the amount of Unrestricted Subsidiaries Net Investment Amount permitted under Section 8.06 (f) the amount of all bonuses in an amount not to exceed the amount thereof disclosed in the Projections and paid on or before June 30, 2000 to executive officers of the Borrower and Restricted Subsidiaries in connection with the Kaynar Acquisition and (g) the amount of all severance, rationalization, product qualification and other non-recurring transition costs incurred in connection with the Kaynar Acquisition in an aggregate amount not to exceed $20,000,000. Net income shall exclude (to the extent included above): (1) the amount of any gain or loss realized upon the sale or other disposition of any assets of the Borrower, its consolidated Subsidiaries or any other Person which is not sold or otherwise disposed of in the ordinary course of its operating businesses and any gain or loss realized upon the sale or other disposition of any Capital Stock of any Person; and (2) the amount of the non-recurring cumulative effect of a change in accounting principles. "Eligible Assignee" means (i) a Lender or any Affiliate thereof; (ii) a com-mercial bank having total assets in excess of $2,500,000,000; (iii) the central bank of any country which is a member of the Organization for Economic Cooperation and Development; or (iv) a finance com-pany, insurance com-pany, other financial insti-tution or fund, which is regularly engaged in making, purchasing or investing in loans and having total assets in excess of $300,000,000 or is otherwise acceptable to the Collateral Agent. "Eligible Marketable Securities" means (i) equity Securities of a corporation the Securities of which are (or were at the date of acquisition) included in the S&P 500 Index and freely tradable upon issuance, (ii) freely tradable debt Securities which have (or had at the date of acquisition) an investment grade rating, and (iii) a freely tradable mutual fund which invests substantially all of its assets in such equity Securities and/or debt Securities; in each instance where held by a securities intermediary, subject to an account control agreement in form and substance satisfactory to the Collateral Agent. The term "freely tradable" shall mean freely tradable under the Securities Act (including pursuant to Rule 145(d)(1) thereunder). "Environmental, Health or Safety Requirements of Law" means all Requirements of Law derived from or relating to any federal, state or local law, ordinance, rule, regulation, Permit, license or other binding determination of any Governmental Authority relating to, imposing liability or standards concerning, or otherwise addressing, the environment, health and/or safety, including, but not limited to the Clean Air Act, the Clean Water Act, CERCLA, RCRA, any so-called "Superfund" or "Superlien" law, the Toxic Substances Control Act, OSHA, and public health codes, each as from time to time in effect. "Environmental Lien" means a Lien in favor of any Governmental Authority for any (i) liabilities under any Environmental, Health or Safety Requirement of Law, or (ii) damages arising from, or costs incurred by such Governmental Authority in response to, a Release or threatened Release of a Con-taminant into the environ-ment. "Equipment" means, with respect to any Person, all of such Person's present and future (i) equipment, including, without limitation, machinery, manufacturing, distribution, selling, data processing and office equipment, assembly systems, tools, molds, dies, fixtures, appliances, furniture, furnishings, vehicles, vessels, aircraft, aircraft engines, and trade fixtures, (ii) other tangible personal property (other than such Person's Inventory), and (iii) any and all accessions, parts and appurtenances attached to any of the foregoing or used in connection therewith, and any substitutions therefor and replacements, products and proceeds thereof. "ERISA" means the Employee Retirement Income Security Act of 1974, 29 U.S.C. '' 1000 et seq., any amendments thereto, any successor statutes, and any regulations or guidance promulgated thereunder. "ERISA Affiliate" means (i) any corporation which is a member of the same controlled group of corporations (within the meaning of Section 414(b) of the Internal Revenue Code) as FHC; (ii) a partnership or other trade or business (whether or not incorporated) which is under common control (within the meaning of Section 414(c) of the Internal Revenue Code) with FHC; and (iii) a member of the same affiliated service group (within the meaning of Section 414(m) of the Internal Revenue Code) as FHC, any corporation described in clause (i) above or any partnership or trade or business described in clause (ii) above. "ERISA Event" means (i) the occurrence with respect to a Plan of a Reportable Event, (ii) the provision by the administrator of any Plan of a notice of intent to terminate such Plan, pursuant to Section 4041(a)(2) of ERISA (including any such notice with respect to a plan amendment referred to in Section 4041(e) of ERISA), (iii) the cessation of operations at a facility of the Borrower or any ERISA Affiliate in the circumstances described in Section 4062(e) of ERISA, (iv) the withdrawal by the Borrower or an ERISA Affiliate from a Multiemployer Plan during a plan year for which it was a substantial employer, as defined in Section 4001(a)(2) of ERISA, (v) the conditions set forth in Section 302(f)(1)(A) and (B) of ERISA to the creation of a Lien upon Property or rights to Property of the Borrower or any ERISA Affiliate for failure to make a required payment to a Plan are satisfied, (vi) the adoption of an amendment to a Plan requiring the provision of security to such Plan, pursuant to Section 307 of ERISA, or (vii) the institution by the PBGC of proceedings to terminate a Plan, pursuant to Section 4042 of ERISA, or the occurrence of any event or condition described in Section 4042 of ERISA that constitutes grounds for the termination of, or the appointment of a trustee to administer, a Plan. "Eurodollar Affiliate" means, with respect to each Lender, the Affiliate of such Lender (if any) set forth below such Lender's name under the heading "Eurodollar Affiliate" on the signature pages hereof or on the signature pages of the Assignment and Acceptance by which it became a Lender or such Affiliate of a Lender as it may from time to time specify by written notice to the Borrower and the Collateral Agent. "Eurodollar Interest Payment Date" means, with respect to any Eurodollar Rate Loan, the last day of each Eurodollar Inter-est Period applicable to such Loan and, if such applicable Eurodollar Interest Period is longer than three (3) months in duration, on the first Business Day of each successive three (3) month period commencing with the first such day following the day on which such Eurodollar Rate Loan was made, continued or converted and ending with the first Business Day of the three (3) month period ending on the last day of the applicable Eurodollar Interest Period. "Eurodollar Interest Period" is defined in Section 5.02(b). "Eurodollar Interest Rate Determination Date" is defined in Section 5.02(c). "Eurodollar Lending Office" means, with respect to any Lender, the office or offices of such Lender (if any) set forth below such Lender's name under the heading "Eurodollar Lending Office" on the signature pages hereof or on the signature pages of the Assignment and Acceptance by which it became a Lender (or, if no such office is specified, its Domestic Lending Office), or such office or offices of such Lender as it may from time to time specify by written notice to the Borrower and the Collateral Agent. "Eurodollar Rate" means, with respect to any Eurodollar Inter-est Period applicable to a Eurodollar Rate Loan, an interest rate per annum obtained by dividing (i) the Base Eurodollar Rate applicable to that Eurodollar Interest Period by (ii) a percentage equal to 100% minus the Eurodollar Rate Reserve Percentage in effect on the relevant Eurodollar Interest Rate Determination Date. "Eurodollar Rate Loans" means those Loans outstanding which bear interest at a rate determined by reference to a Eurodollar Rate and the Eurodollar Rate Margin as provided in Section 5.01(a). "Eurodollar Rate Margin" means, as of any date of determination, a per annum rate equal to the rate set forth below opposite the then attained compliance with a Consolidated Indebtedness to EBITDA Ratio, for the then most recently ended four (4) Fiscal Quarter period, by the Borrower and its Subsidiaries, on a consolidated basis, measured as of the end of each Fiscal Quarter commencing with the Fiscal Quarter ending December 27, 1999: Consolidated Revolver Indebtedness to Eurodollar EBITDA Ratio Rate Margin Less than 3.50 to 1.00 1.75% Less than 4.25 to 1.00 and equal 2.25% to or greater than 3.50 to 1.00 Less than 5.00 to 1.00 and equal 2.50% to or greater than 4.25 to 1.00 Less than 5.75 to 1.00 and equal 2.75% to or greater than 5.00 to 1.00 Equal to or greater than 5.75 to 3.25% 1.00 Consolidated Term Indebtedness to Eurodollar EBITDA Ratio Rate Margin Less than 4.25 to 1.00 2.75% Less than 5.00 to 1.00 and equal 3.00% to or greater than 4.25 to 1.00 Equal to or greater than 5.00 to 3.25% 1.00 provided, however, that, notwithstanding the foregoing, the Revolver Eurodollar Rate Margin during the period commencing on the Closing Date and ending on March 31, 2000 shall be equal to three percent (3.00%) per annum and the Term Eurodollar Rate Margin during the period commencing on the Closing Date and ending on March 31, 2000 shall be equal to three and one-quarter percent (3.25%) per annum. "Eurodollar Rate Reserve Percentage" means, for any Lender for the Eurodollar Interest Period for any Eurodollar Rate, the reserve percentage which is applicable three (3) Business Days before the first day of such Eurodollar Interest Period under the regulations issued from time to time by the Federal Reserve Board for determining the actual reserve requirement (including, without limitation, any emergency, supplemental or other marginal reserve requirement) for a member bank of the Federal Reserve System in New York, New York with deposits exceeding Five Billion Dollars ($5,000,000,000) with respect to liabilities or assets consisting of or including "Eurodollar Liabili-ties" (or with respect to any other category of liabilities which includes deposits by reference to which the inter-est rate on Eurodollar Rate Loans is determined) having a term equal to such Eurodollar Interest Period. "Event of Default" means any of the occurrences set forth in Section 12.01 after the expiration of any applicable grace period, as expressly provided in Section 12.01. "Excess Cash Flow" means, without duplication, for each Fiscal Year of the Borrower ending after June 30, 1999, an amount equal to the greater of (i) zero or (ii) the amount equal to: (a) EBITDA for such Fiscal Year, minus (b) the amount of taxes actually paid by the Borrower and the Restricted Subsidiaries in cash during such Fiscal Year, minus (c) Cash Interest Expense (including bank fees, commissions, discounts and other fees and charges with respect to letters of credit, commitment fees, and fees paid under any fee letter and payments made for retiree medical benefit obligations) for such Fiscal Year, plus (d) the net reduction, if any, in working capital (excluding changes in cash and cash equivalents) of the Borrower and Restricted Subsidiaries during such Fiscal Year, minus (e) the net increase, if any, in working capital (excluding changes in cash and cash equivalents) of the Borrower and Restricted Subsidiaries during such Fiscal Year, minus (f) Capital Expenditures incurred as permitted pursuant hereto during such Fiscal Year, minus (g) cash flow to the extent included in the amounts determined under clauses (a) - (f) above generated by the Farmingdale Property, any Unrestricted Subsidiary or Investments made as permitted by Section 10.04(d), minus (h) the amount of all permanent repayments (including, without limitation, mandatory prepayments) of Indebtedness for Borrowed Money (other than mandatory prepayments in respect of Excess Cash Flow), minus (i) the amount of all bonuses in an amount not to exceed the amount thereof disclosed in the Projections and paid on or before June 30, 2000 to executive officers of the Borrower and Restricted Subsidiaries in connection with the Kaynar Acquisition, minus (j) the amount of severance, rationalization, product qualification and other non-recurring transition costs incurred in connection with the Kaynar Acquisition in an aggregate amount not to exceed $20,000,000. "Exchange Rate" means, in relation to the purchase of one currency (for the purposes of this definition, the "first currency") with another currency (for the purposes of this definition, the "second currency") on a given date, Citibank's spot rate of exchange for the amount in question in the London interbank market at 11:00 a.m. (London time) on such date for the purchase of the first currency with the second currency, for delivery two (2) Business Days later. "Fair Market Value" means, with respect to any asset, the value of the consideration obtainable in a sale of such asset in the open market, assuming a sale by a willing seller to a willing purchaser dealing at arm's length and arranged in an orderly manner over a reasonable period of time, each having reasonable knowledge of the nature and characteristics of such asset, neither being under any compulsion to act. "Farmingdale Property" means the Real Property located in Farmingdale, New York identified on Schedule 1.01.1 attached hereto and made a part hereof. "Federal Funds Rate" means, for any period, a fluctu- ating interest rate per annum equal for each day during such period to the weighted average of the rates on overnight federal funds trans-actions with members of the Federal Reserve System arranged by federal funds brokers, as published for such day (or, if such day is not a Business Day in New York, New York, for the next preceding Busi-ness Day) in New York, New York by the Federal Reserve Bank of New York, or if such rate is not so published for any day which is a Business Day in New York, New York, the average of the quotations for such day on such transactions received by the Collateral Agent from three federal funds brokers of recog-nized standing selected by the Collateral Agent. "Federal Reserve Board" means the Board of Governors of the Federal Reserve System or any Governmental Authority succeed- ing to its functions. "Fee Letter" means that certain fee letter addressed to the Borrower dated March 17, 1999. "FHC" means Fairchild Holding Corp., a Delaware corporation. "Financial Statements" means (i) statements of income and retained earnings, statements of cash flow, and balance sheets, (ii) such other financial statements as the Borrower and the Borrower's Subsidiaries shall routinely and regularly prepare, and (iii) such other financial statements as the Collateral Agent or the Requisite Lenders may from time to time reasonably specify. "Fiscal Quarter" means each of the three-month periods ending on the dates set forth on Schedule 1.01.2. "Fiscal Year" means the fiscal year of the Borrower and its Subsidiaries for accounting and federal income tax purposes, which shall be the 12-month period ending on June 30 of each calendar year. "Foreign Employee Benefit Plan" means any employee bene- fit plan as defined in Section 3(3) of ERISA which is main-tained or contributed to for the benefit of the employees of the Borrower, any of its Subsidiaries or any of its ERISA Affiliates and is not covered by ERISA pursuant to ERISA Section 4(b)(4). "Foreign Pension Plan" means any employee benefit plan as defined in Section 3(3) of ERISA which (i) is maintained or contributed to for the benefit of employees of the Borrower, any of its Subsidiaries or any of its ERISA Affiliates, (ii) is not covered by ERISA pursuant to Section 4(b)(4) of ERISA, and (iii) under applicable local law, is required to be funded through a trust or other funding vehicle. "Fronting Fee" is defined in Section 5.03(b). "Funding Date" means, with respect to any Loan, the date of funding of such Loan. "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the American Institute of Certified Public Accountants' Accounting Principles Board and Financial Accounting Standards Board or in such other statements by such other entity as may be in general use by significant segments of the accounting profession as in effect on the date hereof (unless otherwise specified herein as in effect on another date or dates). "General Intangibles" means, with respect to any Person, all of such Person's present and future (i) general intangibles, (ii) rights, interests, choses in action, causes of action, claims and other intangible Property of every kind and nature (other than Receivables), (iii) corporate and other business records, (iv) loans, royalties, and other obligations receivable, (v) trademarks, registered trademarks, trademark applications, service marks, registered service marks, service mark applications, patents, registered patents, patent applications, trade names, rights of use of any name, labels, fictitious names, inventions, designs, trade secrets, computer programs, software, printouts and other computer materials, goodwill, registrations, copyrights, copyright applications, permits, licenses, franchises, customer lists, credit files, correspondence, and advertising materials, (vi) customer and supplier contracts, firm sale orders, rights under license and franchise agreements, rights under tax sharing agreements, rights under non-compete agreement, and other contracts and contract rights, (vii) interests in partnerships and joint ventures, (viii) tax refunds and tax refund claims, (ix) right, title and interest under leases, subleases, licenses and concessions and other agreements relating to property, (x) deposit accounts (general or special) with any bank or other financial institution, (xi) credits with and other claims against third parties (including carriers and shippers), (xii) rights to indemnification and with respect to support and keep-well agreements, (xiii) reversionary interests in pension and profit sharing plans and reversionary, beneficial and residual interests in trusts, (xiv) letters of credit, guarantees, Liens, security interests and other security held by or granted to such Person, (xvi) uncertificated securities and (xvii) investment property. "German Acquisition Loans" means loans, in the aggregate principal amount of DM23,105,902.50 made on November 26, 1997 by Citibank Aktiengesellschaft to the German Subsidiary Borrowers. "German Subsidiary Borrowers" means, collectively, Fairchild Fasteners Europe--Camloc GmbH, a Subsidiary of FHC, and Fairchild Fasteners Europe-VSD GmbH, a Subsidiary of FHC. "Governmental Authority" means any nation or government, any federal, state, local or other political sub- division thereof and any entity exercising executive, legisla- tive, judicial, regulatory or administrative functions of or pertaining to government. "Guarantors" means each of the Subsidiaries of the Borrower identified on Schedule 1.01.3 attached hereto and made a part hereof as of the Closing Date, and any other Person executing and delivering a guaranty of payment and performance of all or any portion of the Obligations after the Closing Date. "Hedge Agreement" means any agreement, including, without limitation, interest rate exchange, swap, collar or cap agreement, interest rate future or option contract, currency swap agreement, currency future, forward, or option contract, and other similar agreement, evidencing an agreement or arrangement intended to protect against fluctuation in interest rates and/or foreign exchange rates or conversion rates for conversion of foreign currencies to Dollars. "Holder" means any Person entitled to enforce any of the Obligations, whether or not such Person holds any evidence of Indebtedness, including, without limitation, the Administrative Agents, the Collateral Agent, each Lender and each Issuing Bank. "Indebtedness", as applied to any Person, means, at any time, without duplication, (a) all indebtedness, obligations or other liabilities of such Person (i) for borrowed money or evidenced by debt Securi-ties, debentures, acceptances, notes or other similar instru-ments, and any accrued interest, fees and charges relating thereto, (ii) under profit payment agreements or in respect of obligations to redeem, repurchase or exchange any Securities of such Person or to pay dividends in respect of any Capital Stock, (iii) with respect to letters of credit issued for such Person's account, (iv) to pay the deferred purchase price of property or services, except accounts payable and accrued expenses arising in the ordinary course of business, (v) in respect of Capital Leases, (vi) which are Accommodation Obligations or (vii) under warranties and indemnities; (b) all indebtedness, obligations or other liabilities of such Person or others secured by a Lien on any property of such Person, whether or not such indebted-ness, obligations or liabili-ties are assumed by such Person, all as of such time; (c) all indebtedness, obligations or other liabil-ities of such Person in respect of interest rate contracts, Hedge Agreements and foreign exchange contracts, net of liabilities owed to such Person by the counterpar-ties thereon; and (d) all preferred stock subject (upon the occurrence of any contingency or otherwise) to mandatory redemp-tion. "Indebtedness for Borrowed Money" means, with respect to any Person, to the extent the following would be reflected on a balance sheet of such Person and its Subsidiaries prepared in accordance with GAAP, the principal amount of all Indebtedness of such Person in respect of borrowed money, evidenced by debt securities, debentures, acceptances, notes or other similar instruments, in respect of Capital Lease obligations, in respect of Reimbursement Obligations or in respect of the deferred purchase price of property or services, except accounts payable and accrued expenses arising in the ordinary course of business. "Indemnified Matters" is defined in Section 15.03. "Indemnitees" is defined in Section 15.03. "Interest Coverage Ratio" means, for any period, the ratio of (i) EBITDA for such period to (ii) Cash Interest Expense for such period. "Interest Margin Effective Date" means the date, determined in accordance with the provisions of Section 5.04, on which the Base Rate Margins and Eurodollar Rate Margins applicable to a given period become effective. "Internal Revenue Code" means the Internal Revenue Code of 1986, as amended to the date hereof and from time to time hereafter, any succes-sor statute and any regulations or guidance promulgated thereunder. "Inventory" means, with respect to any Person, all of such Person's present and future (i) inventory, (ii) goods, merchandise and other personal property furnished or to be furnished under any contract of service or intended for sale or lease, and all consigned goods and all other items which have previously constituted Equipment of such Person but are then currently being held for sale or lease in the ordinary course of such Person's business, (iii) raw materials, work-in-process and finished goods, (iv) materials and supplies of any kind, nature or description used or consumed in such Person's business or in connection with the manufacture, production, packing, shipping, advertising, finishing or sale of any of the property described in clauses (i) through (iii) above, (v) goods in which such Person has a joint or other interest or right of any kind (including, without limitation, goods in which such Person has an interest or right as consignee), and (vi) goods which are returned to or repossessed by such Person; in each case whether in the possession of such Person, a bailee, a consignee, or any other Person for sale, storage, transit, processing, use or otherwise, and any and all documents for or relating to any of the foregoing. "Investment" means, with respect to any Person, (i) any purchase or other acquisition by that Person of Securities, or of a beneficial interest in Securities, issued by any other Person, (ii) any purchase by that Person of all or substantially all of the assets of a business conducted by another Person, and (iii) any capital contribution by that Person to any other Person. The amount of any Investment shall be the original cost of such Investment, plus the cost of all additions thereto less the amount of any return of capital or principal to the extent such return is in cash with respect to such Investment without any adjustments for increases or decreases in value or write-ups, write-downs or write-offs with respect to such Investment. "IRS" means the Internal Revenue Service and any Person succeeding to the functions thereof. "Issuing Banks" means Citibank, each Lender designated as an "Issuing Bank" on the signature pages hereof or the signature page of the Assignment and Acceptance by which it became a Lender, each other Lender or Affiliate of a Lender approved by the Collateral Agent and the Borrower who has agreed to become an Issuing Bank for the purpose of issuing Letters of Credit pursuant to Section 3.01. "Kaynar" means Kaynar Technologies Inc., a Delaware corporation. "Kaynar Acquisition" means the merger of Dah Dah, Inc., a Delaware corporation and Wholly-Owned Subsidiary of the Borrower, with and into Kaynar, with Kaynar being the surviving corporation. "Kaynar Credit Agreement" means that certain Third Amended and Restated Credit Agreement dated October 23, 1998, as amended, among Kaynar, the other credit parties thereto, the lenders from time to time parties thereto and General Electric Capital Corporation. "Kaynar Non-Compete Contract" means that certain Voting and Option Agreement dated as of December 26, 1998 among the Borrower, General Electric Capital Corporation, Dah Dah, Inc. and CFE, Inc. executed and delivered in accordance with the terms of the Kaynar Purchase Agreement. "Kaynar Purchase Agreement" means that certain Agreement and Plan of Reorganization dated as of December 26, 1998 among the Borrower, Dah Dah, Inc., a Delaware corporation, and Kaynar. "Lender" means, as of the Closing Date, each financial institution signatory hereto as a Lender and, at any other given time, each financial institution which is a party hereto as a Lender, whether as a signatory to an amendment hereto or pursuant to an Assignment and Accept-ance. "Letter of Credit" means any Commercial Letter of Credit or Standby Letter of Credit. "Letter of Credit Fee" is defined in Section 5.03(b). "Letter of Credit Obligations" means, at any particular time, the sum of (i) all outstanding Reimbursement Obligations, plus (ii) the aggregate Dollar equivalent of the undrawn face amount of all outstanding Letters of Credit, plus (iii) the aggregate Dollar equivalent of the face amount of all Letters of Credit requested by the Borrower but not yet issued (unless the request for an unissued Letter of Credit has been denied by the Issuing Bank as referenced in Section 3.01(c)(i)). "Letter of Credit Reimbursement Agreement" means, with respect to a Letter of Credit, such form of application therefor and form of reimbursement agreement therefor (whether in a single or several documents, taken together) as the Issuing Bank from which the Letter of Credit is requested may employ in the ordinary course of business for its own account, with such modifications thereto as may be agreed upon by the Issuing Bank and the Borrower and as are not materially adverse (in the judgment of the Issuing Bank and Collateral Agent) to the interests of the Lenders; provided, however, in the event of any conflict between the terms of any Letter of Credit Reimbursement Agreement and this Agree-ment, the terms of this Agreement shall control. "Liabilities and Costs" means all liabilities, obligations, responsibilities, losses, damages, personal injury, death, punitive damages, economic damages, consequential damages, treble damages, intentional, willful or wanton injury, damage or threat to the environment, natural resources or public health or welfare, costs and expenses (includ-ing, without limitation, attorney, expert and consulting fees and costs and fees and costs associated with any investigation, feasibility or Remedial Action studies), fines, penalties and monetary sanctions, interest, direct or indirect, known or unknown, absolute or contingent, past, present or future. "Lien" means any mortgage, deed of trust, pledge, hypothecation, assignment, conditional sale agreement, deposit arrangement, security interest, encumbrance, lien (statutory or other and including, without limitation, any Environmental Lien), deed of charge, preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever in respect of any property of a Person, whether granted voluntarily or imposed by law, and includes the interest of a lessor under a Capital Lease or under any financ-ing lease having substantially the same economic effect as any of the foregoing and the filing of any financing statement or similar notice (other than a financing statement filed by a "true" lessor pursuant to ' 9-408 of the Uniform Commercial Code), naming the owner of such property as debtor, under the Uniform Commercial Code or other comparable law of any jurisdiction. "Loan Account" is defined in Section 4.03(b). "Loan Documents" means this Agreement, the Notes, Hedge Agreements to which any Lender or any Affiliate of a Lender is a party, depositary account and cash management agreements to which the Borrower or any Guarantor and any Lender or any Affiliate of a Lender is a party, and all other instruments, agreements and written Contractual Obliga-tions between any Guarantor, the Borrower or any Subsidiary of the Bor-rower, either Administrative Agent, the Collateral Agent, and any of the Lenders or Issuing Banks delivered to either Administrative Agent, the Collateral Agent, such Lender or such Issuing Bank pursuant to or in connec-tion with the transactions contemplated hereby. "Loans" means all Revolving Loans, Term Loans and Swing Loans, whether Base Rate Loans or Eurodollar Rate Loans. "Margin Stock" means "margin stock" as such term is defined in Regulation U. "Material Adverse Effect" means a material adverse effect upon (i) the financial condition, operations, assets or prospects of the Borrower and its Subsidiaries on a consolidated basis, (ii) the ability of the Borrower or any of its Subsidiaries to perform its respective obligations under the Loan Docu-ments, or (iii) the ability of the Lenders, the Issuing Banks, or the Collateral Agent to enforce any of the Loan Documents. "Material Subsidiary" means a Restricted Subsidiary of the Borrower the assets of which have an aggregate book value equal to or greater than $500,000. "MIS" means computerized management information system for recording and maintenance of information regarding purchases, sales, aging, categorization, and locations of Inventory, creation and aging of Receivables, and accounts payable (including agings thereof). "Multiemployer Plan" means a "multiemployer plan" as defined in Section 4001(a)(3) of ERISA (other than a Foreign Employee Benefit Plan) which (i) is, or within the immediately preceding six (6) years was, contributed to by either the Borrower or any ERISA Affiliate or in respect of which the Borrower or any ERISA Affiliate has assumed any liability and (ii) is not a Foreign Employee Benefit Plan. "Net Cash Proceeds of Issuance of Equity Securities" means net cash proceeds (including cash, equivalents readily convertible into cash, and such proceeds of any notes received as consideration or any other non-cash consideration) received by the Borrower or any Restricted Subsidiary at any time on or after the Closing Date on account of: (i) the issuance of equity Securities other than (a) equity Securities of a Subsidiary of the Borrower issued to the Borrower; (b) equity Securities of a Subsidiary of the Borrower issued to another Subsidiary of the Borrower; and (c) equity Securities of the Borrower issued pursuant to Permitted Equity Securities Options, or (ii) a contribution to its capital by any Person (other than another "Fairchild Affiliate"). For purposes of this definition, "Fairchild Affiliate" means the Borrower and any direct or indirect Subsidiary of the Borrower. "Net Cash Proceeds of Issuance of Indebtedness" means net cash proceeds (including cash, equivalents readily convertible into cash, and such proceeds of any notes received as consideration or any other non-cash consideration) of Indebt- edness for Borrowed Money (other than such Indebtedness permitted under Section 10.01) of the Borrower or any Restricted Subsidiary, in each case net of all transaction costs and under- writers' discounts and similar fees with respect thereto. "Net Cash Proceeds of Sale" means: (i) cash proceeds (including cash, equivalents readily convertible into cash, and such proceeds of any notes received as consideration or any other non-cash consideration) from the sale, assignment or other disposition of (but not the lease or license of) any Property other than sales of property permitted under Sections 10.02(d) and 10.09, net of (a) the costs of sale, assignment or other disposi-tion, (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 received by (1) the Borrower or any Restricted Subsidiary other than proceeds of sales of Permitted Dispositions (other than (a) the Technologies Companies (upon the completion of full liquidation of all Technologies Companies) and (b) the Banner Companies (to the extent any mandatory prepayment of Net Cash Proceeds of Sale of Banner Companies is made as required by Section 4.01(b)(i)(B)), (2) the Technologies Companies upon the completion of full liquidation of all Technologies Companies, and (3) the Banner Companies (whether or not a Restricted Subsidiary) to the extent any mandatory prepayment of Net Cash Proceeds of Sale of Banner Companies is made as required by Section 4.01(b)(i)(B); and (ii) to the extent provided in Section 9.07(b), proceeds of insurance on account of the loss of or damage to any such Property or Properties, and payments of compensation for any such Property or Properties taken by condemnation or eminent domain. "Net Cash Proceeds of Sale of Banner Companies" 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 or license of) any Property or Capital Stock of the Banner Companies, other than sales of property permitted under Sections 10.02(d) and 10.09, net of (a) the costs of sale, assignment or other disposi- tion, (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. "Net Cash Proceeds of Sale of Permitted Dispositions" 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 or license of) any Property other than sales of property permitted under Sections 10.02(d) and 10.09, net of (a) the costs of sale, assignment or other disposi-tion, (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 received by the Borrower or any Restricted Subsidiary with respect to sales of Permitted Dispositions (other than the Technologies Companies (upon the completion of full liquidation of all Technologies Companies) and the Banner Companies). "Non Pro Rata Loan" is defined in Section 4.02(f). "Note" means a promissory note in the form attached hereto as Exhibit B payable to a Lender, evidencing certain of the Obligations of the Borrower to such Lender and executed by the Borrower as required by Section 4.03(a), as the same may be amended, supplemented, modified or restated from time to time, and any promissory note issued in substitution therefor; "Notes" means, collectively, all of such Notes outstanding at any given time. "Notice of Borrowing" means a notice substantially in the form of Exhibit C attached hereto and made a part hereof. "Notice of Conversion/Continuation" means a notice substantially in the form of Exhibit D attached hereto and made a part hereof with respect to a proposed conversion or continuation of a Loan pursuant to Section 5.01(c). "Obligations" means all Loans, advances, debts, liabilities, obligations, covenants and duties owing by the Borrower to either Administrative Agent, the Collateral Agent, any Lender, any Issuing Bank, any Affiliate of either Administrative Agent, the Collateral Agent, any Lender or any Issuing Bank, or any Person entitled to indemnification pursuant to Section 15.03 of this Agreement, of any kind or nature, present or future, whether or not evidenced by any note, guaranty or other instrument, arising under this Agreement, the Notes or any other Loan Document, whether or not for the payment of money, whether arising by reason of an extension of credit, opening or amendment of a Letter of Credit or payment of any draft drawn thereunder, loan, guaranty, indemnification, or in any other manner, whether direct or indirect (including those acquired by assignment), absolute or contingent, due or to become due, now existing or hereafter arising and however acquired and all liabilities and obligations owing by the Borrower or any Subsidiary of the Borrower arising with respect to depositary accounts and cash management systems maintained with any Lender or any Affiliate of any Lender for the Borrower and/or its Subsidiaries, under Hedge Agreements entered into between the Borrower and/or its Subsidiaries and any Lender or any Affiliate of any Lender, and with respect to credit cards issued by any Lender or Affiliate of any Lender to the Borrower, any Subsidiary of the Borrower, or any employee of such Person. The term includes, without limita-tion, all interest, charges, expenses, fees, attor-neys' fees and disbursements and any other sum charge- able to the Borrower under this Agreement or any other Loan Document, to the Borrower or any of its Subsidiaries under any such Hedge Agreement, and to the Borrower or any of its Subsidiaries with respect to any such depositary accounts, cash management systems and credit cards. "Officer's Certificate" means, as to a corporation, a certificate executed on behalf of such corporation by the chair- man or vice-chairman of its board of directors (if an officer of such corporation) or its presi-dent, any of its vice presidents, or its treasurer. "Operating Lease" means, as applied to any Person, any lease of any property (whether real, personal or mixed) by that Person as lessee which is not a Capital Lease. "Operating Units" means, collectively, those segments of the Borrower's business known as (i) Fairchild Fasteners Group as more particularly described on Schedule 1.01.4 attached hereto and made a part hereof and engaged in the business of manufacturing and sales of aerospace and industrial fasteners, (ii) Gas Spring Division as more particularly described on Schedule 1.01.4, (iii) Fairchild Technologies Group as more particularly described on Schedule 1.01.4, and (iv) Banner Aerospace, Inc. as more particularly described on Schedule 1.01.4; and each of the foregoing is an "Operating Unit". "Organizational Documents" means, with respect to any corporation, limited liability company, unlimited liability company, or partnership (i) the articles/certificate of incorporation or articles of association (or the equivalent organizational documents) of such corpora-tion, limited liability company, or unlimited liability company, (ii) the partnership agreement executed by the partners in the partnership, (iii) the by-laws (or the equivalent governing documents) of the corporation, limited liability company, unlimited liability company, or partnership, and (iv) any document setting forth the designation, amount and/or relative rights, limitations and preferences of any class or series of such corporation's Capital Stock or such limited liability company's, unlimited liability company's or partnership's equity or ownership interests. "OSHA" means the Occupational Safety and Health Act of 1970, 29 U.S.C. '' 651 et seq., any amendments thereto, any successor statutes and any regulations or guidance promulgated thereunder. "PBGC" means the Pension Benefit Guaranty Corporation and any Person succeeding to the functions thereof. "Permits" means any permit, approval, authorization license, variance, or permission required from a Governmental Authority or other Person under an applicable Requirement of Law. "Permitted Dispositions" means the sale, lease, transfer or other disposition of the operations and/or assets and/or Investments identified on Schedule 1.01.5 attached hereto and made a part hereof. "Permitted Equity Securities Options" means the subscriptions, options, warrants, rights, convertible securities and other agreements or commitments relating to the issuance of equity Securities identified on Schedule 1.01.6 attached hereto and made a part hereof. "Permitted Existing Indebtedness" means the Indebted- ness of the Borrower and its Subsidiaries identified on Schedule 1.01.7 attached hereto and made a part hereof. "Permitted Existing Investments" means those Invest- ments identified as such on Schedule 1.01.8 attached hereto and made a part hereof. "Permitted Existing Liens" means the Liens on assets of the Subsidiaries of the Borrower identified on Schedule 1.01.9 attached hereto and made a part hereof. "Permitted Holders" means (i) Jeffrey J. Steiner (ii) any member of Jeffrey J. Steiner's immediate family or any of his lineal descendants, (iii) any trust or estate the principal beneficiaries of which are Persons referred to in clauses (i) and (ii), (iv) in the event of the incompetence or death of any of the Persons described in clauses (i) or (ii), such Person's estate, executor, administrator, committee or other personal representative or beneficiaries, and (v) and Affiliate or "associate" (as defined in the Securities Exchange Act) of the Persons described in clauses (i), (ii), (iii) and (iv). "Person" means any natural person, corporation, limited liability company, unlimited liability company, limited partnership, general partnership, joint stock company, joint venture, association, company, trust, bank, trust company, land trust, business trust or other organization, whether or not a legal entity, and any Governmental Authority. "Plan" means an employee benefit plan defined in Section 3(3) of ERISA (other than a Foreign Employee Benefit Plan) (i) in respect of which the Borrower or any ERISA Affil- iate is, or within the immediately preceding six (6) years was, an "employer" as defined in Section 3(5) of ERISA or the Borrower or any ERISA Affiliate has assumed any liability and (ii) which is not a Foreign Employee Benefit Plan. "Potential Event of Default" means an event which, with the giving of notice or the lapse of time, or both, would consti- tute an Event of Default. "Pro Forma Balance Sheet" means, collectively, the unaudited pro forma estimated opening balance sheet, as of April 20, 1999, of the Borrower and its Subsidiaries attached hereto as Exhibit E, prepared in accordance with GAAP, dated the Closing Date, and giving effect to the extensions of credit contemplated hereby, the issuance of the Senior Subordinated Notes, the payment of the Refinanced Indebtedness, the cash purchase price under the Kaynar Purchase Agreement, and the Banner Exchange. "Projections" means the financial projections for the Borrower and its Subsidiaries and assumptions prepared by the Borrower attached hereto as Exhibit F. "Property" means any Real Property or personal prop- erty, plant, building, facility, structure, underground storage tank or unit, Equipment, Inventory, General Intangible, Receivable, or other asset owned, leased or operated by the Borrower or any Subsidiary of the Borrower, as applicable, (including any surface water thereon, and soil and groundwater thereunder). "Pro Rata Share" means, with respect to any Lender, the percentage obtained by dividing (i) the sum of such Lender's Revolving Credit Commitment (as adjusted from time to time in accordance with the provisions of this Agreement or any Assignment and Acceptance to which such Lender is a party) plus the outstanding principal balance of such Lender's Term Loan, by (ii) the sum of the aggregate amount of all of the Revolving Credit Commitments plus the outstanding balance of all Term Loans; provided, however, that, in the event the Revolving Credit Commitments have been terminated pursuant to the terms of this Agreement, "Pro Rata Share" shall be determined based upon the Revolving Credit Commitments in effect immediatly prior to such termination. "Protective Advance" is defined in Section 13.09(a). "RCRA" means the Resource Conservation and Recovery Act of 1976, 42 U.S.C. '' 6901 et seq., any amendments thereto, any successor statutes, and any regulations promulgated thereunder. "Real Property" means, with respect to any Person, all of such Person's present and future right, title and interest (including, without limitation, any leasehold estate) in (i) any plots, pieces or parcels of land, (ii) any improvements, buildings, structures and fixtures now or hereafter located or erected thereon or attached thereto of every nature whatsoever (the rights and interests described in clauses (i) and (ii) above being the "Premises"), (iii) all easements, rights of way, gores of land or any lands occupied by streets, ways, alleys, passages, sewer rights, water courses, water rights and powers, and public places adjoining such land, and any other interests in property constituting appurtenances to the Premises, or which hereafter shall in any way belong, relate or be appurtenant thereto, (iv) all hereditaments, gas, oil, minerals (with the right to extract, sever and remove such gas, oil and minerals), and easements, of every nature whatsoever, located in or on the Premises and (v) all other rights and privileges thereunto belonging or apper- taining and all extensions, additions, improvements, betterments, renewals, substitutions and replace-ments to or of any of the rights and interests described in clauses (iii) and (iv) above. "Receivables" means, with respect to any Person, all of such Person's present and future (i) accounts, (ii) contract rights, chattel paper, instruments, documents, deposit accounts, and other rights to payment of any kind, whether or not arising out of or in connection with the sale or lease of goods or the rendering of services, and whether or not earned by performance, (iii) any of the foregoing which are not evidenced by instruments or chattel paper, (iv) intercompany receivables, and any security documents executed in connection therewith, (v) proceeds of any letters of credit or insurance policies on which such Person is named as beneficiary, (vi) claims against third parties for advances and other financial accommodations and any other obligations whatsoever owing to such Person, (vii) rights in and to all security agreements, leases, guarantees, instruments, securities, documents of title and other contracts securing, evidencing, supporting or otherwise relating to any of the foregoing, together with all rights in any goods, merchandise or Inventory which any of the foregoing may represent, and (viii) rights in returned and repossessed goods, merchandise and Inventory which any of the same may represent, including, without limitation, any right of stoppage in transit. "Refinanced Indebtedness" means (i) all Indebtedness outstanding pursuant to the Banner Credit Agreement, other than contingent obligations with respect to the letters of credit issued thereunder, (ii) all Indebtedness outstanding pursuant to the TFC/RHI/FHC Credit Agreement, other than contingent obligations with respect to the letters of credit issued thereunder (which letters of credit referenced in clauses (i) and (ii) hereof constitute Letters of Credit), (iii) all Indebtedness outstanding pursuant to the Kaynar Credit Agreement, other than contingent obligations with respect to letters of credit issued thereunder in the event such letters of credit are either cash collateralized or supported by Letters of Credit, and (iv) all Indebtedness of BAR DE, Inc. outstanding under any margin loan. "Register" is defined in Section 15.01(c). "Regulation A" means Regulation A of the Federal Reserve Board as in effect from time to time. "Regulation T" means Regulation T of the Federal Reserve Board as in effect from time to time. "Regulation U" means Regulation U of the Federal Reserve Board as in effect from time to time. "Regulation X" means Regulation X of the Federal Reserve Board as in effect from time to time. "Reimbursement Date" is defined in Section 3.01(d)(i)(A). "Reimbursement Obligations" means the aggregate Dollar equivalent of the non-contingent reimbursement or repayment obliga-tions of the Borrower with respect to amounts drawn under Letters of Credit. "Release" means any release, spill, emission, leaking, pumping, pouring, dumping, injection, deposit, disposal, abandonment, or discarding of barrels, containers or other receptacles, discharge, emptying, escape, dispersal, leaching or migration into the indoor or outdoor environment or into or out of any Property, including the movement of Con-taminants through or in the air, soil, surface water, groundwater or Property. "Remedial Action" means actions required to (i) clean up, remove, treat or in any other way address Con-taminants in the indoor or outdoor environment; (ii) pre-vent the Release or threat of Release or minimize the further Release of Contaminants; or (iii) investigate and determine if a remedial response is needed and to design such a response and post- remedial investigation, monitoring, operation and maintenance and care. "Replacement Proceeds" means the amount of (i) proceeds of insurance in an amount greater than $500,000 paid on account of the loss of or damage to any Property and awards of compensation for Property taken by condemnation or eminent domain to the extent actually used to replace, rebuild or restore the Property so lost, damaged or taken, provided that the Borrower has delivered written notice to the Collateral Agent within 90 days after the Collateral Agent's receipt of the proceeds of such insurance payment or condemnation award that the owner or operator of such Property intends to so replace, rebuild or restore such Property and (ii) insurance paid on account of a business interruption occurrence to the extent actually used in the restoration or conduct of the business interrupted. "Reportable Event" means any of the events described in Section 4043(c) of ERISA and the regulations promulgated thereunder as in effect from time to time other than an event for which the thirty (30) day notice requirement has been waived by the PBGC. "Requirements of Law" means, as to any Person, the charter and by-laws or other organizational or governing docu- ments of such Person, and any law, rule or regulation, or deter- mination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject including, without limitation, the Securities Act, the Securities Exchange Act, Regulations T, U and X, ERISA, the Fair Labor Standards Act, the Worker Adjustment and Retraining Notification Act, Americans with Disabilities Act of 1990, and any certificate of occupancy, zoning ordinance, building, environ-mental or land use requirement or Permit and Environmental, Health or Safety Requirement of Law. "Requisite Lenders" means Lenders whose Term Loan Pro Rata Shares, in the aggregate, are greater than fifty-one percent (51%) and Lenders whose Revolving Credit Pro Rata Shares, in the aggregate, are greater than fifty one percent (51%); provided, however, that, in the event any of the Revolving Lenders shall have failed to fund its Revolving Credit Pro Rata Share of any Revolving Loan requested by the Borrower which such Lenders are obligated to fund under the terms of this Agreement and any such failure has not been cured, then for so long as such failure continues, "Requisite Lenders", as it pertains to Revolving Lenders, means Revolving Lenders (excluding all Revolving Lenders whose failure to fund their respective Revolving Credit Pro Rata Shares of such Revolving Loans have not been so cured) whose Revolving Credit Pro Rata Shares represent more than fifty-one percent (51%) of the aggregate Revolving Credit Pro Rata Shares of such Revolving Lenders; provided, further, however, that, in the event that the Revolving Credit Commitments have been terminated pursuant to the terms of this Agreement, "Requisite Lenders", as it pertains to Revolving Lenders, means Revolving Lenders (without regard to such Lenders' performance of their respective obligations hereunder) whose aggregate ratable shares (stated as a percentage) of the aggregate outstanding principal balance of all Revolving Loans are greater than fifty-one percent (51%). "Restricted Junior Payment" means (i) any dividend or other distribution, direct or indirect, on account of any shares of any class of Capital Stock of the Borrower or any Restricted Subsidiary now or hereafter outstanding, except a dividend payable solely in shares of that class of stock or in any junior class of stock to the holders of that class, (ii) any sinking fund or similar payment or other acquisition for value (except to the extent permitted under Section 10.05), direct or indirect, of any shares of any class of equity Securities of the Borrower or any Restricted Subsidiary now or hereafter outstanding, (iii) any payment or prepay-ment of principal of, premium, if any, or interest, fees or other charges on or with respect to, and any redemp-tion, purchase, retirement, defeasance, sinking fund or similar payment and any claim for rescission with respect to, any Indebtedness for Borrowed Money of the Borrower or any Restricted Subsidiary other than the Obligations, the Refinanced Indebtedness repaid as anticipated by this Agreement, scheduled payments of principal and interest due with respect to Indebtedness permitted under Section 10.01(c) - (i), refinancings of Permitted Existing Indebtedness permitted under Section 10.01(h), and scheduled interest payments due with respect to the Senior Subordinated Notes, and (iv) any payment made to redeem, purchase, repurchase or retire, or to obtain the surrender of, any out-stand-ing warrants, options or other rights to acquire shares of any class of Capital Stock or other equity Securities of the Borrower or any Restricted Subsidi-ary now or hereafter outstand-ing (except to the extent permitted under Section 10.05). "Restricted Subsidiaries" means any Subsidiary of the Borrower other than an Unrestricted Subsidiary. In no event shall any Unrestricted Subsidiary become a Restricted Subsidiary. "Revolving Credit Commitment" means, with respect to any Lender, the obligation of such Lender to make Revolving Loans and to participate in Letters of Credit pursuant to the terms and condi-tions of this Agreement, in an aggregate amount at any time outstanding which shall not exceed the principal amount set forth opposite such Lender's name under the heading "Revolving Credit Commit-ment" on Schedule 1.01.10 attached hereto and made a part hereof, the signature pages of any amendment hereto, or the signature page of the Assignment and Acceptance by which it became a Lender, as modified from time to time pursuant to the terms of this Agreement or to give effect to any applicable Assignment and Acceptance, and "Revolving Credit Commitments" means the aggregate principal amount of the Revolving Credit Commitments of all the Lenders, the maximum amount of which shall be $100,000,000, as reduced from time to time pursuant to Section 4.01. "Revolving Credit Obligations" means, at any par-tic- ular time, the sum of (i) the outstanding principal amount of the Revolving Loans at such time, plus (ii) the Letter of Credit Obligations at such time. "Revolving Credit Pro Rata Share" means, with respect to any Lender, the percentage obtained by dividing (i) such Lender's Revolving Credit Commitment (in each case, as adjusted from time to time in accordance with the provisions of this Agreement or any Assignment and Acceptance to which such Lender is a party) by (ii) the aggregate Revolving Credit Commitments. "Revolving Credit Termination Date" means the earliest to occur of (i) April 30, 2005 (or, if not a Business Day, the next preceding Business Day), (ii) the date of termination of the Revolving Credit Commitments pursuant to the terms of this Agreement, and (iii) the date of acceleration of the Obligations pursuant to Section 12.02. "Revolving Lender" means each Lender having a Revolving Credit Commitment. "Revolving Loans" is defined in Section 2.01(a). "RHI" means RHI Holdings, Inc., a Delaware corporation. "SBIC" means a corporation formed by the Borrower as permitted by the terms of Section 10.04(f). "Securities" means any Capital Stock, shares, voting trust certif-icates, partnership certificates or interests, bonds, debentures, notes or other evidences of indebtedness, secured or unsecured, convertible, subordinated or otherwise, or in general any instruments commonly known as "investment securities" or "securities", including, without limitation, any "security" as such term is defined in Section 8-102 of the Uniform Commercial Code, whether certificated or uncertificated, or any certificates of interest, shares, or par-tici-pations in temporary or interim certificates for the purchase or acquisi- tion of, or any right to subscribe to, purchase or acquire any of the foregoing, but shall not include the Notes or any other evidence of the Obliga-tions. "Securities Act" means the Securities Act of 1933, as amended from time to time, and any successor statute. "Securities Exchange Act" means the Securities Exchange Act of 1934, as amended from time to time, and any successor statute. "Senior Subordinated Note Indenture" means that certain Indenture dated as of April 20, 1999 between the Borrower and The Bank of New York, as Trustee, with respect to $225,000,000 10 3/4% Senior Subordinated Notes due 2009. "Senior Subordinated Notes" means the senior subordinated notes in an aggregate face amount of $225,000,000 issued by the Borrower under and pursuant to the Senior Subordinated Note Indenture and notes issued in exchange therefor as contemplated by the Senior Subordinated Note Indenture and related registration rights agreement. "Solvent", when used with respect to any Person, means that at the time of determination: (i) the Fair Market Value of its assets is in excess of the total amount of its liabilities (including, without limitation, contingent liabilities); and (ii) the present fair saleable value of its assets is greater than its probable liability on its existing debts as such debts become absolute and matured; and (iii) it is then able and expects to be able to pay its debts (including, without limitation, contingent debts and other commitments) as they mature; and (iv) it has capital sufficient to carry on its business as conducted and as proposed to be conducted. "Standby Letter of Credit" means any letter of credit issued by an Issuing Bank pursuant to Section 3.01 for the account of the Borrower or for the account of any Guarantor or any Subsidiary of the Borrower if the Borrower is jointly and severally liable for reimbursement of amounts drawn under such letter of credit, which is not a Commercial Letter of Credit. "Subsidiary" of a Person means any corporation, limited liability company, unlimited liability company, general or limited partnership, or other entity of which securities or other owner-ship interests having ordinary voting power to elect a majority of the board of directors or other Persons performing similar functions with respect to such entity are at the time directly or indirectly owned or controlled by such Person, one or more of the other subsidiaries of such Person or any combination thereof. "Swing Lender" means either Administrative Agent. "Swing Loan Availability" is defined in Section 2.01(c). "Swing Loan Reserve" means, at any time, a reserve in an amount equal to the then outstanding balance of the Swing Loans. "Swing Loans" is defined in Section 2.01(c). "Swing Loan Subfacility" means, at any time, an amount equal to the lesser of (i) $15,000,000 and (ii) the aggregate amount of the Revolving Credit Commitments of the Administrative Agents. "Taxes" is defined in Section 14.01(a). "Technologies Companies" means, collectively, (i) Fairchild Technologies USA, Inc., a Delaware corporation; (ii) Fairchild Germany, Inc., a Delaware corporation; (iii) Fairchild CDI S.A.; (iv) Fairchild Technologies Optical Disc Equipment Group GmbH until the optical disc equipment business and operations thereof are transferred to another Technologies Company; (v) Fairchild Technologies Semiconductor Equipment Group GmbH; (vi) Convac France S.A.; (vii) Fairchild Technologies Europe Limited; (viii) Fairchild Technologies Korea Limited; (ix) Snails, Inc.; (x) MediaDisc S.A.; (xi) CuTek Research, Inc.; and (xi) those operating Subsidiaries of the Borrower and Persons any equity Securities of which are owned by the Borrower or any Subsidiary of the Borrower, or which may be acquired or formed by a Technology Company after the Closing Date, which are engaged in the manufacture and sale of equipment used in the manufacture of semiconductors and optical discs; and "Technologies Company" means any of the Technologies Companies, individually. "Term Lender" means a Lender to which the Borrower is obligated with respect to a Term Loan. "Term Loan" and "Term Loans" are defined in Section 2.01(b). "Term Loan Commitment" means, with respect to any Lender, the obligation of such Lender to make Term Loans pursuant to the terms and conditions of this Agreement on the Closing Date in an aggregate amount which shall not exceed the principal amount set forth opposite such Lender's name under the heading "Term Loan Commitment" on Schedule 1.01.10 attached hereto and made a part hereof, and "Term Loan Commitments" means the aggregate principal amount of the Term Loan Commitments of all Term Lenders, the maximum amount of which shall be $225,000,000. "Term Loan Pro Rata Share" means, with respect to any Term Lender, the percentage obtained by dividing (i) the outstanding principal amount of the Term Loan payable to such Lender by (ii) the aggregate outstanding principal amount of all Term Loans. "Term Loan Termination Date" means the earlier of (i) April 30, 2006 and (ii) the date of acceleration of the Obligations pursuant to Section 12.02. "Termination Event" means (i) a Reportable Event with respect to any Benefit Plan; (ii) the withdrawal of the Borrower or any ERISA Affiliate from a Benefit Plan during a plan year in which such Borrower or such ERISA Affiliate was a "substantial employer" as defined in Section 4001(a)(2) of ERISA or the cessa- tion of operations which results in the termination of employment of 20% of Benefit Plan participants who are employees of such Borrower or any ERISA Affiliate; (iii) the imposition of an obli- gation on the Borrower or any ERISA Affiliate under Section 4041 of ERISA to provide affected parties written notice of intent to terminate a Benefit Plan in a distress termination described in Section 4041(c) of ERISA; (iv) the institution by the PBGC or any similar foreign Governmental Authority of proceedings to termi- nate a Benefit Plan or a Foreign Pension Plan; (v) any event or condition which could reasonably be expected to constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Benefit Plan; (vi) the appointment by a foreign Governmental Authority of, or the institution of proceedings by a foreign Governmental Authority to appoint, a trustee to administer any Foreign Pension Plan; or (vii) the partial or complete withdrawal of the Borrower or any ERISA Affiliate from a Multiemployer Plan or a Foreign Pension Plan. "TFC/RHI/FHC Credit Agreement" means that certain Third Amended and Restated Credit Agreement dated as of December 19, 1997, as amended, among the Borrower, RHI and FHC, as borrowers, Citicorp and NationsBank as administrative agents, Citicorp as collateral agent, and certain financial institutions as lenders and issuing banks thereunder. "Uniform Commercial Code" means the Uniform Commercial Code as enacted in the State of New York, as it may be amended from time to time. "Unrestricted Subsidiaries" means, as of any given time, (i) all of the Technologies Companies other than Fairchild Technologies Optical Disc Equipment Group GmbH, (ii) any Subsidiary of the Borrower that at the time of determination shall be or continues to be designated an Unrestricted Subsidiary by the Board of Directors of the Borrower as permitted by Section 8.06 and (iii) all Subsidiaries of an Unrestricted Subsidiary. "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 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 and (b) all returns on capital paid in cash after the Closing Date 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 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. "Voting Stock" of a Person means all classes of Capital Stock or other interests (including partnership interests) of such person then outstanding and normally entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof. "Wholly-Owned Subsidiary" means a corporation (i) one hundred percent (100%) of the Capital Stock or other equity Securities of which is owned by the Person of which it is a Subsidiary or (ii) greater than ninety-five percent (95%) of the Capital Stock or other equity Securities of which is owned by the Person of which it is a Subsidiary and the remainder of which Capital Stock or other equity Securities is owned by a nominee of such Person solely to comply with the Requirements of Law of the jurisdiction governing such corporation's organization and existence. 1.02. Computation of Time Periods.?? In this Agreement, in the computation of periods of time from a specified date to a later specified date, the word "from" means "from and including" and the words "to" and "until" each mean "to but excluding". Periods of days referred to in this Agreement shall be counted in calendar days unless Business Days are expressly prescribed. Any period determined hereunder by reference to a month or months or year or years shall end on the day in the relevant calendar month in the relevant year, if applicable, immediately preceding the date numerically corresponding to the first day of such period; provided that if such period commences on the last day of a calendar month (or on a day for which there is no numerically corresponding day in the calen-dar month during which such period is to end), such period shall, unless otherwise expressly required by the other provi-sions of this Agreement, end on the last day of the calendar month. 1.03. Accounting Terms; Financial Term Definitions.?? Subject to Section 15.04, for purposes of this Agree-ment, all accounting terms not otherwise defined herein shall have the meanings assigned to them in conformity with GAAP. 1.04. Other Terms.?? All other terms contained in this Agreement shall, unless the context indicates otherwise, have the meanings assigned to such terms by the Uniform Commercial Code to the extent the same are defined therein. 1.05. Dollar Equivalents.?? For purposes of Dollar designations or Dollar equivalent designations in this Agreement, all calculations thereof shall be determined, with respect to amounts otherwise denominated in a non-U.S. currency, based on the amount of Dollars required to purchase such amount of non- U.S. currency at the Exchange Rate therefor which is in effect on the date of determination. ARTICLE II AMOUNTS AND TERMS OF LOANS 2.01. Revolving Credit, Term Loan and Swing Loan Facilities.?? (a) Revolving Loans. Subject to the terms and conditions set forth in this Agreement, each Revolving Lender hereby severally and not jointly agrees to make revolving loans, in Dollars (each individually, a "Revolving Loan" and, collec- tively, the "Revolving Loans") to the Borrower from time to time during the period from the Closing Date to the Business Day next preceding the Revolving Credit Termination Date, in an amount not to exceed such Lender's Revolving Credit Pro Rata Share of the Availability. All Revolving Loans comprising the same Borrow-ing under this Agreement shall be made by the Lenders simultane-ously and proportionately to their then respective Revolving Credit Pro Rata Shares, it being understood that no Lender shall be responsible for any failure by any other Lender to perform its obligation to make a Loan hereunder nor shall the Revolving Credit Commitment of any Lender be increased or decreased as a result of any such failure. Subject to the provisions of this Agreement, the Borrower may repay any outstanding Revolving Loan on any day which is a Business Day and any amounts so repaid may be reborrowed, up to the amount of the Availability at the time of such Borrowing, until the Business Day next preceding the Revolving Credit Termination Date; provided, however, the Borrower shall, without notice or demand of any kind, immediately make such repayments of the Revolving Loans to the extent necessary such that the Revolving Credit Obligations at no time exceed the Revolving Credit Commitments. Each requested Borrowing of Revolving Loans funded on any Funding Date therefor shall be (i) if Base Rate Loans, in a principal amount of at least $100,000 and in integral multiples of $100,000 in excess of that amount and (ii) if Eurodollar Rate Loans, in a principal amount of at least $1,000,000 and in integral multiples of $100,000 in excess of that amount. (b) Term Loans. (i) Amount of the Term Loans. Subject to the terms and conditions set forth in this Agreement, each Term Lender hereby severally and not jointly agrees to make Term Loans, in Dollars (each such loan, individually, a "Term Loan" and, collectively, the "Term Loans") to the Borrower on the Closing Date in the aggregate principal amount equal to its respective Term Loan Commitment, such Term Loans requested in a given Notice of Borrowing to be made simultaneously, it being understood that no Lender shall be responsible for any failure by any other Lender to perform its obligation to make a Term Loan hereunder nor shall the Term Loan Commitment of any Lender be increased or decreased as a result of any such failure. (ii) Repayment of Term Loans. The outstanding balance of the Term Loans shall be repaid in nine (9) installments in the aggregate amounts set forth below on the dates set forth below with a final payment on April 30, 2006 unless the Term Loan Termination Date occurs prior to any such date, in which case all outstanding Term Loans shall be due and payable on the Term Loan Termination Date: Installment Due Date Aggregate Installment April 30, 2000 $2,250,000 April 30, 2001 $2,250,000 April 30, 2002 $2,250,000 April 30, 2003 $2,250,000 April 30, 2004 $2,250,000 April 30, 2005 $2,250,000 July 31, 2005 $52,875,000 October 30, 2005 $52,875,000 January 31, 2006 $52,875,000 April 30, 2006 $52,875,000 In addition to the scheduled payments on the Term Loans, the Borrower may make voluntary prepayments as and when described in Section 4.01(a)(i) and shall make the mandatory prepayments required in Section 4.01(b), for credit against such scheduled payments on the Term Loans pursuant to the provisions of Section 4.01(a)(i) or Section 4.01(b)(vii), as applicable. (c) Swing Loans. (i) Amount. Subject to the terms and conditions set forth in this Agreement, a Swing Lender, in its sole discretion, may from time to time after the Closing Date make loans, in Dollars, to the Borrower solely for such Swing Lender's own account (the "Swing Loans") up to an aggregate principal amount at any one time outstanding equal to the least of (A) fifty percent (50%) of the Swing Loan Subfacility, (B) such Swing Lender's unfunded Revolving Credit Commitment, and (C) the unfunded Revolving Credit Commitments as of the time such Swing Loans are requested (such least amount being referred to as the "Swing Loan Availability"); provided that in no event shall the amount of Swing Loans advanced to the Borrower at any given time exceed the amount of the Availability at such time prior to giving effect to such Swing Loans. All Swing Loans shall be Base Rate Loans and be payable, together with accrued interest thereon, on such Swing Lender's demand therefor. (ii) Making of Swing Loans. Neither Swing Lender shall have any duty to make or to continue to make Swing Loans at any time. In the event a Swing Lender determines to make any Swing Loan after Borrower's request therefor, the Swing Lender shall make the proceeds of such Swing Loan available to the Borrower at the Collateral Agent's office in New York, New York and shall disburse such proceeds in accordance with the Borrower's disbursement instructions set forth in the applicable Notice of Borrowing. Neither Swing Lender shall make any Swing Loan at any time if such Swing Lender shall have received a written notice from any Lender or shall otherwise have actual knowledge before funding such Swing Loan that one or more of the conditions precedent set forth in Section 6.02 will not be satisfied on the proposed Funding Date for such Swing Loan, but neither Swing Lender shall otherwise be required to take any action to determine that the conditions precedent set forth in Section 6.02 have been satisfied prior to making any Swing Loan. (iii) Repayment of Swing Loans. (A) From time to time when Swing Loans are outstanding, the Swing Lenders shall, at their discretion, notify the Collateral Agent of their request for repayment thereof, whereupon the Collateral Agent shall notify the Revolving Lenders of such request as set forth below. On the proposed purchase date set forth in such notice, and on the Revolving Credit Termination Date, each Revolving Lender shall irrevocably and unconditionally purchase from such Swing Lender(s), without recourse or warranty, an undivided interest and participation in such Swing Loan to the extent of such Revolving Lender's Revolving Credit Pro Rata Share thereof. The aforesaid request by the Swing Lender shall be made by written notice to the Collateral Agent (which may be delivered by facsimile transmission) or telephone to the Collateral Agent (with written confirmation thereof by facsimile transmission), which notice shall specify a proposed purchase date and be delivered to the Collateral Agent no later than 12:00 noon at least one (1) Business Day in advance of such proposed purchase date. Promptly after receipt of such notice, the Collateral Agent shall notify the Revolving Lenders of the requested purchase and each Revolving Lender shall deposit an amount equal to its Revolving Credit Pro Rata Share of the applicable Swing Loan with the Collateral Agent at its office in New York, New York, in immediately available funds not later than 1:00 p.m. (New York time) on the proposed purchase date. The Collateral Agent shall thereupon (regardless of whether the conditions precedent set forth in Section 6.02 are then satisfied) remit such amount to the Swing Lender(s) in immediately available funds. If such amount is not made available by any Revolving Lender to the Collateral Agent for remittance to the Swing Lender(s) as described above, the Swing Lender shall be entitled to recover such amount on demand from such Revolving Lender, together with accrued interest thereon, for each day from the date of demand, at the Federal Funds Rate for the first three (3) days following the date such amount was due and thereafter at the Base Rate. The failure of any Revolving Lender to pay such amount to the Swing Lender(s) shall not relieve any other Revolving Lender of its obligation to make the payment to be made by it. Upon the purchase of a Revolving Lender of a participation in any Swing Loan pursuant to this Section 2.01(c)(iii), such Revolving Lender shall be deemed to have made a Revolving Loan in the amount of such participation, and such Swing Loan shall be deemed to have been repaid in such amount. (B) Notwithstanding anything to the contrary in this Section 2.01(c), Borrower shall, whether or not a Swing Lender shall have made demand therefor, on the Revolving Credit Termination Date repay in full the principal amount of the Swing Loans then outstanding together with interest thereon. 2.02. General Terms.?? (a) Notice of Borrowing. When the Borrower desires to borrow under Section 2.01, the Borrower shall deliver to the Collateral Agent a Notice of Borrowing, signed on behalf of the Borrower, (i) on the Closing Date, in the case of a Borrowing on the Closing Date, (ii) no later than 11:00 a.m. (New York time) on the proposed Funding Date therefor, in the case of a Borrowing of Base Rate Loans after the Closing Date, and (iii) no later than 11:00 a.m. (New York time) at least three (3) Business Days in advance of the proposed Funding Date therefor, in the case of a Borrowing of Eurodollar Rate Loans after the Closing Date. Such Notice of Borrowing shall specify (i) the proposed Funding Date (which shall be a Business Day), (ii) the amount of the proposed Borrowing and whether the Borrowing is of Term Loans or Revolving Loans, (iii) in the case of Revolving Loans, the Availability as of the date of such Notice of Borrowing, (iv) whether the proposed Borrowing will be of Base Rate Loans or Eurodollar Rate Loans, (v) in the case of Eurodollar Rate Loans, the requested Eurodollar Interest Period, and (vi) the instructions for the disbursement of the proceeds of the proposed Borrowing. The Loans made on the Closing Date shall initially be Base Rate Loans and there-after may be continued as Base Rate Loans or converted into Eurodollar Rate Loans, in the manner provided in Section 5.01(c) and subject to the conditions therein set forth and in Section 5.02. In lieu of delivering such a Notice of Borrowing (except with respect to a Borrowing of Loans on the Closing Date), the Borrower may give the Collateral Agent telephonic notice of any proposed Bor-rowing by the time required under this Section 2.02(a), if the Borrower confirms such notice by delivery of the required Notice of Borrowing to the Collateral Agent by facsimile transmission promptly, but in no event later than 5:00 p.m. (New York time) on the same day, the original of which facsimile copy shall be delivered to the Collateral Agent within fourteen (14) days after the date of such transmission. Any Notice of Borrowing (or telephonic notice in lieu thereof) given pursuant to this Section 2.02(a) shall be irrevocable. Notwithstanding the foregoing, in the event a Notice of Borrowing is delivered to the Collateral Agent after 11:00 a.m. (New York time) but by 3:00 p.m. (New York time) on any specified Funding Date, Citicorp, as a Swing Lender, shall have the first option to make a Swing Loan to fund the requested Borrowing, subject to the limitations set forth in Section 2.01(c)(i), and, in the event Citicorp elects not to make such Swing Loan or Citicorp has Swing Loans aggregating the maximum available from it pursuant to Section 2.01(c)(i) outstanding on the Funding Date for the requested Borrowing, NationsBank shall have the option to make such Swing Loan. (b) Making of Term Loans and Revolving Loans. (i) Promptly after receipt of a Notice of Borrowing under Section 2.02(a) (or telephonic notice in lieu thereof), the Collateral Agent shall notify each applicable Lender, by telecopy, or other similar form of trans-mission, of the proposed Borrowing. Each Lender obligated to make a Loan with respect to the requested Borrowing shall deposit an amount equal to its Term Loan Pro Rata Share or Revolving Credit Pro Rata Share, as applicable, of the respective Term Loan or Revolving Loan amount requested with the Collateral Agent at its office in New York, New York, in immediately available funds not later than 2:00 p.m. (New York time) on the applicable Funding Date therefor. Subject to the fulfillment of the conditions precedent set forth in Section 6.01 or Section 6.02, as applicable, the Collateral Agent shall make the proceeds of such amounts received by it with respect to Loans available to the Borrower at the Collateral Agent's office in New York, New York on such Funding Date (or on the date received if later than such Funding Date) and shall disburse such proceeds in accordance with the Borrower's disburse-ment instructions set forth in the applicable Notice of Borrow-ing. The failure of any Lender to deposit the amount described above with the Collateral Agent on the applicable Funding Date shall not relieve any other Lender of its obligations hereunder to make its Loan on such Funding Date. In the event the conditions precedent set forth in Section 6.01 or 6.02, as applicable, are not fulfilled as of the proposed Funding Date for any Borrowing, the Collateral Agent shall promptly return, by wire transfer of immediately available funds, the amount deposited by each Lender to such Lender. (ii) Unless the Collateral Agent shall have been notified by any Lender (A) on the Business Day immediately preceding the applicable Funding Date in respect of any Borrowing of Loans which are Eurodollar Rate Loans or (B) prior to the time of funding thereof as specified in Section 2.02(a) in respect of any Borrowing of Loans which are Base Rate Loans, that such Lender does not intend to fund its Loan requested to be made on such Funding Date, the Collateral Agent may assume that such Lender has funded its Loan and is depositing the proceeds thereof with the Collateral Agent on the Funding Date therefor, and the Collateral Agent, in its sole discretion may, but shall not be obli-gated to, disburse a corresponding amount to the Borrower on the applicable Funding Date. If the Loan pro-ceeds corresponding to that amount are advanced to the Borrower by the Collateral Agent but are not in fact deposited with the Collateral Agent by such Lender on or prior to the applicable Funding Date, such Lender agrees to pay, and in addition the Borrower agrees to repay, to the Collateral Agent, forthwith on demand such corresponding amount, together with interest thereon, for each day from the date such amount is disbursed to or for the benefit of the Borrower until the date such amount is paid or repaid to the Collateral Agent (A) in the case of the Borrower, at the interest rate applicable to such Borrowing and (B) in the case of such Lender, at the Federal Funds Rate for the first Business Day after the applicable Funding Date, and thereafter at the interest rate applicable to such Borrowing. If such Lender shall pay to the Collateral Agent the corresponding amount, the amount so paid shall constitute such Lender's Loan, and if both such Lender and the Borrower shall pay and repay such corresponding amount, the Collateral Agent shall promptly pay to the Borrower such corresponding amount. This Section 2.02(b) does not relieve any Lender of its obligation to make its Loan on any applicable Funding Date. (c) Revolv-ing Credit Termination Date. The Revolving Credit Commitments shall terminate on the Revolving Credit Termination Date and each Revolving Lender's obliga-tion to make Revolving Loans shall terminate on the Business Day next preceding the Revolving Credit Termination Date. All outstanding Obligations shall be paid in full (or, in the case of unmatured Letter of Credit Obliga-tions, provision for payment in cash shall be made as provided in Section 3.01(a)(iv)) (i) if the Revolving Credit Commitments are terminated pursuant to Section 4.01, on the date such termination is effective and (ii) otherwise, on the earlier to occur of (A) April 30, 2005 or, if not a Business Day, the next preceding Business Day, and (B) the date of acceleration of the Obligations pursuant to Section 12.02. 2.03. Authorized Officers and Collateral Agent.?? On?? the Closing Date the Borrower shall deliver, and from time to time thereafter the Borrower may deliver, to the Collateral Agent an Officer's Certificate setting forth the names of the officers, employees and agents authorized to request Loans and Letters of Credit and to request a conversion/con-tinu-a-tion of any Loan, in each instance containing a specimen signature of each such officer, employee or agent. The officers, employees and agents so authorized shall also be author-ized to act for the Borrower in respect of all other matters relating to the Loan Documents. The Administrative Agents, Collateral Agent, Lenders and Issuing Banks shall be entitled to rely conclusively on such officer's, employee's, or agent's authority to request such Loan or Letter of Credit or such conver-sion/continuation until the Administrative Agents, Collateral Agent, Lenders and Issuing Banks receive written notice to the contrary. None of either Administrative Agent, the Collateral Agent, the Lenders, or the Issuing Banks shall have any duty to verify the authenticity of the signa-ture appearing on any such Officer's Certificate, written Notice of Borrowing or Notice of Conversion/Continuation, or any other document, and, with respect to an oral request for such a Loan or Letter of Credit or such conversion/con-tinuation, the Collateral Agent shall have no duty to verify the identity of any person representing himself or herself as one of the officers, employees or agents authorized to make such request or otherwise to act on behalf of the Borrower. None of either Administrative Agent, the Collateral Agent, the Lenders or Issuing Banks shall incur any liability to the Borrower or any other Person in acting upon any telephonic or facsimile notice referred to above which such Administrative Agent, the Collateral Agent, such Lender, or such Issuing Bank believes to have been given by a duly author-ized officer or other person authorized to borrow on behalf of the Borrower. 2.04. Use of Proceeds of Loans.?? The proceeds of the Revolving Loans and Term Loans shall be used for working capital in the ordinary course of the respective businesses of the Borrower and its Subsidiaries or for other lawful general corporate purposes not prohibited by the terms of this Agreement, including, without limitation, repayment in full on the Closing Date of the Refinanced Indebtedness as reflected on Exhibit G attached hereto and made a part hereof and payment of the cash purchase price owing under the Kaynar Purchase Agreement, but excluding, in accordance with the provisions of Section 10.10, the purchasing or carrying of Margin Stock within the meaning of Regulation U. The proceeds of the Swing Loans may be used solely for working capital in the ordinary course of business of the Borrower and the Borrower's Subsidiaries. ARTICLE III LETTERS OF CREDIT 3.01. Letters of Credit.?? Subject to the terms and conditions set forth in this Agreement, each Issuing Bank hereby severally agrees to issue for the account of the Borrower, or for the account of any Guarantor or any of the Borrower's Subsidiaries if the Borrower is jointly and severally liable for reimbursement of amounts drawn under such Letter of Credit, one or more Letters of Credit, subject to the following provisions: (a) Types and Amounts. An Issuing Bank shall not have any obligation to issue, amend or extend, and shall not issue, amend or extend, any Letter of Credit at any time: (i) if the aggregate Letter of Credit Obligations with respect to such Issuing Bank, after giving effect to the issuance, amendment or extension of the Letter of Credit requested hereunder, shall exceed any limit imposed by law or regulation upon such Issuing Bank; (ii) if the Issuing Bank receives written notice from the Collateral Agent at or before 11:00 a.m. (New York time) on the date of the proposed issuance, amendment or extension of such Letter of Credit that (A) immediately after giving effect to the issuance, amendment or extension of such Letter of Credit, (I) the Letter of Credit Obligations at such time would exceed $40,000,000 or (II) the Availability at such time would be less than zero, or (B) one or more of the conditions precedent con-tained in Sections 6.01 or 6.02, as applicable, would not on such date be satisfied, unless such conditions are thereafter satisfied and written notice of such satisfaction is given to the Issuing Bank by the Collateral Agent (and an Issuing Bank shall not otherwise be required to deter-mine that, or take notice whether, the conditions precedent set forth in Sections 6.01 or 6.02, as applicable, have been satis-fied); (iii) which is in a currency other than a currency in which such Issuing Bank is then issuing letters of credit; or (iv) which has an expiration date later than the earlier to occur of (A) the date one (1) year after the date of issuance (without regard to any automatic renewal provisions thereof) and (B) the Revolving Credit Termination Date; provided, however, that on the Revolving Credit Termination Date, Borrower shall deposit with the Collateral Agent (or respective Issuing Bank(s) at the direction of the Collateral Agent) Cash Collateral for deposit in the Cash Collateral Account or under other agreements satisfactory to the Collateral Agent and Issuing Bank(s) and in an amount equal to one hundred five percent (105%) of the then undrawn face amount of all Letters of Credit denominated in Dollars and one hundred twenty percent (120%) of the then undrawn face amount of all Letters of Credit denominated in any currency other than Dollars, in each instance for all Letters of Credit which will continue outstanding after the Revolving Credit Termination Date, plus Letter of Credit Fees with respect to such Letters of Credit for the period commencing on the Revolving Credit Termination Date through the expiry date of such Letters of Credit. (b) Conditions. In addition to being subject to the satisfaction of the conditions precedent contained in Sections 6.01 and 6.02, as applicable, the obligation of an Issuing Bank to issue, amend or extend any Letter of Credit is subject to the satisfaction in full of the following conditions: (i) if the Issuing Bank so requests, the Borrower or, in the case of Letters of Credit issued for the account of a Guarantor or any of the Borrower's Subsidiaries, the Borrower and such Guarantor or Subsidiary shall have executed and delivered to such Issuing Bank and the Collateral Agent a Letter of Credit Reimburse--ment Agreement and such other docu- ments and materials as may be required pursuant to the terms thereof; and (ii) the terms of the proposed Letter of Credit shall be satisfactory to the Issuing Bank in its sole discretion. (c) Issuance of Letters of Credit. (i) The Borrower shall give an Issuing Bank and the Collateral Agent written notice that it has selected such Issuing Bank to issue a Letter of Credit not later than 11:00 a.m. (New York time) on the third (3rd) Business Day preceding the requested date for issuance thereof under this Agreement, or such shorter notice as may be acceptable to such Issuing Bank and the Collateral Agent. Such notice shall be irrevocable unless and until such request is denied by the applicable Issuing Bank and shall specify (A) that the requested Letter of Credit is either a Commercial Letter of Credit or a Standby Letter of Credit, (B) that such Letter of Credit is solely for the account of the Borrower or the name of the Guarantor or Subsidiary of the Borrower which is jointly and severally applying for such Letter of Credit, (C) the stated amount of the Letter of Credit requested, (D) the effec-tive date (which shall be a Business Day) of issuance of such Letter of Credit, (E) the date on which such Letter of Credit is to expire (which shall be a Business Day and no later than the Business Day immediately preceding the scheduled Revolving Credit Termination Date), (F) the Person for whose benefit such Letter of Credit is to be issued, (G) other relevant terms of such Letter of Credit, (H) the Availability at such time, and (I) the amount of the then out-standing Letter of Credit Obliga-tions. Such Issuing Bank shall notify the Collateral Agent immediately upon receipt of a written notice from the Borrower requesting that a Letter of Credit be issued, or that an existing Letter of Credit be extended or amended and, upon the Collateral Agent's request therefor, send a copy of such notice to the Collateral Agent. (ii) The Issuing Bank shall give (A) the Collateral Agent written notice, or telephonic notice confirmed promptly thereafter in writing, of the issuance, amendment, extension or cancellation of a Letter of Credit and (B) promptly after issuance thereof, provide the Collateral Agent with a copy of each Letter of Credit issued and each amendment thereto. (d) Reimbursement Obligations; Duties of Issuing Banks. (i) Notwithstanding any provisions to the contrary in any Letter of Credit Reimbursement Agreement: (A) the Borrower shall reimburse, or cause the Guarantor or its Subsidiary for whose account a Letter of Credit is issued to reimburse, the Issuing Bank for amounts drawn under such Letter of Credit, in Dollars, no later than the date (the "Reimbursement Date") which is the earlier of (I) the time specified in the applicable Letter of Credit Reimbursement Agreement and (II) one (1) Business Day after the Borrower receives written notice from the Issuing Bank that payment has been made under such Letter of Credit by the Issuing Bank; and (B) all Reimbursement Obligations with respect to any Letter of Credit shall bear interest at the rate applicable to Base Rate Loans that are Revolving Loans in accordance with Section 5.01(a) from the date of the relevant drawing under such Letter of Credit until the Reimbursement Date and thereafter at the rate applicable to Base Rate Loans in accordance with Section 5.01(d). (ii) The Issuing Bank shall give the Collateral Agent written notice, or telephonic notice confirmed promptly thereafter in writing, of all drawings under a Letter of Credit and the payment (or the failure to pay when due) by the Borrower, the applicable Guarantor, or the Borrower's applicable Subsidiary on account of a Reimbursement Obligation (which notice the Collateral Agent shall promptly transmit by telegram, telex, telecopy or similar transmission to each Lender). (iii) No action taken or omitted in good faith by an Issuing Bank under or in connection with any Letter of Credit shall put such Issuing Bank under any resulting liability to any Lender, the Borrower, a Guarantor, or any of the Borrower's Subsidiaries or, so long as it is not issued in violation of Section 3.01(a), relieve any Lender of its obligations hereunder to such Issuing Bank. Solely as between the Issuing Banks and the Lenders, in determining whether to pay under any Letter of Credit, the respective Issuing Bank shall have no obligation to the Lenders other than to confirm that any documents required to be delivered under a respective Letter of Credit appear to have been deliv-ered and that they appear on their face to comply with the requirements of such Letter of Credit. (e) Participations. (i) Immediately upon issuance by an Issuing Bank of any Letter of Credit in accordance with the procedures set forth in this Section 3.01 and on the Closing Date with respect to the Letters of Credit identified on Schedule 3.02 attached hereto and made a part hereof, each Revolving Lender shall be deemed to have irrevocably and unconditionally purchased and received from that Issuing Bank, without recourse or warranty, an undivided interest and participation in such Letter of Credit to the extent of such Lender's Revolving Credit Pro Rata Share, including, without limitation, all obligations of the Borrower with respect thereto (other than amounts owing to the Issuing Bank under Section 3.01(g) and Section 5.03(b)) and any security therefor and guaranty pertaining thereto. (ii) If any Issuing Bank makes any payment under any Letter of Credit and the Borrower, or the Guarantor or the Subsidiary of the Borrower for whose account the Letter of Credit was issued, does not repay such amount to the Issuing Bank on the Reimbursement Date, the Issuing Bank shall promptly notify the Collateral Agent, which shall promptly notify each Lender, and each Revolving Lender shall promptly and unconditionally pay to the Collateral Agent for the account of such Issuing Bank, in immediately available funds, the amount of such Lender's Revolving Credit Pro Rata Share of such payment (net of that portion of such payment, if any, made by such Lender in its capacity as an Issuing Bank), and the Collateral Agent shall promptly pay to the Issuing Bank such amounts received by it, and any other amounts received by the Collateral Agent for the Issuing Bank's account, pursuant to this Section 3.01(e). All amounts so paid to the Issuing Bank shall be deemed to constitute Revolving Loans. If a Lender does not make its Revolving Credit Pro Rata Share of the amount of such payment available to the Collateral Agent, such Lender agrees to pay to the Collateral Agent for the account of the Issuing Bank, forthwith on demand, such amount together with interest thereon, for the first Busi- ness Day after the date such payment was first due at the Federal Funds Rate, and thereafter at the interest rate then applicable to Base Rate Loans that are Revolving Loans in accordance with Section 5.01(a). The failure of any Lender to make available to the Collateral Agent for the account of an Issuing Bank its Revolving Credit Pro Rata Share of any such payment shall neither relieve any other Lender of its obli-gation hereunder to make available to the Collateral Agent for the account of such Issuing Bank such other Lender's Revolving Credit Pro Rata Share of any payment on the date such payment is to be made nor increase the obligation of any other Lender to make such payment to the Collateral Agent. (iii) Whenever an Issuing Bank receives a payment on account of a Reimbursement Obligation, including any interest thereon, as to which the Collateral Agent has previously received payments from any Revolving Lender for the account of such Issuing Bank pursuant to this Section 3.01(e), such Issuing Bank shall promptly pay to the Collateral Agent and the Collateral Agent shall promptly pay to such Lender an amount equal to such Lender's Revolving Credit Pro Rata Share thereof. Each such payment shall be made by such Issuing Bank or the Collateral Agent, as the case may be, on the Business Day on which such Person receives the funds paid to such Person pursuant to the preceding sentence, if received prior to 11:00 a.m. (New York time) on such Business Day, and otherwise on the next succeeding Business Day. (iv) Upon the request of any Lender, an Issuing Bank shall furnish such Lender copies of any Letter of Credit or Letter of Credit Reimburse-ment Agreement to which such Issuing Bank is party and such other documentation as reasonably may be requested by such Lender. (v) The obligations of a Lender to make payments to the Collateral Agent for the account of any Issuing Bank with respect to a Letter of Credit shall be irrevocable, shall not be subject to any qualification or exception whatsoever except willful misconduct or gross negligence of such Issuing Bank, and shall be honored in accordance with this Article III (irrespective of the satisfaction of the conditions described in Sections 6.01 and 6.02, as applicable) under all circumstances, including, without limita-tion, any of the following circumstances: (A) any lack of validity or enforceability of this Agreement or any of the other Loan Documents; (B) the existence of any claim, setoff, defense or other right which the Borrower, any Guarantor or Subsidiary of the Borrower may have at any time against a beneficiary named in a Letter of Credit or any transferee of a beneficiary named in a Letter of Credit (or any Person for whom any such transferee may be act- ing), the Collateral Agent, the Issuing Bank, any Lender, or any other Person, whether in connection with this Agreement, any Letter of Credit, the transactions contem-plated herein or any unrelated transac-tions (including any underly-ing trans-actions between the account party and beneficiary named in any Letter of Cre-dit); (C) any draft, certificate or any other document presented under the Letter of Credit having been determined to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccu-rate in any respect; (D) the surrender or impairment of any security for the performance or observance of any of the terms of any of the Loan Documents; (E) any failure by that Issuing Bank to make any reports required pursuant to Section 3.01(h) or the inaccuracy of any such report; or (F) the occurrence of any Event of Default or Potential Event of Default. (f) Payment of Reimbursement Obligations. (i) The Borrower unconditionally agrees to pay, or cause the Guarantor or Borrower's Subsidiary for whose account a Letter of Credit is issued to pay, to each Issuing Bank, in Dollars, the amount of all Reimbursement Obligations, interest and other amounts payable to such Issuing Bank under or in connection with the Letters of Credit when such amounts are due and payable, irrespective of any claim, setoff, defense or other right which the Borrower, such Guarantor or such Subsidiary of the Borrower may have at any time against any Issuing Bank or any other Person. (ii) In the event any payment by the Borrower, such Guarantor, or such Subsidiary received by an Issuing Bank with respect to a Letter of Credit and distributed by the Collateral Agent to the Revolving Lenders on account of their participations is thereafter set aside, avoided or recovered from such Issuing Bank in connection with any receiver-ship, liquida-tion or bankruptcy proceeding, each such Lender which received such distribution shall, upon demand by such Issu-ing Bank, contribute such Lender's Revolving Credit Pro Rata Share of the amount set aside, avoided or recovered together with interest at the rate required to be paid by such Issuing Bank upon the amount required to be repaid by it. (g) Issuing Bank Charges. The Borrower shall pay, or cause the Guarantor or Borrower's Subsidiary for whose account a Letter of Credit is issued to pay, to each Issuing Bank, solely for its own account, the standard charges assessed by such Issuing Bank in connection with the issuance, administration, amendment and payment or cancellation of Letters of Credit and such compensation in respect of such Letters of Credit for the Borrower's, such Guarantor's, or such Subsidiary's account, as applicable, as may be agreed upon by the Borrower and such Issuing Bank from time to time. (h) Issuing Bank Reporting Requirements. Each Issuing Bank shall, no later than the first (1st) Business Day following the last day of each calendar month, provide to the Collateral Agent, the Borrower, and, if requested by a Lender, such Lender, separate schedules for Commercial Letters of Credit and Standby Letters of Credit issued as Letters of Credit, in form and substance reasonably satisfactory to the Collateral Agent, setting forth the aggregate Letter of Credit Obli-gations outstanding to it at the end of each day during such month and, to the extent not otherwise provided in accordance with the provisions of Section 3.01(c)(ii), any informa-tion requested by the Collateral Agent or the Borrower relating to the date of issue, account party, amount, expiration date and reference number of each Letter of Credit issued by it. (i) Indemnification; Exoneration. (i) In addition to all other amounts payable to an Issuing Bank, the Borrower hereby agrees to defend, indemnify, and save the Collateral Agent, each Issuing Bank and each Lender harmless from and against any and all claims, demands, liabilities, penalties, damages, losses (other than loss of profits), costs, charges and expenses (including reasona-ble attor-neys' fees but excluding net income taxes) which the Collateral Agent, such Issuing Bank or such Lender may incur or be subject to as a conse-quence, direct or indirect, of (A) the issuance of any Letter of Credit other than as a result of the gross negli-gence or willful misconduct of the Issuing Bank, as determined by a court of com-petent jurisdiction, or (B) the failure of the Issu-ing Bank issuing a Letter of Credit to honor a drawing under such Letter of Credit as a result of any act or omission, whether rightful or wrongful, of any present or future de jure or de facto government or Govern- mental Authority. (ii) As between the Borrower and any Guarantor or any of the Borrower's Subsidi-aries for whose account a Letter of Credit is issued on the one hand and the Collateral Agent, the Lenders and the Issuing Banks on the other hand, the Borrower assumes all risks of the acts and omissions of, or misuse of Letters of Credit by, the respective beneficiaries of the Letters of Credit. In furtherance and not in limi-tation of the foregoing, subject to the provisions of the Letter of Credit Reimbursement Agreements, the Issuing Banks and the Lenders shall not be respon-sible for: (A) the form, validity, legality, suffi- ciency, accuracy, genuineness or legal effect of any docu-ment submitted by any party in connection with the application for and issuance of the Letters of Credit, even if it should in fact prove to be in any or all respects invalid, insuf-ficient, inaccurate, fraudulent or forged; (B) the validity, legality or suffi-ciency of any instrument trans-fer-ring or assigning or purporting to transfer or assign a Letter of Credit or the rights or benefits thereunder or proceeds thereof, in whole or in part, which may prove to be invalid or ineffective for any reason; (C) failure of the bene-ficiary of a Letter of Credit to comply duly with condi-tions required in order to draw upon such Letter of Credit; (D) errors, omissions, interruptions or delays in transmission or deliv-ery of any mes-sages, by mail, cable, telegraph, telex or other-wise, whether or not they be in cipher; (E) errors in interpretation of tech-nical terms; (F) any loss or delay in the transmission or otherwise of any document required in order to make a drawing under any Letter of Credit or of the proceeds thereof; (G) the mis-application by the beneficiary of a Lette-r of Credit of the proceeds of any drawing under such Letter of Credit; and (H) any consequences arising from causes beyond the control of the Collateral Agent, the Issuing Banks or the Lenders. 3.02. Transitional Provisions.?? Schedule 3.02 contains a schedule of certain letters of credit issued prior to the Closing Date by Citibank for the account of the Borrower, a Guarantor, or for the account of a Subsidiary of the Borrower and the Borrower hereby acknowledges and confirms that it is, jointly and severally in the case of letters of credit issued for the account of a Guarantor or other Subsidiary of the Borrower, liable for reimbursement of amounts drawn thereunder. Such letters of credit shall be deemed to be Letters of Credit issued pursuant to this Agreement and be sub-ject to the provisions hereof. 3.03. Obligations Several.?? The?? obligations of each Issuing Bank and each Lender under this Article III are several and not joint, and no Issuing Bank or Lender shall be responsible for the obligation to issue Letters of Credit or participation obligation hereunder, respectively, of any other Issuing Bank or Lender. ARTICLE IV PAYMENTS AND PREPAYMENTS 4.01. Prepayments; Reductions in Commitments. ?? (a) Voluntary Prepayments/Commitment Reductions. (i) Prepayments. The Borrower may prepay the Revolving Loans in whole or in part, at any time and from time to time, subject to the right to reborrow the same in accordance with the provisions of Section 2.01(a). The Borrower may permanently prepay the Revolving Loans and Term Loans in whole or in minimum amounts of $1,000,000 and integral multiples of $1,000,000 in excess of that amount at any time upon at least three (3) Business Days' prior written notice to the Collateral Agent from the Borrower (which the Collateral Agent shall promptly transmit to each Lender), which notice shall specify the date (which shall be a Business Day) of prepayment, the aggregate principal amount of the prepayment, and whether such permanent prepayment is of Revolving Loans or Term Loans. When notice of prepayment is delivered as provided herein, the principal amount of the Loans referenced therein shall become due and payable on the prepayment date specified in such notice. Voluntary permanent prepayments of the Revolving Loans shall be allocated ratably to such Loans based on the then outstanding principal balances thereof and voluntary prepayments of the Term Loans shall be allocated ratably to the Term Loans based on the then outstanding principal balances thereof and each Term Lender's Term Loan Pro Rata Share thereof and then applied pro rata to all unpaid installments due to each Term Lender based on the respective principal balances thereof until paid in full. (ii) Voluntary Commitment Reductions. The Borrower, upon at least three (3) Business Days' prior written notice to the Collateral Agent (which the Collateral Agent shall promptly trans-mit to each Lender), shall have the right, at any time and from time to time, to terminate in whole or permanently reduce in part the Revolving Credit Commitments; provided that the Borrower shall have made whatever payment may be required to reduce the outstanding principal amount of the Revolving Loans by the aggregate amount required such that the Revolving Credit Obligations, after giving effect to such payment, will equal an amount less than or equal to the Revolving Credit Commitments as reduced or terminated. Any partial reduction of the Revolving Credit Commitments shall be in an aggregate minimum amount of $1,000,000 and integral multiples of $1,000,000 in excess of that amount. Each reduction of the Revolving Credit Commitments shall reduce the Revolving Credit Commitment of each Revolving Lender proportionately in accordance with its Revolving Credit Pro Rata Share. Any notice of termination or reduction given to the Collateral Agent under this Sec-tion 4.01(a)(ii) shall specify the date (which shall be a Business Day) of such termination or reduction and, with respect to a partial reduction, the aggregate principal amount thereof. When notice of termination or reduction is delivered as provided herein, the princi-pal amount of the Revolving Loans specified in the notice shall become due and payable on the date specified in such notice. (iii) Prepayment Fee. The prepayments and payments in respect of reductions and terminations described in this Section 4.01 may be made without premium or penalty (except as provided in Article XIV). (b) Mandatory Prepayments/Commitment Reductions. (i) Net Cash Proceeds of Sale. (A) 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 Net Cash Proceeds of Sale in an amount equal to (1) one hundred percent (100%) of such Net Cash Pro- ceeds of Sale so received in the event, at the time of such receipt, the Consolidated Indebtedness to EBITDA Ratio is greater than 4.00 to 1.00, (2) seventy-five percent (75%) of such Net Cash Proceeds of Sale so received in the event, at the time of such receipt, the Consolidated Indebtedness to EBITDA Ratio is greater than 3.00 to 1.00, but less than or equal to 4.00 to 1.00, and (3) fifty percent (50%) of such Net Cash Proceeds of Sale so received in the event, at the time of such receipt, the Consolidated Indebtedness to EBITDA Ratio is less than or equal to 3.00 to 1.00. (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 Net Cash Proceeds of Sale of Permitted Dispositions and Net Cash Proceeds of Sale of Banner Companies in an amount equal to (1) one hundred percent (100%) of the first $25,000,000 of Net Cash Proceeds of Sale of Permitted Dispositions and Net Cash Proceeds of Sale of Banner Companies received and (2) fifty percent (50%) of the next $50,000,000 of Net Cash Proceeds of Sale of Permitted Dispositions and Net Cash Proceeds of Sale of Banner Companies. (C) Notwithstanding the foregoing, with respect to Net Cash Proceeds of Sale received in connection with the sale, transfer or other disposition of the Capital Stock or assets of Banner, upon the written request of the Borrower to the Collateral Agent that the mandatory prepayment otherwise required under this Section 4.01(b)(i) be waived, an amount equal to such Net Cash Proceeds of Sale so received shall be remitted to the Collateral Agent for deposit in the Cash Collateral Account and the Collateral Agent shall hold the same in such Cash Collateral Account (absent the occurrence of any Event of Default) until the earlier to occur of (Y) the date which is 225 days after the Borrower's or any of its Subsidiaries' receipt of such Net Cash Proceeds of Sale or (Z) the date on which the Requisite Lenders shall have authorized the release of the amount so deposited (or a portion thereof) to the Borrower. In the event the amount so deposited to the Cash Collateral Account has not been released to the Borrower as referenced in clause (Z) above, the Collateral Agent shall withdraw such amount from the Cash Collateral Account on the date specified in clause (Y) above and apply the same as set forth in Section 4.01(b)(vii). (D) In the event at any time a mandatory prepayment of the Obligations is not otherwise required under this clause (i) but the Borrower or a Restricted Subsidiary has made an "Asset Disposition" (as such term is defined in the Senior Subordinated Note Indenture) which would give rise to an obligation to repurchase or repay Indebtedness in respect of the Senior Subordinated Notes but for an election on the part of the Borrower to use the proceeds of such "Asset Disposition" to repay the Obligations, the Borrower shall make or cause to be made a mandatory prepayment of the Obligations in an amount equal to 100% of the Net Cash Proceeds of Sale, Net Cash Proceeds of Sale of Banner Companies and Net Cash Proceeds of Sale of Permitted Dispositions, as applicable, notwithstanding the limitations otherwise set forth herein. (ii) Net Cash Proceeds of Issuance of Equity Securities. Unless, at the time of such receipt, the Consolidated Senior Indebtedness to EBITDA Ratio is less than 2.00 to 1.00, immediately upon the Borrower's or any Subsidiary of the Borrower's receipt of any Net Cash Proceeds of Issuance of Equity Securities, the Borrower shall make or cause to be made a mandatory prepayment in an amount equal to fifty percent (50%) of such Net Cash Proceeds of Issuance of Equity Securities. In the event at any time a mandatory prepayment of the Obligations is not otherwise required under this clause (ii) but an obligation to repurchase or repay Indebtedness in respect of the Senior Subordinated Notes would arise but for an election on the part of the Borrower to use Net Cash Proceeds of Issuance of Equity Securities to repay the Obligations, the Borrower shall make or cause to be made a mandatory prepayment of the Obligations in an amount equal to 100% of such Net Cash Proceeds of Equity Securities, notwithstanding the limitations otherwise set forth herein. (iii) Net Cash Proceeds of Issuance of Indebtedness. Immediately upon the Borrower's or any Subsidiary of the Borrower's receipt of any Net Cash Proceeds of Issuance of Indebtedness, the Borrower shall make or cause to be made a mandatory prepayment in an amount equal to one hundred percent (100%) of such Net Cash Proceeds of Issuance of Indebtedness. (iv) Excess Cash Flow. As soon as practicable, and in any event within one hundred ten (110) days after the end of each Fiscal Year of the Borrower, commencing with such Fiscal Year ending in 2000, the Borrower shall calculate the Excess Cash Flow for the Fiscal Year of the Borrower most recently ended and, unless the Consolidated Indebtedness to EBITDA Ratio for such Fiscal Year is less than 3.00 to 1.00, the Borrower shall make a mandatory prepayment of the Obligations in an amount equal to fifty percent (50%) of the Excess Cash Flow for such Fiscal Year. (v) No Waiver or Consent. Nothing in this Section 4.01(b) shall be construed to constitute the Lenders' consent to any transaction referenced in clauses (i) through (iv) above which is not expressly permitted by Article X. (vi) Notice. The Borrower shall give the Collateral Agent prior written notice or telephonic notice promptly confirmed in writing (each of which the Collateral Agent shall promptly transmit to each Lender), when a Designated Prepayment will be made (which date of prepayment shall be no later than the date on which such Designated Payment becomes due and payable pursuant to this Section 4.01(b)). (vii) Application of Designated Prepayments. Designated Prepayments shall be allocated and applied to the Obligations as follows: (A) the amount of such Designated Prepayment shall be applied, pro rata, to the outstanding principal balances of the Term Loans based on the respective Term Loan Pro Rata Shares of the Term Lenders, in each case pro rata to the unpaid installments due under each Term Loan during the period July 31, 2005 through April 30, 2006, based on the respective amounts of such installments, with each application being made to Base Rate Loans and Eurodollar Rate Loans as provided in Section 4.02(b); and (B) following the payment in full of the Term Loans or in the event there are no Term Loans outstanding as of the date a Designated Prepayment is required to be made, the remaining balance of (or entire amount of, in the event there are no Term Loans outstanding as of such required payment date) each Designated Prepayment shall be applied to the outstanding balances of the Revolving Loans, pro rata based on the respective Revolving Credit Pro Rata Shares of the Revolving Lenders, with each application being made to Base Rate Loans and Eurodollar Rate Loans as provided in Section 4.02(b), until paid in full. (c) Mandatory Reductions in Revolving Credit Commitments. The Revolving Credit Commitments shall be permanently reduced by the amount of any Designated Prepayment required to be applied to Revolving Loans pursuant to Section 4.01(b)(vii). 4.02. Payments.?? (a) Manner and Time of Payment. All payments of principal of and interest on the Loans and Reimburse-ment Obligations and other Obligations (including, without limitation, fees and expenses) which are payable to the Collateral Agent, the Lenders or any Issuing Bank shall be made without condition, set-off, or reservation of right, and, with respect to payments made other than from application of deposits in a Concentration Account, in immediately available funds, delivered to the Collateral Agent (or, in the case of Reimbursement Obligations, to the pertinent Issuing Bank), not later than 11:00 a.m. (New York time) on the date and at the place due, to such account of the Collateral Agent (or such Issuing Bank) as it may desig-nate; in each instance, for the account of the Collateral Agent, the Lenders or such Issuing Bank, as the case may be. Funds received by the Collateral Agent, including, without limitation, funds in respect of any Loans to be made on that date, not later than 11:00 a.m. (New York time) on any given Business Day shall be credited against payment to be made that day and funds received by the Collateral Agent after that time shall be deemed to have been paid on the next succeeding Business Day. Payments actually received by the Collateral Agent for the account of the Lenders or the Issu-ing Banks, or any of them, shall be paid to them by the Collateral Agent promptly after receipt thereof. (b) Pre-Default Apportionment of Payments. Subject to the provisions of Section 4.01 and Sec-tion 4.02(f), all payments of principal and interest in respect of outstanding Loans, all payments in respect of Reim-bursement Obliga-tions, all payments of fees and all other pay-ments in respect of any other Obligations, shall be allocated among such of the Lenders and Issuing Banks as are entitled thereto, and, if Lenders, in proportion to their respective Revolving Credit Pro Rata Shares or Term Loan Pro Rata Shares, as applicable, or otherwise as provided herein. Except as provided in Section 4.02(c) with respect to payments and proceeds of Collateral received after the occurrence of an Event of Default, all other payments, proceeds of Collateral, and other amounts received by the Collateral Agent from or for the benefit of the Borrower shall be applied (i) first, to pay principal of and interest on any portion of the Loans which the Collateral Agent may have advanced on behalf of any Lender (other than Citicorp if the Collateral Agent is Citicorp) for which the Collateral Agent has not then been reimbursed by such Lender or the Borrower, (ii) second, to pay principal of and interest on any Protective Advance for which the Collateral Agent has not then been paid by the Borrower or reimbursed by the Lenders, (iii) third, to pay the principal of the Loans then due and payable in the order described hereinbelow and interest on such Loans then due and payable, ratably, based on the then outstanding balances of such Loans, (iv) fourth, to pay all other Obligations then due and payable, ratably, and (v) fifth, as the Borrower designates. All such principal and interest payments in respect of Loans shall be applied first, to repay outstanding Base Rate Loans, with those Base Rate Loans which are Swing Loans being repaid first, and then to repay outstanding Eurodollar Rate Loans, with those Eurodollar Rate Loans which have earlier expiring Eurodollar Interest Periods being repaid prior to those which have later expiring Eurodollar Interest Periods. (c) Post-Default Apportionment of Payments. After the occurrence of an Event of Default and while the same is continuing, the Collateral Agent shall apply all payments in respect of any Obligations and all proceeds of Collateral in the following order: (i) first, to pay principal of and interest on any portion of the Loans which the Collateral Agent may have advanced on behalf of any Lender (other than Citicorp if the Collateral Agent is Citicorp) for which the Collateral Agent has not then been reimbursed by such Lender or the Borrower; (ii) second, to pay principal of and interest on any Protective Advance for which the Collateral Agent has not then been paid by the Borrower or reimbursed by the Lenders; (iii) third, to pay Obligations in respect of any fees, expense reimbursements or indemnities then due to the Collateral Agent; (iv) fourth, to pay Obligations in respect of any fees, expense reimbursements or indemnities then due to the Lenders and the Issuing Banks; (v) fifth, to pay interest due in respect of the Loans, ratably, in accordance with the Lenders' respective Revolving Credit Pro Rata Shares and Term Loan Pro Rata Shares, as applicable; (vi) sixth, to the ratable payment or prepayment of principal outstanding on all Loans (with Swing Loans being repaid first), the "credit exposure" of the Lenders and any Affiliate of any Lender which is a counterparty to Hedge Agreements, depositary accounts or cash management agreements which constitute Loan Documents, and principal of and interest on Letter of Credit Obligations (or, to the extent Letter of Credit Obligations are contingent, deposited in the Cash Collateral Account to provide Cash Collateral in respect of such Obligations), in accordance with the Lender's respective Revolving Credit Pro Rata Shares and Term Loan Pro Rata Shares, as applicable; and (vii) seventh, to the ratable payment of all other Obligations. For purposes of clause (vi) above, Obligations with respect to Hedge Agreements and depositary account and cash management agreements as to which an Affiliate of a Lender is a party shall be attributable to such Lender. (d) Collateral Agent Authority to Apply Funds. The Collateral Agent, in its sole discretion subject only to the terms of this Section 4.02(d), may pay from the proceeds of Loans made to the Borrower hereunder, whether made following a request by the Borrower pursuant to Section 2.02 or a deemed request as provided in this Section 4.02(d), all amounts payable by the Borrower hereunder, including, without limitation, amounts payable with respect to payments of principal, interest, Reimbursement Obligations and fees and all reimbursements for expenses pursuant to Section 15.02. The Borrower hereby irrevocably authorizes the Revolving Lenders to make Revolving Loans to it, which Revolving Loans shall be Base Rate Loans upon notice from the Collateral Agent as described in the following sentence for the purpose of paying principal, interest, Reimbursement Obligations and fees due from the Borrower, reimbursing expenses pursuant to Section 15.02 and paying any and all other amounts due and payable by the Borrower hereunder or under the Notes, and agrees that all such Loans so made shall be deemed to have been requested by it pursuant to Section 2.02 as of the date of the aforementioned notice. The Collateral Agent shall request Loans on behalf of the Borrower as described in the preceding sentence by notifying the Lenders by telecopy, telegram or other similar form of transmission (which notice the Collateral Agent shall thereafter promptly transmit to the Borrower), of the amount and Funding Date of the proposed Borrowing and that such Borrowing is being requested on the Borrower's behalf pursuant to this Section 4.02(d). On the proposed Funding Date for such Loan, the Lenders shall make the requested Loans in accordance with the procedures and subject to the conditions specified in Section 2.02. (e) Priorities and Distributions of Payments. The orders of priority set forth in Sections 4.02(b) and (c) and the related provisions of this Agreement are set forth solely to determine the rights and priorities of the Collateral Agent, the Len-ders, the Issuing Banks and other Holders as among themselves. Subject to Section 4.02(f), the Collateral Agent shall promptly distribute to each Lender and Issuing Bank at its primary address set forth on the appropri-ate signature page hereof, the signature page to the Assignment and Acceptance or amendment to this Agreement by which it became a Lender or Issuing Bank, or at such other address as a Lender, an Issuing Bank or other Holder may request in writing, such funds as such Person may be entitled to receive, subject to the provisions of Article XIV; provided that the Collateral Agent shall under no circumstances be bound to inquire into or determine the validity, scope or priority of any interest or entitlement of any Holder and may suspend all payments or seek appropriate relief (including, without limitation, instructions from the Requisite Lenders or an action in the nature of interpleader) in the event of any doubt or dispute as to any apportionment or distribution contemplated hereby. (f) Defaulting Lenders. In the event that any Lender fails to fund its Revolving Credit Pro Rata Share of any Revolving Loan or its Term Loan Pro Rata Share of any Term Loan requested by the Borrower which such Lender is obligated to fund under the terms of this Agreement (the funded portion of such Loan being hereinafter referred to as a "Non Pro Rata Loan"), until the earlier of such Lender's cure of such failure and the termination of the Revolving Credit Commitments, the proceeds of all amounts thereafter repaid to the Collateral Agent by the Borrower and otherwise required to be applied to such Lender's share of all other Obligations pursuant to the terms of this Agreement shall be advanced to the Borrower by the Collateral Agent on behalf of such Lender to cure, in full or in part, such failure by such Lender, but shall nevertheless be deemed to have been paid to such Lender in satisfaction of such other Obligations. Notwithstanding anything in this Agreement to the contrary: (i) the foregoing provisions of this Section 4.02(f) shall apply only with respect to the proceeds of payments of Obligations and shall not affect the conversion or continuation of Loans pursuant to Section 5.01(c); (ii) a Lender shall be deemed to have cured its failure to fund its Revolving Credit Pro Rata Share or Term Loan Pro Rata Share of any Loan at such time as an amount equal to such Lender's original Revolving Credit Pro Rata Share or Term Loan Pro Rata Share of the requested principal portion of such Loan is fully funded to the Borrower, whether made by such Lender itself or by operation of the terms of this Section 4.02(f), and whether or not the Non Pro Rata Loan with respect thereto has been repaid, converted or continued; (iii) amounts advanced to the Borrower to cure, in full or in part, any such Lender's failure to fund its Revolving Credit Pro Rata Share of any Revolving Loan ("Cure Loans") shall bear interest at the rate in effect from time to time pursuant to Section 5.01 and for all other purposes of this Agreement shall be treated as if they were Base Rate Loans; and (iv) regardless of whether or not an Event of Default has occurred or is continuing, and notwithstanding the instructions of the Borrower as to its desired application, all repayments of principal which, in accordance with the other terms of this Section 4.02, would be applied to the outstanding Loans which are Base Rate Loans shall be applied first, ratably to all such Base Rate Loans constituting Non Pro Rata Loans, second, ratably to such Base Rate Loans other than those constituting Non Pro Rata Loans or Cure Loans and, third, ratably to such Base Rate Loans constituting Cure Loans. (g) Payments on Non-Business Days. Whenever any pay- ment to be made by the Borrower hereunder or under the Notes is stated to be due on a day which is not a Business Day, the payment shall instead be due on the next succeeding Business Day (except as set forth in Section 5.02(b)(iii) with respect to payments due on the next preceding Business Day), and any such extension of time shall be included in the computation of the payment of interest and fees hereunder. 4.03. Promise to Repay; Evidence of Indebtedness.?? (a) Prom-ise to Repay. The Borrower hereby agrees to pay when due the principal amount of each Loan, and further agrees to pay all unpaid interest accrued thereon, in accordance with the terms of this Agreement and the Notes. The Borrower shall execute and deliver to each Lender on the Closing Date promissory notes, in form and substance acceptable to the Collateral Agent and such Lender, evidencing the Loans made from time to time hereunder by such Lender and thereafter shall execute and deliver such other promissory notes as are necessary to evidence Loans owing to the Lenders after giving effect to any assignment thereof pursuant to Section 15.01, all in form and substance acceptable to the Collateral Agent and the parties to such assignment. (b) Loan Account. Each Lender shall maintain in accordance with its usual practice an account or accounts (a "Loan Account") evidencing the Indebtedness of the Borrower to such Lender resulting from each Loan owing to such Lender from time to time, including the amount of principal and interest payable and paid to such Lender from time to time hereunder and under the Notes. (c) Control Account. The Register maintained by the Collateral Agent pursuant to Section 15.01(c) shall include a control account, and a subsidiary account for each Lender, in which accounts (taken together) shall be recorded (i) the date and amount of each Borrowing made hereunder, the type of Loan comprising such Borrowing and any Eurodollar Interest Period applicable thereto, (ii) the effective date and amount of each Assignment and Accept-ance delivered to and accepted by it and the parties thereto, (iii) the amount of any principal or interest due and payable or to become due and pay-able from the Borrower to each Lender hereunder or under the Notes, and (iv) the amount of any sum received by the Collateral Agent from the Borrower hereunder and each Lender's share thereof. (d) Entries Binding. The entries made in the Register and each Loan Account shall be conclusive and binding for all purposes, absent manifest error. 4.04. Proceeds of Collateral; Concentration Account Arrangements.?? (a) Establishment. The Borrower shall establish and maintain, and shall cause the Guarantors to establish and maintain, Collection Accounts into which all collections of Receivables shall be deposited. All amounts deposited in Collection Accounts established by the Borrower and the Guarantors shall be promptly transferred directly to the Concentration Account established at Citibank in New York, New York. The Borrower shall cause all other proceeds of Collateral to be deposited in a Concentration Account or pursuant to other similar arrangements for the collection of such amounts established by the Borrower and the Collateral Agent. All collections of Receivables and other proceeds of Collateral which are received directly by the Borrower or any Guarantor shall be deemed to have been received by the Borrower or such Guarantor as the Collateral Agent's trustee and, upon the Borrower's or such Guarantor's receipt thereof, such Borrower or such Guarantor shall immediately transfer, or cause to be transferred, all such amounts into a Concentration Account in their original form. All collections of Receivables, all payments, and all proceeds of other Collateral received by the Collateral Agent, whether through payment, deposit in a Concentration Account as described above, or otherwise, will be deemed received by the Collateral Agent, will be the sole property of the Collateral Agent, and will be held by the Collateral Agent, for the benefit of the Holders (i) for application to the Obligations pursuant to Section 4.02 and (ii) thereafter, as Cash Collateral for the Obligations, subject to the rights of the Borrower set forth in Section 4.04(b) and the rights of the Collateral Agent set forth in Section 4.06. (b) Pre-Default Withdrawals from Concentration Accounts. If requested by the Borrower, the Collateral Agent shall, so long as no Event of Default shall have occurred and be continuing or unwaived, from time to time, (i) apply funds in the Concentration Accounts promptly after deposit therein to payment of the Loans and to payment of other Obligations of the Borrower as they become due and payable, (ii) after giving effect to the aforesaid payments, invest funds on deposit in the Concentration Accounts and accrued interest thereon, reinvest proceeds of any such investments which may mature or be sold, and invest interest or other income received from such investments, in such Cash Equivalents as the Borrower may select, and (iii) upon the Borrower's request therefor after giving effect to the payments described in clause (i) above, transfer funds on deposit in the Concentration Accounts to the Borrower's or the Borrower's Subsidiaries' designated accounts. Such funds, interest, proceeds, or income which are not so disbursed, invested or reinvested shall be deposited and held in the Concentration Accounts for the benefit of the Holders as provided in Section 4.04(a). None of the Collateral Agent, any Lender or any Issuing Bank shall be liable to the Borrower or any Subsidiary of the Borrower for, or with respect to, any decline in value of amounts on deposit in the Concentration Accounts which shall have been invested pursuant to this Section 4.04(b). Cash Equivalents from time to time purchased and held pursuant to this Section 4.04(b) shall constitute Cash Collateral and shall, for purposes of this Agreement, be deemed to be part of the funds held in the Concentration Accounts in amounts equal to their respective outstanding principal amounts. (c) Reasonable Care. The Collateral Agent shall exercise reasonable care in the custody and preservation of any funds held in the Concentration Accounts and shall be deemed to have exercised such care if such funds are accorded treatment substantially equivalent to that which the Collateral Agent accords its own like property, it being understood that the Collateral Agent shall not have any responsibility for taking any steps necessary to preserve rights against any parties with respect to any such funds but may do so at its option. All reasonable expenses incurred in connection therewith shall be for the sole account of the Borrower and shall constitute Obligations hereunder. 4.05. Cash Collateral Account.?? (a) Investments. If requested by the Borrower, the Collateral Agent shall, so long as no Event of Default shall have occurred and be continuing, from time to time invest funds on deposit in the Cash Collateral Account and accrued interest thereon, reinvest proceeds of any such investments which may mature or be sold, and invest interest or other income received from any such Investments, in each case in such Cash Equivalents as the Borrower may select; provided, however, that such accrued interest and other income received from any such Investments, upon the request of the Borrower, shall be remitted to the Borrower. Such funds, interest, proceeds or income which are not so invested or reinvested in Cash Equivalents shall, except as otherwise provided above or in Section 4.05(b) and Section 4.06, be deposited and held by the Collateral Agent in the Cash Collateral Account. None of the Collateral Agent, any Lender or any Issuing Bank shall be liable to the Borrower for, or with respect to, any decline in value of amounts on deposit in the Cash Collateral Account which shall have been invested pursuant to this Section 4.05(a) at the direction of the Borrower. Cash Equivalents from time to time purchased and held pursuant to this Section 4.05(a) shall constitute Cash Collateral and shall, for purposes of this Agreement, be deemed to be part of the funds held in the Cash Collateral Account in amounts equal to their respective outstanding principal amounts. (b) Withdrawal Rights. Neither the Borrower nor any Person or entity claiming on behalf of or through the Borrower shall have any right to withdraw any of the funds held in the Cash Collateral Account, except that, upon the later to occur of (i) the expiration or termination of all of the Letters of Credit in accordance with their respective terms and (ii) the payment in full in cash of the Obligations, any funds remaining in the Cash Collateral Account shall be returned by the Collateral Agent to the Borrower or paid to whomever may be legally entitled thereto. (c) Additional Deposits. If at any time the Collateral Agent determines that any funds held in the Cash Collateral Account are subject to any interest, right, claim or Lien of any Person other than the Collateral Agent, the Borrower will, forthwith upon demand by the Collateral Agent, pay to the Collateral Agent, as additional funds to be deposited and held in the Cash Collateral Account, an amount equal to the amount of funds subject to such interest, right, claim or Lien. (d) Reasonable Care. The Collateral Agent shall exercise reasonable care in the custody and preservation of any funds held in the Cash Collateral Account and shall be deemed to have exercised such care if such funds are accorded treatment substantially equivalent to that which the Collateral Agent accords its own like property, it being understood that the Collateral Agent shall not have any responsibility for taking any necessary steps to preserve rights against any parties with respect to any such funds but may do so at its option. All expenses incurred in connection therewith shall be for the sole account of the Borrower and shall constitute Obligations hereunder. (e) Foreign Exchange Requirements. In the event deposits have been made to the Cash Collateral Account to secure Letter of Credit Obligations denominated in a non-U.S. currency, the Borrower shall enter into a Hedge Agreement for a forward foreign exchange contract reasonably satisfactory to the Collateral Agent to protect against fluctuation in the Exchange Rate for the amount of such Letter of Credit Obligations until the same are paid in full. 4.06. Post-Default Withdrawals from the Concentration Account and Cash Collateral Account.?? Notwithstanding any other provision of this Agreement, from and after (a) the occurrence of an Event of Default described in Section 12.01(a) and for so long as the same is continuing unwaived or (b) the occurrence of any other Event of Default and the Collateral Agent's receipt of written notice from the Requisite Lenders that no further withdrawals may be made from the Concentration Accounts other than for application on the Obligations for so long as the same is continuing unwaived, neither the Borrower nor any other Person or entity claiming on behalf of or through the Borrower shall have any right to withdraw any of the funds held in a Concentration Account. The Collateral Agent may, at any time during the period clause (a) or clause (b) above is applicable, sell or cause to be sold any Cash Equivalents being held by the Collateral Agent in the Concentration Accounts or as Cash Collateral at any broker's board or at public or private sale, in one or more sales or lots, at such price as the Collateral Agent may deem best, without assumption of any credit risk, and the purchaser of any or all such Cash Equivalents so sold shall thereafter own the same, absolutely free from any claim, encumbrance or right of any kind whatsoever. The Collateral Agent or any Holder may, in its own name or in the name of a designee or nominee, buy such Cash Equivalents at any public sale and, if permitted by applicable law, buy such Cash Equivalents at any private sale. The Collateral Agent shall apply the proceeds of any such sale, net of any reasonable expenses incurred in connection therewith, and any other funds deposited in the Concentration Accounts or Cash Collateral Account to the payment of the Obligations in accordance with Section 4.02(c), other than amounts which are being held as Cash Collateral for Reimbursement Obligations, which shall be applied to such Reimbursement Obligations without regard to Section 4.02(c). The Borrower agrees that any sale of Cash Equivalents conducted in conformity with reasonable commercial practices of banks, commercial finance companies, insurance companies or other financial institutions disposing of property similar to such Cash Equivalents shall be deemed to be commercially reasonable and any requirements of reasonable notice shall be met if such notice is given by the Collateral Agent within a commercially reasonable time prior to such disposition, the time of delivery of which notice the parties hereto agree shall in no event be required to be greater than five (5) Business Days before the date of the intended sale or disposition. Any other requirement of notice, demand or advertisement for sale is waived to the extent permitted by law. The Collateral Agent may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor and such sale may, without further notice, be made at the time and place to which it was so adjourned. ARTICLE V INTEREST AND FEES 5.01. Interest on the Loans and other Obligations. ??(a) Rate of Interest. (i) All Loans and the outstanding principal balance of all other Obligations shall bear interest on the unpaid principal amount thereof from the date such Loans are made and such other Obligations are incurred until paid in full, except as otherwise provided in Section 5.01(d) or Section 14.04, as follows: (A) If a Base Rate Loan or such other Obligation, at a rate per annum equal to the sum of (1) the Base Rate, as in effect from time to time as interest accrues plus (2) the Revolver Base Rate Margin, if a Revolving Credit Obligation, or the Term Base Rate Margin, if a Term Loan, applicable from time to time; and (B) If a Eurodollar Rate Loan, at a rate per annum equal to the sum of (1) the applicable Eurodollar Rate deter-mined for such Eurodollar Rate Loan for the applicable Eurodollar Interest Period, plus (2) the Revolver Eurodollar Rate Margin, if a Revolving Credit Obligation, or the Term Eurodollar Rate Margin, if a Term Loan, applicable from time to time. (ii) The applicable basis for determining the rate of interest on the Loans shall be selected by the Borrower at the time a Notice of Borrowing or a Notice of Conver-sion/Con- tinuation is delivered by the Borrower to the Collateral Agent; provided, however, the Borrower may not select a Eurodollar Rate as the applicable basis for determining the rate of interest on such a Loan if (A) such Loan is to be made on the Closing Date or (B) at the time of such selection an Event of Default or a Poten- tial Event of Default would occur or has occurred and is continuing. If on any day any Loan is outstanding with respect to which notice has not been timely delivered to the Collateral Agent in accordance with the terms of this Agree-ment speci-fying the basis for deter-min-ing the rate of interest on that day, then for that day inter-est on that Loan shall be determined by refer-ence to clause (i)(A) above. (b) Interest Payments. (i) Interest accrued on each Base Rate Loan shall be payable in arrears (A) on the first Business Day of each calendar quarter, commencing with the calendar quarter following the calendar quarter in which such Loan was made and (B) if not theretofore paid in full, at maturity (whether by acceleration or otherwise) of such Base Rate Loan. (ii) Interest accrued on each Eurodollar Rate Loan shall be payable in arrears (A) on each Eurodollar Interest Payment Date applicable to such Loan, (B) upon the payment or prepayment thereof in full or in part, and (C) if not theretofore paid in full, at maturity (whether by acceleration or otherwise) of such Eurodollar Rate Loan. (iii) Interest accrued on the principal balance of all other Obligations shall be payable in arrears (A) on the first day of each calendar quarter, commencing with the calendar quarter following the calendar quarter in which such Obligation was incurred, (B) upon repayment thereof in full or in part, and (C) if not theretofore paid in full, at the time such other Obligation becomes due and payable (whether by acceleration or otherwise). (c) Conversion or Continuation. (i) The Borrower shall have the option (A) to convert at any time all or any part of out-standing Base Rate Loans to Eurodollar Rate Loans; (B) to convert all or any part of outstanding Eurodollar Rate Loans having Eurodollar Interest Periods which expire on the same date to Base Rate Loans on such expiration date; or (C) to continue all or any part of outstanding Eurodollar Rate Loans having Eurodollar Interest Periods which expire on the same date as Eurodollar Rate Loans, and the succeed-ing Eurodollar Interest Period of such continued Loans shall commence on such expiration date; pro-vided, however, no such out-standing Loan may be continued as, or be converted into, a Eurodollar Rate Loan (i) if such continuation of, or conversion into, would violate any of the provisions of Section 5.02 or (ii) if an Event of Default or a Potential Event of Default would occur or has occurred and is continuing. Any conversion into or continuation of Eurodollar Rate Loans under this Section 5.01(c) shall be in a minimum amount of $1,000,000 and in integral multiples of $100,000 in excess of that amount except in the case of a conversion into or a continuation of an entire Borrowing of Non Pro Rata Loans. (ii) To convert or continue a Loan under Section 5.01(c)(i), the Borrower shall deliver a Notice of Conver- sion/Continuation to the Collateral Agent no later than 11:00 a.m. (New York time) at least three (3) Business Days in advance of the proposed conversion/continuation date. A Notice of Conver- sion/Continua-tion shall specify (A) the proposed conversion/con- tinua-tion date (which shall be a Business Day), (B) the aggregate principal amount of the respective Loans to be converted/continued, (C) whether such Loans shall be converted and/or continued, and (D) in the case of a con-ver-sion to, or continua-tion of, a Eurodollar Rate Loan, the requested Eurodollar Interest Period. In lieu of delivering a Notice of Conversion/Con-tinuation, the Borrower may give the Collateral Agent tele-phonic notice of any proposed conversion/continuation by the time required under this Section 5.01(c)(ii), and such notice shall be con-firmed in writing delivered to the Collateral Agent by facsimile transmission promptly (but in no event later than 5:00 p.m. (New York time) on the same day), the original of which facsimile copy shall be delivered to the Collateral Agent within three (3) days after the date of such transmission. Promptly after receipt of a Notice of Conversion/Continuation under this Section 5.01(c)(ii) (or telephonic notice in lieu there-of), the Collateral Agent shall notify each applicable Lender, by tele-copy or other similar form of trans-mission, of the proposed conversion/continuation. Any Notice of Conver- sion/Con-tinuation for conversion to, or continuation of, a Loan (or telephonic notice in lieu thereof) shall be irrevocable, and the Borrower shall be bound to convert or continue in accor-dance therewith. (d) Default Interest. Notwithstanding the rates of interest specified in Section 5.01(a), effective immediately upon the occurrence of an Event of Default (except an Event of Default resulting from the gross negligence or willful misconduct of the Collateral Agent) and for as long there-after as such Event of Default shall be continu-ing unwaived, the principal balance of all Obligations, including, to the extent permitted by applicable law, accrued interest unpaid when due, shall bear inter-est, payable on demand, at a rate which is two percent (2.0%) per annum in excess of the rate of interest specified in Section 5.01(a)(i). (e) Computation of Interest. Interest on all Obliga- tions shall be computed on the basis of the actual number of days elapsed in the period during which interest accrues and a year of 360 days. In computing interest on any Loan, the date of the making of the Loan or the first day of a Eurodollar Interest Period, as the case may be, shall be included and the date of payment or the expiration date of a Eurodollar Interest Period, as the case may be, shall be excluded; provided, however, if a Loan is repaid on the same day on which it is made, one (1) day's interest shall be paid on such Loan. 5.02. Special Provisions Governing Eurodollar Rate Loans.?? With respect to Eurodollar Rate Loans: (a) Amount of Eurodollar Rate Loans. Each Borrowing of Eurodollar Rate Loans shall be for a minimum amount of $1,000,000 and in integral multiples of $100,000 in excess of that amount. (b) Determination of Eurodollar Interest Period. By giving notice as set forth in Section 2.02(b) (with respect to a Borrowing of Eurodollar Rate Loans) or Section 5.01(c) (with respect to a conversion into or continuation of Eurodollar Rate Loans), the Borrower shall have the option, subject to the other provisions of this Section 5.02, to select an interest period (each, a "Eurodollar Interest Period") to apply to the Loans described in such notice, subject to the following provisions: (i) The Borrower may only select, as to a par-tic- ular Borrowing of Eurodollar Rate Loans, a Eurodollar Interest Period of one, two, three or six months in duration (or such intermediate periods to which each of the Lenders may agree in their sole discretion, provided that, for purposes of determining the interest rate with respect to such intermediate periods, such periods shall be rounded up to the next nearest period of full months); (ii) In the case of immediately successive Eurodollar Interest Periods applicable to a Borrowing of Eurodollar Rate Loans, each successive Eurodollar Interest Period shall commence on the day on which the next preceding Eurodollar Interest Period expires; (iii) If any Eurodollar Interest Period would otherwise expire on a day which is not a Business Day, such Eurodollar Interest Period shall be extended to expire on the next succeeding Business Day if the next succeeding Business Day occurs in the same calendar month, and if there will be no succeeding Business Day in such calendar month, the Eurodollar Interest Period shall expire on the immediately preceding Business Day; (iv) The Borrower may not select a Eurodollar Interest Period as to any Loan if such Eurodollar Interest Period terminates later than the scheduled Revolving Credit Termination Date; and (v) There shall be no more than -six (6) Eurodollar Interest Periods in effect at any one time. (c) Determination of Interest Rate. As soon as prac- ticable on the second Business Day prior to the first day of each Eurodollar Interest Period (the "Eurodollar Interest Rate Determination Date"), the Collateral Agent shall determine (pursuant to the procedures set forth in the definition of "Eurodollar Rate") the interest rate which shall apply to the Eurodollar Rate Loans for which an interest rate is then being determined for the applicable Eurodollar Interest Period and shall promptly give notice thereof (in writ-ing or by telephone confirmed in writing) to the Borrower and to each Lender. The Collateral Agent's determination shall be presumed to be correct, absent manifest error, and shall be binding upon the Borrower. (d) Interest Rate Unascertainable, Inadequate or Unfair. In the event that at least one (1) Business Day before the Eurodollar Interest Rate Determination Date: (i) the Collateral Agent is advised by Citibank that deposits in Dollars (in the appli-cable amounts) are not being offered by Citibank in the London interbank market for such Eurodollar Interest Period; or (ii) the Collateral Agent determines that adequate and fair means do not exist for ascertaining the applicable interest rates by reference to which the Eurodollar Rate then being determined is to be fixed; or (iii) Lenders with respect to the applicable Borrowing whose Revolving Credit Pro Rata Shares or Term Loan Pro Rata Shares, as applicable, aggregate at least fifty-one percent (51%) advise the Collateral Agent that the Eurodollar Rate for Eurodollar Rate Loans comprising such Borrowing will not adequately reflect the cost to such Lenders of obtaining funds in Dollars in the London interbank market in the amount substan-tially equal to such Lenders' Eurodollar Rate Loans and for a period equal to such Eurodollar Interest Period; then the Collateral Agent shall forthwith give notice thereof to the Borrower, whereupon (until the Collateral Agent noti-fies the Borrower that the circumstances giving rise to such suspension no longer exist) the right of the Borrower to elect to have Loans bear interest based upon the Eurodollar Rate shall be suspended and each outstanding Eurodollar Rate Loan shall be converted into a Base Rate Loan on the last day of the then current Eurodollar Interest Period therefor, notwithstanding any prior election by the Borrower to the contrary. (e) Booking of Eurodollar Rate Loans. Any Lender may make, carry or transfer Eurodollar Rate Loans at, to, or for the account of, its Eurodollar Lending Office or Eurodollar Affiliate or its other offices or Affiliates. No Lender shall be entitled, however, to receive any greater amount under Article XIV as a result of the transfer of any such Eurodollar Rate Loan to any office (other than such Eurodollar Lending Office) or any Affiliate (other than such Eurodollar Affiliate) than such Lender would have been entitled to receive immediately prior thereto, unless (i) the transfer occurred at a time when circumstances giving rise to the claim for such greater amount did not exist and (ii) such claim would have arisen even if such transfer had not occurred. (f) Affiliates Not Obligated. No Eurodollar Affil- iate or other Affiliate of any Lender shall be deemed a party to this Agreement or shall have any liability or obligation under this Agreement. 5.03. Fees.?? (a) Collateral Agent's Fee??. The Borrower shall pay to the Collateral Agent, solely for the account of the Collateral Agent, during the term of this Agreement, the fee provided in the Fee Letter as and when set forth therein. (b) Fronting Fee and Letter of Credit Fee. In addition to any charges paid pursuant to Section 3.01(g), the Borrower shall pay (i) to the Issuing Bank, a fee accruing at the rate of one-quarter of one percent (0.25%) per annum on the undrawn face amount of each outstanding Letter of Credit issued by such Issuing Bank (the "Fronting Fee") and (ii) to the Collateral Agent, for the account of the Revolving Lenders based on their respective Revolving Credit Pro Rata Shares, a fee (the "Letter of Credit Fee") accruing at a per annum rate equal to the Revolving Eurodollar Rate Margin minus one-quarter of one percent (0.25%) on the undrawn face amount of each outstanding Letter of Credit, which Fronting Fee and Letter of Credit Fee shall be payable quarterly, in arrears, on the first day of each calendar quarter and on the Revolving Credit Termination Date. (c) Commitment Fee. (i) The Borrower shall pay to the Collateral Agent a fee (the "Commitment Fee") for the account of the Revolving Lenders in accordance with their respective Revolving Credit Pro Rata Shares accruing at the Commitment Fee Rate applicable from time to time on the average daily amount during the applicable quarter by which the Revolving Credit Commitments exceed the sum of the Revolving Credit Obligations, such Commitment Fee being payable to the Revolving Lenders, quarterly, in arrears, commencing on the first day of the calendar quarter next suc-ceeding the Closing Date and on the Revolving Credit Termination Date. (ii) Notwithstanding the foregoing, in the event that any Lender fails to fund its Revolving Credit Pro Rata Share of any Revolving Loan which such Lender is obligated to fund under the terms of this Agreement, (A) such Lender shall not be entitled to any Commitment Fee with respect to its Revolving Credit Commitment until such failure has been cured in accordance with Section 4.02(f)(ii) and (B) until such time, the Commitment Fee shall accrue in favor of the Lenders which have funded their respective Revolving Credit Pro Rata Shares of such requested Revolving Loan, shall be allocated among such performing Lenders ratably based upon their respective Revolving Credit Commitments, and shall be calculated based upon the average amount by which the aggregate of such Revolving Credit Commitments of such performing Lenders exceeds the sum of (1) the Revolving Credit Obligations owing to such performing Lenders, plus (2) the aggregate participation interests of such performing Lenders arising pursuant to Section 3.01(e) with respect to undrawn and outstanding Letters of Credit. (d) Calculation and Payment of Fees. The Commitment Fee, Fronting Fee, and Letter of Credit Fee shall be calculated on the basis of the actual number of days elapsed in a 360-day year. All such fees shall be payable in addition to, and not in lieu of, interest, compensation, expense reimbursements, indemnification and other Obligations payable under this Agreement, to the Collateral Agent at its office in New York, New York in imme-diately available funds. All such fees shall be fully earned and nonre-fund-able when paid. All fees specified or referred to in this Agreement due to the Collateral Agent, any Issuing Bank or any Lender, including, without limitation, those referred to in this Section 5.03, shall bear interest, if not paid when due, at the interest rate for Base Rate Loans set forth in Section 5.01(d), shall constitute Obligations and shall be secured by all of the Collateral in which Liens are granted by the Borrower and Guarantors. 5.04. Determination of Applicable Base Rate Margin, Eurodollar Rate Margin and Commitment Fee Rate.?? (a) The Base Rate Margins and Eurodollar Rate Margins applicable from time to time shall be determined by reference to the Borrower's compliance with the Consolidated Indebtededness to EBITDA Ratios as provided in the definitions of Base Rate Margin and Eurodollar Rate Margin, respectively, as of the end of each Fiscal Quarter commencing with the Fiscal Quarter ending on December 27, 1999 and shall apply from and after April 1, 2000 as of the Interest Margin Effective Date immediately succeeding the end of each such Fiscal Quarter, which shall be the date on which the Borrower shall have delivered to the Collateral Agent at the address designated to the Borrower from time to time in writing, concurrently with delivery of the Financial Statements delivered as required by Section 8.01(a), the financial and other information necessary to establish Borrower's compliance with the appropriate Consolidated Indebtedness to EBITDA Ratio as of such Fiscal Quarter end. (b) The Commitment Fee Rate applicable from time to time shall be determined based on the actual daily outstanding balance of the Revolving Credit Obligations during the period for which the Commitment Fee accrues and is payable. ARTICLE VI CONDITIONS TO LOANS AND LETTERS OF CREDIT 6.01. Conditions Precedent to the Initial Loans and Letters of Credit. ?? The effectiveness of this Agreement, the obligation of each Lender on the Closing Date to make the Loan requested to be made by it, and the agreement of each Issuing Bank on the Closing Date to issue or continue Letters of Credit, shall be subject to the satisfaction of all of the following conditions precedent on or before the Closing Date: (a) Documents. The Collateral Agent shall have received on or before the Closing Date all of the following: (i) this Agreement, the Notes and all other agreements, documents and instruments relating to the loan and other credit transactions contemplated by this Agreement and described in the List of Closing Documents attached hereto as Exhibit H and made a part hereof, each duly executed where appropriate and in form and substance satisfactory to the Administrative Agents; without limiting the foregoing, the Borrower hereby directs its counsel, Cahill Gordon & Reindel, its General Counsel, Donald E. Miller, its special California counsel, Fulbright & Jaworski L.L.P., and its special Virginia counsel, Hogan & Hartson L.L.P., to prepare and deliver to the Administrative Agents, the Collateral Agent, the Lenders, the Issuing Banks and Sidley & Austin, the opinions referred to in such List of Closing Documents; (ii) the Pro Forma Balance Sheet and Projections, in form and substance satisfactory to the Administrative Agents; (iii) a solvency opinion relating to the Borrower and each Guarantor rendered by Valuation Research Corporation, dated the Closing Date, giving effect to the financing transactions contemplated hereby and under the Senior Subordinated Note Indenture, repayment of the Refinanced Indebtedness, the Banner Exchange, the Banner Distribution, and the acquisition contemplated by the Kaynar Purchase Agreement, supported by such analyses, valuations, appraisals, reviews, projections and other documentation as the Collateral Agent deems appropriate; and (iv) such additional documentation as the Administrative Agents may reasonably request. (b) Perfection of Liens. Evidence to the satisfaction of the Collateral Agent shall have been received by the Collateral Agent that all financing statements, mortgages, leasehold mortgages, and other required notices relating to the Collateral located in the United States have been delivered to the Collateral Agent for filing or have been filed or recorded, certificates representing Capital Stock comprising part of the Collateral have been delivered to the Collateral Agent (with duly executed stock powers), and all recording fees and filing taxes have been paid or provision therefor made to the satisfaction of the Collateral Agent. (c) Financial Statements and Performance. The amount equal to (i) the amount of the Consolidated Total Debt as of the Closing Date, after giving effect to the Loans and other financial accommodations provided under this Agreement, the issuance of the Senior Subordinated Notes, the acquisition of Kaynar pursuant to the Kaynar Purchase Agreement, the Banner Exchange, and repayment of the Refinanced Indebtedness, minus (ii) cash on the balance sheet of the Borrower and its Subsidiaries after giving effect to the Loans and other financial accommodations provided under this Agreement, the issuance of the Senior Subordinated Notes, the acquisition of Kaynar pursuant to the Kaynar Purchase Agreement, and repayment of the Refinanced Indebtedness, shall not exceed $525,000,000. (d) No Legal Impediments. No law, regulation, order, judgment or decree of any Governmental Authority shall, and neither Administrative Agent shall have received any notice that litigation is pending or threatened which is likely to, enjoin, prohibit or restrain either the making of the Loans and/or the issuance or continuation of Letters of Credit on the Closing Date. (e) No Change in Condition. No change in the business, assets, management, operations, financial condition or prospects of Kaynar and its Subsidiaries, taken as a whole, shall have occurred since December 31, 1998, or of the Borrower and its other Subsidiaries, taken as a whole, shall have occurred since June 30, 1998, in either case which, in the judgment of the Administrative Agents, will, or is reasonably likely to, result in a Material Adverse Effect. (f) Fees and Expenses Paid. There shall have been paid to the Collateral Agent, for the accounts of the Lenders, Issuing Banks, the Administrative Agents, and Collateral Agent, as applicable, all fees and expenses due and payable on or before the Closing Date under the Fee Letter, the Commitment Letter, and other Contractual Obligations of the Borrower and its Subsidiaries related to the transactions referenced in this Agreement to which the Collateral Agent and Administrative Agents are a party. (g) Fees and Expenses Under TFC/RHI/FHC Credit Agreement and Banner Credit Agreement Paid. All unpaid fees, interest and expenses accrued under the terms of the TFC/RHI/FHC Credit Agreement, Banner Credit Agreement, and other agreements referred to therein through the Closing Date, shall have been paid in full in immediately available funds. (h) The Senior Subordinated Notes. The Senior Subordinated Notes shall have been issued pursuant to, and in accordance with, the terms of the Senior Subordinated Note Indenture (the terms of which shall have been determined to be satisfactory to the Administrative Agents) and the Borrower shall have received a minimum of $275,000,000 in gross cash proceeds from the issuance thereof, the net cash proceeds from which issuance shall have been used to pay the cash portion of the purchase price under the terms of the Kaynar Purchase Agreement and/or to repay, in part, the Refinanced Indebtedness. (i) The Kaynar Acquisition. All material consents and approvals of Governmental Authorities and other Persons required under Requirements of Law or Contractual Obligations of the Borrower and its Subsidiaries or Kaynar and its Subsidiaries for the consummation of the transactions contemplated by the Kaynar Purchase Agreement and/or pertaining thereto and the subject matter thereof shall have been obtained, or waived with the prior written consent of the Administrative Agents. Kaynar shall have merged with and into Dah Dah, Inc. pursuant to the terms of the Kaynar Purchase Agreement and the Kaynar Non-Compete Contract shall have become effective by its terms. (j) Sale of AlliedSignal Inc. Capital Stock. BAR DE, Inc., a Wholly-Owned Subsidiary of Banner, shall have sold all of the Capital Stock of AlliedSignal Inc., a Delaware corporation, owned by BAR DE, Inc. that is not subject to either (i) that certain escrow established in connection with the transfer of certain assets of Banner and certain of its Subsidiaries to AlliedSignal Inc. and identified on Schedule 6.01-J or (ii) reservation for delivery to officers of Banner pursuant to the Banner Aerospace, Inc. Deferred Bonus Plan dated January 21, 1998 identified on Schedule 6.01-J, to a Person which is not an Affiliate of the Borrower and received in payment therefor cash in an aggregate amount of not less than $175,000,000. 6.02. Conditions Precedent to All Loans and Letters of Credit.?? The obligation of each Lender to make any Loan requested to be made by it on any Funding Date and the agreement of each Issuing Bank to issue any Letter of Credit on any date is subject to the following conditions precedent as of each such date, both before and after giving effect to the Loans to be made and/or the Letter of Credit to be issued on such date: (a) Representations and Warranties. All of the representations and warranties of the Borrower and Guarantors con-tained in Section 7.01 and in any other Loan Document (other than representations and warran-ties which expressly speak as of a different date) shall be true and correct in all material respects. (b) No Defaults. No Event of Default or Potential Event of Default shall have occurred and be continuing or would result from the making of the requested Loan or issuance of the requested Letter of Credit. (c) No Legal Impediments. No law, regulation, order, judgment or decree of any Governmental Authority shall, and the Collateral Agent shall not have received from any Lender or Issuing Bank notice that, in the judgment of such Lender or Issuing Bank, litigation is pending or threatened which is likely to, enjoin, prohibit or restrain, or impose or result in the imposition of any material adverse condi-tion upon, (i) such Lender's making of the requested Loan or participation in the requested Letter of Credit or (ii) such Issuing Bank's issuance of the requested Letter of Credit. (d) No Material Adverse Effect. No event shall have occurred since the date of this Agreement which has resulted, or is reasonably likely to result, in a Material Adverse Effect. (e) Notice of Borrowing. The Borrower shall have executed and delivered to the Collateral Agent a Notice of Borrowing in accordance with the provisions of Section 2.02. Each submission by the Borrower to the Collateral Agent of a Notice of Borrowing with respect to any Loan or a Notice of Conversion/Continuation with respect to any Loan, each acceptance by the Borrower of the proceeds of each Loan made, converted or continued hereunder, each submission by the Borrower to an Issuing Bank of a request for issuance of a Letter of Credit and the issu-ance of such Letter of Credit, shall constitute a repre- sentation and warranty by the Borrower as of the Funding Date in respect of such Loan, the date of conversion or continuation and the date of issu-ance of such Letter of Credit, that all the conditions contained in this Section 6.02 have been satisfied or waived in accordance with Section 15.07. ARTICLE VII REPRESENTATIONS AND WARRANTIES 7.01. Representations and Warranties of the Borrower. ?? In order to induce the Lenders and the Issuing Banks to enter into this Agreement and to make the Loans and the other financial accommodations to the Borrower and to issue the Letters of Credit described herein, the Borrower hereby represents and warrants to each Lender, each Issuing Bank, each Administrative Agent, and the Collateral Agent that the following statements are true, correct and complete: (a) Organization; Corporate Powers. (i) The Borrower and each Subsidiary of the Borrower (A) is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, (B) is duly qualified to do business as a foreign corporation and is in good standing under the laws of each jurisdic-tion in which failure to be so qualified and in good standing will have or is reasonably likely to have a Material Adverse Effect, and (C) has all requisite corporate power and authority to own, operate and encumber its Property and to conduct its business as presently conducted and as proposed to be conducted in connec-tion with and following the consummation of the transactions contemplated by this Agreement. The Borrower and each Subsidiary of the Borrower which is a Domestic Subsidiary has filed and maintained effective (unless exempt from the requirements for filing) a current Business Activity Report with the appropriate Governmental Authority in the states of Minnesota and New Jersey. (ii) True, correct and complete copies of the Organizational Documents identified on Schedule 7.01-A attached hereto and the Organizational Documents for each Domestic Subsidiary formed or acquired after the Closing Date have been delivered to the Collateral Agent, each of which is in full force and effect, has not been modified or amended except to the extent indicated therein and, to the best of the Borrower's knowledge, there are no defaults under such Organizational Documents and no events which, with the passage of time or giving of notice or both, would constitute a default under such Organizational Documents. (b) Authority. (i) The Borrower and each Subsidiary of the Borrower has the requisite corporate power and authority (A) to execute, deliver and perform each of the Loan Documents which have been executed by it as required by this Agreement on or prior to the Closing Dat-e and (B) to file or record the Loan Documents which have been filed or recorded by it with any Governmental Authority as required by this Agreement on or prior to the Closing Date. (ii) The execution, delivery, performance and filing or recording, as the case may be, of each of the Loan Documents which have been executed, filed or recorded as required by this Agreement on or prior to the Closing Date and to which the Borrower or any Subsidiary of the Borrower is party and the consummation of the trans-actions contemplated thereby, have been duly approved by the respective boards of directors (or substantially similar governance bodies, as applicable) and, if necessary, the shareholders of such Person and such approvals have not been rescinded. No other corporate action or proceed- ings on the part of the Borrower or any Subsidiary of the Borrower is necessary to consummate such transac-tions. (iii) Each of the Loan Documents to which the Borrower or any Subsidiary of the Borrower is a party (A) has been duly executed, delivered, filed or recorded, as the case may be, by it, (B) where applicable, creates valid and perfected first Liens in the Collateral covered thereby securing the payment of all of the Obligations purported to be secured thereby, (C) constitutes such Person's respective legal, valid and binding obligation, enforceable against it in accordance with its terms, and (D) is in full force and effect and no material term or condi-tion thereof has been amended, modified or waived from the terms and condi-tions con-tained therein as delivered to the Collateral Agent pursuant to Section 6.01(a) without the prior written consent of the Requisite Lenders. All parties to the Loan Documents have performed and complied with all the terms, provisions, agreements and condi-tions set forth therein and required to be performed or complied with by such parties on or before the Closing Date, all filings and recordings and other actions which are necessary or desirable to perfect and protect the Liens granted pursuant to the Loan Documents and preserve their required priority have been duly taken, and no Potential Event of Default, Event of Default or breach of any covenant by any such party exists thereunder. (c) Subsidiaries; Ownership of Equity Securities. Schedule 7.01-C attached hereto (i) contains a diagram indicating the corporate structure, as of the Closing Date, of the Borrower, its Subsidiaries and any other Person in which the Borrower or any of its Subsidiaries holds a direct or indirect partnership, joint venture or other equity interest and indicates the nature of such interest with respect to each Person included in such diagram and (ii) accurately sets forth (A) the correct legal name of such Person, the jurisdiction of its incorporation or organization and the jurisdictions in which it is qualified to transact business as a foreign corporation or otherwise and (B) the authorized, issued and outstanding shares or interests of each class of equity Securities of the Borrower and each of its Sub-sidiaries and the owners of such shares or interests of the Subsidiaries of the Borrower. None of such issued and outstanding equity Securities is subject to any vesting, redemption, or repurchase agreement, and there are no warrants, puts, or options (other than Permitted Equity Securities Options) outstanding with respect to such equity Securities other than as disclosed on Schedule 7.01-C. The outstanding equity Securities of the Borrower and each of its Subsidiaries are duly authorized, validly issued, fully paid and nonassessable free and clear of any Liens, except for the Liens granted pursuant to the Loan Documents, and are not Margin Stock except as specifically identified on Schedule 7.01-C. The Borrower controls, directly or through a Domestic Subsidiary, the voting power attendant to all of the Capital Stock of each of the Guarantors. (d) No Conflict. The execution, delivery and perfor- mance of each of the Loan Documents to which the Borrower or any Subsidiary of the Borrower is a party do not and will not (i) conflict with the Organizational Documents of such Person, (ii) constitute a tortious interference with any Con-tractual Obligation of any Person or conflict with, result in a breach of or constitute (with or without notice or lapse of time or both) a default under any Requirement of Law or Contrac-tual Obli-gation of such Person, or require termination of any Contrac-tual Obligation, the consequences of which violation, breach, default or termina-tion, singly or in the aggregate, will, or is reasonably likely to, result in a Material Adverse Effect or may subject the Collateral Agent, any of the Lenders or any of the Issuing Banks to any liability, (iii) result in or require the creation or imposition of any Lien whatsoever upon any of the Property or assets of such Person, other than Liens contemplated by the Loan Documents, or (iv) require any approval of such Person's share-holders, which has not been obtained. (e) Governmental Consents. The execution, delivery and performance of each of the Loan Documents to which the Borrower or any Subsidiary of the Borrower is a party do not and will not require any registration with, consent or approval of, or notice to, or other action to, with or by any Governmental Authority, except (i) filings, consents or notices which have been made, obtained or given and (ii) filings necessary to create or perfect the Collateral Agent's security interests in the Collateral. (f) Governmental Regulation. Neither the Borrower nor any Subsidiary of the Borrower is subject to regulation under the Public Utility Holding Company Act of 1935, the Federal Power Act, the Interstate Commerce Act, or the Investment Company Act of 1940, or any other federal or state statute or regulation or other Requirement of Law which limits its ability to incur indebted-ness or its ability to consummate the transactions contemplated hereby or by the Loan Documents. (g) Restricted Junior Payments. Neither the Borrower nor any Subsidiary of the Borrower has either directly or indirectly declared, ordered, paid or made or set apart any sum or Property for any Restricted Junior Payment or agreed to do so, except as permitted pursuant to Section 10.05. (h) Pro Forma Financials; Projections. The Pro Forma Balance Sheet, copies of which have been furnished to the Lenders on the Closing Date, fairly presents on a pro forma basis the financial condition of the Borrower and its Subsidiaries, on a consolidated basis, as of the date designated therein. The Projections, and the assumptions expressed in the Pro Forma Balance Sheet, are reasonable based on the information avail-able to the Borrower at the time so furnished. (i) Indebtedness. Schedule 1.01.7 attached hereto sets forth, as of the Closing Date, all Indebtedness for Borrowed Money of the Borrower and the Borrower's Subsidiaries and there are no defaults in the payment of principal or interest on any such Indebtedness and no payments thereunder have been deferred or extended beyond their stated maturity (except as disclosed on such Schedule). (j) Litigation; Adverse Effects. Except as set forth in Schedule 7.01-J attached hereto, there is no action, suit, proceeding, Claim, investigation or arbitration before or by any Governmental Authority or private arbitrator pending or, to the knowledge of the Borrower or any of the Borrower's Subsidiaries, threatened against the Borrower or any Subsidiary of the Borrower, or with respect to which the Borrower or any of its Subsidiaries may have successor liability, or any of the Property (i) challenging the validity or the enforceability of any of the Loan Docu-ments, (ii) which will, or is reasonably likely to, result in any Material Adverse Effect, or (iii) under the Racketeering Influenced and Corrupt Organizations Act or any similar federal or state statute where such Person is a defendant in a criminal indictment that provides for the forfeiture of assets to any Governmental Authority as a criminal penalty. There is no material loss contingency within the meaning of GAAP which has not been reflected in the Pro Forma Balance Sheet or, after the Closing Date, the consolidated Financial Statements of the Borrower and its Subsidiaries. Neither the Borrower nor any Subsidiary of the Borrower is (A) in violation of any applicable Requirements of Law which violation will result, or is reasonably likely to result, in a Material Adverse Effect, or (B) subject to or in default with respect to any final judgment, writ, injunction, restraining order or order of any nature, decree, rule or regulation of any court or Governmental Authority which will, or is reasonably likely to, result in a Material Adverse Effect. (k) No Material Adverse Effect. Since June 30, 1998, there has occurred no event with respect to the Borrower or any Affiliate of the Borrower which has resulted, or is reasonably likely to result, in a Material Adverse Effect. (l) Tax Examinations. The IRS has examined (or is foreclosed from examining by applicable statutes) the consolidated federal income tax returns of the Borrower for all tax periods prior to and including the taxable year ending June 30, 1995 and of Kaynar for all tax periods prior to and including the taxable year ending December 31, 1995. All defi-cien-cies which have been asserted against the Borrower or any of the Borrower's Subsidiaries as a result of any federal, state, local or foreign tax examination for each taxable year in respect of which an examination has been conducted have been fully paid or finally settled or are being contested in good faith, and no issue has been raised in any such examination which, by application of similar principles, reason-ably can be expected to result in assertion of a material deficiency for any other year not so examined which has not been reserved for in the Borrower's consolidated Financial Statements heretofore delivered to the Collateral Agent to the extent, if any, required by GAAP. Neither the Borrower nor any Subsidiary of the Borrower has taken any reporting positions for which it does not have a reasonable basis and does not anticipate any further material adverse tax liability with respect to the years which have not been closed pursuant to applicable law and which are not reserved in the Financial Statements described above or the Financial Statements of the Borrower, as applicable. (m) Payment of Taxes. All tax returns and reports of the Borrower and each of the Borrower's Subsidiaries (or the respective predecessors in interest of the Borrower and its Subsidiaries) required to be filed have been timely filed, and all taxes, assessments, fees and other charges of Governmental Authorities thereupon and upon or relating to their respective Property, assets, income and franchises which are shown in such returns or reports to be due and payable have been paid, except to the extent (i) such taxes, assessments, fees and other charges are being contested in good faith by an appropriate proceeding diligently pursued as permitted by the terms of Section 9.04 and (ii) non-payment of the amounts thereof would not, individually or in the aggregate, result in a Material Adverse Effect. The Borrower has no knowl-edge of any proposed tax assess-ment against the Borrower or any Subsidiary of the Borrower (or the respective predecessors in interest of the Borrower and its Subsidiaries) that will, or is reasonably likely to, result in a Material Adverse Effect. (n) Performance. None of the Borrower, any Subsidiary of the Borrower, or any predecessor in interest of the Borrower or any of its Subsidiaries, has received any notice, citation, or allegation, nor has actual knowledge, that (i) it is in default in the perfor-mance, observance or fulfillment of any of the obligations, covenants or conditions contained in any Contractual Obligation applicable to it, (ii) any Property of the Borrower or any Subsidiary of the Borrower is in violation of any Requirement of Law, or (iii) any condition exists which, with the giving of notice or the lapse of time or both, would constitute a default with respect to any such Contractual Obligation, in each case, except where such default or defaults, if any, will not, or is not reasonably likely to, result in a Material Adverse Effect. (o) Disclosure. The Confidential Information Memorandum dated March 1999 provided to the Lenders and the Loan Documents, and all certificates and other documents delivered to the Administrative Agents and/or Collateral Agent pursuant to the terms thereof, do not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements con-tained herein or therein, in light of the circumstances under which they were made, not misleading. The Borrower has not intentionally withheld any fact from the Administrative Agents, the Collateral Agent, the Issuing Banks or the Lenders in regard to the matters disclosed under or in connection with the Kaynar Purchase Agreement or in regard to any matter which will, or is reason-ably likely to, result in a Material Adverse Effect. (p) Requirements of Law. The Borrower and each Subsidiary of the Borrower, respectively, is in compliance with all Requirements of Law applicable to it and its respective businesses, in each case where the failure to so comply individually or in the aggregate will, or is reason-ably likely to, result in a Mate-rial Adverse Effect. (q) Environmental Matters. (i) Except as disclosed on Schedule 7.01-Q attached hereto: (A) neither the Borrower nor any Domestic Subsidiary (or any of their respective predecessors in interest) has received any unresolved notice from any federal, state or local agency to the effect that its operations are not in compliance with any applicable Environmental, Health or Safety Requirements of Law or the subject of any federal or state investigation evaluating whether any remedial action is needed to respond to a Release of a Contaminant into the environment; (B) to the knowledge of the Borrower, neither it nor any Domestic Subsidiary (or any of their respective predecessors in interest), or any of their respective present or past Property or operations, are subject to or the subject of any judicial or administrative proceeding, order, judgment, decree, dispute, negotiations, agreement, or settlement respecting (I) any Environmental, Health or Safety Requirements of Law, (II) any Remedial Action, (III) any Claims or Liabilities and Costs arising from the Release or threatened Release of a Contaminant into the environment, or (IV) any violation of or liability under any Environmental, Health or Safety Requirement of Law that the Borrower reasonably believes will result in a material expenditure of money; (C) none of the Borrower, any Domestic Subsidiary, or any of their respective predecessors in interest has filed any notice under any applicable Requirement of Law (I) reporting a Release of a Contaminant where remedial action has not been conducted to the satisfaction of the appropriate Governmental Authority; or (II) reporting a violation of any applicable Environmental, Health or Safety Requirement of Law where such violation has not been corrected to the satisfaction of the appropriate Governmental Authority; (D) none of the Borrower's or the Domestic Subsidiaries' present or past Property is listed or, to the knowledge of the Borrower, proposed for listing on the National Priorities List ("NPL") pursuant to CERCLA or on the Comprehensive Environmental Response Compensation Liability Information System List ("CERCLIS") or any similar state list of sites requiring Remedial Action; (E) to the knowledge of the Borrower, neither the Borrower nor any Domestic Subsidiary has any material contingent liability in connection with any Release or threatened Release of any Contaminants into the environment; and (F) no Environmental Lien has attached to any Property. (ii) The Borrower and each Domestic Subsidiary are conducting and will continue to conduct their respective business and operations in an environmentally responsible manner in material compliance with Environmental, Health or Safety Requirements of Law, and the Borrower and its Subsidiaries, taken as a whole, have not been, and have no reason to believe that they will be, subject to Liabilities and Costs arising out of or relating to environmental, health or safety matters that have or will result in material cash expenditures by the Borrower and the Domestic Subsidiaries in the aggregate in excess of the reserves established therefor and disclosed in the Borrower's Financial Statements. (r) ERISA. Neither the Borrower nor any Subsidiary of the Borrower contributes to any Benefit Plan, Multiemployer Plan or Foreign Pension Plan. No ERISA Event has occurred or is reasonably expected to occur that has resulted or is reasonably likely to result in a material liability of the Borrower or any Subsidiary of the Borrower. Schedule B (Actuarial Information) to the 1995 annual report (Form 5500 Series) for each Benefit Plan, copies of which have been filed with the Internal Revenue Service and furnished to the Collateral Agent, is complete and accurate and fairly presents the funding status of such Benefit Plan, and since the date of such Schedule B there has been no material adverse change in such funding status. Neither the Borrower nor any ERISA Affiliate has incurred or is reasonably expected to incur any withdrawal liability to any Multiemployer Plan. Neither the Borrower nor any ERISA Affiliate has been notified by the sponsor of a Multiemployer Plan that such Multiemployer Plan is in reorganization or has been terminated, within the meaning of Title IV of ERISA, and no Multiemployer Plan is reasonably expected to be in reorganization or to be terminated, within the meaning of Title IV of ERISA. The aggregate annualized cost (including, without limitation, the cost of insurance premiums) with respect to post-retirement benefits under Benefit Plans for which the Borrower and/or any of its Subsidiaries is liable does not exceed $10,000,000. (s) Foreign Employee Benefit Matters. Each Foreign Employee Benefit Plan is in compliance in all material respects with all laws, regulations and rules applicable thereto and the respective requirements of the governing documents for such Plan. The aggregate of the liabilities to provide all of the accrued benefits under any Foreign Pension Plan does not exceed the current fair market value of the assets held in the trust or other funding vehicle for such Plan. With respect to any Foreign Employee Benefit Plan maintained or contributed to by the Borrower, any of its Subsidiaries or any ERISA Affiliate (other than a Foreign Pension Plan), reasonable reserves have been established in accordance with prudent business practice or where required by ordinary accounting practices in the jurisdiction in which such Plan is maintained. The aggregate unfunded liabilities, after giving effect to any reserves for such liabilities, with respect to such Plans does not exceed the current fair market value of the assets held in the trust or other funding vehicle for such Plan. There are no actions, suits or claims (other than routine claims for benefits) pending or, to the best knowledge of the Borrower, threatened against the Borrower, any Sub-sidiary of the Borrower or any ERISA Affiliate with respect to any Foreign Employee Benefit Plan. (t) Labor Matters. Schedule 7.01-T accurately sets forth all labor contracts, other than national union agreements to which any Subsidiary of the Borrower domiciled in Europe is a party, to which the Borrower or any Subsidiary of the Borrower is a party on the date hereof and the expiration date of each such contract. There are no strikes, lockouts or other grievances relating to any collective bargaining or similar agreement to which the Borrower or any Subsidiary of the Borrower is a party. (u) Securities Activities. Neither the Borrower nor any Subsidiary of the Borrower is engaged in the business of extending credit for the purpose of purchasing or carrying Margin Stock. (v) Solvency. After giving effect to the Banner Distribution, the Loans to be made and Letters of Credit to be issued or continued on the Closing Date or such other date as Loans requested hereunder are made or Letters of Credit requested hereunder are issued, the guarantees of the Obligations executed and delivered by the Guarantors, the disbursement of the proceeds of such Loans pursuant to the Borrower's instructions, the repayment of the Refinanced Indebtedness, the issuance of the Senior Subordinated Notes and guarantees thereof executed and delivered by the Guarantors, and the acquisition of Kaynar pursuant to the Kaynar Purchase Agreement, the Borrower and each Guarantor is Solvent. (w) Patents, Trademarks, Permits, Etc.; Government Approvals. (i) The Borrower and each Subsidiary of the Borrower, as applicable, owns, is licensed or otherwise has the lawful right to use, or has all Permits and other governmental approvals, patents, trade-marks, trade names, copyrights, tech- nol-ogy, know-how, permits and pro-cesses used in or necessary for the conduct of its respective business as currently conducted which are material to its condition (financial or otherwise), operations, performance and prospects, taken as a whole. Except as set forth on Schedule 7.01-W attached hereto, no claims are pending or, to the best of the Borrower's knowledge following diligent inquiry, threatened that the Borrower or any Subsidiary of the Borrower is infringing or otherwise adversely affecting the rights of any Person with respect to such Permits and other governmental approvals, patents, trademarks, trade names, copy- rights, tech-nology, know-how, permits and processes, except for such claims and infringements as do not, in the aggre-gate, give rise to any liability on the part of the Borrower or any Subsidiary of the Borrower which will, or is reasonably likely to, result in a Material Adverse Effect. (ii) The consummation of the transac-tions contemplated by the Loan Documents will not impair the owner-ship of or rights under (or the license or other right to use, as the case may be) any Permits and governmental approvals, patents, trademarks, trade names, copyrights, tech-nology, know-how, permits or processes by the Borrower or any Sub-sidiary of the Borrower in any manner which will, or is reasonably likely to, result in a Material Adverse Effect. (x) Assets and Properties. The Borrower and each Subsidiary of the Borrower has good and marketable title to all of the assets and Property (tangible and intangible) owned by it (except insofar as marketability may be limited by any laws or regulations of any Governmental Authority affecting such assets), and all such assets and Property are free and clear of all Liens except Liens securing the Obligations and Liens permitted under Section 10.03. Substan-tially all of the assets and Property owned by, leased to, or used by the Borrower and/or each Subsidiary of the Borrower in their respective businesses is in adequate operating condition and repair, ordinary wear and tear excepted, is free and clear of any known defects except such defects as do not substantially interfere with the continued use thereof in the conduct of normal opera-tions, and is able to serve the function for which they are currently being used, except in each case where the failure of such asset to meet such requirements would not, or is not reasonably likely to, result in a Material Adverse Effect. Neither this Agreement nor any other Loan Docu-ment, nor any transaction contem-plated under any such agreement, will affect any right, title or interest of the Borrower or any Subsidiary of the Borrower in and to any of such assets in a manner that would, or is reasonably likely to, result in a Material Adverse Effect. (y) Insurance. Schedule 7.01-Y attached hereto or as amended from time to time accurately sets forth as of the date of such Schedule all insurance policies and programs in effect with respect to the respective Property and assets and business of the Borrower and the Borrower's Subsidiaries, specifying for each such policy and program, (i) the amount thereof, (ii) the risks insured against thereby, (iii) the name of the insurer and each insured party thereunder, (iv) the policy or other identification number thereof, and (v) the expiration date thereof. The Borrower has delivered to the Collateral Agent copies of all such insurance policies requested by the Collateral Agent. Such insurance policies and programs are currently in full force and effect, in compliance with the requirements of Section 9.05 and are in amounts sufficient to cover the replacement value of the respective Property and assets of the Borrower and the Borrower's Subsidiaries. (z) Pledge of Capital Stock. The grant and perfection of the security interest in the Capital Stock of the Subsidiaries of the Borrower constituting a portion of the Collateral for the benefit of the Holders, as contemplated by the terms of the Loan Documents-, is not made in violation of the registration provisions of the Securi-ties Act, any applicable provisions of other federal securi-ties laws, state securities or "Blue Sky" law, foreign securities law, or applicable general corporation law or in violation of any other Requirement of Law. For purposes of the representations and warranties made under this Agreement and the other Loan Documents on the Closing Date, each of Banner and Kaynar, and their respective Subsidiaries, shall be deemed to constitute a Subsidiary of the Borrower. ARTICLE VIII REPORTING COVENANTS ?? The Borrower covenants and agrees that so long as any Revolving Credit Commitments are outstanding and thereafter until payment in full of all of the Obligations (other than indemnities not yet due), unless the Requisite Lenders shall otherwise give their prior written consent thereto: 8.01. Financial Statements; Communications with Accountants.?? The Borrower shall, and shall cause each of its Subsidiaries to, maintain, a system of accounting established and administered in accordance with sound business practices to permit preparation of consolidated Finan-cial Statements in conformity with GAAP and each of the Finan-cial Statements described below shall be prepared from such system and records. (a) Quarterly Financial Reports. (i) The Borrower shall deliver or cause to be delivered to the Collateral Agent and the Lenders (A) consolidated balance sheets for the Fiscal Quarter then ended, income statements and cash flow statements of the Borrower and its Subsidiaries on a quarterly and Fiscal Year to date basis, (B) consolidating balance sheets by Operating Unit and/or Unrestricted Subsidiaries as of the Fiscal Quarter then ended and income statements by Operating Unit on a quarterly and Fiscal Year to date basis (in the forms attached hereto as Exhibit I), (C) schedules of the Consolidated Total Debt and Investments of the Borrower and its Subsidiaries in Cash Equivalents and Eligible Marketable Securities as of the end of the applicable Fiscal Quarter then ending, and (D) a summary of the Investments described in Section 10.04(d) made through the Fiscal Quarter then ended; in each event as soon as practicable, and in any event within fifty-five (55) days after the end of each Fiscal Quarter in each Fiscal Year for the Fiscal Quarter then ending, such Financial Statements for any fourth Fiscal Quarter of a Fiscal Year being unaudited preliminary Financial Statements subject to adjustment in connection with the preparation of audited Financial Statements for such Fiscal Year. (ii) The Financial Statements described in clause (i) above shall set forth, in comparative form, (A) the figures for the like period in the previous Fiscal Year and (B) the figures for the period for which the report is submitted set forth (1) in the Projections prior to delivery of an updated business plan as described in Section 8.01(d), or (2) in the most recently dated business plan delivered as described in Section 8.01(d), in each instance, all in reasonable detail. (b) Annual Financial Statements. (i) The Borrower shall deliver or cause to be delivered to the Collateral Agent and the Lenders for each Fiscal Year (A) consolidated balance sheets of the Borrower and its Subsidiaries as at the end of such Fiscal Year, (B) the related consolidated statements of income and cash flow for such Fiscal Year, and (C) consolidating balance sheets by Operating Unit and statements of income by Operating Unit for such Fiscal Year, as soon as practicable and in any event within one hundred (100) days after the end of each Fiscal Year. The consolidated Financial Statements of the Borrower and its Subsidiaries shall be accompanied by a report thereon of Arthur Andersen LLP or other independent certified public accountants of recognized national standing satisfactory to the Requisite Lenders, which report shall be unqualified and shall state that such consolidated financial statements present fairly the financial position of the applicable Persons, as at the dates indicated and the results of their operations and changes in their financial position for the periods indicated in conformity with GAAP applied on a basis consistent with prior years (or, in the event of a change in accounting principles, such accountants' concurrence with such change) and that the examination by such accountants in connection with such consolidated financial statements has been made in accordance with generally accepted auditing standards. (ii) The Financial Statements described in clause (i) above shall set forth, in comparative form, (A) the figures for the like period in the previous Fiscal Year and (B) the figures for the period for which the report is submitted set forth (1) in the Projections prior to delivery of an updated business plan as described in Section 8.01(d), or (2) in the most recently dated business plan delivered as described in Section 8.01(d), in each instance, all in reasonable detail. (c) Officer's Certificates. (i) An Officer's Certificate of the Borrower substan-tially in the form of Exhibit I attached hereto and made a part hereof shall accompany the Financial Statements certifying that such Financial Statements fairly present the financial position of the respective Operating Units or Persons, as applicable, as at the dates indicated and the results of their opera-tions for the periods indicated in accordance with GAAP, subject to normal year end adjustments, and stating that the officer signatory thereto has reviewed the terms of the Loan Documents, and has made, or caused to be made under his/her super-vision, a review in reasonable detail of the transactions and consolidated financial condition of the Operating Units or Persons, as applicable, during the accounting period covered by such Financial Statements, that such review has not dis-closed the existence during or at the end of such account- ing period, and that such Person does not have knowledge of the exist-ence as at the date of such Officer's Certificate, of any condi-tion or event which constitutes an Event of Default or Potential Event of Default, or, if any such condition or event existed or exists, specifying the nature and period of existence thereof and what action the Borrower or its Subsidiaries has/have taken, is/are taking and proposes/propose to take with respect thereto. (ii) The appropriate Financial Statements referenced above shall also be accompanied by a certificate (the "Compliance Certificate"), signed by the treasurer or vice president of the Borrower, setting forth calculations for the period then ended which demonstrate compliance with the provisions of Article XI, including, without limitation, the amount of Capital Expenditures made, on a cumulative basis since the beginning of the respective Fiscal Year, and reconciliation of the same with the related Financial Statements. (d) Annual Business Plan. With reasonable promptness after the Borrower's preparation thereof, the Borrower shall deliver to the Collateral Agent and Lenders an annual business plan. (e) Communications with Accountants. The Borrower authorizes (i) the Collateral Agent, after giving the Borrower reasonable prior written notice of its intent to do so, to communicate directly with the Borrower's independent certified public accountants concerning the Financial Statements; provided that the Borrower is not precluded by the Collateral Agent from being present for such communication and (ii) such independent certified public accountants, upon the Collateral Agent's written request with a copy to the Borrower, to provide to the Collateral Agent copies of any financial schedules prepared by such accountants for the Borrower or Subsidiaries of the Borrower. 8.02. Events of Default.?? Promptly upon any of the president, any vice president, or the treasurer of the Borrower obtaining knowledge (a) of any condition or event which constitutes an Event of Default or Potential Event of Default, or becoming aware that any Lender or the Collateral Agent has given any notice with respect to a claimed Event of Default or Potential Event of Default under this Agreement, (b) that any Person has given any notice to the Borrower or any Subsidiary of the Borrower or taken any other action with respect to a claimed default or event or condition of the type referred to in Sec-tion 12.01(e), or (c) of any condition or event which has resulted, or is reasonably likely to result, in a Material Adverse Effect or affect the value of, or the Collateral Agent's interest in, the Collateral in any material respect, the Borrower shall deliver to the Collateral Agent and the Lenders an Officer's Certificate specifying (i) the nature and period of existence of any such claimed default, Event of Default, Potential Event of Default, condition or event, (ii) the notice given or action taken by such Person in connection therewith, and (iii) what action the Borrower or Subsidiary of the Borrower has taken, is taking and/or proposes to take with respect thereto. 8.03. Lawsuits.?? Promptly upon the Borrower's obtain- ing knowledge of the institution of, or written threat of, any action, suit, proceeding, governmental investigation or arbitra- tion against or affecting the Borrower or any Subsidiary of the Borrower or any of the Property not previously disclosed pursuant to Section 7.01(j), which action, suit, proceeding, governmental investigation or arbitration exposes, or in the case of multiple actions, suits, proceedings, governmental investiga-tions or arbitrations arising out of the same general allegations or circumstances which expose, in the Borrower's reasonable judgment, the Borrower and/or any Subsidiary of the Borrower to liability in an amount aggregating $5,000,000 or more (exclusive of claims covered by insurance policies of the Borrower and the Borrower's Subsidiaries unless the insurers of such claims have disclaimed coverage or reserved the right to disclaim cover-age on such claims), the Borrower shall give written notice thereof to the Collateral Agent and the Lenders and provide such other information as may be reasonably available to enable each Lender and the Collateral Agent and its counsel to evaluate such matters. The Borrower, upon request of the Collateral Agent or the Requisite Lenders, shall promptly give written notice of the status of any action, suit, proceeding, governmental investigation or arbitration covered by a report delivered in accordance herewith and provide such other information as may be reasonably available to it to enable each Lender and the Collateral Agent and its counsel to evaluate such matters. 8.04. ?? Environmental Notices??. The Borrower shall notify the Collateral Agent and the Lenders in writing, promptly upon the Borrower's learning thereof, of any: (a) notice or claim to the effect that the Borrower or any Subsidiary of the Borrower is subject to investigation or may be subject to investigation or liable in an amount exceeding $4,000,000 to any Person as a result of the Release or threatened Release of any Contaminant into the environment; (b) notice that any Property is subject to an Environmental Lien; and (c) notice to the Borrower or any Subsidiary of the Borrower of any material violation of any Environmental, Health or Safety Requirement of Law or the commencement or threat of any judicial or Collateral proceeding alleging such a material violation by the Borrower or any Subsidiary of the Borrower. Concurrently with the annual delivery to the independent accountants of the Borrower of a letter relating to financial exposure of the Borrower and its Subsidiaries with respect to Environmental Liabilities and Costs substantially in the form of that letter dated August 18, 1998 addressed to Arthur Andersen LLP, a copy of which has been delivered to the Collateral Agent prior to the Closing Date, the Borrower shall deliver a like letter addressed to the Collateral Agent; provided, however, that in the event no such letter is provided to the independent accountants of the Borrower with respect to any given Fiscal Year, such letter shall be prepared with respect to such Fiscal Year and delivered to the Collateral Agent on October 31 of the calendar year in which such Fiscal Year ends. 8.05. Other Reports and Information.?? (a) Notices of Publicly Available Information. The Borrower shall deliver or cause to be delivered to the Collateral Agent and the Lenders notice of publicly available Financial Statements, reports and notices, if any, sent or made available generally by the Borrower to its Securities holders or filed with the Commission and all press releases made available generally by the Borrower or any Subsidiary of the Borrower to the public concerning material developments in the business of the Borrower or any Subsidiary of the Borrower, in each instance, promptly upon the making of such reports, giving of such notices or press releases, and filings with the Commission. (b) Copies of Information Provided Upon Request. Promptly upon receiving a request therefor from (i) the Collateral Agent or any Lender, the Borrower shall deliver to the Collateral Agent or such Lender, as applicable, copies of the notices, reports, press releases and filings referenced in any notice delivered pursuant to Section 8.05(a) and (ii) from the Collateral Agent or the Requisite Lenders, the Borrower shall prepare and deliver to the Collateral Agent and the Lenders such other reports, filings, data and information with respect to the Borrower, any of the Borrower's Subsidiaries, or the Collateral, including, without limitation, schedules identifying and describing the Collateral and any dispositions thereof, as from time to time may be reasonably requested by the Collateral Agent or the Requisite Lenders. (c) Notifications under Securities Exchange Act. The Borrower shall deliver to the Collateral Agent and all Lenders copies of all notifications received by the Borrower or any Subsidiary of the Borrower pursuant to the Securi-ties Exchange Act and the rules promulgated thereunder, promptly upon the receipt of such notifications. 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. 8.07. Corporate Organization; Indebtedness for Borrowed Money.?? The Borrower shall deliver to the Collateral Agent (a) an updated diagram of its corporate structure in the form of Schedule 7.01-C upon the preparation of the same and, in any event, at least once each Fiscal Year, and (b) an updated disclosure of outstanding Indebtedness for Borrowed Money of the Borrower and its Restricted Subsidiaries in the form of Schedule 1.01.7 upon the preparation of the same for any purpose; in each instance, provided that there has been any change in such corporate structure or such outstanding Indebtedness for Borrowed Money since the most recent date of submission of the same. ARTICLE IX AFFIRMATIVE COVENANTS?? The Borrower covenants and agrees that so long as any Revolving Credit Commitment is outstanding and there-after until payment in full of all of the Obliga-tions (other than indemnities not yet due), unless the Requisite Lenders shall otherwise give prior written consent: 9.01. Corporate Existence, Etc.?? The Borrower shall, and shall cause each of its Material Subsidiaries to, at all times main-tain its corporate existence and preserve and keep, or cause to be preserved and kept, in full force and effect its rights and franchises material to its businesses, except where the loss or termination of such rights and franchises is not likely to result in a Material Adverse Effect. 9.02. Corporate Powers; Conduct of Business.?? The Borrower shall, and shall cause each of its Material Subsidiaries to, qualify and remain quali-fied to do business and maintain its good standing in each jurisdiction in which the nature of its business and the ownership of its Property requires it to be so qualified and in good standing. 9.03. Compliance with Laws, Etc.?? The Borrower shall, and shall cause each of its Material Subsidiaries to, (a) comply with all Require-ments of Law and all restric-tive covenants affecting it or its business, Property, assets or operations and (b) obtain as needed all Permits necessary for its operations and maintain such Permits in good standing, except in the case where noncompliance with either clause (a) or (b) above is not reason-ably likely to result in a Material Adverse Effect. 9.04. Payment of Taxes and Claims; Tax Consolidation.?? The Borrower shall, and shall cause each of its Material Subsidiaries to, pay (a) all taxes, assessments and other governmental charges imposed upon it or on any of its Property or assets or in respect of any of its franchises, business, income or Property before any penalty or interest accrues thereon, and (b) all Claims (includ-ing, without limitation, claims for labor, services, materials and supplies) for sums which have become due and payable and which by law have or may become a Lien (other than a Lien permitted by Section 10.03) upon any Property or assets of the Borrower or any such Subsidi-ary, prior to the time when any penalty or fine shall be incurred with respect thereto; provided, however, that no such taxes, assess-ments and governmental charges referred to in clause (a) above or Claims referred to in clause (b) above need be paid if being con-tested in good faith by appropriate pro-ceed- ings diligently instituted and conducted and if such reserve or other appropriate provision, if any, as shall be required in conformity with GAAP shall have been made therefor. The Borrower will not, and will not permit any of its Material Subsidiaries to, file or consent to the filing of any consolidated income tax return with any Person other than its Subsidiaries-. 9.05. Insurance.?? The Borrower shall maintain for itself and its Subsidiaries, or shall cause each of its Subsidiaries to maintain, in full force and effect the insurance policies and programs listed on Schedule 7.01-Y or substantially similar policies and programs or other policies and programs as are reasonably acceptable to the Collateral Agent. All such policies and programs shall be maintained with responsible and reputable insurers of companies engaged in similar businesses and owning similar property in the same general geographic areas in which such Person, as applicable, operates. Each certificate and policy relating to Property damage, boiler and machinery and/or business interruption coverage shall contain an endorsement, in form and substance reasonably acceptable to the Collateral Agent, showing loss payable to the Collateral Agent, for the benefit of the Holders, and, if required by the Collateral Agent, naming the Collateral Agent as an additional insured under such policy. Each certificate and policy relating to coverage other than the foregoing shall, if required by the Collateral Agent, contain an endorsement naming the Collateral Agent as an additional insured or mortgagee payee, as applicable, under such policy. Such endorsement or an independent instrument furnished to the Collateral Agent shall provide that the insurance companies will give the Collateral Agent at least thirty (30) days' written notice before any such policy or policies of insurance shall be altered adversely to the interests of the Holders or canceled and that no act, whether willful or negligent, or default of the Borrower, any Subsidiary of the Borrower or any other Person shall affect the right of the Collateral Agent to recover under such policy or policies of insurance in case of loss or damage. In the event the Borrower or any of the Borrower's Subsidiaries at any time or times hereafter shall fail to obtain or maintain any of the policies or insurance required herein or to pay any premium in whole or in part relating thereto, then the Collateral Agent, without waiving or releasing any obligations or resulting Event of Default hereunder, may at any time or times thereafter (but shall be under no obligation to do so) obtain and maintain such policies of insurance and pay such premiums and take any other action with respect thereto which the Collateral Agent deems advisable. All sums so disbursed by the Collateral Agent shall constitute Protective Advances hereunder and be part of the Obligations, payable as provided in this Agreement. 9.06. Inspection of Property; Books and Records; Discus-sions. ??The Borrower shall, and shall cause each of its Material Subsid-iaries to, permit any authorized representative(s) desig-nated by either the Collateral Agent or any Lender to visit and inspect, whether by access to the Borrower's and such Subsidiaries' MIS or otherwise, any of the Property, to examine, audit, check and make copies of its respective financial and accounting records, books, journals, orders, receipts and any correspondence (other than privileged correspondence with legal counsel) and other data relating to their respective businesses or the transactions contemplated hereby or referenced herein (including, without limitation, in connection with environmental compliance, hazard or liability), and to discuss their affairs, finances and accounts with their officers, management personnel, and independent certi-fied public accountants, all upon reasonable written notice and at such reasonable times during normal business hours, as often as may be reasonably requested. Each such visitation and inspection (i) by or on behalf of any Lender shall be at such Lender's expense and (ii) by or on behalf of the Collateral Agent shall be at the Borrower's expense. The Borrower shall keep and maintain, and cause each of its Subsidiaries to keep and maintain, in all material respects on its MIS and otherwise proper books of record and account in which entries in conformity with GAAP shall be made of all dealings and transactions in relation to their respective businesses and activities, including, without limitation, transactions and other dealings with respect to the Collateral. If an Event of Default has occurred and is continuing, the Borrower, upon the Collateral Agent's request, shall, and shall cause each of its Subsidiaries to, turn over any such records to the Collateral Agent or its representatives; provided, however, that the Borrower may, in its discretion, retain copies of such records. 9.07. Insurance and Condemnation Proceeds. (a) Direction to Insurers. ?? The Borrower hereby directs (and, if applicable, shall cause the Subsidiaries of the Borrower to direct) all insurers under policies of property damage, boiler and machinery and business interruption insurance and payors of any condemnation claim or award relating to the Property of such Persons to pay all proceeds payable under such policies or with respect to such claim or award directly to the Collateral Agent, for the benefit of the Collateral Agent and the other Holders. In no case shall such proceeds be payable to the Borrower, or one or more of the Borrower's Subsidiaries, and the Collateral Agent. (b) Application of Proceeds. The Collateral Agent shall, upon receipt of such proceeds, apply all of the proceeds so received in repayment of the Obligations in the manner set forth in Section 4.01(b)(vii). Notwithstanding the foregoing, in the event proceeds of insurance received by the Collateral Agent under property damage, boiler and machinery policies or business interruption insurance policies (i) is less than $500,000 or (ii) constitutes Replacement Proceeds, the Collateral Agent shall, upon receipt of such proceeds, remit the amount so received to the Borrower or a Subsidiary of the Borrower, as applicable provided that there shall not then exist an Event of Default which is continuing unwaived. 9.08. ERISA Compliance. ??The Borrower shall, and shall cause each of the Borrower's Subsidiaries and ERISA Affiliates to, estab-lish, maintain and operate all Plans to comply in all material respects with the provisions of ERISA, the Internal Revenue Code, all other applicable laws, and the regulations and interpreta-tions thereunder and the respective requirements of the governing documents for such Plans. 9.09. Foreign Employee Benefit Plan Compliance??. The Borrower shall, and shall cause each of the Borrower's Subsidiaries and ERISA Affiliates to, establish??, maintain and operate all Foreign Employee Benefit Plans to comply in all material respects with all laws, regulations and rules applicable thereto and the respective requirements of the governing documents for such Plans. 9.10. ??Maintenance of Property.?? The Borrower shall, and shall cause each of its Material Subsidiaries to, maintain in all material respects all of its respective owned and leased Property in good, safe and insurable condition and repair, and not permit, commit or suffer any waste or abandonment of any such Property and from time to time shall make or cause to be made all material repairs, renewal and replacements thereof, including, without limitation, any capital improvements which may be required; provided, however, that such Property may be altered or renovated in the ordinary course of the Borrower's or such Subsidiaries' business. 9.11. Condemnation.?? Immediately upon learning of the institution of any proceeding for the condemnation or other tak-ing of any of the owned or leased Real Property of the Borrower or any Subsidiary of the Borrower, the Borrower shall notify the Collateral Agent of the pendency of such proceeding, and permit the Collateral Agent to participate in any such proceeding, and from time to time will deliver to the Collateral Agent all instruments reasonably requested by the Collateral Agent to permit such participation. 9.12. Subsidiaries Acquired or Formed after the Closing Date; Guarantors. ??The Borrower shall cause each of its Domestic Subsidiaries (and each Subsidiary which is a guarantor of the Senior Subordinated Notes from time to time) to become a Guarantor and the Borrower shall, and shall cause each such Guarantor to, execute and deliver to the Collateral Agent such Loan Documents, including, without limitation, as may be applicable under the circumstances, guaranties, security agreements, pledge agreements, and other agreements and instruments related to the Capital Stock of such Subsidiaries and Collateral owned by such Subsidiaries as the Collateral Agent shall reasonably request concurrently with such Persons becoming Domestic Subsidiaries and/or Guarantors. Notwithstanding the foregoing, nothing in this Section 9.12 shall permit the Borrower or any Subsidiary of the Borrower to form any Domestic Subsidiary or make any Investment, directly or indirectly, not otherwise permitted by Section 10.04. 9.13. Performance of Material Contracts. ??The Borrower shall, and shall cause each of its Subsidiaries to, perform and observe all the terms and provisions of each material Contractual Obligation to be performed or observed by it, maintain each such material Contractual Obligation in full force and effect, enforce each such material Contractual Obligation in accordance with its terms, take all such action to such end as may be from time to time requested by the Collateral Agent and, upon request of the Collateral Agent, make to each other party to each such material Contractual Obligation such demands and requests for information and reports or for action as such Borrower or Subsidiary is entitled to make under such material Contractual Obligation. 9.14. Further Assurances.?? The Borrower shall, and shall cause each Guarantor to, execute and deliver to the Collateral Agent, for the benefit of the Holders, such other agreements, documents, and instruments which the Collateral Agent deems necessary or desirable, in form and substance satisfactory to the Collateral Agent, to enable the Collateral Agent to perfect, or maintain perfected, Liens in the Collateral (including, without limitation, Capital Stock acquired after the Closing Date and held in accounts with securities intermediaries), and all Cash Equivalents of the Borrower and the Guarantors (other than those in Deposit Accounts not subject to Collection Account Agreement pursuant to Section 10.14) and marketable Securities. 9.15. Use of Proceeds of the Term Loans and the Senior Notes. ?? The Borrower shall use the proceeds of the Term Loans and the net cash proceeds of the Senior Subordinated Notes to pay or provide for the payment, on the Closing Date, of the Refinanced Indebtedness outstanding as of the Closing Date and the cash purchase price owing under the Kaynar Purchase Agreement. 9.16. Required Hedge Agreements.?? From and after the Closing Date, the Borrower shall maintain in effect or enter into Hedge Agreements on terms reasonably satisfactory to the Administrative Agents and maintain the same in effect, for interest rate protection with respect to the Obligations which shall be purchased from a Lender or an Affiliate of a Lender or, subject to the prior approval of the Requisite Lenders (which approval shall not be unreasonably delayed or withheld), any other Person, for such notional amount as may be required to ensure that floating rate pricing (after giving effect to Hedge Agreements, including, without limitation, cap agreements) shall be effective for no more than fifty percent (50%) of Consolidated Total Debt. 9.17. Year 2000.?? The Borrower covenants and agrees that the computer systems and equipment of the Borrower and its Subsidiaries containing embedded microchips (including systems and equipment supplied by others, with which such systems interface or on which such Persons rely) will function in a manner on and after December 31, 1999 to ensure that their business operations will not be interrupted to any material extent and that the Borrower is taking and will continue to take all necessary and appropriate action to reasonably ensure the same. ARTICLE X NEGATIVE COVENANTS?? The Borrower covenants and agrees, as applicable, that, so long as any Revolving Credit Commitments are out-standing and thereafter until payment in full of all of the Obligations (other than indemnities not yet due), unless the Requisite Lenders shall other-wise give prior written consent: 10.01. Indebtedness.?? The Borrower shall not and shall not permit any of its Subsidiaries to directly or indirectly create, incur, assume or otherwise become or remain directly or indirectly liable with respect to any Indebtedness, except: (a) the Obligations and the Indebtedness evidenced by the Senior Subordinated Notes and guarantees thereof; (b) unsecured Indebtedness for trade payables, wages and other accrued expenses incurred in the ordinary course of business and recourse obligations result-ing from endorse-ment of negotiable instruments for collection in the ordinary course of such Persons' business; (c) Indebtedness arising from the following intercompany loans: (i) from the Borrower to any of its Subsidiaries which is a Guarantor or from any such Subsidiary to the Borrower or any other such Subsidiary, (ii) from the Borrower or any Subsidiary of the Borrower which is a Guarantor, directly or indirectly, to any Subsidiary of the Borrower which is not a Guarantor the aggregate principal amount outstanding with respect to which at any time after the Closing Date does not exceed $10,000,000, (iii) from the Borrower or any Subsidiary of the Borrower to Fairchild Europe - Simmonds S.A.R.L. in the principal amount of approximately $5,000,000 in connection with the acquisition by Fairchild Fasteners Europe -- Simmonds S.A.R.L. of the issued and outstanding Capital Stock of Technico, a French stock corporation (Societe Anonyme), and SCI de la Praz, a French real estate company (Societe Civile Immobiliere), (iv) from any Subsidiary of the Borrower which is not a Guarantor to any other Subsidiary of the Borrower which is not a Guarantor, and (v) from any Subsidiary of the Borrower which is not a Guarantor to the Borrower or a Guarantor; provided that (A) at the time of making any such intercompany loan there are no outstanding intercompany loans owing by such Subsidiary to the Borrower or such Guarantor and such intercompany loans to the Borrower or a Guarantor are in amounts and on terms (including, without limitation, terms of subordination to the Obligations) satisfactory to the Collateral Agent and evidenced by a promissory note in form and substance satisfactory to the Collateral Agent and (B) the aggregate principal amount of such intercompany loans made from and after the Closing Date outstanding at any given time does not exceed $10,000,000; (d) Indebtedness in respect of Hedge Agreements in respect of interest rates or foreign exchange contracts so long as such Hedge Agreements are not entered into for speculative purposes; (e) Indebtedness with respect to reasonable warranties and indemnities made under any agreements for asset sales permitted under Section 10.02 and Contractual Obligations of the Borrower or any Subsidiary of the Borrower entered into in the ordinary course of its business; (f) Indebtedness of the owner(s) of the Farmingdale Property incurred in connection with the development and operation of the Farmingdale Property; provided that (i) such Indebtedness is subject to agreements in form and substance satisfactory to the Collateral Agent and (ii) if the holders of such Indebtedness require that any Accommodation Obligation be incurred in connection therewith for their benefit by the Borrower or any Guarantor, such agreements are executed and delivered on or before October 3, 1999; (g) Indebtedness incurred by the Unrestricted Subsidiaries without recourse to the Borrower or any Restricted Subsidiary or any Property of the Borrower or any Restricted Subsidiary; and (h) Permitted Existing Indebtedness and any extensions, renewals, refundings or replacements thereof, provided that any such extension, renewal, refunding or replacement is in an aggregate principal amount not greater than the principal amount of, and is on terms no less favorable to the Borrower or the applicable Subsidiary than the terms of, the Permitted Existing Indebtedness so extended, renewed, refunded or replaced; and (i) other secured (to the extent permitted by Section 10.03) and unsecured Indebtedness of the Borrower and its Subsidiaries in an aggregate amount not to exceed $30,000,000 at any time outstanding, to the extent permitted by Article XI, where applicable, provided that: (i) with respect to Indebtedness of the Borrower and the Borrower's Subsidiaries with respect to Capital Leases and purchase money Indebtedness, prior to incurring Capital Lease obligations owing to any one lessor or group of affiliated or related lessors or purchase money Indebtedness owing to any one holder or group of affiliated or related holders thereof, which in either case aggregate(s) more than $5,000,000, the Borrower shall obtain, or cause such Subsidiary to obtain, from such lessor(s) or holder(s) a duly executed intercreditor agreement in form and substance reasonably satisfactory to the Collateral Agent, and (ii) with respect to Indebtedness constituting Accommodation Obligations, in the event the primary Indebtedness supported by such Accommodation Obligation is otherwise included in the calculation of permitted Indebtedness under this Section 10.01, such primary Indebtedness and Accommodation Obligation shall not be included twice in determining compliance with this Section 10.01. 10.02. Sales of Assets.?? The Borrower shall not and shall not permit any of the Restricted Subsidiaries to sell, assign, transfer, lease, convey or otherwise dispose of any Property, whether now owned or hereafter acquired by such Person, or any income or profits there-from, or enter into any agreement to do so, except: (a) any sale, lease, transfer or other disposition of Permitted Dispositions, so long as (i) any non-cash consideration resulting from such sale, assignment, transfer, lease, conveyance or other disposition is permitted under Section 10.04(i) and pledged or assigned to the Collateral Agent, for the benefit of the Holders, pursuant to an instrument in form and substance acceptable to the Collateral Agent, (ii) the Borrower com-plies with the mandatory prepayment provisions set forth in Section 4.01(b) and the conditions to the release of Collateral described in Section 13.09(c), and (iii) with respect to a transfer of the Capital Stock or assets of any Technologies Company, Capital Stock of Nacanco, the Farmingdale Property, and/or the other real estate assets identified as being held for sale on Schedule 1.01.5 by dividend or distribution to the shareholders of the Borrower, the same is permitted under Section 10.05; (b) the transfer of (i) the Capital Stock or assets of Fairchild Technologies Optical Disc Equipment Group GmbH to a new indirect Subsidiary of the Borrower formed under the laws of The Republic of Germany in accordance with the terms of this Agreement and subsequent sale or other transfer of such new Subsidiary or its assets to Fairchild Technologies USA, Inc. and (ii) provided that the Collateral Agent has consented in writing thereto, any sale or other transfer of any other Property owned by the Borrower or any Subsidiary of the Borrower to any Subsidiary of the Borrower; (c) any sale of Inventory in the ordinary course of the Borrower's and its Subsidiaries' respective businesses; (d) any disposition of Equipment if such Equipment is traded in for credit against the purchase price of replacement Equipment or the proceeds of such disposition are reasonably promptly applied to the purchase price of such replacement Equipment, is obsolete, or is no longer useful in the ordinary course of the Borrower's or its Subsidiaries' respective businesses; (e) the sale of Investments in Cash Equivalents permitted pursuant to Section 10.04(c)(i) and Eligible Marketable Securities permitted pursuant to Section 10.04(c)(ii); (f) any sale, assignment, transfer, lease, conveyance or other disposition of any Property having a Fair Market Value, in the case of an individual asset sale, assignment, transfer, lease, conveyance or other disposition, not exceeding $1,000,000 or, in the case of aggregate asset sales, assignments, transfers, leases, conveyances and other dispositions in any Fiscal Year, not exceeding $5,000,000, for consideration not less than the Fair Market Value thereof, so long as (i) any non-cash consideration resulting from such sale, assignment, transfer, lease, conveyance or other disposition shall be pledged or assigned to the Collateral Agent, for the benefit of the Holders, pursuant to an instrument in form and substance acceptable to the Collateral Agent and (ii) the Borrower com-plies with the mandatory prepayment provisions set forth in Section 4.01(b) and the conditions to the release of Collateral described in Section 13.09(c); (g) the sale of Receivables of Restricted Subsidiaries which are not Domestic Subsidiaries pursuant to arrangements (i) described on Schedule 10.02-G attached hereto and made a part hereof which are in effect as of the Closing Date or (ii) entered into after the Closing Date and disclosed in writing to the Collateral Agent prior to their becoming effective, in either event for the purpose of providing working capital for such Restricted Subsidiaries and their Affiliates which are not Domestic Subsidiaries; (h) the transfer of Indebtedness arising under intercompany loans outstanding or made to or by the Borrower and Restricted Subsidiaries as permitted by Section 10.01 to the Borrower or a Restricted Subsidiary in exchange for a promissory note payable to the transferor in the amount of such Indebtedness so transferred; and (i) any transfer required to consummate any transaction otherwise permitted under Sections 10.04, 10.05, 10.06, 10.08, and 10.09. Notwithstanding anything in the foregoing to the contrary, neither the Borrower nor any Restricted Subsidiary shall sell, assign, transfer, lease, convey or otherwise dispose of any Property, whether now owned or hereafter acquired by such Person, or any income or profits there-from, to any Unrestricted Subsidiary, or enter into any agreement to do so. 10.03. Liens. ??The Borrower shall not and shall not permit any of the Borrower's Subsidiaries to directly or indirectly create, incur, assume or permit to exist any Lien or negative pledge on or with respect to any of their respective Property or assets except: (a) Liens created pursuant to the Loan Documents; (b) Permitted Existing Liens; (c) Customary Permitted Liens; (d) Liens arising due to the creation of escrows of proceeds from any sale, assignment, lease, transfer or other disposition permitted under Section 10.02; (e) Liens securing purchase money Indebtedness (including the interest of a lessor under a Capital Lease or an Operating Lease having substantially the same economic effect) permitted under Section 10.01(i); provided, that such Liens do not attach to any property other than that purchased with the proceeds of such purchase money Indebtedness (or leased); and (f) Liens granted to secure Indebtedness permitted under Section 10.01(f) against (i) the Farmingdale Property and improvements made thereto, (ii) all fixtures, furnishings, Equipment and other personal property used in connection with the Farmingdale Property and such improvements, (iii) all leases, subleases, licenses, concession agreements, contracts, and managerial agreements, entered into with respect thereto and permits affecting the Farmingdale Property and improvements made thereto; and Liens granted by Unrestricted Subsidiaries to secure other Indebtedness permitted by Section 10.01(g). 10.04. Investments.?? The Borrower shall not and shall not permit any of the Restricted Subsidiaries to directly or indirectly make or own any Invest-ment except: (a) Permitted Existing Investments, in each case increased or decreased as required under GAAP as a result of annual adjustments made to Investments accounted for under the equity method, and additional Investments required to be made pursuant to the terms of the Permitted Existing Investments as disclosed on Schedule 1.01.8; (b) Investments received in connection with the bankruptcy or reorganization of suppliers and customers and in settlement or composition of delinquent obligations of, and other disputes with, customers and suppliers arising in the ordinary course of business; (c) Investments (i) in Cash Equivalents and (ii) by the Borrower in Eligible Marketable Securities; provided that with respect to clause (ii) proceeds of the Loans are not used to make Investments in Margin Stock and no Revolving Loans are outstanding on the date any such Investment is made; (d) Investments made 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 (i) $17,500,000 in cash or assumed Indebtedness until such time as the outstanding principal balance of the Term Loans has been reduced by $25,000,000 in the aggregate under Section 4.01(b)(vii) from Net Cash Proceeds of Sale of Permitted Dispositions and Net Cash Proceeds of Sale of Banner Companies or (ii) thereafter (and when combined with Investments made as permitted under the foregoing clause (i)), $35,000,000 in cash or assumed Indebtedness; provided that (A) 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 (B) 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; and provided further that the aforesaid limitations specified in clauses (i) and (ii) above shall (1) be increased by the amount of the Net Cash Proceeds of Sale of Permitted Dispositions (other than Net Cash Proceeds of Sale received in connection with the sale or other disposition of Capital Stock of Watkins-Johnson Company held by the Borrower or any Subsidiary of the Borrower) net of the amount of such Net Cash Proceeds of Sale of Permitted Dispositions applied to the Obligations as provided under Section 4.01(b)(vii) and (2) include payments of cash made to Robert Edwards in accordance with the Third Amendment and Plan of Merger dated as of September 17, 1998 by and among the Borrower, Special-T Fasteners, Inc., and Robert Edwards, executed and delivered in connection with the Borrower's acquisition of Special-T Fasteners, Inc. and any related agreement entered into after the Closing Date, only to the extent the same exceed $2,000,000 in the aggregate; (e) Investments by the Borrower in any other Person (other than the Technologies Companies) in exchange for Capital Stock of the Borrower; 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) an Investment by the Borrower in the form of the contribution of Property which consists of (i) cash in an amount not to exceed $10,000,000 in the aggregate and (ii) Permitted Dispositions in connection with the Borrower's formation of a Restricted Subsidiary to qualify as a small business investment company, as such is defined in the Small Business Investment Act of 1958, P.L. 85-699, as amended, which small business investment company shall be deemed to be an Unrestricted Subsidiary at all times from and after its formation; (g) an Investment by capital contribution of the Capital Stock of Kaynar, directly or indirectly, to FHC and of the Capital Stock of Special-T Fasteners, Inc., directly or indirectly, to another Person included in the Fairchild Fasteners Group Operating Unit; (h) Investments by the Borrower, directly or through intervening Restricted Subsidiaries, in Subsidiaries of the Borrower which are Guarantors; and (i) Investments received in connection with the sale, transfer, disposition (including, without limitation, by merger) of Permitted Dispositions (other than the Banner Companies). Notwithstanding anything in the foregoing to the contrary, neither the Borrower nor any Restricted Subsidiary of the Borrower shall make any Investment in an Unrestricted Subsidiary and no Unrestricted Subsidiary shall make or own any Investment in the Borrower or any Restricted Subsidiary. In no event shall the Borrower or any of the Restricted Subsidiaries form, create or establish any additional Subsidiaries or become a partner (general or limited) in any Person, without the prior written consent of the Collateral Agent. No other provision of this Agreement shall be deemed to prohibit any Investment which is specifically permitted by this Section 10.04. 10.05. ??Restricted Junior Payments.?? The Borrower shall not and shall not permit any of the Restricted Subsidiaries to declare or make any Restricted Junior Payment, except: (a) subject to the limitations set forth in Section 10.06 where applicable, dividends or distributions to the Borrower on the Capital Stock of any of its Wholly-Owned Subsid-iaries or to any of the Borrower's Wholly-Owned Subsid-iaries from any other Wholly-Owned Subsidiary of such Borrower or any Subsidiary of the Borrower existing on the date of this Agreement; (b) cash dividends or distributions on the Capital Stock of the Borrower which is Class A Common Stock not to exceed the lesser of (i) one cent ($0.01) per share of such Class A Common Stock or (ii) $400,000 in the aggregate; (c) cancellations of intercompany Indebtedness which are treated as dividends; and (d) dividends and distributions of the Capital Stock of the Technologies Companies, or any of them, Capital Stock of Nacanco, the Farmingdale Property or Capital Stock of the owner thereof, and/or the other real estate assets identified as being held for sale on Schedule 1.01.5 to shareholders of the Borrower; provided that (i) no Event of Default or Potential Event of Default has occurred and is continuing unwaived or, after giving effect to any such dividend or distribution, 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 dividend or distribution giving effect to such dividend or distribution 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 and, with respect to dividends and distributions of Capital Stock of Nacanco and the Farmingdale Property or Capital Stock of the owner thereof, provided further that prior to any such dividend or distribution the outstanding principal balance of the Term Loans shall have been reduced by $37,500,000 in the aggregate under Section 4.01(b)(vii) from Net Cash Proceeds of Sale of Permitted Dispositions and Net Cash Proceeds of Sale of Banner Companies. 10.06. Restriction on Fundamental Changes.?? The Borrower shall not and shall not permit any of the Borrower's Subsidiaries to (a) enter into any merger or consolidation, or liquidate, wind-up or dissolve (or suffer any liquidation or dissolution), except: (i) the liquidation or dissolution of Fairchild Fastener Group Ltd. and JJS Limited on or before June 30, 2000; (ii) the merger or liquidation of (A) any Restricted Subsidiary with and into the Borrower or any Guarantor; provided that such Persons are part of the same Operating Unit both before and after such merger or liquidation, (B) any Guarantor with and into any other Guarantor; provided that such Persons are part of the same Operating Unit both before and after such merger or liquidation, (C) any Restricted Subsidiary which is not included as part of an Operating Unit with and into any other such Person, and (D) any Subsidiary of the Borrower not described in clauses (A), (B), or (C) above with and into any other such Subsidiary of the Borrower; provided that the prior written consent thereto of the Collateral Agent has been obtained; and (iii) the merger of Special-T Fasteners, Inc. with and into FHC or another Person included in the Fairchild Fasteners Group Operating Unit and the merger of Kaynar with and into FHC; or (b) convey, lease, sell, transfer or otherwise dispose of, in one transaction or series of trans-actions, all or substantially all of such Person's business or Property, whether now or here-after acquired, except as permitted by Section 10.02; or (c) except to the extent consented to in writing by the Administrative Agents, discontinue the operations of any Subsidiary of the Borrower. 10.07. Conduct of Business; Accounting and Reporting Practices.?? The Borrower shall not and shall not permit any of the Borrower's Subsidiaries (a) other than Unrestricted Subsidiaries, to engage in any business other than (i) the businesses engaged in by the Borrower and the Borrower's Subsidiaries on the Closing Date and (ii) any business or activities which are sub-stantially similar, related or incidental thereto, or (b) change any of its or their accounting or financial reporting policies or practices from those in effect on the Closing Date, except to the extent required to provide the financial reporting described in Section 8.01(a). 10.08. Transactions with Shareholders and Affiliates.?? The Borrower shall not and shall not permit any of the Borrower's Subsidiaries to directly or indirectly enter into or permit to exist any trans-action (includ-ing, without limitation, the sale, lease, exchange or transfer of any property (other than as permitted by Section 10.02) or the rendering of any service) or the purchase of any property (other than as permitted by Section 10.04, where applicable) with any Affiliate on terms that are less favorable to the Borrower or such Subsidiaries, as applicable, than those that might be obtained in an arm's length transac-tion at the time from Persons who are not an Affil-iate. Nothing contained in this Section 10.08 shall prohibit (a) any trans-action expressly permitted by Sections 10.05 and 10.06; (b) increases in compensation and benefits for, or payment of bonuses to, officers and employees of the Borrower or any of the Borrower's Subsidiaries which are customary in the industry or consistent with the past business practice of the Borrower or such Subsidiary, provided that no Event of Default or Potential Event of Default has occurred and is continuing; (c) payment of customary direc-tors' fees and indemni-ties of officers and directors; or (d) any transaction between a (i) Technologies Company and an Affiliate which is also a Technologies Company or (ii) one Unrestricted Subsidiary with another Unrestricted Subsidiary (other than transactions between any Technologies Company and an Unrestricted Subsidiary). 10.09. ?? Sales and Leasebacks.?? The Borrower shall not and shall not permit any of the Restricted Subsidiaries to become liable, directly, by assump-tion or by Accommodation Obligation, with respect to any lease, whether an Operating Lease or a Capital Lease, of any Property (whether real or personal or mixed) which such Person (a) sold or transferred or is to sell or transfer to any other Person, or (b) intends to use for substantially the same purposes as any other Property which has been or is to be sold or trans-ferred by such Person to any other Person, in either instance, in connection with such lease, except for the sale/leaseback transactions identified on Schedule 10.09. 10.10. Margin Regulations; Securities Laws.?? The Borrower shall not or permit any of the Borrower's Subsidiaries to use all or any por-tion of the proceeds of any credit extended under this Agree-ment to purchase or carry Margin Stock or for purposes other than those described in Section 2.04. 10.11. ERISA.?? The Borrower shall not: (a) engage, or permit any of the Borrower's Subsidiaries to engage, in any prohibited transaction described in Sections 406 of ERISA or 4975 of the Internal Revenue Code for which a statutory or class exemption is not available or a private exemption has not been pre-viously obtained from the DOL; (b) permit to exist any accumulated funding deficiency (as defined in Sections 302 of ERISA and 412 of the Internal Revenue Code), with respect to any Benefit Plan, whether or not waived; (c) fail, or permit any ERISA Affiliate to fail, to pay timely required contributions or annual install- ments due with respect to any waived funding deficiency to any Benefit Plan; (d) terminate, or permit any ERISA Affiliate to terminate, any Benefit Plan which would result in any liability of the Borrower or any ERISA Affiliate under Title IV of ERISA; (e) fail to make any contribution or payment to any Multiemployer Plan which the Borrower or any ERISA Affiliate may be required to make under any agreement relating to such Multiemployer Plan, or any law per- taining thereto; (f) fail, or permit any ERISA Affiliate to fail, to pay any required installment or any other payment required under Section 412 of the Internal Revenue Code on or before the due date for such installment or other payment; (g) amend, or permit any ERISA Affiliate to amend, a Benefit Plan resulting in an increase in current lia-bility for the plan year such that the Borrower or any ERISA Affiliate is required to provide security to such Plan under Section 401(a)(29) of the Internal Revenue Code; (h) permit any unfunded liabilities with respect to any Foreign Pension Plan; or (i) fail, or permit any of its Subsidiaries or ERISA Affiliates to fail, to pay any required contributions or payments to a Foreign Pension Plan on or before the due date for such required installment or payment if such event results, either singly or in the aggregate, after taking into account all other such events and any liabilities associated therewith, in an aggregate liability in excess of $2,000,000. 10.12. Issuance of Equity Securities. ??The Borrower shall not, and shall not permit any of the Restricted Subsidiaries to, issue any equity Securities except (a) equity Securities pursuant to Permitted Equity Securities Options, (b) in exchange for Investments as permitted by Section 10.04(e), and (c) equity Securities of the Borrower provided that the Borrower complies with the mandatory prepayment provisions set forth in Section 4.01(b). 10.13. Organizational Documents; Material Contractual Obligations.?? The Borrower shall not, and shall not permit any of the Restricted Subsidiaries to, amend, modify or otherwise change any of the terms or provisions in any of (a) their respective Organizational Documents as in effect on the Closing Date, except (i) with respect to which written notice shall have been provided to the Collateral Agent (A) no less than ten (10) days prior to the effective date of any such amendment, modification or change made with respect to the Borrower or any such Domestic Subsidiary and (B) concurrent with such amendment, modification or change made with respect to any other Restricted Subsidiary and (ii) if no Event of Default or Potential Event of Default would result therefrom or (b) Contractual Obligations evidencing any debt Securities, including, without limitation, the Senior Subordinated Note Indenture or Senior Subordinated Notes, or other material Contractual Obligations. 10.14. Bank Accounts.?? The Borrower shall not, and shall not permit any of its Subsidiaries to, establish or maintain any Deposit Account into which collections of Receivables and proceeds of other Collateral are deposited other than (a) those identified as existing on the Closing Date and disclosed on Schedule 10.14 attached hereto or (b) which are established after the Closing Date in the United States by the Borrower and its Subsidiaries which are in amounts aggregating no more than $5,000,000 at any given time are on deposit, without the prior written consent of the Collateral Agent and which (other than with respect to the accounts referenced in clause (b) above), if collections of Receivables or proceeds of Collateral are deposited therein, are subject to Collection Account Agreements or other arrangements (including, without limitation, pledge agreements) satisfactory to the Collateral Agent. 10.15. Fiscal Year; Fiscal Quarters.?? The Borrower shall not and shall not permit any of the Borrower's Subsidiaries (other than Banner, Kaynar, SNEP S.A., and any Person acquired in compliance with the provisions of Section 10.04 after the Closing Date which thereupon becomes a Subsidiary of the Borrower; provided that all such Subsidiaries shall have changed their fiscal quarters and fiscal years to coincide with the Fiscal Quarters and Fiscal Years by the last day of the first full Fiscal Year next succeeding (a) the Closing Date (in the case of Banner, Kaynar and SNEP S.A.) or (b) the Fiscal Year in which such Person becomes a Subsidiary of the Borrower) to maintain or change its Fiscal Year for accounting or tax purposes from a period consisting of the 12-month period ending on June 30 of each calendar year or to change the ending dates for any Fiscal Quarter. ARTICLE XI FINANCIAL COVENANTS ?? The Borrower covenants and agrees that so long as any Revolving Credit Commitments are outstanding and thereafter until payment in full of all of the Obligations (other than indemnities not yet due): 11.01. Interest Coverage Ratio.?? The Borrower and its Subsidiaries on a consolidated basis shall have, as of the end of each Fiscal Quarter set forth below, for the four (4) Fiscal Quarters then ending, an Interest Coverage Ratio of no less than that set forth below opposite such period: Four Fiscal Quarters Ending Ratio June, 1999 2.00 to 1.0 and each Fiscal Quarter thereafter through March, 2004 June, 2004 2.25 to 1.0 and each Fiscal Quarter thereafter through March, 2006 11.02. Capital Expenditures.?? The Borrower and its Subsidiaries on a consolidated basis shall not make Capital Expenditures in any Fiscal Year in excess of the greater of (a) the Borrower's consolidated net income for the immediately preceding Fiscal Year or (b) with respect to (i) the Borrower and its Subsidiaries other than Kaynar for the Fiscal Year ending June 30, 1999 and Kaynar and its Subsidiaries for the period commencing on the Closing Date and ending on June 30, 1999 $40,000,000 in the aggregate and (ii) each Fiscal Year ending after June 30, 1999, $40,000,000; provided, however, in the event the Borrower and its Subsidiaries have not made Capital Expenditures in the amount permitted herein for any Fiscal Year, Capital Expenditures in an amount equal to that portion of the maximum amount of such Capital Expenditures permitted but not made in such Fiscal Year (but not to exceed fifty percent (50%) of such maximum amount) may be made in the immediately next succeeding Fiscal Year in addition to any amounts permitted above for such succeeding Fiscal Year; provided that (A) amounts carried forward from one Fiscal Year to a succeeding Fiscal Year may only be expended or accrued for Capital Expenditures after the maximum amount permissible for such succeeding Fiscal Year have been expended or accrued and (B) to the extent amounts carried forward from one Fiscal Year to the next succeeding Fiscal Year are not expended or accrued in such succeeding Fiscal Year, such surplus may not be carried forward to any other succeeding year. 11.03. Consolidated Senior Indebtedness to EBITDA Ratio.?? The Borrower and its Subsidiaries on a consolidated basis shall have, as of the end of each Fiscal Quarter set forth below, a Consolidated Senior Indebtedness to EBITDA Ratio as of the end of such Fiscal Quarter for the four (4) Fiscal Quarters then ending of no more than the ratio set forth opposite such Fiscal Quarter end set forth below: Fiscal Quarter Ending Maximum Ratio June, 1999 3.20 to 1.0 and each Fiscal Quarter thereafter through March, 2002 June, 2002 3.00 to 1.0 and each Fiscal Quarter thereafter 11.04. Consolidated Indebtedness to EBITDA Ratio.?? The Borrower and its Subsidiaries on a consolidated basis shall have, as of the end of each Fiscal Quarter set forth below, a Consolidated Indebtedness to EBITDA Ratio as of the end of such Fiscal Quarter for the four (4) Fiscal Quarters then ending of no more than the ratio set forth opposite such Fiscal Quarter end set forth below: Fiscal Quarter Ending Maximum Ratio June, 1999 5.70 to 1.0 and each Fiscal Quarter thereafter through March, 2003 June, 2003 5.50 to 1.0 and each Fiscal Quarter thereafter through March 2004 June, 2004 4.75 to 1.0 and each Fiscal Quarter thereafter 11.05. ??Minimum Consolidated Fixed Charge Coverage Ratio. ?? The Borrower shall maintain, as determined as of the end of each Fiscal Quarter set forth below for the four (4) Fiscal Quarters then ending, a Consolidated Fixed Charge Coverage Ratio of no less than that set forth below opposite such Fiscal Quarter end set forth below: Fiscal Quarter Ending Minimum Ratio June, 1999 1.25 to 1.0 and each Fiscal Quarter thereafter through March, 2003 June, 2003 1.35 to 1.0 and each Fiscal Quarter thereafter through March, 2004 June, 2004 1.50 to 1.0 and each Fiscal Quarter thereafter 11.06. EBITDA Calculations.?? (a) All calculations of EBITDA made with respect to Sections 11.01 and 11.05 shall be made on a pro forma basis to include earnings of Persons, which are operating companies and were acquired during the period commencing on July 1, 1998 and ending on the Closing Date and exclude earnings of Persons which are operating companies sold, divested, or otherwise disposed of during the period commencing on July 1, 1998 and ending on the Closing Date during the four Fiscal Quarters then ended giving effect to such acquisition, sale, divestiture or disposal as though it had occurred on the first day of such four Fiscal Quarter period. (b) All calculations of EBITDA made with respect to Sections 11.03 and 11.04 shall be made on a pro forma basis to include earnings of Persons, which are operating companies and (i) were acquired during the period commencing on July 1, 1998 and ending on the Closing Date or (ii) are acquired after the Closing Date as permitted by Section 10.04 and exclude earnings of Persons which are operating companies sold, divested, or otherwise disposed of (1) during the period commencing on July 1, 1998 and ending on the Closing Date or (ii) after the Closing Date as permitted by this Agreement, during the four Fiscal Quarters then ended giving effect to such acquisition, sale, divestiture or disposal as though it had occurred on the first day of such four Fiscal Quarter period. ARTICLE XII EVENTS OF DEFAULT; RIGHTS AND REMEDIES?? 12.01. Events of Default.?? Each of the following occurrences shall constitute an Event of Default under this Agreement: (a) Failure to Make Payments When Due. The Borrower shall fail to pay (i) when due any principal of any Loan or any Reimbursement Obligation for which it is obligated hereunder or (ii) within one (1) Business Day after the due date therefor, any other Obligation for which it is obligated. (b) Breach of Certain Covenants. The Borrower shall fail duly and punctually to perform or observe any agree-ment, covenant or obligation under Sections 9.01, 9.02, 9.03, 9.04, 9.06, 9.12, or 9.14, Article X or Article XI. (c) Breach of Representation or Warranty. Any repre- sentation or warranty made or deemed made by the Borrower to the Collateral Agent, any Lender or any Issu-ing Bank herein or by the Borrower or any Subsidiary of the Borrower in any of the other Loan Documents or in any statement or certificate at any time given by any such Person pursuant to any of the Loan Documents shall be false or mislead-ing in any material respect on the date as of which made (or deemed made). (d) Other Defaults. The Borrower shall default in the performance of or compliance with any term contained in this Agreement (other than as identified in clauses (a), (b) or (c) of this Section 12.01) applicable thereto or any default or event of default shall occur under any of the other Loan Documents, and such default or event of default shall continue for fifteen (15) days after the occurrence thereof. (e) Default as to Other Indebtedness. The Borrower or any Subsidiary of the Borrower shall fail to make any payment when due (whether by scheduled maturity, required prepayment, accelera-tion, demand or otherwise) with respect to any other Indebtedness (other than an Obligation) of such Borrower and its Subsidiaries aggregating $2,000,000 or more; or any breach, default or event of default shall occur, or any other condition shall exist under any instrument, agreement or indenture per- taining to any such Indebtedness, if the effect thereof is to cause an acceleration, mandatory redemption or other required repurchase of such Indebtedness, or permit the holder(s) of such Indebtedness to accelerate the maturity of any such Indebtedness or require a redemption or other repurchase of such Indebtedness; or any such Indebtedness shall be otherwise declared to be due and payable (by acceleration or otherwise) or required to be prepaid, redeemed or otherwise repurchased by such Borrower or any of its Subsidiaries (other than by a regularly scheduled required prepayment) prior to the stated maturity thereof. Notwithstanding the foregoing, (i) the foregoing shall only apply with respect to Indebtedness of Unrestricted Subsidiaries to the extent the holder(s) of such Indebtedness (A) is/are the Borrower or a Restricted Subsidiary or (B) have any recourse to the Borrower or any Restricted Subsidiary or any of their Property in connection with such Indebtedness and (ii) no breach of any obligation, default or event of default (payment or otherwise), or acceleration of any obligation with respect to the German Acquisition Loans shall constitute an Event of Default under this Agreement. (f) Involuntary Bankruptcy; Appointment of Receiver, Etc. (i) An involuntary case shall be commenced against the Borrower or any Subsidiary of the Borrower and the petition shall not be (A) controverted within ten (10) days after the filing thereof and (B) dismissed, stayed, bonded or discharged within sixty (60) days after commencement of the case; or a court having jurisdiction in the premises shall enter a decree or order for relief in respect of the Borrower or any Subsidiary of the Borrower in an invol-untary case, under any applicable bankruptcy, insolvency or other similar law now or hereinafter in effect; or any other similar relief shall be granted under any applicable federal, state, local or foreign law. (ii) A decree or order of a court having juris-diction in the premises for the appointment of a receiver, liquidator, sequestrator, trustee, custodian or other officer having similar powers over the Borrower or any Su-bsidiary of the Borrower or over all or a substantial part of the Property of any such Person shall be entered; or an interim receiver, trustee or other custodian of the Borrower or any Subsidiary of the Borrower or of all or a substan-tial part of the Property of any such Person shall be appointed or a war-rant of attachment, execution or similar process against any substantial part of the Property of the Borrower or any Subsidiary of the Borrower shall be issued and any such event shall not be stayed, dis-missed, bonded or discharged within thirty (30) days after entry, appointment or issuance. (iii) Notwithstanding anything to the contrary contained herein, the foregoing shall only apply to an Unrestricted Subsidiary if the Borrower or any Restricted Subsidiary is, at the time of such commencement or decree, or thereafter becomes, a creditor of such Unrestricted Subsidiary or is or becomes subject to any action or proceeding in any such case against or which could have an adverse impact upon the assets or ability of the Borrower or any Restricted Subsidiary to pay the Obligations in accordance with their terms (including, without limiting the foregoing, any proceeding for substantive consolidation or equitable subordination). (g) Voluntary Bankruptcy; Appointment of Receiver, Etc. The Borrower or any Subsidiary of the Borrower shall commence a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or shall consent to the entry of an order for relief in an involuntary case, or to the conversion of an involuntary case to a voluntary case, under any such law, or shall consent to the appointment of or taking possession by a receiver, trustee or other custodian for all or a substantial part of its Property; or any such Person shall make any assignment for the benefit of credi-tors or shall be unable or fail, or admit in writing its inability, to pay its debts as such debts become due; or the board of directors (or equivalent) of any such Person (or any committee thereof) adopts any resolution or otherwise authorizes any action to approve any of the fore-going; provided, however, that the foregoing shall only apply to an Unrestricted Subsidiary if the Borrower or any Restricted Subsidiary is, at the time of such commencement, consent, or assignment, or thereafter becomes, a creditor of such Unrestricted Subsidiary or is or becomes subject to any action or proceeding in any such case against or which could have an adverse impact upon the assets or ability of the Borrower or any Restricted Subsidiary to pay the Obligations in accordance with their terms (including, without limiting the foregoing, any proceeding for substantive consolidation or equitable subordination). (h) Dissolution. Any order, judgment or decree shall be entered against the Borrower or any Subsidiary of the Borrower decreeing its involuntary dis-solution or split up and such order shall remain undischarged and unstayed for a period in excess of sixty (60) days; or any such Person shall otherwise dissolve, be dissolved, or cease to exist except as specifically permitted by this Agreement. Notwithstanding anything to the contrary contained herein, the foregoing shall only apply to an Unrestricted Subsidiary if the Borrower or any Restricted Subsidiary is, at the time of such order, judgment, decree, or dossolution, or thereafter becomes, a creditor of such Unrestricted Subsidiary or is or becomes subject to any action or proceeding in any such case against or which could have an adverse impact upon the assets or ability of the Borrower or any Restricted Subsidiary to pay the Obligations in accordance with their terms (including, without limiting the foregoing, any proceeding for substantive consolidation or equitable subordination). (i) Loan Documents; Failure of Security. At any time, for any reason, (i) any Loan Docu-ment ceases to be in full force and effect (other than as terminated or released as permitted therein or by Section 13.09) or the Borrower or Subsidiary of the Borrower party thereto seeks to repudiate its obligations thereunder or the Liens intended to be created thereby are, or the Borrower or such Subsidiary seeks to render such Liens, invalid or unperfected, or (ii) Liens in favor of the Collateral Agent for the benefit of the Holders contemplated by the Loan Documents shall, at any time, for any reason other than the gross negligence or willful misconduct of the Collateral Agent or any Lender, be invalidated or otherwise cease to be in full force and effect, or such Liens shall be subordinated or shall not have the priority contemplated by this Agreement or the Loan Documents, except to the extent contemplated by the terms of Section 13.09 and Schedule 10.09. (j) Judgments and Attachments. Any money judgment (other than a money judgment covered by insurance as to which the insurance company has acknowledged coverage), writ or warrant of attachment, or similar process against the Borrower or Subsidiary of the Borrower or any of their respective assets involv-ing in any case an amount in excess of $2,000,000 is entered and shall remain undischarged, unvacated, unbonded or unstayed for a period of thirty (30) days or in any event later than five (5) days prior to the date of any proposed sale thereunder; provided, however, if any such judgment, writ or warrant of attachment or similar process is in excess of $12,000,000, the entry thereof shall immediately constitute an Event of Default hereunder. (k) Termination Event. Any Termination Event occurs which could reasonably be expected to subject the Borrower or any ERISA Affiliate to liability in excess of $2,000,000, for which adequate reserves are not maintained. (l) Waiver Application. The plan administrator of any Benefit Plan applies under Section 412(d) of the Internal Revenue Code for a waiver of the minimum funding standards of Section 412(a) of the Internal Revenue Code and the Collateral Agent believes that the substantial business hardship upon which the application for the waiver is based could subject the Borrower or any ERISA Affiliate to liability in excess of $2,000,000, for which adequate reserves are not maintained. (m) Change in Control. A Change of Control shall occur. (n) Material Adverse Effect. An event shall occur which results in a Material Adverse Effect. An Event of Default shall be deemed "continuing" until cured or waived in writing in accordance with Section 15.07. 12.02. Rights and Remedies.?? (a) Acceleration and Termination. Upon the occurrence of any Event of Default described in Sections 12.01(f) or 12.01(g), the Lenders' respective obligations to make Loans under the Revolving Credit Commitments shall automatically and immediately terminate and the unpaid principal amount of, and any and all accrued interest on, the Obligations and all accrued fees shall automatically become imme-diately due and payable, without presentment, demand, or protest or other requirements of any kind (including, without limitation, valua-tion and appraisement, diligence, pre-sentment, notice of intent to demand or accelerate and of accel-eration), all of which are hereby expressly waived by the Borrower; and upon the occurrence and during the continuance of any other Event of Default, the Collateral Agent shall at the request, or may with the consent, of the Requisite Lenders, by written notice to the Borrower, (i) declare that the Lenders' respective obligations to make Revolving Loans under the Revolving Credit Commitments are terminated, whereupon such obligation of each such Lender to make any Loan hereunder and of each such Lender or Issuing Bank to issue or participate in any Letter of Credit not then issued shall immediately terminate, and/or (ii) declare the unpaid principal amount of and any and all accrued and unpaid interest on the Obliga-tions to be, and the same shall thereupon be, immediately due and payable, without presentment, demand, or protest or other requirements of any kind (including, without limitation, valua-tion and appraisement, diligence, presentment, notice of intent to demand or accelerate and of acceleration), all of which are hereby expressly waived by the Borrower. (b) Deposit for Letters of Credit. In addi-tion, after the occurrence and during the continuance of an Event of Default, the Borrower shall, promptly upon demand by the Collateral Agent, deliver to the Collateral Agent, Cash Collateral in such form as requested by the Collateral Agent for deposit in the Cash Collateral Account, together with such endorsements, and execution and delivery of such documents and instruments, as the Collateral Agent may request in order to perfect or protect the Collateral Agent's Lien with respect thereto, in the applicable amount described in Section 3.01(a)(iv). (c) Rescission. If at any time after termination of the Lenders' obligations to make Revolving Loans under the Revolving Credit Commitments and/or acceleration of the maturity of the Loans, the Borrower shall pay all arrears of interest and all payments on account of principal of the Loans and Reimbursement Obligations which shall have become due other-wise than by acceleration (with interest on principal and, to the extent permitted by law, on overdue interest, at the rates speci- fied in this Agreement) and all Events of Default and Potential Events of Default (other than nonpayment of principal of and accrued interest on the Loans due and payable solely by virtue of acceleration) shall be remedied or waived pursuant to Section 15.07, then upon the written consent of the Requisite Lenders and written notice to the Borrower, the termination of the Lenders' respective obligations to make Revolving Loans under the Revolving Credit Commitments and the respective Lenders' and Issuing Banks' obligations to participate in or issue Letters of Credit and/or the aforesaid acceleration and its conse-quences may be rescinded and annulled; but such action shall not affect any subsequent Event of Default or Potential Event of Default or impair any right or remedy consequent thereon. The provisions of the preceding sentence are intended merely to bind the Lenders and the Issuing Banks to a decision which may be made at the election of the Requisite Lenders; they are not intended to benefit the Borrower and do not give the Borrower the right to require the Lenders to rescind or annul any termination of the aforesaid obligations of the Lenders or Issuing Banks or any acceleration here-under, even if the condi-tions set forth herein are met. (d) Enforcement. The Borrower acknowledges that in the event the Borrower or any Subsidiary of the Borrower fails to perform, observe or discharge any of their respective obligations or liabilities under this Agreement or any other Loan Document, any remedy of law may prove to be inadequate relief to the Collateral Agent, the Issuing Banks and the Lenders; therefore, the Borrower agrees that the Collateral Agent, the Issuing Banks and the Lenders shall be entitled to temporary and permanent injunctive relief in any such case without the necessity of proving actual damages. ARTICLE XIII THE ADMINISTRATIVE AGENTS AND COLLATERAL AGENT?? 13.01. Appointment.?? (a) Each Lender and each Issuing Bank hereby designates and appoints (i) Citicorp and NationsBank as the Administrative Agents of such Lender or such Issuing Bank under this Agreement and (ii) Citicorp as the Collateral Agent of such Lender or such Issuing Bank under this Agreement; and each Lender and each Issuing Bank hereby irre- vocably authorizes the Collateral Agent to take such action on its behalf under the provisions of this Agreement and the Loan Docu-ments and to exercise such powers as are set forth herein or therein together with such other powers as are reasonably incidental thereto. The Collateral Agent hereby agrees to act in the aforesaid capacities on the express conditions contained in this Article XIII. (b) The provisions of this Article XIII are solely for the benefit of the Administrative Agents, the Collateral Agent, the Lenders and Issuing Banks, and neither the Borrower nor any Subsidiary of the Borrower shall have any rights to rely on or enforce any of the provisions hereof (other than as expressly set forth in Section 13.07). In per-forming its functions and duties under this Agreement, the Collateral Agent shall act solely as Collateral Agent of the Lenders and the Issuing Banks and does not assume and shall not be deemed to have assumed any obligation or relationship of agency, trustee or fiduciary with or for the Borrower or any Affiliate of the Borrower. The Collateral Agent may perform any of its respective duties hereunder, or under the other Loan Documents, by or through its agents or employees. 13.02. Nature of Duties. ??The Administrative Agents shall not have any duties or responsibilities other than those expressly set forth in this Agreement or in the Loan Documents. The Collateral Agent shall not have any duties or responsibilities other than those expressly set forth in this Agreement or in the Loan Documents. The duties of the Collateral Agent shall be mechanical and administrative in nature. Neither shall either Administrative Agent or the Collateral Agent have, by reason of this Agreement, any fiduciary relation-ship in respect of any Holder. Nothing in this Agreement or any of the Loan Documents, expressed or implied, is intended to or shall be construed to impose upon the Administrative Agents or the Collateral Agent any obligations in respect of this Agreement or any of the other Loan Documents other than as expressly set forth herein or therein. Each Lender and each Issuing Bank shall make its own independent investigation of the financial condition and affairs of the Borrower and their Affiliates in connection with the making and the con-tinuance of the Loans hereunder and with the issuance of the Letters of Credit and shall make its own appraisal of the creditworthiness of the Borrower and Guarantors initially and on a continuing basis, and no Administrative Agent or Collateral Agent shall have any duty or responsibility, either initially or on a continuing basis, to provide any Holder with any credit or other information with respect thereto (except for reports required to be delivered by the Collateral Agent under the terms of this Agreement). If the Collateral Agent seeks the consent or approval of the Lenders to the taking or refraining from taking of any action hereunder, the Collateral Agent shall send notice thereof to each Lender. The Collateral Agent shall promptly notify each Lender at any time that the Lenders so required hereunder have instructed the Collateral Agent to act or refrain from acting pursuant hereto. As to any matters not expressly provided for by this Agreement (including, without limitation, enforcement or collection of the Notes or any amount payable under any provision of Article IV or Article V when due) or the other Loan Documents, the Collateral Agent shall not be required to exercise any discretion or take any action. Notwithstanding the foregoing, the Collateral Agent shall be required to act or refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the instructions of the Requisite Lenders (unless the instructions or consent of all of the Lenders is required hereunder or thereunder) and such instructions shall be binding upon all Lenders, Issuing Banks and Holders; provided, however, the Collateral Agent shall not be required to take any action which (i) the Collateral Agent reasonably believes will expose it to personal liability unless the Collateral Agent receives an indemnification satisfactory to it from the Lenders with respect to such action or (ii) is contrary to this Agreement, the other Loan Documents or applicable law. 13.03. Rights, Exculpation, Etc.?? (a) Liabilities; Responsibilities. None of the Administrative Agents, the Collateral Agent, any Affiliate of an Administrative Agent or the Collateral Agent, or any of their respective officers, directors, employees or agents shall be liable to any Holder for any action taken or omitted by them hereunder or under any of the Loan Documents, or in connection therewith, except that no Person shall be relieved of any liability imposed by law for gross negligence or willful misconduct. The Collateral Agent shall not be liable for any apportionment or distri-bution of payments made by it in good faith pursuant to Section 4.02(b), and, if any such appor-tionment or distribution is subse-quently determined to have been made in error, the sole recourse of any Holder to whom payment was due, but not made, shall be to recover from other Holders any payment in excess of the amount to which they are determined to have been entitled. Neither the Administrative Agents nor the Collateral Agent shall be responsible to any Holder for any recitals, statements, represen-tations or warranties herein or for the execution, effectiveness, genuineness, valid-ity, legality, enforce-ability, collectibility, or suffic-iency of this Agreement or any of the other Loan Documents or the transac-tions contemplated thereby, or for the financial condition of the Borrower or any of its Affiliates or the Guarantors. The Collateral Agent shall not be required to make any inquiry con-cerning either the performance or observance of any of the terms, provisions or conditions of this Agreement or any of the other Loan Documents, or the financial condition of the Borrower or any of its Affiliates or the Guarantors, or the existence or possible existence of any Potential Event of Default or Event of Default. (b) Right to Request Instructions. The Collateral Agent may at any time request instructions from the Lenders with respect to any actions or approvals which by the terms of any of the Loan Documents the Collateral Agent is per-mitted or required to take or to grant, and shall be absolutely entitled to refrain from taking any action or to with-hold any approval and shall not be under any liability whatsoever to any Person for refraining from any action or with-holding any approval under any of the Loan Documents until it shall have received such instructions from those Lenders from whom the Collateral Agent is required to obtain such instructions for the pertinent matter in accordance with the Loan Documents. Without limiting the generality of the foregoing, no Holder shall have any right of action whatsoever against the Collateral Agent as a result of its acting or refraining from acting under the Loan Documents in accordance with the instructions of the Requisite Lenders or, where required by the express terms of this Agree-ment, a greater proportion of the Lenders. 13.04. Reliance.?? The Collateral Agent shall be entitled to rely upon any written notices, statements, certificates, orders or other documents or any telephone message believed by it in good faith to be genuine and correct and to have been signed, sent or made by the proper Person, and with respect to all mat-ters pertain-ing to this Agreement or any of the Loan Documents and its duties hereunder or thereunder, upon advice of legal counsel (including counsel for the Borrower), independent public accountants and other experts selected by it. 13.05. Indemnification. ??To the extent that the Collateral Agent is required under the terms of the Loan Documents to be reimbursed and indemnified by the Borrower but is not reimbursed and indemnified by the Borrower, the Lenders will reimburse and indemnify the Collateral Agent for and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or dis-burse-ments of any kind or nature whatsoever which may be imposed on, incurred by, or asserted against it in any way relating to or arising out of the Loan Documents or any action taken or omitted by the Collateral Agent under the Loan Documents, in proportion to each Lender's Pro Rata Share. The obligations of the Lenders under this Section 13.05 shall survive the payment in full of the Loans, the Reimbursement Obligations and all other Obligations and the termination of this Agreement. 13.06. Citicorp Individually. ??With respect to its Revolving Credit Pro Rata Share and the Loans made by it, Citicorp shall have and may exercise the same rights and powers hereunder and is subject to the same obligations and liabilities as and to the extent set forth herein for any other Lender. The terms "Lenders" or "Requisite Lenders" or any similar terms shall, unless the context clearly otherwise indi-cates, include Citicorp in its individual capacity as a Lender or one of the Requisite Lenders. Citicorp and its Affiliates may accept deposits from, lend money to, and generally engage in any kind of banking, trust or other business with the Borrower or any of its Affiliates as if it were not acting as the Collateral Agent pursuant hereto. 13.07. Successor Collateral Agents??. (a) Resignation. The Collateral Agent may resign from the performance of all its functions and duties hereunder at any time by giving at least thirty (30) Business Days' prior written notice to the Borrower and the Lenders. Such resignation shall take effect upon the acceptance by a successor Collateral Agent of appoint-ment pursuant to this Section 13.07. (b) Appointment by Requisite Lenders. Upon any such notice of resignation, an Administrative Agent shall have the right to be appointed as a successor Collateral Agent and, if such Administrative Agent declines such right to appointment, the Requisite Lenders shall have the right to appoint a successor Collateral Agent selected from among the Lenders which appointment shall be subject to the prior written approval of the Borrower (which may not be unreasonably withheld, and shall not be required upon the occurrence and during the continuance of an Event of Default). (c) Appointment by Retiring Collateral Agent. If a successor Collateral Agent shall not have been appointed within the thirty (30) Business Day period provided in clause (a) of this Section 13.07, the retiring Collateral Agent, with the consent of the Borrower (which may not be unreasonably withheld, and shall not be required upon the occurrence and during the continuance of an Event of Default), shall then appoint a successor Collateral Agent who shall serve as such until such time, if any, as the Requisite Lenders appoint a successor Collateral Agent as provided above. (d) Rights of the Successor and Retiring Collateral Agents. Upon the acceptance of any appointment as Collateral Agent hereunder by a successor Collateral Agent, such successor Collateral Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Collateral Agent, and the retiring Collateral Agent shall be discharged from its duties and obligations under this Agreement. After any retiring Collateral Agent's resignation hereunder as Collateral Agent, the provisions of this Article XIII shall inure to its benefit as to any actions taken or omitted to be taken by it while it was the Collateral Agent under this Agreement. 13.08. Relations Among Lenders??. Each Lender and each Issuing Bank agrees (except as provided in Section 15.05) that it will not take any legal action, nor institute any actions or proceedings, against the Borrower or any other obligor hereunder or under the other Loan Documents with respect to any Collateral, with-out the prior written consent of the Requisite Lenders. Without limiting the generality of the foregoing, no Lender may accelerate or otherwise enforce its portion of the Obligations, or unilaterally terminate its Revolving Loan Commitment except in accordance with Section 12.02(a). 13.09. Concerning the Collateral and the Loan Documents.?? (a) Protective Advances. The Collateral Agent may from time to time, before or after the occurrence of an Event of Default, make such disbursements and advances pursuant to the Loan Documents which the Collateral Agent, in its sole discretion, deems necessary or desirable to preserve or protect the Collateral or any portion thereof or to enhance the likelihood or maximize the amount of repayment of the Loans and other Obligations in an amount outstanding at any time not to exceed $20,000,000 ("Protective Advances"). The Collateral Agent shall promptly notify the Borrower and each Lender in writing of each such Protective Advance, which notice shall include a description of the purpose of such Protective Advance. The Borrower agrees to pay the Collateral Agent, upon demand, the principal amount of all outstanding Protective Advances, together with interest thereon at the rate from time to time applicable to Base Rate Loans from the date of such Protective Advance until the outstanding principal balance thereof is paid in full. If the Borrower fails to make payment in respect of any Protective Advance within one (1) Business Day after the date the Borrower receives written demand therefor from the Collateral Agent, the Collateral Agent shall promptly notify each Lender and each Lender agrees that it shall thereupon make available to the Collateral Agent, in Dollars in immediately available funds, the amount equal to such Lender's Pro Rata Share of such Protective Advance. If such funds are not made available to the Collateral Agent by such Lender within one (1) Business Day after the Collateral Agent's demand therefor, the Collateral Agent will be entitled to recover any such amount from such Lender together with interest thereon at the Federal Funds Rate for the first day after the date of such demand and at the interest rate applicable to Base Rate Loans that are Revolving Loans for each day during the period commencing on the second day after the date of such demand and ending on the date such amount is received. The failure of any Lender to make available to the Collateral Agent its Pro Rata Share of any such Protective Advance shall neither relieve any other Lender of its obligation hereunder to make available to the Collateral Agent such other Lender's Pro Rata Share of such Protective Advance on the date such payment is to be made nor increase the obligation of any other Lender to make such payment to the Collateral Agent. All outstanding principal of, and interest on, Protective Advances shall constitute Obligations secured by the Collateral until paid in full by the Borrower. (b) Authority. Each Lender and each Issuing Bank authorizes and directs the Collateral Agent to enter into the Loan Documents relating to the Collateral for the benefit of the Lenders and the Issuing Banks. Each Lender and each Issuing Bank agrees that any action taken by the Collateral Agent or the Requisite Lenders (or, where required by the express terms of this Agreement, a greater proportion of the Lenders) in accordance with the provisions of this Agreement or the other Loan Documents, and the exercise by the Collateral Agent or the Requisite Lenders (or, where so required, such greater proportion) of the powers set forth herein or therein, together with such other powers as are reasonably incidental thereto, shall be authorized and binding upon all of the Lenders and Issuing Banks. Without limiting the generality of the foregoing, the Collateral Agent shall have the sole and exclusive right and authority to (i) act as the disbursing and collecting agent for the Lenders and the Issuing Banks with respect to all payments and collections of the Obligations of the Borrower arising in connection with this Agreement and the Loan Documents or relating to the Collateral; (ii) execute and deliver each Loan Document relating to the Collateral and accept delivery of each such agreement delivered by the Borrower, any Subsidiary of the Borrower, or any Guarantor a party thereto; (iii) act as collateral agent for the Lenders and the Issuing Banks for purposes of the perfection of all security interests and Liens created by such agreements and all other purposes stated therein; provided, however, the Collateral Agent hereby appoints, authorizes and directs the Lenders and the Issuing Banks to act as collateral sub-agents for the Collateral Agent, the Lenders and the Issuing Banks for purposes of the perfection of all security interests and Liens with respect to the Property at any time in the possession of such Lender or such Issuing Bank, including, without limitation, Deposit Accounts maintained with, and cash and Cash Equivalents held by, such Lender or such Issuing Bank; (iv) manage, supervise and otherwise deal with the Collateral; (v) take such action as is necessary or desirable to maintain the perfection and priority of the security interests and Liens created or purported to be created by the Loan Documents; and (vi) except as may be otherwise specifically restricted by the terms of this Agreement or any other Loan Document, exercise all remedies given to the Administrative Agents, the Collateral Agent, the Lenders or the Issuing Banks with respect to the Collateral under the Loan Documents relating thereto, applicable law or otherwise. (c) Release of Collateral and Unrestricted Subsidiaries. (i) Each Lender and each Issuing Bank hereby directs, in accordance with the terms of this Agree-ment, the Collateral Agent to release any Lien held by it for the benefit of the Holders: (A) against all of the Collateral, upon final and indefeasible payment in full of the Obligations and termina-tion of this Agreement; (B) against any part of the Collateral sold or disposed of by the Borrower or any of its Subsidiaries, if such sale or disposition is per-mitted by Section 10.02 or is otherwise consented to by the Requisite Lenders, as certified to the Collateral Agent by the Borrower in an Officer's Certificate and any mandatory prepayments required with respect to the proceeds of such sale or disposition are made; and/or (C) against any part of the Collateral consisting of a promissory note, upon final and indefeasible payment in full of the Indebtedness evidenced thereby. (ii) Each Lender and each Issuing Bank hereby directs the Collateral Agent to execute and deliver or file such termination and partial release statements and do such other things as are necessary to release Liens to be released pursuant to this Section 13.09(c) promptly upon the effectiveness of any such release; provided that the Collateral Agent shall have received the proceeds of the Collateral subject to such Liens to which the Lenders and Issuing Banks are entitled under the terms of this Agreement and the other Loan Documents. (iii) Each Lender and Issuing Bank hereby authorizes the Collateral Agent, on behalf of such Lenders and Issuing Banks, to release any Unrestricted Subsidiary from its obligations as a Guarantor and the Liens granted by such Unrestricted Subsidiary to secure the Obligations and its guaranty obligations in the event such Unrestricted Subsidiary obtains financing the terms of which do not permit such Indebtedness or Liens. ARTICLE XIV YIELD PROTECTION 14.01. Taxes. ??(a) Payment of Taxes. Any and all payments by the Borrower hereunder or under any Note or other document evidencing any Obligations shall be made, in accordance with Section 4.02, free and clear of and with-out reduction for any and all present or future taxes, levies, imposts, deductions, charges, withhold-ings, and all stamp or docu-mentary taxes, excise taxes, ad valorem taxes and other taxes imposed on the value of the Property, charges or levies which arise from the execution, delivery or registration, or from payment or performance under, or other-wise with respect to, any of the Loan Documents or the Revolving Credit Commit-ments and all other liabilities with respect thereto excluding, in the case of each Lender, each Issuing Bank and the Collateral Agent, taxes imposed on or measured by net income or overall gross receipts and capital and franchise taxes imposed on it by (i) the United States, (ii) the Governmental Authority of the juris-diction in which such Lender's Applicable Lending Office is located or any political subdivision thereof or (iii) the Governmental Authority in which such Person is organ-ized, managed and controlled or any political subdivision thereof (all such non-excluded taxes, levies, imposts, deduc-tions, charges and withholdings being hereinafter referred to as "Taxes"). If the Borrower shall be required by law to withhold or deduct any Taxes from or in respect of any sum payable hereunder or under any such Note or document to any Lender, any Issuing Bank or the Collateral Agent, (x) the sum payable to such Lender, Issuing Bank, or the Collateral Agent shall be increased as may be necessary so that after making all required withholding or deductions (including withholding or deductions applicable to additional sums payable under this Section 14.01) such Lender, such Issuing Bank or the Collateral Agent (as the case may be) receives an amount equal to the sum it would have received had no such withholding or deductions been made, (y) such Borrower shall make such withholding or deduc-tions, and (z) such Borrower shall pay the full amount withheld or deducted to the relevant taxation authority or other authority in accordance with appli-cable law. (b) Indemnification. The Borrower will indemnify each Lender, each Issuing Bank, each Administrative Agent, and the Collateral Agent against, and reimburse each on demand for, the full amount of all Taxes (including, without limitation, any Taxes imposed by any Governmental Authority on amounts payable under this Section 14.01 and any additional income or franchise taxes resulting therefrom) incurred or paid by such Lender, such Issuing Bank, such Administrative Agent or the Collateral Agent (as the case may be) or any of their respective Affiliates and any lia-bil-ity (including penalties, interest, and out-of-pocket expenses paid to third parties) arising there-from or with respect thereto, whether or not such Taxes were lawfully pay- able. A certificate as to any additional amount payable to any Person under this Section 14.01 submitted by it to the Borrower shall, absent mani-fest error, be final, conclusive and binding upon all parties hereto. Each Lender and each Issuing Bank agrees, within a reason-able time after receiving a written request from the Borrower, to provide the Borrower and the Collateral Agent with such certificates as are reasonably required, and take such other actions as are reasonably necessary to claim such exemptions as such Lender or such Issuing Bank may be entitled to claim in respect of all or a portion of any Taxes which are otherwise required to be paid or deducted or withheld pursuant to this Section 14.01 in respect of any payments under this Agreement or under the Notes. (c) Receipts. Within thirty (30) days after the date of any payment of Taxes by the Borrower, it will furnish to the Collateral Agent, at its address referred to in Section 15.08, the original or a certified copy of a receipt evidencing payment thereof. (d) Foreign Bank Certifications. (i) Each Lender that is not created or organized under the laws of the United States or a political subdivision thereof shall deliver to the Borrower and the Collateral Agent on the Closing Date or the date on which such Lender becomes a Lender pursuant to Section 15.01 hereof a true and accurate certif-icate executed in duplicate by a duly authorized officer of such Lender to the effect that such Lender is eligible to receive payments here-under and under the Notes without deduc-tion or withholding of United States federal income tax (I) under the provi-sions of an applicable tax treaty concluded by the United States (in which case the certificate shall be accom-panied by two duly completed copies of IRS Form 1001 (or any successor or substitute form or forms)), (II) under Sections 1442(c)(1) and 1442(a) of the Internal Revenue Code (in which case the certificate shall be accompanied by two duly completed copies of IRS Form 4224 (or any successor or substitute form or forms)), or (III) due to such Lender's not being a "bank" as such term is used in Section 881(c)(3)(A) of the Internal Revenue Code (in which case, the certificate shall be accompanied by two accurate and complete original signed copies of IRS Form W- 8 (or any successor or substitute form or forms)). (ii) Each Lender further agrees to deliver to the Borrower and the Collateral Agent from time to time, a true and accurate certificate executed in duplicate by a duly author-ized officer of such Lender before or promptly upon the occurrence of any event requiring a change in the most recent certificate previously deliv-ered by it to the Borrower and the Collateral Agent pursuant to this Section 14.01(d). Each certificate required to be delivered pursuant to this Section 14.01(d)(ii) shall certify as to one of the following: (A) that such Lender can continue to receive payments here-under and under the Notes without deduction or withholding of United States federal income tax; (B) that such Lender cannot continue to receive payments here-under and under the Notes without deduction or withholding of United States federal income tax as specified therein but does not require additional payments pur-suant to Section 14.01(a) because it is entitled to recover the full amount of any such deduction or with-holding from a source other than the Borrower; or (C) that such Lender is no longer capable of receiv-ing payments hereunder and under the Notes without deduction or withholding of United States federal income tax as specified therein and that it is not capable of recov-ering the full amount of the same from a source other than the Borrower. Each Lender agrees to deliver to the Borrower and the Collateral Agent further duly completed copies of the above-mentioned IRS forms on or before the earlier of (x) the date that any such form expires or becomes obsolete or otherwise is required to be resubmitted as a condition to obtaining an exemption from withholding from United States federal income tax and (y) fifteen (15) days after the occurrence of any event requiring a change in the most recent form previously delivered by such Lender to the Borrower and Collateral Agent, unless any change in treaty, law, regulation, or official interpretation thereof which would render such form inapplicable or which would prevent the Lender from duly completing and delivering such form has occurred prior to the date on which any such delivery would otherwise be required and the Lender promptly advises the Borrower that it is not capable of receiving payments hereunder and under the Notes without any deduction or withholding of United States federal income tax. 14.02. Increased Capital. If?? after the date hereof any Lender or Issuing Bank determines that (i) the adoption or implementa-tion of or any change in or in the interpretation or administration of any law or regulation or any guideline or request from any central bank or other Governmental Authority or quasi-governmental authority exercising jurisdic-tion, power or control over any Lender, Issuing Bank or banks or financial institutions generally (whether or not having the force of law), compliance with which affects or would affect the amount of capital required or expected to be maintained by such Lender or Issuing Bank or any Person controlling such Lender or Issuing Bank and (ii) the amount of such capital is increased by or based upon (A) the making or maintenance by any Lender of its Loans, any Lender's participation in or obligation to participate in the Loans, Letters of Credit or other advances made hereunder or the existence of any Lender's obligation to make Loans or (B) the issuance or maintenance by any Issuing Bank of, or the existence of any Issuing Bank's obligation to issue, Letters of Credit, then, in any such case, upon written demand by such Lender or Issuing Bank (with a copy of such demand to the Collateral Agent), the Borrower shall immediately pay to the Collateral Agent for the account of such Lender or Issuing Bank, from time to time as specified by such Lender or Issuing Bank, additional amounts sufficient to compensate such Lender or Issuing Bank or such Person therefor. Such demand shall be accompanied by a statement as to the amount of such compensation and include a brief summary of the basis for such demand. Such statement shall be conclusive and binding for all purposes, absent manifest error. 14.03. Changes; Legal Restrictions. If?? after the date hereof any Lender or Issuing Bank determines that the adoption or implementation of or any change in or in the interpretation or administration of any law or regulation or any guideline or request from any central bank or other Governmental Authority or quasi-governmental authority exercising jurisdiction, power or control over any Lender, Issuing Bank or over banks or financial institutions generally (whether or not having the force of law), compliance with which: (a) does or will subject a Lender or an Issuing Bank (or its Applicable Lending Office or Eurodollar Affili-ate) to charges (other than taxes) of any kind which such Lender or Issuing Bank reasonably determines to be applicable to Eurodollar Rate Loans outstanding under this Agreement or the Revolving Credit Commitments of the Lenders and/or the Issuing Banks to make Eurodollar Rate Loans or issue and/or participate in Letters of Credit or change the basis of taxation of payments to that Lender or Issuing Bank of principal, fees, inter-est, or any other amount payable hereunder with respect to Eurodollar Rate Loans or Letters of Credit; or (b) does or will impose, modify, or hold appli- cable, in the determination of a Lender or an Issuing Bank, any reserve (other than reserves taken into account in calculating the Eurodollar Rate), special deposit, compulsory loan, FDIC insurance or similar require-ment against assets held by, or deposits or other liabilities (including those pertaining to Letters of Credit) in or for the account of, advances or loans by, commitments made, or other credit extended by, or any other acquisition of funds by, a Lender or an Issuing Bank or any Applicable Lending Office or Eurodollar Affiliate of that Lender or Issu-ing Bank; and the result of any of the foregoing is to increase the cost to that Lender or Issuing Bank of making, renewing or maintaining the Loans or its Revolving Credit Commitment with respect to, or issuing or participating in, the Letters of Credit or to reduce any amount receivable thereunder; then, in any such case, upon written demand by such Lender or Issuing Bank (with a copy of such demand to the Collateral Agent), the Borrower shall immediately pay to the Collateral Agent for the account of such Lender or Issuing Bank, from time to time as specified by such Lender or Issuing Bank, such amount or amounts as may be neces- sary to compensate such Lender or Issuing Bank or its Eurodollar Affiliate for any such additional cost incurred or reduced amount received. Such demand shall be accompanied by a statement as to the amount of such compensation and include a brief summary of the basis for such demand. Such statement shall be conclusive and binding for all purposes, absent manifest error. 14.04. Illegality. ??(i) If at any time any Lender deter-mines (which determination shall, absent manifest error, be final and conclusive and binding upon all parties) that the making or continuation of or conversion into any Eurodollar Rate Loan has become unlawful or impermissible by compliance by that Lender with any law, govern-mental rule, regu-lation or order of any Governmental Authority (whether or not having the force of law and whether or not fail-ure to comply therewith would be unlawful or would result in costs or penal-ties), then, and in any such event, such Lender may give notice of that determination, in writing, to the Borrower and the Collateral Agent, and the Collateral Agent shall promptly transmit the notice to each other Lender. (ii) When notice is given by a Lender under Section 14.04(i), (A) the Borrower's right to request from such Lender and such Lender's obligation, if any, to make Eurodollar Rate Loans shall be imme-diately suspended, and such Lender shall make a Base Rate Loan as part of any requested Borrowing of Eurodollar Rate Loans and (B) if the affected Eurodollar Rate Loan or Loans are then outstand-ing, the Borrower shall immediately, or if permitted by appli-cable law, no later than the date permitted thereby, upon at least one (1) Business Day's prior written notice to the Collateral Agent and the affected Lender, convert each such Loan into a Base Rate Loan. (iii) If at any time after a Lender gives notice under Section 14.04(i) such Lender determines that it may lawfully make Eurodollar Rate Loans, such Lender shall promptly give notice of that determination, in writing, to the Borrower and the Collateral Agent, and the Collateral Agent shall promptly transmit the notice to each other Lender. The Borrower's right to request, and such Lender's obligation, if any, to make Eurodollar Rate Loans shall thereupon be restored. 14.05. Compensation. In?? addition to all amounts required to be paid by the Borrower pursuant to Section 5.01, the Borrower shall compensate each Lender, upon demand, for all losses, expenses and liabilities (including, without limitation, any loss or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Lender to fund or maintain such Lender's Eurodollar Rate Loans to the Borrower but excluding any loss of applicable Revolving Eurodollar Rate Margin or Term Eurodollar Rate Margin on the relevant Loans) which that Lender may sustain (i) if for any reason a Borrowing, conversion into or continuation of Eurodollar Rate Loans does not occur on a date specified therefor in a Notice of Borrowing or a Notice of Conver-sion/Continuation given by the Borrower or in a telephonic request by them for borrowing or conversion/continuation or a successive Eurodollar Interest Period does not commence after notice therefor is given pursuant to Section 5.01(c), including, without limita-tion, pursuant to Section 5.02(d), (ii) if for any reason any Eurodollar Rate Loan is prepaid (including, without limitation, manda-torily pursuant to Section 4.01) on a date which is not the last day of the applicable Eurodollar Interest Period, (iii) as a consequence of a required conver-sion of a Eurodollar Rate Loan to a Base Rate Loan as a result of any of the events indicated in Section 5.02(d) or Section 14.04, or (iv) as a consequence of any failure by the Borrower to repay Eurodollar Rate Loans made to it when required by the terms of this Agree-ment. The Lender making demand for such compensation shall deliver to the Borrower concurrently with such demand a written state-ment in reasonable detail as to such losses, expenses and liabilities, and this statement shall be conclusive as to the amount of compensation due to that Lender, absent manifest error. 14.06. Limitation on Additional Amounts Payable by the Borrower.?? Notwithstanding the provisions of Section 14.01(a), the Borrower shall not be required to pay any additional amounts hereunder to a Lender or Issuing Bank if (a) the obligation to pay such additional amounts would not have arisen but for a failure by the Lender or Issuing Bank to comply with the requirements described in Section 14.01 or (b) the Lender or Issuing Bank shall not have furnished the Borrower with such forms or shall not have taken such other action as reasonably may be available to it under applicable tax laws and any applicable tax treaty to obtain an exemption from, or reduction (to the lowest applicable rate) of withholding of such United States federal income tax; provided, however, the Borrower's obligation to pay such additional amounts shall be reinstated upon receipt of such forms or evidence that action with respect to obtaining such exemption or reduction has been taken. 14.07. Change in Lending Office.?? Any Lender claiming any additional amounts payable pursuant to Section 14.01 shall use reasonable efforts (consistent with its internal policy and legal and regulatory restrictions) to change the Domestic Lending Office designated by it for purposes of this Agreement to a Domestic Lending Office in another jurisdiction, if the making of such a change would avoid the need for, or reduce the amount of, any such additional amounts which may thereafter accrue and would not, in the judgment of such Lender, be otherwise disadvantageous to such Lender. 14.08. Judgment Currency.?? If for the purposes of obtaining judgment in any court it is necessary to convert a sum due under this agreement or any Note in any currency (the "first currency") into another currency (the "second currency"), the parties hereto agree, to the fullest extent permitted by law, that the Exchange Rate used shall be that determined on the Business Day preceding that on which final judgment is given. To the fullest extent permitted by applicable law, the Obligation in respect of any sum due in a first currency shall, notwithstanding any judgment in a second currency, be discharged only to the extent that on the Business Day following receipt by any of the Collateral Agent, any Lender or any Issuing Bank of any sum adjudged to be so due in the second currency, such Person may purchase the first currency with the second currency at the Exchange Rate determined on the date of such purchase; if the amount of the first currency so purchased is less than the sum originally due to such Person in the first currency, the Borrower agrees, as a separate obligation and notwithstanding any such judgment, to indemnify such Person against such loss, and if the amount of the first currency so purchased exceeds the sum originally due to such Person in the first currency, such Person agrees to remit to the Borrower such excess. ARTICLE XV MISCELLANEOUS 15.01. Assignments and Participations.?? (a) Assign- ments. No assignments or participations of any Lender's rights or obligations under this Agreement shall be made except in accordance with this Section 15.01. Each Lender may assign to one or more Eligible Assignees all or a portion of its rights and obligations under this Agreement (including all of its rights and obligations with respect to the Loans and the Letters of Credit) in accord-ance with the provisions of this Section 15.01. (b) Limitations on Assignments. Each assign-ment shall be subject to the following condi-tions: (i) each such assignment may be of any of the following: (A) all of a Lender's outstanding Term Loan, (B) all of a Lender's Revolving Credit Commitment (together with its Revolving Loans and participations in outstanding Letters of Credit), (C) any portion of a lender's Term Loan or Revolving Credit Commitment; provided that such assignment is made to another Lender or an Affiliate of a Lender, and (D) in the event a Lender desires to assign a portion of either its Term Loan or Revolving Credit Commitment to a Person which is not a Lender or Affiliate of a Lender, such assignment shall be in a minimum principal amount of $2,500,000 and may be of either a portion of such Lender's Term Loans, Revolving Credit Commitment (together with a like portion of its Revolving Loans and participation in outstanding Letters of Credit) or a combination thereof; (ii) each such assignment shall be of a constant, and not a varying, ratable percentage of all of the assigning Lender's rights and obliga-tions under this Agreement which are subject to such assignment; (iii) each such assignment shall be to an Eligible Assignee consented to by the Collateral Agent, which consent shall not be unreasonably withheld or delayed; (iv) unless an Event of Default shall have occurred and be continuing unwaived, the Borrower shall have the right to approve each such Eligible Assignee which is not another Lender or an Affiliate of a Lender, which approval shall not be unreasonably withheld or delayed; and (v) the parties to each such assignment shall execute and deliver to the Collateral Agent, for its acceptance and recording in the Reg-ister, an Assignment and Acceptance. Upon such execution, delivery, acceptance and recording in the Register, from and after the effective date specified in each Assignment and Accep-tance and agreed to by the Collateral Agent, (A) the assignee there-under shall, in addition to any rights and obligations hereunder held by it immediately prior to such effective date, if any, have the rights and obligations hereunder that have been assigned to it pursuant to such Assign-ment and Acceptance and shall, to the fullest extent permitted by law, have the same rights and benefits hereunder as if it were an original Lender hereunder, (B) the assigning Lender shall, to the extent that rights and obligations hereunder have been assigned by it pur-suant to such Assignment and Acceptance, relinquish its rights and be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all or the remaining portion of such assigning Lender's rights and obliga-tions under this Agreement, the assigning Lender shall cease to be a party hereto), and (C) the Borrower shall execute and deliver to the assignee thereunder one or more Notes, as applicable, evidencing its obligations to such assignee with respect to the Loans. (c) The Register. The Collateral Agent shall maintain at its address referred to in Section 15.08 a copy of each Assignment and Acceptance delivered to and accepted by it and a register (the "Register") for the recordation of the names and addresses of the Lenders and their respective Revolving Credit Commitments, and the prin-cipal amount of the Loans owing to, each Lender from time to time and whether such Lender is an original Lender or the assignee of another Lender pursuant to an Assignment and Acceptance. The entries in the Register shall be conclusive and binding for all purposes, absent manifest error, and the Borrower and each of the Guarantors, the Collateral Agent, and the Lenders may treat each Person whose name is recorded in the Register as a Lender hereunder for all pur-poses of this Agreement. The Register shall be available for inspection by the Borrower or any Lender at any reasonable time and from time to time upon reasonable prior notice. (d) Fee. Upon its receipt of an Assignment and Accep- tance executed by the assigning Lender and an Eligible Assignee and a processing and recordation fee of $3,000 (pay-able by the assigning Lender or the assignee, as shall be agreed between them), the Collateral Agent shall, if such Assignment and Acceptance has been completed and is in compliance with this Agreement and in substantially the form of Exhibit A, (i) accept such Assignment and Acceptance, (ii) record the informa-tion contained therein in the Register and (iii) give prompt notice thereof to the Borrower and the other Lenders. (e) Participations. Each Lender may sell partici- pations to one or more other financial institutions in or to all or a portion of its rights and obligations under and in respect of any and all facilities under this Agreement (including, with- out limitation, all or a portion of any or all of its Revolving Credit Commitment hereunder and the Loans owing to it and its undivided interest in the Letters of Credit); provided, however, that (i) such Lender's obligations under this Agreement (including, without limitation, its Revolving Credit Commitments hereunder) shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, (iii) the Borrower, the Collateral Agent, and the other Lenders shall continue to deal solely and directly with such Lender in connec-tion with such Lender's rights and obliga-tions under this Agree-ment and (iv) such participant's rights to agree or to restrict such Lender's ability to agree to the modi-fication, waiver or release of any of the terms of the Loan Documents or to the release of any Collateral covered by the Loan Documents, to consent to any action or failure to act by any party to any of the Loan Documents or any of their respec-tive Affiliates, or to exercise or refrain from exercising any powers or rights which any Lender may have under or in respect of the Loan Documents or any Collateral, shall be limited to the right to consent to (A) increase in the Commitment of the Lender from whom such participant purchased a participation, (B) reduction of the principal of, or rate or amount of interest on the Loans(s) subject to such participation (other than by the payment or prepayment thereof), (C) postponement of any date fixed for any payment of principal of, or interest on, the Loan(s) subject to such participation and (D) release of any Guarantor or all or a substantial portion of the Collateral except as provided in Section 13.09(c). (f) Payment to Participants. Anything in this Agree- ment to the contrary not-with-standing, in the case of any participation, all amounts payable by the Borrower under the Loan Documents shall be calculated and made in the manner and to the parties required hereby as if no such participation had been sold; provided, however, that each participant shall be the beneficiary of the provisions of Article XIV to the extent amounts payable thereunder do not exceed the amounts payable thereunder to the Lender from which such participation has been purchased. (g) Lenders' Creation of Security Interests. Notwithstanding any other provision set forth in this Agreement, any Lender may at any time create a security interest in all or any portion of its rights under this Agreement (including, without limitation, Obligations owing to it and any Notes held by it) in favor of any Federal Reserve bank in accordance with Regulation A of the Federal Reserve Board. (h) Assignments by Citicorp. If Citicorp ceases to be a Lender under this Agreement by virtue of any assignment made pursuant to this Section 15.01, then, as of the effective date of such cessation, Citibank's obligations to issue Letters of Credit pursuant to Section 3.01 shall terminate and Citibank shall be an Issuing Bank hereunder only with respect to outstanding Letters of Credit issued prior to such date. (i) Information Regarding the Borrower. Any Lender may, in connection with any assignment or participation or pro- posed assignment or participation pursuant to this Section 15.01, disclose to the assignee or participant or proposed assignee or participant, any information relating to the Borrower or the Borrower's Subsidiaries furnished to such Lender by the Collateral Agent or by or on behalf of the Borrower or its Subsidiaries; provided that, prior to any such disclosure, such assignee or participant, or proposed assignee or participant, shall agree to preserve in accordance with Section 15.20 the confidentiality of any con-fidential information described therein. 15.02. Expenses.?? (a) Generally. The Borrower agrees upon demand to pay, or reimburse the Collateral Agent for, all of the Administrative Agents' and Collateral Agent's reasonable internal and external audit, legal, appraisal, valuation, filing, document duplication and reproduction and investigation expenses and for all other out-of-pocket costs and expenses of every type and nature (including, without limitation, the reasonable fees, expenses and disbursements of Sidley & Austin, local legal counsel, auditors, accountants, appraisers, printers, insurance and environ-mental advisers, and other consultants and agents) incurred by the Collateral Agent in connection with (i) the Collateral Agent's review and investi- gation of the Borrower and its Affiliates and the Collateral in connection with the preparation, negotiation, and execution of the Loan Documents and the Collateral Agent's periodic reviews and audits of the Borrower and Guarantors; (ii) the pre-paration, negotiation, execution and interpretation of this Agreement (including, without limitation, the satisfac-tion or attempted satis-faction of any of the conditions set forth in Article VI) and the other Loan Docu-ments and the making of the Loans here- under; (iii) the cre-ation, perfection or protec-tion of the Liens under the Loan Documents (including, with-out limitation, any reasonable fees and expenses for local counsel in various jurisdic-tions); (iv) the ongoing administra-tion of this Agreement, the other Loan Documents, and the Loans, including, without limitation, consultation with attorneys in connection there-with and with respect to the Collateral Agent's rights and responsibilities under this Agreement and the other Loan Documents; (v) the protection, collection or enforcement of any of the Obligations or the enforcement of any of the Loan Documents; (vi) the commencement, defense or intervention in any court proceeding relating in any way to the Obligations, the Property, the Borrower, any of the Borrower's Subsidiaries, this Agreement or any of the other Loan Documents; (vii) the response to, and preparation for, any subpoena or request for document production with which the Collateral Agent is served or deposition or other proceeding in which the Collateral Agent is called to testify, in each case, relating in any way to the Obligations, the Property, the Borrower, any of the Borrower's Subsidiaries, this Agreement or any of the other Loan Documents; and (viii) any amendments, consents, waivers, assignments, restatements, or supplements to any of the Loan Documents and the preparation, negotiation, and execution of the same. (b) After Default. The Borrower further agrees to pay or reimburse the Collateral Agent, the Issuing Banks and the Lenders upon demand for all out-of-pocket costs and expenses, including, without limitation, reasonable attorneys' fees (including allocated costs of internal counsel and costs of settlement) incurred by any of them after the occur-rence of an Event of Default (i) in enforcing any Loan Document or Obligation or any security therefor or exer-cising or enforcing any other right or remedy available by reason of such Event of Default; (ii) in connection with any refinancing or restructuring of the credit arrangements provided under this Agreement in the nature of a "work-out" or in any insolvency or bankruptcy proceeding; (iii) in commencing, defending or inter-vening in any litigation or in filing a petition, com-plaint, answer, motion or other pleadings in any legal proceeding relat-ing to the Obligations, the Property, the Borrower or any of the Borrower's Subsidiaries and related to or arising out of the transactions contemplated hereby or by any of the other Loan Documents; and (iv) in taking any other action in or with respect to any suit or proceeding (bankruptcy or otherwise) described in clauses (i) through (iii) above. 15.03. Indemnity. ??The Borrower further agrees (a) to defend, protect, indemnify, and hold harmless the Collateral Agent, each of the Administrative Agents, and each and all of the Lenders and their Affiliates, the Issuing Banks, and each of the foregoing's respective officers, direc-tors, trustees, employees, attorneys and agents (including, without limita-tion, those retained in connection with the satisfaction or attempted satisfaction of any of the conditions set forth in Article VI) (collectively, the "Indemnitees") from and against any and all liabilities, obligations, losses (other than loss of profits), damages, penalties, actions, judgments, suits, claims, costs, expenses and disbursements of any kind or nature what-soever (excluding any taxes (except as provided in Section 14.01) and including, with-out limitation, the fees and disbursements of counsel for such Indemnitees in connection with any investiga- tive, administrative or judicial proceeding, whether or not such Indemnitees shall be designated a party thereto), imposed on, incurred by, or asserted against such Indemnitees in any manner relating to or arising out of (i) this Agreement or the other Loan Documents or any act, event or transaction related or attendant thereto, the making of the Loans and the issuance of and participation in Letters of Credit hereunder, the management of such Loans or Letters of Credit, the use or intended use of the proceeds of the Loans or Letters of Credit hereunder, or any of the other transactions contemplated by any of the Loan Documents, including, without limitation, the issuance of the Senior Subordinated Notes, the Banner Exchange, the Banner Distribution, and the acquisition of Kaynar pursuant to the Kaynar Purchase Agreement, or (ii) any Liabilities and Costs relating to any violation by the Borrower, its Subsidiaries, or the Guarantors, or their respective predecessors-in-interest of any Environmental, Health or Safety Requirements of Law, the past, present or future operations of the Borrower, its Subsidiaries, any Guarantor, or any of their respective predecessors in interest, or, the past, present or future environmental, health or safety condition of any respective past, present or future Property of the Borrower, any of its Subsidiaries, or any Guarantor, the presence of asbestos- containing materials at any respective past, present or future Property of the Borrower, any of its Subsidiaries, or any Guarantor, or the Release or threatened Release of any Contaminant into the environment by the Borrower, its Subsidiaries, any Guarantor, or their respective predecessors-in- interest, or the Release or threatened Release of any Contaminant into the environment from or at any facility to which the Borrower, any of its Subsidiaries, or any Guarantor, or their respective predecessors-in-interest sent or directly arranged the transport of any Contaminant (collectively, the "Indem-nified Matters"); provided, however, the Borrower shall have no obligation to an Indemnitee hereunder with respect to Indemnified Matters caused by or resulting from the willful misconduct or gross negli-gence of such Indemnitee, as determined by a court of competent jurisdiction and (b) not to assert any claim against any of the Indemnitees on any theory of liability for special, indirect, consequential or punitive damages arising out of, or in any way in connection with, the Revolving Credit Commitments, the Obligations or any other matters governed by this Agreement and/or the other Loan Documents. To the extent that the undertaking to indemnify, pay and hold harmless set forth in the preceding sentence may be unenforceable because it is violative of any law or public policy, the Borrower shall contribute the maximum portion which it is permitted to pay and satisfy under applicable law, to the payment and satisfaction of all Indemnified Matters incurred by the Indemnitees. The Collateral Agent, Administrative Agents, Lenders and the Issuing Banks agree to notify the Borrower of the institution or assertion of any Indemnified Matter, but the parties hereto hereby agree that the failure to so notify the Borrower shall not release the Borrower from its obligations hereunder. 15.04. Change in Accounting Principles??. If any change in the accounting principles used in the prepara-tion of the most recent Financial Statements referred to in Section 8.01 are hereafter required or permitted by the rules, regulations, pronouncements and opinions of the Financial Accounting Standards Board or the American Institute of Certified Public Accountants (or successors thereto or agencies with similar functions) and are adopted by the Borrower with the agree-ment of its independent certified public accountants and such changes result in a change in the method or result of calculation of any of the covenants, standards or terms found in Article IX, Article X, and Article XI, the parties hereto agree to enter into negotiations in order to amend such provisions so as to equitably reflect such changes with the desired result that the criteria for evaluating compliance with such covenants, standards and terms by the Borrower shall be the same after such changes as if such changes had not been made; provided, however, no change in such accounting principles that would affect the method of calculation of any of the covenants, standards or terms shall be given effect in such calculations until such provisions are amended, in a manner satisfactory to the Requisite Lenders and the Borrower, to so reflect such change in accounting prin-ciples. 15.05. Setoff.?? In addition to any Liens granted under the Loan Documents and any rights now or hereafter granted under applicable law, upon the occurrence and during the con- tinuance of any Event of Default, each Lender, each Issuing Bank and any Affiliate of any Lender or Issuing Bank is hereby authorized by the Borrower at any time or from time to time, without notice to any Person (any such notice being hereby expressly waived) to set off and to appropriate and to apply any and all deposits (general or special, including, but not limited to, indebtedness evidenced by certificates of deposit, whether matured or unmatured (but not including trust accounts)) and any other Indebtedness at any time held or owing by such Lender, Issuing Bank or any of their Affiliates to or for the credit or the account of the Borrower against and on account of the Obligations of the Borrower to such Lender, Issuing Bank or any of their Affiliates, including, but not limited to, all Loans and Letters of Credit and all claims of any nature or description arising out of or in con-nection with this Agreement, irrespective of whether or not (i) such Lender or Issuing Bank shall have made any demand hereunder or (ii) the Collateral Agent, at the request or with the consent of the Requisite Lenders, shall have declared the principal of and interest on the Loans and other amounts due hereunder to be due and payable as permitted by Article XII and even though such Obligations may be contingent or unmatured. Each Lender and each Issuing Bank agrees that it shall not, without the express consent of the Requisite Lenders, and that it shall, to the extent it is lawfully entitled to do so, upon the request of the Requisite Lenders, exer-cise its setoff rights hereunder against any accounts of the Borrower, any of its Subsidiaries, or a Guarantor now or hereafter maintained with such Lender, Issuing Bank or any Affiliate of such Lender or Issuing Bank. 15.06. Ratable Sharing. ??The Lenders agree among them- selves that (i) with respect to all amounts received by them which are applicable to the payment of the Obligations (excluding the fees described in Section 5.03 and Article XIV), equitable adjustment will be made so that, in effect, all such amounts will be shared among them ratably in accordance with their Pro Rata Shares, whether received by voluntary payment, by the exercise of the right of setoff or banker's lien, by counterclaim or cross- action or by the enforce-ment of any or all of the Obligations (excluding the fees described in Section 5.03 and Article XIV) or the Collateral, (ii) if any of them shall by voluntary payment or by the exercise of any right of counterclaim, setoff, banker's lien or otherwise, receive payment of a propor-tion of the aggregate amount of the Obliga-tions held by it, which is greater than the amount which such Lender is entitled to receive hereunder, the Lender receiving such excess payment shall purchase, without recourse or warranty, an undivided inter-est and participation (which it shall be deemed to have done simultaneously upon the receipt of such payment) in such Obliga- tions owed to the others so that all such recoveries with respect to such Obligations shall be applied ratably in accordance with their Pro Rata Shares; provided, however, that if all or part of such excess payment received by the purchas-ing party is thereafter recovered from it, those purchases shall be rescinded and the purchase prices paid for such participations shall be returned to such party to the extent necessary to adjust for such recovery, but without interest except to the extent the purchasing party is required to pay interest in connection with such recovery. The Borrower agrees that any Lender so purchasing a participation from another Lender pursuant to this Section 15.06 may, to the fullest extent permitted by law, exercise all its rights of payment (including, subject to Section 15.05, the right of setoff) with respect to such participation as fully as if such Lender were the direct creditor of the Borrower in the amount of such participation. 15.07. Amendments and Waivers??. (a) General Provisions. Unless otherwise provided for or required in this Agreement, no amendment or modi-fi-cation of any provision of this Agreement or any of the other Loan Documents shall be effective without the written agreement of the Requisite Lenders (which the Requisite Lenders shall have the right to grant or withhold in their sole discretion) and the Borrower. No termination or waiver of any provision of this Agreement or any of the other Loan Documents, or consent to any departure by the Borrower therefrom, shall be effective without the written concurrence of the Requisite Lenders, which the Requisite Lenders shall have the right to grant or withhold in their sole discretion. All amendments, modifications, waivers and consents not specifically reserved to Lenders, Issuing Banks, and the Collateral Agent in Section 15.07(b), Section 15.07(c) and in other provisions of this Agreement shall require only the approval of the Requisite Lenders. Any waiver or consent shall be effective only in the specific instance and for the specific purpose for which it was given. No notice to or demand on the Borrower in any case shall entitle the Borrower to any other or further notice or demand in similar or other circumstances. (b) Amendments, Consents and Waivers by All Lenders. Any amendment, modification, termination, waiver or consent with respect to any of the following provisions of this Agreement shall be effective only by a written agreement, signed by each Lender: (i) increase in the amount of any of the Revolving Credit Commitments, (ii) form of payment required with respect to or reduction of the principal of, rate or amount of interest on the Loans, the Reimbursement Obligations, or any fees or other amounts payable to the Lenders or Issuing Banks (other than by the payment or prepay-ment thereof), (iii) postponement or extension of the Revolving Credit Termination Date, the Term Loan Termination Date, or any date fixed for any payment of principal of, or interest on, the Loans, the Reimbursement Obligations (other than any date fixed pursuant to Section 4.01(b)) or any fees or other amounts payable to the Lenders or the Issuing Banks, (iv) the orders of priority of applications set forth in Section 4.01, (v) change in the definitions of the Revolving Credit Commitments, Term Loan Commitments, Term Loans, or Requisite Lenders; (vi) waiver of any of the conditions specified in Sections 6.01 or 6.02, the prohibition in Section 8.06 against designation of any Subsidiary which is part of the Operating Unit known as Fairchild Fasteners Group as an Unrestricted Subsidiary, or the covenant set forth in Section 9.14, (vii) release of any Guarantor or all or a substantial portion of the Collateral (except as provided in Section 13.09(c)(i)(A) or (B) or in Section 13.09(c)(iii)), (viii) change in the aggregate Term Loan Pro Rata Share and Revolving Credit Pro Rata Share of the Lenders which shall be required for the Lenders or any of them to take action under this Agreement or the other Loan Documents, (ix) amendment of Section 15.01 or this Section 15.07, (x) assignment of any right or interest in or under this Agreement or any of the other Loan Documents by the Borrower, and (xi) waiver of any Event of Default described in Sections 12.01(a), (f), (g), (h), and (n). (c) Collateral Agent Authority. The Collateral Agent may, but shall have no obligation to, with the written concurrence of any Lender, exe-cute amendments, modifica-tions, waivers or consents on behalf of that Lender. Notwithstanding anything to the contrary contained in this Section 15.07, no amendment, modification, waiver or consent shall affect the rights or duties of the Collateral Agent under this Agreement or the other Loan Documents, unless made in writing and signed by the Collateral Agent in addition to the Lenders required above to take such action; and the order of priority set forth in clauses (i) and (ii) of Section 4.02(b) may be changed only with the prior written consent of the Collateral Agent. Notwithstanding anything herein to the contrary, in the event that the Borrower shall have requested, in writing, that any Lender agree to an amendment, modification, waiver or consent with respect to any particular provision or provisions of this Agreement or the other Loan Documents, and such Lender shall have failed to state, in writing, that it either agrees or disagrees (in full or in part) with all such requests (in the case of its statement of agreement, subject to satisfactory documentation and such other conditions it may specify) within thirty (30) days after such request, then such Lender shall be deemed to not have approved such amendment, modification, waiver or consent and the Collateral Agent shall thereupon determine whether the Lenders required above to take the requested action have approved the same within the required time and communicate such determination to the Borrower and the Lenders. 15.08. Notices. ??Unless otherwise specifically pro- vided herein, any notice or other communication herein required or permitted to be given shall be in writing and may be personally served, sent by facsimile transmission or courier service or United States certified mail and shall be deemed to have been given when delivered in person or by courier service, upon receipt of a facsimile transmission, or four (4) Business Days after deposit in the United States mail with postage prepaid and properly addressed. Notices to the Collateral Agent pursuant to Articles II, IV or XIII shall not be effective until received by the Collateral Agent. For the purposes hereof, the addresses of the parties hereto (until notice of a change thereof is deliv- ered as provided in this Section 15.08) shall be as set forth below each party's name on the signature pages hereof or the signature page of any applicable Assignment and Acceptance or in an amendment to this Agreement, or, (a) as to the Borrower, at such other address as may be designated by the Borrower in a written notice to all of the other parties to this Agreement and (b) as to the Lenders and Issuing Banks, at such other address as may be designated by such Person in a written notice to the Collateral Agent. 15.09. Survival of Warranties and Agreements.?? All representations and warranties made herein and all covenants and other obligations of the Borrower in respect of taxes, indemnification and expense reimbursement shall survive the execution and delivery of this Agreement and the other Loan Documents, the making and repayment of the Loans, the issuance and discharge of Letters of Credit hereunder and the termination of this Agreement and shall not be limited in any way by the passage of time or occurrence of any event and shall expressly cover time periods when the Collateral Agent, any of the Issuing Banks or any of the Lenders may have come into possession or control of any of the Borrower's or its Subsidiaries' Property. 15.10. Failure or Indulgence Not Waiver; Remedies Cumula-tive.?? No failure or delay on the part of the Collateral Agent, any Lender or any Issuing Bank in the exer-cise of any power, right or privilege under any of the Loan Docu-ments shall impair such power, right or privilege or be construed to be a waiver of any default or acquiescence therein, nor shall any single or partial exercise of any such power, right or priv-ilege preclude other or further exercise thereof or of any other right, power or privi-lege. All rights and remedies exist-ing under the Loan Documents are cumulative to and not exclusive of any rights or remedies otherwise available. 15.11. Marshalling; Payments Set Aside. ??None of the Collateral Agent, any Lender or any Issuing Bank shall be under any obliga-tion to marshall any assets in favor of the Borrower or any other Person or against or in payment of any or all of the Obliga-tions. To the extent that the Borrower makes a payment or payments to the Collateral Agent, the Lenders or the Issuing Banks or any of such Persons receives payment from the proceeds of the Collateral or exercises its rights of setoff, and such payment or payments or the proceeds of such enforcement or setoff or any part thereof are subsequently invalidated, declared to be fraudu-lent or preferential, set aside or required to be repaid to a trustee, receiver or any other party, then to the extent of such recovery, the obligation or part thereof originally intended to be satisfied, and all Liens, right and remedies there-for, shall be revived and continued in full force and effect as if such payment had not been made or such enforce-ment or setoff had not occurred. 15.12. Severability.?? In case any provision in or obligation under this Agreement or the other Loan Documents shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby. 15.13. Headings.?? Section headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement or be given any substan- tive effect. 15.14. Governing Law.?? THIS AGREEMENT SHALL BE INTERPRETED, AND THE RIGHTS AND LIABILITIES OF THE PARTIES HERETO DETERMINED, IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. 15.15. Limitation of Liability.?? No claim may be made by the Borrower, any Lender, any Issuing Bank, either Administrative Agent, the Collateral Agent, or any other Person against the Collateral Agent, an Administrative Agent, any other Issuing Bank or any other Lender or the Affiliates, directors, officers, employees, attorneys or agents of any of them for any special, consequential or punitive damages in respect of any claim for breach of contract or any other theory of liability arising out of or related to the transactions contemplated by this Agreement, or any act, omission or event occurring in con- nection therewith; and the Borrower, each Lender, each Issuing Bank, each Administrative Agent and the Collateral Agent hereby waives, releases and agrees not to sue upon any such claim for any such damages, whether or not accrued and whether or not known or suspected to exist in its favor. 15.16. Successors and Assigns.?? This Agreement and the other Loan Documents shall be binding upon the parties hereto and their respective successors and assigns and shall inure to the benefit of the parties hereto and the successors and permitted assigns of the Lenders and the Issuing Banks. The rights hereunder of the Borrower, or any interest therein, may not be assigned without the written consent of all Lenders as provided in Section 15.07(b). 15.17. Certain Consents and Waivers.?? (a) Personal Jurisdiction. (i) EACH OF THE ADMINISTRATIVE AGENTS, THE COLLATERAL AGENT, THE LENDERS, THE ISSUING BANKS, AND THE BORROWER IRREVOCABLY AND UNCONDITIONALLY SUBMITS, FOR ITSELF AND ITS PROPERTY, TO THE NONEXCLUSIVE JURISDICTION OF ANY NEW YORK STATE COURT OR FEDERAL COURT SITTING IN NEW YORK, NEW YORK, AND ANY COURT HAVING JURISDICTION OVER APPEALS OF MATTERS HEARD IN SUCH COURTS, IN ANY ACTION OR PROCEEDING ARISING OUT OF, CONNECTED WITH, RELATED TO OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, WHETHER ARISING IN CONTRACT, TORT, EQUITY OR OTHERWISE, OR FOR RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT, AND EACH OF THE PARTIES HERETO IRREVOCABLY AND UNCONDITIONALLY AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH STATE COURT OR, TO THE EXTENT PERMITTED BY LAW, IN SUCH FEDERAL COURT. EACH OF THE ADMINISTRATIVE AGENTS, THE COLLATERAL AGENT, THE LENDERS, THE ISSUING BANKS, AND THE BORROWER AGREE THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. THE BORROWER WAIVES IN ALL DISPUTES ANY OBJECTION THAT IT MAY HAVE TO THE LOCATION OF THE COURT CONSIDERING THE DISPUTE. (ii) THE BORROWER AGREES THAT THE COLLATERAL AGENT SHALL HAVE THE RIGHT TO PROCEED AGAINST IT OR ITS PROPERTY IN A COURT IN ANY LOCATION TO ENABLE THE ADMINISTRATIVE AGENTS, THE COLLATERAL AGENT, THE ISSUING BANKS, THE LENDERS AND OTHER HOLDERS TO REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER ENTERED IN FAVOR OF AN ADMINISTRATIVE AGENT, THE COLLATERAL AGENT, ANY ISSUING BANK, ANY LENDER OR OTHER HOLDER. THE BORROWER AGREES THAT IT WILL NOT ASSERT ANY PERMISSIVE COUNTERCLAIMS IN ANY PROCEEDING BROUGHT BY AN ADMINISTRATIVE AGENT, THE COLLATERAL AGENT, ANY LENDER, ANY ISSUING BANK OR OTHER HOLDER TO REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF AN ADMINISTRATIVE AGENT, THE COLLATERAL AGENT, ANY LENDER, ANY ISSUING BANK OR ANY OTHER HOLDER. THE BORROWER WAIVES ANY OBJECTION THAT IT MAY HAVE TO THE LOCATION OF THE COURT IN WHICH AN ADMINISTRATIVE AGENT, THE COLLATERAL AGENT, ANY ISSUING BANK, LENDER OR OTHER HOLDER MAY COMMENCE A PROCEEDING DESCRIBED IN THIS SECTION. (b) Service of Process. THE BORROWER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO THE BORROWER AT THE BORROWER's NOTICE ADDRESS SPECIFIED BELOW, SUCH SERVICE TO BECOME EFFECTIVE FIVE (5) DAYS AFTER SUCH MAILING. THE BORROWER IRREVOCABLY WAIVES ANY OBJECTION (INCLUDING, WITHOUT LIMITATION, ANY OBJECTION OF THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS) WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY SUCH ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT IN ANY JURISDICTION SET FORTH ABOVE. NOTHING HEREIN SHALL AFFECT THE RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT OF THE COLLATERAL AGENT TO BRING PROCEEDINGS AGAINST THE BORROWER IN THE COURTS OF ANY OTHER JURISDICTION. (c) Waiver of Jury Trial. EACH OF THE ADMINISTRATIVE AGENTS, COLLATERAL AGENT, LENDERS, ISSUING BANKS, AND BORROWER IRREVOCABLY WAIVES TRIAL BY JURY IN ANY ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT. ANY OF THE BORROWER, ADMINISTRATIVE AGENTS, COLLATERAL AGENT, LENDERS, OR ISSUING BANKS MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY. 15.18. Counterparts; Effectiveness; Inconsistencies.?? This Agreement and any amendments, waivers, consents, or supple- ments hereto may be executed in counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument. This Agreement shall become effective against the Borrower, each Lender, each Issuing Bank, the Administrative Agents and the Collateral Agent on the Closing Date. This Agreement and each of the other Loan Documents shall be construed to the extent reasonable to be consistent one with the other, but to the extent that the terms and conditions of this Agreement are actually inconsistent with the terms and conditions of any other Loan Document, this Agree-ment shall govern. 15.19. Limitation on Agreements.?? All agreements between and among the Borrower, the Administrative Agents, the Collateral Agent, each Lender and each Issuing Bank in the Loan Documents are hereby expressly limited so that in no event shall any of the Loans or other amounts payable by the Borrower under any of the Loan Documents constitute "purpose credit" within the meaning of Regulation U. 15.20. Confidentiality.?? Subject to Section 15.01(i), the Lenders and the Issuing Banks shall hold all nonpublic information obtained pur-suant to the requirements of this Agreement and iden-tified as such by the Borrower in accordance with such Lender's or such Issuing Bank's cus-tomary procedures for handling confidential informa-tion of this nature and in accordance with safe and sound banking practices and in any event may make disclosure (a) to its Affiliates or (b) as is reasonably required by a bona fide offeree, transferee or participant in connection with a contemplated assignment, transfer or participation permitted under Section 15.01 or (c) as required or requested by any Governmental Authority or representative thereof or pursuant to legal process or (d) to any direct or indirect contractual counterparties in swap agreements or such contractual counterparties' professional advisors, provided that such offeree, transferee, participant, contractual counterparty or professional advisor to such contractual counterparty is disclosed in writing to the Borrower and Collateral Agent and agrees, in writing, to keep such information confidential to the same extent required of the Lenders hereunder. In no event shall any Lender or any Issuing Bank be obligated or required to return any materials furnished by the Borrower; provided, however, each offeree shall be required to agree that if it does not become a transferee or participant it shall return all materials furnished to it by the Borrower in connection with this Agreement. Any and all confidentiality agreements entered into between any Lender or any Issuing Bank or contractual counterparties and the Borrower or Collateral Agent shall survive the execution of this Agreement. 15.21. ??Entire Agreement.?? This Agreement, taken together with all of the other Loan Documents, embodies the entire agreement and under-standing among the parties hereto and supersedes all prior agreements and under-standings, written and oral, relating to the subject matter hereof. 15.22. Advice of Counsel.?? The Borrower and each Lender and Issuing Bank understand that the Collateral Agent's counsel represents only the Collateral Agent's and its Affiliates' interests and that the Borrower, other Lenders and other Issuing Banks are advised to obtain their own counsel. The Borrower represents and warrants to the Collateral Agent and the other Holders that it has discussed this Agreement with its counsel. IN WITNESS WHEREOF, this Agreement has been duly exe-cuted as of the date first above written. Borrower: THE FAIRCHILD CORPORATION By Colin M. Cohen Senior Vice President Notice Address: 45025 Aviation Drive Suite 400 Dulles, Virginia 20166-7516 Attn: Colin M. Cohen Telecopier No. (703) 478-5767 and Donald E. Miller Telecopier No. (703) 478-5775 with a copy to: Cahill Gordon & Reindel Eighty Pine Street New York, New York 10005-1702 Attn: James J. Clark Telecopier No. (212) 269-5420 ADMINISTRATIVE AGENTS: CITICORP USA, INC., as Administrative Agent By Suzanne Crymes Vice President NATIONSBANK, N.A., as Administrative Agent By Michael R. Heredia Senior Vice President COLLATERAL AGENT: CITICORP USA, INC., as Collateral Agent By Suzanne Crymes Vice President Notice Address: Citicorp USA, Inc. 399 Park Avenue 6th Floor, Zone 4 New York, New York 10043 Attn: John W. Podkowsky Telecopier No. (212) 793-1290 with a copy to: Sidley & Austin One First National Plaza Chicago, Illinois 60603 Attn: DeVerille A. Huston Telecopier No. (312) 853-7036 ISSUING BANK: CITIBANK, N.A. By Suzanne Crymes Vice President Notice Address: Citibank, N.A. 399 Park Avenue 6th Floor, Zone 4 New York, New York 10043 Attn: John W. Podkowsky Telecopier No. (212) 793-1290 LENDER: CITICORP USA, INC. By Suzanne Crymes Vice President Notice Address: Citicorp USA, Inc. 399 Park Avenue 6th Floor, Zone 4 New York, New York 10043 Attn: John W. Podkowsky Telecopier No. (212) 793-1290 Domestic Lending Office and Eurodollar Lending Office or Eurodollar Affiliate: Citicorp USA, Inc. c/o Citibank, N.A. 2 Penn's Way Suite 200 New Castle, Delaware 19720 Attn: Amy Goretzka Telecopier No. (302) 894-6120 LENDER: NATIONSBANK, N.A. By Michael R. Heredia Senior Vice President Notice Address and Domestic and Eurodollar Lending Office: NationsBank, N.A. 6610 Rockledge Drive 6th Floor Bethesda, Maryland 20817-1876 Attn: Michael R. Heredia Telecopier No. (301) 571-0719 LENDER: CREDIT SUISSE FIRST BOSTON By Bill O'Daly Vice President By Chris T. Horgan Vice Presidnet Notice Address, Domestic Lending Office and Eurodollar Lending Office or Eurodollar Affiliate: Credit Suisse First Boston 11 Madison Avenue New York, New York 10010 Attn: William O'Daly Telecopier No. (212) 325-8314 LENDER: THE FIRST NATIONAL BANK OF CHICAGO By Juan J. Duarte Vice president Notice Address: The First National Bank of Chicago 153 West 51st Street New York, New York 10019 Attn: Andrea S. Kantor Telecopier No. (212) 373-1180 Domestic Lending Office and Eurodollar Lending Office or Eurodollar Affiliate: The First National Bank of Chicago 1 First National Plaza Chicago, Illinois 60670 Attn: Stevee Woods Telecopier No.: (312) 732-4840 LENDER: MORGAN STANLEY DEAN WITTER PRIME INCOME TRUST By Peter Gewirtz Athorized Signatory Notice Address, Domestic Lending Office and Eurodollar Lending Office or Eurodollar Affiliate: Morgan Stanley Dean Witter Prime Income Trust c/o Morgan Stanley Dean Witter Advisors, Inc. Two World Trade Center 72nd Floor New York, New York 10048 Attn: Peter Gewirtz Telecopier No. (212) 392-5345 LENDER: BOEING CAPITAL CORPORATION By James C. Hammersmith Senior Documentation Officer Notice Address, Domestic Lending Office and Eurodollar Lending Office or Eurodollar Affiliate: Boeing Capital Corporation 4060 Lakewood Blvd. 6th Floor Long Beach, California 90808 Attn: April Wakeman Telecopier No. (562) 627-3002 LENDER: NATEXIS BANQUE By Peter J. vanTulder President and Manager Multinational Group John Reid Vice President Notice Address, Domestic Lending Office and Eurodollar Lending Office or Eurodollar Affiliate: Natexis Banque 645 Fifth Avenue New York, New York 10022 Attn: Christine Dirringer Telecopier No. (212) 872-5045 LENDER: RIGGS BANK N.A. By Louanne Baily Vice President Notice Address, Domestic Lending Office and Eurodollar Lending Office or Eurodollar Affiliate: Riggs Bank N.A. 808 17th Street, N.W. Washington, D.C. 20005 Attn: Louanne Baily Telecopier No. (202) 835-5977 LENDER: MERRILL LYNCH SENIOR FLOATING RATE FUND, INC. By Paul Travers Authorized Signatory Notice Address: Merrill Lynch Senior Floating Rate Fund, Inc. c/o Merrill Lynch Asset Management 800 Scudders Mill Road, Area 1B Plainsboro, New Jersey 08536 Attn: Colleen Cunniffe Telecopier No. (609) 282-2756 Domestic Lending Office and Eurodollar Lending Office or Eurodollar Affiliate: Merrill Lynch Senior Floating Rate Fund, Inc. c/o Merrill Lynch Asset Management 800 Scudders Mill Road, Area 1B Plainsboro, New Jersey 08536 Attn: Colleen Wade Telecopier No.: (609) 282-3542 LENDER: MERRILL LYNCH SENIOR FLOATING RATE FUND II, INC. By Paul Travers Authorized Signatory Notice Address: Merrill Lynch Senior Floating Rate Fund II, Inc. c/o Merrill Lynch Asset Management 800 Scudders Mill Road, Area 1B Plainsboro, New Jersey 08536 Attn: Colleen Cunniffe Telecopier No. (609) 282-2756 Domestic Lending Office and Eurodollar Lending Office or Eurodollar Affiliate: Merrill Lynch Senior Floating Rate Fund II, Inc. c/o Merrill Lynch Asset Management 800 Scudders Mill Road, Area 1B Plainsboro, New Jersey 08536 Attn: Colleen Wade Telecopier No.: (609) 282-3542 LENDER: CREDIT AGRICOLE INDOSUEZ By Raymond A. Palkenberg Vice President, Manager By Ernest V. Hodge Vice President Senior Relationship Manager Notice Address, Domestic Lending Office and Eurodollar Lending Office or Eurodollar Affiliate: Credit Agricole Indosuez 55 East Monroe Street Chicago, Illinois 60603 Attn: Richard Drennan Telecopier No. (312) 372-9329 LENDER: COMPAGNIE FINANCIERE DE CIC ET DE L'UNION EUROPEENNE By Sean Mounier First Vice President By Marcus Edward Vice President Notice Address, Domestic Lending Office and Eurodollar Lending Office or Eurodollar Affiliate: Compagnie Financiere de CIC et de l'Union Europeenne 520 Madison Avenue 37th Floor New York, New York 10022 Attn: Brian O'Leary Telecopier No. (212) 715-4535 LENDER: PROVIDENT BANK OF MARYLAND By Robert L. Smith Assistant Vice Presdient Notice Address, Domestic Lending Office and Eurodollar Lending Office or Eurodollar Affiliate: Provident Bank of Maryland 114 East Lexington Street Baltimore, Maryland 21202 Attn: Robert L. Smith Telecopier No. (410) 277-2291 LENDER: CRESCENT/MACH I PARTNERS, L.P. By TCW Asset Management Company Its Investment Manager By Jonathan R. Insull Vice Presdient Notice Address, Domestic Lending Office and Eurodollar Lending Office or Eurodollar Affiliate: Crescent/Mach I Partners, L.P. c/o TCW Asset Management Company 200 Park Avenue Suite 2200 New York, New York 10166-0228 Attn: Mark L. Gold/Justin Driscoll Telecopier No.: (212) 771-4159 cc: Crescent/Mach I Partners, L.P. c/o State Street Bank & Trust Co. Two International Place Boston, Massachusetts 02110 Attn: Elizabeth Kennedy Telecopier No.: (617) 664-5368 LENDER: SEQUILS I, LTD By TCW Advisors, Inc. as its Collateral Manager By Mark L. Gold Managing Director By Johnathan Insull Vice President Notice Address: Sequils I, Ltd c/o Trust Company of the West 200 Park Avenue Suite 2200 New York, New York 10166 Attn: Mark L. Gold/Justin L. Driscoll/ Jonathan Insull Telecopier No.: (212) 771-4159 or 4069 Domestic Lending Office and Eurodollar Lending Office or Eurodollar Affiliate: Sequils I, Ltd c/o Chase Bank of Texas, N.A. Chase Tower, 9th Floor Houston, Texas Attn: Omar El-Aazami Telecopier No. (713) 216-3571 LENDER: KZH CRESCENT LLC By Virginia Conway Authorized Agent Notice Address, Domestic Lending Office and Eurodollar Lending Office or Eurodollar Affiliate: KZH Crescent LLC c/o The Chase Manhattan Bank 450 West 33rd Street 15th Floor New York, New York 10001 Attn: Virginia Conway Telecopier No. (212) 946-7776 LENDER: KZH CRESCENT-2 LLC By Virginia Conway Authorized Agent Notice Address, Domestic Lending Office and Eurodollar Lending Office or Eurodollar Affiliate: KZH Crescent-2 LLC c/o The Chase Manhattan Bank 450 West 33rd Street 15th Floor New York, New York 10001 Attn: Virginia Conway Telecopier No. (212) 946-7776 LENDER: KZH CRESCENT-3 LLC By Virginia Conway Authorized Agent Notice Address, Domestic Lending Office and Eurodollar Lending Office or Eurodollar Affiliate: KZH Crescent-3 LLC c/o The Chase Manhattan Bank 450 West 33rd Street 15th Floor New York, New York 10001 Attn: Virginia Conway Telecopier No. (212) 946-7776 LENDER: CITIBANK, N.A. By Suzanne Crymes Vice President Notice Address: Citicorp USA, Inc. 399 Park Avenue 6th Floor, Zone 4 New York, New York 10043 Attn: John W. Podkowsky Telecopier No. (212) 793-1290 Domestic Lending Office and Eurodollar Lending Office or Eurodollar Affiliate: Citicorp USA, Inc. c/o Citibank, N.A. 2 Penn's Way Suite 200 New Castle, Delaware 19720 Attn: Amy Goretzka Telecopier No. (302) 894-6120 EXHIBITS Exhibit A -- Form of Assignment and Acceptance Exhibit B -- Forms of Notes Exhibit C -- Form of Notice of Borrowing Exhibit D -- Form of Notice of Conversion/Continuation Exhibit E -- Pro Forma Balance Sheet Exhibit F -- Projections Exhibit G -- Statement of Sources and Uses Exhibit H -- List of Closing Documents Exhibit I -- Forms of Financial Reports Exhibit J -- Form of Officer's Certificate to Accompany Reports SCHEDULES Schedule 1.01.1 -- Farmingdale Property Schedule 1.01.2 -- Fiscal Quarter End Dates Schedule 1.01.3 -- Subsidiary Guarantors as of the Closing Date Schedule 1.01.4 -- Operating Units Schedule 1.01.5 -- Permitted Dispositions Schedule 1.01.6 -- Permitted Equity Securities Options Schedule 1.01.7 -- Permitted Existing Indebtedness Schedule 1.01.8 -- Permitted Existing Investments Schedule 1.01.9 -- Permitted Existing Liens Schedule 1.01.10 -- Commitments Schedule 3.02 -- Existing Letters of Credit Schedule 6.01-J -- AlliedSignal Inc. Stock Subject to Escrow or Reservation Schedule 7.01-A -- Organizational Documents Schedule 7.01-C -- Organizational Structure Schedule 7.01-J -- Pending Actions Schedule 7.01-Q -- Environmental Matters Schedule 7.01-T -- Labor Contracts Schedule 7.01-W -- Patent, Trademark & Permit Claims Pending Schedule 7.01-Y -- Insurance Policies Schedule 10.02-G -- Foreign Receivables Discounting Arrangements Schedule 10.09 -- Permitted Sale/Leaseback Transactions Schedule 10.14 -- Collection Accounts ::ODMA\PCDOCS\CHICAGO4\815372\12 September 23, 1999 (4:04PM) EX-10 3 BANNER AEROSPACE, INC. DEFERRED BONUS PLAN January 21,1998; Amended January 7, 1999; and Amended April 8, 1999 Section 1. Purpose This Plan permits Recipients to elect to defer payment of their Bonus. Section 2. Definitions (a) "Bonus" means the amount of Bonus (payable in shares of AlliedSignal, Inc. common stock) a Participant is entitled to receive as determined by the Committee in connection with 1998 or 1999 Extraordinary Transactions . (b) "Bonus Deferral Election" means an election to defer payment of a Bonus until a date specified by the Participant, which date shall not be later than December 31, 2005. (c) "Bonus Deferral Participant" means a Recipient who has made a Bonus Deferral Election and who has been designated by the Committee as eligible to participate in the Plan. (d) "Committee" means the Compensation and Stock Option Committee of the Board, which Committee shall administer this Plan, as provided in Section 10 hereof. (e) "Corporation" means Banner Aerospace, Inc. and its corporate successors. (f) "Deferred Bonus" means Bonus deferred pursuant to the terms of this Plan. (g) "Deferred Bonus Account" means the account or accounting entry which signifies the total amount of Deferred Bonus for a particular fiscal year with respect to each Bonus Deferral Participant. (h) "Deferred Bonus Election Form" means the form by which an eligible person elects to become a Bonus Deferral Participant. (i) "Designation of Beneficiary Form" means the form by which a Participant designates a beneficiary or beneficiaries, or modifies a prior designation of a beneficiary or beneficiaries. 1 (j) "Participant" means a Recipient who is a Bonus Deferral Participant. (k) "Plan" shall mean this Deferred Bonus Plan, or any amendment thereto. (1) "Payment Date" means each date the Participant elects to receive payment of all or a portion of the Deferred Bonus. (m) "Recipient" means a person who (i) has been designated by the Committee to be entitled to participate in this Plan, and (ii) is deemed to be an "Accredited Investor"(as defined under Federal Securities Laws). A Recipient need not be an employee of the Corporation. Recipients participating in the Plan shall provide such certifications and other evidence as the Corporation may reasonably require to establish that they are Accredited Investors. (n) "Undistributed Balance" of any Deferred Bonus means that portion of any Deferred Bonus which has not been distributed to the Bonus Deferral Participant by dint of his or her Bonus Deferral Election. Section 3. Eligibility Each Recipient, or other person deemed eligible to receive a Bonus as determined by the Committee, is eligible to make a Bonus Deferral Election and become a Bonus Deferral Participant. Section 4. Participation In order to participate in the Plan, a Recipient must make a valid Bonus Deferral Election by executing and filing with the Corporation, before the period of time for which the Recipient would otherwise be eligible to receive the Bonus being deferred, a Bonus Deferral Election Form and a Designation of Beneficiary From. A Participant's Bonus Deferral Election defers payment of Bonus awarded after the date of the adoption of the Plan to the Payment Date designated by the Participant. Interest shall be paid by the Corporation on the Undistributed Balance of any Deferred Bonus at 8% per annum, compounded annually, as computed in accordance with Section 5. The Bonus Deferral Election is irrevocable, but each Participant may at any time or from time to time amend the designation of beneficiary or beneficiaries. Each Participant may, at any time or from time to time, amend the designation of beneficiary or beneficiaries. In addition, each Participant may, at any time or from time to time, amend the Bonus Deferral Election; provided, however, that: (i) such amendments are made before the applicable bonus is otherwise payable; (ii) such amendments may only extend the deferral period, and may not shorten the deferral period; and (iii) the deferral period may not, in any event, extend beyond December 31, 2005. 2 The Corporation shall establish a single Deferred Bonus Account and shall credit to that Deferred Bonus Account the Bonus designated by each and all Participants. Section 5. Payment of Accounts and Method of Computation Except as provided in Section 7 below, payment shall be made to each Participant from the Deferred Bonus Account on the Payment Date specified in that Participant's Deferral Bonus Election Form. Section 6. Form of Bonus and Payment The Bonus eligible to be deferred represents a fixed number of shares of common stock of AlliedSignal Inc. owned by the Corporation. The closing stock price of such stock on the date the Bonus is awarded by the Committee will be used to calculate interest under Section 4, which amount will be increased by interest earned in prior periods for purposes of computing the annual interest to be calculated under Section 4. Any dividends payable on such stock during the deferral period shall be paid for the benefit of the Corporation. The number of Shares shall be adjusted to give effect to any stock splits or other recapitalization events of AlliedSignal Inc., which could affect the number of Shares held during the deferral period. Distributions of Bonus to a Participant shall be made in kind. Distributions of interest to a Participant shall be made in cash at such time and in such proportion as payments of Bonus, as designated on the Participant's Bonus Deferral Election. Section 7. Death of a Participant Upon the death of a Participant, the full amount held for him or her in the Deferred Bonus Account shall be paid to the beneficiary or beneficiaries of such Account designated by the Participant on his last submitted Designation of Beneficiary Form for such account. Section 8. Participant's Rights Unsecured The right of the Participant or any beneficiary of a Participant to receive any distribution hereunder shall be an unsecured claim against the general assets of the Corporation. Notwithstanding anything herein to the contrary, the Corporation shall not sell, transfer or otherwise alienate the Deferred Bonus Account, and the stock held therein, except for distributions to Participants or their beneficiary or beneficiaries in accordance with this Plan. Notwithstanding the foregoing, the Committee may vote the stock of AlliedSignal, Inc. which is subject to the Plan, participate in reorganizations, recapitalizations, mergers or other events and receive all proceeds in liquidation of AlliedSignal Inc. 3 Section 9. Participant's Interest is Nonforfeitable The interest of a Participant or any beneficiary of a Participant in his Deferred Bonus Account shall in all events be vested and nonforfeitable, irrespective of any continuing relationship between the Participant and the Corporation. Section 10. Administration of the Plan - Committee The Plan shall be administered by the Committee. The Committee shall act by vote of a majority of its members or by unanimous written consent. The Plan may be amended, modified, or terminated by the Committee, except that no such action shall (without the consent of the Participant, or, if the Participant has deceased, any beneficiary or beneficiaries, distributed or personal representative) alter the rights of a Participant with respect to the Deferred Bonus Account established pursuant to this Plan prior to the date of such amendment, modification or termination. Section 11. Alienation Neither the Deferred Bonus Account nor any amount, the payment of which has been deferred under this Plan, shall be subject in any manner to the Participant's or his creditor's sale, transfer, levy or charge, and any attempt by such Participant or his creditors to so alienate, sell, transfer, levy or charge the same shall be void; nor shall any such amount be in any manner subject to the debts, contracts, liabilities, engagements or torts of the Participant. Section 12. Taxes The Participants and their beneficiaries, distributees, and personal representative will bear all Federal, foreign, state, local or other income or other taxes imposed on amounts paid under this Plan. All such taxes shall be computed by, and remitted to, the Corporation at each Payment Date, for deposit by the Corporation with the appropriate taxing jurisdiction. Section 13. Consent By electing to become a Participant, each Recipient shall be deemed conclusively to have accepted and consented to all the terms of this Plan and all actions or decisions made by the Corporation, or the Committee with regard to the Plan. Such terms and consent shall also apply to and be binding upon the beneficiaries, distributees, and personal representatives and other successors in interest of each Participant. 4 Section 14. Severability In the event any provision of this Plan would serve to invalidate the Plan, that provision shall be deemed to be null and void, and the Plan shall be construed as if it did not contain the particular provision that would make it invalid. Section 15. Applicable Law The Plan shall be interpreted and construed under the laws of the State of Delaware. Section 16. No Right of Continuing Employment Nothing contained herein shall be construed as conferring upon the Participant the right to continue in the employment of the Corporation. Amendment Date April 8, 1999 On April 8, 1999, Banner became a wholly-owned subsidiary of The Fairchild Corporation. The Boards of Directors of Fairchild and Banner amended the Banner Deferred Bonus Plan to provide as follows, effective as of May 21, 1999: 1. The Plan shall henceforth be administered by the Fairchild Compensation & Stock Option Committee rather than the Banner Compensation & Stock Option Committee. 2. The shares of AlliedSignal common stock presently held in each Participant's Deferred Bonus Account may be sold, at the election of the Fairchild Board, and proceeds from such sale may be reinvested in other securities. Each Participant's Deferred Bonus Account shall be credited with the proceeds or new securities, as applicable, from the sale and reinvestments of the AlliedSignal shares presently credited to such Participant's account. 3. In the future, the Fairchild Board may authorize further sales and reinvestments of any securities held at any time in each Participant's Deferred Bonus Account, and such Participant's account shall be credited with the proceeds or securities from any such sales and reinvestments. 4. Upon a Participant's request, the Participant shall be notified of the type and number of securities held in his/her Deferred Bonus Account. 5. Upon termination of each Participant's bonus deferral period, he/she shall be entitled to receive accrued interest (as provided in the Plan), and the proceeds or securities (as the case may be) credited to his/her Deferred Bonus Account as per paragraphs 2 and 3 above. EX-10 4 NYDOCS02/473857 4 SHARE PURCHASE AGREEMENT, dated as of July 27, 1999 between RHI HOLDINGS, INC., a Deleware corporation ("RHI"), JEFFREY J STEINER (together with RHI, the "Sellers"), and AMERICAN NATIONAL CAN GROUP, INC., a Delaware corporation (the "Buyer"). WITNESSETH: WHEREAS, RHI owns 53,055,000 shares of Nacanco Paketleme Sanayi ve Ticaret A.S. ("Nacanco") and Jeffrey J Steiner owns 5,220,000 shares of Nacanco (together with the shares held by RHI, the "Sale Shares") and each Seller has the right to sell or procure the sale of its Sale Shares free from all liens, charges and encumbrances. WHEREAS, the Sellers have agreed with the Buyer to sell to the Buyer or to its nominees the Sale Shares on the terms and subject to the conditions of this Agreement. NOW THEREFORE, in consideration of the premises and the mutual agreements and covenants hereinafter set forth, the Sellers and the Buyer hereby agree as follows: 1. SALE AND PURCHASE OF SALE SHARES Upon the terms and subject to the conditions of this Agreement, as at the Closing Date (as defined below), the Sellers shall sell or procure the sale of the Sale Shares and the Buyer or its nominees shall purchase for the Purchase Price (as defined below) all of the Sale Shares free from all liens, charges and encumbrances ("Encumbrances") and with all rights attached thereto. 2. PURCHASE PRICE The aggregate purchase price for the Sale Shares shall be $53,000,000 (the "Purchase Price") allocated between the Sellers in proportion to the number of Sale Shares held by each Seller (as set forth under each Seller's name on the signature page hereof), and payable in the manner provided by Clause 4.2.2 below. 3. FURTHER OBLIGATIONS As soon as practicable, and in any event within five days hereof, the Sellers will: 3.1 file with the Tuzla Court of First Instance a Stipulation of Withdrawal in form reasonably satisfactory to the Buyer, duly executed by counsel to Jeffrey J Steiner, agreeing to withdraw the legal action referenced therein; 3.2 file with the International Chamber of Commerce a letter in form reasonably satisfactory to the Buyer, signed by counsel to RHI and Jeffrey J Steiner, seeking to withdraw the arbitration proceedings referenced therein; 3.3 file with the Supreme Court of the State of New York a Stipulation of Discontinuance in form reasonably satisfactory to the Buyer, duly executed by counsel to RHI and Jeffrey J Steiner, agreeing to withdraw the legal action referenced therein; 3.4 deliver to the Buyer or relevant third party such documents as may be necessary to terminate any other legal actions pending or instigated against the Buyer or any of its affiliates by the Sellers in connection with Nacanco; and 3.5 deliver to the Buyer a resolution of the board of directors of Nacanco, in form reasonably satisfactory to the Buyer, duly signed by Jeffrey J Steiner and Eric Steiner, approving the transfer by Pechiney of its 108,220,158 shares of Nacanco to the Buyer. 4. CLOSING The Closing of the sale and purchase of the Sale Shares contemplated by this Agreement shall take place at 10.00 a.m. on July 28, 1999 (or at such later date as may be agreed between the Sellers and the Buyer) (the "Closing Date") at the offices of Shearman & Sterling, 599 Lexington Avenue, New York, New York. When: 4.1 the Sellers will each deliver to the Buyer: 4.1.1 a document effecting transfer of title in the Sale Shares it holds, duly executed by the Seller in favor of the Buyer (or as it in writing directs) and such letters of direction, waivers, consents or other documents as may be required to give good legal and beneficial title to the Sale Shares and to enable the Buyer or its nominees to become registered holders thereof free and clear of all Encumbrances, together with, if relevant, any share certificate(s) duly endorsed in favor of the Buyer or its nominees; and 4.1.2 a Release in the form set out in Exhibit A hereto (the "Release"), duly executed by each of the Sellers, releasing and discharging Pechiney and the Buyer, among others, from all claims and demands. 4.2 the Buyer shall: 4.2.1 deliver to the Sellers the Release, duly executed by Pechiney and the Buyer, releasing and discharging the Sellers, among others, from all claims and demands; and 4.2.2 effect payment to the Sellers of the Purchase Price by wire transfer in immediately available funds to accounts of the Sellers previously designated for the purpose, in the allocation set out in Clause 2 above. 5. RENUNCIATION The Sellers agree to renounce any intention to use in any way the order of the President of the Court of Grand Instance issued in Paris, France on July 26, 1999 against Pechiney (the "Order"), or to obtain any benefit from the Order. If requested by Pechiney or the Buyer, the Sellers further agree to cooperate with Pechiney to obtain the withdrawal of the Order, including signature of such forms as may be reasonably necessary to obtain that result. 6. REPRESENTATIONS AND WARRANTIES 6.1 Each Seller hereby represents and warrants to the Buyer as follows: 6.1.1 it owns of record and beneficially, and has good and marketable title to, free and clear of all Encumbrances, the Sale Shares stated to be owned by it in the recitals hereto, which Sale Shares constitute all of its interests in the shares or capital of Nacanco, and upon consummation of the transactions contemplated by this Agreement, the Buyer will acquire valid title to the Sale Shares, free and clear of all Encumbrances; 6.1.2 the execution, delivery and performance of this Agreement by the Seller do not and will not result in any material breach of, constitute a default (or event which with the giving of notice or lapse of time, or both, would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, or result in the creation of any Encumbrance on any of the Sale Shares owned by the Seller pursuant to, any note, bond, mortgage or indenture, contract, agreement, lease or sublease to which the Seller is a party or by which any of the Sale Shares owned by the Seller is bound or affected; and 6.1.3 it has all necessary power and authority to enter into this Agreement, to carry out its obligations hereunder and to consummate the transactions contemplated hereby, and this Agreement has been duly executed and delivered by it and (assuming due authorization, execution and delivery by the other parties hereto) constitutes a legal, valid and binding obligation of the Seller enforceable against it or him in accordance with its terms. 6.2 The Buyer hereby represents and warrants to the Seller that it has all necessary corporate power and authority to enter into this Agreement, to carry out its obligations hereunder and to consummate the transactions contemplated hereby, and that the Agreement has been duly executed and delivered by it and (assuming due authorization, execution and delivery by the Sellers) constitutes a legal, valid and binding obligation of the Buyer enforceable against it in accordance with its terms. 7. CONSULTANCY ARRANGEMENTS For a period of three years from the Closing (the "Consulting Term"), the Buyer hereby agrees to engage the Sellers to perform consulting services with respect to the business and operations of Nacanco in accordance with the reasonable requests of the Buyer, and in the performance of such services the Sellers agree to use reasonable efforts to promote the business and interests of Nacanco. As compensation for the consulting services to be performed by the Sellers, the Buyer shall pay the Sellers a quarterly fee of $400,000, payable on the last day of each of the twelve quarters during the Consulting Term, commencing on September 30, 1999, by wire transfer to an account previously designated in writing by the Sellers (for a total payment of $4,800,000). 8. FURTHER ACTION The parties hereto will after as well as before and upon the Closing Date do all acts and things and sign and execute all documents and deeds reasonably required for the purposes of implementing the terms hereof. 9. AMENDMENT This Agreement may not be amended or modified except by an instrument in writing signed by each of the Sellers and the Buyer. 10. SPECIFIC PERFORMANCE The parties hereto agree that irreparable damage would occur in the event any provision of this Agreement was not performed in accordance with the terms hereof and that the parties shall be entitled to specific performance of the terms hereof. 11. GOVERNING LAW This Agreement shall be governed by the laws of the State of New York. All actions and proceedings arising out of or relating to this Agreement shall be heard and determined in any New York state or federal court sitting in The City of New York, and the parties hereto hereby consent to the exclusive jurisdiction of such courts in any such action or proceeding. 12. COUNTERPARTS This Agreement may be executed in one or more counterparts, and by the different parties hereto in separate counterparts, each of which when executed shall be deemed to be an original but all of which taken together shall constitute one and the same agreement. 13. PUBLICITY Each party agrees not to issue any press releases or otherwise publicly disclose the matters covered by this Agreement and the Releases without the prior consent of the other parties, which consent shall not be unreasonably withheld; provided, however, that nothing in this Clause 13 shall restrict the disclosure of this Agreement or the transactions contemplated thereby required in the Registration Statement on Form S-1 to be filed with the Securities and Exchange Commission (the "Commission") by the Buyer in connection with its initial public offering, or in subsequent filings with the Commission if so required. 14. WAIVER OF JURY TRIAL EACH OF THE SELLERS AND THE BUYER HEREBY EXPRESSLY IRREVOCABLY WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE ACTIONS OF THE SELLERS OR THE BUYER IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE AND ENFORCEMENT THEREOF. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed, as of the day and year first above written, by, in the case of RHI and the Buyer, their respectively authorized signatories thereunto duly authorized. RHI HOLDINGS, INC. By: Name: Donald E. Miller Title: Vice President Proportion of Sale Shares: 91 % JEFFREY J STEINER Proportion of Sale Shares: 9 % AMERICAN NATIONAL CAN GROUP, INC. By: Name: Edward A. Lapekas Title: President EXHIBIT A RELEASE EX-27 5
5 1,000 12-MOS JUN-30-1999 JUN-30-1999 54,860 13,094 136,563 6,442 190,239 462,240 287,621 103,556 1,328,786 233,266 495,283 0 0 2,975 404,525 1,328,786 617,322 621,321 504,893 667,132 0 0 30,346 (36,457) 13,245 (23,507) (31,349) (4,153) 0 (59,009) (2.59) (2.59)
EX-23 6 Consent of the Independent Public Accountants As independent public accountants, we hereby consent to the incorporation of our reports included in this Form 10-K, into the Company's previously filed Registration Statement File Nos. 35- 27317, 33-21698, 33-06183, 333-49779, and 333-62037. Arthur Andersen LLP Vienna, Virginia September 27, 1999 EX-22 7 THE FAIRCHILD CORPORATION Direct and Indirect Subsidiaries?? A10 Inc. [DE] Aero International, Inc. [Ohio] Aircraft Tire Corporation [DE] Aviation Full Services (Hong Kong) Limited [Hong Kong] Avilas, Inc. [DE] Banner Aero (Australia) Pty, Ltd. [Australia] Banner Aerospace Holding Company I, Inc.[DE] Banner Aerospace Holding Company II, Inc.[DE] Banner Aerospace, Inc. [DE] Banner Aerospace Services, Inc. [Ohio] Banner Aerospace-Singapore, Inc. [DE] Banner Capital Ventures, Inc.[DE] Banner Energy Corporation of Kentucky, Inc. [DE] Banner Industrial Distribution, Inc.[DE] Banner Industrial Products, Inc.[DE] Banner Investments (U.K.) Limited [U.K.] BP Herndon Aerospace, Inc. [Missouri] Camloc (U.K.) Ltd. [U.K.] BAR DE, Inc. [DE] Camloc Holdings Inc. [DE] Camloc (UK) Limited [UK] Convac France S.A. [France] DAC International, Inc. [TX] Dallas Aerospace, Inc. [TX] Discontinued Aircraft, Inc. [TX] Discontinued Services, Inc. [DE] Eurosim Componentes Mec??nicos de Seguran??a, Lda. [Portugal] F. F. Handels GmbH [Germany] Fairchild Arms International Limited [Ontario] Fairchild Data Corporation [DE] Fairchild Export Sales Corporation [Barbados] Fairchild Fastener Group Ltd. [U.K.] Fairchild Fasteners Corp.[DE] Fairchild Fasteners Direct, Inc. [DE] Fairchild Fasteners Direct oHG (GmbH & Co.) [Germany] Fairchild Fasteners Europe--Camloc GmbH [Germany] Fairchild Fasteners Europe--Simmonds S.A.R.L. [France] Fairchild Fasteners Europe--VSD GmbH [Germany] Fairchild Fasteners Germany GmbH [Germany] Fairchild Finance Company [Republic of Ireland] Fairchild France, Inc.[DE] Fairchild Germany, Inc. [DE] Fairchild Holding Corp. [DE] Fairchild Retiree Medical Services, Inc. [DE] Fairchild Technologies Europe Limited [U.K.] Fairchild Technologies IP, Inc. [DE] Fairchild Technologies Korea Limited [Korea] Fairchild Technologies Optical Disc Equipment Group GmbH [Germany] Fairchild Technologies Semiconductor Equipment Group GmbH [Germany] Fairchild Technologies USA, Inc. [DE] Fairchild Titanium Technologies, Inc.[DE] Faircraft Sales Limited [DE] GCCUS, Inc. [CA] Georgetown Jet Center, Inc. [DE] Gobble Gobble, Inc. [DE] Jenkins Coal Dock Company, Inc.[DE] JJS Limited [United Kingdom] Kaynar Technologies Ltd. [UK KT International Sales Corporation [Barbados] K.T.I. Femipari Kft [Hungary] M&M Machine & Tool Co. [DE] Mairoll, Inc. [DE] Marcliff Corporation [DE] Marson Creative Fastener, Inc. [DE] Matrix Aviation, Inc. [KS] M??caero SNC [France] Meow, Inc. [DE] Nasam Incorporated [CA] Northking Insurance Company Limited [Bermuda] Plymouth Leasing Company [DE] Professional Aircraft Accessories, Inc. [FL] Professional Aviation Associates, Inc. [GA] Quack Quack, Inc. [DE] Recoil Australia Holdings, Inc. [DE] Recoil (Europe) Ltd. [UK] Recoil Holdings, Inc. [DE] Recoil Inc. [DE] Recoil Limited [Thailand] Recoil Marketing BVBA [Belgium] Recoil Pte. Ltd. [Singapore] Recoil Pty. [Australia] Recycling Investments II, Inc. [DE] Recycling Investments, Inc. [DE] RHI Holdings, Inc.[DE] Rooster, Inc. (The) [DE] SCI de La Praz [France] Simmonds Mecaero Fasteners, Inc.[DE] Simmonds S.A. [France] Snails, Inc. [DE] SNEP SA [France] Soci??t?? Nouvelle DEB SA [France] Sovereign Air Limited [DE] Suchomimous Terensis, Inc. [DE] Technico SA [France] Transfix S.A. [France] VSI Holdings, Inc. [DE] Warthog, Inc. [DE] WIS LP, Ltd. [Bermuda] EX-10 8 2 Amendment Dated as of May 21, 1999 To Non-Employee Director Stock Option Plans of The Fairchild Corporation The Fairchild Corporation (the "Corporation") has entered into various stock option plans for its non-employee directors (the "NED Plans"). Each NED Plan is hereby amended to add the following provisions: DEFERRAL OF COMPENSATION 1. Defined Terms. 1.1 "Award" means an award of stock options to a Non- Employee Director under the Corporation's NED Plans. 1.2 "Committee" means the full Board of Directors (excluding the participation of Non-Employee Directors) or a committee of three of more Directors (excluding Non-Employee Directors). 1.3 "Deferral Date" means, in connection with any Deferred Compensation Unit, the date on which any deferred compensation with respect thereto would have been paid if no deferral election had been made. 1.4 "Deferred Compensation Plan" means the Corporation's Stock Option Deferral Plan dated February 9, 1998 (as amended from time to time). Generally, participation in the Deferred Compensation Plan shall be limited to Executive Officers and Directors who are deemed "Accredited Investors" for purposes of Federal Securities Laws. 1.5 "Deferred Compensation Units" means the right of a Non- Employee Director to receive distributions of deferred compensation pursuant to the Deferred Compensation Plan in the form of Shares, determined in accordance with the terms of the Deferred Compensation Plan and this Amendment to the NED Plans, and based on the Fair Market Value of Shares on the Deferral Date. 1.6 "Dividend Equivalents" means the right of a Non- Employee Director to receive Shares equal to: (i) the per Share cash dividends declared by the Corporation from time to time, (ii) multiplied by the number of Deferred Compensation Units credited to the account of the Non-Employee Director as of each applicable dividend record date, (iii) divided by the Fair Market Value on the related dividend payment date. 1.7 "Fair Market Value" means with respect to the Corporation's Shares the closing price of the Shares as of the date on which the value is to be determined, as reported on the New York Stock Exchange Composite Tape or such other source of quotation for, or reports of, trading activity in Shares as the Committee may from time to time select. 1.8 "NED Plans" means all of the Corporation's stock option plans for Non-Employee Directors, including individual stock option awards to Non-Employee Directors. 1.9 "Non-Employee Director" means any director of the Corporation who is not also an employee or executive officer of the Corporation or any of its subsidiaries. 1.10 "Shares" means shares of the Corporation's Class A Common Stock. 2. Deferred Compensation Units 2.1 Granting of Deferred Compensation Units: To the extent elected by any Non-Employee Director and permitted by the Deferred Compensation Plan, the Committee may award Deferred Compensation Units to any Non-Employee Director in lieu of all or any portion of the gain that would otherwise be recognized by such Non-Employee Director upon exercise of a stock option. All Deferred Compensation Units shall be subject to the terms of this Amendment to the NED Plans and the Deferred Compensation Plan. 2.2 Effect of Grants: The number of Shares distributable to Non-Employee Directors pursuant to each Deferred Compensation Unit shall be charged against the maximum number of Shares of Common Stock that may be issued under the NED Plans at any time. The number of Shares distributable to Non-Employee Directors pursuant to Dividend Equivalents shall not be charged against the number of Shares issuable under the NED Plans. 2.3 Accounting; Fractional Units: (a) The number of Deferred Compensation Units credited to the account of any Non-Employee Director shall be rounded to the nearest one-thousandth of a Unit. The account to which Deferred Compensation Units are credited shall be an unsecured general obligation of the Corporation. The Corporation will maintain records of the number of Deferred Compensation Units for the account of each Non-Employee Director, in part, to prevent an issuance of shares of Common Stock in excess of the authorized shares. (b) Notwithstanding paragraph (a) above, upon distribution of any Shares represented by Deferred Compensation Units, the number of shares shall be rounded downward to the nearest whole share and no fractional shares shall be issued. Fractional Units remaining after the final distribution to any Non-Employee Director shall be cancelled without obligation to the Non-Employee Director. 2.4 Exercise of Rights Under Awards: Shares used to pay the purchase price on the exercise of Awards subject to the Deferred Compensation Plan, shall have been held by the Non-Employee Director for a period of not less than six months (or such longer period as may be required under the terms of the Award). Except as amended hereby, the NED Plans shall remain in full force and effect. This Amendment to the NED Plans is effective as of May 21, 1999. EX-3 9 On February 12, 1999, the Board of Directors of The Fairchild Corporation adopted resolutions amending and restating in their entirety the provisions of the Corporation's Bylaws relative to the Audit Committee as set forth below: REVISIONS TO ARTICLE III, SECTIONS 11 THROUGH 13 OF THE AMENDED AND RESTATED BYLAWS OF THE FAIRCHILD CORPORATION (UPDATING THE PROVISIONS RELATING TO THE AUDIT COMMITTEE) ARTICLE III Directors * * * * * Audit Committee Section 11. General. (a) Membership. The corporation shall have an audit committee (the "Audit Committee") comprised of at least three 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. (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 (1) the corporation's internal accounting, auditing and financial reporting controls, policies, procedures and practices (collectively, "Internal Controls"), and (2) the corporation's independent public accountants. (c) Appointment and Term. The Chairman and each 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 independent public accountants 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. Section 12. Responsibilities of the Audit Committee. (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 independent public accountants 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 independent public accountants (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 Public Accountants. The Audit Committee shall annually review (1) management's recommendation with respect to the selection of the corporation's independent public accountants, 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 independent public accountants, (3) management's evaluation of the independence of the corporation's independent public accountants, (4) the letter from the corporation's independent public accountants 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 independent public accountants 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 independent public accountants for all services rendered, (7) all reports, criticisms, problems, issues, recommendations or other matters submitted or raised by the corporation's independent public accountants, and management's responses, actions and follow-up with respect thereto, and (8) all disagreements between management and the corporation's independent public accounts. (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. Section 13. Independent Public Accountants. 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 independent public accountants 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. EX-10 10 - 4 - TERMS AND CONDITIONS OF EMPLOYMENT LEROY A. DACK April 16, 1999 This will confirm the terms and conditions of your employment with Fairchild Fasteners, a division of Fairchild Holding Corp., a subsidiary of The Fairchild Corporation. Commencement The first date following The Fairchild Corporation's acquisition of Kaynar Date: Technologies Inc. Position: Your position will be Senior Vice President and Chief Operating Officer, U.S. Operations of Fairchild Fasteners. Duties: You shall report to Eric Steiner, President of Fairchild Fasteners, and perform such duties and assume such responsibilities as may be consistent with your position and as the President of Fairchild Fasteners or the Board of Directors of The Fairchild Corporation may determine from time to time. You agree to devote substantially all of your time, energy and ability to the business of Fairchild Fasteners. However, you may, upon approval of the President of Fairchild Fasteners, serve as a director or trustee of other corporations or businesses, provided that they are not in competition with the business of Fairchild Fasteners or any affiliate of The Fairchild Corporation, and provided that your service does not materially interfere with your duties to Fairchild Fasteners. Base Salary: Your base salary ("Base Salary") will be at a rate not less than $195,000 per year, payable weekly in accordance with Fairchild Fasteners' usual payroll policies. Performance Bonus: You will be eligible to participate in the Fairchild Fasteners Executive Bonus Plan at a target bonus of 90% of your Base Salary ("Target Bonus"). The Fairchild Fasteners Executive Bonus Plan is a performance-based incentive program that provides a yearly payout equal to the target rate when specified financial and personal goals are met. The plan, and its targets and goals, may be modified, increased, reduced or terminated from time to time and at any time by Compensation and Stock Option Committee of the Board of Directors of The Fairchild Corporation. Stock Options: You will be eligible for consideration under The Fairchild Corporation's 1986 Non-Qualified and Incentive Stock Option Plan, as amended. Stock options are granted on a discretionary basis under this plan, and you will be eligible to receive stock options as deemed appropriate. The President of Fairchild Fasteners will recommend to the Compensation and Stock Option Committee of the Board of Directors of The Fairchild Corporation that you be awarded during your first year of employment with Fairchild Fasteners an option to purchase up to 10,000 shares of The Fairchild Corporation's common stock. Housing: Fairchild Fasteners will provide you with an apartment located near its executive offices in Torrance, California, to be reasonably agreed upon by Fairchild Fasteners and you, for up to one year. Relocation: If you relocate your household to an area near Fairchild Fasteners' executive offices in Torrance, California within one year of your commencement of employment with Fairchild Fasteners, Fairchild Fasteners will reimburse you for reasonable expenses you may incur in connection with the relocation, in accordance with Fairchild Fasteners' relocation policy. Company Car: Fairchild Fasteners will provide you with $950 per month in lieu of a company car, and will reimburse you for reasonable expenses you may incur in connection with its use for business purposes, in accordance with Fairchild Fastener's applicable policies and procedures Business Expenses: Fairchild Fasteners will reimburse you for reasonable business-related expenses that you may incur in connection with the performance of your duties to Fairchild Fasteners, in accordance with Fairchild Fasteners' applicable policies and procedures. Vacation: Vacation will accrue based on the date of your hire by Kaynar Technologies Inc. and its affiliates, in accordance with Fairchild Fasteners' vacation policies and procedures. Other Benefits: You will be eligible to participate in all of the employee benefit plans generally available to employees of Fairchild Fasteners under its Flexible Benefits Program, all on terms and conditions commensurate with executive officers of Fairchild Fasteners at your level. These employee benefit plans include sick leave, group health and dental insurance plans, a pension plan, a retiree medical plan, a long term disability plan, a savings (401(k)) plan, and life insurance. You will receive credit for your prior service with Kaynar Technologies Inc. and its affiliates for purposes of determining vesting of benefits under Fairchild Fasteners' 401(k) and pension plans. You will not receive credit for your prior service with Kaynar Technologies Inc. and its affiliates for purposes of calculating the amount of benefits under any pension or post- retirement medical plan. Physical Exam: Fairchild Fasteners' offer of employment to you is subject to your passing a company paid physical examination, including drug and alcohol testing, within one month of your commencement of employment with Fairchild Fasteners. At Will Employment: You acknowledge and understand that Fairchild Fasteners is an At Will employer, and you acknowledge and agree that your employment may therefore be terminated at any time for any reason by you or Fairchild. Termination: If Fairchild Fasteners terminates your employment for any reason other than Cause (as defined below), or you terminate your employment for Good Reason (as defined below), you shall be entitled to receive a lump-sum severance payment equal to six months of your Base Salary plus 50 percent (50%) of your Target Bonus, subject to normal withholding amounts. Cause: Cause means any of the following: (i) conduct, at any time, which has involved criminal dishonesty, conviction of any felony, or conviction of any lesser crime or offense involving the property of Fairchild Fasteners, or any of its subsidiaries or affiliates, (ii) significant conflict of interest, (iii) misappropriation of any money or other assets or properties of Fairchild Fasteners, or that of its subsidiaries or affiliates, (iv) willful violation in any material respect of specific and written lawful directions from the President of Fairchild Fasteners or the Board of Directors of The Fairchild Corporation that are consistent with and clearly within the duties of your office, (v) willful misconduct or gross negligence in connection with the performance of any of your material duties, (vi) chronic alcoholism or drug addiction, (vii) any other acts or conduct which would constitute a material breach of your obligations to Fairchild Fasteners or The Fairchild Corporation, and which breach is injurious to Fairchild Fasteners or The Fairchild Corporation, and (viii) your death, or your disability as defined pursuant to Fairchild Fasteners' Long-Term Disability Plan. Good Reason: Good Reason means any of the following: (i) a reduction in your Base Salary, (ii) a material reduction in your employee benefits, or (iii) any requirement that you permanently relocate your office from Fairchild Fasteners' executive offices in Torrance, California, except for an office relocation that will not increase your one-way commuting distance from such office by more than 50 miles, unless we offer to relocate you on terms similar to those set forth herein. No Other Agreement: You represent and warrant to Fairchild Fasteners that you have no covenant, agreement or understanding with, or obligation to, anyone else which would be breached by this Agreement, or which would subject Fairchild Fasteners or The Fairchild Corporation to any liability as a result of hiring and utilizing your services. Other Agreements: You shall enter into a Confidentiality Agreement, a Non-Compete Agreement, and an Agreement to Assign to Fairchild Fasteners and The Fairchild Corporation all inventions and designs, whether patentable or not, conceived or improved by you during your employment with Fairchild Fasteners. Governing Law: Our understandings regarding your employment with Fairchild Fasteners shall be governed by applicable federal law and the laws of the State of California, and all disputes relating to the terms of your employment set forth herein shall be resolved in any state or federal court of competent jurisdiction in the State of California. Entire Agreement: These terms supersede all prior negotiations and represent the entire agreement of the parties, and our signatures hereon will bind us hereto. * * * * * If you agree to employment with Fairchild Fasteners on the terms set forth in this memorandum, please sign and return a copy to me. FAIRCHILD FASTENERS, a Division of Fairchild Holding Corp. By: _______________________________________ Eric I. Steiner, President Fairchild Holding Corp. ACCEPTED AND AGREED TO BY LEROY A. DACK AS OF THE DATE FIRST ABOVE WRITTEN: _____________________________ Leroy A. Dack EX-10 11 - 3 - TERMS AND CONDITIONS OF EMPLOYMENT JORDAN A. LAW April 20, 1999 This will confirm the terms and conditions of your employment with Fairchild Fasteners, a division of Fairchild Holding Corp., a subsidiary of The Fairchild Corporation. Term: Your employment with Fairchild Fasteners shall commence on the first date following The Fairchild Corporation's acquisition of Kaynar Technologies Inc. and shall terminate on June 30, 2000, unless terminated earlier by Fairchild Fasteners for Cause (as defined below). Position: Your position will be Senior Vice President of Fairchild Fasteners. Duties: You shall report to Eric Steiner, President of Fairchild Fasteners, and perform such duties and assume such responsibilities as may be consistent with your position and as the President of Fairchild Fasteners or the Board of Directors of The Fairchild Corporation may determine from time to time. You agree to devote substantially all of your time, energy and ability to the business of Fairchild Fasteners. However, you may, upon approval of the President of Fairchild Fasteners, serve as a director or trustee of other corporations or businesses, provided that they are not in competition with the business of Fairchild Fasteners or any affiliate of The Fairchild Corporation, and provided that your service does not materially interfere with your duties to Fairchild Fasteners. Base Salary: Your base salary ("Base Salary") will be at a rate not less than $285,000 per year, payable weekly in accordance with Fairchild Fasteners' usual payroll policies. Signing Bonus: Promptly after the commencement of your employment with Fairchild Fasteners, you will receive a signing bonus of $80,000. Fiscal 1999 Bonus: No later than September 15, 1999, Fairchild Fasteners shall pay you a bonus of no less than $- 108,000 for the Fiscal Year ending June 30, 1999. Fiscal 2000 Bonus: You shall be eligible to receive a performance bonus for the Fiscal Year ending June 30, 2000, based on (1) cost savings to be achieved from the integration of Fairchild Fasteners and Kaynar Technologies Inc., and (2) a formula or criteria to be mutually agreed upon by the President of Fairchild Fasteners and you. Company Car: Fairchild Fasteners will provide you with $950 per month in lieu of a company car, and will reimburse you for reasonable expenses you may incur in connection with its use for business purposes, in accordance with Fairchild Fastener's applicable policies and procedures Business Expenses: Fairchild Fasteners will reimburse you for reasonable business-related expenses that you may incur in connection with the performance of your duties to Fairchild Fasteners, in accordance with Fairchild Fasteners' applicable policies and procedures. Vacation: Vacation will accrue based on the date of your hire by Kaynar Technologies Inc. and its affiliates, in accordance with Fairchild Fasteners' vacation policies and procedures. Other Benefits: You will be eligible to participate in all of the employee benefit plans generally available to employees of Fairchild Fasteners under its Flexible Benefits Program, all on terms and conditions commensurate with executive officers of Fairchild Fasteners at your level. These employee benefit plans include sick leave, group health and dental insurance plans, a pension plan, a retiree medical plan, a long term disability plan, a savings (401(k)) plan, and life insurance. You will receive credit for your prior service with Kaynar Technologies Inc. and its affiliates for purposes of determining vesting of benefits under Fairchild Fasteners' 401(k) and pension plans. You will not receive credit for your prior service with Kaynar Technologies Inc. and its affiliates for purposes of calculating the amount of benefits under any pension or post- retirement medical plan. Cause: Cause means any of the following: (i) conduct, at any time, which has involved criminal dishonesty, conviction of any felony, or conviction of any lesser crime or offense involving the property of Fairchild Fasteners, or any of its subsidiaries or affiliates, (ii) significant conflict of interest, (iii) misappropriation of any money or other assets or properties of Fairchild Fasteners, or that of its subsidiaries or affiliates, (iv) willful violation in any material respect of specific and written lawful directions from the President of Fairchild Fasteners or the Board of Directors of The Fairchild Corporation that are consistent with and clearly within the duties of your office, (v) willful misconduct or gross negligence in connection with the performance of any of your material duties, (vi) chronic alcoholism or drug addiction, (vii) any other acts or conduct which would constitute a material breach of your obligations to Fairchild Fasteners or The Fairchild Corporation, and which breach is injurious to Fairchild Fasteners or The Fairchild Corporation, and (viii) your death, or your disability as defined pursuant to Fairchild Fasteners' Long-Term Disability Plan. No Other Agreement: You represent and warrant to Fairchild Fasteners that you have no covenant, agreement or understanding with, or obligation to, anyone else which would be breached by this Agreement, or which would subject Fairchild Fasteners or The Fairchild Corporation to any liability as a result of hiring and utilizing your services. Other Agreements: You shall enter into a Confidentiality Agreement, a Non-Compete Agreement, and an Agreement to Assign to Fairchild Fasteners and The Fairchild Corporation all inventions and designs, whether patentable or not, conceived or improved by you during your employment with Fairchild Fasteners. Governing Law: Our understandings regarding your employment with Fairchild Fasteners shall be governed by applicable federal law and the laws of the State of California, and all disputes relating to the terms of your employment set forth herein shall be resolved in any state or federal court of competent jurisdiction in the State of California. Entire Agreement: These terms supersede all prior negotiations and represent the entire agreement of the parties, and our signatures hereon will bind us hereto. * * * * * If you agree to employment with Fairchild Fasteners on the terms set forth in this memorandum, please sign and return a copy to me. FAIRCHILD FASTENERS, a Division of Fairchild Holding Corp. By: _______________________________________ Eric I. Steiner, President Fairchild Holding Corp. ACCEPTED AND AGREED TO BY JORDAN A. LAW AS OF THE DATE FIRST ABOVE WRITTEN: _____________________________ Jordan A. Law EX-10 12 A 4 THE FAIRCHILD CORPORATION OFFICER LOAN PLAN?? The Fairchild Corporation, a Delaware corporation (the "Company"), hereby adopts the following loan plan (the "Plan") for executive officers of the Company and presidents or other senior executive officers of operating divisions ("Executive Officers"): 1. Objective. The objective of the Plan is to provide additional incentive to Executive Officers by granting loans ("Loans") to such persons, the proceeds of which are to be used by such persons for the sole purpose of purchasing Class A Common Stock of The Fairchild Corporation ("Common Stock") in the open market. The acquisition of Common Stock with Loans is intended to (i) provide an increased incentive for Executive Officers to exert their best efforts on behalf of the Company, (ii) strengthen the ability of the Company to recruit and retain those persons possessing outstanding competence and the ability to contribute significantly to the Company's success, (iii) award those Executive Officers who have made significant contributions to the Company in the past, and (iv) further identify the interests of such Executive Officers with those of the Company and its stockholders by increasing the desire of such officers to maximize the value of the Company. 2. Definitions. 2.1 "Acceptance Date" means the date when a Participant accepts the offer by the Company to loan the Participant the purchase price to purchase Shares in the open market. 2.2 "Board" means the Board of Directors of the Company provided that if any action taken by the Board relates to a Participant who is a director of the Company, the majority of the directors approving such action shall be disinterested directors. 2.3 "Committee" means the Compensation and Stock Option Committee of the Board. The Committee shall consist of three or more of the members of the Board, all of whom shall be Non-Employee Directors (as that term is defined in Rule 16b-3 of the General Rules and Regulations promulgated under the Exchange Act. 2.4 "Common Stock" means shares of Class A Common Stock of The Fairchild Corporation. 2.5 "Effective Date of the Plan" is defined under Section 11 hereof. 2.6 "Exchange Act" means the Securities and Exchange Act of 1934 as amended. 2.7 "Loan" means a loan made to a Participant to purchase Shares under the Plan. 2.8 "Loan Availability Period" means the following two periods: (a) Up to $750,000 in Loans will be available for a period of ten (10) days, commencing on the Effective Date and ending ten (10) days thereafter. Such period may be extended or renewed by the Committee in its sole discretion. (b) The balance of funds available for Loans under this Plan shall not be available until after the Company's senior lender consents to such Loans. The Committee shall determine the Loan Availability Period for such balance after such consent is obtained. 2.9 "Participant" means any executive officer of the Company or any president or other senior executive officer of an operating division who has accepted to receive a Loan pursuant to this Plan for the purpose of purchasing Shares in the open market. 2.10 "Shares" means shares of Common Stock purchased by a Participant pursuant to the Plan. 3. Eligibility. Participation in the Plan shall be limited to executive officers of the Company and presidents or other senior executive officers of significant operating divisions. All Participants shall be required to complete an "accredited investor questionnaire," or such other documents as the Company may require to establish that such Participants are aware of the risks of investment, and to comply with applicable private placement exemptions. Participation in the Plan shall be limited to 15 persons, aggregate. Participants shall be designated by the Board from time to time upon the recommendation of the Committee. Eligibility confers no vested right to the grant of any Loans under this Plan. 4. Grant of Loans. During the Loan Availability Period, the Committee may make recommendations to the Board concerning the granting of Loans under the Plan to Participants. The Board will meet to consider the recommendations of the Committee (or will act by written consent in lieu of such a meeting) and will make a final determination as to the granting of Loans under the Plan to Participants. The Board's determination may vary from the Committee's recommendations and the Board may choose to make no Loans at all. Immediately after the action of the Board, the Committee will notify individuals to whom the Loans have been granted and will permit such Participants to borrow money upon the execution and delivery of a Loan Agreement and a Promissory Note (as defined in Paragraph 5 herein). 5. Terms of Loans. The Company shall make a Loan to a Participant in an amount not to exceed $100,000 per Participant, for 100% of the purchase price for Shares to be purchased by a Participant during the Loan Availability Period. Each Loan will be made pursuant to the terms and conditions of a loan agreement (the "Loan Agreement") in form and substance acceptable to the Company and evidenced by a promissory note (the "Note") in form and substance acceptable to the Company. No funds will be advanced until the Participant has executed and delivered copies of such Loan Agreement and Note to the Committee. Each Note shall be payable thirty (30) days after the Company makes demand for payment and will be non- interest bearing. The Board will have sole discretion concerning when demand for payment of the Loans will be made, but the Board will consider the following factors: A. Whether the Company's needs for cash flow or financing make the calling of the Loans advisable. B. Whether the Participant has terminated employment with the Company, and C. Whether the Participant is able to repay the Loan without undue difficulty. Upon direction from the Board, the Committee will make demand for payment and will seek to collect on each Loan not later than five (5) years from the date funds are advanced under such Loan. 6. Conditions to Loans. As a condition to the granting of any Loan to a Participant, the Participant shall represent and warrant that he/she shall use the proceeds for the sole purpose of purchasing Shares. The Board may require the Participant to execute and deliver to the Company any appropriate or necessary agreements, representations, or documents in this regard. 7. Limitation on Loans. The total amount of Loans outstanding at any time under this Plan and at any time during the term of this Plan will not exceed $1,000,000, of which: (a) Up to $750,000 shall be available on the date of this Plan, and (b) the balance shall be available after the Company's senior lender consents to such Loans. 8. Term of Plan. This Plan will be effective until December 31, 2003. Determination of when demand for payment of the Loans will be made will be vested in the Board (subject to the restriction that all Loans must be paid within five (5) years from the date funds are advanced, as set forth in Paragraph 5 above). 9. Disinterested Persons. All actions by the Committee regarding a Loan to a member of the Committee will be taken without the participation of the Committee member and all actions by the Board regarding a Loan to a member of the Board will be taken without the participation of the Board member, but the Committee member and the Board member, respectively, may be counted for purposes of a quorum. 10. Administration. The Plan will be administered by the Board upon the recommendations of the Committee. 11. Effective Date of Plan. The "Effective Date" of this Plan shall be February 5, 1999. ----------------------- EX-10 13 THE FAIRCHILD CORPORATION DIRECTOR AND OFFICER LOAN PLAN Dated August 12, 1999 The Fairchild Corporation, a Delaware corporation (the "Company"), hereby adopts the following loan plan (the "Plan") for non-employee directors and executive officers of the Company and presidents or other senior executive officers of operating divisions ("Participants"): 1. Objective. The objective of the Plan is to provide additional incentive to Participants by granting loans ("Loans") to such persons, the proceeds of which are to be used by such persons for the sole purpose of purchasing Class A Common Stock of The Fairchild Corporation ("Common Stock") in the open market. The acquisition of Common Stock with Loans is intended to (i) provide an increased incentive for Participants to exert their best efforts on behalf of the Company, (ii) strengthen the ability of the Company to recruit and retain those persons possessing outstanding competence and the ability to contribute significantly to the Company's success, (iii) award those Participants who have made significant contributions to the Company in the past, and (iv) further identify the interests of such Participants with those of the Company and its stockholders by increasing the desire of such officers to maximize the value of the Company. 2. Definitions. 2.1 "Acceptance Date" means the date when a Participant accepts the offer by the Company to loan the Participant the purchase price to purchase Shares in the open market. 2.2 "Board" means the Board of Directors of the Company provided that if any action taken by the Board relates to a Participant who is a director of the Company, the majority of the directors approving such action shall be disinterested directors. 2.3 "Committee" means the Compensation and Stock Option Committee of the Board. The Committee shall consist of three or more of the members of the Board, all of whom shall be Non- Employee Directors (as that term is defined in Rule 16b-3 of the General Rules and Regulations promulgated under the Exchange Act). 2.4 "Common Stock" means shares of Class A Common Stock of The Fairchild Corporation. 2.5 "Effective Date of the Plan" is defined under Section 11 hereof. 2.6 "Exchange Act" means the Securities and Exchange Act of 1934 as amended. 2.7 "Loan" means a loan made to a Participant to purchase Shares under the Plan. Funds for all loans must be exclusively from Fairchild Technologies USA, Inc. 2.8 "Loan Availability Period" means the one-year period in which Loans will be available, commencing on the Effective Date and ending one year thereafter. Such period may be extended or renewed by the Committee in its sole discretion. 2.9 "Participant" means any non-employee director and any executive officer of the Company or any president or other senior executive officer of an operating division who has accepted to receive a Loan pursuant to this Plan for the purpose of purchasing Shares in the open market. 2.10 "Shares" means shares of Common Stock purchased by a Participant pursuant to the Plan. 3. Eligibility. Participation in the Plan shall be limited to non-employee directors and executive officers of the Company and presidents or other senior executive officers of significant operating divisions. All Participants shall be required to complete an "accredited investor questionnaire," or such other documents as the Company may require to establish that such Participants are aware of the risks of investment, and to comply with applicable private placement exemptions. Participation in the Plan shall be limited to 15 persons, aggregate. Participants shall be designated by the Board from time to time upon the recommendation of the Committee. Eligibility confers no vested right to the grant of any Loans under this Plan. 4. Grant of Loans. During the Loan Availability Period, the Committee may make recommendations to the Board concerning the granting of Loans under the Plan to Participants. The Board will meet to consider the recommendations of the Committee (or will act by written consent in lieu of such a meeting) and will make a final determination as to the granting of Loans under the Plan to Participants. The Board's determination may vary from the Committee's recommendations and the Board may choose to make no Loans at all. Immediately after the action of the Board, the Committee will notify individuals to whom the Loans have been granted and will permit such Participants to borrow money upon the execution and delivery of a Loan Agreement and a Promissory Note (as defined in Paragraph 5 herein). 5. Terms of Loans. The Company shall cause Fairchild Technologies USA, Inc. to make a Loan to a Participant in an amount not to exceed $100,000 per Participant, for 100% of the purchase price for Shares to be purchased by a Participant during the Loan Availability Period. Each Loan will be made pursuant to the terms and conditions of a loan agreement (the "Loan Agreement") in form and substance acceptable to the Company and Fairchild Technologies USA, Inc. and evidenced by a promissory note (the "Note") in form and substance acceptable to the Company and Fairchild Technologies USA, Inc. No funds will be advanced until the Participant has executed and delivered copies of such Loan Agreement and Note to the Committee. Each Note shall be payable thirty (30) days after the Company or Fairchild Technologies USA, Inc. makes demand for payment and will be non-interest bearing. The Board will have sole discretion concerning when demand for payment of the Loans will be made, but the Board will consider the following factors: A. Whether the Company's needs for cash flow or financing make the calling of the Loans advisable. B. Whether the Participant has terminated service with the Company, and C. Whether the Participant is able to repay the Loan without undue difficulty. Upon direction from the Board, the Committee will make demand for payment and will seek to collect on each Loan not later than five (5) years from the date funds are advanced under such Loan. 6. Conditions to Loans. As a condition to the granting of any Loan to a Participant, the Participant shall represent and warrant that he/she shall use the proceeds for the sole purpose of purchasing Shares. The Board may require the Participant to execute and deliver to the Company any appropriate or necessary agreements, representations, or documents in this regard. 7. Limitation on Loans. The total amount of Loans outstanding at any time under this Plan and at any time during the term of this Plan will not exceed $2,000,000. 8. Term of Plan. This Plan will be effective until December 31, 2004. Determination of when demand for payment of the Loans will be made will be vested in the Board (subject to the restriction that all Loans must be paid within five (5) years from the date funds are advanced, as set forth in Paragraph 5 above). 9. Disinterested Persons. All actions by the Committee regarding a Loan to a member of the Committee will be taken without the participation of the Committee member and all actions by the Board regarding a Loan to a member of the Board will be taken without the participation of the Board member, but the Committee member and the Board member, respectively, may be counted for purposes of a quorum. 10. Administration. The Plan will be administered by the Board upon the recommendations of the Committee. 11. Effective Date of Plan. The "Effective Date" of this Plan shall be August 12, 1999 ----------------------- EX-23 14 To the Board of Directors of Nacanco Paketleme Sanayi ve Ticaret A.S 28 September 1999 We hereby consent to the incorporation by reference in this Annual Report on Form 10-K of The Fairchild Corporation of our report dated 12 February 1999 on the audit of the financial statements of Nacanco Paketleme Sanayi ve Ticaret A.S. appearing in The Fairchild Corporation Current Report on Form 8-K dated 25 June 1999. Regards Zeynep Uras, SMMM Partner PricewaterhouseCoopers -----END PRIVACY-ENHANCED MESSAGE-----