-----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, Bs2+52ke1otGXSCyqAUfSorP24Q8dOp6XIJRMLaq6sULgn/VLZCp+CMYc996p19u E2Wg6a4TwyHr5vrqsStcbg== 0000912057-97-016828.txt : 19970513 0000912057-97-016828.hdr.sgml : 19970513 ACCESSION NUMBER: 0000912057-97-016828 CONFORMED SUBMISSION TYPE: S-4 PUBLIC DOCUMENT COUNT: 32 FILED AS OF DATE: 19970512 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FAIRCHILD SEMICONDUCTOR CORP CENTRAL INDEX KEY: 0001038272 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 770449095 STATE OF INCORPORATION: DE FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-26897 FILM NUMBER: 97600678 BUSINESS ADDRESS: STREET 1: 333 WESTERN AVENUE STREET 2: MAIL STOP 01 00 CITY: SOUTH PORTLAND STATE: ME ZIP: 04106 BUSINESS PHONE: 2077758100 MAIL ADDRESS: STREET 1: 333 WESTERN AVENUE STREET 2: MAIL STOP 01 00 CITY: SOUTH PORTLAND STATE: ME ZIP: 04106 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FSC SEMICONDUCTOR CORP CENTRAL INDEX KEY: 0001036960 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 043363001 STATE OF INCORPORATION: DE FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-26897-01 FILM NUMBER: 97600679 BUSINESS ADDRESS: STREET 1: 333 WESTERN AVENUE STREET 2: MAIL STOP 01 00 CITY: SOUTH PORTLAND STATE: MA ZIP: 04106 BUSINESS PHONE: 2077758100 MAIL ADDRESS: STREET 1: 333 WESTERN AVENUE STREET 2: MAIL STOP 01 00 CITY: SOUTH PORTLAND STATE: ME ZIP: 04106 S-4 1 S-4 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 12, 1997 REGISTRATION NO. 333- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------------------------- FORM S-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 -------------------------- FAIRCHILD SEMICONDUCTOR CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 3674 77-0449095 (State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer of incorporation or Classification Code Number) Identification organization) No.)
-------------------------- FSC SEMICONDUCTOR CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 3674 04-3363001 (State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer of incorporation or Classification Code Number) Identification organization) No.)
-------------------------- 333 WESTERN AVENUE, MAIL STOP 01-00 SOUTH PORTLAND, MAINE 04106 (207) 775-8100 (Address, including zip code, and telephone number, including area code, of registrants' principal executive offices) ------------------------------ DANIEL E. BOXER, ESQ. EXECUTIVE VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY FAIRCHILD SEMICONDUCTOR CORPORATION 333 WESTERN AVENUE, MAIL STOP 01-00 SOUTH PORTLAND, MAINE 04106 (207) 775-8100 (Name, address, including zip code, and telephone number, including area code, of agent for service) ------------------------------ WITH COPIES TO: CHRISTOPHER G. KARRAS, ESQ. DECHERT PRICE & RHOADS 4000 BELL ATLANTIC TOWER 1717 ARCH STREET PHILADELPHIA, PENNSYLVANIA 19103 (215) 994-4000 -------------------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the effective date of this Registration Statement. If any of the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. / / -------------------------- CALCULATION OF REGISTRATION FEE
PROPOSED MAXIMUM PROPOSED MAXIMUM TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF SECURITIES TO BE REGISTERED REGISTERED PER UNIT(1) PRICE(1) REGISTRATION FEE 10 1/8% Senior Subordinated Notes Due 2007................................. $300,000,000 100% $300,000,000 $90,909 Guarantee of 10 1/8% Senior Subordinated Notes Due 2007 of FSC Semiconductor Corporation.............................. $300,000,000 -- -- $0(2)
(1) Estimated pursuant to Rule 457(f) solely for purposes of calculating the registration fee. (2) Pursuant to Rule 457(n), no separate fee is payable for the guarantee. ------------------------ THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- FAIRCHILD SEMICONDUCTOR CORPORATION FSC SEMICONDUCTOR CORPORATION CROSS REFERENCE SHEET PURSUANT TO RULE 404(a) AND ITEM 501(b) OF REGULATION S-K SHOWING LOCATION IN PROSPECTUS OF THE INFORMATION REQUIRED BY PART I OF FORM S-4 1. Forepart of Registration Statement and Outside Front Cover Page of Prospectus... Forepart of the Registration Statement; Outside Front Cover Page 2. Inside Front and Outside Back Cover Pages of Prospectus............................ Inside Front Cover Page; Outside Back Cover Page 3. Risk Factors, Ratio of Earnings to Fixed Charges and Other Information............ Summary; Risk Factors; Selected Combined Financial Data 4. Terms of the Transaction................... The Exchange Offer; Description of the Notes; Certain Federal Income Tax Consequences; Plan of Distribution 5. Pro Forma Financial Information............ Summary; Unaudited Pro Forma Combined Condensed Financial Statements; Selected Combined Financial Data 6. Material Contracts With the Company Being Acquired................................. Not Applicable 7. Additional Information Required for Reoffering by Persons and Parties Deemed to be Underwriters....................... Not Applicable 8. Interests of Named Experts and Counsel..... Not Applicable 9. Disclosure of Commission Position on Indemnification for Securities Act Liabilities.............................. Not Applicable 10. Information With Respect to S-3 Registrants.............................. Not Applicable 11. Incorporation of Certain Information by Reference................................ Not Applicable 12. Information With Respect to S-2 or S-3 Registrants.............................. Not Applicable 13. Incorporation of Certain Information by Reference................................ Not Applicable 14. Information With Respect to Registrants Other Than S-2 or S-3 Registrants........ Available Information; Summary; Risk Factors; Use of Proceeds; Pro Forma Capitalization; Unaudited Pro Forma Combined Condensed Financial Statements; Unaudited Supplemental Financial Data; Selected Combined Financial Data; Management's Discussion and Analysis of Financial Condition and Results of Operations; Industry Overview; Business; The Transactions; Management; Ownership of Capital Stock; Description of Certain Indebtedness; Description of the Notes; Plan of Distribution; Legal Matters; Experts; Glossary; Financial Statements 15. Information With Respect to S-3 Companies................................ Not Applicable 16. Information With Respect to S-2 or S-3 Companies................................ Not Applicable 17. Information With Respect to Companies Other Than S-2 or S-3 Companies................ Not Applicable 18. Information if Proxies, Consents or Authorizations Are to be Solicited....... Not Applicable 19. Information if Proxies, Consents or Authorizations Are Not to be Solicited, or in an Exchange Offer.................. The Exchange Offer; Management; Ownership of Capital Stock; Description of Certain Indebtedness; Description of the Notes
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. SUBJECT TO COMPLETION, DATED MAY 12, 1997 PROSPECTUS OFFER TO EXCHANGE 10 1/8% SENIOR SUBORDINATED NOTES DUE 2007 FOR ALL OUTSTANDING 10 1/8% SENIOR SUBORDINATED NOTES DUE 2007 OF FAIRCHILD SEMICONDUCTOR CORPORATION THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME ON , 1997, UNLESS EXTENDED Fairchild Semiconductor Corporation, a Delaware corporation ("Fairchild" or the "Company"), hereby offers to exchange an aggregate principal amount of up to $300,000,000 of its 10 1/8% Senior Subordinated Notes Due 2007 (the "Exchange Notes") for a like principal amount of its 10 1/8% Senior Subordinated Notes Due 2007 (the "Existing Notes") outstanding on the date hereof upon the terms and subject to the conditions set forth in this Prospectus and in the accompanying letter of transmittal (the "Letter of Transmittal" and, together with this Prospectus, the "Exchange Offer"). The Exchange Notes and the Existing Notes are hereinafter collectively referred to as the "Notes." The terms of the Exchange Notes are identical in all material respects to those of the Existing Notes, except for certain transfer restrictions and registration rights relating to the Existing Notes. The Exchange Notes will be issued pursuant to, and be entitled to the benefits of, the Indenture (as defined) governing the Existing Notes. The Exchange Notes will bear interest from and including the date of consummation of the Exchange Offer. Interest on the Exchange Notes will be payable semi-annually on March 15 and September 15 of each year, commencing September 15, 1997. Additionally, interest on the Exchange Notes will accrue from the last interest payment date on which interest was paid on the Existing Notes surrendered in exchange therefor or, if no interest has been paid on the Existing Notes, from the date of original issue of the Existing Notes. The Exchange Notes will be unsecured and subordinated to all existing and future Senior Indebtedness (as defined) of the Company. On a pro forma basis after giving effect to the Transactions (as defined), as of February 23, 1997, the Company would have had approximately $120.0 million of Senior Indebtedness outstanding. The Exchange Notes will rank PARI PASSU in right of payment with all senior subordinated indebtedness of the Company and senior to any other subordinated indebtedness of the Company issued after March 11, 1997. The Exchange Notes will be fully and unconditionally guaranteed on a senior subordinated basis by FSC Semiconductor Corporation ("Fairchild Holdings"), the sole stockholder of the Company. The Company has entered into bank credit facilities (the "Senior Credit Facilities") with a group of lenders providing for $120.0 million of term loans and up to $75.0 million of revolving credit loans. The indebtedness under the Senior Credit Facilities is secured by substantially all of the domestic assets of the Company. See "Pro Forma Capitalization" and "Unaudited Pro Forma Combined Condensed Financial Statements and Unaudited Supplemental Data." The Exchange Notes are being offered hereunder in order to satisfy certain obligations of the Company contained in the Registration Rights Agreement dated March 6, 1997 (the "Registration Rights Agreement") by and among the Company, Fairchild Holdings, as Guarantor, and Credit Suisse First Boston Corporation, BT Securities Corporation and CIBC Wood Gundy Securities Corp. (the "Initial Purchasers") with respect to the initial sale of the Existing Notes. The Company will not receive any proceeds from the Exchange Offer. The Company will pay all the expenses incident to the Exchange Offer. Tenders of Existing Notes pursuant to the Exchange Offer may be withdrawn at any time prior to the Expiration Date (as defined) for the Exchange Offer. In the event the Company terminates the Exchange Offer and does not accept for exchange any Existing Notes with respect to the Exchange Offer, the Company will promptly return such Existing Notes to the holders thereof. See "The Exchange Offer." The Company is offering the Exchange Notes in reliance on certain interpretive letters issued by the staff of the Securities and Exchange Commission (the "Commission") to third parties in unrelated transactions. Based on such interpretive letters, the Company is of the view that holders of Existing Notes (other than any holder who is an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act of 1933, as amended (the "Securities Act")) who exchange their Existing Notes for Exchange Notes pursuant to the Exchange Offer generally may offer such Exchange Notes for resale, resell such Exchange Notes and otherwise transfer such Exchange Notes without compliance with the registration and prospectus delivery provisions of the Securities Act, provided such Exchange Notes are acquired in the ordinary course of the holders' business and such holders have no arrangement with any person to participate in a distribution of such Exchange Notes. Each broker-dealer that receives Exchange Notes for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. The Letter of Transmittal states that by so acknowledging and by delivery of a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of Exchange Notes received in exchange for Existing Notes where such Existing Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities. The Company has agreed that, for a period of 180 days after the Expiration Date, it will make this Prospectus available to any broker-dealer for use in connection with any such resale. See "Plan of Distribution." Prior to the Exchange Offer, there has been no public market for the Existing Notes. If a market for the Exchange Notes should develop, such Exchange Notes could trade at a discount from their principal amount. The Company currently does not intend to list the Exchange Notes on any securities exchange or to seek approval for quotation through any automated quotation system, and no active public market for the Exchange Notes is currently anticipated. There can be no assurance that an active public market for the Exchange Notes will develop. The Exchange Offer is not conditioned upon any minimum principal amount of Existing Notes being tendered for exchange pursuant to the Exchange Offer. SEE "RISK FACTORS" COMMENCING ON PAGE 15 FOR A DISCUSSION OF CERTAIN FACTORS THAT HOLDERS OF EXISTING NOTES SHOULD CONSIDER IN CONNECTION WITH THE EXCHANGE OFFER. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. The date of this Prospectus is , 1997. AVAILABLE INFORMATION The Company and Fairchild Holdings have filed with the Commission a Registration Statement on Form S-4 (the "Registration Statement," which term shall encompass all amendments, exhibits, annexes and schedules thereto) pursuant to the Securities Act, and the rules and regulations promulgated thereunder, covering the Exchange Notes being offered hereby. This Prospectus does not contain all the information set forth in the Registration Statement. For further information with respect to the Company, Fairchild Holdings and the Exchange Offer, reference is made to the Registration Statement. Statements made in this Prospectus as to the contents of any contract, agreement or other document referred to are not necessarily complete. With respect to each such contract, agreement or other document filed as an exhibit to the Registration Statement, reference is made to the exhibit for a more complete description of the document or matter involved, and each such statement shall be deemed qualified in its entirety by such reference. The Registration Statement, including the exhibits thereto, can be inspected and copied at the public reference facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Regional Offices of the Commission at Seven World Trade Center, Suite 1300, New York, New York 10048 and at Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such materials can also be obtained from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. In addition, the Commission maintains a Web site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission. The address of such Web site is: http://www.sec.gov. As a result of the Exchange Offer, the Company and Fairchild Holdings will become subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and in accordance therewith will be required to file periodic reports and other information with the Commission. In the event the Company ceases to be subject to the informational requirements of the Exchange Act, the Company will be required under the Indenture, for so long as any of the Notes remain outstanding, to furnish to the Trustee (as defined), deliver or cause to be delivered to the holders of the Notes and file with the Commission (provided that the Commission will accept such filing) copies of its annual report and the information, documents and other reports which are required to be filed by U.S. corporations subject to Section 13 or 15(d) of the Exchange Act. This Prospectus includes forward-looking statements which involve risks and uncertainties as to future events. Actual events or results may differ materially from those discussed in the forward-looking statements as a result of various factors, including, without limitation, those set forth under "Risk Factors". 2 SUMMARY THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND HISTORICAL AND PRO FORMA FINANCIAL STATEMENTS APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS THE CONTEXT REQUIRES OTHERWISE, REFERENCES TO THE "COMPANY" OR "FAIRCHILD" MEAN (I) AT ALL TIMES PRIOR TO THE CONSUMMATION OF THE TRANSACTIONS, THE FAIRCHILD SEMICONDUCTOR BUSINESS OF NATIONAL SEMICONDUCTOR CORPORATION ("NATIONAL SEMICONDUCTOR") AND (II) AT ALL TIMES AFTER THE CONSUMMATION OF THE TRANSACTIONS, FAIRCHILD SEMICONDUCTOR CORPORATION AND ITS SUBSIDIARIES. IN ADDITION, UNLESS THE CONTEXT REQUIRES OTHERWISE, REFERENCES IN THIS PROSPECTUS TO "MANAGEMENT" MEAN THE MANAGEMENT OF FAIRCHILD AFTER THE CONSUMMATION OF THE TRANSACTIONS. FOR AN EXPLANATION OF CERTAIN TERMS USED IN THIS PROSPECTUS, REFERENCE SHOULD BE MADE TO THE GLOSSARY BEGINNING AT PAGE G-1. REFERENCES TO THE COMPANY'S FISCAL YEAR ("FISCAL YEAR") REFER TO THE APPROXIMATELY 12-MONTH PERIOD ENDING ON THE SUNDAY ON OR NEAREST PRECEDING MAY 31 OF EACH YEAR. THE COMPANY Fairchild is a leading global designer, developer and manufacturer of logic, discrete and memory semiconductors. The Company's products are the building block components for virtually all electronic devices, from sophisticated computers to household appliances. Because of their basic functionality, the Company's products provide customers with greater design flexibility than more highly integrated products and improve the performance of more complex devices or systems. Given such characteristics, the Company's products have a wide range of applications for end users in multiple markets ("multi-markets"). The Company supplies over 50,000 customers globally, representing industries such as telecommunications, consumer products, automotive, industrial systems and personal computers and peripherals. In addition, most of Fairchild's over 7,000 products have long product lives. The average life of the Company's current product families is more than 12 years and many product lives extend up to 30 years. Established more than 35 years ago, Fairchild was one of the original founders of the semiconductor industry. Among Fairchild's notable innovations was its development of planar technology in 1959, one of the key events that spawned the subsequent explosive growth of the semiconductor industry. Even today this technology is an integral part of all semiconductor fabrication. The Company has manufacturing facilities in Maine, Utah, Malaysia and the Philippines and has more than 6,000 employees. Worldwide semiconductor market revenues were $132.0 billion during 1996 according to the reports of Worldwide Semiconductor Trade Statistics ("WSTS") published by the Semiconductor Industry Association. Since 1990, the global semiconductor market has expanded at a compound annual growth rate ("CAGR") of 17.4%, primarily as a result of two principal factors. The first is rapidly expanding end-user demand for faster, smaller and more efficient devices with a greater range of functionality. The second is the increasing level of semiconductor content in electrical devices. The value of semiconductors as a percentage of the cost of electrical products has increased from less than 5% in the 1970s to 16% in 1996, according to a study prepared by Texas Instruments Incorporated. The worldwide semiconductor market can be divided into three segments: (i) microprocessors and microcontrollers, which process data; (ii) memory devices, which store data; and (iii) moving and shaping devices, which move commands and shape signals. See "Industry Overview--Semiconductor Classifications." The Company operates primarily in the moving and shaping segment ($56.1 billion total available market ("TAM") in 1996) through its logic and discrete businesses and, secondarily, through its electrically programmable read-only memory ("EPROM") and electrically erasable and programmable read-only memory ("EEPROM") products, in the non-volatile memory segment ($6.1 billion TAM in 1996) of the memory business. While the market for semiconductors has experienced growth and is expected to continue growing, it has from time to time undergone short-term fluctuations in demand and capacity conditions. For example, the 1996 worldwide semiconductor TAM ($132.0 billion) experienced an overall decline from 1995 ($144.4 billion), according to WSTS. The decline was primarily the result of a 36.2% reduction in sales in the volatile memory market (which includes the dynamic random access memory 3 ("DRAM") market). However, the Company believes that the markets in which it competes (which do not include the DRAM market) along with the breadth of its product portfolio and its focus on multi-market end users make its businesses less vulnerable to these fluctuations. PRODUCTS In Fiscal Year 1996, the Company derived approximately 89% of its revenues from selling products to unaffiliated third parties ("trade sales") such as original equipment manufacturers ("OEMs") and distributors, and approximately 11% from providing manufacturing services to National Semiconductor ("contract manufacturing services"). STANDARD LOGIC PRODUCTS. Fairchild is one of the three leading suppliers of global standard logic ("logic") products, with a highly regarded trade name and industry standard products such as Fairchild Advanced Schottky Technology ("FAST-Registered Trademark-") and Fairchild Advanced CMOS Technology ("FACT-TM-"). Standard logic products are semiconductor chips that interconnect and route (or move) electronic signals on circuit boards. Logic products control instructions inside electronic devices, such as those instructing a computer display to turn on. Management estimates that the Company had a market share of 11.2% of the $2.9 billion of standard logic products sold worldwide in 1995. The Company's logic products are used in a wide variety of microelectronics applications, including personal computers and peripherals (38% of Fiscal Year 1996 logic trade revenue), telecommunications (32%), industrial systems and other products (18%), consumer products (6%) and automotive systems (6%). The Company supplies more than 4,700 types of logic devices to more than 50,000 customers worldwide, including AT&T Corporation, International Business Machines Corporation, Lucent Technologies Inc., Siemens AG and Toshiba Corp. DISCRETE PRODUCTS. Fairchild is the second largest U.S. producer of discrete power and small signal semiconductors ("discretes") with a well established trade name and industry standard products. Discrete products switch, amplify or otherwise shape or condition electrical signals. Products of this type are used to manage the distribution of power inside electronic devices, such as regulating the voltage of the LCD display of a microwave oven. Nearly every electronic product contains a number of discrete devices, from computers to dimmer switches for light fixtures. The Company's discrete products are used in a wide variety of applications in personal computers and peripherals (37% of Fiscal Year 1996 discrete trade revenue), industrial systems and other products (23%), telecommunications (20%), consumer products (11%) and automotive systems (9%). The Company supplies over 1,300 types of discrete devices to more than 15,000 customers worldwide, including Compaq Computer Corp., Delco Electronics Corp., Hewlett-Packard Co., Intel Corp., Motorola Inc., Northern Telecom Ltd., Seagate Technology Co. and Sony Electronics Corp. NON-VOLATILE MEMORY PRODUCTS. Fairchild is a leader in the global non-volatile memory market with a highly regarded trade name and industry standard Application Specific Standard Products ("ASSPs"), such as devices used in Plug and Play internal modems, sound cards and other peripheral devices for personal computers. Non-volatile memory products are semiconductor data storage chips that retain data after power has been shut off. Products of this type, including EPROMs and EEPROMs, are used to store data that does not frequently change, such as the internal instructions a cellular phone uses to operate. Management estimates that the Company had a market share of 9.3% of the approximately $2.0 billion non-volatile memory market served by the Company in 1995. The Company does not produce DRAMs or other volatile memory products. The Company's memory products are used in a wide variety of applications, including industrial systems and other products (32% of Fiscal Year 1996 memory trade revenue), telecommunications (22%), automotive systems (19%), personal computers and peripherals (15%) and consumer products (12%). The Company supplies over 900 types of memory devices to more than 6,000 customers worldwide, including Chrysler Corp., Delco Electronics, Ford Motor Co., Hewlett-Packard and Toshiba. For a more complete description, see "Business--Products and Technology." 4 CONTRACT MANUFACTURING SERVICES. Fairchild has provided and will continue to provide manufacturing services to National Semiconductor, including the fabrication of semiconductor devices on silicon wafers and assembly and testing services for chips. Historically, these services have been provided at cost; however, under the Fairchild Foundry Services Agreement (as defined) and the Fairchild Assembly Services Agreement (as defined), National Semiconductor is required to purchase at least $330.0 million of services from Fairchild during the first 39 months after the consummation of the Transactions at prices that are designed to generate a 20% gross profit for the Company, subject to certain conditions and adjustments. See "The Transactions--Manufacturing Agreements." This arrangement will provide a base level of capacity utilization in the Company's facilities and will cover a substantial portion of Fairchild's associated fixed costs. See "Risk Factors--Dependence on National Semiconductor." COMPANY STRENGTHS Management believes that the Company's strong competitive position in each of its businesses is primarily due to the following core strengths: MARKET LEADERSHIP. From its origins as one of the founders of the semiconductor industry, the Company has maintained a leading market position in each of its product lines. Fairchild is recognized for its leadership in breadth of products offered, worldwide distribution, high-volume manufacturing, on-time delivery, customer service and competitive prices. Fairchild's strong customer relationships give it an early opportunity to work with key customers to define their future technological requirements, affording the Company a leading market position and a competitive advantage in seizing new product opportunities. Many of the world's leading telecommunications, computer and automotive companies look to Fairchild to provide high-quality standard products as well as customized solutions to complex problems. See "Business--Sales, Marketing and Distribution." BREADTH AND QUALITY OF PRODUCT PORTFOLIO. The Company offers a broad portfolio of quality products, including one of the largest combined product offerings in the industry for logic, discrete and memory devices. Fairchild develops products for a wide range of market applications, reducing the Company's dependence on any single product, application or market. As a broad range supplier, the Company has the ability to provide its customers with a single source of supply for multiple product needs. The Company has achieved a reputation for maintaining the highest quality standards, as reflected by numerous supplier awards and certifications. The Company's leading position is evidenced by its record as a significant innovator in the semiconductor industry with several leading edge technologies and industry firsts, including its introduction of High Speed CMOS ("HCMOS") in the late 1970s, FAST-Registered Trademark- and FACT-TM- in the 1980s and Low Voltage Logic products in the 1990s. Recently, Fairchild won the Ford Q1 Preferred Quality Award and the Outstanding Supplier Quality One Award from Intel. See "Business--Customers and Applications." DIVERSE AND BLUE-CHIP CUSTOMER BASE. The Company's diverse customer base, in a wide spectrum of end markets, enables it to avoid much of the volatility that may be encountered in specific semiconductor markets. In all, the Company serves more than 50,000 customers, including the leading manufacturers in all of its markets, with no single customer other than National Semiconductor providing more than 5% of the Company's total annual revenue. In the telecommunications market, which had a CAGR of 29% from 1990 to 1995 and accounted for approximately 27% of Fiscal Year 1996 revenues, the Company has long-term relationships with many customers including Alcatel Corp., Ericsson SA, Lucent Technologies, Northern Telecom, Samsung Electronics, Inc. and Siemens. In the personal computer market, which had a CAGR of 25% from 1990 to 1995 and accounted for approximately 31% of Fiscal Year 1996 revenues, the Company's customers include Compaq, Dell Computer Corporation, IBM, Intel, NEC Corporation, Seagate Technology and Toshiba. In consumer products, a market which had a CAGR of 15% from 1990 to 1995 and produced approximately 8% of Fiscal Year 1996 revenues, the Company's customers include Canon Inc., Creative Design & Manufacturing Ltd., Goldstar Electric Co., Sony and Zenith Data Systems Inc. See "Business--Customers and Applications." 5 HIGHLY EFFICIENT MANUFACTURING FACILITIES. The Company has spent approximately $355.0 million during the past three years primarily to build a new wafer fabrication plant ("fab") and to upgrade its existing facilities with state-of-the-art manufacturing equipment. Management credits these capital expenditures for yield improvements of 15% and capacity improvements of 40% for the Class 1 fabs. Management therefore believes that the Company is well positioned for growth and anticipates significantly lower capital outlays over the next three years. The Company has two classes of fabs, Class 1 fabs, in which the air in the manufacturing area has an average of less than one particle no larger than 0.3 micron per cubic foot, and Class 100 fabs, which have an average of less than 100 particles no larger than 0.5 micron per cubic foot. The Company's Class 1 fabs and Class 100 fabs are capable of producing approximately 7,220 6-inch wafers per week and 6,500 6-inch equivalent wafers per week, respectively. As a result of the Company's recent capital expenditure program, the Company operates in a manufacturing environment which, coupled with its leading edge technology, affords it a cost leadership position in the multi-market semiconductor industry. The total yield in Fairchild's Class 100 fabs is greater than 90%, which management believes is among the best in the world for facilities producing similar products. In addition, management believes that the assembly sites in Penang, Malaysia and Cebu, the Philippines are among the lowest cost facilities in the world as a result of the installation of state-of-the-art equipment and unique manufacturing processes. These facilities generated production yields in excess of 98% during Fiscal Year 1996. See "Business--Manufacturing." EXPERIENCED MANAGEMENT. The Company is led by an experienced senior management team of five individuals who average more than 25 years in the semiconductor industry. Fairchild's Chief Executive Officer, Kirk P. Pond, has 30 years of management experience in the semiconductor industry with Texas Instruments and Fairchild, most recently as the Chief Operating Officer of National Semiconductor. See "Management--Directors and Officers." In addition, Mr. Pond and several other Management Investors (as defined) have made a $6.5 million cash investment in the Company's parent, Fairchild Holdings. See "The Transactions." Upon consummation of the Transactions, the Management Investors owned in the aggregate approximately 16% of the outstanding common stock of Fairchild Holdings. BUSINESS STRATEGY The Company's objective is to be the leading supplier of multi-market semiconductors to the worldwide telecommunications, consumer products, automotive, industrial systems and personal computer and peripherals industries. As a stand-alone company, Fairchild will implement a business strategy emphasizing the following key elements: INCREASE MARKET PENETRATION OF EXISTING PRODUCTS. As the only global semiconductor company focused solely on the logic, discrete and memory markets, Fairchild is uniquely positioned to dedicate its sales and marketing efforts toward expanding the market share of its existing products. Following National Semiconductor's decision to launch Fairchild as an independent company, Fairchild began to build an internal sales force dedicated solely to the sale of Fairchild's products. The Company's internal sales force, authorized representatives and distributors will be expanding customer information programs (including technical specifications, application notes and on-line services), augmenting the Company's comprehensive customer design-in support efforts (including application engineering and detailed product performance data) and increasing trade advertising. INTRODUCE NEW PRODUCTS. The Company is focused on expanding its customer base and increasing its market share by continuing to develop new products and enhance its current product portfolio. The increasing portability of computers, cellular phones and other electronic products is one of the industry's most significant trends. The Company is designing new products to meet the power management, lower voltage and heat dissipation characteristics demanded for portability. In the logic market, the Company, in alliance with Toshiba and Motorola, recently developed the advanced CMOS VCX family of 2.5 volt/2.5 nanosecond products. In the discrete market, the Company intends to build on its current momentum in the surface DMOS Power MOSFET area with the addition of products with low resistance, low gate drive, 6 small footprints, thin profiles and superior heat dissipation characteristics. In the memory market, the Company has the broadest serial EEPROM product offering in the industry and intends to offer even more of the widely accepted Microwire, IIC and SPI serial EEPROM product families and to develop application specific memories, such as Plug and Play components for the personal computer adapter card market and HiSeC for the automotive market. Management believes that continued product innovation and investment in research and development will help insulate it from changes in demand patterns that affect particular customers, industry segments or end-product markets. MAINTAIN COST LEADERSHIP. The Company has made significant capital expenditures over the last three years to increase capacity and improve manufacturing efficiency at its facilities. Management believes that its fabs and assembly and test facilities are among the most productive and efficient in the industry. The Company will continue to invest in people and assets in order to increase productivity and enhance process efficiency. Improvements now underway include the expansion of a continuous flow process throughout the entire Penang test facility and the introduction of reel-to-reel processing in the Cebu assembly and test plant. MAINTAIN CONSISTENT HIGH QUALITY CUSTOMER SERVICE. Multi-market semiconductor products are available from a number of providers--accordingly, logistical support, customer service and delivery are critical to customer retention and sales growth. Fairchild seeks to distinguish its service by providing the industry's best support services, including electronic order entry and inquiry, just-in-time delivery and a full range of Internet services that provide device specifications and order entry for samples. Fairchild's customer support services are provided primarily from four regional customer support centers as well as many other sales office locations throughout the world. NATIONAL SEMICONDUCTOR RELATIONSHIP As a result of the Transactions, National Semiconductor owns 15.0% of the equity of Fairchild Holdings and National Semiconductor and Fairchild each provide the other with certain manufacturing and assembly and test services. National Semiconductor is required to purchase at least $330.0 million of goods and services from the Company during the first 39 months after the consummation of the Transactions. See "The Transactions--Manufacturing Agreements." The continuing relationship between National Semiconductor and the Company provides an assured base of capacity utilization for Fairchild's facilities. The Company is afforded continued access to a substantial portion of National Semiconductor's proprietary technology which the Company plans to use to enter new markets and strengthen its existing position. See "The Transactions--Technology Licensing and Transfer Agreement." National Semiconductor had revenues of $2.0 billion in its fiscal year 1996 (excluding revenues attributable to Fairchild) and is one of the major U.S. producers of semiconductors. Although National Semiconductor retains an equity interest in Fairchild Holdings and has substantial commercial relations with Fairchild, National Semiconductor does not control Fairchild Holdings or Fairchild and is not responsible for Fairchild Holdings' or Fairchild's performance. THE TRANSACTIONS Pursuant to the Agreement and Plan of Recapitalization dated January 24, 1997 (the "Recapitalization Agreement") with National Semiconductor, the following transactions occurred concurrently on March 11, 1997 (collectively, the "Transactions"): (i) National Semiconductor transferred to the Company substantially all of the assets and certain of the liabilities of the Fairchild multi-market semiconductor business in exchange for (a) demand promissory notes of the Company and its subsidiaries in the aggregate principal amount of $401.6 million (the "Purchase Price Notes") and (b) all of the Company's capital stock; (ii) National Semiconductor transferred all of the capital stock of the Company and approximately $12.8 million in cash to Fairchild Holdings, a corporation newly formed by National Semiconductor for such purpose, in exchange for shares of 12% Series A Cumulative Compounding Preferred Stock of 7 Fairchild Holdings ("Holdings Preferred Stock"), common stock of Fairchild Holdings ("Holdings Common Stock") and a promissory note (the "Holdings PIK Note") of Fairchild Holdings in the principal amount of approximately $77.0 million; (iii) Fairchild Holdings issued (a) to Sterling Holding Company, LLC ("Sterling") shares of Holdings Preferred Stock and Holdings Common Stock for approximately $58.5 million in cash and (b) to Kirk P. Pond and Joseph R. Martin, together with certain other key employees of the Company (the "Management Investors"), Holdings Preferred Stock and Holdings Common Stock for approximately $6.5 million in cash; (iv) Fairchild Holdings contributed cash in the amount of approximately $77.8 million to the capital of the Company; (v) the Company borrowed $120.0 million under the Senior Credit Facilities and received the net proceeds from the issuance of the Existing Notes; and (vi) the Company repaid the Purchase Price Notes in cash. See "The Transactions." For information regarding the Senior Credit Facilities, see "Description of Certain Indebtedness--Senior Credit Facilities." The principal executive offices of the Company are located at 333 Western Avenue, Mail Stop 01-00, South Portland, Maine 04106 and its telephone number is (207) 775-8100. THE EXCHANGE OFFER Securities Offered................ Up to $300,000,000 aggregate principal amount of 10 1/8% Senior Subordinated Notes Due 2007. The terms of the Exchange Notes and Existing Notes are identical in all material respects, except for certain transfer restrictions and registration rights relating to the Existing Notes. The Exchange Offer................ The Exchange Notes are being offered in exchange for a like principal amount of Existing Notes. Existing Notes may be exchanged only in integral multiples of $1,000. The issuance of the Exchange Notes is intended to satisfy obligations of the Company contained in the Registration Rights Agreement. Expiration Date; Withdrawal of Tender.......................... The Exchange Offer will expire at 5:00 p.m., New York City time, on 1997, or such later date and time to which it may be extended by the Company. The tender of Existing Notes pursuant to the Exchange Offer may be withdrawn at any time prior to the Expiration Date. Any Existing Notes not accepted for exchange for any reason will be returned without expense to the tendering holder thereof as promptly as practicable after the expiration or termination of the Exchange Offer. Certain Conditions to the Exchange Offer........................... The Company's obligation to accept for exchange, or to issue Exchange Notes in exchange for, any Existing Notes is subject to certain customary conditions relating to compliance with any applicable law or any applicable interpretation by the staff of the Commission, the receipt of any applicable governmental approvals and the absence of any actions or proceedings of any govern- mental agency or court which could materially impair the Company's ability to consummate the Exchange Offer. The Company currently expects that each of the conditions will be satisfied and that no waivers will be necessary. See "The Exchange Offer-- Certain Conditions to the Exchange Offer."
8 Procedures for Tendering Existing Notes........................... Each holder of Existing Notes wishing to accept the Exchange Offer must complete, sign and date the Letter of Transmittal, or a facsimile thereof, in accordance with the instructions contained herein and therein, and mail or otherwise deliver such Letter of Transmittal, or such facsimile, together with such Existing Notes and any other required documentation, to the Exchange Agent (as defined) at the address set forth herein. See "The Exchange Offer--Procedures for Tendering Existing Notes." Use of Proceeds................... The Company will not receive any proceeds from the Exchange Offer. Exchange Agent.................... United States Trust Company of New York (the "Exchange Agent") is serving as the Exchange Agent in connection with the Exchange Offer. Federal Income Tax Consequences... The exchange of Notes pursuant to the Exchange Offer should not be a taxable event for federal income tax purposes. See "Certain Federal Income Tax Considerations."
CONSEQUENCES OF EXCHANGING EXISTING NOTES PURSUANT TO THE EXCHANGE OFFER Based on certain interpretive letters issued by the staff of the Commission to third parties in unrelated transactions, the Company is of the view that holders of Existing Notes (other than any holder who is an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act) who exchange their Existing Notes for Exchange Notes pursuant to the Exchange Offer generally may offer such Exchange Notes for resale, resell such Exchange Notes and otherwise transfer such Exchange Notes without compliance with the registration and prospectus delivery provisions of the Securities Act, provided such Exchange Notes are acquired in the ordinary course of the holders' business and such holders have no arrangement with any person to participate in a distribution of such Exchange Notes. Each broker-dealer that receives Exchange Notes for its own account in exchange for Existing Notes must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. See "Plan of Distribution." In addition, to comply with the securities laws of certain jurisdictions, if applicable, the Exchange Notes may not be offered or sold unless they have been registered or qualified for sale in such jurisdictions or in compliance with an available exemption from registration or qualification. The Company has agreed, pursuant to the Registration Rights Agreement and subject to certain specified limitations therein, to register or qualify the Exchange Notes for offer or sale under the securities or blue sky laws of such jurisdictions as any holder of the Notes reasonably requests in writing. If a holder of Existing Notes does not exchange such Existing Notes for Exchange Notes pursuant to the Exchange Offer, such Existing Notes will continue to be subject to the restrictions on transfer contained in the legend thereon. In general, the Existing Notes may not be offered or sold, unless registered under the Securities Act, except pursuant to an exemption from, or in a transaction not subject to, the Securities Act and applicable state securities laws. Holders of Existing Notes do not have any appraisal or dissenters' rights under the Delaware General Corporation Law in connection with the Exchange Offer. See "The Exchange Offer--Consequences of Failure to Exchange; Resales of Exchange Notes." The Existing Notes are currently eligible for trading in the Private Offerings, Resales and Trading through Automated Linkages ("PORTAL") market. Following commencement of the Exchange Offer but prior to its consummation, the Existing Notes may continue to be traded in the PORTAL market. Following consummation of the Exchange Offer, the Exchange Notes will not be eligible for PORTAL trading. 9 THE EXCHANGE NOTES The terms of the Exchange Notes and the Existing Notes are identical in all material respects, except for certain transfer restrictions and registration rights relating to the Existing Notes. Securities Offered................ $300,000,000 aggregate principal amount of the Company's 10 1/8% Senior Subordinated Notes Due 2007. Maturity Date..................... March 15, 2007. Interest Payment Dates............ March 15 and September 15 of each year, commencing September 15, 1997. Optional Redemption............... The Exchange Notes (and any outstanding Existing Notes) are not redeemable prior to March 15, 2002, except that, until March 15, 2000, the Company may redeem, at its option, up to an aggregate of $105.0 million of the principal amount of the Notes at the redemption price set forth herein plus accrued interest to the date of redemption with the net proceeds of one or more Public Equity Offerings if at least $150.0 million of the principal amount of the Notes remains outstanding after each such redemption. On or after March 15, 2002, the Notes are redeemable at the option of the Company, in whole or in part, at the redemption prices set forth herein plus accrued interest to the date of redemption. See "Description of the Notes-- Optional Redemption." Mandatory Redemption.............. The Company is required to redeem $150.0 million principal amount of Notes on March 15, 2005 and $75.0 million principal amount of Notes on March 15, 2006, in each case at a redemption price of 100% of the principal amount plus accrued interest to the date of redemption, subject to the Company's right to credit against any such redemption Notes acquired by it otherwise than through any such redemption. Change of Control................. Upon a Change of Control and subject to certain conditions, each holder of the Notes may require the Company to repurchase the Notes held by such holder at 101% of the principal amount thereof plus accrued interest to the date of repurchase. See "Description of the Notes--Change of Control." Ranking........................... The Exchange Notes will be unsecured and subordinated to all existing and future Senior Indebtedness of the Company. On a pro forma basis after giving effect to the Transactions, as of February 23, 1997, the Company would have had approximately $120.0 million of Senior Indebtedness outstanding. The Exchange Notes will rank PARI PASSU in right of payment with all senior subordinated indebtedness of the Company and senior to any other subordinated indebtedness of the Company issued after the Offering. See "Description of the Notes--Ranking" and "Pro Forma Combined Condensed Financial Statements and Unaudited Supplemental Data."
10 Guaranty.......................... The payment of the principal of, premium and interest on the Exchange Notes is fully and unconditionally guaranteed on a senior subordinated basis by Fairchild Holdings. The guarantee by Fairchild Holdings is subordinated to all existing and future Senior Indebtedness of Fairchild Holdings, including Fairchild Holdings' guarantee of the Company's obligations under the Senior Credit Facilities. Fairchild Holdings currently conducts no business and has no significant assets other than the capital stock of the Company, all of which is pledged to secure Fairchild Holdings' obligations under the Senior Credit Facilities. See "Description of the Notes--Guaranty." Restrictive Covenants............. The indenture relating to the Notes (the "Indenture") limits (i) the incurrence of additional debt by the Company and its subsidiaries, (ii) the payment of dividends on capital stock of the Company and the purchase, redemption or retirement of capital stock or subordinated indebtedness, (iii) investments, (iv) certain transactions with affiliates, (v) sales of assets, including capital stock of subsidiaries; and (vi) certain consolidations, mergers and transfers of assets. The Indenture also prohibits certain restrictions on distributions from subsidiaries. All of these limitations and prohibitions, however, are subject to a number of important qualifications. See "Description of the Notes--Certain Covenants."
For a more detailed discussion of the Exchange Notes, see "Description of the Notes." RISK FACTORS Holders of Existing Notes should consider carefully all of the information set forth in this Prospectus and, in particular, should evaluate information set forth under "Risk Factors". 11 SUMMARY HISTORICAL DATA The following table sets forth summary historical combined financial data with respect to Fairchild. The summary historical combined financial data as of May 28, 1995 and May 26, 1996 and for the three fiscal years ended May 26, 1996 are derived directly from the audited Combined Financial Statements of Fairchild included elsewhere in this Prospectus. The summary historical combined financial data as of February 23, 1997 and for the nine months ended February 25, 1996 and February 23, 1997 are derived directly from the unaudited Combined Financial Statements of Fairchild included elsewhere in this Prospectus. The summary historical combined financial data for the Fiscal Years ended May 31, 1992 and May 30, 1993 and the summary historical balance sheet data as of May 31, 1992, May 30, 1993, May 29, 1994 and February 25, 1996 are derived from unaudited combined financial statements of Fairchild that are not included in this Prospectus. Such unaudited combined financial statements of Fairchild, in the opinion of management, include all adjustments necessary for the fair presentation of the financial condition and the results of operations of Fairchild. Operating results for the nine months ended February 23, 1997 are not necessarily indicative of the results of operations that may be expected for Fiscal Year 1997. This information should be read in conjunction with the Combined Financial Statements of Fairchild included elsewhere in this Prospectus and "Management's Discussion and Analysis of Financial Condition and Results of Operations." See "Selected Combined Financial Data." 12
FISCAL YEAR NINE MONTHS ENDED ----------------------------------------------------- ----------------- 1992 1993 1994 1995 1996 FEBRUARY 25, 1996 --------- --------- --------- --------- --------- ----------------- (DOLLARS IN MILLIONS) HISTORICAL STATEMENT OF OPERATIONS DATA: Revenue.................................... $ 535.7 $ 620.0 $ 716.6 $ 680.3 $ 775.4 $ 596.6 Gross profit............................... 84.5 124.0 248.3 203.8 215.1 176.4 Research and development................... 30.9 24.5 27.4 31.0 30.3 22.7 Selling and marketing...................... 46.5 44.7 55.0 56.8 65.6 50.0 General and administrative................. 24.4 24.7 42.3 43.5 48.4 37.6 Restructuring.............................. 18.0 -- -- -- -- -- Revenues less direct and allocated expenses before other (income) expense and taxes.................................... (35.3) 30.1 123.6 72.5 70.8 66.1 OTHER FINANCIAL DATA: REVENUE: Logic...................................... $ 306.5 $ 326.6 $ 393.8 $ 327.7 $ 338.6 $ 261.9 Discrete................................... 65.8 67.2 80.0 116.4 175.0 135.2 Memory..................................... 109.0 148.9 185.1 185.5 174.2 135.8 Contract manufacturing services............ 54.4 77.3 57.7 50.7 87.6 63.7 --------- --------- --------- --------- --------- ------- Total revenue.......................... $ 535.7 $ 620.0 $ 716.6 $ 680.3 $ 775.4 $ 596.6 --------- --------- --------- --------- --------- ------- --------- --------- --------- --------- --------- ------- EBITDA(1).................................. $ (0.2) $ 64.4 $ 162.3 $ 117.2 $ 135.0 111.0 Cash flows from operating activities....... --(2) 71.4 153.4 115.1 110.2 77.1 Cash flows from investing activities....... --(2) (34.0) (88.2) (112.9) (153.9) (120.7) Net financing provided to (from) National Semiconductor................... --(2) 51.8 65.2 2.2 (43.7) (43.6) Depreciation and amortization.............. 32.9 31.4 33.0 39.1 57.6 40.5 Capital expenditures....................... 26.0 34.0 88.2 112.9 153.9 120.7 Ratio of earnings to fixed charges(3)...... --(4) 11.7x 84.7x 75.3x 46.2x 57.3x HISTORICAL BALANCE SHEET DATA (END OF PERIOD): Inventories................................ $ 77.5 $ 55.0 $ 60.9 $ 68.8 $ 93.1 $ 96.3 Total assets............................... 187.8 175.5 233.0 323.2 432.7 422.2 Total business equity...................... 140.6 100.8 161.1 233.2 349.2 346.8 FEBRUARY 23, 1997 ----------------- HISTORICAL STATEMENT OF OPERATIONS DATA: Revenue.................................... $ 509.7 Gross profit............................... 101.5 Research and development................... 13.6 Selling and marketing...................... 33.5 General and administrative................. 39.1 Restructuring.............................. 5.3 Revenues less direct and allocated expenses before other (income) expense and taxes.................................... 10.0 OTHER FINANCIAL DATA: REVENUE: Logic...................................... $ 210.4 Discrete................................... 118.1 Memory..................................... 105.4 Contract manufacturing services............ 75.8 ------ Total revenue.......................... $ 509.7 ------ ------ EBITDA(1).................................. 66.7 Cash flows from operating activities....... 81.5 Cash flows from investing activities....... (36.7) Net financing provided to (from) National Semiconductor................... 44.8 Depreciation and amortization.............. 50.8 Capital expenditures....................... 36.7 Ratio of earnings to fixed charges(3)...... 8.4x HISTORICAL BALANCE SHEET DATA (END OF PERIOD): Inventories................................ $ 67.3 Total assets............................... 390.2 Total business equity...................... 314.0
- ------------------------------ (1) EBITDA is defined as the sum of revenue less direct and allocated expenses before other (income) expense, interest expense, taxes and depreciation and amortization. EBITDA is presented because the Company believes that it is a widely accepted financial indicator of an entity's ability to incur and service debt. EBITDA should not be considered by an investor as an alternative to net income or income from operations, as an indicator of the operating performance of the Company or other combined operations or cash flow data prepared in accordance with generally accepted accounting principles, or as an alternative to cash flows as a measure of liquidity. Depreciation and amortization for purposes of the EBITDA calculation includes amortization for tooling. Tooling is classified as a current asset in the financial statements of the Company and amortization thereof is not included in depreciation and amortization for purposes of calculating cash flows from operating activities, nor are cash outflows for tooling included in capital expenditures for purposes of calculating cash flows from investing activities. Tooling amortization included in EBITDA totaled $2.2 million, $2.9 million, $5.7 million, $5.6 million, $6.6 million, $4.4 million, and $5.9 million, for the Fiscal Years 1992 through 1996, and for the nine months ended February 25, 1996, and February 23, 1997, respectively. Tooling expenditures totaled $3.4 million, $5.5 million, $6.1 million, $5.2 million, $8.6 million, $6.1 million and $4.8 million for the same periods. (2) Balance sheet data is not available for Fairchild prior to 1992. As such, it is not practicable to determine cash flow information for Fiscal Year 1992. (3) Earnings consist of revenue less direct and allocated expenses before taxes plus fixed charges. Fixed charges consists of interest expense on debt and amortization of deferred debt issuance costs, and the portion (approximately one-third) of rental expense that the Company believes is representative of the interest component of rental expense. (4) Earnings for Fiscal Year 1992 were inadequate to cover fixed charges by $34.8 million. 13 SUMMARY SUPPLEMENTAL DATA The following table sets forth certain unaudited supplemental data of the Company for the periods indicated. The unaudited supplemental data reflects certain pro forma adjustments and management's estimates of certain cost savings which management believes will be attained on a stand-alone basis. This information should be read in conjunction with the Unaudited Pro Forma Combined Condensed Financial Statements and notes thereto and Unaudited Supplemental Data and the notes thereto. See "Disclosure Regarding Forward Looking Statements."
NINE MONTHS FISCAL ENDED YEAR FEBRUARY 23, 1996 1997 --------- ---------------- (DOLLARS IN MILLIONS) Adjusted EBITDA(1)................................................................................. $206.2 103.3 Cash interest expense(2).......................................................................... 40.3 29.7 Total interest expense(3)..................................................................... 42.9 31.4 Ratio of Adjusted EBITDA to cash interest expense................................................. 5.1x 3.5x Ratio of Adjusted EBITDA to total interest expense................................................ 4.8x 3.3x Ratio of debt to Adjusted EBITDA(4)............................................................... 2.0x --
- ------------------------------ (1) Adjusted EBITDA is EBITDA as defined in Note 1 to the Summary Historical Data plus pro forma adjustments and management's estimate of certain cost savings which management believes will be achieved on a stand-alone basis. This information should be read in conjunction with the Unaudited Pro Forma Combined Condensed Financial Statements and notes thereto and Unaudited Supplemental Data and notes thereto, included elsewhere in this Prospectus. (2) Cash interest expense represents the pro forma cash interest expense. (3) Total interest expense represents the pro forma cash interest expense and amortization of deferred debt issuance costs. (4) Debt consists of pro forma debt of $420.0 million outstanding as of February 23, 1997 as if the Transactions had occurred on such date. 14 RISK FACTORS Holders of Existing Notes should carefully consider the risk factors set forth below, as well as the other information appearing in this Prospectus in connection with the Exchange Offer. The risk factors set forth below are generally applicable to the Existing Notes as well as the Exchange Notes. SUBSTANTIAL LEVERAGE; ABILITY TO SERVICE INDEBTEDNESS The Company incurred substantial indebtedness in connection with the Transactions and, as a result, is highly leveraged. On a pro forma basis after giving effect to the Transactions, as of February 23, 1997, the Company would have had total indebtedness of $420.0 million (exclusive of the Holdings PIK Note) and stockholder's equity of $14.0 million. Of the total $497.8 million used to consummate the Transactions, $420.0 million (84.4%) was supplied by debt (excluding the $77.0 million Holdings PIK Note), and $77.8 million (15.6%) was supplied by equity contributions. Pro forma interest expense, for Fiscal Year 1996 and nine months ended February 23, 1997, would have been $42.9 million and $31.4 million, respectively. Fairchild Holdings issued the Holdings PIK Note to National Semiconductor in exchange for all outstanding common stock of Fairchild. Fairchild Holdings' ability to repay the principal on the Holdings PIK Note is dependent on its ability to generate cash from its investment in Fairchild. The Company may incur additional indebtedness in the future, subject to limitations imposed by the Indenture and the Senior Credit Facilities. See "Pro Forma Capitalization" and "Unaudited Pro Forma Combined Condensed Financial Statements and Unaudited Supplemental Data." The Company's ability to make scheduled principal payments of, to pay interest on or to refinance its indebtedness (including the Exchange Notes) depend on its future performance and financial results, which, to a certain extent, are subject to general economic, financial, competitive, legislative, regulatory and other factors beyond its control. The Company's historical financial results have been, and its future financial results are anticipated to be, subject to substantial fluctuations. See "--Cyclical Industry." There can be no assurance that sufficient funds will be available to enable the Company to service its indebtedness, including the Notes, or make necessary capital expenditures or conduct needed research and development. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." The degree to which the Company will be leveraged following the Offering could have important consequences to holders of the Notes, including, but not limited to, the following: (i) a substantial portion of the Company's cash flow from operations will be required to be dedicated to debt service and will not be available for other purposes; (ii) the Company's ability to obtain additional financing in the future could be limited; (iii) certain of the Company's borrowings are at variable rates of interest, which could result in higher interest expense in the event of increases in interest rates; (iv) the Company may be more vulnerable to downturns in its business or in the general economy and may be restricted from making acquisitions, introducing new technologies or exploiting business opportunities; and (v) the Indenture and the Credit Agreement contain financial and restrictive covenants that limit the ability of the Company to, among other things, borrow additional funds, dispose of assets or pay cash dividends. Failure by the Company to comply with such covenants could result in an event of default which, if not cured or waived, could have a material adverse effect on the Company. In addition, the degree to which the Company is leveraged could prevent it from repurchasing all Notes tendered to it upon the occurrence of a Change of Control, which would constitute an Event of Default under the Indenture. See "Description of the Notes" and "Description of Certain Indebtedness." RANKING OF THE NOTES AND GUARANTY The payment of the principal of, premium (if any) and interest on the Exchange Notes, like the Existing Notes, is subordinate in right of payment, as set forth in the Indenture, to the prior payment in full of all Senior Indebtedness of the Company. At February 23, 1997, after giving pro forma effect to the Transactions, the Company's Senior Indebtedness would have been approximately $120.0 million. Although the Indenture contains limitations on the amount of additional indebtedness that the Company 15 may incur, under certain circumstances additional indebtedness may be incurred, the amount of which could be substantial and which may be Senior Indebtedness. See "Description of the Notes--Certain Covenants--Limitations on Indebtedness." As a result of the Transactions, the Company realized approximately $75.0 million of borrowing availability under the Senior Credit Facilities. Any such amounts, when borrowed, will constitute Senior Indebtedness of the Company. In the event of the bankruptcy, liquidation or reorganization of the Company, the assets of the Company will be available to pay the Notes only after all Senior Indebtedness of the Company has been paid in full. Sufficient funds may not exist to pay amounts due on the Notes in such event. In addition, the subordination provisions of the Indenture provide that no cash payment may be made with respect to the Notes during the continuance of a payment default under any Senior Indebtedness of the Company. Furthermore, if certain non-payment defaults exist with respect to certain Senior Indebtedness of the Company, the holders of such Senior Indebtedness will be able to prevent payments on the Notes for certain periods of time. See "Description of the Notes--Ranking." Although the Company's U.S. operations are owned directly, its foreign operations are conducted through several subsidiaries organized outside the United States (the "Foreign Subsidiaries"). The Foreign Subsidiaries have not guaranteed or otherwise become obligated with respect to the Notes. The Notes will therefore be effectively subordinated to all existing and future liabilities, including indebtedness, of the Foreign Subsidiaries. As of February 23, 1997, on a pro forma basis after giving effect to the Transactions, the Foreign Subsidiaries would have had liabilities, excluding distributor reserves, of approximately $21.6 million reflected on the Company's combined balance sheet. Claims of creditors of the Foreign Subsidiaries, including trade creditors, will generally have priority as to the assets of such subsidiaries over the claims of the Company and the holders of the Company's indebtedness, including the Notes. Fairchild Holdings has guaranteed the Notes on a senior subordinated basis. Fairchild Holdings currently conducts no business and has no significant assets other than the capital stock of the Company, all of which has been pledged to secure Fairchild Holdings' obligations under the Senior Credit Facilities. Thus, currently there are no resources supporting Fairchild Holdings' guarantee of the Notes that are in addition to those to which holders of the Notes already have access as direct creditors of the Company. Fairchild Holdings' guarantee of the Notes is subordinated in right of payment to the guarantee by Fairchild Holdings of the Company's obligations under the Senior Credit Facilities, but is senior to Fairchild Holdings' obligations under the Holdings PIK Note. See "Description of the Notes--Guaranty." CYCLICAL INDUSTRY The semiconductor industry is highly cyclical. During the latter half of Fiscal Year 1996 and the beginning of Fiscal Year 1997, the Company experienced significant declines in the pricing of its products as customers reduced demand forecasts and manufacturers reduced prices to keep capacity utilization high. The cycle was highly publicized by both the trade and general news media, as the semiconductor book-to-bill index ("Book-to-Bill") during this period fell below 1-to-1. Although in December 1996, Book-to-Bill exceeded 1-to-1, there can be no assurance that the market for semiconductors will continue to improve, nor can there be any assurance that the Company's markets will not experience other, possibly more severe and prolonged, downturns in the future. Additionally, the Company may experience significant changes in its operating profit margins as a result of variations in sales, changes in product mix, price competition for orders and costs associated with the introduction of new products. The markets for the Company's products depend on continued demand for personal computers, telecommunications, automotive, consumer and industrial electrical goods. There can be no assurance that these end-product markets will not experience changes in demand that will adversely affect the Company's prospects. 16 LACK OF INDEPENDENT OPERATING HISTORY Prior to the consummation of the Transactions, the business of the Company was conducted as a division of National Semiconductor since its acquisition by National Semiconductor in 1987. During Fiscal Year 1996, the Company incurred $144.3 million in costs for research and development, sales and marketing and general and administrative activities. These costs represent expenses incurred directly by the Company and charges allocated to Fairchild by National Semiconductor. Following consummation of the Transactions the Company has begun to provide many of these services on a stand-alone basis. However, to provide certain of these services for a transition period, in connection with the Transactions the Company entered into a Transition Services Agreement with National Semiconductor pursuant to which the Company obtains certain of these services substantially comparable to those previously provided. See "The Transactions--Transition Services Agreement." The unaudited supplemental financial information contained herein assumes that the Company would have incurred annual expenses of $99.5 million in Fiscal Year 1996 to obtain these services, either from National Semiconductor, under the Transition Services Agreement, or otherwise. There can be no assurance that charges under the Transition Services Agreement will not exceed historical charges or that upon termination of such Agreement the Company will be able to obtain similar facilities and services on comparable terms. See "--Dependence on National Semiconductor." A substantial portion of the Company's sales have been and will continue to be made through distributors. As a stand-alone entity, the Company will enter into new distribution arrangements with its distributors. However, there can be no assurance that the Company will be able to obtain distribution arrangements that are as favorable as those previously enjoyed by Fairchild as part of National Semiconductor. USE OF ASSUMPTIONS TO ESTIMATE FUTURE OPERATING RESULTS Prior to consummation of the Transactions, the Company was a division of National Semiconductor and had no independent operating history. Many expenses that the Company now bears as a stand-alone entity were borne by National Semiconductor, with all or some portion of such costs allocated to the Company. In addition, Fairchild historically provided manufacturing services to National Semiconductor at cost. Under the Manufacturing Agreements Fairchild provides contract manufacturing services to National Semiconductor at rates designed to generate a 20% gross profit for the Company, subject to certain conditions and adjustments. As a result, the supplemental financial data throughout this Prospectus are based on management's estimates of what such expenses will be on a stand-alone basis, including the effect of the Transition Services Agreement and of what contract manufacturing revenue will be under the Manufacturing Agreements. See "The Transactions--Manufacturing Agreements." There can be no assurance that such estimates are accurate or will reflect the actual expenses of the Company. If the Company's actual expenses exceed such estimates, the Company's operating results will be less favorable than those set forth in such supplemental data. NEW PRODUCT DEVELOPMENT AND TECHNOLOGICAL CHANGE The semiconductor industry as a whole is characterized by rapidly changing technology and industry standards, along with frequent new product introductions. The Company's success in these markets will depend on its ability to design, develop, manufacture, assemble, test, market and support new products and enhancements on a timely and cost-effective basis. There can be no assurance that the Company will successfully identify new product opportunities and develop and bring new products to market in a timely and cost-effective manner, or that products or technologies developed by others will not render the Company's products or technologies obsolete or noncompetitive. A fundamental shift in technology in the Company's product markets could have a material adverse effect on the Company. 17 KEY CUSTOMERS AND STRATEGIC RELATIONSHIPS In addition to the Company's continuing agreements for the sale of products to National Semiconductor, the Company has several other large customers, certain of which have entered into strategic alliances with the Company. Many of the Company's key customers operate in cyclical businesses and have in the past varied, and may in the future vary, order levels significantly from period to period. The loss of one or more of such customers, or a declining market in which such customers reduce orders or request reduced prices, could have a material adverse effect on the Company. DEPENDENCE ON CERTAIN SOURCES OF SUPPLY The Company's manufacturing operations depend upon obtaining adequate supplies of raw materials on a timely basis. The Company purchases raw materials such as silicon wafers, lead frames, mold compound, ceramic packages and chemicals and gases from a number of suppliers on a just-in-time basis. From time to time, suppliers may extend lead times, limit supply to the Company or increase prices due to capacity constraints or other factors. The Company's results of operations could be adversely affected if it were unable to obtain adequate supplies of raw materials in a timely manner or if there were significant increases in the costs of raw materials. In addition, the Company subcontracts certain of its wafer fabrication and assembly and test operations to other manufacturers, including Torex, Alphatec, and National Semiconductor. The Company's operations could be adversely affected if these subcontract relationships were to be disrupted or terminated. MANUFACTURING RISKS The Company's manufacturing processes are highly complex, require advanced and costly equipment and are continuously being modified in an effort to improve yields and product performance. Impurities or other difficulties in the manufacturing process can lower yields. The Company's manufacturing efficiency will be an important factor in its future profitability, and no assurance can be given that the Company will be able to maintain its manufacturing efficiency or increase manufacturing efficiency to the same extent as its competitors. In addition, as is common in the semiconductor industry, the Company has from time to time experienced difficulty in beginning production at new facilities or in effecting transitions to new manufacturing processes and, consequently, has suffered delays in product deliveries or reduced yields. There can be no assurance that the Company will not experience manufacturing problems in achieving acceptable yields or experience product delivery delays in the future as a result of, among other things, capacity constraints, construction delays, upgrading or expanding existing facilities or changing its process technologies, any of which could result in a loss of future revenues. The Company's operating results could also be adversely affected by the increase in fixed costs and operating expenses related to increases in production capacity if revenues do not increase proportionately. DEPENDENCE ON NATIONAL SEMICONDUCTOR The Company continues to have rights and obligations under the continuing agreements with National Semiconductor. The Fairchild Foundry Services Agreement, pursuant to which National Semiconductor purchases products and services from the Company, will account for a substantial portion of the Company's revenues during the 39 months following the date of consummation of the Transactions. Under the Transition Services Agreement, National Semiconductor has agreed to continue to provide certain administrative services to the Company. Under the Technology Licensing and Transfer Agreement, National Semiconductor has agreed to indemnify the Company against certain losses relating to infringement of intellectual property rights of third parties. Any material adverse change in the purchase requirements of National Semiconductor, in its ability to supply the agreed-upon services, in its ability to fulfill its intellectual property indemnity obligations or in its ability to fulfill its other financial obligations under the 18 continuing agreements could have a material adverse effect on the Company. Although National Semiconductor has retained an equity interest in Fairchild Holdings, and although it has and will continue to have substantial commercial relations with Fairchild, National Semiconductor does not control Fairchild Holdings or Fairchild and is not responsible for Fairchild Holdings' or Fairchild's performance. RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS; FOREIGN CASH FLOWS Fairchild maintains significant operations in Cebu, the Philippines, and Penang, Malaysia. These facilities handle the assembly and test of most of the Company's products. The Company has enjoyed favorable labor, regulatory and tax conditions in both countries; however, the Company's foreign operations are subject to the risks of doing business internationally, such as changes in import duties, trade restrictions, transportation delays, work stoppages, economic and political instability, foreign currency fluctuations, the laws and policies of the United States and of the countries in which the Company's products are manufactured and other factors which could have a material adverse effect on the Company's business and results of operations. Management believes that the loss of its facilities in the Philippines or Malaysia would materially adversely affect the Company's business and results of operations until alternative manufacturing arrangements could be secured. INTELLECTUAL PROPERTY The Company's future success and competitive position depends in part upon its ability to obtain and maintain certain proprietary technology used in its principal products, and the Company relies in part on patent, trade secret, trademark and copyright law to protect that technology. Some of the technology is not covered by any patent or patent application, and there can be no assurance that any of the more than 150 patents owned or thousands of patents licensed by the Company from National Semiconductor will not be invalidated, circumvented, challenged or licensed to others, that the rights granted thereunder will provide competitive advantages to the Company or that any of the Company's pending or future patent applications will be issued with the scope of the claims sought by the Company, if at all. Furthermore, there can be no assurance that others will not develop technologies that are similar or superior to the Company's technology, duplicate the Company's technology or design around the patents owned or licensed by the Company. In addition, effective patent, trademark, copyright and trade secret protection may be unavailable, limited or not applied for in certain foreign countries. Certain of the Company's technology is licensed on a non-exclusive basis from National Semiconductor which may license such technology to others, including competitors of the Company. Under the Technology Licensing and Transfer Agreement, National Semiconductor has limited royalty-free, worldwide license rights (without right to sublicense) to all or some of the Company's technology. See "The Transactions--Technology Licensing and Transfer Agreement." There can be no assurance that steps taken by the Company to protect its technology will prevent misappropriation of such technology. The semiconductor industry is characterized by vigorous protection and pursuit of intellectual property rights or positions, which have resulted in significant and often protracted and expensive litigation. There is no intellectual property litigation currently pending against the Company; however, the Company may from time to time be notified of claims that it may be infringing patents or other intellectual property rights owned by other third parties. If it is necessary or desirable, the Company may seek licenses under such patents or intellectual property rights. However, there can be no assurance that licenses will be offered or that the terms of any offered licenses will be acceptable to the Company. The failure to obtain a license from a third party for technology used by the Company could cause the Company to incur substantial liabilities and to suspend the manufacture or shipment of products or the use by the Company of processes requiring the technology. Litigation could result in significant expense to the Company, adversely affecting sales of the challenged product or technology and diverting the efforts of the Company's technical and management personnel, whether or not such litigation is determined in favor of the Company. In the event of an adverse result in any such litigation, the Company could be required to pay substantial damages, cease the manufacture, use, sale or importation of infringing products, expend 19 significant resources to develop or acquire non-infringing technology, discontinue the use of certain processes or obtain licenses to the infringing technology. There can be no assurance that the Company would be successful in such development or acquisition or that such licenses would be available under reasonable terms, and any such development, acquisition or license could require expenditures by the Company of substantial time and other resources. National Semiconductor has agreed to indemnify the Company for limited periods of time against claims that may be made that the Company's activities infringe the rights of others. See "The Transactions--Technology Licensing and Transfer Agreement." The Company also seeks to protect its proprietary technology, including technology that may not be patented or patentable, in part by confidentiality agreements and, if applicable, inventors' rights agreements with its collaborators, advisors, employees and consultants. There can be no assurance that these agreements will not be breached, that the Company will have adequate remedies for any breach or that such persons or institutions will not assert rights to intellectual property arising out of such research. COMPETITION The semiconductor industry, and the multi-market semiconductor product markets specifically, are highly competitive. Competition is based on price, product performance, quality, reliability and customer service. The gross profit margins realizable in the Company's markets can differ across regions, depending on the economic strength of end-product markets in those regions. In addition, even in strong markets price pressures may emerge as competitors attempt to gain more share by lowering prices on those products. Competition in the various markets served by the Company comes from companies of various sizes, many of which are larger and have greater financial and other resources than the Company and thus can better withstand adverse economic or market conditions than can the Company. In addition, companies not currently in direct competition with the Company may introduce competing products in the future. DEPENDENCE ON KEY PERSONNEL The Company's success depends to a significant degree upon the continued contributions of key management, engineering, sales and marketing, finance and manufacturing personnel, certain of whom would be difficult to replace. The loss of the services of certain of these executives could have an adverse effect on the Company. There can be no assurance that the services of such personnel will continue to be made available. The Company has entered into employment arrangements with certain key executive officers and the Management Investors have invested approximately $6.5 million to purchase approximately 16% of the outstanding capital stock of Fairchild Holdings. See "Management" and "Ownership of Capital Stock." ENVIRONMENTAL LIABILITIES; OTHER GOVERNMENTAL REGULATIONS The Company is subject to various federal, state, local and foreign environmental laws and regulations relating to the discharge, storage, treatment, handling, disposal and remediation of certain materials, substances and wastes used in or resulting from its operations. The Company's operations are also governed by laws and regulations relating to workplace safety and worker health which, among other things, regulate employee exposure to hazardous substances in the workplace. Pursuant to the Asset Purchase Agreement (as defined), National Semiconductor is obligated to indemnify the Company with respect to certain environmental liabilities related to events or activities prior to consummation of the Transactions, subject to certain limitations. See "The Transactions--Asset Purchase Agreement." The nature of the Company's operations expose it to the risk of liabilities or claims with respect to environmental matters, including those relating to the on- and off-site disposal and release of hazardous substances, and there can be no assurance that material costs will not be incurred in connection with such liabilities or claims. 20 Based on the Company's experience to date, management believes that the future cost of compliance with existing environmental and health and safety laws and regulations (and liability for known environmental conditions) will not have a material adverse effect on the Company's business, financial condition or results of operations. However, management cannot predict what environmental or health and safety legislation or regulations will be enacted in the future or how existing or future laws or regulations will be enforced, administered or interpreted, nor can it predict the amount of future expenditures which may be required in order to comply with such environmental or health and safety laws or regulations or to respond to such environmental claims. See "Business--Environmental Matters." OWNERSHIP OF FAIRCHILD HOLDINGS AND THE COMPANY As a result of the Transactions, Sterling and the Management Investors own approximately 85% of the outstanding voting stock of Fairchild Holdings, which owns all of the outstanding capital stock of the Company. By virtue of such stock ownership, such persons have the power to direct the affairs of the Company and are able to determine the outcome of all matters required to be submitted to stockholders for approval, including the election of a majority of the Company's directors and amendment of the Company's Certificate of Incorporation. See "The Transactions" and "Ownership of Capital Stock." RESTRICTIONS IMPOSED BY THE SENIOR CREDIT FACILITIES AND THE INDENTURE The Senior Credit Facilities and the Indenture contain a number of significant covenants that, among other things, restrict the ability of the Company to dispose of assets, incur additional indebtedness, repay other indebtedness, pay dividends, enter into certain investments or acquisitions, repurchase or redeem capital stock, engage in mergers or consolidations, or engage in certain transactions with subsidiaries and affiliates and otherwise restrict corporate activities. There can be no assurance that such restrictions will not adversely affect the Company's ability to finance its future operations or capital needs or engage in other business activities that may be in the interest of the Company. In addition, the Senior Credit Facilities also require the Company to maintain compliance with certain financial ratios. The ability of the Company to comply with such ratios may be affected by events beyond the Company's control. A breach of any of these covenants or the inability of the Company to comply with the required financial ratios could result in a default under the Senior Credit Facilities. In the event of any such default, the lenders under the Senior Credit Facilities could elect to declare all borrowings outstanding under the Senior Credit Facilities, together with accrued interest and other fees, to be due and payable, to require the Company to apply all of its available cash to repay such borrowings or to prevent the Company from making debt service payments on the Notes, any of which would be an Event of Default under the Notes. If the Company were unable to repay any such borrowings when due, the lenders could proceed against their collateral. If the indebtedness under the Senior Credit Facilities (and thus the Notes) or the Notes were to be accelerated, there can be no assurance that the assets of the Company would be sufficient to repay such indebtedness in full. See "Description of the Notes" and "Description of Certain Indebtedness--Senior Credit Facilities." LIMITATION ON A CHANGE OF CONTROL Upon the occurrence of a Change of Control, the Company is obligated to make an offer to purchase all outstanding Notes at a price equal to 101% of the principal amount of the Notes, plus accrued interest thereon. The Credit Agreement prohibits the Company from purchasing any Notes, and also provides that the occurrence of certain Change of Control events with respect to the Company constitutes a default thereunder. In the event of a Change of Control, the Company must offer to repay all borrowings under the Credit Agreement or obtain the consent of its lenders under the Credit Agreement to the purchase of Notes. If the Company does not obtain such a consent or repay such borrowings, the Company would remain prohibited from purchasing Notes. In such case, the Company's failure to purchase tendered Notes would constitute a default under the Indenture, which, in turn, would constitute a default under the Credit Agreement. There can be no assurance that the Company will have the financial ability to purchase the Notes upon the occurrence of a Change of Control. There can be no assurance that the Company will be 21 able to comply with all of its obligations under the Credit Agreement, the Indenture, the Holdings PIK Note and the other indebtedness upon the occurrence of a Change of Control. See "Description of the Notes--Change of Control." LACK OF PUBLIC MARKET The Existing Notes are currently eligible for trading in the PORTAL Market. The Exchange Notes are new securities for which there is no established market. The Company does not intend to list the Exchange Notes on any national securities exchange or to seek the admission thereof to trading in the National Association of Securities Dealers Automated Quotation System. The Initial Purchasers have advised the Company that they currently intend to make a market in the Exchange Notes. However, the Initial Purchasers are not obligated to do so and any market making may be discontinued at any time without notice. There can be no assurance as to the development of any market or the liquidity of any market that may develop for the Exchange Notes. See "Description of the Notes." FRAUDULENT CONVEYANCE The Existing Notes were incurred to finance in part the acquisition of the Fairchild multi-market semiconductor business of National Semiconductor, and Fairchild Holdings guaranteed the Company's obligations under the Existing Notes and will guarantee the Company's obligations under the Exchange Notes. Management believes that the indebtedness of the Company represented by the Notes has been incurred for proper purposes and in good faith, and that, based on present forecasts, asset valuations and other financial information, after the consummation of the Transactions, each of the Company and Fairchild Holdings is solvent, has sufficient capital for carrying on its business and will be able to pay its debts as they mature. See, however, "--Substantial Leverage; Ability to Service Indebtedness." Notwithstanding management's belief, however, under federal or state fraudulent transfer laws, if a court of competent jurisdiction in a suit by an unpaid creditor or a representative of creditors (such as a trustee in bankruptcy or a debtor-in-possession) were to find that, at the time of the incurrence of such indebtedness, the Company or Fairchild Holdings was insolvent, was rendered insolvent by reason of such incurrence, was engaged in a business or transaction for which its remaining assets constituted unreasonably small capital, intended to incur, or believed that it would incur, debts beyond its ability to pay such debts as they matured, or intended to hinder, delay or defraud its creditors, and that the indebtedness was incurred for less than reasonably equivalent value, then such court could, among other things, (a) void all or a portion of Fairchild Holdings' or the Company's obligations to the Holders of the Notes, the effect of which would be that the Holders of the Notes might not be repaid in full and/or (b) subordinate Fairchild Holdings' or the Company's obligations to the Holders of the Notes to other existing and future indebtedness of the Company or Fairchild Holdings to a greater extent than would otherwise be the case, the effect of which would be to entitle such other creditors to which the Notes were not previously subordinated to be paid in full before any payment could be made on the Notes. 22 USE OF PROCEEDS The Company will not receive any proceeds from the Exchange Offer. The gross proceeds to the Company from the sale of the Existing Notes of $300.0 million, together with the $120.0 million from the Revolving Credit Facility and the $77.8 million equity contribution, were used (i) to finance the purchase of Fairchild from National Semiconductor, (ii) to pay fees and expenses relating to the Transactions and (iii) to fund working capital needs of the Company. PRO FORMA CAPITALIZATION The following table sets forth the capitalization of the Company as of February 23, 1997 on a pro forma basis after giving effect to the Transactions. This table should be read in conjunction with "Unaudited Pro Forma Combined Condensed Financial Statements and Unaudited Supplemental Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Combined Financial Statements included elsewhere in this Prospectus.
AT FEBRUARY 23, 1997 --------------- (IN MILLIONS) DEBT: Senior Credit Facilities: Revolving Credit Facility(1).............................................. $ -- Senior Term Facility (including $11.0 million current portion)............ 120.0 10 1/8% Senior Subordinated Notes Due 2007.................................. 300.0 ------ TOTAL DEBT.............................................................. 420.0 STOCKHOLDER'S EQUITY(2): Common Stock $.01 par value; 100 shares issued and outstanding as of February 23, 1997 on a pro forma basis.................................... -- Stockholder's equity........................................................ 14.0 ------ TOTAL STOCKHOLDER'S EQUITY.............................................. 14.0 ------ TOTAL CAPITALIZATION.................................................... $ 434.0 ------ ------
- ------------------------ (1) Borrowings of up to $75.0 million under the Revolving Credit Facility are available to the Company for working capital and general corporate purposes. The Company did not draw upon the Revolving Credit Facility in connection with the Transactions. (2) In addition to the Purchase Price Notes issued by the Company to National Semiconductor, Fairchild Holdings issued the Holdings PIK Note, Holdings Preferred Stock and Holdings Common Stock to National Semiconductor in exchange for all outstanding common stock of Fairchild and $12.8 million. Fairchild Holdings' ability to repay the principal on the Holdings PIK Note is dependent on its ability to generate cash from its investment in Fairchild. 23 UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS The following unaudited pro forma combined condensed financial statements (the "Pro Forma Financial Statements") are based on the historical Combined Financial Statements of Fairchild included elsewhere in this Prospectus adjusted to give effect to the Transactions. The Unaudited Pro Forma Combined Condensed Balance Sheet gives effect to the Transactions as if they had occurred as of February 23, 1997, and the Unaudited Pro Forma Combined Condensed Statements of Operations give effect to the Transactions as if they had occurred as of May 29, 1995. The Transactions and the related adjustments are described in the accompanying notes. The pro forma adjustments are based upon preliminary estimates and certain assumptions that management of the Company believes are reasonable in the circumstances. In the opinion of management, all adjustments have been made that are necessary to present fairly the pro forma data. Final amounts could differ from those set forth below. The Pro Forma Financial Statements should be read in conjunction with the notes included herewith, the Company's Combined Financial Statements and notes thereto as of May 28, 1995 and May 26, 1996 and for each of the Fiscal Years in the three-year period ended May 26, 1996, which have been audited by KPMG Peat Marwick LLP, independent certified public accountants, the Company's unaudited Combined Financial Statements as of February 23, 1997 and for the nine-month periods ended February 23, 1997 and February 25, 1996, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this Prospectus. The Pro Forma Financial Statements do not purport to represent what the Company's results of operations or financial position would have been had the Transactions occurred on the dates specified, or to project the Company's results of operations or financial position for any future period or date.
FISCAL YEAR ENDED MAY 26, 1996 -------------------------- PRO FORMA HISTORICAL ADJUSTMENTS ----------- ------------- UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS: (DOLLARS IN MILLIONS) Revenue Net Sales--trade........................................................................ $ 687.8 Contract manufacturing--National Semiconductor.......................................... 87.6 $ 9.01(a) ----------- ------ 775.4 9.0 Cost of sales Cost of sales--trade.................................................................... 472.7 (1.5)1(b) Cost of contract manufacturing--National Semiconductor.................................. 87.6 ----------- ------ 560.3 (1.5) ----------- ------ Gross profit.............................................................................. 215.1 10.5 Research and development................................................................ 30.3 Selling and marketing................................................................... 65.6 (3.5)1(b) General and administrative.............................................................. 48.4 (3.1)1(b) ----------- ------ Revenues less direct and allocated expenses before other (income) expense and taxes....... 70.8 17.1 Other (income) expense.................................................................. (1.5) Non-cash interest expense............................................................... -- 2.61(d) Cash interest expense................................................................... -- 40.31(e) ----------- ------ Revenue less direct and allocated expenses before taxes................................... $ 72.3 (25.8) ----------- ----------- Provision for income taxes.............................................................. 16.91(f) ------ Revenue less direct and allocated expenses................................................ (42.7) ------ ------ PRO FORMA ------------- UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS: Revenue Net Sales--trade........................................................................ $ 687.8 Contract manufacturing--National Semiconductor.......................................... 96.6 ------ 784.4 Cost of sales Cost of sales--trade.................................................................... 471.2 Cost of contract manufacturing--National Semiconductor.................................. 87.6 ------ 558.8 ------ Gross profit.............................................................................. 225.6 Research and development................................................................ 30.3 Selling and marketing................................................................... 62.1 General and administrative.............................................................. 45.3 ------ Revenues less direct and allocated expenses before other (income) expense and taxes....... 87.9 Other (income) expense.................................................................. (1.5) Non-cash interest expense............................................................... 2.6 Cash interest expense................................................................... 40.3 ------ Revenue less direct and allocated expenses before taxes................................... 46.5 Provision for income taxes.............................................................. 16.9 ------ Revenue less direct and allocated expenses................................................ $ 29.6 ------ ------
See accompanying notes to unaudited pro forma combined condensed statements of operations. 24
NINE MONTHS ENDED FEBRUARY 23, 1997 ------------------------------------------- PRO FORMA UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS: HISTORICAL ADJUSTMENTS PRO FORMA ---------- ------------ ------------ (DOLLARS IN MILLIONS) Revenue Net sales--trade.............................................................. $433.9 $ 433.9 Contract manufacturing--National Semiconductor................................ 75.8 $ 5.11(a) 80.9 ---------- ------ ------------ 509.7 5.1 514.8 Cost of sales Cost of sales--trade.......................................................... 332.4 (0.6)1(b) 331.8 Cost of contract manufacturing--National Semiconductor........................ 75.8 75.8 ---------- ------ ------------ 408.2 (0.6) 407.6 ---------- ------ ------------ Gross profit.................................................................... 101.5 5.7 107.2 Research and development...................................................... 13.6 13.6 Selling and marketing......................................................... 33.5 33.5 General and administrative.................................................... 39.1 (15.7)1(b,c) 23.4 Restructuring................................................................. 5.3 5.3 ---------- ------ ------------ Revenue less direct and allocated expenses before other (income) expense and taxes......................................................................... 10.0 21.4 31.4 Other (income) expense........................................................ 0.4 0.4 Non-cash interest expense..................................................... -- 1.71(d) 1.7 Cash interest expense......................................................... -- 29.71(e) 29.7 ---------- ------ ------------ Revenue less direct and allocated expenses before taxes......................... $ 9.6 (10.0) (0.4) ---------- ---------- Provision for income taxes.................................................... (0.1)1(f) (0.1) ------ ------------ Revenue less direct and allocated expenses...................................... $ (9.9) $ (0.3) ------ ------------ ------ ------------
See accompanying notes to unaudited pro forma combined condensed statements of operations. 25 NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS 1 The Unaudited Pro Forma Combined Condensed Statements of Operations give effect to the following adjustments: (a) Reflects the increase in contract manufacturing revenue from National Semiconductor under the terms of the Manufacturing Agreements (as defined) between the Company and National Semiconductor. Historically, the services to be provided by Fairchild under the Manufacturing Agreements have been provided at cost. However, the terms of the Manufacturing Agreements (i) require National Semiconductor to purchase at least $330.0 million of goods and services from Fairchild during the first 39 months after the Transactions are consummated and (ii) are designed to generate a 20% gross profit for the Company subject to a biannual price adjustment based on actual wafer costs for the previous six months, except that the prices cannot be adjusted upward. The pro forma adjustment represents the wafer prices as stated in the Agreement applied to the historical unit volume, and compared to actual costs. See "The Transactions--Manufacturing Agreements." There is no pro forma adjustment with respect to the agreement concerning sales from National Semiconductor to the Company. That agreement provides for a pricing arrangement identical to that described above, except that guaranteed volume levels are significantly lower than historical volume levels. If the prices as stated in such Agreement were applied to the historical unit volume, the result would be that the Company would have recorded lower costs of sales primarily because historical product mix and volume is not indicative of that considered by such agreement. (b) Historically, National Semiconductor has allocated the costs of corporate services, generally based on a percentage of sales or a relevant usage base. Certain of these services are expected to continue to be provided by National Semiconductor to Fairchild based on the Transition Services Agreement, on terms which are generally more favorable to the Company than represented by such historical allocations. The adjustment represents the difference between amounts previously allocated by National Semiconductor for these services and the amounts which would have been paid to National Semiconductor had the Transition Services Agreement been in effect since May 29, 1995 for those services covered thereby and for which the price is fixed and for which the historical costs are determinable. These adjustments can be summarized as follows:
FISCAL YEAR NINE MONTHS ENDED ENDED MAY 26, FEBRUARY 23, 1996 1997 ----------- --------------- (IN MILLIONS) Logistical warehousing, planning and quality assurance services................................. $ 1.5 $ 0.6 Regional and corporate sales and marketing services............................................. 3.5 -- Regional and corporate finance, human resources and general and administrative services......... 3.1 1.6 ----------- --- $ 8.1 $ 2.2 ----------- --- ----------- ---
(c) In the nine months ended February 23, 1997, Fairchild recorded charges of $14.1 million, primarily related to retention and incentive bonuses to key employees which were directly related to the Transactions. The adjustment reflects the elimination of such non-recurring retention bonuses accrued for employees in the nine-months ended February 23, 1997. These bonuses will be paid by National Semiconductor. (d) Represents non-cash interest expense of $2.6 million and $1.7 million in the Fiscal Year ended May 26, 1996, and the nine months ended February 23, 1997 representing the amortization of debt issuance costs of $20.6 million using the effective interest method. (e) Represents estimated cash interest expense from the use of borrowings to finance the Transactions and future working capital requirements.
FISCAL YEAR NINE MONTHS ENDED ENDED MAY 26, FEBRUARY 23, 1996 1997 ----------- ------------- (IN MILLIONS) Interest on Notes (10.125% on $300 million)..................................................... $ 30.4 $ 22.8 Interest on borrowings under the Senior Credit Facilities at LIBOR (5.5625%) plus: Term A 2.50% (8.0625% on $75.0 million)..................................................... 5.7 3.8 Term B 3.00% (8.5625% on $45.0 million)..................................................... 3.8 2.8 Commitment fee of 1/2% on unused Revolving Credit Facility...................................... 0.4 0.3 ----------- ------ $ 40.3 $ 29.7 ----------- ------ ----------- ------
(f) Represents the pro forma income tax provision as if the Company were a stand-alone entity, assuming certain non U.S. income is invested indefinitely outside the United States. 26 FAIRCHILD SEMICONDUCTOR CORPORATION UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET FEBRUARY 23, 1997 (IN MILLIONS)
ADJUSTMENTS TO REFLECT ENTITY ENTITY PRO FORMA HISTORICAL RECAPITALIZED RECAPITALIZED ADJUSTMENTS --------- ---------------------- ------------ ----------- Current assets: Cash...................................................... $ -- $ $ -- $ 71.4 Inventories............................................... 67.3 67.3 Prepaids and other........................................ 8.6 8.6 Miscellaneous receivables................................. 9.6 (9.6) 1 -- --------- ----------- ------------ ----------- Total current assets.................................... 85.5 (9.6) 75.9 71.4 Property, plant and equipment............................... 303.8 303.8 Deferred income taxes....................................... -- -- 25.0 Other assets................................................ 0.9 0.9 20.6 --------- ----------- ------------ ----------- Total assets............................................ $ 390.2 (9.6) $ 380.6 $ 117.0 --------- ----------- ------------ ----------- --------- ----------- ------------ ----------- Current liabilities Revolving credit facility................................. $ -- $ $ -- $ Current portion of bank debt.............................. -- -- 11.0 Accounts payable.......................................... 41.3 (12.2) 1 29.1 Accrued expenses.......................................... 21.1 13.4 1 34.5 Special reserves.......................................... 13.8 (13.8) 1 -- --------- ----------- ------------ ----------- Total current liabilities............................... 76.2 (12.6) 63.6 11.0 Long term bank debt, less current portion................................................... -- -- 109.0 Senior Notes................................................ -- -- 300.0 Deferred income taxes....................................... -- -- --------- ----------- ------------ ----------- Total liabilities....................................... 76.2 (12.6) 63.6 420.0 Business equity/Stockholder's equity: Business equity............................................. 314.0 3.0 1 317.0 (317.0) Common Stock ($0.01 par value, no shares authorized, issued and outstanding at February 23, 1997; 100 shares authorized, issued and outstanding on a pro forma basis).. -- -- Stockholder's equity........................................ -- -- 14.0 --------- ----------- ------------ ----------- Total liabilities and business equity/stockholder's equity................................................ $ 390.2 $ (9.6) $ 380.6 $ 117.0 --------- ----------- ------------ ----------- --------- ----------- ------------ ----------- PRO FORMA ----------- Current assets: Cash...................................................... 2(a) $ 71.4 Inventories............................................... 67.3 Prepaids and other........................................ 8.6 Miscellaneous receivables................................. -- ----------- Total current assets.................................... 147.3 Property, plant and equipment............................... 303.8 Deferred income taxes....................................... 2(h) 25.0 Other assets................................................ 2(d) 21.5 ----------- Total assets............................................ $ 497.6 ----------- ----------- Current liabilities Revolving credit facility................................. $ -- Current portion of bank debt.............................. 2(b) 11.0 Accounts payable.......................................... 29.1 Accrued expenses.......................................... 34.5 Special reserves.......................................... -- ----------- Total current liabilities............................... 74.6 Long term bank debt, less current portion................................................... 2(b) 109.0 Senior Notes................................................ 2(c) 300.0 Deferred income taxes....................................... -- ----------- Total liabilities....................................... 483.6 Business equity/Stockholder's equity: Business equity............................................. 2(i) -- Common Stock ($0.01 par value, no shares authorized, issued and outstanding at February 23, 1997; 100 shares authorized, issued and outstanding on a pro forma basis).. -- Stockholder's equity........................................ 2(j) 14.0 ----------- Total liabilities and business equity/stockholder's equity................................................ $ 497.6 ----------- -----------
See accompanying notes to unaudited pro forma combined condensed balance sheet. 27 NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET 1 Adjustments to the Company's historical Combined Balance Sheet as of February 23, 1997 to reflect the elimination of $9.6 million of receivables and $27.2 million of liabilities which are excluded from the Transactions and to reflect the assumption of $14.6 million in liabilities for distributor accounts receivable reserves which are not included in the historical balance sheet. 2 The Unaudited Pro Forma Combined Condensed Balance Sheet gives effect to the following pro forma adjustments: (a) Represents the pro forma net increase in cash as a result of the following:
AMOUNT ------------- (IN MILLIONS) Proceeds from Senior Term Facility.......................................................... $ 120.0(b) Proceeds from the Notes..................................................................... 300.0(c) Deferred debt issuance costs................................................................ (20.6)(d) Cash paid to National Semiconductor......................................................... (401.6)(e) Capital contribution from Fairchild Holdings................................................ 77.8(f) Equity transaction fees..................................................................... (4.2)(g) ------------- $ 71.4 ------------- -------------
(b) Represents proceeds of $120.0 million received from 5-year and 7-year term loan borrowings at the LIBOR rate plus 2.5% and 3.0%, respectively. Interest rates of 8.06% and 8.56%, respectively, were used for purposes of calculating pro forma interest expense. The current portion of the term loan borrowings is $11.0 million. (c) Represents the proceeds received from the issuance of the Notes of $300.0 million at an interest rate of 10.125%. (d) Represents deferred debt issuance costs primarily comprised of underwriting, commitment and professional fees of $20.6 million associated with the Senior Credit Facilities and the Notes. (e) Represents cash paid to National Semiconductor of $401.6 million in exchange for National Semiconductor's transfer of the assets and assumed liabilities to Fairchild. See notes 2(i) and 2(j). National Semiconductor also received 100 shares of $.01 par value common stock in Fairchild which represents all of the outstanding common stock of Fairchild. The cash distribution to National Semiconductor is subject to a dollar for dollar adjustment to the extent that the Closing Inventory Amount is greater or less than the amount of inventory on a pro forma basis after giving effect to the Transactions on February 23, 1997 of $67.3 million. See "The Transactions-- Recapitalization Agreement." (f) Represents a capital contribution of $77.8 million from Fairchild Holdings. Fairchild Holdings received $77.8 million from Sterling, National Semiconductor and the Management Investors as follows. See note 2(j):
AMOUNT --------------- (IN MILLIONS) Received from Sterling in exchange for 53,113 shares of Holdings Preferred Stock, 3,553,000 shares of Holdings Class A Stock and 7,163,880 shares of Holdings Class B Stock........... $ 58.5 Received from National Semiconductor in exchange for 11,667 shares of Holdings Preferred Stock, 1,095,000 shares of Holdings Class A Stock and 1,245,000 shares of Holdings Class B Stock and the $77.0 million Holdings PIK Note from Fairchild Holdings..................... 12.8* Received from the Management Investors in exchange for 5,220 shares of Holdings Preferred Stock and 2,543,120 shares of Holdings Class A Stock...................................... 6.5 ----- $ 77.8 ----- -----
------------------------------------- *National Semiconductor also transferred 100 shares of Fairchild common stock to Fairchild Holdings. (g) Represents expenses of $4.2 million relating to the redemption of old common stock in Fairchild and the issuance of Holdings Preferred Stock, Holdings Class A Stock and Holdings Class B Stock. See note 2(j). (h) The asset purchase included in the Transactions qualifies as a taxable event for U.S. federal income tax purposes. The pro forma adjustment represents the estimated deferred tax asset of $45.0 million related to the difference between the tax basis and the book basis of assets and liabilities as of February 23, 1997 after giving pro forma effect to the Transactions, net of a valuation allowance of $20.0 million. (i) Represents the pro forma elimination of business equity of $317.0 million as a result of the portion of the cash paid to National Semiconductor of $401.6 million attributable to business equity. See notes 2(e) and 2(j). (j) Represents the pro forma stockholder's equity resulting from the following:
AMOUNT ------------- (IN MILLIONS) The excess of the $401.6 million paid to National Semiconductor over the $317.0 million attributable to business equity........................................................ $ (84.6)(e)(i) Capital contribution from Fairchild Holdings............................................. 77.8(f) Equity transaction fees.................................................................. (4.2)(g) Deferred tax asset....................................................................... 25.0(h) ------ $ 14.0 ------ ------
28 UNAUDITED SUPPLEMENTAL FINANCIAL DATA The Pro Forma Combined Financial Statements included elsewhere herein give effect to certain pro forma adjustments to historical amounts as described in the notes to such data. In evaluating the Notes, investors should consider additional supplemental financial data which are summarized below. The Unaudited Supplemental Financial Data reflect (i) certain pro forma adjustments and (ii) management's estimates of certain cost savings which management believes will be attained as a result of the Transactions. See "Disclosure Regarding Forward Looking Statements."
FISCAL YEAR NINE MONTHS ENDED ENDED MAY 26, FEBRUARY 23, 1996 1997 ----------- ------------- (IN MILLIONS) Historical EBITDA(1).............................................................. $ 135.0 $ 66.7 Pro forma adjustments before interest and taxes(2): Manufacturing Agreements...................................................... 9.0 5.1 Transition Services Agreement................................................. 8.1 2.2 Elimination of retention bonuses.............................................. -- 14.1 ----------- ------------- Total pro forma adjustments before interest and taxes....................... 17.1 21.4 Management's estimate of cost savings, cost eliminations and increased gross margins which are anticipated on a stand-alone basis: Cost of sales(3).............................................................. 10.6 5.0 Research and development(4)................................................... 7.9 (2.7) Selling, general and administrative(5)........................................ 30.3 1.1 Restructuring charge(6)....................................................... -- 5.3 Additional volume from Manufacturing Agreements(7)............................ 5.3 6.5 ----------- ------------- Adjusted EBITDA................................................................... $ 206.2 $ 103.3 ----------- ------------- ----------- ------------- Ratio of EBITDA to cash interest expense(8)....................................... 5.1x 3.5x Ratio of debt to Adjusted EBITDA(9)............................................... 2.0x --
(1) EBITDA is defined as the sum of revenue less direct and allocated expenses before other (income) expense, interest expense, taxes and depreciation and amortization. EBITDA is presented because the Company believes that it is a widely accepted financial indicator of an entity's ability to incur and service debt. EBITDA should not be considered by an investor as an alternative to net income or income from operations, as an indicator of the operating performance of the Company or other combined operations or cash flow data prepared in accordance with generally accepted accounting principles or as an alternative to cash flows as a measure of liquidity. Depreciation and amortization for purposes of the EBITDA calculation includes amortization for tooling. Tooling is classified as a current asset in the financial statements of the Company and amortization thereof is not included in depreciation and amortization for purposes of calculating cash flows from operating activities, nor are cash outflows for tooling included in capital expenditures for purposes of calculating cash flows from investing activities. Tooling amortization included in EBITDA totaled $2.2 million, $2.9 million, $5.7 million, $5.6 million, $6.6 million, $4.4 million, and $5.9 million for the Fiscal Years 1992 through 1996, and for the nine months ended February 25, 1996, and February 23, 1997, respectively. Tooling expenditures totaled $3.4 million, $5.5 million, $6.1 million, $5.2 million, $8.6 million, $6.1 million and $4.8 million for the same periods. (2) See notes to Unaudited Pro Forma Combined Condensed Statements of Operations. (3) COST OF SALES. The estimated cost savings relating to cost of sales include: (i) elimination of indirect National Semiconductor logistic expenses and allocated information systems expenses that management does not intend to replicate after consummation of the Transactions; (ii) elimination of expenses related to the transfer of production of certain Fairchild products from a National Semiconductor manufacturing facility to a Fairchild manufacturing facility; and (iii) elimination of indirect National Semiconductor planning and quality assurance expenses that management does not intend to replicate after consummation of the Transactions. (4) RESEARCH AND DEVELOPMENT. Historically, National Semiconductor allocated research and development costs to Fairchild based primarily on forecasted unit manufacturing volume. For Fiscal Year 1996, such allocation methodology resulted in charges greater than Fairchild's research and development needs, primarily because Fairchild's products are more standardized, have longer lives and require lower development expense than National Semiconductor's products generally. The estimated cost savings (increase) are primarily attributable to the excess of allocated research and development costs over the Company's estimate of the research and development costs necessary to replace such services on a stand-alone basis. During Fiscal Year 1997, National Semiconductor reduced its allocations to reflect the redirection of National Semiconductor's research and development spending away from Fairchild, resulting in lower charges than management expects to incur on a stand-alone basis. (5) SELLING, GENERAL AND ADMINISTRATIVE. National Semiconductor allocated selling, general and administrative expenses to the Company based on sales and net assets, both of which resulted in allocations to the Company greater than the expenses necessary on a stand-alone basis. The Company's multi-market, standardized products require a 29 UNAUDITED SUPPLEMENTAL FINANCIAL DATA generally lower level of marketing and application engineering support than the products of National Semiconductor. In addition, the cost savings represent general and administrative allocations that the Company will not replicate, such as certain corporate oversight and administrative services currently provided by National Semiconductor. (6) RESTRUCTURING CHARGE. The non-recurring charge was taken to reflect the costs associated with the Company's cost reduction initiative. The associated cash outlays relating to such charges have been paid by National Semiconductor in the nine months ended February 23, 1997. (7) ADDITIONAL VOLUME FROM MANUFACTURING AGREEMENTS. Under the terms of the Manufacturing Agreements, National Semiconductor's committed volume requirements are higher than its historical usage. Had such higher committed volume requirements been fulfilled by Fairchild, the Company would have had lower fixed production costs per unit and, in turn, higher gross margins. See "The Transactions--Manufacturing Agreements." (8) The ratio of Adjusted EBITDA to net cash interest expense is defined as Adjusted EBITDA divided by cash interest expense which is summarized in Note 1(e) to the Unaudited Pro Forma Combined Condensed Statements of Operations. (9) The ratio of debt to Adjusted EBITDA is defined as the $420.0 million in pro forma debt outstanding as of February 23, 1997 divided by Adjusted EBITDA. 30 SELECTED COMBINED FINANCIAL DATA The following table sets forth selected historical combined financial data with respect to Fairchild. The historical combined financial data as of May 28, 1995 and May 26, 1996 and for the three fiscal years ended May 26, 1996 are derived directly from the audited Combined Financial Statements of Fairchild included elsewhere in this Prospectus. The historical combined financial data as of February 23, 1997 and for the nine months ended February 25, 1996 and February 23, 1997 are derived directly from the unaudited Combined Financial Statements of Fairchild included elsewhere in this Prospectus. The historical combined financial data as of May 31, 1992, May 30, 1993, May 29, 1994 and February 25, 1996 and for the Fiscal Years ended May 31, 1992 and May 30, 1993 are derived from unaudited combined financial statements of Fairchild that are not included in this Prospectus. Such unaudited combined financial statements, in the opinion of management, include all adjustments necessary for the fair presentation of the financial condition and the results of operations of Fairchild for such periods and as of such dates. Operating results for the nine months ended February 23, 1997 are not necessarily indicative of the results of operations that may be expected for Fiscal Year 1997. This information should be read in conjunction with the Combined Financial Statements of Fairchild included elsewhere in this Prospectus and "Management's Discussion and Analysis of Financial Condition and Results of Operations."
NINE MONTHS ENDED FISCAL YEAR ------------- ----------------------------------------------------- FEBRUARY 25, 1992 1993 1994 1995 1996 1996 --------- --------- --------- --------- --------- ------------- (DOLLARS IN MILLIONS) HISTORICAL STATEMENT OF OPERATIONS DATA: Revenue........................................... $ 535.7 $ 620.0 $ 716.6 $ 680.3 $ 775.4 $ 596.6 Gross profit...................................... 84.5 124.0 248.3 203.8 215.1 176.4 Research and development.......................... 30.9 24.5 27.4 31.0 30.3 22.7 Selling and marketing............................. 46.5 44.7 55.0 56.8 65.6 50.0 General and administrative........................ 24.4 24.7 42.3 43.5 48.4 37.6 Restructuring..................................... 18.0 -- -- -- -- -- Revenues less direct and allocated expenses before other (income) expense and taxes................. (35.3) 30.1 123.6 72.5 70.8 66.1 OTHER FINANCIAL DATA: REVENUE: Logic............................................. $ 306.5 $ 326.6 $ 393.8 $ 327.7 $ 338.6 $ 261.9 Discrete.......................................... 65.8 67.2 80.0 116.4 175.0 135.2 Memory............................................ 109.0 148.9 185.1 185.5 174.2 135.8 Contract manufacturing services................... 54.4 77.3 57.7 50.7 87.6 63.7 --------- --------- --------- --------- --------- ------------- Total revenue............................... $ 535.7 $ 620.0 $ 716.6 $ 680.3 $ 775.4 $ 596.6 --------- --------- --------- --------- --------- ------------- --------- --------- --------- --------- --------- ------------- Depreciation and amortization..................... $ 32.9 $ 31.4 $ 33.0 $ 39.1 $ 57.6 $ 40.5 Capital expenditures.............................. $ 26.0 $ 34.0 $ 88.2 $ 112.9 $ 153.9 $ 120.7 Ratio of earnings to fixed charges(1)............. --(2) 11.7x 84.7x 75.3x 46.2x 57.3x Fairchild Holdings ratio of earnings to combined fixed charges(3)................................. --(2) 11.7x 84.7x 75.3x 46.2x 57.3x HISTORICAL BALANCE SHEET DATA (END OF PERIOD): Inventories....................................... $ 77.5 $ 55.0 $ 60.9 $ 68.8 $ 93.1 $ 96.3 Total assets...................................... 187.8 175.5 233.0 323.2 432.7 422.2 Total business equity............................. 140.6 100.8 161.1 233.2 349.2 346.8 FEBRUARY 23, 1997 ------------- HISTORICAL STATEMENT OF OPERATIONS DATA: Revenue........................................... $ 509.7 Gross profit...................................... 101.5 Research and development.......................... 13.6 Selling and marketing............................. 33.5 General and administrative........................ 39.1 Restructuring..................................... 5.3 Revenues less direct and allocated expenses before other (income) expense and taxes................. 10.0 OTHER FINANCIAL DATA: REVENUE: Logic............................................. $ 210.4 Discrete.......................................... 118.1 Memory............................................ 105.4 Contract manufacturing services................... 75.8 ------------- Total revenue............................... $ 509.7 ------------- ------------- Depreciation and amortization..................... $ 50.8 Capital expenditures.............................. $ 36.7 Ratio of earnings to fixed charges(1)............. 8.4x Fairchild Holdings ratio of earnings to combined fixed charges(3)................................. 8.4x HISTORICAL BALANCE SHEET DATA (END OF PERIOD): Inventories....................................... $ 67.3 Total assets...................................... 390.2 Total business equity............................. 314.0
- ------------------------------ (1) Earnings consist of revenue less direct and allocated expenses before taxes plus fixed charges. Fixed charges consists of interest expense on debt and amortization of deferred debt issuance costs, and the portion (approximately one-third) of rental expense that the Company believes is representative of the interest component of rental expense. For Fiscal Year 1996, on a pro forma basis after giving effect to the Transactions, the ratio of earnings to fixed charges was 2.0x. For the nine months ended February 23, 1997, on a pro forma basis after giving effect to the Transactions, earnings were inadequate to cover fixed charges by $0.4 million. (2) Earnings for Fiscal Year 1992 were inadequate to cover fixed charges by $34.8 million. (3) Earnings consist of Fairchild Holdings revenue less direct and allocated expenses before taxes plus fixed charges. Combined Fixed Charges consist of interest expense on debt and amortization of deferred debt issuance costs, preferred dividends and the portion (approximately one-third) of rental expense that the Company believes is representative of the interest component of rental expense. For Fiscal Year 1996, on a pro forma basis after giving effect to the Transactions, the Fairchild Holdings ratio of earnings to combined fixed charges was 1.5x. For the nine months ended February 23, 1997, on a pro forma basis after giving effect to the Transactions, earnings were inadequate to cover combined fixed charges by $15.1 million. 31 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the Combined Financial Statements of the Company included elsewhere in this Prospectus. The Company generally accounts for its revenue by major product group (logic, discrete and memory); however, the Company separately accounts for its revenue from National Semiconductor as contract manufacturing services. Revenue by product group, referred to as "trade sales," represent sales of products to unaffiliated purchasers at market prices, while contract manufacturing services have historically been provided at cost to National Semiconductor. OVERVIEW The following table sets forth the composition of historical revenue by product group and contract manufacturing services, as a percentage of total revenues:
FISCAL YEAR ENDED ------------------------------------- MAY 29, MAY 28, MAY 26, 1994 1995 1996 ----------- ----------- ----------- Logic........................................................... 55.0% 48.1% 43.7% Discrete........................................................ 11.2 17.1 22.6 Memory.......................................................... 25.8 27.3 22.5 Contract manufacturing services................................. 8.0 7.5 11.2 ----- ----- ----- 100.0% 100.0% 100.0% ----- ----- ----- ----- ----- -----
Fairchild is renowned as one of the pioneering companies of the semiconductor industry. Fairchild invented the planar process of manufacturing semiconductors, regarded as one of the most significant achievements in the semiconductor industry since the invention of the transistor. These early innovations form the base of a rich company history. Acquired in 1979 by Schlumberger, Fairchild continued to innovate, introducing logic products such as FAST-Registered Trademark- (Fairchild Advanced Schottky Technology) and FACT-TM- (Fairchild Advanced CMOS Technology), which remain industry standard products today. In 1987, Fairchild was acquired by National Semiconductor and integrated into its operations. Today, Fairchild produces standard logic products, historically a core business of Fairchild, and discrete and non-volatile memory products, historically multi-market businesses within National Semiconductor. In the aggregate, revenue from these product groups represented 92.0%, 92.5% and 88.8% of total revenue in Fiscal Years 1994, 1995 and 1996, respectively. The remainder of the Company's revenue, representing 8.0%, 7.5% and 11.2% of total revenue in Fiscal Years 1994, 1995 and 1996, respectively, was derived from contract manufacturing services for National Semiconductor. Historically, these services were provided at cost. Today, as a result of the Transactions, National Semiconductor and Fairchild each provide the other with certain manufacturing and assembly and test services. National Semiconductor is required to purchase not less than $330.0 million of services from the Company during the first 39 months after the consummation of the Transactions at prices designed to generate a 20% gross profit for the Company, subject to certain conditions and adjustments. See "Risk Factors--Use of Assumptions to Estimate Future Operating Results" and "The Transactions--Manufacturing Agreements." The continuing relationship between National Semiconductor and the Company during this period will provide an assured base of capacity utilization for Fairchild's facilities. See "Risk Factors--Dependence on National Semiconductor." As a stand-alone company, management intends to leverage Fairchild's strength in high-volume, low-cost manufacturing, and its strong position in the markets it serves, to be the premier global supplier of logic, discrete and memory multi-market products. As the only dedicated supplier of logic, discrete and memory products in the industry, management will focus the Company's efforts on being the supplier of choice for its customers. While maintaining and leveraging its strength in bipolar logic, EPROMs and small 32 signal discretes, the Company intends to focus its product development efforts to build upon its strong position in the growing CMOS logic, EEPROM and DMOS Power MOSFET markets. See "Business-- Business Strategy." QUARTERLY RESULTS The following table sets forth the unaudited historical quarterly trade sales and trade gross profits of Fairchild's product groups:
FISCAL FISCAL YEAR 1995 FISCAL YEAR 1996 YEAR 1997 ------------------------------------------ ------------------------------------------ --------- Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 --------- --------- --------- --------- --------- --------- --------- --------- --------- (DOLLARS IN MILLIONS) TRADE SALES: Logic......................... $ 74.0 $ 82.6 $ 78.7 $ 92.4 $ 92.3 $ 91.8 $ 77.8 $ 76.7 $ 66.7 Discrete...................... 25.0 27.2 28.4 35.8 44.8 48.1 42.3 39.8 35.8 Memory........................ 45.1 43.7 45.5 51.2 48.0 50.8 37.0 38.4 30.2 --------- --------- --------- --------- --------- --------- --------- --------- --------- Total......................... $ 144.1 $ 153.5 $ 152.6 $ 179.4 $ 185.1 $ 190.7 $ 157.1 $ 154.9 $ 132.7 --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- GROSS PROFIT: Logic......................... $ 25.3 $ 26.4 $ 25.7 $ 34.2 $ 34.3 $ 34.3 $ 20.5 $ 16.4 $ 12.0 Discrete...................... 8.7 9.2 10.3 14.6 20.0 20.5 17.1 14.1 10.5 Memory........................ 13.9 13.6 10.1 11.8 10.4 12.7 6.6 8.2 7.1 --------- --------- --------- --------- --------- --------- --------- --------- --------- Total......................... $ 47.9 $ 49.2 $ 46.1 $ 60.6 $ 64.7 $ 67.5 $ 44.2 $ 38.7 $ 29.6 --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- GROSS PROFIT PERCENTAGE: Logic......................... 34.2% 32.0% 32.7% 37.0% 37.2% 37.4% 26.4% 21.4% 18.0% Discrete...................... 34.8 33.8 36.3 40.8 44.6 42.6 40.4 35.4 29.3 Memory........................ 30.8 31.1 22.2 23.0 21.7 25.0 17.8 21.4 23.5 Total......................... 33.2% 32.1% 30.2% 33.8% 35.0% 35.4% 28.1% 25.0% 22.3% Q2 Q3 --------- --------- TRADE SALES: Logic......................... $ 74.6 $ 69.1 Discrete...................... 39.7 42.6 Memory........................ 39.6 35.6 --------- --------- Total......................... $ 153.9 $ 147.3 --------- --------- --------- --------- GROSS PROFIT: Logic......................... $ 18.6 $ 15.5 Discrete...................... 11.1 13.3 Memory........................ 6.6 6.8 --------- --------- Total......................... $ 36.3 $ 35.6 --------- --------- --------- --------- GROSS PROFIT PERCENTAGE: Logic......................... 24.9% 22.4% Discrete...................... 28.0 31.2 Memory........................ 16.7 19.1 Total......................... 23.6% 24.2%
The above table illustrates the cyclical and seasonal nature of Fairchild's financial performance, although management believes Fairchild is less susceptible to cyclicality than the semiconductor industry as a whole. The industry is characterized by periods of strong demand and fully-utilized manufacturing capacity, as well as occasional periods of sluggish demand and excess capacity. The Company's third fiscal quarter (December through February) is generally the industry's weakest period as sales decline due to holidays throughout the world and the practice of many manufacturers to work off inventories. Conversely, the Company's fourth fiscal quarter (March through May) is generally the strongest period as manufacturers return to normal buying patterns. Demand strengthened through Fiscal Year 1995 and into the first half of Fiscal Year 1996, driven by a robust personal computer market and the introduction of Windows 95-TM-. During this time, the Book-to-Bill, a key indicator of the health of the semiconductor industry, was approximately 1.13, which is a historically average level. In the second half of Fiscal Year 1996 and into the first quarter of Fiscal Year 1997, trade sales and gross profits fell across all product groups, driven by excess inventories held by personal computer manufacturers. The semiconductor market as a whole weakened during this period, as the Book-to-Bill dropped to approximately 0.96 during the period between December 1995 and August 1996. Fairchild's operating results, and the industry as a whole, rebounded in the second quarter of Fiscal Year 1997. In the third quarter of Fiscal Year 1997, Fairchild experienced the normal seasonal decline in its revenues, though gross profit as a percentage of trade sales continues to improve. 33 RESULTS OF OPERATIONS Trade sales data of the Company set forth in this Prospectus excludes revenue from contract manufacturing services. The following table sets forth certain financial statement data expressed as a percentage of trade sales:
FISCAL YEAR ENDED NINE MONTHS ENDED ------------------------------------- ---------------------------- MAY 29, MAY 28, MAY 26, FEBRUARY 25, FEBRUARY 23, 1994 1995 1996 1996 1997 ----------- ----------- ----------- ------------- ------------- Trade sales............................................. 100.0% 100.0% 100.0% 100.0% 100.0% Cost of trade sales..................................... 62.3 67.6 68.7 66.9 76.6 Gross profit............................................ 37.7 32.4 31.3 33.1 23.4 Research and development................................ 4.2 5.0 4.4 4.3 3.1 Selling, general and administrative..................... 14.8 15.9 16.6 16.4 16.8 Restructuring........................................... -- -- -- -- 1.2 Revenue less direct and allocated expenses before other (income) expense and taxes............................ 18.7 11.5 10.3 12.4 2.3 Other (income) expense.................................. (0.3) (0.3) (0.2) (0.3) 0.1 Revenue less direct and allocated expenses before taxes................................................. 19.0 11.8 10.5 12.7 2.2
NINE MONTHS ENDED FEBRUARY 23, 1997 COMPARED TO NINE MONTHS ENDED FEBRUARY 25, 1996 TRADE SALES. The Company's trade sales for the nine months ended February 23, 1997 were $433.9 million, as compared to $532.9 million for the nine months ended February 25, 1996, a decrease of 18.6%. The decrease was due to depressed prices resulting from the worldwide semiconductor market slowdown which started in the second half of Fiscal Year 1996 and affected all of the Company's product groups. Logic, discrete and memory trade sales for the nine months ended February 23, 1997, were down 20%, 13% and 22%, respectively, from the nine months ended February 25, 1996. The decline in logic trade sales was primarily price driven, as unit volumes increased slightly. Discrete trade sales decreased due mainly to lower volume, offset by higher prices as a result of a greater mix of DMOS Power MOSFET sales. Memory trade sales were depressed due to lower prices and lower unit volume, due in part to Fairchild's attempt to regain EPROM market share which it had lost as a result of National Semiconductor's announcement in the Spring of 1995 that it intended to exit the EPROM market in a strategic decision to emphasize customized products. Upon announcement of its intention to re-establish Fairchild as a stand-alone entity, National Semiconductor announced its intention that Fairchild would remain in the EPROM market. Overall, bookings rates began to pick up in the second quarter of Fiscal Year 1997, and management expects a modest recovery for the remainder of Fiscal Year 1997, although still below the results experienced in the first half of Fiscal Year 1996. Geographically, 39%, 19% and 42% of trade sales were derived from North America, Europe and Asia/Pacific, respectively, in the nine months ended February 23, 1997, as compared to 37%, 24% and 39% in the nine months ended February 25, 1996. Total revenue for the nine months ended February 23, 1997 was $509.7 million, as compared to $596.6 million for the nine months ended February 25, 1996, including $75.8 million and $63.7 million, respectively, of contract manufacturing revenue, which was provided at cost to National Semiconductor. The increase was due to greater overall capacity in the 6-inch fab in South Portland, Maine, which was used in part by the Company to produce additional products for National Semiconductor. GROSS PROFIT. Gross profit for the nine months ended February 23, 1997 was $101.5 million, as compared to $176.4 million for the nine months ended February 25, 1996, a decrease of 42.5%. As a percentage of trade sales, gross profit was 23.4% and 33.1% for the nine months ended February 23, 1997 and February 25, 1996, respectively. The decline in gross profit was due to lower unit demand and lower prices, particularly in the Asia/Pacific region and for EPROM products, as the Company sought to regain 34 market share. In addition, the Company suffered from excess manufacturing capacity brought on by reduced demand and an inventory reduction initiative which reduced inventories by approximately $26 million from the end of Fiscal Year 1996. In response to declining gross profit, management enacted cost reduction programs, which included headcount reductions, in the first quarter of Fiscal Year 1997. RESEARCH AND DEVELOPMENT. Research and development expenses were $13.6 million (of which $5.1 million was allocated to Fairchild from National Semiconductor) for the nine months ended February 23, 1997, as compared to $22.7 million (of which $14.1 million was allocated to Fairchild from National Semiconductor) for the nine months ended February 25, 1996. As a percentage of trade sales, research and development expenses were 3.1% and 4.3% for the nine months ended February 23, 1997 and February 25, 1996, respectively. The decrease in research and development expenses was primarily attributable to reduced allocations from National Semiconductor reflecting the reduced consumption of corporate services in Fiscal Year 1997. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses were $72.6 million (of which $56.8 million was allocated to Fairchild from National Semiconductor) for the nine months ended February 23, 1997, as compared to $87.6 million (of which $69.9 million was allocated to Fairchild from National Semiconductor) for the nine months ended February 25, 1996. As a percentage of trade sales, selling, general and administrative expenses were 16.8% and 16.4% for the nine months ended February 23, 1997 and February 25, 1996, respectively. The decrease in selling, general and administrative expenses was due to reduced allocations from National Semiconductor reflecting the reduced consumption of corporate services in Fiscal Year 1997 ($27.2 million), offset by an increase of $14.1 million primarily attributable to retention and incentive bonuses related to the Transactions, and lower direct costs ($1.9 million) resulting from cost reduction initiatives at Fairchild, including headcount reductions. RESTRUCTURING. The nine months ended February 23, 1997 included a restructuring charge of $5.3 million (1.2% of trade sales) for severance and other costs directly attributable to the sale of Fairchild. OTHER (INCOME) EXPENSE. Other (income) expense was $0.4 million for the nine months ended February 23, 1997, as compared to $(1.5) million for the nine months ended February 25, 1996. The increase was primarily attributable to $1.4 million net interest expense related to the financing activities of National Semiconductor allocated to Fairchild for the nine months ended February 23, 1997, compared to net interest income of $0.1 million for the nine months ended February 25, 1996. YEAR ENDED MAY 26, 1996 COMPARED TO YEAR ENDED MAY 28, 1995 TRADE SALES. The Company's trade sales in Fiscal Year 1996 were $687.8 million, as compared to $629.6 million in Fiscal Year 1995, an increase of 9.2%. The increase in trade sales was primarily attributable to discrete products, which experienced a 50% increase in revenues over the prior year, due to higher volume and growth in sales of DMOS Power MOSFET products. Discrete trade sales were approximately 25% of total trade sales in Fiscal Year 1996, as compared to 18% in Fiscal Year 1995. Logic products experienced a 3.3% growth in trade sales in Fiscal Year 1996, as market leadership in the growing CMOS market drove a 20.4% increase in CMOS trade sales, which was partially offset by a 9.0% decrease in Bipolar trade sales that was consistent with the overall Bipolar market. Logic trade sales were approximately 49.2% of total trade sales in Fiscal Year 1996, as compared to 52.0% in Fiscal Year 1995. Growth in discrete and logic trade sales was offset by a 6.1% decline in memory trade sales in Fiscal Year 1996. The decline in memory trade sales was due to a 21.4% decline in EPROM trade sales as a result of National Semiconductor's announcement that it intended to exit the EPROM business in a strategic decision to emphasize customized products. The decline in EPROM trade sales was partially offset by a 30.5% increase in EEPROM trade sales, in line with the growth of the serial EEPROM market. Memory trade sales were approximately 25.3% of total trade sales in Fiscal Year 1996, as compared to 29.5% in Fiscal Year 1995. Fiscal Year 1996 trade sales were hampered by the start of the worldwide semiconductor market slowdown in the second half of Fiscal Year 1996. As a result, 55% of trade sales occurred in the 35 first half and 45% in the second half. Conversely, 47% of trade sales in Fiscal Year 1995 occurred in the first half and 53% in the second half. Geographically, 38%, 23% and 39% of trade sales were derived from North America, Europe and Asia/Pacific, respectively, in Fiscal Year 1996, as compared to 38%, 24% and 38% in Fiscal Year 1995. Total revenue in Fiscal Year 1996 was $775.4 million, as compared to $680.3 million in Fiscal Year 1995. Total revenue included $87.6 million and $50.7 million of contract manufacturing revenues in Fiscal Year 1996 and Fiscal Year 1995, respectively, which were provided at cost to National Semiconductor. The increase in contract manufacturing revenue was due to the production ramp up of the 6-inch wafer fab in South Portland, Maine. GROSS PROFIT. Gross profit in Fiscal Year 1996 was $215.1 million, as compared to $203.8 million in Fiscal Year 1995. As a percentage of trade sales, gross profit was 31.3% and 32.4% in Fiscal Year 1996 and Fiscal Year 1995, respectively. The increase in gross profit was the result of increased trade sales of higher margin discrete products, particularly DMOS Power MOSFETs, and cost efficiencies in the 6-inch fab in South Portland, Maine as it continued its production ramp up in Fiscal Year 1996. Gross profit was negatively affected by yield and cost inefficiencies resulting from the ramp-up of an advanced 1 micron EEPROM process in Salt Lake City and lower factory utilization in the second half of Fiscal Year 1996 as a result of the start of the worldwide semiconductor market slowdown. RESEARCH AND DEVELOPMENT. Research and development expenses were $30.3 million (of which $18.9 million was allocated to Fairchild from National Semiconductor) in Fiscal Year 1996, as compared to $31.0 million in Fiscal Year 1995. As a percentage of trade sales research and development expenses were 4.4% and 5.0% in Fiscal Year 1996 and Fiscal Year 1995, respectively. The decrease in research and development expenses was attributable to lower spending in logic and EPROM development projects in Fiscal Year 1996 as a result of National Semiconductor's decision to de-emphasize research and development in these businesses, offset by higher allocations from National Semiconductor. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses were $114.0 million (of which $91.7 million was allocated to Fairchild from National Semiconductor) in Fiscal Year 1996, as compared to $100.3 million (of which $76.8 million was allocated to Fairchild from National Semiconductor) in Fiscal Year 1995. As a percentage of trade sales, selling, general and administrative expenses were 16.6% and 15.9% in Fiscal Year 1996 and Fiscal Year 1995, respectively. The increase in selling, general and administrative expenses was attributable to increases in allocated and direct sales support proportional to increased trade sales ($8.8 million) and higher general and administrative expenses due primarily to increases in allocations from National Semiconductor. OTHER (INCOME) EXPENSE. Other (income) expense was $(1.5) million in Fiscal Year 1996, as compared to $(1.8) million in Fiscal Year 1995. The increase was attributable to a loss on disposal of certain fixed assets, offset by favorable results from foreign currency exchange rates. YEAR ENDED MAY 28, 1995 COMPARED TO YEAR ENDED MAY 29, 1994 TRADE SALES. The Company's trade sales in Fiscal Year 1995 were $629.6 million, as compared to $658.9 million in Fiscal Year 1994, a decrease of 4.4%. The decrease in trade sales was primarily attributable to logic products, which experienced a 16.8% decrease in trade sales over an exceptional Fiscal Year 1994 which was impacted by two significant one-time events: - An explosion and fire occurred at the Sumitomo Chemical plant in Japan in early Fiscal Year 1994. Sumitomo is a major supplier of resin for mold compound, a key raw material used in the manufacture of semiconductor packages. Fears of a shortage of mold compound, combined with forecasts of growth in the personal computer market, drove logic prices to unusually high levels in Fiscal Year 1994. 36 - The Company gained logic market share due to temporary manufacturing capacity constraints suffered by a major competitor. Logic revenues were approximately 52.0% of trade sales in Fiscal Year 1995, as compared to 59.8% in Fiscal Year 1994. The decline in logic trade sales was offset by growth in discrete trade sales. Discrete trade sales grew approximately 45.5% in Fiscal Year 1995 over Fiscal Year 1994, as DMOS Power MOSFET trade sales nearly tripled over the prior year. Discrete trade sales were approximately 18.5% of total trade sales in Fiscal Year 1995, as compared to 12.1% in Fiscal Year 1994. Memory trade sales, representing 29.5% and 28.1% of total trade sales in Fiscal Year 1995 and Fiscal Year 1994, respectively, were flat year on year. Geographically, 38%, 24% and 38% of trade sales were derived from North America, Europe and Asia/Pacific, respectively, in Fiscal Year 1995, as compared to 42%, 22% and 36% in Fiscal Year 1994. Total revenue in Fiscal Year 1995 were $680.3 million, as compared to $716.6 million in Fiscal Year 1994. Total revenue include $50.7 million and $57.7 million of contract manufacturing revenue in Fiscal Year 1995 and Fiscal Year 1994, respectively, which were provided at cost to National Semiconductor. The decrease in contract manufacturing revenues was due to the shutdown of the under-utilized MOS1 fab in Salt Lake City, offset by new revenue from the production ramp up of the 6-inch fab in South Portland, Maine in the second half of Fiscal Year 1995. GROSS PROFIT. Gross profit in Fiscal Year 1995 was $203.8 million, as compared to $248.3 million in Fiscal Year 1994. As a percentage of trade sales, gross profit was 32.4% and 37.7% in Fiscal Year 1995 and Fiscal Year 1994, respectively. The decline in gross profit was primarily the result of lower logic selling prices in Fiscal Year 1995 as compared to Fiscal Year 1994's unusually high level. RESEARCH AND DEVELOPMENT. Research and development expenses were $31.0 million in Fiscal Year 1995, as compared to $27.4 million in Fiscal Year 1994. As a percentage of trade sales research and development expenses were 5.0% and 4.2% in Fiscal Year 1995 and Fiscal Year 1994, respectively. The increase in research and development expenses was primarily attributable to an exploratory project for FLASH memory, and an increase in discrete research and devlopment expenses supporting SOT-23 and DMOS Power MOSFET product development. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses were $100.3 million (of which $76.8 was allocated to Fairchild from National Semiconductor) in Fiscal Year 1995, as compared to $97.3 million (of which $74.2 million was allocated to Fairchild from National Semiconductor) in Fiscal Year 1994. As a percentage of trade sales, selling, general and administrative expenses were 15.9% and 14.8% in Fiscal Year 1995 and Fiscal Year 1994, respectively. The increase in selling, general and administrative expenses was primarily attributable to increased selling, general and administrative expense allocations from National Semiconductor. OTHER (INCOME) EXPENSE. Other (income) expense was $(1.8) million in Fiscal Year 1995, as compared to $(1.9) million in Fiscal Year 1994. The increase was attributable to less favorable results from foreign currency exchange rates, partially offset by the decrease reflecting the loss on disposal of certain fixed assets in Fiscal Year 1994 which did not recur in Fiscal Year 1995. LIQUIDITY AND CAPITAL RESOURCES The Company's principal capital requirements are to fund working capital needs, to meet required debt payments and to complete planned maintenance and expansion. Management anticipates that the Company's operating cash flow, together with available borrowings under the Revolving Credit Facility, will be sufficient to meet its working capital, capital expenditure and interest service requirements on its debt obligations for the foreseeable future. As of February 23, 1997, the Company's total debt and stockholder's equity would have been $420.0 million and $14.0 million, respectively, on a pro forma basis after giving effect to the Transactions. The Company would also have borrowing ability of an additional $75.0 million for working capital and capital expenditure requirements under the Revolving Credit Facility. 37 During the past three years the Company has spent approximately $355.0 million primarily to build a new fab and to upgrade its existing facilities. Capital expenditures for Fiscal Year 1997 are expected to be approximately $43.0 million, $36.7 million of which were made as of February 23, 1997. The Company anticipates that its operating cash flow, together with available borrowings under the Revolving Credit Facility, will be sufficient to meet its working capital requirements, capital expenditure requirements and interest service requirements on its debt obligations for the foreseeable future. Concurrent with the Transactions the Company entered into the Senior Credit Facilities under which a $75.0 million Revolving Credit Facility is available to the Company. The Company did not draw upon these facilities in connection with the consummation of the Transactions. See "Description of Certain Indebtedness--Senior Credit Facilities." The Senior Credit Facilities and the Notes do, and other debt instruments of the Company may, impose various restrictions and covenants on the Company which could potentially limit the Company's ability to respond to market conditions, to provide for unanticipated capital investments or to take advantage of business opportunities. 38 THE EXCHANGE OFFER PURPOSE AND EFFECT OF THE EXCHANGE OFFER The Existing Notes were sold by the Company to the Initial Purchasers on March 11, 1997 (the "Issue Date"). The Initial Purchasers subsequently sold the Existing Notes to qualified institutional buyers in reliance on Rule 144A under the Securities Act and to a limited number of institutional "accredited investors" as defined in Rule 501(a)(1),(2),(3) or (7) under the Securities Act. Because the Existing Notes are subject to certain transfer restrictions, as an inducement to the Initial Purchasers the Company, Fairchild Holdings and the Initial Purchasers entered into a registration rights agreement dated March 6, 1997 (as used in this and the next paragraph, the "Registration Rights Agreement"), pursuant to which the Company agreed (i) within 60 days after the Issue Date, to prepare and file with the Commission the Registration Statement of which this Prospectus is a part and (ii) within 150 days after the Issue Date, to use its best efforts to cause the Registration Statement to become effective under the Securities Act. The Registration Statement is intended to satisfy in part the Company's obligations with respect to the Existing Notes under the Registration Rights Agreement. Under existing interpretations of the Commission, the Exchange Notes will be freely transferable by holders other than affiliates of the Company after the Exchange Offer without further registration under the Securities Act if the holder of the Exchange Notes represents that it is acquiring the Exchange Notes in the ordinary course of its business, that it has no arrangement or understanding with any person to participate in the distribution of the Exchange Notes and that it is not an affiliate of the Company, as such terms are interpreted by the Commission, PROVIDED, HOWEVER, that broker-dealers ("Participating Broker-Dealers") receiving Exchange Notes in the Exchange Offer will have a prospectus delivery requirement with respect to resales of such Exchange Notes. The Commission has taken the position that Participating Broker-Dealers may fulfill their prospectus delivery requirements with respect to Exchange Notes (other than a resale of an unsold allotment from the original sale of the Existing Notes) with this Prospectus. Under the Registration Rights Agreement, the Company is required to allow Participating Broker-Dealers and other persons, if any, with similar prospectus delivery requirements to use this Prospectus in connection with the resale of such Exchange Notes. Each broker-dealer that receives Exchange Notes for its own account in exchange for Existing Notes, where such Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a Prospectus in connection with any resale of such Exchange Notes. See "Plan of Distribution." TERMS OF THE EXCHANGE OFFER; PERIOD FOR TENDERING EXISTING NOTES Upon the terms and subject to the conditions set forth in this Prospectus and in the accompanying Letter of Transmittal (which together constitute the Exchange Offer), the Company will accept for exchange Existing Notes which are properly tendered on or prior to the Expiration Date and not withdrawn as permitted below. As used herein, the term "Expiration Date" means 5:00 p.m., New York City time, on , 1997; PROVIDED, HOWEVER, that if the Company has extended the period of time for which the Exchange Offer is open, the term "Expiration Date" means the latest time and date to which the Exchange Offer is extended. As of the date of this Prospectus, $300.0 million aggregate principal amount of the Existing Notes are outstanding. This Prospectus, together with the Letter of Transmittal, is first being sent on or about , 1997 to all holders of Existing Notes known to the Company. The Company's obligation to accept Existing Notes for exchange pursuant to the Exchange Offer is subject to certain conditions as set forth under "--Certain Conditions to the Exchange Offer" below. The Company expressly reserves the right, at any time or from time to time, to extend the period of time during which the Exchange Offer is open, and thereby delay acceptance for any exchange of any Existing Notes, by giving notice of such extension to the holders thereof. During any such extension, all Existing Notes previously tendered will remain subject to the Exchange Offer and may be accepted for 39 exchange by the Company. Any Existing Notes not accepted for exchange for any reason will be returned without expense to the tendering holder thereof as promptly as practicable after the expiration or termination of the Exchange Offer. The Company expressly reserves the right to amend or terminate the Exchange Offer, and not to accept for exchange any Existing Notes not theretofore accepted for exchange, upon the occurrence of any of the conditions of the Exchange Offer specified below under "--Certain Conditions to the Exchange Offer." The Company will give notice of any extension, amendment, non-acceptance or termination to the holders of the Existing Notes as promptly as practicable, such notice in the case of any extension to be issued no later than 9:00 a.m., New York City time, on the next business day after the previously scheduled Expiration Date. Holders of Existing Notes do not have any appraisal or dissenters' rights under the Delaware General Corporation Law in connection with the Exchange Offer. PROCEDURES FOR TENDERING EXISTING NOTES The tender to the Company of Existing Notes by a holder thereof as set forth below and the acceptance thereof by the Company will constitute a binding agreement between the tendering holder and the Company upon the terms and subject to the conditions set forth in this Prospectus and in the accompanying Letter of Transmittal. Except as set forth below, a holder who wishes to tender Existing Notes for exchange pursuant to the Exchange Offer must transmit a properly completed and duly executed Letter of Transmittal, including all other documents required by such Letter of Transmittal, to United States Trust Company of New York at one of the addresses set forth below under "Exchange Agent" on or prior to the Expiration Date. In addition, either (i) certificates for such Existing Notes must be received by the Exchange Agent along with the Letter of Transmittal, or (ii) a timely confirmation of a book-entry transfer (a "Book-Entry Confirmation") of such Existing Notes, if such procedure is available, into the Exchange Agent's account at The Depository Trust Company (the "Book-Entry Transfer Facility" or the "Depositary") pursuant to the procedure for book-entry transfer described below, must be received by the Exchange Agent prior to the Expiration Date, or the holder must comply with the guaranteed delivery procedure described below. THE METHOD OF DELIVERY OF EXISTING NOTES, LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDER. IF SUCH DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. NO LETTERS OF TRANSMITTAL OR EXISTING NOTES SHOULD BE SENT TO THE COMPANY. Signatures on a Letter of Transmittal or a notice of withdrawal, as the case may be, must be guaranteed unless the Existing Notes surrendered for exchange pursuant thereto are tendered (i) by a registered holder of the Existing Notes who has not completed the box entitled "Special Issuance Instruction" or "Special Delivery Instruction" on the Letter of Transmittal or (ii) for the account of an Eligible Institution (as defined below). In the event that signatures on a Letter of Transmittal or a notice of withdrawal, as the case may be, are required to be guaranteed, such guarantees must be by a firm which is a member of a registered national securities exchange or a member of the National Association of Securities Dealers, Inc. or by a commercial bank or trust company having an office or correspondent in the United States (collectively, "Eligible Institutions"). If Existing Notes are registered in the name of a person other than a signer of the Letter of Transmittal, the Existing Notes surrendered for exchange must be endorsed by, or be accompanied by a written instrument or instruments of transfer or exchange, in satisfactory form as determined by the Company in its sole discretion, duly executed by, the registered holder with the signature thereon guaranteed by an Eligible Institution. 40 All questions as to the validity, form, eligibility (including time of receipt) and acceptance of Existing Notes tendered for exchange will be determined by the Company in its sole discretion, which determination shall be final and binding. The Company reserves the absolute right to reject any and all tenders of any particular Existing Notes not properly tendered or to not accept any particular Existing Notes which acceptance might, in the judgment of the Company or its counsel, be unlawful. The Company also reserves the absolute right to waive any defects or irregularities or conditions of the Exchange Offer as to any particular Existing Notes either before or after the Expiration Date (including the right to waive the ineligibility of any holder who seeks to tender Existing Notes in the Exchange Offer). The interpretation of the terms and conditions of the Exchange Offer as to any particular Existing Notes either before or after the Expiration Date (including the Letter of Transmittal and the instructions thereto) by the Company shall be final and binding on all parties. Unless waived, any defects or irregularities in connection with tenders of Existing Notes for exchange must be cured within such reasonable period of time as the Company shall determine. Neither the Company, the Exchange Agent nor any other person shall be under any duty to give notification of any defect or irregularity with respect to any tender of Existing Notes for exchange, nor shall any of them incur any liability for failure to give such notification. If the Letter of Transmittal or any Existing Notes or powers of attorney are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing, and, unless waived by the Company, proper evidence satisfactory to the Company of their authority to so act must be submitted. By tendering, each holder of Existing Notes will represent to the Company in writing that, among other things, the Exchange Notes acquired pursuant to the Exchange Offer are being obtained in the ordinary course of business of the holder and any beneficial holder, that neither the holder nor any such beneficial holder has an arrangement or understanding with any person to participate in the distribution of such Exchange Notes and that neither the holder nor any such other person is an "affiliate," as defined under Rule 405 of the Securities Act, of the Company. If the holder is not a broker-dealer, the holder must represent that it is not engaged in nor does it intend to engage in a distribution of the Exchange Notes. If the holder is a broker-dealer, the holder must represent that it will receive Exchange Notes for its own account in exchange for Existing Notes that were acquired as a result of market-making activities or other trading activities. Each broker-dealer that receives Exchange Notes for its own account in exchange for Existing Notes, where such Existing Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities (an "Exchanging Dealer"), must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. See "Plan of Distribution." ACCEPTANCE OF EXISTING NOTES FOR EXCHANGE; DELIVERY OF EXCHANGE NOTES For each Existing Note accepted for exchange, the holder of such Existing Note will receive an Exchange Note having a principal amount equal to that of the surrendered Existing Note. For purposes of the Exchange Offer, the Company shall be deemed to have accepted properly tendered Existing Notes for exchange when, as and if the Company has given oral and written notice thereof to the Exchange Agent. In all cases, issuance of Exchange Notes for Existing Notes that are accepted for exchange pursuant to the Exchange Offer will be made only after timely receipt by the Exchange Agent of certificates for such Existing Notes or a timely Book-Entry Confirmation of such Existing Notes into the Exchange Agent's account at the Book-Entry Transfer Facility, a properly completed and duly executed Letter of Transmittal and all other required documents. If any tendered Existing Notes are not accepted for any reason set forth in the terms and conditions of the Exchange Offer or if Existing Notes are submitted for a greater principal amount than the holder desires to exchange, such unaccepted or non-exchanged Existing Notes will be returned without expense to the tendering holder thereof (or, in the case of Existing Notes tendered by book-entry transfer into the Exchange Agent's account at the Book-Entry Transfer Facility pursuant to the book-entry transfer procedures described below, such non-exchanged Existing Notes will be credited to an 41 account maintained with such Book-Entry Transfer Facility) as promptly as practicable after the expiration of the Exchange Offer. BOOK-ENTRY TRANSFER Any financial institution that is a participant in the Book-Entry Transfer Facility's systems may make book-entry delivery of Existing Notes by causing the Book-Entry Transfer Facility to transfer such Existing Notes into the Exchange Agent's account at the Book-Entry Transfer Facility in accordance with such Book-Entry Transfer Facility's procedures for transfer. However, although delivery of Existing Notes may be effected through book-entry transfer at the Book-Entry Transfer Facility, the Letter of Transmittal or facsimile thereof with any required signature guarantees and any other required documents must, in any case, be transmitted to and received by the Exchange Agent at one of the addresses set forth below under "Exchange Agent" on or prior to the Expiration Date or the guaranteed delivery procedures described below must be complied with. The Company understands that the Exchange Agent has confirmed with the Book-Entry Transfer Facility that any financial institution that is a participant in the Book-Entry Transfer Facility's system may utilize the Book-Entry Transfer Facility's Automated Tender Offer Program ("ATOP") to tender Existing Notes. The Company further understands that the Exchange Agent will request, within two business days after the date the Exchange Offer commences, that the Book-Entry Transfer Facility establish an account with respect to the Existing Notes for the purpose of facilitating the Exchange Offer, and any participant may make book-entry delivery of Existing Notes by causing the Book-Entry Transfer Facility to transfer such Existing Notes into the Exchange Agent's account in accordance with the Book-Entry Transfer Facility's ATOP procedures for transfer. However, the exchange of the Existing Notes so tendered will only be made after timely confirmation (a "Book-Entry Confirmation") of such book-entry transfer and timely receipt by the Exchange Agent of an Agent's Message (as defined in the next sentence), an appropriate Letter of Transmittal with any required signature guarantee, and any other documents required. The term "Agent's Message" means a message, transmitted by the Book-Entry Transfer Facility and received by the Exchange Agent and forming part of Book-Entry Confirmation, which states that the Book-Entry Transfer Facility has received an express acknowledgment from a participant tendering Existing Notes which are the subject of such Book-Entry Confirmation and that such participant has received and agrees to be bound by the terms of the Letter of Transmittal and that the Company may enforce such agreement against such participant. GUARANTEED DELIVERY PROCEDURES If a registered holder of the Existing Notes desires to tender such Existing Notes and the Existing Notes are not immediately available, or time will not permit such holder's Existing Notes or other required documents to reach the Exchange Agent before the Expiration Date, or the procedure for book-entry transfer cannot be completed on a timely basis, a tender may be effected if (i) the tender is made through an Eligible Institution, (ii) prior to the Expiration Date, the Exchange Agent received from such Eligible Institution a properly completed and duly executed Letter of Transmittal (or a facsimile thereof) and Notice of Guaranteed Delivery, substantially in the form provided by the Company (by telegram, telex, facsimile transmission, mail or hand delivery), setting forth the name and address of the holder of Existing Notes and the amount of Existing Notes tendered, stating that the tender is being made thereby and guaranteeing that within five New York Stock Exchange ("NYSE") trading days after the date of execution of the Notice of Guaranteed Delivery, the certificates for all physically tendered Existing Notes, in proper form for transfer, or a Book-Entry Confirmation, as the case may be, and any other documents required by the Letter of Transmittal will be deposited by the Eligible Institution with the Exchange Agent and (iii) the certificates for all physically tendered Existing Notes, in proper form for transfer, or a Book-Entry Confirmation, as the case may be, and all other documents required by the Letter of Transmittal are 42 received by the Exchange Agent within five NYSE trading days after the date of execution of the Notice of Guaranteed Delivery. WITHDRAWAL RIGHTS Tenders of Existing Notes may be withdrawn at any time prior to the Expiration Date. For a withdrawal to be effective, a written notice of withdrawal must be received by the Exchange Agent at one of the addresses set forth below under "Exchange Agent." Any such notice of withdrawal must specify the name of the person having tendered the Existing Notes to be withdrawn, identify the Existing Notes to be withdrawn (including the principal amount of such Existing Notes), and (where certificates for Existing Notes have been transmitted) specify the name in which such Existing Notes are registered, if different from that of the withdrawing holder. If certificates for Existing Notes have been delivered or otherwise identified to the Exchange Agent, then, prior to the release of such certificates, the withdrawing holder must also submit the serial numbers of the particular certificates to be withdrawn and a signed notice of withdrawal with signatures guaranteed by an Eligible Institution unless such holder is an Eligible Institution. If Existing Notes have been tendered pursuant to the procedure for book-entry transfer described above, any notice of withdrawal must specify the name and number of the account at the Book-Entry Transfer Facility to be credited with the withdrawn Existing Notes and otherwise comply with the procedures of such facility. All questions as to the validity, form and eligibility (including time of receipt) of such notices will be determined by the Company, whose determination shall be final and binding on all parties. Any Existing Notes so withdrawn will be deemed not to have been validly tendered for exchange for purposes of the Exchange Offer. Any Existing Notes which have been tendered for exchange but which are not exchanged for any reason will be returned to the holder thereof without cost to such holder (or in the case of Existing Notes tendered by book-entry transfer into the Exchange Agent's account at the Book-Entry Transfer Facility pursuant to the book-entry transfer procedures described above, such Existing Notes will be credited to an account maintained with such Book-Entry Transfer Facility for the Existing Notes) as soon as practicable after withdrawal, rejection of tender or termination of the Exchange Offer. Properly withdrawn Existing Notes may be retendered by following one of the procedures described under "--Procedures for Tendering Existing Notes" above at any time on or prior to the Expiration Date. CERTAIN CONDITIONS TO THE EXCHANGE OFFER Notwithstanding any other provision of the Exchange Offer, the Company shall not be required to accept for exchange, or to issue Exchange Notes in exchange for, any Existing Notes and may terminate or amend the Exchange Offer if at any time before the acceptance of such Existing Notes for exchange or the exchange of Exchange Notes for such Existing Notes, the Company determines that (i) the Exchange Offer does not comply with any applicable law or any applicable interpretation of the staff of the Commission, (ii) the Company has not received all applicable governmental approvals or (iii) any actions or proceedings of any governmental agency or court exist which could materially impair the Company's ability to consummate the Exchange Offer. The foregoing conditions are for the sole benefit of the Company and may be asserted by the Company regardless of the circumstances giving rise to any such condition or may be waived by the Company in whole or in part at any time and from time to time in its reasonable discretion. The failure by the Company at any time to exercise any of the foregoing rights shall not be deemed a waiver of such right and each such right shall be deemed an ongoing right which may be asserted at any time and from time to time. In addition, the Company will not accept for exchange any Existing Notes tendered, and no Exchange Notes will be issued in exchange for any such Existing Notes, if at such time any stop order shall be threatened or in effect with respect to the Registration Statement of which this Prospectus constitutes a part or the qualification of the Indenture under the Trust Indenture Act of 1939, as amended (the "Trust 43 Indenture Act"). In any such event the Company is required to use every reasonable effort to obtain the withdrawal of any stop order at the earliest possible time. EXCHANGE AGENT United States Trust Company of New York has been appointed as the Exchange Agent for the Exchange Offer. All executed Letters of Transmittal should be directed to the Exchange Agent at one of the addresses set forth below. Questions and requests for assistance, requests for additional copies of this Prospectus or of the Letter of Transmittal and requests for Notices of Guaranteed Delivery should be directed to the Exchange Agent addressed as follows:
BY REGISTERED OR CERTIFIED BY HAND: MAIL: BY OVERNIGHT COURIER: United States Trust Company United States Trust Company United States Trust Company of New York of New York of New York 111 Broadway P.O. Box 844 770 Broadway Lower Level Cooper Station New York, New York 10003 Corporate Trust Window New York, New York Attn: Corporate Trust New York, New York 10006 10276-0844 BY FACSIMILE: United States Trust Company of New York (212) 420-6152 Attn: Corporate Trust CONFIRM BY TELEPHONE: (800) 548-6565
Delivery other than as set forth above will not constitute a valid delivery. FEES AND EXPENSES The Company will not make any payments to brokers, dealers or others soliciting acceptances of the Exchange Offer. The principal solicitation is being made by mail; however, additional solicitations may be made in person or by telephone by officers and employees of the Company. The expenses to be incurred in connection with the Exchange Offer will be paid by the Company. Such expenses include fees and expenses of the Exchange Agent and Trustee, accounting and legal fees and printing costs, among others. ACCOUNTING TREATMENT The Exchange Notes will be recorded at the same carrying amount as the Existing Notes, which is the principal amount as reflected in the Company's accounting records on the date of the exchange and, accordingly, no gain or loss will be recognized. The debt issuance costs will be capitalized and amortized to interest expense over the term of the Exchange Notes. TRANSFER TAXES Holders who tender their Existing Notes for exchange will not be obligated to pay any transfer taxes in connection therewith, except that holders who instruct the Company to register Exchange Notes in the name of, or request that Existing Notes not tendered or not accepted in the Exchange Offer be returned to, a person other than the registered tendering holder will be responsible for the payment of any applicable transfer tax thereon. 44 CONSEQUENCES OF FAILURE TO EXCHANGE; RESALES OF EXCHANGE NOTES Holders of Existing Notes who do not exchange their Existing Notes for Exchange Notes pursuant to the Exchange Offer will continue to be subject to the restrictions on transfer of such Existing Notes as set forth in the legend thereon as a consequence of the issuance of the Existing Notes pursuant to the exemptions from, or in transactions not subject to, the registration requirements of, the Securities Act and applicable state securities laws. Existing Notes not exchanged pursuant to the Exchange Offer will continue to accrue interest at 10 1/8% per annum and will otherwise remain outstanding in accordance with their terms. Holders of Existing Notes do not have any appraisal or dissenters' rights under the Delaware General Corporation Law in connection with the Exchange Offer. In general, the Existing Notes may not be offered or sold unless registered under the Securities Act, except pursuant to an exemption from, or in a transaction not subject to, the Securities Act and applicable state securities laws. The Company does not currently anticipate that it will register the Existing Notes under the Securities Act. However, (i) if any Initial Purchaser so requests with respect to Existing Notes not eligible to be exchanged for Exchange Notes in the Exchange Offer and held by it following consummation of the Exchange Offer or (ii) if any holder of Existing Notes (other than an Exchanging Dealer) is not eligible to participate in the Exchange Offer or, in the case of any holder of Existing Notes (other than an Exchanging Dealer) that participates in the Exchange Offer, does not receive Exchange Notes in exchange for Existing Notes that may be sold without restriction under state and federal securities laws (other than due solely to the status of such holder as an affiliate of the Company within the meaning of the Securities Act), the Company is obligated to file a shelf registration statement on the appropriate form under the Securities Act relating to the Existing Notes held by such persons. Based on certain interpretive letters issued by the staff of the Commission to third parties in unrelated transactions, the Company is of the view that Exchange Notes issued pursuant to the Exchange Offer may be offered for resale, resold or otherwise transferred by holders thereof (other than (i) any such holder which is an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act or (ii) any broker-dealer that purchases Notes from the Company to resell pursuant to Rule 144A or any other available exemption) without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that such Exchange Notes are acquired in the ordinary course of such holders' business and such holders have no arrangement or understanding with any person to participate in the distribution of such Exchange Notes. If any holder has any arrangement or understanding with respect to the distribution of the Exchange Notes to be acquired pursuant to the Exchange Offer, such holder (i) could not rely on the applicable interpretations of the staff of the Commission and (ii) must comply with the registration and prospectus delivery requirements of the Securities Act in connection with a secondary resale transaction. A broker-dealer who holds Existing Notes that were acquired for its own account as a result of market-making or other trading activities may be deemed to be an "underwriter" within the meaning of the Securities Act and must, therefore, deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of Exchange Notes. Each such broker-dealer that receives Exchange Notes for its own account in exchange for Existing Notes, where such Existing Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities, must acknowledge in the Letter of Transmittal that it will deliver a prospectus in connection with any resale of such Exchange Notes. See "Plan of Distribution." The Company has not requested the staff of the Commission to consider the Exchange Offer in the context of a no-action letter, and there can be no assurance that the staff would take positions similar to those taken in the interpretive letters referred to above if the Company were to make such a no-action request. In addition, to comply with the securities laws of certain jurisdictions, if applicable, the Exchange Notes may not be offered or sold unless they have been registered or qualified for sale in such jurisdictions or an exemption from registration or qualification is available and is complied with. The Company has agreed, pursuant to the Registration Rights Agreement and subject to certain specified limitations therein, to register or qualify the Exchange Notes for offer or sale under the securities or blue sky laws of such jurisdictions in the United States as any selling holder of the Notes reasonably requests in writing. 45 INDUSTRY OVERVIEW Semiconductors are the critical components used to create an increasing variety of electronic products and systems. Since the invention of the transistor in 1948, continuous improvements in semiconductor process and design technologies have led to smaller, more complex and more reliable devices at a lower cost per function. As performance has increased and size and cost have decreased, semiconductors have expanded beyond their original primary applications in computer systems to applications in telecommunications systems, automotive products, consumer products and industrial automation and control systems. In addition, system users and designers have demanded systems with increased functionality, higher levels of performance, greater reliability and shorter design cycle times, all in smaller packages at lower costs. These demands have resulted in increased semiconductor content as a percentage of the system costs of electronic products. According to a study published by Texas Instruments, the value of semiconductors as a percentage of the cost of electrical devices has increased from 5% in the 1970s to 16% in 1996. The demand for electronic systems has also expanded geographically with the emergence of new markets, particularly in the Asia/Pacific region. During the 1960s and 1970s, the development of semiconductor process technologies was critical to the success of participants in the industry. As process technologies matured, manufacturing sciences became important. In the 1980s, the emphasis shifted to increasing production volumes, improving yields and lowering production costs. The large capital expenditures and other resources required during this period to develop advanced manufacturing capabilities resulted in a stratification of the industry between broad range suppliers operating multiple front-end and back-end manufacturing facilities and specialty niche players operating small wafer fabs or subcontracting wafer production. Historically, cyclical changes in production capacity in the semiconductor industry and demand for electronic systems have resulted in pronounced cyclical changes in the level of semiconductor sales and subsequent fluctuations in prices and margins. However, certain significant changes in the industry could contribute to continued growth over the long term with less severe cyclical variations than in the past. Such changes include the development of new semiconductor applications, increased semiconductor content as a percentage of total system cost, emerging strategic partnerships, growth in the electronic systems industry in the Asia/Pacific region, more moderate capital spending on production capacity, particularly in Japan, and increased customer use of just-in-time supply systems that have reduced inventory levels. According to the reports of WSTS, worldwide semiconductor market revenue was $132.0 billion during 1996. Since 1990, the semiconductor market has expanded at a CAGR of 17.4%, primarily as a result of two principal factors. The first is rapidly expanding end-user demand for faster, smaller and more efficient devices with a greater range of functionality. The second is the increasing value of semiconductors as a percentage of the cost of electrical devices. In 1996 the worldwide semiconductor TAM ($132.0 billion) experienced an overall decline from 1995 ($144.4 billion), according to WSTS. The decline was primarily the result of a 36.2% reduction in sales in the volatile memory market, which includes the DRAM market. 46 SEMICONDUCTOR CLASSIFICATIONS The following table sets forth the worldwide semiconductor TAM in each of the three product functions of the semiconductor industry:
WORLDWIDE SEMICONDUCTOR TAM(1) ---------------------------------------------------------------------------------------- 1990 1991 1992 1993 1994 1995 1996 CAGR --------- --------- --------- --------- --------- --------- --------- ----------- (IN BILLIONS) Microcomponents......................... $ 9.2 $ 11.4 $ 13.9 $ 19.1 $ 23.8 $ 33.4 $ 39.8 27.8% Memory Volatile.............................. 8.7 9.1 11.4 16.4 27.2 46.9 29.9 22.8 Non-volatile.......................... 3.1 3.1 3.4 4.8 5.3 6.6 6.1 12.3 --------- --------- --------- --------- --------- --------- --------- ----- Total memory...................... 11.8 12.2 14.8 21.3 32.5 53.5 36.0 20.5 Moving/Shaping.......................... 29.6 31.0 31.1 37.0 45.6 57.5 56.1 11.3 --------- --------- --------- --------- --------- --------- --------- ----- Total................................... $ 50.5 $ 54.6 $ 59.9 $ 77.3 $ 101.9 $ 144.4 $ 132.0 17.4% --------- --------- --------- --------- --------- --------- --------- ----- --------- --------- --------- --------- --------- --------- --------- -----
- ------------------------ (1) According to WSTS. Due to rounding, some totals are not arithmetically correct sums of their component figures. Preliminary semiconductor market segment data indicates that worldwide revenue in 1996 for the volatile memory segment fell dramatically whereas worldwide revenue in the moving and shaping segment declined less sharply. The semiconductor industry can be divided into three product functions: microcomponents, memory and moving and shaping. Microcomponents include microprocessors and microcontrollers that process data according to instruction sets embedded within the semiconductors themselves. These are considered the "brains" of the electronic system and are at the center of the system architecture. Memory includes two types of memory devices, volatile and non-volatile, that store data and instructions. Volatile memory devices, which need continual application of electricity to retain data, can be segmented into DRAM (dynamic random access memory), SRAM (static random access memory) and VRAM (video random access memory). Non-volatile devices, which retain data after power to the device has been shut off, can be segmented into ROM (read-only memory), EPROM, EEPROM and FLASH (memories that enable high speed electrical reprogramming). Moving and shaping includes the moving of commands and the shaping of signals to enable electronic devices to perform intended functions, including moving information into memory or from one sub-system to another, or allowing microprocessors to process data. Semiconductors are either analog/mixed signal, where electronic signals are not viewed as "one" and "zero," or digital integrated circuits ("ICs"), such as logic devices, that do rely on ones and zeroes to control the operation of electronic systems. Further, semiconductors are classified as either standard components or application-specific components. Multi-market standard components are used by a large group of systems designers for a broad range of applications, while application-specific components are designed to perform specific functions in specific applications. 47 FAIRCHILD'S MARKETS The following table sets forth information with respect to worldwide semiconductor sales by product family and process technology in which the Company participates:
WORLDWIDE SEMICONDUCTOR SALES(1) --------------------------------------------------------------- 1990 1991 1992 1993 1994 ----- ----- ----- ----- ----- (IN BILLIONS) MOVING & SHAPING: LOGIC Bipolar................................................... $ 1.5 $ 1.1 $ 1.1 $ 1.4 $ 1.1 CMOS...................................................... 0.9 0.9 0.9 1.2 1.4 BiCMOS.................................................... -- -- 0.1 0.2 0.1 --- --- --- --- --- Total................................................... $ 2.3 $ 2.0 $ 2.1 $ 2.7 $ 2.7 --- --- --- --- --- --- --- --- --- --- DISCRETE Power..................................................... $ 2.6 $ 2.7 $ 2.8 $ 3.2 $ 3.9 Small Signal.............................................. 2.8 2.9 2.8 3.3 3.8 --- --- --- --- --- Total................................................... $ 5.4 $ 5.6 $ 5.6 $ 6.5 $ 7.7 --- --- --- --- --- --- --- --- --- --- MEMORY: NON-VOLATILE MEMORY EPROM..................................................... $ 1.6 $ 1.4 $ 1.2 $ 1.3 $ 1.4 EEPROM.................................................... 0.2 0.2 0.3 0.6 0.5 --- --- --- --- --- Total................................................... $ 1.8 $ 1.5 $ 1.6 $ 2.0 $ 1.9 --- --- --- --- --- --- --- --- --- --- 1995 --------- MOVING & SHAPING: LOGIC Bipolar................................................... $ 1.1 CMOS...................................................... 1.5 BiCMOS.................................................... 0.3 --------- Total................................................... $ 2.9 --------- --------- DISCRETE Power..................................................... $ 5.4 Small Signal.............................................. 4.9 --------- Total................................................... $ 10.3 --------- --------- MEMORY: NON-VOLATILE MEMORY EPROM..................................................... $ 1.4 EEPROM.................................................... 0.6 --------- Total................................................... $ 2.0 --------- ---------
- -------------------------- (1) Due to rounding, some totals are not arithmetically correct sums of their component figures. MOVING AND SHAPING MARKETS STANDARD LOGIC MARKET. The standard logic market is fully digital and has five major participants, of which Fairchild is one of the leaders. Standard logic products are fabricated through three primary process technologies: Bipolar, CMOS and BiCMOS. The difference between Bipolar and CMOS is that Bipolar technology is targeted for high speed applications while CMOS technology allows the manufacturer to create a denser chip, consuming less power than Bipolar chips. BiCMOS is a hybrid of Bipolar and CMOS. While Bipolar semiconductors were once used extensively in large computer systems, CMOS has become the most prevalent technology, particularly for devices used in portable personal computer systems. Though Bipolar process technology produces faster chips, these chips traditionally produce more heat, which creates design problems and limits usability in portable applications. Given the growing demand for portability, use of CMOS technology is expected to continue to expand; however, the demand for Bipolar is expected to continue as a result of its lower cost and suitability for particular applications. Significant participants in the standard logic product market are Texas Instruments, Philips, Motorola and Toshiba. DISCRETE MARKET. The discrete business, unlike logic and memory, is highly fragmented and composed of dozens of middle market players. Discrete devices consist of individual diodes or transistors, whereas ICs (such as memory or logic devices) combine millions of functions onto a "single chip" of silicon to form a more complex circuit. Discrete products are differentiated almost entirely on the basis of performance, as opposed to on the basis of function as in the IC market. Fairchild participates in both the power and small signal discrete markets, manufacturing semiconductors that condition power or signals for use by other devices. While small signal discrete markets have generally grown at slower, but more stable, rates than IC markets, the power discrete market is rapidly growing due to the increasing importance of power management, particularly in portable applications (E.G., pagers and notebook computers). Discrete devices are analog products, and Fairchild competes in the standard end of the discrete market. Significant participants in the discrete market include Motorola, Toshiba and Philips. Suppliers of discrete products compete primarily on a regional basis. 48 MEMORY MARKETS NON-VOLATILE MEMORY MARKET. The memory market is composed of volatile memory devices (DRAM, SRAM and VRAM) and non-volatile memory devices (ROM, EPROM, EEPROM and FLASH). Volatile memory devices need continual application of electricity to retain data, while non-volatile memory retains data after the power to the device has been turned off. Most of the historic economic cyclicality in the semiconductor industry has been attributable to the volatile memory market, as evidenced by a 36.2% decline in 1996 market sales versus a 4.5% increase for the microcomponents, moving & shaping and non-volatile memory markets. The non-volatile memory market has eight significant participants including Fairchild, SGS Thomson, Texas Instruments and Atmel. Fairchild produces standard EPROM and EEPROM products, but also fabricates application-specific EEPROM devices. Fairchild has standardized the application-specific nature of the EEPROM process, having designed it to perform functions in a specific application, but not be proprietary for any single customer. EEPROMs are being used extensively due to their ease of programmability and the demand for these products is growing rapidly. The EEPROM market has grown at a CAGR of 24.6% from 1990 to 1995, slightly ahead of the overall semiconductor market growth. EEPROMs are somewhat isolated from FLASH products, as they serve different market needs. Reprogrammable EEPROMs are used in many products to store frequently used phone numbers (fax machines), store accumulated phone time (cellular phones) and change authorization codes (keyless security systems). EPROMs have been losing market share to FLASH products because FLASH memories are easily programmed and have higher data densities. However, there is a level of EPROM demand that is not economically served by FLASH. As a result, EPROMs are still utilized in virtually all segments of the low-end consumer electronic market (E.G., answering machines, garage door openers and washing machines) where storage of the instruction set for the microcontrollers require less than 2 Mb. 49 BUSINESS GENERAL Fairchild is a leading global designer, developer and manufacturer of logic, discrete and memory semiconductors. The Company's products are the building block components for virtually all electronic devices, from sophisticated computers to household appliances. Because of their basic functionality, the Company's products provide customers with greater design flexibility than more highly integrated products and improve the performance of more complex devices or systems. Given such characteristics, the Company's products have a wide range of applications in multi-markets. The Company supplies over 50,000 customers globally, representing industries such as telecommunications, consumer products, automotive, industrial systems and personal computers and peripherals. In addition, most of Fairchild's over 7,000 products have long product lives. The average life of the Company's product families is more than 12 years and many product lives extend up to 30 years. The Company has manufacturing facilities in Maine, Utah, Malaysia and the Philippines and has more than 6,000 employees. Established more than 35 years ago, Fairchild was one of the original founders of the semiconductor industry. Among Fairchild's notable innovations was its development of planar technology in 1959, one of the key events that spawned the subsequent explosive growth of the semiconductor industry. Even today this technology is an integral part of all semiconductor fabrication. Fairchild was established in 1959 as a provider of memory and logic semiconductors. National Semiconductor acquired Fairchild in 1987. National Semiconductor decided to relaunch Fairchild as an independent company in order for National Semiconductor to focus on developing customized systems on a chip (or chip sets) that integrate the functionality of many semiconductor components into a single chip. These systems are state-of-the-art products, requiring high levels of research and development expense, and are exposed to very short product life cycles. Fairchild operates at the other end of the semiconductor spectrum, designing and manufacturing standard semiconductors that can be utilized by manufacturers of electronic products in a wide variety of solutions. Fairchild's products are long-lived, with some products designed more than 30 years ago still contributing to the Company's financial success. Fairchild's customers require standard non-customized products which provide the most reliable solution with the best price/performance result and which remain continually available throughout the customer's products' often lengthy lifecycle. BUSINESS STRATEGY The Company's objective is to be the leading supplier of multi-market semiconductors to the worldwide telecommunications, consumer products, automotive, industrial systems and personal computer and peripherals industries. As a stand-alone company, Fairchild is implementing a business strategy that emphasizes the following key elements: INCREASE MARKET PENETRATION OF EXISTING PRODUCTS. As the only global semiconductor company focused solely on the logic, discrete and memory markets, Fairchild is uniquely positioned to dedicate its sales and marketing efforts toward expanding the market share of its existing products. Following National Semiconductor's decision to launch Fairchild as an independent company, Fairchild began to build an internal sales force dedicated solely to the sale of Fairchild's products. The Company's internal sales force, authorized representatives and distributors are expanding customer information programs (including technical specifications, application notes and on-line services), augmenting the Company's comprehensive customer design-in support efforts (including application engineering and detailed product performance data) and increasing trade advertising. INTRODUCE NEW PRODUCTS. The Company is focused on expanding its customer base and increasing its market share by continuing to develop new products and enhancements of its current product portfolio. The increasing portability of computers, cellular phones and other electronic products is one of the most significant industry trends. The Company is designing new products to meet the power management, lower voltage, and heat dissipation characteristics for portability. In the logic market, the Company, in alliance 50 with Toshiba and Motorola, recently developed the advanced CMOS VCX family of 2.5 volt/2.5 nanosecond products. In the discrete market, the Company intends to build on its current momentum in the surface DMOS Power MOSFET area with the addition of products with low resistance, low gate drive, small footprints, thin profiles and superior heat dissipation characteristics. In the memory market, the Company has the broadest serial EEPROM product offering in the industry and intends to offer even more of the widely accepted Microwire, IIC and SPI serial EEPROM product families and to develop application specific memories, such as Plug and Play components for the personal computer adapter card market and HiSeC for the automotive market. Management believes that continued product innovation and investment in research and development will help insulate it from changes in demand patterns that affect particular customers, industry segments or end-product markets. MAINTAIN COST LEADERSHIP. The Company has made significant capital expenditures over the last three years to increase capacity and improve manufacturing efficiency at its facilities. Management believes that its fabs and assembly and test facilities are among the most productive and efficient in the industry. The Company will continue to invest in people and assets in order to increase productivity and enhance process efficiency. Improvements now underway include the expansion of a continuous flow process throughout the entire Penang test facility and the introduction of reel-to-reel processing in the Cebu assembly and test plant. MAINTAIN CONSISTENT HIGH QUALITY CUSTOMER SERVICE. Multi-market semiconductor products are available from a number of providers--accordingly, logistical support, customer service and delivery are critical to customer retention and sales growth. Fairchild seeks to distinguish its service by providing the industry's best support services, including electronic order entry and inquiry, just-in-time delivery and a full range of Internet services that provide device specifications and order entry for samples. Fairchild's customer support services are provided primarily from four regional customer support centers as well as many other sales office locations throughout the world. CUSTOMERS AND APPLICATIONS Fairchild designs, develops and manufactures products that it supplies to more than 50,000 customers. The Company provides a wide range of more than 7,000 logic, discrete and memory products to its diverse customer base. The Company's position as a strategic supplier of basic and essential semiconductor products fosters close relationships with customers. These relationships result in additional growth opportunities for sales of existing products as well as early knowledge of customers' evolving requirements and opportunities arising from the related development of their new products. The following table sets forth the Company's principal end-user markets, the percentage of Fiscal Year 1996 revenue generated from each end-user market, certain applications for its products and certain of the Company's customers in Fiscal Year 1996. Products from each of the Company's three businesses are used throughout each of the major end-user markets set forth below. 51 Personal Computer and Peripheral END MARKETS: Telecommunications Systems Consumer Products Automotive Industrial/Other - ---------------------------------------------------------------------------------------------------------------------------------- PERCENTAGE OF THE COMPANY'S FISCAL YEAR 1996 TRADE REVENUE: 27% 31% 8% 11% 23% - ---------------------------------------------------------------------------------------------------------------------------------- APPLICATIONS: Answering machines Chips for smartcards Cable television Airbags Industrial Central office Disk drives systems Antiskid braking automation switching systems Monitors Compact disc players kits and control Digital cellular Network controllers Home security Automotive Intelligent power telephones Optical scanners systems entertainment switches ISDN controllers Photocopiers Household appliances systems Lighting systems Modems Printers Pay television Central locking (lamp ballasts) PBX systems PC motherboards decoders systems Motor controllers Telephone sets Satellite receiver Engine management Power supplies (corded and decoding circuits systems Smartcard readers cordless) Video cassette Fuel injection recorders circuits Ignition circuits Transmission control circuits - ---------------------------------------------------------------------------------------------------------------------------------- CUSTOMERS: Alcatel Apple Canon Bosch Allen Bradley Ericsson Compaq Creative Design Chrysler American Power Lucent Technologies Dell Goldstar Delco Electronics Honeywell Northern Telecom Gateway Sony Ford Reliance Samsung Hewlett-Packard Thompson Consumer Mitsubishi Siemens Siemens IBM Zenith Teves Tektronics Intel Toyota Teradyne NEC Seagate Technology Toshiba - ---------------------------------------------------------------------------------------------------------------------------------- EXAMPLE OF Portable phone Computer VCR Engine Control Electric motor PRODUCT assembly line APPLICATION: control - ---------------------------------------------------------------------------------------------------------------------------------- INPUT: Turn on phone Turn on computer Program VCR to Start car Start motor record assembly conveyor - ---------------------------------------------------------------------------------------------------------------------------------- WHAT THE PRODUCT Power is routed from Boot up program EEPROM memory is Program in EPROM Logic devices and DOES: battery to active moves from programmed to memory directs fuel discrete products circuits by a EPROM to main start VCR mixture turn on and off discrete DMOS memory via logic conveyor system transistor chip; logic chips communicate between main memory and processor - ---------------------------------------------------------------------------------------------------------------------------------- RESULT: A phone call is made Internet is accessed Program is recorded Car runs smoothly Motor is assembled with fewer emissions
52 PRODUCTS AND TECHNOLOGY Fairchild designs, develops and manufactures a broad range of products used in a wide variety of microelectronic applications, including telecommunications, personal computers and peripherals, consumer products, and automotive and industrial systems. The Company's products are organized into three principal products groups: logic products, discrete products and memory products. LOGIC PRODUCTS Logic devices are digital ICs that control the operation of electronic systems and move data. The Company designs, develops and manufactures standard logic devices utilizing three wafer fabrication processes: CMOS, BiCMOS and Bipolar. Within each of these production processes, the Company manufactures products that possess advanced performance characteristics, as well as mature products which provide high performance at low cost to customers. Since market adoption rates of new standard logic families have historically spanned several years, management anticipates significant continued revenues from its mature products. Customers are typically slow to move from an older product to a newer one. Further, for any given product, standard logic customers use several different generations of logic products in their designs. As a result, typical life cycles for logic families are from 20 to 25 years. In Fiscal Year 1996, the Company derived 91% of its total trade revenues from products developed more than seven years ago. Nonetheless, management believes that significant future growth will be derived from new or recently-developed applications that require advanced technologies. Since it takes new logic products an average of three to five years to reach full market acceptance, the Company has continually invested in new products to generate future revenue growth. The Company currently has a strong portfolio of recent product innovations with a leading market position in high growth markets. The Company's logic products are used in a wide variety of microelectronic applications, including telecommunications, personal computers and peripherals, automotive systems, consumer products and industrial systems. According to reports published by Insight Onsite, in 1995 the Company was the third largest supplier of all standard logic products ($2.9 billion TAM) in the world, with a market share of approximately 11.2%. Within the advanced standard logic market ($1.2 billion TAM), the Company was the No. 2 supplier in 1995, behind only Texas Instruments. In total, the Company's product portfolio includes approximately 2,000 separate ICs and over 4,700 device types. The Company serves more than 50,000 logic customers worldwide including Alcatel, Delco Electronics, Hewlett-Packard, IBM, Lucent, NEC, Siemens and Toshiba. CMOS. CMOS is a technology that consumes less power than Bipolar technology and therefore permits more transistors to be integrated into a single IC. Emerging portable applications such as laptop computers, cellular telephones and hand-held meters all require the low power of CMOS technology. As a result of its greater capabilities, CMOS technology has been expanding at the expense of Bipolar. Given the push toward portability and further integration, use of CMOS technology is expected to continue to expand. The Company's role as a significant innovator in the logic industry is evidenced by its development of several leading edge technologies and industry firsts including Low Voltage CMOS and FACT-TM-, as well as the VHC Low Noise High Speed CMOS product recently introduced jointly by Fairchild and Toshiba. Fairchild was the No. 2 supplier in the advanced CMOS logic market in 1995. BIPOLAR. Bipolar devices typically operate at high speeds, require more power and are less costly than CMOS devices, and are used in many applications that do not require CMOS solutions. In 1980, Fairchild originated FAST-Registered Trademark- and continues to be a market leader in the Bipolar product group, with a 16.9% market share of the 1995 worldwide $1.1 billion TAM. The Company supplies a full line of Bipolar products to a wide customer base in all end-user applications. BICMOS. BiCMOS is a hybrid of CMOS and Bipolar technologies developed to combine the high speed and high drive characteristics of bipolar technologies with the low power consumption and high 53 integration of CMOS technologies. BiCMOS is an emerging technology which requires complex manufacturing processes and is used in niche applications, primarily in the telecommunications market. The revenue generated by the Company from BiCMOS technology in 1996 was not significant. DISCRETE PRODUCTS Discrete devices are individual diodes or transistors that perform basic signal amplification and switching functions in electronic circuits. Driving the growth of discretes is the increasing importance of power management, particularly in portable applications (E.G., pagers and notebook computers). Fairchild participates in both the power and small signal discrete markets, manufacturing semiconductors that condition (or shape) power or signals for use by other devices. While the world market is dominated by such multinational semiconductor manufacturers as Toshiba, Motorola and Philips, competitors in the discrete industry compete primarily on a regional basis. Within the domestic market, which is Fairchild's primary market, Motorola is the No. 1 competitor with 1996 discrete revenues of $1.4 billion. Fairchild, which has aggressively pursued opportunities in the domestic discrete market and successfully increased its discrete revenues from $65.8 million in Fiscal Year 1992 to $175.0 million in Fiscal Year 1996, is second only to Motorola in the discrete market. The balance of the domestic industry is highly fragmented, with more than 50 participants with average revenues from discrete products below $40 million. The Company's Fiscal Year 1996 discrete revenues represented approximately 25.4% of Fairchild's total trade revenues. The Company serves more than 15,000 discrete customers worldwide including Compaq, Intel, Hewlett-Packard, Motorola, Seagate, Northern Telecom, Delco Electronics and Sony Electronics. POWER. Power discrete devices are used to convert, switch or otherwise shape or condition electricity. The Company offers a wide range of DMOS power MOSFETs and Bipolar power MOSFETs designed for low- and medium-voltage applications over a wide range of performance characteristics, power handling capabilities and package options. Management believes the trends towards smaller and lighter products and longer battery life, as well as batteries with built-in smart functions, will continue to drive demand for power discretes that handle higher power levels in smaller packages (increased power density) with higher efficiency. These products are commonly found in portable computers and peripherals, portable telephones, automobiles, and battery-powered devices. SMALL SIGNAL. Fairchild manufactures and sells a wide range of small signal discretes, including single junction glass diodes, small signal transistors, JFETs and Zener diodes. Designed to handle one watt or less of electrical power, these products are available in a wide variety of package configurations. Small signal devices switch, amplify and otherwise shape or modify electronic signals and are found in nearly every electronic product, including computers, cellular phones, mass storage devices, televisions, radios, VCRs and camcorders. MEMORY PRODUCTS The Company designs, develops and manufactures non-volatile memory circuits which retain data after power to the device has been shut off. The non-volatile memory market is divided into three segments: EPROM, EEPROM and FLASH. EPROMs are electrically programmable read-only memories. EEPROMs are electrically erasable programmable read-only memories that are similar to EPROMs, except they can be erased electronically before being reprogrammed. These non-volatile memory devices are used in personal computers and peripherals, telecommunications, consumer products, automotive and industrial systems. The Company offers an extensive portfolio of high performance serial EEPROM and EPROM products. Management believes that Fairchild is a leader in providing an extensive memory product portfolio to the marketplace, affording it a competitive advantage. Selected memory customers of the Company include Bosch Automotive Motor Systems, Inc., Chrysler, Compaq, Delco Electronics, Hewlett-Packard, Matsushita Electric Industrial Co., Ltd., Siemens and U.S. Robotics Corp. 54 EPROMS. EPROMs are used in cellular phones, telecommunication switching equipment, automotive applications, personal computer hard disk drives and Basic Input & Output Systems ("BIOS"), printer controllers, industrial machine controls and numerous other types of electronic equipment to store data instructions which control the equipment's operation. The ability of EPROMs to be programmed electrically by the equipment manufacturer enables them to achieve shorter time to market for new products than if they used products that must be programmed by the chip manufacturer. EPROMs are generally used in preference to more expensive FLASH memory devices in applications where cost is a major issue. EPROMs are primarily utilized in applications where storage of the instruction sets for microcontrollers requires less than 2 Mb in density, which is virtually all segments of the low-end consumer electronic market (E.G., answering machines, garage door openers and washing machines). The Company's portfolio of EPROM devices includes three product groups: (i) low density 5 volt read, (ii) medium and high density 5 volt read and (iii) high density, low voltage read. The low density 5 volt family is a mature family line in a declining market. As there are few suppliers of low density products, management believes the Company is uniquely positioned to capture market share and achieve high margins with this product despite overall market shrinkage. The medium and high density 5 volt family is a medium life cycle product in a slow growth market. The high density low voltage family is an emerging product line in a high growth market. With the increase in portable consumer devices, lower voltage products are in demand. In 1995, the Company was ranked fifth in the EPROM market ($1.4 billion TAM), with a 9.4% market share. EEPROMS. EEPROMs are used primarily to store changing information in consumer products and automotive applications such as microwaves, televisions, stereos and automotive controls. The Company's serial EEPROM product portfolio is divided into two product categories: (i) standard EEPROM and (ii) ASSPs. The Company's standard EEPROM products serve each of the three bus interface protocols used with all industry standard microcontrollers. The bus is the data path between memory devices and the microcontroller. The Company's ASSP products are individually developed for specific applications and combine the Company's core EEPROM competencies with logic capabilities. The Company's ASSP products serve three applications groups: HiSeC, Plug and Play and SPD. HiSeC, introduced in 1994, is a single chip remote keyless entry solution which operates complex rolling codes for secure entry. The device is intended for applications such as automotive keyless entry systems, garage door openers and other applications where secure transmission of a code is critical. Plug and Play devices allow manufacturers of computer add-on cards to configure automatically their cards for the host system. Since the introduction of Plug and Play in 1995, the Company has created several new generations of Plug and Play devices. SPD, introduced in 1996, allows a computer to identify specifications of an add-on memory module and is used in memory upgrade products. In the rapidly growing ASSP market, the Company's strategy is to collaborate with customers in developing high margin ASSP products which utilize the Company's unique ability to combine logic and memory on a chip to deliver differentiated solutions. The Company is currently developing two additional ASSPs, a radio frequency identification product, named RFID, for contact-less inventory control and inventory management applications, and Motherboard Mux, a device which enables the variation of microprocessor speed. As a stand-alone company, the Company intends to focus on the large market opportunities available in ASSP products. In 1995, the Company was ranked third in the serial EEPROM market ($586 million TAM), with an 9.0% market share. SALES, MARKETING AND DISTRIBUTION The Company's Fiscal Year 1996 revenue was derived from trade sales of semiconductors (89% of total revenues) and contract manufacturing services for National Semiconductor (11%). In Fiscal Year 1996, the Company derived approximately 61% of its trade sales from OEM customers through its regional sales organizations and 39% of its trade sales through distributors. 55 Fairchild operates regional sales organizations in Europe, the Americas and the Asia/Pacific region. Each of the three regional sales organizations is supported by logistics organizations which manage independently-operated FOB warehouses. Product orders flow to the Company's manufacturing facilities, where the product is made. Products are then shipped to the central warehouse in Singapore, which ships to the regional warehouses for eventual delivery to the customer. Fairchild has a dedicated direct sales organization operating in the Americas, Europe and Asia/Pacific regions that serves its major OEM accounts. The Company's distributors and manufacturer's representatives distribute its products around the world. The sales managers within each region are responsible for Fairchild's distributors and representatives servicing that region. Management believes that maintaining a small, highly focused, direct sales force selling products for each of the Company's three businesses, combined with an extensive network of distributors and representatives, is the most efficient way to serve its multi-market customer base. Fairchild also maintains a dedicated marketing organization, which consists of marketing organizations in each product group, including tactical and strategic marketing and applications, as well as marketing personnel located in each of the three sales regions. Typically, distributors handle a wide variety of products, including products that compete with Fairchild products, and fill orders for many customers. Most of the Company's sales to distributors are made under agreements allowing for market price fluctuations and/or the right of return on unsold merchandise. The Company has historically experienced low levels of returns of unsold products. Sales representatives generally do not offer products that compete directly with the Company's products, but may carry complementary items manufactured by others. Representatives do not maintain a product inventory; instead their customers place large quantity orders directly with Fairchild and are referred to distributors for smaller orders. For a transition period of approximately one year following the Transactions, in order to provide a smooth transition for the Fairchild customer base, National Semiconductor has agreed to make available to Fairchild much of its sales organization infrastructure, as well as its Japanese marketing and distribution infrastructure and the use of its regional logistics organizations. See "The Transactions--Transition Services Agreement." During this period, customers place their orders either through National Semiconductor's Customer Response Centers in Germany, Texas, Singapore and Japan, or through Fairchild's network of independent distributors and manufacturer's representatives. Following the transition period, Fairchild will utilize its own inside sales organization. RESEARCH AND DEVELOPMENT The Company's expenses for research and development in Fiscal Years 1994, 1995 and 1996 were $27.4 million, $31.0 million and $30.3 million, respectively. Such expenses represented 4.2%, 5.0% and 4.4% of trade sales in Fiscal Years 1994, 1995 and 1996, respectively. The Company's research and development expenses are charged to operations as incurred. Management expects that it will have to increase its direct research and development expenditures following the date of consummation of the Transactions from approximately 1.7% of Fiscal Year 1996 trade sales to approximately 3.3% of trade sales. Manufacturing technology is the key determinant in the improvement of semiconductor products. Each new generation of process technology has resulted in products with higher speed and greater performance produced at lower cost. Infrastructure investments made in recent years will enable the Company to continue to achieve high volume, high reliability and low-cost production using leading edge process technology. The Company's research and development efforts are focused on new product development and improvements in process technology. The Company's new product efforts are primarily focused on three major areas: (i) in the logic product business, toward multi-market solutions for off board driving (backplanes) applications, which drive signals from a printed circuit board through a connector to other parts of the system; on board buffering applications, which add current drive to signals on a printed circuit board; on board inter-connect 56 applications, which route or gate signals between electronic devices on a printed circuit board; and signal conditioning applications, which shape, invert, delay or change electrical signals within the system; (ii) in the discrete product business, toward remaining on the forefront of technological change and developing enhancements of its current and future products; and (iii) in the memory product business, toward producing cost competitive standard products and developing value-added ASSP solutions that provide the Company's customers a competitive cost or functional advantage. The Company maintains an independent research and development organization at its South Portland facility, which is supported by its engineering staff at the Salt Lake City, Santa Clara, Penang and Cebu locations and by its marketing personnel worldwide. The Company works closely with its major customers in many research and development situations, an arrangement which management believes substantially increases the likelihood that the Company's products will be designed directly into the customers' products and achieve rapid and lasting market acceptance. MANUFACTURING Fairchild currently operates four manufacturing facilities, two of which are front-end wafer fabrication facilities located in the United States and two of which are back-end assembly and test facilities in the Asia/ Pacific region. Fairchild's products are manufactured and designed using a broad range of manufacturing processes and proprietary design methods. The Company uses all of the prevalent function-oriented process technologies, including CMOS, Bipolar, BiCMOS, DMOS and non-volatile memory technologies. The Company's manufacturing operations are organized around the concept of delivering maximum customer value through premier service and minimizing total customer costs. The table below sets forth certain information with respect to Fairchild's current manufacturing facilities, products and technologies. MANUFACTURING FACILITIES
LOCATION PRODUCTS TECHNOLOGIES - ---------------------- --------------------------------- --------------------------------- FRONT-END FACILITIES: South Portland, Bipolar, CMOS and 4-inch fab -- 5.0/3.0 micron Maine BiCMOS logic products Bipolar and CMOS National Semiconductor 5-inch fab -- 3.0/1.5 micron contract manufacturing Bipolar and CMOS 6-inch fab -- 1.5/0.8 micron CMOS and BiCMOS Salt Lake City, Utah EPROMs, EEPROMs, Plug and 6-inch fab -- 2.0/0.65 micron Play CMOS Discrete power EEPROM National Semiconductor -- 2.0/0.8 micron CMOS contract manufacturing EPROM -- 2.0 micron DMOS BACK-END FACILITIES: Penang, Malaysia Bipolar, CMOS and BiCMOS logic MDIP, SOIC, EIAJ, TSSOP, SSOP, products 8-56 Pins National Semiconductor assembly and test services Cebu, the Power and small signal discrete TO92, SOT-23, Super SOT, SOT-223, Philippines National Semiconductor assembly TO220, TO263 and test services
The Company's strategy is to have its manufacturing facilities dedicated to its product groups. The South Portland and Penang facilities primarily support the logic products group and the Salt Lake City and 57 Cebu facilities primarily support the discrete and memory products groups. The Company also subcontracts fabrication of wafers and certain discrete products to Torex Semiconductor as well as certain back-end assembly and testing operations to Alphatech. In addition, the Company is entering into foundry and assembly service agreements with National Semiconductor, under which the Company will purchase certain services from National Semiconductor. See "The Transactions--Manufacturing Agreements." Fairchild's manufacturing processes use many raw materials, including silicon wafers, copper lead frames, mold compound, ceramic packages and various chemicals and gases. The Company obtains its raw materials and supplies from a large number of sources on a just-in-time basis. Although supplies for the raw material used by the Company are currently adequate, shortages could occur in various essential materials due to interruption of supply or increased demand in the industry. All of the Company's manufacturing facilities have been certified to conform to ISO international quality standards. Several major customers, including Siemens, Intel, AT&T and Ford, have recognized Fairchild's commitment to quality and have honored the Company with numerous quality awards. The Company's CIM systems provide management with real time data on all aspects of the performance of its manufacturing lines. BACKLOG The Company's trade sales are made primarily pursuant to standard purchase orders that are generally booked from one to twelve months in advance of delivery. Backlog is influenced by several factors including market demand, pricing and customer order patterns in reaction to product lead times. Quantities actually purchased by customers, as well as prices, are subject to variations between booking and delivery to reflect changes in customer needs or industry conditions. Fairchild recognizes only the first 26 weeks of backlog. Backlog as of March 23, 1997 was $175.8 million (exclusive of contract manufacturing services), as compared to $173.0 million as of February 23, 1997 and $201.9 million as of February 25, 1996. The Company recognizes revenue from contract manufacturing services but does not account for these revenues on a backlog basis. Although the Company's backlog has increased in recent periods due to improved conditions in the semiconductor market, in a declining market the Company has in the past and may in the future be requested to reduce prices to limit the level of order cancellations. Despite price reductions, however, in an industry downturn order cancellations may still be expected, particularly by distributors and for standard products. The Company's level of backlog is therefore not necessarily a reliable indicator of the level of future billings. Fairchild also sells certain products to key customers pursuant to contracts. Contracts are annual fixed-price contracts with customers setting forth the terms of purchase and sale of specific products. These contracts allow the Company to schedule production capacity in advance and allow customers to manage their inventory levels consistent with just-in-time principles while shortening the cycle times required to produce ordered products. COMPETITION Markets for the Company's products are highly competitive. Although only a few companies compete with Fairchild in all of the Company's product lines, the Company faces significant competition within each of its product lines from major international semiconductor companies. Some of the Company's competitors may have substantially greater financial and other resources with which to pursue engineering, manufacturing, marketing and distribution of their products than the Company. Competitors include manufacturers of standard semiconductors, application-specific ICs and fully customized ICs, including both chip and board-level products, as well as customers who develop their own integrated circuit products. 58 The Company's primary competitors include Motorola, Siliconix Inc., International Rectifier Corporation, Siemens, Philips, Rohm Corporation, Texas Instruments, Toshiba, Integrated Device Technology, Inc., SGS-Thomson, Inc., Microchip Technology Inc., Atmel Corporation, Xicor, Inc. and Advanced Micro Devices, Inc. The Company competes in different product lines to various degrees on the basis of price, technical performance, product features, product system compatibility, customized design, availability, quality and sales and technical support. The Company's ability to compete successfully depends on elements both within and outside of its control, including successful and timely development of new products and manufacturing processes, product performance and quality, manufacturing yields and product availability, customer service, pricing, industry trends and general economic trends. PROPERTIES The Company's corporate headquarters as well as certain manufacturing and warehouse operations are located in approximately 240,000 square feet of space in buildings owned by the Company in South Portland, Maine. Additional manufacturing, warehouse and office facilities are housed in approximately 300,000 square feet of space in buildings owned by the Company in Salt Lake City, Utah. The Company owns or leases approximately 397,000 square feet of manufacturing and warehouse space in Penang, Malaysia. Additional warehouse space is leased in Singapore. Manufacturing, warehouse and office facilities are housed in approximately 170,000 square feet of space owned or leased by the Company in Cebu, the Philippines. Additional office facilities are located in leased space in Santa Clara, California. Leases affecting the facilities in Penang, Malaysia and Cebu, the Philippines are generally in the form of long-term ground leases, with the Company owning improvements on the land. The initial terms of these leases will expire beginning in 2014. In some cases the Company has the option to renew the lease term, while in others the Company has the option to purchase the leased premises. TRADEMARKS AND PATENTS The Company owns rights to a number of trademarks and patents that are important to its business. Management considers Fairchild, FACT-TM- and FAST-Registered Trademark- to be the trademarks that are material to the Company's operations. Fairchild's corporate policy is to protect proprietary products by obtaining patents for such products when practicable. Under the Technology Licensing and Transfer Agreement with National Semiconductor entered into in connection with the Transactions, the Company has acquired more than 150 U.S. patents and obtained perpetual, royalty free non-exclusive licenses on more than 1,000 of National Semiconductor's patents. Management believes that it has the right to use all technology used in the production of its products. See "The Transactions--Technology Licensing and Transfer Agreement." ENVIRONMENTAL MATTERS The Company's operations are subject to environmental laws and regulations in the countries in which it operates that regulate, among other things, air and water emissions and discharges at the Company's manufacturing facilities; the generation, storage, treatment, transportation and disposal of solid and hazardous wastes by the Company; the investigation, remediation and response related to environmental contamination; and the release of hazardous substances, pollutants and contaminants into the environment at or from properties operated by the Company and at other sites. As with other companies engaged in like businesses, the nature of the Company's operations exposes it to the risk of liabilities or claims with respect to such matters. Management believes, however, that its operations are in substantial compliance with applicable environmental laws and regulations. 59 The Company's facilities in South Portland, Maine and, to a lesser extent, Salt Lake City, Utah have ongoing remediation projects to respond to certain releases of hazardous substances that occurred prior to the consummation of the Transactions. Pursuant to the Asset Purchase Agreement, National Semiconductor has agreed to indemnify the Company for the cost of these projects. See "The Transactions--Asset Purchase Agreement." Based on the historical costs of these projects, management does not believe the cost to continue to respond to these conditions will be material, even without the indemnity. The Company has leased one building as office space from National Semiconductor, which is located in Santa Clara, California on a portion of a Superfund site. The Regional Water Quality Control Board, acting as an agent for the Environmental Protection Agency, has selected a clean-up remedy for the Superfund site, portions of which management understands are currently being implemented. With certain limitations, any claims asserted against the Company for damages in connection with contamination existing prior to the closing of the Asset Purchase Agreement would be covered under National Semiconductor's indemnity in the Asset Purchase Agreement and, in connection with the Santa Clara facility, under the lease. In connection with the Transactions, the Company identified certain conditions which may require further investigation and possible remediation or response activity. However, management believes that based on independent consultants' projected costs for such activities and the National Semiconductor indemnity, such additional investigation, remediation or response activities will not have a material adverse effect on the Company's results of operations, business or financial condition. Future laws or regulations and changes in existing environmental laws or regulations may subject the Company's operations to different, additional or more stringent standards. While historically the cost of compliance with environmental laws has not had a material adverse effect on the Company's results of operations, business or financial condition, management cannot predict with certainty its future costs of compliance because of changing standards and requirements. There can be no assurance by the Company that material costs will not be incurred in connection with the future compliance with environmental laws. LEGAL PROCEEDINGS From time to time the Company is involved in legal proceedings arising in the ordinary course of its business. Management believes there is no litigation pending that could have a material adverse effect on its operations. EMPLOYEES The Company's worldwide workforce consisted of approximately 6,180 employees (full- and part-time) as of February 23, 1997, none of whom were represented by collective bargaining arrangements. Of the total number of employees, approximately 5,455 were engaged in manufacturing, approximately 75 were engaged in marketing and sales, approximately 400 were engaged in administration, and approximately 250 were engaged in research and development. Of the total number of employees, approximately 3,305 or 54% were employed in the logic product group, approximately 2,300 or 37% were employed in the discrete product group and approximately 575 or 9% were employed in the memory product group. THE TRANSACTIONS RECAPITALIZATION AGREEMENT Pursuant to the Recapitalization Agreement with National Semiconductor, the following transactions occurred on March 11, 1997 (collectively, the "Transactions"): (i) National Semiconductor transfered to the Company, pursuant to an Asset Purchase Agreement (the "Asset Purchase Agreement"), substantially all of the assets and certain of the liabilities of the Fairchild multi-market semiconductor business in exchange for (a) the Purchase Price Notes in the principal amount of $401.6 million and (b) all of the Company's capital stock; (ii) National Semiconductor transferred all of the capital stock of the Company and approximately $12.8 million in cash to Fairchild Holdings in exchange for shares of Holdings Preferred 60 Stock, Holdings Common Stock and the Holdings PIK Note in the principal amount of approximately $77.0 million; (iii) Fairchild Holdings issued (a) to Sterling shares of Holdings Preferred Stock and Holdings Common Stock for $58.5 million in cash and (b) to the Management Investors shares of Holdings Preferred Stock and Holdings Common Stock for approximately $6.5 million in cash; (iv) Fairchild Holdings contributed cash in the amount of approximately $77.8 million to the capital of the Company; (v) the Company borrowed $120.0 million under the Senior Credit Facilities and received the net proceeds from the issuance of the Notes in the Offering; and (vi) the Company repaid the Purchase Price Notes in cash. Pursuant to the Recapitalization Agreement, the Company and National Semiconductor entered into the Asset Purchase Agreement, the Technology Licensing and Transfer Agreement, the Fairchild Foundry Services Agreement, the Fairchild Assembly Services Agreement, the National Foundry Services Agreement, the National Assembly Services Agreement, the Mil/Aero Wafer and Services Agreement, the Shared Facilities Agreement, the Shared Services Agreement, the Santa Clara Lease, the Transition Services Agreement, the Stockholders' Agreement and the Registration Rights Agreement. See "Ownership of Capital Stock--Stockholders' Agreement" and "--Registration Rights Agreement." ASSET PURCHASE AGREEMENT The Asset Purchase Agreement provides for the sale from National Semiconductor to Fairchild of substantially all the assets and certain of the liabilities of the logic, discrete and memory business units. The assets purchased by Fairchild include, among other things, certain properties located at South Portland, Maine and Salt Lake City, Utah (see "Properties") as well as, with some exceptions and limitations, all of the manufacturing equipment, motor vehicles, office furniture, inventory, governmental permits and licenses and other assets necessary to operate the Company's businesses. In addition, purchased assets include (i) the contractual rights and obligations which primarily relate to the logic, discrete and memory product units, (ii) the intellectual property rights granted under the Technology Licensing and Transfer Agreement and (iii) all of the capital stock of the Foreign Subsidiaries which own or lease the properties located in Penang, Malaysia and Cebu, the Philippines. Among the liabilities not assumed by Fairchild are any of the environmental liabilities (as defined in the Asset Purchase Agreement) of National Semiconductor. The agreement provides that National Semiconductor will indemnify Fairchild for any damages arising from such excluded liabilities. The agreement also provides for Fairchild to offer to employ all logic, discrete and memory employees on substantially the same terms and conditions as they were employed immediately before the Transactions. In addition, the agreement contains a provision that, subject to certain limitations, forbids National Semiconductor for a period of five years after the consummation of the Transactions from engaging in any business competing with Fairchild products in existence on the date the Transactions are consummated. For a period of 39 months after consummation of the Transactions the agreement, subject to certain limitations, forbids the Company from engaging in any business competing with National Semiconductor's products on the date the Transactions were consummated. TECHNOLOGY LICENSING AND TRANSFER AGREEMENT Under the Technology Licensing and Transfer Agreement, National Semiconductor assigned or non-exclusively licensed to the Company certain patent, copyright, maskwork, trade secret and trademark rights necessary to the Company's business and to make certain improvements to the Company's product line. These rights include a non-exclusive license to practice certain processes necessary to the Company's business. For patent rights, National Semiconductor assigned to the Company more than 150 patents and granted the Company a worldwide, royalty-free, non-exclusive license under applicable patents and patent applications, for the life of such patents (but without right to sublicense) to manufacture, package, use, sell, offer for sale, import, design or develop the Company's products and certain improvements to those products. With respect to copyrights and maskworks used in the Company's business, National Semiconductor granted the Company an undivided interest in certain co-owned copyrights and maskworks. For trademarks, National Semiconductor assigned certain trademarks related to the Company's products and granted licenses recognizing transitional use of visible trademarks and of product-embedded trademarks, 61 which embedded trademarks in some cases will not be eliminated until the relevant product is discontinued or replaced. For patents that National Semiconductor assigned to the Company, a worldwide, paid-up, royalty-free, non-exclusive license, with a limited right to sublicense, was granted by the Company to National Semiconductor. National Semiconductor and the Company also agreed to further cross-license certain discoveries, improvements or inventions occurring within one year after the consummation of the Transactions, with no right to grant sublicenses (except for the purpose of settling third party claims against the Company). The agreement further provides that National Semiconductor, for a period of time, shall indemnify and render assistance to the Company for intellectual property claims made by third parties. MANUFACTURING AGREEMENTS Under the National Foundry Services Agreement and the Fairchild Foundry Services Agreement (collectively, the "Foundry Agreements"), National Semiconductor and Fairchild manufacture semiconductor products (I.E., provide "foundry" services) for each other during at least the 39-month period following consummation of the Transactions. Foundry services are the manufacturing processes through which thousands of integrated circuits are added to raw silicon wafers. The Fairchild Foundry Services Agreement establishes the terms and conditions under which Fairchild provides foundry services for National Semiconductor and the National Foundry Services Agreement defines the terms and conditions under which National Semiconductor provides foundry services for Fairchild. The Foundry Agreements (i) establish the processes used by the foundry service provider, (ii) define purchase commitments and production forecasts, (iii) establish pricing, (iv) provide for engineering support from the other party, (v) establish quality standards and (vi) specify delivery and payment terms, among other things. The agreements also specify warranty and inspection terms. The National Assembly Services Agreement and the Fairchild Assembly Services Agreement (collectively, the "Assembly Agreements") provide for assembly and test services between National Semiconductor and Fairchild during at least the 39-month period following consummation of the Transactions. During the assembly and test phase of semiconductor production, the thousands of integrated circuits produced on silicon wafers during the foundry phase are separated and packaged into individual devices ready for sale to the Company's customers. The Fairchild Assembly Services Agreement establishes the terms and conditions under which Fairchild provides assembly and test services for National Semiconductor and the National Assembly Services Agreement establishes the terms and conditions under which National Semiconductor provides such services for Fairchild. Similar to the Foundry Agreements, the Assembly Agreements establish terms for (i) volume commitments and production planning, (ii) ordering and shipping, (iii) quality, inspection and acceptance of finished goods and (iv) pricing and payment. For information on pricing under the Fairchild Foundry Services Agreement and the Fairchild Assembly Services Agreement, see Note 1(a) to "Notes to Unaudited Pro Forma Combined Condensed Statements of Operations." In addition to the Foundry Agreements and the Assembly Agreements, National Semiconductor and Fairchild have entered into the Mil/Aero Wafer and Services Agreement (the Foundry Agreements, the Assembly Agreements and the Mil/Aero Wafer and Services Agreement, collectively, the "Manufacturing Agreements") which establishes, in a similar fashion, the terms and conditions under which Fairchild manufactures integrated circuits for certain military and aerospace industry customers of National Semiconductor. The Manufacturing Agreements provide both the Company and National Semiconductor assured sources of supply and demand. National Semiconductor is required to purchase from Fairchild a minimum of $330.0 million in goods and services in the first 39 months following the consummation of the Transactions at prices that are designed to generate a 20% gross profit for the Company, subject to certain 62 conditions and adjustments. See Note 1(a) of Notes to Unaudited Pro Forma Combined Condensed Financial Statements of Operations. See "Risk Factors--Dependence on National Semiconductor." TRANSITION SERVICES AGREEMENT Under the Transition Services Agreement, National Semiconductor is providing a number of business support services to the Company that assist in Fairchild's conversion to an independent entity. From the consummation of the Transactions until, in most instances, June 1, 1998, National Semiconductor has agreed to provide to Fairchild (i) data processing and communication services, (ii) financial and administrative support, (iii) purchasing services, (iv) marketing and sales services, (v) logistics and operational support services, (vi) human resources and benefits services and (vii) security assistance and consulting as well as additional services as provided in separate shared facilities and services agreements for the South Portland, Maine site and a sublease for the Santa Clara, California site. Generally, the agreement provides for National Semiconductor to invoice Fairchild for the services provided, with certain charges based on a fixed cost and other charges based on National Semiconductor's actual incurred costs. In addition, under the agreement National Semiconductor has granted to the Company a royalty-free, perpetual and irrevocable worldwide license to use National Semiconductor's in-house business, engineering and manufacturing systems software. The license will survive termination of the agreement. See "Risk Factors-- Dependence on National Semiconductor." 63 MANAGEMENT DIRECTORS AND EXECUTIVE OFFICERS The following table sets forth certain information with respect to the persons who are members of the Board of Directors or executive officers of Fairchild Holdings and the Company. Other officers may also be appointed to fill certain positions. Each director of Fairchild Holdings and the Company will hold office until the next annual meeting of shareholders of Fairchild Holdings or the Company or until his successor has been elected and qualified.
NAME AGE TITLE - ------------------------------------ --- --------------------------------------------------------------------- Kirk P. Pond........................ 52 Chairman of the Board of Directors, President and Chief Executive Officer Joseph R. Martin.................... 49 Executive Vice President and Chief Financial Officer and Director Jerry M. Baker...................... 45 Executive Vice President and General Manager, Memory and Discrete Products Group W. Wayne Carlson.................... 54 Executive Vice President and General Manager, Logic Products Group Daniel E. Boxer..................... 51 Executive Vice President, General Counsel and Secretary Darrell Mayeux...................... 54 Senior Vice President, Worldwide Sales and Marketing David A. Henry...................... 35 Corporate Controller Matthew W. Towse.................... 34 Treasurer Brian L. Halla...................... 49 Director William N. Stout.................... 58 Director Richard M. Cashin, Jr............... 43 Director Paul C. Schorr IV................... 30 Director
KIRK P. POND, CHAIRMAN OF THE BOARD OF DIRECTORS, PRESIDENT AND CHIEF EXECUTIVE OFFICER. Mr. Pond has been the President of the Company since June 1996. Since 1987, Mr. Pond has held several executive positions with National Semiconductor, most recently Executive Vice President and Chief Operating Officer. Prior executive management positions were with Fairchild Semiconductor Corporation, Texas Instruments and Timex Corporation. JOSEPH R. MARTIN, EXECUTIVE VICE PRESIDENT, CHIEF FINANCIAL OFFICER AND DIRECTOR. Mr. Martin has been the Executive Vice President and Chief Financial Officer of the Company since June 1996. Mr. Martin has held several senior financial positions with National Semiconductor since 1989, most recently as Vice President of Finance, Worldwide Operations. Prior to joining National Semiconductor, Mr. Martin was Senior Vice President and Chief Financial Officer of VTC Incorporated, and prior to that held various senior positions with the Company. JERRY M. BAKER, EXECUTIVE VICE PRESIDENT AND GENERAL MANAGER, MEMORY AND DISCRETE PRODUCTS GROUP. Mr. Baker has been Executive Vice President and General Manager, Memory and Discrete Products Group, since December 1996. He has spent more than 24 years in a variety of engineering and management positions within National Semiconductor, most recently as Vice President and General Manager, Discrete Products Divisions. 64 W. WAYNE CARLSON, EXECUTIVE VICE PRESIDENT AND GENERAL MANAGER, LOGIC PRODUCTS GROUP. Mr. Carlson has been Executive Vice President and General Manager, Logic Products Group, since June 1996. He has 30 years of prior engineering and management experience with National Semiconductor and Fairchild, most recently as Vice President and General Manager, Data Management Division. DANIEL E. BOXER, EXECUTIVE VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY. Mr. Boxer joined the Company immediately following the consummation of the Transactions, having worked closely on behalf of the Company on many aspects of the Transactions. He has practiced law for 27 years and since 1975 had been a partner at the law firm of Pierce Atwood, Portland, Maine. His practice at Pierce Atwood included advising many of Maine's largest manufacturing companies, including the Company, on business, governmental, legal compliance and environmental issues. He was most recently a senior partner and Chairman of the firm's Management Committee. DARRELL MAYEUX, SENIOR VICE PRESIDENT, WORLDWIDE SALES AND MARKETING. Mr. Mayeux has been Senior Vice President, Worldwide Sales and Marketing since November 1996. He had been with National Semiconductor since 1992 as Vice President of Sales and Marketing for logic products group. He previously held engineering, marketing and general management positions with Texas Instruments and Philips. DAVID A. HENRY, CORPORATE CONTROLLER. Mr. Henry has been Corporate Controller since December 1996. He had been with National Semiconductor for eight years and has held various financial management positions, most recently as Director of Financial Planning and Analysis for Fairchild. Mr. Henry previously worked for Amfac, Inc. as well as Ernst and Whinney, and is a Certified Public Accountant. MATTHEW W. TOWSE, TREASURER. Mr. Towse became Treasurer upon consummation of the Transactions. He had been with National Semiconductor for six years and has held various financial management positions, most recently as Controller for the Fairchild plant in South Portland, Maine. Mr. Towse previously worked for Ernst & Young and is a Certified Public Accountant. BRIAN L. HALLA, DIRECTOR. Mr. Halla has been employed by National Semiconductor since 1996, serving as Chairman of the Board, President and Chief Executive Officer. Prior to joining National Semiconductor, Mr. Halla was Executive Vice President of LSI Logic Products at LSI Logic Corporation and had held positions at LSI Logic Corporation as Senior Vice President and General Manager, Microprocessor/DSP Products Group and Vice General Manager, Microprocessor Products Group. WILLIAM N. STOUT, DIRECTOR. Mr. Stout has been Chairman and Chief Executive Officer of Sterling Holding Company and Sterling's subsidiaries since 1988. Sterling is engaged, through subsidiaries including Trompeter Electronics, Inc. and Semflex, Inc., in the manufacture and sale of coaxial connectors, coaxial cable and coaxial cable assemblies. From 1985 to 1988, Mr. Stout was a private investor and consultant. From 1979 until 1985, Mr. Stout was President and Chief Executive Officer of Lundy Electronics & Systems, which manufactured electronic products and systems. RICHARD M. CASHIN, JR., DIRECTOR. Mr. Cashin has been employed by Citicorp Venture Capital Ltd. since 1980, and has been President since 1994. Mr. Cashin is a director of Levitz Furniture Incorporated, Lifestyle Furnishings International, Euromax and Titan Wheel International. PAUL C. SCHORR IV, DIRECTOR. Mr. Schorr has been employed by and been a Vice President of Citicorp Venture Capital Ltd. since 1996. Prior to joining Citicorp Venture Capital Ltd., Mr. Schorr was a consultant with McKinsey & Company, Inc. He is a director of Inland Resources. 65 DIRECTOR COMPENSATION AND ARRANGEMENTS It is not currently contemplated that those persons listed above as directors of the Company and who are employed by the Company or by Citicorp Venture Capital Ltd. will receive compensation for their services as directors. Members of the Board of Directors will be elected pursuant to certain voting agreements outlined in the Stockholders' Agreement. EXECUTIVE COMPENSATION The following table sets forth certain information concerning the compensation received by the five most highly compensated officers of the Company for services rendered in Fiscal Year 1996. SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION ANNUAL COMPENSATION ---------------- -------------------- STOCK OPTION ALL OTHER SALARY BONUS AWARDS (1) COMPENSATION(2) NAME AND PRINCIPAL POSITION ($) ($) (# SHARES) ($) - -------------------------------------------------------- --------- --------- ---------------- ---------------- Kirk P. Pond (3)........................................ 414,521 146,300 18,000 34,292 Chairman of the Board of Directors, President and Chief Executive Officer Joseph R. Martin........................................ 181,466 68,875 7,500 7,114 Executive Vice President and Chief Financial Officer and Director Jerry M. Baker.......................................... 169,370 54,744 10,200 6,906 Executive Vice President and General Manager, Memory and Discrete Products Group W. Wayne Carlson........................................ 234,125 64,815 7,000 8,895 Executive Vice President and General Manager, Logic Products Group Darrell Mayeux.......................................... 160,458 31,801 4,000 6,072 Senior Vice President, Worldwide Sales and Marketing
- ------------------------ (1) Options were granted for National Semiconductor common stock pursuant to National Semiconductor's Stock Option Plan. National Semiconductor's obligations under its Stock Option Plan were not assumed by Fairchild. (2) Reflects contributions and allocations to National Semiconductor's defined contribution retirement plans and the value of life insurance premiums paid by National Semiconductor for term life insurance. (3) In addition to the amounts disclosed in the table, Mr. Pond received, as long-term compensation from National Semiconductor in Fiscal Year 1996, $311,190 in long-term incentive plan payouts pursuant to National Semiconductor's Performance Award Plan. National Semiconductor's obligations under the Performance Award Plan were not assumed by Fairchild. 66 The following table provides information pertaining to individual grants made by National Semiconductor of options for shares of National Semiconductor common stock to the named executive officers in Fiscal Year 1996.
STOCK OPTIONS % OF ALL GRANT DATE GRANTED OPTIONS GRANTED EXERCISE PRESENT (# SHARES) TO ALL EMPLOYEES PRICE EXPIRATION VALUE (1) (%) (2) ($/ SHARE) DATE ($) (3) ------------- ----------------- ----------- ----------- ------------ Kirk P. Pond.................................. 18,000 0.46 28.25 9/29/05 308,660 Joseph R. Martin.............................. 7,500 0.19 27.13 7/20/05 123,509 5,200 0.13 28.25 9/29/05 89,168 5,000 0.13 22.50 12/20/05 68,288 Jerry M. Baker................................ W. Wayne Carlson.............................. 7,000 0.18 28.25 9/29/05 120,034 Darrell Mayeux................................ 4,000 0.10 28.25 9/29/05 68,591
- ------------------------ (1) Options for National Semiconductor common stock granted under the National Semiconductor Stock Option Plan during Fiscal Year 1996. (2) A total of 3,926,300 options were granted to National Semiconductor employees, including executive officers, during Fiscal Year 1996. (3) Represents grant date valuation computed under the Black-Scholes option pricing model adapted for use in valuing stock options. The actual value, if any, that may be realized will depend on the excess of the stock price over the exercise price on the date the option is exercised, so there can be no assurance that the value realized will be at or near the value estimated by the Black-Scholes model. Grant date values were determined based in part on the following assumptions: risk free rate of return of 7.5%, no dividend yield, time of exercise of ten years, discount for vesting restrictions of 0%-3% per year, and annualized volatility of 39.7% (based on historical stock prices for five years preceding the grant date). The following table provides information with respect to the named executive officers concerning the exercise of National Semiconductor options during Fiscal Year 1996, and unexercised National Semiconductor options held as of the end of Fiscal Year 1996.
NUMBER OF VALUE OF UNEXERCISED UNEXERCISED IN-THE- OPTIONS AT MONEY OPTIONS AT SHARES ACQUIRED VALUE FISCAL YEAR END FISCAL YEAR END ON EXERCISE REALIZED (EXERCISABLE/UNEXERCISABLE) (EXERCISABLE/UNEXERCISABLE) NAME (#)(1) ($)(2) (#) ($)(3) - ------------------------------- --------------- --------- -------------------------- ------------------------- Kirk P. Pond................... 25,000 593,750 82,250/41,750 728,594/27,656 Joseph R. Martin............... 9,875 72,047 0/19,625 0/10,781 Jerry M. Baker................. -- -- 19,475/16,950 162,897/7,188 W. Wayne Carlson............... -- -- 38,125/21,875 244,969/15,156 Darrell Mayeux................. 2,925 45,400 3,250/11,725 0/6,063
- ------------------------ (1) Options exercised were for National Semiconductor common stock. The table excludes any shares acquired under the National Semiconductor Employees Stock Purchase Plan. (2) Equals the market value of the underlying shares (based on the opening price of National Semiconductor common stock on the date of exercise) less the exercise price. (3) Represents the difference between $16.25, the market price of National Semiconductor common stock at Fiscal Year end, and the exercise price. 67 DEFERRED COMPENSATION AGREEMENTS National Semiconductor adopted the National Semiconductor Corporation Deferred Compensation Plan (the "Plan") shortly before consummation of the Transactions. Under the Plan, Kirk P. Pond, Joseph R. Martin and certain other Management Investors have elected to defer receipt of amounts that otherwise would have become payable under National Semiconductor's Key Employee Incentive Plan, Discrete Retention Bonus Plan, Discrete Performance Incentive Plan--Executive Level and/or letter agreements with National Semiconductor concerning certain payments relating to the Transactions. Upon consummation of the Transactions, Fairchild Holdings assumed the Plan and all liabilities with respect to payments due thereunder, and the Plan participants released National Semiconductor from those liabilities. The Plan is administered by a committee appointed by Fairchild Holdings' Board of Directors. Amounts a Plan participant defers pursuant to the Plan will be credited to an account for that participant on the books of Fairchild Holdings and will be credited with earnings based on the employee's election. Each Plan participant has elected that specified portions of the earnings on his deferrals will be measured based on the performance of Holdings Preferred Stock and Holdings Common Stock, and that a portion of the earnings on his deferrals will be measured based on short-term U.S. Treasury obligations. Amounts credited to a Plan participant's account also will be paid based on the participant's election. Each participant has elected that the portion of his account on which earnings are measured based on shares of Holdings stock will be paid when such shares, if actually held, would be redeemed, automatically or upon request, by Fairchild Holdings, to the extent that all restrictions on the transfer of such shares have lapsed. Generally, all payments under the Plan will be made in cash. Payments will be made in all events (1) upon liquidation or dissolution of the Company, (2) upon sale of fifty percent (50%) or more of the equity interests in the Company, consolidation or merger of the Company with or into another entity, or sale of all or substantially all of the Company's assets; (3) to the participant's beneficiary upon his death; and (4) upon the mandatory redemption of Holdings Preferred Stock. Payments pursuant to items (2) through (4) of the portion of any account the earnings on which are measured based on the performance of Fairchild Holdings stock will only be made, however, to the extent that shares of such stock, if actually held, would be redeemed at that time upon request. Payment to a participant may be accelerated if the participant suffers an unforeseeable financial emergency or severe hardship. Upon consummation of the Transactions, the Company established a grantor trust (a so-called "rabbi trust") (the "Trust") to which National Semiconductor and the Company together contributed cash in an amount equal to the aggregate amount of deferrals under the Plan as of the closing date of the Transactions. The trust agreement establishing the Trust provides that such amount, when contributed, will be invested in specified amounts of Holdings Preferred Stock and Holdings Common Stock. The Trust will be a party to the Stockholders' Agreement and will be treated as a Management Investor. National Semiconductor also entered into a Retention Agreement dated July 1996 with Kirk P. Pond, which assigned to Mr. Pond full management responsibility for National Semiconductor's logic and memory product lines including the manufacturing operations related thereto. Compensation for this assignment was agreed to be Mr. Pond's salary at the rate of $418,000 per annum, a stock option for 100,000 shares of common stock of National Semiconductor, vesting of which would be accelerated concurrently with the termination of Mr. Pond's employment if Mr. Pond's employment were to be terminated at the end of his assignment, an incentive reflecting returns to National Semiconductor of the businesses run by Mr. Pond, and an incentive based on the value received by National Semiconductor upon any sale or other disposal of the businesses. In addition, National Semiconductor agreed to provide Mr. Pond benefits upon termination of employment by National Semiconductor as follows: payment of salary and benefits for twelve months, payment of an incentive at 70% of base salary, crediting of one additional year's service towards certain payments under the Performance Award Plan and payment of 68 vacation accrued through the date salary ends. The other four executive officers of the Company named above entered into arrangements with National Semiconductor providing various benefits in connection with the sale or disposal of the businesses. The executive officers have no further obligations under these arrangements. EMPLOYMENT AGREEMENTS Concurrent with the consummation of the Transactions, the Company, Fairchild Holdings and Sterling entered into an employment agreement with each of Kirk P. Pond and Joseph R. Martin (each an "Executive"). Mr. Pond is employed as Chairman of the Boards of Directors and as Chief Executive Officer of the Company and Fairchild Holdings. Mr. Martin is employed as Executive Vice President and Chief Financial Officer, and serves as a member of the Boards of Directors, of the Company and Fairchild Holdings. The respective agreements provide for an annual base salary of $450,000 for Mr. Pond and $250,000 for Mr. Martin, subject in each case to increases at the discretion of the Board of Directors and to annual performance bonuses in accordance with the FSC Semiconductor Corporation 1997 Executive Officer Incentive Plan. Each agreement also provides for the Executive to receive standard Company benefits. The term of each agreement is three years subject to automatic renewal for up to two consecutive one-year terms unless, in each case, either the Company or the Executive gives prior notice of non-renewal. Under each agreement, either the Executive or the Company may terminate the agreement with or without cause. If terminated by the Company without cause or by the Executive with cause, each agreement requires the Company to pay the Executive monthly severance payments (approximately equal to his salary at the time of termination plus an amount equal to incentive awards payable in the fiscal year prior to termination) until the end of the term of the agreement or for 24 months if longer. Each Executive is subject to a non-competition covenant during the term of his agreement and for a period of at least 24 months following termination or expiration of the agreement. The Company may enter into employment agreements with other executive officers of the Company. PERSONAL SAVINGS AND RETIREMENT PLAN Fairchild Holdings and the Company have adopted a Personal Savings and Retirement Plan (the "Retirement Plan") for all eligible employees who are not foreign nationals or contract employees. The Retirement Plan includes a cash or deferred arrangement under Section 401(k) of the Internal Revenue Code and matching contributions under Section 401(m) of the Internal Revenue Code. Under the 401(k) plan, participants may elect to defer from 1% to 15% of their compensation on an after-tax or before-tax basis, directing the investment of these elective deferrals among several mutual funds. The Company will make quarterly matching contributions equal to 50% of the first 6% of an employee's before-tax elective deferral contributions for that period. Both elective deferrals and matching contributions under the 401(k) plan will be fully vested at all times. FAIRCHILD BENEFIT RESTORATION PLAN Fairchild Holdings and the Company have adopted the Fairchild Benefit Restoration Plan. Under the Plan, certain employees of the Company are eligible (i) to defer on a before-tax basis amounts over and above those they are permitted by law to defer under the Company's Retirement Plan and (ii) to receive matching contributions from the Company equal to the difference between matching contributions received under the Retirement Plan and the matching contributions they would have received under the Retirement Plan but for statutory limits applicable to such contributions. Deferral and matching contributions are credited to accounts established and maintained by the Company. Interest at a rate equal to a commonly reported rate for long-term A-rated corporate bonds is credited to participants' accounts at such times as determined by a committee appointed by the Board of Directors to administer the Plan. The Plan is an unfunded plan of deferred compensation, and amounts payable thereunder are paid out of general 69 corporate assets of the Company and are subject to the claims of the general creditors of the Company and Fairchild Holdings. FAIRCHILD INCENTIVE PROGRAM Fairchild Holdings and the Company have adopted the Fairchild Incentive Program. Under the Program, all regular full- and part-time employees of the Company (with certain limited exceptions) are eligible to receive annual or semiannual incentive awards from the Company. The amount of each payment is based on a given employee's "Target Award." As the Program is currently formulated, the Target Award is 8% of annual compensation for non-exempt employees, from 8% to 15% (depending on grade level) of annual compensation for exempt employees, and up to 35% (depending on grade level) of annual compensation for certain management-level employees. Payment awards range from 0% to 200% of the Target Award, depending on whether the Company achieves certain pre-established earnings goals. Certain participants in the Program are eligible to defer awards, and to the extent that the deferral option applies only to certain Program participants, it constitutes a separate unfunded plan known as the Fairchild Select Employee Incentive Deferral Plan (the "Deferral Plan"). For participants who elect deferral, the Company will establish and maintain book-entry accounts to which the Company shall credit deferred payments and interest equal to a commonly reported rate for long-term A-rated corporate bonds. Deferred amounts and accrued interest are paid to participants upon termination or on a date pre-selected by the participant according to the terms of the Plan. The Compensation Committee appointed by the Board of Directors of Fairchild Holdings will administer the Program and reserves the right, among other things, not to make award payments, and to modify or amend the Program. The Deferral Plan is an unfunded plan of deferred compensation, and benefits payable thereunder are paid out of general corporate assets of the Company and are subject to the claims of the general creditors of the Company and Fairchild Holdings. FSC SEMICONDUCTOR CORPORATION 1997 EXECUTIVE OFFICER INCENTIVE PLAN Fairchild Holdings has adopted the FSC Semiconductor Corporation 1997 Executive Officer Incentive Plan. Under the Plan, certain executive officers of the Company may be eligible to receive annual incentive awards, based on a "Target Award" which ranges from 40% to 70% of an officer's base annual compensation. Actual award payments range from 0% to 200% of the Target Award depending on the extent to which the Company achieves or surpasses certain pre-established earnings goals. Participants may elect to defer all or any portion of an award payment. For participants who elect deferral, the Company will establish and maintain book-entry accounts, and credit each account annually with deferred payments as well as interest at a rate equal to a commonly reported rate for long-term A-rated corporate bonds. Deferrals and accrued interest thereon are paid to participants upon termination or on a date pre-selected by the participant according to the terms of the Plan. Eligibility for Plan participation, performance goals and other terms of the Plan are determined by a committee comprised of two or more directors of the Company who are outside directors within the meaning of Section 162(m) of the Internal Revenue Code. To the extent of any deferrals, the Plan is an unfunded plan of deferred compensation, and benefits payable thereunder are paid out of general corporate assets of the Company and are subject to the claims of the general creditors of the Company and Fairchild Holdings. 70 OWNERSHIP OF CAPITAL STOCK The Company is a wholly owned subsidiary of Fairchild Holdings. The following table sets forth certain information with respect to the security ownership of certain beneficial owners and management.
NUMBER AND PERCENT OF SHARES ------------------------------------------------ HOLDINGS CLASS A HOLDINGS CLASS B STOCK (1) STOCK (2) ----------------------- ----------------------- NAME OF BENEFICIAL OWNER NUMBER PERCENT NUMBER PERCENT - ----------------------------------------------------------------- ---------- ----------- ---------- ----------- Sterling Holding Company, LLC c/o Fairchild Semiconductor Corporation 333 Western Avenue South Portland, Maine 04106.................................... 3,553,000 49.4% 7,163,880 85.2% National Semiconductor Corporation 2900 Semiconductor Drive Santa Clara, California 95052(3)............................... 1,095,000 15.2% 1,245,000 14.8% Kirk P. Pond c/o Fairchild Semiconductor Corporation 333 Western Avenue South Portland, Maine 04106.................................... 793,268 11.0% -- -- Joseph R. Martin c/o Fairchild Semicondutor Corporation 333 Western Avenue South Portland, Maine 04106.................................... 396,634 5.5% -- -- Jerry M. Baker................................................... 161,764 2.2% -- -- W. Wayne Carlson................................................. 161,764 2.2% -- -- Darrell Mayeux................................................... 161,764 2.2% -- -- All directors and executive officers as a group (12 persons)(4)(5)................................................. 1,836,958 25.5% -- --
- ------------------------ (1) Does not include shares of Holdings Class A Stock issuable upon conversion of Holdings Class B Stock. (2) Does not include shares of Holdings Class B Stock issuable upon conversion of Holdings Class A Stock. (3) Brian L. Halla, who is a director of the Company and Fairchild Holdings, is affiliated with National Semiconductor in the capacities described under "Management--Directors and Executive Officers." In those capacities he may be deemed to beneficially own the shares held of record by National Semiconductor. Mr. Halla disclaims ownership of all such shares. (4) The amounts shown in the table do not include 332 shares of Holdings Preferred Stock (representing less than one percent of such shares issued and outstanding) beneficially owned by Daniel E. Boxer, who is an executive officer. (5) Certain of the Company's employees are expected to participate in the FSC Semiconductor Corporation Stock Option Plan pursuant to which they will be offered the opportunity to acquire Holdings Class A Stock which would equal in the aggregate up to an additional 5% of the Holdings Common Stock outstanding. See "--FSC Semiconductor Corporation Stock Option Plan." The table does not include shares or options that may be acquired by such individuals pursuant to such Plan. HOLDINGS PREFERRED STOCK The Fairchild Holdings Certificate of Incorporation provides that Fairchild Holdings may issue 70,000 shares of Holdings Preferred Stock, all of which are designated as 12% Series A Cumulative Compounding 71 Preferred Stock. Holdings Preferred Stock has a stated value of $1,000 per share and is entitled to annual dividends when, as and if declared, which dividends will be cumulative, whether or not earned or declared, and will accrue at a rate of 12%, compounding annually. The vote of a majority of the outstanding shares of the Holdings Preferred Stock, voting as a separate class, is required to (i) create, authorize or issue any other class or series of stock entitled to a preference prior to the Holdings Preferred Stock upon any dividend or distribution or any liquidation, distribution of assets, dissolution or winding up of Fairchild Holdings, or increase the authorized amount of any such other class or series, or (ii) amend Fairchild Holdings' Certificate of Incorporation if such amendment would adversely affect the relative rights and preferences of the holders of the Holdings Preferred Stock. Except as described in the immediately preceding sentence or as otherwise required by law, the Holdings Preferred Stock is not entitled to vote. Fairchild Holdings may not pay any dividend upon (except for a dividend payable in Junior Stock, as defined below), or redeem or otherwise acquire shares of, capital stock junior to the Holdings Preferred Stock (including the Holdings Common Stock) ("Junior Stock") unless all cumulative dividends on the Holdings Preferred Stock have been paid in full. Upon liquidation, dissolution or winding up of Fairchild Holdings, holders of Holdings Preferred Stock will be entitled to receive out of the legally available assets of Fairchild Holdings, before any amount shall be paid to holders of Junior Stock, an amount equal to $1,000 per share of Holdings Preferred Stock, plus all accrued and unpaid dividends to the date of final distribution. If such available assets are insufficient to pay the holders of the outstanding shares of Holdings Preferred Stock in full, such assets, or the proceeds thereof, will be distributed ratably among such holders. The Holdings Preferred Stock will not be mandatorily redeemable prior to the maturity of the Holdings PIK Note, which will be one year after the maturity of the Notes. Fairchild Holdings may optionally redeem, in whole or in part, the Holdings Preferred Stock at any time at a price per share of $1,000, plus accrued and unpaid dividends to the date of redemption. At the option of Fairchild Holdings, the Holdings Preferred Stock may be exchanged for junior subordinated debentures of Fairchild Holdings. HOLDINGS COMMON STOCK The Certificate of Incorporation of Fairchild Holdings provides that Fairchild Holdings may issue 60,000,000 shares of Holdings Common Stock, divided into two classes consisting of 30,000,000 shares of Holdings Class A Stock and 30,000,000 shares of Holdings Class B Stock. The holders of Holdings Class A Stock are entitled to one vote for each share held of record on all matters submitted to a vote of the stockholders. Except as required by law, the holders of Holdings Class B Stock have no voting rights. Under the Certificate of Incorporation of Fairchild Holdings, a holder of either class of Holdings Common Stock may convert any or all of his shares into an equal number of shares of the other class of Holdings Common Stock; PROVIDED that in the case of a conversion from Holdings Class B Stock, which is nonvoting, into Holdings Class A Stock, which is voting, the holder of shares to be converted would be permitted under applicable law to hold the total number of shares of Holdings Class A Stock which would be held after giving effect to the conversion. STOCKHOLDERS' AGREEMENT In connection with the Transactions, the stockholders of Fairchild Holdings entered into a Securities Purchase and Holders Agreement (the "Stockholders' Agreement") containing certain agreements among such stockholders with respect to the capital stock and corporate governance of Fairchild Holdings and the Company. The following is a summary description of the principal terms of the Stockholders' Agreement. Pursuant to the Stockholders' Agreement, the Boards of Directors of Fairchild Holdings and the Company will be composed at all times of seven directors as follows: Mr. Pond (so long as he continues to own shares of Holdings Common Stock or Holdings Preferred Stock); Mr. Martin (so long as he continues to own shares of Holdings Common Stock or Holdings Preferred Stock); the President of the Company if either of Messrs. Pond or Martin is no longer serving on the Board of Directors; if National Semiconductor so chooses, so long as National Semiconductor continues to own shares of Holdings Common Stock or 72 Holdings Preferred Stock, one individual designated by National Semiconductor, PROVIDED that such person shall initially be either Mr. Halla or Donald Macleod (until the earlier of the second anniversary of the date of consummation of the Transactions or the date upon which such person ceases to be an executive officer of National Semiconductor, and thereafter shall be an executive officer of National Semiconductor reasonably acceptable to the remaining directors); two individuals designated by Sterling; and the remaining directors shall be such independent directors as shall be designated by Sterling (to the extent permitted by applicable law as determined by Sterling in its sole discretion), subject to the right of the Chief Executive Officer of the Company to veto the election of any such independent director, PROVIDED that in the event that Sterling concludes that it is unable to designate, or elects not to designate for any reason, one or more of such independent directors or the election of any such independent director is not approved by the holders of a majority of the outstanding shares of Holdings Class A Stock, such directorship(s) shall not be filled by the remaining members of the Board of Directors but shall remain vacant until the election of a director designated by Sterling to fill such vacancy in accordance with the Stockholders' Agreement. The Stockholders' Agreement contains certain provisions which, with certain exceptions, restrict the ability of the stockholders to transfer any Holdings Common Stock or Holdings Preferred Stock except pursuant to the terms of the Stockholders' Agreement. If holders of more than 50% of the Holdings Common Stock approve the sale of Fairchild Holdings or the Company (an "Approved Sale"), each stockholder has agreed to consent to such sale and, if such sale includes the sale of stock, each stockholder has agreed to sell all of such stockholder's Holdings Common Stock and Holdings Preferred Stock on the terms and conditions approved by holders of a majority of the Holdings Common Stock then outstanding. In the event Fairchild Holdings proposes to issue and sell (other than in a public offering pursuant to a registration statement) any shares of Holdings Common Stock or any securities containing options or rights to acquire any shares of Holdings Common Stock or any securities convertible into Holdings Common Stock to Citicorp Venture Capital Ltd., Sterling or any of their respective affiliates, Fairchild Holdings must first offer to each of the other shareholders a PRO RATA portion of such shares. Such preemptive rights will not be applicable to the issuance of shares of Holdings Common Stock upon the conversion of shares of one class of Holdings Common Stock into shares of the other class. Subject to certain limitations neither Sterling nor National Semiconductor, nor any of their respective affiliates, may sell any of their shares of Holdings Preferred Stock or Holdings Common Stock without offering the other stockholders a PRO RATA opportunity to participate in such sale. In addition, the Stockholders' Agreement restricts certain transactions between Fairchild Holdings and the Company, on the one hand, and owners of 15% or more of the Holdings Common Stock and their affiliates, on the other hand. The Stockholders' Agreement also provides for certain additional restrictions on transfer of shares by Management Investors, including the right of Fairchild Holdings to repurchase certain shares upon termination of such stockholder's employment prior to 2002, at a formula price, and the grant of a right of first refusal in favor of Holdings in the event a Management Investor elects to transfer shares of Holdings Common Stock. FSC SEMICONDUCTOR CORPORATION STOCK OPTION PLAN Under the FSC Semiconductor Corporation Stock Option Plan, certain employees of the Company will be offered the opportunity to purchase Holdings Class A Stock. The employees will have the opportunity to acquire or be granted options to acquire an aggregate of up to 5% of Holdings Common Stock outstanding on a fully-diluted basis. In addition, upon the purchase of Holdings Class A Stock or the acquisition of options to purchase such stock, the employees become subject to the terms and conditions of the Stockholders' Agreement. See "--Stockholders' Agreement." 73 REGISTRATION RIGHTS AGREEMENT In connection with their entry into the Stockholders' Agreement, Fairchild Holdings, Sterling, the Management Investors, National Semiconductor and certain other stockholders of Fairchild Holdings entered into a Registration Rights Agreement (the "Registration Rights Agreement"). Pursuant to the Registration Rights Agreement, upon the written request of Sterling or National Semiconductor, Fairchild Holdings will prepare and file a registration statement with the Securities and Exchange Commission concerning the distribution of all or part of the shares held by Sterling or National Semiconductor and use its best efforts to cause such registration statement to become effective. If at any time Fairchild Holdings files a registration statement for the Holdings Common Stock pursuant to a request by Sterling, National Semiconductor or otherwise (other than a registration statement of Form S-8, Form S-4 or any similar form, a registration statement filed in connection with a share exchange or an offering solely to Holdings' employees or existing stockholders, or a registration statement registering a unit offering (as defined)) (a "Qualifying Offering"), Fairchild Holdings will use its best efforts to allow the other parties to the Registration Rights Agreement to have their shares of Holdings Common Stock (or a portion of their shares under certain circumstances) included in such offering of Holdings Common Stock. Registration expenses of the selling stockholders (other than underwriting fees, brokerage fees and transfer taxes applicable to the shares sold by such stockholders or in certain cases the fees and expenses of any accountants or other representatives retained by a selling stockholder) will be paid by Fairchild Holdings. DESCRIPTION OF CERTAIN INDEBTEDNESS The following is a summary of certain indebtedness of the Company and Fairchild Holdings which is outstanding. To the extent such summary contains descriptions of the Senior Credit Facilities and other loan documents, such descriptions do not purport to be complete and are qualified in their entirety by reference to such documents, which are available upon request from the Company. SENIOR CREDIT FACILITIES In connection with the Transactions, the Company entered into the Senior Credit Facilities with a syndicate of financial institutions for which Bankers Trust Company is acting as administrative agent (the "Administrative Agent"), Credit Suisse First Boston is acting as syndication agent and Canadian Imperial Bank of Commerce is acting as documentation agent. The Senior Credit Facilities provide up to a maximum aggregate amount of $195.0 million of financing. The following is a summary of the material terms and conditions of the Senior Credit Facilities and is subject to the detailed provisions of the credit agreement (the "Credit Agreement") and various related documents which were entered into in connection with the Senior Credit Facilities. GENERAL. The Senior Credit Facilities consist of (i) the Senior Term Facility in an aggregate principal amount of $120.0 million, composed of two tranches: $75.0 million of Tranche A Term Loans ("Tranche A Term Loans") and $45.0 million of Tranche B Term Loans ("Tranche B Term Loans" and, together with the Tranche A Term Loans, the "Term Loans"); and (ii) the $75.0 million Revolving Credit Facility. The proceeds of the Senior Term Facility, which were obtained on the date of consummation of the Transactions, were used to finance the Transactions in part and to pay related transaction costs. Proceeds of the Revolving Credit Facility can be used to fund the Company's general corporate and working capital requirements. The Revolving Credit Facility may be used in part for the issuance of standby and trade letters of credit ("Letters of Credit") to support the obligations of the Company and its subsidiaries. INTEREST RATES; FEES. The Senior Credit Facilities may be maintained from time to time, at the Company's option, as (i) Base Rate Loans which bear interest at the Base Rate (defined in the Credit Agreement as the higher of (x) 1/2 of 1% in excess of the Federal Reserve reported certificate of deposit rate and (y) the Administrative Agent's announced prime lending rate, each as in effect from time to time) plus the "Applicable Margin" (as defined below) or (ii) Eurodollar Loans bearing interest at the 74 Eurodollar Rate (adjusted for maximum reserves) as determined by the Administrative Agent for the applicable interest period plus the Applicable Margin. No Eurodollar Loans may be incurred prior to the earlier of the 90th day following the date of consummation of the Transactions and the date on which the primary syndication is completed. "Applicable Margin" means a per annum rate equal to (x) in the case of Tranche A Term Loans and the Revolving Credit Facility, a floating rate that will vary depending on the Company's consolidated debt to EBITDA ratio and EBITDA to interest expense ratio (each as defined in the Credit Agreement) and which rate shall range (A) from 0.0% to 1.5% for Base Rate Loans and (B) from 1.0% to 2.5% for Eurodollar Loans and (y) in the case of Tranche B Term Loans (A) maintained as Base Rate Loans, 2.0%, and (B) maintained as Eurodollar Loans, 3.0%. Eurodollar Loans may have 1, 2, 3 and 6 month interest periods. Interest on Eurodollar Loans will be payable in arrears at the end of the applicable interest period and every three months where the applicable period exceeds three months. Interest on Base Rate Loans will be payable quarterly in arrears on the last business day of each quarter. Overdue amounts shall bear interest at a rate per annum equal to the greater of (i) the rate which is 2% in excess of the rate otherwise applicable to Base Rate Loans and (ii) the rate which is 2% in excess of the rate then borne by the applicable borrowings. Default interest is payable on demand. The Company will pay a commitment fee calculated at a rate of 0.5% per annum of the unutilized commitments of each lender under the Revolving Credit Facility. This fee accrues from the date of consummation of the Transactions to and including the date of termination of the Senior Credit Facilities, and will be payable quarterly in arrears. The Company will pay a letter of credit fee equal to the Applicable Margin then in effect for revolving loans maintained as Eurodollar Loans, and a facing fee of 1/4 of 1% per annum, in each case calculated on the aggregate stated amount of each Letter of Credit for its stated duration. Such fees are payable in arrears at the end of each quarter. In addition, the Company will pay customary administrative charges in connection with the issuance and amendment of, and draws under, Letters of Credit. AMORTIZATION; PREPAYMENTS. The Tranche A Term Loans are scheduled to mature on the fifth anniversary of the date of consummation of the Transactions and will be subject to quarterly amortization payments. The first such payment will be due three months after the date of consummation of the Transactions. The Tranche B Term Loans are scheduled to mature on the sixth anniversary of the date of consummation of the Transactions. Amortization payments equal to $1,000,000 will be required for each of the five successive one-year periods following the date of consummation of the Transactions, payable quarterly in arrears. The remaining aggregate principal amount of Tranche B Term Loans shall be subject to four equal quarterly amortization payments, with the first such payment to be made five years and three months after the date of consummation of the Transactions. The Revolving Credit Facility is scheduled to mature on the fifth anniversary of the date of consummation of the Transactions. Voluntary prepayments may be made in whole or in part without premium or penalty (other than the payment of breakage costs for Eurodollar Loans prepaid on a day other than the last day of an interest period). Such payments on the Senior Term Facility will be applied to reduce the scheduled amortizations of all then-outstanding Term Loans on a PRO RATA basis across the respective maturities thereof. The Company will be required to make mandatory repayments of the Senior Term Facility from (i) 100% (or, in the case of an initial public offering of the common stock of Fairchild Holdings, 50% of that portion of net proceeds thereof in excess of $50 million) of the net cash proceeds from certain issuances of debt or equity by Fairchild Holdings or any of its direct or indirect subsidiaries (other than pursuant to (a) the Transactions or (b) any takeout of bridge securities issued as part of the Transactions (to the extent the proceeds of the takeout financing are used to retire such bridge financing with permanent replacement securities)), (ii) 100% of the net sale proceeds from certain asset sales by Fairchild Holdings or any of its direct or indirect subsidiaries subject to such baskets as may be agreed upon, 75 (iii) 75% of annual excess cash flow of the Company (provided that once Term Loans in the aggregate principal amount of $25 million have been repaid solely pursuant to this clause (iii), the percentage set forth in this clause (iii) shall be reduced to 50%) and (iv) 100% of certain insurance proceeds. Applications of payments to the term loans shall apply to reduce the scheduled amortizations of all then outstanding Term Loans on a PRO RATA basis across the respective maturities thereof. In addition, revolving loans shall be required to be prepaid (and letters of credit cash collateralized) if at any time the aggregate principal amount thereof exceeds the total Revolving Credit Facility commitments, with such prepayment (and/or cash collateralization) to be in an amount equal to such excess. GUARANTEES AND COLLATERAL. Fairchild Holdings was required and each domestic direct and indirect subsidiary of the Company (collectively, the "Guarantors") will be required to guarantee all of the amounts owing under the Senior Credit Facilities. All amounts owing under the Senior Credit Facilities (including amounts owed under such guarantees) are secured by a first priority (subject to certain permitted liens and encumbrances) perfected security interest in all stock of domestic subsidiaries, not more than 65% of the stock of the Foreign Subsidiaries that are wholly owned by the Company and the promissory notes owned by the Company and the Guarantors, and in all or substantially all other tangible and intangible assets owned by the Company and each Guarantor. COVENANTS. The obligations of the lenders under the Senior Credit Facilities are subject to the satisfaction of certain conditions precedent customary in acquisition credit facilities or otherwise appropriate under the circumstances. The Company and each of its subsidiaries are subject to certain affirmative and negative covenants contained in the Senior Credit Facilities, including without limitation covenants that restrict, subject to specified exceptions, (i) the incurrence of additional indebtedness and other obligations and the granting of additional liens, (ii) mergers, acquisitions, investments and acquisitions and dispositions of assets, (iii) the incurrence of capitalized lease obligations, (iv) dividends, (v) prepayment or repurchase of other indebtedness and amendments to certain agreements governing indebtedness, including the Indenture and the Notes, (vi) engaging in transactions with affiliates and formation of subsidiaries, (vii) capital expenditures, (viii) the use of proceeds and (ix) changes of lines of business. There are also covenants relating to compliance with ERISA and environmental and other laws, payment of taxes, maintenance of corporate existence and rights, maintenance of insurance and interest rate protection, and financial reporting. Certain of these covenants are more restrictive than those set forth in the Indenture. In addition, the Senior Credit Facilities require the Company to maintain compliance with certain specified financial covenants, including covenants relating to minimum interest coverage, minimum fixed charge coverage, and maximum leverage. EVENTS OF DEFAULT. The Senior Credit Facilities also include events of default that are typical for these types of credit facilities and appropriate in the context at the proposed transaction, including, without limitation, a default in the event of a change of control of Fairchild Holdings or the Company. The occurrence of any of such events of default could result in acceleration of the Company's and the Guarantors' obligations under the Senior Credit Facilities and foreclosure on the collateral securing such obligations, which could have material adverse results to holders of the Notes. SUBSIDIARY CREDIT FACILITIES Certain of the Company's subsidiaries may incur certain indebtedness. As an obligation of a subsidiary of the Company, such indebtedness would be effectively senior, as to the assets of such subsidiary, to the obligations of the Company under the Notes. It is expected that the debt instruments evidencing such indebtedness will contain customary terms and conditions, covenants and events of default. HOLDINGS PIK NOTE In connection with the Transactions, Fairchild Holdings issued to National Semiconductor the Holdings PIK Note in the original principal amount of $77.0 million. The Holdings PIK Note will mature 76 in 2008 and bears interest at an annual rate equal to 11.74%. To the extent any Fairchild Holdings Senior Debt (as defined) prohibits Fairchild Holdings from paying interest due on the Holdings PIK Note in cash, such interest shall be paid by adding such interest to the then outstanding principal amount of the Holdings PIK Note. Such amount shall accrue interest as a portion of the principal amount of the Holdings PIK Note from the applicable interest payment date. Fairchild Holdings may redeem the Holdings PIK Note at any time in whole or in part at 100% of the principal amount thereof plus accrued and unpaid interest to the date of redemption. In addition, upon a "change in control" Fairchild Holdings will be required to redeem the Holdings PIK Note at the same price subject to certain conditions. The Holdings PIK Note contains certain covenants in favor of the holder (the "Holder") including, but not limited to: (i) restrictions on the payment by Fairchild Holdings of dividends and the purchase, redemption or prepayment by Fairchild Holdings and its subsidiaries of its capital stock or indebtedness which is, by its terms or by operation of law, ranks PARI PASSU or junior in right of payment to the Holdings PIK Note and (ii) restrictions on subsidiaries entering into agreements (other than with respect to the Holdings PIK Note) restricting their ability to pay dividends or make certain other distributions to Fairchild Holdings or any subsidiary of Holdings. The Holdings PIK Note is and will be subordinated to Fairchild Holdings' obligations (including guarantees, if any, from time to time) under the Senior Credit Facilities, the Notes and certain other indebtedness of Fairchild Holdings, other than indebtedness which by its terms is PARI PASSU or junior in right of payment to the Holdings PIK Note (the "Fairchild Holdings Senior Debt"). Until such Fairchild Holdings Senior Debt is paid in full, Fairchild Holdings may not make any payment of principal or interest to the Holdings PIK Note Holder: (i) if such Fairchild Holdings Senior Debt has not been paid in full, following the maturity of any Fairchild Holdings Senior Debt (either by lapse, acceleration or otherwise); (ii) following a payment default on Fairchild Holdings Senior Debt or (iii) following a nonpayment default on Fairchild Holdings Senior Debt (until (a) such non-payment default shall have been cured or waived, (b) certain events of default under the Holdings PIK Note shall have occurred, (c) the Senior Credit Facilities or Notes shall have become due and payable upon acceleration or (d) 180 days shall have elapsed after notice of such non-payment default has been received by Fairchild Holdings). Except for certain events of bankruptcy, the consent of Holdings PIK Note Holders holding 25% or more of the principal amount of the Holdings PIK Note is required to accelerate the payment of principal upon an event of default. If any Fairchild Holdings Senior Debt is outstanding at the time of an acceleration of the Holdings PIK Note, the Holdings PIK Note will become due and payable upon the earlier of acceleration of such Fairchild Holdings Senior Debt or thirty days following notice of acceleration of the Holdings PIK Note being given to the agent for Fairchild Holdings Senior Debt holders. An event of default under the Holdings PIK Note will include, among other things, failure to pay principal or interest when due, failure to comply with the material terms of the Holdings PIK Note following notice, failure to pay certain material indebtedness of Fairchild Holdings and certain events of bankruptcy or insolvency. 77 DESCRIPTION OF THE NOTES GENERAL The Existing Notes were issued under an Indenture dated as of March 11, 1997 (the "Indenture"), between the Company, Fairchild Holdings, as Guarantor, and United States Trust Company of New York, as trustee (the "Trustee"). The terms of the Indenture apply to the Existing Notes and to the Exchange Notes to be issued in exchange therefor pursuant to the Exchange Offer (all such Notes being referred to herein collectively as the "Notes"). The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act. The following is a summary of certain provisions of the Indenture and the Notes, a copy of which Indenture and the form of Notes is available upon request to the Company. The following summary of certain provisions of the Indenture does not purport to be complete and is subject to, and is qualified in its entirety by reference to, all the provisions of the Indenture, including the definitions of certain terms therein and those terms made a part thereof by the Trust Indenture Act of 1939, as amended. Capitalized terms used herein and not otherwise defined have the meanings set forth in the section "--Certain Definitions." The Notes may be exchanged or transferred at the office or agency of the Company which, unless otherwise provided by the Company, will be the offices of the Trustee. The Notes will be issued only in fully registered form, without coupons, in denominations of $1,000 and any integral multiple of $1,000. No service charge shall be made for any registration of transfer or exchange of Notes, but the Company may require payment of a sum sufficient to cover any transfer tax or other similar governmental charge payable in connection therewith. TERMS OF THE NOTES The Notes are unsecured senior subordinated obligations of the Company, limited to $300.0 million aggregate principal amount, and will mature on March 15, 2007. The Notes will bear interest at the rate per annum shown on the cover page hereof from March 11, 1997, or from the most recent date to which interest has been paid or provided for, payable semiannually to Holders of record at the close of business on the March 1 or September 1 immediately preceding the interest payment date on and of each year, commencing September 15, 1997. The Company will pay interest on overdue principal at 1% per annum in excess of such rate, and it will pay interest on overdue installments of interest at such higher rate to the extent lawful. The interest rate on the Notes is subject to increase in certain circumstances if the Company does not file a registration statement relating to the Registered Exchange Offer or if the registration statement is not declared effective on a timely basis or if certain other conditions are not satisfied, all as further described under "--Registered Exchange Offer; Registration Rights." OPTIONAL REDEMPTION Except as set forth in the following paragraph, the Notes will not be redeemable at the option of the Company prior to March 15, 2002. Thereafter, the Notes will be redeemable, at the Company's option, in whole or in part, at any time or from time to time, upon not less than 30 nor more than 60 days' prior notice mailed by first-class mail to each Holder's registered address, at the following redemption prices (expressed in percentages of principal amount), plus accrued and unpaid interest (if any) to the redemption date (subject to the right of Holders of record on the relevant record date to receive interest due on 78 the relevant interest payment date), if redeemed during the 12-month period commencing on March 15 of the years set forth below:
REDEMPTION PERIOD PRICE - ---------------------- ----------- 2002.................. 105.063% 2003.................. 103.375 2004.................. 101.688 2005 and thereafter... 100.000
In addition, at any time and from time to time prior to March 15, 2000, the Company may redeem in the aggregate up to $105.0 million of the original principal amount of the Notes with the proceeds of one or more Public Equity Offerings, at a redemption price (expressed as a percentage of principal amount) of 110.0% plus accrued and unpaid interest (if any) to the redemption date (subject to the right of Holders of record on the relevant record date to receive interest due on the relevant interest payment date); PROVIDED, HOWEVER, that at least $150.0 million aggregate principal amount of the Notes must remain outstanding after each such redemption. MANDATORY REDEMPTION The Indenture requires the Company to provide for the retirement, by redemption, of $150.0 million principal amount of the Notes on March 15, 2005 and $75.0 million principal amount of the Notes on March 15, 2006, in each case at a redemption price equal to 100% of the principal amount thereof, plus accrued and unpaid interest (if any) to the redemption date. Such redemptions are calculated to retire approximately 75% of the principal amount of the Notes prior to maturity. The Company may, at its option, receive credits against such mandatory redemptions for the principal amount of Notes acquired or redeemed (other than through this mandatory redemption provision) by the Company and surrendered to the Trustee for cancellation. SELECTION In the case of any partial redemption, selection of the Notes for redemption will be made by the Trustee on a PRO RATA basis, by lot or by such other method as the Trustee in its sole discretion shall deem to be fair and appropriate, although no Note of $1,000 in original principal amount or less will be redeemed in part. If any Note is to be redeemed in part only, the notice of redemption relating to such Note shall state the portion of the principal amount thereof to be redeemed. A new Note in principal amount equal to the unredeemed portion thereof will be issued in the name of the Holder thereof upon cancellation of the original Note. GUARANTIES The obligations of the Company pursuant to the Notes, including the repurchase obligation resulting from a Change of Control, will be unconditionally guaranteed, jointly and severally, on a senior subordinated basis, by Fairchild Holdings and by each of the Subsidiary Guarantors. Each Subsidiary Guaranty will be limited in amount to an amount not to exceed the maximum amount that can be guaranteed by the applicable Subsidiary Guarantor without rendering the Subsidiary Guaranty, as it relates to such Subsidiary Guarantor, voidable under applicable law relating to fraudulent conveyance or fraudulent transfer or similar laws affecting the rights of creditors generally. If a Subsidiary Guaranty were to be rendered voidable, it could be subordinated by a court to all other indebtedness (including guarantees and other contingent liabilities) of the applicable Subsidiary Guarantor, and, depending on the amount of such indebtedness, a Subsidiary Guarantor's liability on its Subsidiary Guaranty could be reduced to zero. See "Risk Factors--Ranking of the Notes and Guaranty." 79 Pursuant to the Indenture, Fairchild Holdings or a Subsidiary Guarantor may consolidate with, merge with or into, or transfer all or substantially all its assets to any other Person to the extent described below under "--Certain Covenants--Merger and Consolidation"; PROVIDED, HOWEVER, that if such other Person is not the Company, Fairchild Holdings' obligations under the Fairchild Holdings Guaranty or such Subsidiary Guarantor's obligations under its Subsidiary Guaranty, as the case may be, must be expressly assumed by such other Person. However, upon the sale or other disposition (including by way of consolidation or merger) of a Subsidiary Guarantor or the sale or disposition of all or substantially all the assets of a Subsidiary Guarantor (in each case other than to the Company or an Affiliate of the Company) permitted by the Indenture, such Subsidiary Guarantor will be released and relieved from all its obligations under its Subsidiary Guaranty. RANKING The indebtedness evidenced by the Notes, the Fairchild Holdings Guaranty and the Subsidiary Guaranties are senior subordinated obligations of the Company, Fairchild Holdings and the Subsidiary Guarantors, as the case may be. The payment of the principal of, premium (if any) and interest on the Notes and the payment of the Fairchild Holdings Guaranty and any Subsidiary Guaranty is subordinate in right of payment, as set forth in the Indenture, to the prior payment in full in cash of all Obligations with respect to Senior Indebtedness of the Company, Fairchild Holdings or the relevant Subsidiary Guarantor, as the case may be, whether outstanding on the Issue Date or thereafter incurred, including the obligations of the Company, Fairchild Holdings and such Subsidiary Guarantor under the Credit Agreement. As of February 23, 1997, after giving pro forma effect to the Transactions, (i) the Senior Indebtedness of the Company would have been approximately $120.0 million, all of which would have been secured indebtedness under the Credit Agreement and (ii) the Senior Indebtedness of Fairchild Holdings would have been approximately $120.0 million, consisting of the Fairchild Holdings' senior guaranty of the Company's obligations under the Credit Agreement. Although the Indenture contains limitations on the amount of additional Indebtedness that the Company and the Subsidiary Guarantors may incur, under certain circumstances the amount of such Indebtedness could be substantial and, in any case, such Indebtedness may be Senior Indebtedness. See "--Certain Covenants--Limitation on Indebtedness." A substantial portion of the operations of the Company are conducted through its subsidiaries. Claims of creditors of such subsidiaries, including trade creditors, secured creditors and creditors holding indebtedness and guarantees issued by such subsidiaries, and claims of preferred stockholders (if any) of such subsidiaries generally will have priority with respect to the assets and earnings of such subsidiaries over the claims of creditors of the Company, including holders of the Notes, even if such obligations do not constitute Senior Indebtedness. The Notes, the Fairchild Holdings Guaranty and each Subsidiary Guaranty, therefore, will be effectively subordinated to creditors (including trade creditors) and preferred stockholders (if any) of subsidiaries of the Company (other than the Subsidiary Guarantors). As of February 23, 1997, after giving pro forma effect to the Transactions, the total liabilities of the Company's subsidiaries (other than the Subsidiary Guarantors) would have been approximately $21.6 million, excluding distributor reserves. Although the Indenture limits the incurrence of Indebtedness and preferred stock of certain of the Company's subsidiaries, such limitation is subject to a number of significant qualifications. Moreover, the Indenture does not impose any limitation on the incurrence by such subsidiaries of liabilities that are not considered Indebtedness or Preferred Stock under the Indenture. See "--Certain Covenants--Limitation on Indebtedness." Only Indebtedness of the Company, Fairchild Holdings or a Subsidiary Guarantor that is Senior Indebtedness will rank senior to the Notes, the Fairchild Holdings Guaranty and the relevant Subsidiary Guaranty in accordance with the provisions of the Indenture. The Notes, the Fairchild Holdings Guaranty and each Subsidiary Guaranty will in all respects rank PARI PASSU with all other Senior Subordinated Indebtedness of the Company, Fairchild Holdings and the relevant Subsidiary Guarantor, respectively. The Company, Fairchild Holdings and each Subsidiary Guarantor has agreed in the Indenture that it will not 80 Incur, directly or indirectly, any Indebtedness that is subordinate or junior in ranking in right of payment to its Senior Indebtedness unless such Indebtedness is Senior Subordinated Indebtedness or is expressly subordinated in right of payment to Senior Subordinated Indebtedness. Unsecured Indebtedness is not deemed to be subordinated or junior to Secured Indebtedness merely because it is unsecured. The Company may not pay (in cash, property or other assets) principal of, premium (if any) or interest on, the Notes or make any deposit pursuant to the provisions described under "--Defeasance" below and may not repurchase, redeem or otherwise retire any Notes (collectively, "pay the Notes") if (i) any Obligations with respect to Senior Indebtedness are not paid when due or (ii) any other default on Senior Indebtedness occurs and the maturity of such Senior Indebtedness is accelerated in accordance with its terms unless, in either case, the default has been cured or waived and any such acceleration has been rescinded or such Senior Indebtedness has been paid in full in cash. However, the Company may pay the Notes without regard to the foregoing if the Company and the Trustee receive written notice approving such payment from the Representative of the Senior Indebtedness with respect to which either of the events set forth in clause (i) or (ii) of the immediately preceding sentence has occurred and is continuing. During the continuance of any default (other than a default described in clause (i) or (ii) of the second preceding sentence) with respect to any Designated Senior Indebtedness pursuant to which the maturity thereof may be accelerated immediately without further notice (except such notice as may be required to effect such acceleration) or the expiration of any applicable grace periods, the Company may not pay the Notes for a period (a "Payment Blockage Period") commencing upon the receipt by the Trustee (with a copy to the Company) of written notice (a "Blockage Notice") of such default from the Representative of the holders of such Designated Senior Indebtedness specifying an election to effect a Payment Blockage Period and ending 179 days thereafter (or earlier if such Payment Blockage Period is terminated (i) by written notice to the Trustee and the Company from the Person or Persons who gave such Blockage Notice, (ii) because no defaults continue in existence which would permit the acceleration of the maturity of any Designated Senior Indebtedness at such time or (iii) because such Designated Senior Indebtedness has been repaid in full in cash). Notwithstanding the provisions described in the immediately preceding sentence (but subject to the provisions described in the first sentence of this paragraph), unless the holders of such Designated Senior Indebtedness or the Representative of such holders have accelerated the maturity of such Designated Senior Indebtedness, the Company may resume payments on the Notes after the end of such Payment Blockage Period. The Notes shall not be subject to more than one Payment Blockage Period in any consecutive 360-day period, irrespective of the number of defaults with respect to Designated Senior Indebtedness during such period. Upon any payment or distribution of assets of the Company upon any liquidation, dissolution, winding up, assignment for the benefit of creditors or marshalling of assets of the Company or in a bankruptcy, reorganization, insolvency, receivership or similar proceeding relating to the Company or its property, whether voluntary or involuntary, the holders of Senior Indebtedness will be entitled to receive payment in full in cash of all Obligations with respect to such Senior Indebtedness (including all interest accruing subsequent to the filing of a petition in bankruptcy at the rate provided for in the documentation with respect thereto, whether or not such interest is an allowed claim under applicable law) before the Noteholders are entitled to receive any payment or distribution, and until all Obligations with respect to Senior Indebtedness are paid in full in cash, any payment or distribution to which Noteholders would be entitled but for the subordination provisions of the Indenture will be made to holders of such Senior Indebtedness as their interests may appear. If a distribution is made to Noteholders that, due to the subordination provisions, should not have been made to them, such Noteholders are required to hold it in trust for the holders of Senior Indebtedness and pay it over to them as their interests may appear. If payment of the Notes is accelerated because of an Event of Default, the Company or the Trustee shall promptly notify the holders of Designated Senior Indebtedness or the Representative of such holders of the acceleration. 81 The obligations of Fairchild Holdings under the Fairchild Holdings Guaranty and of a Subsidiary Guarantor under its Subsidiary Guaranty are senior subordinated obligations. As such, the rights of Noteholders to receive payment by Fairchild Holdings or by a Subsidiary Guarantor pursuant to the Fairchild Holdings Guaranty or a Subsidiary Guaranty will be subordinated in right of payment to the rights of holders of Senior Indebtedness of Fairchild Holdings or such Subsidiary Guarantor, as the case may be. The terms of the subordination provisions described above with respect to the Company's obligations under the Notes apply equally to Fairchild Holdings and a Subsidiary Guarantor and the obligations of Fairchild Holdings and such Subsidiary Guarantor under the Fairchild Holdings Guaranty or a Subsidiary Guaranty, as the case may be. By reason of the subordination provisions contained in the Indenture, in the event of insolvency, creditors of the Company, Fairchild Holdings or a Subsidiary Guarantor who are holders of Senior Indebtedness of the Company, Fairchild Holdings or a Subsidiary Guarantor, as the case may be, may recover more, ratably, than the Noteholders, and creditors of the Company who are not holders of Senior Indebtedness may recover less, ratably, than holders of Senior Indebtedness and may recover more, ratably, than the Noteholders. The terms of the subordination provisions described above will not apply to payments from money or the proceeds of U.S. Government Obligations held in trust by the Trustee for the payment of principal of and interest on the Notes pursuant to the provisions described under "--Defeasance", if the foregoing subordination provisions were not violated at the time the respective amounts were deposited pursuant to such defeasance provisions. BOOK-ENTRY, DELIVERY AND FORM The Exchange Notes will be issued in the form of a Global Note except as described below. The Global Note will be deposited with, or on behalf of, the Depositary and registered in the name of the Depositary or its nominee. Except as set forth below, the Global Note may be transferred, in whole and not in part, only to the Depositary or another nominee of the Depositary. Investors may hold their beneficial interests in the Global Note directly through the Depositary if they have an account with the Depositary or indirectly through organizations which have accounts with the Depositary. Notes that are (i) originally issued to institutional "accredited investors" (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act) that are not qualified institutional buyers ("QIBs") or (ii) issued as described below under "--Certificated Notes" will be issued in definitive form. Upon the transfer of a Note in definitive form, such Note will, unless the Global Note has previously been exchanged for Notes in definitive form, be exchanged for an interest in the Global Note representing the principal amount of Notes being transferred. The Depositary has advised the Company as follows: The Depositary is a limited-purpose trust company and organized under the laws of the State of New York, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and "a clearing agency" registered pursuant to the provisions of Section 17A of the Exchange Act. The Depositary was created to hold securities of institutions that have accounts with the Depositary ("participants") and to facilitate the clearance and settlement of securities transactions among its participants in such securities through electronic book-entry changes in accounts of the participants, thereby eliminating the need for physical movement of securities certificates. The Depositary's participants include securities brokers and dealers (which may include the Initial Purchasers), banks, trust companies, clearing corporations and certain other organizations. Access to the Depositary's book-entry system is also available to others such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a participant, whether directly or indirectly. Upon the issuance of the Global Note, the Depositary will credit, on its book-entry registration and transfer system, the principal amount of the Notes represented by such Global Note to the accounts of 82 participants. The accounts to be credited shall be designated by the Initial Purchasers of such Notes. Ownership of beneficial interests in the Global Note will be limited to participants or persons that may hold interests through participants. Ownership of beneficial interests in the Global Note will be shown on, and the transfer of those ownership interests will be effected only through, records maintained by the Depositary (with respect to participants' interest) and such participants (with respect to the owners of beneficial interests in the Global Note other than participants). The laws of some jurisdictions may require that certain purchasers of securities take physical delivery of such securities in definitive form. Such limits and laws may impair the ability to transfer or pledge beneficial interests in the Global Note. So long as the Depositary, or its nominee, is the registered holder and owner of the Global Note, the Depositary or such nominee, as the case may be, will be considered the sole legal owner and holder of the related Notes for all purposes of such Notes and the Indenture. Except as set forth below, owners of beneficial interests in the Global Note will not be entitled to have the Notes represented by the Global Note registered in their names, will not receive or be entitled to receive physical delivery of certificated Notes in definitive form and will not be considered to be the owners or holders of any Notes under the Global Note. The Company understands that under existing industry practice, in the event an owner of a beneficial interest in the Global Note desires to take any action that the Depositary, as the holder of the Global Note, is entitled to take, the Depositary would authorize the participants to take such action, and that the participants would authorize beneficial owners owning through such participants to take such action or would otherwise act upon the instructions of beneficial owners owning through them. Payment of principal of and interest on Notes represented by the Global Note registered in the name of and held by the Depositary or its nominee will be made to the Depositary or its nominee, as the case may be, as the registered owner and holder of the Global Note. The Company expects that the Depositary or its nominee, upon receipt of any payment of principal of or interest on the Global Note, will credit participants' accounts with payments in amounts proportionate to their respective beneficial interests in the principal amount of the Global Note as shown on the records of the Depositary or its nominee. The Company also expects that payments by participants to owners of beneficial interests in the Global Note held through such participants will be governed by standing instructions and customary practices and will be the responsibility of such participants. The Company will not have any responsibility or liability for any aspect of the records relating to, or payments made on account of, beneficial ownership interests in the Global Note for any Note or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests or for any other aspect of the relationship between the Depositary and its participants or the relationship between such participants and the owners of beneficial interests in the Global Note owning through such participants. Unless and until it is exchanged in whole or in part for certificated Notes in definitive form, the Global Note may not be transferred except as a whole by the Depositary to a nominee of such Depositary or by a nominee of such Depositary to such Depositary or another nominee of such Depositary. Although the Depositary has agreed to the foregoing procedures in order to facilitate transfers of interests in the Global Note among participants of the Depositary, it is under no obligation to perform or continue to perform such procedures, and such procedures may be discontinued at any time. Neither the Trustee nor the Company will have any responsibility for the performance by the Depositary or its participants or indirect participants of their respective obligations under the rules and procedures governing their operations. CERTIFICATED NOTES The Notes represented by the Global Note are exchangeable for certificated Notes in definitive form of like tenor as such Notes in denominations of U.S. $1,000 and integral multiples thereof if (i) the Depositary notifies the Company that it is unwilling or unable to continue as Depositary for the Global Note or if at any time the Depositary ceases to be a clearing agency registered under the Exchange Act, 83 (ii) the Company in its discretion at any time determines not to have all of the Notes represented by the Global Note or (iii) a default entitling the holders of the Notes to accelerate the maturity thereof has occurred and is continuing. Any Note that is exchangeable pursuant to the preceding sentence is exchangeable for certificated Notes issuable in authorized denominations and registered in such names as the Depositary shall direct. Subject to the foregoing, the Global Note is not exchangeable, except for a Global Note of the same aggregate denomination to be registered in the name of the Depositary or its nominee. In addition, such certificates will bear the legend referred to under "Transfer Restrictions" (unless the Company determines otherwise in accordance with applicable law) subject, with respect to such Notes, to the provisions of such legend. SAME-DAY PAYMENT The Indenture requires that payments in respect of Notes (including principal, premium and interest) be made by wire transfer of immediately available funds to the accounts specified by the holders thereof or, if no such account is specified, by mailing a check to each such holder's registered address. CHANGE OF CONTROL Upon the occurrence of any of the following events (each a "Change of Control"), each Holder shall have the right to require that the Company repurchase such Holder's Notes at a purchase price in cash equal to 101% of the principal amount thereof plus accrued and unpaid interest (if any) to the date of purchase (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date): (i) prior to the earlier to occur of (A) the first public offering of common stock of Fairchild Holdings or (B) the first public offering of common stock of the Company, the Permitted Holders cease to be the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act), directly or indirectly, of a majority in the aggregate of the total voting power of the Voting Stock of the Company, whether as a result of issuance of securities of Fairchild Holdings or the Company, any merger, consolidation, liquidation or dissolution of Fairchild Holdings or the Company, any direct or indirect transfer of securities by Fairchild Holdings or otherwise (for purposes of this clause (i) and clauses (ii) and (iv) below, the Permitted Holders shall be deemed to beneficially own any Voting Stock of a Person (the "specified entity") held by any other Person (the "parent entity") so long as the Permitted Holders beneficially own (as so defined), directly or indirectly, in the aggregate a majority of the voting power of the Voting Stock of the parent entity); PROVIDED, HOWEVER, that notwithstanding the foregoing Citicorp Venture Capital Ltd. ("CVC") shall be deemed to beneficially own a majority of the voting power of the Voting Stock of Sterling (or any successor) so long as CVC, employees, officers and directors of CVC and corporations, partnerships and other entities at least a majority of the equity in which is held in the aggregate by CVC and its employees, officers and directors hold in the aggregate no less than a majority of the economic interests in Sterling (or such successor); (ii) after the earlier to occur of (A) the first public offering of common stock of Fairchild Holdings or (B) the first public offering of the common stock of the Company, any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act), other than one or more Permitted Holders, is or becomes the beneficial owner (as defined in clause (i) above, except that for purposes of this clause (ii) such person shall be deemed to have "beneficial ownership" of all shares that any such person has the right to acquire, whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of more than 35% of the total voting power of the Voting Stock of the Company; PROVIDED, HOWEVER, that the Permitted Holders beneficially own (as defined in clause (i) above), directly or indirectly, in the aggregate a lesser percentage of the total voting power of the Voting Stock of the Company than such other person and do not have the right or ability by voting power, contract or otherwise to elect or designate for election a majority of the Board of Directors (for the purposes of this clause (ii), such other person shall be deemed to beneficially own any Voting 84 Stock of a specified entity held by a parent entity, if such other person is the beneficial owner (as defined in this clause (ii)), directly or indirectly, of more than 35% of the voting power of the Voting Stock of such parent entity and the Permitted Holders beneficially own (as defined in clause (i) above), directly or indirectly, in the aggregate a lesser percentage of the voting power of the Voting Stock of such parent entity 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 such parent entity); (iii) during any period of two consecutive years, individuals who at the beginning of such period constituted the Board of Directors (together with any new directors (a) whose election by such Board of Directors or whose nomination for election by the stockholders of the Company was approved by a vote of a majority of the directors of the Company then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved or (b) who were elected to the Board of Directors pursuant to the Stockholders' Agreement) cease for any reason to constitute a majority of the Board of Directors then in office; or (iv) the merger or consolidation of the Company with or into another Person or the merger of another Person with or into the Company, or the sale of all or substantially all the assets of the Company to another Person (other than a Person that is controlled by the Permitted Holders), if the securities of the Company that are outstanding immediately prior to such transaction and which represent 100% of the aggregate voting power of the Voting Stock of the Company are changed into or exchanged for cash, securities or property, unless pursuant to such transaction such securities are changed into or exchanged for, in addition to any other consideration, securities of the surviving Person or transferee that represent, immediately after such transaction, at least a majority of the aggregate voting power of the Voting Stock of the surviving Person or transferee. Within 30 days following any Change of Control (but subject to compliance with the immediately succeeding paragraph), the Company shall mail a notice to each Holder with a copy to the Trustee stating: (1) that a Change of Control has occurred and that such Holder has the right to require the Company to purchase such Holder's Notes at a purchase price in cash equal to 101% of the principal amount thereof plus accrued and unpaid interest (if any) to the date of purchase (subject to the right of holders of record on the relevant record date to receive interest on the relevant interest payment date); (2) the circumstances and relevant facts regarding such Change of Control; (3) the repurchase date (which shall be no earlier than 30 days nor later than 60 days from the date such notice is mailed); and (4) the instructions determined by the Company, consistent with the covenant described hereunder, that a Holder must follow in order to have its Notes purchased. If the terms of the Credit Agreement prohibit the Company from making the foregoing offer upon a Change of Control or from purchasing any Notes pursuant thereto, prior to the mailing of the notice to Holders described in the preceding paragraph, but in any event within 30 days following any Change of Control, the Company covenants to (i) repay in full all indebtedness outstanding under the Credit Agreement or offer to repay in full all such indebtedness and repay the indebtedness of each lender who has accepted such offer or (ii) obtain the requisite consent under the Credit Agreement to permit the purchase of the Notes as described above. The Company must first comply with the covenant described in the preceding sentence before it will be required to purchase Notes in the event of a Change of Control; PROVIDED, HOWEVER, that the Company's failure to comply with the covenant described in the preceding sentence or to make a Change of Control offer because of any such failure shall constitute a Default described in clause (iv) under "--Defaults" below (and not under clause (ii) thereof). As a result of the foregoing, a holder of the Notes may not be able to compel the Company to purchase the Notes unless the Company is able at the time to refinance all indebtedness outstanding under the Credit Agreement or obtain requisite consents under the Credit Agreement. The Company shall comply, to the extent applicable, with the requirements of Section 14(e) of the Exchange Act and any other securities laws or regulations in connection with the repurchase of Notes 85 pursuant to the covenant described hereunder. To the extent that the provisions of any securities laws or regulations conflict with the provisions of the covenant described hereunder, the Company shall comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations under the covenant described hereunder by virtue thereof. The Change of Control purchase feature is a result of negotiations between the Company and the Initial Purchasers. Management has no present intention to engage in a transaction involving a Change of Control, although it is possible that the Company would decide to do so in the future. Subject to the limitations discussed below, the Company could, in the future, enter into certain transactions, including acquisitions, refinancings or other recapitalizations, that would not constitute a Change of Control under the Indenture, but that could increase the amount of indebtedness outstanding at such time or otherwise affect the Company's capital structure or credit ratings. Restrictions on the ability of the Company to incur additional Indebtedness are contained in the covenants described under "--Certain Covenants--Limitation on Indebtedness". Such restrictions can only be waived with the consent of the holders of a majority in principal amount of the Notes then outstanding. Except for the limitations contained in such covenants, however, the Indenture does not contain any covenants or provisions that may afford holders of the Notes protection in the event of a highly leveraged transaction. The Credit Agreement prohibits the Company from purchasing any Notes, and also provides that the occurrence of certain change of control events with respect to the Company would constitute a default thereunder. In the event a Change of Control occurs at a time when the Company is prohibited from purchasing Notes, the Company could seek the consent of its lenders to the purchase of Notes or could attempt to refinance the borrowings that contain such prohibition. If the Company does not obtain such a consent or repay such borrowings, the Company will remain prohibited from purchasing Notes. In such case, the Company's failure to comply with this covenant would constitute a Default under the Indenture which would, in turn, constitute a default under the Credit Agreement. In such circumstances, the subordination provisions in the Indenture would likely restrict payment to the Holders of Notes. Future indebtedness of the Company may contain prohibitions on the occurrence of certain events that would constitute a Change of Control or require such indebtedness to be repurchased upon a Change of Control. Moreover, the exercise by the holders of their right to require the Company to repurchase the Notes could cause a default under such indebtedness, even if the Change of Control itself does not, due to the financial effect of such repurchase on the Company. Finally, the Company's ability to pay cash to the holders of Notes following the occurrence of a Change of Control may be limited by the Company's then existing financial resources. There can be no assurance that sufficient funds will be available when necessary to make any required repurchases. The provisions under the Indenture relative to the Company's obligation to make an offer to repurchase the Notes as a result of a Change of Control may be waived or modified with the written consent of the holders of a majority in principal amount of the Notes. CERTAIN COVENANTS The Indenture contains covenants including, among others, the following: LIMITATION ON INDEBTEDNESS. (a) The Company shall not, and shall not permit any Restricted Subsidiary to, Incur, directly or indirectly, any Indebtedness except that the Company may Incur Indebtedness if, after giving effect thereto, the Consolidated Coverage Ratio exceeds 2.0 to 1.0. (b) Notwithstanding the foregoing paragraph (a), the Company and its Restricted Subsidiaries may Incur the following Indebtedness: (1) Indebtedness of the Company or any Restricted Subsidiary Incurred pursuant to the Revolving Credit Facilities; PROVIDED, HOWEVER, that, immediately after giving effect to any such Incurrence, the aggregate principal amount of all Indebtedness incurred under this clause (1) and then outstanding does not exceed the greater of (A) $75.0 million and (B) the sum of 50% of the 86 book value of the inventory of the Company and its Restricted Subsidiaries and 65% of the book value of the accounts receivables of the Company and its Restricted Subsidiaries; (2) Indebtedness of the Company Incurred pursuant to the Term Loan Facilities; PROVIDED, HOWEVER, that, after giving effect to any such Incurrence, the aggregate principal amount of all Indebtedness Incurred under this clause (2) and then outstanding does not exceed $120 million less the aggregate sum of all principal payments actually made from time to time after the Issue Date with respect to such Indebtedness (other than principal payments made from any permitted Refinancings thereof); (3) Indebtedness of the Company or any Restricted Subsidiary owed to and held by the Company or a Wholly Owned Subsidiary; PROVIDED, HOWEVER, that any subsequent issuance or transfer of any Capital Stock which results in any such Wholly Owned Subsidiary ceasing to be a Wholly Owned Subsidiary or any subsequent transfer of such Indebtedness (other than to the Company or another Wholly Owned Subsidiary) shall be deemed, in each case, to constitute the Incurrence of such Indebtedness by the issuer thereof; (4) Indebtedness of the Company or any Restricted Subsidiary owed to and held by any Restricted Subsidiary (other than a Wholly Owned Subsidiary); PROVIDED, HOWEVER, that (i) any such Indebtedness shall be unsecured Subordinated Obligations of the Company or such Restricted Subsidiary, as applicable, and (ii) any subsequent issuance or transfer of any Capital Stock of such Restricted Subsidiary or any subsequent transfer of such Indebtedness (other than to the Company, a Wholly Owned Subsidiary or another Restricted Subsidiary) shall be deemed to constitute the Incurrence of such Indebtedness by the issuer thereof; (5) Indebtedness consisting of the Notes and the Exchange Notes; (6) Indebtedness outstanding on the Issue Date (other than Indebtedness described in clause (1), (2), (3), (4) or (5) of this covenant); (7) Refinancing Indebtedness in respect of Indebtedness Incurred pursuant to paragraph (a) or pursuant to clause (5), (6) or this clause (7); (8) Hedging Obligations of the Company or any Restricted Subsidiary under or with respect to Interest Rate Agreements and Currency Agreements entered into in the ordinary course of business and not for the purpose of speculation; (9) Indebtedness of the Company or any Restricted Subsidiary in respect of performance bonds and surety or appeal bonds entered into by the Company and the Restricted Subsidiaries in the ordinary course of their business; (10) Indebtedness consisting of the Subsidiary Guaranties and the Guarantees of Indebtedness Incurred pursuant to paragraph (a) or pursuant to clause (1), (2), (5), (6) and (7) above and (14) below; (11) Indebtedness of the Company or any Restricted Subsidiary arising from the honoring by a bank or other financial institution of a check, draft or similar instrument inadvertently (except in the case of daylight overdrafts) drawn against insufficient funds in the ordinary course of business, provided that such Indebtedness is satisfied within five business days of Incurrence; (12) Indebtedness of the Company or any Restricted Subsidiary consisting of indemnification, adjustment of purchase price or similar obligations, in each case incurred in connection with the disposition of any assets of the Company or any Restricted Subsidiary in a principal amount not to exceed the gross proceeds actually received by the Company or any Restricted Subsidiary in connection with such disposition; 87 (13) Indebtedness of a Foreign Subsidiary Incurred to finance the purchase, lease or improvement of property (real or personal) or equipment, in each case incurred no more than 180 days after such purchase, lease or improvement of such property, and any Refinancing Indebtedness in respect of such Indebtedness; PROVIDED, HOWEVER, that, except in the case of the Incurrence of any such Refinancing Indebtedness, at the time of the Incurrence of such Indebtedness and after giving effect thereto, (i) the Company would be able to Incur an additional $1.00 of Indebtedness pursuant to paragraph (a) above and (ii) the aggregate amount of all Indebtedness Incurred pursuant to this clause (13) and then outstanding (including any such Refinancing Indebtedness) shall not exceed 20% of Consolidated Net Tangible Assets as of the end of the most recent fiscal quarter ending at least 45 days prior to the date of such Incurrence; and (14) Indebtedness of the Company in an aggregate principal amount which, together with all other Indebtedness of the Company and the Restricted Subsidiaries outstanding on the date of such Incurrence (other than Indebtedness permitted by clauses (1) through (13) above or paragraph (a) above) does not exceed $50.0 million. (c) Notwithstanding the foregoing, the Company shall not, and shall not permit any Restricted Subsidiary to, Incur any Indebtedness pursuant to the foregoing paragraph (b) if the proceeds thereof are used, directly or indirectly, to Refinance any Subordinated Obligations unless such Indebtedness shall be subordinated to the Notes or the relevant Subsidiary Guaranty, as applicable, to at least the same extent as such Subordinated Obligations. (d) For purposes of determining compliance with the foregoing covenant, (i) in the event that an item of Indebtedness meets the criteria of more than one of the types of Indebtedness described above, the Company, in its sole discretion, will classify such item of Indebtedness and only be required to include the amount and type of such Indebtedness in one of the above clauses and (ii) an item of Indebtedness may be divided and classified in more than one of the types of Indebtedness described above. (e) Notwithstanding paragraphs (a) and (b) above, the Company shall not, and shall not permit any Subsidiary Guarantor to, Incur (i) any Indebtedness if such Indebtedness is subordinate or junior in ranking in any respect to any Senior Indebtedness of the Company or such Subsidiary Guarantor, as applicable, unless such Indebtedness is Senior Subordinated Indebtedness or is expressly subordinated in right of payment to Senior Subordinated Indebtedness or (ii) any Secured Indebtedness (other than trade payables incurred in the ordinary course of business) that is not Senior Indebtedness unless contemporaneously therewith effective provision is made to secure the Notes or the relevant Subsidiary Guaranty, as applicable, equally and ratably with such Secured Indebtedness for so long as such Secured Indebtedness is secured by a Lien. LIMITATION ON RESTRICTED PAYMENTS. (a) The Company shall not, and shall not permit any Restricted Subsidiary, directly or indirectly, to make a Restricted Payment if at the time the Company or such Restricted Subsidiary makes such Restricted Payment: (1) a Default shall have occurred and be continuing (or would result therefrom); (2) the Company is not able to Incur an additional $1.00 of Indebtedness pursuant to paragraph (a) of the covenant described under "--Limitation on Indebtedness"; or (3) the aggregate amount of such Restricted Payment and all other Restricted Payments since the Issue Date would exceed the sum of: (A) 50% of the Consolidated Net Income accrued during the period (treated as one accounting period) from the beginning of the fiscal quarter immediately following the fiscal quarter during which the Notes are originally issued to the end of the most recent fiscal quarter ending at least 45 days (or, if less, the number of days after the end of such fiscal quarter as the consolidated financial statements of the Company shall be provided to the Noteholders pursuant 88 to the Indenture) prior to the date of such Restricted Payment (or, in case such Consolidated Net Income shall be a deficit, minus 100% of such deficit); (B) the aggregate Net Cash Proceeds received by the Company from the issuance or sale of its Capital Stock (other than Disqualified Stock) subsequent to the Issue Date (other than an issuance or sale to a Subsidiary of the Company and other than an issuance or sale to an employee stock ownership plan or to a trust established by the Company or any of its Subsidiaries for the benefit of their employees to the extent that the purchase by such plan or trust is financed by Indebtedness of such plan or trust to the Company or any Subsidiary or Indebtedness Guaranteed by the Company or any Subsidiary); (C) the amount by which Indebtedness of the Company or any Restricted Subsidiary is reduced on the Company's consolidated balance sheet upon the conversion or exchange (other than by a Subsidiary of the Company) subsequent to the Issue Date of any Indebtedness of the Company or any Restricted Subsidiary convertible or exchangeable for Capital Stock (other than Disqualified Stock) of the Company (less the amount of any cash, or the fair value of any other property, distributed by the Company or any Restricted Subsidiary upon such conversion or exchange); and (D) an amount equal to the sum of (i) the net reduction in Investments in Unrestricted Subsidiaries resulting from dividends, repayments of loans or advances or other transfers of assets subsequent to the Issue Date, in each case to the Company or any Restricted Subsidiary from Unrestricted Subsidiaries, and (ii) the portion (proportionate to the Company's equity interest in such Subsidiary) of the fair market value of the net assets of an Unrestricted Subsidiary at the time such Unrestricted Subsidiary is designated a Restricted Subsidiary; PROVIDED, HOWEVER, that the foregoing sum shall not exceed, in the case of any Unrestricted Subsidiary, the amount of Investments previously made (and treated as a Restricted Payment) by the Company or any Restricted Subsidiary in such Unrestricted Subsidiary. (b) The provisions of the foregoing paragraph (a) shall not prohibit: (i) any Restricted Payment made by exchange for, or out of the proceeds of the substantially concurrent sale of, Capital Stock of the Company (other than Disqualified Stock and other than Capital Stock issued or sold to a Subsidiary of the Company or an employee stock ownership plan or to a trust established by the Company or any of its Subsidiaries for the benefit of their employees to the extent that the purchase by such plan or trust is financed by Indebtedness of such plan or trust to the Company or any Subsidiary of the Company or Indebtedness Guaranteed by the Company or any Subsidiary of the Company); PROVIDED, HOWEVER, that (A) such Restricted Payment shall be excluded in the calculation of the amount of Restricted Payments and (B) the Net Cash Proceeds from such sale shall be excluded from the calculation of amounts under clause (3)(B) of paragraph (a) above; (ii) any purchase, repurchase, redemption, defeasance or other acquisition or retirement for value of Subordinated Obligations made by exchange for, or out of the proceeds of the substantially concurrent sale of, Indebtedness which is permitted to be Incurred pursuant to the covenant described under "--Limitation on Indebtedness"; PROVIDED, HOWEVER, that such purchase, repurchase, redemption, defeasance or other acquisition or retirement for value shall be excluded in the calculation of the amount of Restricted Payments; (iii) any purchase or redemption of Disqualified Stock of the Company or a Restricted Subsidiary made by exchange for, or out of the proceeds of the substantially concurrent sale of, Disqualified Stock of the Company or a Restricted Subsidiary which is permitted to be Incurred pursuant to the covenant described under "--Limitation on Indebtedness"; PROVIDED, HOWEVER, 89 that such purchase or redemption shall be excluded in the calculation of the amount of Restricted Payments; (iv) any purchase or redemption of Subordinated Obligations from Net Available Cash to the extent permitted by the covenant described under "--Limitation on Sales or Assets and Subsidiary Stock"; PROVIDED, HOWEVER, that such purchase or redemption shall be excluded in the calculation of the amount of Restricted Payments; (v) upon the occurrence of a Change of Control and within 60 days after the completion of the offer to repurchase the Notes pursuant to the covenant described under "--Change of Control" above (including the purchase of the Notes tendered), any purchase or redemption of Subordinated Obligations required pursuant to the terms thereof as a result of such Change of Control at a purchase or redemption price not to exceed the outstanding principal amount thereof, plus accrued and unpaid interest (if any); PROVIDED, HOWEVER, that (A) at the time of such purchase or redemption no Default shall have occurred and be continuing (or would result therefrom), (B) the Company would be able to Incur an additional $1.00 of Indebtedness pursuant to paragraph (a) of the covenant described under "--Limitation on Indebtedness" after giving pro forma effect to such Restricted Payment and (C) such purchase or redemption shall be included in the calculation of the amount of Restricted Payments; (vi) dividends paid within 60 days after the date of declaration thereof if at such date of declaration such dividend would have complied with this covenant; PROVIDED, HOWEVER, that at the time of payment of such dividend, no other Default shall have occurred and be continuing (or result therefrom); PROVIDED FURTHER, however, that such dividend shall be included in the calculation of the amount of Restricted Payments; (vii) the repurchase or other acquisition of shares of, or options to purchase shares of, common stock of the Company or any of its Subsidiaries from employees, former employees, directors or former directors of the Company or any of its Subsidiaries (or permitted transferees of such employees, former employees, directors or former directors), pursuant to the terms of the agreements (including employment agreements) or plans (or amendments thereto) approved by the Board of Directors under which such individuals purchase or sell or are granted the option to purchase or sell, shares of such common stock; PROVIDED, HOWEVER, that the aggregate amount of such repurchases shall not exceed the sum of $7.0 million and the Net Cash Proceeds from the sale of Capital Stock to members of management or directors of the Company and its Subsidiaries that occurs after the Issue Date (to the extent the Net Cash Proceeds from the sale of such Capital Stock have not otherwise been applied to the payment of Restricted Payments by virtue of clause (3)(B) of paragraph (a) above); PROVIDED FURTHER, HOWEVER, that (A) such repurchases shall be excluded in the calculation of the amount of Restricted Payments and (B) the Net Cash Proceeds from such sale shall be excluded from the calculation of amounts under clause (3)(B) of paragraph (a) above; (viii) dividends or advances to Fairchild Holdings in an amount necessary to pay holding company expenses, such amount not to exceed $500,000 in any fiscal year of the Company; PROVIDED, HOWEVER, that such dividends and advances shall be excluded in the calculation of the amount of Restricted Payments; or (ix) Restricted Payments not exceeding $25.0 million in the aggregate; PROVIDED, HOWEVER, that (A) at the time of such Restricted Payments, no Default shall have occurred and be continuing (or result therefrom) and (B) such Restricted Payments shall be included in the calculation of the amount of Restricted Payments. LIMITATION ON RESTRICTIONS ON DISTRIBUTIONS FROM RESTRICTED SUBSIDIARIES. The Company shall not, and shall not permit any Restricted Subsidiary to, create or otherwise cause or permit to exist or 90 become effective any consensual encumbrance or restriction on the ability of any Restricted Subsidiary to (a) pay dividends or make any other distributions on its Capital Stock to the Company or a Restricted Subsidiary or pay any Indebtedness owed to the Company, (b) make any loans or advances to the Company or (c) transfer any of its property or assets to the Company, except: (i) any encumbrance or restriction pursuant to an agreement in effect at or entered into on the Issue Date, including the Credit Agreement as in effect on the Issue Date; (ii) any encumbrance or restriction with respect to a Restricted Subsidiary pursuant to an agreement relating to any Indebtedness Incurred by such Restricted Subsidiary on or prior to the date on which such Restricted Subsidiary was acquired by the Company (other than Indebtedness Incurred as consideration in, or to provide all or any portion of the funds or credit support utilized to consummate, the transaction or series of related transactions pursuant to which such Restricted Subsidiary became a Restricted Subsidiary or was acquired by the Company) and outstanding on such date; (iii) any encumbrance or restriction pursuant to an agreement effecting a Refinancing of Indebtedness Incurred pursuant to an agreement referred to in clause (i) or (ii) of this covenant or this clause (iii) or contained in any amendment to an agreement referred to in clause (i) or (ii) of this covenant or this clause (iii); PROVIDED, HOWEVER, that the encumbrances and restrictions with respect to such Restricted Subsidiary contained in any such refinancing agreement or amendment are no more restrictive in any material respect than the encumbrances and restrictions with respect to such Restricted Subsidiary contained in such agreements; (iv) any such encumbrance or restriction consisting of customary non assignment provisions in leases governing leasehold interests to the extent such provisions restrict the transfer of the lease or the property leased thereunder; (v) in the case of clause (c) above, restrictions contained in security agreements or mortgages securing Indebtedness of a Restricted Subsidiary to the extent such restrictions restrict the transfer of the property subject to such security agreements or mortgages; (vi) any restriction with respect to a Restricted Subsidiary imposed pursuant to an agreement entered into for the sale or disposition of all or substantially all the Capital Stock or assets of such Restricted Subsidiary pending the closing of such sale or disposition; and (vii) any restriction in any agreement that is not more restrictive than the restrictions under the terms of the Credit Agreement as in effect on the Issue Date. LIMITATION ON SALES OF ASSETS AND SUBSIDIARY STOCK. (a) The Company shall not, and shall not permit any Restricted Subsidiary to, directly or indirectly, consummate any Asset Disposition unless (i) the Company or such Restricted Subsidiary receives consideration at the time of such Asset Disposition at least equal to the fair market value (including as to the value of all non-cash consideration), as determined in good faith by the Board of Directors, of the shares and assets subject to such Asset Disposition and at least 85% of the consideration thereof received by the Company or such Restricted Subsidiary is in the form of cash or cash equivalents and (ii) an amount equal to 100% of the Net Available Cash from such Asset Disposition is applied by the Company (or such Restricted Subsidiary, as the case may be) (A) first, to the extent the Company elects (or is required by the terms of any Indebtedness), to prepay, repay, redeem or purchase Senior Indebtedness or Indebtedness (other than any Disqualified Stock) of a Wholly Owned Subsidiary (in each case other than Indebtedness owed to the Company or an Affiliate of the Company) within one year from the later of the date of such Asset Disposition and the receipt of such Net Available Cash; (B) second, to the extent of the balance of such Net Available Cash after application in accordance with clause (A), to the extent the Company elects, to acquire Additional Assets within one year from the later of the date of such Asset Disposition and the receipt of such Net Available Cash; (C) third, to the extent of the 91 balance of such Net Available Cash after application in accordance with clauses (A) and (B), to make an offer to the holders of the Notes (and to holders of other Senior Subordinated Indebtedness designated by the Company) to purchase Notes (and such other Senior Subordinated Indebtedness) pursuant to and subject to the conditions contained in the Indenture; and (D) fourth, to the extent of the balance of such Net Available Cash after application in accordance with clauses (A), (B) and (C) to (x) the acquisition by the Company or any Wholly Owned Subsidiary of Additional Assets or (y) the prepayment, repayment or purchase of Indebtedness (other than any Disqualified Stock) of the Company (other than Indebtedness owed to an Affiliate of the Company) or Indebtedness of any Subsidiary (other than Indebtedness owed to the Company or an Affiliate of the Company), in each case within one year from the later of the receipt of such Net Available Cash and the date the offer described in clause (b) below is consummated; PROVIDED, HOWEVER, that in connection with any prepayment, repayment or purchase of Indebtedness pursuant to clause (A), (C) or (D) above, the Company or such Restricted Subsidiary shall permanently retire such Indebtedness and shall cause the related loan commitment (if any) to be permanently reduced in an amount equal to the principal amount so prepaid, repaid or purchased. Notwithstanding the foregoing provisions of this paragraph, the Company and the Restricted Subsidiaries shall not be required to apply any Net Available Cash in accordance with this paragraph except to the extent that the aggregate Net Available Cash from all Asset Dispositions which are not applied in accordance with this paragraph exceeds $10 million. Pending application of Net Available Cash pursuant to this covenant, such Net Available Cash shall be invested in Permitted Investments or used to reduce loans outstanding under any revolving credit facility. For the purposes of this covenant, the following are deemed to be cash or cash equivalents: (x) the assumption of Indebtedness of the Company or any Restricted Subsidiary and the release of the Company or such Restricted Subsidiary from all liability on such Indebtedness in connection with such Asset Disposition and (y) securities received by the Company or any Restricted Subsidiary from the transferee that are promptly converted by the Company or such Restricted Subsidiary into cash. (b) In the event of an Asset Disposition that requires the purchase of the Notes (and other Senior Subordinated Indebtedness) pursuant to clause (a)(ii)(C) above, the Company will be required to purchase Notes tendered pursuant to an offer by the Company for the Notes (and other Senior Subordinated Indebtedness) at a purchase price of 100% of their principal amount (without premium) plus accrued but unpaid interest (or, in respect of such other Senior Subordinated Indebtedness, such lesser price, if any, as may be provided for by the terms of such Senior Subordinated Indebtedness) in accordance with the procedures (including prorating in the event of oversubscription) set forth in the Indenture. If the aggregate purchase price of Notes (and any other Senior Subordinated Indebtedness) tendered pursuant to such offer is less than the Net Available Cash allotted to the purchase thereof, the Company will be required to apply the remaining Net Available Cash in accordance with clause (a)(ii)(D) above. The Company shall not be required to make such an offer to purchase Notes (and other Senior Subordinated Indebtedness) pursuant to this covenant if the Net Available Cash available therefor is less than $10 million (which lesser amount shall be carried forward for purposes of determining whether such an offer is required with respect to the Net Available Cash from any subsequent Asset Disposition). (c) The Company shall comply, to the extent applicable, with the requirements of Section 14(e) of the Exchange Act and any other securities laws or regulations in connection with the repurchase of Notes pursuant to this covenant. To the extent that the provisions of any securities laws or regulations conflict with provisions of this covenant, the Company shall comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations under this clause by virtue thereof. LIMITATION ON AFFILIATE TRANSACTIONS. (a) The Company shall not, and shall not permit any Restricted Subsidiary to, enter into or permit to exist any transaction (including the purchase, sale, lease or exchange 92 of any property, employee compensation arrangements or the rendering of any service) with any Affiliate of the Company (an "Affiliate Transaction") unless the terms thereof (1) are no less favorable to the Company or such Restricted Subsidiary than those that could be obtained at the time of such transaction in arm's-length dealings with a Person who is not such an Affiliate, (2) if such Affiliate Transaction involves an amount in excess of $1.0 million, (i) are set forth in writing and (ii) have been approved by a majority of the members of the Board of Directors having no personal stake in such Affiliate Transaction and (3) if such Affiliate Transaction involves as amount in excess of $10.0 million, have been determined by (A) a nationally recognized investment banking firm to be fair, from a financial standpoint, to the Company and its Restricted Subsidiaries or (B) an accounting or appraisal firm nationally recognized in making such determinations to be on terms that are not less favorable to the Company and its Restricted Subsidiaries than the terms that could be obtained in an arms-length transaction from a Person that is not an Affiliate of the Company. (b) The provisions of the foregoing paragraph (a) shall not prohibit (i) any Restricted Payment permitted to be paid pursuant to the covenant described under "--Limitation on Restricted Payments", (ii) any issuance of securities, or other payments, awards or grants in cash, securities or otherwise pursuant to, or the funding of, employment arrangements, stock options and stock ownership plans approved by the Board of Directors, (iii) the grant of stock options or similar rights to employees and directors of the Company pursuant to plans approved by the Board of Directors, (iv) loans or advances to employees in the ordinary course of business in accordance with the past practices of the Company or its Restricted Subsidiaries, but in any event not to exceed $5.0 million in the aggregate outstanding at any one time, (v) reasonable fees, compensation or employee benefit arrangements to and indemnity provided for the benefit of directors, officers or employees of the Company or any Subsidiary in the ordinary course of business, (vi) any Affiliate Transaction between the Company and a Wholly Owned Subsidiary or between Wholly Owned Subsidiaries, (vii) any Affiliate Transaction with National Semiconductor pursuant to written agreements in effect on the Issue Date and as amended, renewed or extended from time to time; PROVIDED, HOWEVER, that any such amendment, renewal or extension shall not contain terms which are materially less favorable to the Company than those in the agreements in effect on the Issue Date and (viii) the issuance or sale of any Capital Stock (other than Disqualified Stock) of the Company. LIMITATION ON THE SALE OR ISSUANCE OF CAPITAL STOCK OF RESTRICTED SUBSIDIARIES. The Company shall not sell or otherwise dispose of any Capital Stock of a Restricted Subsidiary, and shall not permit any Restricted Subsidiary, directly or indirectly, to issue or sell or otherwise dispose of any of its Capital Stock except (i) to the Company or a Wholly Owned Subsidiary, (ii) if, immediately after giving effect to such issuance, sale or other disposition, neither the Company nor any of its Subsidiaries own any Capital Stock of such Restricted Subsidiary, (iii) if, immediately after giving effect to such issuance, sale or other disposition, such Restricted Subsidiary would no longer constitute a Restricted Subsidiary and any Investment in such Person remaining after giving effect thereto would have been permitted to be made under the covenant described under "--Limitation on Restricted Payments" if made on the date of such issuance, sale or other disposition or (iv) directors' qualifying shares. MERGER AND CONSOLIDATION. The Company shall not consolidate with or merge with or into, or convey, transfer or lease, in one transaction or a series of transactions, all or substantially all its assets to, any Person, unless: (i) the resulting, surviving or transferee Person (the "Successor Company") shall be a Person organized and existing under the laws of the United States of America, any State thereof or the District of Columbia and the Successor Company (if not the Company) shall expressly assume, by an indenture supplemental thereto, executed and delivered to the Trustee, in form satisfactory to the Trustee, all the obligations of the Company under the Notes and the Indenture; (ii) immediately after giving effect to such transaction (and treating any Indebtedness which becomes an obligation of the Successor Company or any Subsidiary as a result of such transaction as having been Incurred by such Successor Company or such Subsidiary at the time of such transaction), no Default shall have occurred and be continuing, (iii) immediately after giving effect to such transaction, the Successor Company would be able to Incur an 93 additional $1.00 of Indebtedness pursuant to paragraph (a) of the covenant described under "--Limitation on Indebtedness"; (iv) immediately after giving effect to such transaction, the Successor Company shall have Consolidated Net Worth in an amount that is not less than the Consolidated Net Worth of the Company immediately prior to such transaction; and (v) the Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger or transfer and such supplemental indenture (if any) comply with the Indenture; PROVIDED, HOWEVER, that clauses (iii) and (iv) above shall not apply if, in the good faith determination of the Board of Directors, whose determination shall be evidenced by a resolution of the Board of Directors, the principal purpose and effect of such transaction is to change the jurisdiction of incorporation of the Company. The Successor Company shall be the successor to the Company and shall succeed to, and be substituted for, and may exercise every right and power of, the Company under the Indenture, but the predecessor Company in the case of a conveyance, transfer or lease shall not be released from the obligation to pay the principal of and interest on the Notes. The Company will not permit any Subsidiary Guarantor to consolidate with or merge with or into, or convey, transfer or lease, in one transaction or a series of transactions, all or substantially all of its assets to any Person unless: (i) the resulting, surviving or transferee Person (if not such Subsidiary) shall be a Person organized and existing under the laws of the jurisdiction under which such Subsidiary was organized or under the laws of the United States of America, or any State thereof or the District of Columbia, and such Person shall expressly assume, by executing a Guaranty Agreement, all the obligations of such Subsidiary, if any, under its Subsidiary Guaranty; (ii) immediately after giving effect to such transaction or transactions on a pro forma basis (and treating any Indebtedness which becomes an obligation of the resulting, surviving or transferee Person as a result of such transaction as having been issued by such Person at the time of such transaction), no Default shall have occurred and be continuing; and (iii) the Company delivers to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger or transfer and such Guaranty Agreement, if any, complies with the Indenture. The provisions of clauses (i) and (ii) above shall not apply to any one or more transactions which constitute an Asset Disposition if the Company has complied with the applicable provisions of the covenant described under "--Limitation on Sales of Assets and Subsidiary Stock" above. Pursuant to the Indenture, Fairchild Holdings covenants not to merge with or into, or convey, transfer or lease, in one transaction or a series of transactions, all or substantially all of its assets to any Person unless: (i) the resulting, surviving or transferee Person (if not Fairchild Holdings) shall be a Person organized and existing under the laws of the jurisdiction under which Fairchild Holdings was organized or under the laws of the United States of America, or any State thereof or the District of Columbia, and such Person shall expressly assume, by executing a Guaranty Agreement, all the obligations of Fairchild Holdings, if any, under the Fairchild Holdings Guaranty; (ii) immediately after giving effect to such transaction or transactions on a pro forma basis (and treating any Indebtedness which becomes an obligation of the resulting, surviving or transferee Person as a result of such transaction as having been issued by such Person at the time of such transaction), no Default shall have occurred and be continuing; and (iii) the Company delivers to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger or transfer and such Guaranty Agreement, if any, complies with the Indenture. FUTURE GUARANTORS. In the event that, after the Issue Date, any Restricted Subsidiary (other than a Foreign Subsidiary) (i) Incurs any Indebtedness pursuant to paragraph (a) or pursuant to clause (1) or (10) of paragraph (b) of the covenant described under "--Certain Covenants--Limitation on Indebtedness" above and (ii) until the termination of the Credit Agreement, either has Guaranteed or will as a result of such Incurrence be required to Guarantee any Obligations under the Credit Agreement, the Company shall cause such Restricted Subsidiary to Guarantee the Notes pursuant to a Subsidiary Guaranty on the terms and conditions set forth in the Indenture and shall cause all Indebtedness of such Restricted 94 Subsidiary owing to the Company or any other Subsidiary of the Company and not previously discharged to be converted into Capital Stock of such Restricted Subsidiary (other than Disqualified Stock). SEC REPORTS. Notwithstanding that the Company may not be required to remain subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company shall file with the SEC and provide the Trustee and Noteholders with such annual reports and such information, documents and other reports as are specified in Sections 13 and 15(d) of the Exchange Act and applicable to a U.S. corporation subject to such Sections, such information, documents and other reports to be so filed and provided at the times specified for the filing of such information, documents and reports under such Sections; PROVIDED, HOWEVER, that the Company shall not be required to file any report, document or other information with the SEC if the SEC does not permit such filing. DEFAULTS An Event of Default is defined in the Indenture as (i) a default in the payment of interest on the Notes when due, continued for 30 days, (ii) a default in the payment of principal of any Note when due at its Stated Maturity, upon optional redemption, upon required repurchase, upon declaration or otherwise, (iii) the failure by the Company to comply with its obligations under "--Certain Covenants--Merger and Consolidation" above, (iv) the failure by the Company to comply for 30 days after notice with any of its obligations in the covenants described above under "Change of Control" (other than a failure to purchase Notes) or under "--Certain Covenants" under "--Limitation on Indebtedness", "--Limitation on Restricted Payments", "--Limitation on Restrictions on Distributions from Restricted Subsidiaries", "-- Limitation on Sales of Assets and Subsidiary Stock" (other than a failure to purchase Notes after an offer to purchase same has been made in accordance with said covenant), "--Limitation on Affiliate Transactions", "--Limitation on the Sale or Issuance of Capital Stock of Restricted Subsidiaries", "--Future Guarantors" or "--SEC Reports", (v) the failure by the Company to comply for 60 days after notice with its other agreements contained in the Indenture, (vi) Indebtedness of the Company or any Significant Subsidiary is not paid within any applicable grace period after final maturity or is accelerated by the holders thereof because of a default and the total amount of such Indebtedness unpaid or accelerated exceeds $10 million (the "cross acceleration provision"), (vii) certain events of bankruptcy, insolvency or reorganization of the Company or a Significant Subsidiary (the "bankruptcy provisions"), (viii) any judgment or decree for the payment of money in excess of $10 million is entered against the Company or a Significant Subsidiary, remains outstanding for a period of 60 days following such judgment and is not discharged, waived or stayed within 10 days after notice (the "judgment default provision") or (ix) the Parent Guaranty or any Subsidiary Guaranty ceases to be in full force and effect (other than in accordance with the terms of the Parent Guaranty or such Subsidiary Guaranty) or Parent or any Subsidiary Guarantor denies or disaffirms its obligations under the Parent Guaranty or its Subsidiary Guaranty, as the case may be. However, a default under clauses (iv), (v) and (viii) will not constitute an Event of Default until the Trustee or the holders of 25% in principal amount of the outstanding Notes notify the Company of the default and the Company does not cure such default within the time specified after receipt of such notice. If an Event of Default occurs and is continuing, the Trustee or the holders of at least 25% in principal amount of the outstanding Notes may declare the principal of and accrued but unpaid interest on all the Notes to be due and payable. Upon such a declaration, such principal and interest shall be due and payable immediately; PROVIDED, HOWEVER, that if upon such declaration there are any amounts outstanding under the Credit Agreement and the amounts thereunder have not been accelerated, such principal and interest shall be due and payable upon the earlier of the time such amounts are accelerated or five Business Days after receipt by the Company and the Representative under the Credit Agreement of such declaration. If an Event of Default relating to certain events of bankruptcy, insolvency or reorganization of the Company occurs and is continuing, the principal of and interest on all the Notes will ipso facto become and be immediately due and payable without any declaration or other act on the part of the Trustee or any holders 95 of the Notes. Under certain circumstances, the holders of a majority in principal amount of the outstanding Notes may rescind any such acceleration with respect to the Notes and its consequences. Subject to the provisions of the Indenture relating to the duties of the Trustee, in case an Event of Default occurs and is continuing, the Trustee will be under no obligation to exercise any of the rights or powers under the Indenture at the request or direction of any of the holders of the Notes unless such holders have offered to the Trustee reasonable indemnity or security against any loss, liability or expense. Except to enforce the right to receive payment of principal, premium (if any) or interest when due, no holder of a Note may pursue any remedy with respect to the Indenture or the Notes unless (i) such holder has previously given the Trustee notice that an Event of Default is continuing, (ii) holders of at least 25% in principal amount of the outstanding Notes have requested the Trustee to pursue the remedy, (iii) such holders have offered the Trustee reasonable security or indemnity against any loss, liability or expense, (iv) the Trustee has not complied with such request within 60 days after the receipt thereof and the offer of security or indemnity and (v) the holders of a majority in principal amount of the outstanding Notes have not given the Trustee a direction inconsistent with such request within such 60-day period. Subject to certain restrictions, the holders of a majority in principal amount of the outstanding Notes are given the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or of exercising any trust or power conferred on the Trustee. The Trustee, however, may refuse to follow any direction that conflicts with law or the Indenture or that the Trustee determines is unduly prejudicial to the rights of any other holder of a Note or that would involve the Trustee in personal liability. The Indenture provides that if a Default occurs and is continuing and is known to the Trustee, the Trustee must mail to each holder of the Notes notice of the Default within 90 days after it occurs. Except in the case of a Default in the payment of principal of or interest on any Note, the Trustee may withhold notice if and so long as a committee of its trust officers determines that withholding notice is not opposed to the interest of the holders of the Notes. In addition, the Company is required to deliver to the Trustee, within 120 days after the end of each fiscal year, a certificate indicating whether the signers thereof know of any Default that occurred during the previous year. The Company also is required to deliver to the Trustee, within 30 days after the occurrence thereof, written notice of any event which would constitute certain Defaults, their status and what action the Company is taking or proposes to take in respect thereof. AMENDMENTS AND WAIVERS Subject to certain exceptions, the Indenture may be amended with the consent of the holders of a majority in principal amount of the Notes then outstanding (including consents obtained in connection with a tender offer or exchange for the Notes) and any past default or compliance with any provisions may also be waived with the consent of the holders of a majority in principal amount of the Notes then outstanding. However, without the consent of each holder of an outstanding Note affected thereby, no amendment may, among other things, (i) reduce the amount of Notes whose holders must consent to an amendment, (ii) reduce the rate of or extend the time for payment of interest on any Note, (iii) reduce the principal of or extend the Stated Maturity of any Note, (iv) reduce the premium payable upon the redemption of any Note or change the time at which any Note may be redeemed as described under "-- Optional Redemption" above or shall be redeemed as described under "--Mandatory Redemption" above, (v) make any Note payable in money other than that stated in the Note, (vi) impair the right of any holder of the Notes to receive payment of principal of and interest on such holder's Notes on or after the due dates therefor or to institute suit for the enforcement of any payment on or with respect to such holder's Notes, (vii) make any change in the amendment provisions which require each holder's consent or in the waiver provisions, (viii) make any change to the subordination provisions of the Indenture that would adversely affect the Noteholders or (ix) make any change in the Parent Guaranty or any Subsidiary Guaranty that would adversely affect the Noteholders. Without the consent of any holder of the Notes, the Company and Trustee may amend the Indenture to cure any ambiguity, omission, defect or inconsistency, to provide for the assumption by a successor 96 corporation of the obligations of the Company under the Indenture, to provide for uncertificated Notes in addition to or in place of certificated Notes (provided that the uncertificated Notes are issued in registered form for purposes of Section 163(f) of the Code, or in a manner such that the uncertificated Notes are described in Section 163(f)(2)(B) of the Code), to add guarantees with respect to the Notes, to release a Subsidiary Guaranty when permitted by the Indenture, to secure the Notes, to add to the covenants of the Company for the benefit of the holders of the Notes or to surrender any right or power conferred upon the Company, to make any change that does not adversely affect the rights of any holder of the Notes or to comply with any requirement of the SEC in connection with the qualification of the Indenture under the Trust Indenture Act. However, no amendment may be made to the subordination provisions of the Indenture that adversely affects the rights of any holder of Senior Indebtedness then outstanding unless the holders of such Senior Indebtedness (or their Representative) consents to such change. The consent of the holders of the Notes is not necessary under the Indenture to approve the particular form of any proposed amendment. It is sufficient if such consent approves the substance of the proposed amendment. After an amendment under the Indenture becomes effective, the Company is required to mail to holders of the Notes a notice briefly describing such amendment. However, the failure to give such notice to all holders of the Notes, or any defect therein, will not impair or affect the validity of the amendment. TRANSFER The Notes will be issued in registered form and will be transferable only upon the surrender of the Notes being transferred for registration of transfer. The Company may require payment of a sum sufficient to cover any tax, assessment or other governmental charge payable in connection with certain transfers and exchanges. DEFEASANCE The Company at any time may terminate all its obligations under the Notes and the Indenture ("legal defeasance"), except for certain obligations, including those respecting the defeasance trust and obligations to register the transfer or exchange of the Notes, to replace mutilated, destroyed, lost or stolen Notes and to maintain a registrar and paying agent in respect of the Notes. The Company at any time may terminate its obligations under "--Change of Control" and under the covenants described under "-- Certain Covenants" (other than the covenant described under "--Merger and Consolidation"), the operation of the cross acceleration provision, the bankruptcy provisions with respect to Significant Subsidiaries and the judgment default provision described under "--Defaults" above and the limitations contained in clauses (iii) and (iv) under "--Certain Covenants--Merger and Consolidation" above ("covenant defeasance"). 97 The Company may exercise its legal defeasance option notwithstanding its prior exercise of its covenant defeasance option. If the Company exercises its legal defeasance option, payment of the Notes may not be accelerated because of an Event of Default with respect thereto. If the Company exercises its covenant defeasance option, payment of the Notes may not be accelerated because of an Event of Default specified in clause (iv), (vi), (vii) (with respect only to Significant Subsidiaries) or (viii) under "--Defaults" above or because of the failure of the Company to comply with clause (iii) or (iv) under "--Certain Covenants--Merger and Consolidation" above. If the Company exercises its legal defeasance option or its covenant defeasance option, Fairchild Holdings and each Subsidiary Guarantor will be released from all of its obligations with respect to the Fairchild Holdings Guaranty or its Subsidiary Guaranty, as the case may be. In order to exercise either defeasance option, the Company must irrevocably deposit in trust (the "defeasance trust") with the Trustee money or U.S. Government Obligations for the payment of principal and interest on the Notes to redemption or maturity, as the case may be, and must comply with certain other conditions, including delivery to the Trustee of an Opinion of Counsel to the effect that holders of the Notes will not recognize income, gain or loss for Federal income tax purposes as a result of such deposit and defeasance and will be subject to Federal income tax on the same amounts and in the same manner and at the same times as would have been the case if such deposit and defeasance had not occurred (and, in the case of legal defeasance only, such Opinion of Counsel must be based on a ruling of the Internal Revenue Service or other change in applicable Federal income tax law). CONCERNING THE TRUSTEE United States Trust Company of New York is the Trustee under the Indenture and has been appointed by the Company as Registrar and Paying Agent with regard to the Notes. The Holders of a majority in principal amount of the outstanding Notes will have the right to direct the time, method and place of conducting any proceeding for exercising any remedy available to the Trustee, subject to certain exceptions. The Indenture provides that if an Event of Default occurs (and is not cured), the Trustee will be required, in the exercise of its power, to use the degree of care of a prudent man in the conduct of his own affairs. Subject to such provisions, the Trustee is under no obligation to exercise any of its rights or powers under the Indenture at the request of any Holder of Notes, unless such Holder shall have offered to the Trustee security and indemnity satisfactory to it against any loss, liability or expense and then only to the extent required by the terms of the Indenture. GOVERNING LAW The Indenture provides that it and the Notes will be governed by, and construed in accordance with, the laws of the State of New York without giving effect to applicable principles of conflicts of law to the extent that the application of the law of another jurisdiction would be required thereby. CERTAIN DEFINITIONS "Additional Assets" means (i) any property or assets (other than Indebtedness and Capital Stock) in a Related Business; (ii) the Capital Stock of a Person that becomes a Restricted Subsidiary as a result of the acquisition of such Capital Stock by the Company or another Restricted Subsidiary or (iii) Capital Stock constituting a minority interest in any Person that at such time is a Restricted Subsidiary; provided, however, that any such Restricted Subsidiary described in clauses (ii) or (iii) above is primarily engaged in a Related Business. "Affiliate" of any specified Person means any other Person, directly or indirectly, controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, "control" when used with respect to any Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by 98 contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. For purposes of the provisions described under "--Certain Covenants--Limitation on Restricted Payments", "--Certain Covenants--Limitation on Affiliate Transactions" and "--Certain Covenants--Limitation on Sales of Assets and Subsidiary Stock" only, "Affiliate" shall also mean any beneficial owner of Capital Stock representing 10% or more of the total voting power of the Voting Stock (on a fully diluted basis) of the Company or of rights or warrants to purchase such Capital Stock (whether or not currently exercisable) and any Person who would be an Affiliate of any such beneficial owner pursuant to the first sentence hereof. "Asset Disposition" means any sale, lease, transfer or other disposition (or series of related sales, leases, transfers or dispositions) by the Company or any Restricted Subsidiary, including any disposition by means of a merger, consolidation or similar transaction (each referred to for the purposes of this definition as a "disposition"), of (i) any shares of Capital Stock of a Restricted Subsidiary (other than directors' qualifying shares or shares required by applicable law to be held by a Person other than the Company or a Restricted Subsidiary), (ii) all or substantially all the assets of any division or line of business of the Company or any Restricted Subsidiary or (iii) any other assets of the Company or any Restricted Subsidiary outside of the ordinary course of business of the Company or such Restricted Subsidiary (other than, in the case of (i), (ii) and (iii) above, (x) a disposition by a Restricted Subsidiary to the Company or by the Company or a Restricted Subsidiary to a Wholly Owned Subsidiary, (y) for purposes of the covenant described under "--Certain Covenants--Limitation on Sales of Assets and Subsidiary Stock" only, a disposition that constitutes a Restricted Payment permitted by the covenant described under "--Certain Covenants--Limitation on Restricted Payments" and (z) disposition of assets with a fair market value of less than $100,000). "Attributable Debt" in respect of a Sale/Leaseback Transaction means, as at the time of determination, the present value (discounted at the interest rate borne by the Notes, compounded annually) of the total obligations of the lessee for rental payments during the remaining term of the lease included in such Sale/Leaseback Transaction (including any period for which such lease has been extended). "Average Life" means, as of the date of determination, with respect to any Indebtedness or Preferred Stock, the quotient obtained by dividing (i) the sum of the products of the numbers of years from the date of determination to the dates of each successive scheduled principal payment of such Indebtedness or redemption or similar payment with respect to such Preferred Stock multiplied by the amount of such payment by (ii) the sum of all such payments. "Banks" has the meaning specified in the Credit Agreement. "Bank Indebtedness" means all Obligations pursuant to the Credit Agreement. "Board of Directors" means the Board of Directors of the Company or any committee thereof duly authorized to act on behalf of such Board. "Business Day" means each day which is not a Legal Holiday. "Capital Lease Obligations" means an obligation that is required to be classified and accounted for as a capital lease for financial reporting purposes in accordance with GAAP, and the amount of Indebtedness represented by such obligation shall be the capitalized amount of such obligation determined in accordance with GAAP; and the Stated Maturity thereof shall be the date of the last payment of rent or any other amount due under such lease prior to the first date upon which such lease may be terminated by the lessee without payment of a penalty. "Capital Stock" of any Person means any and all shares, interests, rights to purchase, warrants, options, participations or other equivalents of or interests in (however designated) equity of such Person, including any Preferred Stock, but excluding any debt securities convertible into such equity. "Code" means the Internal Revenue Code of 1986, as amended. 99 "Consolidated Coverage Ratio" as of any date of determination means the ratio of (i) the aggregate amount of EBITDA for the period of the most recent four consecutive fiscal quarters ending at least 45 days (or, if less, the number of days after the end of such fiscal quarter as the consolidated financial statements of the Company shall be provided to the Noteholders pursuant to the Indenture) prior to the date of such determination to (ii) Consolidated Interest Expense for such four fiscal quarters; provided, however, that (1) if the Company or any Restricted Subsidiary has Incurred any Indebtedness since the beginning of such period that remains outstanding or if the transaction giving rise to the need to calculate the Consolidated Coverage Ratio is an Incurrence of Indebtedness, or both, EBITDA and Consolidated Interest Expense for such period shall be calculated after giving effect on a pro forma basis to such Indebtedness as if such Indebtedness had been Incurred on the first day of such period and the discharge of any other Indebtedness repaid, repurchased, defeased or otherwise discharged with the proceeds of such new Indebtedness as if such discharge had occurred on the first day of such period, (2) if the Company or any Restricted Subsidiary has repaid, repurchased, defeased or otherwise discharged any Indebtedness since the beginning of such period or if any Indebtedness is to be repaid, repurchased, defeased or otherwise discharged (in each case other than Indebtedness Incurred under any revolving credit facility unless such Indebtedness has been permanently repaid and has not been replaced) on the date of the transaction giving rise to the need to calculate the Consolidated Coverage Ratio, EBITDA and Consolidated Interest Expense for such period shall be calculated on a pro forma basis as if such discharge had occurred on the first day of such period and as if the Company or such Restricted Subsidiary has not earned the interest income actually earned during such period in respect of cash or Temporary Cash Investments used to repay, repurchase, defease or otherwise discharge such Indebtedness, (3) if since the beginning of such period the Company or any Restricted Subsidiary shall have made any Asset Disposition, the EBITDA for such period shall be reduced by an amount equal to the EBITDA (if positive) directly attributable to the assets which are the subject of such Asset Disposition for such period, or increased by an amount equal to the EBITDA (if negative), directly attributable thereto for such period and Consolidated Interest Expense for such period shall be reduced by an amount equal to the Consolidated Interest Expense directly attributable to any Indebtedness of the Company or any Restricted Subsidiary repaid, repurchased, defeased or otherwise discharged with respect to the Company and its continuing Restricted Subsidiaries in connection with such Asset Disposition for such period (or, if the Capital Stock of any Restricted Subsidiary is sold, the Consolidated Interest Expense for such period directly attributable to the Indebtedness of such Restricted Subsidiary to the extent the Company and its continuing Restricted Subsidiaries are no longer liable for such Indebtedness after such sale), (4) if since the beginning of such period the Company or any Restricted Subsidiary (by merger or otherwise) shall have made an Investment in any Restricted Subsidiary (or any person which becomes a Restricted Subsidiary) or an acquisition of assets, including any acquisition of assets occurring in connection with a transaction requiring a calculation to be made hereunder, which constitutes all or substantially all of an operating unit of a business, EBITDA and Consolidated Interest Expense for such period shall be calculated after giving pro forma effect thereto (including the Incurrence of any Indebtedness) as if such Investment or acquisition occurred on the first day of such period and (5) if since the beginning of such period any Person (that subsequently became a Restricted Subsidiary or was merged with or into the Company or any Restricted Subsidiary since the beginning of such period) shall have made any Asset Disposition, any Investment or acquisition of assets that would have required an adjustment pursuant to clause (3) or (4) above if made by the Company or a Restricted Subsidiary during such period, EBITDA and Consolidated Interest Expense for such period shall be calculated after giving pro forma effect thereto as if such Asset Disposition, Investment or acquisition occurred on the first day of such period. For purposes of this definition, whenever pro forma effect is to be given to an acquisition of assets, the amount of income or earnings relating thereto and the amount of Consolidated Interest Expense associated with any Indebtedness Incurred in connection therewith, the pro forma calculations shall be determined in good faith by a responsible financial or accounting Officer of the Company. If any Indebtedness bears a floating rate of interest and is being given pro forma effect, the interest of such Indebtedness shall be calculated as if the rate in effect on the date of determination had been the applicable rate for the entire period (taking into account any Interest Rate 100 Agreement applicable to such Indebtedness if such Interest Rate Agreement has a remaining term in excess of 12 months). "Consolidated Current Liabilities" as of the date of determination means the aggregate amount of liabilities of the Company and its consolidated Restricted Subsidiaries which may properly be classified as current liabilities (including taxes accrued as estimated), on a consolidated basis, after eliminating (i) all intercompany items between the Company and any Restricted Subsidiary and (ii) all current maturities of long-term Indebtedness, all as determined in accordance with GAAP consistently applied. "Consolidated Interest Expense" means, for any period, the total interest expense of the Company and its consolidated Restricted Subsidiaries, plus, to the extent not included in such total interest expense, and to the extent incurred by the Company or its Restricted Subsidiaries, without duplication, (i) interest expense attributable to Capital Lease Obligations and the interest expense attributable to leases constituting part of a Sale/ Leaseback Transaction, (ii) amortization of debt discount and debt issuance cost, (iii) capitalized interest, (iv) non-cash interest expenses, (v) commissions, discounts and other fees and charges owed with respect to letters of credit and bankers' acceptance financing, (vi) net costs associated with Hedging Obligations (including amortization of fees), (vii) Preferred Stock dividends accrued by consolidated Restricted Subsidiaries in respect of all Preferred Stock held by Persons other than the Company or a Restricted Subsidiary, (viii) interest incurred in connection with Investments in discontinued operations, (ix) interest accruing on any Indebtedness of any other Person to the extent such Indebtedness is Guaranteed by (or secured by the assets of) the Company or any Restricted Subsidiary and (x) the cash contributions to any employee stock ownership plan or similar trust to the extent such contributions are used by such plan or trust to pay interest or fees to any Person (other than the Company) in connection with Indebtedness Incurred by such plan or trust. "Consolidated Net Income" means, for any period, the net income of the Company and its consolidated Subsidiaries; provided, however, that there shall not be included in such Consolidated Net Income: (i) any net income of any Person (other than the Company) if such Person is not a Restricted Subsidiary, except that (A) subject to the exclusion contained in clause (iv) below, the Company's equity in the net income of any such Person for such period shall be included in such Consolidated Net Income up to the aggregate amount of cash actually distributed by such Person during such period to the Company or a Restricted Subsidiary as a dividend or other distribution (subject, in the case of a dividend or other distribution paid to a Restricted Subsidiary, to the limitations contained in clause (iii) below) and (B) the Company's equity in a net loss of any such Person for such period shall be included in determining such Consolidated Net Income; (ii) any net income (or loss) of any Person acquired by the Company or a Subsidiary in a pooling of interests transaction for any period prior to the date of such acquisition; (iii) any net income of any Restricted Subsidiary if such Restricted Subsidiary is subject to restrictions, directly or indirectly, on the payment of dividends or the making of distributions by such Restricted Subsidiary, directly or indirectly, to the Company, except that (A) subject to the exclusion contained in clause (iv) below, the Company's equity in the net income of any such Restricted Subsidiary for such period shall be included in such Consolidated Net Income up to the aggregate amount of cash that could have been distributed by such Restricted Subsidiary consistent with such restrictions during such period to the Company or another Restricted Subsidiary as a dividend or other distribution (subject, in the case of a dividend or other distribution paid to another Restricted Subsidiary, to the limitation contained in this clause) and (B) the Company's equity in a net loss of any such Restricted Subsidiary for such period shall be included in determining such Consolidated Net Income; (iv) any gain (or loss) realized upon the sale or other disposition of any assets of the Company or its consolidated Subsidiaries (including pursuant to any sale-and-leaseback arrangement) which is not 101 sold or otherwise disposed of in the ordinary course of business and any gain (or loss) realized upon the sale or other disposition of any Capital Stock of any Person; (v) extraordinary gains or losses; and (vi) the cumulative effect of a change in accounting principles. Notwithstanding the foregoing, for the purposes of the covenant described under "Certain Covenants-- Limitation on Restricted Payments" only, there shall be excluded from Consolidated Net Income any dividends, repayments of loans or advances or other transfers of assets from Unrestricted Subsidiaries to the Company or a Restricted Subsidiary to the extent such dividends, repayments or transfers increase the amount of Restricted Payments permitted under such covenant pursuant to clause (a)(3)(D) thereof. "Consolidated Net Tangible Assets" as of any date of determination means the total amount of assets (less accumulated depreciation and amortization, allowances for doubtful receivables, other applicable reserves and other properly deductible items) which would appear on a consolidated balance sheet of the Company and its consolidated Restricted Subsidiaries, determined on a consolidated basis in accordance with GAAP, and after giving effect to purchase accounting and after deducting therefrom Consolidated Current Liabilities and, to the extent otherwise included, the amounts of: (i) minority interests in consolidated Subsidiaries held by Persons other than the Company or a Restricted Subsidiary; (ii) excess of cost over fair value of assets of businesses acquired, as determined in good faith by the Board of Directors; (iii) any revaluation or other write-up in book value of assets subsequent to the Issue Date as a result of a change in the method of valuation in accordance with GAAP consistently applied; (iv) unamortized debt discount and expenses and other unamortized deferred charges, goodwill, patents, trademarks, service marks, trade names, copyrights, licenses, organization or developmental expenses and other intangible items; (v) treasury stock; (vi) cash set apart and held in a sinking or other analogous fund established for the purpose of redemption or other retirement of Capital Stock to the extent such obligation is not reflected in Consolidated Current Liabilities; and (vii) Investments in and assets of Unrestricted Subsidiaries. "Consolidated Net Worth" means the total of the amounts shown on the balance sheet of the Company and its consolidated Subsidiaries, determined on a consolidated basis in accordance with GAAP, as of the end of the most recent fiscal quarter of the Company ending at least 45 days prior to the taking of any action for the purpose of which the determination is being made, as (i) the par or stated value of all outstanding Capital Stock of the Company plus (ii) paid-in capital or capital surplus relating to such Capital Stock plus (iii) any retained earnings or earned surplus less (A) any accumulated deficit and (B) any amounts attributable to Disqualified Stock. "Credit Agreement" means the Credit Agreement by and among Fairchild Holdings, the Company, certain of its Subsidiaries, the lenders referred to therein, Bankers Trust Company, as Administrative Agent, Credit Suisse First Boston, as Syndication Agent, and Canadian Imperial Bank of Commerce, as Documentation Agent, together with the related documents thereto (including without limitation the term loans and revolving loans thereunder, any guarantees and security documents), as amended, extended, renewed, restated, supplemented or otherwise modified (in whole or in part, and without limitation as to amount, terms, conditions, covenants and other provisions) from time to time, and any agreement (and related document) governing Indebtedness incurred to refund or refinance, in whole or in part, the borrowings and commitments then outstanding or permitted to be outstanding under such Credit Agreement or a successor Credit Agreement, whether by the same or any other lender or group of lenders. "Currency Agreement" means in respect of a Person any foreign exchange contract, currency swap agreement or other similar agreement to which such Person is a party or beneficiary. "Default" means any event which is, or after notice or passage of time or both would be, an Event of Default. 102 "Designated Senior Indebtedness" means (i) the Bank Indebtedness; PROVIDED, HOWEVER, that Bank Indebtedness outstanding under any Credit Agreement that Refinanced in part, but not in whole, the previously outstanding Bank Indebtedness shall only constitute Designated Senior Indebtedness if it meets the requirements of succeeding clause (ii); and (ii) any other Senior Indebtedness of the Company which, at the date of determination, has an aggregate principal amount outstanding of, or under which, at the date of determination, the holders thereof are committed to lend up to, at least $10 million and is specifically designated by the Company in the instrument evidencing or governing such Senior Indebtedness as "Designated Senior Indebtedness" for purposes of the Indenture. "Disqualified Stock" means, with respect to any Person, any Capital Stock which by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable) or upon the happening of any event (i) matures or is mandatorily redeemable pursuant to a sinking fund obligation or otherwise, (ii) is convertible or exchangeable for Indebtedness or Disqualified Stock or (iii) is redeemable at the option of the holder thereof, in whole or in part, in each case on or prior to the first anniversary of the Stated Maturity of the Notes; provided, however, that any Capital Stock that would not constitute Disqualified Stock but for provisions thereof giving holders thereof the right to require such Person to repurchase or redeem such Capital Stock upon the occurrence of an "asset sale" or "change of control" occurring prior to the first anniversary of the Stated Maturity of the Notes shall not constitute Disqualified Stock if the "asset sale" or "change of control" provisions applicable to such Capital Stock are not more favorable to the holders of such Capital Stock than the provisions described under "Change of Control" and under "--Certain Covenants--Limitation on Sales of Assets and Subsidiary Stock". "EBITDA" for any period means the sum of Consolidated Net Income, plus Consolidated Interest Expense plus the following to the extent deducted in calculating such Consolidated Net Income: (a) all income tax expense of the Company and its consolidated Restricted Subsidiaries, (b) depreciation expense of the Company and its consolidated Restricted Subsidiaries, (c) amortization expense of the Company and its consolidated Restricted Subsidiaries (excluding amortization expense attributable to a prepaid cash item that was paid in a prior period) and (d) all other non-cash charges of the Company and its consolidated Restricted Subsidiaries (excluding any such non-cash charge to the extent that it represents an accrual of or reserve for cash expenditures in any future period), in each case for such period. Notwithstanding the foregoing, the provision for taxes based on the income or profits of, and the depreciation and amortization and non-cash charges of, a Restricted Subsidiary shall be added to Consolidated Net Income to compute EBITDA only to the extent (and in the same proportion) that the net income of such Restricted Subsidiary was included in calculating Consolidated Net Income and only if a corresponding amount would be permitted at the date of determination to be dividended to the Company by such Restricted Subsidiary without prior approval (that has not been obtained), pursuant to the terms of its charter and all agreements, instruments, judgments, decrees, orders, statutes, rules and governmental regulations applicable to such Restricted Subsidiary or its stockholders. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Fairchild Holdings" means FSC Semiconductor Corporation, a Delaware corporation, and any successor corporation. "Fairchild Holdings Guaranty" means the Guarantee by Fairchild Holdings of the Company's obligations with respect to the Notes contained in the Indenture. "Foreign Subsidiary" means any Restricted Subsidiary not created or organized in the United States or any state thereof and that conducts substantially all its operations outside of the United States. "GAAP" means generally accepted accounting principles in the United States of America as in effect as of the Issue Date, including those set forth in (i) the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants, (ii) statements and pronouncements of the Financial Accounting Standards Board, (iii) such other statements by such other entity as 103 approved by a significant segment of the accounting profession and (iv) the rules and regulations of the SEC governing the inclusion of financial statements (including pro forma financial statements) in periodic reports required to be filed pursuant to Section 13 of the Exchange Act, including opinions and pronouncements in staff accounting bulletins and similar written statements from the accounting staff of the SEC. "Guarantee" means any obligation, contingent or otherwise, of any Person directly or indirectly guaranteeing any Indebtedness of any Person and any obligation, direct or indirect, contingent or otherwise, of such Person (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation of such Person (whether arising by virtue of partnership arrangements, or by agreements to keep-well, to purchase assets, goods, securities or services, to take-or-pay or to maintain financial statement conditions or otherwise) or (ii) entered into for the purpose of assuring in any other manner the obligee of such Indebtedness of the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part); provided, however, that the term "Guarantee" shall not include endorsements for collection or deposit in the ordinary course of business. The term "Guarantee" used as a verb has a corresponding meaning. The term "Guarantor" shall mean any Person Guaranteeing any obligation. "Guaranty Agreement" means a supplemental indenture, in a form satisfactory to the Trustee, pursuant to which Fairchild Holdings or a Subsidiary Guarantor becomes subject to the applicable terms and conditions of the Indenture. "Hedging Obligations" of any Person means the obligations of such Person pursuant to any Interest Rate Agreement or Currency Agreement. "Holder" or "Noteholder" means the Person in whose name a Note is registered on the Registrar's books. "Incur" means issue, assume, Guarantee, incur or otherwise become liable for; provided, however, that any Indebtedness or Capital Stock of a Person existing at the time such Person becomes a Subsidiary (whether by merger, consolidation, acquisition or otherwise) shall be deemed to be Incurred by such Subsidiary at the time it becomes a Subsidiary. The term "Incurrence" when used as a noun shall have a correlative meaning. The accretion of principal of a non-interest bearing or other discount security shall not be deemed the Incurrence of Indebtedness. "Indebtedness" means, with respect to any Person on any date of determination (without duplication): (i) the principal of and premium (if any) in respect of (A) indebtedness of such Person for money borrowed and (B) indebtedness evidenced by notes, debentures, bonds or other similar instruments for the payment of which such Person is responsible or liable; (ii) all Capital Lease Obligations of such Person and all Attributable Debt in respect of Sale/ Leaseback Transactions entered into by such Person; (iii) all obligations of such Person issued or assumed as the deferred purchase price of property, all conditional sale obligations of such Person and all obligations of such Person under any title retention agreement (but excluding trade accounts payable arising in the ordinary course of business); (iv) all obligations of such Person for the reimbursement of any obligor on any letter of credit, banker's acceptance or similar credit transaction (other than obligations with respect to letters of credit securing obligations (other than obligations described in clauses (i) through (iii) above) entered into in the ordinary course of business of such Person to the extent such letters of credit are not drawn upon or, if and to the extent drawn upon, such drawing is reimbursed no later than the tenth Business Day following payment on the letter of credit); 104 (v) the amount of all obligations of such Person with respect to the redemption, repayment or other repurchase of any Disqualified Stock or, with respect to any Subsidiary of such Person, the liquidation preference with respect to, any Preferred Stock (but excluding, in each case, any accrued dividends); (vi) all obligations of the type referred to in clauses (i) through (v) of other Persons and all dividends of other Persons for the payment of which, in either case, such Person is responsible or liable, directly or indirectly, as obligor, guarantor or otherwise, including by means of any Guarantee; (vii) all obligations of the type referred to in clauses (i) through (vi) of other Persons secured by any Lien on any property or asset of such Person (whether or not such obligation is assumed by such Person), the amount of such obligation being deemed to be the lesser of the value of such property or assets or the amount of the obligation so secured; and (viii) to the extent not otherwise included in this definition, Hedging Obligations of such Person. The amount of Indebtedness of any Person at any date shall be the outstanding balance at such date of all unconditional obligations as described above and the maximum liability, upon the occurrence of the contingency giving rise to the obligation, of any contingent obligations at such date; provided, however, that the amount outstanding at any time of any Indebtedness issued with original issue discount shall be deemed to be the face amount of such Indebtedness less the remaining unamortized portion of the original issue discount of such indebtedness at such time as determined in accordance with GAAP. "Interest Rate Agreement" means in respect of a Person any interest rate swap agreement, interest rate cap agreement or other financial agreement or arrangement designed to protect such Person against fluctuations in interest rates. "Investment" in any Person means any direct or indirect advance, loan (other than advances to customers in the ordinary course of business that are recorded as accounts receivable on the balance sheet of the lender) or other extensions of credit (including by way of Guarantee or similar arrangement) or capital contribution to (by means of any transfer of cash or other property to others or any payment for property or services for the account or use of others), or any purchase or acquisition of Capital Stock, Indebtedness or other similar instruments issued by such Person. For purposes of the definition of "Unrestricted Subsidiary", the definition of "Restricted Payment" and the covenant described under "-- Certain Covenants--Limitation on Restricted Payments", (i) "Investment" shall include the portion (proportionate to the Company's equity interest in such Subsidiary) of the fair market value of the net assets of any Subsidiary of the Company at the time that such Subsidiary is designated an Unrestricted Subsidiary; provided, however, that upon a redesignation of such Subsidiary as a Restricted Subsidiary, the Company shall be deemed to continue to have a permanent "Investment" in an Unrestricted Subsidiary equal to an amount (if positive) equal to (x) the Company's "Investment" in such Subsidiary at the time of such redesignation less (y) the portion (proportionate to the Company's equity interest in such Subsidiary) of the fair market value of the net assets of such Subsidiary at the time of such redesignation; and (ii) any property transferred to or from an Unrestricted Subsidiary shall be valued at its fair market value at the time of such transfer, in each case as determined in good faith by the Board of Directors. "Issue Date" means the date on which the Notes are originally issued. "Lien" means any mortgage, pledge, security interest, encumbrance, lien or charge of any kind (including any conditional sale or other title retention agreement or lease in the nature thereof). "Net Available Cash" from an Asset Disposition means cash payments received therefrom (including any cash payments received by way of deferred payment of principal pursuant to a note or installment receivable or otherwise and proceeds from the sale or other disposition of any securities received as consideration, but only as and when received, but excluding any other consideration received in the form of assumption by the acquiring Person of Indebtedness or other obligations relating to such properties or 105 assets or received in any other non-cash form), in each case net of (i) all legal, title and recording tax expenses, commissions and other fees and expenses incurred, and all Federal, state, provincial, foreign and local taxes required to be accrued as a liability under GAAP, as a consequence of such Asset Disposition, (ii) all payments made on any Indebtedness which is secured by any assets subject to such Asset Disposition, in accordance with the terms of any Lien upon or other security agreement of any kind with respect to such assets, or which must by its terms, or in order to obtain a necessary consent to such Asset Disposition, or by applicable law be, repaid out of the proceeds from such Asset Disposition, (iii) all distributions and other payments required to be made to minority interest holders in Subsidiaries or joint ventures as a result of such Asset Disposition and (iv) the deduction of appropriate amounts provided by the seller as a reserve, in accordance with GAAP, against any liabilities associated with the property or other assets disposed in such Asset Disposition and retained by the Company or any Restricted Subsidiary after such Asset Disposition. "Net Cash Proceeds", with respect to any issuance or sale of Capital Stock, means the cash proceeds of such issuance or sale net of attorneys' fees, accountants' fees, underwriters' or placement agents' fees, discounts or commissions and brokerage, consultant and other fees actually incurred in connection with such issuance or sale and net of taxes paid or payable as a result thereof. "Obligations" means with respect to any Indebtedness all obligations for principal, premium, interest, penalties, fees, indemnifications, reimbursements, and other amounts payable pursuant to the documentation governing such Indebtedness. "Permitted Holders" means (i) CVC, (ii) any officer, employee or director of CVC or any trust, partnership or other entity established solely for the benefit of such officers, employees or directors, (iii) any officer, employee or director of Fairchild Holdings, the Company or any Subsidiary or any trust, partnership or other entity established solely for the benefit of such officers, employees or directors, and (iv) in the case of any individual, any Permitted Transferee of such individual (as defined in the Stockholders Agreement), except a Permitted Transferee by virtue of Section 3.4(b)(iv) thereof; PROVIDED, HOWEVER, that in no event shall individuals collectively be deemed to be "Permitted Holders" with respect to more than 30% of the total voting power of Fairchild Holdings or the Company. "Permitted Investment" means an Investment by the Company or any Restricted Subsidiary in (i) a Restricted Subsidiary or a Person that will, upon the making of such Investment, become a Restricted Subsidiary; provided, however, that the primary business of such Restricted Subsidiary is a Related Business; (ii) another Person if as a result of such Investment such other Person is merged or consolidated with or into, or transfers or conveys all or substantially all its assets to, the Company or a Restricted Subsidiary; provided, however, that such Person's primary business is a Related Business; (iii) Temporary Cash Investments; (iv) receivables owing to the Company or any Restricted Subsidiary if created or acquired in the ordinary course of business and payable or dischargeable in accordance with customary trade terms; PROVIDED, HOWEVER, that such trade terms may include such concessionaire trade terms as the Company or any such Restricted Subsidiary deems reasonable under the circumstances; (v) payroll, travel and similar advances to cover matters that are expected at the time of such advances ultimately to be treated as expenses for accounting purposes and that are made in the ordinary course of business; (vi) loans or advances to employees made in the ordinary course of business consistent with past practices of the Company or such Restricted Subsidiary; (vii) stock, obligations or securities received in settlement of debts created in the ordinary course of business and owing to the Company or any Restricted Subsidiary or in satisfaction of judgments; and (viii) any Person to the extent such Investment represents the non-cash portion of the consideration received for an Asset Disposition as permitted pursuant to the covenant described under "--Certain Covenants--Limitation on Sales of Assets and Subsidiary Stock". "Person" means any individual, corporation, partnership, limited liability company, joint venture, association, joint-stock company, trust, unincorporated organization, government or any agency or political subdivision thereof or any other entity. 106 "Preferred Stock", as applied to the Capital Stock of any Person, means Capital Stock of any class or classes (however designated) which is preferred as to the payment of dividends or distributions, or as to the distribution of assets upon any voluntary or involuntary liquidation or dissolution of such Person, over shares of Capital Stock of any other class of such Person. "principal" of a Note means the principal of the Note plus the premium, if any, payable on the Note which is due or overdue or is to become due at the relevant time. "Public Equity Offering" means an underwritten primary public offering of common stock of (i) the Company or (ii) Fairchild Holdings (to the extent the proceeds thereof are contemporaneously contributed to the Company), in each case pursuant to an effective registration statement under the Securities Act. "Refinance" means, in respect of any Indebtedness, to refinance, extend, renew, refund, repay, prepay, redeem, defease or retire, or to issue other Indebtedness in exchange or replacement for, such indebtedness. "Refinanced" and "Refinancing" shall have correlative meanings. "Refinancing Indebtedness" means Indebtedness that Refinances any Indebtedness of the Company or any Restricted Subsidiary existing on the Issue Date or Incurred in compliance with the Indenture, including Indebtedness that Refinances Refinancing Indebtedness; provided, however, that (i) such Refinancing Indebtedness has a Stated Maturity no earlier than the Stated Maturity of the Indebtedness being Refinanced, (ii) such Refinancing Indebtedness has an Average Life at the time such Refinancing Indebtedness is Incurred that is equal to or greater than the Average Life of the Indebtedness being Refinanced and (iii) such Refinancing Indebtedness has an aggregate principal amount (or if Incurred with original issue discount, an aggregate issue price) that is equal to or less than the aggregate principal amount (or if Incurred with original issue discount, the aggregate accreted value) then outstanding or committed (plus fees and expenses, including any premium and defeasance costs) under the Indebtedness being Refinanced; provided further, however, that Refinancing Indebtedness shall not include (x) Indebtedness of a Subsidiary that Refinances Indebtedness of the Company or (y) Indebtedness of the Company or a Restricted Subsidiary that Refinances Indebtedness of an Unrestricted Subsidiary. "Related Business" means any business related, ancillary or complementary to the businesses of the Company and the Restricted Subsidiaries on the Issue Date. "Representative" means any trustee, agent or representative (if any) for an issue of Senior Indebtedness of the Company; provided, however, that if and for so long as any Senior Indebtedness lacks such a representative, then the Representative for such Senior Indebtedness shall at all times be the holders of a majority in outstanding principal amount of such senior Indebtedness. "Restricted Payment" with respect to any Person means (i) the declaration or payment of any dividends or any other distributions of any sort in respect of its Capital Stock (including any payment in connection with any merger or consolidation involving such Person) or similar payment to the direct or indirect holders of its Capital Stock (other than dividends or distributions payable solely in its Capital Stock (other than Disqualified Stock) and dividends or distributions payable solely to the Company or a Restricted Subsidiary, and other than PRO RATA dividends or other distributions made by a Subsidiary that is not a Wholly Owned Subsidiary to minority stockholders (or owners of an equivalent interest in the case of a Subsidiary that is an entity other than a corporation)), (ii) the purchase, redemption or other acquisition or retirement for value of any Capital Stock of the Company held by any Person or of any Capital Stock of a Restricted Subsidiary held by any Affiliate of the Company (other than a Restricted Subsidiary), including the exercise of any option to exchange any Capital Stock (other than into Capital Stock of the Company that is not Disqualified Stock), (iii) the purchase, repurchase, redemption, defeasance or other acquisition or retirement for value, prior to scheduled maturity, scheduled repayment or scheduled sinking fund payment of any Subordinated Obligations (other than the purchase, repurchase or other acquisition of Subordinated Obligations purchased in anticipation of satisfying a sinking fund obligation, principal 107 installment or final maturity, in each case due within one year of the date of acquisition) or (iv) the making of any Investment in any Person (other than a Permitted Investment). "Restricted Subsidiary" means any Subsidiary of the Company that is not an Unrestricted Subsidiary. "Revolving Credit Facilities" means the revolving credit facility contained in the Credit Agreement and any other facility or financing arrangement that Refinances or replaces, in whole or in part, any such revolving credit facility. "Sale/ Leaseback Transaction" means an arrangement relating to property now owned or hereafter acquired whereby the Company or a Restricted Subsidiary transfers such property to a Person and the Company or a Restricted Subsidiary leases it from such Person. "SEC" means the Securities and Exchange Commission. "Secured Indebtedness" means any Indebtedness of the Company secured by a Lien. "Senior Indebtedness" of any Person means all (i) Bank Indebtedness of or guaranteed by such Person, whether outstanding on the Issue Date or thereafter Incurred, and (ii) Indebtedness of such Person, whether outstanding on the Issue Date or thereafter Incurred, including interest thereon, in respect of (A) Indebtedness for money borrowed, (B) Indebtedness evidenced by notes, debentures, bonds or other similar instruments for the payment of which such Person is responsible or liable and (C) Hedging Obligations, unless, in the case of (i) and (ii), in the instrument creating or evidencing the same or pursuant to which the same is outstanding, it is provided that such obligations are subordinate in right of payment to the obligations under the Notes; PROVIDED, HOWEVER, that Senior Indebtedness shall not include (1) any obligation of such Person to any subsidiary of such Person, (2) any liability for Federal, state, local or other taxes owed or owing by such Person, (3) any accounts payable or other liability to trade creditors arising in the ordinary course of business (including guarantees thereof or instruments evidencing such liabilities), (4) any Indebtedness of such Person (and any accrued and unpaid interest in respect thereof) which is subordinate or junior by its terms to any other Indebtedness or other obligation of such Person or (5) that portion of any Indebtedness which at the time of Incurrence is Incurred in violation of the Indenture (but as to any such Indebtedness under the Credit Agreement, no such violation shall be deemed to exist if the Representative of the Lenders thereunder shall have received an officers' certificate of the Company to the effect that the issuance of such Indebtedness does not violate such covenant and setting forth in reasonable detail the reasons therefor). "Senior Subordinated Indebtedness" means (i) with respect to the Company, the Notes and any other Indebtedness of the Company that specifically provides that such Indebtedness is to rank PARI PASSU with the Notes in right of payment and is not subordinated by its terms in right of payment to any Indebtedness or other obligation of the Company which is not Senior Indebtedness of the Company and (ii) with respect to Fairchild Holdings or a Subsidiary Guarantor, their respective Guarantees of the Notes and any other indebtedness of such Person that specifically provides that such Indebtedness rank PARI PASSU with such Guarantee in respect of payment and is not subordinated by its terms in respect of payment to any Indebtedness or other obligation of such Person which is not Senior Indebtedness of such Person. "Significant Subsidiary" means any Restricted Subsidiary that would be a "Significant Subsidiary" of the Company within the meaning of Rule 1-02 under Regulation S-X promulgated by the SEC. "Stated Maturity" means, with respect to any security, the date specified in such security as the fixed date on which the final payment of principal of such security is due and payable, including pursuant to any mandatory redemption provision (but excluding any provision providing for the repurchase of such security at the option of the holder thereof upon the happening of any contingency unless such contingency has occurred). "Stockholders' Agreement" means the Securities Purchase and Holders Agreement among the stockholders of Fairchild Holdings, as in effect on the Issue Date. 108 "Subordinated Obligation" means any Indebtedness of the Company or any Subsidiary Guarantor (whether outstanding on the Issue Date or thereafter Incurred) which is subordinate or junior in right of payment to, in the case of the Company, the Notes or, in the case of such Subsidiary Guarantor, its Subsidiary Guaranty, pursuant to a written agreement to that effect. "Subsidiary" means, in respect of any Person, any corporation, association, partnership or other business entity of which more than 50% of the total voting power of shares of Capital Stock or other interests (including partnership interests) entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by (i) such Person, (ii) such Person and one or more Subsidiaries of such Person or (iii) one or more Subsidiaries of such Person. "Subsidiary Guarantor" means any subsidiary of the Company that Guarantees the Company's obligations with respect to the Notes. "Subsidiary Guaranty" means a Guarantee by a Subsidiary Guarantor of the Company's obligations with respect to the Notes. "Temporary Cash Investments" means any of the following: (i) any investment in direct obligations of the United States of America or any agency thereof or obligations guaranteed by the United States of America or any agency thereof, (ii) investments in time deposit accounts, certificates of deposit and money market deposits maturing within 180 days of the date of acquisition thereof issued by a bank or trust company which is organized under the laws of the United States of America, any state thereof or any foreign country recognized by the United States, and which bank or trust company has capital, surplus and undivided profits aggregating in excess of $50,000,000 (or the foreign currency equivalent thereof) and has outstanding debt which is rated "A" (or such similar equivalent rating) or higher by at least one nationally recognized statistical rating organization (as defined in Rule 436 under the Securities Act) or any money-market fund sponsored by a registered broker dealer or mutual fund distributor, (iii) repurchase obligations with a term of not more than 30 days for underlying securities of the types described in clause (i) above entered into with a bank meeting the qualifications described in clause (ii) above, (iv) investments in commercial paper, maturing not more than 90 days after the date of acquisition, issued by a corporation (other than an Affiliate of the Company) organized and in existence under the laws of the United States of America or any foreign country recognized by the United States of America with a rating at the time as of which any investment therein is made of "P-1" (or higher) according to Moody's Investors Service, Inc. or "A-1" (or higher) according to Standard and Poor's Ratings Group, and (v) investments in securities with maturities of six months or less from the date of acquisition issued or fully guaranteed by any state, commonwealth or territory of the United States of America, or by any political subdivision or taxing authority thereof, and rated at least "A" by Standard & Poor's Ratings Group or "A" by Moody's Investors Service, Inc. "Term Loan Facilities" means the term loan facilities contained in the Credit Agreement and any other facility or financing arrangement that Refinances in whole or in part any such term loan facility. "Unrestricted Subsidiary" means (i) any Subsidiary of the Company that at the time of determination shall be designated an Unrestricted Subsidiary by the Board of Directors in the manner provided below and (ii) any Subsidiary of an Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary of the Company (including any newly acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary unless such Subsidiary or any of its Subsidiaries owns any Capital Stock or Indebtedness of, or 109 holds any Lien on any property of, the Company or any other Subsidiary of the Company that is not a Subsidiary of the Subsidiary to be so designated; provided, however, that either (A) the Subsidiary to be so designated has total assets of $1,000 or less or (B) if such Subsidiary has assets greater than $1,000, such designation would be permitted under the covenant described under "--Certain Covenants--Limitation on Restricted Payments". The Board of Directors may designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided, however, that immediately after giving effect to such designation (x) the Company could Incur $1.00 of additional Indebtedness under paragraph (a) of the covenant described under "--Certain Covenants--Limitation on Indebtedness" and (y) no Default shall have occurred and be continuing. Any such designation by the Board of Directors shall be evidenced to the Trustee by promptly filing with the Trustee a copy of the resolution of the Board of Directors giving effect to such designation and an Officers' Certificate certifying that such designation complied with the foregoing provisions. "U.S. Government Obligations" means direct obligations (or certificates representing an ownership interest in such obligations) of the United States of America (including any agency or instrumentality thereof) for the payment of which the full faith and credit of the United States of America is pledged and which are not callable at the issuer's option. "Voting Stock" of a Person means all classes of Capital Stock or other interests (including partnership interests) of such Person then outstanding and normally entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof. "Wholly Owned Subsidiary" means a Restricted Subsidiary all the Capital Stock of which (other than directors' qualifying shares) is owned by the Company or one or more Wholly Owned Subsidiaries. 110 CERTAIN FEDERAL INCOME TAX CONSEQUENCES The following discussion summarizes the material United States federal income tax consequences of the Exchange Offer to a holder of Existing Notes that is an individual citizen or resident of the United States or a United States corporation that purchased the Existing Notes pursuant to their original issue (a "U.S. Holder"). It is based on the Internal Revenue Code of 1986, as amended to the date hereof (the "Code"), existing and proposed Treasury regulations, and judicial and administrative determinations, all of which are subject to change at any time, possibly on a retroactive basis. The following relates only to the Existing Notes, and the Exchange Notes received therefor, that are held as "capital assets" within the meaning of Section 1221 of the Code by U.S. Holders. It does not discuss state, local, or foreign tax consequences, nor does it discuss tax consequences to subsequent purchasers (persons who did not purchase the Existing Notes pursuant to their original issue), or to categories of holders that are subject to special rules, such as foreign persons, tax-exempt organizations, insurance companies, banks and dealers in stocks and securities. Tax consequences may vary depending on the particular status of an investor. No rulings will be sought from the Internal Revenue Service with respect to the federal income tax consequences of the Exchange Offer. THIS SECTION DOES NOT PURPORT TO DEAL WITH ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO AN INVESTOR'S DECISION TO EXCHANGE EXISTING NOTES FOR EXCHANGE NOTES. EACH INVESTOR SHOULD CONSULT WITH ITS OWN TAX ADVISOR CONCERNING THE APPLICATION OF THE FEDERAL INCOME TAX LAWS AND OTHER TAX LAWS TO ITS PARTICULAR SITUATION BEFORE DETERMINING WHETHER TO EXCHANGE EXISTING NOTES FOR EXCHANGE NOTES. THE EXCHANGE OFFER The exchange of Existing Notes pursuant to the Exchange Offer should be treated as a continuation of the corresponding Existing Notes because the terms of the Exchange Notes are not materially different from the terms of the Existing Notes. Accordingly, such exchange should not constitute a taxable event to U.S. Holders and, therefore, (i) no gain or loss should be realized by U.S. Holders upon receipt of an Exchange Note, (ii) the holding period of the Exchange Note should include the holding period of the Existing Note exchanged therefor and (iii) the adjusted tax basis of the Exchange Note should be the same as the adjusted tax basis of the Existing Note exchanged therefor immediately before the exchange. STATED INTEREST Stated interest on a Note will be taxable to a U.S. Holder as ordinary interest income at the time that such interest accrues or is received, in accordance with the U.S. Holder's regular method of accounting for federal income tax purposes. The Notes are not considered to have been issued with original issue discount for federal income tax purposes. SALE, EXCHANGE OR RETIREMENT OF THE NOTES A U.S. Holder's tax basis in a Note generally will be its cost. A U.S. Holder generally will recognize gain or loss on the sale, exchange or retirement of a Note in an amount equal to the difference between the amount realized on the sale, exchange or retirement and the tax basis of the Note. Gain or loss recognized on the sale, exchange or retirement of a Note (excluding amounts received in respect of accrued interest, which will be taxable as ordinary interest income) generally will be capital gain or loss and will be long-term capital gain or loss, if the Note was held for more than one year. BACKUP WITHHOLDING Under certain circumstances, a U.S. Holder of a Note may be subject to "backup withholding" at a 31% rate with respect to payments of interest thereon or the gross proceeds from the disposition thereof. 111 This withholding generally applies if the U.S. Holder fails to furnish his or her social security number or other taxpayer identification number in the specified manner and in certain circumstances. Any amount withheld from a payment to a U.S. Holder under the backup withholding rules is allowable as a credit against such U.S Holder's federal income tax liability, provided that the required information is furnished to the IRS. Corporations and certain other entities described in the Code and Treasury regulations are exempt from backup withholding if their exempt status is properly established. PLAN OF DISTRIBUTION Each broker-dealer that receives Exchange Notes for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of Exchange Notes received in exchange for Existing Notes where such Existing Notes were acquired as a result of market-making activities or other trading activities. The Company has agreed that, for a period of 180 days after the Expiration Date, it will make this Prospectus, as amended or supplemented, available to any broker-dealer for use in connection with any such resale. In addition, until , 199 , all dealers effecting transactions in the Exchange Notes may be required to deliver a prospectus. The Company will not receive any proceeds from any sale of Exchange Notes by broker-dealers. Exchange Notes received by broker-dealers for their own account pursuant to the Exchange Offer may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the Exchange Notes or a combination of such methods of resale, at market prices prevailing at the time of resale, at prices related to such prevailing market prices or negotiated prices. Any such resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such broker-dealer or the purchasers of any such Exchange Notes. Any broker-dealer that resells Exchange Notes that were received by it for its own account pursuant to the Exchange Offer and any broker or dealer that participates in a distribution of such Exchange Notes may be deemed to be an "underwriter" within the meaning of the Securities Act and any profit on any such resale of Exchange Notes and any commission or concessions received by any such persons may be deemed to be underwriting compensation under the Securities Act. The Letter of Transmittal states that, by acknowledging that it will deliver and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. For a period of 180 days after the Expiration Date the Company will promptly send additional copies of this Prospectus and any amendment or supplement to this Prospectus to any broker-dealer that requests such documents in the Letter of Transmittal. The Company has agreed to pay all expenses incident to the Exchange Offer (including the expenses of one counsel for the Holders of the Notes) other than commissions or concessions of any brokers or dealers and will indemnify the Holders of the Securities (including any broker-dealers) against certain liabilities, including liabilities under the Securities Act. LEGAL MATTERS Certain legal matters with respect to the Exchange Notes offered hereby will be passed upon by Dechert Price & Rhoads, Philadelphia, Pennsylvania. EXPERTS The financial statements of the Fairchild Semiconductor business of National Semiconductor Corporation have been included herein and in the Registration Statement in reliance upon the report of KPMG Peat Marwick LLP, independent certified public accountants, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing. 112 DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS This Prospectus includes "forward-looking statements" within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. All statements other than statements of historical facts included in this Prospectus, including without limitation the Unaudited Supplemental Data set forth in the Unaudited Pro Forma Combined Condensed Financial Statements and Unaudited Supplemental Data and the statements under "Business--Business Strategy" and "Management's Discussion and Analysis of Financial Condition and Results of Operations--Overview" and "--Liquidity and Capital Resources", are forward-looking statements. Although management believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. Important factors that could cause actual results to differ materially from the Company's or management's expectations ("Cautionary Statements") are disclosed in this Prospectus, including without limitation in conjunction with the forward-looking statements included in this Prospectus and under "Risk Factors." All written and oral forward-looking statements made following consummation of the Transactions which are attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by the Cautionary Statements. 113 GLOSSARY ASIC.............................. Application Specific Integrated Circuit. A custom-designed integrated circuit that performs specific functions which would otherwise require a number of off-the-shelf integrated circuits to perform. The use of an ASIC in place of a conventional integrated circuit reduces product size and cost and also improves reliability. ASSP.............................. Application Specific Standard Product. A standard integrated circuit designed for a specific product or application, such as a VCR, stereo or microwave. Back end.......................... The process that assembles the die into the final package and performs the final test. BiCMOS............................ BiCMOS is a hybrid of CMOS and bipolar technologies developed to combine the high speed characteristics of bipolar technologies with the low power consumption and high integration of CMOS technologies. Bipolar........................... A manufacturing process that uses two opposite electrical poles to build semiconductors. CAD............................... Computer aided design. CIM............................... Computer integrated manufacturing. CMOS.............................. Complementary Metal Oxide Semiconductor. Currently the most common IC fabrication process technology, CMOS is one of the latest fabrication techniques to use metal oxide semiconductor transistors. Die............................... A piece of a semiconductor wafer containing the circuitry of a single chip. Diode............................. An electronic device that allows current to flow in only one direction. Discrete.......................... A single individually packaged component. DMOS.............................. Diffused Metal Oxide Semiconductor. A process technology used in power discrete fabrication. DRAM.............................. Dynamic Random Access Memory. A type of volatile memory product that is used in electronic systems to store data and program instructions. It is the most common type of RAM and must be refreshed with electricity thousands of times per second or else its memory will fade away. EEPROM............................ Electrically Erasable and Programmable Read-Only Memory. A form of non-volatile memory that can be erased electronically before being reprogrammed. EPROM............................. Electrically Programmable Read-Only Memory. Non-volatile memory which may be erased by exposure to ultraviolet light and which can be reprogrammed only by an external programming unit. Fab............................... The facility that fabricates the wafer. FACT-TM-.......................... Fairchild Advanced CMOS Technology. FAST-Registered Trademark-........ Fairchild Advanced Schottky Technology.
G-1 FET............................... Field Effect Transistor. Flash Memory...................... A type of non-volatile memory, similar to an EEPROM in that it is erasable and reprogrammable. The difference is that it must be erased and reprogrammed in sectors, not individual bits. Foundry........................... A wafer fab that manufactures silicon for another business. IC................................ Integrated Circuit. A combination of two or more transistors on a base material, usually silicon. All semiconductor chips, including memory chips and logic chips, are just very complicated ICs with thousands of transistors. Lead Frames....................... A conductive frame that brings the electrical signals to and from the die. Logic Product..................... A product that contains digital integrated circuits that move and shape, rather than store, information. Mask.............................. A piece of glass on which an IC's circuitry design is laid out. Integrated circuits may require up to 20 different layers of design, each with its own mask. In the IC production process, a light shines through the mask leaving an image of the design on the wafer. Also known as a reticle. Mb................................ Mega Bit. One million (or 1,048,576) bits as a unit of data size or memory capacity. Memory............................ A group of integrated circuits that a computer uses to store data and programs, such as ROM, RAM, DRAM, SRAM, EEPROM and EPROM. Mhz............................... Megahertz. One million cycles per second. Typically measures the clock speed of microprocessors. Micron............................ 1/25,000 of an inch. Circuity on an IC typically follows lines that are less than one micron wide. MOS............................... Metal Oxide Semiconductor. MOSFET............................ Metal Oxide Semiconductor FET. Motherboard....................... The main piece of circuitry inside a PC. Non-volatile Memory............... Memory products which retain their data content without the need for constant power supply. Package........................... A protective case that surrounds the die, consisting of a plastic housing and a lead frame. PC................................ Personal Computer. Planar Technology................. By the later 1950s, transistors were made in batches through a simple photolithographic technique known as the mesa process. This process, which led directly to the creation of the commercially viable integrated circuit, is a form of contact printing. A cross section of a typical mesa transistor resembles a mesa of silicon squatting on top of a foundation of silicon. The three essential parts of a transistor are all there: the base is the mesa,
G-2 the collector is the foundation, and the emitter is a tiny piece of doped silicon embedded in the base. To fabricate a mesa transistor, a flat wafer of silicon was doped with either positive ions or electrons, covered with a photomask (a photographic plate), exposed to ultraviolet light and then immersed in an acid bath, which etched away the exposed area around the mesa. For all the manufacturing benefits brought about by the mesa process, it had two major drawbacks: the mesa was susceptible to both physical harm and contamination, and the process didn't lend itself to the making of resistors. Then Jean Hoerni, a Swiss physicist and one of Fairchild's founders, invented an ingenious way around these obstacles by creating a flat, or planar, transistor. Instead of mounting the mesa, or base, on top of a foundation of silicon, he diffused it into the foundation, which served as the collector. Next he diffused the emittor into the base. (The base was composed of negatively doped silicon, the collector and emitor of positively doped silicon; the first planar device was thus a pnp transistor.) Then he covered the whole thing with a protective coating of silicon dioxide, an insulator, leaving certain areas in the base and the emitter uncovered. He diffused a thin layer of aluminium into these areas, thereby creating "wires" that hooked the device up to the outside (this was the idea of his colleague and Fairchild co-founder, Robert Noyce). The result was a durable and reliable transistor, and the all-important breakthrough that made commercial production of ICs possible. Plug and Play..................... A protocol that supports automated configuration of add on cards. Power Discrete.................... A discrete device that converts, switches or conditions electricity. PROM.............................. Programmable Read-Only Memory. Similar to ROM in that once programmed it can be "read only" and not changed. Programmable ROM means that customers can program the integrated circuits themselves, so that the IC need not be programmed when it is manufactured. The programming is possible because of a series of fuses in the circuitry that can be selectively blown to create a unique type of data. RAM............................... Random Access Memory. A type of volatile memory, forming the main memory of a computer where applications and files are run. ROM............................... Read-Only Memory. Memory that is programmed by the manufacturer and cannot be changed. Typically, ROM is used to provide start-up data when a computer is first turned on. SAM............................... Serviceable available market.
G-3 Semiconductor..................... A material with electrical conducting properties in between those of metals and insulators. (Metals always conduct and insulators never conduct, but semiconductors sometimes conduct.) Essentially, semiconductors transmit electricity only under certain circumstances, such as when given a positive or negative electric charge. Therefore, a semiconductor's ability to conduct can be turned on or off by manipulating those charges and this allows the semiconductor to act as an electric switch. The most common semiconductor material is silicon, used as the base of most semiconductor chips today because it is relatively inexpensive and easy to create. SOM............................... Share of Market. Sort.............................. The process of evaluating die into different grades, good/bad or speed grades. SRAM.............................. Static Random Access Memory. A type of volatile memory product that is used in electronic systems to store data and program instructions. Unlike the more common DRAM, it does not need to be refreshed. Stepper........................... A machine used in the photolithography process in making wafers. With a stepper, a small portion of the wafer is aligned with the mask upon which the circuity design is laid out and is then exposed to strong light. The machine then "steps" to the next area repeating the process until the entire wafer has been done. Exposing only a small area of the wafer at a time allows the light to be focused more strongly which gives better resolution of the circuity design. TAM............................... Total Available Market. Transistor........................ An individual circuit that can amplify or switch electric current. This is the building block of all integrated circuits and semiconductors. Volatile Memory................... Memory products which lose their data content when the power supply is switched off. Wafer............................. Thin, round, flat piece of silicon that is the base of most integrated circuits.
G-4 INDEX TO FINANCIAL STATEMENTS
PAGE --------- Independent Auditor's Report............................................................................... F-2 Combined Balance Sheets as of May 28, 1995 and May 26, 1996 of Fairchild Semiconductor Business of National Semiconductor Corporation..................................... F-3 Combined Statement of Operations as of May 29, 1994, May 28, 1995 and May 26, 1996 of Fairchild Semiconductor Business of National Semiconductor Corporation................................................................................................ F-4 Notes to Combined Statements............................................................................... F-5 Unaudited Combined Balance Sheets for the Nine Months Ended February 23, 1997 of Fairchild Semiconductor Business of National Semiconductor Corporation................................................................................................ F-14 Unaudited Combined Statements of Operations for the Nine Months Ended February 25, 1996 and February 23, 1997 of Fairchild Semiconductor Business of National Semiconductor Corporation............................................................. F-15 Notes to Unaudited Combined Statements..................................................................... F-16
F-1 INDEPENDENT AUDITORS' REPORT The Board of Directors National Semiconductor Corporation: We have audited the accompanying combined balance sheets of the Fairchild Semiconductor Business of National Semiconductor Corporation (the "Company" or the "Business") as of May 28, 1995 and May 26, 1996 and the accompanying combined statements of operations for each of the years in the three-year period ended May 26, 1996. These statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these combined statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the statements. We believe that our audits provide a reasonable basis for our opinion. The accompanying combined statements were prepared on the basis of presentation as described in Note 1. The accompanying combined statements present the combined assets, liabilities and business equity and the related combined revenues less direct expenses before taxes of the Business, and are not intended to be a complete presentation of the Business' financial position, results of operations or cash flows. The results of operations before taxes are not necessarily indicative of the results of operations before taxes that would be recorded by the Company on a stand-alone basis. In our opinion, the accompanying combined statements present fairly, in all material respects, the combined assets, liabilities and business equity of the Business as of May 28, 1995 and May 26, 1996 and its combined revenues less direct expenses before taxes for each of the years in the three-year period ended May 26, 1996, on the basis described in Note 1, in conformity with generally accepted accounting principles. As discussed in Note 2 to the combined statements, in 1996 the Business changed its method of accounting for depreciation. KPMG Peat Marwick LLP San Jose, California December 5, 1996 F-2 FAIRCHILD SEMICONDUCTOR BUSINESS OF NATIONAL SEMICONDUCTOR CORPORATION COMBINED BALANCE SHEETS (IN MILLIONS)
MAY 28, 1995 MAY 26, 1996 ------------- ------------- ASSETS Current assets: Inventories........................................................................ $ 68.8 $ 93.1 Prepaid expenses and other......................................................... 8.3 9.6 Miscellaneous Receivables.......................................................... 20.2 9.6 ------ ------ Total current assets........................................................... 97.3 112.3 Property, plant and equipment, net................................................... 223.8 318.3 Other assets......................................................................... 2.1 2.1 ------ ------ Total assets................................................................... $ 323.2 $ 432.7 ------ ------ ------ ------ LIABILITIES AND BUSINESS EQUITY Current liabilities: Accounts payable................................................................... $ 69.8 $ 64.6 Accrued expenses................................................................... 20.2 18.9 ------ ------ Total current liabilities...................................................... 90.0 83.5 Commitments Business equity...................................................................... 233.2 349.2 ------ ------ Total liabilities and business equity.......................................... $ 323.2 $ 432.7 ------ ------ ------ ------
See accompanying notes to combined statements. F-3 FAIRCHILD SEMICONDUCTOR BUSINESS OF NATIONAL SEMICONDUCTOR CORPORATION COMBINED STATEMENTS OF OPERATIONS (IN MILLIONS)
YEARS ENDED ------------------------------------- MAY 29, MAY 28, MAY 26, 1994 1995 1996 ----------- ----------- ----------- Revenue: Net sales--trade.................................................................. $ 658.9 $ 629.6 $ 687.8 Contract manufacturing--National Semiconductor.................................... 57.7 50.7 87.6 ----------- ----------- ----------- Total revenue................................................................. 716.6 680.3 775.4 Direct and allocated costs and expenses: Cost of sales..................................................................... 410.6 425.8 472.7 Cost of contract manufacturing--National Semiconductor............................ 57.7 50.7 87.6 Research and development.......................................................... 27.4 31.0 30.3 Selling and marketing............................................................. 55.0 56.8 65.6 General and administrative........................................................ 42.3 43.5 48.4 ----------- ----------- ----------- Total operating costs and expenses............................................ 593.0 607.8 704.6 ----------- ----------- ----------- 123.6 72.5 70.8 Other (income) expense.............................................................. (1.9) (1.8) (1.5) ----------- ----------- ----------- Revenues less direct and allocated expenses before taxes............................ $ 125.5 $ 74.3 $ 72.3 ----------- ----------- ----------- ----------- ----------- -----------
See accompanying notes to combined statements. F-4 FAIRCHILD SEMICONDUCTOR BUSINESS OF NATIONAL SEMICONDUCTOR CORPORATION NOTES TO COMBINED STATEMENTS MAY 28, 1995 AND MAY 26, 1996 (1) BASIS OF PRESENTATION The Fairchild Semiconductor Business ("Fairchild" or the "Business") is defined as the logic, discrete and memory divisions of National Semiconductor Corporation ("National Semiconductor"), including flash memory but excluding public networks, programmable products and mil/aero products. Manufacturing operations for the Business are primarily conducted in plants in South Portland, Maine; Salt Lake City, Utah; Cebu, the Philippines; and Penang, Malaysia (collectively referred to as "Fairchild plants"). Certain manufacturing operations related to Fairchild products are also performed at National Semiconductor plants. Similarly, certain Fairchild plants perform manufacturing operations related to other National Semiconductor product lines. The accompanying combined balance sheets do not include National Semiconductor's corporate assets or liabilities not specifically identifiable to Fairchild. National Semiconductor performs cash management on a centralized basis and processes related receivables and certain payables, payroll and other activity for Fairchild. Most of these corporate systems are not designed to track receivables, liabilities and cash receipts and payments on a business specific basis. Accordingly, it is not practical to determine certain assets and liabilities associated with the business; therefore, such assets and liabilities cannot be included in the accompanying combined balance sheets. Given these constraints, certain supplemental cash flow information is presented in lieu of a statement of cash flows. (See Note 9.) Assets and liabilities not specifically identifiable to the Business include: (a) Cash, cash equivalents and investments. Activity in Fairchild cash balances is recorded through the equity account with National Semiconductor. (b) Trade accounts receivable and related allowances for bad debts and product returns. Fairchild trade receivable balances are funded immediately by National Semiconductor through the equity account. Estimated allowances for product returns are reflected in Fairchild net sales. (c) Accounts payable related to trade purchases that are made centrally by National Semiconductor. Such purchases related to Fairchild are allocated to Fairchild through the equity account. (d) Accrued liabilities for allocated corporate costs. The combined statement of operations includes all revenues and costs attributable to the Business including an allocation of the costs of shared facilities and overhead of National Semiconductor. In addition, certain costs incurred at Fairchild plants for the benefit of other National Semiconductor product lines are allocated from Fairchild to National Semiconductor. All of the allocations and estimates in the combined statements of operations are based on assumptions that management believes are reasonable under the circumstances. However, these allocations and estimates are not necessarily indicative of the costs that would have resulted if the Business had been operated on a stand alone basis. Transactions between the Business and other National Semiconductor operations have been identified in the combined statements as transactions between related parties to the extent practicable (See Note 2). (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES FISCAL YEAR Fairchild's fiscal year ends on the Sunday on or nearest preceding May 31. F-5 FAIRCHILD SEMICONDUCTOR BUSINESS OF NATIONAL SEMICONDUCTOR CORPORATION NOTES TO COMBINED STATEMENTS (CONTINUED) MAY 28, 1995 AND MAY 26, 1996 (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) BASIS OF COMBINATION All significant intercompany balances and transactions within the Business have been eliminated. REVENUE RECOGNITION Revenue from the sale of Fairchild semiconductor products is generally recognized when shipped, with a provision for estimated returns and allowances recorded at the time of shipment. RELATED PARTY TRANSACTIONS Fairchild performs contract manufacturing services for National Semiconductor. The revenues and expenses for these services are reflected at cost in the accompanying combined statement of operations. Manufacturing costs are generally apportioned between National Semiconductor and Fairchild product lines based upon budgeted and actual factory production loading. Certain manufacturing costs (e.g., material costs) that are specifically identifiable with a particular product line are charged or credited directly without apportionment. National Semiconductor also performs manufacturing services for Fairchild and incurs other elements of cost of sales on behalf of Fairchild, including freight, duty, warehousing, and purchased manufacturing services from third party vendors. The amounts charged to Fairchild for these items are summarized as follows:
YEARS ENDED ------------------------------------- MAY 29, MAY 28, MAY 26, 1994 1995 1996 ----------- ----------- ----------- (IN MILLIONS) Manufacturing services performed by National Semiconductor's Greenock, UK plant................................................................... $ 18.5 $ 10.1 $ 12.0 Manufacturing services performed by other National Semiconductor plants... 19.5 17.8 19.5 Purchased manufacturing services from third parties....................... 73.9 50.2 42.4 Headquarters, freight, duty, warehousing and other elements of cost of sales................................................................... 40.3 61.3 58.5 ----------- ----------- ----------- $ 152.2 $ 139.4 $ 132.4 ----------- ----------- ----------- ----------- ----------- -----------
Included in the above amounts transferred from National Semiconductor to Fairchild, are costs incurred by certain centralized divisional oversight and logistics departments referred to as NSIL. Although NSIL spending occurs in both National Semiconductor and Fairchild sites, all such costs are considered to have originated in National Semiconductor. A portion of manufacturing costs transferred from National Semiconductor plants to Fairchild is capitalized into inventory at standard manufacturing cost and is expensed to cost of sales as related product sales are recognized. The remainder of manufacturing costs transferred to Fairchild are considered period costs and are immediately recognized as cost of sales. F-6 FAIRCHILD SEMICONDUCTOR BUSINESS OF NATIONAL SEMICONDUCTOR CORPORATION NOTES TO COMBINED STATEMENTS (CONTINUED) MAY 28, 1995 AND MAY 26, 1996 (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Other operating costs allocated from National Semiconductor plants to Fairchild and from Fairchild plants to National Semiconductor product lines can be summarized as follows:
YEARS ENDED ------------------------------------- MAY 29, MAY 28, MAY 26, 1994 1995 1996 ----------- ----------- ----------- (IN MILLIONS) Transferred from National Semiconductor to Fairchild, at cost............. $ 112.5 $ 120.9 $ 108.6 ----------- ----------- ----------- ----------- ----------- ----------- Transferred from Fairchild to National Semiconductor, at cost............. $ 13.7 $ 19.4 $ 27.1 ----------- ----------- ----------- ----------- ----------- -----------
Where it is possible to specifically identify other operating costs with the activities of Fairchild or National Semiconductor product lines, these amounts have been charged or credited directly to Fairchild or National Semiconductor product lines without allocation or apportionment. Shared or common costs, including certain general and administrative, sales and marketing, and research and development, have been allocated from National Semiconductor's corporate office, selling and marketing locations, and manufacturing sites to Fairchild or from Fairchild plants to National Semiconductor product lines on a basis which is considered to fairly and reasonably reflect the utilization of the services provided to, or benefit obtained by, the business receiving the charge. Although a number of different approaches are used to allocate costs, there is usually a predominant basis for each expense category. Accordingly, research and development expenses have been allocated primarily on dedicated research and development spending. Selling and marketing expenses have been allocated primarily on sales volume, and general and administrative expenses have been allocated primarily on net assets. These cost allocations are not necessarily indicative of the costs that would be incurred by the Business on a stand-alone basis. INVENTORIES Inventories are stated at the lower of standard cost, which approximates actual cost on a first-in, first-out basis, or market. The main components of inventories are as follows:
YEARS ENDED ------------------------ MAY 28, MAY 26, 1995 1996 ----------- ----------- (IN MILLIONS) Raw materials....................................................................... $ 6.6 $ 11.2 Work in process..................................................................... 40.2 58.1 Finished goods...................................................................... 22.0 23.8 ----- ----- Total Inventories............................................................. $ 68.8 $ 93.1 ----- ----- ----- -----
PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are recorded at cost. Effective May 29, 1995, Fairchild changed its method of accounting for depreciation from the 150 percent declining balance method to the straight-line method for machinery and equipment placed in service on or after that date. The change was adopted because it conforms with predominant industry practice and is expected to result in a more appropriate F-7 FAIRCHILD SEMICONDUCTOR BUSINESS OF NATIONAL SEMICONDUCTOR CORPORATION NOTES TO COMBINED STATEMENTS (CONTINUED) MAY 28, 1995 AND MAY 26, 1996 (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) distribution of the cost of the new machinery and equipment over its estimated useful life. The effect of the change was a decrease in the depreciation charge related to Fairchild property, plant and equipment of approximately $5.4 million for fiscal year 1996. Assets placed in service prior to fiscal year 1996 and assets other than machinery and equipment continue to be depreciated using prior years' depreciation methods over the assets' remaining estimated useful lives, or in the case of property under capital lease and leasehold improvements, over the lesser of the estimated useful life or lease term. In 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," which requires recognition of impairment of long-lived assets in the event the carrying value of such assets exceeds the future undiscounted cash flows attributable to such assets. SFAS No. 121 will become effective in the Business' fiscal year 1997. Adoption of SFAS No. 121 is not expected to have a material impact on the Business' financial position or results of operations. The components of property, plant and equipment are as follows:
YEARS ENDED ------------------------ MAY 28, MAY 26, 1995 1996 ----------- ----------- (IN MILLIONS) Land................................................................................ $ 1.2 $ 1.2 Buildings........................................................................... 115.3 133.7 Machinery and equipment............................................................. 367.2 476.2 Construction in progress............................................................ 59.5 54.3 ----------- ----------- Total property, plant and equipment........................................... 543.2 665.4 Less accumulated depreciation....................................................... 319.4 347.1 ----------- ----------- $ 223.8 $ 318.3 ----------- ----------- ----------- -----------
INTEREST EXPENSE National Semiconductor had net interest income on a consolidated basis for all periods presented. Although not material, these amounts have been allocated to Fairchild on the basis of net assets and are included in other (income) expense. Management believes this is reasonable, but it is not necessarily indicative of the cost that would have been incurred if the Business had been operated on a stand alone basis. CURRENCIES AND FOREIGN CURRENCY INSTRUMENTS Fairchild's functional currency for all operations worldwide is the U.S. dollar. Accordingly, gains and losses from translation of foreign currency financial statements into U.S. dollars are included in current results. Gains and losses resulting from foreign currency transactions are also included in current results. National Semiconductor uses forward and option contracts to hedge firm commitments and anticipatory exposures. These exposures primarily comprise sales of National Semiconductor's products, including Fairchild products, in currencies other than the U.S. dollar, a majority of which are made through National F-8 FAIRCHILD SEMICONDUCTOR BUSINESS OF NATIONAL SEMICONDUCTOR CORPORATION NOTES TO COMBINED STATEMENTS (CONTINUED) MAY 28, 1995 AND MAY 26, 1996 (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Semiconductor's subsidiaries in Europe and Japan. Gains and losses on financial instruments that are intended to hedge an identifiable firm commitment are deferred and included in the measurement of the underlying transaction. Gains and losses on hedges of anticipated transactions are deferred until such time as the underlying transactions are recognized or immediately when the transaction is no longer expected to occur. In addition, National Semiconductor uses forward and option contracts to hedge certain non-U.S. dollar denominated asset and liability positions. Gains and losses on these contracts are matched with the corresponding effect of currency movements on these financial positions. The aggregate translation and transaction gain or loss, net of the gain or loss from the forward currency contracts or options, is accumulated at the corporate level by National Semiconductor and allocated to Fairchild based on its proportionate share of worldwide net assets and is included in other income and expense. Amounts allocated for 1994, 1995 and 1996 were not significant. USE OF ESTIMATES IN PREPARATION OF FINANCIAL STATEMENTS The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. EMPLOYEE STOCK PLANS National Semiconductor accounts for its stock option and its employee stock purchase plans in accordance with provisions of the Accounting Principles Board's Opinion No. 25 ("APB 25"), ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES. In 1995, the Financial Accounting Standards Board issued SFAS No. 123, ACCOUNTING FOR STOCK BASED COMPENSATION. SFAS No. 123 provides an alternative approach to APB 25 and is effective for fiscal years beginning after December 15, 1995. Fairchild intends to continue to account for their employee stock plans in accordance with the provisions of APB 25. While SFAS No. 123 will not have any impact on the Business' reported financial position or results of operations, it requires disclosure of the effect on income before taxes as if the alternative approach had been adopted. (3) ACCRUED EXPENSES The components of accrued expenses are as follows:
YEARS ENDED ------------------------ MAY 28, MAY 26, 1995 1996 ----------- ----------- (IN MILLIONS) Payroll and employee related accruals..................................... $ 11.8 $ 13.2 Other accruals............................................................ 8.4 5.7 ----- ----- Total accrued expenses................................................ $ 20.2 $ 18.9 ----- ----- ----- -----
F-9 FAIRCHILD SEMICONDUCTOR BUSINESS OF NATIONAL SEMICONDUCTOR CORPORATION NOTES TO COMBINED STATEMENTS (CONTINUED) MAY 28, 1995 AND MAY 26, 1996 (4) RETIREMENT PLANS Employees of Fairchild participate in several National Semiconductor retirement, employee benefit, and incentive plans. These include (i) a profit sharing plan, (ii) a stock bonus plan, and (iii) a salary deferral 401(k) plan. National Semiconductor also has a stock option plan under which key employees of Fairchild may be granted nonqualified or incentive stock options to purchase shares of National Semiconductor common stock. In addition, National Semiconductor has a stock purchase plan that authorizes the granting of options and the issuance of common stock to eligible Fairchild employees. Certain key employees and certain management of Fairchild also participate in various incentive arrangements based on individual performance and National Semiconductor/Fairchild profitability. Fairchild employees in Malaysia participate in a defined contribution plan. National Semiconductor has funded accruals for this pension plan in accordance with statutory regulations in Malaysia. Fairchild employees in the Philippines participate in a defined benefit plan. At May 26, 1996, the plan had assets of approximately $0.3 million and an unfunded liability of approximately $2.6 million. The minimum liability required is not significant. (5) LEASE COMMITMENTS Rental expense related to certain facilities and equipment of Fairchild plants was $4.4 million, $3.0 million, and $4.8 million for the fiscal years ended 1994, 1995 and 1996, respectively. Future minimum lease payments under operating leases are as follows:
(IN MILLIONS) 1997......................................................................... $ 5.4 1998......................................................................... 5.0 1999......................................................................... 4.3 2000......................................................................... 4.2 2001......................................................................... 2.7 Thereafter................................................................... 3.3 ----- Total........................................................................ $ 24.9 ----- -----
(6) CONTINGENCIES National Semiconductor is currently a defendant in certain legal actions relating to Fairchild. In the opinion of management, the outcome of such litigation will not have a material adverse effect on the business equity or statement of operations. National Semiconductor is also involved in certain administrative and judicial proceedings related to certain environmental matters at Fairchild locations. The Asset Purchase Agreement provides for National Semiconductor's retention of certain liabilities arising out of investigative and remedial action and environmental claims for conditions existing as of the closing at the above referenced locations. Accordingly, based on information currently available, management believes that the costs of these matters are not likely to have a material adverse effect on the business equity or statement of operations. F-10 FAIRCHILD SEMICONDUCTOR BUSINESS OF NATIONAL SEMICONDUCTOR CORPORATION NOTES TO COMBINED STATEMENTS (CONTINUED) MAY 28, 1995 AND MAY 26, 1996 (7) BUSINESS EQUITY Business Equity represents National Semiconductor's ownership interest in the recorded net assets of Fairchild. All cash transactions and intercompany transactions are reflected in this amount. A summary of activity is as follows:
YEARS ENDED ------------------------------------- MAY 29, MAY 28, MAY 26, 1994 1995 1996 ----------- ----------- ----------- (IN MILLIONS) Balance at beginning of period.................................. $ 100.8 $ 161.1 $ 233.2 Revenues less expenses.......................................... 125.5 74.3 72.3 Net intercompany activity....................................... (65.2) (2.2) 43.7 ----------- ----------- ----------- $ 161.1 $ 233.2 $ 349.2 ----------- ----------- ----------- ----------- ----------- -----------
(8) INDUSTRY AND GEOGRAPHIC SEGMENT INFORMATION The Business operates in one industry segment and is engaged in the design, development, manufacture and marketing of a wide variety of semiconductor products for the semiconductor industry and original equipment manufacturers. Fairchild operates in three main geographic areas. In the information that follows, sales include local sales and exports made by operations within each area. To control costs, a substantial portion of Fairchild's products are transported between various Fairchild and National Semiconductor facilities in the Americas, Asia and Europe in the process of being manufactured and sold. Accordingly, it is not meaningful to present interlocation transfers between Fairchild facilities on a stand alone basis. Sales to unaffiliated customers have little correlation with the location of manufacture. It is, therefore, not meaningful to present operating profit by geographic area. Fairchild conducts a substantial portion of its operations outside of the U.S. and is subject to risks associated with non-U.S. operations, such as political risks, currency controls and fluctuations, tariffs, import controls and air transportation.
AMERICAS EUROPE ASIA CONSOLIDATED ----------- --------- --------- ------------- (IN MILLIONS) 1994 Sales to unaffiliated customers................................ $ 274.8 $ 142.6 $ 241.5 $ 658.9 ----------- --------- --------- ------ ----------- --------- --------- ------ 1995 Sales to unaffiliated customers................................ $ 238.2 $ 149.9 $ 241.5 $ 629.6 ----------- --------- --------- ------ ----------- --------- --------- ------ Total assets................................................... $ 212.2 $ 1.9 $ 109.1 $ 323.2 ----------- --------- --------- ------ ----------- --------- --------- ------ 1996 Sales to unaffiliated customers................................ $ 260.3 $ 161.3 $ 266.2 $ 687.8 ----------- --------- --------- ------ ----------- --------- --------- ------ Total assets................................................... $ 267.9 $ 0.8 $ 164.0 $ 432.7 ----------- --------- --------- ------ ----------- --------- --------- ------
F-11 FAIRCHILD SEMICONDUCTOR BUSINESS OF NATIONAL SEMICONDUCTOR CORPORATION NOTES TO COMBINED STATEMENTS (CONTINUED) MAY 28, 1995 AND MAY 26, 1996 (9) SUPPLEMENTAL CASH FLOW INFORMATION As described in Note 1, National Semiconductor's cash management system is not designed to trace centralized cash and related financing transactions to the specific cash requirements of the Business. In addition, National Semiconductor's corporate transaction systems are not designed to track receivables and certain liabilities and cash receipts and payments on a business specific basis. Given these constraints, the following data are presented to facilitate analysis of key components of cash flow activity:
YEARS ENDED ------------------------------- MAY 29, MAY 28, MAY 26, 1994 1995 1996 --------- --------- --------- (IN MILLIONS) Operating activities: Revenues less expenses.......................................................... $ 125.5 $ 74.3 $ 72.3 Depreciation.................................................................... 33.0 39.1 57.6 Loss on disposal of equipment................................................... 2.0 .2 1.8 Increase in inventories......................................................... (5.9) (7.9) (24.3) Decrease (increase) in miscellaneous receivables................................ 1.7 (8.0) 10.6 Increase in other assets........................................................ (0.4) -- (1.3) Increase (decrease) in accounts payable and accrued liabilities................. (2.5) 17.4 (6.5) --------- --------- --------- Cash flow from operating activities, excluding National Semiconductor financing... 153.4 115.1 110.2 Investing activities: Capital expenditures............................................................ (88.2) (112.9) (153.9) --------- --------- --------- Net financing provided to (from) National Semiconductor*.......................... $ 65.2 $ 2.2 $ (43.7) --------- --------- --------- --------- --------- ---------
- ------------------------ * The difference between cash flow from operating activities and investing activities does not necessarily represent the cash flows of the Business, or the timing of such cash flows, had it operated on a stand alone basis. (10) SUBSEQUENT EVENT-UNAUDITED National Semiconductor formed two new entities, Fairchild Semiconductor Corporation ("Fairchild" or "the Company") and FSC Semiconductor Corporation ("Fairchild Holdings") on February 10, 1997 and March 10, 1997, respectively. Fairchild Semiconductor Limited, Fairchild Semiconductor GmbH, Fairchild Semiconductor Asia Pacific Pte. Ltd., Fairchild Semiconductor (Malaysia) Sdn. Bhd., Fairchild Semiconductor Hong Kong Limited, Fairchild Semiconductor Hong Kong (Holdings) Limited, Fairchild Semiconductor Japan K.K. and Fairchild Semiconductor S.r.l. (collectively, the "foreign subsidiaries") were also formed as wholly owned subsidiaries of Fairchild. On March 11, 1997, National Semiconductor consummated an Agreement and Plan of Recapitalization under which the following transactions occurred: (i) National Semiconductor, pursuant to an Asset Purchase Agreement, transferred all of the assets and liabilities of the Business to Fairchild and its subsidiaries in exchange for demand purchase F-12 FAIRCHILD SEMICONDUCTOR BUSINESS OF NATIONAL SEMICONDUCTOR CORPORATION NOTES TO COMBINED STATEMENTS (CONTINUED) MAY 28, 1995 AND MAY 26, 1996 (10) SUBSEQUENT EVENT-UNAUDITED (CONTINUED) notes of Fairchild and the foreign subsidiaries in the aggregate principal amount of $401.6 million (the "Purchase Price Notes"); (ii) National Semiconductor transferred all of the capital stock of Fairchild and approximately $12.8 million in cash to Fairchild Holdings in exchange for shares of 12% Series A Cumulative Compounding Preferred Stock of Fairchild Holdings ("Holdings Redeemable Preferred Stock"), common stock of Fairchild Holdings ("Holdings Common Stock") and a promissory note of Fairchild Holdings in the principal amount of approximately $77.0 million ("Holdings PIK Note"); (iii) Fairchild Holdings issued (a) to Sterling Holding Company, LLC ("Sterling") shares of Holdings Preferred Stock and Holdings Common Stock for approximately $58.5 million in cash and (b) to Kirk P. Pond and Joseph R. Martin, together with certain other key employees of Fairchild (the "Management Investors"), Holdings Preferred Stock and Holdings Common Stock for approximately $6.5 million in cash; (iv) Fairchild Holdings contributed cash in the amount of approximately $77.8 million to the capital of the Company; (v) Fairchild borrowed $120.0 million under the term bank loans and received net proceeds from the issuance of $300.0 million of 10 1/8% Senior Subordinated Notes Due 2007 (the "Notes") to settle the Purchase Price Notes and provide Fairchild with working capital. The pro forma unaudited combined condensed balance sheet of Fairchild as of February 23, 1997 and the pro forma unaudited combined condensed results of operations for the year ended 1996 adjusted to give effect to the transactions is presented in the Pro Forma Financial Statements, included elsewhere in this Prospectus. The Notes are fully and unconditionally guaranteed by Fairchild Holdings. Fairchild Holdings currently conducts no business and has no significant assets other than the capital stock of the Company, all of which has been pledged to secure Fairchild Holdings' obligations under the term bank loans. Thus, currently there are no resources supporting Fairchild Holdings' guarantee of the Notes that are in addition to those to which holders of the Notes already have access as direct creditors of the Company. Although the Company's U.S. operations are owned directly, its foreign operations are conducted through the foreign subsidiaries. The foreign subsidiaries have not guaranteed or otherwise become obligated with respect to the Notes. The Notes will therefore be effectively subordinated to all existing and future liabilities, including indebtedness, of the foreign subsidiaries. F-13 FAIRCHILD SEMICONDUCTOR BUSINESS OF NATIONAL SEMICONDUCTOR CORPORATION NOTES TO COMBINED STATEMENTS (CONTINUED) MAY 28, 1995 AND MAY 26, 1996 (10) SUBSEQUENT EVENT-UNAUDITED (CONTINUED) The following unaudited pro forma combining condensed balance sheet of Fairchild Holdings is based on the historical financial statements of the business adjusted to give effect to the transactions and should be read in conjunction with the Pro Forma Financial Statements included elsewhere in this Prospectus.
PRO FORMA FEBRUARY 23, 1997 ------------------------------------------------------------------ FAIRCHILD FOREIGN COMBINED HOLDINGS FAIRCHILD SUBSIDIARIES ELIMINATIONS TOTAL ----------- ----------- ------ ------------ ----------- Total current assets................................. $ -- $ 136.7 $ 10.6 $ -- $ 147.3 Property, plant and equipment........................ -- 216.6 87.2 -- 303.8 Deferred income taxes................................ -- 25.0 -- -- 25.0 Other assets......................................... -- 21.3 0.2 -- 21.5 Investment in subsidiaries........................... 154.8 98.2 -- (253.0) -- ----------- ----------- ----- ------------ ----------- Total assets....................................... $ 154.8 $ 497.8 $ 98.0 $ (253.0) $ 497.6 ----------- ----------- ----- ------------ ----------- ----------- ----------- ----- ------------ ----------- Current liabilities.................................. $ -- $ 49.7 $ 24.9 $ -- $ 74.6 Long term bank debt, less current portion............ -- 109.0 -- -- 109.0 Senior Subordinated Notes............................ -- 300.0 -- -- 300.0 Holdings PIK Note.................................... 77.0 -- -- -- 77.0 ----------- ----------- ----- ------------ ----------- Total liabilities.................................. 77.0 458.7 24.9 -- 560.6 Holdings Redeemable Preferred Stock.................. 70.0 -- -- -- 70.0 Stockholder's equity: Holdings Common Stock................................ 7.8 -- -- -- 7.8 Fairchild common stock............................... -- -- -- -- -- Due to parent........................................ -- 39.1 73.1 (253.0) (140.8) ----------- ----------- ----- ------------ ----------- Total Stockholder's equity......................... 7.8 39.1 73.1 (253.0) (133.0) Total liabilities, Holdings Redeemable Preferred Stock and stockholder's equity................... $ 154.8 $ 497.8 $ 98.0 $ (253.0) $ 497.6 ----------- ----------- ----- ------------ ----------- ----------- ----------- ----- ------------ -----------
The pro forma combined total above is substantially identical to the Pro Forma Financial Statements except for the inclusion of the Holdings PIK Note of $77.0 million, the Holdings Redeemable Preferred Stock and the Holdings Common Stock. The Holdings PIK Note is due in 2008 and bears interest at an annual interest rate of 11.74%. The Holdings Redeemable Preferred Stock pays cumulative dividends at a rate of 12% per annum and is mandatorily redeemable in 2009. The pro forma combined results of operations of Fairchild Holdings would differ from the pro forma combined condensed results of operations of Fairchild presented elsewhere in this Prospectus only by the amount of interest on the Holdings PIK Note, which will be added to the principal amount of the Holdings PIK Note. F-14 FAIRCHILD SEMICONDUCTOR BUSINESS OF NATIONAL SEMICONDUCTOR CORPORATION NOTES TO COMBINED STATEMENTS (CONTINUED) MAY 28, 1995 AND MAY 26, 1996 (10) SUBSEQUENT EVENT-UNAUDITED (CONTINUED) Summarized historical operating activity for the U.S. operations of the Business, which were transferred to Fairchild, and the foreign operations of the Business, which were transferred to the foreign subsidiaries, for each of the years in the three-year period ended December 31, 1996, can be summarized as follows:
1994 1995 1996 --------- --------- --------- Revenue: U.S. operations (Fairchild)--Trade.............................................. $ 274.8 $ 238.2 $ 260.3 U.S. operations (Fairchild)--Intercompany....................................... 611.3 866.2 948.4 Foreign operations (foreign subsidiaries)--Trade................................ 384.1 391.4 427.5 Foreign operations (foreign subsidiaries)--Intercompany......................... 423.4 68.5 65.1 Eliminations.................................................................... (1034.7) (934.7) (1013.5) --------- --------- --------- Total......................................................................... $ 658.9 $ 629.6 $ 687.8 --------- --------- --------- --------- --------- --------- Revenue less direct and allocated expenses before other (income) and taxes: U.S. operations (Fairchild)..................................................... $ 168.8 $ 200.2 $ 232.9 Foreign operations (foreign subsidiaries)....................................... (22.0) (109.1) (144.9) Eliminations.................................................................... (23.2) (18.6) (17.2) --------- --------- --------- Total......................................................................... $ 123.6 $ 72.5 $ 70.8 --------- --------- --------- --------- --------- --------- Revenue less direct and allocated expenses: U.S. operations (Fairchild)..................................................... $ 165.4 $ 194.2 $ 225.5 Foreign operations (foreign subsidiaries)....................................... (16.7) (101.3) (136.0) Eliminations.................................................................... (23.2) (18.6) (17.2) --------- --------- --------- Total......................................................................... $ 125.5 $ 74.3 $ 72.3 --------- --------- --------- --------- --------- ---------
Intercompany amounts included in revenue above are comprised of sales between domestic and foreign operations and sales between plants which are located in the same geographic region. Upon consummation of the Transactions, Fairchild was a wholly owned subsidiary of Fairchild Holdings and Fairchild Holdings was owned 15% by National Semiconductor, 69% by Sterling and 16% by the Management Investors. F-15 FAIRCHILD SEMICONDUCTOR BUSINESS OF NATIONAL SEMICONDUCTOR CORPORATION COMBINED BALANCE SHEET (IN MILLIONS)
FEBRUARY 23, 1997 ----------------- (UNAUDITED) ASSETS Current assets: Inventories................................................................................ $ 67.3 Prepaid expenses and other................................................................. 8.6 Miscellaneous receivables.................................................................. 9.6 ------ Total current assets................................................................... 85.5 Property, plant and equipment, net............................................................. 303.8 Other assets................................................................................... 0.9 ------ Total assets........................................................................... $ 390.2 ------ ------ LIABILITIES AND BUSINESS EQUITY Current liabilities: Accounts payable........................................................................... $ 41.3 Accrued expenses........................................................................... 21.1 Special reserves........................................................................... 13.8 ------ Total current liabilities.............................................................. 76.2 Commitments.................................................................................... -- Business equity................................................................................ 314.0 ------ Total liabilities and business equity.................................................. $ 390.2 ------ ------
See accompanying notes to unaudited combined statements. F-16 FAIRCHILD SEMICONDUCTOR BUSINESS OF NATIONAL SEMICONDUCTOR CORPORATION COMBINED STATEMENTS OF OPERATIONS (IN MILLIONS)
NINE MONTHS ENDED ---------------------------- FEBRUARY 25, FEBRUARY 23, 1996 1997 ------------- ------------- (UNAUDITED) Revenue: Net sales--trade................................................................. $ 532.9 $ 433.9 Contract manufacturing--National Semiconductor................................... 63.7 75.8 ------ ------ Total revenue................................................................ 596.6 509.7 Direct and allocated costs and expenses: Cost of sales.................................................................... 356.5 332.4 Cost of contract manufacturing--National Semiconductor........................... 63.7 75.8 Research and development......................................................... 22.7 13.6 Selling and marketing............................................................ 50.0 33.5 General and administrative....................................................... 37.6 39.1 Restructuring.................................................................... -- 5.3 ------ ------ Total operating costs and expenses........................................... 530.5 499.7 ------ ------ 66.1 10.0 Other (income) expense............................................................... (1.5) 0.4 ------ ------ Revenues less direct and allocated expenses before taxes............................. $ 67.6 $ 9.6 ------ ------ ------ ------
See accompanying notes to unaudited combined statements. F-17 FAIRCHILD SEMICONDUCTOR BUSINESS OF NATIONAL SEMICONDUCTOR CORPORATION NOTES TO UNAUDITED COMBINED STATEMENTS FEBRUARY 25, 1996 AND FEBRUARY 23, 1997 (1) BASIS OF PRESENTATION The unaudited combined statements as of February 23, 1997 and for the nine months ended February 25, 1996 and February 23, 1997 should be read in conjunction with Note 1 (Basis of Presentation), Note 2 (Summary of Significant Accounting Policies), Note 6 (Contingencies) and Note 10 (Subsequent Event) included in the audited 1996 combined statements of the Fairchild Semiconductor Business of National Semiconductor Corporation (the Business). Other notes considered by management to be relevant to the accompanying unaudited combined statements are included herein. The unaudited combined statements for the Business are based principally on National Semiconductor Corporation's (National Semiconductor) internal results and, in the opinion of management, reflect, consistent with the audited 1996 statements, appropriate adjustments to more closely present the results of operations in accordance with generally accepted accounting principles. (2) RELATED PARTY TRANSACTIONS As discussed in Note 2 (Summary of Significant Accounting Policies) of the audited 1996 combined statements of the Business, certain costs are allocated from National Semiconductor to Fairchild. The amounts charged to Fairchild from National Semiconductor for manufacturing services and other elements of cost of sales are summarized as follows:
NINE MONTHS ENDED -------------------------- FEBRUARY 25 FEBRUARY 23, 1996 1997 ------------ ------------ (IN MILLIONS) Manufacturing services performed by National Semiconductor's Greenock, UK plant.............................................. $ 6.6 $ -- Manufacturing services performed by other National Semiconductor plants.......................................................... 21.9 11.8 Purchased manufacturing services from third parties............... 34.4 20.0 Headquarters, freight, duty, warehousing and other elements of cost of sales................................................... 41.6 36.4 ------------ ------------ $ 104.5 $ 68.2 ------------ ------------ ------------ ------------
F-18 FAIRCHILD SEMICONDUCTOR BUSINESS OF NATIONAL SEMICONDUCTOR CORPORATION NOTES TO UNAUDITED COMBINED STATEMENTS (CONTINUED) FEBRUARY 25, 1996 AND FEBRUARY 23, 1997 (2) RELATED PARTY TRANSACTIONS (CONTINUED) Other operating costs allocated from National Semiconductor plants to Fairchild and from Fairchild plants to National Semiconductor product lines can be summarized as follows:
NINE MONTHS ENDED ---------------------------- FEBRUARY 25, FEBRUARY 23, 1996 1997 ------------- ------------- (IN MILLIONS) Transferred from National Semiconductor to Fairchild, at cost..... $ 97.9 $ 60.6 ----- ----- ----- ----- Transferred from Fairchild to National Semiconductor, at cost..... $ 19.7 $ 9.2 ----- ----- ----- -----
(3) INVENTORIES Inventories are stated at the lower of standard cost, which approximates actual cost on a first-in, first-out basis, or market. The main components of inventories are as follows:
FEBRUARY 23, 1997 ------------- (IN MILLIONS) Raw materials............................................................................. $ 7.5 Work in process........................................................................... 42.1 Finished goods............................................................................ 17.7 ----- Total inventories..................................................................... $ 67.3 ----- -----
(4) PROPERTY, PLANT AND EQUIPMENT The components of property, plant and equipment are as follows:
FEBRUARY 23, 1997 ------------- (IN MILLIONS) Land...................................................................................... $ 1.2 Buildings................................................................................. 137.5 Machinery and equipment................................................................... 511.5 Construction in progress.................................................................. 29.5 ------ Total property, plant and equipment................................................. 679.7 Less accumulated depreciation............................................................. 375.9 ------ $ 303.8 ------ ------
F-19 FAIRCHILD SEMICONDUCTOR BUSINESS OF NATIONAL SEMICONDUCTOR CORPORATION NOTES TO UNAUDITED COMBINED STATEMENTS (CONTINUED) FEBRUARY 25, 1996 AND FEBRUARY 23, 1997 (5) ACCRUED EXPENSES The components of accrued expenses are as follows:
FEBRUARY 23, 1997 --------------- (IN MILLIONS) Payroll and employee related accruals..................................................... $ 15.3 Other accruals............................................................................ 5.8 ----- Total accrued expenses.............................................................. $ 21.1 ----- -----
(6) LEASE COMMITMENTS Rental expense related to certain facilities and equipment of Fairchild plants was $3.5 million, and $3.8 million for the nine months ended February 25, 1996 and February 23, 1997, respectively. Future minimum lease payments under operating leases are as follows:
(IN MILLIONS) Fiscal years ended: 1997 (three months ending).................................................... $ 1.4 1998.......................................................................... 5.0 1999.......................................................................... 4.3 2000.......................................................................... 4.2 2001.......................................................................... 2.7 Thereafter.................................................................... 3.3 ----- Total..................................................................... $ 20.9 ----- -----
(7) BUSINESS EQUITY Business Equity represents National Semiconductor's ownership interest in the recorded net assets of Fairchild. All cash transactions and intercompany transactions flow through the equity account. A summary of activity is as follows:
NINE MONTHS ENDED FEBRUARY 23, 1997 ----------------- (IN MILLIONS) Balance at beginning of period........................................................ $ 349.2 Revenue less expenses................................................................. 9.6 Net intercompany activity............................................................. (44.8) ------ $ 314.0 ------ ------
F-20 FAIRCHILD SEMICONDUCTOR BUSINESS OF NATIONAL SEMICONDUCTOR CORPORATION NOTES TO UNAUDITED COMBINED STATEMENTS (CONTINUED) FEBRUARY 25, 1996 AND FEBRUARY 23, 1997 (8) GENERAL AND ADMINISTRATIVE EXPENSES In the nine months ended February 23, 1997, the Business recorded $14.1 million of retention and incentive bonuses in general and administrative expenses. In the nine months ended February 23, 1997, $300,000 of these bonuses were paid. The remaining $13.8 million is recorded on the balance sheet as special reserves. (9) RESTRUCTURING In June 1996, National Semiconductor announced a restructuring of its operations and the intent to pursue a sale or partial financing of the Business. In connection with the restructuring, the Business recorded a $5.3 million non-recurring charge related to work force reductions. In the nine months ended February 23, 1997, $5.3 million of severance was paid to terminated employees. (10) SUPPLEMENTAL CASH FLOW INFORMATION As described in Note 1 to the audited 1996 statements of Fairchild, National Semiconductor's cash management system is not designed to trace centralized cash and related financing transactions to the specific cash requirements of the Business. In addition, National Semiconductor's corporate transaction systems are not designed to track receivables and certain liabilities and cash receipts and payments on a business specific basis. Given these constraints, the following data are presented to facilitate analysis of key components of cash flow activity:
NINE MONTHS ENDED --------------------------- FEBRUARY 25, FEBRUARY 23, 1996 1997 ------------ ------------- (IN MILLIONS) Operating activities: Revenue less expenses................................................... $ 67.6 $ 9.6 Depreciation............................................................ 40.5 50.8 Loss on disposal of property, plant and equipment....................... 0.6 0.4 Decrease (increase) in inventories...................................... (27.5) 25.8 Decrease (increase) in miscellaneous receivables........................ 9.3 -- Decrease (increase) in other assets..................................... 1.2 2.2 Increase (decrease) in accounts payable and accrued liabilities......... (14.6) (21.1) Increase in special reserves............................................ -- 13.8 ------------ ------ Cash flow from operating activities, excluding National Semiconductor financing................................................................. 77.1 81.5 Investing activities: Capital expenditures.................................................... (120.7) (33.4) Transfers of capital equipment from National Semiconductor.............. -- (3.3) ------------ ------ Net financing provided to (from) National Semiconductor*.................... $ (43.6) $ 44.8 ------------ ------ ------------ ------
- ------------------------ * The difference between cash flow from operating activities and investing activities does not necessarily represent the cash flows of the Business, or the timing of such cash flows, had it operated on a stand alone basis. F-21 - ------------------------------------------- ------------------------------------------- No dealer, salesperson or other person has been authorized to give any information or to make any representation not contained in this Prospectus, and, if given or made, such information or representation must not be relied upon as having been authorized. This Prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities other than those to which it relates, nor does it constitute an offer to sell or the solicitation of an offer to buy such securities in any circumstances in which such solicitation is unlawful. Neither the delivery of this Prospectus nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the Company since the date hereof or that the information contained herein is correct as of any time subsequent to the date hereof. -------------- TABLE OF CONTENTS
Page --------- Available Information........................... 2 Summary......................................... 3 Risk Factors.................................... 15 Use of Proceeds................................. 23 Pro Forma Capitalization........................ 23 Unaudited Pro Forma Combined Condensed Financial Statements.................................... 24 Unaudited Supplemental Financial Data........... 29 Selected Combined Financial Data................ 31 Management's Discussion and Analysis of Financial Condition and Results of Operations.................................... 32 The Exchange Offer.............................. 39 Industry Overview............................... 46 Business........................................ 50 The Transactions................................ 60 Management...................................... 64 Ownership of Capital Stock...................... 71 Description of Certain Indebtedness............. 74 Description of the Notes........................ 78 Certain Federal Income Tax Consequences......... 111 Plan of Distribution............................ 112 Legal Matters................................... 112 Experts......................................... 112 Disclosure Regarding Forward Looking Statements.................................... 113 Glossary........................................ G-1 Index to Financial Statements................... F-1
-------------- Until all dealers effecting transactions in the Notes, whether or not participating in this distribution, may be required to deliver a Prospectus. This is in addition to the obligation of dealers to deliver a Prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. [LOGO] $300,000,000 10 1/8% Senior Subordinated Notes Due 2007 PROSPECTUS - ------------------------------------------- ------------------------------------------- PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS Section 145 of the Delaware General Corporation Law provides in relevant part that a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that such person is or was a director, officer, employee, or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe such person's conduct was unlawful. In addition, Section 145 provides that a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that such person is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys' fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the corporation and except that no indemnification shall be made in respect of any claim, issue, or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the Delaware Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Delaware Court of Chancery or such other court shall deem proper. Section 145 further provides that nothing in the above-described provisions shall be deemed exclusive of any other rights to indemnification or advancement of expenses to which any person may be entitled under any bylaw, agreement, vote of stockholders or disinterested directors or otherwise. The Bylaws of the Company provide for the indemnification of any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (a "proceeding") by reason of the fact that such person is or was a director or officer of the Company or a constituent corporation absorbed in a consolidation or merger, or is or was serving at the request of the Company or a constituent corporation absorbed in a consolidation or merger, as a director or officer of another corporation, partnership, joint venture, trust or other enterprise, or is or was a director or officer of the Company serving at its request as an administrator, trustee or other fiduciary of one or more of the employee benefit plans of the Company or other enterprise, against expenses (including attorneys' fees), liability and loss actually and reasonably incurred or suffered by such person in connection with such proceeding, whether or not the indemnified liability arises or arose from any threatened, pending or completed proceeding by or in the right of the Company, except to the extent that such indemnification is prohibited by applicable law. The Bylaws of the Company also provide that such indemnification shall not be deemed exclusive of any other rights to which those indemnified may be entitled as a matter of law or under any by-law, agreement, vote of stockholders or otherwise. II-1 Section 102(b)(7) of the Delaware General Corporation Law provides that a corporation may in its certificate of incorporation eliminate or limit the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director except for liability: for any breach of the director's duty of loyalty to the corporation or its stockholders; for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; under Section 174 of the Delaware General Corporation Law (pertaining to certain prohibited acts including unlawful payment of dividends or unlawful purchase or redemption of the corporation's capital stock); or for any transaction from which the director derived an improper personal benefit. The Certificate of Incorporation of the Company contains a provision so limiting the personal liability of directors of the Company. ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) Exhibits:
EXHIBIT NO. DESCRIPTION - ----------- ----------------------------------------------------------------------------------------------------- 2.01* Agreement and Plan of Recapitalization dated January 24, 1997 between Sterling Holding Company, LLC ("Sterling") and National Semiconductor Corporation ("National Semiconductor"). 2.02* Asset Purchase Agreement dated as of March 11, 1997 between the Company and National Semiconductor. 3.01 Certificate of Incorporation of the Company. 3.02 Bylaws of the Company. 3.03 Certificate of Incorporation of Fairchild Holdings. 3.04 Bylaws of Fairchild Holdings. 4.01 Indenture dated as of March 11, 1997 among the Company, Fairchild Holdings, as Guarantor and United States Trust Company of New York, as Trustee. 4.02 Registration Rights Agreement dated March 6, 1997 among the Company, Fairchild Holdings, as Guarantor, Credit Suisse First Boston Corporation, BT Securities Corporation and CIBC Wood Gundy Securities Corp. 4.03 Form of 10-1/8% Senior Subordinated Notes Due 2007 (included in Exhibit 4.01). 5.01** Opinion of Dechert Price & Rhoads. 10.01*** Technology Licensing and Transfer Agreement dated March 11, 1997 between National Semiconductor and the Company. 10.02 Transition Services Agreement dated March 11, 1997 between National Semiconductor and the Company. 10.03*** Fairchild Foundry Services Agreement dated March 11, 1997 between National Semiconductor and the Company. 10.04*** Revenue Side Letter dated March 11, 1997 between National Semiconductor and the Company. 10.05*** Fairchild Assembly Services Agreement dated March 11, 1997 between National Semiconductor and the Company. 10.06*** National Foundry Services Agreement dated March 11, 1997 between National Semiconductor and the Company. 10.07*** National Assembly Services Agreement dated March 11, 1997 between National Semiconductor and the Company.
II-2
EXHIBIT NO. DESCRIPTION - ----------- ----------------------------------------------------------------------------------------------------- 10.08*** Mil/Aero Wafer and Services Agreement dated March 11, 1997 between National Semiconductor and the Company. 10.09 Shared Services Agreement (South Portland) dated March 11, 1997 between National Semiconductor and the Company. 10.10 Credit Agreement dated March 11, 1997 among the Company, Fairchild Holdings, Various Banks, Bankers Trust Company, Credit Suisse First Boston Corporation and Canadian Imperial Bank of Commerce. 10.11*** Corporate Agreement dated February 20, 1992 between Torex Semiconductor Ltd. and National Semiconductor. 10.12*** Assembly/Test Subcontract Agreement dated January 9, 1997 between NS Electronics Bangkok (1993) Ltd. and National Semiconductor. 10.13*** Supply Agreement dated January 20, 1996 between National Semiconductor and Dynacraft Industries Sdn. Bhd. 10.14*** Licensing and Manufacturing Agreement dated April 27, 1990 between National Semiconductor and Waferscale Integration, Inc. 10.15 Qualified Titles Corresponding to Registry Title Nos. 19, 44 and 3400-Mk 12 from the State of Penang, Malaysia and corresponding Sale and Puchase Agreements, each dated March 11, 1997, between National Semiconductor Sdn. Bhd. and Fairchild Semiconductor Sdn. Bhd. 10.16 Lease Agreement dated October 10, 1979 between Export Processing Zone Authority and Fairchild Semiconductor (Honk Kong) Limited, and Supplemental Agreements thereto dated May 1, 1982; December 12, 1983; August 17, 1984; March 10, 1987; February 16, 1990; August 25, 1994; May 29, 1995; June 7, 1995; November 9, 1995; and October 24, 1996. 10.17 Lease for Santa Clara Facilities dated as of March 11, 1997 between National Semiconductor and the Company. 10.18 Shared Facilities Agreement (South Portland) dated March 11, 1997 between National Semiconductor and the Company. 10.19 Environmental Side Letter dated March 11, 1997 between National Semiconductor and the Company. 10.20 Master Sublease Agreement dated March 11, 1997 between National Semiconductor and the Company and Master Lease Agreement dated December 13, 1994 between General Electric Capital Corporation and National Semiconductor. 10.21 Fairchild NSC Deferred Compensation Plan Trust established effective March 11, 1997. 10.22 Fairchild NSC Deferred Compensation Plan assumed and continued, effective March 11, 1997 (included as Schedule A to Exhibit 10.21). 10.23 Fairchild Benefit Restoration Plan. 10.24 Fairchild Incentive Plan. 10.25 FSC Semiconductor Corporation Executive Officer Incentive Plan. 10.26 FSC Semiconductor Corporation Stock Option Plan. 10.27 Employment Agreement dated March 11, 1997 among the Company, Fairchild Holdings, Sterling and Kirk P. Pond.
II-3
EXHIBIT NO. DESCRIPTION - ----------- ----------------------------------------------------------------------------------------------------- 10.28 Employment Agreement dated March 11, 1997 among the Company, Fairchild Holdings, Sterling and Joseph R. Martin. 12.01 Statement of Ratio of Earnings to Fixed Charges. 21.01 Subsidiaries of the Company. 23.01** Consent of Dechert Price & Rhoads (included in the opinion filed as Exhibit 5.01). 23.02 Consent of KPMG Peat Marwick LLP. 24.01 Power of Attorney (included on the signature page). 25.01 Statement of Eligibility and Qualification of United States Trust Company of New York on Form T-1. 27.01 Financial Data Schedule. 99.01 Form of Letter of Transmittal. 99.02 Form of Notice of Guaranteed Delivery.
- ------------------------ * Pursuant to Item 601(b)(2) of Regulation S-K, the schedules to this Agreement are omitted. The Exhibit contains a list identifying the contents of all schedules and the Registrants agree to furnish supplementally copies of such schedules to the Commission upon request. ** To be supplied by amendment. *** Omitted in accordance with an application for confidential treatment filed with the Commission. (b) Financial Statement Schedules: Schedules not listed above are omitted because of the absence of the conditions under which they are required or because the information required by such omitted schedules is set forth in the financial statements or the notes thereto. ITEM 22. UNDERTAKINGS (a) The undersigned registrants hereby undertake: (1) to file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i) to include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) to reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement; and (iii) to include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement; II-4 (2) that, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof; and (3) to remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (b) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrants pursuant to the foregoing provisions, or otherwise, the registrants have been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrants in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrants will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. (c) The undersigned registrants hereby undertake to respond to requests for information that is incorporated by reference into the prospectus pursuant to Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request. (d) The undersigned registrant hereby undertakes to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective. II-5 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, the below-named Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of South Portland, State of Maine, on the 12th day of May 1997. FAIRCHILD SEMICONDUCTOR CORPORATION By: KIRK P. POND ------------------------------------------ Chairman of the Board of Directors, President and Chief Executive Officer POWER OF ATTORNEY Each person whose signature appears below appoints Joseph R. Martin, Daniel E. Boxer and Paul C. Schorr IV, any of whom may act without the joinder of either of the others, as his true and lawful attorneys-in-fact and agents with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities to sign any and all amendments (including post-effective amendments) to this Registration Statement, and to file the same, with all exhibits thereto and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or their substitute or substitutes may lawfully do or cause to be done by virtue thereof. Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed below by the following persons in the capacities at the above-named Registrant on May 12, 1997. SIGNATURE TITLE - ------------------------------ ------------------------------------------ KIRK P. POND Chairman of the Board of Directors, - ------------------------------ President and Chief Executive Officer Kirk P. Pond (principal executive officer) JOSEPH R. MARTIN Executive Vice President, - ------------------------------ Chief Financial Officer and Director Joseph R. Martin (principal financial and accounting officer) BRIAN L. HALLA Director - ------------------------------ Brian L. Halla WILLIAM N. STOUT Director - ------------------------------ William N. Stout RICHARD M. CASHIN, JR. Director - ------------------------------ Richard M. Cashin, Jr. PAUL C. SCHORR IV Director - ------------------------------ Paul C. Schorr IV II-6 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, the below-named Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of South Portland, State of Maine, on the 12th day of May 1997. FSC SEMICONDUCTOR CORPORATION By: KIRK P. POND ------------------------------------------ Chairman of the Board of Directors, President and Chief Executive Officer POWER OF ATTORNEY Each person whose signature appears below appoints Joseph R. Martin, Daniel E. Boxer and Paul C. Schorr IV, any of whom may act without the joinder of either of the others, as his true and lawful attorneys-in-fact and agents with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities to sign any and all amendments (including post-effective amendments) to this Registration Statement, and to file the same, with all exhibits thereto and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or their substitute or substitutes may lawfully do or cause to be done by virtue thereof. Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed below by the following persons in the capacities at the above-named Registrant on May 12, 1997. SIGNATURE TITLE - ------------------------------ ------------------------------------------ KIRK P. POND Chairman of the Board of Directors, - ------------------------------ President and Chief Executive Officer Kirk P. Pond (principal executive officer) JOSEPH R. MARTIN Executive Vice President, - ------------------------------ Chief Financial Officer and Director Joseph R. Martin (principal financial and accounting officer) BRIAN L. HALLA Director - ------------------------------ Brian L. Halla WILLIAM N. STOUT Director - ------------------------------ William N. Stout RICHARD M. CASHIN, JR. Director - ------------------------------ Richard M. Cashin, Jr. PAUL C. SCHORR IV Director - ------------------------------ Paul C. Schorr IV II-7 (This page has been left blank intentionally.) EX-2.01 2 EX-2.01 Exhibit 2.01 AGREEMENT AND PLAN OF RECAPITALIZATION between STERLING HOLDING COMPANY, LLC and NATIONAL SEMICONDUCTOR CORPORATION Dated January 24, 1997 TABLE OF CONTENTS ARTICLE I DEFINITIONS 1 ARTICLE II RECAPITALIZATION 5 2.1. Formation of Fairchild Companies.............................. 5 2.2. Transactions at Closing....................................... 5 2.3. The Closing................................................... 6 ARTICLE III REPRESENTATIONS AND WARRANTIES OF NSC 7 3.1. Organization.................................................. 7 3.2. Corporate Power and Authority; Effect of Agreement............ 7 3.3. Consents...................................................... 8 3.4. Litigation.................................................... 8 3.5. Brokers....................................................... 8 3.6. Purchase for Investment....................................... 8 3.7. Asset Purchase Agreement Representations...................... 8 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF INVESTOR 9 4.1. Organization.................................................. 9 4.2. Power and Authority; Effect of Agreement...................... 9 4.3. Consents...................................................... 9 4.4. Litigation.................................................... 10 4.5. Brokers....................................................... 10 4.6. Purchase for Investment....................................... 10 4.7. Financing..................................................... 10 4.8. Ownership of Investor......................................... 10 4.9. Inspections................................................... 10 4.10. Asset Agreement............................................... 11 ARTICLE V COVENANTS OF NSC 11 5.1. Fulfillment of Agreements..................................... 11 5.2. Access, Information and Documents............................. 11 5.3. Consents...................................................... 12 5.4. Conduct of Business........................................... 12 5.5. Capitalization; Liabilities................................... 13 5.6. Competing Financings.......................................... 14 ARTICLE VI COVENANTS OF INVESTOR 14 6.1. Fulfillment of Agreements..................................... 14 6.2. Consents...................................................... 14 6.3. Financing..................................................... 14 ARTICLE VII CONDITIONS TO INVESTOR'S OBLIGATIONS 14 (i) 7.1. Bringdown of Representations and Warranties................... 15 7.2. Performance and Compliance.................................... 15 7.3. Opinion of Counsel............................................ 15 7.4. Satisfactory Instruments...................................... 15 7.5. Required Consents............................................. 15 7.6. Litigation.................................................... 16 7.7. Ancillary Agreements.......................................... 16 7.8. Absence of Changes............................................ 16 7.9. Timely Satisfaction of Conditions............................. 16 ARTICLE VIII CONDITIONS TO NSC'S OBLIGATIONS 17 8.1. Bringdown of Representations and Warranties................... 17 8.2. Performance and Compliance.................................... 17 8.3. Opinion of Counsel............................................ 17 8.4. Satisfactory Instruments...................................... 17 8.5. Required Consents............................................. 17 8.6. Litigation.................................................... 18 8.7. Ancillary Agreements.......................................... 18 ARTICLE IX CERTAIN ADDITIONAL COVENANTS 18 9.1. Termination................................................... 18 9.2. Costs, Expenses and Taxes..................................... 19 9.3. Hart-Scott-Rodino Antitrust Improvements Act of 1976.......... 19 9.4. No Setoff..................................................... 19 ARTICLE X INDEMNIFICATION 19 10.1. Indemnification By NSC........................................ 19 10.2. Indemnification by Investor................................... 20 10.3. General Indemnification Procedures............................ 20 ARTICLE XI MISCELLANEOUS 22 11.1. Nature and Survival of Representations........................ 22 11.2. Notices....................................................... 22 11.3. Entire Agreement.............................................. 23 11.4. Assignment; Binding Effect; Severability...................... 23 11.5. Governing Law................................................. 24 11.6. Execution in Counterparts..................................... 24 11.7. Public Announcement........................................... 24 11.8. No Third Party Beneficiaries.................................. 24 11.9. Headings...................................................... 24 11.10. Further Assurances............................................ 24 11.11. Amendment and Waiver.......................................... 25 (ii) EXHIBITS 1-A NSC Note 1-B Purchase Price Note 2.1-A Fairchild Charter 2.1-B Fairchild Parent Charter 2.2-A Asset Agreement 2.2-C-1 Technology Licensing and Transfer Agreement 2.2-C-2 Transition Services Agreement 2.2-C-3 Fairchild Foundry Services Agreement 2.2-C-4 Revenue Side Letter 2.2-C-5 Fairchild Assembly Services Agreement 2.2-C-6 National Foundry Services Agreement 2.2-C-7 National Assembly Services Agreement 2.2-C-8 Mil/Aero Wafer Services Agreement 2.2-C-9 Shared Facilities Agreement (for South Portland Site) 2.2-C-10 Shared Services Agreement (for South Portland Site) 2.2-C-11 Shared Services and Occupancy Agreement (for Santa Clara Site) 2.2-D Shareholders Agreement 4.7A Commitment from Credit Suisse First Boston, Bankers Trust New York Corporation and CIBC Wood Gundy Securities Corp. 4.7B Commitment from Bankers Trust Company, Credit Suisse First Boston and Canadian Imperial Bank of Commerce 4.7C Commitment from Citicorp Venture Capital Ltd. 7.3 Opinion of Counsel for NSC 8.3 Opinion of Counsel for Investor DISCLOSURE SCHEDULES A Closing Actions Outline 1 Purchase Price Adjustments 3.3 NSC's Consents 3.4 Litigation 7.5 Required Consents (iii) AGREEMENT AND PLAN OF RECAPITALIZATION This Agreement and Plan of Recapitalization (the "Agreement") is made this 24th day of January, 1997, between STERLING HOLDING COMPANY, LLC, a Delaware limited liability company ("Investor"), and NATIONAL SEMICONDUCTOR CORPORATION, a Delaware corporation ("NSC"). Background A. NSC is engaged as one of its businesses in the business of manufacturing and distributing the Business Products (as hereinafter defined) through its Fairchild Division. B. The Board of Directors of NSC deems it advisable and in the best interest of NSC, the Business (as hereinafter defined) and the stockholders of NSC, to adopt a plan of recapitalization of the Business pursuant to which (i) NSC will transfer the Purchased Assets and Assumed Liabilities of the Business to Fairchild Semiconductor Corporation, a Delaware corporation to be formed by NSC for such purpose ("Fairchild"), and Fairchild will accept the Purchased Assets and assume the Assumed Liabilities, (ii) NSC will transfer all of the outstanding common stock of Fairchild to FSC Semiconductor Corporation, a Delaware corporation to be formed by NSC for such purpose ("Fairchild Parent"), and (iii) Investor will purchase certain securities of Fairchild Parent, all on the terms and conditions set forth herein. C. In connection with the recapitalization of the Business, NSC will enter into the Operating Agreements (as hereinafter defined) with Fairchild and NSC and Fairchild will enter into an agreement regarding certain actions relating to implementation of the transactions contemplated hereby in accordance with the outline attached as Schedule A. D. It is intended that the transactions contemplated hereby be recorded as a recapitalization for financial reporting purposes. Terms In consideration of the mutual representations, warranties, covenants and agreements, and upon the terms and subject to the conditions hereinafter set forth, the parties hereby agree as follows: ARTICLE I DEFINITIONS For the purposes of this Agreement, the following words and phrases shall have the following meanings: "Affiliate" of a Person means any Person controlling, controlled by, or under common control with, such Person. For purposes of this definition, "control" means the power to direct the management and policies of a Person, whether through the ownership of voting securities, by agreement or otherwise. "Agreement" shall have the meaning set forth in the Introduction. "Asset Agreement" shall have the meaning set forth in Section 2.2(a). "Assumed Liabilities" shall have the meaning set forth in the Asset Agreement. "Best Efforts" is defined to require that the obligated party make a diligent, reasonable and good faith effort to accomplish the applicable objective. Such obligation, however, does not require any significant expenditure of funds or the incurrence of any significant liability on the part of the obligated party, nor the incurrence of any expense or liability which is unreasonable in light of the related objective, nor does it require that the obligated party act in a manner which would otherwise be contrary to prudent business judgment or normal commercial practices in order to accomplish the objective. The fact that the objective is not actually accomplished is no indication that the obligated party did not in fact utilize its Best Efforts in attempting to accomplish the objective. "Business" means NSC's Logic, Memory and Discrete Power and Signal Technologies Business Units as historically conducted and accounted for (including Flash Memory, but excluding Public Networks, Programmable Products and Mil Logic Products). "Business Day" means a day which is not a Saturday, a Sunday or a statutory or civic holiday in the State of New York or any other day on which the principal offices of either Investor or NSC are closed or become closed prior to 2:00 p.m. local time whether in accordance with established company policy or as a result of unanticipated events including adverse weather conditions. "Business Products" shall have the meaning set forth in the Asset Agreement. "Cash Payment" means a cash amount equal to the principal amount of the Purchase Price Note including interest accrued and unpaid thereon, if any. "Claim Notice" shall have the meaning set forth in Section 10.3. "Claim Response" shall have the meaning set forth in Section 10.3. "Closing" shall have the meaning set forth in Section 2.3. "Closing Date" shall have the meaning set forth in Section 2.3. "Commitment Letters" shall have the meaning set forth in Section 4.7. 2 "Confidentiality Agreement" means the letter from NSC to CVC regarding confidentiality dated August 23, 1996 and the letter from BA Partners to CVC regarding confidentiality dated September 4, 1996. "CVC" means Citicorp Venture Capital Ltd., a New York corporation. "Damages" means any and all losses, liabilities, damages, penalties, obligations, awards, fines, deficiencies, interest, claims (including third party claims, whether or not meritorious), costs and expenses whatsoever (including reasonable attorneys', accountants' and environmental consultants' fees and disbursements) resulting from, arising out of or incident to (i) any matter for which indemnification is provided under this Agreement, or (ii) the enforcement by an indemnified party of its rights to indemnification under this Agreement; provided, however, that Damages shall not include consequential or incidental damages (other than consequential or incidental damages that are awarded to third parties under matters covered by the foregoing clauses (i) or (ii)). "Defense Notice" shall have the meaning set forth in Section 10.3. "Department" shall have the meaning set forth in Section 9.3. "Excluded Liabilities" shall have the meaning set forth in the Asset Agreement. "Fairchild" shall have the meaning set forth in the Background. "Fairchild Charter" shall have the meaning set forth in Section 2.1(a). "Fairchild Companies" shall mean Fairchild and Fairchild Parent. "Fairchild Common Stock" means the Common Stock, par value $.01 per share, of Fairchild. "Fairchild Parent" shall have the meaning set forth in the Background. "Fairchild Parent Charter" shall have the meaning set forth in Section 2.1(b). "Financing" means the financing required to effect the transactions contemplated by this Agreement (including, without limitation, the repayment of the Purchase Price Note) and to pay related fees and expenses on terms and conditions reasonably satisfactory to Investor. "First Boston Commitment Letter" shall have the meaning set forth in Section 5.6. "FSC Class A Common Stock" means the Class A Common Stock, par value $.01 per share, of Fairchild Parent. 3 "FSC Class B Common Stock" means the Class B Common Stock, par value $.01 per share, of Fairchild Parent. "FSC Preferred Stock" means the 12% Series A Cumulative Compounding Preferred Stock, par value $.01 per share, of Fairchild Parent. "FSC Securities" means the FSC Class A Common Stock, FSC Class B Common Stock and FSC Preferred Stock. "FTC" shall have the meaning set forth in Section 9.3. "HSR Act" shall have the meaning set forth in Section 5.3. "Indemnitee" shall have the meaning set forth in Section 10.3. "Indemnitor" shall have the meaning set forth in Section 10.3. "Investor" shall have the meaning set forth in the Introduction. "Management Investors" means the members of management of the Business designated by Investor pursuant to Section 2.2 to acquire a portion of the FSC Securities to be acquired by Investor pursuant to this Agreement. "Market Disruption Event" shall have the meaning set forth in Section 7.8. "Material Adverse Effect" shall have the meaning set forth in the Asset Agreement. "NSC" shall have the meaning set forth in the Introduction. "NSC Note" means a promissory note in the principal amount of $77 million issued by Fairchild Parent to NSC, the principal terms of which are set forth on Exhibit 1-A. "Operating Agreements" means the Technology Licensing and Transfer Agreement, Transition Services Agreement, Fairchild Foundry Services Agreement, Revenue Side Letter, Fairchild Assembly Services Agreement, National Foundry Services Agreement, National Assembly Services Agreement, Mil/Aero Wafer Services Agreement, Shared Facilities Agreement (for South Portland Site), Shared Services Agreement (for South Portland Site), and Shared Services and Occupancy Agreement substantially in the forms of Exhibits 2.2-C-1, 2.2-C-2, 2.2-C-3, 2.2-C-4, 2.2-C-5, 2.2-C-6, 2.2-C-7, 2.2-C-8, 2.2-C-9, 2.2-C-10 and 2.2-C-11 respectively. "Person" means and includes any individual, corporation, partnership, firm, association, joint venture, joint stock company, trust or other entity, or any government or 4 regulatory administrative or political subdivision or agency, department or instrumentality thereof. "Purchase Price Note" means a demand promissory note in the principal amount of $472.8 million (subject to the adjustments set forth on Schedule 1) from Fairchild to NSC in the form of Exhibit 1-B. "Purchased Assets" shall have the meaning set forth in the Asset Agreement. "Response Period" shall have the meaning set forth in Section 10.3. "Shareholders Agreement" shall have the meaning set forth in Section 2.2(d). "Transaction Agreements" means this Agreement, the Operating Agreements and the Asset Agreement. "Voluntary Participation" shall have the meaning set forth in Section 10.3. ARTICLE II RECAPITALIZATION 2.1. Formation of Fairchild Companies. Prior to the Closing, NSC shall have taken the following actions: (a) caused the certificate of incorporation of Fairchild to be filed substantially in the form attached hereto as Exhibit 2.1-A (the "Fairchild Charter") with the Secretary of State of the State of Delaware as required by the Delaware General Corporation Law under the name "Fairchild Semiconductor Corporation"; and (b) caused the certificate of incorporation of Fairchild Parent to be filed substantially in the form attached hereto as Exhibit 2.1-B (the "Fairchild Parent Charter") with the Secretary of State of the State of Delaware as required by the Delaware General Corporation Law under the name "FSC Semiconductor Corporation". 2.2. Transactions at Closing. The following transactions, which together shall constitute the recapitalization, shall be consummated at the Closing on the Closing Date in the following order and each transaction shall be conditioned upon the occurrence of the other transactions: (a) NSC and Fairchild shall enter into an Asset Purchase Agreement substantially in the form attached hereto as Exhibit 2.2-A (the "Asset Agreement"), and NSC shall transfer the Purchased Assets (other than the Non-Assignable Assets) and the Assumed 5 Liabilities to Fairchild, and Fairchild shall accept the Purchased Assets (other than the Non-Assignable Assets) and assume the Assumed Liabilities, pursuant to such Asset Purchase Agreement in exchange for the Purchase Price Note and 100 shares of Fairchild Common Stock; (b) NSC shall transfer all of the outstanding shares of Fairchild Common Stock and cash in the amount of $12,837,000 to Fairchild Parent for 1,095,000 shares of FSC Class A Common Stock, 1,245,000 shares of FSC Class B Common Stock and 11,667 shares of FSC Preferred Stock and the NSC Note; (c) NSC shall enter into the Operating Agreements with Fairchild substantially in the forms attached hereto as Exhibits 2.2-C-1 through -11, (d) NSC, Investor, Management Investors and Fairchild Parent shall enter into a Securities Purchase and Holders Agreement (the "Shareholders Agreement") in the form attached hereto as Exhibit 2.2-D; (e) NSC shall cause Fairchild Parent to sell, and Investor shall purchase, 6,205,000 shares of FSC Class A Common Stock at a purchase price of $0.50 per share, 7,055,000 shares of FSC Class B Common Stock at a purchase price of $0.50 per share, and 58,333 shares of FSC Preferred Stock at a purchase price of $1,000 per share, less the FSC Securities actually purchased by Management Investors pursuant to Section 2.2(f); (f) NSC shall cause Fairchild Parent to sell to Management Investors such of the FSC Securities as would otherwise be purchased by Investor pursuant to Section 2.2(e) in such amounts and to such Management Investors as shall have been designated by Investor to Fairchild Parent in writing prior to Closing at the purchase prices set forth in Section 2.2(e); (g) Fairchild Parent shall contribute the cash proceeds from the sale of FSC Securities to the capital of Fairchild; (h) Fairchild shall obtain the proceeds of the Financing; and (i) Fairchild shall repay the Purchase Price Note in cash. The parties acknowledge that it is their intention that the foregoing transactions all occur at the Closing on the Closing Date. 2.3. The Closing. (a) The closing of the transactions contemplated hereby (the "Closing") shall take place at the offices of Dechert Price & Rhoads, 30 Rockefeller Plaza, New York, New York commencing at 9:00 a.m., local time, on a date mutually agreed upon by the parties as soon as reasonably practicable following satisfaction of the conditions set forth in Articles VII and VIII hereof, or at such other time and place as the parties may mutually agree (the "Closing Date"). The effective time of the transactions contemplated hereby shall be deemed to be the opening of business on the Closing Date. 6 (b) At the Closing, (i) Fairchild and NSC shall make the closing deliveries required by the Asset Agreement; (ii) Fairchild Parent shall deliver to NSC against payment therefor certificates representing the FSC Class A Common Stock, FSC Class B Common Stock, FSC Preferred Stock and NSC Note being purchased by NSC pursuant to Section 2.2(b), and NSC shall deliver to Fairchild Parent certificates representing all of the outstanding shares of Fairchild Common Stock accompanied by duly executed stock transfer powers; (iii) Fairchild shall deliver to NSC the Cash Payment by wire transfer of immediately available funds to an account designated by NSC to Investor in writing at least three business days prior to Closing; and (iv) Fairchild Parent shall deliver to Investor and the Management Investors against payment therefor, certificates representing the FSC Class A Common Stock, FSC Class B Common Stock and FSC Preferred Stock being purchased by Investor and the Management Investors pursuant to Sections 2.2(e) and 2.2(f), respectively. ARTICLE III REPRESENTATIONS AND WARRANTIES OF NSC NSC represents and warrants to Investor as follows: 3.1. Organization. NSC is a corporation duly organized, validly existing, and in good standing under the laws of the State of Delaware, and has all requisite corporate power and corporate authority to execute, deliver, and perform the Transaction Agreements and to consummate the transactions contemplated hereby and thereby. 3.2. Corporate Power and Authority; Effect of Agreement. The execution, delivery and performance by NSC of the Transaction Agreements and the consummation by NSC of the transactions contemplated hereby and thereby have been duly authorized by all necessary corporate action on the part of NSC. The Transaction Agreements have been duly and validly executed and delivered by NSC and constitute the valid and binding obligations of NSC, enforceable against NSC in accordance with their respective terms. The execution, delivery, and performance by NSC of the Transaction Agreements and the consummation by NSC of the transactions contemplated hereby and thereby will not, with or without the giving of notice or the lapse of time, or both, (i) violate any provision of law, rule, or regulation to which NSC is subject, (ii) violate any order, judgment, or decree applicable to NSC or (iii) violate any provision of the charter or the by-laws of NSC; except, in the case of (i) or (ii), for violations that in the aggregate would not (x) materially hinder or impair the consummation of the transactions contemplated hereby or thereby or (y) materially interfere with the ability of 7 Fairchild to conduct the Business after the Closing in substantially the same manner in which the Business was conducted prior to the Closing. 3.3. Consents. Except as set forth in Schedule 3.3, no consent, approval, or authorization of, or exemption by, or filing with, any governmental authority is required to be obtained or made by NSC in connection with the execution, delivery and performance by NSC of the Transaction Agreements or the taking by NSC of any other action contemplated hereby or thereby, except for any of the foregoing that in the aggregate would not (i) materially hinder or impair the consummation of the transactions contemplated hereby or thereby or (ii) materially interfere with the ability of Fairchild to conduct the Business after the Closing in substantially the same manner in which the Business was conducted prior to the Closing. 3.4. Litigation. Except as set forth on Schedule 3.4, there are no actions, suits, investigations, or proceedings pending or, to the knowledge of NSC, threatened (i) against NSC or any of its Affiliates which if adversely determined would (x) materially hinder or impair the ability of NSC to perform its obligations under the Transaction Agreements or (y) have a Material Adverse Effect, or (ii) that seek to enjoin or obtain damages (which damages would reasonably be expected to have a material adverse change in or effect upon the business, financial condition or results of operations of the Business taken as a whole) in respect of the consummation of the transactions contemplated hereby or thereby. Neither NSC nor any of its Affiliates is subject to any outstanding orders, rulings, judgments, or decrees that would (i) materially hinder or impair the ability of NSC to perform its obligations under the Transaction Agreements or (ii) have a Material Adverse Effect. 3.5. Brokers. NSC has not made any agreement or taken any other action which might cause anyone to become entitled to a broker's or investment banker's fee or commission, which is payable by Investor, Fairchild Parent or Fairchild, or which could create a lien on any of the Purchased Assets, as a result of the transactions contemplated hereunder. 3.6. Purchase for Investment. NSC is purchasing the FSC Securities and the NSC Note pursuant to this Agreement for investment and not with a view to any public resale or other distribution thereof, except in compliance with applicable securities laws. 3.7. Asset Purchase Agreement Representations. The representations and warranties set forth in the Asset Agreement (as modified by the schedules thereto) in the form attached hereto are true and correct as of the date hereof with the same force and effect as though such representations and warranties have been made on, as of and with reference to the date hereof, except those representations and warranties that address matters only as of a particular date which shall be true and correct as of that date. 8 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF INVESTOR Investor hereby represents and warrants to NSC as follows: 4.1. Organization. Investor is a limited liability company duly organized, validly existing, and in good standing under the laws of the jurisdiction of its organization, and has all requisite limited liability company power and limited liability company authority to carry on its business as it is now being conducted, to execute, deliver, and perform this Agreement and to consummate the transactions contemplated hereby. 4.2. Power and Authority; Effect of Agreement. The execution, delivery and performance by Investor of this Agreement and the consummation by Investor of the transactions contemplated hereby have been duly authorized by all necessary limited liability company action on the part of Investor. This Agreement has been duly and validly executed and delivered by Investor and constitutes the valid and binding obligation of Investor, enforceable against Investor in accordance with its terms. The execution, delivery, and performance by Investor of this Agreement and the consummation by Investor of the transactions contemplated hereby will not, with or without the giving of notice or the lapse of time, or both, (i) violate any provision of law, rule, or regulation to which Investor or any of its Affiliates is subject, (ii) violate any order, judgment, or decree applicable to Investor or any of its Affiliates or (iii) violate any provision of the organization documents of Investor or any of its Affiliates; except, in the case of (i) and (ii), for violations that in the aggregate would not (x) materially hinder or impair the consummation of the transactions contemplated hereby or (y) materially interfere with the ability of Fairchild to conduct the Business after the Closing in substantially the same manner in which the Business was conducted prior to the Closing. 4.3. Consents. Except as set forth in Schedule 4.3, no consent, approval, or authorization of, or exemption by, or filing with, any governmental authority is required to be obtained or made by Investor in connection with the execution, delivery and performance by Investor of this Agreement or the taking by Investor of any other action contemplated hereby, except for any of the foregoing that in the aggregate would not (i) materially hinder or impair the consummation of the transactions contemplated hereby or thereby or (ii) materially interfere with the ability of Fairchild to conduct the Business after the Closing in substantially the same manner in which the Business was conducted prior to the Closing. No statute, rule or regulation, or order of any court or administrative agency prohibits Investor from consummating the transactions contemplated hereby. 4.4. Litigation. There are no actions, suits, investigations, or proceedings pending or, to the knowledge of Investor, threatened (i) against Investor or any of its Affiliates which if adversely determined would (x) materially hinder or impair the ability of Investor to perform its obligations under this Agreement or (y) materially decrease the value of the Purchased Assets as a whole, or (ii) that seek to enjoin or obtain damages (which damages could reasonably be 9 expected to have a material adverse change in or effect upon the business, financial condition or results of operations of Investor taken as a whole) in respect of the consummation of the transactions contemplated hereby. Neither Investor nor any of its Affiliates is subject to any outstanding orders, rulings, judgments, or decrees that would have a material adverse effect on the ability of Investor to perform its obligations under this Agreement. 4.5. Brokers. Investor has not made any agreement or taken any other action which might cause anyone to become entitled to a broker's or investment banker's fee or commission as a result of the transactions contemplated hereunder. 4.6. Purchase for Investment. Investor is purchasing the FSC Securities being purchased by it pursuant to Section 2.2(e) for investment and not with a view to any public resale or other distribution thereof, except in compliance with applicable securities laws. 4.7. Financing. Investor or CVC has received and delivered to NSC (a) a commitment from Credit Suisse First Boston, Bankers Trust New York Corporation and CIBC Wood Gundy Securities Corp. attached as Exhibit 4.7A, (b) a commitment from Bankers Trust Company, Credit Suisse First Boston and Canadian Imperial Bank of Commerce attached as Exhibit 4.7B and (c) a commitment from CVC attached as Exhibit 4.7C (collectively, the "Commitment Letters"). The Commitment Letters are sufficient to provide the Financing, have been duly accepted by Investor and are in full force and effect. All fees required to be paid by Investor or CVC on or prior to the date hereof in respect of the Commitment Letters have been paid by Investor or CVC. 4.8. Ownership of Investor. CVC, employees, officers and directors of CVC and corporations, partnerships and other entities at least a majority of the equity in which is held in the aggregate by CVC and its employees, officers, and directors hold in the aggregate no less than a majority of the economic interests in Investor. 4.9. Inspections. Investor is an informed and sophisticated participant in the transactions contemplated by this Agreement and has undertaken such investigation, and has been provided with and has evaluated certain documents and information in connection with the execution, delivery and performance of this Agreement. Investor acknowledges that it is engaging in the transactions contemplated hereby without any representation or warranty, express or implied, by NSC or any of its Affiliates, except as expressly set forth in the Transaction Agreements. In furtherance of the foregoing, and not in limitation thereof, Investor acknowledges that, except as expressly set forth in the Transaction Agreements, no representation or warranty, express or implied, of NSC or any of its advisors, including, without limitation, Deutsche Morgan Grenfell, BA Partners, NSC's lawyers (other than the opinions of such lawyers delivered in connection with this Agreement), KPMG Peat Marwick (except in connection with financial statements prepared by such accountants accompanied by an opinion of such accountants thereon) or any of their respective Affiliates or representatives, with respect to the Business (including, without limitation, the Evaluation Materials (as defined in the Asset Agreement), the Confidential Offering Memoranda (as provided to Investor pursuant to the 10 Confidentiality Agreement), any other information provided to Investor pursuant to the Confidentiality Agreement and any financial projection or forecast delivered to Investor with respect to the revenues or profitability which may arise from the Business either before or after the Closing Date) shall form the basis of any claim against NSC or any of its advisors, or any of their respective Affiliates or representatives. With respect to any financial projections or forecasts delivered on behalf of NSC to Investor, Investor acknowledges that there are uncertainties inherent in attempting to make such projections and forecasts and that it is familiar with such uncertainties. 4.10. Asset Agreement. Investor acknowledges that Fairchild will have ongoing obligations under the Asset Agreement and the Operating Agreements. ARTICLE V COVENANTS OF NSC NSC hereby covenants and agrees with Investor as follows: 5.1. Fulfillment of Agreements. NSC shall use its Best Efforts to cause all of the conditions to the obligations of Investor under Article VII of this Agreement to be satisfied on or prior to Closing. NSC shall promptly notify Investor of any event or fact coming to NSC's attention prior to Closing which causes any of its representations, warranties, covenants or agreements contained in any Transaction Agreement that are qualified by materiality limitations with respect to the Business as a whole to be inaccurate and those that are not qualified by materiality limitations with respect to the business as a whole to be inaccurate in any material respect with respect to the Business as a whole. From and after the date hereof and pending the Closing, NSC shall promptly notify Investor of the occurrence of any condition or development (exclusive of general economic or industry factors affecting business in general) coming to NSC's attention of a nature that is materially adverse to the business, financial condition or results of operations of the Business. NSC shall, and shall cause Fairchild Parent and Fairchild to, cooperate with Investor (at Investor's expense and assuming adequate indemnification (including control person liability on any securities placements)) with respect to the Financing and take all actions and do all things reasonably necessary, proper or advisable to assist Investor in securing the Financing. 5.2. Access, Information and Documents. From and after the date hereof and pending the Closing, upon reasonable notice, NSC will give to Investor and to Investor's counsel, accountants and other representatives and financing sources full access during normal business hours to all of the properties, books, tax returns, contracts, commitments, records, officers, personnel and accountants relating to the Business and will furnish to Investor all such documents and copies of documents (certified to be true copies if requested) and all information with respect to the affairs of the Business as Investor may reasonably request; provided, that no such access shall unreasonably interfere with NSC's operation of its business, including, without 11 limitation, the Business; and provided further, that all information received by Investor or any of Investor's counsel, accountants and other representatives and financing sources from NSC and NSC's counsel, accountants and other representatives shall be subject to the provisions of the Confidentiality Agreement. 5.3. Consents. NSC will use its Best Efforts, and will cooperate with Investor, to secure all consents, approvals, authorizations, exemptions and waivers from third parties (including any required pursuant to the Hart-Scott-Rodino Antitrust Improvements act of 1976, as amended (the "HSR Act")), set forth on Schedule 3.3 or otherwise required in order to enable NSC to effect the transactions contemplated hereby. 5.4. Conduct of Business. From and after the date hereof and pending Closing, and unless Investor shall otherwise consent or agree in writing, NSC covenants and agrees that: (a) Ordinary Course. The Business will be conducted only in the ordinary course and consistent with past practice, including billing, shipping and collection practices, inventory transactions and payment of accounts payable. (b) Preservation of Business. NSC will use its Best Efforts to preserve the business organization of the Business intact in all material respects, to keep available in all material respects to the Business the services of the present officers and employees of the Business, and to preserve in all material respects for the Business the good will of the material suppliers, material customers and others having material business relations with the Business. (c) Material Transactions. NSC will not, and will cause its Affiliates not to: (i) enter into any contract or commitment relating to the Business the performance of which may extend beyond the Closing, except those made in the ordinary course of business the terms of which are consistent with past practice or those the obligations of NSC under which do not exceed $100,000; (ii) enter into any employment or consulting contract or arrangement with any Person relating to the Business which is not terminable at will, without penalty or continuing obligation, subject to the requirements and restrictions of applicable labor and employment laws and regulations, other than consulting and employment agreements entered into in the ordinary course of business consistent with past practice; (iii) sell, transfer, lease or otherwise dispose of any assets which would constitute Purchased Assets if the Closing were to occur on the date of such disposition, other than in the ordinary course of business and consistent with past practice; (iv) incur, create, assume or suffer to exist any mortgage, pledge, lien, restriction, encumbrance, tenancy, encroachment, covenant, condition, right-of-way, easement, claim, security interest, charge or other matter affecting title on any Purchased Assets, except 12 for (A) the incurrence, creation, assumption or sufferance to exist of any of the foregoing that does not result in any obligations of NSC or its Affiliates in excess of $100,000, (B) the incurrence, creation, assumption or sufferance to exist of any mechanics' liens and purchase money interests that may arise on the acquisition of supplies, materials or equipment or (C) Assumed Liabilities (provided that to the extent any Assumed Liability is incurred, created or assumed after the date hereof, such Assumed Liability was incurred, created or assumed in the ordinary course of business consistent with past practice); (v) increase or otherwise change the compensation payable or to become payable to any officer, employee or agent of the Business, except in the ordinary course of business consistent with past practice; (vi) waive any substantial right of the Business, other than for consideration in the ordinary course of business consistent with past practice; (vii) take any action or omit to take any action which will result in a violation of any applicable law or cause a breach of any agreements, contracts or commitments by the Business, in each case, which, individually or in the aggregate, is material to the Business as a whole; or (viii) enter into any agreement to do any of the foregoing. 5.5 Capitalization; Liabilities. Immediately prior to the Closing (except as set forth in Section 2.2): (i) the authorized capital stock of Fairchild Parent shall consist solely of (a) 70,000 shares of FSC Preferred Stock, (b) 30,000,000 shares of FSC Class A Stock and (c) 30,000,000 shares, of FSC Class B Stock; (ii) the FSC Securities issued pursuant to Article II of this Agreement shall be the only issued and outstanding shares of capital stock of Fairchild Parent issued or outstanding immediately prior to the Closing; (iii) the authorized capital stock of Fairchild shall consist solely of 1,000 shares of Fairchild Common Stock; (iv) all of the issued and outstanding shares of capital stock of Fairchild shall be held beneficially and of record by Fairchild Parent, free and clear of any lien, security interest, restriction, encumbrance or claim; (v) there shall be no outstanding options, warrants, rights, agreements, calls, commitments or demands of any character relating to the capital stock of Fairchild Parent or Fairchild or securities convertible into or exchangeable for any of such capital stock; (vi) Fairchild Parent shall not have any liabilities or obligations other than pursuant to the NSC Note and Delaware franchise taxes incident to its organization; and (vii) Fairchild shall not have any liabilities or obligations other than the Assumed Liabilities, pursuant to the Asset Agreement and the Operating Agreements and Delaware franchise taxes incident to its organization. 5.6. Competing Financings. From the date hereof through the Closing Date, NSC shall not engage in any competing issues of debt securities or commercial bank facilities as described in and during the period set forth in the Senior Subordinated Notes/Commitment Letter included in the Commitment Letters (the "First Boston Commitment Letter"). 13 ARTICLE VI COVENANTS OF INVESTOR 6.1. Fulfillment of Agreements. Investor shall use its Best Efforts to cause all of the conditions to the obligations of NSC under Article VIII of this Agreement to be satisfied on or prior to the Closing and shall cooperate with NSC in obtaining the Title Policies (as defined in the Asset Agreement) and Surveys (as defined in the Asset Agreement). Investor shall promptly notify NSC in writing of any event or fact which represents or is likely to cause a breach of any of its representations, warranties, covenants or agreements contained herein. 6.2. Consents. Investor will use its Best Efforts, and will cooperate with NSC, to secure all consents, approvals, authorizations, exemptions, and waivers from third parties (including any required pursuant to the HSR Act) as set forth on Schedule 3.3 or otherwise required in order to enable Investor to effect the transactions contemplated hereby. 6.3. Financing. In the event that a condition set forth in Section 7.1 through 7.9 or Article VIII has not been satisfied or waived prior to the date on which CVC's right to deliver a purchase request under the First Boston Commitment Letter is terminated and as a result the Fairchild Companies shall not have obtained the proceeds of the Financing, Investor shall use its reasonable efforts to obtain the Financing. ARTICLE VII CONDITIONS TO INVESTOR'S OBLIGATIONS The obligation of Investor to consummate the transactions contemplated hereby at the Closing shall be subject to the satisfaction (or waiver) at or prior to the Closing of all of the following conditions: 7.1. Bringdown of Representations and Warranties. The representations and warranties of NSC contained in the Transaction Agreements that are qualified by materiality limitations with respect to the Business as a whole shall be true and correct and those that are not qualified by materiality limitations with respect to the Business as a whole shall be true and correct in all material respects with respect to the Business as a whole, in each case as of the time of Closing with the same force and effect as though such representations and warranties had been made on, as of and with reference to such time, except those representations and warranties that address matters only as of a particular date which, if qualified by materiality limitations with respect to the Business as a whole, shall be true and correct and, if not qualified by materiality limitations with respect to the Business as a whole, shall be true and correct in all material respects with respect to the Business as a whole, as of that date and Investor shall have received a certificate to such effect signed by an executive officer of NSC. 14 7.2. Performance and Compliance. NSC shall have performed in all material respects all of the covenants and complied in all material respects with all of the provisions required by the Transaction Agreements to be performed or complied with by it on or before the Closing and Investor shall have received a certificate to such effect, signed by an executive officer of NSC. 7.3. Opinion of Counsel. Investor shall have received from Wachtell, Lipton, Rosen & Katz, counsel for NSC, and John M. Clark, III, General Counsel of NSC, opinions dated the date of the Closing collectively substantially to the effect set forth in Exhibit 7.3. In rendering such opinions, such counsel may rely on matters involving the application of laws other than the laws of the State of New York, the General Corporation Law of the State of Delaware or laws of the United States upon the opinion of other counsel of good standing who are satisfactory to the counsel relying thereon, provided that NSC shall furnish a copy of any such opinions to Investor and the counsel relying thereon shall state that such other opinion is satisfactory in scope and form. 7.4. Satisfactory Instruments. All instruments and documents reasonably required on NSC's part to effectuate and consummate the transactions contemplated hereby shall be delivered to Investor and shall be in form and substance reasonably satisfactory to Investor and its counsel in all material respects. 7.5. Required Consents. All consents and approvals of third parties to the transactions contemplated hereby (including the consents and approvals which are (a) set forth on Schedule 7.5, (b) material to the Business or (c) necessary for Fairchild to conduct the Business after the Closing in substantially the same manner in which the Business was conducted prior to the Closing) shall have been obtained (except for such consents and approvals (other than those set forth on Schedule 7.5) that if not obtained would not in the aggregate have a material adverse effect on the Business as a whole), and all waiting periods specified by law the passing of which are necessary for the consummation of such transactions (including without limitation the waiting period under the HSR Act, if applicable) shall have passed or been terminated. 7.6. Litigation. No statute, rule or regulation, or order of any court or administrative agency, shall be in effect which restrains or prohibits the transactions contemplated hereby or which would limit or adversely affect Investor's ability to acquire the FSC Securities to be acquired by it pursuant to this Agreement, Fairchild Parent's ownership or control of Fairchild or Fairchild's ownership or control of the Purchased Assets (other than the Non-Assignable Assets) or the Business and there shall not have been threatened by any Governmental Authority, nor shall there be pending by any Person, any action or proceeding by or before any court or governmental agency or other regulatory or administrative agency or commission, challenging any of the transactions contemplated by the Transaction Agreements or seeking monetary relief (which monetary relief would reasonably be expected to have a material adverse change in or effect upon the business, financial condition or results of operations of the Business taken as a whole) by reason of the consummation of such transactions. 15 7.7. Ancillary Agreements. The Asset Agreement and the Operating Agreements shall have been duly authorized, executed and delivered by the respective parties thereto and shall be in full force and effect. NSC and Fairchild Parent shall have executed and delivered the Shareholders Agreement. 7.8. Absence of Changes. There shall not have occurred or been threatened (i) since May 26, 1996, any material adverse change (or series of changes constituting a material adverse change) in the operations, properties, financial condition or reasonable prospects of the Business taken as a whole, or (ii) since the date of this Agreement, any "Market Disruption Event." As used herein, "Market Disruption Event" shall mean (a) any suspension or limitation of trading in securities generally on the New York Stock Exchange (not including any suspension or limitation of trading in any particular security as a result of computerized trading limits), or any setting of minimum prices for trading on such exchange; (b) any banking moratorium declared by U.S. Federal or New York authorities; (c) any outbreak or escalation of major hostilities in which the Unites States is involved, any declaration of war by Congress or any other substantial national or international calamity or emergency; or (d) any other material adverse change in bank or capital market conditions that has had a material adverse effect on the syndication of bank credit facilities or the consummation of high yield offerings. 7.9. Timely Satisfaction of Conditions. This Section 7.9 shall only apply if a condition set forth in Sections 7.1 through 7.8 or Article VIII has not been satisfied or waived prior to the date on which CVC's right to deliver a purchase request under the First Boston Commitment Letter is terminated and as a result Investor shall not have obtained the proceeds of the Financing. In such event, the obligation of Investor to consummate the transactions contemplated by this Agreement shall be subject to the further condition that the Fairchild Companies shall have obtained the proceeds of the Financing. ARTICLE VIII CONDITIONS TO NSC'S OBLIGATIONS The obligation of NSC to consummate the transactions contemplated hereby at the Closing shall be subject to the satisfaction (or waiver) at or prior to the Closing of all of the following conditions: 8.1. Bringdown of Representations and Warranties. The representations and warranties of Investor contained in this Agreement that are qualified by materiality limitations shall be true and correct and those that are not qualified by materiality limitations shall be true and correct in all material respects, in each case as of the time of Closing with the same force and effect as though such representations and warranties had been made on, as of and with reference to such time, except those representations and warranties that address matters only as of a particular date which, if qualified by materiality limitations, shall be true and correct and, if not qualified by 16 materiality limitations, shall be true and correct in all material respects, as of that date, and NSC shall have received a certificate to such effect signed by an executive officer of Investor. 8.2. Performance and Compliance. Investor shall have performed in all material respects all of the covenants and complied in all material respects with all of the provisions required by this Agreement to be performed or complied with by it on or before the Closing and NSC shall have received a certificate to such effect, signed by an executive officer of Investor. 8.3. Opinion of Counsel. NSC shall have received from Dechert Price & Rhoads, counsel for Investor, an opinion dated the date of the Closing substantially to the effect set forth in Exhibit 8.3. 8.4. Satisfactory Instruments. All instruments and documents reasonably required on Investor's part to effectuate and consummate the transactions contemplated hereby shall be delivered to NSC and shall be in form and substance reasonably satisfactory to NSC and its counsel in all material respects. 8.5. Required Consents. All consents and approvals of third parties to the transactions contemplated hereby (including the consents and approvals which are (a) set forth on Schedule 7.5, (b) material to the Business or (c) necessary for Fairchild to conduct the Business after the Closing in substantially the same manner in which the Business was conducted prior to Closing) shall have been obtained (except for such consents (other than those set forth on Schedule 7.5) that if not obtained would not in the aggregate have a material adverse effect on the Business as a whole), and all waiting periods specified by law the passing of which are necessary for the consummation of such transactions (including without limitation the waiting period under the HSR Act, if applicable) shall have passed or been terminated. 8.6. Litigation. No statute, rule or regulation, or order of any court or administrative agency shall be in effect which restrains or prohibits the transactions contemplated hereby, and there shall not have been threatened by any Governmental Authority, nor shall there be pending by any Person, any action or proceeding by or before any court or governmental agency or other regulatory or administrative agency or commission, challenging any of the transactions contemplated by the Transaction Agreements or seeking monetary relief (which monetary relief would reasonably be expected to have a material adverse change in or effect upon the business, financial condition or results of operations of Investor taken as a whole) by reason of the consummation of such transactions. 8.7. Ancillary Agreements. Investor and Management Investors shall have executed and delivered the Shareholders Agreement. 17 ARTICLE IX CERTAIN ADDITIONAL COVENANTS 9.1. Termination. (a) When Agreement May Be Terminated. This Agreement may be terminated at any time prior to Closing: (i) by mutual consent of Investor and NSC; (ii) by Investor if there has been a material breach by NSC of any of its representations, warranties or covenants under the Transaction Agreements which breach is not curable, or, if curable, is not cured within thirty days of written notice thereof; (iii) by NSC if there has been a material breach by Investor of any of its representations, warranties or covenants under this Agreement which breach is not curable, or, if curable, is not cured within thirty days of written notice thereof; or (iv) by either party if the Closing shall not have occurred prior to October 31, 1997. (b) Effect of Termination. In the event of termination of this Agreement by either Investor or NSC, as provided above, this Agreement shall forthwith terminate and there shall be no liability on the part of either Investor or NSC or any of their respective officers or directors, except for liabilities arising from a breach of this Agreement prior to such termination; provided, however, that under no circumstances shall such liabilities include any consequential or incidental damages; provided, further, that the obligations of the parties set forth in Section 9.2 hereof shall survive such termination. 9.2. Costs, Expenses and Taxes. Each party to this Agreement will bear all the fees, costs and expenses which are incurred by it in connection with the transactions contemplated hereby; provided, however, that the filing fees for the HSR Act and any similar foreign clearances or approvals shall be paid equally by NSC and Investor; and provided, further, that if the Closing occurs, all fees and expenses of Investor shall be borne by Fairchild. 9.3. Hart-Scott-Rodino Antitrust Improvements Act of 1976. Promptly after the date hereof, Investor and NSC will file the required notifications, if any, with the Federal Trade Commission ("FTC") and the Antitrust Division of the Department of Justice ("Department") pursuant to and in compliance with the HSR Act and filings required to obtain any necessary foreign approvals. The parties hereto shall not intentionally or negligently delay submission of information requested by FTC and Department under the HSR Act and shall use their respective Best Efforts promptly to supply, or cause to be supplied, such information and shall use their Best Efforts to obtain early termination of the applicable waiting period. 18 9.4. No Setoff. A purported failure of performance by a party under a Transaction Agreement, the Shareholders Agreement or the NSC Note shall not reduce the rights of, or result in a claim of set-off against, such party under any other Transaction Agreement, the Shareholders Agreement or the NSC Note. The rights and obligations of the parties to each of the foregoing agreements shall be deemed to be, and shall be construed as, independent of the rights and obligations of each such party to each of the other such agreements. ARTICLE X INDEMNIFICATION 10.1. Indemnification By NSC. NSC hereby agrees to indemnify and hold harmless Investor and the Fairchild Companies from and against any Damages arising out of or resulting from (i) the breach or inaccuracy of any representation or warranty made by NSC in this Agreement, other than the representation of NSC in Section 3.7; or (ii) the breach by NSC of any covenant contained in this Agreement. Notwithstanding anything to the contrary contained herein, if as of the Closing, Investor has actual knowledge of the breach by NSC, or the inaccuracy, of any representation or warranty made by NSC in this Agreement, and NSC does not have such actual knowledge, then (A) Investor shall not be entitled to indemnification from NSC with respect to such breach or inaccuracy and (B) the Closing shall be deemed to be a waiver by Investor of any claim for Damages with respect to such breach or inaccuracy and no other remedy, set-off or indemnity shall be applicable. 10.2. Indemnification by Investor. Investor hereby agrees to indemnify and hold harmless NSC from and against any Damages arising out of or resulting from (i) the breach or inaccuracy of any representation or warranty made by Investor in this Agreement; or (ii) the breach by Investor of any covenant contained in this Agreement. Notwithstanding anything to the contrary contained herein, if as of the Closing, NSC has actual knowledge of the breach by Investor, or the inaccuracy, of any representation or warranty made by Investor in this Agreement, and Investor does not have such actual knowledge, then (A) NSC shall not be entitled to indemnification from Investor with respect to such breach or inaccuracy and (B) the Closing shall be deemed to be a waiver by NSC of any claim for Damages with respect to such breach or inaccuracy and no other remedy, set-off or indemnity shall be applicable. 10.3. General Indemnification Procedures. (a) In the event that any party incurs or suffers any Damages with respect to which indemnification may be sought by such party pursuant to this Article X, the party seeking indemnification (the "Indemnitee") must assert the claim by giving written notice (a "Claim Notice") to the party from whom indemnification is sought (the "Indemnitor"). The Claim Notice must state the nature, basis and amount (if known) of the claim in reasonable detail based on the information available to the Indemnitee and, if the Claim Notice is being given with respect to a third party claim, it must be accompanied by a copy of any written notice of the 19 third party claimant. If the Claim Notice is being given by reason of any third party claim, it shall be given in a timely manner but in no event more than 30 days after the filing or other written assertion of any such claim against the Indemnitee, but the failure of the Indemnitee to give the Claim Notice within such time period shall not relieve the Indemnitor of any liability for indemnification under this Article X, except to the extent that the Indemnitor is prejudiced thereby. If the amount of the claim is not known at the time the Claim Notice is given, the Indemnitee shall also give notice of such amount to the Indemnitor at such time as the amount of the claim is reasonably ascertainable. Each Indemnitor to whom a Claim Notice is given shall respond to any Indemnitee that has given a Claim Notice (a "Claim Response") within 30 days (the "Response Period") after the date that the Claim Notice is received by Indemnitor. Any Claim Response shall specify whether or not the Indemnitor given the Claim Response disputes the claim described in the Claim Notice. If any Indemnitor fails to give a Claim Response within the Response Period, such Indemnitor shall be deemed not to dispute the claim described in the related Claim Notice, in whole or in part. If any Indemnitor elects not to dispute a claim described in a Claim Notice, whether by failing to give a timely Claim Response or otherwise, then such claim shall be conclusively deemed to be an obligation of such Indemnitor. If any Indemnitor shall be obligated to indemnify an Indemnitee hereunder, such Indemnitor shall pay to such Indemnitee within 30 days after the last day of the applicable Response Period (or at such later time as the amount is ascertainable) the amount to which such Indemnitee shall be entitled. If there shall be a dispute as to the amount or manner of indemnification under this Agreement, the Indemnitor and the Indemnitee shall seek to resolve such dispute through negotiations and, if such dispute is not resolved within 20 days, the Indemnitee may pursue whatever legal remedies may be available for the recovery of the Damages claimed from any Indemnitor. If any Indemnitor fails to pay all or any part of any indemnification obligation on or before the later to occur of (x) 30 days after the last day of the applicable Response Period, and (y) if the Claim Notice relates to Damages that have not been liquidated as of the date of the Claim Notice, the date on which all or any part of such Damages shall have become liquidated and determined, then the Indemnitor shall also be obligated to pay to the Indemnitee interest on the unpaid amount for each day during which the obligation remains unpaid at an annual rate of ten percent. (b) The Indemnitee shall provide to the Indemnitor on request all information and documentation reasonably necessary to support and verify any Damages that the Indemnitee believes give rise to the claim for indemnification hereunder and shall give the Indemnitor reasonable access to all books, records and personnel in the possession or under the control of the Indemnitee that would have bearing on such claim. (c) Except as hereinafter provided, in the case of third party claims for which indemnification is sought, the Indemnitor shall have the option: (x) to conduct any proceedings or negotiations in connection therewith, (y) to take all other steps to settle or defend any such claim (provided that the Indemnitor shall not settle any such claim without the consent of the Indemnitee (which consent shall not be unreasonably withheld, it being understood that it shall not be unreasonable for the Indemnitee to withhold its consent from any settlement which (1) commits the Indemnitee to take, or to forbear to take, any action, or (2) does not provide for 20 a complete release of the Indemnitee by such third party)), and (z) to employ counsel to contest any such claim or liability in the name of the Indemnitee or otherwise. In any event, the Indemnitee shall be entitled to participate at its own expense and by its own counsel (a "Voluntary Participation") in any proceedings relating to any third party claim. The Indemnitor shall, within 45 days of receipt of the Claim Notice, notify the Indemnitee of its intention to assume the defense of the claim (a "Defense Notice"). Until the Indemnitee has received the Defense Notice, the Indemnitee shall take reasonable steps to defend (but may not settle) the claim. If the Indemnitor declines to assume the defense of any such claim or fails to give a Defense Notice within 45 days after receipt of the Claim Notice, the Indemnitee shall defend against the claim but shall not settle such claim without the consent of the Indemnitor (which consent shall not be unreasonably withheld). The expenses of all proceedings, contests or lawsuits (other than those incurred in a Voluntary Participation) with respect to claims as to which a party is entitled to indemnification under this Article X shall represent indemnifiable Damages under this Agreement. Regardless of which party shall assume the defense of the claim, the parties shall cooperate fully with one another in connection therewith. Notwithstanding the foregoing, the Indemnitor shall not be entitled (except with the consent of the Indemnitee) to take any of the actions referred to in clauses (x), (y) or (z) of the first sentence of this subparagraph unless: (a) the third party claim involves principally monetary damages; and (b) the Indemnitor shall have expressly agreed in writing that, as between the Indemnitor and the Indemnitee, the Indemnitor shall be solely obligated to satisfy and discharge such third party claim. Damages payable hereunder shall be appropriately adjusted to reflect the receipt of insurance proceeds, tax benefits and detriments and proceeds received with respect to condemnation, expropriation or eminent domain proceedings. ARTICLE XI MISCELLANEOUS 11.1. Nature and Survival of Representations. The representations, warranties, covenants and agreements of NSC and Investor contained in this Agreement shall survive the Closing; provided, however, that the representation of NSC contained in Section 3.7 shall not survive the Closing and the covenants and agreements of NSC contained in Article V of this Agreement, other than those contained in Section 5.4(c)(iii) and Section 5.5, shall not survive the Closing. 11.2. Notices. All notices and other communications hereunder shall be in writing and shall be deemed to have been duly given (i) three Business Days after mailing if mailed by certified or registered mail, return receipt requested, (ii) one Business Day after delivery to Federal Express or other nationally recognized overnight express carrier, if sent for overnight delivery with fee prepaid, (iii) upon receipt if sent via facsimile with receipt confirmed, or (iv) upon receipt if delivered personally, addressed as follows or to such other address or addresses of which the respective party shall have notified the other: 21 If to Investor: c/o Citicorp Venture Capital Ltd. 399 Park Avenue, 14th Floor New York, New York 10043 Attention: Richard M. Cashin, Jr. Fax No.: (212) 888-2940 With a required copy to: Dechert Price & Rhoads 4000 Bell Atlantic Tower 1717 Arch Street Philadelphia, PA 19103 Attention: G. Daniel O'Donnell Fax No.: (215) 994-2222 If to NSC, to: National Semiconductor Corporation 2900 Semiconductor Drive Santa Clara, CA 95052 Attention: General Counsel Fax No.: (408) 733-0293 With a required copy to: Wachtell, Lipton, Rosen & Katz 51 West 52nd Street New York, NY 10019 Attention: Barry A. Bryer Fax No.: (212) 403-2000 11.3. Entire Agreement. The agreement of the parties, which is composed of this Agreement and the Schedules and Exhibits hereto and the documents referred to herein, sets forth the entire agreement and understanding between the parties and supersedes any prior agreement or understanding, written or oral, relating to the subject matter of this Agreement. 11.4. Assignment; Binding Effect; Severability. This Agreement may not be assigned by any party hereto without the written consent of the other party; provided that Investor may assign its rights but not its obligations hereunder to Management Investors designated by Investor as set forth in Section 2.2(f); provided further that Investor and the Fairchild Companies may assign their rights hereunder as collateral security to any bona fide financial institution engaged in financing in the ordinary course providing financing to consummate the transactions 22 contemplated hereby or any bona fide financial institution engaged in financing in the ordinary course through whom such financing is refunded, replaced, or refinanced and any of the foregoing financial institutions may, in enforcing its rights in connection with such financing, assign such rights or cause Investor and the Fairchild Companies to assign their rights in connection with a sale of FSC, Fairchild or the business in the form then being conducted by Fairchild substantially as an entirety. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the successors and permitted assigns of each party hereto. The provisions of this Agreement are severable, and in the event that any one or more provisions are deemed illegal or unenforceable the remaining provisions shall remain in full force and effect unless the deletion of such provision shall cause this Agreement to become materially adverse to any party, in which event the parties shall use Best Efforts to arrive at an accommodation which best preserves for the parties the benefits and obligations of the offending provision. 11.5. Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the internal laws (as opposed to the conflicts of laws provisions) of the State of New York. 11.6. Execution in Counterparts. This Agreement may be executed in any number of counterparts with the same effect as if the signatures thereto were upon one instrument. 11.7. Public Announcement. Prior to Closing, neither Investor nor NSC shall, without the approval of the other party hereto, make any press release or other public announcement concerning the terms of the transactions contemplated by this Agreement, except as and to the extent that any such party shall be so obligated by law, in which case the party shall use its Best Efforts to advise the other party thereof and the parties shall use their Best Efforts to cause a mutually agreeable release or announcement to be issued; provided that the foregoing shall not preclude communications or disclosures necessary to (a) implement the provisions of this Agreement (including the Financing) or (b) comply with accounting, securities laws and Securities and Exchange Commission disclosure obligations. Investor will provide NSC with a reasonable opportunity to review and comment on any references to NSC made by Investor (and shall not include any such references to NSC without the written consent of NSC, which consent shall not be unreasonably withheld or delayed) in any written materials that are intended to be filed with the Securities and Exchange Commission in connection with obtaining the Financing or intended to be distributed to prospective purchasers pursuant to an offering made under Rule 144A promulgated under the Securities Act of 1933 in connection with obtaining the Financing. 11.8. No Third Party Beneficiaries. Nothing in this Agreement, express or implied, is intended to or shall (i) confer on any person other than the parties hereto and their respective successors or permitted assigns any rights (including third party beneficiary rights), remedies, obligations or liabilities under or by reason of this Agreement, other than the rights to indemnification from NSC to the Fairchild Companies pursuant to Article X, or (ii) constitute the parties hereto as partners or as participants in a joint venture. This Agreement shall not provide third parties with any remedy, claim, liability, reimbursement, cause of action or other 23 right in excess of those existing without reference to the terms of this Agreement, other than the rights to indemnification from NSC to the Fairchild Companies pursuant to Article X. 11.9. Headings. The headings preceding the text of the sections and subsections hereof are inserted solely for convenience of reference, and shall not constitute a part of this Agreement, nor shall they affect its meaning, construction or effect. 11.10. Further Assurances. Each party shall cooperate and take such action as may be reasonably requested by another party in order to carry out the provisions and purposes of this Agreement and the transactions contemplated hereby. Each party will provide such certificates from appropriate officers thereof confirming compliance by such party with the terms of this Agreement as may reasonably be requested by the other party at Closing. 11.11. Amendment and Waiver. The parties may by mutual agreement amend this Agreement in any respect, and any party, as to such party, may (a) extend the time for the performance of any of the obligations of any other party, (b) waive any inaccuracies in representations by any other party, (c) waive compliance by any other party with any of the agreements contained herein and performance of any obligations by such other party, and (d) waive the fulfillment of any condition that is precedent to the performance by such party of any of its obligations under this Agreement. To be effective, any such amendment or waiver must be in writing and be signed by the party against whom enforcement of the same is sought. 24 IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed on its behalf as of the date first above written. NATIONAL SEMICONDUCTOR CORPORATION By:_____________________________ Name: Title: STERLING HOLDING COMPANY, LLC By: CITICORP VENTURE CAPITAL LTD., a member By:_____________________________ Name: Title: The undersigned hereby represents and warrants that it is a corporation duly organized, validly existing, and in good standing under the laws of the State of New York, has all requisite corporate power and corporate authority to execute, deliver, and perform the following guarantee and the following guarantee constitutes the valid and binding obligation of the undersigned, enforceable against the undersigned in accordance with its terms. The undersigned hereby unconditionally and irrevocably guarantees the performance by Investor of its obligations under this Agreement to be performed by Investor on or prior to Closing. CITICORP VENTURE CAPITAL LTD. By:__________________________ Name: Title: 25 EX-2.02 3 EX-2.02 ASSET PURCHASE AGREEMENT between FAIRCHILD SEMICONDUCTOR CORPORATION as Buyer and NATIONAL SEMICONDUCTOR CORPORATION as Seller dated as of March 11, 1997 Table of Contents Page ARTICLE I DEFINITIONS................................................... 1 1.1. Defined Terms................................................. 1 1.2. Rule of Construction.......................................... 12 ARTICLE II SALE OF ASSETS.................................................. 12 2.1. Purchase and Sale............................................. 12 2.2. Excluded Assets............................................... 15 2.3. Assumed Liabilities; Excluded Liabilities..................... 16 2.4. The Closing................................................... 19 2.5. Purchase Price................................................ 19 2.6. Consent of Third Parties; Further Assurances.................. 21 2.7. Shared Contracts.............................................. 21 2.8. Apportionment at Closing Date; Customer Billing................ 22 2.9. Warranty Claims............................................... 22 ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLER...................... 22 3.1. Organization and Authority.................................... 22 3.2. Authorization; Binding Obligation............................. 23 3.3. No Violations................................................. 23 3.4. Financial Statements.......................................... 24 3.5. Absence of Changes............................................ 24 3.6. Assets........................................................ 25 3.7. Personal Property............................................. 25 3.8. Permits, Licenses............................................. 25 3.9. Compliance with Laws and Litigation........................... 26 3.10. Employees..................................................... 27 3.11. Agreements.................................................... 27 3.12. Environmental Matters......................................... 28 3.13. No Undisclosed Liabilities.................................... 29 3.14. Warranty Claims............................................... 29 3.15. Inventory; Purchased Assets................................... 30 3.16. Real Estate................................................... 30 3.17. Ownership of Subsidiaries..................................... 33 3.18. Tax Matters................................................... 33 3.19. Employee Benefit Plans........................................ 34 3.20. No Implied Representation..................................... 36 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BUYER......................... 37 4.1. Organization and Authority.................................... 37 4.2. Authorization; Binding Obligation............................. 37 4.3. No Violations................................................. 37 4.4. Inspections; Limitation of Seller's Warranties................ 38 -i- ARTICLE V CERTAIN COVENANTS................................................ 38 5.1. Information................................................... 38 5.2. Tax Reporting and Allocation of Consideration................. 39 5.3. Operating Agreements.......................................... 40 5.4. Tax Matters................................................... 40 5.5. Employee Matters.............................................. 42 5.6. Covenant Not to Compete; Nonsolicitation...................... 46 5.7. Material Consents............................................. 48 5.8. Notice to Customers........................................... 48 5.9. Confidentiality............................................... 48 5.10. Estoppel ertificates.......................................... 49 5.11. Title Policies................................................ 49 5.12. Survey........................................................ 49 5.13. Accounts Receivable and Related Claims........................ 50 ARTICLE VI CLOSING.......................................................... 50 6.1. Seller's Closing Deliveries................................... 50 6.2. Buyer's Closing Deliveries.................................... 51 ARTICLE VII INDEMNIFICATION................................................. 51 7.1. Indemnification By Seller..................................... 51 7.2. Indemnification by Buyer...................................... 51 7.3. General Indemnification Procedures............................ 51 ARTICLE VIII MISCELLANEOUS.................................................. 53 8.1. Nonsurvival of Representations................................ 53 8.2. Notices....................................................... 53 8.3. Expenses...................................................... 54 8.4. Entire Agreement.............................................. 54 8.5. Assignment; Binding Effect; Severability...................... 54 8.6. Governing Law................................................. 55 8.7. Execution in Counterparts..................................... 55 8.8. Public Announcement........................................... 55 8.9. No Third Party Beneficiaries.................................. 55 8.10. Headings...................................................... 56 8.11. Further Assurances............................................ 56 8.12. Amendment and Waiver.......................................... 56 -ii- Schedules Schedule 1-A Accounts Payable Schedule 1-B Accrued Expenses Schedule 1-D Certain Business Products Schedule 1-E Environmental Liabilities Schedule 1-F Seller's Knowledge Schedule 2.1A Principal Premises Schedule 2.1A-1 Permitted Encumbrances Schedule 2.1A-2 Remote Locations Schedule 2.1B Principal Equipment Schedule 2.1C Motor Vehicles and Other Equipment Schedule 2.1D Office Equipment Schedule 2.1E Inventory Schedule 2.1F Contracts Schedule 2.1I Governmental Permits Schedule 2.1O Other Purchased Assets Schedule 2.2D Excluded Equipment Schedule 2.2F Excluded Contracts Schedule 2.2J Work in Process and Die Banks Schedule 3.3 Violations; Consents Schedule 3.4 Certain Financial Information Schedule 3.5 Certain Changes Schedule 3.6 Title to Assets Schedule 3.7 Personal Property Schedule 3.9 Compliance with Laws Schedule 3.10 Business Employees; Labor Matters Schedule 3.11 Agreements Schedule 3.12 Environmental Matters Schedule 3.13 Disclosed Liabilities Schedule 3.14 Warranty Claims Schedule 3.15 Inventory; Purchased Assets Schedule 3.16 Real Property Schedule 3.17 Fairchild Subsidiaries Schedule 3.18 Tax Matters Schedule 3.19A Benefit Plans Schedule 3.19I Retiree Benefits Schedule 3.19J Enhanced Benefits Schedule 3.19K Foreign Plans Schedule 3.19K(i) Non-Subsidiary Foreign Plans Schedule 3.19M Noncompliance Schedule 5.2 Statement of Allocation Schedule 5.5A Employee Matters Schedule 5.5D Buyer's Plans not Established as of Closing Date -iii- Schedule 5.6 Integrated Circuit Products Exhibits Exhibit 2.3A Assumption Agreement Exhibit 2.5B Purchase Price Note Exhibit 6.1 Bill of Sale -iv- ASSET PURCHASE AGREEMENT THIS ASSET PURCHASE AGREEMENT (the "Agreement") is dated as of March 11, 1997 between NATIONAL SEMICONDUCTOR CORPORATION, a Delaware corporation ("Seller"), and FAIRCHILD SEMICONDUCTOR CORPORATION, a Delaware corporation ("Buyer"). Background A. Seller is, among other things, engaged through its Fairchild Division in the manufacture and sale of the Business Products (as hereinafter defined) and the furnishing of the Business Services. B. In connection with a plan of recapitalization which the Board of Directors of Seller deems advisable and in the best interest of Seller, the Fairchild Division and the stockholders of Seller, Seller will transfer certain assets and liabilities of the Fairchild Division to Buyer, Buyer will accept such assets and assume such liabilities, and Seller will enter into certain operating agreements with Buyer, on the terms and conditions set forth herein. Seller and Buyer are simultaneously entering into a letter agreement regarding certain actions relating to implementation of the transactions contemplated hereby. C. The transactions contemplated hereby are taken with the consent of Sterling Holding Company LLC to facilitate the transactions contemplated by the Recap Agreement (as hereinafter defined). Terms In consideration of the mutual representations, warranties, covenants and agreements, and upon the terms and subject to the conditions, hereinafter set forth, the parties hereby agree as follows: ARTICLE I DEFINITIONS 1.1. Defined Terms. For the purposes of this Agreement, the following words and phrases shall have the following meanings: "Accounting Principles" shall have the meaning set forth in Section 2.5(c). "Accounts Payable" means all liabilities or obligations that would be included in the net book value of accounts payable related to the Purchased Assets that would be set forth on a balance sheet of the Business as of the Closing Date prepared on a basis consistent with the Accounting Principles, including those identified on Schedule 1-A. "Accounts Receivable" shall have the meaning set forth in Section 2.2(b). "Accrued Expenses" means all liabilities or obligations in respect of the Business set forth on Schedule 1-B. "Affiliate" of a Person means any Person controlling, controlled by, or under common control with, such Person. For purposes of this definition, "control" means the power to direct the management and policies of a Person, whether through the ownership of voting securities, by agreement or otherwise. "Agreement" shall have the meaning set forth in the Introduction. "Acquired Business" shall have the meaning set forth in Section 5.6(e). "Asset Acquisition Statement" shall have the meaning set forth in Section 5.2. "Assumed Contracts" means the Contracts assumed by Buyer pursuant to Section 2.3(a). "Assumed Liabilities" shall have the meaning set forth in Section 2.3(a). "Assumption Agreement" shall have the meaning set forth in Section 2.3(a). "Beneficiary" means the person(s) or entity designated by an employee, by operation of law or otherwise as the party entitled to compensation, benefits, insurance coverage, payments, indemnification or any other goods or services as a result of any liability, or claim under any Benefit Plan, Foreign Plan or under any other employee benefit plan, program or policy. "Benefit Plan" shall have the meaning set forth in Section 3.19. "Best Efforts" is defined to require that the obligated party make a diligent, reasonable and good faith effort to accomplish the applicable objective. Such obligation, however, does not require any significant expenditure of funds or the incurrence of any significant liability on the part of the obligated party, nor the incurrence of any expenditure or liability which is unreasonable in light of the related objective, nor does it require that the obligated party act in a manner which would otherwise be contrary to prudent business judgment or normal commercial practices in order to accomplish the objective. The fact that the objective -2- is not actually accomplished is no indication that the obligated party did not in fact utilize its Best Efforts in attempting to accomplish the objective. "Bill of Sale" shall have the meaning set forth in Section 6.1(b). "Business" means Seller's Logic, Memory and Discrete Power and Signal Technologies Business Units as historically conducted and accounted for (including Flash Memory, but excluding Public Networks, Programmable Products and Mil Logic Products). "Business Day" means a day which is not a Saturday, a Sunday or a statutory or civic holiday in the State of New York or any other day on which the principal offices of either Seller or Buyer are closed or become closed prior to 2:00 p.m. local time whether in accordance with established company policy or as a result of unanticipated events including adverse weather conditions. "Business Employees" means all individuals who, as of the Closing Date, (i) are actively employed by or on Leave of Absence from the employ of, any Seller Entity and whose duties, as of the Closing Date (in the case of active employees) or immediately before their leave began (in the case of employees on Leave of Absence), relate primarily to the Business; (ii) are on assignment from the Business to Sematech listed on Schedule 3.10; (iii) are marketing employees who, as of January 24, 1997, have agreed with Buyer to become employees of Buyer upon Closing (listed on Schedule 3.10) and such additional marketing employees who subsequently agree with Buyer to become employees of Buyer upon Closing; or (iv) are on assignment to the Eight Inch Wafer Fabrication Facility and listed on Schedule 3.10 (the "Fab Employees"). "Business Financial Statements" shall have the meaning set forth in Section 3.4. "Business Products" shall have the meaning set forth in the Technology Licensing and Transfer Agreement between Buyer and Seller dated as of the Closing Date, and include those set forth in Schedule 1-D. "Business Records" shall have the meaning set forth in Section 2.1(h). "Business Services" means the furnishing of services related to the manufacture or sale of Business Products, including without limitation design services and process technology services. "Buyer" shall have the meaning set forth in the Introduction. "Buyer's Plans" shall have the meaning set forth in Section 5.5(b). -3- "Claim Notice" shall have the meaning set forth in Section 7.3(a). "Claim Response" shall have the meaning set forth in Section 7.3(a). "Closing" means the closing of the transactions described in Article 6. "Closing Inventory Amount" means the net book value of the Inventory included in the Purchased Assets on the Closing Date. "Closing Inventory Schedule" shall have the meaning set forth in Section 2.5(c). "Closing Date" means the date of the Closing as determined pursuant to Section 2.4. "Code" means the Internal Revenue Code of 1986, as amended. "Competing Business" shall have the meaning set forth in Section 5.6(b). "Competitive Portion" shall have the meaning set forth in Section 5.6(e). "Confidential Offering Memoranda" shall have the meaning set forth in Section 3.20. "Contracts" shall have the meaning set forth in Section 2.1(f). "Damage" means any and all losses, liabilities, damages, penalties, obligations, awards, fines, deficiencies, interest, claims (including third party claims, whether or not meritorious), costs and expenses whatsoever (including reasonable attorneys', accountants' and environmental consultants' fees and disbursements) resulting from, arising out of or incident to (x) any matter for which indemnification is provided under this Agreement, or (y) the enforcement by an indemnified party of its rights to indemnification under this Agreement; provided, however, that Damages shall not include consequential or incidental damages (other than consequential or incidental damages that are awarded to third parties under matters covered by the foregoing clauses (x) or (y)) except in the case of a material breach by Seller of its obligation to provide indemnification pursuant to Article VII hereof with respect to Environmental Liabilities. "Defense Notice" shall have the meaning set forth in Section 7.3(c). "Disputed Items" shall have the meaning assigned in Section 2.5(d). -4- "Encumbrance" shall mean any encumbrance of any kind whatsoever and includes any security interest, mortgage, deed of trust, lien, judgment, tax lien, sewer rent, assessment, mechanics' or materialmen's liens, hypothecation, pledge, assignment, easement, servitude, right of way, restriction, tenancy, encroachment or burden or any other right or claim of others affecting the Purchased Assets and any restrictive covenant or other agreement, restriction or limitation on the use of the Purchased Assets. "Environmental Audits" shall have the meaning set forth in Section 3.12(f). "Environmental Laws" shall have the meaning set forth in Section 3.12(a). "Environmental Liabilities" means, regardless of whether any of the following are contained in any disclosure schedule to this Agreement or otherwise disclosed to Buyer prior to the Closing, any and all losses, claims, demands, liabilities, obligations, causes of action, damages, costs and expenses, fines or penalties (including without limitation reasonable attorney fees and other defense costs), known or unknown, foreseen or unforeseen, whether contingent or otherwise, fixed or absolute, present or future asserted against or incurred by Buyer arising out of or related to: (i) environmental conditions, including without limitation, the presence, Release, threat of Release or Management of Hazardous Materials, occurring or existing prior to the Closing Date, at, on, in, under or from the Principal Premises or any other property now or previously owned, operated or leased by Seller Entities or any of their Affiliates or in connection with the operation of the Business; provided however, that any Environmental Liability for Remediation shall be only for such Remediation required by any Environmental Law; or (ii) environmental conditions arising from the pre-Closing off-site transportation, storage, treatment, recycling or disposal of Hazardous Materials prior to the Closing Date generated by or on behalf of Seller Entities or Affiliates or in connection with the operation of the Business; or (iii) any violation which occurred prior to the Closing of any then-applicable Environmental Law (including without limitation costs and expenses for pollution control or monitoring equipment required by Environmental Laws to bring the Business into compliance with Environmental Laws and fines, penalties and reasonable defense costs incurred for such reasonable time after the Closing to come into compliance); or (iv) the items identified on Schedule 1-E. -5- in each case of clauses (i), (ii) and (iii), except to the extent that such Environmental Liabilities are exacerbated by Buyer. "Environmental Permits" shall have the meaning set forth in Section 3.12(b). "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. "ERISA Affiliate" means (i) any corporation included with Seller in a controlled group of corporations within the meaning of Section 414(b) of the Code; (ii) any trade or business (whether or not incorporated) which is under common control with Seller within the meaning of Section 414(c) of the Code; (iii) any member of an affiliated service group of which Seller is a member within the meaning of Section 414(m) of the Code; or (iv) any other person or entity treated as an affiliate of Seller under Section 414(o) of the Code. "Estoppel Certificates" shall have the meaning set forth in Section 5.10. "Evaluation Materials" shall have the meaning set forth in Section 3.20. "Excluded Assets" shall have the meaning set forth in Section 2.2. "Excluded Contracts" shall have the meaning set forth in Section 2.2(f). "Excluded Equipment" shall have the meaning set forth in Section 2.2(d). "Excluded Liabilities" shall have the meaning set forth in Section 2.3(b). "Fairchild Subsidiaries" means the companies set forth on Schedule 3.17. "Financing" shall have the meaning set forth in the Recap Agreement. "Foreign Plan" shall have the meaning set forth in Section 3.19(k). "GAAP" means United States generally accepted accounting principles. "Governmental Authority" means the government of the United States, Hong Kong, Malaysia, the Philippines or any foreign country or any state, province, municipality or other political subdivision thereof or therein, or any court, tribunal, agency, department, board, instrumentality, authority or commission (including regulatory and administrative bodies) of any of the foregoing. -6- "Governmental Permits" shall have the meaning set forth in Section 2.1(i). "Hazardous Materials" means any hazardous, toxic or polluting materials, substances, wastes, pollutants or contaminants (including, without limitation, petroleum, petroleum products, radioactive materials, asbestos, or asbestos-containing materials) which are defined by or regulated under any Environmental Law or any other compound, mixture, element, solution or substance which poses or may pose a present or potential hazard to human health or the environment. "HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. "including" or any variation thereof means "including without limitation" and the term "including" or any variation thereof shall not be construed to limit any general statement which it follows to the specific or similar items or matters immediately following it. "Indemnitee" shall have the meaning set forth in Section 7.3(a). "Indemnitor" shall have the meaning set forth in Section 7.3(a). "Independent Accountant" shall have the meaning set forth in Section 2.5(d). "Interim Financial Statements" shall have the meaning set forth in Section 3.4. "Inventory" shall have the meaning set forth in Section 2.1(e). "IRS" means the U.S. Internal Revenue Service. "KEIP" shall have the meaning set forth in Section 5.5(f). "knowledge" when used with respect to Seller, means the actual knowledge of the individuals whose names are set forth on Schedule 1-F, after reasonable investigation. "Leased Real Estate" shall have the meaning set forth in Section 3.16(b)(i). "Leases" shall have the meaning set forth in Section 3.16(b)(i). "Leave of Absence" means an approved absence from employment that is classified as sick time, personal leave, family leave, industrial leave or Medical Leave. -7- "Manage" or "Management", when used with respect to Hazardous Materials, has the meaning set forth in Section 3.12(c). "Material Adverse Effect" means any change or effect (or series of related changes or effects) which has or is reasonably likely to have a material adverse change in or effect upon the business, financial condition or results of operations of the Business taken as a whole. "Material Instruments" shall mean the Contracts described on Schedule 2.1F, the licenses, agreements and other arrangements, if any, transferred to Buyer pursuant to the Technology Transfer and License Agreement and the Governmental Permits described on Schedule 2.1I. "Material Real Estate Impairment" shall mean (1) a material adverse effect upon the value of any one or more of the individual Principal Premises so affected or (2) material impairment of the use of, or the conduct of the Business at, any one or more of the individual Principal Premises so affected. "Medical Leave" means an absence from employment that is classified as short-term disability, long-term disability or permanent medical leave. "Non-Assignable Assets" shall have the meaning set forth in Section 2.6(a). "Non-Assignable Patent Licenses" means licenses of patents in third parties to which Seller is the licensee and which are not by their terms assignable to Buyer. "Non-Subsidiary Foreign Plan" shall have the meaning set forth in Section 3.19(k). "Operating Agreements" means the agreements to be entered into between Buyer and Seller described in Section 5.3. "Other Current Liabilities" means liabilities of the character that would be reflected as "other current liabilities" on a balance sheet prepared on a basis consistent with the Accounting Principles. "Overlapping Fiscal Year" shall have the meaning set forth in Section 5.5(f). "Owned Real Estate" shall have the meaning set forth in Section 3.16(a)(i). "Pension Plan" shall have the meaning set forth in Section 3.19(e). -8- "Permitted Encumbrances" means (i) the Encumbrances and exceptions set forth in Schedule 2.1A-1; and (ii) imperfections in title not material in extent or amount and which, individually or in the aggregate, do not materially interfere with the conduct of the Business or with the use of the Purchased Assets and do not materially affect the value of the Purchased Assets, taken collectively. "Permitted Fee Title Exceptions" shall have the meaning set forth in Section 3.16(a)(ii). "Permitted Leasehold Exceptions" shall have the meaning set forth in Section 3.16(b)(ii). "Person" means and includes any individual, corporation, partnership, firm, association, joint venture, joint stock company, trust or other entity, or any government or regulatory administrative or political subdivision or agency, department or instrumentality thereof. "Portland Facility" shall have the meaning set forth in Section 3.8(b). "Principal Equipment" means all of the machinery and equipment, fixtures, improvements, tooling, supplies, tools, dies and similar capital items which are owned or leased by any Seller Entity and are located at the Principal Premises, Remote Locations or elsewhere and which are primarily used or held for use in the conduct of the Business, or which are in transit to or temporarily removed from a location specified above and which would otherwise be included among the items described above. Principal Equipment shall include, without limitation, those specified items of machinery and equipment which are identified on Schedule 2.1B but shall not include the Excluded Equipment. "Principal Premises" means the Owned Real Estate and all of the rights, titles, interests and estates of the Seller Entities (and of each of them) in and to the Leased Real Estate. "Proprietary Information" means inventions, discoveries, patentable subject matter, patents, patent applications, industrial models, industrial designs, trade secrets, trade secret rights, software, works, copyrightable subject matter, copyright rights and registrations, know-how and show-how, whether or not protectible by patent, copyright or trade secret, trademarks, trade names, service marks, emblems, logos, insignia and related marks and registrations, specifications, technical manuals and data, blueprints, drawings, proprietary processes, product information and development work-in-process. -9- "Purchase Price" means the payment to be made in consideration for the Purchased Assets as provided in Section 2.5. "Purchase Price Note" shall have the meaning set forth in Section 2.5(b). "Purchased Assets" shall have the meaning set forth in Section 2.1. "RCRA" shall have the meaning set forth in Section 3.12(c). "Recap Agreement" means the Agreement and Plan of Recapitalization dated January 24, 1997 between Seller and Sterling Holding Company LLC. "Recap Closing" means the closing of the transactions under the Recap Agreement. "Recap Closing Date" means the date of the Recap Closing. "Reference Amount" shall have the meaning set forth in Section 2.5(a). "Release" shall have the meaning set forth in Section 3.12(e). "Remediation" means investigation, cleanup, remedial action or other response action. "Remote Locations" means the facilities for Inventory stocking and/or manufacturing support listed on Schedule 2.1A-2. "Resolution Period" shall have the meaning set forth in Section 2.5(d). "Response Period" shall have the meaning set forth in Section 7.3(a). "Returns" means all returns, declarations, reports, statements and other documents required under a Tax Law to be filed with a Governmental Authority in respect of Taxes, and includes any Forms W-2, 1099 or similar documents required under any Tax Law to be provided to a person other than a Governmental Authority (and "Return" means any one of the foregoing Returns). "Seller" shall have the meaning set forth in the Introduction. "Seller Entities" means Seller and all Affiliates of Seller having an interest in any Purchased Asset, including the Fairchild Subsidiaries. -10- "Shared Contract" shall have the meaning set forth in Section 2.7. "Specified Liabilities" means the sum of Accounts Payable, Accrued Expenses and Other Current Liabilities. "Statement of Allocation" shall have the meaning set forth in Section 5.2. "Straddle Period Taxes" shall have the meaning set forth in Section 5.4(e). "subsidiary" means as to any Person, a corporation or other entity of which shares of stock or other equity ownership interests having ordinary voting power to elect a majority of the board of directors or other managers of such corporation or other entity are at the time owned, directly or indirectly, through one or more intermediaries, or both, by such Person. "Surveyor" shall have the meaning set forth in Section 5.12. "Surveys" shall have the meaning set forth in Section 5.12. "Taxes" means all federal, state, local, foreign and other net income, gross income, gross receipts, sales, use, ad valorem, transfer, franchise, profits, license, lease, service, add on or alternative minimum tax, occupancy, withholding, payroll, employment, excise, severance, stamp, value added, occupation, premium, property (including, without limitation, real property taxes and any assessments, special or otherwise), windfall profits, customs, duties or other taxes, fees, assessments or charges of any kind whatever, together with any interest and any penalties, additions to tax or additional amounts with respect thereto (and "Tax" means any one of the foregoing Taxes). "Tax Law" means a statute, regulation or administrative rule or judicial opinion enacted, issued or promulgated for the determination, imposition, assessment or collection of any Tax. "Title Company" shall have the meaning set forth in Section 5.11. "Title Policies" shall have the meaning set forth in Section 5.11. "Transferred Employee" shall have the meaning set forth in Section 5.5(a). "Transition Services Agreement" means the Transition Services Agreement of even date herewith between Seller and Buyer. "Voluntary Participation" shall have the meaning set forth in Section 7.3(c). -11- 1.2. Rule of Construction. No inaccuracies in a representation or warranty as a result of any inaccuracy in any Schedule to this Agreement shall be deemed to constitute a breach of such representation or warranty which makes reference to such Schedule unless the aggregate effect of all such inaccuracies in all such Schedules is material to the Business in the context of the transactions contemplated by the Recap Agreement (including the Financing). ARTICLE II SALE OF ASSETS 2.1. Purchase and Sale. Upon the terms and subject to the conditions of this Agreement, on the Closing Date Seller shall, and shall cause the other Seller Entities to, sell, transfer, assign, convey and deliver to Buyer, and Buyer shall purchase from the Seller Entities, all of the Purchased Assets which include the Business as a going concern and the goodwill related thereto, as the same shall exist on the Closing Date; it being understood that such of the Purchased Assets as shall be held by the Fairchild Subsidiaries shall not be transferred directly to Buyer but shall be transferred to Buyer through the transfer of ownership of the Fairchild Subsidiaries to Buyer. For purposes of this Agreement, "Purchased Assets" shall mean all of the assets, properties and rights which are primarily used in the conduct of the Business (except in each case for the Excluded Assets), wherever such assets, properties and rights are located and whether such assets are real, personal or mixed, tangible or intangible, matured or unmatured, known or unknown, contingent or fixed, and whether or not any of such assets have any value for accounting purposes or are carried or reflected on or specifically referred to in Seller's books or financial statements including: (a) the Principal Premises; (b) all of the Principal Equipment and any rights to the warranties and licenses received from the manufacturers and distributors of the Principal Equipment and to any related claims, credits, rights of recovery and set-off with respect to such items, subject, as applicable, to the rights set forth in Section 2.1(f); (c) all of the motor vehicles, whether or not licensed or registered to operate on public highways, including automobiles, trucks, self-propelled carts, and other motorized lifting, material handling or transporting equipment and all spare parts, fuel and other supplies, tools and other items used in the operation or maintenance thereof which are owned or leased by a Seller Entity and located at the Principal Premises, Remote Locations or elsewhere and which are primarily used or held for use in the conduct of the Business, or which are in transit to or temporarily removed from a location specified above and which would otherwise be included among the items described above, and any rights to the warranties received from suppliers or manufacturers of such items described above, and any related claims, credits, rights -12- of recovery and set-off with respect thereto, including without limitation all such vehicles, spare parts, fuel and other supplies, tools and other items and other rights set forth on Schedule 2.1C; (d) all of the furniture and office equipment, including desks, tables, chairs, file cabinets and other storage devices, communications equipment, computers and office supplies, including those identified on Schedule 2.1D, which are owned or leased by a Seller Entity and located at the Principal Premises, Remote Locations or elsewhere and which are primarily used or held for use in the conduct of the Business, or which are in transit to or temporarily removed from a location specified above and which would otherwise be included among the items identified above; (e) all inventory, wherever located (including inventory in transit), including, without limitation, all the raw materials, work in process, recycled materials, finished products, supplies, and spare parts located at the Principal Premises, the Remote Locations, or elsewhere and primarily used or held for use in the conduct of the Business, including items of the type and nature of the materials identified as inventory in the Business Financial Statements, a summary of which and the principal locations of which are set forth in Schedule 2.1E (the "Inventory") and any rights to the warranties received from suppliers and any related claims, credits, rights of recovery and set-off with respect to such Inventory; (f) subject to Section 2.7 and subject to the terms of the Transition Services Agreement dated as of the Closing Date between Seller and Buyer, all of the rights and obligations under the contracts, contractual rights, agreements, leases, purchase orders, warranty rights, sales orders and instruments which primarily relate to the Business, including those identified on Schedule 2.1F, and including those (i) for the lease (from Persons other than Seller or any Affiliate of Seller) of machinery and equipment, real property, motor vehicles, or furniture and office equipment or other property primarily used or held for use in the conduct of the Business, (ii) for the provision (by Persons other than Seller or any Affiliate of Seller) of goods or services primarily used or held for use in the conduct of the Business, (iii) for the sale of goods or performance of services by the Business, (iv) which restrain or restrict any Person from directly or indirectly competing with the Business or from disclosing confidential or Proprietary Information relating primarily to the Business, and (v) any such contracts, agreements, instruments and leases entered into by Seller or any Affiliate of Seller between the date hereof and the Closing Date which relate primarily to the Business that are consistent with the terms of this Agreement (collectively, the "Contracts"); (g) all mailing lists, customer lists, supplier lists, sales and marketing or packaging materials, equipment maintenance records, warranty information, records of plant operations and the source and disposition of materials used and produced therein, manuals of operation, and other similar proprietary or confidential information of the Seller Entities primarily used or held for use in the conduct of the Business, and with respect to the Principal Premises, all building plans, blueprints, renderings or surveys provided, that the items set forth in this subsection (g) shall not include any information that does not primarily relate to the Business and Seller shall be entitled to remove or redact any such information from such items and provided, further, that Seller shall have the right to retain copies of the items set forth in this subsection (g); -13- (h) all books and records of the Seller Entities relating to the Business including, without limitation, all discs, tapes and other media storing data and other information and the software and information management systems primarily used or held for use in the conduct of the Business, including any documentation and manuals related thereto (the materials described in subsections (g) and (h) of this Section 2.1 hereinafter being referred to as "Business Records"); provided, that Business Records shall not include any information that does not primarily relate to the Business and Seller shall be entitled to remove or redact any such information from the Business Records and provided, further, Seller shall be entitled to retain copies of such Business Records; (i) all of the governmental permits, licenses, certificates of inspection, certificates of occupancy, building permits, variances and other licenses or permits (including Environmental Permits) relating to the use or occupancy of the Principal Premises, approvals or other authorizations issued with respect to the Business and which are used in, or otherwise necessary or material to, the operation of the Business, the use of the Principal Premises, or the conduct of the Business at the Principal Premises by Buyer, or which are otherwise required by law to be transferred to Buyer (the "Governmental Permits") including those Governmental Permits which are described and identified in Schedules 2.1I and 3.12 (other than those Governmental Permits for which transfer is not permitted by law or the issuing authority); (j) all intellectual property rights granted to Buyer pursuant to the Technology Licensing and Transfer Agreement dated as of the Closing Date between Buyer and Seller; (k) all rights of the Seller Entities to any insurance proceeds relating to the damage, destruction or impairment of assets or other rights described in this Section 2.1 which would have been Purchased Assets but for such damage, destruction or impairment prior to the Closing; (l) all of the rights, claims or causes of action of the Seller Entities against third Persons to the extent they relate to the Purchased Assets or the Assumed Liabilities; (m) all of the capital stock of the Fairchild Subsidiaries; (n) all assets (other than Excluded Assets) reflected in the May 26, 1996 balance sheet which is included in the Business Financial Statements, together with all replacements thereof, all expansions, enhancements and modifications thereto and all assets (other than Excluded Assets) of like character that have been or are acquired by the Seller Entities subsequent to such balance sheet date and on or prior to the Closing Date, primarily for use in the Business, except to the extent such assets have been disposed of on or after such date; and (o) all the items, if any, listed on Schedule 2.1O. The term "Purchased Assets" when used herein with respect to any date prior to the Closing Date, shall be deemed to refer to the properties and assets of the Seller Entities that would constitute the "Purchased Assets" hereunder if the Closing were to take place on such date. -14- 2.2. Excluded Assets. It is hereby expressly acknowledged and agreed that the Purchased Assets shall not include, and the Seller Entities are not selling, transferring or assigning to Buyer, and Buyer is not purchasing or acquiring from the Seller Entities, all properties and assets of the Seller Entities that are not included in the Purchased Assets pursuant to Section 2.1 or that are excluded by this Section 2.2 (such properties and assets collectively the "Excluded Assets"), including: (a) any of the Seller Entities' cash, bank deposits or similar cash items existing as of the close of business on the Closing Date; (b) all of the accounts, notes and finance receivables generated by the Business and existing as of the close of business on the Closing Date, including, without limitation, all funds, refunds, receivables, credits, offsets, or reimbursements, claims, debts, obligations and such other rights, together with all accrued interest thereon, existing as of the close of business on the Closing Date to the extent and in the amounts that such items would be reflected as accounts or notes receivable (or as any other asset related thereto) on a balance sheet of the Business as of the Closing Date prepared in accordance with the Accounting Principles (the "Accounts Receivable"); (c) any claim, right or interest of the Seller Entities in and to any refund for Taxes for any periods prior to the Closing Date; (d) any of the equipment located at the Principal Premises and listed on Schedule 2.2D (the "Excluded Equipment"); (e) all assets attributable or related to any Benefit Plan except as provided in Section 5.5; (f) all of the Contracts set forth on Schedule 2.2F (the "Excluded Contracts") and all Shared Contracts; (g) all of the rights, claims or causes of action of the Seller Entities against third Persons to the extent they do not relate to the Business or they relate to the Excluded Assets or the Excluded Liabilities; (h) all intellectual property of Seller except as described in Section 2.1(j); (i) the shares of stock of Wafer Scale Integration Inc. owned or held by Seller; (j) the work in process (including die banks) at the locations set forth on Schedule 2.2J to be delivered to Seller under the Operating Agreements; and (k) the capital stock of any Seller Entity other than the Fairchild Subsidiaries. -15- 2.3. Assumed Liabilities; Excluded Liabilities. (a) On the Closing Date, Buyer shall execute and deliver to Seller an assumption agreement in the form set forth in Exhibit 2.3A (the "Assumption Agreement") pursuant to which Buyer shall assume and agree to pay, perform or otherwise discharge, in accordance with their respective terms and subject to the respective conditions thereof and subject to the provisions of Sections 2.3(b), 2.6 and 2.9, all of the Assumed Liabilities. As used herein, "Assumed Liabilities" means any and all liabilities of the Seller Entities in respect of the Business of any nature, whether direct or indirect, known or unknown, or absolute or contingent, to the extent arising out of or relating to the conduct of the Business or the ownership and operation of the Purchased Assets, including, without limitation, the obligations and liabilities set forth under the heading "Assumed by FSC" on Schedule 1-A and 1-B, but excluding the Excluded Liabilities. (b) Buyer shall not assume or be obligated to pay, perform or otherwise discharge any of the following obligations or liabilities of Seller or any of its Affiliates, whether or not related to the Business and whether direct or indirect, known or unknown, or absolute or contingent (all of such obligations and liabilities not so assumed being herein called the "Excluded Liabilities"): (i) any obligations or liabilities of any Seller Entity or any of its Affiliates (including, without limitation, any Environmental Liability) incurred by any Seller Entity or any of its Affiliates in connection with the conduct of their businesses other than the Business, including those associated with any "shelf" companies acquired by any Seller Entity in connection with the transactions contemplated hereby; (ii) any obligations of any Seller Entity or any of its Affiliates (other than obligations of Buyer under this Agreement, the Operating Agreements and the Shareholders Agreement (as defined in the Recap Agreement)) arising under this Agreement, the Recap Agreement, the Operating Agreements or the Shareholders Agreement (as defined in the Recap Agreement); (iii) any intercompany payables and liabilities or obligations of any Seller Entity to any of its Affiliates; (iv) any liabilities or obligations to the extent related to Excluded Assets; (v) any Taxes of a Fairchild Subsidiary with respect to any taxable period that ends on or prior to the Closing Date except to the extent such Taxes result from (A) actions taken by Buyer after Closing unless Buyer is required to take such actions under an applicable Tax Law or under this Agreement or (B) Buyer's failure to take actions required to be taken by Buyer under an applicable -16- Tax Law or under this Agreement; any Taxes of a Fairchild Subsidiary with respect to any period that begins before and ends after the Closing Date to the extent such Taxes are allocable to the portion of the period up to the day before the Closing Date; (vi) all of the Seller Entities' liabilities for Taxes that have been or may be incurred as a result of the Seller Entities operation of the Business or ownership of the Purchased Assets before the Closing Date; (vii) any liability allocated to Seller Entities for Taxes incident to or arising from the consummation of the transactions contemplated under this Agreement as set forth in Section 8.3; (viii) any liability for any Taxes of the Seller Entities or of any consolidated, combined or unitary group of which a Seller Entity is or was a member with respect to periods ending on or prior to the Closing Date or beginning prior to and ending after the Closing Date, including (but not limited to) any liability pursuant to Treasury Regulation Section 1.1502-6 or any analogous state, local or foreign tax provisions except to the extent such Taxes result from (A) actions taken by Buyer after Closing unless Buyer is required to take such actions under an applicable Tax Law or under this Agreement or (B) Buyer's failure to take actions required to be taken by Buyer under an applicable Tax Law or under this Agreement; (ix) any liability for Taxes of another Person (other than a Fairchild Subsidiary and other than with respect to withholdings related to payments to another Person after the Closing) resulting from an agreement entered into by any Seller Entity or by any Fairchild Subsidiary prior to the Closing Date, pursuant to which any Seller Entity or any Fairchild Subsidiary has an obligation in respect of the Taxes of such other Person; (x) all of the Specified Liabilities (other than the liabilities and obligations set forth under the heading "Amts to be Assumed by FSC" on Schedule 1-B designated on such schedule to be assumed by Buyer), whether direct or allocated, existing as of the close of business on the Closing Date; (xi) all liabilities in respect of customer returns and allowances, including, without limitation, "ship from stock and debit" liabilities, in respect of Business Products shipped prior to Closing to OEM customers; (xii) any liability allocated to Seller pursuant to Section 5.5; -17- (xiii) any liability or obligation of any Seller Entity or any of its Affiliates for indemnification of, or advancement of expenses or payment of insurance proceeds to, any present or former director or officer of (or other person serving in a fiduciary capacity at the request of) any Seller Entity or any of its Affiliates based upon an actual or alleged breach of fiduciary duty of such person prior to the Closing; (xiv) any Environmental Liabilities; (xv) all liabilities and obligations arising out of, resulting from or relating to claims, whether founded upon negligence, strict liability in tort or other similar legal theory (but not breach of warranty), seeking compensation or recovery for or relating to injury to person or damage to property arising out of the conduct of the Business before Closing; (xvi) any liability or obligation arising out of or relating to any business or product line formerly owned or operated by any Seller Entity or any predecessor thereof but not presently so owned or operated; (xvii) any liability or obligation arising out of, or related to, any indemnification or other provision under any contract or other agreement pursuant to which any sale or disposition was made of any business or product line formerly owned or operated by any Seller Entity or any predecessor thereof but not presently so owned or operated; (xviii) any liability or obligation of any Seller Entity (other than the Fairchild Subsidiaries) or any of its Affiliates (other than the Fairchild Subsidiaries) arising out of matters occurring, or obligations incurred, after the Closing; (xix) any liabilities or obligations of any Seller Entity (other than the Fairchild Subsidiaries) for any professional, financial advisory or consulting fees and expenses incident to or arising out of the negotiation, preparation, approval or authorization of this Agreement, the Recap Agreement, the Operating Agreements and the transactions contemplated hereby or thereby, or any other proposed transaction for the direct or indirect sale of the Business or any portion thereof, including without limitation, the fees, expenses and disbursements of Seller's counsel and accountants (including accountants fees, expenses and disbursements in connection with the preparation of the Business Financial Statements but excluding those to the extent related to the Financing (as defined in the Recap Agreement)) and any liability or obligation to Deutsche Morgan Grenfell or to BA Partners; -18- (xx) the liabilities and obligations of Seller pursuant to Section 2.6(c) and any liability or obligation of any Seller Entity or any of its Affiliates arising out of any Shared Contract; (xxi) any liability or obligation of any Seller Entity or any of its Affiliates to the extent the amount of such liability or obligation is covered by a policy of insurance or other indemnity agreement maintained by or for the benefit of any Seller Entity or any of its Affiliates, unless the rights under such policy of insurance or indemnity agreement have been assigned to Buyer; (xxii) any liability or obligation of any Seller Entity or any of its Affiliates for funded debt and indebtedness for borrowed money, including obligations evidenced by notes, bonds, debentures or similar instruments, and including any guaranties of any of the foregoing provided, however, that funded debt and indebtedness for borrowed money shall not include any lease or deferred payment obligations for property or services; (xxiii) any liability or obligation to which Buyer, any Purchased Assets or the Business becomes subject that would not otherwise constitute an Assumed Liability arising as a result of failure to comply with bulk sales laws or any similar law; (xxiv) any liability or obligation for which Seller has agreed to indemnify Buyer under the Technology Licensing and Transfer Agreement of even date herewith between Buyer and Seller; (xxv) any liability or obligation under the heading "Total Amount Retained by NSC" on Schedule 1-B; and (xxvi) any liability or obligation designated as an Excluded Liability on any Schedule to this Agreement. 2.4. THE CLOSING. The Closing shall take place at the office of Dechert Price & Rhoads, 30 Rockefeller Plaza, New York, New York on the Recap Closing Date (such date and time being herein called the "Closing Date"). The effective time of the transactions contemplated hereby shall be deemed to be the opening of business on the Closing Date. 2.5. PURCHASE PRICE. (a) The purchase price (the "Purchase Price") for the Purchased Assets and the other agreements of Seller stated herein shall be $549.8 million (subject to the adjustments set forth in paragraphs (B), (C) and (D) on Schedule 1 of the Recap Agreement) payable as provided in Section 2.5(b) plus Buyer's assumption of the Assumed Liabilities. The Purchase Price shall be subject to a dollar-for-dollar adjustment to the extent the Closing Inventory Amount is greater or less than $67,342,000 (the "Reference Amount"). -19- (b) The Purchase Price shall be paid as follows: At the Closing Buyer will deliver to Seller Buyer's demand note (and demand notes of Fairchild Subsidiaries) in the aggregate principal amount of $400,960,000 (the "Purchase Price Note") in the form attached hereto as Exhibit 2.5B and a certificate representing 100 shares of Buyer's Common Stock, par value $.01 per share. (c) Within sixty (60) days after the Closing Date, Seller will deliver to Buyer a schedule (the "Closing Inventory Schedule") setting forth the Closing Inventory Amount. The Closing Inventory Schedule shall be prepared in accordance with GAAP applied on a basis consistent in all respects with the accounting principles, policies and methodologies reflected in the May 26, 1996 statement of net assets included in the Business Financial Statements (the "Accounting Principles"). (d) If, within forty-five (45) days after the delivery of the Closing Inventory Schedule, Buyer determines in good faith that the Closing Inventory Schedule has not been prepared in accordance with the Accounting Principles or otherwise disputes any item on the Closing Inventory Schedule, Buyer shall deliver to Seller within such period written notice specifying in reasonable detail all disputed items and the basis therefor (collectively, the "Disputed Items"). The failure by Buyer to provide such notice of Disputed Items to Seller within such period will constitute Buyer's acceptance of the Closing Inventory Schedule. Buyer and Seller shall, within ten (10) days following the delivery of such notice of Disputed Items to Seller (the "Resolution Period"), negotiate in good faith to resolve such Disputed Items to their mutual satisfaction. At the conclusion of the Resolution Period, Seller and Buyer shall refer all unresolved Disputed Items to Coopers & Lybrand, or any other "big six" independent accounting firm (which has not previously been engaged by either Seller or Buyer for the preparation of such party's audited financial statements) as Seller and Buyer shall mutually agree upon (the "Independent Accountant"). The Independent Accountant shall make a determination with respect to each Disputed Item within fifteen (15) days after its engagement by Seller and Buyer to resolve such Disputed Items, which determination shall be made on the basis of whether the Closing Inventory Schedule has been prepared in accordance with the Accounting Principles. All determinations by the Independent Accountant shall be final, binding and conclusive on the parties hereto. Buyer and Seller shall each pay one-half of all of the costs incurred in connection with the engagement of the Independent Accountant. (e) If the Closing Inventory Amount (as determined by the Closing Inventory Schedule and adjusted by the resolution of the Disputed Items, if any) (i) exceeds the Reference Amount, Buyer shall, within ten (10) days after a final determination of the Closing Inventory Amount, pay to Seller by wire transfer of immediately available funds an amount equal to such excess, together with interest on such amount from the Closing Date to the date of such payment at a rate of ten percent (10%) per annum, or (ii) is less than the Reference Amount, Seller shall, within ten (10) days after a final determination of the Closing Inventory Amount, pay to Buyer by wire transfer of immediately available funds an amount equal to such deficiency, together with interest on such amount from the Closing Date to the date of such payment at a rate of ten percent (10%) per annum. Any such adjustment shall be made notwithstanding the fact that the Purchase Price Note may have been repaid. -20- 2.6. CONSENT OF THIRD PARTIES; FURTHER ASSURANCES. (a) From time to time following the Closing, Seller shall execute and deliver, or cause to be executed and delivered, to Buyer such additional instruments of conveyance and transfer as Buyer may reasonably request or as may be otherwise reasonably necessary to more effectively convey or transfer to, and vest in, Buyer and put Buyer in possession of, any part of the Purchased Assets. Nothing in this Agreement shall be construed as an attempt or agreement to assign any asset, contract, lease, permit, license or other right which would otherwise be included in the Purchased Assets but which is by its terms or by law nonassignable without the consent of the other party or parties thereto or any Governmental Authority unless such consent shall have been given, or as to which all the remedies for the enforcement thereof enjoyed by Seller, any other Seller Entity or the Business would not, as a matter of law, pass to Buyer as an incident of the assignments provided for by this Agreement (the "Non-Assignable Assets"). Seller agrees to use its Best Efforts to obtain such consent promptly. At such time as any Non-Assignable Assets is properly assigned to Buyer, such Non-Assignable Asset shall become a Purchased Asset. Following the Closing and until such time as such Non-Assignable Assets may be properly assigned to Buyer, such Non-Assignable Assets shall be held by Seller in trust for Buyer and the covenants and obligations thereunder shall be performed by Buyer in the name of Seller and all benefits and obligations existing thereunder shall be for the account of Buyer. During such period, Seller shall take or cause to be taken such action in its name or otherwise as Buyer may reasonably request, at Buyer's expense, so as to provide Buyer with the benefits of the Non-Assignable Assets and to effect collection of money or other consideration to become due and payable under the Non-Assignable Assets and Seller shall promptly pay over to Buyer all money or other consideration received by it (or its Affiliates) in respect of all Non-Assignable Assets. Following the Closing, Seller authorizes Buyer, to the extent permitted by applicable law and the terms of the Non-Assignable Assets, at Buyer's expense, to perform all of the obligations and receive all of the benefits under the Non-Assignable Assets and appoints Buyer its attorney-in-fact to act in its name on its behalf (and on behalf of its Affiliates) with respect thereto. (b) Notwithstanding anything in this Agreement to the contrary, this Agreement shall not constitute an agreement by Seller to assign or delegate, or by Buyer to assume and agree to pay, perform or otherwise discharge, any Non-Assignable Asset if an attempted assignment, delegation or assumption thereof without the consent of a third Person (including, without limitation, any Governmental Authority) thereto would constitute a breach thereof unless and until such consent is obtained. (c) Except as set forth in Section 2.6(a), Section 2.7 or as provided in the Transition Services Agreement, to the extent reasonably practicable, the Seller Entities shall perform all obligations and be entitled to all the benefits under the Non-Assignable Assets; provided, however, that Seller shall be liable for the failure to perform any such obligation. 2.7. SHARED CONTRACTS. Subject to the terms of the Transition Services Agreement, to the extent any of the Contracts relates both to the Business and to other businesses of the Seller Entities ("Shared Contracts") such Shared Contracts shall not be assigned to Buyer. At Buyer's request, with respect to any Shared Contract, the Seller Entities shall use Best Efforts to obtain the agreement of the other party or parties to any Shared Contract to enter into a separate -21- agreement with Buyer with respect to the matters covered by such Shared Contract that relate to the Business. Buyer shall be responsible for fulfilling the obligations under the Shared Contracts related to or arising from benefits received by Buyer pursuant to the Shared Contracts as contemplated by the Transition Services Agreement. 2.8. APPORTIONMENT AT CLOSING DATE; CUSTOMER BILLING. (a) At the Closing, the parties shall make without duplication customary closing adjustments with respect to the conveyance of the Principal Premises as of the Closing Date and the usual adjustments relating to the Business as of the Closing Date, including prepaid lease payments, security deposits, rents, real estate taxes, local improvements charges, assessments (special and ordinary), sewer impost charges, utility charges, water rents, monthly maintenance charges, rebates and royalties, deposits and prepaid expenses with any public utility or any municipal, governmental or other public authority, wages and any other ongoing charges, and all such payments, taxes and charges shall be apportioned and adjusted as of the Closing Date, and at the Closing the net amount thereof shall be pro rata paid by Seller to Buyer or paid by Buyer to Seller, as the case may be. Any such apportionments and adjustments shall be subject to correction for any errors or omissions that subsequently may be discovered provided that the party discovering such error or omission provides written notice of same to the other party. Such other party shall, within 15 days after receipt of such notice, reimburse the party delivering such notice for the full amount of such error or omission. (b) In the event that Seller or any of its Affiliates receives payment after the Closing Date on invoices issued by Buyer relating to product sold or services rendered on or after the Closing Date, Seller will promptly notify Buyer of such receipt and will promptly remit, or will cause such Affiliate to promptly remit, such payment to Buyer. In the event that Buyer or any Affiliate of Buyer receives payment after the Closing Date on invoices issued by Seller relating to product sold or services rendered prior to the Closing Date that have given rise to accounts receivable that are included in the Excluded Assets, Buyer will promptly notify Seller of such receipt and will promptly remit, or will cause such Affiliate to promptly remit, such payment to Seller. 2.9. WARRANTY CLAIMS. Except as provided in Section 2.3 and this Section 2.9, all of the obligations and liabilities of the Seller Entities with respect to any Business Products transferred to Buyer as part of the Purchased Assets which are shipped or provided by Buyer on or after the Closing shall be for the account of, and exclusively the obligation of Buyer. Buyer shall assume the obligation to satisfy all warranty claims or liabilities with respect to any products or services shipped or provided by Seller prior to the Closing. ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLER Seller represents and warrants to Buyer as follows: 3.1. ORGANIZATION AND AUTHORITY. Seller is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, and has full corporate -22- power and corporate authority to execute and deliver this Agreement and the Operating Agreements and effect the transactions contemplated hereby and thereby and has duly authorized the execution, delivery and performance of this Agreement and the Operating Agreements by all necessary corporate action. Seller has all corporate power and corporate authority necessary to carry on the Business as now conducted and to own or lease and operate its properties as and in the places where such Business is now conducted and such properties are now owned, leased or operated. 3.2. AUTHORIZATION; BINDING OBLIGATION. This Agreement and the Operating Agreements have been duly executed and delivered by Seller, and this Agreement and the Operating Agreements are the valid and legally binding obligations of Seller, enforceable against it in accordance with their terms. 3.3. NO VIOLATIONS. Except as disclosed on Schedule 3.3: (a) The execution, delivery and performance of this Agreement and the Operating Agreements by the Seller Entities and the consummation of the transactions contemplated hereby and thereby do not and will not (i) result in a breach or violation of any provision of Seller's charter or by-laws, (ii) result in a violation of any statute, rule, regulation or ordinance applicable to the Seller Entities, or any one or more of the Principal Premises, which violation, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect or a Material Real Estate Impairment, (iii) subject to the receipt of any consents of third Persons described in clauses (i)-(iii) of Section 3.3(b), violate or result in a breach of or constitute an event of default (or an event which might, upon the passage of time or the giving of notice, or both, constitute an event of default) under any provision of, result in acceleration or cancellation of any obligation under, or give rise to a right by any party to terminate or amend its obligations under, any mortgage, deed of trust, conveyance to secure debt, note, loan, indenture, lien, Material Instrument, material lease, agreement, instrument, order, judgment or decree or other material arrangement or commitment (x) (1) to which any Seller Entity is a party or (2) which primarily relates to the Business or the Purchased Assets and (y) which violation, breach or default could be reasonably expected to have a Material Adverse Effect or a material adverse effect on Seller, taken as a whole, or with respect to Principal Premises, could be reasonably expected to have a Material Real Estate Impairment (iv) violate any order, judgment, decree, rule or regulation of any court or any governmental agency or body (x) having jurisdiction over any Seller Entity or any of its assets or properties, and which violation could be reasonably expected to have a Material Adverse Effect or a material adverse effect on Seller, taken as a whole, or on the performance by Seller of its obligations under this Agreement, or which could be reasonably expected to have a Material Real Estate Impairment and (y) having jurisdiction over the Business or the Purchased Assets. (b) No consent, approval, order or authorization of, or registration, declaration or filing with, any Person is required by any Seller Entity in connection with the execution and delivery of this Agreement, the Operating Agreements or the consummation of the transactions contemplated hereby or thereby, except for (i) any filings required to be made under the HSR Act; (ii) consents of third Persons which are required to transfer or assign to Buyer any Purchased Assets or assign the benefits of or delegate performance with regard thereto, which consents are disclosed on Schedule 3.3; and (iii) such consents, approvals, orders or -23- authorizations, registrations, declarations or filings where failure of compliance would not, individually or in the aggregate, have a Material Adverse Effect or a Material Real Estate Impairment. 3.4. FINANCIAL STATEMENTS. Attached hereto as Schedule 3.4 are the Combined Financial Statements of the Business for the three years ended May 26, 1996 (such financial statements of the Business being referred to collectively herein as the "Business Financial Statements") and the Combined Financial Statements of the Business for the six months ended November 24, 1996 and November 26, 1995 (such financial statements of the Business being referred to collectively herein as the "Interim Financial Statements"). The Business Financial Statements and the Interim Financial Statements have been compiled from and are in all material respects in accordance with Seller's books and records for the Business and (i) fairly present the financial condition, assets and liabilities of the Business as of their respective dates and the results of operations of the Business for the periods then ended; (ii) have been prepared in accordance with GAAP consistently applied; (iii) in the case of the Business Financial Statements, are accompanied by the unqualified opinion of KPMG Peat Marwick; and (iv) conform to the requirements of Regulation S-X of the Securities and Exchange Commission. The Business Financial Statements reflect allocations of expense for certain common support functions performed predominately outside of the Principal Premises, such as general and administrative support and marketing and sales support, which allocations are disclosed on Schedule 3.4 hereto. Since January 1, 1994 the methodology of making such allocations has not changed in any material respect. If the Closing had occurred on September 29, 1996, the Closing Inventory Amount as of such date would not have been less than the mean Closing Inventory Amount for such fiscal year. During the five fiscal years ended May 26, 1996, there has not been any material change in the method of accounting or keeping of books of account or accounting practices with respect to the Business, except as described in Seller's annual reports on Form 10-K for the five fiscal years ended May 26, 1996 as filed with the Securities and Exchange Commission. 3.5. ABSENCE OF CHANGES. Except as disclosed on Schedule 3.5, since May 26, 1996: (a) Seller has (i) conducted the Business only in the usual and ordinary course and (ii) operated the Business in accordance with past practices; (b) there has not been any change (or series of changes) in the business, financial condition or results of operations of the Business, other than changes arising in the ordinary course of business, none of which changes, individually or in the aggregate, has had or reasonably would be expected to have a Material Adverse Effect; (c) no Seller Entity has made or promised to make any increase in any salaries, rates of pay or other compensation or benefits of any Business Employees, except for customary increases and progressions for employees which increases and progressions were made in the ordinary course of business or changes in benefits generally provided to Seller's occupational and/or management employees; -24- (d) the Business has not suffered any damage, destruction or loss of any tangible assets or properties which would have been included as Purchased Assets but for such damage, destruction or loss (whether or not covered by insurance) in excess of $500,000; (e) the Business has not suffered any strike or other labor trouble that has had or would reasonably be expected to have a Material Adverse Effect on the relationship between any Seller Entity and the Business Employees, and has not entered into any material agreement or material negotiation with any labor union or other collective bargaining representative of any Business Employees; (f) there has not been any change or, to the knowledge of Seller, any threat of any change in any of its relations with, or any loss or, to the knowledge of Seller, threat of loss of, any of the suppliers, distributors or customers of the Business which, individually or in the aggregate, has had or reasonably could be expected to have a Material Adverse Effect; (g) other than in the ordinary course, there has not been any cancellation, expiration, non-renewal or waiver of any right under any contract, lease, agreement, license or permit which cancellation, expiration, non-renewal or waiver, has had or could reasonably be expected to have a Material Adverse Effect; and (h) there has not been any sale, transfer or other disposition of, or subjection to any Encumbrance of, any assets, properties or rights of the Business, except for Permitted Encumbrances, Permitted Fee Title Exceptions, Permitted Leasehold Exceptions, sales of inventory or obsolete or damaged equipment or retirement of equipment, in each case in the ordinary course of business, and sales of equipment to third Persons other than in the ordinary course of business in an aggregate amount less than $500,000. 3.6. ASSETS. Except as disclosed on Schedule 3.6, the Seller Entities have and upon consummation of the transactions contemplated by this Agreement, Buyer (or the Fairchild Subsidiaries, as the case may be) will have good and marketable title to, or leasehold interest in, all of the Purchased Assets (other than the Non-Assignable Assets) free and clear of any Encumbrance except for (i) Permitted Encumbrances, Permitted Fee Title Exceptions and Permitted Leasehold Exceptions; (ii) mechanics', materialmen's, carriers', workmen's, warehousemen's, repairmen's, landlords' or other like liens securing obligations that are not delinquent; and (iii) liens for taxes and other governmental charges which are not due and payable or which may be paid without penalty. 3.7. PERSONAL PROPERTY. Except as set forth on Schedule 3.7, to Seller's knowledge, the items of personal property included in the Purchased Assets and presently and actively used in the operation of the Business are in good operating condition, free of any defects (except those resulting from normal wear and operation) which individually or in the aggregate, reasonably could be expected to have a Material Adverse Effect. 3.8. PERMITS, LICENSES. (a) Except as set forth on Schedule 2.1I, Schedule 3.8 or Schedule 3.12, there are no material Governmental Permits, licenses, certificates of inspection or other authorizations, necessary for or used to carry on the Business as now being conducted or to use and occupy any one or more of the Principal Premises as now being used, which are -25- required by currently effective laws, rules or regulations, other than, in each case, those Governmental Permits, licenses, certificates of inspection or other authorizations the absence of which, individually or in the aggregate, could not reasonably be expected to have a (i) Material Adverse Effect on the Business as now being conducted, or (ii) Material Real Estate Impairment with respect to the use and occupancy of any one or more of the Principal Premises as now being used. (b) Except as set forth on Schedule 2.1I or Schedule 3.12, there are no material Governmental Permits, licenses, certificates of inspection or other authorizations, necessary for the division of the existing facility owned by Seller Entities in South Portland, Maine into two parcels of real estate, one of which shall be owned by Buyer and constitute Owned Real Estate as listed on Schedule 2.1A (the "Portland Facility") or the conduct of the Business, as contemplated subsequent to the Closing, or the use and occupancy of the Portland Facility as contemplated subsequent to the Closing, which are required by currently effective laws, rules or regulations other than, in each case, those Governmental Permits, licenses, certificates of inspection or other authorizations, the absence of which, individually or in the aggregate, could not reasonably be expected to have a (i) Material Adverse Effect on the Business at the Portland Facility as contemplated subsequent to the Closing, or (ii) Material Real Estate Impairment with respect to the use and occupancy of the Portland Facility as contemplated subsequent to the Closing. 3.9. COMPLIANCE WITH LAWS AND LITIGATION. (a) Except as set forth on Schedule 3.9, with respect to the Business and the Principal Premises, the Seller Entities are in compliance with all applicable laws, rules, regulations, ordinances, decrees, orders, judgments, permits and licenses of or from governmental authorities, including, without limitation, those relating to the use and operation of any one or more of the Principal Premises, except for such failures or non-compliance which, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect or a Material Real Estate Impairment. Except as set forth on Schedule 3.9, there are no actions, suits, proceedings or governmental investigations pending or, to the knowledge of Seller, threatened against it with respect to the Business or the Purchased Assets which individually or in the aggregate, could be reasonably expected to have a Material Adverse Effect or a Material Real Estate Impairment. (b) Except as set forth on Schedule 3.9, with respect to the Business contemplated to be conducted at the Portland Facility subsequent to the Closing, the Seller Entities will be in compliance with all applicable laws, rules, regulations, ordinances, decrees, orders, judgments, permits and licenses of or from governmental authorities, including, without limitation, those relating to the use and operation of the Portland Facility contemplated subsequent to the Closing, except for such failures or non-compliance which, individually or in the aggregate, could not reasonably be expected to have a (i) Material Adverse Effect on the Business at the Portland Facility as contemplated subsequent to the Closing, or (ii) Material Real Estate Impairment with respect to the use and occupancy of the Portland Facility as contemplated subsequent to the Closing. Except as set forth on Schedule 3.9, there are no actions, suits, proceedings or governmental investigations pending or, to the knowledge of Seller, threatened against it with respect to the contemplated division of the Portland Facility or with respect to the Business contemplated to be conducted at the Portland Facility subsequent to the Closing, which -26- individually or in the aggregate, could be reasonably expected to have a Material Adverse Effect or a Material Real Estate Impairment. 3.10. EMPLOYEES. (a) Schedule 3.10 lists the names, job title, date of hire or seniority date, and assigned location of all Business Employees (designated as union-represented or not) as of its date, which date is not earlier than the last day of the fiscal period ending not more than six weeks prior to the date hereof. Except as set forth on Schedule 3.10, all individuals whose primary responsibility relates to, and who are employed in the conduct of, the Business are employed by the Seller Entities and there are no other such individuals (including "leased employees" as defined in Section 414(n) of the Code) whose continued services are material to the Business as a whole. None of the Business Employees is covered by any union, collective bargaining or similar agreements. Seller has provided Buyer with a true and correct copy of the current collective bargaining agreements affecting the Business Employees. Except as set forth on Schedule 2.1F, there are no written employment or consulting agreements that constitute an Assumed Contract. (b) Except as disclosed in Schedule 3.10 and except for any of the following that individually or in the aggregate could not reasonably be expected to have a Material Adverse Effect: (i) there is no unfair labor practice charge pending or, to the knowledge of Seller, threatened against any Seller Entity relating to any of the Business Employees; (ii) there is no labor strike or stoppage relating to any of the Business Employees actually pending or, to the knowledge of Seller, threatened against or involving any Seller Entity; (iii) no material labor grievance relating to any of the Business Employees is pending or, to the knowledge of Seller, threatened; (iv) the Seller Entities have not in the past three years experienced any work stoppage relating to any of the Business Employees; (v) to the knowledge of Seller, within the past two years, the Seller Entities have not been the subject of any union organizational campaign with respect to any of the Business Employees; (vi) no Seller Entity has any material labor negotiations in process with any labor union or other labor organization relating specifically to the Business Employees; and (vii) to the knowledge of Seller, there are no efforts in process by unions to organize any Business Employees who are not now represented by recognized collective bargaining agents. 3.11. AGREEMENTS. Schedule 2.1F contains a complete and correct list of all outstanding Contracts (other than the Excluded Contracts) (a) which have unexpired terms of more than one (1) year and cannot be terminated by the Seller Entity which is a party thereto without penalty or payment on thirty (30) days notice or less; (b) which would require over the full term thereof payments by or to any Seller Entity or the Business of more than $250,000; or (c) pursuant to which there were payments by or to any Seller Entity or the Business of more than $250,000 for the calendar year ended December 31, 1995. True and correct copies of the Contracts (other than the Excluded Contracts) listed on Schedule 2.1F have been delivered or made available to Buyer. Each of such Contracts is valid, binding and enforceable against the Seller Entity which is a party thereto, and to the knowledge of Seller, the other parties thereto, in accordance with its terms and is in full force and effect, except those the absence of which could not reasonably be expected to have a Material Adverse Effect. Except as set forth in Schedule 2.1F or Schedule 3.11, the Seller Entities, and to the knowledge of Seller, each of the other parties thereto, have performed in all material respects all obligations required to be performed by them under, and are not in default in any material respect under, any of such -27- Contracts and no event has occurred which, with notice or lapse of time, or both, would constitute such a default, except for any such defaults which could not reasonably be expected to have a Material Adverse Effect. Except as disclosed on Schedule 2.1F or Schedule 3.11, no Seller Entity has received any written claim from any other party to any such Contract that any Seller Entity has breached any obligations to be performed by it thereunder, or is otherwise in default or delinquent in performance thereunder, except any of the foregoing which could not reasonably be expected to have a Material Adverse Effect. There are no agreements not to compete binding upon any Seller Entity which affect or restrict the conduct of the Business as currently conducted by the Seller Entities or could reasonably be expected to affect or restrict the conduct of the Business as currently conducted by the Seller Entities by Buyer (or any Fairchild Subsidiary) after the Closing. 3.12. ENVIRONMENTAL MATTERS. Seller represents and warrants that in relation to the Business and except as disclosed on Schedule 3.12 and except as could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on the Business as a whole: (a) The Seller Entities and their Affiliates have conducted and are now conducting the Business in compliance with all applicable foreign, federal, state and local environmental and employee protection laws, rules, regulations, the common law, judgments orders, consent agreements, work practices and standards in existence on the Closing Date ("Environmental Laws") and, to Seller's knowledge, have conducted the Business in compliance with environmental laws that existed prior to the Closing Date. (b) The Seller Entities hold and are and have been in compliance with all permits, certificates, licenses, approvals, registrations and authorizations required under Environmental Laws ("Environmental Permits"), and all such Environmental Permits are in full force and effect and are transferable or assignable to Buyer. The Seller Entities have made or will make before the Closing timely application or notification for the renewal of all Environmental Permits for which Environmental Laws require that applications or notices must be filed on or before the Closing to maintain the Environmental Permits in full force and effect up to and through the Closing. Seller and Buyer will use their respective Best Efforts to obtain any and all material consents, approvals, authorizations, transfers, assignments or issuances of such Environmental Permits to the Buyer before the Closing. Schedule 3.12 lists all such material Environmental Permits and identifies whether such permits are transferrable or assignable. (c) No Seller Entity nor any of its subsidiaries or affiliates uses, possesses, generates, treats, manufactures, processes, handles, stores, recycles, transports or disposes of ("Manage" or "Management") Hazardous Materials in connection with the operations of the Business in quantities or in a manner which requires a treatment, storage or disposal permit or which imposes generator requirements under the Resource Conservation and Recovery Act, as amended ("RCRA") or any similar Environmental Laws. (d) No Seller Entity nor any of its Affiliates has received any written notice, citation, summons, order or complaint, no penalty has been assessed or is pending or, to the knowledge of Seller or any of its Affiliates, threatened by any third party including any -28- Governmental Authority or other entity with respect to the Management or Release of Hazardous Materials by or on behalf of any Seller Entity, its Affiliates in relation to the Business or exposure to such Hazardous Materials. No Seller Entity nor any of its Affiliates has received any written and, to the best of their knowledge after due inquiry, no one else has received any requests for information, notices of claim, demands or other notifications that it or they are or may be potentially responsible with respect to any investigation or cleanup of Hazardous Materials Released or Managed at the Principal Premises or at any other property owned, operated or leased by any Seller Entity or any of its Affiliates in connection with the Business or at any other property, facility or off-site location to which the Hazardous Materials Released or Managed by any Seller Entity or any of its Affiliates in connection with the Business have been transported or disposed of or have come to be located. (e) To Seller's knowledge, no Hazardous Materials have been released, spilled, leaked, discharged, disposed of, pumped, poured, emitted, emptied, injected, leached, dumped or allowed to escape ("Released") at, on, about, under or from the Principal Premises or any property now or formerly owned, operated or leased by any Seller Entity or any of its Affiliates in connection with the operation of the Business. (f) All environmental audits or reports conducted in relation to the Principal Premises or in connection with the operation of the Business thereat (collectively, "Environmental Audits") which are in the possession or control of Seller have been provided or made available to Buyer. (g) To the knowledge of Seller, no Seller Entity nor any of its subsidiaries or affiliates has retained or assumed, by contract, law or otherwise, any liability or responsibility for any environmental claims or conditions with respect to the Business or the Purchased Assets. (h) For purposes of this Section 3.12, "Principal Premises" shall be deemed to include the Principal Premises and any Purchased Assets located thereat and includes all environmental media on which or in which the Principal Premises are located. 3.13. NO UNDISCLOSED LIABILITIES. None of the Seller Entities (with respect to the Businesses) has any liability or obligation of any nature, whether due or to become due, absolute, contingent or otherwise, including liabilities for or in respect of federal, state and local taxes and any interest or penalties relating thereto, which has had or would reasonably be expected to have a Material Adverse Effect, except (a) to the extent reflected as a liability on the Combined Financial Statement as of May 26, 1996 included in the Financial Statements, (b) liabilities incurred in the ordinary course of business since May 26, 1996 and fully reflected as liabilities on the Business' books of account, none of which, individually or in the aggregate, has been materially adverse to the Business taken as a whole and (c) liabilities disclosed on Schedule 3.13. 3.14. WARRANTY CLAIMS. The Seller Entities have paid (whether in money, property or services) claims relating to breaches of express or implied warranties (excluding claims founded upon negligence, strict liability in tort or other similar legal theory) made with respect to Business Products for the years ended May 26, 1996, May 28, 1995 and May 29, 1994 in amounts not in excess of 2% of sales of the Business for such years, respectively. Except as -29- set forth on Schedule 3.14, there are no pending or, to the knowledge of Seller, threatened claims for the breach of any express or implied warranty made with respect to Business Products, except for individual claims which involve claims for money, property or services of less than $50,000. 3.15. INVENTORY; PURCHASED ASSETS. Except as set forth on Schedule 3.15: (a) All Inventory is located at the locations specified on Schedule 2.1E and all such Inventory that is not located on the Principal Premises is identified as belonging to the Business. (b) The Purchased Assets, taken together with the Non-Assignable Assets (the extent to which Buyer will receive the benefits thereof under Section 2.6) and Buyer's rights under the Operating Agreements, constitute substantially all of the assets, properties, agreements, licenses (other than the Non-Assignable Patent Licenses), intellectual property and other rights which are necessary to enable Buyer after the Closing to manufacture the Business Products in a manner consistent with the Seller Entities' past practice, furnish Business Services or otherwise operate the Business after the Closing. (c) No Seller Entity nor any of its subsidiaries has received any written notice of any infringement or violation of, or conflict with, any intellectual property rights of any third Person by the Seller Entities or any of their subsidiaries in connection with the conduct of the Business which could reasonably be expected to have a Material Adverse Effect. 3.16. REAL ESTATE. (a) OWNED PROPERTY. (i) Schedule 2.1A sets forth a list of all of the real estate owned by any one or more of the Seller Entities and primarily used in the Business (such real estate, together with all beneficial, appurtenant easements and other appurtenances thereto and with all fixtures attached thereto or forming a part thereof, is collectively referred to herein as the "Owned Real Estate"), and includes the street address and legal description of each parcel of the Owned Real Estate. Seller has good, valid, marketable and indefeasible fee simple title to the Owned Real Estate, including the buildings, structures, fixtures and improvements situated thereon or forming a part thereof and the appurtenances thereto, subject to the Permitted Fee Title Exceptions. Seller has made available to Buyer copies of all (i) title reports, title insurance policies and commitments therefore, (ii) surveys, (iii) documents and instruments creating or governing appurtenances, and (iv) licenses, certificates of occupancy, plans, specifications and permits, pertaining to the Owned Real Estate that are in the possession or control of any of the Seller Entities. (ii) The Owned Real Estate is free and clear of all Encumbrances, including, without limitation, security interests, any conditional sale or other title or interest retention agreements or arrangements, options to purchase, rights of first refusal, liens, encumbrances, mortgages, pledges, assessments, easements, covenants, restrictions, reservations, defects in title, encroachments and other burdens, leases, subleases, rights of occupancy, deed restrictions, chattel mortgages and collateral security arrangements, rights of way, building use restrictions, exceptions, variances or reservations of any nature whatsoever, except for the -30- following (collectively, "Permitted Fee Title Exceptions"): (a) any Encumbrances or title defects, conditions, easements, covenants or restrictions, if any, none of which, individually or in the aggregate, would reasonably be expected to have a Material Real Estate Impairment or which would cause such Owned Real Estate to be unmarketable or uninsurable at customary title insurance rates, (b) zoning or land use ordinances (subject to the compliance obligations under Section 3.8 and 3.9), (c) liens for ad valorem real property taxes and assessments not yet due and payable, (d) with respect to the Portland Facility only, the Shared Facilities Agreement relating to such shared facility, and (e) with respect to the Seller's facility in Santa Clara, California only, the Shared Services and Occupancy Agreement relating to such shared facility. The Owned Real Estate is also subject to those matters set forth on Schedule 2.1-A, but unless such matters otherwise qualify under clauses (a) through (c) above, such matters shall not be deemed to be Permitted Fee Title Exceptions. (iii) No Seller Entity has received written notice from any governmental authority, insurance company which has issued a policy with respect to any of the Owned Real Estate or any board of fire underwriters or other body performing similar functions or any other Person which (a) relates to or alleges a violation of or nonconformity with any zoning, building, safety, subdivision, wetlands or other similar law, code, rule, regulation, ordinance, permit, license, certificate, covenant, restriction or condition with respect to any of the Owned Real Estate or the use thereof which nonconformity could, either individually or in the aggregate, reasonably be expected to have a Material Real Estate Impairment, or (b) requests the performance of any repairs, alterations or other work to or in any of the Owned Real Estate, which violations, repairs, alterations or other work have not yet been cured or performed, as applicable; which failure to perform such work, either individually or in the aggregate, would reasonably be expected to have a Material Real Estate Impairment. There is no pending condemnation, expropriation, eminent domain, or similar proceeding affecting any of the Owned Real Estate and, to the knowledge of Seller, no such action, proceeding or litigation is threatened which proceeding or litigation, if concluded adversely to Seller Entities, would reasonably be expected to have a Material Real Estate Impairment. The sale of the Owned Real Estate to Buyer does not and will not violate or conflict with the requirements of any subdivision plan currently applicable to the Owned Real Estate. (b) REAL ESTATE LEASES. (i) Schedule 3.16 sets forth a list of all of the leases or rights of occupancy pursuant to which the Seller Entities (or any of them) lease or sublease any real property or interest therein related to or used in the Business (collectively, as heretofore modified, amended or extended, the "Leases"), including the identification of each of the lessors thereof and the street addresses of all of the real estate demised under any of the Leases (collectively, the "Leased Real Estate"). Except as set forth on Schedule 3.16, one or more of the Seller Entities is the lessee under all Leases, and no party other than one or more of the Seller Entities has any right to possession, occupancy or use of any of the Leased Real Estate. Copies of (a) leasehold title insurance policies and commitments therefor, title reports, surveys, licenses, certificates of occupancy, plans, specifications, permits and other documents, pertaining to the Leased Real Estate, if any, that are in the possession or control of any of the Seller Entities, and (b) each of the Leases, including all amendments, modifications and extensions, and together with all subordination, non-disturbance and/or attornment agreements or any brokerage commission agreements related thereto, and (c) any other material agreements relating to the Leases have been made available by Seller to Buyer. Each of the Leases is valid and in -31- full force and effect and is binding and enforceable in accordance with its terms. Except as set forth on Schedule 3.16-1, none of the Seller Entities has received any written notice of any material default under any provision of any of the Leases which default remains uncured. There is no material default by any Seller Entity in the payment of rent under any Lease beyond any applicable notice and cure period. None of the Seller Entities has given notice to any other party to any of the Leases that such party is in default under any of the provisions thereof which default remains uncured. (ii) Except as set forth in Schedule 3.16, the Seller Entities are in actual possession of the Leased Real Estate. The Seller Entities have good and valid title to all the leasehold estates conveyed under the Leases free and clear of all Encumbrances, including, without limitation, security interests, any conditional sale or other title or interest retention agreements or arrangements, options to purchase, rights of first refusal, liens, encumbrances, mortgages, pledges, assessments, easements, covenants, restrictions, reservations, defects in title, encroachments and other burdens, leases, subleases, rights of occupancy, deed restrictions, chattel mortgages and collateral security arrangements, rights of way, building use restrictions, exceptions, variances or reservations of any nature whatsoever, except for the following (collectively, "Permitted Leasehold Exceptions"): (a) zoning or land use ordinances (subject to the compliance obligations under Sections 3.8 and 3.9), (b) liens for ad valorem real property taxes and assessments not yet due and payable, (c) with respect to the Portland Facility only, the Shared Facilities Agreement relating to such shared facility, (d) with respect to Seller's Santa Clara, California facility only, the Shared Services and Occupancy Agreement relating to such shared facility, and (e) any Encumbrances or title defects, conditions, easements, covenants or restrictions effecting or encumbering the fee interest of the Leased Real Estate, none of which, either individually, or in the aggregate, would reasonably be expected to have a Material Real Estate Impairment. The Leased Real Estate is also subject to those matters set forth on Schedule 3.16, but unless such matters otherwise qualify under clause (a), (b), and (e) above, such matters will not be deemed to be Permitted Leasehold Exceptions. (iii) No Seller Entity has received written notice from any governmental authority, insurance company which has issued a policy with respect to any of the Leased Real Estate or any board of fire underwriters or other body performing similar functions or any other Person which (a) relates to or alleges a violation of or nonconformity with any zoning, building, safety, subdivision, wetlands or other similar law, code, rule, regulation, ordinance, permit, license, certificate, covenant, restriction or condition with respect to any of the Leased Real Estate or the use thereof which nonconformity could, either individually or in the aggregate, reasonably be expected to have a Material Real Estate Impairment, or (b) requests the performance of any material repairs, alterations or other work to or in any of the Leased Real Estate, which violations repairs, alterations or other work have not yet been cured or performed, as applicable; which failure to perform such work, either individually or in the aggregate, would reasonably be expected to have a Material Real Estate Impairment. There is no pending condemnation, expropriation, eminent domain, or similar proceeding affecting any of the Leased Real Estate and, to the knowledge of Seller, no such action, proceeding or litigation is threatened, which proceeding or litigation if concluded adversely to the Seller Entities would reasonably be expected to have a Material Real Estate Impairment. -32- (iv) Except as set forth on Schedule 3.16, there are no brokerage commissions or finder's fees due from any of the Seller Entities which are currently due and unpaid with regard to any of the Leases or the Leased Real Estate, or which will become due at any time in the future with regard to the Leases or the Leased Real Estate. (v) Except as set forth on Schedule 3.16, there have been no casualties which could result in the termination by any landlord pursuant to the terms of such lease, or pursuant to the written agreement of the landlord and tenant. 3.17. OWNERSHIP OF SUBSIDIARIES. Except for the Fairchild Subsidiaries, the Purchased Assets do not include the stock of, or any other equity or debt interest in, any other corporation or business entity. Each Fairchild Subsidiary is (or will be prior to Closing) a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation, which jurisdiction is set forth opposite its name on Schedule 3.17. Each Fairchild Subsidiary has (or will have prior to Closing) all requisite power and authority to own or lease its properties and assets as now owned or leased and to carry on its business as and where now being conducted, except for any failure to have such power and authority which could not reasonably be expected to have a Material Adverse Effect. The copies of the articles of incorporation and bylaws, as amended to date, of each Fairchild Subsidiary in existence as of the date hereof and which have been delivered to Buyer, are correct and complete and are in full force and effect. The currently authorized, issued and outstanding shares of capital stock of each Fairchild Subsidiary in existence on the date hereof and the record holders as of the date hereof of such shares are set forth on Schedule 3.17. All of such outstanding shares have been (or will be prior to Closing) duly authorized, validly issued and are fully paid and nonassessable, are directly or indirectly owned by Seller free and clear of all liens, claims, security interests, pledges, charges, equities, options, restrictions and encumbrances of whatsoever nature, were not issued in violation of the terms of any agreement or other understanding binding upon any Fairchild Subsidiary or Seller, and were issued in compliance with all applicable federal and state securities or "blue sky" laws and regulations. There are no outstanding options, warrants, rights, agreements, calls, commitments or demands of any character relating to the capital stock of any Fairchild Subsidiary and no securities convertible into or exchangeable for any of such capital stock. 3.18. TAX MATTERS. Except as set forth on Schedule 3.18 and except as could not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect: (a) The Seller Entities have (A) filed or provided all Returns required to be filed or provided with respect or relating to, in connection with or arising out of the Business and each Return is true, complete and accurate, (B) timely paid all Taxes shown thereon as due and owing with respect or relating to, in connection with or arising out of the Business, and (C) in accordance with GAAP has provided for, on its books of account and related records, liability for all other current Taxes not yet paid with respect to, or in connection with or arising out of the Business. To Seller's knowledge, no Seller Entity has received from any Governmental Authority any written notice of proposed adjustment, deficiency or underpayment of Taxes with respect to, or in connection with or arising out of the Business, which notice has not been satisfied by payment or been withdrawn, and there are no claims that have been asserted or threatened in writing relating to such Taxes against any Seller Entity. -33- (b) There are no liens with respect to Taxes upon the Purchased Assets other than customary liens for current Taxes not yet due and payable. (c) Each Fairchild Subsidiary has (A) duly filed or provided, or has had filed or provided on its behalf, all Returns required to be filed by it, and each such Return is true, complete and accurate; (B) paid, or has had paid on its behalf, all Taxes shown to have become due pursuant to such Returns; and (C) in accordance with GAAP has provided for, on its books of account and related records, liability for all other current Taxes not yet paid. (d) To the knowledge of Seller, there is no action, suit, proceeding or claim currently pending regarding Taxes with respect to any Fairchild Subsidiary. No Return of any Fairchild Subsidiary is being examined by, and no written notification of intention to examine has been received from, any Governmental Authority. No issue raised by any Governmental Authority in connection with any Return with respect to Taxes of any Fairchild Subsidiary is currently pending. No presently effective waiver or extension of any statute of limitation with respect to Taxes has been given by or requested from any Fairchild Subsidiary. (e) There is no ruling issued to any Fairchild Subsidiary (or closing agreement to which any Fairchild Subsidiary is a party) concerning Taxes from (or with) any Governmental Authority which would have continuing material effect on any Fairchild Subsidiary after the Closing Date. (f) No Fairchild Subsidiary is a party to any tax sharing or similar agreement in respect of Taxes of a Person other than a Fairchild Subsidiary. (g) None of the Fairchild Subsidiaries has reported or expects to report income, loss, deduction or credit in its capacity as a partner in another entity for federal income tax purposes. (h) Each Seller Entity is a United States person within the meaning of Section 7701(a)(30) of the Code. (i) There is no lien or security interest in favor of any Governmental Authority on any of the assets of any Fairchild Subsidiary that arose in connection with the failure (or alleged failure) to pay any Tax except for customary liens for current Taxes not yet due and payable. The representations and warranties set forth in this Section 3.18 are not applicable to the extent that such Taxes do not constitute an encumbrance against the Purchased Assets or will not become a liability of FSC Semiconductor Corporation, Buyer or any of the Fairchild Subsidiaries. 3.19. EMPLOYEE BENEFIT PLANS. (a) Schedule 3.19(a) lists all "employee benefit plans," as defined in Section 3(3) of ERISA (including any "multiemployer plan" as defined in Section 3(37) of ERISA) and all other material pension, profit sharing, retirement, supplemental retirement, stock, stock option, basic and supplemental accidental death and dismemberment, basic and supplemental life and health insurance, post-retirement medical or life, welfare, dental, -34- vision, savings, bonus, deferred compensation, incentive compensation, business travel and accident, holiday, vacation, severance pay, salary continuation, sick pay, sick leave, short and long term disability, tuition refund, service award, company car, scholarship, relocation, patent award, fringe benefit and other employee benefit plans, arrangements, contracts, or policies, qualified or unqualified, funded or unfunded, (i) maintained, contributed to, or required to be contributed to by Seller or any ERISA Affiliate with respect to any Business Employees, or (ii) pursuant to which Seller or any ERISA Affiliate may have any liability with respect to any Business Employees, within the United States (the "Benefit Plans"). (b) As applicable, with respect to each of the Benefit Plans, true and complete copies of (i) all plan documents (including all amendments and modifications thereof) and all related trust agreements and insurance contracts; (ii) the last three filed Form 5500 series and all Schedules thereto, as applicable; (iii) the current summary plan descriptions and all summary material modifications thereto; and (iv) the most recent determination letter issued with respect to each Benefit Plan has been delivered or made available to Buyer. (c) Each Benefit Plan has been maintained, operated and administered in compliance in all material respects with its terms and the applicable provisions of ERISA and the Code. (d) No Benefit Plan is subject to Title IV of ERISA. (e) Seller's Retirement and Savings Program is the only Benefit Plan which is an "employee pension benefit plan" within the meaning of Section 3(2) of ERISA and which is intended to meet the qualification requirements of Section 401(a) of the Code (the "Pension Plan"). The Pension Plan meets the qualification requirements of Section 401(a) of the Code and each related trust is exempt from taxation under Section 501(a) of the Code. (f) The Pension Plan has received a determination letter from the IRS to the effect that such Pension Plan is qualified and all related trusts are exempt from federal income taxes and no determination letter with respect to the Pension Plan has been revoked nor has the Pension Plan been amended since the date of its most recent determination letter in any respect which would adversely affect its qualification. (g) There are no pending audits or investigations by any governmental agency involving the Benefit Plans, and no threatened or pending claims (except for individual claims for benefits payable in the normal operation of the Benefit Plans), suits or proceedings involving any Benefit Plan. (h) With respect to each Benefit Plan that is a "group health plan" within the meaning of Section 607 of ERISA and that is subject to Section 4980B of the Code, Seller and each ERISA Affiliate comply in all material respects with the continuation coverage requirements of the Code and ERISA with respect to Business Employees and their eligible beneficiaries and dependents. -35- (i) Except as set forth in Schedule 3.19(i), no Benefit Plan provides medical or life insurance benefits, beyond termination of service or retirement other than coverage mandated by law. (j) Except as set forth on Schedule 3.19(j), the execution of, and performance of the transactions contemplated by this Agreement will not constitute an event under any Benefit Plan that will result in any payment (whether as severance pay or otherwise), acceleration, vesting or increase in benefits with respect to any employee. No Benefit Plan provides for "parachute payments" within the meaning of Section 280G of the Code. (k) Schedule 3.19(k) lists all material pension, profit sharing, retirement, supplemental retirement, stock, stock option, basic and supplemental accidental death and dismemberment, basic and supplemental life and health insurance, post-retirement medical or life, welfare, dental, vision, savings, bonus, deferred compensation, incentive compensation, business travel and accident, holiday, vacation, severance pay, salary continuation, sick pay, sick leave, short and long term disability, tuition refund, service award, company car, scholarship, relocation, patent award, fringe benefit and other employee benefit plans, arrangements, contracts or policies, whether funded or unfunded (i) maintained, contributed to, or required to be contributed to by Seller or any Affiliate with respect to any Business Employees, or (ii) pursuant to which Seller or any Affiliate may have any liability with respect to any Business Employees, outside the United States (the "Foreign Plans"). Schedule 3.19(k)(i) lists all the Foreign Plans that are not sponsored by a Fairchild Subsidiary (a "Non-Subsidiary Foreign Plan"). (l) A true and complete copy of each Foreign Plan including all amendments and modifications thereof together with all related trust agreements and insurance contracts have been delivered or made available to Buyer. (m) Except as set forth on Schedule 3.19(m), each Foreign Plan has been maintained, operated and administered in compliance in all material respects with its terms and with all applicable laws. (n) All contributions and other payments required to be made by Seller or any Affiliate to any Foreign Plan with respect to any period up to and including the Closing Date shall have been made or accrued and booked on or before the Closing Date. (o) There are no pending audits or investigations by any governmental or quasi-governmental agency involving the Foreign Plans and no threatened or pending claims (except for individual claims for benefits payable in the normal operation of the Foreign Plan), suits or proceedings involving any Foreign Plan. 3.20. No Implied Representation. NOTWITHSTANDING ANYTHING CONTAINED IN THIS ARTICLE III OR ANY OTHER PROVISION OF THIS AGREEMENT BUYER AND SELLER ACKNOWLEDGE AND AGREE THAT NONE OF SELLER OR ANY OF ITS AFFILIATES, AGENTS, EMPLOYEES OR REPRESENTATIVES IS MAKING, WHETHER CONTAINED IN OR REFERRED TO IN THE EVALUATION MATERIALS THAT HAVE BEEN OR SHALL HEREAFTER BE PROVIDED TO BUYER OR ANY OF ITS -36- AFFILIATES, AGENTS OR REPRESENTATIVES (INCLUDING WITHOUT LIMITATION THE CONFIDENTIAL OFFERING MEMORANDA RELATING TO THE BUSINESS (THE "CONFIDENTIAL OFFERING MEMORANDA") (SUCH MATERIALS COLLECTIVELY, THE "EVALUATION MATERIALS")), ANY REPRESENTATION OR WARRANTY WHATSOEVER, EXPRESS OR IMPLIED, BEYOND THOSE EXPRESSLY GIVEN BY SELLER IN THIS AGREEMENT, THE RECAP AGREEMENT AND THE OPERATING AGREEMENTS, INCLUDING BUT NOT LIMITED TO ANY IMPLIED WARRANTY OR REPRESENTATION AS TO THE VALUE, CONDITION, MERCHANTABILITY OR SUITABILITY AS TO ANY OF THE PROPERTIES OR ASSETS OF THE BUSINESS CARRIED OUT BY SELLER. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BUYER Buyer represents and warrants to Seller that: 4.1. Organization and Authority. Buyer is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, and has full corporate power and corporate authority to execute and deliver this Agreement, the Purchase Price Note and the Operating Agreements and to effect the transactions contemplated hereby and thereby and has duly authorized the execution, delivery and performance of this Agreement, the Purchase Price Note and the Operating Agreements by all necessary corporate action. Buyer has all corporate power and corporate authority necessary to carry on its business as now being conducted and to own or lease and operate its properties as and in the places where such business is now conducted and such properties are now owned, leased or operated. 4.2. Authorization; Binding Obligation. This Agreement, the Purchase Price Note and the Operating Agreements have been duly executed and delivered by Buyer and this Agreement, the Purchase Price Note and the Operating Agreements are the valid and legally binding obligations of Buyer, enforceable against it in accordance with their terms. 4.3. No Violations. (a) The execution, delivery and performance of this Agreement, the Purchase Price Note and the Operating Agreements by Buyer and the consummation of the transactions contemplated hereby and thereby do not and will not (i) result in a breach or violation of any provision of Buyer's charter or by-laws or in a material violation of any statute, rule, regulation or ordinance applicable to Buyer or (ii) violate or result in a breach of or constitute an event of default (or an event which might, upon the passage of time or the giving of notice, or both, constitute an event of default) under any provision of, result in acceleration or cancellation of any obligation under, or give rise to a right by any party to terminate or amend its obligations under, any mortgage, deed of trust, conveyance to secure debt, note, loan, indenture, lien, material lease, agreement, instrument, order, judgment, decree or other material arrangement or commitment to which Buyer is a party or by which its assets or properties are bound, or violate any order, judgment, decree, rule or regulation of any court or any governmental agency or body having jurisdiction over Buyer or any of its assets or properties. -37- (b) No consent, approval, order or authorization of or registration, declaration or filing with, any Person is required by Buyer in connection with the execution and delivery of this Agreement, the Purchase Price Note, the Operating Agreements or the consummation of the transactions contemplated hereby or thereby, except for (i) any filings required to be made under the HSR Act, and (ii) such consents, approvals, orders or authorizations, registrations, declarations or filings where failure of compliance would not, individually or in the aggregate, have a material adverse effect on the ability of Buyer to consummate the transactions contemplated hereby. 4.4. Inspections; Limitation of Seller's Warranties. Buyer is an informed and sophisticated participant in the transactions contemplated by this Agreement and has undertaken such investigation, and has been provided with and has evaluated certain documents and information in connection with the execution, delivery and performance of this Agreement. Buyer acknowledges that it is acquiring the Business without any representation or warranty, express or implied, by Seller or any of its Affiliates except as expressly set forth herein, in the Recap Agreement and in the Operating Agreements. In furtherance of the foregoing, and not in limitation thereof, Buyer acknowledges that, except as expressly set forth herein, in the Recap Agreement and in the Operating Agreements, no representation or warranty, express or implied, of Seller or any of its advisors, including, without limitation, Deutsche Morgan Grenfell, BA Partners, Seller's lawyers (other than the opinions of such lawyers delivered in connection with this Agreement), KPMG Peat Marwick (except in connection with financial statements prepared by such accountants accompanied by an opinion of such accountants thereon) or any of their respective Affiliates or representatives, with respect to the Business (including, without limitation, the Evaluation Materials, the Confidential Offering Memorandum, any other information provided to Buyer pursuant to the Confidentiality Agreement and any financial projection or forecast delivered to Buyer with respect to the revenues or profitability which may arise from the Business either before or after the Closing Date) shall form the basis of any claim against Seller or any of its advisors, or any of their respective Affiliates or representatives, except as otherwise provided in Section 3.20. With respect to any financial projection or forecast delivered on behalf of Seller to Buyer, Buyer acknowledges that there are uncertainties inherent in attempting to make such projections and forecasts and that it is familiar with such uncertainties. ARTICLE V CERTAIN COVENANTS 5.1. Information. (a) Seller and Buyer will provide to each other and to their respective officers, employees, counsel and other representatives, upon request (subject to any limitations that are reasonably required to preserve any applicable attorney-client privilege) reasonable access to their respective officers and employees and reasonable access for inspection and copying of all Business Records, Governmental Permits, Contracts and any other information existing at the Closing Date and relating to the conduct of the Business, and will make their respective officers and employees available, to the extent such availability does not unreasonably interfere with the conduct of the Business by Buyer, or the conduct of its business by Seller, as the case may be, as is reasonably necessary to enable the party requesting such information to: (i) comply with reporting, filing or other requirements related to the conduct of -38- the Business and imposed on such party by any local, state or federal court, agency or regulatory body or taxing authority; (ii) assert or defend any claims or allegations in any arbitration or in any administrative or legal proceeding related to the conduct of the Business other than claims or allegations which one party to this Agreement has asserted against the other; or (iii) subject to clause (ii) above, perform its obligations under this Agreement. Seller and Buyer shall each maintain all of the foregoing information in accordance with their normal document retention policies and if either party desires to destroy or dispose of any of the foregoing which are material to the other party at any time prior to the tenth anniversary of the Closing, such party will offer first in writing at least 60 days prior to such destruction or disposition to surrender them to the other party. (b) Subject to applicable law, Seller agrees to make available to Buyer, for inspection and copying by Buyer, all employment and personnel records (including medical records) and information relating to any Business Employee hired by Buyer. (c) The party requesting the information and assistance provided in clauses (a) and (b) of this Section 5.1 shall reimburse the other party for all out-of-pocket costs and expenses incurred by such party in providing such information and in rendering such assistance. The access to files, books and records contemplated by this Section 5.1 shall be during normal business hours and upon not less than two Business Days prior written request and shall be subject to such reasonable limitations as the party having custody or control thereof may impose to preserve the confidentiality of information contained therein. Buyer agrees to preserve all Business Records and Governmental Permits delivered to it by Seller for at least three (3) years after the Closing Date. 5.2. Tax Reporting and Allocation of Consideration. Buyer and Seller agree that the sale of the Purchased Assets hereunder is a fully taxable sale for income tax purposes. Seller further agrees that neither Buyer nor FSC Semiconductor Corporation will be treated on Seller's federal income tax returns (or amended federal income tax returns) as a member of any consolidated group of which Seller is or was a member with respect to periods ending on or prior to the Closing Date or beginning prior to and ending after the Closing Date. Buyer and Seller recognize their mutual obligations pursuant to Section 1060 of the Code to timely file IRS Form 8594 (the "Asset Acquisition Statement") with each of their respective federal income tax returns. Accordingly, Buyer and Seller agree to cooperate in the preparation of the Asset Acquisition Statement for timely filing in each of their respective federal income tax returns in accordance with a written statement (the "Statement of Allocation") prepared in accordance with Schedule 5.2 (to be attached at Closing), setting forth an allocation of the Purchase Price among such Purchased Assets and the covenants not to compete and not to solicit contained in Section 5.6 in accordance with the provisions of Section 1060 of the Code and the Treasury Regulations thereunder. The Statement of Allocation shall be prepared by Seller. Seller shall deliver, subject to Buyer's prior review and written approval the Statement of Allocation to Buyer at the Closing. If Buyer approves the Statement of Allocation, then, unless otherwise prohibited by law, all federal, state and local income tax returns of Buyer and Seller shall be filed consistently with the allocations made pursuant to the Statement of Allocation. If Buyer does not approve the Statement of Allocation and if Buyer and Seller, after good faith negotiations, cannot agree on the allocation of the consideration among the Purchased Assets and covenants, then no Statement of Allocation shall be prepared, and each party shall prepare and file its tax returns -39- in accordance with its own allocations. Seller and Buyer acknowledge and agree that (x) Seller will be responsible for and perform all tax withholding, payment and reporting duties with respect to any wages and other compensation paid by Seller to any Business Employee in connection with the operation of the Business prior to the Closing; and (y) Buyer will be responsible for and perform all tax withholding, payment and reporting duties with respect to any wages and other compensation paid by Buyer to any employee in connection with the operation of the Business after the Closing. Seller and Buyer agree to follow the Standard Procedure specified in Rev. Proc. 96-60, whereby, among other things, each will be responsible for the reporting duties with respect to its own wages and compensation to employees in connection with the operation of the Business. 5.3. Operating Agreements. On or prior to the Closing Date, Buyer shall execute and deliver to Seller and Seller shall execute and deliver to Buyer the following agreements (the "Operating Agreements"): Technology Licensing and Transfer Agreement, Transition Services Agreement, Fairchild Foundry Services Agreement, Revenue Side Letter, Fairchild Assembly Services Agreement, National Foundry Services Agreement, National Assembly Services Agreement, Mil/Aero Wafer and Services Agreement, Shared Facilities Agreement (for South Portland Site), Shared Services Agreement (for South Portland Site) and Shared Services and Occupancy Agreement and the agreements contemplated by the foregoing agreements. 5.4. Tax Matters.(a) Seller will be responsible for the preparation and filing of (i) all Returns of any Fairchild Subsidiary that are due (giving effect to valid extensions) on or before the Closing Date or are due after the Closing Date for a taxable period that ends on or before the Closing Date and (ii) all Returns for the Business that are due (giving effect to valid extensions) after the Closing Date for all taxable periods ending on or before the Closing Date. Seller shall make all payments required with respect to any such Return as shown or required to be shown thereon; provided, however, Seller and Buyer will reimburse each other for all Taxes prorated in accordance with Section 5.4 (c). (b) Buyer will be responsible for the preparation and filing of all other Returns of any Fairchild Subsidiary or relating to the Business. Buyer will make all payments required with respect to any such Return; provided, however, Seller and Buyer will reimburse each other for all Taxes prorated in accordance with Section 5.4 (c). (c) Taxes imposed on a Fairchild Subsidiary for any taxable period that begins before and ends after the Closing Date shall be allocated to and paid or caused to be paid by (i) Seller for the period up to and including the day before the Closing Date, and (ii) Buyer for the period beginning on the Closing Date. For purposes of this Agreement, Taxes of any Fairchild Subsidiary for the period up to and including the day before the Closing Date and for the period beginning on the Closing Date shall be apportioned on a per diem basis in the case of any such Taxes not measured or measurable in whole or in part with reference to net or gross income, sales or receipts, capital expenses or compensation expenses, and all other such Taxes shall be determined on the basis of an interim closing of the books of the Fairchild Subsidiary as of the end of the day before the Closing Date. (d) Seller and Buyer shall provide reasonable cooperation and information to each other in connection with (i) the preparation or filing of any Return, amended Return, Tax -40- election, Tax consent or certification, or any claim for a Tax refund, (ii) any determination of liability for Taxes, and (iii) any audit, examination or other proceeding in respect of Taxes related to any Fairchild Subsidiary or the Business. Such cooperation shall include providing copies of all relevant Returns, together with accompanying schedules and related work papers, documents relating to determinations by any Governmental Authority and records containing the ownership and tax basis of property, which either party may possess. Seller and Buyer shall make available on a reasonable basis, employees of the Seller, Buyer, or any Fairchild Subsidiary as the case may be, whose reasonable out-of-pocket costs, if any, such as travel and lodging, shall be reimbursed by the party to which such employees are made available. Seller and Buyer shall at their own cost and expense preserve all Returns, schedules, workpapers and all material records or other documents relating thereto until the expiration of any applicable statute of limitations, including extensions thereof, provided that notice of such extension is given to the party which did not grant the extension. Seller and Buyer shall not destroy or otherwise dispose of any Returns, schedules, workpapers, information, records and documents without first providing the other party a reasonable opportunity to review and copy the same. The party requesting such information, records and documents shall bear the reasonable out-of-pocket costs and expenses incurred in connection with providing the same. For the Seller's fiscal year ending May 25, 1997, Buyer shall at its own cost and expense complete and submit any Tax data packages required by Seller consistent with past practices of Seller's Tax Department. Any information obtained under this Section 5.4 shall be kept confidential, except as may be otherwise necessary in connection with the filing of Returns, claims for a Tax refund or in conducting any audit, examination or other proceeding in respect of Taxes. (e) Seller shall have the right, at its own expense, to control any audit or examination by any Governmental Authority, to initiate any claim for refund, to amend any Return, or to contest, resolve and defend against any assessment, notice of deficiency, or other adjustment or proposed adjustment relating to any Taxes for any taxable period ending on or before the Closing Date, except that Seller shall consult with Buyer and obtain Buyer's consent (which consent shall not be unreasonably withheld) as to any of the foregoing if Buyer, any of its Subsidiaries or any Fairchild Subsidiary may be adversely affected by such action. Buyer shall promptly notify Seller of the receipt of all notices, audits, examinations or other proceedings, information or document requests, requests for conferences, meetings, interviews or testimony of employees of Buyer or any Fairchild Subsidiary and other correspondence in respect of Taxes related to any Fairchild Subsidiary or the Business for any taxable period ending on or before the Closing Date. Seller shall have the right, at its own expense to participate in all conferences, meetings, interviews or testimony of employees of Buyer or any Fairchild Subsidiary and other correspondence in respect of Taxes related to any Fairchild Subsidiary or the Business for any taxable period ending on or before the Closing Date. With respect to any audit or other proceeding relating to Taxes for taxable periods that begin before and end after the Closing Date ("Straddle Period Taxes"), Seller shall have the right, at its own expense, to participate (i) in all conferences, meetings or proceedings with any Governmental Authority, the subject matter of which is or includes Straddle Period Taxes and (ii) in all appearances before any court, the subject matter of which is or includes Straddle Period Taxes. Buyer agrees not to settle or compromise any issue relating to Straddle Period Taxes without Seller's consent (which consent shall not be unreasonably withheld) unless Buyer first waives, in writing, any rights to indemnification it may have under this Agreement relating to such Straddle Period Taxes. -41- (f) Effective as of the Closing Date, Seller shall cause any tax sharing agreements to which any Fairchild Subsidiary is a party to be terminated as to such Fairchild Subsidiary and such Fairchild Subsidiary shall have no current or continuing obligations under any such agreement after the Closing Date. 5.5. Employee Matters. (a) Effective as of the Closing Date, except for the Fab Employees, Buyer shall offer to employ all of the Business Employees who are not otherwise employed by a Fairchild Subsidiary on substantially the same terms and conditions (other than the Benefit Plans set forth on item (c) of Schedule 3.5) as they were employed immediately before the Closing Date; provided, that such offer of employment with respect to any Business Employee who is on Medical Leave as of the Closing Date shall only be effective if and when such Business Employee is ready, willing and able to return to active duty and provided further, that notwithstanding Buyer's offer of employment, responsibility for the workers' compensation benefits of any Business Employee shall be governed by Section 5.5(j). In addition, Buyer shall offer to employ the Fab Employees in accordance with the terms and conditions set forth on Schedule 5.5A. All of the Business Employees who accept such offers of employment are hereinafter referred to as "Transferred Employees" and shall be considered to become "Transferred Employees" as of the Closing Date, except for such Business Employees who are on Medical Leave or classified as a Fab Employee as of the Closing Date, each of whom shall be considered to become a "Transferred Employee" as of the date he or she returns to active duty with the Buyer after the Closing Date. Nothing in this Section 5.5 shall limit Buyer's authority to terminate the employment of any Business Employee at any time after he or she becomes a Transferred Employee for any reason. (b) Effective as of the Closing Date, Buyer shall take, or cause to be taken, all action necessary and appropriate to establish employee benefit plans for the benefit of Transferred Employees and their eligible beneficiaries and dependents that correspond to, and that are substantially similar in the aggregate (excluding equity based features and the Benefit Plans set forth on item (c) of Schedule 3.5) to Seller's Benefit Plans and Non-Subsidiary Foreign Plans set forth on Schedule 3.19(a) and Schedule 3.19(k)(i) (such plans established by Buyer are hereinafter referred to as "Buyer's Plans"). Except as specifically provided otherwise in this Section 5.5 or as required by law, each Transferred Employee and his or her eligible beneficiaries and dependents shall cease to participate in and accrue benefits under Seller's Benefit Plans and Non-Subsidiary Foreign Plans, and shall become eligible to participate in and accrue benefits under Buyer's Plans, as of the date such Transferred Employee becomes a Transferred Employee. Except as specifically provided otherwise in this Section 5.5, Seller shall remain responsible for all liabilities or obligations of any Seller Entity or Affiliate to the Business Employees or any of their other present or former employees (or the Beneficiary of any such individual) arising out of their employment relationship with any Seller Entity or any Affiliate, including without limitation, claims asserted under any Benefit Plan, Non-Subsidiary Foreign Plan or collective bargaining agreement or claims for severance, bonuses or any other benefits that must be paid as a result of the transactions contemplated by this Agreement (whether or not such individual becomes a Transferred Employee) or as a result of the termination of such employees by any Seller Entity, including severance, bonuses or any other benefits arising under the agreements with directors, officers and employees set forth on Schedule 3.5 other than claims resulting from or arising out of a failure of Buyer to comply with its obligations under this Section 3.5 other than claims resulting from or arising out of a failure -42- of Buyer to comply with its obligations under this Section 5.5. Buyer shall be responsible for all liabilities relating to or arising out of Buyer's Plans. Nothing in this Section 5.5 shall prevent Buyer from amending, modifying or terminating any of Buyer's Plans at any time after the Closing Date or prevent Seller from amending, modifying or terminating any of Seller's Benefit Plans and Non-Subsidiary Foreign Plans at any time after the date hereof; provided, if Seller makes any amendment or modification to a Seller's Benefit Plan or Non-Subsidiary Foreign Plan after the date hereof that increases materially the costs of providing benefits thereunder to any Business Employee, the corresponding Buyer's Plan need not incorporate such amendment or modification. Notwithstanding the foregoing sentence, Buyer's Plans shall at all times after the Closing Date treat pre-Closing service by Transferred Employees with Seller and its affiliates in the same manner as service with Buyer for all purposes under Buyer's Plans other than accrual of benefits. (c) Seller's Benefit Plans and Non-Subsidiary Foreign Plans that are identified on Schedule 3.19(a) or Schedule 3.19(k)(i) as Medical Plans, Dental Plans and other Welfare Benefit Plans shall be responsible for all claims incurred by any Transferred Employee and any eligible beneficiary or dependent thereof before the date such Transferred Employee becomes a Transferred Employee (regardless of when submitted), and the corresponding Buyer's Plans shall be responsible for all claims incurred by any Transferred Employee and any eligible beneficiary or dependent thereof on or after the date such Transferred Employee becomes a Transferred Employee. Such Buyer's Plans shall provide coverage to Transferred Employees and their eligible beneficiaries and dependents without regard to any pre-existing conditions except to the extent such pre-existing conditions were subject to coverage limitations under the corresponding Seller's Benefit Plans or Non-Subsidiary Foreign Plans, and shall give credit for all deductibles, copayments and other out-of-pocket expenses incurred by Transferred Employees under Seller's Benefit Plans and Non-Subsidiary Foreign Plans during the portion of the applicable plan year that precedes the date such Transferred Employees begin to be covered by the corresponding Buyer's Plans. An individual receiving benefits under Seller's Benefit Plans pursuant to the continuation coverage requirements of Section 601 et seq. of ERISA and section 4980B of the Code as a result of ceasing to be an eligible beneficiary or dependent of a Transferred Employee shall be considered for all purposes of this Section 5.5 to be an eligible beneficiary or dependent, as applicable, of such Transferred Employee during the period such continuation coverage is required to be provided. It is understood that a claim for a benefit under any such plan shall be deemed to be incurred (i) in the case of a claim for life insurance or other death benefits, on the date of death, (ii) in the case of a claim for disability benefits, on the date the later of the date the relevant disability status is deemed to begin and the date any applicable waiting period is satisfied, (iii) in the case of a claim for medical, dental, vision care, employee assistance, family care and other benefits involving the rendering of services or the reimbursement of the cost of services, on the date the relevant service is rendered, and (iv) in the case of a claim for prescription drug benefits, on the date the relevant prescription is filled. (d) Notwithstanding the provisions of Sections 5.5(b) and (c), if Buyer determines that it is not practicable for it to establish any of the Buyer's Plans corresponding to the Seller's Benefit Plans set forth on Schedule 5.5D as of the Closing Date, Seller shall amend such corresponding Seller's Benefit Plan so as to permit the continued participation of Transferred Employees therein until Buyer is able to establish such Buyer's Plan (and Buyer shall do so as soon as reasonably practicable after the Closing Date). -43- (e) (i) Effective as of the Closing Date, Buyer shall establish a defined contribution retirement plan qualified under section 401(a) of the Code for the benefit of Transferred Employees located in the United States ("Buyer's Savings Plan"). Seller shall take all actions necessary or appropriate so that, effective as of the date any participant in Seller's Retirement and Savings Program (the "RASP") becomes a Transferred Employee, such participant shall be fully vested in his or her accrued benefit under the RASP. Seller agrees, as soon as practicable following the Closing Date, to direct the trustee of the trust funding the RASP to transfer to the trustee of the trust funding the Buyer's Savings Plan in one or more separate transfers, the account balances as of the date of transfer attributable to the participants in the RASP who are Transferred Employees, plus the portion of any unallocated contributions and trust earnings attributable to such participants who are Transferred Employees. Unless otherwise agreed to by Buyer and Seller, such account balances shall be transferred in cash (except to the extent such account balances are invested in participant notes which shall be transferred in kind); provided, that with respect to any portion of such accounts invested in Insurance Policy #61896 issued by Confederation Life Insurance Company, Seller shall transfer such amounts in kind or in cash, as and when reasonably practicable and prudent. Following the transfer to Buyer's Savings Plan of the account balances as provided herein, Buyer's Savings Plan shall be solely liable, to the extent of the account balances transferred and any benefits accruing thereafter, for the payment of benefits to the Transferred Employees whose accounts were so transferred. (ii) Seller and Buyer shall, in connection with the transfers required by this Section 5.5(e), cooperate in making any and all appropriate filings required under the Code or ERISA, and the regulations thereunder, and any applicable securities laws, and shall take all such action as may be necessary and appropriate to cause such transfers to take place as soon as practicable after the Closing Date; provided, however, that no such transfer shall take place until after the later of (i) the expiration of a 30-day period following the date of filing of any required Form 5310 (or any successor form thereto) with the IRS and (ii) the earlier of (a) the receipt of a favorable IRS determination letter with respect to the qualification of the Buyer's Savings Plan under Section 401(a) of the Code or (b) the receipt by Seller of an opinion of Buyer's counsel to the effect that Buyer's Savings Plan is intended in good faith to be qualified under Section 401(a) of the Code and that an application for an IRS determination letter to that effect has been filed within the remedial amendment period. (iii) Seller shall be responsible for making all matching contributions applicable to all employee contributions made to the RASP by Transferred Employees prior to Closing. Such contribution shall be made prior to the time of the asset transfers required by Section 5.5(e)(i). Seller will be responsible for making a "Pro Rata Profit Sharing Contribution" (as described below) to the RASP on behalf of the Transferred Employees prior to the time of the asset transfers required by Section 5.5(e)(i). The Pro Rata Profit Sharing Contribution shall mean a good faith estimate of the amount to be contributed under the profit-sharing contribution formula utilized under the RASP for the plan year that begins before and ends after the Closing Date but applied only to the compensation earned by the Transferred Employees from the Seller during such plan year. (f) Except as otherwise expressly set forth in this subsection (f), Buyer shall be responsible for paying awards to Transferred Employee under the Seller's Key Employee -44- Incentive Plan ("KEIP") for the fiscal year of Seller that begins before and ends after the Closing Date (the "Overlapping Fiscal Year"), including, without limitation, those liabilities set forth on Schedule 1-A/1-B under the heading "Assumed by FSC." Buyer shall pay such amounts in accordance with the terms of the KEIP, except that (i) employment with Buyer shall be treated as employment with Seller for purposes of determining eligibility to receive an award under the KEIP, and (ii) the amount of each such award shall be determined by (A) multiplying the Performance Factor (as defined below) times the applicable Transferred Employee's Annual Compensation (as defined below) times the applicable Transferred Employee's Participation Percentage (as defined in the KEIP), and then (B) multiplying the result of (A) by a fraction, the numerator of which is the number of days during the Overlapping Fiscal Year that precede the Closing Date, and the denominator of which is the total number of days during the Overlapping Fiscal Year. For purposes of this Section 5.5(f): "Performance Factor" means the actual performance with respect to the performance goals under the KEIP for the Overlapping Fiscal Year, measured by reference solely to performance during the portion of the Overlapping Fiscal Year that precedes the Closing Date, as reasonably determined by Buyer; and a Transferred Employee's "Annual Compensation" means such Transferred Employee's Compensation (as defined in the KEIP) treating compensation from Buyer after the Closing Date as if it were compensation from Seller. The KEIP awards payable pursuant to this Section 5.5(f) shall be paid following the end of the Overlapping Fiscal Year in accordance with past practice (but in no event more than 45 days after the end of the Overlapping Fiscal Year). Seller shall be responsible for paying all awards to Transferred Employees under Seller's KEIP to the extent such awards were awarded with respect to a fiscal year prior to the Overlapping Fiscal Year and have been deferred by the applicable recipient, including, without limitation, those liabilities set forth on Schedule 1-A/1-B under the heading "Stay with NSC." (g) Seller shall remain responsible for providing scholarship benefits to any child of a Transferred Employee who is receiving such benefits as of the date such individual becomes a Transferred Employee. (h) Buyer shall permit Transferred Employees to use after the Closing Date all vacation that is accrued but unused as of the Closing Date under Seller's vacation pay policies and practices. As soon as practicable following the Closing, Seller shall provide Buyer with a list of the amount of each Transferred Employee's accrued vacation as of the Closing Date. (i) Buyer shall be responsible for paying awards for Seller's third and fourth fiscal quarters for the fiscal year ending May 25, 1997 under Seller's Success Sharing Plan to all eligible Transferred Employees in accordance with the terms of such Plan. Seller shall be responsible for paying awards under Seller's Success Sharing Plan to all eligible employees, other than Transferred Employees, including, without limitation, those awards set forth on Schedule 1-A/1-B under the heading "Stay with NSC." Seller shall pay all sales incentive compensation earned by any Transferred Employee before he or she becomes a Transferred Employee, as determined in accordance with the terms of the applicable sales incentive plan of Seller. Stock options granted under Seller's Stock Option Plan ("Seller's Stock Plan") to any Transferred Employee at least six months before, and that remain outstanding and unexercised as of, the date he or she becomes a Transferred Employee shall be fully vested and exercisable as of such date and shall remain exercisable until, and shall terminate upon, the close of business on the ninetieth day following such date, all in accordance with the terms of Seller's Stock Plan. -45- (j) Buyer shall be responsible for any workers' compensation claims incurred by any Transferred Employee whether incurred prior to, upon or after Closing. A workers' compensation claim shall be considered "incurred" on the first date that there is objective evidence of the event or condition that is the basis of such claim. (k) Seller and Buyer will take all action necessary to facilitate the treatment as deferred compensation for income tax purposes of all KEIP payments previously deferred that otherwise would have become payable prior to the Seller's 1997 fiscal year, KEIP awards otherwise payable for the Overlapping Fiscal Year, certain stay-on bonuses, sales bonuses, participation in sales price pools, management incentive bonuses, retention bonus plan payments, and enhanced benefits under performance incentive plans which come due to be paid or delivered by any Seller Entity to certain Transferred Employees previously identified to National Semiconductor, with each such Transferred Employee to be entitled to designate the amount of such payments to which he or she is entitled to be so treated and to designate the manner in which such payments shall be made in order to achieve such treatment. As of the Closing Date, Buyer shall assume all liabilities of Seller with respect to such designated payments, and Buyer and Seller shall use their best efforts to cause such Transferred Employees to consent to such assumption and release Seller from such liabilities. Buyer shall establish one or more "rabbi" trusts to provide for payment of such liabilities and each such trust shall allow the investment of its assets in stock of Buyer or any of its Affiliates or designees. As promptly as practicable on or after Closing, Seller shall contribute to such trust or trusts a cash amount equal to the amount of such assumed liabilities as of the Closing Date. In the event that Seller shall pay any awards to Transferred Employees under Seller's KEIP with respect to the Overlapping Fiscal Year, Buyer shall reimburse Seller for such payments. Seller and Buyer agree that Seller shall be entitled to any and all tax deductions attributable to satisfaction of such assumed liabilities, Buyer shall be entitled to any and all tax deductions attributable to satisfaction by Buyer of any other liabilities relating to such deferred compensation, that they will cooperate with one another in sharing any information needed to assure the foregoing, and that neither of them shall take any position on any tax return or take any other action inconsistent with the foregoing. (l) Notwithstanding the foregoing, to the extent required by applicable law, effective as of the Closing Date, Buyer shall assume all liabilities arising under German pension plan identified on Schedule 3.19(K) with respect to Transferred Employees. (m) Effective as of the Closing Date, all Transferred Employees shall cease to participate in the National Stock Purchase Plan and Seller shall cause all employee contributions not utilized to purchase National stock prior to the Closing Date to be refunded to Transferred Employees within 30 days. 5.6. Covenant Not to Compete; Nonsolicitation. (a) From and after the Closing Date, Seller will not and will cause its Affiliates not to, for its own account or for the account of others, directly or indirectly, own, manage, operate, join, control or participate in the ownership, management, operation or control of any business conducting business under the name "Fairchild," or any variant thereof, other than Fairchild Parent and its Affiliates. For a period of five years from and after the Closing Date, Seller will not and will cause its Affiliates (other than natural persons) not to, other than in the performance of Seller's obligations under the Operating Agreements, for its own account or for the account of others, directly or indirectly -46- (i) engage in any Competing Business, or (ii) own, manage, operate, join, control or participate in the ownership, management, operation or control of any person or entity who or which at any relevant time during such period is engaged in any Competing Business. Ownership of not more than 5% of the outstanding capital stock of any company registered under Section 12 of the Securities Exchange Act of 1934 shall not be a violation of this Section 5.6(a). Notwithstanding the foregoing, in the event that Buyer breaches any of the Fairchild Foundry Services Agreement, Fairchild Assembly Services Agreement, or Mil/Aero Wafer Services Agreement included in the Operating Agreements, which breach gives rise to a right of termination of such agreement, Seller may manufacture or assemble the products or perform the services which Buyer is not providing under such agreement as a result of such breach, solely to satisfy its own needs for such products or services and not for the purpose of providing such products or services to others. (b) As used herein, "Competing Business" shall mean the design, production, manufacture, assembly, testing, distribution, marketing or sale for Seller's own account or for the account of others of any product that has substantially the same specifications as any Business Product or the purchase for resale or repackaging of any Business Product except pursuant to the Mil/Aero Wafer Services Agreement of even date herewith between Buyer and Seller. (c) For a period of one year from and after the Closing Date, Seller will not and will cause its Affiliates not to, directly or indirectly, solicit or attempt to solicit any person or entity who is or has been a customer, supplier, licensor, licensee or business relation of the Business prior to or during such period to cease its particular business relationship with the Business. (d) Except as specifically contemplated in Section 5.5, for a period of two years from the Closing Date with respect to any director, officer, employee or agent located in Maine and for a period of one year from and after the Closing Date with respect to any of the foregoing located outside of Maine, neither party hereto will, and the parties hereto will cause their respective Affiliates not to, directly or indirectly, solicit or induce any person or entity who is a director, officer, employee or agent of the other party or any of its Affiliates to terminate his, her or its relationship with, or employment by, such entity. (e) Notwithstanding the foregoing, Seller may acquire any business or entity that engages in a Competing Business (an "Acquired Business") provided that (i) not more than fifteen percent (15%) of the revenues of the Acquired Business during the twelve calendar months immediately preceding such acquisition are derived from any Competing Business and (ii) Seller uses its diligent good faith efforts to dispose of the portion of the Acquired Business which engages in a Competing Business (the "Competitive Portion") as soon as commercially practicable. (f) For a period of thirty-nine (39) months following Closing, Buyer will not develop, manufacture (except for Seller under the Fairchild Foundry Services Agreement or Fairchild Assembly Services Agreement each of even date herewith between Buyer and Seller), market or sell any integrated circuit that has substantially the same specifications as any of Seller's integrated circuit products identified in Schedule 5.6 hereto; provided, however, that this -47- provision shall not prohibit Buyer from acquiring and operating any Person that at the time of acquisition develops, manufactures, markets or sells any product that has substantially the same specifications as any of Seller's products identified on Schedule 5.6. (g) The restrictive covenants contained in this Section are covenants independent of any other provision of this Agreement and the existence of any claim which any party to this Agreement may allege against any other party to this Agreement, whether based on this Agreement or otherwise, shall not prevent the enforcement of these covenants. Each of Seller and Buyer agrees that the other's remedies at law for any breach or threat of breach of the provisions of this Section will be inadequate, and that each party shall be entitled to an injunction or injunctions to prevent breaches of the provisions of this Section and to enforce specifically the terms and provisions hereof, in addition to any other remedy to which such party may be entitled at law or equity. In the event of litigation regarding the covenant not to compete, the prevailing party in such litigation shall, in addition to any other remedies the prevailing party may obtain in such litigation, be entitled to recover from the other party its reasonable legal fees and out of pocket costs incurred by such party in enforcing or defending its rights hereunder. The length of time for which this covenant not to compete shall be in force shall not include any period of violation or any other period required for litigation during which the party seeking to enforce this covenant seeks to enforce this covenant. Should any provisions of this Section be adjudged to any extent invalid by any competent tribunal, such provision will be deemed modified to the extent necessary to make it enforceable. 5.7. Material Consents. Seller and Buyer agree to use their respective Best Efforts to obtain prior to the Closing all of the consents of third Persons which have been disclosed, or are required to be disclosed, on Schedule 3.3, which consents shall be in a form reasonably satisfactory to Seller and Buyer. 5.8. Notice to Customers. Seller agrees, in consultation with Buyer, to promptly notify customers of the Business of the consummation of the transactions contemplated by this Agreement and to reasonably assist Buyer, at Buyer's expense, in making arrangements with such customers for the payment of Buyer's accounts receivable (other than the Accounts Receivable) in a manner satisfactory to Buyer. 5.9. Confidentiality. For a period of five years after the Closing Date, Seller agrees that it will keep confidential all of Buyer's Proprietary Information and Buyer agrees that it will keep confidential all of Seller's Proprietary Information except that Buyer shall not be required to keep confidential Proprietary Information relating to the Business and conveyed to Buyer as part of the Purchased Assets; such Proprietary Information shall include any Proprietary Information obtained in connection with the Operating Agreements. The obligation of each party to keep such Proprietary Information confidential shall not apply to any information which (i) is or becomes available to such party from a source other than the other party (or any Person who is bound by a confidentiality agreement with such other party with respect to such information), (ii) is or becomes available to the public other than as a result of disclosure by such party or its agents, or (iii) is required to be disclosed under applicable law or judicial process; provided, however, that if a party is requested or becomes legally compelled (by oral questions, interrogatories, requests for information or documents, subpoenas, civil investigative demand or similar process) to disclose any of such information, to the extent permitted by law, -48- such party will provide the other party with prompt written notice to, and will cooperate with, such other party so that such other party may seek a protective order or other appropriate remedy; provided, further, that in the event such other party waives compliance with the provisions of this Section 5.9, such party shall disclose only that portion of the confidential information which is legally required and will exercise its Best Efforts to seek confidential treatment for such information. Notwithstanding anything in this Section 5.9 to the contrary, in the event that any such information is also subject to a limitation on disclosure or use contained in another written agreement between Buyer and Seller which is more restrictive than the limitation contained in this Section 5.9, then the limitation in such agreement shall supersede this Section 5.9. 5.10. Estoppel Certificates. The parties shall each use, and Seller shall cause the Seller Entities to use, their respective Best Efforts to obtain on or prior to the Closing estoppel certificates and lessor lien waivers (such estoppel certificates and waivers not to be conditioned on any increased rental, other payment, reduced term, or other change of lease terms), if applicable, in a form and substance reasonably acceptable to Buyer and its lenders and dated a date occurring not more than twenty (20) days prior to the Closing Date (the "Estoppel Certificates"), from each real property lessor listed on Schedule 3.16. 5.11. Title Policies. The parties shall each use, and Seller shall cause the Seller Entities to use, their respective Best Efforts to obtain on or prior to the Closing, at standard rates, good and valid, irrevocable ALTA extended form title insurance policies (or signed pro forma policies) (collectively, the "Title Policies" issued by a nationally recognized title company or companies reasonably acceptable to Buyer (collectively, the "Title Company"), insuring (or committing the Title Company to insuring) the Buyer's fee title to each parcel of the Owned Real Estate in such amounts which are equal to the current fair market values of each of such parcels, subject to no Encumbrances or exceptions to title other than the than the Permitted Fee Title Exceptions, together with such endorsements as are customary for commercial transactions of this type including without limitation a comprehensive endorsement with respect to easements and restrictions of record. Each of the Title Policies shall be effective as of the date and time of the recording of the deed to the parcel or parcels of the Owned Real Estate to which it relates. The cost of obtaining such Title Policies shall be paid one-half by Seller and one-half by Buyer. 5.12. Survey. The parties shall each use, and Seller shall cause the Seller Entities to use, their respective Best Efforts to obtain no later than fifteen days prior to Closing, as-built surveys of each parcel of the Owned Real Estate (the "Surveys") prepared by surveyors registered in the jurisdiction in which the surveyed property is located and otherwise satisfactory to Buyer (the "Surveyor") in accordance with the 1992 minimum standard detail requirements for ALTA/ACSM surveys, Class A or B or Urban, dated as of a date after January 20, 1997 showing, with respect to each parcel of the Owned Real Estate and the appurtenances to such parcel, access to and from a dedicated and accepted public right-of-way, the correct location and dimensions of all improvements (including fences and driveways), all easements, rights-of-way and setback lines, the correct location and dimensions of all alleys and streets, all other matters of record or visible on the ground affecting such parcel of the Owned Real Estate, and such other information as may be requested by Buyer. The Surveys shall: (i) show that other than Permitted Fee Title Encumbrances, all structures and other improvements on the Principal -49- Premises are (I) within the lot lines and do not encroach upon the properties of any other Person, and (II) in compliance with applicable zoning laws relating to setback and height restrictions, (ii) show no Encumbrances other than Permitted Fee Title Encumbrances, (iii) be certified to the Buyer and its assigns, the Investor and any mortgage lender to the same, and the Title Company, and (iv) comply with any requirements imposed by the Title Company as a condition to the removal of any survey exception from the general exceptions to the Title Policy covering such of the Owned Real Estate as is shown on the property surveyed. The cost of obtaining such Surveys shall be paid one-half by Seller and one-half by Buyer. 5.13. Accounts Receivable and Related Claims. From and after the Closing, Buyer (i) shall use its Best Efforts to assist Seller, upon Seller's reasonable request, in collecting the Accounts Receivable and (ii) shall not (A) without the prior written consent of Seller, waive or settle any claims or rights which constitute Excluded Assets, including, without limitation, claims with respect to Accounts Receivable or (B) take any action to interfere with or impair the collection by Seller of any claims or rights which constitute Excluded Assets, including, without limitation, claims with respect to Accounts Receivable. ARTICLE VI CLOSING 6.1. Seller's Closing Deliveries. On the Closing Date, Seller shall deliver, or execute and deliver, to Buyer: (a) the Operating Agreements; (b) an Assumption Agreement and Bill of Sale substantially in the form set forth in Exhibit 6.1 (the "Bill of Sale") with respect to the Purchased Assets (other than the Non-Assignable Assets); (c) special warranty deeds in the customary and proper form for recording duly executed and acknowledged so as to convey to Buyer good and marketable title to the Principal Premises free and clear of all Encumbrances other than Permitted Fee Title Exceptions; (d) all of the consents of third Persons described on Schedule 7.5 of the Recap Agreement; and (e) any documents or instruments as Buyer may reasonably request or as may be otherwise necessary or desirable to evidence and effect the sale, assignment, transfer, conveyance and delivery of the Purchased Assets (other than the Non-Assignable Assets) to Buyer and to put Buyer in actual possession or control of the Purchased Assets (other than the Non-Assignable Assets). -50- 6.2. Buyer's Closing Deliveries. On the Closing Date, Buyer shall deliver, or execute and deliver, to Seller: (a) the Operating Agreements; (b) the Assumption Agreement; (c) the Bill of Sale; (d) the Purchase Price Note; (e) a certificate for 100 shares of Buyer's Common Stock; and (f) any documents or instruments as Seller may reasonably request or as may be otherwise necessary or desirable to evidence and effect the assumption by Buyer of the Assumed Liabilities. ARTICLE VII INDEMNIFICATION 7.1. Indemnification By Seller. Seller hereby agrees to indemnify and hold harmless Buyer from and against any Damages arising out of or resulting from (i) the Excluded Liabilities or (ii) the breach by Seller of any covenant contained in this Agreement or in any Operating Agreement. 7.2. Indemnification by Buyer. Buyer hereby agrees to indemnify and hold harmless Seller from and against any Damages arising out of or resulting from (i) the Assumed Liabilities or (ii) the breach by Buyer of any covenant contained in this Agreement or in any Operating Agreement. 7.3. General Indemnification Procedures. (a) In the event that any party incurs or suffers any Damages with respect to which indemnification may be sought by such party pursuant to this Article VII, the party seeking indemnification (the "Indemnitee") must assert the claim by giving written notice (a "Claim Notice") to the party from whom indemnification is sought (the "Indemnitor"). The Claim Notice must state the nature, basis and amount (if known) of the claim in reasonable detail based on the information available to the Indemnitee and, if the Claim Notice is being given with respect to a third party claim, it must be accompanied by a copy of any written notice of the third party claimant. If the Claim Notice is being given by reason of any third party claim, it shall be given in a timely manner but in no event more than 30 days after the filing or other written assertion of any such claim against the Indemnitee, but the failure of the Indemnitee to give the Claim Notice within such time period shall not relieve the Indemnitor of any liability for indemnification under this Article VII, except to the extent that the Indemnitor is prejudiced thereby. If the amount of the claim is not known at the time the Claim Notice is given, the -51- Indemnitee shall also give notice of such amount to the Indemnitor at such time as the amount of the claim is reasonably ascertainable. Each Indemnitor to whom a Claim Notice is given shall respond to any Indemnitee that has given a Claim Notice (a "Claim Response") within 30 days (the "Response Period") after the date that the Claim Notice is received by Indemnitor. Any Claim Response shall specify whether or not the Indemnitor given the Claim Response disputes the claim described in the Claim Notice in whole or in part. If any Indemnitor fails to give a Claim Response within the Response Period, such Indemnitor shall be deemed not to dispute the claim described in the related Claim Notice. If any Indemnitor elects not to dispute a claim described in a Claim Notice, whether by failing to give a timely Claim Response or otherwise, then such claim shall be conclusively deemed to be an obligation of such Indemnitor. If any Indemnitor shall be obligated to indemnify an Indemnitee hereunder, such Indemnitor shall pay to such Indemnitee within 30 days after the last day of the applicable Response Period (or at such later time as the amount is ascertainable) the amount to which such Indemnitee shall be entitled. If there shall be a dispute as to the amount or manner of indemnification under this Agreement, the Indemnitor and the Indemnitee shall seek to resolve such dispute through negotiations and, if such dispute is not resolved within 20 days, the Indemnitee may pursue whatever legal remedies may be available for the recovery of the Damages claimed from any Indemnitor. If any Indemnitor fails to pay all or any part of any indemnification obligation on or before the later to occur of (x) 30 days after the last day of the applicable Response Period, and (y) if the Claim Notice relates to Damages that have not been liquidated as of the date of the Claim Notice, the date on which all or any part of such Damages shall have become liquidated and determined, then the Indemnitor shall also be obligated to pay to the Indemnitee interest on the unpaid amount for each day during which the obligation remains unpaid at an annual rate of ten percent. (b) The Indemnitee shall provide to the Indemnitor on request all information and documentation reasonably necessary to support and verify any Damages that the Indemnitee believes give rise to the claim for indemnification hereunder and shall give the Indemnitor reasonable access to all books, records and personnel in the possession or under the control of the Indemnitee that would have bearing on such claim. (c) Except as hereinafter provided, in the case of third party claims for which indemnification is sought, the Indemnitor shall have the option: (x) to conduct any proceedings or negotiations in connection therewith, (y) to take all other steps to settle or defend any such claim (provided that the Indemnitor shall not settle any such claim without the consent of the Indemnitee (which consent shall not be unreasonably withheld, it being understood that it shall not be unreasonable for the Indemnitee to withhold its consent from any settlement which (1) commits the Indemnitee to take, or to forbear to take, any action, or (2) does not provide for a complete release of the Indemnitee by such third party)), and (z) to employ counsel to contest any such claim or liability in the name of the Indemnitee or otherwise. In any event, the Indemnitee shall be entitled to participate at its own expense and by its own counsel (a "Voluntary Participation") in any proceedings relating to any third party claim. The Indemnitor shall, within 45 days of receipt of the Claim Notice, notify the Indemnitee of its intention to assume the defense of the claim (a "Defense Notice"). Until the Indemnitee has received the Defense Notice, the Indemnitee shall take reasonable steps to defend (but may not settle) the claim. If the Indemnitor declines to assume the defense of any such claim or fails to give a Defense Notice within 45 days after receipt of the Claim Notice, the Indemnitee shall defend -52- against the claim but shall not settle such claim without the consent of the Indemnitor (which consent shall not be unreasonably withheld). The expenses of all proceedings, contests or lawsuits (other than those incurred in a Voluntary Participation) with respect to claims as to which a party is entitled to indemnification under this Article VII shall represent indemnifiable Damages under this Agreement. Regardless of which party shall assume the defense of the claim, the parties shall cooperate fully with one another in connection therewith. Notwithstanding the foregoing, the Indemnitor shall not be entitled (except with the consent of the Indemnitee) to take any of the actions referred to in clauses (x), (y) or (z) of the first sentence of this subparagraph unless: (a) the third party claim involves principally monetary damages; and (b) the Indemnitor shall have expressly agreed in writing that, as between the Indemnitor and the Indemnitee, the Indemnitor shall be solely obligated to satisfy and discharge such third party claim. Damages payable hereunder shall be appropriately adjusted to reflect the receipt of insurance proceeds, tax benefits and detriments and proceeds received with respect to condemnation, expropriation or eminent domain proceedings. ARTICLE VIII MISCELLANEOUS 8.1. Nonsurvival of Representations. The representations and warranties of Buyer and Seller contained in this Agreement shall terminate upon the Closing. The covenants and agreements of Buyer and Seller contained in this Agreement shall survive the Closing. 8.2. Notices. All notices and other communications hereunder shall be in writing and shall be deemed to have been duly given (i) three Business Days after mailing if mailed by certified or registered mail, return receipt requested, (ii) one Business Day after delivery to Federal Express or other nationally recognized overnight express carrier, if sent for overnight delivery with fee prepaid, (iii) upon receipt if sent via facsimile with receipt confirmed, or (iv) upon receipt if delivered personally, addressed as follows or to such other address or addresses of which the respective party shall have notified the other: If to Seller, to: National Semiconductor Corporation 2900 Semiconductor Drive Santa Clara, CA 95052 Attention: General Counsel Fax No.: (408) 733-0293 -53- With a copy to: Wachtell, Lipton, Rosen & Katz 51 West 52nd Street New York, NY 10019 Attention: Barry A. Bryer Fax No.: (212) 403-2000 If to Buyer, to: Fairchild Semiconductor Corporation 333 Western Avenue Portland, ME 04106 Attention: General Counsel, mail stop 01-00 Fax No.: (207) 761-6020 With copies to: Citicorp Venture Capital Ltd. 399 Park Avenue, 14th Floor New York, New York 10043 Attention: Richard M. Cashin, Jr. Fax No.: 212-888-2940 Dechert Price & Rhoads 4000 Bell Atlantic Tower 1717 Arch Street Philadelphia, PA 19103 Attn: G. Daniel O'Donnell Fax No.: 215-994-2222 8.3. Expenses. Except as otherwise provided in this Agreement and in the Recap Agreement, each party to this Agreement will bear all the fees, costs and expenses which are incurred by it in connection with the transactions contemplated hereby, whether or not such transactions are consummated, provided that Seller and Buyer shall bear equally all Taxes (other than income Taxes) and related charges, all fees for any necessary consents or approvals of any Governmental Authority, and all recording and filing fees, in each case that may be imposed by reason of the sale, transfer, assignment or delivery of the Purchased Assets. 8.4. Entire Agreement. The agreement of the parties, which is comprised of this Agreement and the Schedules hereto and the documents referred to herein, sets forth the entire agreement and understanding between the parties and supersedes any prior agreement or understanding, written or oral, relating to the subject matter of this Agreement. 8.5. Assignment; Binding Effect; Severability. This Agreement may not be assigned by any party hereto without the written consent of the other party, provided, however that Buyer may assign its rights hereunder as collateral security to any bona fide financial institution which -54- is engaged in financing in the ordinary course providing financing to consummate the transactions contemplated hereby or any financial institution which is engaged in financing in the ordinary course through whom such financing is refunded, replaced, or refinanced and any of the foregoing financial institutions may, in enforcing its rights in connection with such financing, assign Buyer's rights or cause Buyer to assign its rights hereunder in connection with a sale of Buyer or its parent or the business in the form then being conducted by Buyer substantially as an entirety; and provided, further, Buyer may assign its rights hereunder, in whole or in part, but subject to all limitations contained herein, to one or more subsidiaries of Buyer, provided that, in any such case, Buyer gives Seller prior written notice of such assignment. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the successors, legal representatives and permitted assigns of each party hereto. The provisions of this Agreement are severable, and in the event that any one or more provisions are deemed illegal or unenforceable the remaining provisions shall remain in full force and effect unless the deletion of such provision shall cause this Agreement to become materially adverse to any party, in which event the parties shall use Best Efforts to arrive at an accommodation which best preserves for the parties the benefits and obligations of the offending provision. 8.6. Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the internal laws (as opposed to the conflicts of laws provisions) of the State of New York. 8.7. Execution in Counterparts. This Agreement may be executed in any number of counterparts with the same effect as if the signatures thereto were upon one instrument. 8.8. Public Announcement. Neither Seller nor Buyer shall, without the approval of the other party hereto, make any press release or other public announcement concerning the terms of the transactions contemplated by this Agreement, except as and to the extent that any such party shall be so obligated by law, in which case such party shall use its Best Efforts to advise the other party thereof and the parties shall use their Best Efforts to cause a mutually agreeable release or announcement to be issued; provided that the foregoing shall not preclude communications or disclosures necessary to (a) implement the provisions of this Agreement (including the Financing) or (b) comply with accounting, securities laws and Securities and Exchange Commission disclosure obligations. 8.9. No Third Party Beneficiaries. Nothing in this Agreement, express or implied, is intended to or shall (i) confer on any Person other than the parties hereto and their respective successors or permitted assigns any rights (including third party beneficiary rights), remedies, obligations or liabilities under or by reason of this Agreement, or (ii) constitute the parties hereto as partners or as participants in a joint venture. This Agreement shall not provide third parties with any remedy, claim, liability, reimbursement, cause of action or other right in excess of those existing without reference to the terms of this Agreement. -55- 8.10. Headings. The headings preceding the text of the sections and subsections hereof are inserted solely for convenience of reference, and shall not constitute a part of this Agreement, nor shall they affect its meaning, construction or effect. 8.11. Further Assurances. Each party shall cooperate and take such action as may be reasonably requested by another party in order to carry out the provisions and purposes of this Agreement and the transactions contemplated hereby. 8.12. Amendment and Waiver. The parties may by mutual agreement amend this Agreement in any respect, and any party, as to such party, may (a) extend the time for the performance of any of the obligations of any other party, (b) waive any inaccuracies in representations by any other party, (c) waive compliance by any other party with any of the agreements contained herein and performance of any obligations by such other party, and (d) waive the fulfillment of any condition that is precedent to the performance by such party of any of its obligations under this Agreement. To be effective, any such amendment or waiver must be in writing and be signed by the party against whom enforcement of the same is sought. -56- IN WITNESS WHEREOF, each of Buyer and Seller has caused this Agreement to be duly executed on its behalf by its duly authorized officer as of the day and year first written above. NATIONAL SEMICONDUCTOR CORPORATION By:___________________________________________ Donald Macleod Executive Vice President and Chief Financial Officer FAIRCHILD SEMICONDUCTOR CORPORATION By:___________________________________________ Joseph R. Martin Executive Vice President and Chief Financial Officer -57- EX-3.01 4 EX-3.01 Exhibit 3.01 CERTIFICATE OF INCORPORATION OF FAIRCHILD SEMICONDUCTOR CORPORATION 1. Name. The name of the Corporation is Fairchild Semiconductor Corporation. 2. Registered Office and Agent. The address of the Corporation's registered office in the State of Delaware is 1013 Centre Road, in the City of Wilmington, County of New Castle. The name of the Corporation's registered agent at such address is Corporation Service Company. 3. Purpose. The purposes for which the Corporation is formed are to engage in any lawful act or activity, including, without limitation, forming and/or acquiring foreign subsidiaries, for which corporations may be organized under the General Corporation Law of the State of Delaware ("DGCL") and to possess and exercise all of the powers and privileges granted by such law and any other law of Delaware. 4. Authorized Capital. The aggregate number of shares of stock which the Corporation shall have authority to issue is One Thousand (1000) shares, all of which are of one class and are designated as Common Stock, par value $.01 per share. 5. Incorporator. The name and mailing address of the incorporator are Nikki Gold, 4000 Bell Atlantic Tower, 1717 Arch Street, Philadelphia, Pennsylvania 19103-2793. 6. Bylaws. In furtherance and not in limitation of the powers conferred by law, the board of directors of the Corporation is authorized to adopt, amend or repeal the bylaws of the Corporation, except as otherwise specifically provided therein, subject to the powers of the stockholders of the Corporation to amend or repeal any bylaws adopted by the board of directors. 7. Elections of Directors. Elections of directors need not be by written ballot unless and except to the extent the bylaws of the Corporation shall so provide. 8. Right to Amend. The Corporation reserves the right to amend or repeal any provision contained in this Certificate as the same may from time to time be in effect in the manner now or hereafter prescribed by law, and all rights, preferences and privileges conferred on stockholders, directors or others hereunder are subject to such reservation. 9. Limitation on Liability. The directors of the Corporation shall be entitled to the benefits of all limitations on the liability of directors generally that are now or hereafter become available under the DGCL. Without limiting the generality of the foregoing, to the fullest extent permitted by the DGCL, as it exists on the date hereof or as it may hereafter be amended, no director of the Corporation shall be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the DGCL, or (iv) for any transaction from which the director derived an improper personal benefit. Any repeal or modification of this Section 9 or any adoption of any provision of this Certificate of Incorporation inconsistent with this Section 9 shall be prospective only, and shall not affect, to the detriment of any director, any limitation on the personal liability of a director of the Corporation existing at the time of such repeal, modification or adoption. Dated: ______________ _________________________________ Nikki Gold, Incorporator -2- EX-3.02 5 EX-3.02 Exhibit 3.02 BYLAWS OF FAIRCHILD SEMICONDUCTOR CORPORATION ARTICLE I STOCKHOLDERS 1.1 Meetings. 1.1.1 Place. Meetings of the stockholders shall be held at such place as may be designated by the board of directors. 1.1.2 Annual Meeting. An annual meeting of the stockholders for the election of directors and for other business shall be held on such date and at such time as may be fixed by the board of directors. 1.1.3 Special Meetings. Special meetings of the stockholders may be called at any time by the president, or the board of directors, or the holders of a majority of the outstanding shares of stock of the Company entitled to vote at the meeting. 1.1.4 Quorum. The presence, in person or by proxy, of the holders of a majority of the outstanding shares of stock of the Company entitled to vote on a particular matter shall constitute a quorum for the purpose of considering such matter. 1.1.5 Voting Rights. Except as otherwise provided herein, in the certificate of incorporation or by law, every stockholder shall have the right at every meeting of stockholders to one vote for every share standing in the name of such stockholder on the books of the Company which is entitled to vote at such meeting. Every stockholder may vote either in person or by proxy. ARTICLE II DIRECTORS 2.1 Number and Term. The board of directors shall have authority to (i) determine the number of directors to constitute the board and (ii) fix the terms of office of the directors. 2.2 Meetings. 2.2.1 Place. Meetings of the board of directors shall be held at such place as may be designated by the board or in the notice of the meeting. 2.2.2 Regular Meetings. Regular meetings of the board of directors shall be held at such times as the board may designate. Notice of regular meetings need not be given. 2.2.3 Special Meetings. Special meetings of the board may be called by direction of the president or any two members of the board on three days' notice to each director, either personally or by mail, telegram or facsimile transmission. 2.2.4 Quorum. A majority of all the directors in office shall constitute a quorum for the transaction of business at any meeting. 2.2.5 Voting. Except as otherwise provided herein, in the certificate of incorporation or by law, the vote of a majority of the directors present at any meeting at which a quorum is present shall constitute the act of the board of directors. 2.2.6 Committees. The board of directors may, by resolution adopted by a majority of the whole board, designate one or more committees, each committee to consist of one or more directors and such alternate members (also directors) as may be designated by the board. Unless otherwise provided herein, in the absence or disqualification of any member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another director to act at the meeting in the place of any such absent or disqualified member. Except as otherwise provided herein, in the certificate of incorporation or by law, any such committee shall have and may exercise the powers of the full board of directors to the extent provided in the resolution of the board directing the committee. ARTICLE III OFFICERS 3.1 Election. At its first meeting after each annual meeting of the stockholders, the board of directors shall elect a president, treasurer, secretary and such other officers as it deems advisable. 2 3.2 Authority, Duties and Compensation. The officers shall have such authority, perform such duties and serve for such compensation as may be determined by resolution of the board of directors. Except as otherwise provided by board resolution, (i) the president shall be the chief executive officer of the Company, shall have general supervision over the business and operations of the Company, may perform any act and execute any instrument for the conduct of such business and operations and shall preside at all meetings of the board and stockholders, (ii) the other officers shall have the duties customarily related to their respective offices, and (iii) any vice president, or vice presidents in the order determined by the board, shall in the absence of the president have the authority and perform the duties of the president. ARTICLE IV INDEMNIFICATION 4.1 Right to Indemnification. The Company shall indemnify any person who was or is party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (a "proceeding"), by reason of the fact that such person is or was a director or officer of the Company or a constituent corporation absorbed in a consolidation or merger, or is or was serving at the request of the Company or a constituent corporation absorbed in a consolidation or merger, as a director or officer of another corporation, partnership, joint venture, trust or other enterprise, or is or was a director or officer of the Company serving at its request as an administrator, trustee or other fiduciary of one or more of the employee benefit plans of the Company or other enterprise, against expenses (including attorneys' fees), liability and loss actually and reasonably incurred or suffered by such person in connection with such proceeding, whether or not the indemnified liability arises or arose from any threatened, pending or completed proceeding by or in the right of the Company, except to the extent that such indemnification is prohibited by applicable law. 4.2 Advance of Expenses. Expenses incurred by a director or officer of the Company in defending a proceeding shall be paid by the Company in advance of the final disposition of such proceeding subject to the provisions of any applicable statute. 4.3 Procedure for Determining Permissibility. To determine whether any indemnification or advance of expenses under this Article IV is permissible, the board of directors by a majority 3 vote of a quorum consisting of directors not parties to such proceeding may, and on request of any person seeking indemnification or advance of expenses shall be required to, determine in each case whether the applicable standards in any applicable statute have been met, or such determination shall be made by independent legal counsel if such quorum is not obtainable, or, even if obtainable, a majority vote of a quorum of disinterested directors so directs, provided that, if there has been a change in control of the Company between the time of the action or failure to act giving rise to the claim for indemnification or advance of expenses and the time such claim is made, at the option of the person seeking indemnification or advance of expenses, the permissibility of indemnification or advance of expenses shall be determined by independent legal counsel. The reasonable expenses of any director or officer in prosecuting a successful claim for indemnification, and the fees and expenses of any special legal counsel engaged to determine permissibility of indemnification or advance of expenses, shall be borne by the Company. 4.4 Contractual Obligation. The obligations of the Company to indemnify a director or officer under this Article IV, including the duty to advance expenses, shall be considered a contract between the Company and such director or officer, and no modification or repeal of any provision of this Article IV shall affect, to the detriment of the director or officer, such obligations of the Company in connection with a claim based on any act or failure to act occurring before such modification or repeal. 4.5 Indemnification Not Exclusive; Inuring of Benefit. The indemnification and advance of expenses provided by this Article IV shall not be deemed exclusive of any other right to which one indemnified may be entitled under any statute, provision of the Certificate of Incorporation, these bylaws, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in such person's official capacity and as to action in another capacity while holding such office, and shall inure to the benefit of the heirs, executors and administrators of any such person. 4.6 Insurance and Other Indemnification. The board of directors shall have the power to (i) authorize the Company to purchase and maintain, at the Company's expense, insurance on behalf of the Company and on behalf of others to the extent that power to do so has not been prohibited by statute, (ii) create any fund of any nature, whether or not under the control of a trustee, or otherwise secure any of its indemnification obligations, and 4 (iii) give other indemnification to the extent permitted by statute. ARTICLE V TRANSFER OF SHARE CERTIFICATES Transfers of share certificates and the shares represented thereby shall be made on the books of the Company only by the registered holder or by duly authorized attorney. Transfers shall be made only on surrender of the share certificate or certificates. ARTICLE VI AMENDMENTS These bylaws may be amended or repealed at any regular or special meeting of the board of directors by vote of a majority of all directors in office or at any annual or special meeting of stockholders by vote of holders of a majority of the outstanding stock entitled to vote. Notice of any such annual or special meeting of stockholders shall set forth the proposed change or a summary thereof. 5 EX-3.03 6 EX-3.03 CERTIFICATE OF INCORPORATION OF FSC SEMICONDUCTOR CORPORATION 1. Name. The name of the Corporation is FSC Semiconductor Corporation. 2. Registered Office and Agent. The address of the Corporation's registered office in the State of Delaware is 1013 Centre Road, in the City of Wilmington, County of New Castle. The name of the Corporation's registered agent at such address is Corporation Service Company. 3. Purpose. The purposes for which the Corporation is formed are to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware ("DGCL") and to possess and exercise all of the powers and privileges granted by such law and any other law of Delaware. 4. Authorized Capital. The aggregate number of shares of stock which the Corporation shall have authority to issue is 60,070,000 shares, divided into three (3) classes consisting of 70,000 shares of 12% Series A Cumulative Compounding Preferred Stock, par value $.01 per share ("Series A Preferred Stock"); 30,000,000 shares of Class A Common Stock, par value $.01 per share ("Class A Common Stock"); and 30,000,000 shares of Class B Common Stock, par value $.01 per share ("Class B Common Stock"). Class A Common Stock and Class B Common Stock are hereinafter sometimes collectively referred to as "Common Stock". The following is a statement of the designations, preferences, qualifications, limitations, restrictions and the special or relative rights granted to or imposed upon the shares of each such class. A. SERIES A PREFERRED STOCK (a) Accrual and Payment of Dividends i. The holders of Series A Preferred Stock shall be entitled to receive, when, as and if declared by the Board of Directors out of funds of the Corporation legally available therefor, cumulative cash dividends at the rate of $120 per share per annum. ii. Such dividends shall be payable in annual installments in arrears commencing September 15, 1997 and thereafter on the fifteenth day of March and September (unless such day is not a business day in which event on the last preceding business day) in each such year (hereinafter referred to as a "Dividend Accrual Date"), except that the dividend payment payable on September 15, 1997 shall be calculated at the annual rate of $120 per share from the date of original issuance through September 15, 1997. Each such dividend on Series A Preferred Stock when paid shall be payable to holders of record as they appear on the stock books of the Corporation on the date established by the Board of Directors of the Corporation as the record date for the payment of such dividend (which record date shall not precede the date upon which the resolution fixing such record date is adopted and which record date shall be not more than sixty days prior to such action). If no record date is fixed, the record date for determining holders for such purpose shall be at the close of business on the date on which the Board of Directors adopts the resolution relating to such dividend payment. Dividends with respect to any shares of Series A Preferred Stock shall accrue (whether or not earned or declared) from the date of issue of such shares. iii. Such dividends on the Series A Preferred Stock shall be cumulative, whether or not earned or declared, so that if at any time full cumulative dividends at the rate aforesaid on all shares of Series A Preferred Stock then outstanding to the end of the annual dividend period next preceding such time shall not have been paid, the amount of the deficiency shall be paid before any sum shall be set aside for or applied by the Corporation to the purchase, redemption or other acquisition for value of any shares of Junior Stock (either pursuant to any applicable sinking fund requirement or otherwise) or any dividend or other distribution shall be paid or declared and set apart for payment on any Junior Stock (other than a dividend payable in Junior Stock) provided, however, that the foregoing shall not prohibit the Corporation from repurchasing shares of Junior Stock from a -2- former employee of the Corporation (or a subsidiary of the Corporation) where such repurchase arises from the Corporation's option to repurchase such shares upon termination of such employee's employment with the Corporation (or a subsidiary) pursuant to a written agreement between the Corporation and such employee. Accrued dividends on the Series A Preferred Stock if not paid on the first or any subsequent Dividend Accrual Date following accrual shall thereafter accrue additional dividends in respect thereof (the "Additional Dividends"), compounded annually, at the rate of 12% per annum. iv. When dividends are not paid in full upon the Series A Preferred Stock, all dividends paid upon shares of Series A Preferred Stock shall be paid pro rata so that in all cases the amount of dividends paid per share on the Series A Preferred Stock shall bear the same ratio that accrued dividends per share on the shares of Series A Preferred Stock bear to each other. v. An annual dividend period shall commence on the day following a Dividend Accrual Date and shall end on the next succeeding Dividend Accrual Date. (b) Preference on Liquidation i. In the event that the Corporation shall be liquidated, dissolved or wound up, whether voluntarily or involuntarily, after all creditors of the Corporation shall have been paid in full, the holders of the Series A Preferred Stock shall be entitled to receive, out of the assets of the Corporation legally available for distribution to its stockholders, whether from capital, surplus or earnings, before any amount shall be paid to the holders of any shares of Junior Stock, an amount equal to $1000 in cash per share plus an amount equal to full cumulative dividends (whether or not earned or declared) accrued and unpaid thereon (including Additional Dividends) to the date of final distribution, and no more. If upon any voluntary or involuntary liquidation, -3- dissolution or winding up of the Corporation, the net assets of the Corporation shall be insufficient to pay the holders of all outstanding shares of Series A Preferred Stock the full amounts to which they respectively shall be entitled, such assets, or the proceeds thereof, shall be distributed ratably among the holders of the Series A Preferred Stock in accordance with the amounts which would be payable on such distribution if the amount to which the holders of the Series A Preferred Stock are entitled were paid in full. Holders of Series A Preferred Stock shall not be entitled, upon the voluntary or involuntary liquidation, dissolution or winding up of the Corporation, to receive any amounts with respect to such stock other than the amounts referred to in this paragraph (b)(i). ii. Neither the purchase nor redemption by the Corporation of shares of any class of stock in any manner permitted by the Certificate of Incorporation or any amendment thereof, nor the merger or consolidation of the Corporation with or into any other corporation or corporations, nor a sale, exchange, conveyance, transfer or lease of all or substantially all of the Corporation's assets shall be deemed to be a liquidation, dissolution or winding up of the Corporation for the purposes of this paragraph (b); provided, however, that any consolidation or merger of the Corporation in which the Corporation is not the surviving entity shall be deemed to be a liquidation, dissolution or winding up of the affairs of the Corporation within the meaning of this paragraph (b) if, (A) in connection therewith, the holders of Common Stock of the Corporation receive as consideration, whether in whole or in part, for such Common Stock (1) cash, (2) notes, debentures or other evidences of indebtedness or obligations to pay cash or (3) preferred stock of the surviving entity which ranks on a parity with or senior to the preferred stock received by holders of the Series A Preferred Stock with respect to liquidation or dividends or (B) the holders of the Series A Preferred Stock do not receive preferred stock of the surviving entity with rights, -4- powers and preferences equal to (or more favorable to the holders than) the rights, powers and preferences of the Series A Preferred Stock. (c) Redemption i. Mandatory Redemption. All outstanding shares of the Series A Preferred Stock shall be redeemed from funds legally available therefor on March 16, 2009 (the "Mandatory Redemption Date"), in the manner provided in Section 4(A)(d) hereof, at a price per share equal to $1,000 plus an amount per share equal to full cumulative dividends (whether or not earned or declared) accrued and unpaid thereon (including Additional Dividends) to the Mandatory Redemption Date. ii. Optional Redemption. The Series A Preferred Stock may be redeemed from funds legally available therefor, in whole or in part, at the election of the Corporation, expressed by resolution of the Board of Directors, at any time at a price per share equal to $1,000 plus an amount per share equal to full cumulative dividends (whether or not earned or declared) accrued and unpaid thereon (including Additional Dividends and all dividends which have accrued since the most recent Dividend Accrual Date) to the date of redemption. iii. The aggregate amount of any redemption pursuant to paragraph (i) or (ii) is hereinafter referred to as the "Redemption Price" with respect to such redemption. The Mandatory Redemption Date and the date of any redemption pursuant to paragraph (ii) are each hereinafter referred to individually as a "Redemption Date." (d) Redemption Procedure i. Any redemption pursuant to this paragraph (d) shall be accomplished in the manner and with the effect as set forth in this paragraph. ii. Notice of every redemption of Series A Preferred Stock pursuant to paragraph (c) -5- shall be given by first class mail to each holder of record on the record date for such redemption at such holder's address as the same appears on the stock register of the Corporation not less than ten (10) days and not more than sixty (60) days prior to the Redemption Date. Each such notice shall state (A) the Redemption Date, (B) whether the redemption is a mandatory or optional redemption under Section 4(A)(c)(i) or 4(A)(c)(ii) hereof, as the case may be, (C) the place or places where such shares are to be surrendered, (D) that the holder is to surrender the shares at the place of redemption and (E) that dividends on the Series A Preferred Stock shall cease to accrue on the Redemption Date. If less than all the outstanding Series A Preferred Stock is to be redeemed, the selection of shares for redemption shall be made pro rata and the notice of redemption to a holder shall state the number of shares of Series A Preferred Stock of such holder to be redeemed. The amount of the applicable Redemption Price shall be deposited on or before the applicable Redemption Date in trust for the account of the holders of Series A Preferred Stock entitled thereto with a bank or trust company in good standing doing business in the State of New York and having capital and surplus of at least $100,000,000 (the date of such deposit being hereinafter in this paragraph (d) referred to as the "date of deposit"). iii. Notice of the date on which, and the name and address of the bank or trust company with which, the deposit has been or will be made shall be included in the notice of redemption. On and after the applicable Redemption Date (unless default shall be made by the Corporation in providing money for the payment of the Redemption Price pursuant to the notice of redemption), or if the Corporation shall make such deposit on or before the date specified therefor in the notice of redemption, then on and after the date of deposit (provided notice of redemption has been duly given), all dividends on the Series A Preferred Stock so called for redemption shall cease to accrue, -6- and the notice of redemption shall so state, and, notwithstanding that any certificate for shares of Series A Preferred Stock is not surrendered for cancellation, the shares represented thereby shall no longer be deemed outstanding and all rights of the holders thereof as stockholders of the Corporation shall cease and terminate, except the right to receive the Redemption Price (without interest) as hereinafter provided. iv. At any time on or after the applicable Redemption Date, or if the Corporation shall deposit the money for such redemption prior to the Redemption Date, then at any time on or after the date of deposit, which time shall be specified by the Corporation in the notice of redemption and which shall not be later than the applicable Redemption Date, the holders of record of the Series A Preferred Stock to be redeemed shall be entitled to receive the Redemption Price upon actual delivery to the bank or trust company with which such deposit shall be made of certificates for the shares to be redeemed, such certificates, if required, to be duly endorsed in blank or accompanied by proper instruments of assignment and transfer duly endorsed in blank. The making of such deposit with any such bank or trust company shall not relieve the Corporation of liability for payment of the Redemption Price. v. Any money so deposited which shall remain unclaimed by the holders of such Series A Preferred Stock at the end of two (2) years after the Redemption Date shall be paid by such bank or trust company to the Corporation, which shall thereafter, to the extent of the money so repaid, be liable for the payment of the Redemption Price. Any interest accrued on money so deposited shall be paid to the Corporation from time to time. (e) Optional Exchange i. The Series A Preferred Stock may be exchanged, at the Corporation's option at any time and from time to time, in whole or in part, for junior subordinated debentures to -7- be issued by the Corporation in substantially the form attached as Annex A hereto ("Exchange Debentures") at the rate of $1000 per share plus an amount per share equal to full cumulative dividends (whether or not earned or declared) accrued and unpaid thereon (including all dividends which have accrued since the most recent Dividend Accrual Date) to the date established by the Board of Directors for such exchange (the Exchange Date") (the aggregate of such amounts is hereinafter referred to as the "Exchange Amount"). The Exchange Debentures shall bear interest at a rate equal to the lesser of 12% and the maximum interest rate permitted to be deducted as accrued under the relevant provisions of the Internal Revenue Code of 1986 and the rules and regulations promulgated thereunder in effect on the Exchange Date. If less than all the shares of Series A Preferred Stock is to be exchanged, the selection of shares to be exchanged shall be pro rata. The election of the Corporation to exchange the shares of Series A Preferred Stock for Exchange Debentures pursuant to this paragraph (e) must be made by the affirmative vote of at least eighty percent (80%) of all the directors of the Corporation then in office. (f) Exchange Procedure i. Any exchange pursuant to paragraph (e) shall be accomplished in the manner and with the effect as set forth in this paragraph (f). ii. Notice of the exchange of Series A Preferred Stock pursuant to paragraph (e) shall be given by first class mail to each holder of record on the record date for such exchange at such holder's address as the same appears on the stock register of the Corporation not less than ten (10) days and not more than sixty (60) days prior to the Exchange Date. Each such notice shall state: (A) the Exchange Date, (B) the place or places where certificates for such shares of Series A Preferred Stock are to be surrendered for exchange into the Exchange Debentures, (C) that dividends on the Series -8- A Preferred Stock to be exchanged will cease to accrue on such Exchange Date and (D) if less than all the shares of Series A Preferred Stock is to be exchanged the number of shares of the holder to be exchanged. The form of the Exchange Debentures may not be amended or supplemented before the Exchange Date without the affirmative vote or consent of the holders of a majority of the outstanding shares of Series A Preferred Stock, except for those changes which would not adversely affect the legal rights of the holders. iii. On and after the Exchange Date, all dividends on the Series A Preferred Stock so called for exchange shall cease to accrue and, notwithstanding that any certificate for shares of Series A Preferred Stock is not surrendered for cancellation, the shares represented thereby shall no longer be deemed outstanding and all rights of the holders thereof as stockholders of the Corporation shall cease and terminate, except the right to receive the Exchange Debentures as herein provided. iv. At any time on or after the Exchange Date, the holders of record of the Series A Preferred Stock to be exchanged shall be entitled to receive the amount of Exchange Debentures set forth herein upon actual delivery to the Corporation of certificates for the shares to be exchanged, such certificates, if required, to be duly endorsed in blank or accompanied by proper instruments of assignment and transfer duly endorsed in blank. The person or persons entitled to receive the Exchange Debentures issuable upon exchange shall be treated for all purposes as the registered holder or holders of such Exchange Debentures. v. The Corporation shall not be required to honor any request to register a transfer or exchange of the Series A Preferred Stock for the fifteen (15) days prior to the Exchange Date. The Corporation will cause the Exchange Debentures to be authenticated on the Exchange Date. -9- (g) Voting. Except as required by law and except for any voting by the holders of the Series A Preferred Stock as part of a separate class or series pursuant to paragraph (h) hereunder or any other provision of the Corporation's Certificate of Incorporation, no holder of Series A Preferred Stock, as such holder, shall be entitled to vote on any matter submitted to a vote of stockholders. On any matters on which the holders of the Series A Preferred Stock shall be entitled to vote, they shall be entitled to one vote for each share held. (h) Other Rights. Without the written consent of the holders of a majority of the outstanding shares of Series A Preferred Stock or the vote of the holders of a majority of the outstanding shares of Series A Preferred Stock at a meeting of the holders of Series A Preferred Stock called for such purpose, the Corporation shall not (i) exchange the shares of Series A Preferred Stock for Exchange Debentures pursuant to paragraph (e), (ii) create, authorize or issue any other class or series of stock entitled to a preference prior to Series A Preferred Stock upon any dividend or distribution or any liquidation, distribution of assets, dissolution or winding up of the Corporation, or increase the authorized amount of any such other class or series, or (iii) amend, alter or repeal any provision of the Corporation's Certificate of Incorporation so as to adversely affect the relative rights and preferences of the Series A Preferred Stock; provided, however, that any such amendment that changes the dividend payable on the Series A Preferred Stock shall require the affirmative vote of the holder of each share of Series A Preferred Stock at a meeting of such holders called for such purpose or the written consent of the holder of each share of Series A Preferred Stock. (i) Acknowledgement. Each holder of Series A Preferred Stock, by acceptance thereof, acknowledges and agrees that payments of dividends, interest, premium and principal on, and redemption and repurchase of, such securities by the Corporation are subject to restrictions contained in certain credit and financing agreements of the Corporation. -10- (j) Definitions. The following terms, when used herein, shall have the meanings set forth below: i. As used herein, the amount of dividends "accrued" on any share of Series A Preferred Stock as at any date shall be calculated as the amount of any unpaid dividends accumulated thereon to and including the last preceding Dividend Accrual Date with respect to which dividends have not been paid, whether or not earned or declared (including the amount of any dividends accumulated on any share of Series A Preferred Stock from the preceding Dividend Accrual Date in the event of an optional redemption pursuant to paragraph (d)(ii) or in the event of an exchange pursuant to paragraph (e)). ii. "corporation" shall mean a corporation, partnership, business trust, unincorporated organization, association or joint stock company. iii. "Junior Stock" shall mean any series or class of the capital stock of the Corporation now or hereafter authorized or issued by the Corporation ranking junior to the Series A Preferred Stock with respect to dividends or distributions or upon the liquidation, distribution of assets, dissolution or winding-up of the Corporation, including without limitation the Class A Common Stock and the Class B Common Stock. iv. "person" shall mean an individual, a corporation, partnership, trust, organization, association, government or any department or agency thereof, or any other individual or entity. B. CLASS A AND CLASS B COMMON STOCK Except as otherwise provided herein, all shares of Class A Common Stock and Class B Common Stock shall be identical and shall entitle the holders thereof to the same rights and privileges. (a) Dividends. Holders of Common Stock shall be entitled to receive ratably on a per -11- share basis such dividends as may be declared by the Board of Directors, provided that if dividends are declared which are payable in shares of Class A Common Stock or Class B Common Stock, dividends shall be declared which are payable at the same rate on each class of Common Stock and the dividends payable in shares of Class A Common Stock shall be payable to holders of Class A Common Stock and the dividends payable in shares of Class B Common Stock shall be payable to holders of Class B Common Stock. (b) Conversion. Each record holder of Class A Common Stock shall be entitled to convert any or all of such holder's Class A Common Stock into the same number of shares of Class B Common Stock and each record holder of Class B Common Stock shall be entitled to convert any or all of the shares of such holder's Class B Common Stock into the same number of shares of Class A Common Stock; provided, however, that at the time of conversion of shares of Class B Common Stock into shares of Class A Common Stock such holder would be permitted, pursuant to applicable law, to hold the total number of shares of Class A Common Stock which he would hold after giving effect to such conversion. Each conversion of shares of one class of Common Stock into shares of another class of Common Stock shall be effected by the surrender of the certificate or certificates representing the shares to be converted at the principal office of the Corporation at any time during normal business hours, together with a written notice by the holder of such shares stating the number of shares that any such holder desires to convert into the other class of Common Stock. Such conversion shall be deemed to have been effected as of the close of business on the date on which such certificate or certificates have been surrendered and such notice has been received by the Corporation, and at such time the rights of any such holder with respect to the converted class of Common Stock shall cease and the person or persons in whose name or names the certificate or certificates for shares of the other class of Common Stock are to be issued upon such conversion shall be deemed to have become the holder or holders of record of the shares of such other class of Common Stock represented thereby. -12- Promptly after such surrender and the receipt by the Corporation of the written notice from the holder hereinbefore referred to, the Corporation shall issue and deliver in accordance with the surrendering holder's instructions the certificate or certificates for the other class of Common Stock issuable upon such conversion and a certificate representing any shares of Common Stock which were represented by the certificate or certificates delivered to the Corporation in connection with such conversion but which were not converted. The issuance of certificates for the other class of Common Stock upon conversion shall be made without charge to the holder or holders of such shares for any issuance tax (except stock transfer taxes) in respect thereof or other cost incurred by the Corporation in connection with such conversion. (c) Transfers. The Corporation shall not close its books against the transfer of any share of Common Stock, or of any share of Common Stock issued or issuable upon conversion of shares of the other class of Common Stock, in any manner that would interfere with the timely conversion of such shares of Common Stock. (d) Subdivision and Combinations of Shares. If the Corporation in any manner subdivides or combines the outstanding shares of any class of Common Stock, the outstanding shares of the other class of Common Stock shall be proportionately subdivided or combined. (e) Reservation of Shares for Conversion. So long as any shares of any class of Common Stock are outstanding, the Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Class A Common Stock and Class B Common Stock (or any shares of Class A Common Stock or Class B Common Stock which are held as treasury shares), the number of shares sufficient for issuance upon conversion of the outstanding shares of common stock. (f) Distribution of Assets. In the event of the voluntary or involuntary liquidation, dissolution or winding up of the Corporation, holders of Common Stock shall be entitled to receive all of the remaining assets of the Corporation available for distribution to its -13- stockholders after all amounts to which the holders of Series A Preferred Stock are entitled have been paid or set aside in cash for payment. (g) Voting Rights. The holders of Class A Common Stock shall have the general right to vote for all purposes, including the election of directors, as provided by law. Each holder of Class A Common Stock shall be entitled to one vote for each share thereof held. There shall be no cumulative voting. Except as otherwise required by law, the holders of Class B Common Stock shall have no voting rights. (h) Merger, etc. In connection with any merger, consolidation, or recapitalization in which holders of Class A Common Stock generally receive, or are given the opportunity to receive, consideration for their shares, all holders of Class B Common Stock shall receive or be given the opportunity to receive, as the case may be, the same form of consideration for their shares in the same amount per share as is received by holders of Class A Common Stock. 5. Incorporator. The name and mailing address of the incorporator are Nikki Gold, 4000 Bell Atlantic Tower, 1717 Arch Street, Philadelphia, Pennsylvania 19103-2793. 6. Bylaws. In furtherance and not in limitation of the powers conferred by law, the board of directors of the Corporation is authorized to adopt, amend or repeal the bylaws of the Corporation, except as otherwise specifically provided therein, subject to the powers of the stockholders of the Corporation to amend or repeal any bylaws adopted by the board of directors. 7. Elections of Directors. Elections of directors need not be by written ballot unless and except to the extent the bylaws of the Corporation shall so provide. 8. Right to Amend. The Corporation reserves the right to amend or repeal any provision contained in this Certificate as the same may from time to time be in effect in the manner now or hereafter prescribed by law, and all rights, preferences and privileges conferred on stockholders, directors or others hereunder are subject to such reservation. 9. Limitation on Liability. The directors of the Corporation shall be entitled to the benefits of all limitations on the liability of directors generally that are now or hereafter -14- become available under the DGCL. Without limiting the generality of the foregoing, to the fullest extent permitted by the DGCL, as it exists on the date hereof or as it may hereafter be amended, no director of the Corporation shall be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the DGCL, or (iv) for any transaction from which the director derived an improper personal benefit. Any repeal or modification of this Section 9 or any adoption of any provision of this Certificate of Incorporation inconsistent with this Section 9 shall be prospective only, and shall not affect, to the detriment of any director, any limitation on the personal liability of a director of the Corporation existing at the time of such repeal, modification or adoption. Dated: March 10, 1997 ______________________________ Nikki Gold, Incorporator -15- EX-3.04 7 EX-3.04 Exhibit 3.04 BYLAWS OF FSC SEMICONDUCTOR CORPORATION ARTICLE I STOCKHOLDERS 1.1 Meetings. 1.1.1 Place. Meetings of the stockholders shall be held at such place as may be designated by the board of directors. 1.1.2 Annual Meeting. An annual meeting of the stockholders for the election of directors and for other business shall be held on such date and at such time as may be fixed by the board of directors. 1.1.3 Special Meetings. Special meetings of the stockholders may be called at any time by the president, or the board of directors, or the holders of a majority of the outstanding shares of stock of the Company entitled to vote at the meeting. 1.1.4 Quorum. The presence, in person or by proxy, of the holders of a majority of the outstanding shares of stock of the Company entitled to vote on a particular matter shall constitute a quorum for the purpose of considering such matter. 1.1.5 Voting Rights. Except as otherwise provided herein, in the certificate of incorporation or by law, every stockholder shall have the right at every meeting of stockholders to one vote for every share standing in the name of such stockholder on the books of the Company which is entitled to vote at such meeting. Every stockholder may vote either in person or by proxy. ARTICLE II DIRECTORS 2.1 Number and Term. The board of directors shall have authority to (i) determine the number of directors to constitute the board and (ii) fix the terms of office of the directors. 2.2 Meetings. 2.2.1 Place. Meetings of the board of directors shall be held at such place as may be designated by the board or in the notice of the meeting. 2.2.2 Regular Meetings. Regular meetings of the board of directors shall be held at such times as the board may designate. Notice of regular meetings need not be given. 2.2.3 Special Meetings. Special meetings of the board may be called by direction of the president or any two members of the board on three days' notice to each director, either personally or by mail, telegram or facsimile transmission. 2.2.4 Quorum. A majority of all the directors in office shall constitute a quorum for the transaction of business at any meeting. 2.2.5 Voting. Except as otherwise provided herein, in the certificate of incorporation or by law, the vote of a majority of the directors present at any meeting at which a quorum is present shall constitute the act of the board of directors. 2.2.6 Committees. The board of directors may, by resolution adopted by a majority of the whole board, designate one or more committees, each committee to consist of one or more directors and such alternate members (also directors) as may be designated by the board. Unless otherwise provided herein, in the absence or disqualification of any member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another director to act at the meeting in the place of any such absent or disqualified member. Except as otherwise provided herein, in the certificate of incorporation or by law, any such committee shall have and may exercise the powers of the full board of directors to the extent provided in the resolution of the board directing the committee. ARTICLE III OFFICERS 3.1 Election. At its first meeting after each annual meeting of the stockholders, the board of directors shall elect a president, treasurer, secretary and such other officers as it deems advisable. -2- 3.2 Authority, Duties and Compensation. The officers shall have such authority, perform such duties and serve for such compensation as may be determined by resolution of the board of directors. Except as otherwise provided by board resolution, (i) the president shall be the chief executive officer of the Company, shall have general supervision over the business and operations of the Company, may perform any act and execute any instrument for the conduct of such business and operations and shall preside at all meetings of the board and stockholders, (ii) the other officers shall have the duties customarily related to their respective offices, and (iii) any vice president, or vice presidents in the order determined by the board, shall in the absence of the president have the authority and perform the duties of the president. ARTICLE IV INDEMNIFICATION 4.1 Right to Indemnification. The Company shall indemnify any person who was or is party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (a "proceeding"), by reason of the fact that such person is or was a director or officer of the Company or a constituent corporation absorbed in a consolidation or merger, or is or was serving at the request of the Company or a constituent corporation absorbed in a consolidation or merger, as a director or officer of another corporation, partnership, joint venture, trust or other enterprise, or is or was a director or officer of the Company serving at its request as an administrator, trustee or other fiduciary of one or more of the employee benefit plans of the Company or other enterprise, against expenses (including attorneys' fees), liability and loss actually and reasonably incurred or suffered by such person in connection with such proceeding, whether or not the indemnified liability arises or arose from any threatened, pending or completed proceeding by or in the right of the Company, except to the extent that such indemnification is prohibited by applicable law. 4.2 Advance of Expenses. Expenses incurred by a director or officer of the Company in defending a proceeding shall be paid by the Company in advance of the final disposition of such proceeding subject to the provisions of any applicable statute. 4.3 Procedure for Determining Permissibility. To determine whether any indemnification or advance of expenses under this Article IV is permissible, the board of directors by a majority -3- vote of a quorum consisting of directors not parties to such proceeding may, and on request of any person seeking indemnification or advance of expenses shall be required to, determine in each case whether the applicable standards in any applicable statute have been met, or such determination shall be made by independent legal counsel if such quorum is not obtainable, or, even if obtainable, a majority vote of a quorum of disinterested directors so directs, provided that, if there has been a change in control of the Company between the time of the action or failure to act giving rise to the claim for indemnification or advance of expenses and the time such claim is made, at the option of the person seeking indemnification or advance of expenses, the permissibility of indemnification or advance of expenses shall be determined by independent legal counsel. The reasonable expenses of any director or officer in prosecuting a successful claim for indemnification, and the fees and expenses of any special legal counsel engaged to determine permissibility of indemnification or advance of expenses, shall be borne by the Company. 4.4 Contractual Obligation. The obligations of the Company to indemnify a director or officer under this Article IV, including the duty to advance expenses, shall be considered a contract between the Company and such director or officer, and no modification or repeal of any provision of this Article IV shall affect, to the detriment of the director or officer, such obligations of the Company in connection with a claim based on any act or failure to act occurring before such modification or repeal. 4.5 Indemnification Not Exclusive; Inuring of Benefit. The indemnification and advance of expenses provided by this Article IV shall not be deemed exclusive of any other right to which one indemnified may be entitled under any statute, provision of the Certificate of Incorporation, these bylaws, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in such person's official capacity and as to action in another capacity while holding such office, and shall inure to the benefit of the heirs, executors and administrators of any such person. 4.6 Insurance and Other Indemnification. The board of directors shall have the power to (i) authorize the Company to purchase and maintain, at the Company's expense, insurance on behalf of the Company and on behalf of others to the extent that power to do so has not been prohibited by statute, (ii) create any fund of any nature, whether or not under the control of a trustee, or otherwise secure any of its indemnification obligations, and -4- (iii) give other indemnification to the extent permitted by statute. ARTICLE V TRANSFER OF SHARE CERTIFICATES Transfers of share certificates and the shares represented thereby shall be made on the books of the Company only by the registered holder or by duly authorized attorney. Transfers shall be made only on surrender of the share certificate or certificates. ARTICLE VI AMENDMENTS These bylaws may be amended or repealed at any regular or special meeting of the board of directors by vote of a majority of all directors in office or at any annual or special meeting of stockholders by vote of holders of a majority of the outstanding stock entitled to vote. Notice of any such annual or special meeting of stockholders shall set forth the proposed change or a summary thereof. -5- EX-4.01 8 EX-4.01 Exhibit 4.01 INDENTURE dated as of March 11, 1997, among FAIRCHILD SEMICONDUCTOR CORPORATION, a Delaware corporation (the "Company"), FSC SEMICONDUCTOR CORPORATION ("Parent"), as Guarantor, and UNITED STATES TRUST COMPANY OF NEW YORK, a New York banking corporation (the "Trustee"). Each party agrees as follows for the benefit of the other party and for the equal and ratable benefit of the Holders of the Company's 10-1/8% Senior Subordinated Notes Due 2007 (the "Initial Securities") and, if and when issued pursuant to a registered exchange for Initial Securities, the Company's 10-1/8% Senior Subordinated Notes Due 2007 (the "Exchange Securities") and, if and when issued pursuant to a private exchange for Initial Securities, the Company's 10-1/8% Senior Subordinated Notes Due 2007 (the "Private Exchange Securities", together with the Exchange Securities and the Initial Securities, the "Securities"): ARTICLE 1 Definitions and Incorporation by Reference SECTION 1.01. Definitions. "Additional Assets" means (i) any property or assets (other than Indebtedness and Capital Stock) in a Related Business; (ii) the Capital Stock of a Person that becomes a Restricted Subsidiary as a result of the acquisition of such Capital Stock by the Company or another Restricted Subsidiary; or (iii) Capital Stock constituting a minority interest in any Person that at such time is a Restricted Subsidiary; PROVIDED, HOWEVER, that any such Restricted Subsidiary described in clauses (ii) or (iii) above is primarily engaged in a Related Business. "Affiliate" of any specified Person means any other Person, directly or indirectly, controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, "control" when used with respect to any Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. For purposes of Sec-tions 4.04, 4.06 and 4.07 only, "Affiliate" shall also mean any beneficial owner of Capital Stock representing 10% or more of the total voting power of the Voting Stock (on a fully diluted basis) of the Company or of rights or warrants to purchase such Capital Stock (whether or not currently exercisable) and any Person who would be an Affiliate of any such beneficial owner pursuant to the first sentence hereof. "Asset Disposition" means any sale, lease, transfer or other disposition (or series of related sales, leases, transfers or dispositions) by the Company or any Restricted Subsidiary, including any disposition by means of a merger, consolidation or similar transaction (each referred to for the purposes of this definition as a "disposition"), of (i) any shares of Capital Stock of a Restricted Subsidiary (other than directors' qualifying shares or shares required by applicable law to be held by a Person other than the Company or a Restricted Subsidiary), (ii) all or substantially all the assets of any division or line of business of the Company or any Restricted Subsidiary or (iii) any other assets of the Company or any Restricted Subsidiary outside of the ordinary course of business of the Company or such Restricted Subsidiary (other than, in the case of (i), (ii) and (iii) above, (x) a disposition by a Restricted Subsidiary to the Company or by the Company or a Restricted Subsidiary to a Wholly Owned Subsidiary, (y) for purposes of Section 4.06 only, a disposition that constitutes a Restricted Payment permitted by Section 4.04 and (z) disposition of assets with a fair market value of less than $100,000). "Attributable Debt" in respect of a Sale/Leaseback Transaction means, as at the time of determination, the present value (discounted at the interest rate borne by the Securities, compounded annually) of the total obligations of the lessee for rental payments during the remaining term of the lease included in such Sale/Leaseback Transaction (including any period for which such lease has been extended). "Average Life" means, as of the date of determination, with respect to any Indebtedness or Preferred Stock, the quotient obtained by dividing (i) the sum of the products of the numbers of years from the date of determination to the dates of each successive scheduled 2 principal payment of such Indebtedness or redemption or similar payment with respect to such Preferred Stock multiplied by the amount of such payment by (ii) the sum of all such payments. "Banks" has the meaning specified in the Credit Agreement. "Bank Indebtedness" means all Obligations pursuant to the Credit Agreement. "Board of Directors" means the Board of Directors of the Company or any committee thereof duly authorized to act on behalf of such Board. "Business Day" means each day which is not a Legal Holiday. "Capital Lease Obligations" means an obligation that is required to be classified and accounted for as a capital lease for financial reporting purposes in accordance with GAAP, and the amount of Indebtedness represented by such obligation shall be the capitalized amount of such obligation determined in accordance with GAAP; and the Stated Maturity thereof shall be the date of the last payment of rent or any other amount due under such lease prior to the first date upon which such lease may be terminated by the lessee without payment of a penalty. "Capital Stock" of any Person means any and all shares, interests, rights to purchase, warrants, options, participations or other equivalents of or interests in (however designated) equity of such Person, including any Preferred Stock, but excluding any debt securities convertible into such equity. "Change of Control" means the occurrence of any of the following events: (i) prior to the earlier to occur of (A) the first public offering of common stock of Parent or (B) the first public offering of common stock of the Company, the Permitted Holders cease to be the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act), directly or indirectly, of a majority in the aggregate of the total voting power of the Voting Stock of the Company, whether as a result of 3 issuance of securities of the Parent or the Company, any merger, consolidation, liquidation or dissolution of the Parent or the Company, any direct or indirect transfer of securities by Parent or otherwise (for purposes of this clause (i) and clauses (ii) and (iv) below, the Permitted Holders shall be deemed to beneficially own any Voting Stock of a Person (the "specified entity") held by any other Person (the "parent entity") so long as the Permitted Holders beneficially own (as so defined), directly or indirectly, in the aggregate a majority of the voting power of the Voting Stock of the parent entity) PROVIDED, HOWEVER, that notwithstanding the foregoing CVC shall be deemed to beneficially own a majority of the voting power of the Voting Stock of Sterling (or any successor) so long as CVC, employees, officers and directors of CVC and corporations, partnerships and other entities at least a majority of the equity in which is held in the aggregate by CVC and its employees, officers and directors hold in the aggregate no less than a majority of the economic interests in Sterling (or such successor); (ii) after the earlier to occur of (A) the first public offering of common stock of Parent or (B) the first public offering of common stock of the Company, any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act), other than one or more Permitted Holders, is or becomes the beneficial owner (as defined in clause (i) above, except that for purposes of this clause (ii) such person shall be deemed to have "beneficial ownership" of all shares that any such person has the right to acquire, whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of more than 35% of the total voting power of the Voting Stock of the Company; PROVIDED, HOWEVER, that the Permitted Holders beneficially own (as defined in clause (i) above), directly or indirectly, in the aggregate a lesser percentage of the total voting power of the Voting Stock of the Company than such other person and do not have the right or ability by voting power, contract or otherwise to elect or designate for election a majority of the Board of Directors (for the purposes of this clause (ii), such other person shall be deemed to beneficially own any Voting Stock of a specified entity held by a parent entity, if such other 4 person is the beneficial owner (as defined in this clause (ii)), directly or indirectly, of more than 35% of the voting power of the Voting Stock of such parent entity and the Permitted Holders beneficially own (as defined in clause (i) above), directly or indirectly, in the aggregate a lesser percentage of the voting power of the Voting Stock of such parent entity 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 such parent entity); (iii) during any period of two consecutive years, individuals who at the beginning of such period constituted the Board of Directors (together with any new directors (a) whose election by such Board of Directors or whose nomination for election by the stockholders of the Company was approved by a vote of a majority of the directors of the Company then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved or (b) who were elected to the Board of Directors pursuant to the Stockholders' Agreement) cease for any reason to constitute a majority of the Board of Directors then in office; or (iv) the merger or consolidation of the Company with or into another Person or the merger of another Person with or into the Company, or the sale of all or substantially all the assets of the Company to another Person (other than a Person that is controlled by the Permitted Holders), if the securities of the Company that are outstanding immediately prior to such transaction and which represent 100% of the aggregate voting power of the Voting Stock of the Company are changed into or exchanged for cash, securities or property, unless pursuant to such transaction such securities are changed into or exchanged for, in addition to any other consideration, securities of the surviving Person or transferee that represent, immediately after such transaction, at least a majority of the aggregate voting power of the Voting Stock of the surviving Person or transferee. "Code" means the Internal Revenue Code of 1986, as amended. 5 "Company" means the party named as such in this Indenture until a successor replaces it and, thereafter, means the successor and, for purposes of any provision contained herein and required by the TIA, each other obligor on the indenture securities. "Consolidated Coverage Ratio" as of any date of determination means the ratio of (i) the aggregate amount of EBITDA for the period of the most recent four consecutive fiscal quarters ending at least 45 days (or, if less, the number of days after the end of such fiscal quarter as the consolidated financial statements of the Company shall be provided to the Securityholders pursuant hereto) prior to the date of such determination to (ii) Consolidated Interest Expense for such four fiscal quarters; PROVIDED, HOWEVER, that (1) if the Company or any Restricted Subsidiary has Incurred any Indebtedness since the beginning of such period that remains outstanding or if the transaction giving rise to the need to calculate the Consolidated Coverage Ratio is an Incurrence of Indebtedness, or both, EBITDA and Consolidated Interest Expense for such period shall be calculated after giving effect on a pro forma basis to such Indebtedness as if such Indebtedness had been Incurred on the first day of such period and the discharge of any other Indebtedness repaid, repurchased, defeased or otherwise discharged with the proceeds of such new Indebtedness as if such discharge had occurred on the first day of such period, (2) if the Company or any Restricted Subsidiary has repaid, repurchased, defeased or otherwise discharged any Indebtedness since the beginning of such period or if any Indebtedness is to be repaid, repurchased, defeased or otherwise discharged (in each case other than Indebtedness Incurred under any revolving credit facility unless such Indebtedness has been permanently repaid and has not been replaced) on the date of the transaction giving rise to the need to calculate the Consolidated Coverage Ratio, EBITDA and Consolidated Interest Expense for such period shall be calculated on a pro forma basis as if such discharge had occurred on the first day of such period and as if the Company or such Restricted Subsidiary has not earned the interest income actually earned during such period in respect of cash or Temporary Cash Investments used to repay, repurchase, defease or otherwise discharge such Indebtedness, (3) if since the beginning of such period the Company or any Restricted Subsidiary shall have made any Asset Disposition, the EBITDA for such period shall be reduced by an amount equal to the EBITDA (if positive) directly 6 attributable to the assets which are the subject of such Asset Disposition for such period, or increased by an amount equal to the EBITDA (if negative), directly attributable thereto for such period and Consolidated Interest Expense for such period shall be reduced by an amount equal to the Consolidated Interest Expense directly attributable to any Indebtedness of the Company or any Restricted Subsidiary repaid, repurchased, defeased or otherwise discharged with respect to the Company and its continuing Restricted Subsidiaries in connection with such Asset Disposition for such period (or, if the Capital Stock of any Restricted Subsidiary is sold, the Consolidated Interest Expense for such period directly attributable to the Indebtedness of such Restricted Subsidiary to the extent the Company and its continuing Restricted Subsidiaries are no longer liable for such Indebtedness after such sale), (4) if since the beginning of such period the Company or any Restricted Subsidiary (by merger or otherwise) shall have made an Investment in any Restricted Subsidiary (or any person which becomes a Restricted Subsidiary) or an acquisition of assets, including any acquisition of assets occurring in connection with a transaction requiring a calculation to be made hereunder, which constitutes all or substantially all of an operating unit of a business, EBITDA and Consolidated Interest Expense for such period shall be calculated after giving pro forma effect thereto (including the Incurrence of any Indebtedness) as if such Investment or acquisition occurred on the first day of such period and (5) if since the beginning of such period any Person (that subsequently became a Restricted Subsidiary or was merged with or into the Company or any Restricted Subsidiary since the beginning of such period) shall have made any Asset Disposition, any Investment or acquisition of assets that would have required an adjustment pursuant to clause (3) or (4) above if made by the Company or a Restricted Subsidiary during such period, EBITDA and Consolidated Interest Expense for such period shall be calculated after giving pro forma effect thereto as if such Asset Disposition, Investment or acquisition occurred on the first day of such period. For purposes of this definition, whenever pro forma effect is to be given to an acquisition of assets, the amount of income or earnings relating thereto and the amount of Consolidated Interest Expense associated with any Indebtedness Incurred in connection therewith, the pro forma calculations shall be determined in good faith by a responsible financial or accounting Officer of the Company. If any Indebtedness bears a floating rate of interest and is being given pro 7 forma effect, the interest of such Indebtedness shall be calculated as if the rate in effect on the date of determination had been the applicable rate for the entire period (taking into account any Interest Rate Agreement applicable to such Indebtedness if such Interest Rate Agreement has a remaining term in excess of 12 months). "Consolidated Current Liabilities" as of the date of determination means the aggregate amount of liabilities of the Company and its consolidated Restricted Subsidiaries which may properly be classified as current liabilities (including taxes accrued as estimated), on a consolidated basis, after eliminating (i) all intercompany items between the Company and any Restricted Subsidiary and (ii) all current maturities of long-term Indebtedness, all as determined in accordance with GAAP consistently applied. "Consolidated Interest Expense" means, for any period, the total interest expense of the Company and its consolidated Restricted Subsidiaries, plus, to the extent not included in such total interest expense, and to the extent incurred by the Company or its Restricted Subsidiaries, without duplication, (i) interest expense attributable to Capital Lease Obligations and the interest expense attributable to leases constituting part of a Sale/Leaseback Transaction, (ii) amortization of debt discount and debt issuance cost, (iii) capitalized interest, (iv) non-cash interest expenses, (v) commissions, discounts and other fees and charges owed with respect to letters of credit and bankers' acceptance financing, (vi) net costs associated with Hedging Obligations (including amortization of fees), (vii) Preferred Stock dividends accrued by Consolidated Restricted Subsidiaries in respect of all Preferred Stock held by Persons other than the Company or a Restricted Subsidiary, (viii) interest incurred in connection with Investments in discontinued operations, (ix) interest accruing on any Indebtedness of any other Person to the extent such Indebtedness is Guaranteed by (or secured by the assets of) the Company or any Restricted Subsidiary and (x) the cash contributions to any employee stock ownership plan or similar trust to the extent such contributions are used by such plan or trust to pay interest or fees to any Person (other than the Company) in connection with Indebtedness Incurred by such plan or trust. "Consolidated Net Income" means, for any period, the net income of the Company and its consolidated Subsidi- 8 aries; PROVIDED, HOWEVER, that there shall not be included in such Consolidated Net Income: (i) any net income of any Person (other than the Company) if such Person is not a Restricted Subsidiary, except that (A) subject to the exclusion contained in clause (iv) below, the Company's equity in the net income of any such Person for such period shall be included in such Consolidated Net Income up to the aggregate amount of cash actually distributed by such Person during such period to the Company or a Restricted Subsidiary as a dividend or other distribution (subject, in the case of a dividend or other distribution paid to a Restricted Subsidiary, to the limitations contained in clause (iii) below) and (B) the Company's equity in a net loss of any such Person for such period shall be included in determining such Consolidated Net Income; (ii) any net income (or loss) of any Person acquired by the Company or a Subsidiary in a pooling of interests transaction for any period prior to the date of such acquisition; (iii) any net income of any Restricted Subsidiary if such Restricted Subsidiary is subject to restrictions, directly or indirectly, on the payment of dividends or the making of distributions by such Restricted Subsidiary, directly or indirectly, to the Company, except that (A) subject to the exclusion contained in clause (iv) below, the Company's equity in the net income of any such Restricted Subsidiary for such period shall be included in such Consolidated Net Income up to the aggregate amount of cash that could have been distributed by such Restricted Subsidiary consistent with such restrictions during such period to the Company or another Restricted Subsidiary as a dividend or other distribution (subject, in the case of a dividend or other distribution paid to another Restricted Subsidiary, to the limitation contained in this clause) and (B) the Company's equity in a net loss of any such Restricted Subsidiary for such period shall be included in determining such Consolidated Net Income; (iv) any gain (or loss) realized upon the sale or other disposition of any assets of the Company or its 9 consolidated Subsidiaries (including pursuant to any sale-and-leaseback arrangement) which is not sold or otherwise disposed of in the ordinary course of business and any gain (or loss) realized upon the sale or other disposition of any Capital Stock of any Person; (v) extraordinary gains or losses; and (vi) the cumulative effect of a change in accounting principles. Notwithstanding the foregoing, for the purpose of Section 4.04 only, there shall be excluded from Consolidated Net Income any dividends, repayments of loans or advances or other transfers of assets from Unrestricted Subsidiaries to the Company or a Restricted Subsidiary to the extent such dividends, repayments or transfers increase the amount of Restricted Payments permitted under such Section pursuant to clause (a)(3)(D) thereof. "Consolidated Net Tangible Assets" as of any date of determination, means the total amount of assets (less accumulated depreciation and amortization, allowances for doubtful receivables, other applicable reserves and other properly deductible items) which would appear on a consolidated balance sheet of the Company and its consolidated Restricted Subsidiaries, determined on a consolidated basis in accordance with GAAP, and after giving effect to purchase accounting and after deducting therefrom Consolidated Current Liabilities and, to the extent otherwise included, the amounts of : (i) minority interests in consolidated Subsidiaries held by Persons other than the Company or a Restricted Subsidiary; (ii) excess of cost over fair value of assets of businesses acquired, as determined in good faith by the Board of Directors; (iii) any revaluation or other write-up in book value of assets subsequent to the Issue Date as a result of a change in the method of valuation in accordance with GAAP consistently applied; (iv) unamortized debt discount and expenses and other unamortized deferred charges, goodwill, patents, trademarks, service marks, trade names, copyrights, licenses, organization or developmental expenses and other intangible items; (v) treasury stock; (vi) cash set apart and held in a sinking or other analogous fund established for the purpose of redemption or other retirement of Capital Stock to the extent such obligation is not reflected in 10 Consolidated Current Liabilities; and (vii) Investments in and assets of Unrestricted Subsidiaries. "Consolidated Net Worth" means the total of the amounts shown on the balance sheet of the Company and its consolidated Subsidiaries, determined on a consolidated basis in accordance with GAAP, as of the end of the most recent fiscal quarter of the Company ending at least 45 days prior to the taking of any action for the purpose of which the determination is being made, as (i) the par or stated value of all outstanding Capital Stock of the Company plus (ii) paid-in capital or capital surplus relating to such Capital Stock plus (iii) any retained earnings or earned surplus less (A) any accumulated deficit and (B) any amounts attributable to Disqualified Stock. "Credit Agreement" means the Credit Agreement to be entered into by and among Parent, the Company, certain of its Subsidiaries, the lenders referred to therein, Bankers Trust Company, as Administrative Agent, Credit Suisse First Boston, as Syndication Agent, and Canadian Imperial Bank of Commerce, as Documentation Agent, together with the related documents thereto (including without limitation the term loans and revolving loans thereunder, any guarantees and security documents), as amended, extended, renewed, restated, supplemented or otherwise modified (in whole or in part, and without limitation as to amount, terms, conditions, covenants and other provisions) from time to time, and any agreement (and related document) governing Indebtedness incurred to refund or refinance, in whole or in part, the borrowings and commitments then outstanding or permitted to be outstanding under such Credit Agreement or a successor Credit Agreement, whether by the same or any other lender or group of lenders. "Currency Agreement" means in respect of a Person any foreign exchange contract, currency swap agreement or other similar agreement to which such Person is a party or beneficiary. "CVC" means Citicorp Venture Capital Ltd. "Default" means any event which is, or after notice or passage of time or both would be, an Event of Default. 11 "Designated Senior Indebtedness" means (i) the Bank Indebtedness; PROVIDED, HOWEVER, that Bank Indebtedness outstanding under any Credit Agreement that Refinanced in part, but not in whole, the previously outstanding Bank Indebtedness shall only constitute Designated Senior Indebtedness if it meets the requirements of succeeding clause (ii); and (ii) any other Senior Indebtedness of the Company which, at the date of determination, has an aggregate principal amount outstanding of, or under which, at the date of determination, the holders thereof are committed to lend up to, at least $10 million and is specifically designated by the Company in the instrument evidencing or governing such Senior Indebtedness as "Designated Senior Indebtedness" for purposes of this Indenture. "Disqualified Stock" means, with respect to any Person, any Capital Stock which by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable) or upon the happening of any event (i) matures or is mandatorily redeemable pursuant to a sinking fund obligation or otherwise, (ii) is convertible or exchangeable for Indebtedness or Disqualified Stock or (iii) is redeemable at the option of the holder thereof, in whole or in part, in each case on or prior to the first anniversary of the Stated Maturity of the Securities; PROVIDED, HOWEVER, that any Capital Stock that would not constitute Disqualified Stock but for provisions thereof giving holders thereof the right to require such Person to repurchase or redeem such Capital Stock upon the occurrence of an "asset sale" or "change of control" occurring prior to the first anniversary of the Stated Maturity of the Securities shall not constitute Disqualified Stock if the "asset sale" or "change of control" provisions applicable to such Capital Stock are not more favorable to the holders of such Capital Stock than the provisions of Sections 4.06 and 4.09. "EBITDA" for any period means the sum of Consolidated Net Income, plus Consolidated Interest Expense plus the following to the extent deducted in calculating such Consolidated Net Income: (a) all income tax expense of the Company and its consolidated Restricted Subsidiaries, (b) depreciation expense of the Company and its consolidated Restricted Subsidiaries, (c) amortization expense of the Company and its consolidated Restricted Subsidiaries (excluding amortization expense attributable to a prepaid 12 cash item that was paid in a prior period) and (d) all other non-cash charges of the Company and its consolidated Restricted Subsidiaries (excluding any such non-cash charge to the extent that it represents an accrual of or reserve for cash expenditures in any future period), in each case for such period. Notwithstanding the foregoing, the provision for taxes based on the income or profits of, and the depreciation and amortization and non-cash charges of, a Restricted Subsidiary shall be added to Consolidated Net Income to compute EBITDA only to the extent (and in the same proportion) that the net income of such Restricted Subsidiary was included in calculating Consolidated Net Income and only if a corresponding amount would be permitted at the date of determination to be dividended to the Company by such Restricted Subsidiary without prior approval (that has not been obtained), pursuant to the terms of its charter and all agreements, instruments, judgments, decrees, orders, statutes, rules and governmental regulations applicable to such Restricted Subsidiary or its stockholders. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Foreign Subsidiary" means any Restricted Subsidiary not created or organized in the United States of America or any State thereof and that conducts substantially all its operations outside of the United States. "GAAP" means generally accepted accounting principles in the United States of America as in effect as of the Issue Date, including those set forth in (i) the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants, (ii) statements and pronouncements of the Financial Accounting Standards Board, (iii) such other statements by such other entity as approved by a significant segment of the accounting profession and (iv) the rules and regulations of the SEC governing the inclusion of financial statements (including pro forma financial statements) in periodic reports required to be filed pursuant to Section 13 of the Exchange Act, including opinions and pronouncements in staff accounting bulletins and similar written statements from the accounting staff of the SEC. All ratios and computations based on GAAP contained in this Indenture shall be computed in conformity with GAAP. 13 "Guarantee" means any obligation, contingent or otherwise, of any Person directly or indirectly guaranteeing any Indebtedness of any other Person and any obligation, direct or indirect, contingent or otherwise, of such Person (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation of such Person (whether arising by virtue of partnership arrangements, or by agreements to keep-well, to purchase assets, goods, securities or services, to take-or-pay or to maintain financial statement conditions or otherwise) or (ii) entered into for the purpose of assuring in any other manner the obligee of such Indebtedness of the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part); PROVIDED, HOWEVER, that the term "Guarantee" shall not include endorsements for collection or deposit in the ordinary course of business. The term "Guarantee" used as a verb has a corresponding meaning. The term "Guarantor" shall mean any Person Guaranteeing any obligation. "Guarantor" means the Parent and each Subsidiary Guarantor. "Guaranty" means the Parent Guaranty or any Subsidiary Guaranty. "Guaranty Agreement" means a supplemental indenture, in a form satisfactory to the Trustee, pursuant to which a successor to Parent, or any Subsidiary Guarantor, becomes subject to the applicable terms and conditions hereof. "Hedging Obligations" of any Person means the obligations of such Person pursuant to any Interest Rate Agreement or Currency Agreement. "Holder" or "Securityholder" means the Person in whose name a Security is registered on the Registrar's books. "Incur" means issue, assume, Guarantee, incur or otherwise become liable for; PROVIDED, HOWEVER, that any Indebtedness or Capital Stock of a Person existing at the time such Person becomes a Subsidiary (whether by merger, consolidation, acquisition or otherwise) shall be deemed to be Incurred by such Subsidiary at the time it becomes a Subsidiary. The term "Incurrence" when used as a noun shall 14 have a correlative meaning. The accretion of principal of a non-interest bearing or other discount security shall not be deemed the Incurrence of Indebtedness. "Indebtedness" means, with respect to any Person on any date of determination (without duplication): (i) the principal of and premium (if any) in respect of (A) indebtedness of such Person for money borrowed and (B) indebtedness evidenced by notes, debentures, bonds or other similar instruments for the payment of which such Person is responsible or liable; (ii) all Capital Lease Obligations of such Person and all Attributable Debt in respect of Sale/Leaseback Transactions entered into by such Person; (iii) all obligations of such Person issued or assumed as the deferred purchase price of property, all conditional sale obligations of such Person and all obligations of such Person under any title retention agreement (but excluding trade accounts payable arising in the ordinary course of business); (iv) all obligations of such Person for the reimbursement of any obligor on any letter of credit, banker's acceptance or similar credit transaction (other than obligations with respect to letters of credit securing obligations (other than obligations described in clauses (i) through (iii) above) entered into in the ordinary course of business of such Person to the extent such letters of credit are not drawn upon or, if and to the extent drawn upon, such drawing is reimbursed no later than the tenth Business Day following payment on the letter of credit); (v) the amount of all obligations of such Person with respect to the redemption, repayment or other repurchase of any Disqualified Stock or, with respect to any Subsidiary of such Person, the liquidation preference with respect to, any Preferred Stock (but excluding, in each case, any accrued dividends); (vi) all obligations of the type referred to in clauses (i) through (v) of other Persons and all dividends of other Persons for the payment of which, in either case, such Person is responsible or liable, 15 directly or indirectly, as obligor, guarantor or otherwise, including by means of any Guarantee; (vii) all obligations of the type referred to in clauses (i) through (vi) of other Persons secured by any Lien on any property or asset of such Person (whether or not such obligation is assumed by such Person), the amount of such obligation being deemed to be the lesser of the value of such property or assets or the amount of the obligation so secured; and (viii) to the extent not otherwise included in this definition, Hedging Obligations of such Person. The amount of Indebtedness of any Person at any date shall be the outstanding balance at such date of all unconditional obligations as described above and the maximum liability, upon the occurrence of the contingency giving rise to the obligation, of any contingent obligations at such date; PROVIDED, HOWEVER, that the amount outstanding at any time of any Indebtedness issued with original issue discount shall be deemed to be the face amount of such Indebtedness less the remaining unamortized portion of the original issue discount of such indebtedness at such time as determined in accordance with GAAP. "Indenture" means this Indenture as amended or supplemented from time to time. "Interest Rate Agreement" means in respect of a Person any interest rate swap agreement, interest rate cap agreement or other financial agreement or arrangement designed to protect such Person against fluctuations in interest rates. "Investment" in any Person means any direct or indirect advance, loan (other than advances to customers in the ordinary course of business that are recorded as accounts receivable on the balance sheet of the lender) or other extensions of credit (including by way of Guarantee or similar arrangement) or capital contribution to (by means of any transfer of cash or other property to others or any payment for property or services for the account or use of others), or any purchase or acquisition of Capital Stock, Indebtedness or other similar instruments issued by such Person. For purposes of the definition of "Unrestricted Subsidiary", the definition of "Restricted Payment" and 16 Section 4.04, (i) "Investment" shall include the portion (proportionate to the Company's equity interest in such Subsidiary) of the fair market value of the net assets of any Subsidiary of the Company at the time that such Subsidiary is designated an Unrestricted Subsidiary; PROVIDED, HOWEVER, that upon a redesignation of such Subsidiary as a Restricted Subsidiary, the Company shall be deemed to continue to have a permanent "Investment" in an Unrestricted Subsidiary equal to an amount (if positive) equal to (x) the Company's "Investment" in such Subsidiary at the time of such redesignation less (y) the portion (proportionate to the Company's equity interest in such Subsidiary) of the fair market value of the net assets of such Subsidiary at the time of such redesignation; and (ii) any property transferred to or from an Unrestricted Subsidiary shall be valued at its fair market value at the time of such transfer, in each case as determined in good faith by the Board of Directors. "Issue Date" means the date on which the Initial Securities are originally issued. "Lien" means any mortgage, pledge, security interest, encumbrance, lien or charge of any kind (including any conditional sale or other title retention agreement or lease in the nature thereof). "Net Available Cash" from an Asset Disposition means cash payments received therefrom (including any cash payments received by way of deferred payment of principal pursuant to a note or installment receivable or otherwise and proceeds from the sale or other disposition of any securities received as consideration, but only as and when received, but excluding any other consideration received in the form of assumption by the acquiring Person of Indebtedness or other obligations relating to such properties or assets or received in any other non-cash form), in each case net of (i) all legal, title and recording tax expenses, commissions and other fees and expenses incurred, and all Federal, state, provincial, foreign and local taxes required to be accrued as a liability under GAAP, as a consequence of such Asset Disposition, (ii) all payments made on any Indebtedness which is secured by any assets subject to such Asset Disposition, in accordance with the terms of any Lien upon or other security agreement of any kind with respect to such assets, or which must by its terms, or in order to obtain a 17 necessary consent to such Asset Disposition, or by applicable law, be repaid out of the proceeds from such Asset Disposition, (iii) all distributions and other payments required to be made to minority interest holders in Subsidiaries or joint ventures as a result of such Asset Disposition and (iv) the deduction of appropriate amounts provided by the seller as a reserve, in accordance with GAAP, against any liabilities associated with the property or other assets disposed in such Asset Disposition and retained by the Company or any Restricted Subsidiary after such Asset Disposition. "Net Cash Proceeds", with respect to any issuance or sale of Capital Stock, means the cash proceeds of such issuance or sale net of attorneys' fees, accountants' fees, underwriters' or placement agents' fees, discounts or commissions and brokerage, consultant and other fees actually incurred in connection with such issuance or sale and net of taxes paid or payable as a result thereof. "Obligations" means with respect to any Indebtedness all obligations for principal, premium, interest, penalties, fees, indemnifications, reimbursements and other amounts payable pursuant to the documentation governing such Indebtedness. "Officer" means the Chairman of the Board, the President, any Vice President, the Treasurer or the Secretary of the Company. "Officers' Certificate" means a certificate signed by two Officers. "Opinion of Counsel" means a written opinion from legal counsel who is acceptable to the Trustee. The counsel may be an employee of or counsel to the Company or the Trustee. "Parent" means FSC Semiconductor Corporation, a Delaware corporation. "Parent Guaranty" means the Guaranty by Parent of the Company's obligations with respect to the Securities contained herein. "Permitted Holders" means (i) CVC, (ii) any officer, employee or director of CVC or any trust, 18 partnership or other entity established solely for the benefit of such officers, employees or directors, (iii) any officer, employee or director of Parent, the Company or any Subsidiary or any trust, partnership or other entity established solely for the benefit of such officers, employees or directors, and (iv) in the case of any individual, any Permitted Transferee of such individual (as defined in the Stockholders' Agreement), except a Permitted Transferee by virtue of Section 3.4(b)(iv) thereof; PROVIDED, HOWEVER, that in no event shall individuals collectively be deemed to be "Permitted Holders" with respect to more than 30% of the total voting power of Parent or the Company. "Permitted Investment" means an Investment by the Company or any Restricted Subsidiary in (i) a Restricted Subsidiary or a Person that will, upon the making of such Investment, become a Restricted Subsidiary; PROVIDED, HOWEVER, that the primary business of such Restricted Subsidiary is a Related Business; (ii) another Person if as a result of such Investment such other Person is merged or consolidated with or into, or transfers or conveys all or substantially all its assets to, the Company or a Restricted Subsidiary; PROVIDED, HOWEVER, that such Person's primary business is a Related Business; (iii) Temporary Cash Investments; (iv) receivables owing to the Company or any Restricted Subsidiary if created or acquired in the ordinary course of business and payable or dischargeable in accordance with customary trade terms; PROVIDED, HOWEVER, that such trade terms may include such concessionary trade terms as the Company or any such Restricted Subsidiary deems reasonable under the circumstances; (v) payroll, travel and similar advances to cover matters that are expected at the time of such advances ultimately to be treated as expenses for accounting purposes and that are made in the ordinary course of business; (vi) loans or advances to employees made in the ordinary course of business consistent with past practices of the Company or such Restricted Subsidiary; and (vii) stock, obligations or securities received in settlement of debts created in the ordinary course of business and owing to the Company or any Restricted Subsidiary or in satisfaction of judgments; and (viii) any Person to the extent such Investment represents the non-cash portion of the consideration received for an Asset Disposition as permitted pursuant to Section 4.06. 19 "Person" means any individual, corporation, partnership, limited liability company, joint venture, association, joint-stock company, trust, unincorporated organization, government or any agency or political subdivision thereof or any other entity. "Preferred Stock", as applied to the Capital Stock of any Person, means Capital Stock of any class or classes (however designated) which is preferred as to the payment of dividends or distributions, or as to the distribution of assets upon any voluntary or involuntary liquidation or dissolution of such Person, over shares of Capital Stock of any other class of such Person. "principal" of a Security means the principal of the Security plus the premium, if any, payable on the Security which is due or overdue or is to become due at the relevant time. "Public Equity Offering" means an underwritten primary public offering of common stock of (i) the Company or (ii) the Parent (to the extent the proceeds thereof are contemporaneously contributed to the Company), in each case pursuant to an effective registration statement under the Securities Act. "Refinance" means, in respect of any Indebtedness, to refinance, extend, renew, refund, repay, prepay, redeem, defease or retire, or to issue other Indebtedness in exchange or replacement for, such indebtedness. "Refinanced" and "Refinancing" shall have correlative meanings. "Refinancing Indebtedness" means Indebtedness that Refinances any Indebtedness of the Company or any Restricted Subsidiary existing on the Issue Date or Incurred in compliance with this Indenture, including Indebtedness that Refinances Refinancing Indebtedness; PROVIDED, HOWEVER, that (i) such Refinancing Indebtedness has a Stated Maturity no earlier than the Stated Maturity of the Indebtedness being Refinanced, (ii) such Refinancing Indebtedness has an Average Life at the time such Refinancing Indebtedness is Incurred that is equal to or greater than the Average Life of the Indebtedness being Refinanced and (iii) such Refinancing Indebtedness has an aggregate principal amount (or if Incurred with original issue discount, an aggregate issue price) that is equal to or less than the aggregate 20 principal amount (or if Incurred with original issue discount, the aggregate accreted value) then outstanding or committed (plus fees and expenses, including any premium and defeasance costs) under the Indebtedness being Refinanced; PROVIDED FURTHER, HOWEVER, that Refinancing Indebtedness shall not include (x) Indebtedness of a Subsidiary that Refinances Indebtedness of the Company or (y) Indebtedness of the Company or a Restricted Subsidiary that Refinances Indebtedness of an Unrestricted Subsidiary. "Registration Rights Agreement" means the Registration Rights Agreement dated March 6, 1997, among Parent, the Company and Credit Suisse First Boston Corporation, BT Securities Corporation and CIBC Wood Gundy Securities Corp., as Initial Purchasers. "Related Business" means any business related, ancillary or complementary to the businesses of the Company and the Restricted Subsidiaries on the Issue Date. "Representative" means any trustee, agent or representative (if any) for an issue of Senior Indebtedness of the Company; PROVIDED, HOWEVER, that if and for so long as any Senior Indebtedness lacks such a representative, then the Representative for such Senior Indebtedness shall at all times be the holders of a majority in outstanding principal amount of such Senior Indebtedness. "Restricted Payment" with respect to any Person means (i) the declaration or payment of any dividends or any other distributions of any sort in respect of its Capital Stock (including any payment in connection with any merger or consolidation involving such Person) or similar payment to the direct or indirect holders of its Capital Stock (other than dividends or distributions payable solely in its Capital Stock (other than Disqualified Stock) and dividends or distributions payable solely to the Company or a Restricted Subsidiary, and other than pro rata dividends or other distributions made by a Subsidiary that is not a Wholly Owned Subsidiary to minority stockholders (or owners of an equivalent interest in the case of a Subsidiary that is an entity other than a corporation)), (ii) the purchase, redemption or other acquisition or retirement for value of any Capital Stock of the Company held by any Person or of any Capital Stock of a Restricted Subsidiary held by any Affiliate of the Company (other than a Restricted Subsidiary), including the exercise of any option to 21 exchange any Capital Stock (other than into Capital Stock of the Company that is not Disqualified Stock), (iii) the purchase, repurchase, redemption, defeasance or other acquisition or retirement for value, prior to scheduled maturity, scheduled repayment or scheduled sinking fund payment of any Subordinated Obligations (other than the purchase, repurchase or other acquisition of Subordinated Obligations purchased in anticipation of satisfying a sinking fund obligation, principal installment or final maturity, in each case due within one year of the date of acquisition) or (iv) the making of any Investment in any Person (other than a Permitted Investment). "Restricted Subsidiary" means any Subsidiary of the Company that is not an Unrestricted Subsidiary. "Revolving Credit Facilities" means the revolving credit facility contained in the Credit Agreement and any other facility or financing arrangement that Refinances or replaces, in whole or in part, any such revolving credit facility. "Sale/Leaseback Transaction" means an arrangement relating to property now owned or hereafter acquired whereby the Company or a Restricted Subsidiary transfers such property to a Person and the Company or a Restricted Subsidiary leases it from such Person. "SEC" means the Securities and Exchange Commission. "Secured Indebtedness" means any Indebtedness of the Company secured by a Lien. "Securities" means the Securities issued under this Indenture. "Senior Indebtedness" of any Person means all (i) Bank Indebtedness of or guaranteed by such Person, whether outstanding on the Issue Date or thereafter Incurred, and (ii) Indebtedness of such Person, whether outstanding on the Issue Date or thereafter Incurred, including interest thereon, in respect of (A) Indebtedness for money borrowed, (B) Indebtedness evidenced by notes, debentures, bonds or other similar instruments for the payment of which such Person is responsible or liable and (C) Hedging Obligations, unless, in the case of (i) and 22 (ii), in the instrument creating or evidencing the same or pursuant to which the same is outstanding, it is provided that such obligations are subordinate in right of payment to the obligations under the Securities; PROVIDED, HOWEVER, that Senior Indebtedness shall not include (1) any obligation of such Person to any subsidiary of such Person, (2) any liability for Federal, state, local or other taxes owed or owing by such Person, (3) any accounts payable or other liability to trade creditors arising in the ordinary course of business (including guarantees thereof or instruments evidencing such liabilities), (4) any Indebtedness of such Person (and any accrued and unpaid interest in respect thereof) which is subordinate or junior by its terms to any other Indebtedness or other obligation of such Person or (5) that portion of any Indebtedness which at the time of Incurrence is Incurred in violation of this Indenture (but as to any such Indebtedness under the Credit Agreement, no such violation shall be deemed to exist if the Representative of the Lenders thereunder shall have received an officers' certificate of the Company to the effect that the issuance of such Indebtedness does not violate such covenant and setting forth in reasonable detail the reasons therefor). "Senior Subordinated Indebtedness" means (i) with respect to the Company, the Securities and any other Indebtedness of the Company that specifically provides that such Indebtedness is to rank PARI PASSU with the Securities in right of payment and is not subordinated by its terms in right of payment to any Indebtedness or other obligation of the Company which is not Senior Indebtedness of the Company and (ii) with respect to the Parent or a Subsidiary Guarantor, their respective Guarantees of the Notes and any other indebtedness of such Person that specifically provides that such Indebtedness rank PARI PASSU with such Guarantee in respect of payment and is not subordinated by its terms in respect of payment to any Indebtedness or other obligation of such Person which is not Senior Indebtedness of such Person. "Significant Subsidiary" means any Restricted Subsidiary that would be a "Significant Subsidiary" of the Company within the meaning of Rule 1-02 under Regulation S-X promulgated by the SEC. "Stated Maturity" means, with respect to any security, the date specified in such security as the fixed 23 date on which the final payment of principal of such security is due and payable, including pursuant to any mandatory redemption provision (but excluding any provision providing for the repurchase of such security at the option of the holder thereof upon the happening of any contingency unless such contingency has occurred). "Sterling" means Sterling Holding Company LLC, a Delaware limited liability company. "Stockholders' Agreement" means the Securities Purchase and Holders Agreement among the stockholders of Parent, as in effect on the Issue Date. "Subordinated Obligation" means any Indebtedness of the Company or any Subsidiary Guarantor (whether outstanding on the Issue Date or thereafter Incurred) which is subordinate or junior in right of payment to, in the case of the Company, the Securities or, in the case of such Subsidiary Guarantor, its Subsidiary Guaranty, pursuant to a written agreement to that effect. "Subsidiary" means, in respect of any Person, any corporation, association, partnership or other business entity of which more than 50% of the total voting power of shares of Capital Stock or other interests (including partnership interests) entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by (i) such Person, (ii) such Person and one or more Subsidiaries of such Person or (iii) one or more Subsidiaries of such Person. "Subsidiary Guarantor" means any subsidiary of the Company that guarantees the Company's obligations with respect to the Securities. "Subsidiary Guaranty" means a Guarantee by a Subsidiary Guarantor of the Company's obligations with respect to the Securities. "Temporary Cash Investments" means any of the following: (i) any investment in direct obligations of the United States of America or any agency thereof or obligations guaranteed by the United States of America or any agency thereof, (ii) investments in time deposit accounts, certificates of deposit and money market deposits 24 maturing within 180 days of the date of acquisition thereof issued by a bank or trust company which is organized under the laws of the United States of America, any state thereof or any foreign country recognized by the United States of America, and which bank or trust company has capital, surplus and undivided profits aggregating in excess of $50,000,000 (or the foreign currency equivalent thereof) and has outstanding debt that is rated "A" (or such similar equivalent rating) or higher by at least one nationally recognized statistical rating organization (as defined in Rule 436 under the Securities Act) or any money-market fund sponsored by a registered broker dealer or mutual fund distributor, (iii) repurchase obligations with a term of not more than 30 days for underlying securities of the types described in clause (i) above entered into with a bank meeting the qualifications described in clause (ii) above, (iv) investments in commercial paper, maturing not more than 90 days after the date of acquisition, issued by a corporation (other than an Affiliate of the Company) organized and in existence under the laws of the United States of America or any foreign country recognized by the United States of America with a rating at the time as of which any investment therein is made of "P-1" (or higher) according to Moody's Investors Service, Inc. or "A-1" (or higher) according to Standard and Poor's Ratings Group, and (v) investments in securities with maturities of six months or less from the date of acquisition issued or fully guaranteed by any state, commonwealth or territory of the United States of America, or by any political subdivision or taxing authority thereof, and rated at least "A" by Standard & Poor's Ratings Group or "A" by Moody's Investors Service, Inc. "Term Loan Facilities" means the term loan facilities contained in the Credit Agreement and any other facility or financing arrangement that Refinances in whole or in part any such term loan facility. "TIA" means the Trust Indenture Act of 1939 (15 U.S.C. Sections ------ 77aaa-77bbbb) as in effect on the date of this Indenture. "Trustee" means the party named as such in this Indenture until a successor replaces it and, thereafter, means the successor. 25 "Trust Officer" means the Chairman of the Board, the President or any other officer or assistant officer of the Trustee assigned by the Trustee to administer its corporate trust matters. "Uniform Commercial Code" means the New York Uniform Commercial Code as in effect from time to time. "Unrestricted Subsidiary" means (i) any Subsidiary of the Company that at the time of determination shall be designated an Unrestricted Subsidiary by the Board of Directors in the manner provided below and (ii) any Subsidiary of an Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary of the Company (including any newly acquired or newly formed Subsidiary of the Company) to be an Unrestricted Subsidiary unless such Subsidiary or any of its Subsidiaries owns any Capital Stock or Indebtedness of, or owns or holds any Lien on any property of, the Company or any other Subsidiary of the Company that is not a Subsidiary of the Subsidiary to be so designated; PROVIDED, HOWEVER, that either (A) the Subsidiary to be so designated has total assets of $1,000 or less or (B) if such Subsidiary has assets greater than $1,000, such designation would be permitted under Section 4.04. The Board of Directors may designate any Unrestricted Subsidiary to be a Restricted Subsidiary; PROVIDED, HOWEVER, that immediately after giving effect to such designation (x) the Company could Incur $1.00 of additional Indebtedness under Section 4.03(a) and (y) no Default shall have occurred and be continuing. Any such designation by the Board of Directors shall be evidenced to the Trustee by promptly filing with the Trustee a copy of the resolution of the Board of Directors giving effect to such designation and an Officers' Certificate certifying that such designation complied with the foregoing provisions. "U.S. Government Obligations" means direct obligations (or certificates representing an ownership interest in such obligations) of the United States of America (including any agency or instrumentality thereof) for the payment of which the full faith and credit of the United States of America is pledged and which are not callable or redeemable at the issuer's option. "Voting Stock" of a Person means all classes of Capital Stock or other interests (including partnership 26 interests) of such Person then outstanding and normally entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof. "Wholly Owned Subsidiary" means a Restricted Subsidiary all the Capital Stock of which (other than directors' qualifying shares) is owned by the Company or one or more Wholly Owned Subsidiaries. SECTION 1.02. Other Definitions. Defined in Term Section ---- ----------- "Affiliate Transaction" ................ 4.08 "Bankruptcy Law" ....................... 6.01 "Blockage Notice" ...................... 10.03 "covenant defeasance option" ........... 8.01(b) "Custodian" ............................ 6.01 "Event of Default" ..................... 6.01 "legal defeasance option" .............. 8.01(b) "Legal Holiday" ........................ 13.08 "Offer" ................................ 4.07(b) "Offer Amount" ......................... 4.07(c)(2) "Offer Period" ......................... 4.07(c)(2) "pay the Securities" ................... 10.03 "Paying Agent" ......................... 2.03 "Payment Blockage Period" .............. 10.03 "Purchase Date" ........................ 4.07(c)(1) "Registrar"............................. 2.03 "Successor Company" .................... 5.01 SECTION 1.03. Incorporation by Reference of Trust Indenture Act. This Indenture is subject to the mandatory provisions of the TIA which are incorporated by reference in and made a part of this Indenture. The following TIA terms have the following meanings: "Commission" means the SEC; "indenture securities" means the Securities; "indenture security holder" means a Securityholder; "indenture to be qualified" means this Indenture; 27 "indenture trustee" or "institutional trustee" means the Trustee; and "obligor" on the indenture securities means the Company and any other obligor on the indenture securities. All other TIA terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by SEC rule have the meanings assigned to them by such definitions. SECTION 1.04. Rules of Construction. Unless the context otherwise requires: (1) a term has the meaning assigned to it; (2) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP; (3) "or" is not exclusive; (4) "including" means including without limitation; (5) words in the singular include the plural and words in the plural include the singular; (6) unsecured Indebtedness shall not be deemed to be subordinate or junior to Secured Indebtedness merely by virtue of its nature as unsecured Indebtedness; (7) the principal amount of any noninterest bearing or other discount security at any date shall be the principal amount thereof that would be shown on a balance sheet of the issuer dated such date prepared in accordance with GAAP; (8) the principal amount of any Preferred Stock shall be (i) the maximum liquidation value of such Preferred Stock or (ii) the maximum mandatory redemption or mandatory repurchase price with respect to such Preferred Stock, whichever is greater; and (9) all references to the date the Securities were originally issued shall refer to the date the Initial Securities were originally issued. 28 ARTICLE 2 The Securities SECTION 2.01. Form and Dating. Provisions relating to the Initial Securities, the Private Exchange Securities and the Exchange Securities are set forth in the Rule 144A/Regulation S Appendix attached hereto (the "Appendix") which is hereby incorporated in and expressly made part of this Indenture. The Initial Securities and the Trustee's certificate of authentication shall be substantially in the form of Exhibit 1 to the Appendix which is hereby incorporated in and expressly made a part of this Indenture. The Exchange Securities, the Private Exchange Securities and the Trustee's certificate of authentication shall be substantially in the form of Exhibit A, which is hereby incorporated in and expressly made a part of this Indenture. The Securities may have notations, legends or endorsements required by law, stock exchange rule, agreements to which the Company is subject, if any, or usage (provided that any such notation, legend or endorsement is in a form acceptable to the Company). Each Security shall be dated the date of its authentication. The terms of the Securities set forth in the Appendix and Exhibit A are part of the terms of this Indenture. SECTION 2.02. Execution and Authentication. Two Officers shall sign the Securities for the Company by manual or facsimile signature. The Company's seal shall be impressed, affixed, imprinted or reproduced on the Securities and may be in facsimile form. If an Officer whose signature is on a Security no longer holds that office at the time the Trustee authenticates the Security, the Security shall be valid nevertheless. A Security shall not be valid until an authorized signatory of the Trustee manually signs the certificate of authentication on the Security. The signature shall be conclusive evidence that the Security has been authenticated under this Indenture. The Trustee shall authenticate and deliver Securities for original issue upon a written order of the Company signed by two Officers or by an Officer and either an Assistant Treasurer or an Assistant Secretary of the 29 Company. Such order shall specify the amount of the Securities to be authenticated (not to exceed $300,000,000) and the date on which the original issue of Securities is to be authenticated. The aggregate principal amount of Securities outstanding at any time may not exceed that amount except as provided in Section 2.07. The Trustee may appoint an authenticating agent reasonably acceptable to the Company to authenticate the Securities. Unless limited by the terms of such appointment, an authenticating agent may authenticate Securities whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such agent. An authenticating agent has the same rights as any Registrar, Paying Agent or agent for service of notices and demands. SECTION 2.03. Registrar and Paying Agent. The Company shall maintain an office or agency where Securities may be presented for registration of transfer or for exchange (the "Registrar") and an office or agency where Securities may be presented for payment (the "Paying Agent"). The Registrar shall keep a register of the Securities and of their transfer and exchange. The Company may have one or more co-registrars and one or more additional paying agents. The term "Paying Agent" includes any additional paying agent. The Company shall enter into an appropriate agency agreement with any Registrar, Paying Agent or co-registrar not a party to this Indenture, which shall incorporate the terms of the TIA. The agreement shall implement the provisions of this Indenture that relate to such agent. The Company shall notify the Trustee of the name and address of any such agent. If the Company fails to maintain a Registrar or Paying Agent, the Trustee shall act as such and shall be entitled to appropriate compensation therefor pursuant to Section 7.07. The Company or any of its domestically incorporated Wholly Owned Subsidiaries may act as Paying Agent, Registrar, co-registrar or transfer agent. The Company initially appoints the Trustee as Registrar and Paying Agent in connection with the Securities. SECTION 2.04. Paying Agent To Hold Money in Trust. Prior to each due date of the principal and interest 30 on any Security, the Company shall deposit with the Paying Agent a sum sufficient to pay such principal and interest when so becoming due. The Company shall require each Paying Agent (other than the Trustee) to agree in writing that the Paying Agent shall hold in trust for the benefit of Securityholders or the Trustee all money held by the Paying Agent for the payment of principal of or interest on the Securities and shall notify the Trustee of any default by the Company in making any such payment, and while any such default continues, the Trustee may require the Paying Agent to pay all money held by it to the Trustee. If the Company or a Subsidiary acts as Paying Agent, it shall segregate the money held by it as Paying Agent and hold it as a separate trust fund. The Company at any time may require a Paying Agent to pay all money held by it to the Trustee and to account for any funds disbursed by the Paying Agent. Upon complying with this Section, the Paying Agent shall have no further liability for the money delivered to the Trustee. SECTION 2.05. Securityholder Lists. The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of Securityholders. If the Trustee is not the Registrar, the Company shall furnish to the Trustee, in writing at least five Business Days before each interest payment date and at such other times as the Trustee may request in writing, a list in such form and as of such date as the Trustee may reasonably require of the names and addresses of Securityholders. SECTION 2.06. Transfer and Exchange. The Securities shall be issued in registered form and shall be transferable only upon the surrender of a Security for registration of transfer. When a Security is presented to the Registrar or a co-registrar with a request to register a transfer, the Registrar shall register the transfer as requested if the requirements of Section 8-401(1) of the Uniform Commercial Code are met. When Securities are presented to the Registrar or a co-registrar with a request to exchange them for an equal principal amount of Securities of other denominations, the Registrar shall make the exchange as requested if the same requirements are met. To permit registration of transfers and exchanges, the Company shall execute and the Trustee shall authenticate Securities at the Registrar's or co-registrar's request. The Company may require payment of a sum sufficient to pay all taxes, assessments or other governmental charges in connection with 31 any transfer or exchange pursuant to this Section. The Company shall not be required to make and the Registrar need not register transfers or exchanges of Securities selected for redemption (except, in the case of Securities to be redeemed in part, the portion thereof not to be redeemed) or any Securities for a period of 15 days before a selection of Securities to be redeemed or 15 days before an interest payment date. Prior to the due presentation for registration of transfer of any Security, the Company, the Trustee, the Paying Agent, the Registrar or any co-registrar may deem and treat the person in whose name a Security is registered as the absolute owner of such Security for the purpose of receiving payment of principal of and (subject to the provisions of the Securities with respect to record dates) interest on such Security and for all other purposes whatsoever, whether or not such Security is overdue, and none of the Company, the Trustee, the Paying Agent, the Registrar or any co-registrar shall be affected by notice to the contrary. All Securities issued upon any transfer or exchange pursuant to the terms of this Indenture will evidence the same debt and will be entitled to the same benefits under this Indenture as the Securities surrendered upon such transfer or exchange. SECTION 2.07. Replacement Securities. If a mutilated Security is surrendered to the Registrar or if the Holder of a Security claims that the Security has been lost, destroyed or wrongfully taken, the Company shall issue and the Trustee shall authenticate a replacement Security if the requirements of Section 8-405 of the Uniform Commercial Code are met and the Holder satisfies any other reasonable requirements of the Trustee. If required by the Trustee or the Company, such Holder shall furnish an indemnity bond sufficient in the judgment of the Company and the Trustee to protect the Company, the Trustee, the Paying Agent, the Registrar and any co-registrar from any loss which any of them may suffer if a Security is replaced. The Company and the Trustee may charge the Holder for their expenses in replacing a Security. Every replacement Security is an additional obligation of the Company. 32 SECTION 2.08. Outstanding Securities. Securities outstanding at any time are all Securities authenticated by the Trustee except for those canceled by it, those delivered to it for cancellation and those described in this Section as not outstanding. A Security does not cease to be outstanding because the Company or an Affiliate of the Company holds the Security. If a Security is replaced pursuant to Section 2.07, it ceases to be outstanding unless the Trustee and the Company receive proof satisfactory to them that the replaced Security is held by a bona fide purchaser, in which case the replacement Security shall cease to be outstanding, subject to the provisions of Section 8-405 of the Uniform Commercial Code. If the Paying Agent segregates and holds in trust, in accordance with this Indenture, on a redemption date or maturity date money sufficient to pay all principal and interest payable on that date with respect to the Securities (or portions thereof) to be redeemed or maturing, as the case may be, and the Paying Agent is not prohibited from paying such money to the Securityholders on that date pursuant to the terms of this Indenture, then on and after that date such Securities (or portions thereof) cease to be outstanding and interest on them ceases to accrue. SECTION 2.09. Temporary Securities. Until definitive Securities are ready for delivery, the Company may prepare and the Trustee shall authenticate temporary Securities. Temporary Securities shall be substantially in the form of definitive Securities but may have variations that the Company considers appropriate for temporary Securities. Without unreasonable delay, the Company shall prepare and the Trustee shall authenticate definitive Securities and deliver them in exchange for temporary Securities. SECTION 2.10 Cancellation. The Company at any time may deliver Securities to the Trustee for cancellation. The Registrar and the Paying Agent shall forward to the Trustee any Securities surrendered to them for registration of transfer, exchange or payment. The Trustee and no one else shall cancel and destroy all Securities surrendered for registration of transfer, exchange, payment or cancellation and deliver a certificate of such destruction to the Company unless the Company directs the Trustee to deliver canceled 33 Securities to the Company. The Company may not issue new Securities to replace Securities it has redeemed, paid or delivered to the Trustee for cancellation. SECTION 2.11. Defaulted Interest. If the Company defaults in a payment of interest on the Securities, the Company shall pay defaulted interest (plus interest on such defaulted interest to the extent lawful) in any lawful manner. The Company may pay the defaulted interest to the persons who are Securityholders on a subsequent special record date. The Company shall fix or cause to be fixed any such special record date and payment date to the reasonable satisfaction of the Trustee and shall promptly mail to each Securityholder a notice that states the special record date, the payment date and the amount of defaulted interest to be paid. SECTION 2.12. CUSIP Numbers. The Company in issuing the Securities may use "CUSIP" numbers (if then generally in use) and, if so, the Trustee shall use "CUSIP" numbers in notices of redemption as a convenience to Holders; provided, however, that any such notice may state that no representation is made as to the correctness of such numbers either as printed on the Securities or as contained in any notice of a redemption and that reliance may be placed only on the other identification numbers printed on the Securities, and any such redemption shall not be affected by any defect in or omission of such numbers. ARTICLE 3 Redemption SECTION 3.01. Notices to Trustee. If the Company elects to redeem Securities pursuant to paragraph 5 of the Securities or is required to redeem Securities pursuant to paragraph 6 of the Securities, it shall notify the Trustee in writing of the redemption date, the principal amount of Securities to be redeemed and the paragraph of the Securities pursuant to which the redemption will occur. If the Company is required to redeem Securities pursuant to paragraph 6 of the Securities, it may reduce the principal amount of Securities required to be redeemed to the extent it is permitted a credit by the terms of the Securities and it notifies the Trustee of the amount of the 34 credit and the basis for it. If the reduction is based on a credit for redeemed or canceled Securities that the Company has not previously delivered to the Trustee for cancellation, it shall deliver such Securities with the notice. The Company shall give each notice to the Trustee provided for in this Section at least 45 days before the redemption date unless the Trustee consents to a shorter period. Such notice shall be accompanied by an Officers' Certificate and an Opinion of Counsel from the Company to the effect that such redemption will comply with the conditions herein. SECTION 3.02. Selection of Securities To Be Redeemed. If fewer than all the Securities are to be redeemed, the Trustee shall select the Securities to be redeemed pro rata or by lot or by a method that complies with applicable legal and securities exchange requirements, if any, and that the Trustee in its sole discretion considers to be fair and appropriate. The Trustee shall make the selection from outstanding Securities not previously called for redemption. The Trustee may select for redemption portions of the principal of Securities that have denominations larger than $1,000. Securities and portions of them the Trustee selects shall be in amounts of $1,000 or a whole multiple of $1,000. Provisions of this Indenture that apply to Securities called for redemption also apply to portions of Securities called for redemption. The Trustee shall notify the Company promptly of the Securities or portions of Securities to be redeemed. SECTION 3.03. Notice of Redemption. At least 30 days but not more than 60 days before a date for redemption of Securities, the Company shall mail a notice of redemption by first-class mail to each Holder of Securities to be redeemed at such Holder's registered address. The notice shall identify the Securities to be redeemed and shall state: (1) the redemption date; (2) the redemption price; (3) the name and address of the Paying Agent; 35 (4) that Securities called for redemption must be surrendered to the Paying Agent to collect the redemption price; (5) if fewer than all the outstanding Securities are to be redeemed, the identification and principal amounts of the particular Securities to be redeemed; (6) that, unless the Company defaults in making such redemption payment or the Paying Agent is prohibited from making such payment pursuant to the terms of this Indenture, interest on Securities (or portion thereof) called for redemption ceases to accrue on and after the redemption date; (7) the paragraph of the Securities pursuant to which the Securities called for redemption are being redeemed; and (8) that no representation is made as to the correctness or accuracy of the CUSIP number, if any, listed in such notice or printed on the Securities. At the Company's request, the Trustee shall give the notice of redemption in the Company's name and at the Company's expense. In such event, the Company shall provide the Trustee with the information required by this Section. SECTION 3.04. Effect of Notice of Redemption. Once notice of redemption is mailed, Securities called for redemption become due and payable on the redemption date and at the redemption price stated in the notice. Upon surrender to the Paying Agent, such Securities shall be paid at the redemption price stated in the notice, plus accrued interest to the redemption date (subject to the right of Holders of record on the relevant record date to receive interest due on the relevant interest payment date). Failure to give notice or any defect in the notice to any Holder shall not affect the validity of the notice to any other Holder. SECTION 3.05. Deposit of Redemption Price. Prior to the redemption date, the Company shall deposit with the Paying Agent (or, if the Company or a Subsidiary is the Paying Agent, shall segregate and hold in trust) money sufficient to pay the redemption price of and accrued interest (subject to the right of Holders of record on the 36 relevant record date to receive interest due on the relevant interest payment date) on all Securities to be redeemed on that date other than Securities or portions of Securities called for redemption which have been delivered by the Company to the Trustee for cancellation. SECTION 3.06. Securities Redeemed in Part. Upon surrender of a Security that is redeemed in part, the Company shall execute and the Trustee shall authenticate for the Holder (at the Company's expense) a new Security equal in principal amount to the unredeemed portion of the Security surrendered. ARTICLE 4 Covenants SECTION 4.01. Payment of Securities. The Company shall promptly pay the principal of and interest on the Securities on the dates and in the manner provided in the Securities and in this Indenture. Principal and interest shall be considered paid on the date due if on such date the Trustee or the Paying Agent holds in accordance with this Indenture money sufficient to pay all principal and interest then due and the Trustee or the Paying Agent, as the case may be, is not prohibited from paying such money to the Securityholders on that date pursuant to the terms of this Indenture. The Company shall pay interest on overdue principal at the rate specified therefor in the Securities, and it shall pay interest on overdue installments of interest at the same rate to the extent lawful. SECTION 4.02. SEC Reports. The Company shall file with the Trustee and provide Securityholders, within 15 days after it files them with the SEC, copies of its annual report and the information, documents and other reports which the Company is required to file with the SEC pursuant to Section 13 or 15(d) of the Exchange Act. Notwithstanding that the Company may not be required to remain subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company shall continue to file with the SEC and provide the Trustee and Securityholders with such annual reports and such information, documents and other reports as are specified in Sections 13 37 and 15(d) of the Exchange Act and applicable to a U.S. corporation subject to such Sections, such information, documents and other reports to be so filed and provided at the times specified for the filing of such information, documents and reports under such Sections; provided, however, that the Company shall not be required to file any report, document or other information with the SEC if the SEC does not permit such filing. The Company also shall comply with the other provisions of TIA Section 314(a). SECTION 4.03. Limitation on Indebtedness. (a) The Company shall not, and shall not permit any Restricted Subsidiary to, Incur, directly or indirectly, any Indebtedness unless, on the date of such Incurrence and after giving effect thereto, the Consolidated Coverage Ratio exceeds 2.0 to 1.0. (b) Notwithstanding the foregoing paragraph (a), the Company and its Restricted Subsidiaries may Incur any or all of the following Indebtedness: (1) Indebtedness of the Company or any Restricted Subsidiary Incurred pursuant to the Revolving Credit Facilities; provided, however, that, immediately after giving effect to any such Incurrence, the aggregate principal amount of all Indebtedness incurred under this clause (1) and then outstanding does not exceed the greater of (A) $75 million and (B) the sum of 50% of the book value of the inventory of the Company and its Restricted Subsidiaries and 65% of the book value of the accounts receivables of the Company and its Restricted Subsidiaries; (2) Indebtedness of the Company Incurred pursuant to the Term Loan Facilities; provided, however, that, after giving effect to any such Incurrence, the aggregate principal amount of all Indebtedness Incurred under this clause (2) and then outstanding does not exceed $120 million less the aggregate sum of all principal payments actually made from time to time after the Issue Date with respect to such Indebtedness (other than principal payments made from any permitted Refinancings thereof); (3) Indebtedness of the Company or any Restricted Subsidiary owed to and held by the Company or a Wholly Owned Subsidiary; provided, however, that any 38 subsequent issuance or transfer of any Capital Stock which results in any such Wholly Owned Subsidiary ceasing to be a Wholly Owned Subsidiary or any subsequent transfer of such Indebtedness (other than to the Company or another Wholly Owned Subsidiary) shall be deemed, in each case, to constitute the Incurrence of such Indebtedness by the issuer thereof; (4) Indebtedness of the Company or any Restricted Subsidiary owed to and held by any Restricted Subsidiary (other than a Wholly Owned Subsidiary); provided, however, that (i) any such Indebtedness shall be Subordinated Obligations of the Company or such Restricted Subsidiary, as applicable, and (ii) any subsequent issuance or transfer of any Capital Stock of such Restricted Subsidiary or any subsequent transfer of such Indebtedness (other than to the Company, a Wholly Owned Subsidiary or another Restricted Subsidiary) shall be deemed to constitute the Incurrence of such Indebtedness by the issuer thereof; (5) the Securities; (6) Indebtedness outstanding on the Issue Date (other than Indebtedness described in clause (1), (2), (3), (4) or (5) of this Section 4.03(b)); (7) Refinancing Indebtedness in respect of Indebtedness Incurred pursuant to Section 4.03(a) or pursuant to clause (5) or (6) of this Section 4.03(b) or this clause (7); (8) Hedging Obligations of the Company or any Restricted Subsidiary under or with respect to Interest Rate Agreements and Currency Agreements entered into in the ordinary course of business and not for the purpose of speculation; (9) Indebtedness of the Company or any Restricted Subsidiary in respect of performance bonds and surety or appeal bonds entered into by the Company and the Restricted Subsidiaries in the ordinary course of their business; (10) Indebtedness consisting of the Subsidiary Guaranties and the Guarantees of Indebtedness Incurred 39 pursuant to paragraph (a) or pursuant to clause (1), (2), (5), (6) or (7) above or (14) below; (11) Indebtedness of the Company or any Restricted Subsidiary arising from the honoring by a bank or other financial institution of a check, draft or similar instrument inadvertently (except in the case of daylight overdrafts) drawn against insufficient funds in the ordinary course of business, provided that such Indebtedness is satisfied within five business days of Incurrence; (12) Indebtedness of the Company or any Restricted Subsidiary consisting of indemnification, adjustment of purchase price or similar obligations, in each case incurred in connection with the disposition of any assets of the Company or any Restricted Subsidiary in a principal amount not to exceed the gross proceeds actually received by the Company or any Restricted Subsidiary in connection with such disposition; (13) Indebtedness of a Foreign Subsidiary Incurred to finance the purchase, lease or improvement of property (real or personal) or equipment, in each case incurred no more than 180 days after such purchase, lease or improvement of such property, and any Refinancing Indebtedness in respect of such Indebtedness; provided, however, that, except in the case of the Incurrence of any such Refinancing Indebtedness, at the time of the Incurrence of such Indebtedness and after giving effect thereto, (i) the Company would be able to Incur an additional $1.00 of Indebtedness pursuant to paragraph (a) above and (ii) the aggregate amount of all Indebtedness Incurred pursuant to this clause (13) and then outstanding (including any such Refinancing Indebtedness) shall not exceed 20% of Consolidated Net Tangible Assets as of the end of the most recent fiscal quarter ending at least 45 days prior to the date of such Incurrence; and ((14) Indebtedness of the Company in an aggregate principal amount which, together with all other Indebtedness of the Company and the Restricted Subsidiaries outstanding on the date of such Incurrence (other than Indebtedness permitted by clauses (1) through (13) of this Section 4.03(b) or Section 4.03(a)) does not exceed $50 million. 40 (c) Notwithstanding the foregoing, the Company shall not, and shall not permit any Restricted Subsidiary to, Incur any Indebtedness pursuant to Section 4.03(b) if the proceeds thereof are used, directly or indirectly, to Refinance any Subordinated Obligations unless such Indebtedness shall be subordinated to the Securities or the relevant Subsidiary Guaranty, as applicable, to at least the same extent as such Subordinated Obligations. (d) For purposes of determining compliance with this Section 4.03, (i) in the event that an item of Indebtedness meets the criteria of more than one of the types of Indebtedness described herein, the Company, in its sole discretion, will classify such item of Indebtedness and only be required to include the amount and type of such Indebtedness in one of the above clauses and (ii) an item of Indebtedness may be divided and classified in more than one of the types of Indebtedness described herein. (e) Notwithstanding Section 4.03(a) or 4.03(b), the Company shall not, and shall not permit any Subsidiary Guarantor to, Incur (i) any Indebtedness if such Indebtedness is subordinate or junior in ranking in any respect to any Senior Indebtedness of the Company or such Subsidiary Guarantor, as applicable, unless such Indebtedness is Senior Subordinated Indebtedness or is expressly subordinated in right of payment to Senior Subordinated Indebtedness or (ii) any Secured Indebtedness (other than trade payables incurred in the ordinary course of business) that is not Senior Indebtedness unless contemporaneously therewith effective provision is made to secure the Securities or the relevant Subsidiary Guaranty, as applicable, equally and ratably with such Secured Indebtedness for so long as such Secured Indebtedness is secured by a Lien. SECTION 4.04. Limitation on Restricted Payments. (a) The Company shall not, and shall not permit any Restricted Subsidiary, directly or indirectly, to make a Restricted Payment if at the time the Company or such Restricted Subsidiary makes such Restricted Payment: (1) a Default shall have occurred and be continuing (or would result therefrom); (2) the Company is not able to Incur an additional $1.00 of Indebtedness under Section 4.03(a); or 41 (3) the aggregate amount of such Restricted Payment and all other Restricted Payments since the Issue Date would exceed the sum of: (A) 50% of the Consolidated Net Income accrued during the period (treated as one accounting period) from the beginning of the fiscal quarter immediately following the fiscal quarter during which the Securities are originally issued to the end of the most recent fiscal quarter ending at least 45 days (or, if less, the number of days after the end of such fiscal quarter as the consolidated financial statements of the Company shall be provided to Securityholders hereunder) prior to the date of such Restricted Payment (or, in case such Consolidated Net Income shall be a deficit, minus 100% of such deficit); (B) the aggregate Net Cash Proceeds received by the Company from the issuance or sale of its Capital Stock (other than Disqualified Stock) subsequent to the Issue Date (other than an issuance or sale to a Subsidiary of the Company and other than an issuance or sale to an employee stock ownership plan or to a trust established by the Company or any of its Subsidiaries for the benefit of their employees to the extent that the purchase by such plan or trust is financed by Indebtedness of such plan or trust to the Company or any Subsidiary or Indebtedness Guaranteed by the Company or any Subsidiary); (C) the amount by which Indebtedness of the Company or any Restricted Subsidiary is reduced on the Company's consolidated balance sheet upon the conversion or exchange (other than by a Subsidiary of the Company) subsequent to the Issue Date of any Indebtedness of the Company or any Restricted Subsidiary convertible or exchangeable for Capital Stock (other than Disqualified Stock) of the Company (less the amount of any cash, or the fair value of any other property, distributed by the Company or any Restricted Subsidiary upon such conversion or exchange); and (D) an amount equal to the sum of (i) the net reduction in Investments in Unrestricted Sub- 42 sidiaries resulting from dividends, repayments of loans or advances or other transfers of assets subsequent to the Issue Date, in each case to the Company or any Restricted Subsidiary from Unrestricted Subsidiaries, and (ii) the portion (proportionate to the Company's equity interest in such Subsidiary) of the fair market value of the net assets of an Unrestricted Subsidiary at the time such Unrestricted Subsidiary is designated a Restricted Subsidiary; provided, however, that the foregoing sum shall not exceed, in the case of any Unrestricted Subsidiary, the amount of Investments previously made (and treated as a Restricted Payment) by the Company or any Restricted Subsidiary in such Unrestricted Subsidiary. (b) The provisions of Section 4.04(a) shall not prohibit: (i) any Restricted Payment made by exchange for, or out of the proceeds of the substantially concurrent sale of, Capital Stock of the Company (other than Disqualified Stock and other than Capital Stock issued or sold to a Subsidiary of the Company or an employee stock ownership plan or to a trust established by the Company or any of its Subsidiaries for the benefit of their employees to the extent that the purchase by such plan or trust is financed by Indebtedness of such plan or trust to the Company or any Subsidiary of the Company or Indebtedness Guaranteed by the Company or any Subsidiary of the Company); provided, however, that (A) such Restricted Payment shall be excluded in the calculation of the amount of Restricted Payments and (B) the Net Cash Proceeds from such sale shall be excluded from the calculation of amounts under clause (3)(B) of Section 4.04(a); (ii) any purchase, repurchase, redemption, defeasance or other acquisition or retirement for value of Subordinated Obligations made by exchange for, or out of the proceeds of the substantially concurrent sale of, Indebtedness which is permitted to be Incurred pursuant to Section 4.03; provided, however, that such purchase, repurchase, redemption, defeasance or other acquisition or retirement for value shall be excluded in the calculation of the amount of Restricted Payments; 43 (iii) any purchase or redemption of Disqualified Stock of the Company or a Restricted Subsidiary made by exchange for, or out of the proceeds of the substantially concurrent sale of, Disqualified Stock of the Company or a Restricted Subsidiary which is permitted to be Incurred pursuant to Section 4.03; provided, however, that such purchase or redemption shall be excluded in the calculation of the amount of Restricted Payments; (iv) any purchase or redemption of Subordinated Obligations from Net Available Cash to the extent permitted by Section 4.06; provided, however, that such purchase or redemption shall be excluded in the calculation of the amount of Restricted Payments; (v) upon the occurrence of a Change of Control and within 60 days after the completion of the offer to repurchase the Securities pursuant to Section 4.09 (including the purchase of the Securities tendered), any purchase or redemption of Subordinated Obligations required pursuant to the terms thereof as a result of such Change of Control at a purchase or redemption price not to exceed the outstanding principal amount thereof, plus accrued and unpaid interest (if any); provided, however, that (A) at the time of such purchase or redemption no Default shall have occurred and be continuing (or would result therefrom), (B) the Company would be able to Incur an additional $1.00 of Indebtedness pursuant to Section 4.03(a) after giving pro forma effect to such Restricted Payment and (C) such purchase or redemption shall be included in the calculation of the amount of Restricted Payments; (vi) dividends paid within 60 days after the date of declaration thereof if at such date of declaration such dividend would have complied with Section 4.04(a)); provided, however, that at the time of payment of such dividend, no other Default shall have occurred and be continuing (or result therefrom); provided further, however, that such dividend shall be included in the calculation of the amount of Restricted Payments (vii) the repurchase or other acquisition of shares of, or options to purchase shares of, common stock of the Company or any of its Subsidiaries from employees, 44 former employees, directors or former directors of the Company or any of its Subsidiaries (or permitted transferees of such employees, former employees, directors or former directors), pursuant to the terms of the agreements (including employment agreements) or plans (or amendments thereto) approved by the Board of Directors under which such individuals purchase or sell or are granted the option to purchase or sell, shares of such common stock; provided, however, that the aggregate amount of such repurchases and other acquisitions shall not exceed the sum of $7.0 million and the Net Cash Proceeds from the sale of Capital Stock to members of management or directors of the Company and its Subsidiaries that occurs after the Issue Date (to the extent the Net Cash Proceeds from the sale of such Capital Stock have not otherwise been applied to the payment of Restricted Payments by virtue of clause (3)(B) of Section 4.04(a); provided further, however, that (A) such repurchases shall be excluded in the calculation of the amount of Restricted Payments and (B) the Net Cash Proceeds from such sale shall be excluded from the calculation of amounts under clause (3)(B) of Section 4.04(a); (viii) dividends or advances to Parent in an amount necessary to pay holding company expenses, such amount not to exceed $500,000 in any fiscal year of the Company; provided, however, that such dividends and advances shall be excluded in the calculation of the amount of Restricted Payments; or (ix) Restricted Payments not exceeding $25.0 million in the aggregate; provided, however, that (A) at the time of such Restricted Payments, no Default shall have occurred and be continuing (or would result therefrom) and (B) such Restricted Payments shall be included in the calculation of the amount of Restricted Payments. SECTION 4.05. Limitation on Restrictions on Distributions from Restricted Subsidiaries. The Company shall not, and shall not permit any Restricted Subsidiary to, create or otherwise cause or permit to exist or become effective any consensual encumbrance or restriction on the ability of any Restricted Subsidiary to (a) pay dividends or make any other distributions on its Capital Stock to the Company or a Restricted Subsidiary or pay any Indebtedness 45 owed to the Company, (b) make any loans or advances to the Company or (c) transfer any of its property or assets to the Company, except: (i) any encumbrance or restriction pursuant to an agreement in effect at or entered into on the Issue Date, including the Credit Agreement as in effect on the Issue Date; (ii) any encumbrance or restriction with respect to a Restricted Subsidiary pursuant to an agreement relating to any Indebtedness Incurred by such Restricted Subsidiary on or prior to the date on which such Restricted Subsidiary was acquired by the Company (other than Indebtedness Incurred as consideration in, or to provide all or any portion of the funds or credit support utilized to consummate, the transaction or series of related transactions pursuant to which such Restricted Subsidiary became a Restricted Subsidiary or was acquired by the Company) and outstanding on such date; (iii) any encumbrance or restriction pursuant to an agreement effecting a Refinancing of Indebtedness Incurred pursuant to an agreement referred to in clause (i) or (ii) of this Section 4.05 or this clause (iii) or contained in any amendment to an agreement referred to in clause (i) or (ii) of this Section 4.05 or this clause (iii); provided, however, that the encumbrances and restrictions with respect to such Restricted Subsidiary contained in any such refinancing agreement or amendment are no more restrictive in any material respect than the encumbrances and restrictions with respect to such Restricted Subsidiary contained in such predecessor agreements; (iv) any such encumbrance or restriction consisting of customary nonassignment provisions in leases governing leasehold interests to the extent such provisions restrict the transfer of the lease or the property leased thereunder; (v) in the case of clause (c) above, restrictions contained in security agreements or mortgages securing Indebtedness of a Restricted Subsidiary to the extent 46 such restrictions restrict the transfer of the property subject to such security agreements or mortgages; (vi) any restriction with respect to a Restricted Subsidiary imposed pursuant to an agreement entered into for the sale or disposition of all or substantially all the Capital Stock or assets of such Restricted Subsidiary pending the closing of such sale or disposition; and (vii) any restriction in any agreement that is not more restrictive than the restrictions under the terms of the Credit Agreement as in effect on the Issue Date. SECTION 4.06. Limitation on Sales of Assets and Subsidiary Stock. (a) The Company shall not, and shall not permit any Restricted Subsidiary to, directly or indirectly, consummate any Asset Disposition unless (i) the Company or such Restricted Subsidiary receives consideration at the time of such Asset Disposition at least equal to the fair market value (including as to the value of all non-cash consideration), as determined in good faith by the Board of Directors, of the shares and assets subject to such Asset Disposition and at least 85% of the consideration thereof received by the Company or such Restricted Subsidiary is in the form of cash or cash equivalents and (ii) an amount equal to 100% of the Net Available Cash from such Asset Disposition is applied by the Company (or such Restricted Subsidiary, as the case may be) (A) first, to the extent the Company elects (or is required by the terms of any Indebtedness), to prepay, repay, redeem or purchase Senior Indebtedness or Indebtedness (other than any Disqualified Stock) of a Wholly Owned Subsidiary (in each case other than Indebtedness owed to the Company or an Affiliate of the Company) within one year from the later of the date of such Asset Disposition and the receipt of such Net Available Cash; (B) second, to the extent of the balance of such Net Available Cash after application in accordance with clause (A), to the extent the Company elects, to acquire Additional Assets within one year from the later of the date of such Asset Disposition and the receipt of such Net Available Cash; (C) third, to the extent of the balance of such Net Available Cash after application in accordance with clauses (A) and (B), to make an Offer to the holders of the Securities (and to holders of other Senior Subordinated Indebtedness designated by the Company) to purchase Securities (and such other Senior Subordinated Indebtedness) 47 pursuant to and subject to the conditions of Section 4.06(b); and (D) fourth, to the extent of the balance of such Net Available Cash after application in accordance with clauses (A), (B) and (C), to (x) the acquisition by the Company or any Wholly Owned Subsidiary of Additional Assets or (y) the prepayment, repayment or purchase of Indebtedness (other than any Disqualified Stock) of the Company (other than Indebtedness owed to an Affiliate of the Company) or Indebtedness of any Subsidiary (other than Indebtedness owed to the Company or an Affiliate of the Company), in each case within one year from the later of the receipt of such Net Available Cash and the date the offer described in Section 4.06(b) is consummated; provided, however, that in connection with any prepayment, repayment or purchase of Indebtedness pursuant to clause (A), (C) or (D) above, the Company or such Restricted Subsidiary shall permanently retire such Indebtedness and shall cause the related loan commitment (if any) to be permanently reduced in an amount equal to the principal amount so prepaid, repaid or purchased. Notwithstanding the foregoing provisions of this Section 4.06, the Company and the Restricted Subsidiaries shall not be required to apply any Net Available Cash in accordance with this Section 4.06(a) except to the extent that the aggregate Net Available Cash from all Asset Dispositions which are not applied in accordance with this Section 4.06(a) exceeds $10 million. Pending application of Net Available Cash pursuant to this Section 4.06(a), such Net Available Cash shall be invested in Permitted Investments or used to reduce loans outstanding under any revolving credit facility. For the purposes of this Section 4.06, the following are deemed to be cash or cash equivalents: (x) the assumption of Indebtedness of the Company or any Restricted Subsidiary and the release of the Company or such Restricted Subsidiary from all liability on such Indebtedness in connection with such Asset Disposition and (y) securities received by the Company or any Restricted Subsidiary from the transferee that are promptly converted by the Company or such Restricted Subsidiary into cash. (b) In the event of an Asset Disposition that requires the purchase of Securities (and other Senior Subordinated Indebtedness) pursuant to Section 4.06(a)(ii)(C), the Company shall be required to purchase Securities tendered pursuant to an offer by the Company for the Securities (and other Senior Subordinated 48 Indebtedness) (the "Offer") at a purchase price of 100% of their principal amount (without premium) plus accrued but unpaid interest (or, in respect of such other Senior Subordinated Indebtedness, such lesser price, if any, as may be provided for by the terms of such Senior Subordinated Indebtedness) in accordance with the procedures (including prorating in the event of oversubscription) set forth in Section 4.06(c). If the aggregate purchase price of Securities (and any other Senior Subordinated Indebtedness) tendered pursuant to the Offer is less than the Net Available Cash allotted to the purchase thereof, the Company shall be required to apply the remaining Net Available Cash in accordance with Section 4.06(a)(ii)(D). The Company shall not be required to make an Offer to purchase Securities (and other Senior Subordinated Indebtedness) pursuant to this Section 4.06 if the Net Available Cash available therefor is less than $10 million (which lesser amount shall be carried forward for purposes of determining whether such an Offer is required with respect to the Net Available Cash from any subsequent Asset Disposition). (c) (1) Promptly, and in any event within 10 days after the Company becomes obligated to make an Offer, the Company shall be obligated to deliver to the Trustee and send, by first-class mail to each Holder, a written notice stating that the Holder may elect to have his Securities purchased by the Company either in whole or in part (subject to prorating as hereinafter described in the event the Offer is oversubscribed) in integral multiples of $1,000 of principal amount, at the applicable purchase price. The notice shall specify a purchase date not less than 30 days nor more than 60 days after the date of such notice (the "Purchase Date") and shall contain such information concerning the business of the Company which the Company in good faith believes will enable such Holders to make an informed decision (which at a minimum will include (i) the most recently filed Annual Report on Form 10-K (including audited consolidated financial statements) of the Company, the most recent subsequently filed Quarterly Report on Form 10-Q and any Current Report on Form 8-K of the Company filed subsequent to such Quarterly Report, other than Current Reports describing Asset Dispositions otherwise described in the offering materials (or corresponding successor reports or, until such time as the Company shall become subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, a corresponding report prepared pursuant to Section 4.02), (ii) a description of material developments 49 in the Company's business subsequent to the date of the latest of such Reports, and (iii) if material, appropriate pro forma financial information) and all instructions and materials necessary to tender Securities pursuant to the Offer, together with the information contained in clause (3). (2) Not later than the date upon which written notice of an Offer is delivered to the Trustee as provided above, the Company shall deliver to the Trustee an Officers' Certificate as to (i) the amount of the Offer (the "Offer Amount"), (ii) the allocation of the Net Available Cash from the Asset Dispositions pursuant to which such Offer is being made and (iii) the compliance of such allocation with the provisions of Section 4.06(a). On such date, the Company shall also irrevocably deposit with the Trustee or with a paying agent other than the Company in Temporary Cash Investments, maturing on the last day prior to the Purchase Date or on the Purchase Date if funds are immediately available by open of business, an amount equal to the Offer Amount to be held for payment in accordance with the provisions of this Section. Upon the expiration of the period for which the Offer remains open (the "Offer Period"), the Company shall deliver to the Trustee for cancellation the Securities or portions thereof which have been properly tendered to and are to be accepted by the Company. The Trustee shall, on the Purchase Date, mail or deliver payment to each tendering Holder in the amount of the purchase price. In the event that the aggregate purchase price of the Securities delivered by the Company to the Trustee is less than the Offer Amount, the Trustee shall deliver the excess to the Company immediately after the expiration of the Offer Period for application in accordance with this Section. (3) Holders electing to have a Security purchased shall be required to surrender the Security, with an appropriate form duly completed, to the Company at the address specified in the notice at least three Business Days prior to the Purchase Date. Holders shall be entitled to withdraw their election if the Trustee or the Company receives, not later than one Business Day prior to the Purchase Date, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Security which was delivered for purchase by the Holder and a statement that such Holder is withdrawing his election to have such Security purchased. If at the expiration of the 50 Offer Period the aggregate principal amount of Securities (and any other Senior Subordinated Indebtedness included in the Offer) surrendered pursuant to the Offer exceeds the Offer Amount, the Company shall select the Securities and other Senior Subordinated Indebtedness to be purchased on a pro rata basis (with such adjustments as may be deemed appropriate by the Company so that only Securities and other Senior Subordinated Indebtedness in denominations of $1,000, or integral multiples thereof, shall be purchased). Holders whose Securities are purchased only in part shall be issued new Securities equal in principal amount to the unpurchased portion of the Securities surrendered. (4) At the time the Company delivers Securities to the Trustee which are to be accepted for purchase, the Company shall also deliver an Officers' Certificate stating that such Securities are to be accepted by the Company pursuant to and in accordance with the terms of this Section 4.06. A Security shall be deemed to have been accepted for purchase at the time the Trustee, directly or through an agent, mails or delivers payment therefor to the surrendering Holder. (d) The Company shall comply, to the extent applicable, with the requirements of Section 14(e) of the Exchange Act and any other securities laws or regulations in connection with the repurchase of Securities pursuant to this Section. To the extent that the provisions of any securities laws or regulations conflict with provisions of this Section, the Company shall comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations under this Section by virtue thereof. SECTION 4.07. Limitation on Affiliate Transactions. (a) The Company shall not, and shall not permit any Restricted Subsidiary to, enter into or permit to exist any transaction (including the purchase, sale, lease or exchange of any property, employee compensation arrangements or the rendering of any service) with any Affiliate of the Company (an "Affiliate Transaction") unless the terms thereof (i) are no less favorable to the Company or such Restricted Subsidiary than those that could be obtained at the time of such transaction in arm's-length dealings with a Person who is not such an Affiliate, (ii) if such Affiliate Transaction involves an amount in excess of $1.0 million, (1) are set forth in writing and (2) have been 51 approved by a majority of the members of the Board of Directors having no personal stake in such Affiliate Transaction and (iii) if such Affiliate Transaction involves an amount in excess of $10.0 million, have been determined by (A) a nationally recognized investment banking firm to be fair, from a financial standpoint, to the Company and its Restricted Subsidiaries or (B) an accounting or appraisal firm nationally recognized in making such determinations to be on terms that are not less favorable to the Company and its Restricted Subsidiaries than the terms that could be obtained in an arm's-length transaction from a Person that is not an Affiliate of the Company. (b) The provisions of Section 4.07(a) shall not prohibit (i) any Restricted Payment permitted to be paid pursuant to Section 4.04, (ii) any issuance of securities, or other payments, awards or grants in cash, securities or otherwise pursuant to, or the funding of, employment arrangements, stock options and stock ownership plans approved by the Board of Directors, (iii) the grant of stock options or similar rights to employees and directors of the Company pursuant to plans approved by the Board of Directors, (iv) loans or advances to employees in the ordinary course of business in accordance with the past practices of the Company or its Restricted Subsidiaries, but in any event not to exceed $5.0 million in the aggregate outstanding at any one time, (v) reasonable fees, compensation or employee benefit arrangements to and indemnity provided for the benefit of directors, officers or employees of the Company or any Subsidiary in the ordinary course of business, (vi) any Affiliate Transaction between the Company and a Wholly Owned Subsidiary or between Wholly Owned Subsidiaries, (vii) any Affiliate Transaction with National Semiconductor pursuant to written agreements in effect on the Issue Date and as amended, renewed or extended from time to time; provided, however, that any such amendment, renewal or extension shall not contain terms which are materially less favorable to the Company than those in the agreements in effect on the Issue Date, and (viii) the issuance or sale of any Capital Stock (other than Disqualified Stock) of the Company. SECTION 4.08. Limitation on the Sale or Issuance of Capital Stock of Restricted Subsidiaries. The Company shall not sell or otherwise dispose of any Capital Stock of a Restricted Subsidiary, and shall not permit any Restricted Subsidiary, directly or indirectly, to issue or sell or 52 otherwise dispose of any of its Capital Stock except (i) to the Company or a Wholly Owned Subsidiary, (ii) if, immediately after giving effect to such issuance, sale or other disposition, neither the Company nor any of its Subsidiaries own any Capital Stock of such Restricted Subsidiary, (iii) if, immediately after giving effect to such issuance, sale or other disposition, such Restricted Subsidiary would no longer constitute a Restricted Subsidiary and any Investment in such Person remaining after giving effect thereto would have been permitted to be made under the covenant described in Section 4.04 if made on the date of such issuance, sale or other disposition or (iv) directors' qualifying shares. SECTION 4.09. Change of Control. (a) Upon the occurrence of a Change of Control, each Holder shall have the right to require that the Company repurchase such Holder's Securities at a purchase price in cash equal to 101% of the principal amount thereof plus accrued and unpaid interest, if any, to the date of purchase (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date), in accordance with the terms contemplated in Section 4.09(b). In the event that at the time of such Change of Control the terms of any Senior Indebtedness of the Company restrict or prohibit any offer pursuant to this Section or the repurchase of Securities pursuant to this Section, then prior to the mailing of the notice to Holders provided for in Section 4.09(b) below but in any event within 30 days following any Change of Control, the Company shall (i) repay in full all such Senior Indebtedness or offer to repay in full all such Senior Indebtedness and repay such Senior Indebtedness of each lender who has accepted such offer or (ii) obtain the requisite consent under the agreements governing such Senior Indebtedness to permit the repurchase of the Securities as provided for in Section 4.09(b). The Company must first comply with the covenant described in the preceding sentence before it will be required to purchase Notes in the event of a Change of Control; provided, however, that the Company's failure to comply with the covenant described in the preceding sentence or to make a Change of Control offer because of any such failure shall constitute a Default described in Section 6.01(4) (and not under Section 6.01(2)). 53 (b) Within 30 days following any Change of Control but subject to the provisions of Section 4.09(a), the Company shall mail a notice to each Holder with a copy to the Trustee stating: (1) that a Change of Control has occurred and that such Holder has the right to require the Company to purchase such Holder's Securities at a purchase price in cash equal to 101% of the principal amount thereof plus accrued and unpaid interest (if any) to the date of purchase (subject to the right of Holders of record on the relevant record date to receive interest on the relevant interest payment date); (2) the circumstances and relevant facts regarding such Change of Control; (3) the repurchase date (which shall be no earlier than 30 days nor later than 60 days from the date such notice is mailed); and (4) the instructions determined by the Company, consistent with this Section, that a Holder must follow in order to have its Securities purchased. (c) Holders electing to have a Security purchased will be required to surrender the Security, with an appropriate form duly completed, to the Company at the address specified in the notice at least three Business Days prior to the purchase date. Holders will be entitled to withdraw their election if the Trustee or the Company receives not later than one Business Day prior to the purchase date, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Security which was delivered for purchase by the Holder and a statement that such Holder is withdrawing his election to have such Security purchased. (d) On the purchase date, all Securities purchased by the Company under this Section shall be delivered by the Trustee for cancellation, and the Company shall pay the purchase price plus accrued and unpaid interest, if any, to the Holders entitled thereto. (e) The Company shall comply, to the extent applicable, with the requirements of Section 14(e) of the Exchange Act and any other securities laws or regulations 54 in connection with the repurchase of Securities pursuant to this Section. To the extent that the provisions of any securities laws or regulations conflict with provisions of this Section, the Company shall comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations under this Section by virtue thereof. SECTION 4.10. Future Guarantors. In the event that, after the Issue Date, any Restricted Subsidiary (other than a Foreign Subsidiary) Incurs (i) any Indebtedness pursuant to paragraph (a) or pursuant to clause (1) or (10) of Section 4.3(b) and (ii) until the termination of the Credit Agreement, either has Guaranteed or will as a result of such Incurrence be required to Guarantee any Obligations under the Credit Agreement, the Company shall cause such Restricted Subsidiary to Guarantee the Notes by executing a supplemental indenture hereto and shall cause all Indebtedness of such Restricted Subsidiary owing to the Company or any other Subsidiary of the Company and not previously discharged to be converted into Capital Stock of such Restricted Subsidiary (other than Disqualified Stock). SECTION 4.11. Compliance Certificate. The Company shall deliver to the Trustee within 120 days after the end of each fiscal year of the Company a certificate of the principal executive officer, the principal financial officer or the principal accounting officer of the Company stating that in the course of the performance by the signer of his or her duties as an officer of the Company such officer would normally have knowledge of any Default and whether or not the signer knows of any Default that occurred during such period. If such signer does, the certificate shall describe the Default, its status and what action the Company is taking or proposes to take with respect thereto. The Company also shall comply with TIA Section 314(a)(4). SECTION 4.12. Further Instruments and Acts. Upon request of the Trustee, the Company will execute and deliver such further instruments and do such further acts as may be reasonably necessary or proper to carry out more effectively the purpose of this Indenture. 55 ARTICLE 5 Successor Companies SECTION 5.01. When Company May Merge or Transfer Assets. (a) The Company shall not consolidate with or merge with or into, or convey, transfer or lease, in one transaction or a series of transactions, all or substantially all its assets to, any Person, unless: (i) the resulting, surviving or transferee Person (the "Successor Company") shall be a Person organized and existing under the laws of the United States of America, any State thereof or the District of Columbia and the Successor Company (if not the Company) shall expressly assume, by an indenture supplemental hereto, executed and delivered to the Trustee, in form satisfactory to the Trustee, all the obligations of the Company under the Securities and this Indenture; (ii) immediately after giving effect to such transaction (and treating any Indebtedness which becomes an obligation of the Successor Company or any Subsidiary as a result of such transaction as having been Incurred by the Successor Company or such Subsidiary at the time of such transaction), no Default shall have occurred and be continuing; (iii) immediately after giving effect to such transaction, the Successor Company would be able to Incur an additional $1.00 of Indebtedness pursuant to Section 4.03(a); (iv) immediately after giving effect to such transaction, the Successor Company shall have Consolidated Net Worth in an amount that is not less than the Consolidated Net Worth of the Company immediately prior to such transaction; and (v) the Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger or transfer and such supplemental indenture (if any) comply with this Indenture; provided, however, that clauses (iii) and (iv) above shall not apply if, in the good faith determination of 56 the Board of Directors, whose determination shall be evidenced by a resolution of the Board of Directors, the principal purpose and effect of such transaction is to change the jurisdiction of incorporation of the Company. The Successor Company shall be the successor to the Company and shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture, but the predecessor Company in the case of a conveyance, transfer or lease shall not be released from the obligation to pay the principal of and interest on the Securities. (b) The Company shall not permit any Subsidiary Guarantor to consolidate with or merge with or into, or convey, transfer or lease, in one transaction or series of transactions, all or substantially all of its assets to any Person unless: (i) the resulting, surviving or transferee Person (if not such Subsidiary) shall be a Person organized and existing under the laws of the jurisdiction under which such Subsidiary was organized or under the laws of the United States of America, or any State thereof or the District of Columbia, and such Person shall expressly assume, by an amendment to this Indenture, in a form acceptable to the Trustee, all the obligations of such Subsidiary, if any, under its Subsidiary Guaranty; (ii) immediately after giving effect to such transaction or transactions on a pro forma basis (and treating any Indebtedness which becomes an obligation of the resulting, surviving or transferee Person as a result of such transaction as having been issued by such Person at the time of such transaction), no Default shall have occurred and be continuing; and (iii) the Company delivers to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger or transfer and such amendment to this Indenture, if any, complies with this Indenture. The provisions of clauses (i) and (ii) above shall not apply to any one or more transactions which constitute an Asset Disposition if the Company has complied with the applicable provisions of Section 4.06. (c) Parent will not merge with or into, or convey, transfer or lease, in one transaction or a series of transactions, all or substantially all of its assets to any Person unless: (i) the resulting, surviving or transferee Person (if not Parent) shall be a Person organized and existing under the laws of the jurisdiction under which 57 Parent was organized or under the laws of the United States of America, or any State thereof or the District of Columbia, and such Person shall expressly assume, by an amendment to this Indenture, in a form acceptable to the Trustee, all the obligations of Parent, if any, under the Parent Guaranty; (ii) immediately after giving effect to such transaction or transactions on a pro forma basis (and treating any Indebtedness which becomes an obligation of the resulting, surviving or transferee Person as a result of such transaction as having been issued by such Person at the time of such transaction), no Default shall have occurred and be continuing; and (iii) the Company delivers to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger or transfer and such amendment to this Indenture, if any, complies with this Indenture. ARTICLE 6 Defaults and Remedies SECTION 6.01. Events of Default. An "Event of Default" occurs if: (1) the Company defaults in any payment of interest on any Security when the same becomes due and payable, whether or not such payment shall be prohibited by Article 10, and such default continues for a period of 30 days; (2) the Company (i) defaults in the payment of the principal of any Security when the same becomes due and payable at its Stated Maturity, upon redemption, upon declaration or otherwise, whether or not such payment shall be prohibited by Article 10, or (ii) fails to redeem or purchase Securities when required pursuant to this Indenture or the Securities, whether or not such redemption or purchase shall be prohibited by Article 10; (3) the Company fails to comply with Section 5.01; (4) the Company fails to comply with Section 4.02, 4.03, 4.04, 4.05, 4.06, 4.07, 4.08, 4.09 or 4.10 (other than a failure to purchase Securities when required 58 under Section 4.06 or 4.09) and such failure continues for 30 days after the notice specified below; (5) the Company fails to comply with any of its agreements in the Securities or this Indenture (other than those referred to in clause (1), (2), (3) or (4) above) and such failure continues for 60 days after the notice specified below; (6) Indebtedness of the Company or any Significant Subsidiary is not paid within any applicable grace period after final maturity or is accelerated by the holders thereof because of a default and the total amount of such Indebtedness unpaid or accelerated exceeds $10.0 million, or its foreign currency equivalent at the time; (7) the Company or any Significant Subsidiary pursuant to or within the meaning of any Bankruptcy Law: (A) commences a voluntary case; (B) consents to the entry of an order for relief against it in an involuntary case; (C) consents to the appointment of a Custodian of it or for any substantial part of its property; or (D) makes a general assignment for the benefit of its creditors; or takes any comparable action under any foreign laws relating to insolvency; (8) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: (A) is for relief against the Company or any Significant Subsidiary in an involuntary case; (B) appoints a Custodian of the Company or any Significant Subsidiary or for any substantial part of its property; or 59 (C) orders the winding up or liquidation of the Company or any Significant Subsidiary; or any similar relief is granted under any foreign laws and the order or decree remains unstayed and in effect for 60 days; (9) any judgment or decree for the payment of money in excess of $10.0 million or its foreign currency equivalent at the time is entered against the Company or any Significant Subsidiary, remains outstanding for a period of 60 days following the entry of such judgment or decree and is not discharged, waived or the execution thereof stayed within 10 days after the notice specified below; or (10) the Parent Guaranty or any Subsidiary Guaranty ceases to be in full force and effect (other than in accordance with the terms of such Guaranty) or Parent or any Subsidiary Guarantor denies or disaffirms its obligations under the Parent Guaranty or its Subsidiary Guaranty, as applicable. The foregoing will constitute Events of Default whatever the reason for any such Event of Default and whether it is voluntary or involuntary or is effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body. The term "Bankruptcy Law" means Title 11, United States Code, or any similar Federal or state law for the relief of debtors. The term "Custodian" means any receiver, trustee, assignee, liquidator, custodian or similar official under any Bankruptcy Law. A Default under clause (4), (5), or (9) is not an Event of Default until the Trustee or the holders of at least 25% in principal amount of the outstanding Securities notify the Company of the Default and the Company does not cure such Default within the time specified after receipt of such notice. Such notice must specify the Default, demand that it be remedied and state that such notice is a "Notice of Default". The Company shall deliver to the Trustee, within 30 days after the occurrence thereof, written notice in the 60 form of an Officers' Certificate of any Event of Default under clause (6) or (10) and any event which with the giving of notice or the lapse of time would become an Event of Default under clause (4), (5) or (9), its status and what action the Company is taking or proposes to take with respect thereto. SECTION 6.02. Acceleration. If an Event of Default (other than an Event of Default specified in Section 6.01(7) or (8) with respect to the Company) occurs and is continuing, the Trustee by notice to the Company, or the Holders of at least 25% in principal amount of the Securities by notice to the Company and the Trustee, may declare the principal of and accrued but unpaid interest on all the Securities to be due and payable. Upon such a declaration, such principal and interest shall be due and payable immediately; provided, however, that if upon such declaration there are any amounts outstanding under the Credit Agreement and the amounts thereunder have not been accelerated, such principal and interest shall be due and payable upon the earlier of the time such amounts are accelerated and five Business Days after receipt by the Company and the Representative under the Credit Agreement of such declaration. If an Event of Default specified in Section 6.01(7) or (8) with respect to the Company occurs, the principal of and interest on all the Securities shall ipso facto become and be immediately due and payable without any declaration or other act on the part of the Trustee or any Securityholders. The Holders of a majority in principal amount of the outstanding Securities by notice to the Trustee may rescind an acceleration with respect to the Securities and its consequences if the rescission would not conflict with any judgment or decree and if all existing Events of Default have been cured or waived except nonpayment of principal or interest that has become due solely because of acceleration. No such rescission shall affect any subsequent Default or impair any right consequent thereto. SECTION 6.03. Other Remedies. If an Event of Default occurs and is continuing, the Trustee may pursue any available remedy to collect the payment of principal of or interest on the Securities or to enforce the performance of any provision of the Securities or this Indenture. The Trustee may maintain a proceeding even if it does not possess any of the Securities or does not produce 61 any of them in the proceeding. A delay or omission by the Trustee or any Securityholder in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. No remedy is exclusive of any other remedy. All available remedies are cumulative. SECTION 6.04. Waiver of Past Defaults. The Holders of a majority in principal amount of the Securities by notice to the Trustee may waive an existing Default and its consequences except (i) a Default in the payment of the principal of or interest on a Security or (ii) a Default in respect of a provision that under Section 9.02 cannot be amended without the consent of each Securityholder affected. When a Default is waived, it is deemed cured, but no such waiver shall extend to any subsequent or other Default or impair any consequent right. SECTION 6.05. Control by Majority. The Holders of a majority in principal amount of the Securities may direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or of exercising any trust or power conferred on the Trustee. However, the Trustee may refuse to follow any direction that conflicts with law or this Indenture or, subject to Section 7.01, that the Trustee determines is unduly prejudicial to the rights of other Securityholders or would involve the Trustee in personal liability; provided, however, that the Trustee may take any other action deemed proper by the Trustee that is not inconsistent with such direction. Prior to taking any action hereunder, the Trustee shall be entitled to indemnification satisfactory to it in its sole discretion against all losses and expenses caused by taking or not taking such action. SECTION 6.06. Limitation on Suits. Except to enforce the right to receive payment of principal, premium (if any) or interest when due, no Securityholder may pursue any remedy with respect to this Indenture or the Securities unless: (1) the Holder gives to the Trustee written notice stating that an Event of Default is continuing; (2) the Holders of at least 25% in principal amount of the Securities make a written request to the Trustee to pursue the remedy; 62 (3) such Holder or Holders offer to the Trustee reasonable security or indemnity against any loss, liability or expense; (4) the Trustee does not comply with the request within 60 days after receipt of the request and the offer of security or indemnity; and (5) the Holders of a majority in principal amount of the Securities do not give the Trustee a direction inconsistent with the request during such 60-day period. A Securityholder may not use this Indenture to prejudice the rights of another Securityholder or to obtain a preference or priority over another Securityholder. SECTION 6.07. Rights of Holders to Receive Payment. Notwithstanding any other provision of this Indenture, the right of any Holder to receive payment of principal of and interest on the Securities held by such Holder, on or after the respective due dates expressed in the Securities, or to bring suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of such Holder. SECTION 6.08. Collection Suit by Trustee. If an Event of Default specified in Section 6.01(1) or (2) occurs and is continuing, the Trustee may recover judgment in its own name and as trustee of an express trust against the Company for the whole amount then due and owing (together with interest on any unpaid interest to the extent lawful) and the amounts provided for in Section 7.07. SECTION 6.09. Trustee May File Proofs of Claim. The Trustee may file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee and the Securityholders allowed in any judicial proceedings relative to the Company, its creditors or its property and, unless prohibited by law or applicable regulations, may vote on behalf of the Holders in any election of a trustee in bankruptcy or other Person performing similar functions. The Trustee shall be entitled and empowered to collect, receive and distribute any money or other property payable or deliverable on any such claims, and any Custodian in any such judicial proceeding is hereby authorized by each Holder to make such payments to the 63 Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and its counsel, and any other amounts due the Trustee under Section 7.07. SECTION 6.10. Priorities. If the Trustee collects any money or property pursuant to this Article 6, it shall pay out the money or property in the following order: FIRST: to the Trustee for amounts due under Section 7.07; SECOND: to holders of Senior Indebtedness of the Company to the extent required by Article 10; THIRD: to Securityholders for amounts due and unpaid on the Securities for principal and interest, ratably, without preference or priority of any kind, according to the amounts due and payable on the Securities for principal and interest, respectively; and FOURTH: to the Company. The Trustee may fix a record date and payment date for any payment to Securityholders pursuant to this Section. At least 15 days before such record date, the Company shall mail to each Securityholder and the Trustee a notice that states the record date, the payment date and amount to be paid. SECTION 6.11. Undertaking for Costs. In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as Trustee, a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys' fees, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section does not apply to a suit by the Trustee, a suit by a Holder pursuant to Section 6.07 or a suit by Holders of more than 10% in principal amount of the Securities. 64 SECTION 6.12. Waiver of Stay or Extension Laws. The Company (to the extent it may lawfully do so) shall not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law wherever enacted, now or at any time hereafter in force, which may affect the covenants or the performance of this Indenture; and the Company (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and shall not hinder, delay or impede the execution of any power herein granted to the Trustee, but shall suffer and permit the execution of every such power as though no such law had been enacted. ARTICLE 7 Trustee SECTION 7.01. Duties of Trustee. (a) If an Event of Default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in their exercise, as a prudent Person would exercise or use under the circumstances in the conduct of such Person's own affairs. (b) Except during the continuance of an Event of Default: (1) the Trustee undertakes to perform such duties and only such duties as are specifically set forth in this Indenture and no implied covenants or obligations shall be read into this Indenture against the Trustee; and (2) in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture. However, in the case of any such certificates or opinions which, by any provision hereof, are required to be furnished to the Trustee, the Trustee shall examine such certificates and opinions to determine whether or not they conform to the requirements of this Indenture. 65 (c) No provision of this Indenture shall be construed to relieve the Trustee from liability for its own negligent action, its own negligent failure to act or its own wilful misconduct, except that: (1) this paragraph does not limit the effect of paragraph (b) of this Section; (2) the Trustee shall not be liable for any error of judgment made in good faith by a Trust Officer unless it is proved that the Trustee was negligent in ascertaining the pertinent facts; and (3) the Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 6.05. (d) Every provision of this Indenture that in any way relates to the Trustee is subject to paragraphs (a), (b) and (c) of this Section. (e) The Trustee shall not be liable for interest on any money received by it except as the Trustee may agree in writing with the Company. (f) Money held in trust by the Trustee need not be segregated from other funds except to the extent required by law. (g) No provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur financial liability in the performance of any of its duties hereunder or in the exercise of any of its rights or powers, if it shall have reasonable grounds to believe that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. (h) Every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee shall be subject to the provisions of this Section and to the provisions of the TIA. SECTION 7.02. Rights of Trustee. (a) The Trustee may conclusively rely on any document believed by it to be genuine and to have been signed or presented by the 66 proper Person. The Trustee need not investigate any fact or matter stated in the document. (b) Before the Trustee acts or refrains from acting, it may require an Officers' Certificate or an Opinion of Counsel. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on the Officers' Certificate or Opinion of Counsel. (c) The Trustee may act through agents and shall not be responsible for the misconduct or negligence of any agent appointed with due care. (d) Subject to Section 7.01(c), the Trustee shall not be liable for any action it takes or omits to take in good faith which it believes to be authorized or within its rights or powers. (e) The Trustee may consult with counsel, and the advice or opinion of counsel with respect to legal matters relating to this Indenture and the Securities shall be full and complete authorization and protection from liability in respect to any action taken, omitted or suffered by it hereunder in good faith and in accordance with the advice or opinion of such counsel. SECTION 7.03. Individual Rights of Trustee. The Trustee in its individual or any other capacity may become the owner or pledgee of Securities and may otherwise deal with the Company or its Affiliates with the same rights it would have if it were not Trustee. Any Paying Agent, Registrar, co-registrar or co-paying agent may do the same with like rights. However, the Trustee must comply with Sections 7.10 and 7.11. SECTION 7.04. Trustee's Disclaimer. The Trustee shall not be responsible for and makes no representation as to the validity or adequacy of this Indenture or the Securities, it shall not be accountable for the Company's use of the proceeds from the Securities, and it shall not be responsible for any statement of the Company in the Indenture or in any document issued in connection with the sale of the Securities or in the Securities other than the Trustee's certificate of authentication. SECTION 7.05. Notice of Defaults. If a Default occurs and is continuing and if it is known to the Trustee, 67 the Trustee shall mail to each Securityholder notice of the Default within 90 days after it occurs. Except in the case of a Default in payment of principal of or interest on any Security (including payments pursuant to the mandatory redemption provisions of such Security, if any), the Trustee may withhold the notice if and so long as a committee of its Trust Officers in good faith determines that withholding the notice is in the interests of Securityholders. SECTION 7.06. Reports by Trustee to Holders. By July 15 of each year, beginning with the July 15 following the date of this Indenture, the Trustee shall mail to each Securityholder a brief report dated as of May 15 of each year that complies with TIA Section 313(a). The Trustee also shall comply with TIA Section 313(b). A copy of each report at the time of its mailing to Securityholders shall be filed with the SEC and each stock exchange (if any) on which the Securities are listed. The Company agrees to notify promptly the Trustee whenever the Securities become listed on any stock exchange and of any delisting thereof. SECTION 7.07. Compensation and Indemnity. The Company shall pay to the Trustee from time to time reasonable compensation for its services. The Trustee's compensation shall not be limited by any law on compensation of a trustee of an express trust. The Company shall reimburse the Trustee promptly upon request for all reasonable out-of-pocket expenses, disbursements and advances incurred or made by it, including costs of collection, in addition to the compensation for its services. Such expenses shall include the reasonable compensation and expenses, disbursements and advances of the Trustee's agents, counsel, accountants and experts. The Company shall indemnify the Trustee against any and all loss, liability or expense (including attorneys' reasonable fees) incurred by it in connection with the administration of this trust and the performance of its duties hereunder, including the costs and expenses of enforcing this Indenture (including this Section 7.07) against the Company and defending itself against any claim (whether asserted by any Securityholder or any other Person) or liability in connection with the exercise or performance of any of its powers or duties hereunder, except to the extent that any such loss, liability or expense is attributable to its negligence or bad faith. The Trustee shall notify the Company promptly of 68 any claim for which it may seek indemnity. Failure by the Trustee to so notify the Company shall not relieve the Company of its obligations hereunder unless such failure prejudices the Company. The Company shall defend the claim and the Trustee may have separate counsel and the Company shall pay the fees and expenses of such counsel. The Company need not reimburse any expense or indemnify against any loss, liability or expense incurred by the Trustee through the Trustee's own wilful misconduct, negligence or bad faith. The Company need not pay for any settlement made by the Trustee without the Company's consent, such consent not to be unreasonably withheld. To secure the Company's payment obligations in this Section, the Trustee shall have a lien prior to the Securities on all money or property held or collected by the Trustee other than money or property held in trust to pay principal of and interest on particular Securities. The Company's payment obligations, and the lien granted to the Trustee, pursuant to this Section shall survive the discharge of this Indenture. When the Trustee incurs expenses or renders services after the occurrence of a Default specified in Section 6.01(7) or (8) with respect to the Company, the expenses and the compensation for the services (including the fees and expenses of its agents and counsel) are intended to constitute expenses of administration under the Bankruptcy Law. SECTION 7.08. Replacement of Trustee. The Trustee may resign at any time by so notifying the Company. The Holders of a majority in principal amount of the Securities may remove the Trustee by so notifying the Trustee and may appoint a successor Trustee. The Company shall remove the Trustee if: (1) the Trustee fails to comply with Section 7.10; (2) the Trustee is adjudged bankrupt or insolvent; (3) a receiver or other public officer takes charge of the Trustee or its property; or (4) the Trustee otherwise becomes incapable of acting. 69 If the Trustee resigns, is removed by the Company or by the Holders of a majority in principal amount of the Securities and such Holders do not reasonably promptly appoint a successor Trustee, or if a vacancy exists in the office of Trustee for any reason (the Trustee in such event being referred to herein as the retiring Trustee), the Company shall promptly appoint a successor Trustee. A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Thereupon the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture. The successor Trustee shall mail a notice of its succession to Securityholders. The retiring Trustee shall promptly transfer all property held by it as Trustee to the successor Trustee, provided that the amounts owing to the Trustee hereunder have been paid and subject to the lien provided for in Section 7.07. If a successor Trustee does not take office within 60 days after the retiring Trustee resigns or is removed, the retiring Trustee or the Holders of 10% in principal amount of the Securities may petition any court of competent jurisdiction for the appointment of a successor Trustee. If the Trustee fails to comply with Section 7.10, any Securityholder may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. Notwithstanding the replacement of the Trustee pursuant to this Section, the Company's obligations under Section 7.07 shall continue for the benefit of the retiring Trustee. SECTION 7.09. Successor Trustee by Merger. If the Trustee consolidates with, merges or converts into, or transfers all or substantially all its corporate trust business or assets to, another corporation or banking association, the resulting, surviving or transferee corporation without any further act shall be the successor Trustee provided that such successor shall be eligible and qualified under Section 7.10. In case at the time such successor or successors by merger, conversion or consolidation to the Trustee shall 70 succeed to the trusts created by this Indenture any of the Securities shall have been authenticated but not delivered, any such successor to the Trustee may adopt the certificate of authentication of any predecessor trustee, and deliver such Securities so authenticated; and in case at that time any of the Securities shall not have been authenticated, any successor to the Trustee may authenticate such Securities either in the name of any predecessor hereunder or in the name of the successor to the Trustee; and in all such cases such certificates shall have the full force which it is anywhere in the Securities or in this Indenture provided that the certificate of the Trustee shall have. SECTION 7.10. Eligibility; Disqualification. The Trustee shall at all times satisfy the requirements of TIA Section 310(a). The Trustee shall have a combined capital and surplus of at least $50,000,000 as set forth in its most recent published annual report of condition. The Trustee shall comply with TIA Section 310(b); provided, however, that there shall be excluded from the operation of TIA Section 310(b)(1) any indenture or indentures under which other securities or certificates of interest or participation in other securities of the Company are outstanding if the requirements for such exclusion set forth in TIA Section 310(b)(1) are met. SECTION 7.11. Preferential Collection of Claims Against Company. The Trustee shall comply with TIA Section 311(a), excluding any creditor relationship listed in TIA Section 311(b). A Trustee who has resigned or been removed shall be subject to TIA Section 311(a) to the extent indicated therein. ARTICLE 8 Discharge of Indenture; Defeasance SECTION 8.01. Discharge of Liability on Securities; Defeasance. (a) When (i) the Company delivers to the Trustee all outstanding Securities (other than Securities replaced pursuant to Section 2.07) for cancellation or (ii) all outstanding Securities have become due and payable, whether at maturity or as a result of the mailing of a notice of redemption pursuant to Article 3 hereof and the Company irrevocably deposits with the Trustee funds sufficient to pay at maturity or upon redemption all outstanding Securities, including interest thereon to maturity or such 71 redemption date (other than Securities replaced pursuant to Section 2.07), and if in either case the Company pays all other sums payable hereunder by the Company, then this Indenture shall, subject to Sections 8.01(c), cease to be of further effect. The Trustee shall acknowledge satisfaction and discharge of this Indenture on demand of the Company accompanied by an Officers' Certificate and an Opinion of Counsel and at the cost and expense of the Company. (b) Subject to Sections 8.01(c) and 8.02, the Company at any time may terminate (i) all its obligations under the Securities and this Indenture ("legal defeasance option") or (ii) its obligations under Sections 4.02 (subject to any requirements of the TIA), 4.03, 4.04, 4.05, 4.06, 4.07, 4.08, 4.09 and 4.10 and the operation of Sections 6.01(4), 6.01(6), 6.01(7), 6.01(8) and 6.01(9) (but, in the case of Sections 6.01(7) and (8), with respect only to Significant Subsidiaries) and the limitations contained in Sections 5.01(a)(iii) and (iv) ("covenant defeasance option"). The Company may exercise its legal defeasance option notwithstanding its prior exercise of its covenant defeasance option. If the Company exercises its legal defeasance option, payment of the Securities may not be accelerated because of an Event of Default with respect thereto. If the Company exercises its covenant defeasance option, payment of the Securities may not be accelerated because of an Event of Default specified in Sections 6.01(4), 6.01(6), 6.01(7), 6.01(8) and 6.01(9) (but, in the case of Sections 6.01(7) and (8), with respect only to Significant Subsidiaries) or because of the failure of the Company to comply with Section 5.01(a)(iii) or (iv). If the Company exercises its legal defeasance option or its covenant defeasance option, Parent shall be released from all its obligations with respect to the Parent Guaranty and each Subsidiary Guarantor, if any, shall be released from all its obligations with respect to its Subsidiary Guaranty. Upon satisfaction of the conditions set forth herein and upon request of the Company, the Trustee shall acknowledge in writing the discharge of those obligations that the Company terminates. (c) Notwithstanding clauses (a) and (b) above, the Company's obligations in Sections 2.03, 2.04, 2.05, 2.06, 2.07, 2.08, 7.07, 7.08, 8.04, 8.05 and 8.06 shall 72 survive until the Securities have been paid in full. Thereafter, the Company's obligations in Sections 7.07, 8.04 and 8.05 shall survive. SECTION 8.02. Conditions to Defeasance. The Company may exercise its legal defeasance option or its covenant defeasance option only if: (1) the Company irrevocably deposits in trust with the Trustee money or U.S. Government Obligations for the payment of principal of and interest on the Securities to maturity or redemption, as the case may be; (2) the Company delivers to the Trustee a certificate from a nationally recognized firm of independent accountants expressing their opinion that the payments of principal and interest when due and without reinvestment on the deposited U.S. Government Obligations plus any deposited money without investment will provide cash at such times and in such amounts as will be sufficient to pay principal and interest when due on all the Securities to maturity or redemption, as the case may be; (3) 123 days pass after the deposit is made and during the 123-day period no Default specified in Sections 6.01(7) or (8) with respect to the Company occurs which is continuing at the end of the period; (4) the deposit does not constitute a default under any other agreement binding on the Company and is not prohibited by Article 10; (5) the Company delivers to the Trustee an Opinion of Counsel to the effect that the trust resulting from the deposit does not constitute, or is qualified as, a regulated investment company under the Investment Company Act of 1940; (6) in the case of the legal defeasance option, the Company shall have delivered to the Trustee an Opinion of Counsel stating that (i) the Company has received from, or there has been published by, the Internal Revenue Service a ruling, or (ii) since the date of this Indenture there has been a change in the applicable Federal income tax law, in either case to the effect that, and based thereon such Opinion of 73 Counsel shall confirm that, the Securityholders will not recognize income, gain or loss for Federal income tax purposes as a result of such defeasance and will be subject to Federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such defeasance had not occurred; (7) in the case of the covenant defeasance option, the Company shall have delivered to the Trustee an Opinion of Counsel to the effect that the Securityholders will not recognize income, gain or loss for Federal income tax purposes as a result of such covenant defeasance and will be subject to Federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such covenant defeasance had not occurred; and (8) the Company delivers to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent to the defeasance and discharge of the Securities as contemplated by this Article 8 have been complied with. Before or after a deposit, the Company may make arrangements satisfactory to the Trustee for the redemption of Securities at a future date in accordance with Article 3. SECTION 8.03. Application of Trust Money. The Trustee shall hold in trust money or U.S. Government Obligations deposited with it pursuant to this Article 8. It shall apply the deposited money and the money from U.S. Government Obligations through the Paying Agent and in accordance with this Indenture to the payment of principal of and interest on the Securities. Money and securities so held in trust are not subject to Article 10. SECTION 8.04. Repayment to Company. The Trustee and the Paying Agent shall promptly turn over to the Company upon request any excess money or securities held by them at any time. Subject to any applicable abandoned property law, the Trustee and the Paying Agent shall pay to the Company upon request any money held by them for the payment of principal or interest that remains unclaimed for two years, and, thereafter, Securityholders entitled to the money must look to the Company for payment as general creditors. 74 SECTION 8.05. Indemnity for Government Obligations. The Company shall pay and shall indemnify the Trustee against any tax, fee or other charge imposed on or assessed against deposited U.S. Government Obligations or the principal and interest received on such U.S. Government Obligations. SECTION 8.06. Reinstatement. If the Trustee or Paying Agent is unable to apply any money or U.S. Government Obligations in accordance with this Article 8 by reason of any legal proceeding or by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, the Company's obligations under this Indenture and the Securities shall be revived and reinstated as though no deposit had occurred pursuant to this Article 8 until such time as the Trustee or Paying Agent is permitted to apply all such money or U.S. Government Obligations in accordance with this Article 8; provided, however, that, if the Company has made any payment of interest on or principal of any Securities because of the reinstatement of its obligations, the Company shall be subrogated to the rights of the Holders of such Securities to receive such payment from the money or U.S. Government Obligations held by the Trustee or Paying Agent. ARTICLE 9 Amendments SECTION 9.01. Without Consent of Holders. The Company and the Trustee may amend this Indenture or the Securities without notice to or consent of any Securityholder: (1) to cure any ambiguity, omission, defect or inconsistency; (2) to comply with Article 5; (3) to provide for uncertificated Securities in addition to or in place of certificated Securities; provided, however, that the uncertificated Securities are issued in registered form for purposes of Section 163(f) of the Code or in a manner such that the uncertificated Securities are described in Section 163(f)(2)(B) of the Code; 75 (4) to make any change in Article 10 that would limit or terminate the benefits available to any holder of Senior Indebtedness (or Representatives therefor) under Article 10; (5) to add guarantees with respect to the Securities, including any Subsidiary Guaranties, or to secure the Securities; (6) to add to the covenants of the Company for the benefit of the Holders or to surrender any right or power herein conferred upon the Company; (7) to comply with any requirements of the SEC in connection with qualifying, or maintaining the qualification of, this Indenture under the TIA; (8) to make any change that does not adversely affect the rights of any Securityholder; or (9) to release a Subsidiary Guaranty when permitted by the terms of this Indenture. An amendment under this Section may not make any change that adversely affects the rights under Article 10 of any holder of Senior Indebtedness then outstanding unless the holders of such Senior Indebtedness (or any group or representative thereof authorized to give a consent) consent to such change. After an amendment under this Section becomes effective, the Company shall mail to Securityholders a notice briefly describing such amendment. The failure to give such notice to all Securityholders, or any defect therein, shall not impair or affect the validity of an amendment under this Section. SECTION 9.02. With Consent of Holders. The Company and the Trustee may amend this Indenture or the Securities without notice to any Securityholder but with the written consent of the Holders of at least a majority in 76 principal amount of the Securities then outstanding (including consents obtained in connection with a tender offer or exchange for the Securities). However, without the consent of each Securityholder affected thereby, an amendment may not: (1) reduce the amount of Securities whose Holders must consent to an amendment; (2) reduce the rate of or extend the time for payment of interest on any Security; (3) reduce the principal of or extend the Stated Maturity of any Security; (4) reduce the premium payable upon the redemption of any Security or change the time at which any Security may or shall be redeemed in accordance with Article 3; (5) make any Security payable in money other than that stated in the Security; (6) make any change in Article 10 that adversely affects the rights of any Securityholder under Article 10; (7) make any change in Section 6.04 or 6.07 or the second sentence of this Section; or (8) make any change in the Parent Guaranty or any Subsidiary Guaranty (including the subordination provisions of any such Guaranty) that would adversely affect the Securityholders. It shall not be necessary for the consent of the Holders under this Section to approve the particular form of any proposed amendment, but it shall be sufficient if such consent approves the substance thereof. An amendment under this Section may not make any change that adversely affects the rights under Article 10 of any holder of Senior Indebtedness then outstanding unless the holders of such Senior Indebtedness (or any group or representative thereof authorized to give a consent) consent to such change. 77 After an amendment under this Section becomes effective, the Company shall mail to Securityholders a notice briefly describing such amendment. The failure to give such notice to all Securityholders, or any defect therein, shall not impair or affect the validity of an amendment under this Section. SECTION 9.03. Compliance with Trust Indenture Act. Every amendment to this Indenture or the Securities shall comply with the TIA as then in effect. SECTION 9.04. Revocation and Effect of Consents and Waivers. A consent to an amendment or a waiver by a Holder of a Security shall bind the Holder and every subsequent Holder of that Security or portion of the Security that evidences the same debt as the consenting Holder's Security, even if notation of the consent or waiver is not made on the Security. However, any such Holder or subsequent Holder may revoke the consent or waiver as to such Holder's Security or portion of the Security if the Trustee receives the notice of revocation before the date the amendment or waiver becomes effective. After an amendment or waiver becomes effective, it shall bind every Securityholder. An amendment or waiver becomes effective upon the execution of such amendment or waiver by the Trustee. The Company may, but shall not be obligated to, fix a record date for the purpose of determining the Securityholders entitled to give their consent or take any other action described above or required or permitted to be taken pursuant to this Indenture. If a record date is fixed, then notwithstanding the immediately preceding paragraph, those Persons who were Securityholders at such record date (or their duly designated proxies), and only those Persons, shall be entitled to give such consent or to revoke any consent previously given or to take any such action, whether or not such Persons continue to be Holders after such record date. No such consent shall be valid or effective for more than 120 days after such record date. SECTION 9.05. Notation on or Exchange of Securities. If an amendment changes the terms of a Security, the Trustee may require the Holder of the Security to deliver it to the Trustee. The Trustee may place an appropriate notation on the Security regarding the changed terms and return it to the Holder. Alternatively, if the Company or the Trustee so determines, the Company in exchange for the 78 Security shall issue and the Trustee shall authenticate a new Security that reflects the changed terms. Failure to make the appropriate notation or to issue a new Security shall not affect the validity of such amendment. SECTION 9.06. Trustee To Sign Amendments. The Trustee shall sign any amendment authorized pursuant to this Article 9 if the amendment does not adversely affect the rights, duties, liabilities or immunities of the Trustee. If it does, the Trustee may but need not sign it. In signing any amendment the Trustee shall be entitled to receive indemnity reasonably satisfactory to it and to receive, and (subject to Section 7.01) shall be fully protected in relying upon, an Officers' Certificate and an Opinion of Counsel stating that such amendment is authorized or permitted by this Indenture. SECTION 9.07. Payment for Consent. Neither the Company nor any Affiliate of the Company shall, directly or indirectly, pay or cause to be paid any consideration, whether by way of interest, fee or otherwise, to any Holder for or as an inducement to any consent, waiver or amendment of any of the terms or provisions of this Indenture or the Securities unless such consideration is offered to be paid to all Holders that so consent, waive or agree to amend in the time frame set forth in solicitation documents relating to such consent, waiver or agreement. ARTICLE 10 Subordination SECTION 10.01. Agreement To Subordinate. The Company agrees, and each Securityholder by accepting a Security agrees, that the Indebtedness evidenced by the Securities is subordinated in right of payment, to the extent and in the manner provided in this Article 10, to the prior payment in full in cash of all Obligations with respect to Senior Indebtedness of the Company and that the subordination is for the benefit of and enforceable by the holders of such Senior Indebtedness. The Securities shall in all respects rank pari passu with all other Senior Subordinated Indebtedness of the Company and only Indebtedness of the Company which is Senior Indebtedness shall rank senior to the Securities in accordance with the 79 provisions set forth herein. All provisions of this Article 10 shall be subject to Section 10.12. SECTION 10.02. Liquidation, Dissolution, Bankruptcy. Upon any payment or distribution of the assets of the Company to creditors upon a total or partial liquidation or a total or partial dissolution or winding up of the Company or upon any assignment for the benefit of creditors or marshalling of assets of the Company or in a bankruptcy, reorganization, insolvency, receivership or similar proceeding relating to the Company or its property, whether voluntary or involuntary: (1) the holders of Senior Indebtedness of the Company shall be entitled to receive payment in full in cash of all Obligations with respect to such Senior Indebtedness (including all interest accruing subsequent to the filing of a petition in bankruptcy at the rate provided for in the documentation with respect thereto, whether or not such interest is an allowed claim under applicable law) before Securityholders shall be entitled to receive any payment or distribution with respect to the Securities; and (2) until all Obligations with respect to such Senior Indebtedness are paid in full in cash, any payment or distribution to which Securityholders would be entitled but for this Article 10 shall be made to holders of such Senior Indebtedness as their interests may appear, except that Securityholders may receive, in exchange for the Securities in any proceeding of the type described above in this Section 10.02, (x) equity securities of the Company which, in any case, do not provide for any mandatory redemption or similar retirement prior to the maturity of the Securities or (y) unsecured debt securities of the Company which are subordinated to at least the same extent as the Securities to the payment of all Senior Indebtedness of the Company and which, in any case, do not mature or become subject to a mandatory redemption obligation prior to the maturity of the Securities. SECTION 10.03. Default on Senior Indebtedness. The Company may not pay (in cash, property or other assets) the principal of, premium, if any, or interest on the Securities or make any deposit pursuant to Section 8.01 and may not repurchase, redeem or (except for Securities 80 delivered to the Trustee pursuant to the second sentence of paragraph 6 of the Securities) otherwise retire any Securities (collectively, "pay the Securities") if (i) any Obligations with respect to Senior Indebtedness are not paid when due or (ii) any other default on Senior Indebtedness occurs and the maturity of such Senior Indebtedness is accelerated in accordance with its terms unless, in either case, (x) the default has been cured or waived and any such acceleration has been rescinded or (y) such Senior Indebtedness has been paid in full in cash; provided, however, that the Company may pay the Securities without regard to the foregoing if the Company and the Trustee receive written notice approving such payment from the Representative of such Senior Indebtedness. During the continuance of any default (other than a default described in clause (i) or (ii) of the preceding sentence) with respect to any Designated Senior Indebtedness pursuant to which the maturity thereof may be accelerated immediately without further notice (except such notice as may be required to effect such acceleration) or the expiration of any applicable grace periods, the Company may not pay the Securities for a period (a "Payment Blockage Period") commencing upon the receipt by the Company and the Trustee of written notice (a "Blockage Notice") of such default from the Representative of such Designated Senior Indebtedness specifying an election to effect a Payment Blockage Period and ending 179 days thereafter (or earlier if such Payment Blockage Period is terminated (i) by written notice to the Trustee and the Company from the Person or Persons who gave such Blockage Notice, (ii) because no defaults continue in existence which would permit the acceleration of the maturities of any Designated Senior Indebtedness at such time) or (iii) because such Designated Senior Indebtedness has been repaid in full in cash). Notwithstanding the provisions described in the immediately preceding sentence (but subject to the provisions contained in the first sentence of this Section), unless the holders of such Designated Senior Indebtedness or the Representative of such holders shall have accelerated the maturity of such Designated Senior Indebtedness, the Company may resume payments on the Securities after termination of such Payment Blockage Period. Not more than one Blockage Notice may be given in any consecutive 360-day period, irrespective of the number of defaults with respect to Designated Senior Indebtedness during such period. For purposes of this Section, no default or event of default which existed or was continuing on the date of the commencement of any Payment 81 Blockage Period with respect to the Designated Senior Indebtedness initiating such Payment Blockage Period shall be, or be made, the basis of the commencement of a subsequent Payment Blockage Period by the Representative of such Designated Senior Indebtedness, whether or not within a period of 360 consecutive days, unless such default or event of default shall have been cured or waived for a period of not less than 90 consecutive days (it being acknowledged and agreed that (x) any default or event of default as a result of a continued failure to meet a financial covenant or test for a period ended subsequent to the commencement of a Payment Blockage Period shall constitute a new default or event of default, as the case may be, and shall be deemed not to be a continuing default or event of default, as the case may be, for purposes of this sentence and (y) any subsequent action which would give rise to a default or an event of default pursuant to any provision under which a default or event of default previously existed or was continuing shall constitute a new default or event of default, as the case may be, for this purpose and shall be deemed not to be a continuing default or event of default, as the case may be, for purposes of this sentence). SECTION 10.04. Acceleration of Payment of Securities. If payment of the Securities is accelerated because of an Event of Default, the Company or the Trustee shall promptly notify the holders of the Designated Senior Indebtedness (or their Representatives) of the acceleration. SECTION 10.05. When Distribution Must Be Paid Over. If a distribution is made to Securityholders that because of this Article 10 should not have been made to them, the Securityholders who receive the distribution shall hold it in trust for holders of Senior Indebtedness of the Company and pay it over to them as their interests may appear. SECTION 10.06. Subrogation. After all Senior Indebtedness of the Company is paid in full in cash and until the Securities are paid in full, Securityholders shall be subrogated to the rights of holders of such Senior Indebtedness to receive distributions applicable to such Senior Indebtedness. A distribution made under this Article 10 to holders of such Senior Indebtedness which otherwise would have been made to Securityholders is not, as between the Company and Securityholders, a payment by the Company on such Senior Indebtedness. 82 SECTION 10.07. Relative Rights. This Article 10 defines the relative rights of Securityholders and holders of Senior Indebtedness of the Company. Nothing in this Indenture shall: (1) impair, as between the Company and Securityholders, the obligation of the Company, which is absolute and unconditional, to pay principal of and interest on the Securities in accordance with their terms; or (2) prevent the Trustee or any Securityholder from exercising its available remedies upon a Default, subject to the rights of holders of Senior Indebtedness of the Company to receive distributions otherwise payable to Securityholders. SECTION 10.08. Subordination May Not Be Impaired by Company. No right of any holder of Senior Indebtedness of the Company to enforce the subordination of the Indebtedness evidenced by the Securities shall be impaired by any act or failure to act by the Company or by its failure to comply with this Indenture. SECTION 10.09. Rights of Trustee and Paying Agent. Notwithstanding Section 10.03, the Trustee or Paying Agent may continue to make payments on the Securities and shall not be charged with knowledge of the existence of facts that would prohibit the making of any such payments unless, not less than two Business Days prior to the date of such payment, a Trust Officer of the Trustee receives notice satisfactory to it that payments may not be made under this Article 10. The Company, the Registrar or co-registrar, the Paying Agent, a Representative or a holder of Senior Indebtedness may give the notice. The Trustee in its individual or any other capacity may hold Senior Indebtedness of the Company with the same rights it would have if it were not Trustee. The Registrar and co-registrar and the Paying Agent may do the same with like rights. The Trustee shall be entitled to all the rights set forth in this Article 10 with respect to any Senior Indebtedness of the Company which may at any time be held by it, to the same extent as any other holder of such Senior Indebtedness; and nothing in Article 7 shall deprive the Trustee of any of its rights as such holder. Nothing in 83 this Article 10 shall apply to claims of, or payments to, the Trustee under or pursuant to Section 7.07. SECTION 10.10. Distribution or Notice to Representative. Whenever a distribution is to be made or a notice given to holders of Senior Indebtedness of the Company, the distribution may be made and the notice given to their Representative (if any). SECTION 10.11. Article 10 Not To Prevent Events of Default or Limit Right To Accelerate. The failure to make a payment pursuant to the Securities by reason of any provision in this Article 10 shall not be construed as preventing the occurrence of a Default. Nothing in this Article 10 shall have any effect on the right of the Securityholders or the Trustee to accelerate the maturity of the Securities. SECTION 10.12. Trust Moneys Not Subordinated. Notwithstanding anything contained herein to the contrary, payments from money or the proceeds of U.S. Government Obligations held in trust under Article 8 by the Trustee for the payment of principal of and interest on the Securities shall not be subordinated to the prior payment of any Senior Indebtedness or subject to the restrictions set forth in this Article 10, and none of the Securityholders shall be obligated to pay over any such amount to the Company or any holder of Senior Indebtedness of the Company or any other creditor of the Company, so long as the foregoing subordination provisions contained in this Article 10 were not violated at the time the respective amounts were deposited pursuant to the defeasance provisions of Article 8. SECTION 10.13. Trustee Entitled To Rely. Upon any payment or distribution pursuant to this Article 10, the Trustee and the Securityholders shall be entitled to rely (i) upon any order or decree of a court of competent jurisdiction in which any proceedings of the nature referred to in Section 10.02 are pending, (ii) upon a certificate of the liquidating trustee or agent or other Person making such payment or distribution to the Trustee or to the Securityholders or (iii) upon the Representatives for the holders of Senior Indebtedness of the Company for the purpose of ascertaining the Persons entitled to participate in such payment or distribution, the holders of such Senior Indebtedness and other Indebtedness of the Company, the 84 amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article 10. In the event that the Trustee determines, in good faith, that evidence is required with respect to the right of any Person as a holder of Senior Indebtedness of the Company to participate in any payment or distribution pursuant to this Article 10, the Trustee may request such Person to furnish evidence to the reasonable satisfaction of the Trustee as to the amount of such Senior Indebtedness held by such Person, the extent to which such Person is entitled to participate in such payment or distribution and other facts pertinent to the rights of such Person under this Article 10, and, if such evidence is not furnished, the Trustee may defer any payment to such Person pending judicial determination as to the right of such Person to receive such payment. The provisions of Sections 7.01 and 7.02 shall be applicable to all actions or omissions of actions by the Trustee pursuant to this Article 10. SECTION 10.14. Trustee To Effectuate Subordination. Each Securityholder by accepting a Security authorizes and directs the Trustee on his behalf to take such action as may be necessary or appropriate to acknowledge or effectuate the subordination between the Securityholders and the holders of Senior Indebtedness of the Company as provided in this Article 10 and appoints the Trustee as attorney-in-fact for any and all such purposes. SECTION 10.15. Trustee Not Fiduciary for Holders of Senior Indebtedness. The Trustee shall not be deemed to owe any fiduciary duty to the holders of Senior Indebtedness and shall not be liable to any such holders if it shall mistakenly pay over or distribute to Securityholders or the Company or any other Person, money or assets to which any holders of Senior Indebtedness of the Company shall be entitled by virtue of this Article 10 or otherwise. SECTION 10.16. Reliance by Holders of Senior Indebtedness on Subordination Provisions. Each Securityholder by accepting a Security acknowledges and agrees that the foregoing subordination provisions are, and are intended to be, an inducement and a consideration to each holder of any Senior Indebtedness of the Company, whether such Senior Indebtedness was created or acquired before or after the issuance of the Securities, to acquire and continue to hold, or to continue to hold, such Senior Indebtedness was created or acquired before or after the issuance of the Securities, to acquire and continue to hold, or to continue to hold, such Senior 85 Indebtedness and such holder of such Senior Indebtedness shall be deemed conclusively to have relied on such subordination provisions in acquiring and continuing to hold, or in continuing to hold, such Senior Indebtedness. ARTICLE 11 Guaranties SECTION 11.01. Guaranties. Each Guarantor hereby unconditionally and irrevocably guarantees, jointly and severally, to each Holder and to the Trustee and its successors and assigns (a) the full and punctual payment of principal of and interest on the Securities when due, whether at maturity, by acceleration, by redemption or otherwise, and all other monetary obligations of the Company under this Indenture and the Securities and (b) the full and punctual performance within applicable grace periods of all other obligations of the Company under this Indenture and the Securities (all the foregoing being hereinafter collectively called the "Indenture Obligations"). Each Guarantor further agrees that the Indenture Obligations may be extended or renewed, in whole or in part, without notice or further assent from such Guarantor and that such Guarantor will remain bound under this Article 11 notwithstanding any extension or renewal of any Indenture Obligation. Each Guarantor waives presentation to, demand of, payment from and protest to the Company of any of the Indenture Obligations and also waives notice of protest for nonpayment. Each Guarantor waives notice of any default under the Securities or the Indenture Obligations. The obligations of each Guarantor hereunder shall not be affected by (a) the failure of any Holder or the Trustee to assert any claim or demand or to enforce any right or remedy against the Company or any other Person under this Indenture, the Securities or any other agreement or otherwise; (b) any extension or renewal of any thereof; (c) any rescission, waiver, amendment or modification of any of the terms or provisions of this Indenture, the Securities or any other agreement; (d) the release of any security held by any Holder or the Trustee for the Indenture Obligations or any of them; (e) the failure of any Holder or the Trustee to exercise any right or remedy against any other guarantor of 86 the Indenture Obligations; or (f) any change in the ownership of such Guarantor. Each Guarantor further agrees that its Guaranty herein constitutes a guarantee of payment, performance and compliance when due (and not a guarantee of collection) and waives any right to require that any resort be had by any Holder or the Trustee to any security held for payment of the Indenture Obligations. Each Guaranty is, to the extent and in the manner set forth in Article 12, subordinated and subject in right of payment to the prior payment in full in cash of all Obligations with respect to all Senior Indebtedness of the Guarantor giving such Guaranty and each Guaranty is made subject to such provisions of this Indenture. Except as expressly set forth in Sections 8.01(b), 11.02 and 11.06, the obligations of each Guarantor hereunder shall not be subject to any reduction, limitation, impairment or termination for any reason, including any claim of waiver, release, surrender, alteration or compromise, and shall not be subject to any defense of setoff, counterclaim, recoupment or termination whatsoever or by reason of the invalidity, illegality or unenforceability of the Indenture Obligations or otherwise. Without limiting the generality of the foregoing, the obligations of each Guarantor herein shall not be discharged or impaired or otherwise affected by the failure of any Holder or the Trustee to assert any claim or demand or to enforce any remedy under this Indenture, the Securities or any other agreement, by any waiver or modification of any thereof, by any default, failure or delay, willful or otherwise, in the performance of the obligations, or by any other act or thing or omission or delay to do any other act or thing which may or might in any manner or to any extent vary the risk of such Guarantor or would otherwise operate as a discharge of such Guarantor as a matter of law or equity. Each Guarantor further agrees that its Guarantee herein shall continue to be effective or be reinstated, as the case may be, if at any time payment, or any part thereof, of principal of or interest on any Indenture Obligation is rescinded or must otherwise be restored by any Holder or the Trustee upon the bankruptcy or reorganization of the Company or otherwise. 87 In furtherance of the foregoing and not in limitation of any other right which any Holder or the Trustee has at law or in equity against any Guarantor by virtue hereof, upon the failure of the Company to pay the principal of or interest on any Indenture Obligation when and as the same shall become due, whether at maturity, by acceleration, by redemption or otherwise, or to perform or comply with any other Indenture Obligation, each Guarantor hereby promises to and will, upon receipt of written demand by the Trustee, forthwith pay, or cause to be paid, in cash, to the Holders or the Trustee an amount equal to the sum of (i) the unpaid amount of such Indenture Obligations, (ii) accrued and unpaid interest on such Indenture Obligations (but only to the extent not prohibited by law) and (iii) all other monetary Indenture Obligations of the Company to the Holders and the Trustee. Each Guarantor agrees that it shall not be entitled to any right of subrogation in respect of any Indenture Obligations guaranteed hereby until payment in full of all Indenture Obligations and all obligations to which the Indenture Obligations are subordinated as provided in Article 12. Each Guarantor further agrees that, as between it, on the one hand, and the Holders and the Trustee, on the other hand, (x) the maturity of the Indenture Obligations Guaranteed hereby may be accelerated as provided in Article 6 for the purposes of such Guarantor's Guaranty herein, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the Indenture Obligations guaranteed hereby, and (y) in the event of any declaration of acceleration of such obligations as provided in Article 6, such Indenture Obligations (whether or not due and payable) shall forthwith become due and payable by such Guarantor for the purposes of this Section. Each Guarantor also agrees to pay any and all costs and expenses (including reasonable attorneys' fees) incurred by the Trustee or any Holder in enforcing any rights under this Section. SECTION 11.02. Limitation on Liability. Any term or provision of this Indenture to the contrary notwithstanding, the maximum, aggregate amount of the Indenture Obligations guaranteed hereunder by any Subsidiary Guarantor shall not exceed the maximum amount that can be hereby guaranteed without rendering this Indenture, as it 88 relates to such Subsidiary Guarantor, voidable under applicable law relating to fraudulent conveyance or fraudulent transfer or similar laws affecting the rights of creditors generally. SECTION 11.03. Successors and Assigns. This Article 11 shall be binding upon each Guarantor and its successors and assigns and shall inure to the benefit of the successors and assigns of the Trustee and the Holders and, in the event of any transfer or assignment of rights by any Holder or the Trustee, the rights and privileges conferred upon that party in this Indenture and in the Securities shall automatically extend to and be vested in such transferee or assignee, all subject to the terms and conditions of this Indenture. SECTION 11.04. No Waiver. Neither a failure nor a delay on the part of either the Trustee or the Holders in exercising any right, power or privilege under this Article 11 shall operate as a waiver thereof, nor shall a single or partial exercise thereof preclude any other or further exercise of any right, power or privilege. The rights, remedies and benefits of the Trustee and the Holders herein expressly specified are cumulative and not exclusive of any other rights, remedies or benefits which either may have under this Article 11 at law, in equity, by statute or otherwise. SECTION 11.05. Modification. No modification, amendment or waiver of any provision of this Article 11, nor the consent to any departure by any Guarantor therefrom, shall in any event be effective unless the same shall be in writing and signed by the Trustee, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. No notice to or demand on any Guarantor in any case shall entitle such Guarantor to any other or further notice or demand in the same, similar or other circumstances. SECTION 11.06. Release of Subsidiary Guarantor. Upon the sale (including any sale pursuant to any exercise of remedies by a holder of Senior Indebtedness) or other disposition (including by way of consolidation or merger) of a Subsidiary Guarantor or the sale or disposition of all or substantially all the assets of such Subsidiary Guarantor (in each case other than to the Company or an Affiliate of the Company), such Subsidiary Guarantor shall be deemed 89 released from all obligations under this Article 11 without any further action required on the part of the Trustee or any Holder. At the request of the Company, the Trustee shall execute and deliver an appropriate instrument evidencing such release. ARTICLE 12 Subordination of Guaranties SECTION 12.01. Agreement To Subordinate. Each Guarantor agrees, and each Securityholder by accepting a Security agrees, that the Indenture Obligations (as used in this Article 12, the "Indenture Obligations" of each Guarantor shall mean all Indenture Obligations guaranteed by such Guarantor pursuant to Article 11 hereof) of such Guarantor are subordinated in right of payment, to the extent and in the manner provided in this Article 12, to the prior payment in full in cash of all Obligations with respect to Senior Indebtedness of such Guarantor and that the subordination is for the benefit of and enforceable by the holders of such Senior Indebtedness. The Indenture Obligations of a Guarantor shall in all respects rank pari passu with all other Senior Subordinated Indebtedness of such Guarantor and only Senior Indebtedness of such Guarantor (including such Guarantor's Guarantee of Senior Indebtedness of the Company) shall rank senior to the Indenture Obligations of such Guarantor in accordance with the provisions set forth herein. SECTION 12.02. Liquidation, Dissolution, Bankruptcy. Upon any payment or distribution of the assets of any Guarantor to creditors upon a total or partial liquidation or a total or partial dissolution or winding up of such Guarantor or upon any assignment for the benefit of creditors or marshalling of assets for such Guarantor or in a bankruptcy, reorganization, insolvency, receivership or similar proceeding relating to such Guarantor or its property, whether voluntary or involuntary: (1) the holders of Senior Indebtedness of such Guarantor shall be entitled to receive payment in full in cash of all Obligations with respect to such Senior Indebtedness (including all interest accruing subsequent to the filing of a petition in bankruptcy at the rate provided for in the documentation with respect 90 thereto, whether or not such interest is an allowed claim under applicable law) before Securityholders shall be entitled to receive any payment or distribution with respect to any Indenture Obligations of such Guarantor; and (2) until all Obligations with respect to the Senior Indebtedness of any Guarantor is paid in full in cash, any payment or distribution to which Securityholders would be entitled but for this Article 12 shall be made to holders of such Senior Indebtedness as their interests may appear, except that securityholders may, in any proceeding of the type described in Section 10.02 with respect to such Guarantor, receive securities of the Parent and/or the Company as provided in clause (2) of Section 10.02, which, in the case of debt securities of the Company, may be guaranteed by the Guarantors on substantially the same basis as provided in Article 11, so long as such guarantees are expressly subordinated to all Senior Indebtedness at least to the same extent as provided in this Article 12. SECTION 12.03. Default on Senior Indebtedness of Guarantor. No Guarantor may make any payment (in cash, property or other assets) pursuant to any of its Indenture Obligations or repurchase, redeem or otherwise retire or defease any Securities or other Indenture Obligations (collectively, "pay its Guaranty") if (i) any Obligations with respect to Senior Indebtedness of the Company is not paid when due or (ii) any other default on Senior Indebtedness of the Company occurs and the maturity of such Senior Indebtedness is accelerated in accordance with its terms unless, in either case, (x) the default has been cured or waived and any such acceleration has been rescinded or (y) such Senior Indebtedness has been paid in full in cash; provided, however, that any Guarantor may pay its Guaranty without regard to the foregoing if such Guarantor and the Trustee receive written notice approving such payment from the Representatives of such Senior Indebtedness. No Guarantor may pay its Guaranty during the continuance of any Payment Blockage Period after receipt by the Company and the Trustee (with a copy to the Company) of a Blockage Notice under Section 10.03. Notwithstanding the provisions described in the immediately preceding sentence (but subject to the provisions contained in the first sentence of this Section), unless the holders of Designated Senior 91 Indebtedness giving such Blockage Notice or the Representative of such holders shall have accelerated the maturity of such Designated Senior Indebtedness, any Guarantor may resume payments pursuant to its Guaranty after termination of such Payment Blockage Period. SECTION 12.04. Demand for Payment. If a demand for payment is made on a Guarantor pursuant to Article 11, the Trustee shall promptly notify the holders of the Designated Senior Indebtedness (or their Representatives) of such demand. SECTION 12.05. When Distribution Must Be Paid Over. If a distribution is made to Securityholders that because of this Article 12 should not have been made to them, the Securityholders who receive the distribution shall hold it in trust for holders of the relevant Senior Indebtedness and pay it over to them or their Representatives as their interests may appear. SECTION 12.06. Subrogation. After all Senior Indebtedness of a Guarantor is paid in full in cash and until the Securities are paid in full, Securityholders shall be subrogated to the rights of holders of such Senior Indebtedness to receive distributions applicable to Senior Indebtedness. A distribution made under this Article 12 to holders of such Senior Indebtedness which otherwise would have been made to Securityholders is not, as between the relevant Guarantor and Securityholders, a payment by such Guarantor on such Senior Indebtedness. SECTION 12.07. Relative Rights. This Article 12 defines the relative rights of Securityholders and holders of Senior Indebtedness of a Guarantor. Nothing in this Indenture shall: (1) impair, as between a Guarantor and Securityholders, the obligation of such Guarantor, which is absolute and unconditional, to pay the Indenture Obligations to the extent set forth in Article 11 or the relevant Guaranty; or (2) prevent the Trustee or any Securityholder from exercising its available remedies upon a default by such Guarantor under the Indenture Obligations, subject to the rights of holders of Senior Indebtedness of such 92 Guarantor to receive distributions otherwise payable to Securityholders. SECTION 12.08. Subordination May Not Be Impaired by Company. No right of any holder of Senior Indebtedness of any Guarantor to enforce the subordination of the Indenture Obligations of such Guarantor shall be impaired by any act or failure to act by such Guarantor or by its failure to comply with this Indenture. SECTION 12.09. Rights of Trustee and Paying Agent. Notwithstanding Section 12.03, the Trustee or Paying Agent may continue to make payments on any Guaranty and shall not be charged with knowledge of the existence of facts that would prohibit the making of any such payments unless, not less than two Business Days prior to the date of such payment, a Trust Officer of the Trustee receives written notice satisfactory to it that payments may not be made under this Article 12. The Company, the relevant Guarantor, the Registrar or co-registrar, the Paying Agent, a Representative or a holder of Senior Indebtedness of the relevant Guarantor may give the notice. The Trustee in its individual or any other capacity may hold Senior Indebtedness with the same rights it would have if it were not the Trustee. The Registrar and co-registrar and the Paying Agent may do the same with like rights. The Trustee shall be entitled to all the rights set forth in this Article 12 with respect to any Senior Indebtedness of any Guarantor which may at any time be held by it, to the same extent as any other holder of Senior Indebtedness; and nothing in Article 7 shall deprive the Trustee of any of its rights as such holder. Nothing in this Article 12 shall apply to claims of, or payments to, the Trustee under or pursuant to Section 7.07. SECTION 12.10. Distribution or Notice to Representative. Whenever a distribution is to be made or a notice given to holders of Senior Indebtedness of any Guarantor, the distribution may be made and the notice given to their Representative (if any). SECTION 12.11. Article 12 Not To Prevent Defaults Under a Guaranty or Limit Right To Demand Payment. The failure to make a payment pursuant to a Guaranty by reason of any provision in this Article 12 shall not be construed as preventing the occurrence of a default under such 93 Guaranty. Nothing in this Article 12 shall have any effect on the right of the Securityholders or the Trustee to make a demand for payment on any Guarantor pursuant to Article 11 or the relevant Guaranty. SECTION 12.12. Trustee Entitled To Rely. Upon any payment or distribution pursuant to this Article 12, the Trustee and the Securityholders shall be entitled to rely (i) upon any order or decree of a court of competent jurisdiction in which any proceedings of the nature referred to in Section 12.02 are pending, (ii) upon a certificate of the liquidating trustee or agent or other Person making such payment or distribution to the Trustee or to the Securityholders or (iii) upon the Representatives for the holders of Senior Indebtedness of any Guarantor for the purpose of ascertaining the Persons entitled to participate in such payment or distribution, the holders of such Senior Indebtedness and other indebtedness of such Guarantor, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article 12. In the event that the Trustee determines, in good faith, that evidence is required with respect to the right of any Person as a holder of Senior Indebtedness of any Guarantor to participate in any payment or distribution pursuant to this Article 12, the Trustee may request such Person to furnish evidence to the reasonable satisfaction of the Trustee as to the amount of Senior Indebtedness of such Guarantor held by such Person, the extent to which such Person is entitled to participate in such payment or distribution and other facts pertinent to the rights of such Person under this Article 12, and, if such evidence is not furnished, the Trustee may defer any payment to such Person pending judicial determination as to the right of such Person to receive such payment. The provisions of Sections 7.01 and 7.02 shall be applicable to all actions or omissions of actions by the Trustee pursuant to this Article 12. SECTION 12.13. Trustee To Effectuate Subordination. Each Securityholder by accepting a Security authorizes and directs the Trustee on his behalf to take such action as may be necessary or appropriate to acknowledge or effectuate the subordination between the Securityholders and the holders of Senior Indebtedness of any Guarantor as provided in this Article 12 and appoints the Trustee as attorney-in-fact for any and all such purposes. 94 SECTION 12.14. Trustee Not Fiduciary for Holders of Senior Indebtedness of Guarantor. The Trustee shall not be deemed to owe any fiduciary duty to the holders of Senior Indebtedness of any Guarantor and shall not be liable to any such holders if it shall mistakenly pay over or distribute to Securityholders or the Company or any other Person, money or assets to which any holders of such Senior Indebtedness shall be entitled by virtue of this Article 12 or otherwise. SECTION 12.15. Reliance by Holders of Senior Indebtedness on Subordination Provisions. Each Securityholder by accepting a Security acknowledges and agrees that the foregoing subordination provisions are, and are intended to be, an inducement and a consideration to each holder of any Senior Indebtedness of any Guarantor, whether such Senior Indebtedness was created or acquired before or after the issuance of the Securities, to acquire and continue to hold, or to continue to hold, such Senior Indebtedness and such holder of Senior Indebtedness shall be deemed conclusively to have relied on such subordination provisions in acquiring and continuing to hold, or in continuing to hold, such Senior Indebtedness. ARTICLE 13 Miscellaneous SECTION 13.01. Trust Indenture Act Controls. If any provision of this Indenture limits, qualifies or conflicts with another provision which is required to be included in this Indenture by the TIA, the required provision shall control. SECTION 13.02. Notices. Any notice or communication shall be in writing and delivered in person or mailed by first-class mail addressed as follows: if to Parent, the Company or any Subsidiary Guarantor: Fairchild Semiconductor Corporation 333 Western Avenue South Portland, Maine 04106 Attention of General Counsel 95 if to the Trustee: United States Trust Company of New York 114 West 47th Street New York, New York 10036 Attention: Corporate Trust Division The Company or the Trustee by notice to the other may designate additional or different addresses for subsequent notices or communications. Any notice or communication mailed to a Securityholder shall be mailed to the Securityholder at the Securityholder's address as it appears on the registration books of the Registrar and shall be sufficiently given if so mailed within the time prescribed. Failure to mail a notice or communication to a Securityholder or any defect in it shall not affect its sufficiency with respect to other Securityholders. If a notice or communication is mailed in the manner provided above, it is duly given, whether or not the addressee receives it. SECTION 13.03. Communication by Holders with Other Holders. Securityholders may communicate pursuant to TIA Section 312(b) with other Securityholders with respect to their rights under this Indenture or the Securities. The Company, the Trustee, the Registrar and anyone else shall have the protection of TIA Section 312(c). SECTION 13.04. Certificate and Opinion as to Conditions Precedent. Upon any request or application by the Company to the Trustee to take or refrain from taking any action under this Indenture, the Company shall furnish to the Trustee: (1) an Officers' Certificate in form and substance reasonably satisfactory to the Trustee stating that, in the opinion of the signers, all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with; and (2) an Opinion of Counsel in form and substance reasonably satisfactory to the Trustee stating that, in the opinion of such counsel, all such conditions precedent have been complied with. 96 SECTION 13.05. Statements Required in Certificate or Opinion. Each certificate or opinion with respect to compliance with a covenant or condition provided for in this Indenture shall include: (1) a statement that the individual making such certificate or opinion has read such covenant or condition; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (3) a statement that, in the opinion of such individual, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (4) a statement as to whether or not, in the opinion of such individual, such covenant or condition has been complied with. SECTION 13.06. When Securities Disregarded. In determining whether the Holders of the required principal amount of Securities have concurred in any direction, waiver or consent, Securities owned by the Company or by any Person directly or indirectly controlling or controlled by or under direct or indirect common control with the Company shall be disregarded and deemed not to be outstanding, except that, for the purpose of determining whether the Trustee shall be protected in relying on any such direction, waiver or consent, only Securities which the Trustee knows are so owned shall be so disregarded. Also, subject to the foregoing, only Securities outstanding at the time shall be considered in any such determination. SECTION 13.07. Rules by Trustee, Paying Agent and Registrar. The Trustee may make reasonable rules for action by or a meeting of Securityholders. The Registrar and the Paying Agent may make reasonable rules for their functions. SECTION 13.08. Legal Holidays. A "Legal Holiday" is a Saturday, a Sunday or a day on which banking institutions are not required to be open in the State of New York. If a payment date is a Legal Holiday, payment shall be made 97 on the next succeeding day that is not a Legal Holiday, and no interest shall accrue for the intervening period. If a regular record date is a Legal Holiday, the record date shall not be affected. SECTION 13.09. Governing Law. This Indenture and the Securities shall be governed by, and construed in accordance with, the laws of the State of New York but without giving effect to applicable principles of conflicts of law to the extent that the application of the laws of another jurisdiction would be required thereby. SECTION 13.10. No Recourse Against Others. A director, officer, employee or stockholder, as such, of the Company shall not have any liability for any obligations of the Company under the Securities or this Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. By accepting a Security, each Securityholder shall waive and release all such liability. The waiver and release shall be part of the consideration for the issue of the Securities. SECTION 13.11. Successors. All agreements of the Company in this Indenture and the Securities shall bind its successors. All agreements of the Trustee in this Indenture shall bind its successors. SECTION 13.12. Multiple Originals. The parties may sign any number of copies of this Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. One signed copy is enough to prove this Indenture. SECTION 13.13. Table of Contents; Headings. The table of contents, cross-reference sheet and headings of the Articles and Sections of this Indenture have been inserted for convenience of reference only, are not intended to be considered a part hereof and shall not modify or restrict any of the terms or provisions hereof. IN WITNESS WHEREOF, the parties have caused this Indenture to be duly executed as of the date first written above. FAIRCHILD SEMICONDUCTOR 98 CORPORATION, by ________________________ Joseph R. Martin Executive Vice President and Chief Financial Officer FSC SEMICONDUCTOR CORPORATION, as Guarantor, by ________________________ Joseph R. Martin Executive Vice President and Chief Financial Officer UNITED STATES TRUST COMPANY OF NEW YORK, as Trustee, by ________________________ Name: Title: 99 EXHIBIT A [FORM OF FACE OF EXCHANGE SECURITY OR PRIVATE EXCHANGE SECURITY] * ** No. $ 10-1/8% Senior Subordinated Notes Due 2007 FAIRCHILD SEMICONDUCTOR CORPORATION, a Delaware corporation, promises to pay to , or registered assigns, the principal sum of Dollars on March 15, 2007. Interest Payment Dates: March 15 and September 15. Record Dates: March 1 and September 1. Additional provisions of this Security are set forth on the other side of this Security. Dated: FAIRCHILD SEMICONDUCTOR CORPORATION, by _______________________ President _______________________ Secretary TRUSTEE'S CERTIFICATE OF AUTHENTICATION UNITED STATES TRUST COMPANY OF NEW YORK, as Trustee, [Seal] certifies that this is one of the Securities referred to in the Indenture. by _____________________________ Authorized Signatory */ If the Security is to be issued in global form add the Global Securities Legend from Exhibit 1 to the Rule 144A/Regulation S Appendix and the attachment from such Exhibit 1 captioned "[TO BE ATTACHED TO GLOBAL SECURITIES] - SCHEDULE OF INCREASES OR DECREASES IN GLOBAL SECURITY". **/ If the Security is a Private Exchange Security issued in a Private Exchange to an Initial Purchaser holding an unsold portion of its initial allotment, add the Restricted Securities Legend from Exhibit 1 to the Rule 144A/Regulation S Appendix and replace the Assignment Form included in this Exhibit A with the Assignment Form included in such Exhibit 1. 2 [FORM OF REVERSE SIDE OF EXCHANGE SECURITY OR PRIVATE EXCHANGE SECURITY] 10-1/8% Senior Subordinated Note Due 2007 1. Interest Fairchild Semiconductor Corporation, a Delaware corporation (such corporation, and its successors and assigns under the Indenture hereinafter referred to, being herein called the "Company"), promises to pay interest on the principal amount of this Security at the rate per annum shown above; provided, however, that if a Registration Default (as defined in the Registration Rights Agreement) occurs, additional interest will accrue on this Security at a rate of 0.50% per annum, increasing by 0.50% per annum on the 90th day after such Registration Default and on every 90th day thereafter during the continuation of any Registration Default, to but excluding the date on which all Registration Defaults have been cured; provided, however, that such additional interest shall not exceed 2.0% per annum. The Company will pay interest semiannually on March 15 and September 15 of each year, commencing September 15, 1997. Interest on the Securities will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from March 11, 1997. Interest will be computed on the basis of a 360-day year of twelve 30-day months. The Company shall pay interest on overdue principal at the rate borne by the Securities plus 1% per annum, and it shall pay interest on overdue installments of interest at the same rate to the extent lawful. 2. Method of Payment The Company will pay interest on the Securities (except defaulted interest) to the Persons who are registered holders of Securities at the close of business on the March 1 or September 1 next preceding the interest payment date even if Securities are canceled after the record date and on or before the interest payment date. Holders must surrender Securities to a Paying Agent to collect principal payments. The Company will pay principal and interest in money of the United States that at the time of payment is legal tender for payment of public and private debts. Payments in respect of Securities (including principal, 3 premium and interest) will be made by wire transfer of immediately available funds to the accounts specified by the holders thereof or, if no U.S. dollar account maintained by the payee with a bank in the United States is designated by any holder to the Trustee or the Paying Agent at least 30 days prior to the relevant due date for payment (or such other date as the Trustee may accept in its discretion), by mailing a check to the registered address of such holder. 3. Paying Agent and Registrar Initially, United States Trust Company of New York, a New York banking corporation ("Trustee"), will act as Paying Agent and Registrar. The Company may appoint and change any Paying Agent, Registrar or co-registrar without notice. The Company or any of its domestically incorporated Wholly Owned Subsidiaries may act as Paying Agent, Registrar or co-registrar. 4. Indenture The Company issued the Securities under an Indenture dated as of March 11, 1997 ("Indenture"), among the Company, FSC Semiconductor Corporation ("Parent"), as Guarantor and the Trustee. The terms of the Securities include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C. Sections 77aaa-77bbbb) as in effect on the date of the Indenture (the "Act"). Terms defined in the Indenture and not defined herein have the meanings ascribed thereto in the Indenture. The Securities are subject to all such terms, and Securityholders are referred to the Indenture and the Act for a statement of those terms. The Securities are general unsecured obligations of the Company limited to $300,000,000 aggregate principal amount (subject to Section 2.07 of the Indenture). The Indenture limits, among other things, (i) the incurrence of additional debt by the Company and its subsidiaries, (ii) the payment of dividends on capital stock of the Company and the purchase, redemption or retirement of capital stock or subordinated indebtedness, (iii) certain transactions with affiliates, (iv) sales of assets, including capital stock of subsidiaries, and (v) certain consolidations, mergers and transfers of assets. The Indenture also prohibits certain restrictions on distributions from subsidiaries. All of these limitations 4 and prohibitions, however, are subject to a number of important qualifications contained in the Indenture. 5. Optional Redemption Except as set forth in the next paragraph, the Securities may not be redeemed prior to March 15, 2002. On and after that date, the Company may redeem the Securities in whole at any time or in part from time to time at the following redemption prices (expressed in percentages of principal amount), plus accrued interest to the redemption date (subject to the right of Holders of record on the relevant record date to receive interest due on the related interest payment date), if redeemed during the 12-month period beginning March 15 of the years set forth below: Period Percentage ------ ---------- 2002 ........................................... 105.063% 2003 ........................................... 103.375 2004 ........................................... 101.688 2005 and thereafter............................. 100.000 In addition, at any time prior to March 15, 2000, the Company may redeem up to $105.0 million of the aggregate principal amount of Securities with the proceeds of a Public Equity Offering, at any time or from time to time, at a redemption price (expressed as a percentage of principal amount) of 110% plus accrued interest to the redemption date (subject to the right of Holders of record on the relevant record date to receive interest due on the related interest payment date); provided, however, that at least $150.0 million aggregate principal amount of the Securities must remain outstanding after each such redemption. 6. Mandatory Redemption On March 15, 2005 the Company will redeem $150.0 million principal amount of Securities and on March 15, 2006 the Company will redeem $75.0 million principal amount of the Securities, in each case at a redemption price of 100% of the principal amount plus accrued interest to the redemption date (subject to the right of Holders of record on the relevant record date to receive interest due on the related interest payment date). The Company may receive a credit against the principal amount of the Securities required to be redeemed pursuant to this paragraph equal to the principal amount (excluding premium) of any Securities that the Company has acquired or 5 redeemed other than pursuant to this paragraph and has delivered to the Trustee for cancellation. The Company may receive the credit only once for any Security. 7. Notice of Redemption Notice of redemption will be mailed at least 30 days but not more than 60 days before the redemption date to each Holder of Securities to be redeemed at his registered address. Securities in denominations larger than $1,000 may be redeemed in part but only in whole multiples of $1,000. If money sufficient to pay the redemption price of and accrued interest on all Securities (or portions thereof) to be redeemed on the redemption date is deposited with the Paying Agent on or before the redemption date and certain other conditions are satisfied, on and after such date interest ceases to accrue on such Securities (or such portions thereof) called for redemption. 8. Put Provisions Upon a Change of Control, any Holder of Securities will have the right, subject to certain conditions, to cause the Company to repurchase all or any part of the Securities of such Holder at a repurchase price equal to 101% of the principal amount of the Securities to be repurchased plus accrued interest to the date of repurchase (subject to the right of holders of record on the relevant record date to receive interest due on the related interest payment date) as provided in, and subject to the terms of, the Indenture. 9. Subordination; Guaranties The Securities are subordinated to Senior Indebtedness, as defined in the Indenture. To the extent provided in the Indenture, Senior Indebtedness must be paid before the Securities may be paid. The Company agrees, and each Securityholder by accepting a Security agrees, to the subordination provisions contained in the Indenture and authorizes the Trustee to give them effect and appoints the Trustee as attorney-in-fact for such purpose. Parent has agreed to guarantee the obligations of the Company under the Securities, and certain domestic subsidiaries of the Company may in the future be required to guarantee such obligations. Any such guarantees will be subordinated to any Senior Indebtedness of Parent or such subsidiaries, as applicable. 6 10. Denominations; Transfer; Exchange The Securities are in registered form without coupons in denominations of $1,000 and whole multiples of $1,000. A Holder may transfer or exchange Securities in accordance with the Indenture. The Registrar may require a Holder, among other things, to furnish appropriate endorsements or transfer documents and to pay any taxes and fees required by law or permitted by the Indenture. The Registrar need not register the transfer of or exchange any Securities selected for redemption (except, in the case of a Security to be redeemed in part, the portion of the Security not to be redeemed) or any Securities for a period of 15 days before a selection of Securities to be redeemed or 15 days before an interest payment date. 11. Persons Deemed Owners The registered Holder of this Security may be treated as the owner of it for all purposes. 12. Unclaimed Money If money for the payment of principal or interest remains unclaimed for two years, the Trustee or Paying Agent shall pay the money back to the Company at its request unless an abandoned property law designates another Person. After any such payment, Holders entitled to the money must look only to the Company and not to the Trustee for payment. 13. Discharge and Defeasance Subject to certain conditions, the Company at any time may terminate some or all of its obligations under the Securities and the Indenture if the Company deposits with the Trustee money or U.S. Government Obligations for the payment of principal and interest on the Securities to redemption or maturity, as the case may be. 14. Amendment, Waiver Subject to certain exceptions set forth in the Indenture, (i) the Indenture or the Securities may be amended with the written consent of the Holders of at least a majority in principal amount outstanding of the Securities and (ii) any default or noncompliance with any provision may be waived with the written consent of the Holders of a majority in principal amount outstanding of the Securities. 7 Subject to certain exceptions set forth in the Indenture, without the consent of any Securityholder, the Company and the Trustee may amend the Indenture or the Securities to cure any ambiguity, omission, defect or inconsistency, or to comply with Article 5 of the Indenture, or to provide for uncertificated Securities in addition to or in place of certificated Securities, or to add guarantees with respect to the Securities or to secure the Securities, or to add additional covenants or surrender rights and powers conferred on the Company, or to comply with any request of the SEC in connection with qualifying the Indenture under the Act, or to make certain changes in the subordination provisions, or to release any guarantee of the Securities by the Company's subsidiaries, when permitted by the Indenture, or to make any change that does not adversely affect the rights of any Securityholder. 15. Defaults and Remedies Under the Indenture, Events of Default include (i) default for 30 days in payment of interest on the Securities; (ii) default in payment of principal on the Securities at maturity, upon redemption pursuant to paragraph 5 or 6 of the Securities, upon acceleration or otherwise, or failure by the Company to redeem or purchase Securities when required; (iii) failure by the Company to comply with other agreements in the Indenture or the Securities, in certain cases subject to notice and lapse of time; (iv) certain accelerations (including failure to pay within any grace period after final maturity) of other Indebtedness of the Company if the amount accelerated (or so unpaid) exceeds $10 million; (v) certain events of bankruptcy or insolvency with respect to the Company and the Significant Subsidiaries, (vi) certain judgments or decrees for the payment of money in excess of $10 million; and (viii) certain events with respect to the guarantees of the Securities by the Parent and certain Restricted Subsidiaries of the Company. If an Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the Securities may declare all the Securities to be due and payable immediately, subject to certain conditions. Certain events of bankruptcy or insolvency are Events of Default which will result in the Securities being due and payable immediately upon the occurrence of such Events of Default. Securityholders may not enforce the Indenture or the Securities except as provided in the Indenture. The 8 Trustee may refuse to enforce the Indenture or the Securities unless it receives reasonable indemnity or security. Subject to certain limitations, Holders of a majority in principal amount of the Securities may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Securityholders notice of any continuing Default (except a Default in payment of principal or interest) if it determines that withholding notice is in the interest of the Holders. 16. Trustee Dealings with the Company Subject to certain limitations imposed by the Act, the Trustee under the Indenture, in its individual or any other capacity, may become the owner or pledgee of Securities and may otherwise deal with and collect obligations owed to it by the Company or its Affiliates and may otherwise deal with the Company or its Affiliates with the same rights it would have if it were not Trustee. 17. No Recourse Against Others A director, officer, employee or stockholder, as such, of the Company shall not have any liability for any obligations of the Company under the Securities or the Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. By accepting a Security, each Securityholder waives and releases all such liability. The waiver and release are part of the consideration for the issue of the Securities. 18. Authentication This Security shall not be valid until an authorized signatory of the Trustee (or an authenticating agent) manually signs the certificate of authentication on the other side of this Security. 19. Abbreviations Customary abbreviations may be used in the name of a Securityholder or an assignee, such as TEN COM (=tenants in common), TEN ENT (=tenants by the entireties), JT TEN (=joint tenants with rights of survivorship and not as tenants in common), CUST (=custodian), and U/G/M/A (=Uniform Gift to Minors Act). 9 20. CUSIP Numbers Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures the Company has caused CUSIP numbers to be printed on the Securities and has directed the Trustee to use CUSIP numbers in notices of redemption as a convenience to Securityholders. No representation is made as to the accuracy of such numbers either as printed on the Securities or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon. 21. Holders' Compliance with Registration Rights Agreement. Each Holder of a Security, by acceptance hereof, acknowledges and agrees to the provisions of the Registration Rights Agreement, including, without limitation, the obligations of the Holders with respect to a registration and the indemnification of the Company to the extent provided therein. 22. Governing Law. THIS SECURITY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK BUT WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY. The Company will furnish to any Securityholder upon written request and without charge to the Security 10 holder a copy of the Indenture which has in it the text of this Security in larger type. Requests may be made to: Attention of _____________________________________________________________________________ ASSIGNMENT FORM To assign this Security, fill in the form below: I or we assign and transfer this Security to (Print or type assignee's name, address and zip code) (Insert assignee's soc. sec. or tax I.D. No.) and irrevocably appoint agent to transfer this Security on the books of the Company. The agent may substitute another to act for him. __________________________________________________________________ ___________ Date: ________________ Your Signature: _____________________ __________________________________________________________________ ___________ Sign exactly as your name appears on the other side of this Security. 11 OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have this Security purchased by the Company pursuant to Section 4.06 or 4.09 of the Indenture, check the box: / / If you want to elect to have only part of this Security purchased by the Company pursuant to Section 4.06 or 4.09 of the Indenture, state the amount: $ Date: __________________ Your Signature: __________________ (Sign exactly as your name appears on the other side of the Security) Signature Guarantee:_______________________________________ (Signature must be guaranteed by a member firm of the New York Stock Exchange or a commercial bank or trust company) 12 RULE 144A/REGULATION S APPENDIX FOR OFFERINGS TO QUALIFIED INSTITUTIONAL BUYERS PURSUANT TO RULE 144A, INSTITUTIONAL "ACCREDITED INVESTORS" (AS DEFINED IN RULE 501(A)(1), (2), (3) OR (7)) AND TO CERTAIN PERSONS IN OFFSHORE TRANSACTIONS IN RELIANCE ON REGULATION S. PROVISIONS RELATING TO INITIAL SECURITIES, PRIVATE EXCHANGE SECURITIES AND EXCHANGE SECURITIES 1. Definitions 1.1 Definitions For the purposes of this Appendix the following terms shall have the meanings indicated below: "Definitive Security" means a certificated Initial Security bearing the restricted securities legend set forth in Section 2.3(d) and which is held by an IAI in accordance with Section 2.1(c). "Depositary" means The Depository Trust Company, its nominees and their respective successors. "Exchange Securities" means the 10-1/8% Senior Subordinated Notes Due 2007 to be issued pursuant to this Indenture in connection with a Registered Exchange Offer pursuant to the Registration Rights Agreement. "IAI" means an institutional "accredited investor" as described in Rule 501(a)(1), (2), (3) or (7) under the Securities Act. "Initial Purchasers" means Credit Suisse First Boston Corporation, BT Securities Corporation and CIBC Wood Gundy Securities Corp. "Initial Securities" means the 10-1/8% Senior Subordinated Notes Due 2007, issued under this Indenture on or about the date hereof. "Private Exchange" means the offer by the Company, pursuant to the Registration Rights Agreement, to the Initial Purchasers to issue and deliver to each Initial Purchaser, in exchange for the Initial Securities held by such Initial Purchaser as part of its initial distribution, a like aggregate principal amount of Private Exchange Securities. "Purchase Agreement" means the Purchase Agreement dated March 6, 1997, between the Company and FSC Semiconductor Corporation, on the one hand, and the Initial Purchasers, on the other. "QIB" means a "qualified institutional buyer" as defined in Rule 144A. "Registered Exchange Offer" means the offer by the Company, pursuant to the Registration Rights Agreement, to certain Holders of Initial Securities, to issue and deliver to such Holders, in exchange for the Initial Securities, a like aggregate principal amount of Exchange Securities registered under the Securities Act. "Registration Rights Agreement" means the Registration Rights Agreement dated March 6, 1997, between the Company and FSC Semiconductor Corporation, on the one hand, and the Initial Purchasers, on the other. "Securities" means the Initial Securities, the Exchange Securities and the Private Exchange Securities, treated as a single class. "Securities Act" means the Securities Act of 1933, as amended. "Securities Custodian" means the custodian with respect to a Global Security (as appointed by the Depository), or any successor person thereto and shall initially be the Trustee. "Shelf Registration Statement" means the registration statement issued by the Company, in connection with the offer and sale of Initial Securities or Private Exchange Securities, pursuant to the Registration Rights Agreement. "Transfer Restricted Securities" means Definitive Securities and Securities that bear or are required to bear the legend set forth in Section 2.3(d)hereto. 2 1.2 Other Definitions Defined in ---------- Term Section: ---- -------- "Agent Members".........................................................2.1(b) "Global Security".......................................................2.1(a) "Regulation S"..........................................................2.1(a) "Rule 144A".............................................................2.1(a) 2. The Securities. 2.1 Form and Dating. The Initial Securities are being offered and sold by the Company pursuant to the Purchase Agreement. (a) Global Securities. Initial Securities offered and sold to a QIB in reliance on Rule 144A under the Securities Act ("Rule 144A") or in reliance on Regulation S under the Securities Act ("Regulation S"), in each case as provided in the Purchase Agreement, shall be issued initially in the form of one or more permanent global Securities in definitive, fully registered form without interest coupons with the global securities legend and restricted securities legend set forth in Exhibit 1 hereto (each, a Global Security"), which shall be deposited on behalf of the purchasers of the Initial Securities represented thereby with the Trustee, at its New York office, as custodian for the Depository (or with such other custodian as the Depository may direct), and registered in the name of the Depository or a nominee of the Depository, duly executed by the Company and authenticated by the Trustee as hereinafter provided. The aggregate principal amount of the Global Securities may from time to time be increased or decreased by adjustments made on the records of the Trustee and the Depository or its nominee as hereinafter provided. (b) Book-Entry Provisions. This Section 2.1(b) shall apply only to a Global Security deposited with or on behalf of the Depositary. The Company shall execute and the Trustee shall, in accordance with this Section 2.1(b), authenticate and deliver initially one or more Global Securities that (a) shall be registered in the name of the Depositary for such Global Security or Global Securities or the nominee of such Depositary and (b) shall be delivered by the Trustee to such 3 Depositary or pursuant to such Depositary's instructions or held by the Trustee as custodian for the Depositary. Members of, or participants in, the Depositary ("Agent Members") shall have no rights under this Indenture with respect to any Global Security held on their behalf by the Depositary or by the Trustee as the custodian of the Depositary or under such Global Security, and the Depositary may be treated by the Company, the Trustee and any agent of the Company or the Trustee as the absolute owner of such Global Security for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the Company, the Trustee or any agent of the Company or the Trustee from giving effect to any written certification, proxy or other authorization furnished by the Depositary or impair, as between the Depositary and its Agent Members, the operation of customary practices of such Depositary governing the exercise of the rights of a holder of a beneficial interest in any Global Security. (c) Certificated Securities. Except as provided in this Section 2.1 or Section 2.3 or 2.4, owners of beneficial interests in Global Securities will not be entitled to receive physical delivery of certificated Securities. Purchasers of Initial Securities who are IAIs and are not QIBs and did not purchase Initial Securities sold in reliance on Regulation S will receive Definitive Securities; provided, however, that upon transfer of such Definitive Securities to a QIB, such Definitive Securities will, unless the Global Security has previously been exchanged, be exchanged for an interest in a Global Security pursuant to the provisions of Section 2.3. 2.2 Authentication. The Trustee shall authenticate and deliver: (1) Initial Securities for original issue in an aggregate principal amount of $300,000,000 and (2) Exchange Securities or Private Exchange Securities for issue only in a Registered Exchange Offer or a Private Exchange, respectively, pursuant to the Registration Rights Agreement, for a like principal amount of Initial Securities, in each case upon a written order of the Company signed by two Officers or by an Officer and either an Assistant Treasurer or an Assistant Secretary of the Company. Such order shall specify the amount of the Securities to be authenticated and the date on which the original issue of Securities is to be authenticated and whether the Securities are to be Initial Securities, Exchange Securities or Private Exchange Securities. The aggregate 4 principal amount of Securities outstanding at any time may not exceed $300,000,000 except as provided in Section 2.07 of this Indenture. 2.3 Transfer and Exchange. (a) Transfer and Exchange of Definitive Securities. When Definitive Securities are presented to the Registrar or a co-registrar with a request: (x) to register the transfer of such Definitive Securities; or (y) to exchange such Definitive Securities for an equal principal amount of Definitive Securities of other authorized denominations, the Registrar or co-registrar shall register the transfer or make the exchange as requested if its reasonable requirements for such transaction are met; provided, however, that the Definitive Securities surrendered for transfer or exchange: (i) shall be duly endorsed or accompanied by a written instrument of transfer in form reasonably satisfactory to the Company and the Registrar or co-registrar, duly executed by the Holder thereof or his attorney duly authorized in writing; and (ii) are being transferred or exchanged pursuant to an effective registration statement under the Securities Act, pursuant to Section 2.3(b) or pursuant to clause (A), (B) or (C) below, and are accompanied by the following additional information and documents, as applicable: (A) if such Definitive Securities are being delivered to the Registrar by a Holder for registration in the name of such Holder, without transfer, a certification from such Holder to that effect (in the form set forth on the reverse of the Security); or (B) if such Definitive Securities are being transferred to the Company, a certification to that effect (in the form set forth on the reverse of the Security); or (C) if such Definitive Securities are being transferred (w) pursuant to an exemption from registration in accordance with Rule 144; or (x) in 5 reliance on another exemption from the registration requirements of the Securities Act: (i) a certification to that effect (in the form set forth on the reverse of the Security) and (ii) if the Company or Registrar so requests, an opinion of counsel or other evidence reasonably satisfactory to them as to the compliance with the restrictions set forth in the legend set forth in Section 2.3(d)(i). (b) Restrictions on Transfer of a Definitive Security for a Beneficial Interest in a Global Security. A Definitive Security may not be exchanged for a beneficial interest in a Global Security except upon satisfaction of the requirements set forth below. Upon receipt by the Trustee of a Definitive Security, duly endorsed or accompanied by appropriate instruments of transfer, in form satisfactory to the Trustee, together with: (i) certification, in the form set forth on the reverse of the Security, that such Definitive Security is being transferred (A) to a QIB in accordance with Rule 144A, or (B) outside the United States in an offshore transaction within the meaning of Regulation S and in compliance with Rule 904 under the Securities Act; and (ii) written instructions directing the Trustee to make, or to direct the Securities Custodian to make, an adjustment on its books and records with respect to such Global Security to reflect an increase in the aggregate principal amount of the Securities represented by the Global Security, such instructions to contain information regarding the Depositary account to be credited with such increase, then the Trustee shall cancel such Definitive Security and cause, or direct the Securities Custodian to cause, in accordance with the standing instructions and procedures existing between the Depositary and the Securities Custodian, the aggregate principal amount of Securities represented by the Global Security to be increased by the aggregate principal amount of the Definitive Security to be exchanged and shall credit or cause to be credited to the account of the Person specified in such instructions a beneficial interest in the Global Security equal to the principal amount of the Definitive Security so cancelled. If no Global Securities are then outstanding, the Company shall issue and the Trustee shall authenticate, upon written order of the Company in the 6 form of an Officers' Certificate, a new Global Security in the appropriate principal amount. (c) Transfer and Exchange of Global Securities. (i) The transfer and exchange of Global Securities or beneficial interests therein shall be effected through the Depositary, in accordance with this Indenture (including applicable restrictions on transfer set forth herein, if any) and the procedures of the Depositary therefor. A transferor of a beneficial interest in a Global Security shall deliver to the Registrar a written order given in accordance with the Depositary's procedures containing information regarding the participant account of the Depositary to credited with a beneficial interest in the Global Security. The Registrar shall, in accordance with such instructions instruct the Depositary to credit to the account of the Person specified in such instructions a beneficial interest in the Global Security and to debit the account of the Person making the transfer the beneficial interest in the Global Security being transferred. (ii) Notwithstanding any other provisions of this Appendix (other than the provisions set forth in Section 2.4), a Global Security may not be transferred as a whole except by the Depositary to a nominee of the Depositary or by a nominee of the Depositary to the Depositary or another nominee of the Depositary or by the Depositary or any such nominee to a successor Depositary or a nominee of such successor Depositary. (iii) In the event that a Global Security is exchanged for Securities in definitive registered form pursuant to Section 2.4 or Section 2.09 of the Indenture, prior to the consummation of a Registered Exchange Offer or the effectiveness of a Shelf Registration Statement with respect to such Securities, such Securities may be exchanged only in accordance with such procedures as are substantially consistent with the provisions of this Section 2.3 (including the certification requirements set forth on the reverse of the Initial Securities intended to ensure that such transfers comply with Rule 144A or Regulation S, as the case may be) and such other procedures as may from time to time be adopted by the Company. (d) Legend. (i) Except as permitted by the following paragraphs (ii), (iii) and (iv), each Security certificate 7 evidencing the Global Securities and the Definitive Securities (and all Securities issued in exchange therefor or in substitution thereof) shall bear a legend in substantially the following form: "THIS NOTE (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER THE UNITED STATES SECURITIES ACT OF 1933 (THE "SECURITIES ACT"), AND THIS NOTE MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THIS NOTE IS HEREBY NOTIFIED THAT THE SELLER OF THIS NOTE MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER. THE HOLDER OF THIS NOTE AGREES FOR THE BENEFIT OF THE COMPANY THAT, PRIOR TO THE DATE (THE "RESALE RESTRICTION TERMINATION DATE") ON WHICH THE HOLDING PERIOD WITH RESPECT TO THE NOTES SET FORTH IN CLAUSE (K) OF RULE 144A PROMULGATED UNDER THE SECURITIES ACT HAS EXPIRED, (A) THIS NOTE MAY BE OFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY (I) TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (II) IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 904 UNDER THE SECURITIES ACT, (III) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE), (IV) TO THE COMPANY OR (V) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, IN EACH OF CASES (I) THROUGH (V) IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES, AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER OF THIS NOTE FROM IT OF THE RESALE RESTRICTIONS REFERRED TO IN (A) ABOVE." THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE. Each Definitive Security will also bear the following additional legend: "IN CONNECTION WITH ANY TRANSFER, THE HOLDER WILL DELIVER TO THE REGISTRAR AND TRANSFER AGENT SUCH CERTIFICATES AND OTHER INFORMATION AS SUCH TRANSFER 8 AGENT MAY REASONABLY REQUIRE TO CONFIRM THAT THE TRANSFER COMPLIES WITH THE FOREGOING RESTRICTIONS." (ii) Upon any sale or transfer of a Transfer Restricted Security (including any Transfer Restricted Security represented by a Global Security) pursuant to Rule 144 under the Securities Act: (A) in the case of any Transfer Restricted Security that is a Definitive Security, the Registrar shall permit the Holder thereof to exchange such Transfer Restricted Security for a certificated Security that does not bear the legend set forth above and rescind any restriction on the transfer of such Transfer Restricted Security; and (B) in the case of any Transfer Restricted Security that is represented by a Global Security, the Registrar shall permit the Holder thereof to exchange such Transfer Restricted Security for a certificated Security that does not bear the legend set forth above and rescind any restriction on the transfer of such Transfer Restricted Security, if the Holder certifies in writing to the Registrar that its request for such exchange was made in reliance on Rule 144 (such certification to be in the form set forth on the reverse of the Security). (iii) After a transfer of any Initial Securities or Private Exchange Securities during the period of the effectiveness of a Shelf Registration Statement with respect to such Initial Securities or Private Exchange Securities, as the case may be, all requirements pertaining to legends on such Initial Security or such Private Exchange Security will cease to apply, the requirements requiring that any such Initial Security or such Private Exchange Security issued to certain Holders be issued in global form will cease to apply, and a certificated Initial Security or Private Exchange Security without legends will be available to the transferee of the Holder of such Initial Securities or Private Exchange Securities upon exchange of such transferring Holder's certificated Initial Security or Private Exchange Security or directions to transfer such Holder's interest in the Global Security, as applicable. 9 (iv) Upon the consummation of a Registered Exchange Offer with respect to the Initial Securities pursuant to which Holders of such Initial Securities are offered Exchange Securities in exchange for their Initial Securities, all requirements pertaining to such Initial Securities that Initial Securities issued to certain Holders be issued in global form will cease to apply and certificated Initial Securities with the restricted securities legend set forth in Exhibit 1 hereto will be available to Holders of such Initial Securities that do not exchange their Initial Securities, and Exchange Securities in certificated or global form will be available to Holders that exchange such Initial Securities in such Registered Exchange Offer. (v) Upon the consummation of a Private Exchange with respect to the Initial Securities pursuant to which Holders of such Initial Securities are offered Private Exchange Securities in exchange for their Initial Securities, all requirements pertaining to such Initial Securities that Initial Securities issued to certain Holders be issued in global form will still apply, and Private Exchange Securities in global form with the Restricted Securities Legend set forth in Exhibit 1 hereto will be available to Holders that exchange such Initial Securities in such Private Exchange. (e) Cancellation or Adjustment of Global Security. At such time as all beneficial interests in a Global Security have either been exchanged for certificated or Definitive Securities, redeemed, repurchased or canceled, such Global Security shall be returned to the Depositary for cancellation or retained and canceled by the Trustee. At any time prior to such cancellation, if any beneficial interest in a Global Security is exchanged for certificated or Definitive Securities, redeemed, repurchased or canceled, the principal amount of Securities represented by such Global Security shall be reduced and an adjustment shall be made on the books and records of the Trustee (if it is then the Securities Custodian for such Global Security) with respect to such Global Security, by the Trustee or the Securities Custodian, to reflect such reduction. (f) Obligations with Respect to Transfers and Exchanges of Securities. (i) To permit registrations of transfers and exchanges, the Company shall execute and the Trustee 10 shall authenticate certificated Securities, Definitive Securities and Global Securities at the Registrar's or co-registrar's request. (ii) No service charge shall be made for any registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any transfer tax, assessments, or similar governmental charge payable in connection therewith (other than any such transfer taxes, assessments or similar governmental charge payable upon exchange or transfer pursuant to Sections 3.06, 4.09 and 9.05). (iii) The Registrar or co-registrar shall not be required to register the transfer of or exchange of (a) any certificated or Definitive Security selected for redemption in whole or in part pursuant to Article 3 of this Indenture, except the unredeemed portion of any certificated or Definitive Security being redeemed in part, or (b) any Security for a period beginning 15 Business Days before the mailing of a notice of an offer to repurchase or redeem Securities or 15 Business Days before an interest payment date. (iv) Prior to the due presentation for registration of transfer of any Security, the Company, the Trustee, the Paying Agent, the Registrar or any co-registrar may deem and treat the person in whose name a Security is registered as the absolute owner of such Security for the purpose of receiving payment of principal of and interest on such Security and for all other purposes whatsoever, whether or not such Security is overdue, and none of the Company, the Trustee, the Paying Agent, the Registrar or any co-registrar shall be affected by notice to the contrary. (v) All Securities issued upon any transfer or exchange pursuant to the terms of this Indenture shall evidence the same debt and shall be entitled to the same benefits under this Indenture as the Securities surrendered upon such transfer or exchange. (g) No Obligation of the Trustee. (i) The Trustee shall have no responsibility or obligation to any beneficial owner of a Global Security, a member of, or a participant in the Depositary or other Person with respect to the accuracy of the records of the 11 Depositary or its nominee or of any participant or member thereof, with respect to any ownership interest in the Securities or with respect to the delivery to any participant, member, beneficial owner or other Person (other than the Depositary) of any notice (including any notice of redemption) or the payment of any amount, under or with respect to such Securities. All notices and communications to be given to the Holders and all payments to be made to Holders under the Securities shall be given or made only to or upon the order of the registered Holders (which shall be the Depositary or its nominee in the case of a Global Security). The rights of beneficial owners in any Global Security shall be exercised only through the Depositary subject to the applicable rules and procedures of the Depositary. The Trustee may rely and shall be fully protected in relying upon information furnished by the Depositary with respect to its members, participants and any beneficial owners. (ii) The Trustee shall have no obligation or duty to monitor, determine or inquire as to compliance with any restrictions on transfer imposed under this Indenture or under applicable law with respect to any transfer of any interest in any Security (including any transfers between or among Depositary participants, members or beneficial owners in any Global Security) other than to require delivery of such certificates and other documentation or evidence as are expressly required by, and to do so if and when expressly required by, the terms of this Indenture, and to examine the same to determine substantial compliance as to form with the express requirements hereof. 2.4 Certificated Securities. (a) A Global Security deposited with the Depositary or with the Trustee as custodian for the Depositary pursuant to Section 2.1 shall be transferred to the beneficial owners thereof in the form of certificated Securities in an aggregate principal amount equal to the principal amount of such Global Security, in exchange for such Global Security, only if such transfer complies with Section 2.3 and (i) the Depositary notifies the Company that it is unwilling or unable to continue as Depositary for such Global Security or if at any time such Depositary ceases to be a "clearing agency" registered under the Exchange Act and a successor depositary is not appointed by the Company within 90 days of such notice, or (ii) an Event of Default has occurred and is continuing or 12 (iii) the Company, in its sole discretion, notifies the Trustee in writing that it elects to cause the issuance of certificated Securities under this Indenture. (b) Any Global Security that is transferable to the beneficial owners thereof pursuant to this Section shall be surrendered by the Depositary to the Trustee located in the Borough of Manhattan, The City of New York, to be so transferred, in whole or from time to time in part, without charge, and the Trustee shall authenticate and deliver, upon such transfer of each portion of such Global Security, an equal aggregate principal amount of certificated Initial Securities of authorized denominations. Any portion of a Global Security transferred pursuant to this Section shall be executed, authenticated and delivered only in denominations of $1,000 and any integral multiple thereof and registered in such names as the Depositary shall direct. Any certificated Initial Security delivered in exchange for an interest in the Global Security shall, except as otherwise provided by Section 2.3(d), bear the restricted securities legend set forth in Exhibit 1 hereto. (c) Subject to the provisions of Section 2.4(b), the registered Holder of a Global Security may grant proxies and otherwise authorize any Person, including Agent Members and Persons that may hold interests through Agent Members, to take any action which a Holder is entitled to take under this Indenture or the Securities. (d) In the event of the occurrence of either of the events specified in Section 2.4(a), the Company will promptly make available to the Trustee a reasonable supply of certificated Securities in definitive, fully registered form without interest coupons. 13 EXHIBIT 1 to RULE 144A/REGULATION S APPENDIX [FORM OF FACE OF INITIAL SECURITY] [Global Securities Legend] UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), NEW YORK, NEW YORK, TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO., OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC) ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE INDENTURE REFERRED TO ON THE REVERSE HEREOF. [Restricted Securities Legend] THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION, UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION. THIS NOTE (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER THE UNITED STATES SECURITIES ACT OF 1933 (THE "SECURITIES ACT"), AND THIS NOTE MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THIS NOTE IS HEREBY NOTIFIED THAT THE SELLER OF THIS NOTE MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER. THE HOLDER OF THIS NOTE AGREES FOR THE BENEFIT OF THE COMPANY THAT, PRIOR TO THE DATE (THE "RESALE RESTRICTION TERMINATION DATE") ON WHICH THE HOLDING PERIOD WITH RESPECT TO THE NOTES SET FORTH IN CLAUSE (K) OF RULE 144A PROMULGATED UNDER THE SECURITIES ACT HAS EXPIRED, (A) THIS NOTE MAY BE OFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY (I) TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (II) IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 904 UNDER THE SECURITIES ACT, (III) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE), (IV) TO THE COMPANY OR (V) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, IN EACH OF CASES (I) THROUGH (V) IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES, AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER OF THIS NOTE FROM IT OF THE RESALE RESTRICTIONS REFERRED TO IN (A) ABOVE. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE. [IN CONNECTION WITH ANY TRANSFER, THE HOLDER WILL DELIVER TO THE REGISTRAR AND TRANSFER AGENT SUCH CERTIFICATES AND OTHER INFORMATION AS SUCH TRANSFER AGENT MAY REASONABLY REQUIRE TO CONFIRM THAT THE TRANSFER COMPLIES WITH THE FOREGOING RESTRICTIONS.](1) - ------------------------- (1) Include if a Definitive Security to be held by an institutional "accredited investor" (as defined in Rule 501(a), (1), (2), (3) or (7) under the Securities Act). 2 No. $ 10-1/8% Senior Subordinated Notes Due 2007 FAIRCHILD SEMICONDUCTOR CORPORATION, a Delaware corporation, promises to pay to , or registered assigns, the principal sum of Dollars on March 15, 2007. Interest Payment Dates: March 15 and September 15. Record Dates: March 1 and September 1. Additional provisions of this Security are set forth on the other side of this Security. Dated: FAIRCHILD SEMICONDUCTOR CORPORATION, by --------------------------------- President --------------------------------- Secretary TRUSTEE'S CERTIFICATE OF AUTHENTICATION UNITED STATES TRUST COMPANY OF NEW YORK, as Trustee, certifies [Seal] that this is one of the Securities referred to in the Indenture. by --------------------------------- Authorized Signatory 3 [FORM OF REVERSE SIDE OF INITIAL SECURITY] 10-1/8% Senior Subordinated Note Due 2007 1. Interest FAIRCHILD SEMICONDUCTOR CORPORATION, a Delaware corporation (such corporation, and its successors and assigns under the Indenture hereinafter referred to, being herein called the "Company"), promises to pay interest on the principal amount of this Security at the rate per annum shown above; provided, however, that if a Registration Default (as defined in the Registration Rights Agreement) occurs, additional interest will accrue on this Security at a rate of 0.50% per annum, increasing by 0.50% per annum on the 90th day after such Registration Default and on every 90th day thereafter during the continuation of any Registration Default, to but excluding the date on which all Registration Defaults have been cured; provided, however, that such additional interest shall not exceed 2.0% per annum. The Company will pay interest semiannually on March 15 and September 15 of each year, commencing September 15, 1997. Interest on the Securities will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from March 11, 1997. Interest will be computed on the basis of a 360-day year of twelve 30-day months. The Company shall pay interest on overdue principal at the rate borne by the Securities plus 1% per annum, and it shall pay interest on overdue installments of interest at the same rate to the extent lawful. 2. Method of Payment The Company will pay interest on the Securities (except defaulted interest) to the Persons who are registered holders of Securities at the close of business on the March 1 or September 1 next preceding the interest payment date even if Securities are canceled after the record date and on or before the interest payment date. Holders must surrender Securities to a Paying Agent to collect principal payments. The Company will pay principal and interest in money of the United States that at the time of payment is 4 legal tender for payment of public and private debts. Payments in respect of the Securities represented by a Global Security (including principal, premium and interest) will be made by wire transfer of immediately available funds to the accounts specified by The Depository Trust Company. The Company will make all payments in respect of a certificated Security (including principal, premium and interest) by mailing a check to the registered address of each Holder thereof; provided, however, that payments on a certificated Security will be made by wire transfer to a U.S. dollar account maintained by the payee with a bank in the United States if such Holder elects payment by wire transfer by giving written notice to the Trustee or the Paying Agent to such effect designating such account no later than 30 days immediately preceding the relevant due date for payment (or such other date as the Trustee may accept in its discretion). 3. Paying Agent and Registrar Initially, United States Trust Company of New York, a New York banking corporation ("Trustee"), will act as Paying Agent and Registrar. The Company may appoint and change any Paying Agent, Registrar or co-registrar without notice. The Company or any of its domestically incorporated Wholly Owned Subsidiaries may act as Paying Agent, Registrar or co-registrar. 4. Indenture The Company issued the Securities under an Indenture dated as of March 11, 1997 ("Indenture"), among the Company, FSC Semiconductor Corporation ("Parent") as guarantor, and the Trustee. The terms of the Securities include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C. Sections 77aaa-77bbbb) as in effect on the date of the Indenture (the "Act"). Terms defined in the Indenture and not defined herein have the meanings ascribed thereto in the Indenture. The Securities are subject to all such terms, and Securityholders are referred to the Indenture and the Act for a statement of those terms. The Securities are general unsecured obligations of the Company limited to $300,000,000 aggregate principal amount (subject to Section 2.07 of the Indenture). The 5 Indenture limits, among other things (i) the incurrence of additional debt by the Company and its subsidiaries, (ii) the payment of dividends on capital stock of the Company and the purchase, redemption or retirement of capital stock or subordinated indebtedness, (iii) certain transactions with affiliates, (iv) sales of assets, including capital stock of subsidiaries, and (v) certain consolidations, mergers and transfers of assets. The Indenture also prohibits certain restrictions on distributions from subsidiaries. All of these limitations and prohibitions, however, are subject to a number of important qualifications contained in the Indenture. 5. Optional Redemption Except as set forth in the next paragraph, the Securities may not be redeemed prior to March 15, 2002. On and after that date, the Company may redeem the Securities in whole at any time or in part from time to time at the following redemption prices (expressed in percentages of principal amount), plus accrued interest to the redemption date (subject to the right of Holders of record on the relevant record date to receive interest due on the related interest payment date), if redeemed during the 12-month period beginning March 15 of the year set forth below: Period Percentage ------ ---------- 2002.............................. 105.063% 2003.............................. 103.375 2004.............................. 101.688 2005 and thereafter............... 100.000 In addition, at any time prior to March 15, 2000, the Company may redeem up to $105.0 million of the aggregate principal amount of Securities with the proceeds of a Public Equity Offering, at any time or from time to time, at a redemption price (expressed as a percentage of principal amount) of 110% plus accrued interest to the redemption date (subject to the right of Holders of record on the relevant record date to receive interest due on the related interest payment date); provided, however, that at least $150.0 million aggregate principal amount of the Securities must remain outstanding after each such redemption. 6 6. Mandatory Redemption On March 15, 2005 the Company will redeem $150.0 million principal amount of Securities and on March 15, 2006 the Company will redeem $75.0 million principal amount of the Securities, in each case at a redemption price of 100% of the principal amount, plus accrued interest to the redemption date (subject to the right of Holders of record on the relevant record date to receive interest due on the related interest payment date). The Company may receive a credit against the principal amount of the Securities required to be redeemed pursuant to this paragraph equal to the principal amount (excluding premium) of any Securities that the Company has acquired or redeemed other than pursuant to this paragraph and has delivered to the Trustee for cancellation. The Company may receive the credit only once for any Security. 7. Notice of Redemption Notice of redemption will be mailed at least 30 days but not more than 60 days before the redemption date to each Holder of Securities to be redeemed at his registered address. Securities in denominations larger than $1,000 may be redeemed in part but only in whole multiples of $1,000. If money sufficient to pay the redemption price of and accrued interest on all Securities (or portions thereof) to be redeemed on the redemption date is deposited with the Paying Agent on or before the redemption date and certain other conditions are satisfied, on and after such date interest ceases to accrue on such Securities (or such portions thereof) called for redemption. 8. Put Provisions Upon a Change of Control, any Holder of Securities will have the right, subject to certain conditions, to cause the Company to repurchase all or any part of the Securities of such Holder at a repurchase price equal to 101% of the principal amount of the Securities to be repurchased plus accrued interest to the date of repurchase (subject to the right of holders of record on the relevant record date to receive interest due on the related interest payment date) as provided in, and subject to the terms of, the Indenture. 7 9. Subordination; Guaranties The Securities are subordinated to Senior Indebtedness, as defined in the Indenture. To the extent provided in the Indenture, Senior Indebtedness must be paid before the Securities may be paid. The Company agrees, and each Securityholder by accepting a Security agrees, to the subordination provisions contained in the Indenture and authorizes the Trustee to give them effect and appoints the Trustee as attorney-in-fact for such purpose. Parent has agreed to guarantee the obligations of the Company under the Securities, and certain domestic subsidiaries of the Company may in the future be required to guarantee such obligations. Any such guarantees will be subordinated to any Senior Indebtedness of Parent or such subsidiaries, as applicable. 10. Denominations; Transfer; Exchange The Securities are in registered form without coupons in denominations of $1,000 (or in the case of Definitive Securities sold to institutional accredited investors as described in Rule 501(a)(1), (2), (3) or (7) under the Securities Act, minimum denominations of $200,000 and whole multiples of $1,000. A Holder may transfer or exchange Securities in accordance with the Indenture. The Registrar may require a Holder, among other things, to furnish appropriate endorsements or transfer documents and to pay any taxes and fees required by law or permitted by the Indenture. The Registrar need not register the transfer of or exchange any Securities selected for redemption (except, in the case of a Security to be redeemed in part, the portion of the Security not to be redeemed) or any Securities for a period of 15 days before a selection of Securities to be redeemed or 15 days before an interest payment date. 11. Persons Deemed Owners The registered Holder of this Security may be treated as the owner of it for all purposes. 8 12. Unclaimed Money If money for the payment of principal or interest remains unclaimed for two years, the Trustee or Paying Agent shall pay the money back to the Company at its request unless an abandoned property law designates another Person. After any such payment, Holders entitled to the money must look only to the Company and not to the Trustee for payment. 13. Discharge and Defeasance Subject to certain conditions, the Company at any time may terminate some or all of its obligations under the Securities and the Indenture if the Company deposits with the Trustee money or U.S. Government Obligations for the payment of principal and interest on the Securities to redemption or maturity, as the case may be. 14. Amendment, Waiver Subject to certain exceptions set forth in the Indenture, (i) the Indenture or the Securities may be amended with the written consent of the Holders of at least a majority in principal amount outstanding of the Securities and (ii) any default or noncompliance with any provision may be waived with the written consent of the Holders of a majority in principal amount outstanding of the Securities. Subject to certain exceptions set forth in the Indenture, without the consent of any Securityholder, the Company and the Trustee may amend the Indenture or the Securities to cure any ambiguity, omission, defect or inconsistency, or to comply with Article 5 of the Indenture, or to provide for uncertificated Securities in addition to or in place of certificated Securities or to add guarantees with respect to the Securities or to secure the Securities, or to add additional covenants or surrender rights and powers conferred on the Company, or to comply with any request of the SEC in connection with qualifying the Indenture under the Act, or to make certain changes in the subordination provisions, or to release any guarantee of the Securities by the Company's Subsidiaries then permitted by the Indenture, or to make any change that does not adversely affect the rights of any Securityholder. 9 15. Defaults and Remedies Under the Indenture, Events of Default include (i) default for 30 days in payment of interest on the Securities; (ii) default in payment of principal on the Securities at maturity, upon redemption pursuant to paragraph 5 or 6 of the Securities, upon acceleration or otherwise, or failure by the Company to redeem or purchase Securities when required; (iii) failure by the Company to comply with other agreements in the Indenture or the Securities, in certain cases subject to notice and lapse of time; (iv) certain accelerations (including failure to pay within any grace period after final maturity) of other Indebtedness of the Company if the amount accelerated (or so unpaid) exceeds $10 million; (v) certain events of bankruptcy or insolvency with respect to the Company and the Significant Subsidiaries; (vi) certain judgments or decrees for the payment of money in excess of $10 million; and (viii) certain events with respect to the guarantees of the Securities by the Parent and certain Restricted Subsidiaries of the Company. If an Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the Securities may declare all the Securities to be due and payable immediately, subject to certain conditions. Certain events of bankruptcy or insolvency are Events of Default which will result in the Securities being due and payable immediately upon the occurrence of such Events of Default. Securityholders may not enforce the Indenture or the Securities except as provided in the Indenture. The Trustee may refuse to enforce the Indenture or the Securities unless it receives reasonable indemnity or security. Subject to certain limitations, Holders of a majority in principal amount of the Securities may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Securityholders notice of any continuing Default (except a Default in payment of principal or interest) if it determines that withholding notice is in the interest of the Holders. 16. Trustee Dealings with the Company Subject to certain limitations imposed by the Act, the Trustee under the Indenture, in its individual or any other capacity, may become the owner or pledgee of Securities and may otherwise deal with and collect obligations 10 owed to it by the Company or its Affiliates and may otherwise deal with the Company or its Affiliates with the same rights it would have if it were not Trustee. 17. No Recourse Against Others A director, officer, employee or stockholder, as such, of the Company shall not have any liability for any obligations of the Company under the Securities or the Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. By accepting a Security, each Securityholder waives and releases all such liability. The waiver and release are part of the consideration for the issue of the Securities. 18. Authentication This Security shall not be valid until an authorized signatory of the Trustee (or an authenticating agent) manually signs the certificate of authentication on the other side of this Security. 19. Abbreviations Customary abbreviations may be used in the name of a Securityholder or an assignee, such as TEN COM (=tenants in common), TEN ENT (=tenants by the entireties), JT TEN (=joint tenants with rights of survivorship and not as tenants in common), CUST (=custodian), and U/G/M/A (=Uniform Gift to Minors Act). 22. Holders' Compliance with Registration Rights Agreement. Each Holder of a Security, by acceptance hereof, acknowledges and agrees to the provisions of the Registration Rights Agreement, including, without limitation, the obligations of the Holders with respect to a registration and the indemnification of the Company to the extent provided therein. 21. Governing Law. THIS SECURITY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK BUT WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS 11 OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY. The Company will furnish to any Securityholder upon written request and without charge to the Security 12 holder a copy of the Indenture which has in it the text of this Security in larger type. Requests may be made to: Attention of - ------------------------------------------------------------------------------ ASSIGNMENT FORM To assign this Security, fill in the form below: I or we assign and transfer this Security to (Print or type assignee's name, address and zip code) (Insert assignee's soc. sec. or tax I.D. No.) and irrevocably appoint agent to transfer this Security on the books of the Company. The agent may substitute another to act for him. - ------------------------------------------------------------------------------ - --------- Date: Your Signature: --------------------------- ----------------------------- - ------------------------------------------------------------------------------ - --------- Sign exactly as your name appears on the other side of this Security. In connection with any transfer of any of the Securities evidenced by this certificate occurring prior to the expiration of the period referred to in Rule 144(k) under the Securities Act after the later of the date of original issuance of such Securities and the last date, if any, on which such Securities were owned by the Company or any Affiliate of the Company, the undersigned confirms that such Securities are being transferred in accordance with its terms: 13 CHECK ONE BOX BELOW (1) / / to the Company; or (2) / / pursuant to an effective registration statement under the Securities Act of 1933; or (3) / / inside the United States to a "qualified institutional buyer" (as defined in Rule 144A under the Securities Act of 1933) that purchases for its own account or for the account of a qualified institutional buyer to whom notice is given that such transfer is being made in reliance on Rule 144A, in each case pursuant to and in compliance with Rule 144A under the Securities Act of 1933; or (4) / / outside the United States in an offshore transaction within the meaning of Regulation S under the Securities Act in compliance with Rule 904 under the Securities Act of 1933; or (5) / / pursuant to another available exemption from registration provided by Rule 144 under the Securities Act of 1933. Unless one of the boxes is checked, the Trustee will refuse to register any of the Securities evidenced by this certificate in the name of any person other than the registered holder thereof; provided, however, that if box (4) or (5) is checked, the Trustee may require, prior to registering any such transfer of the Securities, such legal opinions, certifications and other information as the Company has reasonably requested to confirm that such transfer is being made pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act of 1933, such as the exemption provided by Rule 144 under such Act. --------------------------------------- Signature 14 Signature Guarantee: - ---------------------------- ------------------------------------ Signature must be guaranteed Signature - ------------------------------------------------------------------------------ TO BE COMPLETED BY PURCHASER IF (3) ABOVE IS CHECKED. The undersigned represents and warrants that it is purchasing this Security for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a "qualified institutional buyer" within the meaning of Rule 144A under the Securities Act of 1933, and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Company as the undersigned has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon the undersigned's foregoing representations in order to claim the exemption from registration provided by Rule 144A. Dated: --------------------- ------------------------------------------------ NOTICE: To be executed by an executive officer 15 [TO BE ATTACHED TO GLOBAL SECURITIES] SCHEDULE OF INCREASES OR DECREASES IN GLOBAL SECURITY The following increases or decreases in this Global Security have been made:
Date of Amount of decrease Amount of increase Principal amount Signature of Exchange in Principal in Principal of this Global authorized officer Amount of this Amount of this Security following of Trustee or Global Security Global Security such decrease or Securities increase Custodian
16 OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have this Security purchased by the Company pursuant to Section 4.06 or 4.09 of the Indenture, check the box: ---- ---- If you want to elect to have only part of this Security purchased by the Company pursuant to Section 4.06 or 4.09 of the Indenture, state the amount: $ Date: Your Signature: ------------------------------ ------------------------- (Sign exactly as your name appears on the other side of this Security.) Signature Guarantee: -------------------------------------------- (Signature must be guaranteed) 17 EX-4.02 9 EX-4.02 Exhibit 4.02 FAIRCHILD SEMICONDUCTOR CORPORATION $300,000,000 10 1/8% Senior Subordinated Notes Due 2007 REGISTRATION RIGHTS AGREEMENT March 6, 1997 Credit Suisse First Boston Corporation BT Securities Corporation CIBC Wood Gundy Securities Corp. In care of Credit Suisse First Boston Corporation As Representative of the Several Initial Purchasers Eleven Madison Avenue New York, New York 10010 Ladies and Gentlemen: Fairchild Semiconductor Corporation, a Delaware corporation ("Fairchild"), proposes, subject to the terms and conditions stated in a purchase agreement of even date herewith (the "Purchase Agreement"), to issue and sell to Credit Suisse First Boston Corporation, BT Securities Corporation and CIBC Wood Gundy Securities Corp. (collectively, the "Initial Purchasers"), $300,000,000 principal amount of 10 1/8% Senior Subordinated Notes Due 2007 (the "Notes") to be unconditionally guaranteed on a senior subordinated basis by FSC Semiconductor Corporation, a Delaware corporation (the "Guarantor", and together with Fairchild, the "Company"). The Notes will be issued pursuant to an indenture dated as of March 11, 1997 (the "Indenture"), between the Company and United States Trust Company of New York, as trustee (the "Trustee"). As an inducement to the Initial Purchasers, the Company hereby agrees with the several Initial Purchasers, for the benefit of the holders of the Notes (including, without limitation, the Initial Purchasers), the Exchange Notes (as defined below) and the Private Exchange Notes (as defined below) (collectively, the "Holders"), as follows: 1. Registered Exchange Offer. The Company shall, at its cost, prepare and, not later than 60 days after (or if the 60th day is not a business day, the first business day thereafter) the Issue Date (as defined in the Indenture) of the Notes, file with the Securities and Exchange Commission (the "Commission") a registration statement (the "Exchange Offer Registration Statement") on an appropriate form under the Securities Act of 1933, as amended (the "Securities Act"), with respect to a proposed offer (the "Registered Exchange Offer") to the Holders of Transfer Restricted Notes (as defined below), who are not prohibited by any law or policy of the Commission from participating in the Registered Exchange Offer, to issue and deliver to such Holders, in exchange for the Notes, a like aggregate principal amount of debt securities (the "Exchange Notes") of the Company issued under the Indenture and identical in all material respects to the Notes (except for the transfer restrictions relating to the Notes) that would be registered under the Securities Act. The Company shall use its best efforts to cause such Exchange Offer Registration Statement to become effective under the Securities Act within 150 days (or if the 150th day is not a business day, the first business day thereafter) after the Issue Date of the Notes and shall keep the Exchange Offer Registration Statement effective for not less than 30 days (or longer if required by applicable law) after the date on which notice of the Registered Exchange Offer is mailed to the Holders (such period being called the "Exchange Offer Registration Period"). If the Company effects the Registered Exchange Offer, the Company will be entitled to close the Registered Exchange Offer 30 days after the commencement thereof; provided, however, that the Company has accepted all the Notes theretofore validly tendered in accordance with the terms of the Registered Exchange Offer. Following the declaration of the effectiveness of the Exchange Offer Registration Statement, the Company shall promptly commence the Registered Exchange Offer, it being the objective of such Registered Exchange Offer to enable each Holder of Transfer Restricted Notes electing to exchange the Notes for Exchange Notes (assuming that such Holder is not an affiliate of the Company within the meaning of the Securities Act, acquires the Exchange Notes in the ordinary course of such Holder's business, has no arrangements with any person to participate in the distribution of the Exchange Notes and is not prohibited by any law or policy of the Commission from participating in the Registered Exchange Offer) to trade such Exchange Notes from and after their receipt without any limitations or restrictions under the Securities Act and without material restrictions under the securities laws of the several states 2 of the United States. In connection with such Registered Exchange Offer, the Company shall take such further action, including, without limitation, appropriate filings under state securities laws, as may be necessary to realize the foregoing objective subject to the proviso of Section 3(h). The Company acknowledges that, pursuant to current interpretations by the Commission's staff of Section 5 of the Securities Act, in the absence of an applicable exemption therefrom, (i) each Holder that is a broker-dealer electing to exchange Notes, acquired for its own account as a result of market making activities or other trading activities, for Exchange Notes (an "Exchanging Dealer"), is required to deliver a prospectus containing the information set forth in Annex A hereto on the cover, in Annex B hereto in the "Exchange Offer Procedures" section and the "Purpose of the Exchange Offer" section, and in Annex C hereto in the "Plan of Distribution" section of such prospectus in connection with a sale of any such Exchange Notes received by such Exchanging Dealer pursuant to the Registered Exchange Offer and (ii) an Initial Purchaser that elects to sell Exchange Notes acquired in exchange for Notes constituting any portion of an unsold allotment is required to deliver a prospectus containing the information required by Items 507 or 508 of Regulation S-K under the Securities Act, as applicable, in connection with such sale. The Company shall use its best efforts to keep the Exchange Offer Registration Statement effective and to amend and supplement the prospectus contained therein in order to permit such prospectus to be lawfully delivered by all persons subject to the prospectus delivery requirements of the Securities Act for such period of time as such persons must comply with such requirements in order to resell the Exchange Notes; provided, however, that (i) in the case where such prospectus and any amendment or supplement thereto must be delivered by an Exchanging Dealer or an Initial Purchaser, such period shall be the lesser of 180 days after the expiration date of the Registered Exchange Offer and the date on which all Exchanging Dealers and the Initial Purchasers have sold all Exchange Notes held by them (unless such period is extended pursuant to Section 3(j) below), and (ii) the Company shall make such prospectus and any amendment or supplement thereto available to any broker-dealer for use in connection with any resale of any Exchange Notes for a period not less than 90 days after the consummation of the Registered Exchange Offer. 3 If, upon consummation of the Registered Exchange Offer, any Initial Purchaser holds Notes acquired by it as part of its initial distribution, the Company, simultaneously with the delivery of the Exchange Notes pursuant to the Registered Exchange Offer, shall issue and deliver to such Initial Purchaser upon the written request of such Initial Purchaser, in exchange (the "Private Exchange") for the Notes held by such Initial Purchaser, a like principal amount of debt securities of the Company issued under the Indenture and identical in all material respects (including the existence of restrictions on transfer under the Securities Act and the securities laws of the several states of the United States) to the Notes (the "Private Exchange Notes"). The Notes, the Exchange Notes and the Private Exchange Notes are herein collectively called the "Securities". In connection with the Registered Exchange Offer, the Company shall: (a) mail to each Holder a copy of the prospectus forming part of the Exchange Offer Registration Statement, together with an appropriate letter of transmittal and related documents; (b) keep the Registered Exchange Offer open for not less than 30 days (or longer, if required by applicable law) after the date notice thereof is mailed to the Holders; (c) utilize the services of a depositary for the Registered Exchange Offer with an address in the Borough of Manhattan, The City of New York, which may be the Trustee or an affiliate of the Trustee; (d) permit Holders to withdraw tendered Notes at any time prior to the close of business, New York time, on the last business day on which the Registered Exchange Offer shall remain open; and (e) otherwise comply in all material respects with all applicable law. As soon as practicable after the close of the Registered Exchange Offer or the Private Exchange, as the case may be, the Company shall: 4 (i) accept for exchange all the Notes validly tendered and not withdrawn pursuant to the Registered Exchange Offer or the Private Exchange, as the case may be; (ii) deliver to the Trustee for cancellation all the Notes so accepted for exchange; and (iii) cause the Trustee to authenticate and promptly deliver Exchange Notes or Private Exchange Notes, as the case may be, equal in principal amount to the Notes of each Holder so accepted for exchange. The Indenture will provide that the Exchange Notes will not be subject to the transfer restrictions set forth in the Indenture and that all the Securities will vote and consent together on all matters as one class and that none of the Securities will have the right to vote or consent as a class separate from one another on any matter. Each Holder participating in the Registered Exchange Offer shall be required to represent to the Company in writing that at the time of the consummation of the Registered Exchange Offer (i) any Exchange Notes received by such Holder will be acquired in the ordinary course of business, (ii) such Holder will have no arrangements or understanding with any person to participate in the distribution of the Notes or the Exchange Notes within the meaning of the Securities Act, (iii) such Holder is not an "affiliate", as defined in Rule 405 of the Securities Act, of the Company or, if it is an affiliate, such Holder will comply with the registration and prospectus delivery requirements of the Securities Act to the extent applicable, (iv) if such Holder is not a broker-dealer and that it is not engaged in, and does not intend to engage in, the distribution of the Exchange Notes, and (v) if such Holder is a broker-dealer, that it will receive Exchange Notes for its own account in exchange for Notes that were acquired as a result of market-making activities or other trading activities and that it will deliver a prospectus in connection with any resale of such Exchange Notes. Notwithstanding any other provisions hereof, the Company will ensure that (i) any Exchange Offer Registration Statement and any amendment thereto and any prospectus forming part thereof and any supplement thereto will comply in all material respects with the Securities Act and the rules and regulations thereunder, (ii) any Exchange Offer 5 Registration Statement and any amendment thereto does not, when it becomes effective, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading and (iii) any prospectus forming part of any Exchange Offer Registration Statement, and any supplement to such prospectus, will not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. 2. Shelf Registration. If (i) because of any change in law or in applicable interpretations thereof by the staff of the Commission, the Company is not permitted to effect a Registered Exchange Offer, as contemplated by Section 1 hereof, (ii) the Registered Exchange Offer is not consummated within 180 days of the date of this Agreement, (iii) any Initial Purchaser so requests with respect to the Notes (or the Private Exchange Notes) not eligible to be exchanged for Exchange Notes in the Registered Exchange Offer and held by it following consummation of the Registered Exchange Offer or (iv) any Holder (other than an Exchanging Dealer) is not eligible to participate in the Registered Exchange Offer or, in the case of any Holder (other than an Exchanging Dealer) that participates in the Registered Exchange Offer, such Holder does not receive freely tradeable Exchange Notes on the date of the exchange, the Company shall take the following actions: (a) The Company shall, at its cost, as promptly as practicable (but in no event more than 30 days after so required or requested pursuant to this Section 2) file with the Commission and thereafter shall use its best efforts to cause to be declared effective a registration statement (the "Shelf Registration Statement"; each of it and the Exchange Offer Registration Statement being referred to herein as a "Registration Statement") on an appropriate form under the Securities Act relating to the offer and sale of the Transfer Restricted Notes by the Holders thereof from time to time in accordance with the methods of distribution set forth in the Shelf Registration Statement and Rule 415 under the Securities Act (hereinafter, the "Shelf Registration"); provided, however, that no Holder (other than an Initial Purchaser) shall be entitled to have the Securities held by it covered by such Shelf Registration Statement 6 unless such Holder agrees in writing to be bound by all the provisions of this Agreement applicable to such Holder. (b) The Company shall use its best efforts to keep the Shelf Registration Statement continuously effective in order to permit the prospectus included therein to be lawfully delivered by the Holders of the relevant Securities until the expiration of the holding period with respect to the Securities set forth in clause (k) of Rule 144 promulgated under the Securities Act (or for such longer period if extended pursuant to Section 3(j) below) or such shorter period that will terminate when all the Securities covered by the Shelf Registration Statement have been sold pursuant thereto. The Company shall be deemed not to have used its best efforts to keep the Shelf Registration Statement effective during the requisite period if it voluntarily takes any action that would result in Holders of Securities covered thereby not being able to offer and sell such Securities during that period, unless such action is required by applicable law. (c) Notwithstanding any other provisions of this Agreement to the contrary, the Company shall cause the Shelf Registration Statement and the related prospectus and any amendment or supplement thereto, as of the effective date of the Shelf Registration Statement, amendment or supplement, (i) to comply in all material respects with the applicable requirements of the Securities Act and the rules and regulations of the Commission and (ii) not to contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. 3. Registration Procedures. In connection with any Shelf Registration contemplated by Section 2 hereof and, to the extent applicable, any Registered Exchange Offer contemplated by Section 1 hereof, the following provisions shall apply: (a) The Company shall (i) furnish to each Initial Purchaser, prior to the filing thereof with the Commission, a copy of the Registration Statement and each amendment thereof and each supplement, if any, to 7 the prospectus included therein and, in the event that an Initial Purchaser (with respect to any portion of an unsold allotment from the original offering) is participating in the Registered Exchange Offer or the Shelf Registration Statement, shall use its best efforts to reflect in each such document, when so filed with the Commission, such comments as such Initial Purchaser reasonably may propose; (ii) include the information set forth in Annex A hereto on the cover, in Annex B hereto in the "Exchange Offer Procedures" section and the "Purpose of the Exchange Offer" section and in Annex C hereto in the "Plan of Distribution" section of the prospectus forming a part of the Exchange Offer Registration Statement and include the information set forth in Annex D hereto in the Letter of Transmittal delivered pursuant to the Registered Exchange Offer; (iii) if requested by an Initial Purchaser, include the information required by Items 507 or 508 of Regulation S-K under the Securities Act, as applicable, in the prospectus forming a part of the Exchange Offer Registration Statement; (iv) include within the prospectus contained in the Exchange Offer Registration Statement a section entitled "Plan of Distribution", reasonably acceptable to the Initial Purchasers, which shall contain a summary statement of the positions taken or policies made by the staff of the Commission with respect to the potential "underwriter" status of any broker-dealer that is the beneficial owner (as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) of Exchange Notes received by such broker-dealer in the Registered Exchange Offer (a "Participating Broker-Dealer"), whether such positions or policies have been publicly disseminated by the staff of the Commission or such positions or policies, in the reasonable judgment of the Initial Purchasers based upon advice of counsel (which may be in-house counsel), represent the prevailing views of the staff of the Commission; and (v) in the case of a Shelf Registration Statement, include the names of the Holders who propose to sell Securities pursuant to the Shelf Registration Statement as selling securityholders. (b) The Company shall advise (and confirm such advice in writing if requested by the recipient of the advice) the Initial Purchasers, the Holders of the Securities and any Participating Broker-Dealer from 8 whom the Company has received prior written notice that it will be a Participating Broker-Dealer in the Registered Exchange Offer (which notice pursuant to clauses (ii)-(v) hereof shall be accompanied by an instruction to suspend the use of the prospectus until the requisite changes have been made): (i) when the Registration Statement or any amendment thereto has been filed with the Commission and when the Registration Statement or any post-effective amendment thereto has become effective; (ii) of any request by the Commission for amendments or supplements to the Registration Statement or the prospectus included therein or for additional information; (iii) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or the initiation of any proceedings for that purpose; (iv) of the receipt by the Company or its legal counsel of any notification with respect to the suspension of the qualification of the Securities for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose; and (v) of the happening of any event that requires the Company to make changes in the Registration Statement or the prospectus in order that the Registration Statement or the prospectus does not contain an untrue statement of a material fact nor omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading. (c) The Company shall make every reasonable effort to obtain the withdrawal at the earliest possible time of any order suspending the effectiveness of the Registration Statement. (d) The Company shall furnish to each Holder of Securities included within the coverage of the Shelf Registration, without charge, at least one copy of the Shelf Registration Statement and any post-effective 9 amendment thereto, including financial statements and schedules, and, if the Holder so requests in writing, all exhibits thereto (including those, if any, incorporated by reference). (e) The Company shall deliver to each Exchanging Dealer and each Initial Purchaser, and to any other Holder who so requests, without charge, at least one copy of the Exchange Offer Registration Statement and any post-effective amendment thereto, including financial statements and schedules and, if any Initial Purchaser or any such Holder requests, all exhibits thereto (including those incorporated by reference). (f) The Company shall deliver to each Holder of Securities included within the coverage of the Shelf Registration, without charge, as many copies of the prospectus (including each preliminary prospectus) included in the Shelf Registration Statement and any amendment or supplement thereto as such person may reasonably request. The Company consents, subject to the provisions of this Agreement, to the use of the prospectus or any amendment or supplement thereto included in the Shelf Registration Statement by each of the selling Holders of the Securities in connection with the offering and sale of the Securities covered by such prospectus or any such amendment or supplement. (g) The Company shall deliver to each Initial Purchaser, any Exchanging Dealer, any Participating Broker-Dealer and such other persons required to deliver a prospectus following the Registered Exchange Offer, without charge, as many copies of the final prospectus included in the Exchange Offer Registration Statement and any amendment or supplement thereto as such persons may reasonably request. The Company consents, subject to the provisions of this Agreement, to the use of the prospectus or any amendment or supplement thereto by any Initial Purchaser, if necessary, any Participating Broker-Dealer and such other persons required to deliver a prospectus following the Registered Exchange Offer in connection with the offering and sale of the Exchange Notes covered by the prospectus, or any amendment or supplement thereto, included in such Exchange Offer Registration Statement. 10 (h) Prior to any public offering of the Securities, pursuant to any Registration Statement, the Company shall register or qualify or cooperate with the Holders of the Securities included therein and their respective counsel in connection with the registration or qualification of the Securities for offer and sale under the securities or "blue sky" laws of such states of the United States as any Holder of the Securities reasonably requests in writing and do any and all other acts or things necessary or advisable to enable the offer and sale in such jurisdictions of the Securities covered by such Registration Statement; provided, however, that the Company shall not be required to (i) qualify generally to do business in any jurisdiction where it is not then so qualified or (ii) take any action which would subject it to general service of process or to taxation in any jurisdiction where it is not then so subject. (i) The Company shall cooperate with the Holders of the Securities to facilitate the timely preparation and delivery of certificates representing the Securities to be sold pursuant to any Registration Statement free of any restrictive legends and in such denominations and registered in such names as the Holders may request a reasonable period of time prior to sales of the Securities pursuant to such Registration Statement. (j) Upon the occurrence of any event contemplated by paragraphs (ii) through (v) of Section 3(b) above during the period for which the Company is required to maintain an effective Registration Statement, the Company shall promptly prepare and file a post-effective amendment to the Registration Statement or a supplement to the related prospectus and any other required document so that, as thereafter delivered to Holders of the Notes or purchasers of Securities, the prospectus will not contain an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. If the Company notifies the Initial Purchasers, the Holders of the Securities and any known Participating Broker-Dealer in accordance with paragraphs (ii) through (v) of Section 3(b) above to suspend the use of the prospectus until the requisite changes to the prospectus have been made, 11 then the Initial Purchasers, the Holders of the Securities and any such Participating Broker-Dealers shall suspend use of such prospectus, and the period of effectiveness of the Shelf Registration Statement provided for in Section 2(b) above and the Exchange Offer Registration Statement provided for in Section 1 above shall each be extended by the number of days from and including the date of the giving of such notice to and including the date when the Initial Purchasers, the Holders of the Securities and any known Participating Broker-Dealer shall have received such amended or supplemented prospectus pursuant to this Section 3(j). (k) Not later than the effective date of the applicable Registration Statement, the Company will provide one CUSIP number for all of the Notes, the Exchange Notes or the Private Exchange Notes, as the case may be, and provide the applicable trustee with printed certificates for the Notes, the Exchange Notes or the Private Exchange Notes, as the case may be, in a form eligible for deposit with The Depository Trust Company. (l) The Company will comply with all rules and regulations of the Commission to the extent and so long as they are applicable to the Registered Exchange Offer or the Shelf Registration and will make generally available to its security holders (or otherwise provide in accordance with Section 11(a) of the Securities Act) an earnings statement (which need not be audited) satisfying the provisions of Section 11(a) of the Securities Act, no later than 45 days after the end of a 12-month period (or 90 days, if such period is a fiscal year) beginning with the first month of the Company's first fiscal quarter commencing after the effective date of the Registration Statement, which statement shall cover such 12-month period. (m) The Company shall cause the Indenture to be qualified under the Trust Indenture Act of 1939, as amended, in a timely manner and containing such changes, if any, as shall be necessary for such qualification. In the event that such qualification would require the appointment of a new trustee under the Indenture, the Company shall appoint a new trustee thereunder pursuant to the applicable provisions of the Indenture. 12 (n) Each Holder of Securities to be sold pursuant to the Shelf Registration Statement shall furnish to the Company such information regarding the Holder and the distribution of the Securities as the Company may from time to time reasonably require and request for inclusion in the Shelf Registration Statement (and shall promptly correct any information previously furnished if the inclusion of such information in such Registration Statement would be materially misleading), and the Company may exclude from such registration the Securities of any Holder that unreasonably fails to furnish such information within a reasonable time after receiving such request. (o) The Company shall enter into such customary agreements (including if requested an underwriting agreement in customary form) and take all such other action, if any, as any Holder of the Securities shall reasonably request in order to facilitate the disposition of the Securities pursuant to any Shelf Registration. If an underwriting agreement is entered into pursuant to this paragraph, the Company shall cause any such agreement to contain indemnification provisions and procedures substantially similar to those set forth in Section 5 hereof (or such other procedures acceptable to the Holders of a majority of the aggregate principal amount of the securities registered under the applicable Registration Statement and the managing underwriters, if any) with respect to all parties to be indemnified pursuant to Section 5 hereof. (p) In the case of any Shelf Registration, the Company shall (i) make reasonably available for inspection by the Holders of the Securities, any underwriter participating in any disposition pursuant to the Shelf Registration Statement and any attorney, accountant or other agent retained by the Holders of the Securities or any such underwriter all relevant financial and other records, pertinent corporate documents and properties of the Company and (ii) cause the Company's officers, directors, employees, accountants and auditors to supply all relevant information reasonably requested by the Holders of the Securities or any such underwriter, attorney, accountant or agent in connection with the Shelf Registration Statement, in each case as shall be reasonably necessary, in the judgment of the Holder or 13 any such underwriter, attorney, accountant or agent referred to in this paragraph, to conduct a reasonable investigation within the meaning of Section 11 of the Securities Act; provided, however, that the foregoing inspection and information gathering shall be coordinated on behalf of the Initial Purchasers by you and on behalf of the other parties by one counsel designated by and on behalf of such other parties as described in Section 4 hereof and provided, further, that as to any information that is designated in writing by the Company, in good faith, as confidential at the time of delivery, such information shall be kept confidential by the Holders or by any such underwriter, attorney, accountant or other agent. (q) In the case of any Shelf Registration, the Company, if requested by any Holder of Securities covered thereby, shall cause (i) its counsel to deliver an opinion and updates thereof relating to the Securities in customary form addressed to such Holders and the managing underwriters, if any, thereof and dated, in the case of the initial opinion, the effective date of such Shelf Registration Statement (it being agreed that the matters to be covered by such opinion shall include such matters as are customarily included in opinions requested in underwritten offerings of such type; (ii) its officers to execute and deliver all customary documents and certificates and updates thereof reasonably requested by any underwriters of the applicable Securities and (iii) its independent public accountants to provide to the selling Holders of the applicable Securities and any underwriter therefor a comfort letter in customary form and covering matters of the type customarily covered in comfort letters in connection with primary underwritten offerings, subject to receipt of appropriate documentation as contemplated, and only if permitted, by Statement of Auditing Standards No. 72. (r) In the case of the Registered Exchange Offer, if requested by any Initial Purchaser or any known Participating Broker-Dealer, the Company shall cause (i) its counsel to deliver to such Initial Purchaser or such Participating Broker-Dealer a signed opinion in the form set forth in Section 6(e) of the Purchase Agreement with such changes as are customary in connection with the preparation of a Registration Statement and (ii) its independent public accountants 14 to deliver to such Initial Purchaser or such Participating Broker-Dealer a comfort letter, in customary form, meeting the requirements as to the substance thereof as set forth in Section 6(a) of the Purchase Agreement, with appropriate date changes. (s) If a Registered Exchange Offer or a Private Exchange is to be consummated, upon delivery of the Notes by Holders to the Company (or to such other Person as directed by the Company) in exchange for the Exchange Notes or the Private Exchange Notes, as the case may be, the Company shall mark, or cause to be marked, on the Notes so exchanged that such Notes are being cancelled in exchange for the Exchange Notes or the Private Exchange Notes, as the case may be; in no event shall the Notes be marked as paid or otherwise satisfied. (t) The Company will use its best efforts to cause the Securities covered by a Registration Statement to be rated (or to have any existing rating confirmed) with the appropriate rating agencies, if so requested by Holders of a majority in aggregate principal amount of Securities covered by such Registration Statement, or by the managing underwriters, if any. (u) In the event that any broker-dealer registered under the Exchange Act shall underwrite any Securities or participate as a member of an underwriting syndicate or selling group or "assist in the distribution" (within the meaning of the Rules of Fair Practice and the By-Laws of the National Association of Securities Dealers, Inc. ("NASD")) thereof, whether as a Holder of such Securities or as an underwriter, a placement or sales agent or a broker or dealer in respect thereof, or otherwise, the Company shall use its best efforts to assist such broker-dealer in complying with the requirements of such Rules and By-Laws, including, without limitation, by (A) if such Rules or By-Laws shall so require, engaging a "qualified independent underwriter" (as defined in Section 2720 thereof) to participate in the preparation of the Registration Statement relating to such Securities, to exercise usual standards of due diligence in respect thereto and, if any portion of the offering contemplated by such Registration Statement is an underwritten offering or is made through a placement 15 or sales agent, to recommend the yield of such Securities, (B) indemnifying any such qualified independent underwriter to the extent of the indemnification of underwriters provided in Section 5 hereof and (C) providing such information to such broker-dealer as may be required in order for such broker-dealer to comply with the requirements of the Rules of Fair Practice of the NASD. (v) The Company shall use its best efforts to take all other steps necessary to effect the registration of the Securities covered by a Registration Statement contemplated hereby. 4. Registration Expenses. The Company shall bear all fees and expenses incurred in connection with the performance of its obligations under Sections 1 through 3 hereof (including the reasonable fees and expenses of Cravath, Swaine & Moore, counsel for the Initial Purchasers, incurred in connection with the Registered Exchange Offer), whether or not the Registered Exchange Offer or a Shelf Registration is filed or becomes effective, and, in the event of a Shelf Registration, shall bear, or reimburse the Holders of the Securities covered thereby for, the reasonable fees and disbursements of one firm of counsel designated by the Holders of a majority in principal amount of the Securities covered thereby to act as counsel for the Holders of the Securities in connection therewith. 5. Indemnification. (a) The Company agrees to indemnify and hold harmless (i) each Holder of the Securities, any Participating Broker-Dealer and each person, if any, who controls such Holder or such Participating Broker-Dealer within the meaning of the Securities Act or the Exchange Act, (ii) each of their respective officers and directors and (iii) each other person, if any, who controls any such person within the meaning of Section 15 of the Act or Section 20 of the Exchange Act (such persons being referred to collectively as the "Indemnified Parties") from and against any losses, claims, damages or liabilities, joint or several, or any actions in respect thereof (including, but not limited to, any losses, claims, damages, liabilities or actions relating to purchases and sales of the Securities) to which each Indemnified Party may become subject under the Securities Act, the Exchange Act or otherwise, insofar as such losses, claims, damages, liabilities or actions arise out of or are based upon any untrue statement or alleged untrue statement of a material 16 fact contained in a Registration Statement or prospectus or in any amendment or supplement thereto, or arise out of, or are based upon, the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and shall reimburse, as incurred, the Indemnified Parties for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action in respect thereof; provided, however, that (i) the Company shall not be liable in any such case to the extent that such loss, claim, damage or liability arises out of or is based upon any untrue statement or alleged untrue statement or omission or alleged omission made in a Registration Statement or prospectus or in any amendment or supplement thereto or in any preliminary prospectus relating to a Shelf Registration in reliance upon and in conformity with written information pertaining to such Holder and furnished to the Company by or on behalf of such Holder specifically for inclusion therein and (ii) the Company shall not be liable to any Indemnified Party pursuant to this section with respect to the Registration Statement or prospectus to the extent that any such loss, claim, damage or liability of such Indemnified Party results solely from an untrue statement of a material fact contained in, or the omission of a material fact from, the Registration Statement or prospectus, which untrue statement or omission was corrected in an amended or supplemented Registration Statement or prospectus if the Company had previously furnished copies thereof to such Indemnified Party and delivery of a prospectus was required by the Act and if the person alleging such loss, claim, damage or liability was not sent or given, at or prior to the written confirmation of the sale to such person, a copy of the amended or supplemented Registration Statement or prospectus; provided further, however, that this indemnity agreement will be in addition to any liability which the Company may otherwise have to such Indemnified Party. (b) Each Holder of the Securities covered by a Registration Statement, severally and not jointly, will indemnify and hold harmless (i) the Company and each person, if any, who controls the Company within the meaning of the Securities Act or the Exchange Act, (ii) each of their respective directors, (iii) each of their respective officers who signs such Registration Statement and (iv) each other person, if any, who controls the Company within the meaning of Section 15 of the Act or Section 20 of the Exchange Act to the same extent as the foregoing indemnity 17 from the Company to each such Holder, but only insofar as any losses, claims, damages, liabilities or actions arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in a Registration Statement or prospectus or in any amendment or supplement thereto or in any preliminary prospectus relating to a Shelf Registration, or arise out of or are based upon the omission or alleged omission to state therein a material fact necessary to make the statements therein not misleading in each case to the extent that the untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with written information pertaining to such Holder and furnished to the Company by or on behalf of such Holder specifically for inclusion therein; and, subject to the limitation set forth immediately preceding this clause, shall reimburse, as incurred, the Company for any legal or other expenses reasonably incurred by the Company or any such controlling person in connection with investigating or defending any loss, claim, damage, liability or action in respect thereof. This indemnity agreement will be in addition to any liability which such Holder may otherwise have to the Company or any of its controlling persons. (c) Promptly after receipt by an indemnified party under this Section 5 of notice of the commencement of any action or proceeding (including a governmental investigation), such indemnified party will, if a claim in respect thereof is to be made against the indemnifying party under this Section 5, notify the indemnifying party of the commencement thereof; but the omission so to notify the indemnifying party (i) will not relieve it from liability under paragraph (a) or (b) above unless and to the extent it did not otherwise learn of such action and such failure results in the forfeiture by the indemnifying party of substantial rights and defenses and (ii) will not, in any event, relieve the indemnifying party from any obligations to any indemnified party other than the indemnification obligation provided in paragraph (a) or (b) above. In case any such action is brought against any indemnified party, and it notifies the indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate therein and, to the extent that it may wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel reasonably satisfactory to such indemnified party (who shall not, except with the consent of the indemnified party, be counsel to the indemnifying party), and after notice from 18 the indemnifying party to such indemnified party of its election so to assume the defense thereof the indemnifying party will not be liable to such indemnified party under this Section 5 for any legal or other expenses, other than reasonable costs of investigation, subsequently incurred by such indemnified party in connection with the defense thereof. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened action in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party unless such settlement includes an unconditional release of such indemnified party from all liability on any claims that are the subject matter of such action. No indemnifying party shall be liable for any settlement of any such action effected without its written consent (which consent shall not be unreasonably withheld), but if settled with its written consent or if there be a final judgment for the plaintiff in any such action, the indemnifying party agrees to indemnify and hold harmless any indemnified party from and against any loss or liability by reason of such settlement or judgment. (d) If the indemnification provided for in this Section 5 is unavailable or insufficient to hold harmless an indemnified party under subsections (a) or (b) above, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of the losses, claims, damages or liabilities (or actions in respect thereof) referred to in subsection (a) or (b) above (i) in such proportion as is appropriate to reflect the relative benefits received by the indemnifying party or parties on the one hand and the indemnified party on the other from the exchange of the Notes, pursuant to the Registered Exchange Offer, or (ii) if the allocation provided by the foregoing clause (i) is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the indemnifying party or parties on the one hand and the indemnified party on the other in connection with the statements or omissions that resulted in such losses, claims, damages or liabilities (or actions in respect thereof) as well as any other relevant equitable considerations. The relative fault of the parties shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company 19 on the one hand or such Holder or such other indemnified person, as the case may be, on the other, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The amount paid by an indemnified party as a result of the losses, claims, damages or liabilities referred to in the first sentence of this subsection (d) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any action or claim which is the subject of this subsection (d). Notwithstanding any other provision of this Section 5(d), the Holders of the Securities shall not be required to contribute any amount in excess of the amount by which the net proceeds received by such Holders from the sale of the Securities pursuant to a Registration Statement exceeds the amount of damages which such Holders have otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this paragraph (d), each person, if any, who controls such indemnified party within the meaning of the Securities Act or the Exchange Act shall have the same rights to contribution as such indemnified party and each person, if any, who controls the Company within the meaning of the Securities Act or the Exchange Act shall have the same rights to contribution as the Company. (e) The agreements contained in this Section 5 shall survive the sale of the Securities pursuant to a Registration Statement and shall remain in full force and effect, regardless of any termination or cancellation of this Agreement or any investigation made by or on behalf of any indemnified party. 6. Additional Interest Under Certain Circumstances. (a) Additional cash interest (the "Additional Interest") with respect to the Securities shall be assessed as follows if any of the following events occur (each such event in clauses (i) through (iii) below a "Registration Default"): (i) If by May 12, 1997, neither the Exchange Offer Registration Statement nor a Shelf Registration Statement has been filed with the Commission; 20 (ii) If by September 8, 1997, neither the Registered Exchange Offer is consummated nor, if required in lieu thereof, the Shelf Registration Statement is declared effective by the Commission; or (iii) If after either the Exchange Offer Registration Statement or the Shelf Registration Statement is declared effective (A) such Registration Statement thereafter ceases to be effective; or (B) such Registration Statement or the related prospectus ceases to be usable (except as permitted in paragraph (b)) in connection with resales of Transfer Restricted Notes during the periods specified herein because either (1) any event occurs as a result of which the related prospectus forming part of such Registration Statement would include any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein in the light of the circumstances under which they were made not misleading, or (2) it shall be necessary to amend such Registration Statement or supplement the related prospectus, to comply with the Securities Act or the Exchange Act or the respective rules thereunder. Additional Interest shall accrue on the Notes (over and above the interest set forth in the title of the Notes) from and including the date on which any such Registration Default shall occur to but excluding the date on which all such Registration Defaults have been cured, at a rate of 0.50% per annum, increasing by 0.50% per annum on the 90th day during which such Registration Default remains uncured and on every 90th day thereafter during the continuation of any Registration Default and accruing to but excluding the date on which all Registration Defaults have been cured; provided, that Additional Interest shall not exceed 2.0% per annum. (b) A Registration Default referred to in Section 6(a)(iii)(B) shall be deemed not to have occurred and be continuing in relation to a Shelf Registration Statement or the related prospectus if (i) such Registration Default has occurred solely as a result of (x) the filing of a post-effective amendment to such Shelf Registration Statement to incorporate annual audited financial information with respect to the Company where such post-effective amendment is not yet effective and needs to be declared effective to permit Holders to use the related prospectus or (y) other material events with respect to the 21 Company that would need to be described in such Shelf Registration Statement or the related prospectus and (ii) in the case of clause (y), the Company is proceeding promptly and in good faith to amend or supplement such Shelf Registration Statement and related prospectus to describe such events; provided, however, that in any case if such Registration Default occurs for a continuous period in excess of 30 days, Additional Interest shall be payable in accordance with the above paragraph from the day following such 30 day period until the date on which such Registration Default is cured. (c) Any Additional Interest accruing on the Notes will be payable in cash on the regular interest payment dates with respect to the Notes to the holders of record on the applicable record date. The amount of Additional Interest will be determined by multiplying the applicable Additional Interest rate by the principal amount of the Notes, multiplied by a fraction, the numerator of which is the number of days such Additional Interest rate was applicable during such period (determined on the basis of a 360-day year comprised of twelve 30-day months), and the denominator of which is 360. (d) "Transfer Restricted Notes" means each Security until (i) the date on which such Security has been exchanged by a person other than a broker-dealer for a freely transferrable Exchange Note in the Registered Exchange Offer, (ii) following the exchange by a broker-dealer in the Registered Exchange Offer of such Security for an Exchange Note, the date on which such Exchange Note is sold to a purchaser who receives from such broker-dealer on or prior to the date of such sale a copy of the prospectus contained in the Exchange Offer Registration Statement, (iii) the date on which such Security has been effectively registered under the Securities Act and disposed of in accordance with the Shelf Registration Statement or (iv) the date on which such Security is distributed to the public pursuant to Rule 144 under the Securities Act or is saleable pursuant to Rule 144(k) under the Securities Act. 7. Rules 144 and 144A. The Company shall use its best efforts to file the reports required to be filed by it under the Securities Act and the Exchange Act in a timely manner and, if at any time the Company is not required to file such reports, it will, upon the request of any Holder of Transfer Restricted Notes, make publicly available other information so long as necessary to permit sales of their 22 securities pursuant to Rules 144 and 144A. The Company covenants that it will take such further action as any Holder of Transfer Restricted Notes may reasonably request, all to the extent required from time to time to enable such Holder to sell Transfer Restricted Notes without registration under the Securities Act within the limitation of the exemptions provided by Rules 144 and 144A (including the requirements of Rule 144A(d)(4)). The Company will provide a copy of this Agreement to prospective purchasers of Notes identified to the Company by the Initial Purchasers upon request. Upon the request of any Holder of Transfer Restricted Notes, the Company shall deliver to such Holder a written statement as to whether it has complied with such requirements. Notwithstanding the foregoing, nothing in this Section 7 shall be deemed to require the Company to register any of its securities pursuant to the Exchange Act. 8. Underwritten Registrations. If any of the Transfer Restricted Notes covered by any Shelf Registration are to be sold in an underwritten offering, the investment banker or investment bankers and manager or managers that will administer the offering ("Managing Underwriters") will be selected by the Holders of a majority in aggregate principal amount of such Transfer Restricted Notes to be included in such offering. No person may participate in any underwritten registration hereunder unless such person (i) agrees to sell such person's Transfer Restricted Notes on the basis reasonably provided in any underwriting arrangements approved by the persons entitled hereunder to approve such arrangements and (ii) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements. 9. Miscellaneous. (a) Amendments and Waivers. The provisions of this Agreement may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, except by the Company and with the written consent of the Holders of a majority in principal amount of the Securities affected by such amendment, modification, supplement, waiver or consents. (b) Notices. All notices and other communications provided for or permitted hereunder shall be 23 made in writing by hand delivery, first-class mail, facsimile transmission, or air courier which guarantees overnight delivery: (1) if to a Holder of the Securities, at the most current address given by such Holder to the Company in accordance with the provisions of this Section 9(b), which address initially is, with respect to each Holder, the address of such Holder to which confirmation of the sale of the Notes to such Holder was first sent by the Initial Purchasers, with a copy in like manner to you as follows: Credit Suisse First Boston Corporation Eleven Madison Avenue New York, NY 10010 Fax No.: (212) 325-2017 Attention: Transactions Advisory Group with a copy to: Cravath, Swaine & Moore Worldwide Plaza 825 Eighth Avenue New York, New York 10019 Fax No.: (212) 474-3700 Attention: Kris F. Heinzelman (2) if to the Initial Purchasers, at the addresses specified in Section 9(b)(1); (3) if to the Company, at its address as follows: Fairchild Semiconductor Corporation 333 Western Avenue, Mail Stop 01-00 South Portland, Maine 04106 Fax No: (207) 761-6020 Attention: Daniel E. Boxer, Esq. 24 with a copy to: Dechert Price & Rhoads 4000 Bell Atlantic Tower 1717 Arch Street Philadelphia, Pennsylvania 19103 Fax No: (215) 994-2222 Attention: Christopher G. Karras, Esq. All such notices and communications shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; three business days after being deposited in the mail, postage prepaid, if mailed; when receipt is acknowledged by recipient's facsimile machine operator, if sent by facsimile transmission; and on the day delivered, if sent by overnight air courier guaranteeing next day delivery. (c) No Inconsistent Agreements. The Company has not, as of the date hereof, entered into, nor shall it, on or after the date hereof, enter into, any agreement with respect to its securities that is inconsistent with the rights granted to the Holders herein or otherwise conflicts with the provisions hereof. (d) Successors and Assigns. This Agreement shall be binding upon the successors and assigns of each of the parties. (e) Counterparts. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. (f) Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. (g) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS. (h) Severability. If any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable, the validity, legality and enforceability of any such 25 provision in every other respect and of the remaining provisions contained herein shall not be affected or impaired thereby. (i) Securities Held by the Company. Whenever the consent or approval of Holders of a specified percentage of principal amount of Securities is required hereunder, Securities held by the Company or its affiliates (other than subsequent Holders of Securities if such subsequent Holders are deemed to be affiliates solely by reason of their holdings of such Securities) shall not be counted in determining whether such consent or approval was given by the Holders of such required percentage. (j) Agreements of the Guarantor. All agreements of the Guarantor shall be effective following the date it becomes a party hereto. Notwithstanding this section, this Agreement will be binding as between the Company and the Initial Purchasers as of and following the date hereof. 26 If the foregoing is in accordance with your understanding of our agreement, please sign and return to CSFBC a counterpart hereof, whereupon this Agreement will become a binding agreement among the Company and the several Initial Purchasers in accordance with its terms. Very truly yours, FAIRCHILD SEMICONDUCTOR CORPORATION By:______________________ Name: Title: FSC SEMICONDUCTOR CORPORATION By:______________________ Name: Title: The foregoing Registration Rights Agreement is hereby confirmed and accepted as of the date first above written. CREDIT SUISSE FIRST BOSTON CORPORATION BT SECURITIES CORPORATION CIBC WOOD GUNDY SECURITIES CORP. by: CREDIT SUISSE FIRST BOSTON CORPORATION By:_____________________________ Name: Title: ANNEX A Each broker-dealer that receives Exchange Notes for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. The Letter of Transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of Exchange Notes received in exchange for Notes where such Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities. The Company has agreed that, for a period of 180 days after the Expiration Date (as defined herein), it will make this Prospectus available to any broker-dealer for use in connection with any such resale. See "Plan of Distribution." ANNEX B Each broker-dealer that receives Exchange Notes for its own account in exchange for Notes, where such Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. See "Plan of Distribution." ANNEX C PLAN OF DISTRIBUTION Each broker-dealer that receives Exchange Notes for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of Exchange Notes received in exchange for Existing Notes where such Existing Notes were acquired as a result of market-making activities or other trading activities. The Company has agreed that, for a period of 180 days after the Expiration Date, it will make this prospectus, as amended or supplemented, available to any broker-dealer for use in connection with any such resale. In addition, until , 199 , all dealers effecting transactions in the Exchange Notes may be required to deliver a prospectus.* The Company will not receive any proceeds from any sale of Exchange Notes by broker-dealers. Exchange Notes received by broker-dealers for their own account pursuant to the Exchange Offer may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the Exchange Notes or a combination of such methods of resale, at market prices prevailing at the time of resale, at prices related to such prevailing market prices or negotiated prices. Any such resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such broker-dealer or the purchasers of any such Exchange Notes. Any broker-dealer that resells Exchange Notes that were received by it for its own account pursuant to the Exchange Offer and any broker or dealer that participates in a distribution of such Exchange Notes may be deemed to be an "underwriter" within the meaning of the Securities Act and any profit on any such resale of Exchange Notes and any commission or concessions received by any such persons may be deemed to be underwriting compensation under the Securities Act. The Letter of Transmittal states that, by acknowledging that it will deliver and by delivering a prospectus, a broker-dealer will not be deemed to admit that - ----------------- * In addition, the legend required by Item 502(e) of Regulation S-K will appear on the back cover page of the Exchange Offer prospectus. it is an "underwriter" within the meaning of the Securities Act. For a period of 180 days after the Expiration Date the Company will promptly send additional copies of this Prospectus and any amendment or supplement to this Prospectus to any broker-dealer that requests such documents in the Letter of Transmittal. The Company has agreed to pay all expenses incident to the Exchange Offer (including the expenses of one counsel for the Holders of the Notes) other than commissions or concessions of any brokers or dealers and will indemnify the Holders of the Securities (including any broker-dealers) against certain liabilities, including liabilities under the Securities Act. 31 ANNEX D ____ /____/ CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO. Name: ____________________________________________ Address: _________________________________________ _________________________________________ If the undersigned is not a broker-dealer, the undersigned represents that it is not engaged in, and does not intend to engage in, a distribution of Exchange Notes. If the undersigned is a broker-dealer that will receive Exchange Notes for its own account in exchange for Notes that were acquired as a result of market-making activities or other trading activities, it acknowledges that it will deliver a prospectus in connection with any resale of such Exchange Notes; however, by so acknowledging and by delivering a prospectus, the undersigned will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. EX-10.02 10 EX-10.02 TRANSITION SERVICES AGREEMENT This Transition Services Agreement ("Agreement") is entered into this 11th day of March, 1997 by and between NATIONAL SEMICONDUCTOR CORPORATION, a Delaware corporation having a principal place of business at 2900 Semiconductor Drive, Santa Clara, California 95119 (hereinafter "National") and [FAIRCHILD SEMICONDUCTOR CORPORATION], a Delaware corporation having a principal place of business at 333 Western Avenue, South Portland, Maine 04106 (hereinafter "Fairchild"). National and Fairchild may be referred to herein as a "Party" and/or the "Parties" as the case may require. RECITALS WHEREAS, the parties have entered into that certain Asset Purchase Agreement, dated the date hereof (hereinafter "Purchase Agreement"), under which Fairchild is acquiring certain of the assets of National's Logic, Memory, and Discrete Power and Signal Technologies Business Units as historically conducted and accounted for (including Flash Memory but excluding Public Networks, Programmable Products and Mil Logic Products) (the "Business"); and WHEREAS, pursuant to the transactions contemplated in the Purchase Agreement, Fairchild is acquiring National's manufacturing facilities in South Portland, Maine (excluding the 8-inch fab and related facilities); West Jordan, Utah; Penang, Malaysia; and Cebu, Philippines (the "Facilities"); and WHEREAS, after the Closing Date Fairchild will own and operate the Facilities; and WHEREAS, National has provided certain services to the Business in the past; and WHEREAS, in order to support the continued and uninterrupted operation of the Business following the Closing, the parties desire to enter into this Agreement, pursuant to which National will provide, for the time periods and consideration described below, certain of the services that have been provided by National to the Business prior to the Closing Date. NOW, THEREFORE, in furtherance of the foregoing premises and in consideration of the mutual covenants and obligations hereinafter set forth, the parties hereto, intending to be legally bound hereby, do agree as follows: 1. DEFINITIONS 1.1 Closing Date: The date of closing of the trans- actions described in the Purchase Agreement. 1.2 Capitalized terms not defined herein shall have the meaning set forth in the Purchase Agreement. 1.3 Fairchild: [Fairchild Semiconductor Corporation] and its Subsidiaries. 1.4 National: National Semiconductor Corporation and its Subsidiaries. 1.5 Subsidiary: Any corporation, partnership, joint venture or similar entity more than fifty percent (50%) owned or controlled by a Party hereto, provided that any such entity shall no longer be deemed a Subsidiary after such ownership or control ceases to exist. 2. SERVICES TO BE PROVIDED BY NATIONAL Following the Closing Date, National shall provide Fairchild the following services (individually or collectively referred to herein as, the "Service(s)") for a period not to extend beyond June 1, 1998, except as otherwise provided herein: 2.1 Data processing and communications services and related support as set forth in Schedule 2.1 hereto. National shall invoice Fairchild in the manner and at the rates set forth herein. 2.2 Financial and administrative and related support as set forth in Schedule 2.2 hereto. National shall invoice Fairchild in the manner and at the rates set forth herein. 2.3 Purchasing services and related support as set forth in Schedule 2.3 hereto. National shall invoice Fairchild in the manner and at the rates set forth herein. 2.4 Marketing and Sales services and related support as set forth in Schedule 2.4 hereto. National shall invoice Fairchild in the manner and at the rates set forth herein. 2.5 Logistics and Operational services and related support as set forth in Schedule 2.5 hereto. National shall invoice Fairchild in the manner and at the rates set forth herein. 2.6 Human resources and benefits services and related support as set forth in Schedule 2.6 hereto. National shall invoice Fairchild in the manner and at the rates set forth -2- herein. 2.7 Security assistance and consulting services as set forth in Schedule 2.7 hereto. National shall invoice Fairchild in the manner and at the rates set forth herein. 2.8 Certain additional services at the South Portland, Maine site will be provided by Fairchild to National and by National to Fairchild, and at the West Jordan, Utah site by Fairchild to National, under separate agreements regarding shared facilities and services. The parties will also enter into separate agreements regarding office space in Santa Clara to be leased by National to Fairchild, office space in West Jordan to be leased by Fairchild to National, and the lease of buildings in South Portland. In addition, the Parties will enter into a letter agreement regarding certain environmental matters, including the cleanup underway in South Portland and West Jordan. 2.9 Under another separate agreement, Fairchild will reimburse National for lease payments to be made following the Closing by National in respect to certain leased manufacturing and computer equipment used in Fairchild facilities and used in the operation of the Business including but not limited to that leased from GE Capital. Notwithstanding anything to the contrary contained herein, Fairchild shall not be charged under this Agreement for any Service that is specifically required to be performed under any other agreement between National and Fairchild and any such other Service shall be performed and charged for in accordance with the terms of such other agreement. 3. TERMS OF SERVICE 3.1 The attached Schedules of Services and costs are subject to change with the Parties' mutual written consent consistent with change methodologies applied to National. Wherever practical, charges to Fairchild for Services shall be based on actual incurred costs, not budgeted or estimated costs. The Parties shall use good faith efforts to discuss any situation in which the actual charge for a Service is reasonably expected to exceed the estimated charge, if any, set forth on a Schedule for a particular Service; provided, however, that the incurrence of charges in excess of any such estimate shall not justify stopping a provision of, or payment for, Services under this Agreement. The Parties have made good faith efforts as of the date hereof to identify each Service and to complete the content of each Schedule to this Agreement. To the extent a Schedule has not been prepared for a Service or a Schedule is otherwise incomplete as of the date hereof, the Parties shall use good faith efforts to prepare or complete Schedules as promptly as practicable. Any -3- Service reflected on any such additional or amended Schedule shall be deemed a "Schedule" as if set forth on such Schedule as of the date hereof. 3.2 National will have in place by the Closing Date all legal entities necessary at each location to import and ship product and invoice customers on behalf of Fairchild. The legal entity structure will be equivalent to National's legal structure unless otherwise agreed in writing by Fairchild. In the event that at any time any change is made by Fairchild to the legal structure which adversely affects National's provision of Services under this Agreement, National shall, in its sole discretion, have the right to cease provision of such affected Service(s). Fairchild will operate under the National systems, logistics and accounting calendar and observe all National system cutoff schedules. With respect to Fairchild products for which National performs an invoicing function, except in Japan, invoices will be issued in Fairchild's name after the Closing Date, such invoices to incorporate on behalf of Fairchild the same terms and conditions of sale as used by National. While on National's systems, Fairchild will use National's published company rates for foreign currency exchange and National's practices with respect to use of currency. 3.3 Fairchild is contracting for use of National's system on an "as-is" basis. It will be at National's discretion as to whether enhancements or modifications to these systems will be made available to Fairchild. After the Closing Date, there will be no modifications to National's systems at Fairchild's request, except in National's sole discretion and at a price to be agreed between the Parties and paid by Fairchild. 3.4 Prices to be paid by Fairchild for Services rendered by National hereunder are listed in the Schedules hereto. One time systems and services costs incurred to establish the capability of National and Fairchild to operate as separate companies using common systems will be paid entirely by National. Costs to support the ultimate separation of Fairchild and the implementation of Fairchild's own independent systems and services will be paid entirely by Fairchild. National agrees to cooperate as reasonably requested by Fairchild in order to effectuate such separation. 4. ADDITIONAL SERVICES, SOFTWARE TRANSFERS AND SOFTWARE LICENSES 4.1 In addition to the specific services and facilities described above, the parties hereto acknowledge that there may be additional services and facilities which have not been -4- identified herein but which have been used by the Business prior to the Closing Date and which shall continue to be required or desired by Fairchild until June 1, 1998, or such later date as the Parties may agree upon. If any such additional services or facilities are identified and requested by Fairchild, and National agrees to provide such services, Fairchild will be charged at the rate paid by National for said services. 4.2 Upon the written request of Fairchild, National shall assign to Fairchild, to the extent possible and subject to vendor legal or contractual restrictions, all of its right, title, and interest in and to any software licensed programs which between National and Fairchild are used solely and exclusively for the benefit of Fairchild and are listed in Schedule 4.2 hereto. 4.3 National hereby grants Fairchild a paid-up, royalty-free, perpetual, nonexclusive, irrevocable, worldwide, multi-site license to use, or have used for its own benefit, National in-house developed business, engineering and manufacturing systems software, as listed on Schedule 4.3 hereto, which is or has been used by or for Fairchild, whether user or MIS developed and/or supported (hereinafter "NS Software"). No termination of any Services provided pursuant to this Agreement shall terminate or revoke Fairchild's license to use, or have used for its own benefit, the NS Software. 4.4 Fairchild, its agents, it subsidiaries and its subsidiaries' agents may make such copies of the NS Software as may be reasonably necessary for their needs. Subject to 3.3 above, and during the term of this Agreement, if National develops changes, modifications, enhancements or improvements to the NS Software, National will use its best efforts to promptly disclose them to Fairchild in accordance with National's current notification methods and they shall be included within the scope of this license. 4.5 After discontinuation of the Service provided by National, modifications or enhancements may be made by Fairchild, its subsidiaries or their respective employees or agents which shall be the sole and exclusive property of Fairchild (including all worldwide copyrights, trade secrets, patents or other proprietary rights relating thereto). National is the owner of the NS Software and any copyrights, trade secrets, patents or other proprietary rights relating thereto and has the right to grant to Fairchild the license to use the NS Software under this Agreement, in each case free of any claim of any third party. 4.6 Any NS Software wrongly omitted from Schedule 3.3 shall be added with both Parties' written consent. National -5- shall not unreasonably withhold such consent. 5. INDEMNIFICATION In the event any act or omission of either Party or its directors, officers, employees, servants, agents or representatives causes or directly results in (i) loss, damage to, destruction of property of the other Party or third Parties, and/or (ii) death or injury to persons including, but not limited to, employees or invitees of either Party, then such Party shall indemnify, defend and hold the other Party harmless from and against any and all claims, actions, damages, demands, liabilities, costs and expenses resulting therefrom. The indemnifying Party or its agent or representative shall pay or reimburse the other Party promptly for any such loss, damage, destruction, death or injury when notified promptly in writing of any claim made hereunder and when given full and complete authority, information and assistance (at the indemnifying Party's expense) for the defense of same. The indemnifying Party shall not be responsible for any compromise or settlement made without its written consent. With respect to third party claims, the right of contribution shall exist as between the Parties. 6. NO WARRANTY The level and quality of the Services shall be provided in good faith and at a level and quality comparable to that performed for the benefit of National prior to the date of execution of this Agreement. National shall not be liable for any loss or damage suffered by Fairchild on account of any failure by National to perform such service so long as such failure was not a result of National's willful intent to breach this Agreement. Except as may otherwise be explicitly set forth herein, National makes no representation or warranty whatsoever with respect to the Services to be provided hereunder. 7. TERM AND TERMINATION 7.1 THE TERM OF THIS AGREEMENT SHALL BEGIN ON THE CLOSING DATE. Services shall be provided by National hereunder until June 1, 1998, unless otherwise provided herein. 7.2 Subject to the provisions of the Schedules hereto, Fairchild may terminate any Service(s) provided pursuant to this Agreement on ninety (90) days prior written notice to National, unless otherwise specified in the Schedules hereto. If Fairchild elects to terminate a service, it will bear the costs of -6- interfacing any new system to the remaining National systems which it continues to use. Fairchild shall no longer be obligated to pay National the fee attributable to such cancelled Service(s) following the effective termination date of such Service(s). Fairchild shall be liable for any outstanding purchase orders placed with third parties by National on Fairchild's behalf prior to National's receipt of the aforesaid written notice of termination provided that any purchase order in an amount greater than $1,000 shall have been issued with Fairchild's written consent. 7.3 Subject to the provisions of the Schedules hereto, in the event of a material breach under this Agreement, the non-defaulting Party may terminate the specific Service(s) to which such breach relates if the defaulting Party fails to cure such breach within thirty (30) days of its receipt of a written notice from the non-defaulting Party of such breach, provided that the duties and obligations of the defaulting Party which have accrued prior to the termination of such Service shall not be released or discharged by such termination. During the pendency of any dispute resolution process with respect to such purported default, the Service(s) in dispute will continue to be provided and paid for. 7.4 Prior to termination of this Agreement, the Parties shall cooperate with one another to maintain an orderly transfer of Services provided hereunder and shall provide necessary assistance for an orderly transfer thereof. 8. OWNERSHIP AND MAINTENANCE OF DATA All records, data files (and the data contained therein), input materials, reports and other materials received, computed, developed, processed or stored for Fairchild by National (collectively the "Data") pursuant to this Agreement after the Closing Date will be the exclusive property of Fairchild, and National shall not possess any interest, title, lien or right in connection therewith. National shall safeguard the Data to the same extent it protects its own similar materials. Data shall not be utilized by National for any purpose other than in support of National's obligations hereunder. Neither the Data nor any part thereof shall be disclosed, sold, assigned, leased or otherwise disposed of to third parties by National or commercially exploited by or on behalf of National, its employees or agents. In the event that either Party either determines on the advice of its counsel that it is required to disclose any information pursuant to applicable law or receives any demand under lawful process to disclose or provide information of the other Party that is subject to the confidentiality provisions hereof, such Party shall notify the other Party prior -7- to disclosing and providing such information and shall cooperate at the expense of the requesting Party in seeking any reasonable protective arrangements requested by such other Party. Subject to the foregoing, the Party that receives such request may thereafter disclose or provide information to the extent required by such law (as so advised by counsel) or by lawful process. Upon termination of any Service provided hereunder, National shall provide Fairchild reasonable access to retained Data for a period not to exceed twelve (12) months following said termination whereupon such Data will be transferred to Fairchild or otherwise made available to Fairchild as Fairchild may reasonably request. 9. PAYMENT 9.1 During the term of the provision of any Service(s) hereunder, National shall invoice Fairchild monthly, unless otherwise specified in the Schedules hereto, itemizing the basis for each invoice amount. 9.2 Any out-of-pocket expense paid to a third party by National as result of Services provided hereunder by National to Fairchild shall be invoiced separately in National's customary form and detail and reimbursed by Fairchild to National. The foregoing reimbursement shall be in addition to the fees provided for in Section 9.1 above. In the event that any such expense exceeds $1000, it must be approved in writing by Fairchild prior to incurrence by National. Fairchild will not unreasonably withhold approval. 9.3 Unless otherwise provided in the Schedules, payment terms are Net, thirty (30) days from date of invoice and payments shall be made in United States Dollars. Each Party shall have the option to net payment obligations owed to it against amounts due from the other Party. If payment amounts are netted against receivable amounts, the netting Party will provide the receiving Party with a reconciliation referencing the specific invoices involved in the netting transaction. Netting shall not apply against payments to be made under the Recapitalization or Asset Purchase Agreement. 10. CONFIDENTIALITY The parties acknowledge that in the course of performance of their respective obligations pursuant to this Agreement, each may obtain certain confidential and/or proprietary information of the other or its affiliates or customers, including the terms and conditions of this Agreement. Except as -8- otherwise provided in the Technology Licensing and Transfer Agreement, dated the date hereof, between National and Fairchild, each Party hereby agrees that all information communicated to it by the other, its affiliates or customers, whether before or after the Closing Date, shall be kept and was received in strict confidence and shall be used only in accordance with this Agreement, and shall not be disclosed by the other Party, its agents or employees without the prior written consent of the first Party. In the event that either Party either determines on the advice of its counsel that it is required to disclosure any information pursuant to applicable law or receives any demand under lawful process to disclose or provide information of the other Party that is subject to the confidentiality provisions hereof, such Party shall notify the other Party prior to disclosing and providing such information and shall cooperate at the expense of the requesting Party in seeking any reasonable protective arrangements requested by such other Party. Subject to the foregoing, the Party that receives such request may thereafter disclose or provide information to the extent required by such law (as so advised by counsel) or by lawful process. Furthermore, the Parties shall take reasonable steps necessary to ensure that all information and records relating to the business of National and Fairchild are kept strictly confidential. Notwithstanding the above, this Agreement imposes no obligation on either Party with respect to information that is or becomes a matter of public knowledge through no fault of that Party, is rightfully obtained by either Party from a third party not in violation of any duty of confidentiality, is disclosed by either Party to a third party without a duty of confidentiality imposed upon the third party, or is independently developed by either Party without reference to any proprietary or confidential information of the other Party. 11. GENERAL 11.1 AMENDMENT: This Agreement may be modified only by a written document signed by duly authorized representatives of the Parties. 11.2 FORCE MAJEURE: A Party shall not be liable for a failure or delay in the performance of any of its obligations under this Agreement where such failure or delay is the result of fire, flood, or other natural disaster, act of God, war, embargo, riot, labor dispute, unavailability of raw materials, or the intervention of any government authority, providing that the Party failing in or delaying its performance promptly notifies the other Party of its inability to perform and states the reason for such inability. -9- 11.3 ASSIGNMENT: This Agreement may not be assigned by any Party hereto without the written consent of the other Party; provided that Fairchild may assign its rights but not its obligations hereunder as collateral security to any bona fide financial institution engaged in financing in the ordinary course providing financing to consummate the transactions contemplated by the Purchase Agreement or any bona fide financial institution engaged in acquisition financing in the ordinary course through whom such financing is refunded, replaced, or refinanced and any of the foregoing financial institutions may assign such rights in connection with a sale of Fairchild or the Business in the form then being conducted by Fairchild substantially as an entirety. Subject to the foregoing, all of the terms and provisions of this Agreement shall be binding upon, and inure to the benefit of, and shall be enforceable by, the respective successors and assigns of the Parties hereto. 11.4 COUNTERPARTS: This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original and all of which together shall constitute but one and the same instrument. 11.5 CHOICE OF LAW: This Agreement, and the rights and obligations of the Parties, shall be interpreted and governed in accordance with the laws of the State of California, without giving effect to its conflicts of law provisions. 11.6 WAIVER: Should either of the Parties fail to exercise or enforce any provision of this Agreement, or waive any right in respect thereto, such failure or waiver shall not be construed as constituting a waiver or a continuing waiver of its rights to enforce any other provision or right. 11.7 SEVERABILITY: If any provision of this Agreement or the application thereof to any situation or circumstance shall be invalid or unenforceable, the remainder of this Agreement shall not be affected, and each remaining provision shall be valid and enforceable to the fullest extent. 11.8 LIMITATION OF LIABILITY: IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES RESULTING FROM THE OTHER PARTY'S PERFORMANCE OR FAILURE TO PERFORM UNDER THIS AGREEMENT, OR THE FURNISHING, PERFORMANCE, OR USE OF ANY GOODS OR SERVICES SOLD PURSUANT HERETO, WHETHER DUE TO BREACH OF CONTRACT, BREACH OF WARRANTY, NEGLIGENCE OR OTHERWISE, REGARDLESS OF WHETHER THE NONPERFORMING PARTY WAS ADVISED OF THE POSSIBILITY OF SUCH DAMAGES OR NOT. 11.9 EFFECT OF HEADINGS: The headings and sub-head- -10- ings contained herein are for information purposes only and shall have no effect upon the intended purpose or interpretation of the provisions of this Agreement. 11.10 INTEGRATION: This Agreement, the Recapitalization and Purchase Agreement, the Operating Agreements (as defined in the Recap Agreement) and Schedules hereto and thereto, constitute the entire agreement and understanding between the Parties with respect to the subject matter of this Agreement and integrates all prior discussions and proposals (whether oral or written) between them related to the subject matter hereof, provided that any provisions hereof allowing for netting or offsetting of any payments to be made hereunder shall not be deemed to permit that such netting or offsetting apply against any payments to be made under the Recapitalization or Purchase Agreement. 11.11 PUBLIC ANNOUNCEMENT: Prior to the closing of the transactions contemplated under the Purchase Agreement, neither Fairchild nor National shall, without the approval of the other Party hereto, make any press release or other public announcement concerning the terms of the transactions contemplated by this Agreement, except as and to the extent that any such Party shall be so obligated by law, in which case the Party shall use its Best Efforts to advise the other Party thereof and the Parties shall use their Best Efforts to cause a mutually agreeable release or announcement to be issued; provided that the foregoing shall not preclude communications or disclosures necessary to (a) implement the provisions of this Agreement or (b) comply with accounting, securities laws and Securities and Exchange Commission disclosure obligations. Fairchild shall provide National with a reasonable opportunity to review and comment on any references to National made by Fairchild (and shall not include any such references to National without the written consent of National, which consent shall not be unreasonably withheld or delayed) in any written materials that are intended to be filed with the Securities and Exchange Commission in connection with obtaining financing required to effect the transactions contemplated in connection with the Purchase Agreement or intended to be distributed to prospective purchasers pursuant to an offering made under Rule 144A promulgated under the Securities Act of 1933 in connection with obtaining such financing. 11.12 NO PARTNERSHIP OR AGENCY CREATED: The relationship of National and Fairchild shall be that of independent contractors only. Nothing in this Agreement shall be construed as making one Party an agent or legal representative of the other or otherwise as having the power or authority to bind the other in any manner. -11- 11.13 BINDING EFFECT: This Agreement and the rights and obligations hereunder shall be binding upon and inure to the benefit of the Parties hereto and to their respective successors and permitted assigns. 11.14 EXPORT CONTROL: The Parties shall comply with any and all export regulations now in effect or as may be issued from time to time by the Office of Export Administration of the United States Department of Commerce or any other governmental authority which has jurisdiction relating to the export of technology from the United States of America. 11.15 NOTICES: Any notice to be made in connection with any right or obligation arising under this Agreement, shall be provided by registered mail, telegram, facsimile or telex by one Party to the other at the following addresses. Said notices shall be deemed to be effective upon receipt by the receiving Party thereof. National: National Semiconductor Corporation 2900 Semiconductor Drive P.O. Box 58090 M/S 16-135 (Attn: General Counsel) Santa Clara, CA 95052-8090 FAX: (408) 733-0293 Fairchild: Fairchild Semiconductor Corporation MS 01-00 (General Counsel) 333 Western Avenue South Portland, ME 04106 FAX: (207) 761-6020 Either Party may change its address by written notice given to the other Party in the manner set forth above. IN WITNESS WHEREOF, The Parties have had this Agreement executed by their respective authorized officers on the date written below. The persons signing warrant and represent that they are duly authorized to sign for and on behalf of the respective Parties. By and on behalf of By and on behalf of NATIONAL SEMICONDUCTOR FAIRCHILD SEMICONDUCTOR CORPORATION CORPORATION By: ____________________________ By: ____________________________ -12- Its: ___________________________ Its: ___________________________ Date: __________________________ Date: __________________________ -13- SCHEDULE 2.1 DATA PROCESSING AND COMMUNICATIONS SERVICES Up to and including June 1, 1998, unless otherwise agreed to in writing, Fairchild will have access to and ability to use those National computer and communications systems in use by Fairchild at the Closing Date. For all IS services, unless otherwise agreed to in writing, Fairchild will be charged at rates equal to those charged other National internal customers. National shall invoice Fairchild each National period as part of the period closing cycle. National shall invoice Fairchild for direct IS services in a separately itemized and consolidated invoice. Fairchild will be charged on a "pay for use,, model. - "Pay for use" will be at regular IS usage rates set for all National Corporate IS customers. As Fairchild migrates off of National systems, Fairchild will no longer be charged for their use. - For FY97 only, National Corporate Information Services over-absorption will be passed back to Fairchild just like any other National division on a fiscal quarter basis. Calculation of the Fairchild share of the over-absorption will exclude the use of these funds to support corporate initiatives where Fairchild is not a participant or beneficiary. By the end of January 1997, National will establish and publish new charge rates for FY98. Fairchild will develop a detailed systems conversion plan for review with National in March of 1997. Any conversion date on the plan which extends beyond June 1, 1998 must be approved by National. If National elects not to approve an extended date, the schedule will revert to the latter of June 1, 1998 or an alternative date determined by National. National agrees to provide the resources necessary to allow Fairchild to meet the mutually agreed upon milestones, timelines and resource requirements identified in the final detailed systems conversion plan. Following this process the plan will be considered firm and will be used by both National and Fairchild to synchronize their own related project efforts. Any schedule modifications occurring after the plan is firm will require joint approval by Fairchild and National. National will provide Fairchild with a one-time automatic extension of any schedule of up to ninety (90) days to ensure that all schedules are protected by a reasonable contingency period. Should Fairchild not be satisfied by any of the dates determined through the process of creating a firm plan, National will, if requested by Fairchild and at Fairchild's expense, create and technically implement a Fairchild-only version of the system operating on a service bureau of Fairchild's choice. If Fairchild materially increases its use of National's systems and such increased use contributes to the need for National to purchase additional computing capacity that National will not utilize after final separation, Fairchild will be financially responsible for that computing capacity. National will provide Fairchild with periodic reporting on performance metrics and give Fairchild advanced notice of capacity issues to allow Fairchild to respond and possibly discontinue use of certain National systems in advance of any additional purchases. National will be responsible for resolving any third party mainframe and SAP software restrictions on Fairchild use with costs paid as described below. Fairchild will be responsible for resolving all other software license issues, with costs paid as described below. National will be responsible for any one-time up front third party software vendor costs associated with Fairchild's use of National's mainframe computers and any one-time up front costs associated with Fairchild's use of SAP on National's computers. Fairchild will be responsible for all other one-time and all on-going third party vendor software costs associated with their use. National will reimburse Fairchild completely for up to $1.3 million of one-time up front third party vendor software costs incurred to sustain current capabilities. Should Fairchild spend more than $1.3 million in one-time up front third party software costs to sustain current capabilities, National will reimburse Fairchild 50% of its costs above $1.3 million up to a limit of $2.0 million. National may elect to pay one or more of the vendors involved directly. National will provide wide-area network support and help facilitate the transition to a stand-alone Fairchild wide-area network. Fairchild will elect either to be included or not included in National Corporate IS projects. If included, costs will be determined on the same basis as other National divisions and sites. If not included, Fairchild will not be charged. - - National will continue to provide Electronic Mail access including: - Continued Lotus NOTES support - Continued MailHub support National will continue to provide Video Conferencing capabilities. National has negotiated into current contracts the grandfathering of network and telephone deals to Fairchild. Fairchild has the option of utilizing those arrangements or establishing separate arrangements. National will continue to provide Internet services and access. These services will be provided at no charge in fiscal year 1997 2 and will be charged at internal National rates in fiscal year 1998. Fairchild will continue to be able to use National's help desk services. MBayse support may at National's option, be offered to Fairchild beyond June 1, 1998. National will provide Fairchild with a minimum of twelve (12) months notice prior to terminating this extended service. National charges for MBayse, EBS and RETGEN systems and support will be based on current allocation processes. Use of MBayse data will be governed by rules developed by National's MBayse group and approved by Fairchild. 3 FY97 IS RATES AND FEES Rev. 2.0 4 CORPORATE INFORMATION SERVICES COMPUTING RATES SC VAX DATA CENTER (Account 908) NON- DATA BASE SERVICES PRIME PRIME - --------------------------------------- --------- --------- - -13 MIP processor/second-on-line....... .01560 .01170 - -13 MIP processor/second-batch......... .0078 .0078 - -26 MIP processor/second-on-line....... .0312 .02234 - -26 MIP processor/second-batch......... .0156 .0156 - -Connect time/minute-on-line........... .0052 .0039 - -Connect time/minute-batch............. .0026 .0026 - -Input/output per thousand............. .0625 .0625 - -512K bytes storage/day................ .07 .07 Interactive Services - -13 MIP processor/second-on-line....... .012 .009 - -26 MIP processor/second-on-line....... .024 .018 - -Connect time/minute-on-line........... .004 .003 - -Input/output per thousand............. .05 .05 - -512K bytes storage/day................ .05 .05 Batch Services - -13 MIP processor/second-batch......... .006 .006 - -26 MIP processor/second batch......... .012 .,012 - -Connect time/batch.................... .002 .002 - -Input/Output per thousand............. .05 .05 - -512K bytes storage/day................ .05 .05 Prime Time is 0600 to 1800 Monday thru Sunday Non-Prime Time is 1800 to 0600 Monday thru Sunday 5 CORPORATE INFORMATION SERVICES COMPUTING RATES BUSINESS DATA PROCESSING (Account 915) SERVICES DATA INTERACT CPU TIME PER HOUR BASE IVE BATCH - --------------------------------- ---------- ----------- --------- HDS 8424......................... $1200.00 $1125.00 $900.00 Connect Time per Hour............ 1.00 Disk Reads/Writes per 1000....... .13 .10 .10 Tape Reads/Writes per 1000....... .50 .50 .50 Tape Mounts per Mount............ .50 .50 .50 Usage of the above resources on weekends (6:00 PM Friday to 6:00 AM Monday) is charged at 25% of weekday rates. Disk Space Storage Megabytes per week............... .60 .30 .30 Paper Output - -Stock forms per page............ .02 .02 .02 - -Custom forms per page form dependent Microfiche - -Originals....................... 1.20 - -Duplicates...................... .12 6 CORPORATE INFORMATION SERVICES COMPUTING RATES END USER COMPUTING (ACCOUNT 973)1 SERVICES -------------------- INTERACTIVE BATCH -------------------- -------------------- NON- NON- CPU TIME PER HOUR PRIME PRIME PRIME PRIME - ----------------------------------------- --------- --------- --------- --------- 20 MIP Processor $ 310.50 $ 62.10 $ 93.15 $ 31.05 Connect Time per Hour.................... .863 .173 .259 .0863 Disk Space Storage 712K Bytes per Day .0345 .0345 .0345 .0345 Disk Read/Writes per 1000................ .092 .023 .0276 .0115 Lines Printed per 1000................... .431 .086 .129 .0426 ENGINEERING COMPUTATION (Account 973) 20 MIP Processor $ 310.50 $ 62.10 $ 93.15 $ 31.05 Unix 20 MIP Processor.................... 53.82 53.82 53.82 53.82 Unix 6000 Compute Server................. 12.42 12.42 12.42 12.42 Connect Time per Hour.................... 0 0 0 0 Disk Space Storage 712K Bytes per Day .0345 .0345 .0345 .0345 Disk Read/Writes per 1000................ 0 0 0 0 Lines Printed per 1000................... 0 0 0 0
Prime Time = 6:00 AM to 6:00 PM Monday thru Friday Non-Prime Time = 6:00 PM to 6:00 Am Monday thru Thursday Weekend Use = 6:00 PM Friday to 6:00 AM Monday is "no charge" - ------------------------ (1) Includes Email 7 SUBACCOUNT 922--DESKTOP SERVICES (A) BASIC SERVICES FEES SANTA CLARA & NA SALES OFFICES: $120.00 PER CALENDAR MONTH PER KNOWLEDGE WORKER ALL OTHER LOCATIONS: $218.50 PER CALENDAR MONTH PER NODE KNOWLEDGE WORKERS DEFINED EXEMPTS EMPLOYEES (B) ENHANCED SERVICES (PER USER): - LOTUS NOTES MAIL HIGH- END $9.00 PER WEEK $3.00 PER WEEK OPTION LOW-END OPTION - GRAPEVINE $5.00 PER WEEK - BUSINESS OBJECT $40.00 PER CALENDAR MONTH - SUBACCT 944--VOICE MAIL (PER $6--$8 CALENDAR MONTH ACCT) SUBACCOUNT 974--CLIENT/ SERVER (A) CPU MEMORY $0.65 PER MB PER DAY (B) DISK SPACE $7.83 PER GB PER DAY (C) AIX/NFS FEE PER ACCOUNT $15.00 PER CALENDAR MONTH SUBACCOUNT 977 - PHONE DEPR/LEASE/MAINT (PER EXT) $35.75 PER CALENDAR MONTH 8 SCHEDULE 2.2 CORPORATE FINANCIAL SERVICES National will provide Fairchild with the systems and services to value inventory, physically ship & invoice material and intangibles, compute and pay disbursements (ACCTS. payable, Payroll, Travel, etc.) and the ability to produce, maintain and report stand-alone financial statements. Credit and collection services will be provided by National as more fully set forth in Schedule 2.4. Fairchild will be charged a flat periodic service fee based on the rates contained herein. These rates are determined on a department by department basis. In general the applicable cost pool is charged out to Fairchild at 30% of the total pool, which is based on the last twelve periods' Total Cost of Sales for Fairchild as a percent of National's Total Cost of Sales. In addition, direct expenses incurred on behalf of Fairchild will be reimbursed 100% by Fairchild. Currently National and Fairchild share a common database and infrastructure for financial systems. When Fairchild elects to terminate use of a National system it will bear 100% of the cost to interface its replacement system to other non-National systems. Likewise, Fairchild wi11 pay 100% of the cost to interface National systems to Fairchild systems at a predetermined hourly rate. Should National discontinue use of a system for its own purposes, Fairchild will be allowed to continue to operate the system bearing the same historical operating cost of the system, plus one-time cost for setup (if any) for the term of this Agreement. Alternatively, at Fairchild's request, National will transfer the discontinued system software to Fairchild or its service provider in an orderly fashion, pursuant to the terms and conditions set forth in paragraph 3.0 and 4.0 of the Transition Services Agreement. GENERAL NON-EXCLUSIVE DESCRIPTION OF SERVICES BY FUNCTION The description of services to be provided captures substantially all of the services intended to be provided; however, the parties acknowledge that such description may inadvertently be incomplete, and that additional services closely related or ancillary to those described below shall also be provided at Fairchild's request upon the same terms and conditions as apply to the services described below. 9 Department Name: Accounts Payable Department Number: 99-011 1. Description of Services to be Provided: Provide system support and capability to enable South Portland (NSFM) and Salt Lake City (NSSL) facilities to process accounts payable via McCormack & Dodge accounts payable system. The system will enable personnel at both sites to process invoices, check requests and other payment instructions as they currently do today within National. The system will be modified so that checks will be processed in South Portland for both Salt Lake City and South Portland disbursements. Santa Clara will not process accounts payable disbursements for the Salt Lake City facility for liabilities recorded after the Closing Date. If processing is required by National, processing of National retained accounts payable liabilities will be performed in Salt Lake City and South Portland on behalf of National. The system will be partitioned so that Fairchild transactions will be segregated within the National system. As such payables vouchered after the Closing Date will be paid under the Fairchild tax identification number and checks will be drawn on a new Fairchild bank account. Fairchild will be charged for a proportional share of: all Information Services charges to department SC-99-0111, for management time to address system-wide issues and support and annual maintenance for system software. The costs to support Santa Clara payables such as A/P processor's payroll, facilities cost and SC department operating expense will not be charged to Fairchild. Basic Services include: 1.1 IS Application and production support for IS jobs #800 and 801 1.2 Duplicate 800 & 801 jobs, and full cost will be absorbed by Fairchild. 1.3 Acquisition and implementation of software maintenance license and upgrades. 1.4 Annual system generation of Form 1099 Misc. for Fairchild U.S. 2. One-Time Actions Required to Modify IS Systems: 2.1 Set up new Group corporate for Fairchild 2.2 Set up new corporate code for Spor & SL 2.3 Set up new company code for NSME under National 10 2.4 Convert open PO & unmatched Invoices to new company codes 2.5 Close converted PO & Invoices from old corporate code 2.6 Review & assess all AP/PO online, batch, security programs/jobs for special company code processing. (vendor Master usage) 2.7 Modify GL & other interfaces (SMS)
Stock CIS Marcom PTS/FAS 3. List of Systems Utilized 3.1 System Number: S800 M&D (APPO) Department Name: Payroll Department Number 99-0114 4. DESCRIPTION OF SERVICES TO BE PROVIDED National will provide IS programming support for Ceridian Inc. payroll processing, and payroll tax, systems and related interfaces. National will provide support and maintenance for timecard collection system and related interfaces. Service includes the management of the network interfaces with Ceridian, management of system interfaces to payroll (e.g. HR's MSA system), management of vendor relationship including driving customer support of special scheduling requests, payroll cycle management and customer service problems/issues. Costs to be charged to Fairchild include the proportional share of all IS costs, outside service fees to Ceridian where applicable and the SC payroll manager's cost. The cost of payroll processing personnel, department operating expense and facility expense related to the SC payroll department will not be charged to Fairchild. National may elect to replace the current payroll processor, Ceridian, with another outside vendor or in-house software application prior to June 1, 1998. If this occurs, National will provide Fairchild with 90 days notice of its intent to terminate the Ceridian contract. National will use its best efforts to transfer the terms and conditions of the Ceridian 11 contract to Fairchild if Fairchild wishes to continue to utilize Ceridian as its payroll processing vendor. National will not be responsible to Fairchild for damages caused by failure of Ceridian to continue providing payroll processing services to Fairchild upon termination of the Ceridian contract by National. Additional services to be provided for Santa Clara-based Fairchild employees include: 4.1 Payroll processing 4.2 File Review & transfer & Interface 4.3 Answer Questions 4.4 Hand Checks 4.5 W2, W2C 4.6 Maintain deduction file 4.7 Tax Filing 4.8 Set up employees 4.9 Set up employee history & current earns/deduction 5. One-Time Actions Required to Modify IS Systems: 5.1 Set up Fairchild company code 5.2 Change bank account payment information 5.3 Change auto deposit instructions 5.4 Change benefit vendor files 5.5 Set up General Ledger entries 5.6 Set up stock administration interface (if necessary). 6. List of Systems Utilized 6.1 Ceridian Payroll System--Signature--Encore 6.2 MSA--weekly updates 6.3 G/L--weekly updates/edits 6.4 Stock Administration--Weekly updates 6.5 Deduction Files
12 6.6 HR SAP--N/A if applicable 6.7 Timecard System--All part of one system 6.8 SSIP/KEIP System--NIA 6.9 Travel Systems--Monthly updates to G/L, to P/R 6.10 Nova 6.11 Deja View
Department Name: Fixed Assets Department Number: 99-0172 7. DESCRIPTION OF SERVICES TO BE PROVIDED Setup, maintenance and ongoing support for Global Fixed Asset System (FAS), Project Tracking System (PTS) and I schedule reporting. Service includes upgrades to new releases of software, table maintenance and establishment of new company reporting. Costs to be charged to Fairchild include the proportional share of IS costs, software maintenance fees and the SC fixed asset manager's cost. Fairchild will pay directly, or reimburse National, for the cost to establish new tax-basis values for Fairchild fixed assets including, but not limited to, appraisal costs and outside service fees to implement the new asset values in FAS. Basic Services include: 7.1 Job Testing: PTS 7.2 FAS/GL Interface (GL's location) 7.3 Table Updates FAS: Company table, cost center table (location) 7.4 Security for company and personnel 7.5 Training 7.6 Provide historical data 7.7 Provide reporting for tax compliance 8. One-Time Actions Required to Modify IS Systems; 8.1 PTS--Add new location/change present location (FM/SL domestic
13 sites only) Change programs coding (TE, SL, FM, SC) 8.2 FAS--New companies/keep the same location (FM, EP, CB, SL) (company table) (cost center) 8.3 I-Sched--Testing and change programs, batch job 8.4 FAS--Update table and transfer assets to new company: update cost center table (location), add new company, set up security. 8.5 I-Sched--FM, CB, EP, SL 8.6 FAS/PTS--Create new location code for ME and company code FC 8.7 FAS/PTS--Security for new location 8.8 PTS--Transfer procedure for FC projects 8.9 FAS--Transfer of assets between corporate codes. Test interface with G/L, CIS and APPO 9. List of Systems Utilized: 9.1 623 PTS 9.2 271 FAS 9.3 271 Focus--I-Schedule 9.4 AP/PO 9.5 CIS 9.6 GIL
Department Name: Travel Department Number: 99-0208 10. DESCRIPTION OF SERVICES TO BE PROVIDED Maintenance and operation of Travelmaster software application for use by South Portland and Salt Lake City. Costs charged to Fairchild are proportional share of IS costs and software maintenance fees. Services include: 14 10.1 Provide disbursement files to Fairchild in order for Fairchild to pay travel obligations 10.2 Running of Special request travel reports as needed (tuition, relocation) 10.3 Access to on-line travelmaster system for Fairchild until they go on alternative system 10.4 Compliance to statutory requirements in: educational assistance, relocation expenses, miscellaneous expense treated as personal income, provided Fairchild is utilizing National HR and payroll systems and policies pursuant to this Agreement 11. ONE-TIME ACTIONS REQUIRED TO MODIFY IS SYSTEMS 11.1 Set up separate bank account 11.2 Modify EFT transmission 12. List of Systems Utilized: 12.1 Travel Master Daily input/Batch--weekly cycle period end reports 12.2 Nova Weekly Interface 12.3 CIS Weekly Interface 12.4 G/L Weekly Edit, period end journal 12.5 Weekly Dept Update 12.6 Interrogator Period End 12.7 MSA Weekly Update Department Name: Corporate Accounting (GL) Department Number: 99-0109 & 99-0385 13. Description of Services to be Provided: Establish ability to consolidate worldwide financial statements for Fairchild Semiconductor utilizing National's GL90 general ledger system. Modify the Financial Reporting System ("FRS") to produce the Fairchild consolidated balance sheets and income statements. Reproduce existing financial reporting books within Fairchild ledger. Manage all interfaces into and out of the general ledger, including to Interrogator reporting system and Nova. 15 Costs charge to Fairchild include: a proportional share of the entire Santa Clara General Ledger department consisting of one exempt manager and two nonexempts, one current full-time IS programmer, one IS contractor, department facilities and operating expenses and all IS costs. Also, Fairchild will pay for one-half the cost of a new full time contractor who will be hired to support the added programming requirements arising out of the need to support Fairchild as an independent company. National will pay for the other half of this added IS contract programmer. Critical Services include: 13.1 Maintain Corporate Fairchild Ledger 13.2 Maintain FRS reports for Fairchild 13.3 Maintain WW Hierarchy for Fairchild 13.4 GL Vendor Maintenance Agreement 14 One-Time Actions Required to Modify IS Systems: 14.1 Create Consolidated Fairchild Ledger 14.2 Create Parallel FRS Systems 14.3 Add new legal entities for Fairchild 14.4 Isolate National History in unique locations 14.5 Establish new ledger to segregate ME National 14.6 DETERMINE FAIRCHILD VS. National Family Reporting Structure 14.7 Create new G/L reports-- Trial Balance, Transaction Analyzer's, etc. 14.8 Create parallel WW Hierarchy Files 14.9 Work with G/L Feeder Systems during Transition 14.10 Work with G/L End-users (Essbase, Interrogator, etc.) during transition 15. List of Systems Utilized: 15.1 J231 Financial Reporting 15.2 J111 General Ledger 16 15.3 J951 WW Hierarchy Department Name: Corporate Interlocation Accounting Department Number: 99-0119 Assumptions 1 Infrastructure/Licensing per National defined Legal Structure for Fairchild 2 Fiscal Calendar Same As Today 3 Inter platform hardware relationships same as today. 4 Functional core processes of CIS remain the same as today.
16. Description of Services to be Provided: Provide ability to generate commercial invoices for Fairchild to enable the global shipment & billing of physical product between: Fairchild entities, between Fairchild entities and its subcontractors and between Fairchild entities and National entities. Allow for the creation of intangible billing within Fairchild entities. Maintain interfaces with key upstream and downstream systems (Workstream, FLS, LOTS, General Ledger, SAP, etc.). Generate shipping documents such as commercial invoices, attachments and customs notices. Generate auto booking instructions to the General Ledgers for both Fairchild intercompany transactions and trade transactions between Fairchild and National. Maintain intracompany transfer price file to enable legal transfer pricing for Fairchild shipments between Fairchild legal entities. Establish and maintain new contract price files (and booking instructions) for the flow of goods and services between Fairchild and National, based on contractual prices established in the supply and service agreements between the two companies. Maintain historical transactions for audit purposes. Fairchild will have full access to the worldwide Access To CIS History ("WATCH") system, a client/ server based access tool. Fairchild will be charged a proportional share of the entire Interlocation Accounting department, including IS support for the systems listed below which is charged directly to this department. Fairchild will also pay for one-half the cost of a new full-time programmer who will be hired to support the added 17 program requirements caused by the new, and complex, third-party relationship for tangible and intangible flows between Fairchild and National. National will pay for the other half of this added IS contract programmer. Service Summary: 16.1 J281 Maintain transfer pricing file(s). 16.2 J28X Create and maintain special contract pricing file for transactions between Fairchild and National. Develop and maintain jobs to capture, book and report transactions. 16.3 J285 CIS: Maintain operational and reporting processes. 16.4 J686/J685 SEA Inbound & Outbound Accounting: Maintain operational and reporting processes. 16.5 J286/J287 U.S./Europe/Japan Inbound & Outbound Accounting: Maintain operational and reporting processes. 16.6 Support Fairchild Corporate Consolidation Training 17. One-Time Actions Required to Modify ID Systems: Establishment of Relationships: National < --- > Fairchild: Financial/Physical Flows (e.g., 2nd leg invoicing NSIL)/Financial Relationships (e.g., Consignment/ Sell--Buy Back, etc.) National < --- > SubK: Financial/Physical Flows (e.g., NRNL/consignment) Fairchild < --- Fairchild Financial/Physical Flows (e.g., 2nd leg invoicing NSIL)/Financial Relationships (e.g., Intercompany Sales, Cost of Goods Sold/Margins) Fairchild < --- > SubK: Financial Relationships (e.g., Consignments/Sell BuyBack etc.) National < --- >SubK < --- > Fairchild: Financial/Physical Flows/Financial Relationships Define the following for all flows: 17.1 #) Pricing (e.g., Contract Price/Std/Margins) 17.2 #) System Edits (e.g., Intangibles/NSIL Rules, etc.) 17.3 #) System Edits (e.g., Tangible Import/export, DOL, etc.) 18 17.4 #) General Ledger Journal vouchers (e.g., Separate Ledgers/2nd leg entries, SAP, etc.) 17.5 #) Report 17.6 #) Interfaces (e.g., Workstream/TRS/Trade-Sale-Recon, FLS, LOTS, etc.) 17.7 #) Documents (e.g., Invoices/Attachments/Preclearence, etc.) ASSESSMENT ANALYSIS ALIGN INTERCO-SHIP DATA WITH BUSINESS PROCESSES DEVELOPMENT/IMPLEMENTATION PHASES 18. List of Systems Utilized: 18.1 J285 Commercial Invoicing System 18.2 J286 U.S. Europe/Japan Outbound Accounting 18.3 J287 U.S./Europe/Japan Inbound Accounting 18.4 J685 SEA Outbound Accounting 18.5 J281 Contract Prices/Transfer Prices 18.6 J686 SEA Inbound Accounting 18.7 Jxxx Interface Feeds from/to multiple systems. (e.g., Workstream, SMS, LOTS, TRS, SAP, FLS, APPO, payroll, travel, mis etc.) 18.8 J285 Subcontractor Accounting
Department Name: Cost Accounting Department Number: 99-0116 19. DESCRIPTION OF SERVICES TO BE PROVIDED Provide the ability to: value in-line work in process inventory via the 280 standard cost system and the Transfer Reporting System (TRS) and its related subsystems. Provide the ability to value finished goods at standard cost utilizing the 280 standard cost systems, LOTS and related subsystems. Generate standard cost files for use in transfer pricing intracompany 19 shipments. Provide the ability to change local and worldwide standard cost of inventory. The support systems required to effect a global standard change will be made available at a minimum of once per year. Global standards changes for National and Fairchild will be coordinated to achieve a common schedule. Selected standard changes for particular Fairchild product lines or sites will be performed per schedules mutually agreed upon between Fairchild and the National Corporate Controller. Fairchild will also have use of the National Inventory Reserve systems, the O/A (aged and obsolete inventory) and LCM (Lower of Cost or Market) systems as long as Fairchild utilizes National's inventory tracking system (LOTS) and inventory valuations systems. Fairchild will be charged a proportional share of the whole Corporate Cost Accounting department. IS support for the systems listed below is charged directly to this department. Summary list of Services: 19.1 J280 Standard Cost File System 19.2 maintain/Run jobs for separate on-line standard update maintenance table 19.3 Maintain/Run jobs for local, matrix, and worldwide files 19.4 J282 Standard Cost File for Transfer Price System 19.5 Maintain/Run jobs for separate journal vouchers and worldwide transaction code listings 19.6 J500 CWIP and RDS files 19.7 J265 TRS inventory records 19.8 J563 MPE/NMPE/CCIM earnings records for function 09 19.9 J975 OA File records 19.10 J975 LCM file records 19.11 Provide access to, and maintenance for, the on-line Inventory Analysis System (IAS) 20. One Time Actions Required to Modify IS Systems: 20.1 J280 Standard Cost File System--Create and set up 20.2 Build on-line standard update maintenance table
20 20.3 Set up local, matrix, and worldwide files 20.4 J282 Standard Cost File for Transfer Price System--Create and set up 20.5 Separate TVS and Worldwide transaction code listings--Create and set up 20.6 J500 CWIP and RDS files--Extract and build 20.7 J265 TRS Inventory records--Extract and build 20.8 J563 MPE/NMPE/CCIM earnings records for function 09--Extract and build 20.9 J975 OA file records--Extract and build 20.10 J975 LCM file records--Extract and build 21. List of Systems Utilized: 21.1 J280 Standard Cost for Local, Matrix, and Worldwide files 21.2 J500 CWIP, RDS for Inventory Report System 21.3 J282 Standard Cost file for Transfer Price System 21.4 J284 Transaction Value System 21.5 J281 Transfer Price File 21.6 J265 Transfer Reporting System (TRS)--Inventory Report 21.7 J291 Intransit System. 21.8 J9750A System 21.9 J975 LCM System 21.10 J563 MPE/NMPE/CCIM Earnings (Function 09) Worldwide Transaction Code Listing 21.11 J281 Inventory Analysis System (IAS) 21.12 J281 Worldwide Standard Revision Impact Study
21 Department Name: Interrogator Department Number: 99-0420 Services Provided: Fairchild will have access to its corporate financial information through the Interrogator client/server based information access application. National will modify and maintain the organization table for Fairchild, monitor and maintain all the interfaced data loads to the database. Fairchild will pay a proportional share of the cost of this department as it does for the General Ledger department. Department Name: Inpat/Expat Accounting Department Number: 99-0205 Services Provided: National will provide Inpatriate & Expatriate accounting services to Fairchild as requested. Fairchild will be charged based on the number of expatriate and inpatriated personnel as a percentage of the combined Fairchild and National expatriate/inpatriate personnel. Department Name: Risk Management Department Number: 99-0108 Services Provided: Approximately 20% of one National employee's time to support health insurance, life insurance and accidental death insurance coverage for Fairchild personnel. Fairchild will be charged based on the estimated percentage of effort required to support the above mentioned insurance programs. Department Name: Treasury Department Number: 99-0179 Services Provided: National will provide cash transfer services including remittance of collected North American receivables to Fairchild designated bank accounts on mutually agreed upon remittance schedule, and will provide Fairchild with access to credit reporting services used by it as defined in Schedule 2.4. 22 National will also provide accounting services related to the bank transfers. National will service the GE Capital leases of production equipment which are subleased by National to Fairchild. Fairchild will reimburse National for the monthly equipment lease payments. Fairchild will be charged an annual fee per the attached rate schedule. The service fee covers labor and related overhead including bank fees for lockbox services and on-line banking software licenses. Department Name: SC Site Accounting Department Number: 99-0425 Services provided: Support for the Semiconductor Material System, including raw material excess analysis. Support from the Human Resources Controller regarding Health and Life Insurance charges, administration of charges for common benefit services provided to Fairchild as described in the Corporate Human Resources Services Agreement, paragraph A. 1. "Description of Benefit Services". Fairchild will be charged a proportional share of the loaded labor cost of these two employees only. Fairchild will not be charged for other SC Site Service accounting costs or National Corporate Division accounting costs. 23 HQ FINANCIAL SERVICES PROPOSAL
- ----------------------------------- SC SITE FINANCE FY97 YEAR FY97 FIXED 4TH QTR TOTAL ACCOUNTING RATE FY97 - ------------------- -------------- --------- ------------- --------- DEPT 0111 Corp AP $114 $29 $29 0114 Payroll $172 $43 $43 0138 Archives $0 $0 $0 0172 Property $100 $25 $25 0208 Travel $7 $2 $2 0425 SC Supp $24 $6 $6 Sub Total $417 $104 $104 -------------- --------- ------------- --------- CORPORATE FINANCE YEAR FY97 DEPT 0106 Ext Report $0 $0 $0 0109 GL $210 $53 $53 0116 Cost Acctg $371 $93 $93 0118 Corp Cont $0 $0 $0 0119 Interlocation $164 $41 $41 0205 Expat/Inpat $75 $19 $19 0236 ABM $0 $0 $0 0385 GL Proj $8 $2 $2 Sub Total $828 $207 $207 -------------- --------- ------------- --------- RISK YEAR FY97 0108 Risk Mgmt $45 $11 $11 TREASURY YEAR FY97 0179 Treasury $77 $19 $19 INTERROGATORY YEAR FY97 0420 Interrogatory $75 $19 $19 OTHER YEAR FY97 0107 Int'l Audit $0 $0 $0 0110 VP Finance $0 $0 $0 0424 Plan/Anal $0 $0 $0 0430 COO VP Fin $0 $0 $0 0431 COO VP Sup $0 $0 $0 02-2431 VP Op's Fin $0 $0 $0 0117 Corp Tax $0 $0 $0 Dept Sub Total $0 $0 $0 Total W/O IS $1,442 $361 $361 -------------- --------- ------------- --------- 1/2 IS person $68 $17 $17 1/2 IS person $68 $17 $17 Adm Support $100 $25 $25
24 Total All $1,610 $403 $403 Charges -------------- --------- ----------- --------- -------------- --------- ----------- --------- HQ FINANCIAL SERVICES PROPOSAL
SC SITE FINANCE FY98 YEAR FY98/99 FIXED 1ST 2ND QTR 3RD 4TH QTR ACCOUNTING RATE DEPT - ----------------- -------------- --------- --------- ----------- --------- --------- 0111 Corp AP $116 $ 29 $ 29 $ 29 $ 29 0114 Payroll $173 $ 43 $ 43 $ 43 $ 43 0138 Archives $ 0 $ 0 $ 0 $ 0 $ 0 0172 Property $101 $ 25 $ 25 $ 25 $ 25 0208 Travel $ 8 $ 2 $ 2 $ 2 $ 2 0425 SC Supp $ 18 $ 5 $ 5 $ 5 $ 5 Sub Total $416 $104 $104 $104 $104 CORPORATE FINANCE YEAR FY98/99 DEPT 0106 Ext Report $ 0 $ 0 $ 0 $ 0 $ 0 0109 GL $223 $ 56 $ 56 $ 56 $ 56 0116 Cost Acctg $378 $ 95 $ 95 $ 95 $ 95 0118 Corp Cont $ 0 $ 0 $ 0 $ 0 $ 0 0119 Interlocution $178 $ 45 $ 45 $ 45 $ 45 0205 Expat/Inpat $ 0 $ 0 $ 0 $ 0 $ 0 0236 ABM $ 0 $ 0 $ 0 $ 0 $ 0 0385 GL Proj $ 8 $ 2 $ 2 $ 2 $ 2 Sub - Total $787 $197 $197 $197 $197 -------------- --------- --------- ----- --------- ---- RISK YEAR FY98/99 0108 Risk Mgmt $45 $11 $11 $11 $11 TREASURY YEAR FY98/99 0179 Treasury $80 $20 $20 $20 $20 INTERROGATORY YEAR FY98/99 0420 Interrogatory $150 $38 $38 $38 $38 OTHER YEAR FY98/99 0107 Int'l Audit $ 0 $0 $0 $0 $0 0110 VP Finance $ 0 $0 $0 $0 $0 0424 Plan/Anal $ 0 $0 $0 $0 $0 0430 COO VP Fin $ 0 $0 $0 $0 $0 0431 COO VP Sup $ 0 $0 $0 $0 $0 02-2431 VP Op's Fin $ 0 $0 $0 $0 $0 0117 Corp Tax $ 0 $0 $0 $0 $0 Dept Sub-Total $ 0 $0 $ 0 $0 $0 Total W/O IS $1.478 $370 $370 $370 $370 1/2 IS person $ 68 $17 $ 17 $ 17 $ 17 1/2 IS person $ 68 $17 $ 17 $ 17 $ 17
25
SC SITE FINANCE ACCOUNTING - --------------------------------- FY98 YEAR FIXED DEPT FY98/99 RATE 1ST 2ND QTR 3RD 4TH QTR - ----------------- -------------- --------- --------- ----------- --------- ------------- Adm Support.. $100 $25 $25 $25 $25 Total All Charges $1,714 $429 $429 $429 $429 -------------- --------- --------- ----- --------- --- -------------- --------- --------- ----- --------- ---
26 SCHEDULE 2.3 PURCHASING SERVICES Joint purchasing arrangements will be established by National as set forth below. Said arrangements will include all Fairchild sites which are defined as FM, EP, SL and CB and the following National sites defined as SC, TE, ME, UK and EM. Costs charged to Fairchild will be direct out-of-pocket for systems. Commodity Management Team expenses will be shared equally. Access to National owned crystal grower capacity will be controlled by National on the basis set forth below. Agreement will be made to provide access to approx. 30% of available capacity to Fairchild for the term of this Agreement. SILICON CRYSTAL GROWER PROGRAM It is recognized that Fairchild is potentially vulnerable for silicon support due to its dependence upon both four inch and five inch silicon wafers at its South Portland wafer fabrication facility. The Parties recognize that the primary silicon producers have notified the semiconductor industry that production of these smaller diameter wafers will diminish and eventually be discontinued. Based upon these market conditions, National will cooperatively work with Fairchild to increase its supply base and assist it in securing these types of products. It is incumbent upon Fairchild to exercise its full resources to qualify additional suppliers identified by National. In the event that normal market capacity cannot be found to provide adequate support to Fairchild, National will make available a portion of its dedicated capacity from the MEMC Crystal Grower Program. This portion will be 12,800,000 grams of Zero Dislocation annually, to be taken on a linear basis. The access to this material will be directly through National's Central Purchasing Group in Santa Clara, CA. Fairchild may not directly contact National's supplier with respect to the puller program. If Fairchild requires more than the allocated material, National will review its then current requirements and if possible provide additional short term support. 27 National will not renegotiate any supplier agreements as part of this contract. This agreement will allow access to Fairchild to the grower program through National until July 31, 1999, which is the end of the puller program. JOINT PURCHASING ARRANGEMENTS 1.0 Commodity Management and Purchasing 1.1 National and Fairchild will combine their purchasing requirements, where practical, and apply National's Commodity Management Team (CMT) approach to material purchases for the benefit of both parties. This process requires that each Party assign CMT members, commodity managers and team leaders with sufficient knowledge, dedicated time and authority to effectively represent their respective companies. 1.2 Due to the geographic distances involved each Party will support all required travel for team member attendance at bid evaluation meetings, commodity team meetings, supplier negotiations and other meetings required to support the process. Expenses for meetings (conference rooms, meal service, copying expense etc.) will be shared on a 50/50 basis between the parties. 1.3 The CMT process requires a team approach to decision making. In the event that a CMT is unable to reach a decision the assigned commodity manager will make the final decision. All appeals will be reviewed and decided upon by the Directors or Purchasing for Fairchild and National. 1.4 The types of commodities to be included in the this agreement will be mutually agreed upon on an annual basis by the respective Directors of Purchasing. It also understood that as business conditions change the parties may alter or review the commodities included in this process. However, once a commodity has been negotiated with the suppliers and an agreement signed by Fairchild, National and the supplier, both parties will remain bound for the duration of the agreement. 2.0 Quest for Gold Supplier Quality Rating Program 2.1 National and Fairchild will consolidate their effort to conduct Quest for Gold (QFG) supplier rating and rankings. This is a parallel effort to the CMT Process and is a part of the basis of supplier selection and supplier business share. It is expected that the CMT leader for each commodity will collect data from each site and report the QFG results to QFG coordinator in 28 National's Central Purchasing Group in Santa Clara, Ca. 2.2 Any costs associated in supporting this program will be shared as mutually agreed by the Directors of Purchasing. 3.0 Purchasing Support for Fairchild Personnel Located at NSSC 3.1 National will provide necessary purchasing support for Fairchild personnel located at the Santa Clara, Ca. site, the cost of which will be the same allocation method used for all National personnel. The allocation will be based upon either $8/ invoice or 0.75% of the requisition dollars. 4.0 Termination 4.1 The above joint purchasing arrangements can be terminated by mutual consent of the parties with a minimum ninety (90) days written notice to allow sufficient time for both parties to make alternate arrangements for material support. In the event that one party takes unilateral action to breach or renegotiate a specific commodity agreement, the other party, at its discretion, may terminate its participation in said commodity agreement upon thirty (30) days written notice. NATIONAL OWNED STAMPING TOOLS AT DCI National will make shared tools available for Fairchild use for the life of the tool, subject to National's needs. Maintenance and refurbishment shall be shared pro rata between the Parties based on use. In the case of shared matrix tools, neither party may unilaterally allow a supplier to treat a shared tool as open tooling. All tools used exclusively by Fairchild for Fairchild products will be Fairchild owned and will be made available for National's use upon request subject to Fairchild needs. OTHER NATIONAL OWNED TOOLS AT THIRD PARTIES National will make available for use by Fairchild all current tooling in the possession of suppliers or subcontractors, subject to National's needs without the right to modify, for the life of the existing tooling. Maintenance and refurbishment costs shall be shared pro rata between the Parties based on use. Upon request by Fairchild, and subject to National's needs, National will also make arrangements for the use of supplier owned tooling incorporating National Intellectual Property, such as etched frame tooling or other production equipment built to provide National's custom materials. All tools used exclusively 29 by Fairchild for Fairchild products will be Fairchild owned and will be made available for National's use upon request subject to Fairchild needs. DCI LEAD FRAME COMMITMENT The Parties will cooperate in the 80% lead frame purchasing commitment made to DCI in a Supply Agreement dated January 20, 1996. 30 SCHEDULE 2.4 WW MARKETING & SALES Below are assumptions common to the following six Service lists: Assumptions: - -WWMS will create a Fairchild Semiconductor legal entity at each of the locations from which invoices are generated. - -Invoices in Fairchild's name will be issued from day one of the existence of Fairchild as a separate legal entity. - -Fairchild will operate under National's systems and logistics practices. - -Fairchild will operate under National's standard Ts & Cs and Financial Calendar - -Service agreements between National WWMS and Fairchild may not be assigned to third parties. - -All services end at the final separation date in June 1998. - -Up front one time set up costs will be paid by National. - -At final systems separation date, June 1998, all separation costs including conversion of data to Fairchild systems will be to Fairchild's account. - -WWMS Personnel dedicated to Fairchild may be offered employment with the corresponding Fairchild legal entities in each WWMS region at close. - -At the end of the service period in June 1998, records and books of Fairchild and functional responsibilities will be handed over to Fairchild employees Service duration and cost: The attachment below identifies the cost and duration of services from National WWMS to Fairchild. Should Fairchild require a service after the scheduled end date, Fairchild will be charged at the annualized rate plus any additional costs incurred by National. 31 (a)IS Function Service to be provided: (i)Swiss Provide WW technical and business support to sustain the production environment and day-to-day business needs and requirements, including: -Swiss (on-line system and daily/weekly/periodic batch processing) -ONLINE (SWISS order entry/maintenance/etc), CRS, CMF, MEDT -Batch (allocation, packlist generation, ship confirmation & invoicing and B/L reporting) (ii)C-FAP Provide WW continuous technical support for current customers on the CFAP program and for continuous roll out of new customers using the standard models or the standard models modified for specific customer requirements. (iii)EDI Provide continuous WW technical & business support for all existing EDI messages in production and for the continuous roll out of new customers on existing developed message. This also includes support and maintenance (labor & contract) for the EDI translation packages (EDICS & QUANTUM) plus participation in the Harbinger user group and the EIDX organization meetings. (iv)ACCORD/MPL Provide WW technical support & business support for price management. This includes maintenance of the existing functions and support of requirements and needs necessary to sustain the day-to-day business needs/requirements, including: -ONLINE: ALL ACCORD & MPL processing for ALL regions -BATCH: Interfaces to SWISS & prices books for NAD & EUR -ONLINE & BATCH process for Southeast Asia's "SEA-SWISS" system 32 (v)Other Systems Provide WW technical & Business Support for all other systems in WW Marketing & Sales and to sustain current functions and the day-to-day business needs/requirements. This currently includes: -Worldwide Contracts: ONLINE and Batch process to support contract negotiation and WW maintenance -Disti Resales and Inventory processing, plus reporting of information (RCODES/CUBA/351 rpt/ASP margin/OSD rpt/ Marketing rpt/audit/OSS/ATS) Decision Support Systems Provide WW technical support & business support to sustain the production environment and the day-to-day operations of the Information Warehouse that supports EXPERTS and Business Objects including normal upgrades. Upon separation from National, Fairchild will be required to acquire its own license for Business Objects. IS Managers/Support Provide managerial administration and support for all systems listed in this agreement, as well as for IS components of Americas Region service agreement (Arlington IS, Automotive Support, Building 16 infrastructure). (b)MARCOM Services to be provided shall include, without limitation: (i)Technical Documentation Document & Publishing: Replacing National with Fairchild logo, programming and transformation; New Coris Publisher Instance (including ISDN line and Ascend router); CD-ROM Artwork; copyright references, National references in text, last page logo and sales office listing. SGML: DTD & FOSI modification, package drawing and content manager client license. Inventory Management: Programming (Scopus & Crawfordville), move inventory, programming. Response Management: Need to capture inquiries, fulfillment and analysis. 33 (ii)Internet Server - Hardware, Cadis License, Sybase License, Netscape Server License, Software Compiler, Development Workstation, Analysis License, Analysis Server, Full Text Search License, Consulting & Training, Installation & Configuration, Split Product Hierarchy in Cadis, Physical Split Datasheet & Product Fold (iii)Sales Force Automation Charge for Lotus Notes connectivity (c)SEA One time Service to be provided: (i)Set up legal entities Subsidiaries: (Hong Kong, Singapore, NSFH holding the Cebu plant to be taken over by Fairchild) (ii)Registration/License Tax registration, business/company registration, customs registration, labour registration, retirement/Provident fund registration, share registration, obtain the necessary licenses (excluding export distribution license) (iii)Banking Open bank accounts, negotiate and obtain banking facilities, set up electronic banking system, pass banking resolution (iv)Insurance Coverage (v)Communications Inform customers, distributors and other business partners of the change (vi)Staffing/Benefits Administration As long as there are no legal constraints, National will use its best efforts to set up at Close and administer on behalf of Fairchild: -. Payroll Function 34 National will perform payroll function including tax reporting. -. Leave Record National will maintain a full leave record of each employee to meet statutory requirements. -. Individual Employee File National will maintain employee record to meet statutory requirements. Service fees does not include any modification to current SAP and HR/Payroll related computer system. (vii)Other HR Functions For HR function other than the above, such as recruiting, selection, pay program design, training and employee relations matters, National agrees to provide on needed basis and charge a project/consultant fee for each request for services. The project/consultant fee has to be approved by Fairchild management prior to carrying out any activities. (viii)Systems Setup/Modification Quotation (ACCORD): Separate Fairchild and National quotations, with proper part number validation. Pricing (MPL), Order processing (SWISS/SEA-SWISS, CMF): Separate Fairchild and NS orders to be captured, separate order acknowledgments. L/C (SWISS): Invoicing (SWISS): Separate invoices and packing lists. Account (M&D, CIS, LOTS): Separate ledgers. HR (HRIS, IPL): Separate payroll. office automation (Lotus Notes, MS Office, PC), Information Access (BO, XPERTS) (ix)Set up new ledgers GL, FA, AP, EP, AR, CIS Payroll (x)Credit Management Set up credit limit and credit terms for customers common to both Fairchild and National (xi)Initial financial statements Prepare initial Balance Sheet and P&L upon acquisition. (xii)Stationery/Signage 35 (xiii)Facility Move Fairchild employees to a suitable centralized location in the office (xiv)Due Diligence Audit ON-GOING SERVICES: (1)Accounting A/P, E/P, A/R, interco, inventory, FA, GL payroll, incentive data, P Fund, customer claims/returns, CN, DN, travel authorization & expense reimbursement, approval matrix management, PI of inventory and fixed assets, financial statements and statutory accounts. (2)Cash management Receipt, disbursement and remittance, bank reconciliation, bank accounts management, cash forecast, petty cash and traveler cheque/travel advance. (3)Insurance Renewal of policy, review coverage with insurance broker and provision of regular and ad hoe information to insurer. (4)Purchasing PR, PO, receiving processes and capital expenditure management. (5)Tax VAT/GST/Sales/Turnover Tax; employee/payroll tax/levy #; income tax #, customs and ad valorem duty. Tax planning service will not be provided. (6)Audit Coordinate with auditor on statutory audit process, prepare supporting schedules and provide information and answer queries as requested. (7)Record Retention Compliance with local legal requirements. 36 (8)Management reporting Financial statements, expense management, performance evaluation reports and provide data to Fairchild for the purpose of its management of incentive scheme. (9)C&C Credit evaluation, approval and control, setting credit terms and limits; Collection: L/C, DA, DP, OA, cash collection forecast and bad debt provision. (10)Order Processing RFQ/Quotation, order acknowledgment, order entry and backlog scheduling, change and cancellation, sample, datasheet and literature fulfillment. (11)Shipping Delivery and return, import and export documentation. (12)Warehousing: Storage (13)Export Control: Compliance (14)Facility Telecom, Telephone, Office space/existing furniture, existing office equipment and mailing and document collection/delivery. (15)Systems Use & Support Transaction systems, office automation tools (Lotus Notes, MS Office), data warehouse (BO), data query tools (EXPERTS) and system security and operation. (16)Staffing/Benefits Administration As long as there are no legal constraints, National will use its best efforts to set up at Close and administer on behalf of Fairchild: -. Payroll Function National will perform payroll function including tax reporting. -. Leave Record 37 National will maintain a full leave record of each employee to meet statutory requirements. -. Individual Employee File National will maintain employee record to meet statutory requirements. Service fees does not include any modification to current SAP and HR/Payroll related computer system. (17)Other HR Functions For HR function other than the above, such as recruiting, selection, pay program design, training and employee relations matters, National agrees to provide on needed basis and charge a project/consultant fee for each request for services. The project/consultant fee has to be approved by Fairchild management prior to carrying out any activities. (d)Europe Division One time services to be provided: (i)Customer Communication (ii)Due Diligence Audit National Internal Audit to coordinate process. Audit to be made by independent third party, level of materiality $100K, (Scope: Account records, balance sheet, revenue, reserves, inventory, expenses, accruals and liabilities). ON-GOING SUPPORT SERVICES (1)External FSE/FAE If either party's employees cover the other party's accounts, a cost per hour charge will be negotiated. (2)Inside Sales Support Order entry, quoting, backlog management, contract compliance and maintenance, administrative work and sales support functions. (iii)Marcom PR activities, BAS fulfillment, Internet, production, 38 advertising. (iv)Finance Accounting, set up two Fairchild locations in SAP, Fairchild departments, payroll, accounts payable, intercompany, fixed asset transfer and maintenance, close for both ledgers and legal entities, accruals, reserves, special sales reserves, discounts, revaluation of balance sheet and backlog; data for sales incentives, rep commissions, SSIP; interface with Fairchild management, quarterly reserve review, annual audit support, establishment and review of approval procedures; setting up two bank accounts with B of A, cash administration reconciliations; tax, VAT, corporation tax filing and tax accrual calculations, coordination with Fairchild tax advisors, annual meeting minutes (Note: assume no tax planning); treasury; reporting, FX; credit and accounts receivable, ship and debit & export compliance, customer account contract, collection, cash forecasting, credit monitoring, credit reporting, D&B credit checks, S&D processing, distribution audit and export compliance. (v)MIS and Systems EDI, Operations, LAN/WAN support, network and desktop. (vi)Facilities Reach agreement on facilities, FFB, LN, FR, IT, based on headcount and sq. ft., termination period, base price agreement, support infrastructure, travel agency, insurance coverage for business and transactions, utility charges, parking, use of phone system. Transfer of car leases, reception service, canteen, security. Physically separate two businesses, signage and records retention. (vii)Logistics & Warehouse Agree process for inventory movement, inventory level required and export control procedures, establish customs office contact, agree product flow and carrier, run monthly duty reports, inventory control, carrier rate negotiation and delivery performance. (e)AMERICAS DIVISION 39 (i)Outside Sales ASSUMPTIONS: National will provide data for Fairchild commissionable sales, but will assume no responsibility for commission calculation or payment. Any use of field offices required by Fairchild will need to be negotiated separately. Fairchild will have own reps with own contract. ONE TIME: Positioning National/Fairchild with customer. Keeping customer informed on transition. Incorporate clause in new National rep contract limiting National liability for existing Fairchild backlog. (ii)Latin American Sales ASSUMPTIONS: Separate Fairchild rep contract will be established. SERVICES: Fairchild will utilize the existing services being provided, including: applications support, sales channel development for countries outside Brazil and local manufacturing development. (iii)Contract Administration ASSUMPTIONS: Only looking at active NA awarded contracts prior to closing date. SERVICES: Current support consists of: contract process from pre-RFQ through award load, changes to active NA contracts, ensure the worldwide contract system is updated and correct, provide a central repository for all approved NA corporate contracts. (iv)Distribution ASSUMPTIONS: Fairchild pick up full liability and balance sheet reserves for inventory. National/Fairchild will cooperate to support the transition of some products and some Distributors to a Market Price Program. Fairchild will require separate franchise agreement. No systems development will be done to accommodate Fairchild unique disti programs. SERVICES: Generation of unique Fairchild pricebook(s) at Fairchild expense. Asset management training in progress on services delivered by Asset Management group-anticipate 3 months support will be required from National AM group to Fairchild AM group to familiarize them with systems/procedures. Asset management-systems Experts/BO/DDF, SWISS and ACCORD. 40 (v)CSC, TRG, CRG ASSUMPTIONS: CSC: Assume business as usual/no separation of inside sales force. Quote/Acknowledge/Order Schedule/Change/Cancellation. CRG/TRG: National provides service to Fairchild. SERVICES: Customer response group. Technical response group. Field marketing group. OEM group. Ops (telecom, network, applications, finance, training). Administration. (vi)NMPE ASSUMPTIONS: Planning-dedicated resources have been identified. This includes the management of consignment warehouses. Special programs at Lucent, Nortel, IBM. Export control. SERVICES: Provide continued service to the Core Automotive Customers in the US, Europe & Asia, to include Delco Electronics, Ford, Chrysler, Delphi Energy & Engine Management, Kimball Electronics, TRW/TED Transportation Electronics, Motorola AIEG, ITT Delmex. Support for the Automotive field sales force: act as the corrective action focal point on unresolved service related issues - delivery, response, etc. Develop and implement service programs both customer and National initiated directed at building and maintaining service relationship. Act as contact point for bookings, billing, backlog and forecasts as well as allocation disbursements if required. Contact with customers Material/Production control planning organization as well as secondary contact for purchasing. Huntsville warehouse for support of Chrysler JIT system. Span warehouses used to service Ford locations. (vii)Finance ASSUMPTIONS: Independent Fairchild entity will require separate invoicing. No unique customer codes in SWISS. CARMS accommodates Fairchild balances through separate "business". SERVICES: Distribution audit. Distribution accounting/reserves/resales & inventory data - Fairchild accounts for disproportionate amount of workload. Credit & Collections - cash application, cash forecast, credit evaluation/ approval/control, setting credit terms and limits, collections, bad debt 41 provisions. Modify CARMS - new "businesses". Set up Fairchild location modify interface. New Fairchild BofA account/lock boxes. Report modification to provide cash management visibility. EDI - modification of messages for Fairchild - invoice, payment, contract sales debit, CSD, disti resales and inventory. (f)JAPAN Similar Services will be provided as in Sections 3, 4 and 5 of this Schedule. In addition, Japan division will provide all sales and marketing headcount and act as the Fairchild agent under a Toiya agreement. All employees, even if Fairchild dedicated, will be employees of NSJK until May 1998. One time Service to be provided to set up the operations: (i)Registration/License# Tax registration, business/company registration, customs registration, labor registration, retirement/Provident fund registration, share registration, obtain the necessary licenses (excluding export distribution license) (ii)Banking Open bank accounts (with Bank of America), negotiate and obtain banking facilities (may require Fairchild parent guarantee), set up electronic banking system (with Bank of America) (iii)Authorization Design approval matrix for Fairchild (iv)New Agreements Distributor agreements, Business contracts, Supplier contracts and Intercompany service agreements (v)Insurance Coverage (vi)Communications Inform customers, distributors and other business partners of the change, remind them to place orders under and pay invoices to different companies 42 (vii)Systems Setup/Modification Quotation (ACCORD): Separate Fairchild and National quotations, with proper part number validation. Pricing (MPL), Order processing (SWISS/ SEA-SWISS, CMF): Separate Fairchild and National orders to be captured; separate order acknowledgments. Invoicing (SWISS): Separate invoices and packing lists. A/R (MSA): Accounting (M&D, CIS, LOTS): Separate ledgers. HR (HRIS, IPL). Set up new ledgers: GL, FA, AP, EP, AR, CIS (viii)Credit Management Set up credit limit and credit terms for customers common to both Fairchild and National. Tailored credit limit and terms Distributors (ix)Initial financial statements Prepare initial Balance Sheet and P&L upon acquisition. (x)Stationery/Signage (xi)Facility Move Fairchild employees to a centralized location in the office. ON-GOING SERVICES: (1)Sales & Marketing Dedicated 2OH/C S&M which included small allocated sales work for Fairchild business. (2)QRA Dedicated 6H/C QRA work for QA activity (PQA etc) for Fairchild business. (3)Planner Dedicated 2H/C planner work for Fairchild business. (4)Procurement Purchasing business like a Toshiba OEM products (5)Accounting (Finance) A/P, E/P, A/R, interco, inventory, FA, GL; payroll, 43 incentive programs, P Fund; customer claims/returns, CN, DN; travel authorization & expense reimbursement; approval matrix management; PI of inventory and fixed assets; financial statements and statutory accounts. (6)Cash management (Finance) Receipt, disbursement and remittance, bank reconciliation, bank accounts management, cash forecast, petty cash and traveler cheque/travel advance. (7)Insurance (Finance) Renewal of policy, review coverage with insurance broker and provision of regular and ad hoc information to insurer. (8)Purchasing (Finance) PR, PO, receiving processes and capital expenditure management. (9)Tax (HR/GA) VAT/GST/Sales/Turnover Tax; employee/payroll tax/levy# income tax#. (10)Audit (Finance) Coordinate with auditor on statutory audit process, prepare supporting schedules and provide information and answer queries as requested. (11)Record Retention (Legal) Compliance with local legal requirements. (12)Management reporting (Finance) Financial statements, expense management, performance evaluation reports. (13)C&C (Finance) Credit evaluation, approval and control, setting credit terms and limits; collection, cash collection forecast and bad debt provision (14)Order Processing (Sales & Marketing) RFQ/Quotation; order acknowledgment; order entry; 44 backlog scheduling, change and cancellation; sample, datasheet and literature fulfillment. (15)Shipping (Logistics) Delivery and return, import and export documentation. (16)Warehousing# (Logistics) Storage (17)Export Control (Logistics) Compliance (18)Facility (HR/GA) Telecom, Telephone, Office space/existing furniture, existing office equipment and mailing and document collection/delivery. (19)Systems Use & Support (IS) Transaction systems., office automation tools (Lotus Notes, MS office), data warehouse (BO), data query tools (EXPERTS) and system security and operation. (20)HR (HF/GA) Compliance with local HR related legislation, staffing (recruitment, termination, transfer), payroll administration, benefits management, expatriation/repatriation administration and training management. NOTE: All direct expenses and disbursements, including fees and charges paid to third-parties, notably legal, audit and tax fees and facility setup expenses will be borne by Fairchild directly; these costs are not included in the proposed service fee. "#" indicates that a service will be performed mainly by outside professionals. 45 SCHEDULE 2.4 NSC WMS Transition Service Agreement with FSC cost and schedule summary EM, DH, DM, CB FY98
Annual Charge $M CORPORATE MARCOM 1.39 Tech Doc 0.43 Internet 0.49 Sales Force Automation 0.48 AMERICAS 4.83 Latin America sales 0.25 Contract Admin 0.34 CSC 3.52 Automotive support 0.21 Huntsville/Span whse 0.03 Finance 0.49 EUROPE 2.69 CSC 1.60 Marcom 0.10 Finance/HR 0.54 Logistics 0.20 Facilities 0.25 SEA 2.72 CSC 1.07 Finance 0.98 Logistics 0.20 Facilities 0.25 HR 0.23 JAPAN 5.83 Outside Sales/Inside Sales 1.99 Marketing 0.89 Marcom 0.05 G&A 1.20 Planners/QA 1.26 Logistics 0.20 Procurement 0.24 TOTAL WORLD FSC 17.47 Sales & Marketing 11.91 GFXA 3.43 NMPE 1.89 MPE 0.24 Re total 17.47 46
Notes: 1. Japan -- KWE FY98 charges assumed direct to FSC @$600K -- if charged to NSC then NSC will charge FSC at same allocation basis as in FY97 2. The attachment identifies the cost and duration of services from NSC WMS to FSC. Should FSC require a service after the scheduled end date, FSC will be charged at the annualized rate. 3. QA -- Europe costs are direct to FSC 4. Planning -- all regions except Japan -- all planners direct to FSC 5. Logistics -- FLS costs are assumed direct to FSC-Japan see note 1. Through the end of fiscal year 97, Fairchild will pay charges at the same rate and under the same charging arrangements as prior to Close. 47 SCHEDULE 2.5 LOGISTIC AND OPERATIONAL SERVICES National will provide to Fairchild worldwide Logistics services and support as needed, to sustain the Physical Receiving, Storage and Distribution of Finished Goods and other materials from the Fairchild and National Factories and/or Subcontractors, to Fairchild's worldwide customer base. Service Agreement Terms Fairchild will have throughout the world a separate Legal Entity with a similar structure to National's. In the case of Japan, National will act as an agent on Fairchild's behalf under a Toiya agreement. Fairchild will be the importer of record for its products in any country where National is currently the importer of record. No Fairchild inventory can be owned by a National entity in any location of National. RCW inventory of Fairchild products will be owned by Fairchild in the USA. Regional inventory will be owned by a local Fairchild legal entity. Products will be sold under their own name. Fairchild products will have separate Fairchild invoices and documents. Fairchild products will have separate Terms and Conditions, which will be the same as National's unless Fairchild notifies National in writing of a change that National can reasonably implement on behalf of Fairchild. There will be a single process for the systems that support the physical distribution of product in the areas of Finance, Customs, Export Control, Inventory Management and Importation. The system will differentiate between Fairchild and National product. Any change initiated by Fairchild or National or the successors supporting the physical distribution of products will be done at the cost of the initiating Party providing the changes have been mutually agreed in writing by both Parties. National product at a Fairchild origin will be shipped 48 under a separate AWB and logistics costs will be based on the T & Cs of the purchase order. Fairchild will pay for the transportation charges including customs clearance and brokerage fees for all Fairchild origin based product. Fairchild will not change the current product part numbers for their product. Fairchild part marking with the National Worldmark Logo will change over time and to the extent reasonably practicable. The current inventory will not be remarked, relabeled or repacked without a mutually agreed to process. Any re-label, re-mark or re-pack activities will be paid for by Fairchild. Non-Finished Goods logistics cost will be included in the sale of the goods and freight cost will be dependent on the terms of sale (bill collect etc.) All FOB point Logistics services, with the exception of No. America (SC Bldg.26), will be charged according to the WW Sales & Marketing agreement (Schedule 2.4). Fairchild and National will use their best efforts in connection with the Federal Express contract in order to minimize costs to both companies and pursue jointly to set-up separate contracts with Federal Express. 49 LOGISTICS SYSTEMS SERVICES ONGOING TECHNICAL SUPPORT COSTS: (SEE FOLLOWING SERVICE AGREEMENT COST SCHEDULE) A. CSTS J564SC -Pack list tracking from allocation to POD -Cycle time activity and reporting -Pack list confirmation capability -Pack list void capability -Freight charge calculation/distribution -Freight charge auditing -Customer freight invoicing -Shipment manifest reporting -Advanced shipment notification (A.SN) -Receiving labels - SC FOB Direct Ship B. LOTS J563XX (XX=location) -Global F/G inventory repository -Lot level inventory tracking/visibility -Lot level inventory transactions -Lot allocation -Pack list print for non-RCW locations -Interface to CIS, SWISS, ASPC, IRIS -Interface to costing systems -Inventory aging -HTB inventory monitoring -Consignment Inventories -Barcode Services *WIP intermediate labels *F/G Intermediate & shipping labels *Customer specific labels *Delco Pull Signal C. GILS J566SC -Customer instructions/Constraints *Repository *On-line update *On-line visibility -Demand Order Generator -Direct Interface with FedEx Systems D. CLM J454SC -Import/Export license repository -License validation -License value and Quantity Tracking -Problem Management and Reporting -On-line access 50 E. LTS J565SC -Lot traceability from assy to P/L -Access to lot level attributes die run code, date code, etc. -Lot shipment history -On line access -Reporting ONE TIME UP FRONT SEPARATION COSTS: (SEE FOLLOWING SERVICE AGREEMENT COST SCHEDULE) A. CSTS J564SC -Batch system interface modifications -Freight charge calculation and invoicing -Report distribution modifications -EDI shipment activity separation -Shipment manifest reporting B. LOTS J563XX (XX=location) -Set up new batch process for (lot allocation, receiving, issues, etc.) Fairchild IL -Set up new batch process for Fairchild JK and SC -online program modifications -Pack list print program modifications -DDN assignment program modifications -Inventory conversion to new location -Inventory aging enhancements C. GILS J566SC -Batch system interface modifications -Demand order modifications D. CLM J454SC -Duplicate database environment and on-line data entry -Modify "call" program -Modify batch process E. LTS J565SC -Batch system interface modifications -Access to lot level attributes die run code, date code, etc. -Lot shipment history -Reporting -On line access 51 ONE TIME FINAL SEPARATION COSTS: (SEE FOLLOWING SERVICE AGREEMENT COST SCHEDULE) A. CSTS J564SC -Batch system interface modifications -Freight charge calculation and invoicing -Report distribution modifications -EDI shipment activity separation -Shipment manifest reporting B. LOTS J563XX (XX=location) -Set up new batch process for (lot allocation, receiving, issues, etc.) Fairchild IL -Set up new batch process for Fairchild JK and SC -On-line program modifications -Pack list print program modifications -DDN assignment program modifications -Inventory conversion to new location -Inventory aging enhancements C. GILS J566SC -Batch system interface modifications -Demand order modifications D. CLM J454SC -Duplicate database environment and on-line data entry -Modify "call" program -Modify batch process E. LTS J565SC -Batch system interface modifications F. LEC&C (FLS) -Develop capability to separate freight logically and physically for Phase 2 and Phase 3 by location code -Enhance document printing to accommodate 2 forms of each document 52 Final Split to Fairchild Systems *Planning *CLM -License extraction and clean-up of processing job and schedules *GILS -Instruction extraction and clean-up *LOTS-Inventory conversion to support physical move - -Provide inventory historical data - -Clean-up *CSTS-Provide inventory historical data LOGISTICS SERVICES: (SEE FOLLOWING SERVICE AGREEMENT COST SCHEDULE) Shipments from National to Fairchild Service Logistics to provide warehousing, packaging and transportation from National Origin for Fairchild destination for non-finished goods, materials. This includes but is not limited to: shipment preparation export compliance transportation costs customs clearance brokerage fees Finished Goods Physical Distribution: (RCW) Service: To provide for the in-bound clearance and brokerage and in-bound transportation cost of FG to the FedEx Regional Consolidated Warehouse from Fairchild origin Plants National, in collaboration with Federal Express, will continue to provide for the receiving, storage, customer order processing and shipment preparation within the RCW. To support the management of the RCW process through QA, Customer Service Inventory Control, R.O.S. and Scrap. Information Systems and Engineering, including all 3rd Party charges for WMS and Japan operations plus associated management fees, as well all other National expenses to support the RCW operation. 53 Finished Goods Physical Distribution (Transportation) Service National, in collaboration with Federal Express, will provide Phase 2 freight services (including associated management fee) from the RCW to National's point of destination in HK, England, USA and Japan Provide Phase 3 International Priority Services (including associated management fee) via FedEx from RCW direct to customer dock Provide customs brokerage, freight forwarding and transportation from point of destination to local FOB point, until Fairchild has established an alternative site or process. For Europe, SEA and Japan, National will provide returns processing and storage until Fairchild has established an alternative process. Finished Goods Physical Distribution (Strategic Inventory) Service Provide local warehousing, in Santa Clara and AP FOB, of Fairchild strategic inventory returns, materials to National FOB points including receiving, storage, traffic, customer order processing and transportation from National's FOBS to the region's customers Provide local warehousing in NSSC for Fairchild sample inventory including receiving, storage, customer order processing, inventory procurement and global transportation until Fairchild has established an alternative site or process Central Logistics Management Service Provide Central Logistics for Barcoding, Labeling Packaging 3rd Party account management, Consignment Warehousing, External Customer Logistics Solutions and specific projects Incremental travel and program management costs to achieve separation of data bases and establish separate processes 54 EXPORT ADMINISTRATION Service to be Provided: Export Administration to provide export compliance and licensing support: a. determine license requirements for Fairchild product shipments 1. develop product matrix 2. determine license requirements 3. obtain licenses as required b. install third Party vendor software for licensing, government filings, and regulatory updates 1. set up OCR software (Fairchild to purchase software) 2. train on use c. develop and implement export management system (EMS) system 1. draft procedures: classification customer qualifications regulatory updates training procedures reviews government filings recordkeeping 2. train on specific tasks 3. implement program d. program CLM information to accommodate system changes Customs department to provide customs support: e. set up broker f. implement Customs compliance program 1. draft procedures classifications recordkeeping government filings 2. train of specific tasks 3. implement program g. set up legal counsel for import and export h. trip costs paid by Fairchild as required 55 LOGISTICS SERVICES AND SUPPORT COST SCHEDULE Service to be provided Charges to be: Fixed Annual Amount One Time Charge Logistics Systems Services STS Direct Prorated Costs $24K-Paid by J564SC National LOTS Direct Prorated Costs $78K-Paid by J563XX National (XX- Iocation) GILS Direct Prorated Costs $15K-Paid by J566SC National CLM J454SC Direct Prorated Costs $39K-Paid by National LTS J565SC Direct Prorated Costs $6K-Paid by National LEC&C (FLS) Direct Prorated Costs $15OK-Paid by National Logistics Services Logistics to provide warehousing, Direct billing to packaging and transportation from Fairchild National origin to Fairchild destination Inbound clearance, brokerage and Direct billing to inbound transportation cost of FG Fairchild to Fedex Regional Consolidated Warehouse Receiving, storage, customer order processing and shipment preparation within the RCW: Per each box received Same as paid by National Per each box stored per month Same as paid by National Per each box picked Same as paid by National 56 Transaction cost will be based on the total cost of the process, as defined above under "Finished Goods Physical Distribution," related to the actual number of transactions. Fairchild/National will work jointly to reduce overall cost of services provided by Federal Express. Net cost changes will be reflected in the mutually agreed rate structure, based on transactional pricing from Federal Express. Central Logistics Management (see above description) will be charged to Fairchild according to the current basis. These charges to include, in addition to the services described above, logistics systems services costs. The total costs, on an annual basis, are to be 22% of the departmental spending determined in a manner consistent with past practice. For those logistics Services provided in collaboration with Federal Express, Section 7.2 of the Agreement is replaced by the following: Fairchild may terminate these agreed Services at any time without default by National by giving written notice no less than three hundred and sixty five (365) days prior to the effective date set forth in the notice. In the event that Fairchild terminates for convenience, Fairchild shall be liable for any and all pre-approved costs incurred by National under the terms of National's contract with Federal Express from the date of notice of termination until the date such services would otherwise have terminated. These would include, but not be limited to, applicable costs specified in Article 3 and 8 of the Logistics Service Agreement between National and Federal Express. 57 LOGISTICS SERVICES AND SUPPORT COST SCHEDULE Costs for the following services will be on the same basis as charged by National business groups Service to be Provided Provide Phase 2 freight services: Cost based on weight shipped Provide Phase 3 International Priority Services: Cost based on Fedex rates Customs brokerage, freight forwarding and transportation to local FOB point: Direct billing to Fairchild Provide local warehousing in Santa Clara; provide local warehousing in AP FOB; provide local warehousing in NSSC for Fairchild sample: Cost based on packlists Incremental travel and program management: Paid by National Export Administration Export Administration to provide export compliance and licensing support $80K per year Customs department to provide customs support: $9K per year Trip costs paid by National as required: $15K 58 SCHEDULE 2.6 CORPORATE HUMAN RESOURCES AND BENEFITS A. Benefits DESCRIPTION OF SERVICES National will make available the services of its Corporate Benefits department to administer such plans as set forth in this Schedule 2.6, and will provide the following services, subject to the conditions set forth below: U.S. Health & Welfare Plans: Maintain vendor/carrier relations, provide eligibility information to carriers, process invoices and either pay obligations directly to vendors or administrators (to be reimbursed by Fairchild) or notify Fairchild of amounts due, whereupon Fairchild will pay the obligations directly, respond to plan appeals, maintain information on plan experience, provide plan administration, provide communications (benefits statements, summary plan descriptions, etc.), continue review of program design and provide recommendations for change. U.S. Retirement and Savings Program: None. Foreign Plans: Provide administrative services for all plans established by Fairchild that correspond to the Foreign Plans set forth on Schedule 3.19(k) to the Asset Purchase Agreement, in exchange for a monthly service fee equal to National's allocation for benefits services for the appropriate fiscal year. Any special request considered outside the normal services will be provided at the sole discretion of National. Such services will be considered one-time activities and Fairchild will be subject to charge on a project basis. Such extraordinary services may be associated with modifications to benefit systems and processes after the Closing Date. Cost will be negotiated and agreed to by Fairchild and National before any work is initiated. National will determine in its sole discretion whether or not requests to modify National systems or processes to accommodate Fairchild will be accepted. Conditions; Duration: In consideration for the services provided by National hereunder, Fairchild will pay all costs and fees set forth in this Schedule 2.6, and will indemnify and hold National harmless from any and all claims, damages, liabilities, costs and expenses (including without limitation reasonable attorneys fees) resulting or arising from National's good faith administration of the plans. The foregoing services will only be provided if, to the extent that and for so long as the employee benefit plans of Fairchild are, in National's reasonable 59 judgment, substantially similar to the corresponding National plans in all features relevant to benefit administration. Fairchild shall notify National in writing at least 60 days before the effective date of any amendment to any Fairchild plan being administered by National hereunder, which notice shall include a detailed summary of the amendment and any actual text of such amendment or draft of such text then in existence, and as soon as practicable, but in any event within 30 days after receipt of any such notice, National shall notify Fairchild in writing as to whether or not it will continue to administer such plan after such amendment takes effect. In addition, Fairchild may terminate National's administration of any plan at any time upon 30 days' written notice or such shorter period as the parties may agree in writing. In any event, National will not be obligated to provide any further administrative services under this Section 2.6 after December 31, 1997. Costs: Fairchild will be responsible for all liabilities with respect to or arising under Fairchild's plans, as more fully set forth in, and subject to the terms and conditions of, Section 5.5 of the Asset Purchase Agreement. In addition, in consideration of the services rendered by National hereunder, Fairchild will pay National a monthly service fee equal to the appropriate fiscal year corporation allocation for benefits services based on the allocation formula used in the 1997 fiscal year budget planning process of National. The fee may be revised depending on allocations used in National's FY98 budget planning process. Fairchild will also be charged postage expense for mailings to Fairchild employees and for any special services performed after the Closing Date (either by National or outside vendors) specifically incurred in connection with the Fairchild plans or in connection with modifications to benefit systems and processes on or after the Closing Date. Costs for these services will be negotiated and agreed before any work is initiated. For purposes of this entire Schedule 2.6, National and Fairchild will cooperate in good faith to provide services and exchange information necessary to enable Fairchild plans to separate from National plans at no cost to Fairchild other than the corporate allocation. Special costs and services necessary to create and sustain Fairchild plans as separate plans after the Closing Date shall be borne by Fairchild or reimbursed by Fairchild to the extent borne by National. National will have sole discretion to determine whether or not to accept requests to modify any National system and/or process. Specific costs for each U.S. plan are detailed below. If any plans are partially or fully funded by employee contributions, Fairchild will ensure that employee contributions are remitted to National or to the appropriate trustee, as directed by National. Payment Terms: The monthly service fee will be payable on thirty (30) day terms. The precise arrangements for payment of plan costs will be as agreed by National and Fairchild. In 60 some instances, Fairchild may pay costs directly to vendors. In other cases, National will pay plan costs and seek reimbursement from Fairchild. In the latter instance, National will use its reasonable best efforts to advise Fairchild of amounts for which Fairchild is liable in advance of any payments being made by National on behalf of Fairchild. However, once National has advanced an amount for plan expense for which Fairchild is liable, Fairchild will reimburse National within twenty-four hours of the later of the time the payment was made or of the time Fairchild is notified by National that the payment has been made. Such payments shall be made by wire transfer of immediately available funds. Specific U.S. Plans: (g)Medical and Dental Plans: (i)Self-Insured Plans: Fairchild will reimburse National for any payments made by National with respect to benefits under Fairchild's plans or for which Fairchild's plans are made responsible under Section 5.5 of the Asset Purchase Agreement. (ii)Insured Plans: Fairchild is responsible for payment of all premiums attributable to Fairchild's plans. To extent these are not paid by Fairchild directly, Fairchild will reimburse National for any premium payments made by National. (iii)COBRA: National will administer COBRA continuation coverage under Fairchild's plans for so long as it administers the underlying plans. National will bill COBRA participants for the premium charges. With respect to self-insured coverage under COBRA, Fairchild will reimburse National for any expenses incurred by National that exceed the monthly premium charged the COBRA participants. (h) Vision Service Plan ("VSP"): Fairchild will reimburse National for its monthly cost of $6.34 per participant. (i) Prescription Plans: Fairchild will reimburse National for prescription claims paid by National. (j) Employee Assistance Plan: Fairchild will reimburse National for the monthly employee charge imposed by the outside vendor (currently $29.99 per participant) for each Fairchild employee participating in the plan. (k) Family Care Referral: Fairchild will reimburse National for its allocated portion of the flat fee charged to National during the time, if any, that National administers the plan for Fairchild after the Closing Date. Allocation will be based on number of Fairchild employees to National employees. 61 (1)Life Insurance: Fairchild will be responsible for all premium expense under its plans. Basic Life (Company Paid): Fairchild will reimburse National for any premiums paid by National promptly following each such payment. Optional Life, Spouse, Dependent, and AD&D (Employee Paid): Fairchild will reimburse National for any premiums paid by National on a basis coincident with each payroll cycle. (m) Disability: During any period after the Closing Date when Transferred Employees (as defined in the Asset Purchase Agreement) continue to participate in either of the Out-of-California Short Term Disability ("OOCSTD") and the Long Term Disability Plan ("LTD"), Fairchild will insure that employee contributions are remitted to National, if applicable, for deposit into the trust accounts maintained for such plan(s). National will administer such plan(s) and process disability claims, with claims paid by the applicable trust. Fairchild will reimburse National periodically for expenses incurred by National in connection with such administration (including without limitation trustee fees, auditor fees, disability claims and administrator fees) based on the relative headcount of Fairchild employees and National employees participating therein after the Closing Date. California Voluntary Plan (CVP): If permitted by California law, National will administer a California Voluntary Plan for Fairchild employees to provide for short term disability claims by California residents, unless such plan is determined not to be necessary due to any Fairchild disability plan or until Fairchild assumes administration of such plan. Fairchild will reimburse National for actual claims paid. Plan expense fees (auditor fee, disability claims administrator fee, state assessment fees) will be charged to Fairchild based on the relative headcount of Fairchild employees and National employees participating therein after the Closing Date. If California does not permit a Voluntary Plan for Fairchild, then to the extent required by California law, California Fairchild employees will be enrolled in the State Disability Plan. In such case, National will arrange for payment of amounts withheld from employee pay to be paid to the State Disability Insurance fund and will charge Fairchild for reimbursement of same, to the extent National has not received such amounts directly from employee pay. Fairchild will remit to National all employee withholdings for transmittal to the State. Note: It is entirely possible that California will not permit Fairchild to have a voluntary plan, because 62 Fairchild may not meet the minimum state requirements. (n) Retirement and Savings Program ("RASP"): The monthly service fee charged to Fairchild pursuant to the paragraph headed "Costs" above will include the amount of expenses incurred by National in the administration from and after the Closing Date of accounts of Transferred Employees under the RASP. To the extent such expenses do not include any legal fees paid by National with respect to QDRO and joinder actions involving Fairchild employees, Fairchild will also reimburse National for such legal fees. In addition, Fairchild will reimburse National for any expenses incurred by National in connection with the disposition, as required by Section 5.5(e) of the Asset Purchase Agreement, of National stock held in the RASP accounts of Transferred Employees that is not registered as of the date of the Asset Purchase Agreement (o) Benefit Restoration Plan ("BRP"). National will provide recordkeeping services for accounts under Fairchild's BRP, which will be maintained by Fairchild as liabilities on its books. Fairchild will reimburse National for fees of its outside recordkeeper, based on the relative headcount of participants in Fairchild's BRP to participants in National's BRP who are not Transferred Employees. (p) Tuition Reimbursement. Fairchild will reimburse National for tuition reimbursements made by National to Fairchild employees for classes completed on or after the Closing Date. (q) National Semiconductor University ("NSU"). Fairchild will pay National for courses attended by Fairchild employees at National sites on and after the Closing Date to the extent provided in the sections of this Schedule relating to National HR Services for Fairchild employees on the Santa Clara site. National will pay Fairchild for courses attended by National employees at Fairchild sites on and after the Closing Date. 63 B. Human Resource Information Systems (HRIS) Services 1. Description of Ongoing Services. National will provide system support to transact Human Resources data associated with maintaining human resources and payroll records, applications used to manage various HR processes and a core data base for reporting for the period of time defined below. National will not participate in providing support to Fairchild in converting to an independent human resources system, other than maintaining necessary records/files which eventually will be transferred to Fairchild's new system. Systems to be maintained for limited duration defined below include: Dun & Bradstreet (MSA) - Core data base of Human Resource information interfaced with Ceridian payroll system, time collection system, HRS reporting data base and other business applications. Training Audit System (TAS) - System maintains course catalog and database of courses taken by US employees. Has multiple registration and training management functions built in. Interfaces with HRS system to capture employee data. Operates on corporate sync machine on VM environment. (Transitioning to new platform TBD based on Nationals plan to eliminate VM environment) Reporting System: Human Resource System (HRS) - Extract file from MSA supplemented by about a dozen stand alone tables and data base master files used for focus reporting (both standard menu driven and user ad hock query). Operates on corporate sync machine on VM environment. Feeds other site sub systems such as the FM 360 Peer review system. (Transitioning to new platform TBD based on Nationals plan to eliminate VM environment) Call-Up Directory System - Maintains individual and organizational data on employees. Has multiple search functionality and interfaces with mail systems and other communication related and security processes. Compensation Systems - Job code data base including all Jobs and related data such as job titles, salaries, workers comp codes and EEO data. Salary planning system, KEIP data base. Time Collection System: Finance system co-owned by finance. System interfaces with both employee core data base (D&B MSA) and Ceridian payroll system. Maintains templates on work schedules, business rules related to pay administration, a collection front end and storage capability. 2. Ongoing operating Costs. Fairchild will be charged a monthly fee for such services equal to the appropriate 64 fiscal year corporate allocation for HRIS services based on the allocation formula used in the fiscal year budget planning process until August 15, 1997. These operating costs cover ongoing maintenance and operation of above system's based on National schedules and programs. Any modification to system will be captured in separation costs listed below. If National is no longer using systems, Fairchild's charges will increase to cover the full cost of maintaining and operating the systems after August 15, 1997. 3. Duration. National is in the process of discontinuing many of its HRIS systems. Three factors are driving discontinuation of above systems: 1.) Implementation of SAP core HR system-Targeted to be complete by June 30 1997, but in no event later than June 1, 1998, 2.) Elimination of underlying technical infrastructure on which system resides i.e. VM will be eliminated by May 25 1997, and 3.) Replacement or upgrade of application due to change in business requirements i.e. implementation of SAP training application by May 25 1997. It is National's intent to discontinue each of legacy systems between now and June 1997. National will continue to maintain several HRIS systems beyond June 1997, a planned date of the SAP implementation. MSA will continue to be supported through August 15, 1997 at the fiscal year allocated cost. Associated sub-systems such as TAS, HRS, and Salary Planning will also be maintained if National transitions them to post VM platforms. Upon close of sale, any required licensing will be paid for by the company using the license. In the event that Fairchild requires continued operation and services of MSA and other HRIS systems which National is no longer using after August 15, 1997, then Fairchild will be required to pay the full loaded cost. In no circumstance will any continuation of systems service or usage be considered for extension beyond December 1, 1997. 4. Separation costs. Currently National and Fairchild share a common data base and infrastructure for each of the above systems. Separating these systems will fall into three general categories. -- One time activities aimed at making these systems usable in current state by both entities. This would include items such as recoding of employees to identify which entity employees belong in, setting up appropriate security access and reconfiguring standard interfaces to payroll and time collection systems. One time systems and 65 service costs incurred to establish the capability of National and Fairchild to operate as separate companies using common systems will be paid by National. Detailed list of one time costs outlined in an October 17, 1996 memo RE "Fairchild Spin Off" authored by Neil Nesenblatt HRIS Director. -- Special Requests for systems modification based on changes to Fairchild's programs or other business needs. Requests by Fairchild will be reviewed on a request basis. Given the pending elimination of legacy systems National has not maintained the capacity to modify these systems and changes will require negotiations with independent systems contractors. National will reserve the right to refuse any modification to system regardless of need or funding source based on the potential impact to the systems integrity and operation. Any costs associated with major modifications to the system requested by Fairchild and accepted by National, will be paid by Fairchild. -- Once National discontinues use of systems, the intent is to turn these systems off. Fairchild may negotiate to continue to operate a system at full cost, plus one time cost for set up. Each application will be unique and will be negotiated if and when the need arises. National will determine whether or not continued support can be provided. Costs to support the ultimate separation of Fairchild and the implementation of Fairchild's own independent systems and services will be paid entirely by Fairchild. C. Compensation Services 1. Description of ongoing Services. National will continue to provide the following services as long as Fairchild is dependent upon Human Resource systems support that stores compensation-related information, and National's compensation programs are being utilized by Fairchild. There is a close connection between some services provided by Corporate Compensation and data that may be utilized as a result of Fairchild using National's Human Resources Information Systems. Services provided include: Determine salary ranges; establish merit increase budgets; determine market position; establish salary administration guidelines including increase matrix - Focal Review (All administrative and systems support during focal process); maintain/develop Market Survey sources; maintain job descriptions/leveling criteria; establish/maintain job codes; job 66 titling guidelines for Executives; establish targets by job level; KEIP program development (pool building and distribution guidelines), coordinate participation; Success Sharing - program design, payout administration; Stock Options - determine grant ranges and participation by level, coordinate stock option share approval by BOD, participate in surveys to establish competitive stock option levels. National will also provide such other services that have been administered by the Corporate Compensation department. 2. Ongoing Operating Costs. Fairchild will be charged a monthly fee for such services equal to the appropriate fiscal year corporate allocation for Compensation services based on the allocation formula used in the fiscal year budget planning process. 3. Duration. This service will be provided until Fairchild no longer remains on National's compensation programs and compensation activities connected with National's Human Resources Information Systems, or December 31, 1997, which ever comes first. In no event will services or National's compensation programs be provided to Fairchild beyond December 31, 1997. 4. Separation Cost. Any special request considered outside Corporate Compensation normal services identified in section #1 above will be considered one time activities and Fairchild will be subject to charge on a project basis. Such extraordinary services may be associated with separation of Fairchild and request for modifications to compensation systems and processes. Cost will be negotiated and agreed to by Fairchild and National before any work is initiated. National will determine whether or not requests to modify National systems or processes to accommodate Fairchild will be accepted. D. Staffing Services Description of Ongoing Services. None. Ongoing Operating Costs. None. Duration. Not applicable. E. National University Services None (except as provided below regarding HR Services on Santa Clara site). Services. None. Ongoing Operating Costs. None. 67 Duration. Not applicable. F. N/News Services. Basis news feed and specific information regarding the semiconductor industry. Costs. Services will be charged according to National's usual charge policies. Also, Fairchild will be responsible for any expense associated with contractors and/or the purchasing of equipment necessary to provide basic news feed, specific information regarding the semiconductor industry and Fairchild specific information. Duration. Service will continue until June 1, 1998, but may be canceled at any time on 60 days, notice. 68 NATIONAL HR SERVICES FOR FAIRCHILD EMPLOYEES ON NATIONAL'S SANTA CLARA SITE Purpose: The purpose of this document is to define the areas, duration, and cost methodology of HR services provided by National to Fairchild employees on National's site in Santa Clara. A. Benefits 1. Service. Services are covered under Benefits section of Corporate HR Services document. 2. Costs. See Benefits section in Corporate HR Services document. 3. Duration. See Benefits section in Corporate HR Services document. B. Human Resources Information Systems (ERIS) 1. Services. National will provide systems support to transact HR data associated with maintaining human resources and payroll records, applications, and core database for recording for the period of time defined in the Corporate RR Services document. 2. Costs. See HRIS section in Corporate HR Services document. 3. Duration. See HRIS section in Corporate HR Services document. C. Compensation 1. Service. No day to day site services. Corporate compensation services are covered under the compensation section of the Corporate HR Services document, above. 2. Costs. See compensation section in Corporate HR Services document. 3. Duration. See compensation section in Corporate HR Services document. D. Staffing 1. Service. None. 69 2. Costs. None. E. National University 1. Services. Training Development activities and training facilities. 2. Costs. Fairchild participation will be on a pay-as-you-go basis. Certain proprietary classes will not be open to Fairchild employees. Overhead allocation will be charged according to National's usual charge policy. 3. Duration. National will continue to offer National University services until Fairchild no longer requests services or June 1, 1998, whichever comes first. F. Employee Relations 1. Services. None. 2. Costs. None. G. Service Center 1. Services. None. 2. Costs. None. H. Cafeteria 1. Services. Cafeteria services will be provided in Cafe 10. 2. Costs. To be charged according to National's usual charge policies. 3. Duration. National will offer cafeteria services in Cafe 10 until Fairchild no longer requests service, moves off site, or June 1, 1998, whichever comes first. I. Fitness Center 1. Services. Health & Fitness - open to Fairchild employees on site according to current policies. 2. Costs. Parties will negotiate a monthly fee per employee for use. 3. Duration. National will continue to offer Health & Fitness Center services until Fairchild no longer requests services, moves off site, or June 1, 1998, 70 whichever comes first. J. Credit Union (Service provided subject to any applicable legal or regulatory restrictions) 1. Services. Banking services. 2. Costs. Service costs will be charged according to National's usual charge policies. 3. Duration. Fairchild employees will be allowed to continue Credit Union membership under the current rules and regulations of Credit Union. 71 SCHEDULE 2.7 SECURITY SERVICES National will make available to Fairchild consulting services and assistance in the following areas of Corporate Security: Logistics: Corporate Security will provide expertise in the risk analysis of product movement via road or air both domestically and internationally. Also, assistance in the investigation of losses. Business Interruption Intelligence: Corporate Security monitors information affecting National plants, and will provide similar services for Fairchild locations. Site Evaluation: Corporate Security conducts site evaluations to identify threats and risks, including to systems, processes and intellectual property. Also, value enhancement studies of construction and expansion projects. Security training: Corporate Security organizes an annual security managers meeting for all National security managers. Workplace violence: National will provide this program and training to Fairchild sites. In addition, the corporate Security and Workplace violence Prevention Team will be available to assist with workplace violence issues. Intellectual Property and Network security: Corporate security will advise on policies and procedures to enhance security in these areas. Also, provide assistance with investigations involving intellectual property and computer crimes. Fairchild will elect the services it will use and will pay any direct out-of-pocket expenses National will incur providing the services, on a case by case basis. 72 SCHEDULE 4.2 The general model is that Fairchild will obtain the "Right to Use" all systems necessary to run the business. These lists attempt to identify all possible systems but others may be identified in the separation process and systems can be added with written approval of Fairchild and National. Ownership Fairchild will receive ownership of the "Engineering Database" and "Engineering Workbench." This explicitly excludes MBayse and RSTATS. INSERT CHARTS 73 SCHEDULE 4.2 System Function Manufacturing Systems Workstream Shop Floor Control System Grapheq SECS Communication Tool SAS Statistical Analysis Product Suite SQL Runner Database Access Tool Harris Autocad Board design and layout software RWM/AI Realtime Wafer MAP from AI Decision Support Systems NOVA Mainframe based on-line report viewing system. Finance Systems CHESS Cebu Financial System Worldwide and Local Costing Inventory costing systems Payroll Systems Employee payroll system. Currently outsourced. General Ledger Financial System Invoicing and Accounts Rec. Invoicing and Accounts Receivable Systems Cebu Inventory Module, Accounts Payable, MAS/Payroll/PLS, Transaction History Site Finance, Costing and Tax Local Audit support systems Systems Human Resources MSA Old Payroll system. Need data to update Ceridian payroll system Resumix Potential employee resume tracking system. HRS Human Resources System COMCAL Compensation/Salary Planning System (PC based) Business and Production Planning FLS/Shipping Federal Express shipping and warehouse management in Singapore. McCormick & Dodge Accounts Payable, Purchasing, Receiving, Shipping, Stores CAS FAB Planning, Die Stores Sales and Marketing EDI General electronic data interchange SGML Electronic Data Sheets Lotus Notes Mail Scopus Customer Response Center System Lotus Notes INFO Exchange Product Line a/Soft nuTPU - vaxTPU editor 74 CADENCE Product Design - -Analog Artist - -Dracula DRC, ERC, LPE, LVS - -Dracula Plotting - -Dracula Fracture - -Verilog XL - -Spectre Spice/HDL - -Inquery and DLR - -Hspice Interface - -DIVA Systems - -Virtuoso - -OPUS - -Block Place and Route - -Edge Hewlett Packard ICCAP Hewlett Packard ICMS Kiethley CV System Software Leapfrog VHDL Simulator Legato Networker Backup clients MAE - Macintosh emulation environment Mentor - -Meta Hspice Software - -Synopsys Software - -TSSI Software - -EPIC Powermill - -CATS Software Nutmeg Post Processor PDF Solutions simulation software - -PDFab - -PDPCA - -PD Worksheet - -PDX ess Spreadsheet SoftQaud HotMetal Pro Technology Modeling Associates Simulators and Tools - -Suprem3 - -Suprem4 - -Depict - -Terrain - -Medici - -Davinci - -Raphael - -Michalengelo - -Visualizer - -Layout - -TMA Workbench - -Studio TssTerm - terminal emulator Summit Probe Control Software Sun Showme 75 Vista Miscellaneous Systems Digital Products Digital Software License Documentum Document Control Framemaker Word Processor Hewlett-Packard Products HP Software Licenses Microsoft Windows & Office Netscape World-wide WEB Browser Novell Network Operating System Oracle DBMS & RDB Personal Computer Products All personal computer software running on Fairchild PC's SAS Products Statistical Analysis Package SUN Products SUN Microsystems Software Licenses Sybase Relational Database Tyecin MANSIM Modeling & Simulation EP System Dependencies Accounts Payable System Payment of local and foreign vendors IPPS Payroll System Payroll processing and personnel records 76 SCHEDULE 4.3 System Function Manufacturing Systems All Workstream Maintenance Tool Tools and support the Kit and System Enhancements, maintenance of Workstream and including but not limited to: system enhancements - - ALL NSC Modifications - - RSPC - - STEP (Workstream and EDB Pieces) - - Inspection Database - - Mask Management - - ADAC - - CWI - - Costing - - All site developed code Factory Automation Tool kit, Entire Suite of products to including but not limited to: assist in equipment integration - - Grapheq DMQ Protocol efforts. Process - - Grapheq Sybase Protocol Process - - All Sybase Open Servers - - All developed equipment interfaces - - ASM Job Transfer System Engineering Analysis Systems, Suite of products to assist in including yield enhancement - - Engineering DB - - Engineering Workbench - - STDF+ - - Extracts - - Trendgraph - - TAM-NET - - Mbayse (executable code only) - - RSTATS (executable code only) - - ATSQC - - Program Writer, M2PW - - MRL - - Basicwriter Best Pack Barcode System Barcode Label printing for finished goods use Pack Template Packing Instructions for finished goods CSPEC Customer Drawing - Work instructions Easyfind Easy flow instruction document for Assembly and EOL (PT) Eflow Electronic Flow book for Test (PT instruction Document) TDS Test Definition System Replacement System for Eflow PC/MCT PC/MCT Tester PCMCT hardware interface/controller cards 77 High voltage pin electronics cards for MCT2010/2020 testers MIDAS Material Input and Data Analysis System JSS - Job Scheduling Systems CWIP Combined Work In Process Extract ELVIS Electronic Logbook System INCYTE Shop Floor/Equipment Tracking System TRSS Test Results Support System TSO-IS Test Operator Interface MRL MCT Execution libraries WGTMAIN Auto-bench test equipment operating system Theta JC Software Thermal Data Collection Software MCT Program Writer Automated generation of test programs DC Bench Interactive Characterization Software TSSI Test vector generation/translation software Test for Strip for methodology Software/hardware Decision Support Systems Cost of Scrap Corporation-wide Scrap reporting system Delivery Performance Corporation-wide delivery performance reporting system. Cycle time Reporting Corporation-wide cycle time reporting system DASD Decision Support Database DB Info Pull data from PDS/CRS Std Cost System HRDSS Human Resource Decision Support System for Training history Quality Systems AQUARIUS Product Quality assurance and Failure Analysis Tracking and Reporting System. Lot Trace-ability Log Genealogy reporting system, Customer problem analysis. QUIC Mainframe based on quality reporting system, to eventually be replaced by AQUARIUS. ERDM Product Reliability Tracking and Reporting System. CARDS Cebu Advance Reliability Database Technical Document Tracking Data Sheet development, tracking and display QAAS PPM reporting for customer. Soon to be replaced by QAS MIDAS Material Information Data Analysis System. Raw materials vendor listing for purchaser reference and ISO compliance Finance Systems Commercial Invoice System Inter-company invoicing system. Fixed Asset System Fixed Asset Tracking System. IAS Worldwide inventory analysis system. LOTS Back-end shelf inventory tracking. S337 Product Costing 78 SSIP - Success Sharing Success Sharing Tracking System Customer Credit Customer Credit System Timecard System Employee time tracking system. Travel Process expense reports and relocation. Transfer Reporting System - TRS Costs of inventory moving through WIP. Interrogator Management reporting tool used for financial analysis. Inbound/Outbound Record in/out interco transactions SPG CLD Cost less die measurement Workstream Costing Workstream costing Wafer Sort Costing Wafer Sort costing Accounts Trade Payable Record non-interco purchases Human Resources Career Opportunity Posting Internal employment opportunity System - COPS tracking and notification system. Training Audit System TAS Training tracking system. Salary Planning System Salary Planning System Occupational Health System Health and Safety System HRDS Employee training records for human resource development QOCS Qualified Operator Certification system for Manufacturing specialist skills Business and Production Planning Product Definition System Defines characteristics of product including high level of routing. Route Definition System Maps Shop Floor Control routing to financial routing. Semiconductor Materials System Stores inventory and material control. GILS Global Integrated Logistics System ASPC Factory production scheduling TPF Transfer Price File Subcontractor Database Tracking approved subcontractors APS Auto-purchasing system for PO generation, Stores receiving & payment reconciliation ACAPS Test Auto capacity planning system Sales and Marketing EXPERTS Bookings, Billing and Backlog reporting system. ACCORD Quoting System. SWISS Order Entry and Tracking CFAP EDI Customer Forecast to Backlog Contract Module Contract negotiation and tracking Channel Reservation System Product reservation and allocation system CSPEC Customer Specifications MPL Price Management Sales Commission System Calculated and tracks sales commissions. PCN/PDAA Process Change Note and Produce Discontinuance Administration CMR System Customer Material Returns Worldwide WEB Presence Worldwide WEB Presence Product Line Alf Backup (DCL Code) 79 Build-Barcode COMPARE Die Trace Lot Tracability on Finished Goods Dracula Verification, Fracture and Plotting Tools Dracula Yield Modules EBS Electronic Build Sheet System ICED CAD Software for Mask Making JTS Job Transfer System Jughead Mask-Req MDP Minimos 5 Naspice Simulator National Lint Newton Newton Timing Analyzer NSSC - FSC Build Diagram NSC Layde Post Processing Tool for Layout PCD Bulletin Board Customer Status of Change Notices PlotGDS Retgen Reticle-Build Silvar Lisco SELECT SPAM Standard Cost Analysis Vista Miscellaneous Systems PATS New Product ROI DOC Access to Corporate Specifications Specwriter Customer Drawing - Work Instructions VM/FOCUS Reporting Ad-Hoc Reporting Capability CALLUP (Web Based) Employee Directory HelpDesk Problem/Resolution tracking developed by Rainer EP System Dependencies LOTS & LOTS Interfaces Auto lot start, Shelf Inventory module Capacity Planning Module OBP/12 Qtr/Periodic capacity request and frames forecast Process Traveler Maintain marking engine and packing template GL-90 Global General Ledger Finance G/L General Ledger Coop Uploads JV's into Global G/L System Activity Based Costing System Overhead Allocation & CLD Activity Based Forecasting Financial forecast model, System overhead allocation, CLD Automatic Costing System Product costing, inventory evaluation Sub-contractor Costing System Product costing, inventory evaluation S333 Standards Revision Annual standards revision Financial Reporting system Balance Sheet, P&L Material Usage Module Allocation of material costs to CLD LOTS Costing Reports Shelf inventory report REPS Equipment Performance Reporting System Employee Attendance System Tracks employee attendance 80 EX-10.09 11 EX-10.09 NATIONAL SEMICONDUCTOR CORPORATION SHARED SERVICES AGREEMENT This Transition Services Agreement, made this 11th day of March, 1997 by and between NATIONAL SEMICONDUCTOR CORPORATION ("National") and FAIRCHILD SEMICONDUCTOR CORPORATION ("Fairchild"). WHEREAS, National owns and operates a semiconductor manufacturing facility on Western Avenue in South Portland, Maine (the "South Portland Facility"); and WHEREAS, the various components of the South Portland Facility have been operated as a single integrated facility; and WHEREAS, the South Portland Facility is now to be divided into two separately operated managed facilities, to be known as the Fairchild Site and the National Site, with the Fairchild Site to be transferred to Fairchild; and WHEREAS, there are certain services which will continue to be provided by Fairchild to National after division of the facilities. NOW, THEREFORE, in consideration of $1.00 and other valuable consideration and in consideration of the mutual covenants herein contained, the parties do hereby agree as follows: 1. Services. Commencing on the date hereof (the "Effective Date"), Fairchild shall provide National with certain site support, human resources, and information services (collectively, the "Services") upon the terms and conditions set forth in Exhibits A, B, C, D and E attached hereto. All such Services to be provided by Fairchild to National shall 1 be provided at comparable quality levels of performance and standards of care consistent with the standards historically experienced by National at the South Portland Facility. 2. Cost. Whenever a Service is to be provided at Fairchild's cost of providing such Service, all direct costs of providing that Service which standard cost accounting practices require to be included and all depreciation costs shall be included in determining the cost. Such costs shall be allocated in accordance with Exhibits A, B, C, D and E attached hereto. Additional capital and overhead costs not directly associated with the applicable Service shall not be included in the allocated costs. If the cost of providing a Service to the recipient cannot be separately determined, then the total cost to the provider supplying the Service shall be allocated between the provider and recipient based on usage. Fairchild shall render to National a monthly statement for amounts due for Services rendered under this Agreement for the previous month. Each party shall keep complete and accurate books and records of account relating to the cost of shared services pursuant to this Agreement and make such books and records available to the other party for inspection upon reasonable request. 3. Termination. The term of the Services provided hereunder shall be as set forth in the Exhibits attached hereto. Any Service provided by Fairchild to National pursuant to this Agreement which is to terminate on a specified date as set forth herein, may be earlier terminated by National on 90 days' prior written notice to Fairchild, and in such event National shall no longer be obligated to pay the requisite fees attributable to such canceled service; provided, however, that all fees shall be paid through the effective date of such termination, with monthly fees being prorated through the date of termination. Any service provided by one party to the other hereunder which is terminable 2 by mutual agreement, may be terminated by either party upon one year's written notice to the other, unless otherwise provided herein. 4. Confidentiality. (a) All records, data files (and the data contained therein), input materials, reports and other materials (collectively the "Data") received, computed, developed, processed or stored by Fairchild for National shall be and remain the exclusive property of National, and Fairchild shall not possess any interest, title, lien or right in connection with such Data. Fairchild shall safeguard National's Data to the same extent it protects its own Data. National Data shall not be utilized by Fairchild for any purposes other than the Services described herein nor shall it be disclosed, sold, assigned, leased or otherwise disposed of to third parties by Fairchild or commercially exploited by or on behalf of Fairchild, its employees or agents. (b) Upon termination of any Service provided hereunder by Fairchild, Fairchild shall immediately deliver to National all the Data applicable to the terminated Service, including all copies thereof held by Fairchild. During the term of the provision of any service hereunder, Fairchild shall keep, consistent with National's current procedures and schedules for preparing Data backups, in a separate and safe place, at least one additional copy of all Data required to be maintained including additional tapes or discs necessary to reproduce such Data. Fairchild shall use commercially reasonable care to minimize the likelihood of any damage, loss of Data, delays and errors resulting from an uncontrollable event and shall use their reasonable best efforts to mitigate the effect of any such occurrence on the other party. 5. Force Majeure. Except for National's duty to make timely payment for services rendered by Fairchild hereunder, a party shall not be liable for a failure or delay in 3 the performance of any of its obligations under this Agreement or such failure or delay as the result of fire, flood, or other national disaster, act of God, war, embargo, riot, labor dispute or the intervention of any governmental authority, provided that the party failing in or delaying its performance immediately notifies the other party of its inability to perform and states the reason for such inability. 6. Counterparts. This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original and all of which together shall constitute one in the same Agreement. 7. Entire Agreement. This Agreement is intended to be a complete and integrated Agreement with respect to the subject matter hereof, superseding all prior agreements and understandings with respect thereto and may not be amended or modified except by an instrument in writing signed by the parties hereto. 8. Assignment; Binding Agreement. Neither party may assign or delegate this Agreement or the rights and obligations created hereunder without the prior written consent of the other whether by way of transfer, merger with or into such party, consolidation, reorganization or otherwise. Any purported assignment without such consent shall be void and constitute and breach of this Agreement. Subject to the foregoing, all of the terms and provisions of this Agreement shall be binding upon and inure to the benefit of and be enforceable by the respective successors and assigns of the parties hereto. 9. No Waiver. No failure or delay on the part of either party in the exercise of any power, right or privilege arising hereunder shall operate as a waiver thereof, nor 4 shall any single or partial exercise of any power, right or privilege preclude other or further exercise thereof or of any other right, power or privilege. 10. Severability. If any provision of this Agreement is for any reason found to be ineffective, unenforceable or illegal, such condition shall not affect the validity or enforceability of any of the remaining portions hereof; provided, further that the parties shall negotiate in good faith to replace any ineffective, unenforceable or illegal provision with an effective replacement as soon as practical. 11. No Joint Venture. Nothing contained herein or in the pursuance of this Agreement shall constitute the parties as entering into a joint venture or partnership or it shall constitute either party the agent for the other for any purpose or in any sense whatsoever. 12. Choice of Law. This Agreement shall be construed in accordance with and governed by the laws of the State of Maine, without reference to the conflict of laws provisions thereof. 13. Limitation of Damages. IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES RESULTING FROM THE OTHER PARTY'S PERFORMANCE OR FAILURE TO PERFORM UNDER THIS AGREEMENT, OR THE FURNISHING, PERFORMANCE OR USE OF ANY GOODS OR SERVICES SOLD PURSUANT HERETO, WHETHER DUE TO BREACH OF CONTRACT, BREACH OF WARRANTY, NEGLIGENCE OR OTHERWISE. 5 14. Headings. The headings and subheadings contained herein are for information purposes only and shall have no effect upon the intended purpose or interpretation of the provisions of this Agreement. 15. Publicity. Neither party shall publicize or otherwise disclose the terms of this Agreement without the prior written approval of the other party. 16. Notices. All notices, requests, demand and other communications which are required or may be given under this Agreement shall be in writing and shall be deemed to have been duly given when received if personally delivered; when transmitted, if transmitted by telecopy, electronic or digital transmission methods; the day after it is sent, if sent for next day delivery to a domestic address by recognized overnight delivery services (e.g. Federal Express); and upon receipt, if sent by certified or registered mail, return receipt requested. In each case, notice shall be sent to If to National, addressed to: 2900 Semiconductor Drive, M/S. 16-135 Santa Clara, California 95052-8090 Attention: General Counsel If to Fairchild, addressed to: 333 Western Avenue, M/S 01-00 South Portland, ME 04106 Attention: General Counsel Or to such other place and with such other copies as such party may designate as to itself by written notice to the others. IN WITNESS WHEREOF, the parties hereto have had this Agreement executed by their respective authorized officers as of the date first written above. 6 NATIONAL SEMICONDUCTOR CORPORATION By: --------------------------------- Its: --------------------------------- FAIRCHILD SEMICONDUCTOR By: --------------------------------- Its: --------------------------------- 7 EXHIBIT A SITE SUPPORT SHARED SERVICES A. Machine Shop; Quartz Shop; Electronics Shop 1. Description of Services. Fairchild shall provide National with (a) general machine shop services, including repair of tools and other equipment and fabrication of equipment components, (b) general repair services for quartzware, and (c) general electronics repair services. Such services shall be provided by Fairchild to National on an as needed basis at the request of National; provided, however, that Fairchild will have no obligation to purchase equipment or tooling or hire additional personnel to support National and provided further that National shall have no obligation to use such Fairchild services. 2. Cost. a. Non-emergency Services. Fairchild will prepare a bid for the services to be rendered. If it accepts the bid, National will issue a Purchase Order. b. Emergency Services. Fairchild will charge National for time and materials. Time rates will be published and updated from time to time by Fairchild. National may, if it chooses, issue a blanket Purchase Order against which to charge emergency services. 3. Duration. Until terminated by mutual agreement of the parties. 8 B. Materials and Logistics: Materials and Logistics services required by National shall be provided by Fairchild or handled by National, as set forth below.1. Description of Services. a. SMS System Set Up: Fairchild will assign stock numbers, determine primary and secondary logical warehouse locations and issue management reports for National. National shall be responsible for system modifications and issuance of new stock numbers. b. Stock Room Set Up: Fairchild shall be responsible for receiving (until National's new loading dock is operational) and putting away of materials and set up of bin/shelf locations in temporary locations until National has established permanent locations. National shall be responsible for set up of physical locations, including bin/shelves, and moving materials from temporary to permanent locations for National's use. c. Stock Room Personnel Support: Fairchild shall be responsible for material planning for chemicals, gases and silicon, based on requirements provided by National. National shall be responsible for material planning for quartz, spares, consumables and non-consumables, for storekeepers in National stock rooms and for supervision. d. Materials Management (Planning, Expediting, Scheduling): Fairchild shall be responsible for chemicals, gases and silicon. National shall be responsible for quartz, spares, consumables and nonconsumables. e. Shipping/Receiving/Traffic: Fairchild shall continue its shipping/receiving/traffic control function at the existing loading dock. 9 National shall be responsible for staffing the new loading dock adjacent to Building 18 for handling its materials; Fairchild shall be responsible for staffing said new loading dock for handling Fairchild materials. 2. Cost. All services provided by Fairchild to National hereunder shall be at Fairchild's cost. 3. Duration. Services to be provided by Fairchild through August 31, 1997. C. Emergency Response Team. Each party will provide its own emergency response team. D. Procurement. 1. Description of Services. Fairchild shall provide National with purchasing implementation services for all indirect/direct materials (i.e. raw silicon, chemicals, gas, resistors, targets, quartz, consumable/non-consumables, stores). 2. Cost. Such services shall be provided at Fairchild's cost. 3. Duration. Services to be provided by Fairchild through August 31, 1997. E. Parts Cleaning 1. Description of Services. Fairchild shall provide National with reasonable access to parts cleaning operations and equipment. National will provide the labor to clean National's parts. 2. Cost. Such services shall be rendered at an hourly rate to be calculated based on historical data including all Fairchild costs and direct overhead to run each parts cleaning area. 10 3. Duration. Such services will be provided through May 31, 1997; provided that upon 90 days' prior written notice from National, such services may be extended through August 31, 1997. 11 EXHIBIT B HUMAN RESOURCES SHARED SERVICES A. Employee Relations 1. Description of Services. Fairchild will provide non 200 mm project National groups on site with employee relations services (HR Business Partner Support). 2. Cost. (a) For routine employee relations support Fairchild will allocate to the served National groups a share of Fairchild's total cost for such services based on head count ratio. (b) For non-routine employee relations support such as, but not limited to, layoffs, restructuring and business moves, Fairchild will charge to National groups requiring such support the incremental costs for such services. This shall be in addition to the charges to National under (a) above. 3. Duration. Through December 31, 1996. Thereafter, all National Employee Relations services for the 200 mm facility will be provided by National. B. Payroll. No shared services. C. Human Resource Information Services (HRIS). 1. Description of Services. Fairchild will continue to generate reports from common systems for National. 2. Cost. Services to be provided at Fairchild's cost allocated by site head count. 12 3. Duration. Such services shall continue until such time as National has its own system operational or until such time as Fairchild does not have access to National's HRIS system, whichever occurs first. D. Service Center. 1. Description of Services. Fairchild will continue to store and protect records and continue to offer benefits information and sign up and orientation support for National. 2. Cost. Services to be provided at Fairchild's cost allocated by site head count. 3. Duration. This service shall continue until National is ready to support National employees on the South Portland site from Santa Clara, California, but no later than May 31, 1997. E. Occupational Health Services. 1. Description of Services. Fairchild will provide National with occupational health services at the Fairchild main plant. Fairchild will also provide training assistance to National if required to any occupational health nurse hired by National. National will indemnify, defend and hold harmless Fairchild from and against any claims, costs or liabilities, including reasonable attorneys' fees, arising out of or relating to use by National employees of Fairchild's occupational health services. 2. Cost. To be provided at Fairchild's cost allocated by employee head count. 3. Duration. Through May 31, 1997. 13 F. Employment Services. 1. Description of Services. Fairchild shall provide National with recruiting, interviewing, sourcing, hiring and other related services as required by National. 2. Cost. Services to be provided at Fairchild's cost allocated by site head count. 3. Duration. Through May 31, 1997. G. Cafeteria. 1. Description of Services. There will be a single vendor for cafeteria services for both sites. Fairchild will negotiate and contract with said vendor; provided that such vendor shall be satisfactory to National in its reasonable judgment. The cafeteria on the Fairchild site will be used by Fairchild employees. The cafeteria in Building 10 will be used by National employees and Building 10 tenants. The kitchen in the Building 10 cafeteria will support both cafeterias; provided that National may give 90 days' notice to terminate such arrangement. 2. Cost. Each building owner shall be responsible for all costs of maintaining and operating its own cafeteria. 3. Duration. Until terminated by mutual agreement of the parties. 14 H. Site University and Organizational Development. 1. Description of Services. (a) Fairchild will provide educational registrar, enrollment and administrative services in connection with employee educational seminars and other continuing educational matters. Fairchild will also search for and screen vendors to provide such educational services. Certain proprietary classes will be open only to one Company. (b) Fairchild will continue to administer the National Technology University Program. 2. Cost. (a) National participation will be on a pay-as-you-go plan. Class costs will be charged at cost plus 45% and laboratory fees will be an additional charge. (b) National Technology University program classes will be billed at cost plus $400.00 per course per student. 3. Duration. Until terminated by mutual agreement of the parties. I. Communication and External Relations. 1. Description of Services. (a) Basic N! NEWS subscription services will continue to be shared by the parties as follows: (i) National and Fairchild will cooperate in providing N! News services to both sites (ii) Each company will separately contract with Target Vision for base services (iii) A common contractor mutually agreeable to the parties will provide on site company specific programming, and each of National and Fairchild will be invoiced separately for services rendered by such contractor 15 (iv) The existing N! News equipment in the broadcast center will remain the property of Fairchild, but be used by both companies (v) The monitors and cabling to such equipment will be owned by the owner of the building in which said monitors and cabling are located (vi) Fairchild will be able to use National monitors in space it leases from National. 2. Cost. (a) N! News costs shall be shared equally between National and Fairchild. This will include costs to produce shared programming, facilities and equipment depreciation, new equipment that is to be shared by National and Fairchild, maintenance and other expenses associated with N! News. Each company may at its own cost purchase equipment to be used only by it. (b) Such services shall be provided at Fairchild's cost allocated by total site head count. 3. Duration. (a) Basic N! NEWS shall continue until mutual agreement of the parties. (b) Public relation services rendered by Fairchild shall terminate on May 31, 1997. J. Credit Union 1. Description of Services. Subject to any applicable regulatory restrictions, Fairchild and National will cooperate in using their best efforts to establish the current credit union on site for use by employees of both companies. This will include a liaison with credit union management, restructuring of the Board of Directors to fairly represent 16 employees of both companies and determining an on-site location accessible by employees from both companies. 2. Cost. Any cost not covered by the credit union or normally covered by the employer will be shared by National and Fairchild based on a head count ratio. 3. Duration. Until terminated by mutual agreement of the parties. 17 EXHIBIT C FINANCE 1. Description of Service. Fairchild will provide payroll (weekly processing of regular pay), accounts payable (process invoices, investigate issues), and general ledger (maintenance and badge processing). 2. Cost. To be provided at Fairchild's cost. 3. Duration. Such services shall be provided through August 31, 1997. 18 EXHIBIT D QUALITY ASSURANCE SERVICES A. Document Control 1. Description of Service. Fairchild will render document control services to National to maintain the Document Control System ("DCS") integrity, maintain user accounts, maintain compliance to site and corporate requirements, maintain route and template definitions, assist users of DCS, review documents for format and integrity and prepare document control reports. 2. Cost. These services will be billed at Fairchild's cost. 3. Duration. This service will be provided through August 31, 1997; provided that upon 90 days' prior notice by National, it may be extended through November 30, 1997. B. Incoming Quality Assurance 1. Description of Services. Fairchild will provide incoming quality assurance services to National for direct manufacturing materials, including maintaining compliance to site and corporate specifications, filing statistical process control data, disposition of discrepant material, training receiving personnel, resolving discrepant material reports with suppliers, maintaining certificate of conformance files, monitoring shipment quality and preparing IQA reports. 2. Cost. This service will be provided at Fairchild's cost. 3. Duration. This service will be provided through August 31, 1997; provided, however, that upon 90 days' written notice by National the services may be extended through November 30, 1997. 19 C. Failure Analysis and Calibration Labs 1. Description of Services. These labs will continue to be located in Building 10 on the National site, but be owned, staffed and operated by Fairchild personnel. Fairchild shall provide laboratory services to National as agreed by National and Fairchild. Upon termination of its lease of Building 10, Fairchild may remove all of its laboratory equipment. 2. Cost Allocation. Services shall be provided at Fairchild's cost. 3. Duration. This service will continue through December, 1997. 20 EXHIBIT E INFORMATION SERVICES A. VAX Data Center 1. Description of Service. a. Fairchild will provide National with the ability to run its Workstream production environment on VAX computers within the Fairchild data center through November 30, 1997. Fairchild will provide operational support for Workstream; National agrees to accept set up, configuration and access restrictions which Fairchild feels necessary to guaranty the integrity of the Fairchild production environment. b. National agrees to establish a Workstream development, test and experiment computing environment that is completely separate from the Fairchild system. National will provide and manage such systems, and Fairchild will provide operational support for same. 2. Cost. a. National will pay for the services described in paragraph 1.a. above on a "pay for use" basis, with CPU and disc space usage charged at the current rate structure. If, due to National's use, Fairchild needs to purchase additional computer capacity, National agrees to reimburse Fairchild for the cost of same. b. The Fairchild services to be rendered pursuant to paragraph 1.b. above will be charged to National on an actual cost basis. 21 c. National also agrees to pay a reasonable share of corporate computer integrated manufacturing costs allocated to Fairchild. Commencing in period five of National's fiscal year '97, Workstream depreciation and maintenance, SAS license maintenance and similar costs will be allocated to National at 10% of the actual cost to Fairchild. 3. Duration. a. The services described in paragraphs 1.a. and 1.b. above shall be rendered by Fairchild through November 30, 1997. b. The costs described in paragraph 2.c. above shall be charged to National through May 31, 1997. B. Electronic Mail 1. Description of Services. Fairchild agrees to migrate and support all National PROFS users from TEVM2 to the VMS-based POP server solution Fairchild is implementing. 2. Cost. National will be charged a proportional (based on number of users) share of the costs involved in the foregoing implementation and ongoing support. E-mail usage will be charged on a "pay for use" basis. 3. Duration. These services will be rendered through August 31, 1997. 22 C. PC Support 1. Description of Services. Fairchild will provide PC desktop and Novell support. This support will take the form of the current Vanstar contractor already funded by National as well as one additional contractor that will be hired by Fairchild. 2. Cost. Fairchild and National shall split PC software licenses proportionally on a Novell user account basis. Vanstar contractors will be billed to National on an actual cost basis. 3. Duration. The foregoing services will be rendered through February of 1997. At that time, the Vanstar contractors working with National will be transferred to and will contract directly with National. D. Wide Area Network (WAN) Support 1. Description of Services. National agrees to cause its corporate headquarters information services to provide National with a BCN router for National's use no later than May 31, 1997. There will be no Fairchild support. 2. Cost. Prior to National being provided with a separate BCN router, Fairchild will charge National 15% of all corporate information service allocations to Fairchild. As soon as National is provided with a separate BCN router, it will pay directly to National corporate all WAN charges. 3. Duration. National will have an independent BCN router and be paying all charges directly to corporate headquarters no later than May 31, 1997. 23 E. Local Area Network (LAN) Support 1. Description of Services. a. Fairchild will provide LAN support to Building 10, the McBride building and the Boulos buildings. Building 10 network wiring and network closet patch panels will remain part of Building 10 and, therefore, be owned by National. All other network hardware located in Building 10 will be divided between Fairchild and National based on the current user ratio between National and Fairchild. Fairchild will also provide support and migration assistance to National in connection with establishing National's independent LAN. b. A Building 18 dedicated LAN is to be installed by National no later than February, 1997 and will be tied into the National (Maine) BCN router. All installation work required in connection with such dedicated LAN will be done by National personnel. 2. Costs. All support and migration assistance from Fairchild will be charged to National on an actual cost basis. 3. Duration. The LAN support to be rendered by Fairchild pursuant to paragraph 1.a. above will continue through May 31, 1997. After that date, all National LAN requirements are to be handled by National. F. Shop Floor Control 1. Description of Services. Fairchild will continue to provide operational support for Workstream until the VAX data center separation is complete (no later than November 30, 1997, as provided above). Fairchild will assist in the transition of 24 operational support to National and will provide very limited assistance (a maximum of 36 hours per month) in connection with Workstream modeling and implementation support. 2. Costs. All services to be charged at Fairchild's actual cost. 3. Duration. Services to be rendered through November 30, 1997. G. Business Systems 1. Description of Services. Fairchild will continue to provide limited support in accordance with current practices for individual business systems until Fairchild implements a replacement solution for Fairchild or the end of May, 1998, whichever occurs first. 2. Cost. All services rendered by Fairchild shall be charged to National at cost. 3. Duration. Services to be rendered by Fairchild until Fairchild implements a replacement solution or the end of May, 1998, whichever occurs first. H. Telephones 1. Description of Services. Fairchild will continue the existing phone configuration through August 31, 1997 and will support National's migration to National purchased phone switches. Additionally, Fairchild agrees to support the first 50 Building 18 phones until a Building 18 phone switch is installed. National agrees to install such switch in Building 18 no later than the end of February, 1997. 2. Cost. All services to be billed to National at Fairchild's cost. 3. Duration. With respect to existing phones, through August 31, 1997. With respect to Building 18 phones, through the end of February, 1997. 25 I. Dial In Services. 1. Description of Services. National and Fairchild agree to share all current dial in services and capabilities until National provides its own capability. 2. Cost. No charge. 3. Duration. Through May 31, 1997, after which National will provide its own capability. J. Video Conference Services. 1. Description of Services. National and Fairchild will continue to share outsourced administration of video conference facilities. 2. Cost. All third-party costs shall be shared equally by the parties; facility and hardware costs shall be borne by National and Fairchild for their respective buildings. Additionally, National and Fairchild may agree to allow use by the other of their video conference facilities at an hourly rate to be negotiated. 3. Duration. This arrangement will continue until terminated by one of the parties on 90 days' written notice to the other. 26 EX-10.10 12 EXHIBIT 10.10 EXHIBIT 10.10 ================================================================================ CREDIT AGREEMENT among FSC SEMICONDUCTOR CORPORATION, FAIRCHILD SEMICONDUCTOR CORPORATION, VARIOUS BANKS, BANKERS TRUST COMPANY, as ADMINISTRATIVE AGENT, CREDIT SUISSE FIRST BOSTON, as SYNDICATION AGENT, and CANADIAN IMPERIAL BANK OF COMMERCE, as DOCUMENTATION AGENT ---------------------------------- Dated as of March 11, 1997 ---------------------------------- $195,000,000 ================================================================================ TABLE OF CONTENTS Page ---- SECTION 1. Amount and Terms of Credit.................................... 1 1.01 The Commitments............................................... 1 1.02 Minimum Amount of Each Borrowing.............................. 4 1.03 Notice of Borrowing........................................... 4 1.04 Disbursement of Funds......................................... 5 1.05 Notes......................................................... 6 1.06 Conversions................................................... 8 1.07 Pro Rata Borrowings........................................... 8 1.08 Interest...................................................... 9 1.09 Interest Periods.............................................. 10 1.10 Increased Costs, Illegality, etc.............................. 11 1.11 Compensation.................................................. 13 1.12 Change of Lending Office...................................... 14 1.13 Replacement of Banks.......................................... 14 SECTION 2. Letters of Credit............................................. 16 2.01 Letters of Credit............................................. 16 2.02 Letter of Credit Requests..................................... 17 2.03 Letter of Credit Participations............................... 18 2.04 Agreement to Repay Letter of Credit Drawings.................. 20 2.05 Increased Costs............................................... 21 SECTION 3. Commitment Commission; Fees; Reductions of Commitment......... 22 3.01 Fees.......................................................... 22 3.02 Voluntary Termination of Unutilized Commitments............... 23 3.03 Mandatory Reduction of Commitments............................ 24 SECTION 4. Prepayments; Payments; Taxes.................................. 25 4.01 Voluntary Prepayments......................................... 25 4.02 Mandatory Repayments and Commitment Reductions................ 26 4.03 Method and Place of Payment................................... 35 4.04 Net Payments; Taxes........................................... 35 (i) Page ---- SECTION 5. Conditions Precedent to Loans................................. 37 5.01 Execution of Agreement; Notes................................. 37 5.02 Fees, etc..................................................... 38 5.03 Opinions of Counsel........................................... 38 5.04 Corporate Documents; Proceedings; etc......................... 38 5.05 Employee Benefit Plans; Shareholders' Agreements; Management Agreements; Debt Agreements; Acquisition Documents; Tax Sharing Agreements........................... 38 5.06 Consummation of Recapitalization Transaction.................. 39 5.07 Senior Subordinated Notes..................................... 41 5.08 Repayment of Purchase Price Note.............................. 41 5.09 Indebtedness.................................................. 41 5.10 Subsidiaries Guaranty......................................... 42 5.11 Pledge Agreement.............................................. 42 5.12 Security Agreement............................................ 42 5.13 Mortgages; Title Insurance; Surveys; etc...................... 43 5.14 Consent Letter................................................ 44 5.15 Adverse Change, etc........................................... 44 5.16 Litigation.................................................... 44 5.17 Solvency Certificate; Environmental Analyses; Insurance....... 45 5.18 Pro Forma Balance Sheet; Financial Statements; Projections................................................. 45 SECTION 6. Conditions Precedent to All Credit Events..................... 45 6.01 No Default; Representations and Warranties.................... 45 6.02 Notice of Borrowing; Letter of Credit Request................. 46 SECTION 7. Representations, Warranties and Agreements.................... 46 7.01 Corporate Status.............................................. 46 7.02 Corporate Power and Authority................................. 47 7.03 No Violation.................................................. 47 7.04 Governmental Approvals........................................ 47 7.05 Financial Statements; Financial Condition; Undisclosed Liabilities; Projections; etc............................... 48 7.06 Litigation.................................................... 49 7.07 True and Complete Disclosure.................................. 49 7.08 Use of Proceeds; Margin Regulations........................... 50 7.09 Tax Returns and Payments...................................... 50 7.10 Compliance with ERISA......................................... 50 7.11 The Security Documents........................................ 52 (ii) Page ---- 7.12 Representations and Warranties in Documents................... 53 7.13 Properties.................................................... 53 7.14 Capitalization................................................ 54 7.15 Subsidiaries.................................................. 54 7.16 Compliance with Statutes, etc................................. 54 7.17 Investment Company Act........................................ 55 7.18 Public Utility Holding Company Act............................ 55 7.19 Environmental Matters......................................... 55 7.20 Labor Relations............................................... 56 7.21 Patents, Licenses, Franchises and Formulas.................... 56 7.22 Indebtedness.................................................. 56 7.23 Transaction................................................... 56 7.24 Special Purpose Corporations.................................. 57 SECTION 8. Affirmative Covenants......................................... 57 8.01 Information Covenants......................................... 57 8.02 Books, Records and Inspections................................ 61 8.03 Maintenance of Property; Insurance............................ 62 8.04 Corporate Franchises.......................................... 63 8.05 Compliance with Statutes, etc................................. 63 8.06 Compliance with Environmental Laws............................ 63 8.07 ERISA......................................................... 64 8.08 End of Fiscal Years; Fiscal Quarters.......................... 66 8.09 Performance of Obligations.................................... 66 8.10 Payment of Taxes.............................................. 66 8.11 Ownership of Subsidiaries..................................... 66 8.12 Additional Security; Further Assurances; Surveys.............. 66 8.13 Interest Rate Protection...................................... 68 8.14 Foreign Subsidiaries Security................................. 69 SECTION 9. Negative Covenants............................................ 70 9.01 Liens......................................................... 70 9.02 Consolidation, Merger, Purchase or Sale of Assets, etc........ 73 9.03 Dividends..................................................... 74 9.04 Indebtedness.................................................. 75 9.05 Advances, Investments and Loans............................... 77 9.06 Transactions with Affiliates.................................. 79 9.07 Capital Expenditures.......................................... 80 9.08 Consolidated Interest Coverage Ratio.......................... 81 (iii) Page ---- 9.09 Consolidated Fixed Charge Coverage Ratio...................... 81 9.10 Maximum Leverage Ratio........................................ 82 9.11 Limitation on Modifications of Indebtedness; Modifications of Certificate of Incorporation, By-Laws and Certain Other Agreements; etc................... 82 9.12 Limitation on Certain Restrictions on Subsidiaries............ 83 9.13 Limitation on Issuance of Capital Stock....................... 84 9.14 Limitation on Creation of Subsidiaries........................ 84 9.15 Business...................................................... 84 9.16 Designated Senior Indebtedness................................ 85 SECTION 10. Events of Default............................................ 85 10.01 Payments..................................................... 85 10.02 Representations, etc......................................... 85 10.03 Covenants.................................................... 85 10.04 Default Under Other Agreements............................... 85 10.05 Bankruptcy, etc.............................................. 86 10.06 ERISA........................................................ 86 10.07 Security Documents........................................... 87 10.08 Guaranty..................................................... 88 10.09 Judgments.................................................... 88 10.10 Change of Control............................................ 88 SECTION 11. Definitions and Accounting Terms............................. 89 11.01 Defined Terms................................................ 89 SECTION 12. The Agents...................................................120 12.01 Appointment..................................................120 12.02 Nature of Duties.............................................121 12.03 Lack of Reliance on the Agents...............................121 12.04 Certain Rights of the Agents.................................121 12.05 Reliance.....................................................122 12.06 Indemnification..............................................122 12.07 Each Agent in its Individual Capacity........................122 12.08 Holders......................................................122 12.09 Resignation by the Agents....................................123 SECTION 13. Miscellaneous................................................123 13.01 Payment of Expenses, etc.....................................123 (iv) Page ---- 13.02 Right of Setoff..............................................125 13.03 Notices......................................................125 13.04 Benefit of Agreement.........................................125 13.05 No Waiver; Remedies Cumulative...............................127 13.06 Payments Pro Rata............................................128 13.07 Calculations; Computations...................................128 13.08 GOVERNING LAW; SUBMISSION TO JURISDICTION; VENUE; WAIVER OF JURY TRIAL.................................129 13.09 Counterparts.................................................130 13.10 Effectiveness................................................130 13.11 Headings Descriptive.........................................131 13.12 Amendment or Waiver; etc.....................................131 13.13 Survival.....................................................133 13.14 Domicile of Loans............................................133 13.15 Limitation on Additional Amounts, Etc........................133 13.16 Confidentiality..............................................134 13.17 Register.....................................................134 13.18 Certain Prior Documents......................................135 SECTION 14. Holdings Guaranty............................................135 14.01 The Holdings Guaranty........................................135 14.02 Bankruptcy...................................................136 14.03 Nature of Liability..........................................136 14.04 Independent Obligation.......................................136 14.05 Authorization................................................137 14.06 Reliance.....................................................138 14.07 Subordination................................................138 14.08 Waiver.......................................................138 14.09 Maximum Liability............................................139 (v) SCHEDULE I Commitments (Sections 3.02, 4.01, 11.01 ["Bank"; "Revolving Loan Commitment"; "Tranche A Term Loan Commitment"; "Tranche B Term Loan Commitment"], 13.04(b)) SCHEDULE II Bank Addresses (Section 13.03) SCHEDULE III Real Property (Sections 5.13(a), 7.11(c), 7.13) SCHEDULE IV Existing Liens (Section 9.01(iii)) SCHEDULE V Existing Indebtedness (Sections 5.09, 7.22, 9.04(iii)) SCHEDULE VI Insurance (Section 8.03(a)) SCHEDULE VII ERISA (Section 7.10) SCHEDULE VIII Subsidiaries (Sections 7.15, 11.01 ["Subsidiary Assignor"; "Subsidiary Guarantor"]) SCHEDULE IX Labor Relations (Section 7.20) SCHEDULE X Projections (Sections 7.05(d), 7.22) SCHEDULE XI Securities (Section 7.14) SCHEDULE XII Organization Chart (Section 7.15) EXHIBIT A Notice of Borrowing (Section 1.03(a)) EXHIBIT B-1 Tranche A Term Note (Section 1.05(a)) EXHIBIT B-2 Tranche B Term Note (Section 1.05(a)) EXHIBIT B-3 Revolving Note (Section 1.05(a)) EXHIBIT B-4 Swingline Note (Section 1.05(a)) EXHIBIT C Letter of Credit Request (Section 2.02(a)) EXHIBIT D Section 4.04(b)(ii) Certificate (Section 4.04(b)(ii)) EXHIBIT E Opinion of Dechert Price & Rhoads (Section 5.03) EXHIBIT F Officers' Certificate (Section 5.04(a)) EXHIBIT G Subsidiaries Guaranty (Section 5.10) EXHIBIT H Pledge Agreement (Section 5.11) EXHIBIT I Security Agreement (Section 5.12) EXHIBIT J Consent Letter (Section 5.14) EXHIBIT K Solvency Certificate (Section 5.17) EXHIBIT L Assignment and Assumption Agreement (Sections 1.13, 13.04(b), 13.17 ["Assignment and Assumption Agreement"]) EXHIBIT M Subordination Provisions (vi) CREDIT AGREEMENT, dated as of March 11, 1997, among FSC SEMICONDUCTOR CORPORATION, a Delaware corporation ("Holdings"), FAIRCHILD SEMICONDUCTOR CORPORATION, a Delaware corporation (the "Borrower"), the Banks party hereto from time to time, BANKERS TRUST COMPANY, as Administrative Agent (in such capacity, the "Administrative Agent"), CREDIT SUISSE FIRST BOSTON, as Syndication Agent (in such capacity, the "Syndication Agent"), and CANADIAN IMPERIAL BANK OF COMMERCE, as Documentation Agent (in such capacity, the "Documentation Agent" and, together with the Syndication Agent and the Administrative Agent, each an "Agent" and collectively the "Agents") (all capitalized terms used herein and defined in Section 11 are used herein as therein defined). W I T N E S S E T H : WHEREAS, subject to and upon the terms and conditions herein set forth, the Banks are willing to make available to the Borrower the respective credit facilities provided for herein; NOW, THEREFORE, IT IS AGREED: SECTION 1. Amount and Terms of Credit. 1.01 The Commitments. (a) Subject to and upon the terms and conditions set forth herein, each Bank with a Tranche A Term Loan Commitment severally agrees to make, on the Initial Borrowing Date, a term loan (each, a "Tranche A Term Loan" and, collectively, the "Tranche A Term Loans") to the Borrower, which Tranche A Term Loans (i) shall be made and initially maintained as a single Borrowing of Base Rate Loans (subject to the option to convert such Tranche A Term Loans pursuant to Section 1.06) and (ii) shall be made by each Bank in that initial aggregate principal amount as is equal to the Tranche A Term Loan Commitment of such Bank on such date (before giving effect to any reductions thereto on such date pursuant to Section 3.03(b)(i) but after giving effect to any reductions thereto on or prior to such date pursuant to Section 3.03(b)(ii)). Once repaid, Tranche A Term Loans incurred hereunder may not be reborrowed. (b) Subject to and upon the terms and conditions set forth herein, each Bank with a Tranche B Term Loan Commitment severally agrees to make, on the Initial Borrowing Date, a term loan (each, a "Tranche B Term Loan" and, collectively, the "Tranche B Term Loans") to the Borrower, which Tranche B Term Loans (i) shall be made and initially maintained as a single Borrowing of Base Rate Loans (subject to the option to convert such Tranche B Term Loans pursuant to Section 1.06) and (ii) shall be made by each Bank in that initial aggregate principal amount as is equal to the Tranche B Term Loan Commitment of such Bank on such date (before giving effect to any reductions thereto on such date pursuant to Section 3.03(c)(i) but after giving effect to any reductions thereto on or prior to such date pursuant to Section 3.03(c)(ii)). Once repaid, Tranche B Term Loans incurred hereunder may not be reborrowed. (c) Subject to and upon the terms and conditions set forth herein, each Bank with a Revolving Loan Commitment severally agrees, at any time and from time to time after the Initial Borrowing Date and prior to the Revolving Loan Maturity Date, to make a revolving loan or revolving loans (each, a "Revolving Loan" and, collectively, the "Revolving Loans") to the Borrower, which Revolving Loans (i) shall, at the option of the Borrower, be Base Rate Loans or Eurodollar Loans, provided that (A) except as otherwise specifically provided in Section 1.10(b), all Revolving Loans comprising the same Borrowing shall at all times be of the same Type and (B) no Revolving Loans maintained as Eurodollar Loans may be incurred prior to the earlier of (1) the 14th day after the Initial Borrowing Date and (2) the Syndication Date, (ii) may be repaid and reborrowed in accordance with the provisions hereof, (iii) shall not exceed for any Bank at any time outstanding that aggregate principal amount which, when added to the product of (x) such Bank's Adjusted Percentage and (y) the sum of (I) the aggregate amount of all Letter of Credit Outstandings (exclusive of Unpaid Drawings which are repaid with the proceeds of, and simultaneously with the incurrence of, the respective incurrence of Revolving Loans) at such time and (II) the aggregate principal amount of all Swingline Loans (exclusive of Swingline Loans which are repaid with the proceeds of, and simultaneously with the incurrence of, the respective incurrence of Revolving Loans) then outstanding, equals the Revolving Loan Commitment of such Bank at such time and (iv) shall not exceed for all Banks at any time outstanding that aggregate principal amount which, when added to (x) the amount of all Letter of Credit Outstandings (exclusive of Unpaid Drawings which are repaid with the proceeds of, and simultaneously with the incurrence of, the respective incurrence of Revolving Loans) at such time and (y) the aggregate principal amount of all Swingline Loans (exclusive of Swingline Loans which are repaid with the proceeds of, and simultaneously with the incurrence of, the respective incurrence of Revolving Loans) then outstanding, equals the Total Revolving Loan Commitment at such time. (d) Subject to and upon the terms and conditions herein set forth, the Swingline Bank in its individual capacity agrees to make at any time and from time to time on and after the Initial Borrowing Date and prior to the Swingline Expiry Date, a revolving loan or revolving loans (each, a "Swingline Loan" and, collectively, the "Swingline Loans") to the Borrower, which Swingline Loans (i) shall be made and maintained as Base Rate Loans, (ii) may be repaid and reborrowed in accordance with the provisions hereof, (iii) shall not exceed in aggregate principal amount at any time outstanding, when combined with the aggregate principal amount of all Revolving Loans made by Non-Defaulting Banks -2- then outstanding and the Letter of Credit Outstandings at such time, an amount equal to the Adjusted Total Revolving Loan Commitment at such time (after giving effect to any reductions to the Adjusted Total Revolving Loan Commitment on such date), (iv) shall not exceed at any time outstanding the Maximum Swingline Amount and (v) shall not be extended if the Swingline Bank receives a written notice from any Agent or the Required Banks that has not been rescinded that there is a Default or an Event of Default in existence hereunder. (e) On any Business Day, the Swingline Bank may, in its sole discretion, give notice to the other Banks that its outstanding Swingline Loans shall be funded with a Borrowing of Revolving Loans (provided that such notice shall be deemed to have been automatically given upon the occurrence of a Default or an Event of Default under Section 10.05 or upon the exercise of any of the remedies provided in the last paragraph of Section 10), in which case a Borrowing of Revolving Loans constituting Base Rate Loans (each such Borrowing, a "Mandatory Borrowing") shall be made on the immediately succeeding Business Day by all Banks with a Revolving Loan Commitment (without giving effect to any reductions thereto pursuant to the last paragraph of Section 10) pro rata based on each Bank's Adjusted Percentage (determined before giving effect to any termination of the Revolving Loan Commitments pursuant to the last paragraph of Section 10) and the proceeds thereof shall be applied directly to the Swingline Bank to repay the Swingline Bank for such outstanding Swingline Loans. Each such Bank hereby irrevocably agrees to make Revolving Loans upon one Business Day's notice pursuant to each Mandatory Borrowing in the amount and in the manner specified in the preceding sentence and on the date specified in writing by the Swingline Bank notwithstanding (i) the amount of the Mandatory Borrowing may not comply with the minimum amount for Borrowings otherwise required hereunder, (ii) whether any conditions specified in Section 6 are then satisfied, (iii) whether a Default or an Event of Default then exists, (iv) the date of such Mandatory Borrowing and (v) the amount of the Total Revolving Loan Commitment or the Adjusted Total Revolving Loan Commitment at such time. In the event that any Mandatory Borrowing cannot for any reason be made on the date otherwise required above (including, without limitation, as a result of the commencement of a proceeding under the Bankruptcy Code with respect to the Borrower), then each such Bank hereby agrees that it shall forthwith purchase (as of the date the Mandatory Borrowing would otherwise have occurred, but adjusted for any payments received from the Borrower on or after such date and prior to such purchase) from the Swingline Bank such participations in the outstanding Swingline Loans as shall be necessary to cause such Banks to share in such Swingline Loans ratably based upon their respective Adjusted Percentages (determined before giving effect to any termination of the Revolving Loan Commitments pursuant to the last paragraph of Section 10), provided that (x) all interest payable on the Swingline Loans shall be for the account of the Swingline Bank until the date as of which the respective participation is required to be purchased and, to the extent attributable to the purchased participation, shall be payable -3- to the participant from and after such date and (y) at the time any purchase of participations pursuant to this sentence is actually made, the purchasing Bank shall be required to pay the Swingline Bank interest on the principal amount of participation purchased for each day from and including the day upon which the Mandatory Borrowing would otherwise have occurred to but excluding the date of payment for such participation, at the overnight Federal Funds Rate for the first three days and at the rate otherwise applicable to Revolving Loans maintained as Base Rate Loans hereunder for each day thereafter. 1.02 Minimum Amount of Each Borrowing. The aggregate principal amount of each Borrowing of any Tranche of Term Loans shall not be less than $5,000,000. The aggregate principal amount of each Borrowing of Revolving Loans shall be not less than (x) in the case of a Borrowing of Eurodollar Loans, $5,000,000 and (y) in the case of a Borrowing of Base Rate Loans, $1,000,000, provided that Mandatory Borrowings shall be made in the amounts required by Section 1.01(e). The aggregate principal amount of each Borrowing of Swingline Loans shall not be less than $250,000 and, if greater, shall be in an integral multiple of $100,000. More than one Borrowing may occur on the same date, but at no time shall there be outstanding more than twelve Borrowings of Eurodollar Loans. 1.03 Notice of Borrowing. (a) Whenever the Borrower desires to make a Borrowing hereunder (excluding Borrowings of Swingline Loans and Mandatory Borrowings), it shall give the Administrative Agent at its Notice Office at least one Business Day's prior written notice (or telephonic notice promptly confirmed in writing) of each Base Rate Loan and at least three Business Days' prior written notice (or telephonic notice promptly confirmed in writing) of each Eurodollar Loan to be made hereunder, provided that any such notice shall be deemed to have been given on a certain day only if given before 11:00 A.M. (New York time) in the case of a Borrowing of Eurodollar Loans and 12:00 Noon (New York time) in the case of a Borrowing of Base Rate Loans on such day. Each such written notice or written confirmation of telephonic notice (each a "Notice of Borrowing"), except as otherwise expressly provided in Section 1.10, shall be irrevocable and shall be given by the Borrower in the form of Exhibit A, appropriately completed to specify the aggregate principal amount of the Loans to be made pursuant to such Borrowing, the date of such Borrowing (which shall be a Business Day), whether the Loans being made pursuant to such Borrowing shall constitute Tranche A Term Loans, Tranche B Term Loans or Revolving Loans and whether the Loans being made pursuant to such Borrowing are to be initially maintained as Base Rate Loans or Eurodollar Loans and, if Eurodollar Loans, the initial Interest Period to be applicable thereto. The Administrative Agent shall promptly give each Bank which is required to make Loans of the Tranche specified in the respective Notice of Borrowing, notice of such proposed Borrowing, of such Bank's proportionate share thereof and of the other matters required by the immediately preceding sentence to be specified in the Notice of Borrowing. -4- (b)(i) Whenever the Borrower desires to make a Borrowing of Swingline Loans hereunder, it shall give the Swingline Bank not later than 12:00 Noon (New York time) on the date that a Swingline Loan is to be made, written notice or telephonic notice promptly confirmed in writing of each Swingline Loan to be made hereunder. Each such notice shall be irrevocable and specify in each case (A) the date of Borrowing (which shall be a Business Day) and (B) the aggregate principal amount of the Swingline Loans to be made pursuant to such Borrowing. (ii) Mandatory Borrowings shall be made upon the notice specified in Section 1.01(e), with the Borrower irrevocably agreeing, by its incurrence of any Swingline Loan, to the making of the Mandatory Borrowings as set forth in Section 1.01(e). (c) Without in any way limiting the obligation of the Borrower to confirm in writing any telephonic notice of any Borrowing of Loans, the Administrative Agent or the Swingline Bank, as the case may be, may act without liability upon the basis of telephonic notice of such Borrowing, believed by the Administrative Agent or the Swingline Bank, as the case may be, in good faith to be from the Chairman of the Board, the President, the Treasurer, any Assistant Treasurer or any Controller of the Borrower (or any other officer of the Borrower designated in writing to the Administrative Agent and the Swingline Bank by the Chairman of the Board, the President or the Treasurer as being authorized to give such notices under this Agreement) prior to receipt of written confirmation. In each such case, the Borrower hereby waives the right to dispute the Administrative Agent's and the Swingline Bank's record of the terms of such telephonic notice of such Borrowing of Loans. 1.04 Disbursement of Funds. Except as otherwise specifically provided in the immediately succeeding sentence, no later than 12:00 Noon (New York time) on the date specified in each Notice of Borrowing (or (x) in the case of Swingline Loans, not later than 2:00 P.M. (New York time) on the date specified pursuant to Section 1.03(b)(i) or (y) in the case of Mandatory Borrowings, not later than 12:00 Noon (New York time) on the date specified in Section 1.01(e)), each Bank with a Commitment of the respective Tranche will make available its pro rata portion of each such Borrowing requested to be made on such date (or in the case of Swingline Loans, the Swingline Bank shall make available the full amount thereof). All such amounts shall be made available in Dollars and in immediately available funds at the Payment Office of the Administrative Agent, and the Administrative Agent will make available to the Borrower at the Payment Office the aggregate of the amounts so made available by the Banks (for Loans other than Swingline Loans, prior to 1:00 P.M. (New York time) on such day, to the extent of funds actually received by the Administrative Agent prior to 12:00 Noon (New York time) on such day). Unless the Administrative Agent shall have been notified by any Bank prior to the date of Borrowing that such Bank does not intend to make available to the Administrative Agent -5- such Bank's portion of any Borrowing to be made on such date, the Administrative Agent may assume that such Bank has made such amount available to the Administrative Agent on such date of Borrowing and the Administrative Agent may, in reliance upon such assumption, make available to the Borrower a corresponding amount. If such corresponding amount is not in fact made available to the Administrative Agent by such Bank, the Administrative Agent shall be entitled to recover such corresponding amount on demand from such Bank. If such Bank does not pay such corresponding amount forthwith upon the Administrative Agent's demand therefor, the Administrative Agent shall promptly notify the Borrower and the Borrower shall immediately pay such corresponding amount to the Administrative Agent. The Administrative Agent shall also be entitled to recover on demand from such Bank or the Borrower, as the case may be, interest on such corresponding amount in respect of each day from the date such corresponding amount was made available by the Administrative Agent to the Borrower until the date such corresponding amount is recovered by the Administrative Agent, at a rate per annum equal to (i) if recovered from such Bank, at the overnight Federal Funds Rate and (ii) if recovered from the Borrower, the rate of interest applicable to the respective Borrowing, as determined pursuant to Section 1.08. Nothing in this Section 1.04 shall be deemed to relieve any Bank from its obligation to make Loans hereunder or to prejudice any rights which the Borrower may have against any Bank as a result of any failure by such Bank to make Loans hereunder. 1.05 Notes. (a) The Borrower's obligation to pay the principal of, and interest on, the Loans made by each Bank shall be evidenced (i) if Tranche A Term Loans, by a promissory note duly executed and delivered by the Borrower substantially in the form of Exhibit B-1 with blanks appropriately completed in conformity herewith (each, a "Tranche A Term Note" and, collectively, the "Tranche A Term Notes"), (ii) if Tranche B Term Loans, by a promissory note duly executed and delivered by the Borrower substantially in the form of Exhibit B-2 with blanks appropriately completed in conformity herewith (each, a "Tranche B Term Note" and, collectively, the "Tranche B Term Notes"), (iii) if Revolving Loans, by a promissory note duly executed and delivered by the Borrower substantially in the form of Exhibit B-3, with blanks appropriately completed in conformity herewith (each, a "Revolving Note" and, collectively, the "Revolving Notes") and (iv) if Swingline Loans, by a promissory note duly executed and delivered by the Borrower substantially in the form of Exhibit B-4, with blanks appropriately completed in conformity herewith (the "Swingline Note"). (b) The Tranche A Term Note issued to each Bank shall (i) be executed by the Borrower, (ii) be payable to the order of such Bank and be dated the Initial Borrowing Date (or, in the case of Tranche A Term Notes issued after the Initial Borrowing Date, be dated the date of the issuance thereof), (iii) be in a stated principal amount equal to the Tranche A Term Loan made by such Bank on the Initial Borrowing Date (or, in the case of Tranche A Term Notes issued after the Initial Borrowing Date, be in a stated principal -6- amount equal to the outstanding principal amount of the Tranche A Term Loan of such Bank on the date of the issuance thereof) and be payable in the principal amount of Tranche A Term Loans evidenced thereby, (iv) mature on the Tranche A Term Loan Maturity Date, (v) bear interest as provided in the appropriate clause of Section 1.08 in respect of the Base Rate Loans and Eurodollar Loans, as the case may be, evidenced thereby, (vi) be subject to voluntary prepayment and mandatory repayment as provided in Sections 4.01 and 4.02 and (vii) be entitled to the benefits of this Agreement and the other Credit Documents. (c) The Tranche B Term Note issued to each Bank shall (i) be executed by the Borrower, (ii) be payable to the order of such Bank and be dated the Initial Borrowing Date (or, in the case of Tranche B Term Notes issued after the Initial Borrowing Date, be dated the date of the issuance thereof), (iii) be in a stated principal amount equal to the Tranche B Term Loan made by such Bank on the Initial Borrowing Date (or, in the case of Tranche B Term Notes issued after the Initial Borrowing Date, be in a stated principal amount equal to the outstanding principal amount of the Tranche B Term Loan of such Bank on the date of the issuance thereof) and be payable in the principal amount of Tranche B Term Loans evidenced thereby, (iv) mature on the Tranche B Term Loan Maturity Date, (v) bear interest as provided in the appropriate clause of Section 1.08 in respect of the Base Rate Loans and Eurodollar Loans, as the case may be, evidenced thereby, (vi) be subject to voluntary prepayment and mandatory repayment as provided in Sections 4.01 and 4.02 and (vii) be entitled to the benefits of this Agreement and the other Credit Documents. (d) The Revolving Note issued to each Bank shall (i) be executed by the Borrower, (ii) be payable to the order of such Bank and be dated the Initial Borrowing Date (or, in the case of Revolving Notes issued after the Initial Borrowing Date, be dated the date of the issuance thereof), (iii) be in a stated principal amount equal to the Revolving Loan Commitment of such Bank and be payable in the principal amount of the Revolving Loans evidenced thereby, (iv) mature on the Revolving Loan Maturity Date, (v) bear interest as provided in the appropriate clause of Section 1.08 in respect of the Base Rate Loans and Eurodollar Loans, as the case may be, evidenced thereby, (vi) be subject to voluntary prepayment and mandatory repayment as provided in Sections 4.01 and 4.02 and (vii) be entitled to the benefits of this Agreement and the other Credit Documents. (e) The Swingline Note issued to the Swingline Bank shall (i) be executed by the Borrower, (ii) be payable to the order of the Swingline Bank and be dated the Initial Borrowing Date (or, in the case of any Swingline Note issued after the Initial Borrowing Date, be dated the date of the issuance thereof), (iii) be in a stated principal amount equal to the Maximum Swingline Amount and be payable in the principal amount of the outstanding Swingline Loans evidenced thereby from time to time, (iv) mature on the Swingline Expiry Date, (v) bear interest as provided in the appropriate clause of Section -7- 1.08 in respect of the Base Rate Loans evidenced thereby and (vi) be entitled to the benefits of this Agreement and the other Credit Documents. (f) Each Bank will note on its internal records the amount of each Loan made by it and each payment in respect thereof and will prior to any transfer of any of its Notes endorse on the reverse side thereof the outstanding principal amount of Loans evidenced thereby. Failure to make any such notation or any error in any such notation or endorsement shall not affect the Borrower's obligations in respect of such Loans. 1.06 Conversions. The Borrower shall have the option to convert, on any Business Day occurring on or after the earlier of (1) the 14th day after the Initial Borrowing Date and (2) the Syndication Date, all or a portion equal to at least (x) in the case of a conversion of Term Loans, $5,000,000 and (y) in the case of a conversion of Revolving Loans, $5,000,000 (or $1,000,000 if in the case of a conversion into Base Rate Loans), of the outstanding principal amount of Loans made pursuant to one or more Borrowings (so long as of the same Tranche) of one or more Types of Loans into a Borrowing (of the same Tranche) of another Type of Loan, provided that (i) if for any reason whatsoever any Euro-dollar Loans are converted into Base Rate Loans on a day which is not the last day of an Interest Period applicable to the Loans being converted, the Borrower shall pay all amounts owing in connection therewith as required by Section 1.11, (ii) no partial conversion of Eurodollar Loans shall reduce the outstanding principal amount of such Eurodollar Loans made pursuant to a single Borrowing to less than $5,000,000, (iii) unless the Required Banks otherwise specifically agree in writing, Base Rate Loans may only be converted into Eurodollar Loans if no Default or Event of Default is in existence on the date of the conversion, (iv) no conversion pursuant to this Section 1.06 shall result in a greater number of Eurodollar Borrowings than is permitted under Section 1.02 and (v) Swingline Loans may not be converted pursuant to this Section 1.06. Each such conversion shall be effected by the Borrower by giving the Administrative Agent at its Notice Office prior to 12:00 Noon (New York time) at least (x) in the case of a conversion to Eurodollar Loans, three Business Days' prior notice and (y) in the case of a conversion to Base Rate Loans, one Business Day's prior notice (each a "Notice of Conversion") specifying the Loans to be so converted, the Borrowing(s) pursuant to which such Loans were made and, if to be converted into Eurodollar Loans, the Interest Period to be initially applicable thereto. The Administrative Agent shall give each Bank prompt notice of any such proposed conversion affecting any of its Loans. 1.07 Pro Rata Borrowings. All Borrowings of Tranche A Term Loans, Tranche B Term Loans and Revolving Loans under this Agreement shall be incurred from the Banks pro rata on the basis of their Tranche A Term Loan Commitments, Tranche B Term Loan Commitments or Revolving Loan Commitments, as the case may be, provided that all Borrowings of Revolving Loans made pursuant to a Mandatory Borrowing shall be -8- incurred from the Banks pro rata on the basis of their Adjusted Percentages. It is understood that no Bank shall be responsible for any default by any other Bank of its obligation to make Loans hereunder and that each Bank shall be obligated to make the Loans provided to be made by it hereunder, regardless of the failure of any other Bank to make its Loans hereunder. 1.08 Interest. (a) The Borrower agrees to pay interest in respect of the unpaid principal amount of each Base Rate Loan from the date the proceeds thereof are made available to the Borrower until the earlier of (i) the maturity (whether by acceleration or otherwise) of such Base Rate Loan and (ii) the conversion of such Base Rate Loan to a Eurodollar Loan pursuant to Section 1.06, at a rate per annum which shall be equal to the sum of the Applicable Margin plus the Base Rate in effect from time to time. (b) The Borrower agrees to pay interest in respect of the unpaid principal amount of each Eurodollar Loan from the date the proceeds thereof are made available to the Borrower until the earlier of (i) the maturity (whether by acceleration or otherwise) of such Eurodollar Loan and (ii) the conversion of such Eurodollar Loan to a Base Rate Loan pursuant to Section 1.06 or 1.09, as applicable, at a rate per annum which shall, during each Interest Period applicable thereto, be equal to the sum of the Applicable Margin plus the Eurodollar Rate for such Interest Period. (c) Overdue principal and, to the extent permitted by law, overdue interest in respect of each Loan and any other overdue amount payable hereunder shall, in each case, bear interest at a rate per annum equal to the greater of (x) 2% per annum in excess of the rate otherwise applicable to Base Rate Loans of the respective Tranche of Loans from time to time and (y) the rate which is 2% in excess of the rate then borne by such Loans, in each case with such interest to be payable on demand. (d) Accrued (and theretofore unpaid) interest shall be payable (i) in respect of each Base Rate Loan, quarterly in arrears on each Quarterly Payment Date, (ii) in respect of each Eurodollar Loan, on the last day of each Interest Period applicable thereto and, in the case of an Interest Period in excess of three months, on each date occurring at three month intervals after the first day of such Interest Period and (iii) in respect of each Loan, on any repayment or prepayment (on the amount repaid or prepaid), at maturity (whether by acceleration or otherwise) and, after such maturity, on demand. (e) Upon each Interest Determination Date, the Administrative Agent shall determine the Eurodollar Rate for each Interest Period applicable to Eurodollar Loans and shall promptly notify the Borrower and the Banks thereof. Each such determination shall, absent manifest error, be final and conclusive and binding on all parties hereto. -9- 1.09 Interest Periods. At the time it gives any Notice of Borrowing or Notice of Conversion in respect of the making of, or conversion into, any Eurodollar Loan (in the case of the initial Interest Period applicable thereto) or on the third Business Day prior to the expiration of an Interest Period applicable to such Eurodollar Loan (in the case of any subsequent Interest Period), the Borrower shall have the right to elect, by giving the Administrative Agent notice thereof, the interest period (each an "Interest Period") applicable to such Eurodollar Loan, which Interest Period shall, at the option of the Borrower, be a one, two, three or six month period, provided that: (i) all Eurodollar Loans comprising a Borrowing shall at all times have the same Interest Period; (ii) the initial Interest Period for any Eurodollar Loan shall commence on the date of Borrowing of such Eurodollar Loan (including the date of any conversion thereto from a Loan of a different Type) and each Interest Period occurring thereafter in respect of such Eurodollar Loan shall commence on the day on which the next preceding Interest Period applicable thereto expires; (iii) if any Interest Period relating to a Eurodollar Loan begins on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period, such Interest Period shall end on the last Business Day of such calendar month; (iv) if any Interest Period would otherwise expire on a day which is not a Business Day, such Interest Period shall expire on the next succeeding Business Day; provided, however, that if any Interest Period for a Eurodollar Loan would otherwise expire on a day which is not a Business Day but is a day of the month after which no further Business Day occurs in such month, such Interest Period shall expire on the next preceding Business Day; (v) unless the Required Banks otherwise specifically agree in writing, no Interest Period may be selected at any time when a Default or Event of Default is then in existence; (vi) no Interest Period in respect of any Borrowing of any Tranche of Loans shall be selected which extends beyond the respective Maturity Date for such Tranche of Loans; and (vii) no Interest Period in respect of any Borrowing of Tranche A Term Loans or Tranche B Term Loans, as the case may be, shall be selected which extends beyond any date upon which a mandatory repayment of such Tranche of Term -10- Loans will be required to be made under Section 4.02(b) or (c), as the case may be, if the aggregate principal amount of Tranche A Term Loans or Tranche B Term Loans, as the case may be, which have Interest Periods which will expire after such date will be in excess of the aggregate principal amount of Tranche A Term Loans or Tranche B Term Loans, as the case may be, then outstanding less the aggregate amount of such required prepayment. If upon the expiration of any Interest Period applicable to a Borrowing of Eurodollar Loans, the Borrower has failed to elect, or is not permitted to elect, a new Interest Period to be applicable to such Eurodollar Loans as provided above, the Borrower shall be deemed to have elected to convert such Eurodollar Loans into Base Rate Loans effective as of the expiration date of such current Interest Period. 1.10 Increased Costs, Illegality, etc. (a) In the event that any Bank shall have determined (which determination shall, absent manifest error, be final and conclusive and binding upon all parties hereto but, with respect to clause (i) below, may be made only by the Administrative Agent): (i) on any Interest Determination Date that, by reason of any changes arising after the date of this Agreement affecting the interbank Eurodollar market, adequate and fair means do not exist for ascertaining the applicable interest rate on the basis provided for in the definition of Eurodollar Rate; or (ii) at any time, that such Bank shall incur increased costs or reductions in the amounts received or receivable hereunder with respect to any Eurodollar Loan because of (x) any change since the date of this Agreement in any applicable law or governmental rule, regulation, order, guideline or request (whether or not having the force of law) or in the interpretation or administration thereof and including the introduction of any new law or governmental rule, regulation, order, guideline or request, such as, for example, but not limited to: (A) a change in the basis of taxation of payment to any Bank of the principal of or interest on such Eurodollar Loan or any other amounts payable hereunder (except for changes in the rate of tax on, or determined by reference to, the net income or profits of such Bank, or any franchise tax based on the net income or profits of such Bank, in either case pursuant to the laws of the United States of America, the jurisdiction in which it is organized or in which its principal office or applicable lending office is located or any subdivision thereof or therein), but without duplication of any amounts payable in respect of Taxes pursuant to Section 4.04(a), or (B) a change in official reserve requirements, but, in all events, excluding reserves required under Regulation D to the extent included in the computation of the Eurodollar Rate -11- and/or (y) other circumstances since the date of this Agreement affecting such Bank or the interbank Eurodollar market or the position of such Bank in such market; or (iii) at any time, that the making or continuance of any Eurodollar Loan has been made (x) unlawful by any law or governmental rule, regulation or order, and/or (y) impossible by compliance by any Bank in good faith with any governmental request (whether or not having force of law) or (z) impracticable as a result of a contingency occurring after the date of this Agreement which materially and adversely affects the interbank Eurodollar market; then, and in any such event, such Bank (or the Administrative Agent, in the case of clause (i) above) shall promptly give notice (by telephone confirmed in writing) to the Borrower and, except in the case of clause (i) above, to the Administrative Agent of such determination (which notice the Administrative Agent shall promptly transmit to each of the other Banks). Thereafter (x) in the case of clause (i) above, Eurodollar Loans shall no longer be available until such time as the Administrative Agent notifies the Borrower and the Banks that the circumstances giving rise to such notice by the Administrative Agent no longer exist, and any Notice of Borrowing or Notice of Conversion given by the Borrower with respect to Eurodollar Loans which have not yet been incurred (including by way of conversion) shall be deemed rescinded by the Borrower, (y) in the case of clause (ii) above, the Borrower shall, subject to the provisions of Section 13.15 (to the extent applicable) pay to such Bank, upon written demand therefor, such additional amounts (in the form of an increased rate of, or a different method of calculating, interest or otherwise as such Bank in its reasonable discretion shall determine) as shall be required to compensate such Bank for such increased costs or reductions in amounts received or receivable hereunder (a written notice as to the additional amounts owed to such Bank, showing in reasonable detail the basis for and the calculation thereof, submitted to the Borrower by such Bank in good faith shall, absent manifest error, be final and conclusive and binding on all the parties hereto) and (z) in the case of clause (iii) above, the Borrower shall take one of the actions specified in Section 1.10(b) as promptly as possible and, in any event, within the time period required by law. Each of the Administrative Agent and each Bank agrees that if it gives notice to the Borrower of any of the events described in clause (i) or (iii) above, it shall promptly notify the Borrower and, in the case of any such Bank, the Administrative Agent, if such event ceases to exist. If any such event described in clause (iii) above ceases to exist as to a Bank, the obligations of such Bank to make Eurodollar Loans and to convert Base Rate Loans into Eurodollar Loans on the terms and conditions contained herein shall be reinstated. (b) At any time that any Eurodollar Loan is affected by the circumstances described in Section 1.10(a)(ii) or (iii), the Borrower may (and in the case of a Eurodollar Loan affected by the circumstances described in Section 1.10(a)(iii) shall) either (x) if the -12- affected Eurodollar Loan is then being made initially or pursuant to a conversion, cancel the respective Borrowing by giving the Administrative Agent telephonic notice (confirmed in writing) on the same date that the Borrower was notified by the affected Bank or the Administrative Agent pursuant to Section 1.10(a)(ii) or (iii) or (y) if the affected Eurodollar Loan is then outstanding, upon at least one Business Day's written notice to the Administrative Agent, require the affected Bank to convert such Eurodollar Loan into a Base Rate Loan, provided that, if more than one Bank is affected at any time, then all affected Banks must be treated the same pursuant to this Section 1.10(b). (c) If at any time after the date of this Agreement any Bank determines that the introduction of or any change in any applicable law or governmental rule, regulation, order, guideline, directive or request (whether or not having the force of law) concerning capital adequacy, or any change in interpretation or administration thereof by any governmental authority, central bank or comparable agency, in each case introduced or changed after the date hereof, will have the effect of increasing the amount of capital required or expected to be maintained by such Bank or any corporation controlling such Bank based on the existence of such Bank's Commitments hereunder or its obligations hereunder, then the Borrower shall, subject to the provisions of Section 13.15 (to the extent applicable), pay to such Bank, upon its written demand therefor, such additional amounts as shall be required to compensate such Bank or such other corporation for the increased cost to such Bank or such other corporation or the reduction in the rate of return to such Bank or such other corporation as a result of such increase of capital. In determining such additional amounts, each Bank will act reasonably and in good faith and will use averaging and attribution methods which are reasonable, provided that such Bank's determination of compensation owing under this Section 1.10(c) shall, absent manifest error, be final and conclusive and binding on all the parties hereto. Each Bank, upon determining that any additional amounts will be payable pursuant to this Section 1.10(c), will give prompt written notice thereof to the Borrower, which notice shall show in reasonable detail the basis for and calculation of such additional amounts. 1.11 Compensation. The Borrower shall, subject to the provisions of Section 13.15 (to the extent applicable), compensate each Bank, upon its written request (which request shall set forth in reasonable detail the basis for requesting and the calculation of such compensation), for all reasonable losses, expenses and liabilities (including, without limitation, any loss, expense or liability incurred by reason of the liquidation or reemployment of deposits or other funds required by such Bank to fund its Eurodollar Loans but excluding any loss of anticipated profit) which such Bank may sustain: (i) if for any reason (other than a default by such Bank or the Administrative Agent) a Borrowing of, or conversion from or into, Eurodollar Loans does not occur on a date specified therefor in a Notice of Borrowing or Notice of Conversion (whether or not withdrawn by the Borrower or deemed withdrawn pursuant to Section 1.10(a)); (ii) if any repayment -13- (including any repayment made pursuant to Section 4.02 or a result of an acceleration of the Loans pursuant to Section 10) or conversion of any of its Eurodollar Loans occurs on a date which is not the last day of an Interest Period with respect thereto; (iii) if any prepayment of any of its Eurodollar Loans is not made on any date specified in a notice of prepayment given by the Borrower; or (iv) as a consequence of (x) any other default by the Borrower to repay its Loans when required by the terms of this Agreement or any Note held by such Bank or (y) any election made pursuant to Section 1.10(b). 1.12 Change of Lending Office. Each Bank agrees that on the occurrence of any event giving rise to the operation of Section 1.10(a)(ii) or (iii), Section 1.10(c), Section 2.05 or Section 4.04 with respect to such Bank, it will, if requested by the Borrower, use reasonable efforts (subject to overall policy considerations of such Bank) to designate another lending office for any Loans or Letters of Credit affected by such event, provided that such designation is made on such terms that such Bank and its lending office suffer no economic, legal or regulatory disadvantage, with the object of avoiding the consequence of the event giving rise to the operation of such Section. Nothing in this Section 1.12 shall affect or postpone any of the obligations of the Borrower or the right of any Bank provided in Sections 1.10, 2.05 and 4.04. 1.13 Replacement of Banks. (x) If any Bank becomes a Defaulting Bank or otherwise defaults in its obligations to make Loans or fund Unpaid Drawings, (y) upon the occurrence of any event giving rise to the operation of Section 1.10(a)(ii) or (iii), Section 1.10(c), Section 2.05 or Section 4.04 with respect to any Bank which results in such Bank charging to the Borrower increased costs in excess of those being generally charged by the other Banks, or (z) as provided in Section 13.12(b) in the case of certain refusals by a Bank to consent to certain proposed changes, waivers, discharges or terminations with respect to this Agreement which have been approved by the Required Banks, the Borrower shall have the right, if no Default or Event of Default will exist immediately after giving effect to the respective replacement, to either replace such Bank (the "Replaced Bank") with one or more other Eligible Transferee or Transferees, none of whom shall constitute a Defaulting Bank at the time of such replacement (collectively, the "Replacement Bank") reasonably acceptable to the Administrative Agent or, at the option of the Borrower, to replace only (a) the Revolving Loan Commitment (and outstandings pursuant thereto) of the Replaced Bank with an identical Revolving Loan Commitment provided by the Replacement Bank or (b) in the case of a replacement as provided in Section 13.12(b) where the consent of the respective Bank is required with respect to less than all Tranches of its Loans or Commitments, the Commitments and/or outstanding Term Loans of such Bank in respect of each Tranche where the consent of such Bank would otherwise be individually required, with identical Commitments and/or Loans of the respective Tranche provided by the Replacement Bank, provided that (i) at the time of any replacement pursuant to this Section 1.13, the Replacement Bank shall enter into one or -14- more Assignment and Assumption Agreements pursuant to Section 13.04(b) (and with all fees payable pursuant to said Section 13.04(b) to be paid by the Replacement Bank) pursuant to which the Replacement Bank shall acquire all of the Commitments and outstanding Loans (or, in the case of the replacement of only (a) the Revolving Loan Commitment, the Revolving Loan Commitment and outstanding Revolving Loans or (b) the outstanding Term Loans of one or more Tranches, the outstanding Term Loans of the respective Tranche or Tranches) of, and in each case (except for the replacement of only the outstanding Term Loans of one or more Tranches of the respective Bank) participations in Letters of Credit by, the Replaced Bank and, in connection therewith, shall pay to (x) the Replaced Bank in respect thereof an amount equal to the sum (without duplication) of (A) an amount equal to the principal of, and all accrued interest on, all outstanding Loans (or, in the case of the replacement of only (I) the Revolving Loan Commitment, the outstanding Revolving Loans or (II) the Term Loans of one or more Tranches, the outstanding Term Loans of such Tranche or Tranches) of the Replaced Bank, (B) except in the case of the replacement of only the outstanding Term Loans of one or more Tranches of a Replaced Bank, an amount equal to all Unpaid Drawings that have been funded by (and not reimbursed to) such Replaced Bank, together with all then unpaid interest with respect thereto at such time and (C) an amount equal to all accrued, but theretofore unpaid, Fees owing to the Replaced Bank (but only with respect to the relevant Tranche, in the case of the replacement of less than all Tranches of Loans then held by the respective Replaced Bank) pursuant to Section 3.01 and (y) except in the case of the replacement of only the outstanding Term Loans of one or more Tranches of a Replaced Bank, the respective Issuing Bank an amount equal to such Replaced Bank's Adjusted Percentage (for this purpose, determined as if the adjustment described in clause (y) of the immediately succeeding sentence had been made with respect to such Replaced Bank) of any Unpaid Drawing (which at such time remains an Unpaid Drawing) to the extent such amount was not theretofore funded by such Replaced Bank, and (ii) all obligations of the Borrower owing to the Replaced Bank (other than those (a) specifically described in clause (i) above in respect of which the assignment purchase price has been, or is concurrently being, paid or (b) relating to any Tranche of Loans and/or Commitments of the respective Replaced Bank which will remain outstanding after giving effect to the respective replacement) shall be paid in full to such Replaced Bank concurrently with such replacement. Upon the execution of the respective Assignment and Assumption Agreements, the payment of amounts referred to in clauses (i) and (ii) above and, if so requested by the Replacement Bank, delivery to the Replacement Bank of the appropriate Note or Notes executed by the Borrower, (x) the Replacement Bank shall become a Bank hereunder and, unless the respective Replaced Bank continues to have outstanding Term Loans or a Revolving Loan Commitment hereunder, the Replaced Bank shall cease to constitute a Bank hereunder, except with respect to indemnification provisions under this Agreement (including, without limitation, Sections 1.10, 1.11, 2.05, 4.04, 13.01 and 13.06), which shall survive as to such Replaced Bank and (y) in the case of a replacement of a Defaulting Bank with a Non-Defaulting Bank, the Adjusted Percentages -15- of the Banks shall be automatically adjusted at such time to give effect to such replacement (and to give effect to the replacement of a Defaulting Bank with one or more Non-Defaulting Banks). SECTION 2. Letters of Credit. 2.01 Letters of Credit. (a) Subject to and upon the terms and conditions herein set forth, the Borrower may request that any Issuing Bank issue, at any time and from time to time on and after the Initial Borrowing Date and prior to the Revolving Loan Maturity Date, (x) for the account of the Borrower and for the benefit of any holder (or any trustee, agent or other similar representative for any such holders) of L/C Supportable Indebtedness of the Borrower or any of its Subsidiaries, an irrevocable sight standby letter of credit, in a form customarily used by such Issuing Bank or in such other form as has been approved by such Issuing Bank (each such standby letter of credit, a "Standby Letter of Credit") in support of such L/C Supportable Indebtedness and (y) for the account of the Borrower and for the benefit of sellers of goods or materials to the Borrower or any of its Subsidiaries, an irrevocable sight commercial letter of credit in a form customarily used by such Issuing Bank or in such other form as has been approved by such Issuing Bank (each such commercial letter of credit, a "Trade Letter of Credit", and each such Trade Letter of Credit and each Standby Letter of Credit, a "Letter of Credit") in support of commercial transactions of the Borrower and its Subsidiaries. (b) Subject to the terms and conditions contained herein, the Administrative Agent hereby agrees that it will (and at the Borrower's request each other Issuing Bank may, at its option, agree that it will), at any time and from time to time on or after the Initial Borrowing Date and prior to the Revolving Loan Maturity Date, following its receipt of the respective Letter of Credit Request, issue for the account of the Borrower one or more Letters of Credit (x) in the case of Standby Letters of Credit, in support of such L/C Supportable Indebtedness of the Borrower or any of its Subsidiaries as is permitted to remain outstanding without giving rise to a Default or Event of Default hereunder and (y) in the case of Trade Letters of Credit, in support of sellers of goods or materials as referenced in Section 2.01(a), provided that the respective Issuing Bank shall be under no obligation to issue any Letter of Credit of the types described above if at the time of such issuance: (i) any order, judgment or decree of any governmental authority or arbitrator shall purport by its terms to enjoin or restrain such Issuing Bank from issuing such Letter of Credit or any requirement of law applicable to such Issuing Bank or any request or directive (whether or not having the force of law) from any governmental authority with jurisdiction over such Issuing Bank shall prohibit, or request that such Issuing Bank refrain from, the issuance of letters of credit -16- generally or such Letter of Credit in particular or shall impose upon such Issuing Bank with respect to such Letter of Credit any restriction or reserve or capital requirement (for which such Issuing Bank is not otherwise compensated) not in effect on the date hereof, or any unreimbursed loss, cost or expense which was not applicable, in effect or known to such Issuing Bank as of the date hereof and which such Issuing Bank in good faith deems material to it; or (ii) such Issuing Bank shall have received notice from any Bank prior to the issuance of such Letter of Credit of the type described in the second sentence of Section 2.02(b). (c) Notwithstanding the foregoing, (i) no Letter of Credit shall be issued the Stated Amount of which, when added to the Letter of Credit Outstandings (exclusive of Unpaid Drawings which are repaid on the date of, and prior to the issuance of, the respective Letter of Credit) at such time would exceed either (x) $25,000,000 or (y) when added to the aggregate principal amount of all Revolving Loans made by Non-Defaulting Banks and then outstanding and Swingline Loans then outstanding, an amount equal to the Adjusted Total Revolving Loan Commitment at such time, (ii) each Letter of Credit shall be denominated in Dollars, (iii) each Letter of Credit shall by its terms terminate (x) in the case of Standby Letters of Credit, on or before the earlier of (A) the date which occurs 12 months after the date of the issuance thereof (although any such Standby Letter of Credit may be automatically extendable for successive periods of up to 12 months, but not beyond the tenth Business Day prior to the Revolving Loan Maturity Date, on terms acceptable to the Issuing Bank thereof) and (B) the tenth Business Day prior to the Revolving Loan Maturity Date, and (y) in the case of Trade Letters of Credit, on or before the earlier of (A) the date which occurs 180 days after the date of issuance thereof and (B) the date which is 30 days prior to the Revolving Loan Maturity Date and (iv) the Stated Amount of each Letter of Credit upon issuance shall be not less than $100,000 or such lesser amount as is acceptable to the respective Issuing Bank. 2.02 Letter of Credit Requests. (a) Whenever the Borrower desires that a Letter of Credit be issued for its account, the Borrower shall give the Administrative Agent and the respective Issuing Bank at least five Business Days' (or such shorter period as is acceptable to the respective Issuing Bank) written notice thereof. Each notice shall be in the form of Exhibit C (each a "Letter of Credit Request"). (b) The making of each Letter of Credit Request shall be deemed to be a representation and warranty by the Borrower that such Letter of Credit may be issued in accordance with, and will not violate the requirements of, Section 2.01(c). Unless the respective Issuing Bank has received notice from any Bank before it issues a Letter of Credit that one or more of the conditions specified in Section 5 or Section 6, as applicable, -17- are not then satisfied, or that the issuance of such Letter of Credit would violate Section 2.01(c), then such Issuing Bank shall issue the requested Letter of Credit for the account of the Borrower in accordance with such Issuing Bank's usual and customary practices. Upon the issuance of or amendment to any Standby Letter of Credit, such Issuing Bank shall promptly notify each Bank of such issuance or amendment and such notice shall be accompanied by a copy of the issued Standby Letter of Credit or amendment, as the case may be. For Trade Letters of Credit on which the Issuing Bank is other than the Administrative Agent, the Issuing Bank will send to the Administrative Agent by facsimile transmission, promptly on the first Business Day of each week, the daily aggregate Stated Amount of Trade Letters of Credit issued by such Issuing Bank and outstanding during the preceding week. The Administrative Agent shall deliver to each Bank, after each calendar month end and upon each payment of the Letter of Credit Fee, a report setting forth for the relevant period the daily aggregate Stated Amount of all outstanding Trade Letters of Credit during such period. 2.03 Letter of Credit Participations. (a) Immediately upon the issuance by any Issuing Bank of any Letter of Credit, such Issuing Bank shall be deemed to have sold and transferred to each Bank with a Revolving Loan Commitment, other than such Issuing Bank (each such Bank, in its capacity under this Section 2.03, a "Participant"), and each such Participant shall be deemed irrevocably and unconditionally to have purchased and received from such Issuing Bank, without recourse or warranty, an undivided interest and participation, to the extent of such Participant's Adjusted Percentage, in such Letter of Credit, each drawing made thereunder and the obligations of the Borrower under this Agreement with respect thereto, and any security therefor or guaranty pertaining thereto. Upon any change in the Revolving Loan Commitments or Adjusted Percentages of the Banks pursuant to Section 1.13 or 13.04 or as a result of a Bank Default, it is hereby agreed that, with respect to all outstanding Letters of Credit and Unpaid Drawings, there shall be an automatic adjustment to the participations pursuant to this Section 2.03 to reflect the new Adjusted Percentages of the assignor and assignee Bank or of all Banks with Revolving Loan Commitments, as the case may be. (b) In determining whether to pay under any Letter of Credit, such Issuing Bank shall have no obligation relative to the other Banks other than to confirm that any documents required to be delivered under such Letter of Credit appear to have been delivered and that they appear to comply on their face with the requirements of such Letter of Credit. Any action taken or omitted to be taken by any Issuing Bank under or in connection with any Letter of Credit if taken or omitted in the absence of gross negligence or willful misconduct, shall not create for such Issuing Bank any resulting liability to the Borrower or any Bank. -18- (c) In the event that any Issuing Bank makes any payment under any Letter of Credit and the Borrower shall not have reimbursed such amount in full to such Issuing Bank pursuant to Section 2.04(a), such Issuing Bank shall promptly notify the Administrative Agent, which shall promptly notify each Participant, of such failure, and each Participant shall promptly and unconditionally pay to such Issuing Bank the amount of such Participant's Adjusted Percentage of such unreimbursed payment in Dollars and in same day funds. If the Administrative Agent so notifies, prior to 11:00 A.M. (New York time) on any Business Day, any Participant required to fund a payment under a Letter of Credit, such Participant shall make available to such Issuing Bank in Dollars such Participant's Adjusted Percentage of the amount of such payment on such Business Day in same day funds. If and to the extent such Participant shall not have so made its Adjusted Percentage of the amount of such payment available to such Issuing Bank, such Participant agrees to pay to such Issuing Bank, forthwith on demand such amount, together with interest thereon, for each day from such date until the date such amount is paid to such Issuing Bank at the overnight Federal Funds Rate. The failure of any Participant to make available to such Issuing Bank its Adjusted Percentage of any payment under any Letter of Credit shall not relieve any other Participant of its obligation hereunder to make available to such Issuing Bank its Adjusted Percentage of any Letter of Credit on the date required, as specified above, but no Participant shall be responsible for the failure of any other Participant to make available to such Issuing Bank such other Participant's Adjusted Percentage of any such payment. (d) Whenever any Issuing Bank receives a payment of a reimbursement obligation as to which it has received any payments from the Participants pursuant to clause (c) above, such Issuing Bank shall forward such payment to the Administrative Agent, which in turn shall distribute to each Participant which has paid its Adjusted Percentage thereof, in Dollars and in same day funds, an amount equal to such Participant's share (based upon the proportionate aggregate amount originally funded by such Participant to the aggregate amount funded by all Participants) of the principal amount of such reimbursement obligation and interest thereon accruing after the purchase of the respective participations. (e) Upon the request of any Participant, each Issuing Bank shall furnish to such Participant copies of any Letter of Credit issued by it and such other documentation as may reasonably be requested by such Participant. (f) The obligations of the Participants to make payments to each Issuing Bank with respect to Letters of Credit issued by it shall be irrevocable and not subject to any qualification or exception whatsoever and shall be made in accordance with the terms and conditions of this Agreement under all circumstances, including, without limitation, any of the following circumstances: -19- (i) any lack of validity or enforceability of this Agreement or any of the other Credit Documents; (ii) the existence of any claim, setoff, defense or other right which the Borrower or any of its Subsidiaries may have at any time against a beneficiary named in a Letter of Credit, any transferee of any Letter of Credit (or any Person for whom any such transferee may be acting), the Administrative Agent, any Issuing Bank, any Participant, or any other Person, whether in connection with this Agreement, any Letter of Credit, the transactions contemplated herein or any unrelated transactions (including any underlying transaction between the Borrower and the beneficiary named in any such Letter of Credit); (iii) any draft, certificate or any other document presented under any Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; (iv) the surrender or impairment of any security for the performance or observance of any of the terms of any of the Credit Documents; or (v) the occurrence of any Default or Event of Default. 2.04 Agreement to Repay Letter of Credit Drawings. (a) The Borrower hereby agrees to reimburse the respective Issuing Bank, by making payment to the Administrative Agent in immediately available funds at the Payment Office, for any payment or disbursement made by it under any Letter of Credit (each such amount, so paid until reimbursed, an "Unpaid Drawing"), no later than three Business Days after the date of such payment or disbursement, with interest on the amount so paid or disbursed by such Issuing Bank, to the extent not reimbursed prior to 12:00 Noon (New York time) on the date of such payment or disbursement, from and including the date paid or disbursed to but excluding the date such Issuing Bank was reimbursed by the Borrower therefor at a rate per annum which shall be the Base Rate in effect from time to time plus the Applicable Margin for Revolving Loans maintained as Base Rate Loans, provided, however, to the extent such amounts are not reimbursed prior to 12:00 Noon (New York time) on the fifth Business Day following such payment or disbursement, interest shall thereafter accrue on the amounts so paid or disbursed by such Issuing Bank (and until reimbursed by the Borrower) at a rate per annum which shall be the Base Rate in effect from time to time plus the Applicable Margin for Revolving Loans maintained as Base Rate Loans plus 2%, in each such case, with interest to be payable on demand. The respective Issuing Bank shall give the Borrower prompt notice of each Drawing under any Letter of Credit, provided that the -20- failure to give any such notice shall in no way affect, impair or diminish the Borrower's obligations hereunder. (b) The obligations of the Borrower under this Section 2.04 to reimburse the respective Issuing Bank with respect to drawings on Letters of Credit (each, a "Drawing") (including, in each case, interest thereon) shall be absolute and unconditional under any and all circumstances and irrespective of any setoff, counterclaim or defense to payment which the Borrower may have or have had against any Bank (including in its capacity as issuer of the Letter of Credit or as Participant), or any nonapplication or misapplication by the beneficiary of the proceeds of such Drawing, the respective Issuing Bank's only obligation to the Borrower being to confirm that any documents required to be delivered under such Letter of Credit appear to have been delivered and that they appear to comply on their face with the requirements of such Letter of Credit. Any action taken or omitted to be taken by any Issuing Bank under or in connection with any Letter of Credit if taken or omitted in the absence of gross negligence or willful misconduct, shall not create for such Issuing Bank any resulting liability to the Borrower. 2.05 Increased Costs. If at any time after the date of this Agreement, the introduction of or any change in any applicable law, rule, regulation, order, guideline or request or in the interpretation or administration thereof by any governmental authority charged with the interpretation or administration thereof, or compliance by any Issuing Bank or any Participant with any request or directive by any such authority (whether or not having the force of law), or any change in generally accepted accounting principles, shall either (i) impose, modify or make applicable any reserve, deposit, capital adequacy or similar requirement against letters of credit issued by any Issuing Bank or participated in by any Participant, or (ii) impose on any Issuing Bank or any Participant any other conditions relating, directly or indirectly, to this Agreement or any Letter of Credit; and the result of any of the foregoing is to increase the cost to any Issuing Bank or any Participant of issuing, maintaining or participating in any Letter of Credit, or reduce the amount of any sum received or receivable by any Issuing Bank or any Participant hereunder or reduce the rate of return on its capital with respect to Letters of Credit (except for changes in the rate of tax on, or determined by reference to, the net income or profits of such Issuing Bank or such Participant, or any franchise tax based on the net income or profits of such Bank or Participant, in either case pursuant to the laws of the United States of America, the jurisdiction in which it is organized or in which its principal office or applicable lending office is located or any subdivision thereof or therein), but without duplication of any amounts payable in respect of Taxes pursuant to Section 4.04(a), then, upon demand to the Borrower by such Issuing Bank or any Participant (a copy of which demand shall be sent by such Issuing Bank or such Participant to the Administrative Agent) and subject to the provisions of Section 13.15 (to the extent applicable), the Borrower shall pay to such Issuing Bank or such Participant such additional amount or amounts as will compensate -21- such Bank for such increased cost or reduction in the amount receivable or reduction on the rate of return on its capital. Any Issuing Bank or any Participant, upon determining that any additional amounts will be payable pursuant to this Section 2.05, will give prompt written notice thereof to the Borrower, which notice shall include a certificate submitted to the Borrower by such Issuing Bank or such Participant (a copy of which certificate shall be sent by such Issuing Bank or such Participant to the Administrative Agent), setting forth in reasonable detail the basis for and the calculation of such additional amount or amounts necessary to compensate such Issuing Bank or such Participant. The certificate required to be delivered pursuant to this Section 2.05 shall, if delivered in good faith and absent manifest error, be final and conclusive and binding on the Borrower. SECTION 3. Commitment Commission; Fees; Reductions of Commitment. 3.01 Fees. (a) The Borrower agrees to pay the Administrative Agent for distribution to each Non-Defaulting Bank with a Revolving Loan Commitment a commitment commission (the "Commitment Commission") for the period from the Effective Date to and including the Revolving Loan Maturity Date (or such earlier date as the Total Revolving Loan Commitment shall have been terminated), computed at a rate for each day equal to 1/2 of 1% per annum on the daily average Unutilized Revolving Loan Commitment of such Non-Defaulting Bank. Accrued Commitment Commission shall be due and payable quarterly in arrears on each Quarterly Payment Date and on the Revolving Loan Maturity Date or such earlier date upon which the Total Revolving Loan Commitment is terminated. (b) The Borrower agrees to pay to the Administrative Agent for distribution to each Non-Defaulting Bank with a Revolving Loan Commitment (based on their respective Adjusted Percentages) a fee in respect of each Letter of Credit issued hereunder (the "Letter of Credit Fee"), for the period from and including the date of issuance of such Letter of Credit to and including the termination of such Letter of Credit, computed at a rate per annum equal to the Applicable Margin then in effect for Revolving Loans maintained as Eurodollar Loans on the daily average Stated Amount of such Letter of Credit. Accrued Letter of Credit Fees shall be due and payable quarterly in arrears on each Quarterly Payment Date and upon the first day on or after the termination of the Total Revolving Loan Commitment upon which no Letters of Credit remain outstanding. (c) The Borrower agrees to pay to the respective Issuing Bank, for its own account, a facing fee in respect of each Letter of Credit issued for its account hereunder (the "Facing Fee") for the period from and including the date of issuance of such Letter of Credit to and including the termination of such Letter of Credit, computed at a rate equal to 1/4 of 1% per annum of the daily average Stated Amount of such Letter of Credit; provided that in no event shall the annual Facing Fee with respect to any Letter of Credit be less than $500, it being agreed that, on the date of issuance of any Letter of Credit and -22- on each anniversary thereof prior to the termination of such Letter of Credit, $500 will be paid toward the next year's Facing Fees for such Letter of Credit, which amount shall be credited in direct order to the Facing Fees which would otherwise be payable with respect to such Letter of Credit in the succeeding annual period. Accrued Facing Fees shall be due and payable quarterly in arrears on each Quarterly Payment Date and on the date upon which the Total Revolving Loan Commitment has been terminated and such Letter of Credit has been terminated in accordance with its terms. (d) The Borrower shall pay, upon each drawing under, issuance of, or amendment to, any Letter of Credit, such amount as shall at the time of such event be the administrative charge which the respective Issuing Bank is generally imposing in connection with such occurrence with respect to letters of credit. (e) The Borrower shall pay to each of the Agents, for their own account, such other fees as have been agreed to in writing by the Borrower and the Agents. 3.02 Voluntary Termination of Unutilized Commitments. (a) Upon at least one Business Day's prior notice to the Administrative Agent at its Notice Office (which notice the Administrative Agent shall promptly transmit to each of the Banks), the Borrower shall have the right, at any time or from time to time, without premium or penalty, to terminate the Total Unutilized Revolving Loan Commitment, in whole or in part, in integral multiples of $1,000,000 in the case of partial reductions to the Total Revolving Loan Commitment, provided that (i) each such reduction shall apply proportionately to permanently reduce the Revolving Loan Commitment of each Bank with such a Commitment and (ii) the reduction to the Total Unutilized Revolving Loan Commitment shall in no case be in an amount which would cause the Revolving Loan Commitment of any Bank to be reduced (as required by preceding clause (i)) by an amount which exceeds the remainder of (x) the Unutilized Revolving Loan Commitment of such Bank as in effect immediately before giving effect to such reduction minus (y) such Bank's Adjusted Percentage of the aggregate principal amount of Swingline Loans then outstanding. (b) In the event of certain refusals by a Bank as provided in Section 13.12(b) to consent to certain proposed changes, waivers, discharges or terminations with respect to this Agreement which have been approved by the Required Banks, the Borrower may, subject to the requirements of said Section 13.12(b) and upon five Business Days' written notice to the Administrative Agent at its Notice Office (which notice the Administrative Agent shall promptly transmit to each of the Banks), terminate all of the Revolving Loan Commitment of such Bank so long as all Loans, together with accrued and unpaid interest, fees and all other amounts, owing to such Bank (other than amounts owing in respect of any Tranche of Term Loans maintained by such Bank, if such Term Loans are not being repaid pursuant to Section 13.12(b)) are repaid concurrently with the -23- effectiveness of such termination (at which time Schedule I shall be deemed modified to reflect such changed amounts), and at such time, unless the respective Bank continues to have outstanding Term Loans hereunder, such Bank shall no longer constitute a "Bank" for purposes of this Agreement, except with respect to indemnification provisions under this Agreement (including, without limitation, Sections 1.10, 1.11, 2.05, 4.04, 13.01 and 13.06), which shall survive as to such repaid Bank. 3.03 Mandatory Reduction of Commitments. (a) The Total Commitments (and the Tranche A Term Loan Commitment, the Tranche B Term Loan Commitment and the Revolving Loan Commitment of each Bank) shall terminate in its entirety on April 2, 1997 unless the Initial Borrowing Date shall have occurred on or prior to such date. (b) In addition to any other mandatory commitment reductions pursuant to this Section 3.03, the Total Tranche A Term Loan Commitment (and the Tranche A Term Loan Commitment of each Bank) shall (i) terminate in its entirety on the Initial Borrowing Date (after giving effect to the making of the Tranche A Term Loans on such date) and (ii) prior to the termination of the Total Tranche A Term Loan Commitment as provided in clause (i) above, be reduced from time to time to the extent required by Section 4.02. (c) In addition to any other mandatory commitment reductions pursuant to this Section 3.03, the Total Tranche B Term Loan Commitment (and the Tranche B Term Loan Commitment of each Bank) shall (i) terminate in its entirety on the Initial Borrowing Date (after giving effect to the making of the Tranche B Term Loans on such date) and (ii) prior to the termination of the Total Tranche B Term Loan Commitment as provided in clause (i) above, be reduced from time to time to the extent required by Section 4.02. (d) In addition to any other mandatory commitment reductions pursuant to this Section 3.03, the Total Revolving Loan Commitment (and the Revolving Loan Commitment of each Bank) shall terminate in its entirety on the Revolving Loan Maturity Date. (e) In addition to any other mandatory commitment reductions pursuant to this Section 3.03, on each date after the Initial Borrowing Date upon which a mandatory prepayment of Term Loans pursuant to Section 4.02(d) through (h), inclusive, is required (and exceeds in amount the aggregate principal amount of Term Loans then outstanding) or would be required if Term Loans were then outstanding, the Total Revolving Loan Commitment shall be permanently reduced by the amount, if any, by which the amount required to be applied pursuant to said Section (determined as if an unlimited amount of Term Loans were actually outstanding) exceeds the aggregate principal amount of Term Loans then outstanding. -24- (f) Each reduction to the Total Tranche A Term Loan Commitment, the Total Tranche B Term Loan Commitment and the Total Revolving Loan Commitment pursuant to this Section 3.03 (or pursuant to Section 4.02) shall be applied proportionately to reduce the Tranche A Term Loan Commitment, the Tranche B Term Loan Commitment or the Revolving Loan Commitment, as the case may be, of each Bank with such a Commitment. SECTION 4. Prepayments; Payments; Taxes. 4.01 Voluntary Prepayments. The Borrower shall have the right to prepay the Loans, without premium or penalty, in whole or in part at any time and from time to time on the following terms and conditions: (i) the Borrower shall give the Administrative Agent prior to 1:00 P.M. (New York time) at its Notice Office (x) at least one Business Day's prior written notice (or telephonic notice promptly confirmed in writing) of its intent to prepay Base Rate Loans (or same day notice in the case of Swingline Loans provided such notice is given prior to 12:00 Noon (New York time)) and (y) at least three Business Days' prior written notice (or telephonic notice promptly confirmed in writing) of its intent to prepay Eurodollar Loans, whether Tranche A Term Loans, Tranche B Term Loans, Revolving Loans or Swingline Loans shall be prepaid, the amount of such prepayment and the Types of Loans to be prepaid and, in the case of Eurodollar Loans, the specific Borrowing or Borrowings pursuant to which made, which notice the Administrative Agent shall promptly transmit to each of the Banks; (ii) each prepayment shall be in an aggregate principal amount of at least $1,000,000 (or $250,000 in the case of Swingline Loans) or such lesser amount of a Borrowing which is outstanding, provided that if any partial prepayment of Eurodollar Loans made pursuant to any Borrowing shall reduce the outstanding Eurodollar Loans made pursuant to such Borrowing to an amount less than $5,000,000, then such Borrowing may not be continued as a Borrowing of Eurodollar Loans and any election of an Interest Period with respect thereto given by the Borrower shall have no force or effect; (iii) at the time of any prepayment of Eurodollar Loans pursuant to this Section 4.01 on any date other than the last day of the Interest Period applicable thereto, the Borrower shall pay the amounts required pursuant to Section 1.11; (iv) in the event of certain refusals by a Bank as provided in Section 13.12(b) to consent to certain proposed changes, waivers, discharges or terminations with respect to this Agreement which have been approved by the Required Banks, the Borrower may, upon 5 Business Days' written notice to the Administrative Agent at its Notice Office (which notice the Administrative Agent shall promptly transmit to each of the Banks) repay all Loans, together with accrued and unpaid interest, Fees, and other amounts owing to such Bank (or owing to such Bank with respect to each Tranche which gave rise to the need to obtain such Bank's individual consent) in accordance with said Section 13.12(b) so long as (A) in the case of the repayment of Revolving Loans of any Bank pursuant to this clause (iv) the Revolving Loan Commitment of such Bank is terminated concurrently with such repayment (at which time -25- Schedule I shall be deemed modified to reflect the changed Revolving Loan Commitments) and (B) the consents required by Section 13.12(b) in connection with the repayment pursuant to this clause (iv) have been obtained; (v) each voluntary prepayment of Term Loans pursuant to this Section 4.01 (except pursuant to preceding clause (iv)) shall be applied to the Tranche A Term Loans and the Tranche B Term Loans on a pro rata basis (based upon the then outstanding principal amount of Tranche A Term Loans and Tranche B Term Loans); and (vi) except as expressly provided in preceding clause (iv), each prepayment in respect of any Loans made pursuant to a Borrowing shall be applied pro rata among the Loans comprising such Borrowing; provided that at the Borrower's election in connection with any prepayment of Revolving Loans pursuant to this Section 4.01, such prepayment shall not be applied to any Revolving Loan of a Defaulting Bank. Each prepayment of principal of any Tranche of Term Loans pursuant to this Section 4.01 shall be applied to reduce the then remaining Scheduled Repayments of the respective Tranche of Term Loans pro rata based upon the then remaining principal amounts of the Scheduled Repayments of the respective Tranche after giving effect to all prior reductions thereto. 4.02 Mandatory Repayments and Commitment Reductions. (a)(i) On any day on which the sum of the aggregate outstanding principal amount of the Revolving Loans made by Non-Defaulting Banks, Swingline Loans and the Letter of Credit Outstandings exceeds the Adjusted Total Revolving Loan Commitment as then in effect, the Borrower shall prepay principal of Swingline Loans and, after the Swingline Loans have been repaid in full, Revolving Loans of Non-Defaulting Banks in an amount equal to such excess. If, after giving effect to the prepayment of all outstanding Swingline Loans and Revolving Loans of Non-Defaulting Banks, the aggregate amount of the Letter of Credit Outstandings exceeds the Adjusted Total Revolving Loan Commitment as then in effect, the Borrower shall pay to the Administrative Agent at the Payment Office on such date an amount of cash or Cash Equivalents equal to the amount of such excess (up to a maximum amount equal to the Letter of Credit Outstandings at such time), such cash or Cash Equivalents to be held as security for all obligations of the Borrower to Non-Defaulting Banks hereunder in a cash collateral account to be established by the Administrative Agent. (ii) On any day on which the aggregate outstanding principal amount of the Revolving Loans made by any Defaulting Bank exceeds the Revolving Loan Commitment of such Defaulting Bank, the Borrower shall prepay principal of Revolving Loans of such Defaulting Bank in an amount equal to such excess. (b) In addition to any other mandatory repayments or commitment reductions pursuant to this Section 4.02, on each date set forth below, the Borrower shall be required to repay that principal amount of Tranche A Term Loans, to the extent then outstanding, as is set forth opposite such date (each such repayment, as the same may be -26- reduced as provided in Sections 4.01 and 4.02(i), a "Tranche A Scheduled Repayment," and each such date, a "Tranche A Scheduled Repayment Date"): Tranche A Scheduled Repayment Date Amount ------------------------ ------ The last Business Day of May, 1997 $2,500,000 The last Business Day of August, 1997 $2,500,000 The last Business Day of November, 1997 $2,500,000 The last Business Day of February, 1998 $2,500,000 The last Business Day of May, 1998 $2,500,000 The last Business Day of August, 1998 $2,500,000 The last Business Day of November, 1998 $2,500,000 The last Business Day of February, 1999 $2,500,000 The last Business Day of May, 1999 $3,250,000 The last Business Day of August, 1999 $3,250,000 The last Business Day of November, 1999 $3,250,000 The last Business Day of February, 2000 $3,250,000 -27- Tranche A Scheduled Repayment Date Amount ------------------------ ------ The last Business Day of May, 2000 $4,000,000 The last Business Day of August, 2000 $4,000,000 The last Business Day of November, 2000 $4,000,000 The last Business Day of February, 2001 $4,000,000 The last Business Day of May, 2001 $6,500,000 The last Business Day of August, 2001 $6,500,000 The last Business Day of November, 2001 $6,500,000 Tranche A Term Loan Maturity Date $6,500,000 (c) In addition to any other mandatory repayments or commitment reductions pursuant to this Section 4.02, on each date set forth below, the Borrower shall be required to repay that principal amount of Tranche B Term Loans, to the extent then outstanding, as is set forth opposite such date (each such repayment, as the same may be reduced as provided in Sections 4.01 and 4.02(i), a "Tranche B Scheduled Repayment," and each such date, a "Tranche B Scheduled Repayment Date"): Tranche B Scheduled Repayment Date Amount ------------------------ ------ The last Business Day of May, 1997 $250,000 The last Business Day of August, 1997 $250,000 -28- Tranche B Scheduled Repayment Date Amount ------------------------ ------ The last Business Day of November, 1997 $250,000 The last Business Day of February, 1998 $250,000 The last Business Day of May, 1998 $250,000 The last Business Day of August, 1998 $250,000 The last Business Day of November, 1998 $250,000 The last Business Day of February, 1999 $250,000 The last Business Day of May, 1999 $250,000 The last Business Day of August, 1999 $250,000 The last Business Day of November, 1999 $250,000 The last Business Day of February, 2000 $250,000 The last Business Day of May, 2000 $250,000 The last Business Day of August, 2000 $250,000 The last Business Day of November, 2000 $250,000 The last Business Day of February, 2001 $250,000 -29- Tranche B Scheduled Repayment Date Amount ------------------------ ------ The last Business Day of May, 2001 $250,000 The last Business Day of August, 2001 $250,000 The last Business Day of November, 2001 $250,000 The last Business Day of February, 2002 $250,000 The last Business Day of May, 2002 $10,000,000 The last Business Day of August, 2002 $10,000,000 The last Business Day of November, 2002 $10,000,000 Tranche B Term Loan Maturity Date $10,000,000 (d) In addition to any other mandatory repayments or commitment reductions pursuant to this Section 4.02, on each date after the Effective Date upon which Holdings or any of its Subsidiaries receives any proceeds from any sale or issuance of its equity (other than (i) proceeds received on or prior to the Initial Borrowing Date as a result of the Equity Contribution and (ii) cash proceeds received from sales or issuances of equity to employees, officers or directors of Holdings or any of its Subsidiaries so long as all such cash proceeds are, substantially concurrently with the receipt of such cash proceeds, used to repurchase outstanding shares of common stock (or options to purchase common stock) of Holdings pursuant to clause (x) of the proviso to Section 9.03(ii) or, to the extent the cash proceeds are not so utilized, so long as the aggregate amount of cash proceeds excluded pursuant to this clause (ii) does not exceed $10,000,000) an amount equal to 100% of the cash proceeds of the respective sale or issuance (net of underwriting discounts and commissions and other direct costs associated therewith, including, without limitation, legal fees and expenses) shall be applied as a mandatory repayment of principal of outstanding Term Loans (or, if the Initial Borrowing Date has not yet occurred, such amounts shall be applied as a mandatory reduction to the Total Term Loan Commitment) in accordance with the requirements of Section 4.02(i) and (j), provided that (i) in the case of an Initial -30- Public Offering, only 50% of the net cash proceeds thereof, if any, in excess of $50,000,000 shall be applied as a mandatory repayment as set forth under this Section 4.02(d) and (ii) the proceeds of any issuance of options, warrants or other equity as part of a unit in connection with any issuance of Indebtedness shall be treated as cash proceeds from the issuance of Indebtedness and applied as a mandatory repayment as set forth under Section 4.02(e). (e) In addition to any other mandatory repayments or commitment reductions pursuant to this Section 4.02, on each date after the Effective Date upon which Holdings or any of its Subsidiaries receives any proceeds from any incurrence by Holdings or any of its Subsidiaries of Indebtedness for borrowed money (other than Indebtedness for borrowed money permitted to be incurred pursuant to Section 9.04 as such Section is in effect on the Effective Date), an amount equal to the cash proceeds (net of underwriting discounts and commissions and other costs associated therewith including, without limitation, legal fees and expenses) of the respective incurrence of Indebtedness shall be applied as a mandatory repayment of principal of outstanding Term Loans (or, if the Initial Borrowing Date has not yet occurred, such amounts shall be applied as a mandatory reduction to the Total Term Loan Commitment) in accordance with the requirements of Sections 4.02(i) and (j). (f) In addition to any other mandatory repayments or commitment reductions pursuant to this Section 4.02, on each date after the Effective Date upon which Holdings or any of its Subsidiaries receives proceeds from any sale of assets (including capital stock and securities held thereby, but excluding (i) sales or transfers of inventory in the ordinary course of business, (ii) sales or transfers of assets in accordance with Sections 9.02(v) and (vi) as originally in effect, (iii) sales of assets between the Borrower and its Wholly-Owned Subsidiaries and/or sales of assets between Wholly-Owned Subsidiaries of the Borrower, in each case to the extent permitted by Section 9.02, (iv) the sale or other disposition of equipment in the ordinary course of business to the extent that the Borrower has delivered a certificate to the Administrative Agent on or prior to such date stating that it intends to reinvest such Net Sale Proceeds in replacement equipment within 270 days after the respective date of sale or disposition and (v) any other sale of assets so long as, and to the extent that, the aggregate amount of Net Sale Proceeds from all sales of assets excluded pursuant to this clause (v) during the respective fiscal year of the Borrower in which the Net Sale Proceeds are received does not exceed $5,000,000), an amount equal to 100% of the Net Sale Proceeds therefrom shall be applied as a mandatory repayment of principal of outstanding Term Loans (or, if the Initial Borrowing Date has not yet occurred, such amounts shall be applied as a mandatory reduction to the Total Term Loan Commitment) in accordance with the requirements of Sections 4.02(i) and (j). To the extent any Net Sale Proceeds are not required to be applied pursuant to this Section 4.02(f) as a result of clause (iv) contained in the parenthetical appearing in the first sentence of this -31- Section 4.02(f), then on the 270th day after the date of the respective sale or disposition, the Net Sale Proceeds of the respective sale or disposition shall be applied as otherwise required by this Section 4.02(f) (determined without regard to clause (iv) contained in the parenthetical appearing in this first sentence of this Section 4.02(f)) to the extent not actually used as contemplated by said clause (iv) by said 270th day. (g) In addition to any other mandatory repayments pursuant to this Section 4.02, on each Excess Cash Payment Date, an amount equal to 75% of the Excess Cash Flow for the relevant Excess Cash Payment Period shall be applied as a mandatory repayment of principal of outstanding Term Loans in accordance with the requirements of Sections 4.02(i) and (j); provided, however, that after the time (the "Excess Cash Flow Conversion Time") that the principal of Term Loans have been repaid, and/or the Total Revolving Loan Commitment has been permanently reduced, in the aggregate amount of $25,000,000 solely as a result of this Section 4.02(g) (or pursuant to Section 3.03(e) as a result of this Section 4.02(g)), an amount equal to 50% (rather than 75%) of such Excess Cash Flow shall be applied pursuant to this clause (g). (h) In addition to any other mandatory repayments or commitment reductions pursuant to this Section 4.02, within 10 days following each date after the Initial Borrowing Date on which Holdings or any of its Subsidiaries receives any proceeds from any Recovery Event, an amount equal to 100% of the proceeds of such Recovery Event (net of reasonable costs including without limitation legal costs and expenses, and taxes incurred in connection with such Recovery Event) shall be applied as a mandatory repayment of principal of outstanding Term Loans (or, if the Initial Borrowing Date has not yet occurred, such amounts shall be applied as a mandatory reduction to the Total Term Loan Commitment) in accordance with the requirements of Sections 4.02(i) and (j), provided that (x) so long as no Default or Event of Default then exists and such proceeds do not exceed $2,500,000, such proceeds shall not be required to be so applied on such date to the extent that the Borrower has delivered a certificate to the Administrative Agent on or prior to such date stating that such proceeds shall be used or shall be committed to be used to replace or restore any properties or assets in respect of which such proceeds were paid within one year following the date of such Recovery Event (which certificate shall set forth the estimates of the proceeds to be so expended) and (y) so long as no Default or Event of Default then exists and to the extent that (a) the amount of such proceeds exceeds $2,500,000, (b) the amount of such proceeds, together with other cash available to the Borrower and permitted to be spent by it on Capital Expenditures during the relevant period pursuant to Section 9.07 (without regard to Section 9.07(c) in the case of such other cash), equals 100% of the cost of replacement or restoration of the properties or assets in respect of which such proceeds were paid as determined by the Borrower and as supported by such estimates or bids from contractors or subcontractors or such other supporting information as the Administrative Agent may reasonably request and (c) the Borrower has delivered to -32- the Administrative Agent a certificate on or prior to the date the application would otherwise be required pursuant to this Section 4.02(h) in the form described in clause (x) above and also certifying (I) its determination as required by preceding clause (b) and (II) that, for the period from the date of the respective casualty, condemnation or other event giving rise to the Recovery Event and continuing through the completion of the replacement or restoration of respective properties or assets, the Borrower has (and will continue to maintain) business interruption insurance at levels, and in scope of coverage, which are at least as great as the amount for such insurance as is set forth in Schedule VI, then the entire amount of the proceeds of such Recovery Event and not just the portion in excess of $2,500,000 shall be deposited with the Administrative Agent pursuant to a cash collateral arrangement reasonably satisfactory to the Administrative Agent and the Borrower (or, in the case of a Foreign Subsidiary, with any other lending institution reasonably satisfactory to the Administrative Agent and the Borrower and located in the jurisdiction of such Foreign Subsidiary, it being understood and agreed that the Secured Creditors shall have no security interest in the funds so deposited by a Foreign Subsidiary) whereby such proceeds shall be disbursed to the Borrower or its respective Subsidiary from time to time as needed to pay actual costs incurred by it or required to be advanced by it in connection with the replacement or restoration of the respective properties or assets (pursuant to such reasonable certification requirements as may be established by the Administrative Agent), provided further that (except in the case of funds deposited by a Foreign Subsidiary as described above) at any time while an Event of Default has occurred and is continuing, the Required Banks may direct the Administrative Agent (in which case the Administrative Agent shall, and is hereby authorized by the Borrower to, follow said directions) to apply any or all proceeds then on deposit in such collateral account to the repayment of Obligations hereunder in the same manner as proceeds would be applied pursuant to the Security Agreement, and provided further, that if all or any portion of such proceeds not required to be applied to the repayment of Term Loans pursuant to the second preceding proviso (whether pursuant to clause (x) or (y) thereof) are either (A) not so used or committed to be so used within one year after the date of the respective Recovery Event or (B) if committed to be used within one year after the date of receipt of such proceeds of such Recovery Event and not so used within two years after the date of the respective Recovery Event then, in either such case, such remaining portion not used or committed to be used in the case of preceding clause (A) and not used in the case of preceding clause (B) shall be applied on the date which is the first anniversary of the date of the respective Recovery Event in the case of clause (A) above or the date occurring two years after the date of the respective Recovery Event in the case of clause (B) above as a mandatory repayment of principal of outstanding Term Loans in accordance with the requirements of Section 4.02(i) and (j). (i) Each amount required to be applied to Term Loans (or to the Total Term Loan Commitment) pursuant to Sections 4.02(d), (e), (f), (g) and (h) shall be applied pro -33- rata to each Tranche of Term Loans based upon the then remaining principal amounts of the respective Tranches (with each Tranche of Term Loans to be allocated that percentage of the amount to be applied as is equal to a fraction (expressed as a percentage) the numerator of which is the then outstanding principal amount of such Tranche of Term Loans (or, if the Initial Borrowing Date has not yet occurred, the aggregate Term Loan Commitments of the Banks with respect to such Tranche) and the denominator of which is equal to the then outstanding principal amount of all Term Loans (or, if the Initial Borrowing Date has not yet occurred, the then Total Term Loan Commitment)). Any amount required to be applied to any Tranche of Term Loans pursuant to Sections 4.02(d), (e), (f), (g) and (h) shall be applied to repay the outstanding principal amount of Term Loans of the respective Tranche then outstanding (or, if the Initial Borrowing Date has not yet occurred, to reduce the Total Tranche A Term Loan Commitment or Total Tranche B Term Loan Commitment, as the case may be). The amount of each principal repayment of Term Loans (and the amount of each reduction to the Term Loan Commitments) made as required by Sections 4.02(d), (e), (f), (g) and (h) shall be applied to reduce the then remaining Scheduled Repayments of the respective Tranche pro rata based upon the then remaining principal amounts of the Scheduled Repayments of the respective Tranche after giving effect to all prior reductions thereto. (j) With respect to each repayment of Loans required by this Section 4.02, the Borrower may designate the Types of Loans of the respective Tranche which are to be repaid and, in the case of Eurodollar Loans, the specific Borrowing or Borrowings of the respective Tranche pursuant to which made, provided that: (i) repayments of Eurodollar Loans pursuant to this Section 4.02 may only be made on the last day of an Interest Period applicable thereto unless all Eurodollar Loans of the respective Tranche with Interest Periods ending on such date of required repayment and all Base Rate Loans of the respective Tranche have been paid in full; (ii) if any repayment of Eurodollar Loans made pursuant to a single Borrowing shall reduce the outstanding Eurodollar Loans made pursuant to such Borrowing to an amount less than $5,000,000, such Borrowing shall be converted at the end of the then current Interest Period into a Borrowing of Base Rate Loans; and (iii) each repayment of any Loans comprising a Borrowing shall be applied pro rata among such Loans. In the absence of a designation by the Borrower as described in the preceding sentence, the Administrative Agent shall, subject to the above, make such designation in its sole discretion with a view, but no obligation, to minimize breakage costs owing under Section 1.11. (k) Notwithstanding anything to the contrary contained elsewhere in this Agreement, (i) all then outstanding Swingline Loans shall be repaid in full on the Swingline Expiry Date and (ii) all other then outstanding Loans shall be repaid in full on the respective Maturity Date for such Loans. -34- 4.03 Method and Place of Payment. Except as otherwise specifically provided herein, all payments under this Agreement or any Note shall be made to the Administrative Agent for the account of the Bank or Banks entitled thereto not later than 12:00 Noon (New York time) on the date when due and shall be made in Dollars in immediately available funds at the Payment Office of the Administrative Agent. Whenever any payment to be made hereunder or under any Note shall be stated to be due on a day which is not a Business Day, the due date thereof shall be extended to the next succeeding Business Day and, with respect to payments of principal, interest shall be payable at the applicable rate during such extension. 4.04 Net Payments; Taxes. (a) All payments made by any Credit Party hereunder or under any Note will be made without setoff, counterclaim or other defense. Except as provided in Section 4.04(b), all such payments will be made free and clear of, and without deduction or withholding for, any present or future taxes, levies, imposts, duties, fees, assessments or other charges of whatever nature now or hereafter imposed by any jurisdiction or by any political subdivision or taxing authority thereof or therein with respect to such payments (but excluding, except as provided in the second succeeding sentence, any tax imposed on or measured by the net income or net profits of a Bank pursuant to the laws of the United States of America, the jurisdiction in which it is organized or the jurisdiction in which the principal office or applicable lending office of such Bank is located or any subdivision thereof or therein) and all interest, penalties or similar liabilities with respect to such non-excluded taxes, levies, imposts, duties, fees, assessments or other charges (all such non-excluded taxes, levies, imposts, duties, fees, assessments or other charges being referred to collectively as "Taxes"). If any Taxes are so levied or imposed, the Borrower agrees to pay the full amount of such Taxes, and such additional amounts as may be necessary so that every payment of all amounts due under this Agreement or under any Note, after withholding or deduction for or on account of any Taxes, will not be less than the amount provided for herein or in such Note. If any amounts are payable in respect of Taxes pursuant to the preceding sentence, the Borrower agrees to reimburse each Bank, upon the written request of such Bank, for taxes imposed on or measured by the net income or net profits of such Bank pursuant to the laws of the jurisdiction in which such Bank is organized or in which the principal office or applicable lending office of such Bank is located or under the laws of any political subdivision or taxing authority of any such jurisdiction in which such Bank is organized or in which the principal office or applicable lending office of such Bank is located and for any withholding of taxes as such Bank shall determine are payable by, or withheld from, such Bank, in respect of such amounts so paid to or on behalf of such Bank pursuant to the preceding sentence and in respect of any amounts paid to or on behalf of such Bank pursuant to this sentence. The Borrower will furnish to the Administrative Agent within 45 days after the date the payment of any Taxes is due pursuant to applicable law certified copies of tax receipts evidencing such payment by the Borrower. The Borrower agrees to indemnify and -35- hold harmless each Bank, and reimburse such Bank upon its written request, for the amount of any Taxes so levied or imposed and paid by such Bank. (b) Each Bank that is not a United States person (as such term is defined in Section 7701(a)(30) of the Code) for U.S. Federal income tax purposes agrees to deliver to the Borrower and the Administrative Agent on or prior to the Effective Date, or in the case of a Bank that is an assignee or transferee of an interest under this Agreement pursuant to Section 1.13 or 13.04 (unless the respective Bank was already a Bank hereunder immediately prior to such assignment or transfer), on the date of such assignment or transfer to such Bank, (i) two accurate and complete original signed copies of Internal Revenue Service Form 4224 or 1001 (or successor forms) certifying to such Bank's entitlement to a complete exemption from United States withholding tax with respect to payments to be made under this Agreement and under any Note, or (ii) if the Bank is not a "bank" within the meaning of Section 881(c)(3)(A) of the Code and cannot deliver either Internal Revenue Service Form 1001 or 4224 pursuant to clause (i) above, (x) a certificate substantially in the form of Exhibit D (any such certificate, a "Section 4.04(b)(ii) Certificate") and (y) two accurate and complete original signed copies of Internal Revenue Service Form W-8 (or successor form) certifying to such Bank's entitlement to a complete exemption from United States withholding tax with respect to payments of interest to be made under this Agreement and under any Note. In addition, each Bank agrees that from time to time after the Effective Date, when a lapse in time or change in circumstances renders the previous certification obsolete or inaccurate in any material respect, it will deliver to the Borrower and the Administrative Agent two new accurate and complete original signed copies of Internal Revenue Service Form 4224 or 1001, or Form W-8 and a Section 4.04(b)(ii) Certificate, as the case may be, and such other forms as may be required in order to confirm or establish the entitlement of such Bank to a continued exemption from or reduction in United States withholding tax with respect to payments under this Agreement and any Note, or it shall immediately notify the Borrower and the Agent of its inability to deliver any such Form or Certificate, in which case such Bank shall not be required to deliver any such Form or Certificate pursuant to this Section 4.04(b). Notwithstanding anything to the contrary contained in Section 4.04(a), but subject to Section 13.04(b) and the immediately succeeding sentence, (x) the Borrower shall be entitled, to the extent it is required to do so by law, to deduct or withhold income or similar taxes imposed by the United States (or any political subdivision or taxing authority thereof or therein) from interest, Fees or other amounts payable hereunder for the account of any Bank which is not a United States person (as such term is defined in Section 7701(a)(30) of the Code) for U.S. Federal income tax purposes to the extent that such Bank has not provided to the Borrower U.S. Internal Revenue Service Forms that establish a complete exemption from such deduction or withholding and (y) the Borrower shall not be obligated pursuant to Section 4.04(a) hereof to gross-up payments to be made to a Bank in respect of income or similar taxes imposed by the United States if (I) such Bank has not provided -36- to the Borrower the Internal Revenue Service Forms required to be provided to the Borrower pursuant to this Section 4.04(b) or (II) in the case of a payment, other than interest, to a Bank described in clause (ii) above, to the extent that such Forms do not establish a complete exemption from withholding of such taxes. Notwithstanding anything to the contrary contained in the preceding sentence or elsewhere in this Section 4.04 and except as set forth in Section 13.04(b), the Borrower agrees to pay any additional amounts and to indemnify each Bank in the manner set forth in Section 4.04(a) (without regard to the identity of the jurisdiction requiring the deduction or withholding) in respect of any Taxes deducted or withheld by it as described in the immediately preceding sentence as a result of any changes after the Effective Date in any applicable law, treaty, governmental rule, regulation, guideline or order, or in the interpretation thereof, relating to the deducting or withholding of such Taxes. (c) If the Borrower pays any additional amount under this Section 4.04 to a Bank and such Bank determines in its sole discretion that it has actually received or realized in connection therewith any refund or any reduction of, or credit against, its Tax liabilities in or with respect to the taxable year in which the additional amount is paid (a "Tax Benefit"), such Bank shall pay to the Borrower an amount that the Bank shall, in its sole discretion, determine is equal to the net benefit, after tax, which was obtained by the Bank in such year as a consequence of such Tax Benefit; provided, however, that (i) such Bank shall not be required to make any payment under this Section 4.04 (c) if an Event of Default shall have occurred and be continuing; (ii) any Taxes that are imposed on a Bank as a result of a disallowance or reduction (including through the expiration of any tax credit carryover or carryback of such Bank that otherwise would not have expired) of any Tax Benefit with respect to which such Bank has made a payment to the Borrower pursuant to this Section 4.04 (c) shall be treated as a Tax for which the Borrower is obligated to indemnify such Bank pursuant to this Section 4.04 without any exclusions or defenses; and (iii) nothing in this Section 4.04 (c) shall require the Bank to disclose any confidential information to the Borrower (including, without limitation, its tax returns). SECTION 5. Conditions Precedent to Loans. The obligation of each Bank to make Loans, and the obligation of each Issuing Bank to issue Letters of Credit, on the Initial Borrowing Date, is subject at the time of the making of such Loans or the issuance of such Letters of Credit to the satisfaction of the following conditions: 5.01 Execution of Agreement; Notes. On or prior to the Initial Borrowing Date (i) the Effective Date shall have occurred and (ii) there shall have been delivered to the Administrative Agent for the account of each of the Banks the appropriate Tranche A Term Note, Tranche B Term Note and/or Revolving Note executed by the Borrower, and to the Swingline Bank the Swingline Note executed by the Borrower, in each case in the amount, maturity and as otherwise provided herein. -37- 5.02 Fees, etc. On the Initial Borrowing Date, the Borrower shall have paid to the Agents and the Banks all costs, fees and expenses (including, without limitation, legal fees and expenses) payable to the respective Agents and the Banks to the extent then due. 5.03 Opinions of Counsel. On the Initial Borrowing Date, the Administrative Agent shall have received (i) from Dechert Price & Rhoads, special counsel to Holdings and its Subsidiaries, an opinion addressed to each of the Agents and each of the Banks and dated the Initial Borrowing Date covering the matters set forth in Exhibit E and (ii) from local counsel satisfactory to the Agents, opinions each of which (x) shall be addressed to each of the Agents and each of the Banks and dated the Initial Borrowing Date, (y) shall be in form and substance satisfactory to the Agents and the Required Banks and (z) shall cover the perfection of the security interests granted pursuant to the Security Agreement and the Mortgages and such other matters incident to the transactions contemplated herein as the Agents may reasonably request. 5.04 Corporate Documents; Proceedings; etc. (a) On the Initial Borrowing Date, the Administrative Agent shall have received a certificate, dated the Initial Borrowing Date, signed by the Chairman of the Board, the President, any Vice President or the Treasurer of each Credit Party, and attested to by the Secretary or any Assistant Secretary of such Credit Party, in the form of Exhibit F with appropriate insertions, together with copies of the Certificate of Incorporation and By-Laws of such Credit Party and the resolutions of such Credit Party referred to in such certificate, and the foregoing shall be reasonably acceptable to the Agents. (b) All corporate and legal proceedings and all material instruments and agreements in connection with the transactions contemplated by this Agreement and the other Documents shall be reasonably satisfactory in form and substance to the Agents and the Required Banks, and the Administrative Agent shall have received all information and copies of all documents and papers, including records of corporate proceedings, governmental approvals, good standing certificates and bring-down telegrams or facsimiles, if any, which any Agent reasonably may have requested in connection therewith, such documents and papers where appropriate to be certified by proper corporate or governmental authorities. 5.05 Employee Benefit Plans; Shareholders' Agreements; Management Agreements; Debt Agreements; Acquisition Documents; Tax Sharing Agreements. On the Initial Borrowing Date, there shall have been made available for review by the Agents and the Banks true and correct copies of the following documents: (i) all Plans (and for each Plan that is required to file an annual report on Internal Revenue Service Form 5500-series, a copy of the most recent such report -38- (including, to the extent required, the related financial and actuarial statements and opinions and other supporting statements, certifications, schedules and information), and for each Plan that is a "single-employer plan," as defined in Section 4001(a)(15) of ERISA, if any, the most recently prepared actuarial valuation therefor) and any other "employee benefit plans," as defined in Section 3(3) of ERISA, and any other material agreements, plans or arrangements, with or for the benefit of current or former employees of Holdings or any of its Subsidiaries or any ERISA Affiliate (provided that the foregoing shall apply in the case of any multiemployer plan, if any, as defined in 4001(a)(3) of ERISA, only to the extent that any document described therein is in the possession of Holdings or any Subsidiary of Holdings or any ERISA Affiliate or reasonably available thereto from the sponsor or trustee of any such plan) (collectively, the "Employee Benefit Plans"); (ii) all agreements entered into by Holdings or any of its Subsidiaries governing the terms and relative rights of its capital stock and any agreements entered into by shareholders relating to any such entity with respect to its capital stock (collectively, the "Shareholders' Agreements"); (iii) all agreements with members of, or with respect to, the management of Holdings or any of its Subsidiaries (collectively, the "Management Agreements"); (iv) all agreements evidencing or relating to Indebtedness of Holdings or any of its Subsidiaries which is to remain outstanding after giving effect to the incurrence of Loans on the Initial Borrowing Date (collectively, the "Debt Agreements"); and (v) all tax sharing, tax allocation and other similar agreements entered into by Holdings, the Borrower or any of their respective Subsidiaries (collectively, the "Tax Sharing Agreements"); all of which Employee Benefit Plans, Shareholders' Agreements, Management Agreements, Debt Agreements and Tax Sharing Agreements shall be in form and substance reasonably satisfactory to the Agents and shall be in full force and effect on the Initial Borrowing Date. 5.06 Consummation of Recapitalization Transaction. (a) On or prior to the Initial Borrowing Date, there shall have been delivered to the Agents and the Banks true and correct copies of the Recapitalization Documents with those Recapitalization Documents delivered to the Agents on or before January 24, 1997 to be in the form so delivered with such changes thereto or waivers therefrom to be satisfactory to the Agents and the Required Banks, and with all other Recapitalization Documents to be in form and substance satisfactory to the Agents and the Required Banks. All Recapitalization Documents shall -39- have been duly executed and delivered by the parties thereto and shall be in full force and effect. All conditions precedent to the consummation of the Recapitalization Transaction as set forth in the Recapitalization Documents shall have been satisfied, and not waived except with the consent (which will not be unreasonably withheld) of each Agent and the Required Banks, to the satisfaction of each Agent and the Required Banks. The Recapitalization Transaction shall have been, or shall substantially contemporaneously (and in any event on the Initial Borrowing Date) be, consummated in accordance with the Recapitalization Documents and all applicable law (excluding immaterial violations of law which could not reasonably be expected to have, in the aggregate for all such violations, a material adverse effect on the consummation of the Recapitalization Transaction or on the operations, financial condition or prospects of the Business, taken as a whole). (b) On or prior to the Initial Borrowing Date, NSC shall have transferred the Purchased Assets and the Assumed Liabilities to the Borrower, and the Borrower shall have accepted the Purchased Assets and assumed the Assumed Liabilities, pursuant to the Asset Purchase Agreement in exchange for the Purchase Price Note and 100 shares of Borrower Common Stock (collectively, the "Asset Transfer"). (c) On or prior to the Initial Borrowing Date, NSC shall have transferred all of the capital stock of the Borrower and approximately $12.8 million in cash to Holdings, in exchange for 11,667 shares of Holdings Series A Preferred Stock, 2,340,000 shares of Holdings Common Stock and the Seller Note in the principal amount of $77 million. (d) On or prior to the Initial Borrowing Date, Holdings shall have received (in addition to the equity contributions pursuant to preceding clause (c)) as equity contributions (x) approximately $58.2 million of cash from Sterling, in return for which Holdings shall have issued to Sterling 52,889 shares of Holdings Series A Preferred Stock and 10,608,000 shares of Holdings Common Stock and (y) approximately $6.8 million of cash from the Management Investors (although the aggregate amount of cash received from the equity contributions pursuant to this clause (d) shall be required to equal at least $64.9 million), in return for which Holdings shall have issued to such Management Investors 5,444 shares of Holdings Series A Preferred Stock and 2,652,000 shares of Holdings Common Stock. (e) On or prior to the Initial Borrowing Date, Holdings shall have contributed (the "Holdings Contribution") all cash proceeds received by it pursuant to the transactions described in clauses (c) and (d) above to the common equity capital of the Borrower. On or prior to the Initial Borrowing Date, the Borrower shall have used all such cash proceeds to make payments owing in connection with the Recapitalization Transaction before utilizing any proceeds of Loans pursuant to this Agreement for such purpose. -40- 5.07 Senior Subordinated Notes. (a) On or prior to the Initial Borrowing Date, the Borrower shall have received aggregate gross cash proceeds of $300,000,000 from the issuance of Senior Subordinated Notes. All terms and conditions of the Senior Subordinated Notes and the documentation with respect thereto (including, without limitation, the maturity thereof, the interest rate applicable thereto, and the required repayments with respect thereto, the covenants, events of default and subordination provisions with respect thereto, and the interest rate payable with respect thereto) shall be consistent with the term sheet for the Senior Subordinated Notes (the "Senior Subordinated Notes Term Sheet") which was delivered to the Agents on or before January 24, 1997, and shall otherwise be in form and substance, and pursuant to documentation in form and substance, reasonably satisfactory to each Agent and the Required Banks. To the extent that any of the terms and conditions of the Senior Subordinated Notes are worse, from the perspective of the Borrower or the Banks, than those described in the Senior Subordinated Notes Term Sheet, such terms and conditions shall be required to be satisfactory to each Agent. On or prior to the Initial Borrowing Date, each Bank shall have received copies of all agreements entered into, or proposed to be entered into, in respect of all of the foregoing, certified on behalf of the Borrower as true and complete by an authorized officer of the Borrower, and each of the foregoing shall be in the form delivered to the Agents prior to January 24, 1997, with such changes thereto as are reasonably acceptable to the Agents. (b) On or prior to the Initial Borrowing Date, the Borrower shall have used all cash proceeds (net of any underwriting commissions, fees or other expenses) described in preceding clause (a) to make payments owing in connection with the Recapitalization Transaction before utilizing any proceeds of Loans pursuant to this Agreement for such purpose. The cash proceeds received on or prior to the Initial Borrowing Date from the Senior Subordinated Notes, when added to the cash proceeds of the Equity Contribution plus the aggregate principal amount of Tranche A Term Loans, Tranche B Term Loans and Revolving Loans incurred on the Initial Borrowing Date, shall be sufficient to effect the Recapitalization Transaction and to pay all fees and expenses in connection therewith. 5.08 Repayment of Purchase Price Note. (a) On or prior to the Initial Borrowing Date, the Borrower shall have repaid the Purchase Price Note in full in cash. 5.09 Indebtedness. Each element of the Transaction shall have been consummated to the reasonable satisfaction of the Agents. After giving effect to the consummation of the Transaction, Holdings, the Borrower and their respective Subsidiaries shall have no outstanding Indebtedness except (i) the Senior Subordinated Notes, (ii) the Seller Note, (iii) the Loans and (iv) such other indebtedness, if any, as shall be permitted to remain outstanding by the Agents and the Required Banks and which is listed on Schedule V hereto. -41- 5.10 Subsidiaries Guaranty. To the extent any Subsidiary Guarantors exist on the Initial Borrowing Date, each such Subsidiary Guarantor shall have duly authorized, executed and delivered a Subsidiaries Guaranty on such date. 5.11 Pledge Agreement. On the Initial Borrowing Date, each Credit Party shall have duly authorized, executed and delivered a Pledge Agreement in the form of Exhibit H (as modified, supplemented or amended from time to time, the "Pledge Agreement") and shall have delivered to the Collateral Agent, as pledgee, all the Pledged Securities, if any, referred to therein then owned by such Credit Party, (x) endorsed in blank in the case of promissory notes constituting Pledged Securities and (y) together with executed and undated stock powers, in the case of capital stock constituting Pledged Securities. 5.12 Security Agreement. On the Initial Borrowing Date, each Credit Party shall have duly authorized, executed and delivered a Security Agreement in the form of Exhibit I (as modified, supplemented or amended from time to time, the "Security Agreement") covering all of such Credit Party's present and future Security Agreement Collateral, in each case together with: (a) proper Financing Statements (Form UCC-1) fully executed for filing under the UCC or other appropriate filing offices of each jurisdiction as may be necessary or, in the reasonable opinion of the Collateral Agent, desirable to perfect the security interests purported to be created by the Security Agreement; (b) certified copies of Requests for Information or Copies (Form UCC-11), or equivalent reports, listing all effective financing statements that name any Credit Party as debtor and that are filed in the jurisdictions referred to in clause (a) above, together with copies of such other financing statements (none of which shall cover the Collateral except to the extent evidencing Permitted Liens or in respect of which the Collateral Agent shall have received termination statements (Form UCC-3) or such other termination statements as shall be required by local law) fully executed for filing; (c) evidence of execution for post-closing filing and recordation of all other recordings and filings of, or with respect to, the Security Agreement as may be necessary or, in the reasonable opinion of the Collateral Agent, desirable to perfect the security interests intended to be created by such Security Agreement; and (d) evidence that all other actions necessary or, in the reasonable opinion of the Collateral Agent, desirable to perfect and protect the security interests purported to be created by the Security Agreement have been taken. -42- 5.13 Mortgages; Title Insurance; Surveys; etc. On the Initial Borrowing Date, the Collateral Agent shall have received: (a) fully executed counterparts of mortgages or deeds to secure debt in each case in form and substance reasonably satisfactory to the Agents (each, a "Mortgage" and, collectively, the "Mortgages"), which Mortgages shall cover such of the Real Property owned or leased by the Borrower or any Domestic Subsidiary as shall be designated as such on Schedule III (each, a "Mortgaged Property" and, collectively, the "Mortgaged Properties"), together with evidence that counterparts of the Mortgages have been delivered to the title insurance company insuring the Lien of the Mortgages for recording in all places to the extent necessary or, in the reasonable opinion of the Collateral Agent, desirable to effectively create a valid and enforceable first priority mortgage lien, subject only to Permitted Encumbrances, on each Mortgaged Property in favor of the Collateral Agent (or such other trustee as may be required or desired under local law) for the benefit of the Secured Creditors; (b) mortgagee title insurance policies on each Mortgaged Property issued by (x) with respect to the Borrower's Real Property located in West Jordan, Utah, Lawyers Title Insurance Company and (y) with respect to the Borrower's Real Property located in South Portland, Maine, First American Title Insurance Company, or such other title insurers reasonably satisfactory to the Collateral Agent (the "Mortgage Policies") in amounts satisfactory to the Agent and the Required Banks assuring the Collateral Agent that the Mortgages on such Mortgaged Properties are valid and enforceable first priority mortgage liens on the respective Mortgaged Properties, free and clear of all defects and encumbrances except Permitted Encumbrances and such Mortgage Policies shall otherwise be in form and substance reasonably satisfactory to the Agents and the Required Banks and shall include, as appropriate, an endorsement for future advances under this Agreement and the Notes and for any other matter that the Collateral Agent in its reasonable discretion may reasonably request, shall not include an exception for mechanics' liens, and shall provide for affirmative insurance and such reinsurance as the Collateral Agent in its discretion may reasonably request; and (c) copies of appraisals prepared for tax allocation purposes for each Mortgaged Property, which appraisals shall be prepared by Ernst & Young, shall value the buildings on a depreciated cost basis and on a continuing use basis and shall otherwise be in form and substance reasonably satisfactory to each Agent and the Required Banks. -43- 5.14 Consent Letter. On the Initial Borrowing Date, the Administrative Agent shall have received a letter from Corporation Service Company, presently located at 500 Central Avenue, Albany, New York 12206, substantially in the form of Exhibit J, indicating its consent to its appointment by each Credit Party as its agent to receive service of process as specified in Section 13.08. 5.15 Adverse Change, etc. (a) On the Initial Borrowing Date, there shall not have occurred or been threatened since May 26, 1996 any material adverse change (or a series of adverse changes) constituting a material adverse change in the business, property, financial condition or prospects of the Business taken as a whole. (b) On or prior to the Initial Borrowing Date, all necessary material governmental (domestic and foreign) and third party approvals and/or consents in connection with the Transaction, the transactions contemplated by the Credit Documents and otherwise referred to herein or therein shall have been obtained and remain in effect, and all applicable waiting periods shall have expired without any action being taken by any competent authority which restrains, prevents or imposes materially adverse conditions upon the consummation of the Transaction or the transactions contemplated by this Agreement. Additionally, there shall not exist any judgment, order, injunction or other restraint prohibiting or imposing materially adverse conditions upon the Transaction or the transactions contemplated by this Agreement. (c) There shall not have occurred and be continuing a "market disruption event" since January 24, 1997. As used in this clause (c), "market disruption event" shall mean (w) any suspension or limitation of trading in securities generally on the New York Stock Exchange (not including any suspension or limitation of trading in any particular security as a result of computerized trading limits), or any setting of minimum prices for trading on such exchange, (x) any banking moratorium declared by U.S. Federal or New York authorities, (y) any outbreak or escalation of major hostilities in which the United States is involved, any declaration of war by Congress or any other substantial national or international calamity or emergency or (z) any other material adverse change in bank or capital market conditions that has had a material adverse effect on the syndication of bank credit facilities or the consummation of high yield offerings. The Borrower shall have fully cooperated in the syndication efforts, including, without limitation, by promptly providing the Agents with all information deemed necessary by them to successfully complete the syndication. 5.16 Litigation. On the Initial Borrowing Date, no litigation by any entity (private or governmental) shall be pending or threatened with respect to the Transaction or this Agreement or any documentation executed in connection therewith, or which could reasonably be expected to have a materially adverse effect on the Transaction or the busi- -44- ness, property, assets, condition (financial or otherwise) or prospects of the Borrower, or the Borrower and its Subsidiaries taken as a whole (after giving effect to the Transaction). 5.17 Solvency Certificate; Environmental Analyses; Insurance. On or before the Initial Borrowing Date, the Borrower shall cause to be delivered to the Administrative Agent (i) a solvency certificate from the chief financial officer of each of Holdings and the Borrower in the form of Exhibit K hereto, which shall be addressed to each Agent and each of the Banks and dated the Initial Borrowing Date, setting forth the conclusion that, after giving effect to the Transaction and the incurrence of all the financings contemplated herein, each of Holdings and its Subsidiaries taken as a whole and the Borrower, are not insolvent and will not be rendered insolvent by the indebtedness incurred in connection therewith, and will not be left with unreasonably small capital with which to engage in their businesses and will not have incurred debts beyond their ability to pay debts as they mature, (ii) environmental and hazardous substance analyses with respect to the properties of Holdings and its Subsidiaries, the results of which shall be in scope, and in form and substance satisfactory to the Agents and the Required Banks (it being acknowledged and agreed that the environmental and hazardous substance analyses furnished to the Agents on or prior to January 24, 1997 are in form and substance satisfactory to the Agents and the Required Banks) and (iii) certificates of insurance complying with the requirements of Section 8.03 for the business and properties of Holdings and its Subsidiaries, in scope, form and substance reasonably satisfactory to the Agents and the Required Banks and naming the Collateral Agent as an additional insured and/or loss payee, and stating that such insurance shall not be cancelled or revised without 30 days prior written notice by the insurer to the Collateral Agent. 5.18 Pro Forma Balance Sheet; Financial Statements; Projections. On or prior to the Initial Borrowing Date, the Agents shall have received copies of the financial statements (including the pro forma financial statements) and Projections referred to in Sections 7.05(a) and (d). SECTION 6. Conditions Precedent to All Credit Events. The obligation of each Bank to make Loans (including Loans made on the Initial Borrowing Date but excluding Mandatory Borrowings made thereafter, which shall be made as provided in Section 1.01(e)), and the obligation of an Issuing Bank to issue any Letter of Credit, is subject, at the time of each such Credit Event (except as hereinafter indicated), to the satisfaction of the following conditions: 6.01 No Default; Representations and Warranties. At the time of each such Credit Event and also after giving effect thereto (i) there shall exist no Default or Event of Default and (ii) all representations and warranties contained herein or in any other Credit Document shall be true and correct in all material respects with the same effect as though -45- such representations and warranties had been made on the date of the making of such Credit Event (it being understood and agreed that any representation or warranty which by its terms is made as of a specified date shall be required to be true and correct in all material respects only as of such specified date). 6.02 Notice of Borrowing; Letter of Credit Request. (a) Prior to the making of each Loan (excluding Swingline Loans), the Administrative Agent shall have received the notice required by Section 1.03(a). Prior to the making of any Swingline Loan, the Swingline Bank shall have received the notice required by Section 1.03(b)(i). (b) Prior to the issuance of each Letter of Credit, the Administrative Agent and the respective Issuing Bank shall have received a Letter of Credit Request meeting the requirements of Section 2.02. The acceptance of the proceeds of each Credit Event shall constitute a representation and warranty by the Borrower to each of the Agents and each of the Banks that all the conditions specified in Section 5 and in this Section 6 and applicable to such Credit Event exist as of that time. All of the Notes, certificates, legal opinions and other documents and papers referred to in Section 5 and in this Section 6, unless otherwise specified, shall be delivered to the Administrative Agent at the Notice Office for the account of each of the Banks and, except for the Notes, in sufficient counterparts for each of the Banks and shall be in form and substance reasonably satisfactory to the Agents. SECTION 7. Representations, Warranties and Agreements. In order to induce the Banks to enter into this Agreement and to make the Loans, and issue (or participate in) the Letters of Credit as provided herein, each of Holdings and the Borrower makes the following representations, warranties and agreements, in each case after giving effect to the Transaction as consummated on the Initial Borrowing Date, all of which shall survive the execution and delivery of this Agreement and the Notes and the making of the Loans and issuance of the Letters of Credit, with the occurrence of each Credit Event on or after the Initial Borrowing Date being deemed to constitute a representation and warranty that the matters specified in this Section 7 are true and correct in all material respects on and as of the Initial Borrowing Date and on the date of each such Credit Event (it being understood and agreed that any representation or warranty which by its terms is made as of a specified date shall be required to be true and correct in all material respects only as of such specified date). 7.01 Corporate Status. Holdings, the Borrower and each of their respective Subsidiaries (i) is a duly organized and validly existing corporation in good standing under the laws of the jurisdiction of its incorporation, (ii) has the corporate power and authority to own its property and assets and to transact the business in which it is engaged and -46- presently proposes to engage and (iii) is duly qualified and is authorized to do business and is in good standing in each jurisdiction where the conduct of its business requires such qualifications except for failures to be so qualified which, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect. 7.02 Corporate Power and Authority. Each Credit Party has the corporate power and authority to execute, deliver and perform the terms and provisions of each of the Documents to which it is party and has taken all necessary corporate action to authorize the execution, delivery and performance by it of each of such Documents. Each Credit Party has duly executed and delivered each of the Documents to which it is party, and each of such Documents constitutes the legal, valid and binding obligation of such Credit Party enforceable in accordance with its terms, except to the extent that the enforceability thereof may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws generally affecting creditors' rights and by equitable principles (regardless of whether enforcement is sought in equity or at law). 7.03 No Violation. Neither the execution, delivery or performance by any Credit Party of the Documents to which it is a party, nor compliance by it with the terms and provisions thereof, (i) will contravene any provision of any applicable law, statute, rule or regulation or any applicable order, writ, injunction or decree of any court or governmental instrumentality, (ii) will conflict with or result in any breach of any of the terms, covenants, conditions or provisions of, or constitute a default under, or result in the creation or imposition of (or the obligation to create or impose) any Lien (except pursuant to the Security Documents) upon any of the properties or assets of Holdings, the Borrower or any of their respective Subsidiaries pursuant to the terms of any indenture, mortgage, deed of trust, credit agreement or loan agreement, or any other material agreement, contract or instrument, to which Holdings, the Borrower or any of their respective Subsidiaries is a party or by which it or any of its property or assets is bound or to which it may be subject (excluding, in the case of the Recapitalization Documents, from the foregoing clauses (i) and (ii) such immaterial violations, which in no event shall violate the provisions of this Agreement or otherwise be reasonably expected to have (x) a material adverse effect on (I) the Transaction or (II) the rights or remedies of the Agents or the Banks, or on the ability of any Credit Party to perform their respective obligations to the Agents and the Banks or (y) a Material Adverse Effect) or (iii) will violate any provision of the Certificate of Incorporation or By-Laws of Holdings, the Borrower or any of their respective Subsidiaries. 7.04 Governmental Approvals. No order, consent, approval, license, authorization or validation of, or filing, recording or registration with (except as have been obtained or made or, in the case of any filings or recordings in respect of the Security Documents executed on the Initial Borrowing Date, will be made within 10 days thereof), -47- or exemption by, any governmental or public body or authority, or any subdivision thereof, is required to authorize, or is required in connection with, (i) the execution, delivery and performance of (x) any Recapitalization Document by any Credit Party or (y) any Credit Document or (ii) the legality, validity, binding effect or enforceability of (x) any Recapitalization Document with respect to any Credit Party or (y) any Credit Document. 7.05 Financial Statements; Financial Condition; Undisclosed Liabilities; Projections; etc. (a) The audited combined balance sheets of the Business as of May 28, 1995 and May 26, 1996, and the related combined statements of operations for each of the years in the three year period ended May 26, 1996 and the unaudited combined balance sheets of the Business as of November 24, 1996, and the related combined statements of operations for the six month period ended November 24, 1996, in each case furnished to the Banks prior to the Effective Date pursuant to Section 5.18, present fairly the combined assets, liabilities and business equity of the Business at the respective dates of such balance sheets and its combined revenues less direct expenses before taxes for each of the years in the three year period ended May 26, 1996 or the six month period ended November 24, 1996, as the case may be, on the basis described in Note 1 to the financial statements audited by KPMG Peat Marwick, LLP, in conformity with generally accepted accounting principles. Furthermore, all pro forma financial statements or information contained in the Offering Circular have been prepared by management of the Borrower from the historical financial statements referenced above, to reflect adjustments as if the Transaction had occurred on the dates provided in the Offering Circular, based on assumptions that management of the Borrower, on the Initial Borrowing Date, believes are reasonable in the circumstances. (b) (i) On and as of the Initial Borrowing Date, on a pro forma basis after giving effect to the Transaction and all other transactions contemplated by the Documents and to all Indebtedness (including the Loans) being incurred or assumed, and Liens created by each Credit Party in connection therewith, with respect to Holdings and the Borrower, individually, and each such Person and its Subsidiaries taken as a whole, (x) the sum of the assets, at a fair valuation, of each such Person, individually, and each such Person and its Subsidiaries taken as a whole, will exceed its or their debts; (y) it has not incurred and does not intend to incur, nor believes that it will incur, debts beyond its ability to pay such debts as such debts mature; and (z) it will have sufficient capital with which to conduct its business. For purposes of this Section 7.05(b), "debt" means any liability on a claim and "claim" means (i) right to payment, whether or not such a right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured or (ii) right to an equitable remedy for breach of performance if such breach gives rise to a payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured or unsecured. -48- (c) Except as fully disclosed in the financial statements delivered pursuant to Section 7.05(a), there were as of the Initial Borrowing Date no liabilities or obligations with respect to Holdings or any of its Subsidiaries of any nature whatsoever (whether absolute, accrued, contingent or otherwise and whether or not due) which, either individually or in the aggregate, would be adversely material to the Business or Holdings and its Subsidiaries taken as a whole or the Borrower. As of the Initial Borrowing Date, none of the Credit Parties knows of any basis for the assertion against it of any liability or obligation of any nature that is not fully disclosed in the financial statements delivered pursuant to Section 7.05(a) which, either individually or in the aggregate, could be materially adverse to Holdings and its Subsidiaries taken as a whole or the Borrower. (d) On and as of the Initial Borrowing Date, the Projections set forth on Schedule X hereto which have been delivered to the Administrative Agent and the Banks on or prior to the Initial Borrowing Date have been prepared on a basis consistent with the financial statements referred to in Section 7.05(a), and are based on good faith estimates and assumptions believed by management of Holdings to be reasonable and attainable as of the date of such Projections, and there are no statements or conclusions in any of the Projections which are based upon or include information known to Holdings or any of its Subsidiaries to be misleading or which fail to take into account material information regarding the matters reported therein. On the Initial Borrowing Date, Holdings believes that the Projections were reasonable and attainable. (e) After giving effect to the Transaction (but for this purpose assuming that the Transaction had occurred prior to May 26, 1996), since May 26, 1996 there has been (x) if this representation is being made (or deemed made) on or prior to the Initial Borrowing Date, no material adverse change in the operations, properties, financial condition or prospects of the Business, Holdings and its Subsidiaries taken as a whole or the Borrower and (y) if this representation is being made (or deemed made) at any time after the Initial Borrowing Date, no Material Adverse Effect. 7.06 Litigation. There are no actions, suits or proceedings pending or, to the best knowledge of Holdings and the Borrower, threatened (i) with respect to any Credit Document or (ii) that could reasonably be expected to have a Material Adverse Effect. 7.07 True and Complete Disclosure. All factual information (taken as a whole) furnished by or on behalf of Holdings or the Borrower in writing to any of the Agents or any Bank (including, without limitation, all information contained in the Documents or in the Offering Circular) for purposes of or in connection with this Agreement, the other Credit Documents or any transaction contemplated herein or therein is, and all other such factual information (taken as a whole) hereafter furnished by or on behalf of Holdings or the Borrower in writing to any of the Agents or any Bank will be, true and -49- accurate in all material respects on the date as of which such information is dated or certified and not incomplete by omitting to state any fact necessary to make such information (taken as a whole) not misleading in any material respect at such time in light of the circumstances under which such information was provided. 7.08 Use of Proceeds; Margin Regulations. (a) All proceeds of the Term Loans shall be used by the Borrower (i) to effect the Recapitalization Transaction and (ii) to pay fees and expenses related to the Recapitalization Transaction. (b) All proceeds of all Revolving Loans and all Swingline Loans incurred after the Initial Borrowing Date shall be used for the Borrower's general corporate and working capital purposes (excluding the purposes described in preceding Section 7.08(a)). (c) No part of the proceeds of any Loan will be used to purchase or carry any Margin Stock or to extend credit for the purpose of purchasing or carrying any Margin Stock. Neither the making of any Loan nor the use of the proceeds thereof nor the occurrence of any other Credit Event will violate or be inconsistent with the provisions of Regulation G, T, U or X of the Board of Governors of the Federal Reserve System. 7.09 Tax Returns and Payments. Each of Holdings and each of its Subsidiaries has filed all federal income tax returns and all other material tax returns, domestic and foreign, required to be filed by it and has paid all material taxes and assessments payable by it which have become due, except for those contested in good faith and adequately disclosed and fully provided for on the financial statements of Holdings and its Subsidiaries in accordance with generally accepted accounting principles. Holdings and each of its Subsidiaries have at all times paid, or have provided adequate reserves (in the good faith judgment of the management of Holdings) for the payment of, all federal, state and foreign income taxes applicable for all prior fiscal years and for the current fiscal year to date. There is no action, suit, proceeding, investigation, audit, or claim now pending or, to the knowledge of Holdings or any of its Subsidiaries, threatened by any authority regarding any taxes relating to Holdings or any of its Subsidiaries which could be reasonably expected to have a Material Adverse Effect. As of the Initial Borrowing Date, neither Holdings nor any of its Subsidiaries has entered into an agreement or waiver or been requested to enter into an agreement or waiver extending any statute of limitations relating to the payment or collection of taxes of Holdings or any of its Subsidiaries, or is aware of any circumstances that would cause the taxable years or other taxable periods of Holdings or any of its Subsidiaries not to be subject to the normally applicable statute of limitations. 7.10 Compliance with ERISA. (i) Schedule VII sets forth, as of the Initial Borrowing Date, each Plan; each Plan (and each related trust, insurance contract or fund) -50- is in substantial compliance with its terms and with all applicable laws, including without limitation ERISA and the Code; each Plan (and each related trust, if any) which is intended to be qualified under Section 401(a) of the Code has received a determination letter from the Internal Revenue Service to the effect that it meets the requirements of Sections 401(a) and 501(a) of the Code; no Reportable Event has occurred; no Plan which is a multiemployer plan (as defined in Section 4001(a)(3) of ERISA) is insolvent or in reorganization; no Plan has an Unfunded Current Liability; no Plan which is subject to Section 412 of the Code or Section 302 of ERISA has an accumulated funding deficiency, within the meaning of such sections of the Code or ERISA, or has applied for or received a waiver of an accumulated funding deficiency or an extension of any amortization period, within the meaning of Section 412 of the Code or Section 303 or 304 of ERISA; to the best knowledge of Holdings or any Subsidiary of Holdings, all contributions required to be made with respect to a Plan have been or will be timely made; neither Holdings nor any Subsidiary of Holdings nor any ERISA Affiliate has incurred any material liability (including any indirect, contingent or secondary liability) to or on account of a Plan pursuant to Section 409, 502(i), 502(l), 515, 4062, 4063, 4064, 4069, 4201, 4204 or 4212 of ERISA or Section 401(a)(29), 4971 or 4975 of the Code or expects to incur any such liability under any of the foregoing sections with respect to any Plan; to the best knowledge of Holdings or any Subsidiary of Holdings, no condition exists which presents a material risk to Holdings or any Subsidiary of Holdings or any ERISA Affiliate of incurring a liability to or on account of a Plan pursuant to the foregoing provisions of ERISA and the Code; no proceedings have been instituted to terminate or appoint a trustee to administer any Plan which is subject to Title IV of ERISA; to the best knowledge of Holdings or any Subsidiary of Holdings, no action, suit, proceeding, hearing, audit or investigation with respect to the administration, operation or the investment of assets of any Plan (other than routine claims for benefits) is pending, or, to the best knowledge of Holdings or any Subsidiary of Holdings, expected or threatened; using actuarial assumptions and computation methods consistent with Part 1 of subtitle E of Title IV of ERISA, the aggregate liabilities of Holdings and its Subsidiaries and its ERISA Affiliates to all Plans which are multiemployer plans (as defined in Section 4001(a)(3) of ERISA) in the event of a complete withdrawal therefrom, as of the close of the most recent fiscal year of each such Plan ended prior to the date of the most recent Credit Event, would not exceed $200,000; each group health plan (as defined in Section 607(1) of ERISA or Section 4980B(g)(2) of the Code) which covers or has covered employees or former employees of Holdings, any Subsidiary of Holdings, or any ERISA Affiliate has at all times been operated in material compliance with the provisions of Part 6 of subtitle B of Title I of ERISA and Section 4980B of the Code; no lien imposed under the Code or ERISA on the assets of Holdings or any Subsidiary of Holdings or any ERISA Affiliate exists or is likely to arise on account of any Plan; and Holdings and its Subsidiaries may cease contributions to or terminate any employee benefit plan maintained by any of them without incurring any material liability. -51- (ii) Each Foreign Pension Plan has been maintained in substantial compliance with its terms and with the requirements of any and all applicable laws, statutes, rules, regulations and orders and has been maintained, where required, in good standing with applicable regulatory authorities. All contributions required to be made with respect to a Foreign Pension Plan have been or will be timely made. Neither Holdings nor any of its Subsidiaries has incurred any obligation in connection with the termination of or withdrawal from any Foreign Pension Plan. Except as otherwise disclosed in Note 4 to the financial statements audited by KPMG Peat Marwick, LLP, as described in Section 7.05(a), the excess of the present value of the accrued benefit liabilities (whether or not vested) under each Foreign Pension Plan, determined as of the end of Holdings' most recently ended fiscal year on the basis of actuarial assumptions, each of which is reasonable, over the current value of the assets of each such Foreign Pension Plan allocable to such benefit liabilities does not, in the aggregate, have a Material Adverse Effect. 7.11 The Security Documents. (a) The provisions of the Security Agreement are effective to create in favor of the Collateral Agent for the benefit of the Secured Creditors a legal, valid and enforceable security interest in all right, title and interest of the Credit Parties in the Security Agreement Collateral described therein, and the Security Agreement, upon the filing of Form UCC-1 financing statements or the appropriate equivalent (which filings, if this representation is being made more than 10 days after the Initial Borrowing Date, have been made), create a fully perfected first lien on, and security interest in, all right, title and interest in all of the Security Agreement Collateral described therein, subject to no other Liens other than Permitted Liens, to the extent a security interest in such collateral can be perfected by the filing of a financing statement. The recordation of the Assignment of Security Interest in U.S. Patents and Trademarks in the form attached to the Security Agreement in the United States Patent and Trademark Office together with filings on Form UCC-1 made pursuant to the Security Agreement will be effective when recorded or filed (which recordings or filings, if this representation is being made more than 10 days after the Initial Borrowing Date, have been made), under applicable law, to perfect the security interest granted to the Collateral Agent in the trademarks and patents covered by the Security Agreement and the recordation of the Assignment of Security Interest in U.S. Copyrights in the form attached to the Security Agreement with the United States Copyright Office together with filings on Form UCC-1 made pursuant to the Security Agreement will be effective when recorded or filed (which recordings or filings, if this representation is being made more than 10 days after the Initial Borrowing Date, have been made) under federal law to perfect the security interest granted to the Collateral Agent in the copyrights covered by the Security Agreement. Each of the Credit Parties party to the Security Agreement has good and valid title to all Security Agreement Collateral described therein, free and clear of all Liens except those described above in this clause (a). -52- (b) The security interests created in favor of the Collateral Agent, as pledgee, for the benefit of the Secured Creditors under the Pledge Agreement constitute first priority perfected security interests in the Pledged Securities described in the Pledge Agreement, subject to no security interests of any other Person. No filings or recordings are required in order to perfect (or maintain the perfection or priority of) the security interests created in the Pledged Securities and the proceeds thereof under the Pledge Agreement. (c) The Mortgages create, as security for the obligations purported to be secured thereby, a valid and enforceable perfected security interest in and mortgage lien on all of the Mortgaged Properties in favor of the Collateral Agent (or such other trustee as may be required or desired under local law) for the benefit of the Secured Creditors, superior to and prior to the rights of all third persons (except that the security interest and mortgage lien created in the Mortgaged Properties may be subject to the Permitted Encumbrances related thereto) and subject to no other Liens (other than Permitted Liens). Schedule III contains a true and complete list of each parcel of Real Property owned or leased by the Borrower and its Subsidiaries on the Effective Date, and the type of interest therein held by the Borrower or such Subsidiary. The Borrower and each of its Subsidiaries have good and indefeasible title to all fee-owned Mortgaged Properties and valid leasehold title to all Leaseholds, in each case free and clear of all Liens except those described in the first sentence of this subsection (c). 7.12 Representations and Warranties in Documents. All representations and warranties set forth in the other Documents were true and correct in all material respects at the time as of which such representations and warranties were made (or deemed made), provided that to the extent the representations and warranties in the Recapitalization Documents are made by Persons other than the Credit Parties and the CVC Permitted Holders, then the representations and warranties so made by such Persons shall be deemed to be true and correct in all material respects for purposes of this Section 7.12 unless the aggregate effect of all misrepresentations made by such Persons in the Recapitalization Documents are such as would evidence a material adverse change in the operations, properties, condition (financial or otherwise) or prospects of the Business from that which would have applied if all representations made by such Persons in the Recapitalization Documents had been true and correct in all respects. 7.13 Properties. Holdings, the Borrower and each of their respective Subsidiaries have good and valid title to all properties owned by them, including all property reflected in the most recent balance sheet of the Business referred to in Section 7.05(a) and in the pro forma balance sheet referred to in Section 5.18 (except as sold or otherwise disposed of since the date of such balance sheet in the ordinary course of business), free and clear of all Liens, other than (i) as referred to in the balance sheet or in the notes thereto or in the pro forma balance sheet or (ii) Permitted Liens otherwise permitted by -53- Section 9.01. On the Effective Date, Schedule III sets forth a true and complete description of all Real Property owned or leased by the Borrower and/or its Subsidiaries and sets forth the direct owner or lessee thereof. 7.14 Capitalization. (a) On the Initial Borrowing Date and after giving effect to the Transaction, the authorized capital stock of Holdings shall consist of 30,000,000 shares of Class A Holdings Common Stock, 7,300,000 of which shall be issued and outstanding, 30,000,000 shares of Class B Holdings Common Stock, 8,300,000 of which shall be issued and outstanding, and 70,000 shares of Holdings Series A Preferred Stock, all of which shall be issued and outstanding. All such outstanding shares have been duly and validly issued, are fully paid and non-assessable and have been issued free of preemptive rights, except for the preemptive rights set forth in the Securities Purchase and Holders Agreement. Except as set forth on Schedule XI, on the Initial Borrowing Date, Holdings does not have outstanding any securities convertible into or exchangeable for its capital stock or outstanding any rights to subscribe for or to purchase, or any options for the purchase of, or any agreement providing for the issuance (contingent or otherwise) of, or any calls, commitments or claims of any character relating to, its capital stock. (b) On the Initial Borrowing Date and after giving effect to the Transaction, the authorized capital stock of the Borrower shall consist of 1,000 shares of Borrower Common Stock, 100 of which shall be issued and outstanding and delivered for pledge pursuant to the Pledge Agreement. All such outstanding shares of common stock have been duly and validly issued, are fully paid and nonassessable and are free of preemptive rights. As of the Initial Borrowing Date, the Borrower does not have outstanding any securities convertible into or exchangeable for its capital stock or outstanding any rights to subscribe for or to purchase, or any options for the purchase of, or any agreements providing for the issuance (contingent or otherwise) of, or any calls, commitments or claims of any character relating to, its capital stock. 7.15 Subsidiaries. After giving effect to the Transaction, Holdings will have no Subsidiaries other than the Borrower and its Subsidiaries. After giving effect to the Transaction, the Borrower will have no Subsidiaries other than (i) those Subsidiaries listed on Schedule VIII and (ii) new Subsidiaries created in compliance with Section 9.14. An accurate organization chart, showing the ownership structure of Holdings and each of its Subsidiaries on the Initial Borrowing Date, and after giving effect to the Transaction, is set forth on Schedule XII. 7.16 Compliance with Statutes, etc. Each of Holdings, the Borrower and its Subsidiaries is in compliance with all applicable statutes, regulations and orders of, and all applicable restrictions imposed by, all governmental bodies, domestic or foreign, in respect of the conduct of its business and the ownership of its property (including applicable -54- statutes, regulations, orders and restrictions relating to environmental standards and controls), except such noncompliances as could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. 7.17 Investment Company Act. None of Holdings, the Borrower or any of their respective Subsidiaries is an "investment company" or a company "controlled" by an "investment company," within the meaning of the Investment Company Act of 1940, as amended. 7.18 Public Utility Holding Company Act. None of Holdings, the Borrower or any of their respective Subsidiaries is a "holding company," or a "subsidiary company" of a "holding company," or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company" within the meaning of the Public Utility Holding Company Act of 1935, as amended. 7.19 Environmental Matters. (a) Holdings, the Borrower and each of their respective Subsidiaries have complied with, and on the date of each Credit Event will be in compliance with, all applicable Environmental Laws and the requirements of any permits issued under such Environmental Laws. There are no pending or, to the best knowledge of Holdings and the Borrower after due inquiry, past or threatened Environmental Claims against Holdings, the Borrower or any of their respective Subsidiaries or any Real Property owned or operated by Holdings, the Borrower or any of their respective Subsidiaries. There are no facts, circumstances, conditions or occurrences in respect of any Real Property owned or operated by Holdings, the Borrower or any of their respective Subsidiaries that, to the best knowledge of Holdings or the Borrower after due inquiry, could reasonably be expected (i) to form the basis of an Environmental Claim against Holdings, the Borrower or any of their respective Subsidiaries or any such Real Property, or (ii) to cause any such Real Property to be subject to any restrictions on the ownership, occupancy, use or transferability of such Real Property by Holdings, the Borrower or any of their respective Subsidiaries under any applicable Environmental Law. (b) Hazardous Materials have not at any time been generated, used, treated or stored on, or transported to or from, any Real Property owned or operated by Holdings, the Borrower or any of their respective Subsidiaries where such generation, use, treatment or storage has violated or could reasonably be expected to violate any Environmental Law. Hazardous Materials, to the best knowledge of Holdings and the Borrower, have not been Released on or from any Real Property owned or operated by Holdings, the Borrower or any of their respective Subsidiaries where such Release has violated or could reasonably be expected to violate any applicable Environmental Law. -55- (c) Notwithstanding anything to the contrary in this Section 7.19, the representations made in this Section 7.19 shall only be untrue if the aggregate effect of all failures and noncompliances of the types described above could reasonably be expected to have a Material Adverse Effect. 7.20 Labor Relations. Except as set forth on Schedule IX, none of Holdings, the Borrower nor any of their respective Subsidiaries is engaged in any unfair labor practice that could reasonably be expected to have a material adverse effect on Holdings and its Subsidiaries taken as a whole or the Borrower and there is (i) no unfair labor practice complaint pending against Holdings, the Borrower or any of their respective Subsidiaries or, to the best knowledge of Holdings or the Borrower, threatened against any of them, before the National Labor Relations Board, and no material grievance or arbitration proceeding arising out of or under any collective bargaining agreement is so pending against Holdings, the Borrower or any of their respective Subsidiaries or, to the best knowledge of Holdings or the Borrower, threatened against any of them, (ii) no strike, labor dispute, slowdown or stoppage pending against Holdings, the Borrower or any of their respective Subsidiaries or, to the best knowledge of Holdings or the Borrower, threatened against Holdings, the Borrower or any of their respective Subsidiaries and (iii) to the best knowledge of Holdings and the Borrower, no union representation proceeding is pending with respect to the employees of Holdings or the Borrower or any of their respective Subsidiaries, except (with respect to any matter specified in clause (i), (ii) or (iii) above, either individually or in the aggregate) such as could not reasonably be expected to have a Material Adverse Effect. 7.21 Patents, Licenses, Franchises and Formulas. Each of Holdings, the Borrower and their respective Subsidiaries owns all material patents, trademarks, permits, service marks, trade names, copyrights, licenses, franchises and formulas, or rights with respect to the foregoing, and has obtained assignments of all leases and other rights of whatever nature, necessary for the present conduct of its business, without any known conflict with the rights of others which, or the failure to own or obtain which, as the case may be, would be reasonably likely to result in a Material Adverse Effect. 7.22 Indebtedness. Schedule V sets forth a true and complete list of all Indebtedness (excluding (i) the Senior Subordinated Notes, (ii) the Seller Note and (iii) the Loans and Letters of Credit) of Holdings, the Borrower and their respective Subsidiaries as of the Initial Borrowing Date and which is to remain outstanding after giving effect to the Transaction (the "Existing Indebtedness"), in each case showing the aggregate principal amount thereof and the name of the respective borrower and any other entity which directly or indirectly guaranteed such debt. -56- 7.23 Transaction. At the time of consummation thereof, the Transaction shall have been consummated in all material respects in accordance with the terms of the respective Documents and all applicable laws. At the time of consummation of the Transaction, all necessary material consents and approvals of, and filings and registrations with, and all other actions in respect of, all governmental agencies, authorities or instrumentalities required in order to make or consummate the Transaction will have been obtained, given, filed or taken and are or will be in full force and effect (or effective judicial relief with respect thereto has been obtained). All applicable waiting periods with respect thereto have or, prior to the time when required, will have, expired without, in all such cases, any action being taken by any competent authority which restrains, prevents, or imposes material adverse conditions upon the Transaction. Additionally, there does not exist any judgment, order or injunction prohibiting or imposing material adverse conditions upon the Transaction, or the occurrence of any Credit Event or the performance by Holdings or the Borrower of its obligations under the respective Credit Documents. All actions taken by Holdings and the Borrower pursuant to or in furtherance of the Transaction have been taken in all material respects in compliance with the respective Documents and all applicable laws. 7.24 Special Purpose Corporations. Holdings was formed for the purpose of effecting the Recapitalization Transaction and, prior to the consummation thereof, had no material assets or liabilities except in connection therewith. Holdings engages in no business activities other than the employment of management of the Borrower, except in connection with its ownership of the capital stock of the Borrower and liabilities incident thereto. SECTION 8. Affirmative Covenants. Holdings and the Borrower hereby covenant and agree that on and after the Effective Date and until the Total Commitments and all Letters of Credit have terminated and the Loans, Notes and Unpaid Drawings, together with interest, Fees and all other obligations incurred hereunder and thereunder, are paid in full: 8.01 Information Covenants. Holdings and/or the Borrower will furnish to the Administrative Agent (with sufficient copies for each of the Banks) and the Administrative Agent will promptly thereafter furnish to each Bank: (a) Monthly Reports. Within 30 days after the end of each fiscal month of Holdings, the consolidated balance sheets of Holdings and its consolidated Subsidiaries (and Unrestricted Subsidiaries to the extent required to be consolidated with Holdings for financial reporting purposes in accordance with GAAP) as at the end of such month and the related consolidated statements of income (including consolidating income statements by each of the Borrower's Logic, Memory and -57- Discrete Power and Signal Technologies Business Units, as well as booking, billing and backlog information related to such Business Units) and retained earnings and statement of cash flows for such month and for the elapsed portion of the fiscal year ended with the last day of such month, in each case setting forth comparative figures for the corresponding month in the prior fiscal year. (b) Quarterly Financial Statements. Within 45 days after the close of the first three quarterly accounting periods in each fiscal year of Holdings, (i) the consolidated and consolidating balance sheets of Holdings and its Consolidated Subsidiaries as at the end of such quarterly accounting period and the related consolidated and consolidating statements of income (including consolidating income statements by each of the Borrower's Logic, Memory and Discrete Power and Signal Technologies Business Units, as well as booking, billing and backlog information related to such Business Units) and cash flows, in each case for such quarterly accounting period and for the elapsed portion of the fiscal year ended with the last day of such quarterly accounting period, and in each case, setting forth comparative figures for the related periods in the prior fiscal year, after the delivery of the first budget pursuant to Section 8.01(e), and the budgeted figures for such quarterly periods as set forth in the respective budget delivered pursuant to Section 8.01(e), all of which shall be certified by the Chief Financial Officer or Treasurer of Holdings, subject to normal year-end audit adjustments and (ii) management's discussion and analysis of the important operational and financial developments during the fiscal quarter and year-to-date periods. (c) Annual Financial Statements. Within 90 days after the close of each fiscal year of Holdings, (i) the consolidated and consolidating balance sheets of Holdings and its consolidated Subsidiaries (and Unrestricted Subsidiaries to the extent required to be consolidated with Holdings for financial reporting purposes in accordance with GAAP) as at the end of such fiscal year and the related consolidated and consolidating statements of income (including consolidating income statements by each of the Borrower's Logic, Memory and Discrete Power and Signal Technologies Business Units, as well as booking, billing and backlog information related to such Business Units) and retained earnings and of cash flows for such fiscal year setting forth comparative figures for the preceding fiscal year and certified (x) in the case of such consolidated financial statements, by KPMG Peat Marwick, LLP, or such other independent certified public accountants of recognized national standing reasonably acceptable to the Administrative Agent, together with a report of such accounting firm stating that in the course of its regular audit of the financial statements of Holdings and its Subsidiaries, which audit was conducted in accordance with generally accepted auditing standards, such accounting firm obtained no knowledge of any Default or Event of Default which -58- has occurred and is continuing or, if in the opinion of such accounting firm such a Default or Event of Default has occurred and is continuing, a statement as to the nature thereof, and (y) in the case of such consolidating financial statements, by the Chief Financial Officer or Treasurer of Holdings, and (ii) management's discussion and analysis of the important operational and financial developments during such fiscal year. (d) Management Letters. Promptly after the receipt thereof by Holdings, the Borrower or any of their respective Subsidiaries, a copy of any "management letter" received by any such Person from its certified public accountants and the management's responses thereto. (e) Budgets. No later than 30 days following the commencement of the first day of each fiscal year of Holdings, a budget in form satisfactory to the Agents (including budgeted statements of income by each of the Borrower's Logic, Memory and Discrete Power and Signal Technologies Business Units and sources and uses of cash and balance sheets) prepared by Holdings for (x) each of the twelve months of such fiscal year prepared in detail and (y) each of the five years immediately following such fiscal year prepared in summary form, in each case, of Holdings and its Subsidiaries, accompanied by the statement of the Chief Financial Officer or Treasurer of Holdings to the effect that, to the best of his knowledge, the budget is a reasonable estimate for the period covered thereby. (f) Officer's Certificates. At the time of the delivery of the financial statements provided for in Section 8.01(a), (b) and (c), a certificate of the Chairman of the Board, the President, Chief Financial Officer or the Treasurer of the Borrower to the effect that, to the best of such officer's knowledge, no Default or Event of Default has occurred and is continuing or, if any Default or Event of Default has occurred and is continuing, specifying the nature and extent thereof, which certificate shall, in the case of any such financial statements delivered in respect of a period ending on the last day of a fiscal quarter or year of Holdings, (x) set forth the calculations required to establish whether the Borrower was in compliance with the provisions of Sections 4.02(f), (g) and (h) (but with respect to Section 4.02(g) only to the extent delivered with the financial statements required by Sections 8.01(c)), 9.05, 9.07 and 9.08 through 9.10, inclusive, at the end of such fiscal quarter or year, as the case may be and (y) if delivered with the financial statements required by Section 8.01(c), set forth the amount of Excess Cash Flow for the respective Excess Cash Payment Period. (g) Notice of Default or Litigation. Promptly, and in any event within three Business Days in the case of item (i) below or five Business Days in the case of -59- item (ii) below after an officer of Holdings or the Borrower obtains knowledge thereof, notice of (i) the occurrence of any event which constitutes a Default or Event of Default and (ii) any litigation or governmental investigation or proceeding pending or threatened (x) against Holdings, the Borrower or any of their respective Subsidiaries which could reasonably be expected to have a Material Adverse Effect, (y) with respect to any Indebtedness in excess of $2,500,000 of Holdings, the Borrower or any of their respective Subsidiaries or (z) with respect to any Document. (h) Other Reports and Filings. Promptly, copies of all financial information, proxy materials and other information and reports, if any, which Holdings, the Borrower or any of their respective Subsidiaries shall file with the Securities and Exchange Commission or any successor thereto (the "SEC") or deliver to holders of its Indebtedness pursuant to the terms of the documentation governing such Indebtedness (or any trustee, agent or other representative therefor). (i) Environmental Matters. Promptly upon, and in any event within ten Business Days after, an officer of Holdings, the Borrower or any of their respective Subsidiaries obtains knowledge thereof, notice of one or more of the following environmental matters which occurs after the Initial Borrowing Date, unless such environmental matters could not, individually or when aggregated with all other such environmental matters, be reasonably expected to have a Material Adverse Effect: (i) any Environmental Claim pending or threatened in writing against Holdings, the Borrower or any of their respective Subsidiaries or any Real Property owned or operated by Holdings, the Borrower or any of their respective Subsidiaries; (ii) any condition or occurrence on or arising from any Real Property owned or operated by Holdings, the Borrower or any of their respective Subsidiaries that (a) results in noncompliance by Holdings, the Borrower or any of their respective Subsidiaries with any applicable Environmental Law or (b) could reasonably be expected to form the basis of an Environmental Claim against Holdings, the Borrower or any of their respective Subsidiaries or any such Real Property; (iii) any condition or occurrence on any Real Property owned or operated by Holdings, the Borrower or any of their respective Subsidiaries that could reasonably be expected to cause such Real Property to be subject to any restrictions on the ownership, occupancy, use or transferability by -60- Holdings, the Borrower or any of their respective Subsidiaries of such Real Property under any Environmental Law; and (iv) the taking of any removal or remedial action in response to the actual or alleged presence of any Hazardous Material on any Real Property owned or operated by Holdings, the Borrower or any of their respective Subsidiaries as required by any Environmental Law or any governmental or other administrative agency; provided that in any event Holdings and/or the Borrower shall deliver to the Administrative Agent all material notices received by it or any of their respective Subsidiaries from any government or governmental agency under, or pursuant to, CERCLA. All such notices shall describe in reasonable detail the nature of the claim, investigation, condition, occurrence or removal or remedial action and Holdings', the Borrower's or such Subsidiary's response thereto. In addition, the Borrower will provide the Banks with copies of all material communications with any government or governmental agency and all material communications with any Person (other than Holdings', the Borrower's or any Subsidiary's attorneys) relating to any Environmental Claim of which notice is required to be given pursuant to this Section 8.01(i), and such detailed reports of any such Environmental Claim as may reasonably be requested by the Banks. (j) Annual Meetings with Banks. At the request of Administrative Agent, Holdings shall within 120 days after the close of each fiscal year of Holdings hold a meeting at a time and place selected by Holdings and acceptable to the Agents with all of the Banks at which meeting shall be reviewed the financial results of the previous fiscal year and the financial condition of Holdings and its Subsidiaries and the budgets presented for the current fiscal year of Holdings and its Subsidiaries. (k) Other Information. From time to time, such other information or documents (financial or otherwise) with respect to Holdings, the Borrower or their respective Subsidiaries as any Agent (whether acting on its own or at the request of any Bank) may reasonably request in writing. 8.02 Books, Records and Inspections. Holdings and the Borrower will, and will cause each of their respective Subsidiaries to, keep proper books of record and account in which full, true and correct entries in conformity with generally accepted accounting principles and all requirements of law shall be made of all dealings and transactions in relation to its business and activities. Holdings and the Borrower will, and will cause each of their respective Subsidiaries to, permit officers and designated representatives of any of the Agents or any Bank to visit and inspect, during regular business hours and under -61- guidance of officers of Holdings, the Borrower or such Subsidiary, any of the properties of Holdings and the Borrower or such Subsidiary, and to examine the books of account of Holdings and the Borrower or such Subsidiary and discuss the affairs, finances and accounts of Holdings, the Borrower or such Subsidiary with, and be advised as to the same by, its and their officers and independent accountants, all upon reasonable advance notice and at such reasonable times and intervals and to such reasonable extent as such Agent or such Bank may request. 8.03 Maintenance of Property; Insurance. (a) Schedule VI sets forth a true and complete listing of all insurance maintained by Holdings, the Borrower and their respective Subsidiaries as of the Effective Date. Holdings and the Borrower will, and will cause each of their respective Subsidiaries to, (i) keep all property necessary in its business in good working order and condition (ordinary wear and tear and loss or damage by casualty or condemnation excepted), (ii) maintain insurance on all its property in at least such amounts and against at least such risks as is consistent and in accordance with industry practice and (iii) furnish to each Bank, upon written request, full information as to the insurance carried. In addition to the requirements of the immediately preceding sentence, Holdings and the Borrower will at all times cause insurance of the types described in Schedule VI to be maintained (with the same scope of coverage as that described in Schedule VI) at levels which are at least as great as the respective amount described opposite the respective type of insurance on Schedule VI under the column headed "Minimum Amount Required to be Maintained". (b) Holdings and the Borrower will, and will cause their respective Subsidiaries to, at all times keep their respective property insured in favor of the Collateral Agent, and all policies or certificates (or certified copies thereof) with respect to such insurance (and any other insurance maintained by Holdings, the Borrower or any of their respective Subsidiaries) (i) shall be endorsed to the Collateral Agent's satisfaction for the benefit of the Collateral Agent (including, without limitation, by naming the Collateral Agent as loss payee or as an additional insured), (ii) shall state that such insurance policies shall not be cancelled without 30 days' prior written notice thereof by the respective insurer to the Collateral Agent, (iii) shall provide that the respective insurers irrevocably waive any and all rights of subrogation with respect to the Collateral Agent and the Secured Creditors, (iv) shall contain the standard non-contributing mortgage clause endorsement in favor of the Collateral Agent with respect to hazard liability insurance, (v) shall, except in the case of public liability insurance, provide that any losses shall be payable notwithstanding (A) any act or neglect of Holdings, the Borrower or any of their respective Subsidiaries, (B) the occupation or use of the properties for purposes more hazardous than those permitted by the terms of the respective policy if such coverage is obtainable at commercially reasonable rates and is of the kind from time to time customarily insured against by Persons owning or using similar property and in such amounts as are customary, (C) any foreclosure or -62- other proceeding relating to the insured properties or (D) any change in the title to or ownership or possession of the insured properties and (vi) shall be deposited with the Collateral Agent. (c) If Holdings, the Borrower or any of their respective Subsidiaries shall fail to maintain all insurance in accordance with this Section 8.03, or if Holdings, the Borrower or any of their respective Subsidiaries shall fail to so endorse and deposit all policies or certificates with respect thereto, the Administrative Agent and/or the Collateral Agent shall have the right (but shall be under no obligation), upon thirty days advance notice to Holdings, the Borrower or any of their respective Subsidiaries, as the case may be, to procure such insurance and the Borrower agrees to reimburse the Administrative Agent or the Collateral Agent as the case may be, for all costs and expenses of procuring such insurance. 8.04 Corporate Franchises. Holdings and the Borrower will, and will cause each of their respective Subsidiaries to, do or cause to be done, all things necessary to preserve and keep in full force and effect its existence and its material rights, franchises, licenses and patents used in its business; provided, however, that nothing in this Section 8.04 shall prevent (i) sales of assets, consolidations or mergers by or involving Holdings, the Borrower or any of their respective Subsidiaries in accordance with Section 9.02, (ii) the withdrawal by Holdings, the Borrower or any of their respective Subsidiaries of their qualification as a foreign corporation in any jurisdiction where such withdrawal could not reasonably be expected to have a Material Adverse Effect or (iii) the abandonment by Holdings, the Borrower or any of their respective Subsidiaries of any rights, franchises, licenses and patents that the Borrower reasonably determines are not useful to its business. 8.05 Compliance with Statutes, etc. Holdings and the Borrower will, and will cause each of their respective Subsidiaries to, comply with all applicable statutes, regulations and orders of, and all applicable restrictions imposed by, all governmental bodies, domestic or foreign, in respect of the conduct of its business and the ownership of its property, except such noncompliances as could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. 8.06 Compliance with Environmental Laws. (a) Holdings and the Borrower will comply, and will cause each of their respective Subsidiaries to comply, in all material respects with all Environmental Laws applicable to the ownership or use of its Real Property now or hereafter owned or operated by Holdings, the Borrower or any of their respective Subsidiaries, will within a reasonable time-period pay or cause to be paid all costs and expenses incurred in connection with such compliance (except to the extent being contested in good faith), and will keep or cause to be kept all such Real Property free and clear of any Liens imposed pursuant to such Environmental Laws. None of Holdings, -63- the Borrower nor any of their respective Subsidiaries will generate, use, treat, store, release or dispose of, or permit the generation, use, treatment, storage, release or disposal of Hazardous Materials on any Real Property now or hereafter owned or operated by Holdings, the Borrower or any of their respective Subsidiaries, or transport or permit the transportation of Hazardous Materials to or from any such Real Property except in material compliance with all applicable Environmental Laws and reasonably required in connection with the operation, use and maintenance of any such Real Property or otherwise in connection with their businesses. (b) At the written request of the Administrative Agent or the Required Banks, which request shall specify in reasonable detail the basis therefor, at any time and from time to time, the Borrower will provide, at the Borrower's sole cost and expense, an environmental site assessment report concerning any Real Property now or hereafter owned or operated by Holdings, the Borrower or any of their respective Subsidiaries, prepared by an environmental consulting firm reasonably acceptable to the Administrative Agent, indicating the presence or absence of Hazardous Materials and the potential cost of any removal or remedial action in connection with any Hazardous Materials on such Real Property; provided, that such request may be made only if (i) there has occurred and is continuing an Event of Default, (ii) the Administrative Agent or the Required Banks reasonably believe that Holdings, the Borrower or any such Real Property is not in compliance with Environmental Law and such circumstances could reasonably be expected to have a Material Adverse Effect, or (iii) circumstances exist that reasonably could be expected to form the basis of a material Environmental Claim against Holdings, the Borrower or any such Real Property. If the Borrower fails to provide the same within 90 days after such request was made, the Administrative Agent may order the same, and the Borrower shall grant and hereby grants to the Administrative Agent and the Banks and their agents access to such Real Property and specifically grants the Administrative Agent and the Banks an irrevocable non-exclusive license, subject to the rights of tenants, to undertake such an assessment, all at the Borrower's expense. 8.07 ERISA. As soon as reasonably possible and, in any event, within ten (10) days after Holdings, the Borrower or any of their respective Subsidiaries or any ERISA Affiliate knows or has reason to know of the occurrence of any of the following, Holdings or the Borrower will deliver to each of the Banks a certificate of the chief financial officer of Holdings or the Borrower setting forth the full details as to such occurrence and the action, if any, that Holdings, the Borrower, such Subsidiary or such ERISA Affiliate is required or proposes to take, together with any notices required or proposed to be given to or filed with or by Holdings, the Borrower, the Subsidiary, the ERISA Affiliate, the PBGC, a Plan participant or the Plan administrator with respect thereto: that a Reportable Event has occurred (except to the extent that Holdings or the Borrower has previously delivered to the Banks a certificate and notices (if any) concerning -64- such event pursuant to the next clause hereof); that a contributing sponsor (as defined in Section 4001(a)(13) of ERISA) of a Plan subject to Title IV of ERISA is subject to the advance reporting requirement of PBGC Regulation Section 4043.61 (without regard to subparagraph (b)(1) thereof), and an event described in subsection .62, .63, .64, .65, .66, .67 or .68 of PBGC Regulation Section 4043 is reasonably expected to occur with respect to such Plan within the following 30 days; that an accumulated funding deficiency, within the meaning of Section 412 of the Code or Section 302 of ERISA, has been incurred or an application may be or has been made for a waiver or modification of the minimum funding standard (including any required installment payments) or an extension of any amortization period under Section 412 of the Code or Section 303 or 304 of ERISA with respect to a Plan; that any contribution required to be made with respect to a Plan or Foreign Pension Plan has not been timely made; that a Plan has been or may be reasonably expected to be terminated, reorganized, partitioned or declared insolvent under Title IV of ERISA; that a Plan has an Unfunded Current Liability; that proceedings may be reasonably expected to be or have been instituted to terminate or appoint a trustee to administer a Plan which is subject to Title IV of ERISA; that a proceeding has been instituted pursuant to Section 515 of ERISA to collect a delinquent contribution to a Plan; that Holdings, the Borrower, any of their respective Subsidiaries or any ERISA Affiliate will or may reasonably expect to incur any liability (including any indirect, contingent, or secondary liability) to or on account of the termination of or withdrawal from a Plan under Section 4062, 4063, 4064, 4069, 4201, 4204 or 4212 of ERISA or with respect to a Plan under Section 401(a)(29), 4971, 4975 or 4980 of the Code or Section 409 or 502(i) or 502(l) of ERISA or with respect to a group health plan (as defined in Section 607(1) of ERISA or Section 4980B(g)(2) of the Code) under Section 4980B of the Code; or that Holdings, the Borrower, or any of their respective Subsidiaries may incur any material liability pursuant to any employee welfare benefit plan (as defined in Section 3(1) of ERISA) that provides benefits to retired employees or other former employees (other than as required by Section 601 of ERISA) or any Plan or any Foreign Pension Plan. Upon request, the Borrower will deliver to any of the Banks (i) a complete copy of the annual report (on Internal Revenue Service Form 5500-series) of each Plan (including, to the extent required, the related financial and actuarial statements and opinions and other supporting statements, certifications, schedules and information) required to be filed with the Internal Revenue Service and (ii) copies of any records, documents or other information that must be furnished to the PBGC with respect to any Plan pursuant to Section 4010 of ERISA. In addition to any certificates or notices delivered to the Banks pursuant to the first sentence hereof, copies of annual reports and any records, documents or other information required to be furnished to the PBGC, and any material notices received by Holdings, the Borrower, any of their respective Subsidiaries or any ERISA Affiliate with respect to any Plan or Foreign Pension Plan shall be delivered to the Banks no later than ten (10) days after the date such annual report has been filed with the Internal Revenue Service or such records, -65- documents and/or information has been furnished to the PBGC or such notice has been received by Holdings, the Borrower, the Subsidiary or the ERISA Affiliate, as applicable. 8.08 End of Fiscal Years; Fiscal Quarters. Holdings shall cause (i) each of its, and each of its Subsidiaries', fiscal years to end on the Sunday closest to the last day in May of each year and (ii) its fiscal quarters to end in a manner consistent therewith. 8.09 Performance of Obligations. Each of Holdings and the Borrower will, and will cause each of its Subsidiaries to, perform all of its obligations under the terms of each mortgage, indenture, security agreement and other debt instrument by which it is bound, except such non-performances as could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. 8.10 Payment of Taxes. Each of Holdings and the Borrower will pay and discharge, and will cause each of their respective Subsidiaries to pay and discharge, all taxes, assessments and governmental charges or levies imposed upon it or upon its income or profits, or upon any properties belonging to it, prior to the date on which penalties attach thereto, and all lawful claims for sums that have become due and payable which, if unpaid, might become a Lien not otherwise permitted under Section 9.01(i), provided, that none of Holdings, the Borrower nor any of their respective Subsidiaries shall be required to pay any such tax, assessment, charge, levy or claim which is being contested in good faith and by proper proceedings if it has maintained adequate reserves with respect thereto in accordance with GAAP. 8.11 Ownership of Subsidiaries. Holdings shall at all times own 100% of the outstanding capital stock of the Borrower. The Borrower shall directly or indirectly own (except to the extent permitted by Section 9.13(b)(iii)) 100% of the capital stock of each Subsidiary of Holdings other than the Borrower. 8.12 Additional Security; Further Assurances; Surveys. (a) Holdings and the Borrower will, and will cause each of their respective Domestic Wholly-Owned Subsidiaries to, grant to the Collateral Agent security interests and mortgages (an "Additional Mortgage") in such Real Property (excluding leaseholds of Real Property where the fair market value of the respective leasehold interest is less than $1,000,000) of Holdings, the Borrower or any of their respective Domestic Wholly-Owned Subsidiaries as are not covered by the original Mortgages, to the extent acquired after the Effective Date, and as may be requested from time to time by the Administrative Agent or the Required Banks (each such Real Property, an "Additional Mortgaged Property"). All such Additional Mortgages shall be granted pursuant to documentation substantially in the form of the Mortgages delivered to the Administrative Agent on the Effective Date or in such other form as is reasonably satisfactory to the Administrative Agent and shall constitute valid and -66- enforceable perfected Liens superior to and prior to the rights of all third Persons and subject to no other Liens except as are permitted by Section 9.01 at the time of perfection thereof. The Additional Mortgages or instruments related thereto shall be duly recorded or filed in such manner and in such places as are required by law to establish, perfect, preserve and protect the Liens in favor of the Collateral Agent required to be granted pursuant to the Additional Mortgages and all taxes, fees and other charges payable in connection therewith shall be paid in full. (b) Holdings and the Borrower will, and will cause each of their respective Domestic Wholly-Owned Subsidiaries to, at the expense of the Borrower, make, execute, endorse, acknowledge, file and/or deliver to the Collateral Agent from time to time such vouchers, invoices, schedules, confirmatory assignments, conveyances, financing statements, transfer endorsements, powers of attorney, certificates, real property surveys, reports and other assurances or instruments and take such further steps relating to the Collateral covered by any of the Security Documents as the Collateral Agent may reasonably require pursuant to this Section 8.12. Additionally, upon the request of the Collateral Agent or the Required Banks, Holdings and the Borrower shall take, or cause to be taken, action as may be requested in order to perfect (or maintain the perfection of) the security interests (or take any analogous actions under the applicable provisions of local law in order to protect such security interests) in any Collateral located outside the U.S., in each case to the extent such actions are permitted to be taken under the laws of the applicable jurisdictions and so long as no Default or Event of Default exists, the requested actions will not result in any material costs (including additional taxes) or material burdens in the conduct of the Borrower's business, in each case in relation to the benefit to be received. Furthermore, Holdings and the Borrower shall cause to be delivered to the Collateral Agent such opinions of counsel, title insurance and other related documents as may be reasonably requested by the Collateral Agent to assure itself that this Section 8.12 has been complied with. (c) Holdings and the Borrower agree to cause each Domestic Wholly-Owned Subsidiary established or created in accordance with Section 9.14 to execute and deliver, (i) in the case of the first such Subsidiary so established or created (unless a Subsidiaries Guaranty has been executed and delivered prior to such date pursuant to Section 5.10), the Subsidiaries Guaranty and (ii) otherwise, a guaranty of all Obligations and all obligations under Interest Rate Protection or Other Hedging Agreements in substantially the form of the Subsidiaries Guaranty. (d) The Borrower agrees to pledge and deliver, or cause to be pledged and delivered, all of the capital stock of each new Subsidiary (excluding that portion of the voting stock of any Foreign Subsidiary which would be in excess of 65% of the total outstanding voting stock of such Foreign Subsidiary) established or created after the -67- Effective Date, to the extent owned by Holdings, the Borrower or any Domestic Wholly-Owned Subsidiary, to the Collateral Agent for the benefit of the Secured Creditors pursuant to the Pledge Agreement. (e) Holdings and the Borrower will cause each Domestic Wholly-Owned Subsidiary established or created in accordance with Section 9.14 to grant to the Collateral Agent a first priority (subject to Permitted Liens) Lien on property (tangible and intangible) of such Subsidiary upon terms and with exceptions similar to those set forth in the Security Documents as appropriate, and satisfactory in form and substance to the Borrower, the Administrative Agent and Required Banks. Holdings and the Borrower shall cause each such Domestic Wholly-Owned Subsidiary, at its own expense, to execute, acknowledge and deliver, or cause the execution, acknowledgement and delivery of, and thereafter register, file or record in any appropriate governmental office, any document or instrument reasonably deemed by the Collateral Agent to be necessary or desirable for the creation and perfection of the foregoing Liens. Holdings and the Borrower will cause each of such Domestic Wholly-Owned Subsidiaries to take all actions reasonably requested by the Administrative Agent (including, without limitation, the filing of UCC-1's) in connection with the granting of such security interests. (f) The security interests required to be granted pursuant to this Section 8.12 shall be granted pursuant to security documentation (which shall be substantially similar to the Security Documents already executed and delivered by the Borrower or its Subsidiaries, as applicable) or otherwise satisfactory in form and substance to the Collateral Agent and the Borrower and shall constitute valid and enforceable perfected security interests prior to the rights of all third Persons and subject to no other Liens except such Liens as are permitted by Section 9.01. The Additional Security Documents and other instruments related thereto shall be duly recorded or filed in such manner and in such places and at such times as are required by law to establish, perfect, preserve and protect the Liens, in favor of the Collateral Agent for the benefit of the respective Secured Creditors, required to be granted pursuant to the Additional Security Documents and all taxes, fees and other charges payable in connection therewith shall be paid in full by the Borrower. At the time of the execution and delivery of the Additional Security Documents, the Borrower shall cause to be delivered to the Collateral Agent such opinions of counsel, Mortgage Policies, title surveys, real estate appraisals and other related documents as may be reasonably requested by the Agents or the Required Banks to assure themselves that this Section 8.12 has been complied with. (g) Each of Holdings and the Borrower agrees that each action required above by Section 8.12 (a) or (b) shall be completed as soon as possible, but in no event later than 90 days after such action is requested to be taken by the Administrative Agent or the Required Banks. Each of Holdings and the Borrower further agrees that each action -68- required by Section 8.12(c), (d), (e) and (f) with respect to the creation or acquisition of a new Subsidiary shall be completed contemporaneously with (or, in the case of any documents or instruments to be registered, filed or recorded, within 10 days of) the creation of such new Subsidiary. 8.13 Interest Rate Protection. No later than the 60th day after the Initial Borrowing Date, the Borrower shall enter into, and for a minimum of three years thereafter maintain, Interest Rate Protection Agreements acceptable to the Agents establishing a fixed or maximum interest rate acceptable to the Agents for an aggregate amount with respect to the Term Loans outstanding from time to time as is equal to 30% of the aggregate principal amount of Term Loans then outstanding. 8.14 Foreign Subsidiaries Security. If following a change in the relevant sections of the Code or the regulations, rules, rulings, notices or other official pronouncements issued or promulgated thereunder, counsel for the Borrower acceptable to the Administrative Agent and the Required Banks does not within 30 days after a request from the Administrative Agent or the Required Banks deliver to the Administrative Agent evidence, in form and substance satisfactory to the Administrative Agent and the Required Banks, with respect to any Foreign Subsidiary which has not already had all of its stock pledged pursuant to the Pledge Agreement that a pledge of 66-2/3% or more of the total combined voting power of all classes of capital stock of such Foreign Subsidiary entitled to vote, would cause the undistributed earnings of such Foreign Subsidiary as determined for Federal income tax purposes to be treated as a deemed dividend to such Foreign Subsidiary's United States parent for Federal income tax purposes, then that portion of such Foreign Subsidiary's outstanding capital stock not theretofore pledged pursuant to the Pledge Agreement shall be pledged to the Collateral Agent for the benefit of the Secured Creditors pursuant to the Pledge Agreement (or another pledge agreement in substantially similar form, if needed), to the extent that the entering into such Pledge Agreement is permitted by the laws of the respective foreign jurisdiction and with all documents delivered pursuant to this Section 8.14 to be in form and substance reasonably satisfactory to the Administrative Agent and the Required Banks. 8.15 Maintenance of Corporate Separateness. Holdings will, and will cause each of its Subsidiaries and Unrestricted Subsidiaries to, satisfy customary corporate formalities, including the holding of regular board of directors' and shareholders' meetings or action by directors or shareholders without a meeting and the maintenance of corporate offices and records. Neither Holdings nor any of its Subsidiaries shall make any payment to a creditor of any Unrestricted Subsidiaries in respect of any liability of any Unrestricted Subsidiaries, and no bank account of any Unrestricted Subsidiary shall be commingled with any bank account of Holdings or any of its Subsidiaries. Any financial statements distributed to any creditors of any Unrestricted Subsidiaries shall clearly establish or -69- indicate the corporate separateness of such Unrestricted Subsidiary from Holdings and its Subsidiaries. Finally, neither Holdings nor any of its Subsidiaries shall take any action, or conduct its affairs in a manner, which is likely to result in the corporate existence of Holdings or any of its Subsidiaries or Unrestricted Subsidiaries being ignored, or in the assets and liabilities of Holdings or any of its Subsidiaries being substantively consolidated with those of any other such Person or any Unrestricted Subsidiary in a bankruptcy, reorganization or other insolvency proceeding. SECTION 9. Negative Covenants. Holdings and the Borrower covenant and agree that on and after the Effective Date and until the Total Commitments and all Letters of Credit have terminated and the Loans, Notes and Unpaid Drawings, together with interest, Fees and all other Obligations incurred hereunder and thereunder, are paid in full: 9.01 Liens. Holdings will not, and will not permit any of its Subsidiaries to, create, incur, assume or suffer to exist any Lien upon or with respect to any property or assets (real or personal, tangible or intangible) of Holdings or any of its Subsidiaries, whether now owned or hereafter acquired, or sell any such property or assets subject to an understanding or agreement, contingent or otherwise, to repurchase such property or assets (including sales of accounts receivable with recourse to Holdings or any of its Subsidiaries), or assign any right to receive income or permit the filing of any financing statement under the UCC or any other similar notice of Lien under any similar recording or notice statute; provided that the provisions of this Section 9.01 shall not prevent the creation, incurrence, assumption or existence of the following (Liens described below are herein referred to as "Permitted Liens"): (i) inchoate Liens for taxes, assessments or governmental charges or levies not yet due and payable or Liens for taxes, assessments or governmental charges or levies being contested in good faith and by appropriate proceedings for which adequate reserves have been established in accordance with generally accepted accounting principles in the United States (or the equivalent thereof in any country in which a Foreign Subsidiary is doing business, as applicable); (ii) Liens in respect of property or assets of the Borrower or any of its Subsidiaries imposed by law, which were incurred in the ordinary course of business and do not secure Indebtedness for borrowed money, such as carriers', warehousemen's, materialmen's and mechanics' liens and other similar Liens arising in the ordinary course of business, and (x) which do not in the aggregate materially detract from the value of the property or assets of Holdings and its Subsidiaries taken as a whole or the Borrower and do not materially impair the use thereof in the operation of the business of Holdings and its Subsidiaries taken as a whole or the Borrower or (y) which are being contested in good faith by appropriate proceed- -70- ings, which proceedings (or orders entered in connection with such proceedings) have the effect of preventing the forfeiture or sale of the property or assets subject to any such Lien; (iii) Liens in existence on the Effective Date which are listed, and the property subject thereto described, in Schedule IV, but only to the respective date, if any, set forth in such Schedule IV for the removal and termination of any such Liens, plus renewals and extensions of such Liens to the extent set forth on Schedule IV, provided that (x) the aggregate principal amount of the Indebtedness, if any, secured by such Liens does not increase from that amount outstanding at the time of any such renewal or extension and (y) any such renewal or extension does not encumber any additional assets or properties of Holdings or any of its Subsidiaries; (iv) Permitted Encumbrances; (v) Liens created pursuant to the Security Documents; (vi) licenses, leases or subleases granted to other Persons in the ordinary course of business not materially interfering with the conduct of the business of Holdings and its Subsidiaries taken as a whole; (vii) Liens upon assets of the Borrower and its Subsidiaries subject to Capitalized Lease Obligations to the extent permitted by Section 9.04, provided that (x) such Liens only serve to secure the payment of Indebtedness arising under such Capitalized Lease Obligation and (y) the Lien encumbering the asset giving rise to the Capitalized Lease Obligation does not encumber any other asset (other than proceeds thereof) of the Borrower or any Subsidiary of the Borrower; (viii) Liens placed upon assets used in the ordinary course of business of the Borrower or any of its Subsidiaries at the time of acquisition thereof by the Borrower or any such Subsidiary or within 90 days thereafter to secure Indebtedness incurred to pay all or a portion of the purchase price thereof, provided that (x) the aggregate outstanding principal amount of all Indebtedness secured by Liens permitted by this clause (viii) shall not at any time exceed $2,500,000 and (y) in all events, the Lien encumbering the assets so acquired does not encumber any other asset (other than proceeds thereof) of the Borrower or such Subsidiary; (ix) easements, rights-of-way, restrictions (including zoning restrictions), covenants, encroachments, protrusions and other similar charges or encumbrances, and minor title deficiencies, in each case whether now or hereafter in existence, not -71- securing Indebtedness and not materially interfering with the conduct of the business of the Holdings and its Subsidiaries taken as a whole or the Borrower; (x) Liens arising from precautionary UCC financing statement filings regarding operating leases entered into by the Borrower or any of its Subsidiaries in the ordinary course of business; (xi) Liens arising out of judgments or awards in respect of which the Borrower or any of its Subsidiaries shall in good faith be prosecuting an appeal or proceedings for review in respect of which there shall have been secured a subsisting stay of execution pending such appeal or proceedings, provided that the aggregate amount of all such judgments or awards (and any cash and the fair market value of any property subject to such Liens) does not exceed $1,000,000 at any time outstanding; (xii) statutory and common law landlords' liens under leases or subleases to which the Borrower or any of its Subsidiaries is a party; (xiii) Liens (other than any Lien imposed by ERISA) (x) incurred or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security, (y) to secure the performance of tenders, statutory obligations (other than excise taxes), surety, stay, customs and appeal bonds, statutory bonds, bids, leases, government contracts, trade contracts, performance and return of money bonds and other similar obligations (exclusive of obligations for the payment of borrowed money) or (z) arising by virtue of deposits made in the ordinary course of business to secure liability for premiums to insurance carriers, provided that the aggregate amount of deposits at any time pursuant to sub-clause (y) and sub-clause (z) shall not exceed $500,000 in the aggregate; (xiv) any interest or title of a lessor, sublessor, licensee or licensor under any lease or license agreement permitted by this Agreement; (xv) Liens in favor of customs and revenue authorities arising as a matter of law to secure the payment of customs duties in connection with the importation of goods; (xvi) Liens arising out of conditional sale, title retention, consignment or similar arrangements for the sale of goods entered into by the Borrower or any of its Subsidiaries in the ordinary course of business in accordance with the past practices of the Borrower and its Subsidiaries; -72- (xvii) Liens on assets of Foreign Subsidiaries, provided that (x) such Liens do not extend to, or encumber, assets which constitute Collateral or the capital stock of the Borrower or any of its Subsidiaries and (y) such Liens extending to the assets of any Foreign Subsidiary secure only Indebtedness incurred by such Foreign Subsidiary pursuant to Section 9.04(xiv); and (xviii) Liens not otherwise permitted by the foregoing clauses (i) through (xvii) to the extent attaching to properties and assets with an aggregate fair value not in excess of, and securing liabilities not in excess of, $10,000,000 in the aggregate at any time outstanding. 9.02 Consolidation, Merger, Purchase or Sale of Assets, etc. Holdings will not, and will not permit any of its Subsidiaries to, wind up, liquidate or dissolve its affairs or enter into any transaction of merger or consolidation, or convey, sell, lease or otherwise dispose of (or agree to do any of the foregoing at any future time) all or any part of its property or assets, or enter into any sale-leaseback transactions, or purchase or otherwise acquire (in one or a series of related transactions) any part of the property or assets (other than purchases or other acquisitions of inventory, materials, equipment and intangible assets in the ordinary course of business) of any Person (or agree to do any of the foregoing at any future time), except that: (i) Capital Expenditures by the Borrower and its Subsidiaries shall be permitted to the extent not in violation of Section 9.07; (ii) each of the Borrower and its Subsidiaries may (x) in the ordinary course of business, sell, lease or otherwise dispose of any assets which, in the reasonable judgment of such Person, are obsolete, worn out or otherwise no longer useful in the conduct of such Person's business and (y) sell, lease or otherwise dispose of any other assets, provided that the aggregate Net Sale Proceeds of all assets subject to sales or other dispositions pursuant to this clause (ii) shall not exceed $5,000,000 in any four fiscal quarters of the Borrower; (iii) investments may be made to the extent permitted by Section 9.05; (iv) each of the Borrower and its Subsidiaries may lease (as lessee) real or personal property in the ordinary course of business (so long as any such lease does not create a Capitalized Lease Obligation except to the extent permitted by Section 9.04); (v) each of the Borrower and its Subsidiaries may make sales or transfers of inventory in the ordinary course of business and consistent with past practices -73- (including without limitation sales or transfers of inventory by the Borrower to its Subsidiaries); (vi) the Borrower and its Subsidiaries may sell or discount, in each case without recourse and in the ordinary course of business, overdue accounts receivable arising in the ordinary course of business, but only in connection with the compromise or collection thereof consistent with customary industry practice (and not as part of any bulk sale); (vii) licenses or sublicenses by the Borrower and its Subsidiaries of software, trademarks and other intellectual property in the ordinary course of business and which do not materially interfere with the business of Holdings and its Subsidiaries taken as a whole or the Borrower shall be permitted; (viii) the Asset Transfer shall be permitted; and (ix) the Borrower or any Domestic Wholly-Owned Subsidiary of the Borrower may transfer assets or lease to or acquire or lease assets from the Borrower or any other Domestic Wholly-Owned Subsidiary or any Domestic Wholly-Owned Subsidiary may be merged into the Borrower (as long as the Borrower is the surviving corporation of such merger as a Wholly-Owned Subsidiary of) or any other Domestic Wholly-Owned Subsidiary of the Borrower. To the extent the Required Banks waive the provisions of this Section 9.02 with respect to the sale of any Collateral, or any Collateral is sold as permitted by this Section 9.02, such Collateral (unless sold to Holdings or a Subsidiary of Holdings) shall be sold free and clear of the Liens created by the Security Documents, and the Administrative Agent and Collateral Agent shall be authorized to take any actions deemed appropriate in order to effect the foregoing. 9.03 Dividends. Holdings shall not, and shall not permit any of its Subsidiaries to, authorize, declare or pay any Dividends with respect to Holdings or any of its Subsidiaries, except that: (i) any Subsidiary of the Borrower (x) may pay cash Dividends to the Borrower or any Wholly-Owned Subsidiary of the Borrower and (y) if such Subsidiary is not a Wholly-Owned Subsidiary, may pay cash Dividends to its shareholders generally so long as the Borrower or its respective Subsidiary which owns the equity interest or interests in the Subsidiary paying such Dividends receives at least its proportionate share thereof (based upon its relative holdings of equity interests in the Subsidiary paying such Dividends -74- and taking into account the relative preferences, if any, of the various classes of equity interests in such Subsidiary); (ii) so long as there shall exist no Default or Event of Default (both before and after giving effect to the payment thereof), Holdings may repurchase outstanding shares of its common stock (or options to purchase such common stock) following the death, disability, retirement or termination of employment of employees, officers or directors of Holdings or any of its Subsidiaries, provided that (x) all amounts used to effect such repurchases are obtained by Holdings from a substantially concurrent issuance of its common stock (or options to purchase such common stock) to other employees, members of management, executive officers or directors of Holdings or any of its Subsidiaries or (y) to the extent the proceeds used to effect any repurchase pursuant to this clause (y) are not obtained as described in preceding clause (x), the aggregate amount of Dividends paid by Holdings pursuant to this clause (ii) (exclusive of amounts paid as described pursuant to preceding clause (x)) shall not exceed $1,000,000 in any fiscal year of Holdings, provided that, in the event that the maximum amount which is permitted to be expended in respect of Dividends during any fiscal year pursuant to this clause (ii)(y) is not fully expended during such fiscal year, the maximum amount which may be expended during the immediately succeeding fiscal year pursuant to this clause (ii)(y) shall be increased by such unutilized amount; (iii) the Borrower may pay cash Dividends to Holdings for the purpose of paying, so long as all proceeds thereof are promptly used by Holdings to pay, its operating expenses incurred in the ordinary course of business and other corporate overhead costs and expenses (including, without limitation, legal and accounting expenses and similar expenses), provided that the aggregate amount of Dividends paid by Holdings pursuant to this clause (iii) shall not exceed $500,000 in any fiscal year of Holdings; (iv) the Borrower may pay cash Dividends to Holdings for the purpose of paying, so long as all proceeds thereof are promptly used by Holdings to pay, franchise taxes and federal, state and local income taxes and interest and penalties with respect thereto, if any, payable by Holdings, provided that any refund shall be promptly returned by Holdings to the Borrower; (v) the Borrower may pay cash Dividends to Holdings for the purpose of enabling Holdings to pay the Dividends referred to in clause (ii) above, so long as all proceeds thereof are promptly used by Holdings to pay such Dividends; and (vi) the exchange of Holdings Junior Subordinated Debentures for Holdings Series A Preferred Stock, to the extent permitted as provided in Section 9.04(xv), shall be permitted. -75- 9.04 Indebtedness. Holdings will not, and will not permit any of its Subsidiaries to, contract, create, incur, assume or suffer to exist any Indebtedness, except: (i) Indebtedness incurred pursuant to this Agreement and the other Credit Documents; (ii) Indebtedness of the Borrower pursuant to the Senior Subordinated Notes in an aggregate principal amount not to exceed $300,000,000 less the aggregate amount of all repayments of Senior Subordinated Notes effected after the Initial Borrowing Date; (iii) Existing Indebtedness shall be permitted to the extent actually outstanding on the Initial Borrowing Date and as the same is listed on Schedule V, but no refinancings or renewals thereof; (iv) accrued expenses and trade accounts payable incurred in the ordinary course; (v) Indebtedness under Interest Rate Protection Agreements entered into in compliance with Section 8.13, and such other non-speculative Interest Rate Protection Agreements which may be entered into from time to time by the Borrower and which the Borrower in good faith believes will provide protection against fluctuations in interest rates with respect to outstanding floating rate Indebtedness then outstanding, and permitted to remain outstanding, pursuant to the other provisions of this Section 9.04; (vi) Indebtedness evidenced by Capitalized Lease Obligations to the extent permitted pursuant to Section 9.07, provided that in no event shall the aggregate principal amount of Capitalized Lease Obligations permitted by this clause (vi) exceed $5,000,000 at any time outstanding; (vii) Indebtedness subject to Liens permitted under Section 9.01(viii), so long as the outstanding amount of such Indebtedness does not exceed the amount provided in said Section 9.01(viii); (viii) intercompany Indebtedness of the Borrower and its Subsidiaries outstanding to the extent permitted by Section 9.05(vii) and/or (x); (ix) in addition to any Indebtedness permitted by the preceding clause (viii), Indebtedness of any Wholly-Owned Subsidiary to the Borrower or another Wholly-Owned Subsidiary constituting the purchase price in respect of intercompany -76- transfers of goods made in the ordinary course of business to the extent not constituting Indebtedness for borrowed money; (x) Indebtedness evidenced by Other Hedging Agreements entered into pursuant to Section 9.05(vi); (xi) Indebtedness of Holdings pursuant to the Seller Note in an aggregate principal amount not to exceed $77,000,000 plus any accrued and unpaid interest thereon, less the aggregate amount of all repayments of principal thereon effected after the Initial Borrowing Date; (xii) Indebtedness under performance bonds, letter of credit obligations to provide security for worker's compensation claims and bank overdrafts, in each case incurred in the ordinary course of business, provided that any obligations arising in connection with such bank overdraft Indebtedness is extinguished within five Business Days; (xiii) the Assumed Liabilities; (xiv) Indebtedness incurred by Foreign Subsidiaries (which shall not be directly or indirectly guaranteed by Holdings, the Borrower or any Domestic Subsidiaries of Holdings or the Borrower) incurred from time to time after the Initial Borrowing Date so long as the aggregate principal amount of all indebtedness incurred pursuant to this clause (xiv) at any time outstanding does not exceed the remainder of (x) $25,000,000 less (y) the aggregate principal amount of all Indebtedness of Foreign Subsidiaries then outstanding pursuant to clause (iii) of this Section 9.04; (xv) Indebtedness of Holdings constituting junior subordinated debentures issued in exchange for the Holdings Series A Preferred Stock pursuant to the terms of such Holdings Series A Preferred Stock ("Holdings Junior Subordinated Debentures"), so long as (x) Level 1 pricing shall be in effect both before and after giving effect to the incurrence of such Indebtedness, (y) such Indebtedness shall in no event be incurred to exchange in the aggregate more than 50% of the Holdings Series A Preferred Stock issued on or prior to the Initial Borrowing Date and (z) the Holdings Junior Subordinated Debentures shall be in the form provided in the certificate of incorporation of Holdings as in effect on the Initial Borrowing Date; and -77- (xvi) additional Indebtedness of the Borrower and its Subsidiaries to the extent not permitted by the foregoing clauses of this Section 9.04 not to exceed $10,000,000 in aggregate principal amount at any time outstanding. 9.05 Advances, Investments and Loans. Holdings will not, and will not permit any of its Subsidiaries to, directly or indirectly, lend money or credit or make advances to any Person, or purchase or acquire any stock, obligations or securities of, or any other interest in, or make any capital contribution to, any other Person, or purchase or own a futures contract or otherwise become liable for the purchase or sale of currency or other commodities at a future date in the nature of a futures contract, or hold any cash or Cash Equivalents, except that the following shall be permitted: (i) the Borrower and its Subsidiaries may acquire and hold accounts receivables owing to any of them; (ii) the Borrower and its Subsidiaries may acquire and hold cash and Cash Equivalents, provided that during any time that Revolving Loans of Non-Defaulting Banks or Swingline Loans are outstanding, the aggregate amount of cash and Cash Equivalents permitted to be held by the Borrower and its Domestic Subsidiaries shall not exceed $5,000,000 for any period of ten consecutive days; (iii) the Borrower and its Subsidiaries may make loans and advances in the ordinary course of business to their respective employees so long as the aggregate principal amount thereof at any time outstanding (determined without regard to any write-downs or write-offs of such loans and advances) shall not exceed $3,000,000; (iv) the Borrower may enter into Interest Rate Protection Agreements to the extent permitted in Section 9.04(v); (v) the Recapitalization Transaction may be effected on the Initial Borrowing Date and, in connection therewith, Holdings may effect the Holdings Contribution; (vi) the Borrower may enter into and perform its obligations under Other Hedging Agreements entered into in the ordinary course of business and so long as any such Other Hedging Agreement is not speculative in nature and is (x) related to income derived from foreign operations of the Borrower or any Subsidiary or otherwise related to purchases permitted hereunder from foreign suppliers or (y) entered into to protect the Borrower and/or its Subsidiaries against fluctuations in the prices of raw materials used in their businesses; -78- (vii) any Wholly-Owned Subsidiary may make intercompany loans to the Borrower or any Wholly-Owned Subsidiary and the Borrower may make inter-company loans and advances to any Wholly-Owned Subsidiary, provided that any promissory notes evidencing such intercompany loans shall be pledged (and delivered) by the Borrower or the respective Domestic Wholly-Owned Subsidiary that is the lender of such intercompany loan as Collateral pursuant to the applicable Pledge Agreement, further provided, that (x) neither the Borrower nor any Domestic Subsidiaries of the Borrower may make loans to any Foreign Subsidiaries of the Borrower pursuant to this clause (vii) and (y) any loans made by any Foreign Subsidiaries to the Borrower or any of its Domestic Subsidiaries pursuant to this clause (vii) shall be subordinated to the obligations of the Credit Parties pursuant to subordination provisions in substantially the form of Exhibit M hereto; (viii) the Borrower and it Subsidiaries may sell or transfer assets to the extent permitted by Section 9.02; (ix) the Borrower may establish Subsidiaries to the extent permitted by Section 9.14; and (x) the Borrower and its Domestic Wholly-Owned Subsidiaries may make loans and advances to, or other investments in, Foreign Subsidiaries of the Borrower so long as the aggregate amount of any loans, advances or other investments at any time outstanding (determined without regard to any write-downs or write-offs thereof) pursuant to this clause (x) shall not exceed $20,000,000; (xi) in addition to investments permitted by clauses (i) through (x) above, the Borrower and its Wholly-Owned Subsidiaries may make investments in Unrestricted Subsidiaries and/or Joint Ventures, so long as the aggregate amount invested pursuant to this clause (x) does not exceed $10,000,000 during any fiscal year of the Borrower and $20,000,000 in the aggregate. 9.06 Transactions with Affiliates. Holdings will not, and will not permit any of its Subsidiaries to, enter into any transaction or series of related transactions, whether or not in the ordinary course of business, with any Affiliate of Holdings or any of its Subsidiaries, other than in the ordinary course of business and on terms and conditions substantially as favorable to Holdings or such Subsidiary as would reasonably be obtained by Holdings or such Subsidiary at that time in a comparable arm's-length transaction with a Person other than an Affiliate, except that: (i) Dividends may be paid to the extent provided in Section 9.03; -79- (ii) loans may be made and other transactions may be entered into between the Borrower and its Subsidiaries to the extent permitted by Sections 9.04 and 9.05; (iii) customary fees may be paid to non-officer directors of Holdings; (iv) Borrower may pay management fees to Holdings from time to time in an amount not in excess of Holdings' compensation expenses for its employees; (v) Holdings and its Subsidiaries may enter into the Operating Agreements; and (vi) the Recapitalization Transaction shall be effected. 9.07 Capital Expenditures. (a) Holdings will not, and will not permit any of its Subsidiaries to, make any Capital Expenditures, except that (x) during the period (taken as one accounting period) from the Effective Date through and including May 25, 1997, the Borrower and its Subsidiaries may make Capital Expenditures in an aggregate amount not to exceed $10,000,000, (y) during the fiscal year ended May 24, 1998 (taken as one accounting period), the Borrower and its Subsidiaries may make Capital Expenditures in an aggregate amount not to exceed $50,000,000 and (z) during each fiscal year thereafter (taken as one accounting period), the Borrower and its Subsidiaries may make Capital Expenditures in an aggregate amount not to exceed $60,000,000. (b) Notwithstanding anything to the contrary contained in clause (a) above, to the extent that the aggregate amount of Capital Expenditures made by the Borrower and its Subsidiaries pursuant to Section 9.07(a) (except as set forth in clause (x) thereof) in any fiscal year of the Borrower (beginning with the fiscal year ended May 24, 1998) are less than (x) $50,000,000 (or $60,000,000 in the case of a fiscal year beginning after May 24, 1998), the amount of such difference, but in no case more than $10,000,000, may be carried forward and used to make Capital Expenditures in the immediately succeeding fiscal year (after the full amount of Capital Expenditures otherwise permitted to be made under Section 9.07(a) in such fiscal year, without regard to the provisions of this clause (b), have been made), provided that amounts once carried forward to such succeeding fiscal year shall lapse and terminate at the end of such fiscal year. (c) In addition to the Capital Expenditures permitted pursuant to preceding clauses (a) and (b) the Borrower and its Subsidiaries may make additional Capital Expenditures consisting of the reinvestment of proceeds of Recovery Events not required to be applied to prepay the Loans pursuant to Section 4.02(h). -80- 9.08 Consolidated Interest Coverage Ratio. Holdings will not permit the Consolidated Interest Coverage Ratio for any period of four consecutive fiscal quarters (or, if shorter, the period beginning on the first day of the fiscal year beginning on, or closest to, May 26, 1997 and ended on the last day of a fiscal quarter ended thereafter), in each case taken as one accounting period, ended on the last day of a fiscal quarter described below to be less than the amount set forth opposite such fiscal quarter below: Fiscal Quarter Ended In, or Closest to Ratio -------------------- ----- August, 1997 2.6:1.0 November, 1997 2.6:1.0 February, 1998 2.6:1.0 May, 1998 3.0:1.0 August, 1998 3.0:1.0 November, 1998 3.0:1.0 February, 1999 3.0:1.0 May, 1999 and thereafter 3.5:1.0 9.09 Consolidated Fixed Charge Coverage Ratio. Holdings will not permit the Consolidated Fixed Charge Coverage Ratio for any period of four consecutive fiscal quarters (or, if shorter, the period beginning on the first day of the fiscal year beginning on, or closest to, May 26, 1997 and ending on the last day of a fiscal quarter ended thereafter), in each case taken as one accounting period, ended on the last day of any fiscal quarter set forth below to be less than the amount set forth opposite such fiscal quarter below: Fiscal Quarter Ended In, or Closest to Ratio -------------------- ----- August, 1997 1.1:1.0 November, 1997 1.1:1.0 February, 1998 1.1:1.0 May, 1998 and thereafter 1.2:1.0 -81- 9.10 Maximum Leverage Ratio. Holdings will not permit the Leverage Ratio at any time during a fiscal quarter set forth below to be greater than the ratio set forth opposite such fiscal quarter below: Fiscal Quarter Ended In Ratio -------------- ----- August, 1997 3.5:1.0 November, 1997 3.5:1.0 February, 1998 3.5:1.0 May, 1998 3.0:1.0 August, 1998 3.0:1.0 November, 1998 3.0:1.0 February, 1999 3.0:1.0 May, 1999 3.0:1.0 August, 1999 3.0:1.0 November, 1999 3.0:1.0 February, 2000 3.0:1.0 May, 2000 and thereafter 2.5:1.0 9.11 Limitation on Modifications of Indebtedness; Modifications of Certificate of Incorporation, By-Laws and Certain Other Agreements; etc. Holdings will not, and will not permit any of its Subsidiaries to, (i) amend or modify, or permit the amendment or modification of, any provision of the Existing Indebtedness or of any agreement (including, without limitation, any purchase agreement, indenture, loan agreement or security agreement) relating thereto other than any amendments or modifications to the Existing Indebtedness which do not in any way adversely affect the interests of the Banks and are otherwise permitted under Section 9.04(iii), (ii) make (or give any notice in respect of) any payment of any nature whatsoever (whether principal, interest or otherwise) with respect to, or any payment (including without limitation any prepayment) on or redemption or acquisition for value of, the Seller Note (except that a redemption required by the first sentence of Section 4(c) of the Seller Note shall be permitted to the extent required in accordance with the terms of such first sentence as in effect on the Effective Date and so long as all proceeds used to make such payment are received from an initial Public Equity Offering (as such term is defined in the Seller Note) by Holdings) or any Holdings Junior Subordinated Debentures, (iii) make (or give any notice in respect thereof) any voluntary or optional payment or prepayment on or redemption or acquisition for value of, or any prepayment or redemption as a result of any asset sale, change of control or similar event of, any Senior Subordinated Notes, (iv) amend or modify, or permit the amendment or modification of, any provision of any Senior Subordinated Notes, the -82- Seller Note or (after the issuance thereof) any Holdings Junior Subordinated Debentures or any agreement (including, without limitation, any Senior Subordinated Note Document) relating thereto other than amendments or modifications which do not in any way adversely affect the interests of the Banks and which are effected to make technical corrections to the respective documentation, (v) amend or modify, or permit the amendment or modification of, the Recapitalization Agreement, the Asset Purchase Agreement, any Operating Agreement or any other Recapitalization Document, except for amendments or modifications which are not in any way adverse in any material respect to the interests of the Banks or (vi) amend, modify or change its Certificate of Incorporation (including, without limitation, by the filing or modification of any certificate of designation) or By-Laws, or any agreement entered into by it, with respect to its capital stock (including any Shareholders' Agreement), or enter into any new agreement with respect to its capital stock, other than any amendments, modifications or changes pursuant to this clause (vi) or any such new agreements pursuant to this clause (vi) which do not in any way adversely affect in any material respect the interests of the Banks, provided that nothing in this clause (vi) shall prevent Holdings or any of its Subsidiaries from amending its Certificate of Incorporation or By-Laws to provide indemnification to any officer or director of Holdings or any such Subsidiary to the maximum extent permitted by the law of its jurisdiction of incorporation and provided that Holdings may issue such capital stock as is not prohibited by Section 9.13 and may amend its Certificate of Incorporation to authorize any such capital stock. Without limiting the foregoing provisions, it is understood and agreed by all parties hereto that (i) for purposes of Section 1 of the Seller Note, the provisions of clause (ii) of the immediately preceding sentence prohibit the payment of interest on the Seller Note in cash and (ii) for purposes of Section 4(f) of the Seller Note, the provisions of clause (ii) of the immediately preceding sentence prohibit all partial or total redemptions of the Seller Note, except to the extent expressly otherwise provided in said clause (ii). 9.12 Limitation on Certain Restrictions on Subsidiaries. The Borrower will not, and will not permit any of its Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any encumbrance or restriction on the ability of any such Subsidiary to (a) pay dividends or make any other distributions on its capital stock or any other interest or participation in its profits owned by the Borrower or any Subsidiary of the Borrower, or pay any Indebtedness owed to the Borrower or a Subsidiary of the Borrower, (b) make loans or advances to the Borrower or any of the Borrower's Subsidiaries or (c) transfer any of its properties or assets to the Borrower or any of the Borrower's Subsidiaries, except for such encumbrances or restrictions existing under or by reason of (i) applicable law, (ii) this Agreement and the other Credit Documents, (iii) the Senior Subordinated Note Documents, (iv) customary provisions restricting subletting or assignment of any lease governing a leasehold interest of the Borrower or a Subsidiary of the Borrower, (v) customary provisions restricting assignment of any agreement entered into by the Borrower or a Subsidiary of the Borrower in the ordinary course of business, (vi) -83- any holder of a Permitted Lien may restrict the transfer of the asset or assets subject thereto and (vii) restrictions which are not more restrictive than those contained in this Agreement contained in any documents governing any Indebtedness incurred after the Effective Date in accordance with the provisions of this Agreement. 9.13 Limitation on Issuance of Capital Stock. (a) Holdings will not issue any capital stock which is not Qualified Capital Stock. (b) Holdings will not permit any of its Subsidiaries to issue any capital stock (including by way of sales of treasury stock) or any options or warrants to purchase, or securities convertible into, capital stock, except (i) for transfers and replacements of then outstanding shares of capital stock, (ii) for stock splits, stock dividends and additional issuances which do not decrease the percentage ownership of Holdings or any of its Subsidiaries in any class of the capital stock of such Subsidiary, (iii) in the case of Foreign Subsidiaries of the Borrower, to qualify directors to the extent required by applicable law, and (iv) Subsidiaries of the Borrower formed after the Effective Date pursuant to Section 9.14 may issue capital stock to the Borrower or the respective Subsidiary of the Borrower which is to own such stock in accordance with the requirements of Section 8.11. All capital stock issued in accordance with this Section 9.13(b) shall, to the extent required by the Pledge Agreement, be delivered to the Collateral Agent for pledge pursuant to the Pledge Agreement. 9.14 Limitation on Creation of Subsidiaries. Neither Holdings nor the Borrower shall establish, create or acquire any additional Subsidiaries without the prior written consent of the Required Banks; provided that the Borrower may establish or create one or more Wholly-Owned Subsidiaries of the Borrower without such consent so long as (i) 100% of the capital stock of any new Domestic Subsidiary (or all capital stock of any new Foreign Subsidiary which is owned by any Credit Party, except that not more than 65% of the voting stock of any such Foreign Subsidiary shall be required to be so pledged) is upon the creation or establishment of any such new Subsidiary pledged and delivered to the Collateral Agent for the benefit of the Secured Creditors under the Pledge Agreement and (ii) upon the creation or establishment of any such new Domestic Subsidiary such Domestic Subsidiary executes the Additional Security Documents and guaranty required to be executed by it in accordance with Section 8.12. 9.15 Business. (a) Holdings shall engage in no business activities and shall have no assets or liabilities, other than (x) its ownership of the capital stock of the Borrower and liabilities incident thereto, including its liabilities pursuant to the Pledge Agreement and its guarantee pursuant to Section 14.01 and its guarantee of the Senior Subordinated Notes, (y) its obligations pursuant to the Seller Note and the Holdings -84- Series A Preferred Stock and (z) its employment of members of management of the Borrower. (b) The Borrower will not, and will not permit any of its Subsidiaries to, engage (directly or indirectly) in any business other than the business in which the Borrower and its Subsidiaries are engaged on the Effective Date and other businesses reasonably related thereto. 9.16 Designated Senior Indebtedness. In no event shall the Borrower designate any indebtedness as "Designated Senior Indebtedness" for purposes of the Senior Subordinated Note Indenture unless the Required Banks specifically consent thereto in writing. SECTION 10. Events of Default. Upon the occurrence of any of the following specified events (each an "Event of Default"): 10.01 Payments. The Borrower shall (i) default in the payment when due of any principal of any Loan or any Note or (ii) default, and such default shall continue unremedied for three or more Business Days, in the payment when due of any Unpaid Drawings or interest on any Loan or Note, or any Fees or any other amounts owing hereunder or thereunder; or 10.02 Representations, etc. Any representation, warranty or statement made by any Credit Party herein or in any other Credit Document or in any certificate delivered pursuant hereto or thereto shall prove to be untrue in any material respect on the date as of which made or deemed made; or 10.03 Covenants. Holdings or the Borrower shall (i) default in the due performance or observance by it of any term, covenant or agreement contained in Section 8.01(g)(i), 8.08, 8.11 or Section 9 or (ii) default in the due performance or observance by it of any other term, covenant or agreement contained in this Agreement and such default shall continue unremedied for a period of 30 days after written notice to the Borrower by any Agent or any of the Banks; or 10.04 Default Under Other Agreements. Holdings, the Borrower or any of their respective Subsidiaries shall (i) default in any payment of any Indebtedness (other than the Obligations) beyond the period of grace, if any, provided in the instrument or agreement under which such Indebtedness was created or (ii) default in the observance or performance of any agreement or condition relating to any Indebtedness (other than the Obligations) or contained in any instrument or agreement evidencing, securing or relating thereto, or any other event shall occur or condition exist, the effect of which default or -85- other event or condition is to cause, or to permit the holder or holders of such Indebtedness (or a trustee or agent on behalf of such holder or holders) to cause (determined without regard to whether any notice is required), any such Indebtedness to become due prior to its stated maturity (other than, in the case of the Seller Note, as a result of a redemption required by the first sentence of Section 4(c) of the Seller Note and permitted to be paid pursuant to Section 9.11(ii)), or (iii) any Indebtedness (other than the Obligations) of Holdings, the Borrower or any of their respective Subsidiaries shall be declared to be due and payable, or required to be prepaid other than by a regularly scheduled required prepayment, prior to the stated maturity thereof, (other than, in the case of the Seller Note, as a result of a redemption required by the first sentence of Section 4(c) of the Seller Note and permitted to be paid pursuant to Section 9.11(ii)), provided that (x) it shall not be a Default or Event of Default under this Section 10.04 unless the aggregate principal amount of all Indebtedness as described in preceding clauses (i) through (iii), inclusive, is at least $5,000,000; or 10.05 Bankruptcy, etc. Holdings, the Borrower or any of their respective Subsidiaries shall commence a voluntary case concerning itself under Title 11 of the United States Code entitled "Bankruptcy," as now or hereafter in effect, or any successor thereto (the "Bankruptcy Code"); or an involuntary case is commenced against Holdings, the Borrower or any of their respective Subsidiaries and the petition is not controverted within 15 days, or is not dismissed within 60 days, after commencement of the case; or a custodian (as defined in the Bankruptcy Code) is appointed for, or takes charge of, all or substantially all of the property of Holdings, the Borrower or any of their respective Subsidiaries or Holdings, the Borrower or any of their respective Subsidiaries commences any other proceeding under any reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction whether now or hereafter in effect relating to Holdings, the Borrower or any of their respective Subsidiaries or there is commenced against Holdings, the Borrower or any of their respective Subsidiaries any such proceeding which remains undismissed for a period of 60 days, or Holdings, the Borrower or any of their respective Subsidiaries is adjudicated insolvent or bankrupt; or any order of relief or other order approving any such case or proceeding is entered; or Holdings, the Borrower or any of their respective Subsidiaries suffers any appointment of any custodian or the like for it or any substantial part of its property to continue undischarged or unstayed for a period of 60 days; or Holdings, the Borrower or any of their respective Subsidiaries makes a general assignment for the benefit of creditors; or any corporate action is taken by Holdings, the Borrower or any of their respective Subsidiaries for the purpose of effecting any of the foregoing; or 10.06 ERISA. (a) Any Plan shall fail to satisfy the minimum funding standard required for any plan year or part thereof under Section 412 of the Code or Section 302 of ERISA or a waiver of such standard or extension of any amortization period -86- is sought or granted under Section 412 of the Code or Section 303 or 304 of ERISA, a Reportable Event shall have occurred, a contributing sponsor (as defined in Section 4001(a)(13) of ERISA) of a Plan subject to Title IV of ERISA shall be subject to the advance reporting requirement of PBGC Regulation Section 4043.61 (without regard to subparagraph (b)(1) thereof) and an event described in subsection .62, .63, .64, .65, .66, .67 or .68 of PBGC Regulation Section 4043 shall be reasonably expected to occur with respect to such Plan within the following 30 days, any Plan which is subject to Title IV of ERISA shall have had or is reasonably likely to have a trustee appointed to administer such Plan, any Plan which is subject to Title IV of ERISA is, shall have been or is reasonably likely to be terminated or to be the subject of termination proceedings under ERISA, any Plan shall have an Unfunded Current Liability, a contribution required to be made with respect to a Plan or a Foreign Pension Plan has not been timely made, Holdings or any Subsidiary of Holdings or any ERISA Affiliate has incurred or is reasonably likely to incur any liability to or on account of a Plan under Section 409, 502(i), 502(l), 515, 4062, 4063, 4064, 4069, 4201, 4204 or 4212 of ERISA or Section 401(a)(29), 4971 or 4975 of the Code or on account of a group health plan (as defined in Section 607(1) of ERISA or Section 4980B(g)(2) of the Code) under Section 4980B of the Code, or Holdings, or any of its Subsidiaries has incurred or is reasonably likely to incur liabilities pursuant to one or more employee welfare benefit plans (as defined in Section 3(1) of ERISA) that provide benefits to retired employees or other former employees (other than as required by Section 601 of ERISA) or Plans or Foreign Pension Plans; (b) there shall result from any such event or events the imposition of a lien, the granting of a security interest, or a liability or a material risk of incurring a liability; and (c) such lien, security interest or liability, individually, and/or in the aggregate, in the opinion of the Required Banks, has had, or could reasonably be expected to have, a Material Adverse Effect; or 10.07 Security Documents. At any time after the execution and delivery thereof, any of the Security Documents shall cease to be in full force and effect, or shall cease in any material respect to give the Collateral Agent for the benefit of the Secured Creditors the Liens, rights, powers and privileges purported to be created thereby (including, without limitation, a perfected security interest in, and Lien on, all of the Collateral (excluding (i) assets valued at up to $250,000 in the aggregate, (ii) cash proceeds of any such Collateral to the extent same are not required to be paid to, or deposited with, the Collateral Agent pursuant to the respective Security Document and (iii) inventory (including work-in-process), which, in the ordinary course of business, is located outside of the U.S. or any territories thereof and is temporarily in transit or held pending the completion or sale thereof (except to the extent Holdings and the Borrower have failed to comply, following the request of the Collateral Agent or the Required Banks, with the requirements of the second sentence of Section 8.12(b)); provided that if the Borrower is notified by the Administrative Agent of a lack of perfection with respect to any of the Collateral, the Borrower will take such steps as are necessary or advisable to perfect the Collateral Agent's -87- security interest in such Collateral)), in favor of the Collateral Agent, superior to and prior to the rights of all third Persons (except as permitted by Section 9.01), and subject to no other Liens (except as permitted by Section 9.01), or any Credit Party shall default in the due performance or observance of any term, covenant or agreement on its part to be performed or observed pursuant to any of the Security Documents and such default shall continue beyond any grace period specifically applicable thereto pursuant to the terms of such Security Document; or 10.08 Guaranty. Any Guaranty or any provision thereof shall cease to be in full force or effect as to the relevant Guarantor (unless such Guarantor is no longer a Subsidiary by virtue of a liquidation, sale, merger or consolidation permitted by Section 9.02), or any Guarantor or Person acting by or on behalf of such Guarantor shall deny or disaffirm such Guarantor's obligations under the relevant Guaranty, or any Guarantor shall default in the due performance or observance of any term, covenant or agreement on its part to be performed or observed pursuant to its Guaranty; or 10.09 Judgments. One or more judgments or decrees shall be entered against Holdings, the Borrower or any of their respective Subsidiaries involving in the aggregate for Holdings, the Borrower and their respective Subsidiaries a liability (not paid or fully covered by a reputable and solvent insurance company) and such judgments and decrees either shall be final and non-appealable or shall not be vacated, discharged or stayed or bonded pending appeal for any period of 60 consecutive days, and the aggregate amount of all such judgments to the extent not covered by insurance exceeds $1,000,000; or 10.10 Change of Control. A Change of Control shall occur; then, and in any such event, and at any time thereafter, if any Event of Default shall then be continuing, the Administrative Agent, upon the written request of the Required Banks, shall by written notice to the Borrower, take any or all of the following actions, without prejudice to the rights of any Agent, any Bank or the holder of any Note to enforce its claims against any Credit Party (provided that, if an Event of Default specified in Section 10.05 shall occur with respect to the Borrower, the result which would occur upon the giving of written notice by the Administrative Agent to the Borrower as specified in clauses (i) and (ii) below shall occur automatically without the giving of any such notice): (i) declare the Total Commitments terminated, whereupon all Commitments of each Bank shall forthwith terminate immediately and any Commitment Commission shall forthwith become due and payable without any other notice of any kind; (ii) declare the principal of and any accrued interest in respect of all Loans and the Notes and all Obligations owing hereunder and thereunder to be, whereupon the same shall become, forthwith due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived -88- by each Credit Party; (iii) terminate any Letter of Credit, which may be terminated, in accordance with its terms; (iv) direct the Borrower to pay (and the Borrower agrees that upon receipt of such notice, or upon the occurrence of an Event of Default specified in Section 10.05 with respect to the Borrower, it will pay) to the Collateral Agent at the Payment Office such additional amount of cash, to be held as security by the Collateral Agent, as is equal to the aggregate Stated Amount of all Letters of Credit issued for the account of the Borrower and then outstanding; (v) enforce, as Collateral Agent, all of the Liens and security interests created pursuant to the Security Documents; and (vi) apply any cash collateral as provided in Section 4.02. SECTION 11. Definitions and Accounting Terms. 11.01 Defined Terms. As used in this Agreement, the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined): "Additional Collateral" shall mean all property (whether real or personal) in which security interests are granted (or have been purported to be granted) (and continue to be in effect at the time of determination) pursuant to Section 8.12. "Additional Mortgage" shall have the meaning provided in Section 8.12(a). "Additional Mortgaged Property" shall have the meaning provided in Section 8.12(a). "Additional Security Documents" shall mean all mortgages, pledge agreements, security agreements and other security documents entered into pursuant to Section 8.12 with respect to Additional Collateral. "Adjusted Certificate of Deposit Rate" shall mean, on any day, the sum (rounded to the nearest 1/100 of 1%) of (1) the rate obtained by dividing (x) the most recent weekly average dealer offering rate for negotiable certificates of deposit with a three-month maturity in the secondary market as published in the most recent Federal Reserve System publication entitled "Select Interest Rates," published weekly on Form H.15 as of the date hereof, or if such publication or a substitute containing the foregoing rate information shall not be published by the Federal Reserve System for any week, the weekly average offering rate determined by the Administrative Agent on the basis of quotations for such certificates received by it from three certificate of deposit dealers in New York of recognized standing or, if such quotations are unavailable, then on the basis of other sources reasonably selected by the Administrative Agent, by (y) a percentage equal to 100% minus the stated maximum rate of all reserve requirements as specified in Regulation D -89- applicable on such day to a three-month certificate of deposit of a member bank of the Federal Reserve System in excess of $100,000 (including, without limitation, any marginal, emergency, supplemental, special or other reserves), plus (2) the then daily net annual assessment rate as estimated by the Administrative Agent for determining the current annual assessment payable by the Administrative Agent to the Federal Deposit Insurance Corporation for insuring three-month certificates of deposit. "Adjusted Consolidated Net Income" for any period shall mean Consolidated Net Income for such period plus, without duplication, the sum of the amount of all net non-cash charges (including, without limitation, depreciation, amortization, deferred tax expense and non-cash interest expense, but excluding any net non-cash charges reflected in Adjusted Consolidated Working Capital) and net non-cash losses which were included in arriving at Consolidated Net Income for such period less the sum of the amount of all net non-cash gains (exclusive of items reflected in Adjusted Consolidated Working Capital) included in arriving at Consolidated Net Income for such period. "Adjusted Consolidated Working Capital" at any time shall mean Consolidated Current Assets (but excluding therefrom all cash and Cash Equivalents) less Consolidated Current Liabilities. "Adjusted Percentage" shall mean (x) at a time when no Bank Default exists, for each Bank, such Bank's Percentage and (y) at a time when a Bank Default exists (i) for each Bank that is a Defaulting Bank, zero and (ii) for each Bank that is a Non-Defaulting Bank, the percentage determined by dividing such Bank's Revolving Loan Commitment at such time by the Adjusted Total Revolving Loan Commitment at such time, it being understood that all references herein to Revolving Loan Commitments and the Adjusted Total Revolving Loan Commitment at a time when the Total Revolving Loan Commitment or Adjusted Total Revolving Loan Commitment, as the case may be, has been terminated shall be references to the Revolving Loan Commitments or Adjusted Total Revolving Loan Commitment, as the case may be, in effect immediately prior to such termination, provided that (A) no Bank's Adjusted Percentage shall change upon the occurrence of a Bank Default from that in effect immediately prior to such Bank Default if after giving effect to such Bank Default, and any repayment of Revolving Loans and Swingline Loans at such time pursuant to Section 4.02(a) or otherwise, the sum of (i) the aggregate outstanding principal amount of Revolving Loans of all Non-Defaulting Banks plus (ii) the aggregate outstanding principal amount of Swingline Loans plus (iii) the Letter of Credit Outstandings, exceed the Adjusted Total Revolving Loan Commitment; (B) the changes to the Adjusted Percentage that would have become effective upon the occurrence of a Bank Default but that did not become effective as a result of the preceding clause (A) shall become effective on the first date after the occurrence of the relevant Bank Default on which the sum of (i) the aggregate outstanding principal amount of the Revolving Loans of all Non-Defaulting Banks plus (ii) -90- the aggregate outstanding principal amount of Swingline Loans plus (iii) the Letter of Credit Outstandings is equal to or less than the Adjusted Total Revolving Loan Commitment; and (C) if (i) a Non-Defaulting Bank's Adjusted Percentage is changed pursuant to the preceding clause (B) and (ii) any repayment of such Bank's Revolving Loans, or of Unpaid Drawings with respect to Letters of Credit or of Swingline Loans, that were made during the period commencing after the date of the relevant Bank Default and ending on the date of such change to its Adjusted Percentage must be returned to the Borrower as a preferential or similar payment in any bankruptcy or similar proceeding of the Borrower, then the change to such Non-Defaulting Bank's Adjusted Percentage effected pursuant to said clause (B) shall be reduced to that positive change, if any, as would have been made to its Adjusted Percentage if (x) such repayments had not been made and (y) the maximum change to its Adjusted Percentage would have resulted in the sum of the outstanding principal of Revolving Loans made by such Bank plus such Bank's new Adjusted Percentage of the outstanding principal amount of Swingline Loans and of Letter of Credit Outstandings equalling such Bank's Revolving Loan Commitment at such time. "Adjusted Total Revolving Loan Commitment" shall mean at any time the Total Revolving Loan Commitment less the aggregate Revolving Loan Commitments of all Defaulting Banks. "Administrative Agent" shall have the meaning provided in the first paragraph of this Agreement, and shall include any successor thereto. "Affiliate" shall mean, with respect to any Person, any other Person (including, for purposes of Section 9.06 only, all directors, officers and partners of such Person) directly or indirectly controlling, controlled by, or under direct or indirect common control with, such Person; provided, however, that for purposes of Section 9.06, an Affiliate of Holdings shall include any Person that directly or indirectly owns more than 5% of any class of the capital stock of Holdings and any officer or director of Holdings or any of its Subsidiaries. A Person shall be deemed to control another Person if such Person possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of such other Person, whether through the ownership of voting securities, by contract or otherwise. "Agent" shall have the meaning set forth in the first paragraph of this Agreement. "Agreement" shall mean this Credit Agreement, as modified, supplemented, amended, restated, extended, renewed or replaced from time to time. -91- "Applicable Margin" shall mean (i) in the case of Tranche B Term Loans maintained as (x) Base Rate Loans, 2.00% and (y) Eurodollar Loans, 3.00% and (ii) in the case of Revolving Loans and Tranche A Term Loans, during each Margin Adjustment Period beginning after the Initial Borrowing Date, the percentage per annum set forth below opposite the respective Level indicated to have been achieved on the applicable Start Date for such Margin Adjustment Period (as shown on the respective officer's certificate delivered pursuant to Section 8.01(f)) in accordance with the Requirements for the various Levels specified in the table below:
Applicable Applicable Margin for Margin for Base Rate Eurodollar Level Requirements Loans Loans - -------------------------------------------------------------------------------- 1 For the Margin Adjustment Test Period last 0% 1.00% ended, the Leverage Ratio was less than or equal to 1.50:1.00 on the last day of such Margin Adjustment Test Period and the Consolidated Interest Coverage Ratio for such Margin Adjustment Test Period was greater than or equal to 5.00:1.00. 2 For the Margin Adjustment Test Period last 0.50% 1.50% ended, the Requirements for Level 1, as set forth above, were not met, and the Leverage Ratio was less than or equal to 2.00:1.00 on the last day of such Margin Adjustment Test Period and the Consolidated Interest Coverage Ratio for such Margin Adjustment Test Period was greater than or equal to 4.00:1.00
-92-
Applicable Applicable Margin for Margin for Base Rate Eurodollar Level Requirements Loans Loans - -------------------------------------------------------------------------------- 3 For the Margin Adjustment Test Period last 1.00% 2.00% ended, the Requirements for Levels 1 and 2, as set forth above, were not met, and the Leverage Ratio was less than 2.25:1.00 on the last day of such Margin Adjustment Test Period and the Consolidated Interest Coverage Ratio for such Margin Adjustment Test Period was greater than or equal to 3.50:1.00 4 Level 4 pricing shall apply at all times when 1.50% 2.50% the Requirements set forth above for Levels 1 through 3 are not met
; provided, however, that Level 4 pricing shall also apply (x) from the period from the Initial Borrowing Date to but excluding the first day of the first Margin Adjustment Period occurring after the Initial Borrowing Date and (y) at any time when any Default or Event of Default is in existence. "Asset Purchase Agreement" shall mean the Asset Purchase Agreement, dated as of March 11, 1997, between the Borrower and NSC. "Asset Transfer" shall have the meaning provided in Section 5.06(b). "Assignment and Assumption Agreement" shall mean the Assignment and Assumption Agreement substantially in the form of Exhibit L (appropriately completed). "Assumed Liabilities" shall mean those liabilities in respect of the Business which are being assumed by the Borrower pursuant to Section 2.3 of the Asset Purchase Agreement. "Bank" shall mean each financial institution listed on Schedule I, as well as any Person which becomes a "Bank" hereunder pursuant to 13.04(b). -93- "Bank Default" shall mean (i) the refusal (which has not been retracted) of a Bank to make available its portion of any Borrowing (including any Mandatory Borrowing) or to fund its portion of any unreimbursed payment under Section 2.03(c) or (ii) a Bank having notified in writing the Borrower and/or the Administrative Agent that it does not intend to comply with its obligations under Section 1.01(c) or Section 2. "Bankruptcy Code" shall have the meaning provided in Section 10.05. "Base Rate" shall mean for any day, a rate of interest per annum equal to the higher of (i) the Prime Lending Rate for such day and (ii) the sum of the Adjusted Certificate of Deposit Rate for such day plus 1/2 of 1% per annum. "Base Rate Loan" shall mean (i) each Swingline Loan and (ii) each Loan designated or deemed designated as such by the Borrower at the time of the incurrence thereof or conversion thereto. "Borrower" shall have the meaning set forth in the first paragraph of this Agreement. "Borrower Common Stock" shall mean the common stock of the Borrower. "Borrowing" shall mean the borrowing of one Type of Loan of a single Tranche from all the Banks (other than any Bank which has not funded its share of a Borrowing in accordance with this Agreement) having Commitments of the respective Tranche (or from the Swingline Bank in the case of Swingline Loans) on a given date (or resulting from a conversion or conversions on such date) having in the case of Eurodollar Loans the same Interest Period, provided that Base Rate Loans incurred pursuant to Section 1.10(b) shall be considered part of the related Borrowing of Eurodollar Loans. It is understood that there may be more than one Borrowing outstanding pursuant to a given Tranche. "BTCo" shall mean Bankers Trust Company in its individual capacity. "Business" shall mean NSC's Logic, Memory and Discrete Power and Signal Technologies Business Units as historically conducted and accounted for (including Flash Memory, but excluding Public Networks, Programmable Products and Mil Logic Products). "Business Day" shall mean (i) with respect to any borrowing, payment or rate selection of Eurodollar Loans, a day (other than a Saturday or Sunday) on which banks generally are open in New York for the conduct of substantially all of their commercial lending activities and on which dealings in United States dollars are carried on in the London interbank market and (ii) for all other purposes, a day (other than a Saturday or -94- Sunday) on which banks generally are open in New York for the conduct of substantially all of their commercial lending activities. "Capital Expenditures" shall mean, with respect to any Person, all expenditures by such Person which should be capitalized in accordance with generally accepted accounting principles, including all such expenditures with respect to fixed or capital assets (including, without limitation, expenditures for maintenance and repairs which should be capitalized in accordance with generally accepted accounting principles) and the amount of Capitalized Lease Obligations incurred by such Person. "Capitalized Lease Obligations" of any Person shall mean all rental obligations which, under generally accepted accounting principles, are or will be required to be capitalized on the books of such Person, in each case taken at the amount thereof accounted for as indebtedness in accordance with such principles. "Cash Equivalents" shall mean, as to any Person, (i) securities issued or directly and fully guaranteed or insured by the United States or any agency or instrumentality thereof (provided that the full faith and credit of the United States is pledged in support thereof) having maturities of not more than one year from the date of acquisition, (ii) time deposits and certificates of deposit of any commercial bank having, or which is the principal banking subsidiary of a bank holding company organized under the laws of the United States, any State thereof, the District of Columbia or any foreign jurisdiction having capital, surplus and undivided profits aggregating in excess of $200,000,000, with maturities of not more than one year from the date of acquisition by such Person, (iii) repurchase obligations with a term of not more than 90 days for underlying securities of the types described in clause (i) above entered into with any bank meeting the qualifications specified in clause (ii) above, (iv) commercial paper issued by any Person incorporated in the United States rated at least A-1 or the equivalent thereof by Standard & Poor's Corporation or at least P-1 or the equivalent thereof by Moody's Investors Service, Inc. and in each case maturing not more than one year after the date of acquisition by such Person, (v) investments in money market funds substantially all of whose assets are comprised of securities of the types described in clauses (i) through (iv) above and (vi) demand deposit accounts maintained in the ordinary course of business. "CERCLA" shall mean the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as the same may be amended from time to time, 42 U.S.C. Section 9601 et seq. "Change of Control" shall mean (i) Holdings shall at any time cease to own 100% of the capital stock of the Borrower; (ii) at any time a "Change of Control" under and as defined in the Senior Subordinated Note Indenture, the Seller Note or in any -95- documentation relating to any Indebtedness refinancing all or any part thereof shall have occurred; (iii) at any time prior to the consummation of a Qualified Public Offering, and for any reason whatsoever, (x) the CVC Permitted Holders shall own less than 40% of the then outstanding Voting Stock at such time or (y) the CVC Permitted Holders and the Management Investors, taken together, shall own less than a majority or the outstanding Voting Stock of Holdings; (iv) at any time after the consummation of a Qualified Public Offering, and for any reason whatsoever, (x) the CVC Permitted Holders shall own less than 20% of the outstanding Voting Stock of Holdings or (y) any "Person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act), excluding the CVC Permitted Holders, is or shall become the "beneficial owner" (as defined in Rules 13(d)-3 and 13(d)-5 under the Exchange Act), directly or indirectly, of a greater percentage of the Voting Stock of Holdings than is owned by the CVC Permitted Holders at such time; or (v) at any time the Board of Directors of Holdings shall cease to consist of a majority of Continuing Directors. "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time, and the regulations promulgated and rulings issued thereunder. Section references to the Code are to the Code, as in effect at the date of this Agreement and any subsequent provisions of the Code, amendatory thereof, supplemental thereto or substituted therefor. "Collateral" shall mean all property (whether real or personal) with respect to which any security interests have been granted (or purported to be granted) pursuant to any Security Document, including, without limitation, all Pledge Agreement Collateral, all Security Agreement Collateral, all Mortgaged Properties, all cash and Cash Equivalents delivered as collateral pursuant to Section 4.02 or 10 hereof and all Additional Collateral, if any. "Collateral Agent" shall mean the Administrative Agent acting as collateral agent for the Secured Creditors pursuant to the Security Documents. "Commitment" shall mean any of the commitments of any Bank, i.e., whether the Tranche A Term Loan Commitment, Tranche B Term Loan Commitment or Revolving Loan Commitment. "Commitment Commission" shall have the meaning provided in Section 3.01(a). "Common Management Fund" shall mean with respect to any Person, a fund under common control with such Person. "Consolidated Current Assets" shall mean, at any time, the consolidated current assets of Holdings and its Consolidated Subsidiaries. -96- "Consolidated Current Liabilities" shall mean, at any time, the consolidated current liabilities of Holdings and its Consolidated Subsidiaries at such time, but excluding (i) the current portion of any Indebtedness under this Agreement and any other long-term Indebtedness which would otherwise be included therein, (ii) accrued but unpaid interest with respect to the Indebtedness described in clause (i), and (iii) the current portion of Indebtedness constituting Capitalized Lease Obligations. "Consolidated EBIT" shall mean, for any period, the Consolidated Net Income for such period, before interest expense and provision for taxes based on income and without giving effect to any extraordinary gains or losses or gains or losses from sales of assets other than inventory sold in the ordinary course of business. "Consolidated EBITDA" shall mean, for any period, Consolidated EBIT, adjusted by adding thereto the amount of all amortization of intangibles and depreciation, in each case that were deducted in arriving at Consolidated EBIT for such period. "Consolidated Fixed Charge Coverage Ratio" for any period shall mean the ratio of Consolidated EBITDA to Consolidated Fixed Charges for such period. "Consolidated Fixed Charges" for any period shall mean the sum, without duplication, of (i) Consolidated Interest Expense for such period, (ii) the amount of all Capital Expenditures made by Holdings and its Subsidiaries during such period (other than Capital Expenditures to the extent made pursuant to Section 9.07(c)), (iii) all cash payments in respect of taxes made during such period (net of any cash refunds actually received during such period) and (iv) the scheduled principal amount of all amortization payments on all Indebtedness (including without limitation the principal component of all Capitalized Lease Obligations) of Holdings and its Subsidiaries for such period (as determined on the first day of the respective period). "Consolidated Indebtedness" shall mean, as at any date of determination, the aggregate stated balance sheet amount of all Indebtedness (but including in any event the then outstanding principal amount of all Loans, all Senior Subordinated Notes, all Capitalized Lease Obligations and all Letter of Credit Outstandings) of Holdings and its Subsidiaries on a consolidated basis as determined in accordance with GAAP; provided that Indebtedness outstanding pursuant to (x) the Seller Note, (y) the Holdings Junior Subordinated Debentures and (z) trade payables incurred in the ordinary course of business shall be excluded in determining Consolidated Indebtedness. "Consolidated Interest Coverage Ratio" shall mean, for any period, the ratio of (i) Consolidated EBITDA for such period to (ii) Consolidated Interest Expense for such period. -97- "Consolidated Interest Expense" shall mean, for any period, the total consolidated interest expense of Holdings and its Consolidated Subsidiaries for such period (calculated without regard to any limitations on the payment thereof) plus, without duplication, that portion of Capitalized Lease Obligations of Holdings and its Consolidated Subsidiaries representing the interest factor for such period, but excluding (i) the amortization of any deferred financing costs incurred in connection with this Agreement or the issuance of the Senior Subordinated Notes and (ii) any interest expense in respect of (x) the Seller Note and (y) the Holdings Junior Subordinated Debentures. "Consolidated Net Income" shall mean, for any period, the consolidated net after tax income of Holdings and its Consolidated Subsidiaries determined in accordance with GAAP. "Consolidated Subsidiaries" shall mean, as to any Person, all Subsidiaries of such Person which are consolidated with such Person for financial reporting purposes in accordance with GAAP. Notwithstanding anything to the contrary contained in this Agreement (and except for purposes of the definition of Unrestricted Subsidiary), an Unrestricted Subsidiary shall be deemed not to be a Subsidiary of the Borrower or any of its other Subsidiaries for purposes of this Agreement. "Contingent Obligation" shall mean, as to any Person, any obligation of such Person guaranteeing or intended to guarantee any Indebtedness, leases, dividends or other obligations ("primary obligations") of any other Person (the "primary obligor") in any manner, whether directly or indirectly, including, without limitation, any obligation of such Person, whether or not contingent, (i) to purchase any such primary obligation or any property constituting direct or indirect security therefor, (ii) to advance or supply funds (x) for the purchase or payment of any such primary obligation or (y) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor, (iii) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation or (iv) otherwise to assure or hold harmless the holder of such primary obligation against loss in respect thereof; provided, however, that the term Contingent Obligation shall not include endorsements of instruments for deposit or collection in the ordinary course of business and any products warranties extended in the ordinary course of business. The amount of any Contingent Obligation shall be deemed to be an amount equal to the stated or determinable amount of the primary obligation in respect of which such Contingent Obligation is made (or, if the less, the maximum amount of such primary obligation for which such Person may be liable pursuant to the terms of the instrument evidencing such Contingent Obligation) or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof -98- (assuming such Person is required to perform thereunder) as determined by such Person in good faith. "Continuing Directors" shall mean the (i) directors of Holdings on the Initial Borrowing Date and (ii) each other director, if (x) such director's nomination for election to the Board of Directors of Holdings is recommended by a majority of the then Continuing Directors or (y) such director became a member of the Board of Directors pursuant to, and in accordance with, Article V of the Securities Purchase and Holders Agreement prior to the termination of the voting agreements pursuant to Section 5.7 of the Securities Purchase and Holders Agreement. "Credit Documents" shall mean this Agreement and, after the execution and delivery thereof pursuant to the terms of this Agreement, each Note, each Security Document and the Subsidiaries Guaranty and, after the execution and delivery thereof, each additional guaranty or security document executed pursuant to Section 8.12. "Credit Event" shall mean the making of any Loan or the issuance of any Letter of Credit. "Credit Party" shall mean Holdings, the Borrower, each Subsidiary Guarantor and any other Subsidiary which at any time executes and delivers any Credit Document as required by this Agreement. "CVC" shall mean Citicorp Venture Capital, Ltd. "CVC Permitted Holders" shall mean (i) CVC, (ii) any officer, employee or director of CVC or any trust, partnership or other entity established solely for the benefit of such officers, employees or directors and (iii) Sterling (or any successor) so long as CVC, employees, officers and directors of CVC and corporations, partnerships and other entities at least a majority of the equity in which is held in the aggregate by CVC and its employees, officers and directors, hold no less than a majority of the aggregate economic interests in Sterling or such successor. "Debt Agreements" shall have the meaning provided in Section 5.05. "Default" shall mean any event, act or condition which with notice or lapse of time, or both, would constitute an Event of Default. "Defaulting Bank" shall mean any Bank with respect to which a Bank Default is in effect. -99- "Disqualified Stock" shall mean any capital stock which, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable), or upon the happening of any event, (i) matures (excluding any maturity as the result of an optional redemption by the issuer thereof) or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable at the option of the holder thereof, in whole or in part, on or prior to the first anniversary of the Tranche B Term Loan Maturity Date, or (ii) is convertible into or exchangeable (unless at the sole option of the issuer thereof) for (a) debt securities or (b) any capital stock referred to in (i) above, in each case at any time prior to the first anniversary of the Tranche B Term Loan Maturity Date, or (iii) otherwise contains terms which are materially more restrictive (or provide the holders thereof materially greater rights) than the Holdings Series A Preferred Stock in the form issued on or prior to the Initial Borrowing Date. "Dividend" with respect to any Person shall mean that such Person has declared or paid a dividend or returned any equity capital to its stockholders or authorized or made any other distribution, payment or delivery of property (other than common stock of such Person) or cash to its stockholders as such, or redeemed, retired, purchased or otherwise acquired, directly or indirectly, for a consideration any shares of any class of its capital stock outstanding on or after the Effective Date (or any options or warrants issued by such Person with respect to its capital stock), or set aside any funds for any of the foregoing purposes, or shall have permitted any of its Subsidiaries to purchase or otherwise acquire for a consideration any shares of any class of the capital stock of such Person outstanding on or after the Effective Date (or any options or warrants issued by such Person with respect to its capital stock). Without limiting the foregoing, "Dividends" with respect to any Person shall also include all payments made or required to be made by such Person with respect to any stock appreciation rights, plans, equity incentive or achievement plans or any similar plans or setting aside of any funds for the foregoing purposes. "Documentation Agent" shall have the meaning provided in the first paragraph of this Agreement. "Documents" shall mean the Credit Documents and the Recapitalization Documents. "Dollars" and the sign "$" shall each mean lawful money of the United States. "Domestic Subsidiary" shall mean each Subsidiary of the Borrower that is incorporated or organized in the United States of America, any State thereof, the United States Virgin Islands or Puerto Rico. -100- "Domestic Wholly-Owned Subsidiary" shall mean each Domestic Subsidiary which is a Wholly-Owned Subsidiary of the Borrower. "Drawing" shall have the meaning provided in Section 2.04(b). "Effective Date" shall have the meaning provided in Section 13.10. "Eligible Transferee" shall mean and include a commercial bank, insurance company, financial institution, fund or other Person which regularly purchases interests in loans or extensions of credit of the types made pursuant to this Agreement, any other Person which would constitute a "qualified institutional buyer" within the meaning of Rule 144A under the Securities Act as in effect on the Effective Date or other "accredited investor" (as defined in Regulation D of the Securities Act). "Employee Benefit Plans" shall have the meaning provided in Section 5.05. "Environmental Claims" means any and all administrative, regulatory or judicial actions, suits, demands, demand letters, directives, claims, liens, notices of noncompliance or violation, investigations or proceedings relating in any way to any Environmental Law or any permit issued, or any approval given, under any such Environmental Law (hereafter, "Claims"), including, without limitation, (a) any and all Claims by governmental or regulatory authorities for enforcement, cleanup, removal, response, remedial or other actions or damages pursuant to any applicable Environmental Law, and (b) any and all Claims by any third party seeking damages, contribution, indemnification, cost recovery, compensation or injunctive relief in connection with alleged injury or threat of injury to health, safety or the environment due to the presence of Hazardous Materials. "Environmental Law" means any applicable Federal, state, foreign or local statute, law, rule, regulation, ordinance, code, binding and enforceable guideline, binding and enforceable written policy and rule of common law now or hereafter in effect and in each case as amended, and any judicial or administrative interpretation thereof, including any judicial or administrative order, consent decree or judgment, to the extent binding on Holdings, the Borrower or any of their respective Subsidiaries, relating to the environment, employee health and safety or Hazardous Materials, including, without limitation, CERCLA; RCRA; the Federal Water Pollution Control Act, 33 U.S.C. Section 1251 et seq.; the Toxic Substances Control Act, 15 U.S.C. Section 2601 et seq.; the Clean Air Act, 42 U.S.C. Section 7401 et seq.; the Safe Drinking Water Act, 42 U.S.C. Section 3803 et seq.; the Oil Pollution Act of 1990, 33 U.S.C. Section 2701 et seq.; the Emergency Planning and the Community Right-to-Know Act of 1986, 42 U.S.C. Section 11001 et seq., the Hazardous Material Transportation Act, 49 U.S.C. Section 1801 et seq. and the Occupational Safety and Health Act, 29 U.S.C. Section 651 et seq. (to the extent it regulates occupational exposure to Hazardous Materials); and -101- any state and local or foreign counterparts or equivalents, in each case as amended from time to time. "Equity Contribution" shall mean the equity contributions made in Holdings on or prior to the Initial Borrowing Date as contemplated by Sections 5.06(c) and (d). "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations promulgated and rulings issued thereunder. Section references to ERISA are to ERISA, as in effect at the date of this Agreement and any subsequent provisions of ERISA, amendatory thereof, supplemental thereto or substituted therefor. "ERISA Affiliate" shall mean each person (as defined in Section 3(9) of ERISA) which together with Holdings or a Subsidiary of Holdings would be deemed to be a "single employer" within the meaning of Section 414(b), (c), (m) or (o) of the Code. "Eurodollar Loan" shall mean each Loan (excluding Swingline Loans) designated as such by the Borrower at the time of the incurrence thereof or conversion thereto. "Eurodollar Rate" shall mean the sum of (i) the quotient of (a) the rate determined by the Administrative Agent to be the rate at which deposits in U.S. dollars are offered by BTCo to first-class banks in the London interbank market at approximately 11 a.m. (London time) two Business Days prior to the first day of the Interest Period applicable to such Eurodollar Loan, in the approximate amount of BTCo's relevant Eurodollar Loan and having a maturity approximately equal to the Interest Period applicable to such Eurodollar Loan divided by (b) a percentage equal to 100% minus the then stated maximum rate of all reserve requirements (including, without limitation, any marginal, emergency, supplemental, special or other reserves required by applicable law) applicable to any member bank of the Federal Reserve System in respect of Eurocurrency funding or liabilities as defined in Regulation D (or any successor category of liabilities under Regulation D). The Eurodollar Rate shall be rounded to the next higher multiple of 1/100 of 1% if the rate is not such a multiple. "Event of Default" shall have the meaning provided in Section 10. "Excess Cash Flow" shall mean, for any period, the remainder of (a) the sum of (i) Adjusted Consolidated Net Income for such period, (ii) the decrease, if any, in Adjusted Consolidated Working Capital from the first day to the last day of such period, (iii) the Net Sale Proceeds of asset sales to the extent such proceeds are excluded under Section 4.02(f) by the operation of clause (v) thereof and (iv) any amount of permitted -102- Capital Expenditures carried forward into the respective period pursuant to the provisions of Section 9.07(b), to the extent such amount has lapsed and terminated during (or at the end of) such period pursuant to the proviso to Section 9.07(b), minus (b) the sum of (i) the amount of Capital Expenditures made by the Borrower and its Subsidiaries on a consolidated basis during such period pursuant to and in accordance with Section 9.07(a) (but without giving effect to any Capital Expenditures made during such period as a result of, or pursuant to, Section 9.07(b) or to Capital Expenditures made pursuant to Section 9.07(c)), in each case except to the extent financed with the proceeds of Indebtedness or pursuant to Capitalized Lease Obligations or to the extent constituting a reinvestment of Net Sale Proceeds of asset sales under Section 4.02(f)(iv), (ii) the aggregate amount of permanent principal payments of Indebtedness for borrowed money of the Borrower and its Subsidiaries and the permanent repayment of the principal component of Capitalized Lease Obligations of the Borrower and its Subsidiaries (excluding (1) payments with proceeds of asset sales, (2) payments with the proceeds of other Indebtedness or equity and (3) payments of Loans or other Obligations, provided that repayments of Loans shall be deducted in determining Excess Cash Flow if such repayments were (x) required as a result of a Scheduled Repayment under Section 4.02(b) or (c) (but not as a reduction to the amount of Scheduled Repayments pursuant to another provision of this Agreement) or (y) made as a voluntary prepayment pursuant to Section 4.01 with internally generated funds (but in the case of a voluntary prepayment of Revolving Loans or Swingline Loans, only to the extent accompanied by a voluntary reduction to the Total Revolving Loan Commitment)) during such period; (iii) the increase, if any, in Adjusted Consolidated Working Capital from the first day to the last day of such period and (iv) if any amount representing permitted Capital Expenditures is being carried forward from such period into a subsequent period pursuant to the provisions of Section 9.07(b), the amount being so carried forward to a subsequent period. "Excess Cash Flow Conversion Time" shall have the meaning provided in Section 4.02(g). "Excess Cash Payment Date" shall mean the date occurring 90 days after the last day of each fiscal year of Holdings (beginning with its fiscal year ending in May 1998). "Excess Cash Payment Period" shall mean, with respect to the repayment required on each Excess Cash Payment Date, the immediately preceding fiscal year of Holdings. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. "Existing Indebtedness" shall have the meaning provided in Section 7.22. -103- "Facing Fee" shall have the meaning provided in Section 3.01(c). "Federal Funds Rate" shall mean, for any day, an interest rate per annum equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published for such day (or, if such day is not a Business Day, for the immediately preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations at approximately 11 a.m. (New York time) on such day on such transactions received by the Administrative Agent from three Federal funds brokers of recognized standing selected by the Administrative Agent in its sole discretion. "Fees" shall mean all amounts payable pursuant to or referred to in Section 3.01. "Foreign Pension Plan" shall mean any plan, fund (including, without limitation, any superannuation fund) or other similar program established or maintained outside the United States of America by Holdings or any one or more of its Subsidiaries primarily for the benefit of employees of Holdings or such Subsidiaries residing outside the United States of America, which plan, fund or other similar program provides, or results in, retirement income, a deferral of income in contemplation of retirement or payments to be made upon termination of employment, and which plan is not subject to ERISA or the Code. "Foreign Subsidiary" shall mean each Subsidiary of the Borrower that is incorporated or organized under the laws of any jurisdiction other than the United States of America, any State thereof, the United States Virgin Islands or Puerto Rico. "GAAP" shall have the meaning provided in Section 13.07(a). "Guaranteed Creditors" shall mean and include each of the Agents, the Collateral Agent, the Banks and each party (other than any Credit Party) party to an Interest Rate Protection Agreement or Other Hedging Agreement to the extent such party constitutes a Secured Creditor under the Security Documents. "Guaranteed Obligations" shall mean all obligations of the Borrower (i) to each Bank for the full and prompt payment when due (whether at the stated maturity, by acceleration or otherwise) of the principal and interest on each Note issued by the Borrower to such Bank, and Loans made, under the Credit Agreement and all reimbursement obligations and Unpaid Drawings with respect to Letters of Credit, together with all the other obligations and liabilities (including, without limitation, indemnities, fees and interest thereon) of the Borrower to such Bank now existing or hereafter incurred under, arising out -104- of or in connection with the Credit Agreement or any other Credit Document and the due performance and compliance with all the terms, conditions and agreements contained in the Credit Documents by the Borrower and (ii) to each Bank and each Affiliate of a Bank which enters into an Interest Rate Protection or Other Hedging Agreement with the Borrower, which by its express terms are entitled to the benefit of the Guaranty pursuant to Section 14 with the written consent of Holdings, the full and prompt payment when due (whether by acceleration or otherwise) of all obligations of the Borrower owing under any such Interest Rate Protection or Other Hedging Agreement, whether now in existence or hereafter arising, and the due performance and compliance with all terms, conditions and agreements contained therein. "Guarantor" shall mean Holdings and each Subsidiary Guarantor. "Guaranty" shall mean the guaranty issued by Holdings pursuant to Section 14 hereof, the Subsidiaries Guaranty and any other guarantee executed and delivered by a Subsidiary of the Borrower pursuant to Section 8.12. "Hazardous Materials" means (a) any petroleum or petroleum products, radioactive materials, asbestos in any form that is or could become friable, urea formaldehyde foam insulation, transformers or other equipment that contain dielectric fluid containing levels of polychlorinated biphenyls, and radon gas; (b) any chemicals, materials or substances defined as or included in the definition of "hazardous substances," "hazardous waste," "hazardous materials," "extremely hazardous substances," "restricted hazardous waste," "toxic substances," "toxic pollutants," "contaminants," or "pollutants," or words of similar import, under any applicable Environmental Law; and (c) any other chemical, material or substance, exposure to which is prohibited, limited or regulated by any governmental authority under Environmental Laws. "Holdings" shall have the meaning provided in the first paragraph of this Agreement. "Holdings Common Stock" shall mean common stock of Holdings. "Holdings Contribution" shall have the meaning provided in Section 5.06(e). "Holdings Junior Subordinated Debentures" shall have the meaning provided in Section 9.04(xv). "Holdings Series A Preferred Stock" shall mean shares of Holding's 12% Series A Cumulative Compounding Preferred Stock. -105- "Indebtedness" shall mean, as to any Person, without duplication, (i) all indebtedness (including principal, interest, fees and charges) of such Person for borrowed money or for the deferred purchase price of property or services, (ii) the maximum amount available to be drawn under all letters of credit issued for the account of such Person and all unpaid drawings in respect of such letters of credit, (iii) all Indebtedness of the types described in clause (i), (ii), (iv), (v), (vi) or (vii) of this definition secured by any Lien on any property owned by such Person, whether or not such Indebtedness has been assumed by such Person (to the extent of the value of the respective property), (iv) the aggregate amount required to be capitalized under leases under which such Person is the lessee, (v) all obligations of such person to pay a specified purchase price for goods or services, whether or not delivered or accepted, i.e., take-or-pay and similar obligations, (vi) all Contingent Obligations of such Person and (vii) all obligations under any Interest Rate Protection Agreement or Other Hedging Agreement or under any similar type of agreement. "Initial Borrowing Date" shall mean the date occurring on or after the Effective Date on which the initial Borrowing of Term Loans hereunder occurs. "Initial Public Offering" shall mean an underwritten initial public offering of common stock of, and by, Holdings pursuant to a registration statement filed with the Securities and Exchange Commission in accordance with the Securities Act. "Interest Determination Date" shall mean, with respect to any Eurodollar Loan, the second Business Day prior to the commencement of any Interest Period relating to such Eurodollar Loan. "Interest Period" shall have the meaning provided in Section 1.09. "Interest Rate Protection Agreement" shall mean any interest rate swap agreement, interest rate cap agreement, interest collar agreement, interest rate hedging agreement, interest rate floor agreement or other similar agreement or arrangement. "Issuing Bank" shall mean the Administrative Agent and any Bank which at the request of the Borrower and with the consent of the Administrative Agent (which shall not be unreasonably withheld) agrees, in such Bank's sole discretion, to become an Issuing Bank for the purpose of issuing Letters of Credit pursuant to Section 2. "Joint Venture" shall mean any Person in which Holdings, the Borrower and its Subsidiaries own, directly or indirectly, more than 5% but 50% or less of the equity interests. -106- "L/C Supportable Indebtedness" shall mean (i) obligations of the Borrower or its Subsidiaries incurred in the ordinary course of business with respect to insurance obligations and workers' compensation, surety bonds and other similar statutory obligations and (ii) such other obligations of the Borrower or any of its Subsidiaries as are permitted to exist pursuant to the terms of this Agreement. "Leaseholds" of any Person means all the right, title and interest of such Person as lessee or licensee in, to and under leases or licenses of land, improvements and/or fixtures. "Letter of Credit" shall have the meaning provided in Section 2.01(a). "Letter of Credit Fee" shall have the meaning provided in Section 3.01(b). "Letter of Credit Outstandings" shall mean, at any time, the sum of (i) the aggregate Stated Amount of all outstanding Letters of Credit and (ii) the amount of all Unpaid Drawings. "Letter of Credit Request" shall have the meaning provided in Section 2.02(a). "Level 1" shall have the meaning provided in the definition of Applicable Margin. "Level 4" shall have the meaning provided in the definition of Applicable Margin. "Leverage Ratio" shall mean, at any date of determination, the ratio of Consolidated Indebtedness on such date to Consolidated EBITDA for the Test Period last ended; provided that in the case of a Test Period ended before the last day of the fiscal year ended in 1998, for purposes of the Leverage Ratio only, Consolidated EBITDA for such Test Period shall be multiplied by a fraction the numerator of which is 365 and the denominator of which is the number of days actually elapsed during the respective Test Period. "Lien" shall mean any mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), preference, priority or other security agreement of any kind or nature whatsoever (including, without limitation, any conditional sale or other title retention agreement, any financing or similar statement or notice filed under the UCC or any other similar recording or notice statute, and any lease having substantially the same effect as any of the foregoing). -107- "Loan" shall mean each Tranche A Term Loan, each Tranche B Term Loan, each Revolving Loan and each Swingline Loan. "Majority Banks" of any Tranche shall mean those Non-Defaulting Banks which would constitute the Required Banks under, and as defined in, this Agreement if all outstanding Obligations of the other Tranches under this Agreement were repaid in full and all Commitments with respect thereto were terminated. "Management Agreements" shall have the meaning provided in Section 5.05. "Management Investors" shall mean Kirk P. Pond, Joseph R. Martin and certain other key employees of the Borrower who purchase Holdings Common Stock and/or Holdings Preferred Stock pursuant to the Securities Purchase and Holders Agreement. "Mandatory Borrowing" shall have the meaning provided in Section 1.01(e). "Margin Adjustment Period" shall mean each period which shall commence on a date occurring after the first anniversary of the Initial Borrowing Date on which the financial statements are delivered pursuant to Section 8.01(b) or (c) for a fiscal quarter or year, as the case may be, which ends at least one year after the Initial Borrowing Date and which Margin Adjustment Period shall end on the earlier of (i) the date of actual delivery of the next financial statements pursuant to Section 8.01(b) or (c) and (ii) the latest date on which the next financial statements are required to be delivered pursuant to Section 8.01(b) or (c). "Margin Adjustment Test Period" shall mean, with respect to each Margin Adjustment Period, the Test Period ended on the last day of the fiscal quarter or year, as the case may be, for which financial statements were last delivered or required to be delivered pursuant to Section 8.01(b) or (c). "Margin Stock" shall have the meaning provided in Regulation U. "Material Adverse Effect" shall mean a material adverse effect on the business, operations, property, assets, liabilities, condition (financial or otherwise) or prospects of Holdings and its Subsidiaries taken as a whole or the Borrower. "Maturity Date" shall mean, with respect to any Tranche of Loans, the Tranche A Term Loan Maturity Date, the Tranche B Term Loan Maturity Date, the Revolving Loan Maturity Date or the Swingline Expiry Date, as the case may be. "Maximum Swingline Amount" shall mean $5,000,000. -108- "Mortgage" shall have the meaning provided in Section 5.13 and, after the execution and delivery thereof, shall include each Additional Mortgage. "Mortgage Policies" shall have the meaning provided in Section 5.13. "Mortgaged Property" shall have the meaning provided in Section 5.13 and, after the execution and delivery of any Additional Mortgage, shall include the respective Additional Mortgaged Property. "NSC" shall mean National Semiconductor Corporation, a Delaware corporation. "Net Sale Proceeds" shall mean for any sale of assets, the gross cash proceeds (including any cash received by way of deferred payment pursuant to a promissory note, receivable or otherwise, but only as and when received) received from any sale of assets, net of (i) reasonable transaction costs (including, without limitation, any underwriting, brokerage or other customary selling commissions and reasonable legal, advisory and other fees and expenses, including title and recording expenses, associated therewith), (ii) payments of unassumed liabilities relating to the assets sold at the time of, or within 90 days after, the date of such sale, (iii) the amount of such gross cash proceeds required to be used to repay any Indebtedness (other than Indebtedness of the Banks pursuant to this Agreement) which is secured by the respective assets which were sold, and (iv) the estimated marginal increase in income taxes which will be payable by Holdings' consolidated group with respect to the fiscal year in which the sale occurs as a result of such sale. "Non-Defaulting Bank" shall mean and include each Bank other than a Defaulting Bank. "Note" shall mean each Tranche A Term Note, each Tranche B Term Note, each Revolving Note and the Swingline Note. "Notice of Borrowing" shall have the meaning provided in Section 1.03. "Notice of Conversion" shall have the meaning provided in Section 1.06. "Notice Office" shall mean the office of the Administrative Agent located at 130 Liberty Street, New York, NY 10006, Attention: Anthony Logrippo, or such other office as the Administrative Agent may hereafter designate in writing as such to the other parties hereto. -109- "Obligations" shall mean all amounts owing to any of the Agents, the Collateral Agent or any Bank pursuant to the terms of this Agreement or any other Credit Document. "Operating Agreements" shall mean the Technology Licensing and Transfer Agreement, Transition Services Agreement, Fairchild Foundry Services Agreement, Revenue Side Letter, Fairchild Assembly Services Agreement, National Foundry Services Agreement, National Assembly Services Agreement, Mil/Aero Wafer Services Agreement, Shared Facilities Agreement, Shared Services Agreement and Shared Services and Occupancy Agreement, all of which as defined in the Recapitalization Agreement. "Offering Circular" shall mean the Offering Circular dated March 6, 1997, and prepared in connection with the Senior Subordinated Notes. "Other Hedging Agreement" shall mean any foreign exchange contracts, currency swap agreements, commodity agreements or other similar agreements or arrangements designed to protect against the fluctuations in currency or commodity values. "Participant" shall have the meaning provided in Section 2.03(a). "Payment Office" shall mean the office of the Administrative Agent located at 130 Liberty Street, New York, New York 10006, or such other office as the Administrative Agent may hereafter designate in writing as such to the other parties hereto. "PBGC" shall mean the Pension Benefit Guaranty Corporation established pursuant to Section 4002 of ERISA, or any successor thereto. "Percentage" of any Bank at any time shall mean a fraction (expressed as a percentage) the numerator of which is the Revolving Loan Commitment of such Bank at such time and the denominator of which is the Total Revolving Loan Commitment at such time, provided that if the Percentage of any Bank is to be determined after the Total Revolving Loan Commitment has been terminated, then the Percentages of the Banks shall be determined immediately prior (and without giving effect) to such termination. "Permitted Encumbrance" shall mean, with respect to any Mortgaged Property, such exceptions to title as are set forth in the title insurance policy or title commitment delivered with respect thereto, provided that in the case of any Additional Mortgaged Property, all such exceptions shall also be acceptable to the Administrative Agent in its reasonable discretion. "Permitted Liens" shall have the meaning provided in Section 9.01. -110- "Person" shall mean any individual, partnership, joint venture, firm, corporation, association, trust or other enterprise or any government or political subdivision or any agency, department or instrumentality thereof. "Plan" shall mean any pension plan as defined in Section 3(2) of ERISA, which is maintained or contributed to by (or to which there is an obligation to contribute of) Holdings or a Subsidiary of Holdings or an ERISA Affiliate, and each such plan for the five year period immediately following the latest date on which Holdings, or a Subsidiary of Holdings or an ERISA Affiliate maintained, contributed to or had an obligation to contribute to such plan. "Pledge Agreement" shall have the meaning provided in Section 5.11. "Pledge Agreement Collateral" shall mean all "Collateral" as defined in each of the Pledge Agreements. "Pledged Securities" shall mean "Pledged Securities" as defined in the Pledge Agreement. "Prime Lending Rate" shall mean the rate which BTCo announces from time to time as its prime lending rate, the Prime Lending Rate to change when and as such prime lending rate changes. The Prime Lending Rate is a reference rate and does not necessarily represent the lowest or best rate actually charged to any customer. BTCo may make commercial loans or other loans at rates of interest at, above or below the Prime Lending Rate. "Projections" shall mean the projections set forth on Schedule X hereto. "Purchase Price Note" shall mean, collectively, demand promissory notes in the aggregate principal amount of approximately $400,960,000] issued by the Borrower and its Subsidiaries to NSC and its Subsidiaries. "Purchased Assets" shall mean all of the assets, properties and rights which are primarily used in the conduct of the Business and which are being transferred to the Borrower pursuant to Section 2.1 of the Asset Purchase Agreement. "Qualified Capital Stock" of any Person shall mean any capital stock of such Person which is not Disqualified Stock; provided that in any event the Holdings Series A Preferred Stock in the form issued on or prior to the Initial Borrowing Date shall constitute Qualified Capital Stock. -111- "Qualified Public Offering" shall mean an underwritten public offering of common stock of, and by, Holdings pursuant to a registration statement filed with the Securities and Exchange Commission in accordance with the Securities Act, which public equity offering results in gross proceeds to Holdings of not less than $50,000,000; provided, however, that Holdings contributes to the common equity of the Company the net cash proceeds from such underwritten public offering. "Quarterly Payment Date" shall mean the last Business Day of February, May, August and November occurring after the Initial Borrowing Date. "RCRA" shall mean the Resource Conservation and Recovery Act, as the same may be amended from time to time, 42 U.S.C. ss. 6901 et seq. "Real Property" of any Person shall mean all the right, title and interest of such Person in and to land, improvements and fixtures, including Leaseholds. "Recapitalization Agreement" shall mean the Agreement and Plan of Recapitalization, dated as of January 24, 1997, between Sterling and NSC, as in effect on the Initial Borrowing Date and as the same may be amended, modified or supplemented from time to time pursuant to the terms hereof and thereof. "Recapitalization Documents" shall mean the Recapitalization Agreement and all other documents entered into or delivered in connection with the Recapitalization Agreement (including, without limitation, the Asset Purchase Agreement and the Operating Agreements. "Recapitalization Transaction" shall mean, collectively, the transactions to occur on or prior to the Closing (as defined in the Recapitalization Agreement) pursuant to the Recapitalization Documents, including without limitation (x) the consummation of (i) the Asset Transfer, (ii) the Equity Contribution, (iii) the Holdings Contribution and (iv) the repayment in full of the Purchase Price Note and (y) the payment of all fees and expenses to be paid on or prior to such Closing or the Initial Borrowing Date and owing in connection with the foregoing. "Recovery Event" shall mean the receipt by the Holdings or any of its Subsidiaries of any cash insurance proceeds or condemnation award payable (i) by reason of theft, loss, physical destruction or damage, condemnation action or conveyance in lieu thereof or any other similar event with respect to any property or assets of the Borrower or any of its Subsidiaries, (ii) under any policy of insurance required to be maintained under Section 8.03 or (iii) by any condemning authority (or any authority receiving a conveyance in lieu of condemning the subject property). -112- "Register" shall have the meaning provided in Section 13.17. "Regulation D" shall mean Regulation D of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor to all or a portion thereof establishing reserve requirements. "Regulation G" shall mean Regulation G of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor to all or a portion thereof. "Regulation T" shall mean Regulation T of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor to all or a portion thereof. "Regulation U" shall mean Regulation U of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor to all or a portion thereof. "Regulation X" shall mean Regulation X of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor to all or a portion thereof. "Related Business" shall mean the business of designing, developing and manufacturing of logic, discrete and memory semiconductors conducted by the Borrower and its Subsidiaries (or, if the reference is to an Unrestricted Subsidiary, by such Unrestricted Subsidiary) and any and all related businesses in support of and ancillary to or reasonably related to such business of designing, developing and manufacturing of logic, discrete and memory semiconductors. "Release" means any spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping, disposing or migration into the environment. "Replaced Bank" shall have the meaning provided in Section 1.13. "Replacement Bank" shall have the meaning provided in Section 1.13. "Reportable Event" shall mean an event described in Section 4043(c) of ERISA with respect to a Plan that is subject to Title IV of ERISA other than those events as to which the 30-day notice period is waived under subsection .22, .23, .25, .27 or .28 of PBGC Regulation Section 4043. -113- "Required Banks" shall mean Non-Defaulting Banks, the sum of whose outstanding Term Loans (or, if prior to the Initial Borrowing Date, Term Loan Commitments) and Revolving Loan Commitments (or after the termination thereof, outstanding Revolving Loans and Adjusted Percentage of Swingline Loans and Letter of Credit Outstandings) represent an amount greater than 50% of the sum of all outstanding Term Loans (or, if prior to the Initial Borrowing Date, Term Loan Commitments) of Non-Defaulting Banks and the Adjusted Total Revolving Loan Commitment (or after the termination thereof, the sum of the then total outstanding Revolving Loans of Non-Defaulting Banks and the aggregate Adjusted Percentages of all Non-Defaulting Banks of the total outstanding Swingline Loans and Letter of Credit Outstandings at such time). "Returns" shall have the meaning provided in Section 7.09. "Revolving Loan" shall have the meaning provided in Section 1.01(c). "Revolving Loan Commitment" shall mean, for each Bank, the amount set forth opposite such Bank's name in Schedule I hereto directly below the column entitled "Revolving Loan Commitment," as same may be (x) reduced from time to time pursuant to Sections 3.02, 3.03, 4.02 and/or 10 or (y) adjusted from time to time as a result of assignments to or from such Bank pursuant to Section 1.13 or 13.04(b). "Revolving Loan Maturity Date" shall mean March 11, 2002. "Revolving Note" shall have the meaning provided in Section 1.05(a). "Scheduled Repayments" shall mean Tranche A Scheduled Repayments and Tranche B Scheduled Repayments. "SEC" shall have the meaning provided in Section 8.01(h). "Section 4.04(b)(ii) Certificate" shall have the meaning provided in Section 4.04(b). "Secured Creditors" shall have the meaning assigned that term in the Security Documents. "Securities Act" shall mean the Securities Act of 1933, as amended. "Securities Purchase and Holders Agreement" shall mean the Securities Purchase and Holders Agreement, dated as of March 11, 1997, among Holdings, Sterling, NSC and the Management Investors. -114- "Security Agreement" shall have the meaning provided in Section 5.12. "Security Agreement Collateral" shall mean all "Collateral" as defined in the Security Agreement. "Security Document" shall mean the Pledge Agreement, the Security Agreement, each Mortgage and, after the execution and delivery thereof, each Additional Mortgage and each Additional Security Document. "Seller Note" shall mean the promissory note issued by Holdings to NSC in the principal amount of $77,000,000 pursuant to the Recapitalization Agreement, which promissory note shall be in the form delivered to the Agents on or prior to the Initial Borrowing Date (which promissory note shall be in the form of Exhibit 1-A to the Recapitalization Agreement, with any insertions or modifications thereto to be identified to the Agents and to be satisfactory to them (which, in any event, shall not adversely affect the interests of the Banks)). "Senior Subordinated Note Documents" shall mean the Senior Subordinated Notes, the Senior Subordinated Note Indenture and all other documents executed and delivered with respect to the Senior Subordinated Notes or Senior Subordinated Note Indenture. "Senior Subordinated Note Indenture" shall mean the indenture dated as of March 11, 1997, between the Borrower and the Senior Subordinated Note Indenture Trustee, as in effect on the Effective Date and as thereafter amended from time to time in accordance with the requirements thereof and of this Agreement. "Senior Subordinated Note Indenture Trustee" shall mean United States Trust Company of New York. "Senior Subordinated Notes" shall mean the Borrower's 10-1/8% Senior Subordinated Notes due 2007 issued pursuant to the Senior Subordinated Note Indenture and any notes issued by the Borrower in exchange for, and as contemplated by, the Senior Subordinated Notes with substantially identical terms as the Senior Subordinated Notes. "Senior Subordinated Notes Term Sheet" shall have the meaning provided in Section 5.07(a). "Shareholders' Agreements" shall have the meaning provided in Section 5.05. "Standby Letter of Credit" shall have the meaning provided in Section 2.01(a). -115- "Stated Amount" of each Letter of Credit shall, at any time, mean the maximum amount available to be drawn thereunder (in each case determined without regard to whether any conditions to drawing could then be met). "Start Date" shall mean, with respect to any Margin Adjustment Period, the first day of such Margin Adjustment Period. "Sterling" shall mean Sterling Holding Company, LLC, a Delaware limited liability company. "Subsidiaries Guaranty" shall mean the Subsidiaries Guaranty in the form of Exhibit G (appropriately completed), and, after the execution and delivery thereof, as modified, supplemented or amended from time to time. "Subsidiary" shall mean, as to any Person, (i) any corporation more than 50% of whose stock of any class or classes having by the terms thereof ordinary voting power to elect a majority of the directors of such corporation (irrespective of whether or not at the time stock of any class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time owned by such Person and/or one or more Subsidiaries of such Person and (ii) any partnership, association, joint venture or other entity in which such Person and/or one or more Subsidiaries of such Person has more than a 50% equity interest at the time. Notwithstanding the foregoing (and except for purposes of the definition of Unrestricted Subsidiary contained herein) an Unrestricted Subsidiary shall be deemed not to be a Subsidiary of the Borrower or any of its other Subsidiaries for purposes of this Agreement. "Subsidiary Guarantor" shall mean each Subsidiary of the Borrower designated as a "Subsidiary Guarantor" on Schedule VIII hereto or which executes a guarantee after the Initial Borrowing Date pursuant to Section 8.12. "Supermajority Banks" of any Tranche shall mean those Non-Defaulting Banks which would constitute the Required Banks under, and as defined in, this Agreement if (x) all outstanding Obligations of the other Tranches under this Agreement were repaid in full and all Commitments with respect thereto were terminated and (y) the percentage "50%" contained therein were changed to "66-2/3%". "Swingline Bank" shall mean BTCo. "Swingline Expiry Date" shall mean the date which is two Business Days prior to the Revolving Loan Maturity Date. -116- "Swingline Loan" shall have the meaning provided in Section 1.01(d). "Swingline Note" shall have the meaning provided in Section 1.05(a). "Syndication Agent" shall have the meaning provided in the first paragraph of this Agreement. "Syndication Date" shall mean that date upon which the Administrative Agent determines in its sole discretion (and notifies the Borrower) that the primary syndication (and resultant addition of institutions as Banks pursuant to Section 13.04) has been completed. "Tax Sharing Agreement" shall have the meaning provided in Section 5.05. "Taxes" shall have the meaning provided in Section 4.04(a). "Term Loan" shall mean each Tranche A Term Loan and the Tranche B Term Loan. "Term Loan Commitment" shall mean each Tranche A Term Loan Commitment and each Tranche B Term Loan Commitment, with the Term Loan Commitment of any Bank at any time to equal the sum of its Tranche A Term Loan Commitment and Tranche B Term Loan Commitment as then in effect. "Test Period" shall mean each period of four consecutive fiscal quarters of the Borrower (or, if shorter, the period beginning on the first day of the fiscal year beginning on, or closest to, May 26, 1997 and ending on the last day of a fiscal quarter of the Borrower ended thereafter), in each case taken as one accounting period, ended after the first day of the fiscal year beginning on, or closest to, May 26, 1997. "Total Commitments" shall mean, at any time, the sum of the Commitments of each of the Banks. "Total Revolving Loan Commitment" shall mean, at any time, the sum of the Revolving Loan Commitments of each of the Banks. "Total Term Loan Commitment" shall mean, at any time, the sum of the Total Tranche A Term Loan Commitment and Total Tranche B Term Loan Commitment. "Total Tranche A Term Loan Commitment" shall mean, at any time, the sum of the Tranche A Term Loan Commitments of each of the Banks. -117- "Total Tranche B Term Loan Commitment" shall mean, at any time, the sum of the Tranche B Term Loan Commitments of each of the Banks. "Total Unutilized Revolving Loan Commitment" shall mean, at any time, an amount equal to the remainder of (x) the then Total Revolving Loan Commitment, less (y) the sum of the aggregate principal amount of Revolving Loans and Swingline Loans then outstanding plus the then aggregate amount of Letter of Credit Outstandings. "Trade Letter of Credit" shall have the meaning provided in Section 2.01(a). "Tranche" shall mean the respective facility and commitments utilized in making Loans hereunder, with there being four separate Tranches, i.e., Tranche A Term Loans, Tranche B Term Loans, Revolving Loans and Swingline Loans. "Tranche A Scheduled Repayment" shall have the meaning provided in Section 4.02(b). "Tranche A Scheduled Repayment Date" shall have the meaning provided in Section 4.02(b). "Tranche A Term Loan" shall have the meaning provided in Section 1.01(a). "Tranche A Term Loan Commitment" shall mean, for each Bank, the amount set forth opposite such Bank's name in Schedule I hereto directly below the column entitled "Tranche A Term Loan Commitment", as same may be (x) reduced from time to time pursuant to Sections 3.03, 4.02 and/or 10 or (y) adjusted from time to time as a result of assignments to or from such Bank pursuant to Section 1.13 or 13.04. "Tranche A Term Loan Maturity Date" shall mean March 11, 2002. "Tranche A Term Note" shall have the meaning provided in Section 1.05(a). "Tranche B Scheduled Repayment" shall have the meaning provided in Section 4.02(c). "Tranche B Scheduled Repayment Date" shall have the meaning provided in Section 4.02(c). "Tranche B Term Loan" shall have the meaning provided in Section 1.01(b). -118- "Tranche B Term Loan Commitment" shall mean, for each Bank, the amount set forth opposite such Bank's name in Schedule I hereto directly below the column entitled "Tranche B Term Loan Commitment", as same may be (x) reduced from time to time pursuant to Sections 3.03, 4.02 and/or 10 or (y) adjusted from time to time as a result of assignments to or from such Bank pursuant to Section 1.13 or 13.04(b). "Tranche B Term Loan Maturity Date" shall mean March 11, 2003. "Tranche B Term Note" shall have the meaning provided in Section 1.05(a). "Transaction" shall mean, collectively, (i) the Recapitalization Transaction, (ii) the incurrence of Loans and the issuance of the Senior Subordinated Notes and the Seller Note on the Initial Borrowing Date and (iii) the payment of fees and expenses owing in connection with the foregoing. "Type" shall mean the type of Loan determined with regard to the interest option applicable thereto, i.e., whether a Base Rate Loan or a Eurodollar Loan. "UCC" shall mean the Uniform Commercial Code as from time to time in effect in the relevant jurisdiction. "Unfunded Current Liability" of any Plan shall mean the amount, if any, by which the actuarial present value of the accumulated plan benefits under the Plan as of the close of its most recent plan year, determined in accordance with actuarial assumptions at such time consistent with Statement of Financial Accounting Standards No. 87, exceeds the market value of the assets allocable thereto. "United States" and "U.S." shall each mean the United States of America. "Unpaid Drawing" shall have the meaning provided for in Section 2.04(a). "Unrestricted Subsidiary" shall mean any Subsidiary of the Borrower that, at the time of determination, shall be an Unrestricted Subsidiary (as designated by the Borrower, as provided below) provided that such Subsidiary does not and shall not engage, to any substantial extent, in any line or lines of business activity other than a Related Business. The Borrower may designate any Person to be an Unrestricted Subsidiary if (a) no Default or Event of Default is existing or will occur as a consequence thereof, (b) either (x) such Subsidiary, at the time of designation thereof, has no assets (except assets which could be invested in such Unrestricted Subsidiary at the time of designation as described in the immediately succeeding sentence) or (y) such Subsidiary is designated an "Unrestricted Subsidiary" at the time of the acquisition thereof by the Borrower, in the case -119- of Subsidiaries acquired after the Effective Date and (c) such Subsidiary does not own any equity interests in, or hold any Lien on any property of, the Borrower or any other Subsidiary (excluding other Unrestricted Subsidiaries). Any such designation shall also be deemed to constitute an investment pursuant to Section 9.05(xi) in an amount equal to a percentage equal to the Borrower's and its Subsidiaries' percentage ownership interest of such Subsidiary of the sum of the net assets (with assets other than cash and Cash Equivalents valued at fair market value) of such Subsidiary at the time of the designation (which investment must be permitted to be made in accordance with the requirements of Section 9.05(xi)), unless the designation is made pursuant to clause (b)(y) of the first sentence of this definition, in which case the amount of consideration paid by the Borrower and its Subsidiaries to effect such acquisition shall be included as such an investment. The Borrower may designate any Unrestricted Subsidiary to be a Subsidiary, provided that no Default or Event of Default is existing or will occur as a consequence thereof. Each such designation shall be evidenced by filing with the Administrative Agent a certified copy of the resolution giving effect to such designation and an officers' certificate of the Chairman of the Board, the President, any Vice President or the Treasurer of the Borrower certifying that such designation complied with the foregoing conditions. "Unutilized Revolving Loan Commitment" with respect to any Bank, at any time, shall mean such Bank's Revolving Loan Commitment at such time less the sum of (i) the aggregate outstanding principal amount of Revolving Loans made by such Bank and (ii) such Bank's Adjusted Percentage of the Letter of Credit Outstandings in respect of Letters of Credit issued under this Agreement. "Voting Stock" shall mean any class or classes of capital stock of Holdings pursuant to which the holders thereof have the general voting power under ordinary circumstances to elect at least a majority of the Board of Directors of Holdings. "Wholly-Owned Subsidiary" shall mean, as to any Person, (i) any corporation 100% of whose capital stock (other than director's qualifying shares) is at the time owned by such Person and/or one or more Wholly-Owned Subsidiaries of such Person and (ii) any partnership, association, joint venture or other entity in which such Person and/or one or more Wholly-Owned Subsidiaries of such Person has a 100% equity interest at such time. SECTION 12. The Agents. 12.01 Appointment. The Banks hereby designate Bankers Trust Company as Administrative Agent (for purposes of this Section 12, the term "Administrative Agent" shall include Bankers Trust Company (and/or any of its affiliates) in its capacity as Collateral Agent pursuant to the Security Documents) to act as specified herein and in the other Credit Documents. The Banks hereby designate Credit Suisse First Boston as -120- Syndication Agent and Canadian Imperial Bank of Commerce as Documentation Agent to act as specified herein and in the other Credit Documents. Each Bank hereby irrevocably authorizes, and each holder of any Note by the acceptance of such Note shall be deemed irrevocably to authorize, the Agents to take such action on its behalf under the provisions of this Agreement, the other Credit Documents and any other instruments and agreements referred to herein or therein and to exercise such powers and to perform such duties hereunder and thereunder as are specifically delegated to or required of the respective Agent by the terms hereof and thereof and such other powers as are reasonably incidental thereto. Each of the Agents may perform any of its duties hereunder by or through its respective officers, directors, agents, employees or affiliates. 12.02 Nature of Duties. No Agent shall have any duties or responsibilities except those expressly set forth in this Agreement and the Security Documents. None of the Agents nor any of their respective officers, directors, agents, employees or affiliates shall be liable for any action taken or omitted by it or them hereunder or under any other Credit Document or in connection herewith or therewith, unless caused by such Person's gross negligence or willful misconduct. The duties of each Agent shall be mechanical and administrative in nature; no Agent shall have by reason of this Agreement or any other Credit Document a fiduciary relationship in respect of any Bank or the holder of any Note; and nothing in this Agreement or any other Credit Document, expressed or implied, is intended to or shall be so construed as to impose upon any Agent any obligations in respect of this Agreement or any other Credit Document except as expressly set forth herein or therein. 12.03 Lack of Reliance on the Agents. Independently and without reliance upon any Agent, each Bank and the holder of each Note, to the extent it deems appropriate, has made and shall continue to make (i) its own independent investigation of the financial condition and affairs of Holdings and its Subsidiaries in connection with the making and the continuance of the Loans and the taking or not taking of any action in connection herewith and (ii) its own appraisal of the creditworthiness of Holdings and its Subsidiaries and, except as expressly provided in this Agreement, no Agent shall have any duty or responsibility, either initially or on a continuing basis, to provide any Bank or the holder of any Note with any credit or other information with respect thereto, whether coming into its possession before the making of the Loans or at any time or times thereafter. No Agent shall be responsible to any Bank or the holder of any Note for any recitals, statements, information, representations or warranties herein or in any document, certificate or other writing delivered in connection herewith or for the execution, effectiveness, genuineness, validity, enforceability, perfection, collectability, priority or sufficiency of this Agreement or any other Credit Document or the financial condition of Holdings and its Subsidiaries or be required to make any inquiry concerning either the performance or observance of any of the terms, provisions or conditions of this Agreement or any other Credit Document, or -121- the financial condition of Holdings and its Subsidiaries or the existence or possible existence of any Default or Event of Default. 12.04 Certain Rights of the Agents. If any Agent shall request instructions from the Required Banks with respect to any act or action (including failure to act) in connection with this Agreement or any other Credit Document, such Agent shall be entitled to refrain from such act or taking such action unless and until such Agent shall have received instructions from the Required Banks; and such Agent shall not incur liability to any Person by reason of so refraining. Without limiting the foregoing, no Bank or the holder of any Note shall have any right of action whatsoever against any Agent as a result of such Agent acting or refraining from acting hereunder or under any other Credit Document in accordance with the instructions of the Required Banks. 12.05 Reliance. Each Agent shall be entitled to rely, and shall be fully protected in relying, upon any note, writing, resolution, notice, statement, certificate, telex, teletype or telecopier message, cablegram, radiogram, order or other document or telephone message signed, sent or made by any Person that such Agent believed to be the proper Person, and, with respect to all legal matters pertaining to this Agreement and any other Credit Document and its duties hereunder and thereunder, upon advice of counsel selected by such Agent. 12.06 Indemnification. To the extent any Agent is not reimbursed and indemnified by the Borrower the Banks will reimburse and indemnify such Agent, in proportion to their respective "percentages" as used in determining the Required Banks (without regard to the existence of any Defaulting Banks), for and against any and all liabilities, obligations, losses, damages, penalties, claims, actions, judgments, costs, expenses or disbursements of whatsoever kind or nature which may be imposed on, asserted against or incurred by such Agent in performing its respective duties hereunder or under any other Credit Document, in any way relating to or arising out of this Agreement or any other Credit Document; provided that no Bank shall be liable for any portion of such liabili- ties, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from such Agent's gross negligence or willful misconduct. 12.07 Each Agent in its Individual Capacity. With respect to its obligation to make Loans under this Agreement, each Agent shall have the rights and powers specified herein for a "Bank" and may exercise the same rights and powers as though it were not performing the duties specified herein; and the term "Banks," "Required Banks," "holders of Notes" or any similar terms shall, unless the context clearly otherwise indicates, include each Agent in its individual capacity. Each Agent may accept deposits from, lend money to, and generally engage in any kind of banking, trust or other business with any Credit Party or any Affiliate of any Credit Party as if they were not performing the duties -122- specified herein, and may accept fees and other consideration from the Borrower or any other Credit Party for services in connection with this Agreement and otherwise without having to account for the same to the Banks. 12.08 Holders. The Administrative Agent may deem and treat the payee of any Note as the owner thereof for all purposes hereof unless and until a written notice of the assignment, transfer or endorsement thereof, as the case may be, shall have been filed with the Administrative Agent. Any request, authority or consent of any Person who, at the time of making such request or giving such authority or consent, is the holder of any Note shall be conclusive and binding on any subsequent holder, transferee, assignee or indorsee, as the case may be, of such Note or of any Note or Notes issued in exchange therefor. 12.09 Resignation by the Agents. (a) The Administrative Agent may resign from the performance of all its functions and duties hereunder and/or under the other Credit Documents at any time by giving 15 Business Days' prior written notice to the Borrower and the Banks. Such resignation shall take effect upon the appointment of a successor Administrative Agent pursuant to clauses (b) and (c) below or as otherwise provided below. Each other Agent may resign from the performance of all of its functions and duties hereunder and/or under the other Credit Documents at any time by giving notice to the Borrower, the Administrative Agent and the Banks. Such resignation shall take effect upon delivery of such notice. (b) Upon any such notice of resignation by the Administrative Agent, the Banks shall appoint a successor Administrative Agent hereunder or thereunder who shall be a commercial bank or trust company reasonably acceptable to the Borrower. (c) If a successor Administrative Agent shall not have been so appointed within such 15 Business Day period, the Administrative Agent, with the consent of the Borrower (which shall not be unreasonably withheld or delayed), shall then appoint a commercial bank or trust company with capital and surplus of not less than $500,000,000 as successor Administrative Agent who shall serve as Administrative Agent hereunder or thereunder until such time, if any, as the Banks appoint a successor Administrative Agent as provided above. (d) If no successor Administrative Agent has been appointed pursuant to clause (b) or (c) above by the 25th Business Day after the date such notice of resignation was given by the Administrative Agent, the Administrative Agent's resignation shall become effective and the Agents (if one or more so agrees), or if there are no Agents or no Agent so agrees, then the Required Banks, shall thereafter perform all the duties of the Administrative Agent hereunder and/or under any other Credit Document until such time, if any, as the Required Banks appoint a successor Administrative Agent as provided above. -123- SECTION 13. Miscellaneous. 13.01 Payment of Expenses, etc. The Borrower shall: (i) whether or not the transactions herein contemplated are consummated, pay all reasonable out-of-pocket costs and expenses of the Agents (including, without limitation, the reasonable fees and disbursements of White & Case and local counsel) in connection with the preparation, execution and delivery of this Agreement and the other Credit Documents and the documents and instruments referred to herein and therein and any amendment, waiver or consent relating hereto or thereto, of the Agents in connection with their syndication efforts with respect to this Agreement and of the Agents and, following and during the continuation of an Event of Default, each of the Banks in connection with the enforcement of this Agreement and the other Credit Documents and the documents and instruments referred to herein and therein (including, without limitation, the reasonable fees and disbursements of counsel (including in-house counsel) for the Agents and, following and during the continuation of an Event of Default, for each of the Banks); (ii) pay and hold each of the Banks harmless from and against any and all present and future stamp, excise and other similar taxes with respect to the foregoing matters and save each of the Banks harmless from and against any and all liabilities with respect to or resulting from any delay or omission (other than to the extent attributable to such Bank) to pay such taxes; and (iii) indemnify the Agents and each Bank, and each of their respective officers, directors, trustees, employees, representatives and agents from and hold each of them harmless against any and all liabilities, obligations (including removal or remedial actions), losses, damages, penalties, claims, actions, judgments, suits, costs, expenses and disbursements (including reasonable attorneys' and consultants' fees and disbursements) incurred by, imposed on or assessed against any of them as a result of, or arising out of, or in any way related to, or by reason of, (a) any investigation, litigation or other proceeding (whether or not the Agents or any Bank is a party thereto) related to the entering into and/or performance of this Agreement or any other Credit Document or the use of any Letter of Credit or the proceeds of any Loans hereunder or the consummation of any transactions contemplated herein (including, without limitation, the Transaction), or in any other Credit Document or the exercise of any of their rights or remedies provided herein or in the other Credit Documents, or (b) the actual or alleged presence of Hazardous Materials in the air, surface water or groundwater or on the surface or subsurface of any Real Property owned or at any time operated by Holdings or any of its Subsidiaries, the generation, storage, transportation, handling or disposal of Hazardous Materials at any location, whether or not owned or operated by Holdings or any of its Subsidiaries, the non-compliance of any Real Property with foreign, federal, state and local laws, regulations, and ordinances (including applicable permits thereunder) applicable to any Real Property, or any Environmental Claim asserted against Holdings, any of its Subsidiaries or any Real Property owned or at any time operated by Holdings or any of its Subsidiaries, including, in each case, without limitation, the reasonable fees and disbursements of counsel and other consultants incurred in connection with any such -124- investigation, litigation or other proceeding (but excluding any losses, liabilities, claims, damages or expenses to the extent incurred by reason of the gross negligence or willful misconduct of the Person to be indemnified). To the extent that the undertaking to indemnify, pay or hold harmless the Agents or any Bank set forth in the preceding sentence may be unenforceable because it is violative of any law or public policy, the Borrower shall make the maximum contribution to the payment and satisfaction of each of the indemnified liabilities which is permissible under applicable law. 13.02 Right of Setoff. In addition to any rights now or hereafter granted under applicable law or otherwise, and not by way of limitation of any such rights, upon the occurrence of an Event of Default, each Bank is hereby authorized at any time or from time to time, without presentment, demand, protest or other notice of any kind to Holdings or the Borrower or to any other Person, any such notice being hereby expressly waived, to set off and to appropriate and apply any and all deposits (general or special) and any other Indebtedness at any time held or owing by such Bank (including, without limitation, by branches and agencies of such Bank wherever located) to or for the credit or the account of Holdings, the Borrower or any Subsidiary Guarantor but in any event excluding assets held in trust for any such Person against and on account of the Obligations and liabilities of Holdings, the Borrower or such Subsidiary Guarantor, as applicable, to such Bank under this Agreement or under any of the other Credit Documents, including, without limitation, all interests in Obligations purchased by such Bank pursuant to Section 13.06(b), and all other claims of any nature or description arising out of or connected with this Agreement or any other Credit Document, irrespective of whether or not such Bank shall have made any demand hereunder and although said Obligations, liabilities or claims, or any of them, shall be contingent or unmatured. 13.03 Notices. Except as otherwise expressly provided herein, all notices and other communications provided for hereunder shall be in writing (including telex or telecopier communication) and mailed, telexed, telecopied or delivered: if to Holdings, at Holdings' address specified opposite its signature below; if to the Borrower, at the Borrower's address specified opposite its signature below; if to any Bank, at its address specified opposite its name on Schedule II below; and if to the Administrative Agent, at its Notice Office; or, as to any Credit Party or any of the Agents, at such other address as shall be designated by such party in a written notice to the other parties hereto and, as to each Bank, at such other address as shall be designated by such Bank in a written notice to the Borrower and the Agents. All such notices and communications shall, when mailed, telexed, telecopied or sent by overnight courier, be effective when deposited in the mails or delivered to the overnight courier, prepaid and properly addressed for delivery on such or the next Business Day, or sent by telex or telecopier, except that notices and communications to the Agents and the Borrower shall not be effective until received by the Agents or the Borrower, as the case may be. -125- 13.04 Benefit of Agreement. (a) This Agreement shall be binding upon and inure to the benefit of and be enforceable by the respective successors and assigns of the parties hereto; provided, however, no Credit Party may assign or transfer any of its rights, obligations or interest hereunder or under any other Credit Document without the prior written consent of the Banks and, provided further, that, although any Bank may transfer, assign or grant participations in its rights hereunder, such Bank shall remain a "Bank" for all purposes hereunder (and may not transfer or assign all or any portion of its Commitments hereunder except as provided in Section 13.04(b)) and the transferee, assignee or participant, as the case may be, shall not constitute a "Bank" hereunder and, provided fur- ther, that no Bank shall transfer or grant any participation under which the participant shall have rights to approve any amendment to or waiver of this Agreement or any other Credit Document except to the extent such amendment or waiver would (i) extend the final scheduled maturity of any Loan, Note or Letter of Credit (unless such Letter of Credit is not extended beyond the Revolving Loan Maturity Date) in which such participant is participating, or reduce the rate or extend the time of payment of interest or Fees thereon (except (x) in connection with a waiver of applicability of any post-default increase in interest rates and (y) that any amendment or modification to the financial definitions in this Agreement shall not constitute a reduction in the rate of interest for purposes of this clause (i)) or reduce the principal amount thereof, or increase the amount of the participant's participation over the amount thereof then in effect (it being understood that a waiver of any Default or Event of Default or of a mandatory reduction in the Total Commitments shall not constitute a change in the terms of such participation, and that an increase in any Commitment or Loan shall be permitted without the consent of any participant if the participant's participation is not increased as a result thereof), (ii) consent to the assignment or transfer by the Borrower of any of its rights and obligations under this Agreement or (iii) release all or substantially all of the Collateral under all of the Security Documents (except as expressly provided in the Credit Documents) supporting the Loans hereunder in which such participant is participating. In the case of any such participation, the participant shall not have any rights under this Agreement or any of the other Credit Documents (the participant's rights against such Bank in respect of such participation to be those set forth in the agreement executed by such Bank in favor of the participant relating thereto) and all amounts payable by the Borrower hereunder shall be determined as if such Bank had not sold such participation. (b) Notwithstanding the foregoing, any Bank (or any Bank together with one or more other Banks) may (x) assign all or a portion of its Revolving Loan Commitment (and related outstanding Obligations hereunder) and/or its outstanding Term Loans (or, if prior to the Initial Borrowing Date, Term Loan Commitment) to its (i) parent company and/or any affiliate of such Bank which is at least 50% owned by such Bank or its parent company or (ii) with the consent of the Administrative Agent, a Common Management Fund or (iii) to one or more Banks or (y) assign all, or if less than all, a portion equal to -126- at least $5,000,000 in the aggregate for the assigning Bank or assigning Banks, of such Revolving Loan Commitments and outstanding principal amount of Term Loans (or, if prior to the Initial Borrowing Date, Term Loan Commitment) hereunder to one or more Eligible Transferees, each of which assignees shall become a party to this Agreement as a Bank by execution of an Assignment and Assumption Agreement, provided that, (i) at such time Schedule I shall be deemed modified to reflect the Commitments (and/or outstanding Term Loans, as the case may be) of such new Bank and of the existing Banks, (ii) new Notes will be issued, at the Borrower's expense, to such new Bank and to the assigning Bank upon the request of such new Bank or assigning Bank, such new Notes to be in conformity with the requirements of Section 1.05 (with appropriate modifications) to the extent needed to reflect the revised Commitments (and/or outstanding Term Loans, as the case may be), (iii) the consent of the Administrative Agent shall be required in connection with any such assignment (which consent shall not be unreasonably withheld) and (iv) the Administrative Agent shall receive at the time of each such assignment, from the assigning or assignee Bank, the payment of a non-refundable assignment fee of $3,500. To the extent of any assignment pursuant to this Section 13.04(b), the assigning Bank shall be relieved of its obligations hereunder with respect to its assigned Commitments (it being understood that the indemnification provisions under this Agreement (including, without limitation, Sections 1.10, 1.11, 2.05, 4.04, 13.01 and 13.06) shall survive as to such assigning Bank). At the time of each assignment pursuant to this Section 13.04(b) to a Person which is not already a Bank hereunder and which is not a United States person (as such term is defined in Section 7701(a)(30) of the Code) for Federal income tax purposes, the respective assignee Bank shall provide to the Borrower and the Agent the appropriate Internal Revenue Service Forms (and, if applicable, a Section 4.04(b)(ii) Certificate) described in Section 4.04(b). To the extent that an assignment of all or any portion of a Bank's Commitments and related outstanding Obligations pursuant to Section 1.13 or this Section 13.04(b) would, at the time of such assignment, result in increased costs under Section 1.10, 1.11 or 4.04 from those being charged by the respective assigning Bank prior to such assignment, then the Borrower shall not be obligated to pay such increased costs (although the Borrower shall be obligated to pay any other increased costs of the type described above resulting from changes after the date of the respective assignment). (c) Nothing in this Agreement shall prevent or prohibit any Bank from pledging its Loans and Notes hereunder to a Federal Reserve Bank in support of borrowings made by such Bank from such Federal Reserve Bank and, with the consent of the Borrower and the Administrative Agent, any Lender which is a fund may pledge all or any portion of its Notes or Loans to a trustee for the benefit of investors and in support of its obligation to such investors. 13.05 No Waiver; Remedies Cumulative. No failure or delay on the part of any Agent or any Bank or any holder of any Note in exercising any right, power or -127- privilege hereunder or under any other Credit Document and no course of dealing between the Borrower or any other Credit Party and any Agent or any Bank or the holder of any Note shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder or under any other Credit Document preclude any other or further exercise thereof or the exercise of any other right, power or privilege hereunder or thereunder. The rights, powers and remedies herein or in any other Credit Document expressly provided are cumulative and not exclusive of any rights, powers or remedies which any Agent or any Bank or the holder of any Note would otherwise have. No notice to or demand on any Credit Party in any case shall entitle any Credit Party to any other or further notice or demand in similar or other circumstances or constitute a waiver of the rights of any Agent or any Bank or the holder of any Note to any other or further action in any circumstances without notice or demand. 13.06 Payments Pro Rata. (a) Except as otherwise provided in this Agreement, the Administrative Agent agrees that promptly after its receipt of each payment from or on behalf of the Borrower in respect of any Obligations hereunder, it shall distribute such payment to the Banks (other than any Bank that has consented in writing to waive its pro rata share of any such payment) pro rata based upon their respective shares, if any, of the Obligations with respect to which such payment was received. (b) Each of the Banks agrees that, if it should receive any amount hereunder (whether by voluntary payment, by realization upon security, by the exercise of the right of setoff or banker's lien, by counterclaim or cross action, by the enforcement of any right under the Credit Documents, or otherwise), which is applicable to the payment of the principal of, or interest on, the Loans, Unpaid Drawings, Commitment Commission or Letter of Credit Fees, of a sum which with respect to the related sum or sums received by other Banks is in a greater proportion than the total of such Obligation then owed and due to such Bank bears to the total of such Obligation then owed and due to all of the Banks immediately prior to such receipt, then such Bank receiving such excess payment shall purchase for cash without recourse or warranty from the other Banks an interest in the Obligations of the respective Credit Party to such Banks in such amount as shall result in a proportional participation by all the Banks in such amount; provided that if all or any portion of such excess amount is thereafter recovered from such Bank, such purchase shall be rescinded and the purchase price restored to the extent of such recovery, but without interest. (c) Notwithstanding anything to the contrary contained herein, the provisions of the preceding Sections 13.06(a) and (b) shall be subject to the express provisions of this Agreement which require, or permit, differing payments to be made to Non-Defaulting Banks as opposed to Defaulting Banks. -128- 13.07 Calculations; Computations. (a) The financial statements to be furnished to the Banks pursuant hereto shall be made and prepared in accordance with generally accepted accounting principles in the United States (or the equivalent thereof in any country in which a Foreign Subsidiary is doing business, as applicable) consistently applied throughout the periods involved (except as set forth in the notes thereto or as otherwise disclosed in writing by the Borrower to the Banks); provided that, except as otherwise specifically provided herein, all computations of Excess Cash Flow and all computations determining compliance with Sections 9.08 through 9.10, inclusive, shall utilize accounting principles and policies in conformity with those used to prepare the historical financial statements delivered to the Banks for the first fiscal year of the Borrower ended after the Initial Borrowing Date pursuant to Section 8.01(c) (which annual financial statements shall be generally consistent with the historical financial statements delivered to the Banks pursuant to Section 7.05(a), except as regards to inter-company transactions between the Borrower and NSC) (with the foregoing generally accepted accounting principles, subject to the preceding proviso, herein called "GAAP"). Notwithstanding anything to the contrary contained herein, all computations determining compliance with Sections 9.08 through 9.10, inclusive, including definitions used therein, shall treat Unrestricted Subsidiaries as if the same did not exist. (b) All computations of interest, Commitment Commission and Fees hereunder shall be made on the basis of a year of 360 days for the actual number of days (including the first day but excluding the last day) occurring in the period for which such interest, Commitment Commission or Fees are payable. 13.08 GOVERNING LAW; SUBMISSION TO JURISDICTION; VENUE; WAIVER OF JURY TRIAL. (a) THIS AGREEMENT AND THE OTHER CREDIT DOCUMENTS AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER SHALL, EXCEPT AS OTHERWISE PROVIDED IN CERTAIN OF THE MORTGAGES, BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAW OF THE STATE OF NEW YORK. ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR OF THE UNITED STATES FOR THE SOUTHERN DISTRICT OF NEW YORK, AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH OF HOLDINGS AND THE BORROWER HEREBY IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS. EACH OF HOLDINGS AND THE BORROWER HEREBY IRREVOCABLY DESIGNATES, APPOINTS AND EMPOWERS CORPORATION SERVICE COMPANY, WITH OFFICES ON THE DATE HEREOF AT 500 CENTRAL AVENUE, ALBANY, NEW YORK 12206 AS ITS -129- DESIGNEE, APPOINTEE AND AGENT TO RECEIVE, ACCEPT AND ACKNOWLEDGE FOR AND ON ITS BEHALF, AND IN RESPECT OF ITS PROPERTY, SERVICE OF ANY AND ALL LEGAL PROCESS, SUMMONS, NOTICES AND DOCUMENTS WHICH MAY BE SERVED IN ANY SUCH ACTION OR PROCEEDING. IF FOR ANY REASON SUCH DESIGNEE, APPOINTEE AND AGENT SHALL CEASE TO BE AVAILABLE TO ACT AS SUCH, EACH CREDIT PARTY AGREES TO DESIGNATE A NEW DESIGNEE, APPOINTEE AND AGENT IN THE STATE OF NEW YORK ON THE TERMS AND FOR THE PURPOSES OF THIS PROVISION SATISFACTORY TO THE ADMINISTRATIVE AGENT UNDER THIS AGREEMENT. EACH OF HOLDINGS AND THE BORROWER FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT 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 ANY CREDIT PARTY AT ITS ADDRESS SET FORTH OPPOSITE ITS SIGNATURE BELOW, SUCH SERVICE TO BECOME EFFECTIVE 30 DAYS AFTER SUCH MAILING. NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE AGENT UNDER THIS AGREEMENT, ANY BANK OR THE HOLDER OF ANY NOTE TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST ANY CREDIT PARTY IN ANY OTHER JURISDICTION. (b) EACH OF HOLDINGS AND THE BORROWER HEREBY IRREVOCABLY WAIVES ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY OF THE AFORESAID ACTIONS OR PROCEEDINGS ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT BROUGHT IN THE COURTS REFERRED TO IN CLAUSE (a) ABOVE AND HEREBY FURTHER IRREVOCABLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. (c) EACH OF THE PARTIES TO THIS AGREEMENT HEREBY IRREVOCABLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE OTHER CREDIT DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. 13.09 Counterparts. This Agreement may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which when so executed and delivered shall be an original, but all of which shall together -130- constitute one and the same instrument. A set of counterparts executed by all the parties hereto shall be lodged with the Borrower and the Administrative Agent. 13.10 Effectiveness. This Agreement shall become effective on the date (the "Effective Date") on which Holdings, the Borrower and each of the Banks who are initially parties hereto shall have signed a counterpart hereof (whether the same or different counterparts) and shall have delivered the same to the Administrative Agent or, in the case of the Banks, shall have given to the Administrative Agent telephonic (confirmed in writing), written or telex notice (actually received) at such office that the same has been signed and mailed to it. The Administrative Agent will give the Borrower and each Bank prompt written notice of the occurrence of the Effective Date. 13.11 Headings Descriptive. The headings of the several sections and subsections of this Agreement are inserted for convenience only and shall not in any way affect the meaning or construction of any provision of this Agreement. 13.12 Amendment or Waiver; etc. (a) Neither this Agreement nor any other Credit Document nor any terms hereof or thereof may be changed, waived, discharged or terminated unless such change, waiver, discharge or termination is in writing signed by the respective Credit Parties party thereto and the Required Banks, provided that no such change, waiver, discharge or termination shall, without the consent of each Bank (other than a Defaulting Bank) (with Obligations being directly affected in the case of following clause (i)), (i) extend the final scheduled maturity of any Loan or Note or extend the stated maturity of any Letter of Credit beyond the Revolving Loan Maturity Date, or reduce the rate or extend the time of payment of interest or Fees thereon (except (x) in connection with the waiver of applicability of any post-default increase in interest rates and (y) that any amendment or modification to the financial definitions in this Agreement shall not constitute a reduction in the rate of interest for purposes of this clause (i)), or reduce the principal amount thereof (except to the extent repaid in cash), (ii) release all or substantially all of the Collateral (except as expressly provided in the Credit Documents) under all the Security Documents, (iii) amend, modify or waive any provision of this Section 13.12, (iv) reduce the percentage specified in the definition of Required Banks (it being understood that, with the consent of the Required Banks, additional extensions of credit pursuant to this Agreement may be included in the determination of the Required Banks on substantially the same basis as the extensions of Term Loans and Revolving Loan Commitments are included on the Effective Date) or (v) consent to the assignment or transfer by the Borrower of any of its rights and obligations under this Agreement; provided further, that no such change, waiver, discharge or termination shall (u) increase the Commitments of any Bank over the amount thereof then in effect without the consent of such Bank (it being understood that waivers or modifications of conditions precedent, covenants, Defaults or Events of Default or of a mandatory reduction in the Total Commitments shall not constitute an increase of -131- the Commitment of any Bank, and that an increase in the available portion of any Commitment of any Bank shall not constitute an increase in the Commitment of such Bank), (v) without the consent of BTCo or, in the case of Letters of Credit, the respective Issuing Bank, amend, modify or waive any provision of Section 2 or alter its rights or obligations with respect to Letters of Credit or Swingline Loans, (w) without the consent of each Agent affected thereby, amend, modify or waive any provision of Section 12 as same applies to such Agent or any other provision as same relates to the rights or obligations of such Agent, (x) without the consent of the Collateral Agent, amend, modify or waive any provision relating to the rights or obligations of the Collateral Agent, (y) without the consent of the Majority Banks of each Tranche which is being allocated a lesser prepayment, repayment or commitment reduction as a result of the actions described below (or without the consent of the Majority Banks of each Tranche in the case of an amendment to the definition of Majority Banks), amend the definition of Majority Banks (it being understood that, with the consent of the Required Banks, additional extensions of credit pursuant to this Agreement may be included in the determination of the Majority Banks on substantially the same basis as the extensions of Term Loans and Revolving Loan Commitments are included on the Effective Date) or alter the required application of any prepayments or repayments (or commitment reductions), as between the various Tranches, pursuant to Section 4.01 or 4.02 (excluding Sections 4.02(b) and (c)) (although (x) the Required Banks may waive, in whole or in part, any such prepayment, repayment or commitment reduction, so long as the application, as amongst the various Tranches, of any such prepayment, repayment or commitment reduction which is still required to be made is not altered and (y) if additional Tranches of Term Loans are extended after the Initial Borrowing Date with the consent of the Required Banks as required above, such Tranches may be included on a pro rata basis (as is originally done with the Tranche A Term Loans and Tranche B Term Loans) in the various prepayments or repayments required pursuant to Sections 4.01 and 4.02 (excluding Sections 4.02(b) and (c) and any section providing Scheduled Repayments for any new Tranche of Term Loans) or (z) without the consent of the Supermajority Banks of the respective Tranche, reduce the amount of, or extend the date of, any Scheduled Repayment applicable to such Tranche or, without the consent of the Supermajority Banks of each Tranche, amend the definition of Supermajority Banks (it being understood that, with the consent of the Required Banks, additional extensions of credit pursuant to this Agreement may be included in the determination of the Supermajority Banks on substantially the same basis as the extensions of Term Loans and Revolving Loan Commitments are included on the Effective Date). (b) If, in connection with any proposed change, waiver, discharge or termination to any of the provisions of this Agreement as contemplated by clauses (i) through (v), inclusive, of the first proviso to Section 13.12(a), the consent of the Required Banks is obtained but the consent of one or more of such other Banks whose consent is required is not obtained, then the Borrower shall have the right, so long as all non- -132- consenting Banks whose individual consent is required are treated as described in either clauses (A) or (B) below, to either (A) replace each such non-consenting Bank or Banks (or, at the option of the Borrower if the respective Bank's consent is required with respect to less than all Tranches of Loans (or related Commitments), to replace only the respective Tranche or Tranches of Commitments and/or Loans of the respective non-consenting Bank which gave rise to the need to obtain such Bank's individual consent) with one or more Replacement Banks pursuant to Section 1.13 so long as at the time of such replacement, each such Replacement Bank consents to the proposed change, waiver, discharge or termination or (B) terminate such non-consenting Bank's Revolving Loan Commitment (if such Bank's consent is required as a result of its Revolving Loan Commitment) and/or repay each Tranche of outstanding Term Loans of such Bank which gave rise to the need to obtain such Bank's consent, in accordance with Sections 3.02(b) and/or 4.01(iv), provided that, unless the Commitments are terminated, and Loans repaid, pursuant to preceding clause (B) are immediately replaced in full at such time through the addition of new Banks or the increase of the Commitments and/or outstanding Loans of existing Banks (who in each case must specifically consent thereto), then in the case of any action pursuant to preceding clause (B) the Required Banks (determined before giving effect to the proposed action) shall specifically consent thereto, provided further, that in any event the Borrower shall not have the right to replace a Bank, terminate its Revolving Loan Commitment or repay its Loans solely as a result of the exercise of such Bank's rights (and the withholding of any required consent by such Bank) pursuant to the second proviso to Section 13.12(a). 13.13 Survival. All indemnities set forth herein including, without limitation, in Sections 1.10, 1.11, 2.05, 4.04, 13.01 and 13.06 shall, subject to Section 13.15 (to the extent applicable), survive the execution, delivery and termination of this Agreement and the Notes and the making and repayment of the Loans. 13.14 Domicile of Loans. Each Bank may transfer and carry its Loans at, to or for the account of any office, Subsidiary or Affiliate of such Bank. Notwithstanding anything to the contrary contained herein, to the extent that a transfer of Loans pursuant to this Section 13.14 would, at the time of such transfer, result in increased costs under Section 1.10, 1.11, 2.05 or 4.04 from those being charged by the respective Bank prior to such transfer, then the Borrower shall not be obligated to pay such increased costs (although the Borrower shall be obligated to pay any other increased costs of the type described above resulting from changes after the date of the respective transfer). 13.15 Limitation on Additional Amounts, Etc. Notwithstanding anything to the contrary contained in Sections 1.10, 1.11, 2.05 or 4.04 of this Agreement, unless a Bank gives notice to the Borrower that it is obligated to pay an amount under any such Section within one year after the later of (x) the date the Bank incurs the respective increased costs, Taxes, loss, expense or liability, reduction in amounts received or -133- receivable or reduction in return on capital or (y) the date such Bank has actual knowledge of its incurrence of the respective increased costs, Taxes, loss, expense or liability, reductions in amounts received or receivable or reduction in return on capital, then such Bank shall only be entitled to be compensated for such amount by the Borrower pursuant to said Section 1.10, 1.11, 2.05 or 4.04, as the case may be, to the extent the costs, Taxes, loss, expense or liability, reduction in amounts received or receivable or reduction in return on capital are incurred or suffered on or after the date which occurs one year prior to such Bank giving notice to the Borrower that it is obligated to pay the respective amounts pursuant to said Section 1.10, 1.11, 2.05 or 4.04, as the case may be. This Section 13.15 shall have no applicability to any Section of this Agreement other than said Sections 1.10, 1.11, 2.05 and 4.04. 13.16 Confidentiality. (a) Subject to the provisions of clause (b) of this Section 13.16, each Bank agrees that it will use its best efforts not to disclose without the prior consent of Holdings or the Borrower (other than to its employees, auditors, advisors or counsel or to another Bank if the Bank or such Bank's holding or parent company or board of trustees in its sole discretion determines that any such party should have access to such information, provided such Persons shall be subject to the provisions of this Section 13.16 to the same extent as such Bank) any information with respect to Holdings or any of its Subsidiaries which is now or in the future furnished pursuant to this Agreement or any other Credit Document and which is designated by Holdings to the Banks in writing as confidential, provided that any Bank may disclose any such information (a) as has become generally available to the public other than by virtue of a breach of this Section 13.16(a) by the respective Bank, (b) as may be required or appropriate in any report, statement or testimony submitted to any municipal, state or Federal regulatory body having or claiming to have jurisdiction over such Bank or to the Federal Reserve Board or the Federal Deposit Insurance Corporation or similar organizations (whether in the United States or elsewhere) or their successors, (c) as may be required or appropriate in respect to any summons or subpoena or in connection with any litigation, (d) in order to comply with any law, order, regulation or ruling applicable to such Bank, (e) to the Agents or the Collateral Agent and (f) to any prospective or actual transferee or participant in connection with any contemplated transfer or participation of any of the Notes or Commitments or any interest therein by such Bank, provided that such prospective transferee agrees to be bound by the confidentiality provisions contained in this Section 13.16. (b) Each of Holdings and the Borrower hereby acknowledges and agrees that each Bank may share with any of its affiliates any information related to Holdings or any of its Subsidiaries (including, without limitation, any nonpublic customer information regarding the creditworthiness of Holdings and its Subsidiaries, provided such Persons shall be subject to the provisions of this Section 13.16 to the same extent as such Bank). -134- 13.17 Register. The Borrower hereby designates the Administrative Agent to serve as the Borrower's agent, solely for purposes of this Section 13.17, to maintain a register (the "Register") on which it will record the Commitments from time to time of each of the Banks, the Loans made by each of the Banks and each repayment in respect of the principal amount of the Loans of each Bank. Failure to make any such recordation, or any error in such recordation shall not affect the Borrower's obligations in respect of such Loans. With respect to any Bank, the transfer of the Commitments of such Bank and the rights to the principal of, and interest on, any Loan made pursuant to such Commitments shall not be effective until such transfer is recorded on the Register maintained by the Administrative Agent with respect to ownership of such Commitments and Loans and prior to such recordation all amounts owing to the transferor with respect to such Commitments and Loans shall remain owing to the transferor. The registration of assignment or transfer of all or part of any Commitments and Loans shall be recorded by the Administrative Agent on the Register only upon the acceptance by the Administrative Agent of a properly executed and delivered Assignment and Assumption Agreement pursuant to Section 13.04(b). Coincident with the delivery of such an Assignment and Assumption Agreement to the Administrative Agent for acceptance and registration of assignment or transfer of all or part of a Loan, or as soon thereafter as practicable, the assigning or transferor Bank shall surrender the Note evidencing such Loan, and thereupon one or more new Notes in the same aggregate principal amount shall be issued to the assigning or transferor Bank and/or the new Bank. The Borrower agrees to indemnify the Administrative Agent from and against any and all losses, claims, damages and liabilities of whatsoever nature which may be imposed on, asserted against or incurred by the Administrative Agent in performing its duties under this Section 13.17. 13.18 Certain Prior Documents. Upon execution of this Agreement, all rights and obligations of the Agents and Citicorp Venture Capital Ltd. under the commitment letter and related documents attached as Exhibit 4.7B to the Recapitalization Agreement are terminated; provided that all obligations set forth in the fee letter related thereto are hereby expressly assumed by the Borrower, and, as so assumed, shall continue in full force and effect. SECTION 14. Holdings Guaranty. 14.01 The Holdings Guaranty. In order to induce the Agents and the Banks to enter into this Agreement and to extend credit hereunder, to induce Banks or any of their respective Affiliates to enter into the Interest Rate Protection Agreements or other Hedging Agreements, and in recognition of the direct benefits to be received by Holdings from the proceeds of the Loans, the issuance of the Letters of Credit, and the entering into of Interest Rate Protection Agreements or Other Hedging Agreements, Holdings hereby agrees with the Guaranteed Creditors as follows: Holdings hereby unconditionally and irrevocably -135- guarantees as primary obligor and not merely as surety the full and prompt payment when due, whether upon maturity, acceleration or otherwise, of any and all of the Guaranteed Obligations of the Borrower to the Guaranteed Creditors. If any or all of the Guaranteed Obligations of the Borrower to the Guaranteed Creditors becomes due and payable hereunder, Holdings irrevocably and unconditionally promises to pay such indebtedness to the Guaranteed Creditors, or order, on demand, together with any and all expenses which may be incurred by the Guaranteed Creditors in collecting any of the Guaranteed Obligations. If claim is ever made upon any Guaranteed Creditor for repayment or recovery of any amount or amounts received in payment or on account of any of the Guaranteed Obligations and any of the aforesaid payees repays all or part of said amount by reason of (i) any judgment, decree or order of any court or administrative body having jurisdiction over such payee or any of its property or (ii) any settlement or compromise of any such claim effected by such payee with any such claimant (including the Borrower), then and in such event Holdings agrees that any such judgment, decree, order, settlement or compromise shall be binding upon Holdings, notwithstanding any revocation of this Holdings Guaranty or other instrument evidencing any liability of the Borrower, and Holdings shall be and remain liable to the aforesaid payees hereunder for the amount so repaid or recovered to the same extent as if such amount had never originally been received by any such payee. 14.02 Bankruptcy. Additionally, Holdings unconditionally and irrevocably guarantees the payment of any and all of the Guaranteed Obligations of the Borrower to the Guaranteed Creditors whether or not due or payable by the Borrower upon the occurrence of an Event of Default under any of the events specified in Section 10.05, and unconditionally promises to pay such indebtedness to the Guaranteed Creditors, or order, on demand, in lawful money of the United States. 14.03 Nature of Liability. The liability of Holdings hereunder is exclusive and independent of any security for or other guaranty of the Guaranteed Obligations of the Borrower whether executed by Holdings, any other guarantor or by any other party, and the liability of Holdings hereunder is not affected or impaired by (a) any direction as to application of payment by the Borrower or by any other party, or (b) any other continuing or other guaranty, undertaking or maximum liability of a guarantor or of any other party as to the Guaranteed Obligations of the Borrower, or (c) any payment on or in reduction of any such other guaranty or undertaking, or (d) any dissolution, termination or increase, decrease or change in personnel by the Borrower, or (e) any payment made to any Guaranteed Creditor on the Guaranteed Obligations which any such Guaranteed Creditor repays to the Borrower pursuant to court order in any bankruptcy, reorganization, arrangement, moratorium or other debtor relief proceeding, and Holdings waives any right to the deferral or modification of its obligations hereunder by reason of any such proceeding. -136- 14.04 Independent Obligation. The obligations of Holdings hereunder are independent of the obligations of any other guarantor, any other party or the Borrower, and a separate action or actions may be brought and prosecuted against Holdings whether or not action is brought against any other guarantor, any other party or the Borrower and whether or not any other guarantor, any other party or the Borrower be joined in any such action or actions. Holdings waives, to the full extent permitted by law, the benefit of any statute of limitations affecting its liability hereunder or the enforcement thereof. Any payment by the Borrower or other circumstance which operates to toll any statute of limitations as to the Borrower shall operate to toll the statute of limitations as to Holdings. 14.05 Authorization. Holdings authorizes the Guaranteed Creditors without notice or demand (except as shall be required by applicable statute and cannot be waived), and without affecting or impairing its liability hereunder, from time to time to: (a) change the manner, place or terms of payment of, and/or change or extend the time of payment of, renew, increase, accelerate or alter, any of the Guaranteed Obligations (including any increase or decrease in the rate of interest thereon), any security therefor, or any liability incurred directly or indirectly in respect thereof, and the Holdings Guaranty herein made shall apply to the Guaranteed Obligations as so changed, extended, renewed or altered; (b) take and hold security for the payment of the Guaranteed Obligations and sell, exchange, release, surrender, realize upon or otherwise deal with in any manner and in any order any property by whomsoever at any time pledged or mortgaged to secure, or howsoever securing, the Guaranteed Obligations or any liabilities (including any of those hereunder) incurred directly or indirectly in respect thereof or hereof, and/or any offset thereagainst; (c) exercise or refrain from exercising any rights against the Borrower, any other Credit Party or others or otherwise act or refrain from acting; (d) release or substitute any one or more endorsers, guarantors, the Borrower or other obligors; (e) settle or compromise any of the Guaranteed Obligations, any security therefor or any liability (including any of those hereunder) incurred directly or indirectly in respect thereof or hereof, and may subordinate the payment of all or any part thereof to the payment of any liability (whether due or not) of the Borrower to its creditors other than the Guaranteed Creditors; -137- (f) apply any sums by whomsoever paid or howsoever realized to any liability or liabilities of the Borrower to the Guaranteed Creditors regardless of what liability or liabilities of Holdings or the Borrower remain unpaid; (g) consent to or waive any breach of, or any act, omission or default under, this Agreement or any of the instruments or agreements referred to herein, or otherwise amend, modify or supplement this Agreement or any of such other instruments or agreements; and/or (h) take any other action which would, under otherwise applicable principles of common law, give rise to a legal or equitable discharge of Holdings from its liabilities under this Holdings Guaranty. 14.06 Reliance. It is not necessary for any Guaranteed Creditor to inquire into the capacity or powers of the Borrower or the officers, directors, partners or agents acting or purporting to act on their behalf, and any Guaranteed Obligations made or created in reliance upon the professed exercise of such powers shall be guaranteed hereunder. 14.07 Subordination. Any of the indebtedness of the Borrower now or hereafter owing to Holdings is hereby subordinated to the Guaranteed Obligations of the Borrower owing to the Guaranteed Creditors; and if the Administrative Agent so requests at a time when an Event of Default exists, all such indebtedness of the Borrower to Holdings shall be collected, enforced and received by Holdings for the benefit of the Guaranteed Creditors and be paid over to the Administrative Agent on behalf of the Guaranteed Creditors on account of the Guaranteed Obligations of the Borrower to the Guaranteed Creditors, but without affecting or impairing in any manner the liability of Holdings under the other provisions of this Holdings Guaranty. Prior to the transfer by Holdings of any note or negotiable instrument evidencing any of the indebtedness of the Borrower to Holdings, Holdings shall mark such note or negotiable instrument with a legend that the same is subject to this subordination. Without limiting the generality of the foregoing, Holdings hereby agrees with the Guaranteed Creditors that it will not exercise any right of subrogation which it may at any time otherwise have as a result of this Holdings Guaranty (whether contractual, under Section 509 of the Bankruptcy Code or otherwise) until all Guaranteed Obligations have been irrevocably paid in full in cash. 14.08 Waiver. (a) Holdings waives any right (except as shall be required by applicable statute and cannot be waived) to require any Guaranteed Creditor to (i) proceed against the Borrower, any other guarantor or any other party, (ii) proceed against or exhaust any security held from the Borrower, any other guarantor or any other party or (iii) pursue any other remedy in any Guaranteed Creditor's power whatsoever. Holdings waives any defense based on or arising out of any defense of the Borrower, any other guarantor -138- or any other party, other than payment in full of the Guaranteed Obligations, based on or arising out of the disability of the Borrower, any other guarantor or any other party, or the validity, legality or unenforceability of the Guaranteed Obligations or any part thereof from any cause, or the cessation from any cause of the liability of the Borrower other than payment in full of the Guaranteed Obligations. The Guaranteed Creditors may, at their election, foreclose on any security held by any Agent, the Collateral Agent or any other Guaranteed Creditor by one or more judicial or nonjudicial sales, whether or not every aspect of any such sale is commercially reasonable (to the extent such sale is permitted by applicable law), or exercise any other right or remedy the Guaranteed Creditors may have against the Borrower or any other party, or any security, without affecting or impairing in any way the liability of Holdings hereunder except to the extent the Guaranteed Obligations have been paid. Holdings waives any defense arising out of any such election by the Guaranteed Creditors, even though such election operates to impair or extinguish any right of reimbursement or subrogation or other right or remedy of Holdings against the Borrower or any other party or any security. (b) Holdings waives all presentments, demands for performance, protests and notices, including, without limitation, notices of nonperformance, notices of protest, notices of dishonor, notices of acceptance of this Holdings Guaranty, and notices of the existence, creation or incurring of new or additional Guaranteed Obligations. Holdings assumes all responsibility for being and keeping itself informed of the Borrower's financial condition and assets, and of all other circumstances bearing upon the risk of nonpayment of the Guaranteed Obligations and the nature, scope and extent of the risks which Holdings assumes and incurs hereunder, and agrees that neither the Agents nor any Bank shall have any duty to advise Holdings of information known to them regarding such circumstances or risks. 14.09 Maximum Liability. It is the desire and intent of Holdings and the Guaranteed Creditors that this Holdings Guaranty shall be enforced against Holdings to the fullest extent permissible under the laws and public policies applied in each jurisdiction in which enforcement is sought. If, however, and to the extent that, the obligations of Holdings under this Holdings Guaranty shall be adjudicated to be invalid or unenforceable for any reason (including, without limitation, because of any applicable state or federal law relating to fraudulent conveyances or transfers), then the amount of the Guaranteed Obligations of Holdings shall be deemed to be reduced and Holdings shall pay the maximum amount of the Guaranteed Obligations which would be permissible under applicable law. * * * -139- IN WITNESS WHEREOF, the parties hereto have caused their duly authorized officers to execute and deliver this Agreement as of the date first above written. Addresses: 333 Western Avenue FSC SEMICONDUCTOR CORPORATION South Portland, ME 04106 Tel: (207) 775-8755 By Fax: (207) 761-6020 ------------------------ Attention: Dan Boxer Name: Title: 333 Western Avenue FAIRCHILD SEMICONDUCTOR South Portland, ME 04106 CORPORATION Tel: (207) 775-8755 Fax: (207) 761-6020 Attention: Dan Boxer By ------------------------- Name: Title: BANKERS TRUST COMPANY, Individually and as Administrative Agent By ------------------------- Name: Title: CREDIT SUISSE FIRST BOSTON, Individually and as Syndication Agent By ------------------------- Name: Title: By ------------------------- Name: Title: CANADIAN IMPERIAL BANK OF COMMERCE, Individually and as Documentation Agent By ------------------------- Name: Title: ABN AMRO BANK, N.V. By ------------------------- Name: Title: By ------------------------- Name: Title: THE FIRST NATIONAL BANK OF BOSTON By ------------------------- Name: Title: THE BANK OF NOVA SCOTIA By ------------------------- Name: Title: BANK OF SCOTLAND By ------------------------- Name: Title: BANK OF TOKYO-MITSUBISHI By ------------------------- Name: Title: BANQUE FRANCAISE DU COMMERCE EXTERIEUR By ------------------------- Name: Title: CHANCELLOR SENIOR SECURED MANAGEMENT By ------------------------- Name: Title: CORESTATES BANK, N.A. By ------------------------- Name: Title: DRESDNER BANK AG, New York Branch and Grand Cayman Branch By ------------------------- Name: Title: By ------------------------- Name: Title: SENIOR DEBT PORTFOLIO By Boston Management and Research, as Investment Advisor By ------------------------- Name: Title: FIRST SOURCE FINANCIAL LLP By First Source Financial, Inc., its Agent/Manager By ------------------------- Name: Title: FLEET NATIONAL BANK By ------------------------- Name: Title: THE FUJI BANK, LIMITED NEW YORK BRANCH By ------------------------- Name: Title: GENERAL ELECTRIC CAPITAL CORPORATION By ------------------------- Name: Title: KEYBANK NATIONAL ASSOCIATION By ------------------------- Name: Title: MERRILL LYNCH SENIOR FLOATING RATE FUND, INC. By ------------------------- Name: Title: THE MITSUBISHI TRUST & BANKING CORPORATION, LOS ANGELES AGENCY By ------------------------- Name: Title: PILGRIM AMERICA PRIME RATE TRUST By ------------------------- Name: Title: PNC BANK, NATIONAL ASSOCIATION By ------------------------- Name: Title: PRIME INCOME TRUST By ------------------------- Name: Title: VAN KAMPEN AMERICAN CAPITAL PRIME RATE INCOME TRUST By ------------------------- Name: Title: SCHEDULE I COMMITMENTS
Tranche A Term Tranche B Term Revolving Bank Loan Commitment Loan Commitment Loan Commitment - ---- --------------- --------------- --------------- Bankers Trust Company $5,333,333.34 $15,000,000 $5,333,333.34 Credit Suisse First Boston 5,333,333.33 -- 5,333,333.33 Canadian Imperial Bank of 5,333,333.33 -- 5,333,333.33 Commerce PNC Bank National Association 5,000,000 -- 5,000,000 Fleet National Bank 5,000,000 -- 5,000,000 The Fuji Bank, Limited New York 5,000,000 -- 5,000,000 Branch Bank of Scotland 4,000,000 -- 4,000,000 ABN Amro Bank, N.V. 4,000,000 -- 4,000,000 First Source Financial LLP 4,000,000 -- 4,000,000 Corestates Bank, N.A. 4,000,000 -- 4,000,000 Bank of Tokyo-Mitsubishi 4,000,000 -- 4,000,000 The Bank of Nova Scotia 4,000,000 -- 4,000,000 The First National Bank of Boston 4,000,000 -- 4,000,000 General Electric Capital 4,000,000 -- 4,000,000 Corporation Banque Francaise du Commerce 4,000,000 -- 4,000,000 Exterieur The Mitsubishi Trust & Banking 4,000,000 -- 4,000,000 Corporation, Los Angeles Agency Dresdner Bank AG, New York 4,000,000 -- 4,000,000 Branch and Grand Cayman Branch
SCHEDULE I Page 2
Tranche A Term Tranche B Term Revolving Bank Loan Commitment Loan Commitment Loan Commitment - ---- --------------- --------------- --------------- Van Kampen American Capital Prime -- $7,500,000 -- Rate Income Trust Pilgrim America Prime Rate Trust -- 7,500,000 -- Prime Income Trust -- 7,500,000 -- Merrill Lynch Senior Floating Rate -- 7,500,000 -- Fund, Inc. Totals $75,000,000 $45,000,000 $75,000,000
SCHEDULE II BANK ADDRESSES Bankers Trust Company 130 Liberty Street New York, New York 10006 Telephone No.: (212) 250-4886 Telecopier No.: (212) 250-7218 Attention: Anthony Logrippo Credit Suisse First Boston 11 Madison Avenue New York, New York 10010 Telephone No.: (212) 325-9157 Telecopier No.: (212) 325-8309 Attention: Chris T. Horgan Canadian Imperial 425 Lexington Avenue, 3rd Floor Bank of Commerce New York, New York 10017 Telephone No.: (212) 885-4695 Telecopier No.: (212) 885-4933 Attention: Ed Levy ABN Amro Bank, N.V. One Post Office Square 39th Floor Boston, MA 02109 Tel: (617) 988-7935 Fax: (617) 988-7910 Attention: Chip Wahle The First National Bank of Boston 100 Federal Street High Technology Division Mail Stop: 01-08-06 Boston, MA 02106 Tel: (617) 434-0819 Attention: Daniel Head, Jr. The Bank of Nova Scotia 101 Federal Street 16th Floor Boston, MA 02110 Tel: (617) 737-6310 Fax: (617) 951-2177 SCHEDULE II Page 2 Attention: T.M. Pitcher Bank of Scotland New York Branch 565 Fifth Avenue New York, NY 10017 Tel: (212) 450-0871 Fax: (212) 557-9460 Attention: Annie Chin Tat Bank of Tokyo-Mitsubishi 1251 Avenue of the Americas New York, NY 10020 Tel: (212) 782-4268 Fax: (212) 782-4981 Attention: Nick Campbell Banque Francaise du Commerce 645 Fifth Avenue Exteriuer New York, NY 10022 Tel: (212) 872-5180 Fax: (212) 872-5045 Attention: Peter Harris Chancellor Senior Secured 1166 Avenue of the Americas Management New York, NY 10036 Tel: (212) 278-9563 Fax: (212) 278-9869 Attention: Stephen Alfieri Corestates Bank, N.A. 1339 Chestnut Street Philadelphia, PA 19107 Tel: (215) 973-2562 Fax: (215) 973-6680 Attention: Mark S. Supple Dresdner Bank AG, New York 333 South Grand Avenue Branch and Grand Cayman Suite 1700 Branch Los Angeles, CA 90071 Tel: (213) 473-5420 SCHEDULE II Page 3 Fax: (213) 473-5450 Attention: Sid Jordan Senior Debt Portfolio c/o Eaton Vance 24 Federal Street Boston, MA 02110 Tel: (617) 654-8484 Fax: (617) 695-9594 Attention: Payson Swaffield First Source Financial LLP 2850 West Golf Road 5th Floor Rolling Meadows, IL 60008 Tel: (847) 734-2064 Fax: (847) 734-7910 Attention: Kelli Marti Fleet National Bank One Federal Street Mail Stop: MA PF DO3C Boston, MA 02110 Tel: (617) 346-4853 Fax: (617) 346-4806 Attention: Eric VanderMel The Fuji Bank, Limited Two World Trade Center New York Branch New York, NY 10048 Tel: (212) 898-2073 Fax: (212) 912-0516 Attention: Mark Hanslin General Electric 201 High Ridge Road Capital Corporation Stamford, CT 06927 Tel: (203) 316-7582 Fax: (203) 316-7978 Attention: Mike McGonigle Keybank National Association 127 Public Square 6th Floor SCHEDULE II Page 4 Cleveland, OH 44114 Tel: (216) 689-5562 Fax: (216) 689-4981 Attention: Michael Landimi Merrill Lynch Senior Floating 800 Scudders Mill Road Rate Fund, Inc. Plainsboro, NJ 08536 Tel: (609) 282-2092 Fax: (609) 282-2756 Attention: Anthony Clemente The Mitsubishi Trust & Banking 801 South Figueroa Street Corporation, Los Angeles Suite 2400 Agency Los Angeles, CA 90017 Tel: (213) 896-4658 Fax: (213) 687-4631 Attention: Rex Olson Pilgrim America Prime Rate Trust Two Renaissance Square Phoenix, AZ 85004 Tel: (602) 417-8257 Fax: (602) 417-8327 Attention: Tim Hunt PNC Bank National Association 345 Park Avenue New York, NY 10154 Tel: (212) 409-3724 Fax: (212) 409-3737 Attention: Mark Williams Prime Income Trust c/o Dean Witter Intercapital Two World Trade Center New York, NY 10048 Tel: (212) 392-9034 Fax: (212) 392-5345 Attention: Peter Gewirtz SCHEDULE II Page 5 Van Kampen American Capital One Parkview Plaza Prime Rate Income Trust Oakbrook Terrace, IL 60181 Tel: (630) 684-6438 Fax: (603) 684-6740 Attention: Jeffrey Maillet SCHEDULE III REAL PROPERTY Occupant Interest Held Description -------- ------------- ----------- Borrower *Fee Simple 333 Western Avenue South Portland, Maine Borrower *Fee Simple 3333 West 9000 South West Jordan, Utah Borrower Leasehold Lease dated November 13, 1995 between Mill Fabric Center, lessor, and Borrower, successor to National Semiconductor Corporation, as lessee, covering a portion of a building located at 265 Western Avenue, South Portland, Maine. Borrower Leasehold Lease dated March __, 1997 between the Borrower and National Semiconductor Corporation covering building 10 at a facility owned by National Semiconductor Corporation located on Western Avenue, South Portland, Maine. Borrower Leasehold Lease dated March __, 1997 between the Borrower and National Semiconductor Corporation covering buildings 12 and 23 at a facility owned by National Semiconductor Corporation located on Western Avenue, South Portland, Maine. Borrower Leasehold Lease dated March __, 1997 between the Borrower and National Semiconductor Corporation, as owner and Lessor, whereby the Borrower leases a portion of each of the facilities located at 2920 San Ysidro Way and 3697 Tahoe Way in Santa Clara, California. Fairchild Semiconductor Leasehold Lease dated March 8, 1976 (Malaysia) Sdn. Bhd. under qualified (temporary) ("Fairchild Malaysia") title no. HS(D) 44, for occupancy by Fairchild Malaysia, successor to National Semiconductor Penang ("NSEP"), covering the property known as the EP1 Building located in the Bayan Lepas Free Trade Zone, Penang, Malaysia. Fairchild Malaysia Leasehold Lease dated November 18, 1982, under qualified (temporary) title no. HS(D) 3400-MK12, for occupancy by Fairchild Malaysia, successor to NSEP, covering the property known as the EP2 Building located in the Bayan Lepas Free Trade Zone, Penang, Malaysia. * Mortgaged Properties SCHEDULE III Page 7 REAL PROPERTY Occupant Interest Held Description -------- ------------- ----------- Fairchild Malaysia Leasehold Lease dated May 22, 1973, under qualified (temporary) title no. HS(D) 19, for occupancy by Fairchild Malaysia, successor to NSEP, covering the property known as the IP Building located in the Bayan Lepas Free Trade Zone, Penang, Malaysia. Fairchild Malaysia Leasehold Lease between Sri Penang Development Sdn. Bhd., as landlord and Fairchild Malaysia, successor to NSEP, as tenant, known as the "Red Lease" covering property located in the Bayan Lepas Free Trade Zone, Penang, Malaysia. Fairchild Malaysia Leasehold Agreement for Lease dated July 14, 1988, between Sri Pinang Development Sdn. Bhd., as landlord and Fairchild Malaysia, successor to NSEP, as tenant, known as the "Blue Lease" covering property located in the Bayan Lepas Free Trade Zone, Penang, Malaysia. Fairchild Malaysia Leasehold Agreement for Lease dated July 14, 1988, between Sri Pinang Development Sdn. Bhd., as landlord and Fairchild Malaysia, successor to National Semiconductor Technology Sdn. Bhd., as tenant, known as the "Yellow Lease" covering property located in the Bayan Lepas Free Trade Zone, Penang, Malaysia. Fairchild Semiconductor Leasehold Lease Agreement dated October Hong Kong (Holdings) 10, 1979, between Philippine Limited ("Fairchild Hong Economic Zone Authority Kong") (successor to Export Processing Zone Authority), ("PEZA") as landlord, and Fairchild Hong Kong, successor in interest to National Semiconductor Hong Kong Limited, as tenant, covering lands in the Mactan Export Processing Zone, Cebu, Philippines. SCHEDULE IV EXISTING LEINS See Attached Schedule IV
=================================================================================================================================== Debtor Secured Party File No/Date Collateral - ----------------------------------------------------------------------------------------------------------------------------------- 1. Fairchild General Electric Credit Corporation 729329; 05/11/87 Specified leased Haworth Office System equipment - ----------------------------------------------------------------------------------------------------------------------------------- 2. Fairchild General Electric Credit Corporation 742687; 08/03/87 Specified leased Haworth furniture and fixtures - ----------------------------------------------------------------------------------------------------------------------------------- 3. National GCA Leasing Corp. 775287; 03/29/88 Specified lease including but not limited to various computer, manufacturing and test equipment - ----------------------------------------------------------------------------------------------------------------------------------- 4. National Xerox Corporation 983404; 05/08/92 Xerox 5100 copier - ----------------------------------------------------------------------------------------------------------------------------------- 5. National CLG, Inc. 989921; 06/22/92 IBM 3174 - OIR Controller S/N: F0708 (lease) - ----------------------------------------------------------------------------------------------------------------------------------- 6. National Xerox Corporation 990769; 06/25/92 Xerox 5100 copier - ----------------------------------------------------------------------------------------------------------------------------------- 7. National Hewlett-Packard Company 1029496; 05/10/93 Specified leased Hewlett-Packard equipment - ----------------------------------------------------------------------------------------------------------------------------------- 8. National CLG, Inc. 1047344; 09/17/93 IBM 6262-D22 Printer S/N: 80304 (lease) - ----------------------------------------------------------------------------------------------------------------------------------- 9. National Digital Financial Services, a division of 1050643; 01/03/94 Specified leased (2) B2-66AMA - AE General Electric Capital Corporation Refurbished 66AMA-AE, Vax 6000 Model 610 system and peripherals - ----------------------------------------------------------------------------------------------------------------------------------- 10. National Digital Financial Services, a division of 1086326; 07/18/94 8W512-AC Storage Work Array w/peripherals General Electric Capital Corporation (lease) - ----------------------------------------------------------------------------------------------------------------------------------- 11. National Digital Financial Services, a division of 1086327; 07/18/94 (1) 66AMAEB-FAX 6610 with 512MB, General Electric Capital Corporation DEMNAM, CIXCD-AB, VMS, UNLIM, DECNET, EF, VAX Cluster, (2) MS65-DA - Memory Boards - ----------------------------------------------------------------------------------------------------------------------------------- 12. National Hewlett-Packard Company 1094B29; 09/22/94 Specified leased equipment pursuant to Financing Agreement No. 4144-67173 - ----------------------------------------------------------------------------------------------------------------------------------- 13. National General Electric Capital Corp. 1106784; 12/22/94 Specified leased equipment pursuant to Equipment Schedule No. 004 to Master Lease Agreement - ----------------------------------------------------------------------------------------------------------------------------------- 14. National General Electric Capital Corp. 1106785; 12/22/94 Specified leased equipment pursuant to Equipment Schedule No. 005 to Master Lease Agreement - ----------------------------------------------------------------------------------------------------------------------------------- 15. National General Electric Capital Corp. 1106786; 12/22/94 Specified leased equipment pursuant to Equipment Schedule No. 006 to Master Lease Agreement
=============================================== Debtor Location - ----------------------------------------------- 1. Fairchild Me. Sec. of State - ----------------------------------------------- 2. Fairchild Me. Sec. of State - ----------------------------------------------- 3. National Me. Sec. of State - ----------------------------------------------- 4. National Me. Sec. of State - ----------------------------------------------- 5. National Me. Sec. of State - ----------------------------------------------- 6. National Me. Sec. of State - ----------------------------------------------- 7. National Me. Sec. of State - ----------------------------------------------- 8. National Me. Sec. of State - ----------------------------------------------- 9. National Me. Sec. of State - ----------------------------------------------- 10. National Me. Sec. of State - ----------------------------------------------- 11. National Me. Sec. of State - ----------------------------------------------- 12. National Me. Sec. of State - ----------------------------------------------- 13. National Me. Sec. of State - ----------------------------------------------- 14. National Me. Sec. of State - ----------------------------------------------- 15. National Me. Sec. of State
=================================================================================================================================== Debtor Secured Party File No/Date Collateral - ----------------------------------------------------------------------------------------------------------------------------------- 16. National General Electric Capital Corp. 1106787; 12/22/94 Specified leased equipment pursuant to Equipment Schedule No. 008 to Master Lease Agreement - ----------------------------------------------------------------------------------------------------------------------------------- 17. National General Electric Capital Corp. 1107014; 12/27/94 Specified leased equipment pursuant to Equipment Schedule No. 007 to Master Lease Agreement - ----------------------------------------------------------------------------------------------------------------------------------- 18. National General Electric Capital Corp. 1107015; 12/27/94 Specified leased equipment pursuant to Equipment Schedule No. 001 to Master Lease Agreement - ----------------------------------------------------------------------------------------------------------------------------------- 19. National General Electric Capital Corp. 1107016; 12/27/94 Specified leased equipment pursuant to Equipment Schedule No. 003 to Master Lease Agreement - ----------------------------------------------------------------------------------------------------------------------------------- 20. National General Electric Capital Corp. 1107099; 12/27/94 Specified leased equipment pursuant to Equipment Schedule No. 002 to Master Lease Agreement - ----------------------------------------------------------------------------------------------------------------------------------- 21. National Telogy, Inc. 1112240; 02/08/95 1 TEK TDS620 2Channel DSO (lease) - ----------------------------------------------------------------------------------------------------------------------------------- 22. National Princeton Credit Corporation (assigned to 1123529; 05/08/95 2 Data Products Model 3C Typhoon Laser NarCrown Bank of Roseland, NJ) Printers (lease) - ----------------------------------------------------------------------------------------------------------------------------------- 23. National Hewlett-Packard Company 1127323; 06/01/95 Specified leased equipment pursuant to Financing Agreement No. 412401804 - ----------------------------------------------------------------------------------------------------------------------------------- 24. National Digital Financial Services, a division of 1129067; 06/14/95 IIS142-AF Storage Works Array with General Electric Capital Corporation Peripherals (lease) - ----------------------------------------------------------------------------------------------------------------------------------- 25. National Copelco Capital, Inc. 1144477; 10/10/95 One (1) Karl Suss PM & Analytical Probes; (1) Light Tight Enclosure without Base, (1) Vibration Isolation Table; (1) Color CCTV System (lease) - ----------------------------------------------------------------------------------------------------------------------------------- 26. National Copelco Capital, Inc. 1145389; 10/16/95 One (1) LTX ___________, Micromaster ____ VLSI Tester (lease) - ----------------------------------------------------------------------------------------------------------------------------------- 27. National Copelco Capital, Inc. 1155277; 01/02/95 One Oxford Instruments LINK ISIS Series 300 Microanalysis: System (lease) - ----------------------------------------------------------------------------------------------------------------------------------- 28. National IBM Credit Corporation 1163339; 03/08/96 All computer, information processing, and other peripheral equipment and goods referenced on IBM Supplement No. 250927 dated 02/21/96
=================================================== Debtor Location - --------------------------------------------------- 16. National Me. Sec. of State - --------------------------------------------------- 17. National Me. Sec. of State - --------------------------------------------------- 18. National Me. Sec. of State - --------------------------------------------------- 19. National Me. Sec. of State - --------------------------------------------------- 20. National Me. Sec. of State - --------------------------------------------------- 21. National Me. Sec. of State - --------------------------------------------------- 22. National Me. Sec. of State - --------------------------------------------------- 23. National Me. Sec. of State - --------------------------------------------------- 24. National Me. Sec. of State - --------------------------------------------------- 25. National Me. Sec. of State - --------------------------------------------------- 26. National Me. Sec. of State - --------------------------------------------------- 27. National Me. Sec. of State - --------------------------------------------------- 28. National Me. Sec. of State
=================================================================================================================================== Debtor Secured Party File No/Date Collateral - ----------------------------------------------------------------------------------------------------------------------------------- 29. National Rave Financial Services, Inc. 1168807; 04/22/96 1 RPTOSEX1-110-128-P95 Rave Power Tower with sun Original SPAR________ 5 11OMHzMicro SPARCD Processor and Motherboard; 1 SSOS-25-CDB-MOD Media Only Desktop (Solaris 2.5) - ----------------------------------------------------------------------------------------------------------------------------------- 30. National Hewlett-Packard Company 1170076- 04/30/96 Specified leased equipment pursuant to Financing Agreement No. 412404996 - ----------------------------------------------------------------------------------------------------------------------------------- 31. National Digital Financial Services, a division of GE 1173167; 05/21/96 Specified leased equipment described in DFS Capital Corp. Lease Agreement No. 9543834-030 dated 05/13/96 - ----------------------------------------------------------------------------------------------------------------------------------- 32. National IBM Credit Corporation 1176402; 06/12/96 All computer information processing, and other peripheral equipment and goods referenced on IBM Supplement No. 260997 dated 05/14/96 (lease) - ----------------------------------------------------------------------------------------------------------------------------------- 33. National Avnet Computer, a division of Avnet, Inc. 1178227; 06/25/96 Specified leased equipment pursuant to Agreement No. 6595504-002 - ----------------------------------------------------------------------------------------------------------------------------------- 34. National Princeton Credit Corporation (assigned to 1183041; 07/31/96 Specified leased equipment pursuant to NorCrown Bank) Equipment Schedule No. A-2 - ----------------------------------------------------------------------------------------------------------------------------------- 35. National Princeton Credit Corp. (assigned to 1194015; 10/21/96 Specified leased equipment pursuant to NorCrown Bank) Equipment Schedule A-3 - ----------------------------------------------------------------------------------------------------------------------------------- 36. National Princeton Credit Corp. (assigned to 1194916; 10/21/96 Specified leased equipment pursuant to NorCrown Bank) Equipment Schedule A-4 - ----------------------------------------------------------------------------------------------------------------------------------- 37. National IBM Credit Corporation 1195346; 10/28/96 All computer, information processing, and other peripheral equipment and goods referenced on IBM Supplement No. 284139 dated 09/20/96 (lease) - ----------------------------------------------------------------------------------------------------------------------------------- 38. National Hewlett-Packard 1201479; 12/13/96 Leased computer equipment - ----------------------------------------------------------------------------------------------------------------------------------- 39. National IBM Credit Corporation 1208676; 2/13/97 Leased computer equipment - ----------------------------------------------------------------------------------------------------------------------------------- 40. Fairchild GECC Bk. 7936, Pg. 36 Haworth furniture and fixtures - ----------------------------------------------------------------------------------------------------------------------------------- 41. National CLG, Inc. Bk. 10962, Pg. 299 Computer equipment - ----------------------------------------------------------------------------------------------------------------------------------- 42. National Princeton Credit Corp. Bk. 11909, Pg. 128 Computer equipment
=================================================== Debtor Location - --------------------------------------------------- 29. National Me. Sec. of State - --------------------------------------------------- 30. National Me. Sec. of State - --------------------------------------------------- 31. National Me. Sec. of State - --------------------------------------------------- 32. National Me. Sec. of State - --------------------------------------------------- 33. National Me. Sec. of State - --------------------------------------------------- 34. National Me. Sec. of State - --------------------------------------------------- 35. National Me. Sec. of State - --------------------------------------------------- 36. National Me. Sec. of State - --------------------------------------------------- 37. National Me. Sec. of State - --------------------------------------------------- 38. National Me. Sec. of State - --------------------------------------------------- 39. National Me. Sec. of State - --------------------------------------------------- 40. Fairchild Cumberland County, ME - --------------------------------------------------- 41. National Cumberland County, ME - --------------------------------------------------- 42. National Cumberland County, ME
=================================================================================================================================== Debtor Secured Party File No/Date Collateral - ----------------------------------------------------------------------------------------------------------------------------------- 43. National Princeton Credit Corp. Bk. 12639, Pg. 186 Computer equipment - ----------------------------------------------------------------------------------------------------------------------------------- 44. National Princeton Credit Corp. Bk. 12761, Pg. 32 Computer equipment - ----------------------------------------------------------------------------------------------------------------------------------- 45. National Princeton Credit Corp. Bk. 12761, Pg. 34 Computer equipment - ----------------------------------------------------------------------------------------------------------------------------------- 46. National Princeton Credit Corp. Bk. 12800, Pg. 290 Computer equipment - ----------------------------------------------------------------------------------------------------------------------------------- 47. National Equitable Lomas Leasing 2188190, 2/30/88 Various computer, manufacturing and ____ equipment and additional property leased under Master Equipment Lease Agt. No 1-1- 60-094833-DD dated 3/9/88 - ----------------------------------------------------------------------------------------------------------------------------------- 48. National Equitable Lomas Leasing 1/18/89 Partial release of statement # 188190. Release of property listed under Rental Schedule Nos. 27-31, 57-78, 81-86 and 9-11 under Master Equipment Lease Agt. No. 1-1- 60-094833-00 to AT&T Credit Corporation - ----------------------------------------------------------------------------------------------------------------------------------- 49. National Equitable Lomas Leasing 8/16/93 Continuation of 2188190 - ----------------------------------------------------------------------------------------------------------------------------------- 50. National* Deutsch Bank AG Los Angeles Branch 448094; 8/2/95 Electronics equipment, computer equipment, peripherals, office furniture and telecommunications equipment described on Collateral Schedule No. Dl to Master Security Agt. dated 5/1/95 - ----------------------------------------------------------------------------------------------------------------------------------- 51. National* Deutsch Bank AG Los Angeles Branch 1/27/97 Partial release of Statement #948094. Equipment Ref. #27 and Ref. #28 from Exhibit 1 to Collateral Schedule D1 - ----------------------------------------------------------------------------------------------------------------------------------- 52. National* Tokyo Leasing (U.S.A.) Inc. 451628; 8/31/95 Various electronic equipment wherever located described on Collateral Schedule No. T to Master Security Agt. dated 5/1/95 - ----------------------------------------------------------------------------------------------------------------------------------- 53. National* Avnet Computer, Division of Avnet, Inc. 504198; 1/8/96 Equipment under Master Agt. Schedule #6595504-001 - ----------------------------------------------------------------------------------------------------------------------------------- 54. National* Avent Computer, Division of Avnet, Inc. 510983; 3/6/96 Equipment under Master Agt. Schedule #6595504-02 - ----------------------------------------------------------------------------------------------------------------------------------- 55. National* Avnet Computer, Division of Avnet, Inc. 510984; 3/6/96 Equipment under Master Agt. Schedule #6595504-203 - ----------------------------------------------------------------------------------------------------------------------------------- 56. National* Avnet Computer, Division of Avnet, Inc. 510985; 3/6/96 Equipment under Master Agt. Schedule #6595504-201 - ----------------------------------------------------------------------------------------------------------------------------------- 57. National* Avnet Computer, Division of Avnet, Inc. 526535; 7/3/96 Equipment under Master Agt. Schedule #6595504-204 - ----------------------------------------------------------------------------------------------------------------------------------- 58. National* Avnet Computer, Division of Avnet, Inc. 526536; 7/3/96 Equipment under Master Agt. Schedule #6595504-205 - ----------------------------------------------------------------------------------------------------------------------------------- 59. National* Avnet Computer, Division of Avnet, Inc. 526537; 7/3/96 Equipment under Master Agt. Schedule #6595504-205 ===================================================================================================================================
=================================================== Debtor Location - --------------------------------------------------- 43. National Cumberland County, ME - ---------------------------------------------------- 44. National Cumberland County, ME - ---------------------------------------------------- 45. National Cumberland County, ME - ---------------------------------------------------- 46. National Cumberland County, ME - ---------------------------------------------------- 47. National State of Utah - ---------------------------------------------------- 48. National State of Utah - ---------------------------------------------------- 49. National State of Utah - ---------------------------------------------------- 50. National* State of Utah - ---------------------------------------------------- 51. National* State of Utah - ---------------------------------------------------- 52. National* State of Utah - ---------------------------------------------------- 53. National* State of Utah - ---------------------------------------------------- 54. National* State of Utah - ---------------------------------------------------- 55. National* State of Utah - ---------------------------------------------------- 56. National* State of Utah - ---------------------------------------------------- 57. National* State of Utah - ---------------------------------------------------- 58. National* State of Utah - ---------------------------------------------------- 59. National* State of Utah ==================================================== NOTE: UNLESS MARKED WITH AN ASTERISK "*", FILINGS ARE PROTECTIVE LEASE FILINGS ONLY. NO ATTEMPT HAS BEEN MADE TO DETERMINE WHETHER PROPERTY SUBJECT TO LEASE FILINGS IS BEING TRANSFERRED TO FAIRCHILD SCHEDULE V EXISTING INDEBTEDNESS NONE SCHEDULE VI INSURANCE BORROWER MINIMUM AMOUNT REQUIRED TO BE CORE COVERAGE'S MAINTAINED DEDUCTIBLE Directors & Officers $15,000,000 0 Non-Ind Executive Risk $250,000 Corp. Reimb Reliance Property $800,000,000 $250,000 Zurich, Royal Cargo $50,000,000 $ 15,000 St. Paul BORROWER AND SUBSIDIARIES OF BORROWER MINIMUM AMOUNT REQUIRED TO BE CORE COVERAGE'S MAINTAINED DEDUCTIBLE Foreign Commercial General $1,000,000 | | Liability/Auto/Excess Liability AIU Foreign Voluntary Worker's $1,000,000 | | Comp. AIU General Liability $2,000,000/aggregate 1) $100,000/specific St. Paul $1,000,000/occurrence 2) $500,000/aggregate Auto Liability & Physical Damage $1,000,000 CSL Nil St. Paul Worker's Compensation Statutory Coverage A 1) $250,000/specific Hanover $1,000,000 coverage B 2) $650,000/aggregate Umbrella/Excess Liab. $1,000,000 N/A St. Paul, CHUBB, Reliance Electronics Manufacturers $15,000,000 1) $100,000/specific Errors & Omissions 2) $500,000/aggregate St. Paul Business Interruption $800,000,000 $ 50,000 PD/BI Combined at American guarantee Liab. (combined amount with Mfg. Ins. Co. casualty insurance) $250,000 PD at Mfg. Sites Royal/Sun Alliance Insurance $250,000 BI at Mfg. Sites Co. $250,000 PD/BI on Boiler & Machinery 5% of 100% PD value. * As of the Effective Date, there are no policies in existence for Holdings, except for the Executive Risk Reliance Directors and Officers' policy. SCHEDULE VII ERISA PLANS 1. The Fairchild Personal Savings and Retirement Plan SCHEDULE VIII SUBSIDIARIES 1. Fairchild Semiconductor (Malaysia) Sdn Bhd 2. Fairchild Semiconductor Hong Kong Limited 3. Fairchild Semiconductor Hong Kong (Holdings) Limited 4. Fairchild Semiconductor Japan K.K. 5. Fairchild Semiconductor Asia Pacific Pte Ltd. 6. Fairchild Semiconductor GmbH 7. Fairchild Semiconductor Limited * There are no Subsidiary Guarantors SCHEDULE IX LABOR RELATIONS None SCHEDULE X PROJECTIONS SCHEDULE XI SECURITIES 1. FSC Semiconductor Corporation Stock Option Plan 2. Agreement and Plan of Recapitalization dated January 24, 1997 between Sterling Holding Company, LLC and National Semiconductor Corporation. 3. Securities Purchase and Holders Agreement by and among Holdings, Sterling Holding Company, LLC, National Semiconductor Corporation, and the individuals listed as "Management Investors" on Schedule I therein. SCHEDULE XII [ORGANIZATION CHART] EXHIBIT A NOTICE OF BORROWING __________, 19__ Bankers Trust Company, as Administrative Agent for the Banks party to the Credit Agreement referred to below 130 Liberty Street New York, New York 10006 Attention: Anthony Logrippo Ladies and Gentlemen: The undersigned, Fairchild Semiconductor Corporation (the "Borrower"), refers to the Credit Agreement, dated as of March 11, 1997 (as amended from time to time, the "Credit Agreement", the terms defined therein being used herein as therein defined), among FSC Semiconductor Corporation, the Borrower, various Banks from time to time party thereto, you, as Administrative Agent for such Banks, Credit Suisse First Boston, as Syndication Agent, and Canadian Imperial Bank of Commerce, as Documentation Agent, and hereby gives you notice, irrevocably, pursuant to Section 1.03(a) of the Credit Agreement, that the undersigned hereby requests a Borrowing under the Credit Agreement, and in that connection sets forth below the information relating to such Borrowing (the "Proposed Borrowing") as required by Section 1.03(a) of the Credit Agreement: (i) The Business Day of the Proposed Borrowing is _______________.* (ii) The aggregate principal amount of the Proposed Borrowing is $______________. (iii) The Proposed Borrowing is to consist of [Tranche A Term Loans] [Tranche B Term Loans] [Revolving Loans] [Swingline Loans]. (iv) The Loans to be made pursuant to the Proposed Borrowing shall be initially maintained as [Base Rate Loans] [Eurodollar Loans]. (v) The initial Interest Period for the Proposed Borrowing is ________ month(s).** - ---------- * Shall be a Business Day at least one Business Day in the case of Base Rate Loans and three Business Days in the case of Eurodollar Loans, in each case, after the date hereof. ** To be included for a Proposed Borrowing of Eurodollar Loans. EXHIBIT A Page 2 The undersigned hereby certifies that the following statements are true and correct on the date hereof, and will be true and correct on the date of the Proposed Borrowing: (A) the representations and warranties contained in the Credit Documents are and will be true and correct in all material respects, both before and after giving effect to the Proposed Borrowing and to the application of the proceeds thereof, as though made on such date (it being understood and agreed that any representation or warranty which by its terms is made as of a specified date shall be required to be true and correct in all material respects only as of such specified date); and (B) no Default or Event of Default has occurred and is continuing, or would result from such Proposed Borrowing or from the application of the proceeds thereof. Very truly yours, FAIRCHILD SEMICONDUCTOR CORPORATION By ----------------------------------- Name: Title: EXHIBIT B-1 TRANCHE A TERM NOTE $_____________ New York, New York March 11, 1997 FOR VALUE RECEIVED, FAIRCHILD SEMICONDUCTOR CORPORATION, a Delaware corporation (the "Borrower"), hereby promises to pay to _____________________ or its registered assigns (the "Bank"), in lawful money of the United States of America in immediately available funds, at the office of Bankers Trust Company (the "Administrative Agent") located at 130 Liberty Street, New York, N.Y. 10006 on the Tranche A Term Loan Maturity Date (as defined in the Agreement referred to below) the principal sum of _________________________________ DOLLARS ($_____________) or, if less, the then unpaid principal amount of all Tranche A Term Loans (as defined in the Agreement) made by the Bank pursuant to the Agreement. The Borrower promises also to pay interest on the unpaid principal amount hereof in like money at said office from the date hereof until paid at the rates and at the times provided in Section 1.08 of the Agreement. This Note is one of the Tranche A Term Notes referred to in the Credit Agreement, dated as of March 11, 1997, among FSC Semiconductor Corporation, the Borrower, the lenders from time to time party thereto (including the Bank), Bankers Trust Company, as Administrative Agent, Credit Suisse First Boston, as Syndication Agent, and Canadian Imperial Bank of Commerce, as Documentation Agent (as from time to time in effect, the "Agreement"), and is entitled to the benefits thereof and of the other Credit Documents (as defined in the Agreement). This Note is secured by the Security Documents (as defined in the Agreement) and is entitled to the benefits of the Guaranties (as defined in the Agreement). As provided in the Agreement, this Note is subject to voluntary prepayment and mandatory repayment prior to the Tranche A Term Loan Maturity Date, in whole or in part. In case an Event of Default (as defined in the Agreement) shall occur and be continuing, the principal of and accrued interest on this Note may be declared to be due and payable in the manner and with the effect provided in the Agreement. The Borrower hereby waives presentment, demand, protest or notice of any kind in connection with this Note. EXHIBIT B-1 Page 2 THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAW OF THE STATE OF NEW YORK. FAIRCHILD SEMICONDUCTOR CORPORATION By ----------------------------------- Title: EXHIBIT B-2 TRANCHE B TERM NOTE $_____________ New York, New York March 11, 1997 FOR VALUE RECEIVED, FAIRCHILD SEMICONDUCTOR CORPORATION, a Delaware corporation (the "Borrower"), hereby promises to pay to _____________________ or its registered assigns (the "Bank"), in lawful money of the United States of America in immediately available funds, at the office of Bankers Trust Company (the "Administrative Agent") located at 130 Liberty Street, New York, N.Y. 10006 on the Tranche B Term Loan Maturity Date (as defined in the Agreement referred to below) the principal sum of ____________________________________ DOLLARS ($_____________) or, if less, the then unpaid principal amount of all Tranche B Term Loans (as defined in the Agreement) made by the Bank pursuant to the Agreement. The Borrower promises also to pay interest on the unpaid principal amount hereof in like money at said office from the date hereof until paid at the rates and at the times provided in Section 1.08 of the Agreement. This Note is one of the Tranche B Term Notes referred to in the Credit Agreement, dated as of March 11, 1997, among FSC Semiconductor Corporation, the Borrower, the lenders from time to time party thereto (including the Bank), Bankers Trust Company, as Administrative Agent, Credit Suisse First Boston, as Syndication Agent, and Canadian Imperial Bank of Commerce, as Documentation Agent (as from time to time in effect, the "Agreement"), and is entitled to the benefits thereof and of the other Credit Documents (as defined in the Agreement). This Note is secured by the Security Documents (as defined in the Agreement) and is entitled to the benefits of the Guaranties (as defined in the Agreement). As provided in the Agreement, this Note is subject to voluntary prepayment and mandatory repayment prior to the Tranche B Term Loan Maturity Date, in whole or in part. In case an Event of Default (as defined in the Agreement) shall occur and be continuing, the principal of and accrued interest on this Note may be declared to be due and payable in the manner and with the effect provided in the Agreement. EXHIBIT B-2 Page 2 The Borrower hereby waives presentment, demand, protest or notice of any kind in connection with this Note. THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAW OF THE STATE OF NEW YORK. FAIRCHILD SEMICONDUCTOR CORPORATION By ----------------------------------- Title: EXHIBIT B-3 REVOLVING NOTE $__________ New York, New York March 11, 1997 FOR VALUE RECEIVED, FAIRCHILD SEMICONDUCTOR CORPORATION, a Delaware corporation (the "Borrower"), hereby promises to pay to _____________ or its registered assigns (the "Bank"), in lawful money of the United States of America in immediately available funds, at the office of Bankers Trust Company (the "Administrative Agent") located at 130 Liberty Street, New York, N.Y. 10006 on the Revolving Loan Maturity Date (as defined in the Agreement referred to below) the principal sum of ___________ DOLLARS ($__________) or, if less, the then unpaid principal amount of all Revolving Loans (as defined in the Agreement) made by the Bank pursuant to the Agreement. The Borrower promises also to pay interest on the unpaid principal amount hereof in like money at said office from the date hereof until paid at the rates and at the times provided in Section 1.08 of the Agreement. This Note is one of the Revolving Notes referred to in the Credit Agreement, dated as of March 11, 1997, among FSC Semiconductor Corporation, the Borrower, the lenders from time to time party thereto (including the Bank), Bankers Trust Company, as Administrative Agent, Credit Suisse First Boston, as Syndication Agent, and Canadian Imperial Bank of Commerce, as Documentation Agent (as from time to time in effect, the "Agreement"), and is entitled to the benefits thereof and the other Credit Documents (as defined in the Agreement). This Note is secured by the Security Documents (as defined in the Agreement) and is entitled to the benefits of the Guaranties (as defined in the Agreement). As provided in the Agreement, this Note is subject to voluntary prepayment and mandatory repayment prior to the Revolving Loan Maturity Date, in whole or in part. In case an Event of Default (as defined in the Agreement) shall occur and be continuing, the principal of and accrued interest on this Note may be declared to be due and payable in the manner and with the effect provided in the Agreement. EXHIBIT B-3 Page 2 The Borrower hereby waives presentment, demand, protest or notice of any kind in connection with this Note. THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAW OF THE STATE OF NEW YORK. FAIRCHILD SEMICONDUCTOR CORPORATION By ----------------------------------- Title: EXHIBIT B-4 SWINGLINE NOTE $5,000,000.00 New York, New York March 11, 1997 FOR VALUE RECEIVED, FAIRCHILD SEMICONDUCTOR CORPORATION, a Delaware corporation (the "Borrower"), hereby promises to pay to BANKERS TRUST COMPANY or its registered assigns (the "Bank"), in lawful money of the United States of America in immediately available funds, at the office of Bankers Trust Company (the "Administrative Agent") located at 130 Liberty Street, New York, N.Y. 10006 on the Swingline Expiry Date (as defined in the Agreement referred to below) the principal sum of FIVE MILLION DOLLARS ($5,000,000.00) or, if less, the then unpaid principal amount of all Swingline Loans (as defined in the Agreement) made by the Bank pursuant to the Agreement. The Borrower promises also to pay interest on the unpaid principal amount hereof in like money at said office from the date hereof until paid at the rates and at the times provided in Section 1.08 of the Agreement. This Note is the Swingline Note referred to in the Credit Agreement, dated as of March 11, 1997 among FSC Semiconductor Corporation, the Borrower, the lenders from time to time party thereto (including the Bank), Bankers Trust Company, as Administrative Agent, Credit Suisse First Boston, as Syndication Agent, and Canadian Imperial Bank of Commerce, as Documentation Agent (as from time to time in effect, the "Agreement"), and is entitled to the benefits thereof and of the other Credit Documents (as defined in the Agreement). This Note is secured by the Security Documents (as defined in the Agreement) and is entitled to the benefits of the Guaranties (as defined in the Agreement). As provided in the Agreement, this Note is subject to voluntary prepayment and mandatory repayment prior to the Swingline Expiry Date, in whole or in part. In case an Event of Default (as defined in the Agreement) shall occur and be continuing, the principal of and accrued interest on this Note may be declared to be due and payable in the manner and with the effect provided in the Agreement. The Borrower hereby waives presentment, demand, protest or notice of any kind in connection with this Note. EXHIBIT B-4 Page 2 THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAW OF THE STATE OF NEW YORK. FAIRCHILD SEMICONDUCTOR CORPORATION By ----------------------------------- Title: EXHIBIT C LETTER OF CREDIT REQUEST No. (1) Dated (2) Bankers Trust Company, as Administrative Agent under the Credit Agreement (as amended, modified or supplemented from time to time, the "Credit Agreement"), dated as of March __, 1997, among FSC Semiconductor Corporation, Fairchild Semiconductor Corporation, the Banks from time to time party thereto, Bankers Trust Company, as Administrative Agent, Credit Suisse First Boston, as Syndication Agent, and Canadian Imperial Bank of Commerce, as Documentation Agent, 130 Liberty Street New York, New York 10006 Attention: Anthony Logrippo [Name and Address of applicable Issuing Bank Attention: ______________________] Dear Sirs: We hereby request that [name of proposed Issuing Bank], in its individual capacity, issue a [Standby] [Trade] Letter of Credit for the account of the undersigned on (3) (the "Date of Issuance") in the aggregate stated amount of (4). The requested Letter of Credit shall be denominated in Dollars. For purposes of this Letter of Credit Request, unless otherwise defined herein, all capitalized terms used herein which are defined in the Credit Agreement shall have the respective meaning provided therein. - -------- (1) Letter of Credit Request Number. (2) Date of Letter of Credit Request. (3) Date of Issuance which shall be at least five Business Days after the date of this Letter of Credit Request (or such shorter period as is acceptable to the respective Issuing Bank). (4) Aggregate initial stated amount of Letter of Credit. EXHIBIT C Page 6 The beneficiary of the requested Letter of Credit will be (5), and such Letter of Credit will be in support of (6) and will have a stated expiration date of (7). We hereby certify that: (1) the representations and warranties contained in the Credit Documents will be true and correct in all material respects on the Date of Issuance, both before and after giving effect to the issuance of the Letter of Credit requested hereby (it being understood and agreed that any representation or warranty which by its terms is made as of a specified date shall be required to be true and correct in all material respects only as of such specified date); and (2) no Default or Event of Default has occurred and is continuing nor, after giving effect to the issuance of the Letter of Credit requested hereby, would such a Default or an Event of Default occur. Copies of all relevant documentation with respect to the supported transaction are attached hereto. FAIRCHILD SEMICONDUCTOR CORPORATION By ----------------------------------- Title: - -------- (5) Insert name and address of beneficiary. (6) Insert description of L/C Supportable Indebtedness and describe obligation to which it relates in the case of Standby Letters of Credit and a description of the commercial transaction which is being supported in the case of Trade Letters of Credit. (7) Insert last date upon which drafts may be presented which may not be later than (i) in the case of Trade Letters of Credit, the earlier of (x) the date which occurs 180 days after the Date of Issuance or (y) the date which is 30 days prior to the Revolving Loan Maturity Date or (ii) in the case of Standby Letters of Credit, the earlier of (x) the date which occurs 12 months after the Date of Issuance, or, if any such Standby Letter of Credit is automatically extendable for successive periods of up to 12 months, a date not beyond the tenth Business Day prior to the Revolving Loan Maturity Date or (y) the tenth Business Day prior to the Revolving Loan Maturity Date. EXHIBIT D Section 4.04(b)(ii) Certificate Reference is hereby made to the Credit Agreement, dated as of March 11, 1997, among FSC Semiconductor Corporation, Fairchild Semiconductor Corporation, the Banks party thereto from time to time, Bankers Trust Company, as Administrative Agent, Credit Suisse First Boston, as Syndication Agent, and Canadian Imperial Bank of Commerce, as Documentation Agent (the "Credit Agreement"). Pursuant to the provisions of Section 4.04(b)(ii) of the Credit Agreement, the undersigned hereby certifies that it is not a "bank" as such term is used in Section 881(c)(3)(A) of the Internal Revenue Code of 1986, as amended. [NAME OF BANK] By ----------------------------------- Title: March 11, 1997 To each of the Agents and each of the Banks party to the Credit Agreement referred to below Ladies and Gentlemen: We have acted as special counsel to FSC Semiconductor Corporation, a Delaware corporation ("Holdings"), and Fairchild Semiconductor Corporation, a Delaware corporation (the "Borrower"), in connection with the execution and delivery of the Credit Agreement, dated as of March 11, 1997 (the "Credit Agreement"), among Holdings, the Borrower, the financial institutions party thereto (the "Banks"), Bankers Trust Company, as Administrative Agent, Credit Suisse First Boston, as Syndication Agent, and Canadian Imperial Bank of Commerce, as Documentation Agent, and the transactions contemplated thereby. This opinion is being delivered pursuant to Section 5.03(i) of the Credit Agreement. Unless otherwise indicated, capitalized terms used herein but not otherwise defined herein shall have the respective meanings set forth in the Credit Agreement. In connection with this opinion, we have examined originals or copies, certified or otherwise identified to our satisfaction, of such documents as we have deemed necessary or appropriate as a basis for the opinions set forth herein, including, without limitation, (a) the documents listed on Schedule I hereto (the "Credit Documents"), (b) the documents listed on Schedule II hereto (the "Recapitalization Documents"), (c) the documents listed on Schedule III hereto (the "Senior Subordinated Note Documents" and together with the Credit Documents and Recapitalization Documents, the "Documents") and (d) such other public and corporate documents and records as we deem necessary or appropriate in connection with this opinion. In our examination we have assumed the genuineness of all signatures (other than as to Holdings and the Borrower), the authenticity of all documents submitted to us as originals, the conformity to original documents of all documents submitted to us as certified or photostatic copies and the authenticity of the originals of such copies. We have assumed that each party to the Documents (other than the Borrower and Holdings) has the legal power and authority to enter into and perform its obligations under such Documents, and that such Documents have been duly authorized, executed and delivered by such persons, and To each of the Agents and each of the Banks party to the Credit Agreement referred to below March 11, 1997 Page 2 that such Documents are the legal, valid and binding obligations of such persons, enforceable against such persons in accordance with their terms. Our opinions set forth herein are based on our consideration of only those statutes, rules, regulations and judicial decisions which, in our experience, are normally applicable to or normally relevant in connection with transactions of the type contemplated by the Documents. As to questions of fact not independently verified by us we have relied, to the extent we deemed appropriate, upon representations and certificates of officers of Holdings, the Borrower, the Borrower's Subsidiaries, public officials and other appropriate persons. Whenever our opinion with respect to the existence or absence of facts is indicated based on our knowledge or awareness we are referring to the actual knowledge of the Dechert Price & Rhoads attorneys who have given substantive attention to matters concerning the Borrower and Holdings in connection with the transactions contemplated by the Documents. Based upon the foregoing, we are of the opinion that: 4. Each of the Borrower and Holdings (i) is a validly existing corporation in good standing under the laws of the jurisdiction of its incorporation, (ii) has the corporate power and corporate authority to own its property and assets and to transact the business in which it is engaged and presently proposes to engage and (iii) is duly qualified and is authorized to do business and is in good standing in each jurisdiction set forth on Schedule IV hereto. 5. Each of the Borrower and Holdings has the corporate power and corporate authority to execute, deliver and perform the terms and provisions of each of the Documents to which it is a party and has taken all necessary corporate action to authorize the execution, delivery and performance by it of each of such Documents. Each of the Borrower and Holdings has duly executed and delivered each of the Documents to which it is a party and each of such Documents (except the Documents referred to in Section 5.13 of the Credit Agreement with respect to which no opinion is expressed) constitutes the legal, valid and binding obligation of each of the Borrower and Holdings enforceable against the Borrower or Holdings as the case may be in accordance with its terms. 6. Neither the execution, delivery or performance by the Borrower or Holdings of the Documents to which it is a party (including, without limitation, the granting of Liens pursuant to the documents listed on Schedule V hereto (the "Security Documents")), nor compliance by it with the terms and provisions thereof, (a) will contravene any provision of any New York or federal law, statute, rule or regulation (including, without limitation, Regulations G, T, U and X of the Board of Governors of the Federal Reserve System) or any applicable order, writ, injunction or decree of any court or governmental instrumentality, (b) will conflict with or result in any breach of, any of the terms, covenants, conditions or provisions of, or constitute a default under, or result in the creation or imposition of (or the obligation to create or impose) any Lien (except pursuant to the Security Documents) upon any of the properties or assets of the Borrower and Holdings pursuant to the terms of any indenture, mortgage, deed of trust, credit agreement or loan agreement, or any other material agreement, contract or instrument known to us, to which either or both of the Borrower and Holdings is a party or by which it or any of its property or assets is bound or to which it may be subject (excluding, in the case of the Recapitalization Documents, from the foregoing clauses (a) and (b) such immaterial violations as shall not violate the provisions of the Credit Agreement or otherwise be To each of the Agents and each of the Banks party to the Credit Agreement referred to below March 11, 1997 Page 3 reasonably expected to have (x) a material adverse effect on (I) the Transaction or (II) the rights or remedies of the Agents or the Banks, or on the ability of any Credit Party to perform its respective obligations to the Agents and the Banks or (y) a Material Adverse Effect) or (c) will violate any provision of the Certificate of Incorporation or By-Laws of the Borrower or Holdings. 7. No order, consent, approval, license, authorization, or validation of, or filing, recording or registration with (except as have been obtained or made and except for UCC filings and recordations which will be made after the date hereof), or exemption by, any New York or federal governmental or public body or authority, or any subdivision thereof, is required to authorize, or is required in connection with, (a) the execution, delivery and performance of (x) any Recapitalization Document by the Borrower or Holdings or (y) any Credit Document or (b) the legality, validity, binding effect or enforceability of any Credit Document. 8. To our knowledge, there are no actions, suits or proceedings pending or threatened against the Borrower or Holdings (i) with respect to any Credit Document or (ii) that could reasonably be expected to have a Material Adverse Effect, and to our knowledge there does not exist any judgment, order or injunction prohibiting or imposing material adverse conditions upon the Transaction, the occurence of any Credit Event or the performance of Holdings or the Borrower of their respective obligations under the Credit Documents. 9. None of Holdings, the Borrower or any of their respective Subsidiaries is an "investment company" or a company "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended. 10. None of Holdings, the Borrower or any of their respective Subsidiaries is a "holding company," or a "subsidiary company" of a "holding company", or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company" within the meaning of the Public Utility Holding Company Act of 1935, as amended. 11. (a) After giving effect to the Transaction, the authorized capital stock of Holdings consists of 30,000,000 shares of Class A Holdings Common Stock, 7,191,120 of which are issued and outstanding, 30,000,000 shares of Class B Holdings Common Stock, 8,408,880 of are issued and outstanding, and 70,000 shares of Holdings Series A Preferred Stock, all of which are issued and outstanding. Based on our review of the Certificate of Incorporation and Bylaws of Holdings, all such outstanding shares have been duly and validly issued, are fully paid and non-assessable and have been issued free of preemptive rights, except for the preemptive rights set forth in the Securities Purchase and Holders Agreement. Except as set forth on Schedule XI to the Credit Agreement, to our knowledge Holdings does not have outstanding any securities convertible into or exchangeable for its capital stock or outstanding any rights to subscribe for or to purchase, or any options for the purchase of, or any agreement providing for the issuance (contingent or otherwise) of, or any calls, commitments or claims of any character relating to, its capital stock. (b) After giving effect to the Transaction, the authorized capital stock of the Borrower consists of 1,000 shares of Borrower Common Stock, 100 of which are issued and outstanding and delivered for pledge pursuant to the Pledge Agreement. All such outstanding shares of common stock have been duly and validly issued, are fully paid and nonassessable and are free of preemptive rights. To our knowledge the Borrower does not have outstanding any securities convertible into or exchangeable for its capital stock or out- To each of the Agents and each of the Banks party to the Credit Agreement referred to below March 11, 1997 Page 4 standing any rights to subscribe for or to purchase, or any options for the purchase of, or any agreements providing for the issuance (contingent or otherwise) of, or any calls, commitments or claims of any character relating to, its capital stock. 12. To our knowledge, after giving effect to the Transaction, Holdings will have no Subsidiaries other than the Borrower and its Subsidiaries. To our knowledge as of the date hereof, after giving effect to the Transaction, the Borrower will have no Subsidiaries other than those Subsidiaries listed on Schedule VIII to the Credit Agreement. To our knowledge, Schedule XII to the Credit Agreement correctly sets forth, as of the date hereof and after giving effect to the Transaction, the ownership structure of Holdings and each of its Subsidiaries. 13. Each of Holdings and the Borrower is the record owner of all of the Stock and Notes (as such terms are defined in the Pledge Agreement) as listed on Annex A and Annex B to the Pledge Agreement under its respective name. After giving effect to the delivery to the Collateral Agent of the Pledged Stock and Pledged Notes listed on Annex A and Annex B to the Pledge Agreement (and in respect of the Stock of Fairchild Semiconductor GmbH, after notarization in accordance with German law) and assuming the continued possession at all times hereafter by the Collateral Agent of (x) such Pledged Stock and Pledged Notes in the State of New York and (y) duly executed stock powers and endorsements related thereto), the security interest created in favor of the Collateral Agent under the Pledge Agreement constitutes a valid and enforceable first priority perfected security interest in all of the right, title and interest of Holdings or the Borrower, as the case may be, in and to such Pledged Securities and proceeds thereof in favor of the Pledgee for the benefit of the Secured Creditors, subject to no Liens other than Permitted Liens. No filings or recordings are required in order to perfect the security interest created under the Pledge Agreement so long as the Collateral Agent, as Pledgee, is in possession of such Pledged Securities. 14. Assuming that the representation made by each of Holdings and the Borrower in Section 2.4 of the Security Agreement with respect to the location of its chief executive office is and remains true and correct, under the law of the State of New York, the perfection and priority of the security interests granted by each of Holdings and Borrower in its Receivables, Contracts, Contract Rights and General Intangibles (as defined in the Security Agreement) are governed by the laws of the State in which each of Holdings' and Borrower's chief executive office is located to the extent that said Receivables, Contracts, Contract Rights and General Intangibles consist of "accounts" and "general intangibles" as described in the UCC as in effect in the State of New York. 15. The recordation of the Assignment of Security Interest in U.S. Patents and Trademarks in the form attached to the Security Agreements in the United States Patent and Trademark Office together with filings on form UCC-1 made pursuant to the Security Agreement will be effective, under applicable law, to perfect the security interest granted to the Collateral Agent in the trademarks and patents covered by the Security Agreement and the recordation of the Assignment of Security Interest in U.S. Copyrights in the form attached to the Security Agreement with the United States Copyright Office together with filings on form UCC-1 made pursuant to the Security Agreement will be effective under federal law to perfect the security interest granted to the Collateral Agent in the copyrights covered by the Security Agreement except that we express no opinion with respect to the perfection of any security interest in mask works of the Borrower that have been deposited in the United States Copyright Office absent an appropriate filing by the Banks with the United States Copyright Office. To each of the Agents and each of the Banks party to the Credit Agreement referred to below March 11, 1997 Page 5 16. The subordination provisions of the Senior Subordinated Notes are enforceable against the Borrower and the holders of the Senior Subordinated Notes, and the Loans and all other Obligations under the Credit Agreement and the other Credit Documents (including, without limitation, under the Guaranties) and any Interest Rate Protection Agreement or Other Hedging Agreement (except as related to commodities hedges) with any Other Creditor (as such term is defined in the Security Agreement) are within the definition of "Senior Indebtedness" included in such subordination provisions. We are members of the Bar of the State of New York and we do not hold ourselves out as being conversant with, and express no opinion as to, the laws of any jurisdiction other than federal laws of the United States of America, the law of the State of New York and the General Corporation Law of the State of Delaware. Our opinions expressed above are subject to the qualifications and limitations that (i) the availability of certain rights and remedies may be limited by bankruptcy, insolvency, fraudulent conveyance, fraudulent transfer, reorganization, moratorium and other similar laws and decisions relating to or affecting debtor's obligations and creditor's rights generally and by general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law); (ii) certain provisions of the Documents that permit the Banks or others to take action or make determinations, or to benefit from indemnities and similar undertakings, may be subject to the requirement that such action be taken or such determination be made, and that any action or inaction by the Banks and others that may give rise to a request for payment under such undertakings be taken or not taken, on a reasonable basis and in good faith; and (iii) certain remedial provisions of the Documents may be limited by, or unenforceable under, the statutes and judicial decisions of the courts of the United States of America and other applicable jurisdictions, but, in our opinion, such statutes and judicial decisions do not make the remedies set forth in the Documents as to which we have opined in Paragraph 2 inadequate for the realization of the practical benefits of the security intended to be provided thereby, except (A) for the economic consequence of any delay which may be imposed thereby or result therefrom and (B) that we express no opinion as to the rights of any of the parties to the Documents to accelerate the due dates of any payment due thereunder or to exercise other remedies available to them on the happening of a non-material breach of any such document or agreement. We have made no examination of and express no opinion with respect to: (i) the title to, ownership of or rights in personal property or fixtures; (ii) the accuracy or sufficiency of any descriptions of Collateral, or of any financing statements intended to perfect any security interest in Collateral; (iii) the validity or ownership of any trademarks, patents or licenses; (iv) the existence or absence of any liens, charges or encumbrances on any Collateral; and (v) except as expressly set forth in paragraphs 10 and 12, the perfection or the priority of any lien or security interest. In giving the opinion set forth in paragraph 10 above, we have assumed that (i) the Collateral Agent has possession of certificates representing the Pledged Stock accompanied by appropriate stock powers and possession of the Pledged Notes duly endorsed by the payee thereof; (ii) the Collateral Agent has no notice of any adverse claim with respect to the Pledged Stock or the Pledged Notes as such term is used in Section 8-302 of the UCC; (iii) no part of the Pledged Stock or the Pledged Notes is subject to a security interest that could be perfected without possession pursuant to Sections 8-313 or 8-321 of the UCC or that is perfected under the laws of another jurisdiction by means other than possession, or constitutes the proceeds of any property subject to a third party security interest; (iv) no Pledged Stock or Pledged Note is subject to a valid claim of any person based upon wrongful transfer pursuant to Section 8-315 of the UCC; and (v) the Pledged Stock and the Pledged Notes or the proceeds thereof are not subject to (A) any lien of any government or any To each of the Agents and each of the Banks party to the Credit Agreement referred to below March 11, 1997 Page 6 agency or instrumentality thereof, including without limitation, any federal, state or local tax lien, (B) any claims or any federal priority statute (31 U.S.C. ss. 3713), (C) any lien arising under the Employee Retirement Income Security Act of 1974, as amended, or (D) any lien arising by operation of law other than under the UCC (including without limitation any attachment or execution lien) or other lien which does not require possession to take priority over the security interests. Without limiting the generality of the foregoing, no opinion is expressed as to the legality, validity, binding nature or enforceability, of (i) the availability of specific performance or the equitable remedies for noncompliance with any of the provisions of the Documents; (ii) any self-help provisions; (iii) provisions in the Documents purporting to waive the effect of applicable laws; (iv) provisions that purport to establish evidentiary standards; (v) provisions that provide for the enforceability of the remaining terms and provisions of the applicable Document in circumstances in which certain other terms and provisions of such Documents are illegal or unenforceable; (vi) provisions that provide that certain rights or obligations are absolute or unconditional; (vii) provisions related to waivers of remedies (or the delay or omission of enforcement of remedies), disclaimers, liability limitations or limitations on the obligations of the Banks in circumstances in which a failure of condition or default by the Borrower is not material; (viii) provisions related to releases or waivers of legal or equitable rights, discharges of defenses, or reimbursement or indemnification in circumstances in which the person seeking reimbursement or indemnification had breached its duties under the applicable Document, or otherwise, or itself has been negligent; or (ix) provisions which purport to authorize any person to sign or file financing statements without the signature of the debtor (except to the extent that a secured party may execute and file financing statements without the signature of the debtor under Section 9-402(2) of the UCC). This opinion speaks only as of the date hereof. We have no obligation to advise the addressees (or any third party) of any changes in the law or facts that may occur after the date of this opinion. This opinion is being furnished only to the addressees and is solely for their benefit and the benefit of their participants and assigns in connection with the above transaction. This opinion may not be relied upon for any other purpose, or relied upon by any other person, firm or corporation for any purpose, without our prior written consent. Very truly yours, SCHEDULE I CREDIT DOCUMENTS 1. Credit Agreement, dated as of March 11, 1997, among FSC Semiconductor Corporation, a Delaware corporation ("Holdings"), Fairchild Semiconductor Corporation, a Delaware corporation (the "Borrower"), the Banks party thereto from time to time, Bankers Trust Company, as Administrative Agent (in such capacity, the "Administrative Agent"), Credit Suisse First Boston, as Syndication Agent (in such capacity, the "Syndication Agent"), and Canadian Imperial Bank of Commerce, as Documentation Agent (in such capacity, the "Documentation Agent" and, together with the Syndication Agent and the Administrative Agent, each an "Agent" and collectively the "Agents"). 2. Tranche A Term Loan Notes dated March 11, 1997 issued by the Borrower pursuant to the Credit Agreement to the banks originally party thereto making Tranch A Term Loans in the aggregate principal amount of Seventy-Five Million Dollars ($75,000,000). 3. Tranche B Term Loan Notes dated March 11, 1997 issued by the Borrower pursuant to the Credit Agreement to the banks originally party thereto making Tranch B Term Loans in the aggregate principal amount of Forty-Five Million Dollars ($45,000,000). 4. Revolving Notes dated March 11, 1997 issued by the Borrower pursuant to the Credit Agreement to the banks originally party thereto making Revolving Loans in the aggregate principal amount of up to Seventy-Five Million Dollars ($75,000,000). 5. Swingline Note dated March 11, 1997 issued by the Borrower in the original principal amount of up to Five Million Dollars ($5,000,000) to Bankers Trust Company ("Bankers Trust"). 6. Pledge Agreement dated March 11, 1997 by and between the Borrower, as Pledgor, Holdings, as an additional Pledgor, and Bankers Trust, as Collateral Agent. 7. Security Agreement dated March 11, 1997 by and between the Borrower, Holdings and Bankers Trust, as Collateral Agent. 8. Assignment of Security Interest in United States Trademarks and Patents dated March 11, 1997 from the Borrower in favor of Bankers Trust, in connection with the Security Agreement. 9. Assignment of Security Interest in United States Copyrights dated March 11, 1997 from the Borrower in favor of Bankers Trust, in connection with the Security Agreement. SCHEDULE II RECAPITALIZATION DOCUMENTS 1. Agreement and Plan of Recapitalization made the 24th day of January, 1997, between Sterling Holding Company, LLC, a Delaware limited liability company ("Sterling"), and National Semiconductor Corporation, a Delaware corporation ("NSC"). 2. Asset Purchase Agreement by and between the Borrower and NSC. 3. Securities Purchase and Holders Agreement by and among Holdings, Sterling, NSC and the individuals and trust(s) listed as "Management Investors" on Schedule I thereto (collectively, the "Management Investors"). 4. Demand Note dated March 11, 1997 issued by the Borrower to NSC in the principal amount of $304,312,297. 5. 11.74% Subordinated Note due 2008 dated March 11, 1997 issued by Holdings to NSC in the principal amount of Seventy-Seven Million Dollars ($77,000,000). 6. Technology Licensing and Transfer Agreement dated March 11, 1997 by and between NSC and the Borrower. 7. Transition Services Agreement dated March 11, 1997 by and between NSC and the Borrower. 8. Fairchild Foundry Services Agreement dated March 11, 1997 by and between NSC and the Borrower. 9. Revenue Side Letter dated March 11, 1997 by and between NSC and the Borrower. 10. National Foundry Services Agreement dated March 11, 1997 by and between NSC and the Borrower. 11. National Assembly Services Agreement dated March 11, 1997 by and between NSC and the Borrower. 12. Fairchild Assembly Services Agreement dated March 11, 1997 by and between NSC and the Borrower. 13. Mil/Aero Wafer and Services Agreement dated March 11, 1997 by and between NSC and the Borrower. 14. Shared Services and Occupancy Agreement dated March 11, 1997 by and between NSC and the Borrower covering the use by NSC and the Borrower of the facility in Santa Clara, California owned by NSC. 15. Shared Services Agreement dated March 11, 1997 by and between NSC and the Borrower for the facility located at South Portland Maine. 16. Shared Facilities Agreement dated March 11, 1997 by and between NSC and the Borrower covering the shared use of certain physical assets located at the facility in South Portland, Maine. 17. Assumption Agreement dated March 11, 1997 by and between the Borrower and NSC. 18. Bill of Sale dated March 11, 1997 by and between NSC and the Borrower. 19. Real Estate Lease dated March 11, 1997 between the Borrower, as lessor, and NSC, as lessee, for premises located in West Jordan, Utah. SCHEDULE III SENIOR SUBORDINATED NOTE DOCUMENTS 1. Indenture (the "Indenture") between the Borrower and United States Trust Company of New York, as trustee, dated March 11, 1997 relating to the issuance of the Borrower's $300,000,000 aggregate principal amount of 10-1/8% Senior Subordinated Notes Due 2007. 2. Purchase Agreement dated March 6, 1997 by and among the Borrower, Holdings, Credit Suisse First Boston Corporation ("Credit Suisse"), BT Securities Corporation ("BT Securities") and CIBC Wood Gundy Securities Corp. (together with Credit Suisse and BT Securities, the "Purchasers"). 3. Registration Rights Agreement dated March 6, 1997 by and among the Borrower and the Purchasers. SCHEDULE IV FOREIGN QUALIFICATIONS Fairchild Semiconductor Corporation Maine Alabama California Massachusetts Texas Utah FSC Semiconductor Corporation none SCHEDULE V SECURITY DOCUMENTS 1. Security Agreement dated March 11, 1997 by and between the Borrower, Holdings and Bankers Trust, as Collateral Agent providing for, among other things, the grant by the Borrower to Bankers Trust, for the benefit of the Secured Creditors, a security interest in certain Collateral. 2. Assignment of Security Interest in United States Trademarks and Patents dated March 11, 1997 from the Borrower in favor of Bankers Trust. 3. Assignment of Security Interest in United States Copyrights dated March 11, 1997 from the Borrower in favor of Bankers Trust. 4. Pledge Agreement dated March 11, 1997 by and between the Borrower, as Pledgor, Holdings, as an additional Pledgor and Bankers Trust as Collateral Agent. EXHIBIT F FORM OF OFFICER'S CERTIFICATE [NAME OF CREDIT PARTY] Officers' Certificate I, the undersigned, [Chairman of the Board/President/Vice President/Treasurer] of [NAME OF CREDIT PARTY], a corporation organized and existing under the laws of the State of Delaware (the "Company"), do hereby certify, as such officer and not individually, that: 1. This Certificate is furnished pursuant to Section 5.04 of the Credit Agreement, dated as of March 11, 1997, among [FSC Semiconductor Corporation,] [Fairchild Semiconductor Corporation,] [the Company,] the Banks from time to time party thereto, Bankers Trust Company, as Administrative Agent, Credit Suisse First Boston, as Syndication Agent, and Canadian Imperial Bank of Commerce, as Documentation Agent (such Credit Agreement, as in effect on the date of this Certificate, being herein called the "Credit Agreement"). Unless otherwise defined herein, capitalized terms used in this Certificate shall have the meanings set forth in the Credit Agreement. 2. The following named individuals are elected officers of the Company, each holds the office of the Company set forth opposite his name and has held such office since __________, 19__.(1) The signature written opposite the name and title of each such officer is his correct signature. Name (2) Office Signature --------------- ------------- ------------- --------------- ------------- ------------- --------------- ------------- ------------- --------------- ------------- ------------- 3. Attached hereto as Exhibit A is a certified copy of the Certificate of Incorporation of the Company as filed in the Office of the Secretary of State of the State of Delaware on ___________, 19__, together with all amendments thereto adopted through the date hereof. - ---------- (1) Insert a date prior to the time of any corporate action relating to the Credit Agreement or any other Credit Document. (2) Include name, office and signature of each officer who will sign any Credit Document, including the officer who will sign the certification at the end of this Certificate. EXHIBIT F Page 2 4. Attached hereto as Exhibit B is a true and correct copy of the By-Laws of the Company which were duly adopted, are in full force and effect on the date hereof, and have been in effect since _____________, 19__. 5. Attached hereto as Exhibit C is a true and correct copy of resolutions which were duly adopted on __________, 19__ [by unanimous written consent of the Board of Directors of the Company], and said resolutions have not been rescinded, amended or modified. Except as attached hereto as Exhibit C, no resolutions have been adopted by the Board of Directors of the Company which deal with the execution, delivery or performance of any of the Credit Documents or any other Documents to which the Company is party. [6. On the date hereof, all of the conditions in Sections 5.05, 5.06, 5.07, 5.08, 5.09, 5.15, 5.16, and 6.01 of the Credit Agreement have been satisfied (except to the extent that any such condition is required to be satisfactory to or determined by any Bank, the Required Banks and/or the Agent).](3) [6.][7.] On the date hereof, the representations and warranties contained in the Credit Agreement and in the other Credit Documents to which the Company is a party are true and correct in all material respects, both before and after giving effect to each Credit Event to occur on the date hereof and the application of the proceeds thereof (it being understood and agreed that any representation or warranty which by its terms is made as of a specified date shall be required to be true and correct in all material respects only as of such specified date). [7.][8.] On the date hereof, no Default or Event of Default has occurred and is continuing under any Credit Document to which the Company is a party or would result from the Credit Events to occur on the date hereof or from the application of the proceeds thereof. [8.][9.] There is no proceeding for the dissolution or liquidation of the Company or, to the knowledge of the Company, threatening its existence. IN WITNESS WHEREOF, I have hereunto set my hand this ___ day of __________, 1997. [NAME OF CREDIT PARTY] ------------------------------------ Name: Title: - ---------- (3) Insert bracketed item 6 in the Certificate delivered by the Borrower only. EXHIBIT F Page 3 [NAME OF CREDIT PARTY] I, the undersigned, [Secretary/Assistant Secretary] of the Company, do hereby certify, as such officer and not individually, that: 1. [Name of Person making above certifications] is the duly elected and qualified [Chairman of the Board/President/Vice President/Treasurer] of the Company and the signature above is his genuine signature. 2. The certifications made by [name of Person making above certifications] in Items 2, 3, 4, 5 and [8] [9] above are true and correct. IN WITNESS WHEREOF, I have hereunto set my hand this _____ day of _________, 1997. ------------------------------------ Name: Title: EXHIBIT G SUBSIDIARIES GUARANTY GUARANTY, dated as of ___________, ____ (as amended, modified or supplemented from time to time, this "Guaranty"), made by each of the undersigned (each, a "Guarantor" and, together with any other entity that becomes a party hereto pursuant to Section 25 hereof, the "Guarantors"), to BANKERS TRUST COMPANY, as Collateral Agent, for the benefit of the Secured Creditors (as defined below). Except as otherwise defined herein, terms used herein and defined in the Credit Agreement (as defined below) shall be used herein as therein defined. W I T N E S S E T H : WHEREAS, FSC Semiconductor Corporation ("Holdings"), Fairchild Semiconductor Corporation (the "Borrower"), various lenders party thereto from time to time (the "Banks"), Bankers Trust Company, as Administrative Agent (together with any successor administrative agent, the "Administrative Agent"), Credit Suisse First Boston, as Syndication Agent, and Canadian Imperial Bank of Commerce, as Documentation Agent, have entered into a Credit Agreement, dated as of March 11, 1997 (as amended, modified or supplemented from time to time, the "Credit Agreement"), providing for the making of Loans to the Borrower and the issuance of, and participation in, Letters of Credit for the account of the Borrower, all as contemplated therein (the Banks, the Administrative Agent, the Syndication Agent and the Documentation Agent are herein called the "Bank Creditors"); WHEREAS, the Borrower may at any time and from time to time enter into one or more Interest Rate Protection Agreements or Other Hedging Agreements with one or more Banks or any affiliate thereof (each such Bank or affiliate, even if the respective Bank subsequently ceases to be a Bank under the Credit Agreement for any reason, together with such Bank's or affiliate's successors and assigns, if any, collectively, the "Other Creditors," and together with the Bank Creditors, the "Secured Creditors"); WHEREAS, each Guarantor is a Subsidiary of the Borrower; WHEREAS, it is a condition to the making of Loans and issuing of Letters of Credit under the Credit Agreement that each Guarantor shall have executed and delivered this Guaranty; and WHEREAS, each Guarantor will obtain benefits from the incurrence of Loans by the Borrower and the issuance of Letters of Credit pursuant to the Credit Agreement and the entering into of Interest Rate Protection Agreements or Other Hedging Agreements and, accordingly, desires to execute this Guaranty in order to (i) satisfy the conditions described in the preceding paragraph and (ii) induce (x) the Banks to make Loans and issue Letters of Credit to the EXHIBIT G Page 2 Borrower and (y) the Other Creditors to enter into Interest Rate Protection Agreements or Other Hedging Agreements with the Borrower; NOW, THEREFORE, in consideration of the foregoing and other benefits accruing to each Guarantor, the receipt and sufficiency of which are hereby acknowledged, each Guarantor hereby makes the following representations and warranties to the Secured Creditors and hereby covenants and agrees with each Secured Creditor as follows: 6. Each Guarantor, jointly and severally, irrevocably and unconditionally guarantees: (i) to the Bank Creditors the full and prompt payment when due (whether at the stated maturity, by acceleration or otherwise) of (x) the principal of and interest on the Notes issued by, and the Loans made to, the Borrower under the Credit Agreement and all reimbursement obligations and Unpaid Drawings with respect to Letters of Credit and (y) all other obligations (including obligations which, but for the automatic stay under Section 362(a) of the Bankruptcy Code, would become due) and liabilities owing by the Borrower to the Bank Creditors under the Credit Agreement (including, without limitation, indemnities, Fees and interest thereon (including any interest accruing after the commencement of any bankruptcy, insolvency, receivership or similar proceeding, whether or not such interest is an allowed claim against the debtor in any such proceeding)) and the other Credit Documents to which the Borrower is a party, whether now existing or hereafter incurred under, arising out of or in connection with the Credit Agreement or any such other Credit Document and the due performance and compliance with the terms of the Credit Documents by the Borrower (all such principal, interest, liabilities and obligations under this clause (i), except to the extent consisting of obligations or liabilities with respect to Interest Rate Protection Agreements or Other Hedging Agreements, being herein collectively called the "Credit Document Obligations"); and (ii) to each Other Creditor the full and prompt payment when due (whether at the stated maturity, by acceleration or otherwise) of all obligations (including obligations which, but for the automatic stay under Section 362(a) of the Bankruptcy Code, would become due) and liabilities owing by the Borrower to one or more Other Creditors under any Interest Rate Protection Agreements or Other Hedging Agreements, whether now in existence or hereafter arising, and the due performance and compliance by the Borrower with all terms, conditions and agreements contained therein (all such obligations and liabilities being herein collectively called the "Other Obligations", and together with the Credit Document Obligations are herein collectively called the "Guaranteed Obligations"). Each Guarantor understands, agrees and confirms that this Guaranty is a guarantee of payment and not of collection, and that the Secured Creditors may enforce this Guaranty up to the full amount of the Guaranteed Obligations against such Guarantor without proceeding against any other Guarantor, the Borrower, against any security for the Guaranteed Obligations, or under any other guaranty covering all or a portion of the Guaranteed Obligations. 7. Additionally, each Guarantor, jointly and severally, unconditionally and irrevocably, guarantees the payment of any and all Guaranteed Obligations of the Borrower to the Secured Creditors whether or not due or payable by the Borrower upon the occurrence in respect of the Borrower of any of the events specified in Section 10.05 of the Credit Agreement, and unconditionally and irrevocably, jointly and severally, promises to pay such Guaranteed Obligations to the Secured Creditors, or order, on demand, in lawful money of the United States. EXHIBIT G Page 3 8. The liability of each Guarantor hereunder is exclusive and independent of any security for or other guaranty of the Guaranteed Obligations of the Borrower whether executed by such Guarantor, any other Guarantor, any other guarantor or by any other party, and the liability of each Guarantor hereunder shall not be affected or impaired by (a) any direction as to application of payment by the Borrower or by any other party, (b) any other continuing or other guaranty, undertaking or maximum liability of a guarantor or of any other party as to the Guaranteed Obligations of the Borrower, (c) any payment on or in reduction of any such other guaranty or undertaking, (d) any dissolution, termination or increase, decrease or change in personnel by the Borrower, (e) any payment made to any Secured Creditor on the Guaranteed Obligations which any Secured Creditor repays the Borrower pursuant to court order in any bankruptcy, reorganization, arrangement, moratorium or other debtor relief proceeding, and each Guarantor waives any right to the deferral or modification of its obligations hereunder by reason of any such proceeding, (f) any action or inaction by the Secured Creditors as contemplated in Section 6 hereof, or (g) any invalidity, irregularity or unenforceability of all or part of the Guaranteed Obligations or of any security therefor. 9. The obligations of each Guarantor hereunder are independent of the obligations of any other Guarantor, any other guarantor or the Borrower, and a separate action or actions may be brought and prosecuted against each Guarantor whether or not action is brought against any other Guarantor, any other guarantor or the Borrower and whether or not any other Guarantor, any other guarantor of the Borrower or the Borrower be joined in any such action or actions. Each Guarantor waives, to the fullest extent permitted by law, the benefit of any statute of limitations affecting its liability hereunder or the enforcement thereof. Any payment by the Borrower or other circumstance which operates to toll any statute of limitations as to the Borrower shall operate to toll the statute of limitations as to each Guarantor. 10. Each Guarantor hereby waives (to the fullest extent permitted by applicable law) notice of acceptance of this Guaranty and notice of any liability to which it may apply, and waives promptness, diligence, presentment, demand of payment, protest, notice of dishonor or nonpayment of any such liabilities, suit or taking of other action by the Administrative Agent or any other Secured Creditor against, and any other notice to, any party liable thereon (including such Guarantor or any other guarantor or the Borrower). 11. Any Secured Creditor may (except as shall be required by applicable statute and cannot be waived) at any time and from time to time without the consent of, or notice to, any Guarantor, without incurring responsibility to such Guarantor, without impairing or releasing the obligations of such Guarantor hereunder, upon or without any terms or conditions and in whole or in part: A. change the manner, place or terms of payment of, and/or change or extend the time of payment of, renew, increase, accelerate or alter, any of the Guaranteed Obligations, any security therefor, or any liability incurred directly or indirectly in respect thereof, and the guaranty herein made shall apply to the Guaranteed Obligations as so changed, extended, renewed or altered; EXHIBIT G Page 4 B. sell, exchange, release, surrender, realize upon or otherwise deal with in any manner and in any order any property by whomsoever at any time pledged or mortgaged to secure, or howsoever securing, the Guaranteed Obligations or any liabilities (including any of those hereunder) incurred directly or indirectly in respect thereof or hereof, and/or any offset thereagainst; C. exercise or refrain from exercising any rights against the Borrower or others or otherwise act or refrain from acting; D. settle or compromise any of the Guaranteed Obligations, any security therefor or any liability (including any of those hereunder) incurred directly or indirectly in respect thereof or hereof, and may subordinate the payment of all or any part thereof to the payment of any liability (whether due or not) of the Borrower to creditors of the Borrower; E. apply any sums by whomsoever paid or howsoever realized to any liability or liabilities of the Borrower to the Secured Creditors regardless of what liabilities of the Borrower remain unpaid; F. consent to or waive any breach of, or any act, omission or default under, any of the Interest Rate Protection Agreements or Other Hedging Agreements, the Credit Documents or any of the instruments or agreements referred to therein, or otherwise amend, modify or supplement any of the Interest Rate Protection Agreements or Other Hedging Agreements, the Credit Documents or any of such other instruments or agreements; G. act or fail to act in any manner referred to in this Guaranty which may deprive such Guarantor of its right to subrogation against the Borrower to recover full indemnity for any payments made pursuant to this Guaranty; and/or H. release or substitute any one or more endorsers, guarantors, the Borrower or other obligors. 12. No invalidity, irregularity or unenforceability of all or any part of the Guaranteed Obligations or of any security therefor shall affect, impair or be a defense to this Guaranty, and this Guaranty shall be primary, absolute and unconditional notwithstanding the occurrence of any event or the existence of any other circumstances which might constitute a legal or equitable discharge of a surety or guarantor except payment in full of the Guaranteed Obligations. 13. This Guaranty is a continuing one and all liabilities to which it applies or may apply under the terms hereof shall be conclusively presumed to have been created in reliance hereon. No failure or delay on the part of any Secured Creditor in exercising any right, power or privilege hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein expressly specified are EXHIBIT G Page 5 cumulative and not exclusive of any rights or remedies which any Secured Creditor would otherwise have. No notice to or demand on any Guarantor in any case shall entitle such Guarantor to any other further notice or demand in similar or other circumstances or constitute a waiver of the rights of any Secured Creditor to any other or further action in any circumstances without notice or demand. It is not necessary for any Secured Creditor to inquire into the capacity or powers of the Borrower or any of its Subsidiaries or the officers, directors, partners or agents acting or purporting to act on its behalf, and any indebtedness made or created in reliance upon the professed exercise of such powers shall be guaranteed hereunder. 14. Any indebtedness of the Borrower now or hereafter held by any Guarantor is hereby subordinated to the Guaranteed Obligations; and such indebtedness of the Borrower to any Guarantor, if the Administrative Agent, after an Event of Default has occurred and is continuing, so requests, shall be collected, enforced and received by such Guarantor as trustee for the Secured Creditors and be paid over to the Administrative Agent for the benefit of the Secured Creditors on account of the Guaranteed Obligations, but without affecting or impairing in any manner the liability of such Guarantor under the other provisions of this Guaranty. Prior to the transfer by any Guarantor of any note or negotiable instrument evidencing any indebtedness of the Borrower to such Guarantor, such Guarantor shall mark such note or negotiable instrument with a legend that the same is subject to this subordination. Without limiting the generality of the foregoing, each Guarantor hereby agrees with the Secured Creditors that it will not exercise any right of subrogation which it may at any time otherwise have as a result of this Guaranty (whether contractual, under Section 509 of the Bankruptcy Code or otherwise) until all Guaranteed Obligations have been irrevocably paid in full in cash. 15. A. Each Guarantor waives any right (except as shall be required by applicable statute or law and cannot be waived) to require the Secured Creditors to: (i) proceed against the Borrower, any other Guarantor, any other guarantor of the Borrower or any other party; (ii) proceed against or exhaust any security held from the Borrower, any other Guarantor, any other guarantor of the Borrower or any other party; or (iii) pursue any other remedy in the Secured Creditors' power whatsoever. Each Guarantor waives (to the fullest extent permitted by applicable law) any defense based on or arising out of any defense of the Borrower, any other Guarantor, any other guarantor of the Borrower or any other party other than payment in full of the Guaranteed Obligations, including, without limitation, any defense based on or arising out of the disability of the Borrower, any other Guarantor, any other guarantor of the Borrower or any other party, or the unenforceability of the Guaranteed Obligations or any part thereof from any cause, or the cessation from any cause of the liability of the Borrower other than payment in full of the Guaranteed Obligations. The Secured Creditors may, at their election, foreclose on any security held by the Administrative Agent, the Collateral Agent or the other Secured Creditors by one or more judicial or nonjudicial sales, whether or not every aspect of any such sale is commercially reasonable (to the extent such sale is permitted by applicable law), or exercise any other right or remedy the Secured Creditors may have against the Borrower or any other party, or any security, without affecting or impairing in any way the liability of any Guarantor hereunder except to the extent the Guaranteed Obligations have been paid in full. Each Guarantor waives any defense arising out of any such election by the Secured Creditors, even though such election operates to impair or extinguish any EXHIBIT G Page 6 right of reimbursement or subrogation or other right or remedy of such Guarantor against the Borrower or any other party or any security. B. Each Guarantor waives all presentments, demands for performance, protests and notices, including, without limitation, notices of nonperformance, notices of protest, notices of dishonor, notices of acceptance of this Guaranty, and notices of the existence, creation or incurring of new or additional indebtedness. Each Guarantor assumes all responsibility for being and keeping itself informed of the Borrower's financial condition and assets, and of all other circumstances bearing upon the risk of nonpayment of the Guaranteed Obligations and the nature, scope and extent of the risks which such Guarantor assumes and incurs hereunder, and agrees that the Secured Creditors shall have no duty to advise any Guarantor of information known to them regarding such circumstances or risks. 16. The Secured Creditors agree that this Guaranty may be enforced only by the action of the Administrative Agent or the Collateral Agent, in each case acting upon the instructions of the Required Banks (or, after the date on which all Credit Document Obligations have been paid in full, the holders of at least a majority of the outstanding Other Obligations) and that no other Secured Creditor shall have any right individually to seek to enforce or to enforce this Guaranty or to realize upon the security to be granted by the Security Documents, it being understood and agreed that such rights and remedies may be exercised by the Administrative Agent or the Collateral Agent or the holders of at least a majority of the outstanding Other Obligations, as the case may be, for the benefit of the Secured Creditors upon the terms of this Guaranty and the Security Documents. The Secured Creditors further agree that this Guaranty may not be enforced against any director, officer, employee, or stockholder of any Guarantor (except to the extent such stockholder is also a Guarantor hereunder). 17. In order to induce the Banks to make Loans and issue Letters of Credit pursuant to the Credit Agreement, and in order to induce the Other Creditors to execute, deliver and perform the Interest Rate Protection Agreements or Other Hedging Agreements, each Guarantor represents, warrants and covenants that: A. Such Guarantor (i) is a duly organized and validly existing corporation in good standing under the laws of the jurisdiction of its incorporation, (ii) has the corporate power and authority to own its property and assets and to transact the business in which it is engaged and presently proposes to engage and (iii) is duly qualified and is authorized to do business and is in good standing in each jurisdiction where the conduct of its business requires such qualification except for failures to be so qualified which, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect. B. Such Guarantor has the corporate power and authority to execute, deliver and perform the terms and provisions of this Guaranty and each other Credit Document to which it is a party and has taken all necessary corporate action to authorize the execution, delivery and performance by it of each such Credit Document. Such Guarantor has duly executed and delivered this Guaranty and each other Credit Document to which it is a party, and each such Credit Document constitutes the legal, valid and binding EXHIBIT G Page 7 obligation of such Guarantor enforceable in accordance with its terms, except to the extent that the enforceability thereof may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws generally affecting creditors' rights and by equitable principles (regardless of whether enforcement is sought in equity or at law). C. Neither the execution, delivery or performance by such Guarantor of this Guaranty or any other Credit Document to which it is a party, nor compliance by it with the terms and provisions hereof and thereof, (i) will contravene any provision of any applicable law, statute, rule or regulation, or any applicable order, writ, injunction or decree of any court or governmental instrumentality, (ii) will conflict with or result in any breach of any of the terms, covenants, conditions or provisions of, or constitute a default under, or result in the creation or imposition of (or the obligation to create or impose) any Lien (except pursuant to the Security Documents) upon any of the property or assets of such Guarantor or any of its Subsidiaries pursuant to the terms of any indenture, mortgage, deed of trust, loan agreement, credit agreement, or any other material agreement or other instrument to which such Guarantor or any of its Subsidiaries is a party or by which it or any of its property or assets is bound or to which it may be subject or (iii) will violate any provision of the certificate of incorporation or by-laws (or equivalent organizational documents) of such Guarantor or any of its Subsidiaries. D. No order, consent, approval, license, authorization or validation of, or filing, recording or registration with (except as have been obtained or made), or exemption by, any governmental or public body or authority, or any subdivision thereof, is required to authorize, or is required in connection with, (i) the execution, delivery and performance of this Guaranty or any other Credit Document to which such Guarantor is a party or (ii) the legality, validity, binding effect or enforceability of this Guaranty or any other Credit Document to which such Guarantor is a party. E. There are no actions, suits or proceedings (private or governmental) pending or, to the best knowledge of such Guarantor, threatened (i) with respect to any Credit Documents to which such Guarantor is a party or (ii) with respect to such Guarantor that could reasonably be expected to (a) have a Material Adverse Effect or (b) materially and adversely affect the rights or remedies of the Secured Creditors or the ability of such Guarantor to perform its respective obligations to the Secured Creditors hereunder and under the other Credit Documents to which it is a party. 18. Each Guarantor covenants and agrees that on and after the date hereof and until the termination of the Total Commitments and all Interest Rate Protection Agreements or Other Hedging Agreements and when no Note or Letter of Credit remains outstanding and all Guaranteed Obligations have been paid in full, such Guarantor shall take, or will refrain from taking, as the case may be, all actions that are necessary to be taken or not taken so that no violation of any provision, covenant or agreement contained in Section 8 or 9 of the Credit Agreement, and so that no Default or Event of Default, is caused by the actions of such Guarantor or any of its Subsidiaries. EXHIBIT G Page 8 19. The Guarantors hereby jointly and severally agree to pay all reasonable out-of-pocket costs and expenses of each Secured Creditor in connection with the enforcement of this Guaranty and any amendment, waiver or consent relating hereto (including, without limitation, the reasonable fees and disbursements of counsel (including in-house counsel) employed by any of the Secured Creditors). 20. Neither this Guaranty nor any provision hereof may be changed, waived, discharged or terminated except with the written consent of each Guarantor directly affected thereby and either (x) the Required Banks (or to the extent required by Section 13.12 of the Credit Agreement, with the written consent of each Bank) at all times prior to the time on which all Credit Document Obligations have been paid in full or (y) the holders of at least a majority of the outstanding Other Obligations at all times after the time on which all Credit Document Obligations have been paid in full; provided, that any change, waiver, modification or variance affecting the rights and benefits of a single Class (as defined below) of Secured Creditors (and not all Secured Creditors in a like or similar manner) shall require the written consent of the Requisite Creditors (as defined below) of such Class of Secured Creditors (it being understood that the addition or release of any Guarantor hereunder shall not constitute a change, waiver, discharge or termination affecting any Guarantor other than the Guarantor so added or released). For the purpose of this Guaranty the term "Class" shall mean each class of Secured Creditors, i.e., whether (x) the Bank Creditors as holders of the Credit Document Obligations or (y) the Other Creditors as the holders of the Other Obligations. For the purpose of this Guaranty, the term "Requisite Creditors" of any Class shall mean each of (x) with respect to the Credit Document Obligations, the Required Banks (or to the extent required by Section 13.12 of the Credit Agreement, each Bank) and (y) with respect to the Other Obligations, the holders of at least a majority of all obligations outstanding from time to time under the Interest Rate Protection Agreements or Other Hedging Agreements. 21. Each Guarantor acknowledges that an executed (or conformed) copy of each of the Credit Documents and Interest Rate Protection Agreements or Other Hedging Agreements has been made available to its principal executive officers and such officers are familiar with the contents thereof. 22. In addition to any rights now or hereafter granted under applicable law (including, without limitation, Section 151 of the New York Debtor and Creditor Law) and not by way of limitation of any such rights, upon the occurrence and during the continuance of an Event of Default (such term to mean and include any "Event of Default" as defined in the Credit Agreement or any payment default under any Interest Rate Protection Agreement or Other Hedging Agreement continuing after any applicable grace period), each Secured Creditor is hereby authorized at any time or from time to time, without notice to any Guarantor or to any other Person, any such notice being expressly waived, to set off and to appropriate and apply any and all deposits (general or special) and any other indebtedness at any time held or owing by such Secured Creditor to or for the credit or the account of such Guarantor but in any event excluding assets held in trust for any such Person, against and on account of the obligations and liabilities of such Guarantor to such Secured Creditor under this Guaranty, irrespective of whether or not such Secured Creditor shall have made any demand hereunder and although said obligations, liabilities, deposits or claims, or any of them, shall be contingent or unmatured. Each Secured Creditor acknowledges and agrees EXHIBIT G Page 9 that the provisions set forth in this Section 17 are subject to the sharing provisions set forth in Section 13.06 of the Credit Agreement. 23. All notices, requests, demands or other communications pursuant hereto shall be deemed to have been duly given or made when delivered to the Person to which such notice, request, demand or other communication is required or permitted to be given or made under this Guaranty, addressed to such party at (i) in the case of any Bank Creditor, as provided in the Credit Agreement, (ii) in the case of any Guarantor, at its address set forth opposite its signature below and (iii) in the case of any Other Creditor, at such address as such Other Creditor shall have specified in writing to the Guarantor; or in any case at such other address as any of the Persons listed above may hereafter notify the others in writing. 24. If claim is ever made upon any Secured Creditor for repayment or recovery of any amount or amounts received in payment or on account of any of the Guaranteed Obligations and any of the aforesaid payees repays all or part of said amount by reason of (i) any judgment, decree or order of any court or administrative body having jurisdiction over such payee or any of its property or (ii) any settlement or compromise of any such claim effected in good faith by such payee with any such claimant (including the Borrower), then and in such event each Guarantor agrees that any such judgment, decree, order, settlement or compromise shall be binding upon such Guarantor, notwithstanding any revocation hereof or other instrument evidencing any liability of the Borrower, and such Guarantor shall be and remain liable to the aforesaid payees hereunder for the amount so repaid or recovered to the same extent as if such amount had never originally been received by any such payee. 25. (A) THIS GUARANTY AND THE RIGHTS AND OBLIGATIONS OF THE SECURED CREDITORS AND OF THE UNDERSIGNED HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK. Any legal action or proceeding with respect to this Guaranty or any other Credit Document to which any Guarantor is a party may be brought in the courts of the State of New York or of the United States of America for the Southern District of New York, and, by execution and delivery of this Guaranty, each Guarantor hereby irrevocably accepts for itself and in respect of its property, generally and unconditionally, the jurisdiction of the aforesaid courts. Each Guarantor hereby irrevocably designates, appoints and empowers Corporation Service Company with offices on the date hereof at 500 Central Avenue, Albany, New York 12206 as its designee, appointee and agent to receive, accept and acknowledge for and on its behalf, and in respect of its property, service of any and all legal process, summons, notices and documents which may be served in any such action or proceeding. If for any reason such designee, appointee and agent shall cease to be available to act as such, each Guarantor agrees to designate a new designee, appointee and agent in the State of New York on the terms and for the purposes of this provision satisfactory to the Administrative Agent. Each Guarantor further irrevocably consents to the service of process out 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 such Guarantor at its address set forth opposite its signature below, such service to become effective 30 days after such mailing. Nothing herein shall affect the right of any of the Secured Creditors to serve process in any other manner permitted by EXHIBIT G Page 10 law or to commence legal proceedings or otherwise proceed against each Guarantor in any other jurisdiction. (B) Each Guarantor hereby irrevocably waives any objection which it may now or hereafter have to the laying of venue of any of the aforesaid actions or proceedings arising out of or in connection with this Guaranty or any other Credit Document to which such Guarantor is a party brought in the courts referred to in clause (A) above and hereby further irrevocably waives and agrees not to plead or claim in any such court that such action or proceeding brought in any such court has been brought in an inconvenient forum. (C) EACH GUARANTOR AND EACH SECURED CREDITOR (BY ITS ACCEPTANCE OF THE BENEFITS OF THIS GUARANTY) HEREBY IRREVOCABLY WAIVES ALL RIGHTS TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS GUARANTY, THE OTHER CREDIT DOCUMENTS TO WHICH SUCH GUARANTOR IS A PARTY OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. 26. In the event that all of the capital stock of one or more Guarantors is sold or otherwise disposed of (except to Holdings or any of its Subsidiaries) or liquidated in compliance with the requirements of Section 9.02 of the Credit Agreement (or such sale or other disposition or liquidation has been approved in writing by the Required Banks) and the proceeds of such sale, disposition or liquidation are applied in accordance with the provisions of the Credit Agreement, to the extent applicable, such Guarantor shall be released from this Guaranty and this Guaranty shall, as to each such Guarantor or Guarantors, terminate, and have no further force or effect (it being understood and agreed that the sale of one or more Persons that own, directly or indirectly, all of the capital stock or partnership interests of any Guarantor shall be deemed to be a sale of such Guarantor for the purposes of this Section 21). 27. Each Guarantor hereby confirms that it is its intention that this Guaranty not constitute a fraudulent transfer or conveyance for purposes of the Bankruptcy Code, the Uniform Fraudulent Conveyance Act or any similar Federal or state law. To effectuate the foregoing intention, each Guarantor hereby irrevocably agrees that the Guaranteed Obligations guaranteed by such Guarantor shall be limited to such amount as will, after giving effect to such maximum amount and all other (contingent or otherwise) liabilities of such Guarantor that are relevant under such laws, and after giving effect to any rights to contribution pursuant to any agreement providing for an equitable contribution among such Guarantor and the other Guarantors, result in the Guaranteed Obligations of such Guarantor in respect of such maximum amount not constituting a fraudulent transfer or conveyance. 28. This Guaranty may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which when so executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. A set of counterparts executed by all the parties hereto shall be lodged with the Borrower and the Administrative Agent. EXHIBIT G Page 11 29. All payments made by any Guarantor hereunder will be made without setoff, counterclaim or other defense, and on the same basis as payments are made by the Borrower under Sections 4.03 and 4.04 of the Credit Agreement. 30. It is understood and agreed that any Subsidiary of the Borrower that is required to execute a counterpart of this Guaranty after the date hereof pursuant to the Credit Agreement shall automatically become a Guarantor hereunder by executing a counterpart hereof and delivering the same to the Administrative Agent. * * * EXHIBIT G Page 12 IN WITNESS WHEREOF, each Guarantor has caused this Guaranty to be executed and delivered as of the date first above written. Address: [SUBSIDIARY GUARANTOR], as a Guarantor Attention: Telephone No.: By Facsimile No.: -------------------------------- Title: Accepted and Agreed to: BANKERS TRUST COMPANY, as Administrative Agent and Collateral Agent By ----------------------------------------------------------------------------- Title: EXHIBIT H PLEDGE AGREEMENT PLEDGE AGREEMENT, dated as of March 11, 1997 (as amended, modified or supplemented from time to time, this "Agreement") made by each of the undersigned (each a "Pledgor" and, together with any other entity that becomes a party hereto pursuant to Section 23 hereof, the "Pledgors"), to BANKERS TRUST COMPANY, as Collateral Agent (the "Pledgee"), for the benefit of the Secured Creditors (as defined below). Except as otherwise defined herein, capitalized terms used herein and defined in the Credit Agreement (as defined below) shall be used herein as therein defined. W I T N E S S E T H : WHEREAS, FSC Semiconductor Corporation ("Holdings"), Fairchild Semiconductor Corporation (the "Borrower"), various lenders from time to time party thereto (the "Banks"), Bankers Trust Company, as Administrative Agent (together with any successor administrative agent, the "Administrative Agent"), Credit Suisse First Boston, as Syndication Agent (the "Syndication Agent"), and Canadian Imperial Bank of Commerce, as Documentation Agent (the "Documentation Agent"), have entered into a Credit Agreement, dated as of March 11, 1997 (the "Credit Agreement"), providing for the making of Loans and the issuance of, and participation in, Letters of Credit as contemplated therein (as used herein, the term "Credit Agreement" means the Credit Agreement described above in this paragraph, as the same may be amended, modified, extended, renewed, replaced, restated or supplemented from time to time, and including any agreement extending the maturity of, or restructuring the Indebtedness under such agreement or any successor agreements) (the Banks, the Administrative Agent, the Syndication Agent, the Documentation Agent and the Pledgee are herein called the "Bank Creditors"); WHEREAS, the Borrower may at any time and from time to time enter into one or more Interest Rate Protection Agreements or Other Hedging Agreements with one or more Banks or any affiliate thereof (each such Bank or affiliate, even if the respective Bank subsequently ceases to be a Bank under the Credit Agreement for any reason, together with such Bank's or affiliate's successors and assigns, if any, collectively, the "Other Creditors," and together with the Bank Creditors, the "Secured Creditors"); WHEREAS, pursuant to Section 14 of the Credit Agreement, Holdings has guaranteed to the Secured Creditors the payment when due of all the Guaranteed Obligations as described therein; WHEREAS, pursuant to the Subsidiaries Guaranty, each Subsidiary Guarantor has jointly and severally guaranteed to the Secured Creditors the payment when due of all Guaranteed Obligations as described therein; EXHIBIT H Page 2 WHEREAS, it is a condition to the making of Loans and the issuance of Letters of Credit under the Credit Agreement that each Pledgor shall have executed and delivered this Agreement; and WHEREAS, each Pledgor will obtain benefits from the incurrence of Loans and the issuance of Letters of Credit under the Credit Agreement and the entering into of Interest Rate Protection Agreements or Other Hedging Agreements and, accordingly, each Pledgor desires to enter into this Agreement in order to satisfy the conditions described in the preceding paragraph; NOW, THEREFORE, in consideration of the foregoing and other benefits accruing to each Pledgor, the receipt and sufficiency of which are hereby acknowledged, each Pledgor hereby makes the following representations and warranties to the Pledgee for the benefit of the Secured Creditors and hereby covenants and agrees with the Pledgee for the benefit of the Secured Creditors as follows: 1. SECURITY FOR OBLIGATIONS. This Agreement is made by each Pledgor for the benefit of the Secured Creditors to secure: (i) the full and prompt payment when due (whether at the stated maturity, by acceleration or otherwise) of all obligations and liabilities (including obligations which, but for the automatic stay under Section 362(a) of the Bankruptcy Code, would become due) of such Pledgor to the Bank Creditors, whether now existing or hereafter incurred under, arising out of, or in connection with the Credit Agreement and the other Credit Documents to which such Pledgor is a party (including without limitation (x) in the case of the Borrower, all such obligations and indebtedness of the Borrower under the Credit Agreement and (y) in the case of each other Pledgor, all such obligations and indebtedness under the Guaranty to which such Pledgor is a party) and the due performance and compliance by such Pledgor with all of the terms, conditions and agreements contained in the Credit Agreement and such other Credit Documents (all such obligations and liabilities under this clause (i), except to the extent consisting of obligations or indebtedness with respect to Interest Rate Protection Agreements or Other Hedging Agreements, being herein collectively called the "Credit Document Obligations"); (ii) the full and prompt payment when due (whether at the stated maturity, by acceleration or otherwise) of all obligations and liabilities (including obligations which, but for the automatic stay under Section 362(a) of the Bankruptcy Code, would become due) owing by such Pledgor to the Other Creditors under, or with respect to, any Interest Rate Protection Agreement or Other Hedging Agreement, whether such Interest Rate Protection Agreement or Other Hedging Agreement is now in existence or hereafter arising, and the due performance and compliance by such Pledgor with all of the terms, conditions and agreements contained therein (all such obligations and liabilities described in this clause (ii) being herein collectively called the "Other Obligations"); (iii) any and all sums advanced by the Pledgee in order to preserve the Collateral (as hereinafter defined) or preserve its security interest in the Collateral (to the extent provided for in the Credit Documents); EXHIBIT H Page 3 (iv) in the event of any proceeding for the collection or enforcement of any indebtedness, obligations, or liabilities of such Pledgor referred to in clauses (i), (ii) and (iii) above, after an Event of Default (as such term is defined in the Security Agreement) shall have occurred and be continuing, the reasonable expenses of retaking, holding, preparing for sale or lease, selling or otherwise disposing of or realizing on the Collateral, or of any exercise by the Pledgee of its rights hereunder, together with reasonable attorneys' fees and court costs; and (v) all amounts paid by any Secured Creditor as to which such Secured Creditor has the right to reimbursement under Section 11 of this Agreement. All such obligations, liabilities, sums and expenses set forth in clauses (i) through (v) of this Section 1 being herein collectively called the "Obligations," it being acknowledged and agreed that the "Obligations" shall include extensions of credit of the types described above, whether outstanding on the date of this Agreement or extended from time to time after the date of this Agreement. 2. DEFINITION OF STOCK, NOTES, SECURITIES, ETC. As used herein: (i) the term "Stock" shall mean (x) with respect to corporations incorporated under the laws of the United States or any State or territory thereof (each a "Domestic Corporation"), all of the issued and outstanding shares of capital stock of any Domestic Corporation at any time owned by each Pledgor and (y) with respect to corporations not Domestic Corporations (each a "Foreign Corporation"), all of the issued and outstanding shares of capital stock at any time owned by any Pledgor of any Foreign Corporation, provided that, subject to Section 8.15 of the Credit Agreement, such Pledgor shall not be required to pledge hereunder, and nothing herein shall be deemed to constitute a pledge hereunder of, more than 65% of the total combined voting power of all classes of capital stock of any Foreign Corporation entitled to vote; (ii) the term "Notes" shall mean all promissory notes from time to time issued to, or held by, each Pledgor; and (iii) the term "Securities" shall mean all of the Stock and Notes. Each Pledgor represents and warrants that on the date hereof (i) each Subsidiary of such Pledgor, and the direct ownership thereof, is listed in Annex A hereto; (ii) the Stock held by such Pledgor consists of the number and type of shares of the stock of the corporations as described in Annex A hereto; (iii) such Stock constitutes that percentage of the issued and outstanding capital stock of the issuing corporation as is set forth in Annex A hereto; (iv) the Notes held by such Pledgor consist of the promissory notes described in Annex B hereto where such Pledgor is listed as the Lender; (v) such Pledgor is the holder of record and sole beneficial owner of the Stock and the Notes held by such Pledgor and there exist no options or preemption rights in respect of any of such Stock; and (vi) on the date hereof, such Pledgor owns no other Securities. 3. PLEDGE OF SECURITIES, ETC. 3.1. Pledge. To secure the Obligations of such Pledgor and for the purposes set forth in Section 1 hereof, each Pledgor hereby (i) grants to the Pledgee a security interest in all of the Collateral (as defined herein) owned by such Pledgor, (ii) pledges and deposits as security with the Pledgee the Securities owned by such Pledgor on the date hereof, and delivers to the Pledgee certificates or instruments therefor, duly endorsed in blank by such Pledgor in the case of Notes and accompanied by undated stock powers duly executed in blank by such Pledgor (and accompanied by EXHIBIT H Page 4 any transfer tax stamps required in connection with the pledge of such Securities) in the case of Stock, or such other instruments of transfer as are reasonably acceptable to the Pledgee and (iii) hypothecates, mortgages, charges and sets over to the Pledgee all of such Pledgor's right, title and interest in and to such Securities (and in and to the certificates or instruments evidencing such Securities), to be held by the Pledgee upon the terms and conditions set forth in this Agreement. 3.2. Subsequently Acquired Securities. If any Pledgor shall acquire (by purchase, stock dividend or otherwise) any additional Securities at any time or from time to time after the date hereof, such Pledgor will promptly thereafter pledge and deposit such Securities (or certificates or instruments representing such Securities) as security with the Pledgee and deliver to the Pledgee certificates or instruments therefor, duly endorsed in blank in the case of such Notes, and accompanied by undated stock powers duly executed in blank by such Pledgor (and accompanied by any transfer tax stamps required in connection with the pledge of such Securities) in the case of such Stock, or such other instruments of transfer as are reasonably acceptable to the Pledgee, and will promptly thereafter deliver to the Pledgee a certificate executed by a principal executive officer of such Pledgor describing such Securities and certifying that the same has been duly pledged with the Pledgee hereunder. Subject to Section 8.15 of the Credit Agreement, no Pledgor shall be required at any time to pledge hereunder any Stock which is more than 65% of the total combined voting power of all Classes of Capital Stock of any Foreign Subsidiary entitled to vote. 3.3. Uncertificated Securities. Notwithstanding anything to the contrary contained in Sections 3.1 and 3.2 hereof, if any Securities (whether now owned or hereafter acquired) are uncertificated securities, the relevant Pledgor shall promptly notify the Pledgee thereof, and shall promptly take all actions required to perfect the security interest of the Pledgee under applicable law (including, in any event, under Sections 8-313 and 8-321 of the New York Uniform Commercial Code, if applicable). Each Pledgor further agrees to take such actions as the Pledgee deems reasonably necessary or desirable to effect the foregoing and to permit the Pledgee to exercise any of its rights and remedies hereunder. 3.4. Definitions of Pledged Stock; Pledged Notes; Pledged Securities and Collateral. All Stock at any time pledged or required to be pledged hereunder is hereinafter called the "Pledged Stock;" all Notes at any time pledged or required to be pledged hereunder are hereinafter called the "Pledged Notes;" all Pledged Stock and Pledged Notes together are called the "Pledged Securities;" and the Pledged Securities, together with all proceeds thereof, including any securities and moneys received and at the time held by the Pledgee hereunder, are hereinafter called the "Collateral." 4. APPOINTMENT OF SUB-AGENTS; ENDORSEMENTS, ETC. The Pledgee shall have the right to appoint one or more sub-agents for the purpose of retaining physical possession of the Pledged Securities, which may be held (in the discretion of the Pledgee) in the name of the relevant Pledgor, endorsed or assigned in blank or in favor of the Pledgee or any nominee or nominees of the Pledgee or a sub-agent appointed by the Pledgee. 5. VOTING, ETC., WHILE NO EVENT OF DEFAULT. Unless and until there shall have occurred and be continuing an Event of Default, each Pledgor shall be entitled to exercise any and all voting and other consensual rights pertaining to the Pledged Securities owned by it, and to give consents, waivers or ratifications in respect thereof, provided, that no vote shall be cast or EXHIBIT H Page 5 any consent, waiver or ratification given or any action taken which would violate or be inconsistent with any of the terms of this Agreement, the Credit Agreement, any other Credit Document or any Interest Rate Protection Agreement or Other Hedging Agreement (collectively, the "Secured Debt Agreements"). All such rights of each Pledgor to vote and to give consents, waivers and ratifications shall cease in case an Event of Default has occurred and is continuing, and Section 7 hereof shall become applicable. 6. DIVIDENDS AND OTHER DISTRIBUTIONS. Unless and until there shall have occurred and be continuing an Event of Default, all cash dividends and distributions payable in respect of the Pledged Stock and all payments in respect of the Pledged Notes shall be paid to the respective Pledgor. The Pledgee shall be entitled to receive directly, and to retain as part of the Collateral: (i) all other or additional stock or other securities (other than cash) paid or distributed by way of dividend or otherwise, as the case may be, in respect of the Pledged Stock; (ii) all other or additional stock or other securities paid or distributed in respect of the Pledged Stock by way of stock-split, spin-off, split-up, reclassification, combination of shares or similar rearrangement; and (iii) all other or additional stock or other securities or property which may be paid in respect of the Collateral by reason of any consolidation, merger, exchange of stock, conveyance of assets, liquidation or similar corporate reorganization. Nothing contained in this Section 6 shall limit or restrict in any way the Pledgee's right to receive proceeds of the Collateral in any form in accordance with Section 3 of this Agreement. All dividends, distributions or other payments which are received by any Pledgor contrary to the provisions of this Section 6 and Section 7 hereof shall be received in trust for the benefit of the Pledgee, shall be segregated from other property or funds of such Pledgor and shall be promptly paid over to the Pledgee as Collateral in the same form as so received (with any necessary endorsement). 7. REMEDIES IN CASE OF EVENTS OF DEFAULT. If there shall have occurred and be continuing an Event of Default, then and in every such case, the Pledgee shall be entitled to (i) exercise all of the rights, powers and remedies (whether vested in it by this Agreement, any other Secured Debt Agreement or by law) for the protection and enforcement of its rights in respect of the Collateral, (ii) exercise all the rights and remedies of a secured party under the Uniform Commercial Code and (iii) without limitation, exercise the following rights, which each Pledgor hereby agrees to be commercially reasonable: (a) to receive all amounts payable in respect of the Collateral otherwise payable under Section 6 hereof to the Pledgor; (b) to transfer all or any part of the Collateral into the Pledgee's name or the name of its nominee or nominees; EXHIBIT H Page 6 (c) to accelerate any Pledged Note which may be accelerated in accordance with its terms, and take any other action to collect upon any Pledged Note (including, without limitation, to make any demand for payment thereon); (d) to vote all or any part of the Pledged Stock (whether or not transferred into the name of the Pledgee) and give all consents, waivers and ratifications in respect of the Collateral and otherwise act with respect thereto as though it were the outright owner thereof (each Pledgor hereby irrevocably constituting and appointing the Pledgee the proxy and attorney-in-fact of such Pledgor, with full power of substitution to do so); and (e) at any time and from time to time to sell, assign and deliver, or grant options to purchase, all or any part of the Collateral, or any interest therein, at any public or private sale, without demand of performance, advertisement or notice of intention to sell or of the time or place of sale or adjournment thereof or to redeem or otherwise (all of which are hereby waived by each Pledgor), for cash, on credit or for other property, for immediate or future delivery without any assumption of credit risk, and for such price or prices and on such terms as the Pledgee in its absolute discretion may determine, provided that at least 10 days' prior notice of the time and place of any such sale shall be given to such Pledgor. The Pledgee shall not be obligated to make any such sale of Collateral regardless of whether any such notice of sale has theretofore been given. Each Pledgor hereby waives and releases to the fullest extent permitted by law any right or equity of redemption with respect to the Collateral, whether before or after sale hereunder, and all rights, if any, of marshalling the Collateral and any other security for the Obligations or otherwise. At any such sale, unless prohibited by applicable law, the Pledgee on behalf of the Secured Creditors may bid for and purchase all or any part of the Collateral so sold free from any such right or equity of redemption. Neither the Pledgee nor any other Secured Creditor shall be liable for failure to collect or realize upon any or all of the Collateral or for any delay in so doing nor shall any of them be under any obligation to take any action whatsoever with regard thereto. 8. REMEDIES, ETC., CUMULATIVE. Each and every right, power and remedy of the Pledgee provided for in this Agreement or any other Secured Debt Agreement, or now or hereafter existing at law or in equity or by statute shall be cumulative and concurrent and shall be in addition to every other such right, power or remedy. The exercise or beginning of the exercise by the Pledgee or any other Secured Creditor of any one or more of the rights, powers or remedies provided for in this Agreement or any other Secured Debt Agreement or now or hereafter existing at law or in equity or by statute or otherwise shall not preclude the simultaneous or later exercise by the Pledgee or any other Secured Creditor of all such other rights, powers or remedies, and no failure or delay on the part of the Pledgee or any other Secured Creditor to exercise any such right, power or remedy shall operate as a waiver thereof. No notice to or demand on any Pledgor in any case shall entitle it to any other or further notice or demand in similar or other circumstances or constitute a waiver of any of the rights of the Pledgee or any other Secured Creditor to any other or further action in any circumstances without notice or demand. The Secured Creditors agree that this Agreement may be enforced only by the action of the Pledgee acting upon the instructions of the Required Banks (or, after the date on which all Credit Document Obligations have been paid in full, the holders of at least the majority of the outstanding Other Obligations) and that no other EXHIBIT H Page 7 Secured Creditor shall have any right individually to seek to enforce or to enforce this Agreement or to realize upon the security to be granted hereby, it being understood and agreed that such rights and remedies may be exercised by the Pledgee or the holders of at least a majority of the outstanding Other Obligations, as the case may be, for the benefit of the Secured Creditors upon the terms of this Agreement. 9. APPLICATION OF PROCEEDS. (a) All moneys collected by the Pledgee upon any sale or other disposition of the Collateral, together with all other moneys received by the Pledgee hereunder, shall be applied to the payment of the Obligations in the manner provided in Section 7.4 of the Security Agreement. (b) It is understood and agreed that the Pledgors shall remain jointly and severally liable to the extent of any deficiency between the amount of the proceeds of the Collateral hereunder and the aggregate amount of the Obligations. 10. PURCHASERS OF COLLATERAL. Upon any sale of the Collateral by the Pledgee hereunder (whether by virtue of the power of sale herein granted, pursuant to judicial process or otherwise), the receipt of the Pledgee or the officer making the sale shall be a sufficient discharge to the purchaser or purchasers of the Collateral so sold, and such purchaser or purchasers shall not be obligated to see to the application of any part of the purchase money paid over to the Pledgee or such officer or be answerable in any way for the misapplication or nonapplication thereof. 11. INDEMNITY. Each Pledgor jointly and severally agrees (i) to indemnify and hold harmless the Pledgee in such capacity and each other Secured Creditor and their respective successors, assigns, employees, agents and servants (individually an "Indemnitee," and collectively the "Indemnitees") from and against any and all claims, demands, losses, judgments and liabilities (including liabilities for penalties) of whatsoever kind or nature, and (ii) to reimburse each Indemnitee for all costs and expenses, including reasonable attorneys' fees, in each case growing out of or resulting from this Agreement or the exercise by any Indemnitee of any right or remedy granted to it hereunder or under any other Secured Debt Agreement (but excluding any claims, demands, losses, judgments and liabilities or expenses to the extent incurred by reason of gross negligence or willful misconduct of such Indemnitee). In no event shall the Pledgee be liable, in the absence of gross negligence or willful misconduct on its part, for any matter or thing in connection with this Agreement other than to account for moneys actually received by it in accordance with the terms hereof. If and to the extent that the obligations of any Pledgor under this Section 11 are unenforceable for any reason, such Pledgor hereby agrees to make the maximum contribution to the payment and satisfaction of such obligations which is permissible under applicable law. 12. FURTHER ASSURANCES; POWER-OF-ATTORNEY. (a) Each Pledgor agrees that it will join with the Pledgee in executing and, at such Pledgor's own expense, file and refile under the Uniform Commercial Code or other applicable law such financing statements, continuation statements and other documents in such offices as the Pledgee may deem necessary and wherever required by law in order to perfect and preserve the Pledgee's security interest in the Collateral and hereby authorizes the Pledgee to file financing statements and amendments thereto relative to all or any part of the Collateral without the signature of such Pledgor where permitted EXHIBIT H Page 8 by law, and agrees to do such further acts and things and to execute and deliver to the Pledgee such additional conveyances, assignments, agreements and instruments as the Pledgee may reasonably require or deem necessary to carry into effect the purposes of this Agreement or to further assure and confirm unto the Pledgee its rights, powers and remedies hereunder. (b) Each Pledgor hereby appoints the Pledgee such Pledgor's attorney-in-fact, with full authority in the place and stead of such Pledgor and in the name of such Pledgor or otherwise, from time to time after the occurrence and during the continuance of an Event of Default, in the Pledgee's discretion to take any action and to execute any instrument which the Pledgee may deem necessary or advisable to accomplish the purposes of this Agreement. 13. THE PLEDGEE AS AGENT. The Pledgee will hold in accordance with this Agreement all items of the Collateral at any time received under this Agreement. It is expressly understood and agreed by each Secured Creditor that by accepting the benefits of this Agreement each such Secured Creditor acknowledges and agrees that the obligations of the Pledgee as holder of the Collateral and interests therein and with respect to the disposition thereof, and otherwise under this Agreement, are only those expressly set forth in this Agreement. The Pledgee shall act hereunder on the terms and conditions set forth herein and in Section 12 of the Credit Agreement. 14. TRANSFER BY THE PLEDGORS. No Pledgor will sell or otherwise dispose of, grant any option with respect to, or mortgage, pledge or otherwise encumber any of the Collateral or any interest therein (except as may be permitted in accordance with the terms of the Credit Agreement). 15. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE PLEDGORS. Each Pledgor represents, warrants and covenants that (i) it is the legal, record and beneficial owner of, and has good and marketable title to, all Pledged Securities pledged by it hereunder, subject to no Lien (except the Lien created by this Agreement and other Permitted Liens); (ii) it has full corporate power, authority and legal right to pledge all the Pledged Securities pledged by it pursuant to this Agreement; (iii) this Agreement has been duly authorized, executed and delivered by such Pledgor and constitutes a legal, valid and binding obligation of such Pledgor enforceable in accordance with its terms, except to the extent that the enforceability thereof may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws generally affecting creditors' rights and by equitable principles (regardless of whether enforcement is sought in equity or at law); (iv) no consent of any other party (including, without limitation, any stockholder or creditor of such Pledgor or any of its Subsidiaries) and no consent, license, permit, approval or authorization of, exemption by, notice or report to, or registration, filing or declaration with (except as have been obtained or made), any governmental authority is required to be obtained by such Pledgor in connection with the execution, delivery or performance of this Agreement, the validity or enforceability of this Agreement, the perfection or enforceability of the Pledgee's security interest in the Collateral or except for compliance with or as may be required by applicable securities laws, the exercise by the Pledgee of any of its rights or remedies provided herein; (v) the execution, delivery and performance of this Agreement by such Pledgor will not violate any provision of any applicable law or regulation or of any order, judgment, writ, award or decree of any court, arbitrator or governmental authority, domestic or foreign, applicable to such Pledgor, or of the certificate of incorporation or by-laws (or equivalent organizational documents) of such Pledgor or EXHIBIT H Page 9 of any securities issued by such Pledgor or any of its Subsidiaries, or of any mortgage, indenture, lease, deed of trust, loan agreement, credit agreement or other material agreement, contract, or instrument to which such Pledgor or any of its Subsidiaries is a party or which purports to be binding upon such Pledgor or any of its Subsidiaries or upon any of their respective assets and will not result in the creation or imposition of (or the obligation to create or impose) any lien or encumbrance on any of the assets of such Pledgor or any of its Subsidiaries except as contemplated by this Agreement; (vi) all the shares of Stock have been duly and validly issued, are fully paid and non-assessable and are subject to no options to purchase or similar rights; (vii) each of the Pledged Notes constitutes, or when executed by the obligor thereof will constitute, the legal, valid and binding obligation of such obligor, enforceable in accordance with its terms, except to the extent that the enforceability thereof may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws generally affecting creditors' rights and by equitable principles (regardless of whether enforcement is sought in equity or at law); and (viii) the pledge, assignment and delivery to the Pledgee of the Securities (other than uncertificated securities) pursuant to this Agreement creates a valid and perfected first priority Lien in the Securities, and the proceeds thereof, subject to no other Lien or to any agreement purporting to grant to any third party a Lien on the property or assets of the Pledgor which would include the Securities. Each Pledgor covenants and agrees that it will defend the Pledgee's right, title and security interest in and to the Securities and the proceeds thereof against the claims and demands of all persons whomsoever in accordance with the Credit Documents; and such Pledgor covenants and agrees that it will have like title to and right to pledge any other property at any time hereafter pledged to the Pledgee as Collateral hereunder and will likewise defend the right thereto and security interest therein of the Pledgee and the Secured Creditors. 16. PLEDGORS' OBLIGATIONS ABSOLUTE, ETC. The obligations of each Pledgor under this Agreement shall be absolute and unconditional and shall remain in full force and effect without regard to, and shall not be released, suspended, discharged, terminated or otherwise affected by, any circumstance or occurrence whatsoever, including, without limitation: (i) any renewal, extension, amendment or modification of or addition or supplement to or deletion from any Secured Debt Agreement or any other instrument or agreement referred to therein, or any assignment or transfer of any thereof; (ii) any waiver, consent, extension, indulgence or other action or inaction under or in respect of any such agreement or instrument including, without limitation, this Agreement; (iii) any furnishing of any additional security to the Pledgee or its assignee or any acceptance thereof or any release of any security by the Pledgee or its assignee; (iv) any limitation on any party's liability or obligations under any such instrument or agreement or any invalidity or unenforceability, in whole or in part, of any such instrument or agreement or any term thereof; or (v) any bankruptcy, insolvency, reorganization, composition, adjustment, dissolution, liquidation or other like proceeding relating to any Pledgor or any Subsidiary of any Pledgor, or any action taken with respect to this Agreement by any trustee or receiver, or by any court, in any such proceeding, whether or not such Pledgor shall have notice or knowledge of any of the foregoing. 17. REGISTRATION, ETC. (a) If there shall have occurred and be continuing an Event of Default then, and in every such case, upon receipt by any Pledgor from the Pledgee of a written request or requests that such Pledgor cause any registration, qualification or compliance under any Federal or state securities law or laws to be effected with respect to all or any part of the Pledged Stock, such Pledgor as soon as practicable and at its expense will cause such registration EXHIBIT H Page 10 to be effected (and be kept effective) and will cause such qualification and compliance to be declared effected (and be kept effective) as may be so requested and as would permit or facilitate the sale and distribution of such Pledged Stock, including, without limitation, registration under the Securities Act of 1933, as then in effect (or any similar statute then in effect), appropriate qualifications under applicable blue sky or other state securities laws and appropriate compliance with any other government requirements, provided, that the Pledgee shall furnish to such Pledgor such information regarding the Pledgee as such Pledgor may reasonably request in writing and as shall be required in connection with any such registration, qualification or compliance. Such Pledgor will cause the Pledgee to be kept advised in writing as to the progress of each such registration, qualification or compliance and as to the completion thereof, will furnish to the Pledgee such number of prospectuses, offering circulars or other documents incident thereto as the Pledgee from time to time may reasonably request, and will indemnify the Pledgee, each other Secured Creditor and all others participating in the distribution of such Pledged Stock against all claims, losses, damages and liabilities caused by any untrue statement (or alleged untrue statement) of a material fact contained therein (or in any related registration statement, notification or the like) or by any omission (or alleged omission) to state therein (or in any related registration statement, notification or the like) a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as the same may have been caused by an untrue statement or omission based upon information furnished in writing to such Pledgor by the Pledgee or such other Secured Creditor expressly for use therein. (b) If at any time when the Pledgee shall determine to exercise its right to sell all or any part of the Pledged Securities pursuant to Section 7 hereof, and such Pledged Securities or the part thereof to be sold shall not, for any reason whatsoever, be effectively registered under the Securities Act of 1933, as then in effect, the Pledgee may, in its sole and absolute discretion, sell such Pledged Securities or part thereof by private sale in such manner and under such circumstances as the Pledgee may deem necessary or advisable in order that such sale may legally be effected without such registration. Without limiting the generality of the foregoing, in any such event the Pledgee, in its sole and absolute discretion (i) may proceed to make such private sale notwithstanding that a registration statement for the purpose of registering such Pledged Securities or part thereof shall have been filed under such Securities Act, (ii) may approach and negotiate with a single possible purchaser to effect such sale, and (iii) may restrict such sale to a purchaser who will represent and agree that such purchaser is purchasing for its own account, for investment, and not with a view to the distribution or sale of such Pledged Securities or part thereof. In the event of any such sale, the Pledgee shall incur no responsibility or liability for selling all or any part of the Pledged Securities at a price which the Pledgee, in its sole and absolute discretion, in good faith deems reasonable under the circumstances, notwithstanding the possibility that a substantially higher price might be realized if the sale were deferred until after registration as aforesaid. 18. TERMINATION; RELEASE. (a) After the Termination Date (as defined below), this Agreement and the security interest created hereby shall terminate (provided that all indemnities set forth herein including, without limitation, in Section 11 hereof shall survive any such termination), and the Pledgee, at the request and expense of any Pledgor, will execute and deliver to such Pledgor a proper instrument or instruments acknowledging the satisfaction and termination of this Agreement, and will duly assign, transfer and deliver to such Pledgor (without recourse and without any representation or warranty) such of the Collateral as has not theretofore been sold or EXHIBIT H Page 11 otherwise applied or released pursuant to this Agreement, together with any moneys at the time held by the Pledgee or any of its sub-agents hereunder. As used in this Agreement, "Termination Date" shall mean the date upon which the Total Commitments and all Interest Rate Protection Agreements or Other Hedging Agreements have been terminated, no Note under the Credit Agreement is outstanding (and all Loans have been repaid in full), all Letters of Credit have been terminated and all Obligations then owing have been paid in full. (b) In the event that any part of the Collateral is sold (except to Holdings or any of its Subsidiaries) in connection with a sale permitted by Section 9.02 of the Credit Agreement or otherwise released pursuant to the Credit Agreement or at the direction of the Required Banks (or all Banks if required by Section 13.12 of the Credit Agreement) and the proceeds of such sale or sales or from such release are applied in accordance with the provisions of Section 4.02 of the Credit Agreement, to the extent required to be so applied, the Pledgee, at the request and expense of any Pledgor, will duly assign, transfer and deliver to such Pledgor (without recourse and without any representation or warranty) such of the Collateral (and releases therefor) as is then being (or has been) so sold or released and has not theretofore been released pursuant to this Agreement. (c) At any time that a Pledgor desires that the Pledgee assign, transfer and deliver Collateral (and releases therefor) as provided in Section 18(a) or (b) hereof, it shall deliver to the Pledgee a certificate signed by an executive officer of such Pledgor stating that the release of the respective Collateral is permitted pursuant to such Section 18(a) or (b). (d) The Pledgee shall have no liability whatsoever to any other Secured Creditor as the result of any release of Collateral by it in accordance with this Section 18. 19. NOTICES, ETC. All notices and communications hereunder shall be sent or delivered by mail, telex, telecopy or overnight courier service and all such notices and communications shall, when mailed, telexed, telecopied or sent by overnight courier, be effective when deposited in the mails or delivered to the overnight courier, prepaid and properly addressed for delivery on such or the next Business Day, or sent by telex or telecopier, except that notices and communications to the Pledgee shall not be effective until received by the Pledgee. All notices and other communications shall be in writing and addressed as follows: (a) if to any Pledgor, at the address set forth opposite its signature below; (b) if to the Pledgee, at: Bankers Trust Company 130 Liberty Street New York, New York 10006 Telephone No.: (212) 250-4886 Telecopier No.: (212) 250-7218 Attention: Anthony Logrippo EXHIBIT H Page 12 (c) if to any Bank Creditor, either (x) to the Administrative Agent, at the address of the Administrative Agent specified in the Credit Agreement or (y) at such address as such Bank Creditor shall have specified in the Credit Agreement; (d) if to any Other Creditor, at such address as such Other Creditor shall have specified in writing to the Pledgors and the Pledgee; or at such other address as shall have been furnished in writing by any Person described above to the party required to give notice hereunder. 20. WAIVER; AMENDMENT. None of the terms and conditions of this Agreement may be changed, waived, modified or varied in any manner whatsoever unless in writing duly signed by each Pledgor directly affected thereby and the Pledgee (with the written consent of either (x) the Required Banks (or all of the Banks, to the extent required by Section 13.12 of the Credit Agreement) at all times prior to the time on which all Credit Document Obligations have been paid in full or (y) the holders of at least a majority of the outstanding Other Obligations at all times after the time on which all Credit Document Obligations have been paid in full); provided, that any change, waiver, modification or variance affecting the rights and benefits of a single Class (as defined below) of Secured Creditors (and not all Secured Creditors in a like or similar manner) shall also require the written consent of the Requisite Creditors (as defined below) of such affected Class. For the purpose of this Agreement, the term "Class" shall mean each class of Secured Creditors, i.e., whether (i) the Bank Creditors as holders of the Credit Document Obligations or (ii) the Other Creditors as the holders of the Other Obligations. For the purpose of this Agreement, the term "Requisite Creditors" of any Class shall mean each of (i) with respect to the Credit Document Obligations, the Required Banks and (ii) with respect to the Other Obligations, the holders of 51% of all obligations outstanding from time to time under the Interest Rate Protection Agreements or Other Hedging Agreements. 21. MISCELLANEOUS. This Agreement shall be binding upon the parties hereto and their respective successors and assigns and shall inure to the benefit of and be enforceable by each of the parties hereto and its successors and assigns. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK. The headings in this Agreement are for purposes of reference only and shall not limit or define the meaning hereof. This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which shall constitute one instrument. In the event that any provision of this Agreement shall prove to be invalid or unenforceable, such provision shall be deemed to be severable from the other provisions of this Agreement which shall remain binding on all parties hereto. 22. RECOURSE. This Agreement is made with full recourse to the Pledgors and pursuant to and upon all the representations, warranties, covenants and agreements on the part of the Pledgors contained herein and in the other Secured Debt Agreements and otherwise in writing in connection herewith or therewith. 23. ADDITIONAL PLEDGORS. It is understood and agreed that no Domestic Subsidiaries of the Borrower exist on the date hereof. Any such Subsidiary established EXHIBIT H Page 13 or created after the date hereof and that is required to execute a counterpart of this Agreement pursuant to the Credit Agreement shall automatically become a Pledgor hereunder by executing a counterpart hereof and delivering the same to the Pledgee. * * * EXHIBIT H Page 14 IN WITNESS WHEREOF, each Pledgor and the Pledgee have caused this Agreement to be executed by their duly elected officers duly authorized as of the date first above written. Addresses: 333 Western Avenue FSC SEMICONDUCTOR CORPORATION, South Portland, ME 04106 as a Pledgor Telephone No.: (207) 775-8755 Telecopier No.: (207) 761-6020 Attention: Dan Boxer By --------------------------------- Title: 333 Western Avenue FAIRCHILD SEMICONDUCTOR South Portland, ME 04106 CORPORATION, Telephone No.: (207) 775-8755 as a Pledgor Telecopier No.: (207) 761-6020 Attention: Dan Boxer By --------------------------------- Title: 130 Liberty Street BANKERS TRUST COMPANY, New York, New York 10006 as Pledgee Telephone No.: (212) 250-4886 Facsimile No.: (212) 250-7218 Attention: Anthony Logrippo By --------------------------------- Title: ANNEX A to Pledge Agreement LIST OF STOCK I. FSC Semiconductor Corporation Percentage of Outstanding Shares Name of Issuing Number of of Corporation Type of Shares Shares Capital Stock - ----------- -------------- ------ ------------- Fairchild Semiconductor Common par value 100 100% Corporation $.01 per share II. Fairchild Semiconductor Corporation Percentage of Outstanding Shares Name of Issuing Number of of Corporation Type of Shares Shares Capital Stock - ----------- -------------- ------ ------------- ANNEX B to Pledge Agreement LIST OF NOTES I. FSC Semiconductor Corporation Principal Amount Maturity Date Obligor (if any) (if any) - ------- -------- -------- II. Fairchild Semiconductor Corporation Principal Amount Maturity Date Obligor (if any) (if any) - ------- -------- -------- EXHIBIT I ================================================================================ SECURITY AGREEMENT among FSC SEMICONDUCTOR CORPORATION, FAIRCHILD SEMICONDUCTOR CORPORATION, CERTAIN SUBSIDIARIES OF FAIRCHILD SEMICONDUCTOR CORPORATION, and BANKERS TRUST COMPANY, as Collateral Agent ================================================================================ Dated as of March 11, 1997 ================================================================================ TABLE OF CONTENTS ARTICLE I SECURITY INTERESTS...................................... 2 1.1. Grant of Security Interests................................. 2 1.2. Power of Attorney........................................... 3 ARTICLE II GENERAL REPRESENTATIONS, WARRANTIES AND COVENANTS............................................. 3 2.1. Necessary Filings........................................... 3 2.2. No Liens.................................................... 4 2.3. Other Financing Statements.................................. 4 2.4. Chief Executive Office; Records............................. 4 2.5. Location of Inventory and Equipment......................... 5 2.6. Recourse.................................................... 5 2.7. Trade Names; Change of Name................................. 6 ARTICLE III SPECIAL PROVISIONS CONCERNING RECEIVABLES; CONTRACT RIGHTS; INSTRUMENTS.......................... 6 3.1. Additional Representations and Warranties................... 6 3.2. Maintenance of Records...................................... 7 3.3. Direction to Account Debtors; Contracting Parties; etc...... 7 3.4. Modification of Terms; etc.................................. 8 3.5. Collection.................................................. 8 3.6. Instruments................................................. 8 3.7. Assignors Remain Liable Under Receivables................... 9 3.8. Assignors Remain Liable Under Contracts..................... 9 3.9. Further Actions............................................. 9 ARTICLE IV SPECIAL PROVISIONS CONCERNING TRADEMARKS................ 10 4.1. Additional Representations and Warranties................... 10 4.2. Licenses and Assignments.................................... 10 4.3. Infringements............................................... 10 4.4. Preservation of Marks....................................... 11 4.5. Maintenance of Registration................................. 11 4.6. Future Registered Marks..................................... 11 4.7. Remedies.................................................... 11 ARTICLE V SPECIAL PROVISIONS CONCERNING PATENTS, COPYRIGHTS AND TRADE SECRETS.......................... 12 5.1. Additional Representations and Warranties................... 12 5.2. Licenses and Assignments.................................... 12 5.3. Infringements............................................... 12 5.4. Maintenance of Patents or Copyrights........................ 13 5.5. Prosecution of Patent or Copyright Application.............. 13 (i) 5.6. Other Patents or Copyrights................................. 13 5.7. Remedies.................................................... 13 ARTICLE VI PROVISIONS CONCERNING ALL COLLATERAL.................... 14 6.1. Protection of Collateral Agent's Security................... 14 6.2. Warehouse Receipts Non-negotiable........................... 14 6.3. Further Actions............................................. 14 6.4. Financing Statements........................................ 15 ARTICLE VII REMEDIES UPON OCCURRENCE OF EVENT OF DEFAULT............ 15 7.1. Remedies; Obtaining the Collateral Upon Default............. 15 7.2. Remedies; Disposition of the Collateral..................... 17 7.3. Waiver of Claims............................................ 17 7.4. Application of Proceeds..................................... 18 7.5. Remedies Cumulative......................................... 21 7.6. Discontinuance of Proceedings............................... 21 ARTICLE VIII INDEMNITY............................................... 22 8.1. Indemnity................................................... 22 8.2. Indemnity Obligations Secured by Collateral; Survival....... 23 ARTICLE IX DEFINITIONS............................................. 23 ARTICLE X MISCELLANEOUS........................................... 28 10.1. Notices.................................................... 28 10.2. Waiver; Amendment.......................................... 29 10.3. Obligations Absolute....................................... 29 10.4. Successors and Assigns..................................... 30 10.5. Headings Descriptive....................................... 30 10.6. Governing Law.............................................. 30 10.7. Assignor's Duties.......................................... 30 10.8. Termination; Release....................................... 31 10.9. Counterparts............................................... 32 10.10. Severability.............................................. 32 10.11. The Collateral Agent...................................... 32 10.12. Benefit of Agreement...................................... 32 10.13. Additional Assignors...................................... 32 ANNEX A Schedule of Chief Executive Offices and Other Record Locations ANNEX B Schedule of Inventory and Equipment Locations ANNEX C Schedule of Trade and Fictitious Names ANNEX D Schedule of Marks ANNEX E Schedule of Patents and Applications ANNEX F Schedule of Copyrights and Applications (ii) ANNEX G Assignment of Security Interest in United States Trademarks and Patents ANNEX H Assignment of Security Interest in United States Copyrights (iii) EXHIBIT I SECURITY AGREEMENT SECURITY AGREEMENT, dated as of March 11, 1997, among each of the undersigned (each an "Assignor" and, together with any other entity that becomes a party hereto pursuant to Section 10.13 hereof, the "Assignors") and Bankers Trust Company, as Collateral Agent (the "Collateral Agent"), for the benefit of the Secured Creditors (as defined below). Except as otherwise defined herein, capitalized terms used herein and defined in the Credit Agreement (as defined below) shall be used herein as therein defined. W I T N E S S E T H : WHEREAS, FSC Semiconductor Corporation ("Holdings"), Fairchild Semiconductor Corporation (the "Borrower"), various lenders from time to time party thereto (the "Banks"), Bankers Trust Company, as Administrative Agent (together with any successor administrative agent, the "Administrative Agent"), Credit Suisse First Boston, as Syndication Agent (the "Syndication Agent") and Canadian Imperial Bank of Commerce, as Documentation Agent (the "Documentation Agent") have entered into a Credit Agreement, dated as of the date hereof (the "Credit Agreement"), providing for the making of Loans and the issuance of, and participation in, Letters of Credit, as contemplated therein (as used herein, the term "Credit Agreement" means the Credit Agreement described above in this paragraph as the same may be amended, modified, extended, renewed, replaced, restated or supplemented from time to time, and including any agreement extending the maturity of, or restructuring the Indebtedness under such agreement or any successor agreement) (the Banks, the Administrative Agent, the Syndication Agent, the Documentation Agent and the Collateral Agent are herein called the "Bank Creditors"); WHEREAS, the Borrower may at any time and from time to time enter into one or more Interest Rate Protection Agreements or Other Hedging Agreements with one or more Banks or any affiliate thereof (each such Bank or affiliate, even if the respective Bank subsequently ceases to be a Bank under the Credit Agreement for any reason, together with such Bank's or affiliate's successors and assigns, if any, collectively, the "Other Creditors," and together with the Bank Creditors, the "Secured Creditors"); WHEREAS, pursuant to Section 14 of the Credit Agreement, Holdings has guaranteed to the Secured Creditors the payment when due of all Guaranteed Obligations as described therein; WHEREAS, pursuant to the Subsidiaries Guaranty, each Subsidiary Guarantor has jointly and severally guaranteed to the Secured Creditors the payment when due of all Guaranteed Obligations as described therein; EXHIBIT I Page 3 WHEREAS, it is a condition precedent to the making of Loans and the issuance of Letters of Credit under the Credit Agreement that each Assignor shall have executed and delivered this Agreement; and WHEREAS, each Assignor will obtain benefits from the incurrence of Loans and the issuance of Letters of Credit under the Credit Agreement and the entering into of Interest Rate Protection Agreements or Other Hedging Agreements and, accordingly, each Assignor desires to execute this Agreement to satisfy the conditions described in the preceding paragraph; NOW, THEREFORE, in consideration of the foregoing and other benefits accruing to each Assignor, the receipt and sufficiency of which are hereby acknowledged, each Assignor hereby makes the following representations and warranties to the Collateral Agent for the benefit of the Secured Creditors and hereby covenants and agrees with the Collateral Agent for the benefit of the Secured Creditors as follows: ARTICLE 31. SECURITY INTERESTS A. Grant of Security Interests. 1. As security for the prompt and complete payment and performance when due of all of its Obligations, each Assignor does hereby assign and transfer unto the Collateral Agent, and does hereby pledge and grant to the Collateral Agent for the benefit of the Secured Creditors, a continuing security interest of first priority (subject only to Permitted Liens existing on the date hereof or otherwise having priority under applicable law) in all of the right, title and interest of such Assignor in, to and under all of the following, whether now existing or hereafter from time to time acquired: (i) each and every Receivable, (ii) all Contracts, together with all Contract Rights arising thereunder, (iii) all Inventory, (iv) all Equipment, (v) all Marks, together with the registrations and right to all renewals thereof, and the goodwill of the business of such Assignor symbolized by the Marks, (vi) all Patents and Copyrights, and all reissues, renewals or extensions thereof, (vii) all computer programs of such Assignor and all intellectual property rights therein and all other proprietary information of such Assignor, including, but not limited to, trade secrets, (viii) all other Goods, General Intangibles, Chattel Paper, Documents, Instruments and other assets of such Assignor, (ix) the Cash Collateral Account and all moneys, securities and Instruments deposited or required to be deposited in such Cash Collateral Account and (x) all Proceeds and products of any and all of the foregoing (all of the above, collectively, the "Collateral"). 2. The security interest of the Collateral Agent under this Agreement extends to all Collateral of the kind which is the subject of this Agreement which any Assignor may acquire at any time during the continuation of this Agreement. EXHIBIT I Page 4 B. Power of Attorney. Each Assignor hereby constitutes and appoints the Collateral Agent its true and lawful attorney, irrevocably, with full power after the occurrence of and during the continuance of an Event of Default (in the name of such Assignor or otherwise) to act, require, demand, receive, compound and give acquittance for any and all moneys and claims for moneys due or to become due to such Assignor under or arising out of the Collateral, to endorse any checks or other instruments or orders in connection therewith and to file any claims or take any action or institute any proceedings which the Collateral Agent may deem to be necessary or advisable to protect the interests of the Secured Creditors, which appointment as attorney is coupled with an interest. ARTICLE 32. GENERAL REPRESENTATIONS, WARRANTIES AND COVENANTS Each Assignor represents, warrants and covenants, which representations, warranties and covenants shall survive execution and delivery of this Agreement, as follows: A. Necessary Filings. All filings, registrations and recordings in any jurisdiction in the U.S. (other than filings or recordings in respect of vehicles for which a filing under the UCC will fail to perfect a security interest) necessary or appropriate to create, preserve and perfect the security interest granted by such Assignor to the Collateral Agent hereby in respect of the Collateral have been accomplished or will be accomplished within 10 Business Days from the date hereof and upon such filings, registrations or recordations, the security interest granted to the Collateral Agent pursuant to this Agreement in and to the Collateral creates a perfected security interest therein prior to the rights of all other Persons therein (subject only to Permitted Liens existing on the date hereof or otherwise having priority under applicable law) and is entitled to all the rights, priorities and benefits afforded by the Uniform Commercial Code or other relevant law as enacted in any relevant jurisdiction in the United States to perfected security interests, in each case to the extent that the Collateral consists of the type of property in which a security interest may be perfected by filing a financing statement under the Uniform Commercial Code as enacted in any relevant jurisdiction in the United States or in the United States Patent and Trademark Office or the United States Copyright Office. B. No Liens. Such Assignor is, and as to Collateral acquired by it from time to time after the date hereof such Assignor will be, the owner of, or has rights in, all Collateral free from any Lien, security interest, encumbrance or other right, title or interest of any other Person (other than Permitted Liens), and such Assignor shall defend the Collateral to the extent of its rights therein against all claims and demands of all Persons at any time claiming the same or any interest therein adverse to the Collateral Agent. C. Other Financing Statements. As of the date hereof, there is no financing statement (or similar statement or instrument of registration under the law of any jurisdiction) covering or purporting to cover any interest of any kind in the Collateral (other than in respect of Permitted Liens), and so long as the Total Commitment has not been terminated or any Letter of EXHIBIT I Page 5 Credit or Note remains outstanding or any of the Obligations remain unpaid or any Interest Rate Protection Agreement or Other Hedging Agreement remains in effect or any Obligations are owed with respect thereto, such Assignor will not execute or authorize to be filed in any public office any financing statement (or similar statement or instrument of registration under the law of any jurisdiction) or statements relating to the Collateral, except financing statements filed or to be filed in respect of and covering the security interests granted hereby by such Assignor or as permitted by the Credit Agreement. D. Chief Executive Office; Records. The chief executive office of such Assignor is located, as of the date hereof, at the address or addresses indicated on Annex A hereto for such Assignor. Such Assignor will not move its chief executive office except to such new location as such Assignor may establish in accordance with the last sentence of this Section 2.4. The originals of all documents evidencing all Receivables and Contract Rights and Trade Secret Rights of such Assignor and the only original books of account and records of such Assignor relating thereto are, and will continue to be, kept at such chief executive office, at one or more of the other record locations set forth on Annex A hereto or at such new locations as such Assignor may establish in accordance with the last sentence of this Section 2.4. All Receivables and Contract Rights of such Assignor are, and will continue to be, maintained at, and controlled and directed (including, without limitation, for general accounting purposes) from, the office locations described above or such new location established in accordance with the last sentence of this Section 2.4. No Assignor shall establish new locations for such offices until (i) it shall have given to the Collateral Agent not less than 15 days' prior written notice of its intention to do so, clearly describing such new location and providing such other information in connection therewith as the Collateral Agent may reasonably request, (ii) with respect to such new location, it shall have taken all action, reasonably satisfactory to the Collateral Agent, to maintain the security interest of the Collateral Agent in the Collateral intended to be granted hereby at all times fully perfected and in full force and effect and (iii) the Collateral Agent shall have received evidence that all other actions (including, without limitation, the payment of all filing fees and taxes, if any, payable in connection with such filings) have been taken, in order to perfect (and maintain the perfection and priority of) the security interest granted hereby. E. Location of Inventory and Equipment. All Inventory and Equipment held on the date hereof by each Assignor is located at one of the locations shown on Annex B hereto for such Assignor. Each Assignor agrees that all Inventory and Equipment now held or subsequently acquired by it shall be kept at (or shall be in transport to) any one of the locations shown on Annex B hereto, or such new location as such Assignor may establish in accordance with the last sentence of this Section 2.5. Any Assignor may establish a new location for Inventory and Equipment if (i) it shall have given to the Collateral Agent not less than 15 days' prior written notice of its intention so to do, clearly describing such new location and providing such other information in connection therewith as the Collateral Agent may request, (ii) with respect to such new location, it shall have taken all action reasonably satisfactory to the Collateral Agent to maintain the security interest of the Collateral Agent in the Collateral intended to be granted hereby at all times fully perfected and in full force and effect (provided that to the extent that inventory (including work-in-process) is temporarily in transit or held pending the completion or sale thereof at any new location, such Assignor shall not be required to take any action otherwise required by this clause (ii)) and (iii) the Collateral Agent shall have received evidence that all other actions EXHIBIT I Page 6 (including, without limitation, the payment of all filing fees and taxes, if any, payable in connection with such filings) have been taken, in order to perfect (and maintain the perfection and priority of) the security interest granted hereby. F. Recourse. This Agreement is made with full recourse to each Assignor and pursuant to and upon all the warranties, representations, covenants and agreements on the part of such Assignor contained herein, in the other Credit Documents, in the Interest Rate Protection Agreements or Other Hedging Agreements and otherwise in writing in connection herewith or therewith. G. Trade Names; Change of Name. No Assignor has or operates in any jurisdiction under, or in the preceding 12 months has had or has operated in any jurisdiction under, any trade names, fictitious names or other names except its legal name and such other trade or fictitious names as are listed on Annex C hereto for such Assignor. No Assignor shall change its legal name or assume or operate in any jurisdiction under any trade, fictitious or other name except those names listed on Annex C hereto for such Assignor and new names established in accordance with the last sentence of this Section 2.7. No Assignor shall assume or operate in any jurisdiction under any new trade, fictitious or other name until (i) it shall have given to the Collateral Agent not less than 15 days' prior written notice of its intention so to do, clearly describing such new name and the jurisdictions in which such new name shall be used and providing such other information in connection therewith as the Collateral Agent may request, (ii) with respect to such new name, it shall have taken all action to maintain the security interest of the Collateral Agent in the Collateral intended to be granted hereby at all times fully perfected and in full force and effect and (iii) the Collateral Agent shall have received evidence that all other actions (including, without limitation, the payment of all filing fees and taxes, if any, payable in connection with such filings) have been taken, in order to perfect (and maintain the perfection and priority of) the security interest granted hereby. ARTICLE 33. SPECIAL PROVISIONS CONCERNING RECEIVABLES; CONTRACT RIGHTS; INSTRUMENTS A. Additional Representations and Warranties. As of the time when each of its Receivables arises, each Assignor shall be deemed to have represented and warranted that each such Receivable, and all records, papers and documents delivered to the Collateral Agent relating thereto (if any) are what they purport to be, and that all papers and documents (if any) relating thereto (i) will represent the genuine, legal, valid and binding obligation of the account debtor evidencing indebtedness unpaid and owed by the respective account debtor arising out of the performance of labor or services or the sale or lease and delivery of the merchandise listed therein, or both, (ii) will be the only original writings evidencing and embodying such obligation of the account debtor named therein (other than copies created for general accounting purposes), (iii) will evidence true and valid obligations, and, to such Assignor's knowledge, enforceable in accordance with their respective terms, except to the extent that the enforceability thereof may be limited by applicable bankruptcy, EXHIBIT I Page 7 insolvency, reorganization, moratorium or other similar laws generally affecting creditors' rights and by equitable principles (regardless of whether enforcement is sought in equity or at law) and (iv) will be in compliance and will conform in all material respects with all applicable federal, state and local laws and applicable laws of any relevant foreign jurisdiction. B. Maintenance of Records. Each Assignor will keep and maintain at its own cost and expense accurate and complete records of its Receivables and Contracts, including, but not limited to, the originals of all documentation (including each Contract) with respect thereto, records of all payments received, all credits granted thereon, all merchandise returned and all other dealings therewith, and such Assignor will make the same available to the Collateral Agent for inspection, on such Assignor's premises and at such Assignor's own cost and expense, from time to time as the Collateral Agent may reasonably request. Upon the occurrence and during the continuance of an Event of Default, at the request of the Collateral Agent, such Assignor shall, at its own cost and expense, deliver all tangible evidence of its Receivables and Contract Rights (including, without limitation, all documents evidencing the Receivables and all Contracts) and such books and records to the Collateral Agent or to its representatives (copies of which evidence and books and records may be retained by such Assignor). Upon the occurrence and during the continuance of an Event of Default, if the Collateral Agent so directs, such Assignor shall legend, in form and manner satisfactory to the Collateral Agent, its Receivables and the Contracts, as well as books, records and documents (if any) of such Assignor evidencing or pertaining to such Receivables and Contracts with an appropriate reference to the fact that such Receivables and Contracts have been assigned to the Collateral Agent and that the Collateral Agent has a security interest therein. C. Direction to Account Debtors; Contracting Parties; etc. Upon the occurrence and during the continuance of an Event of Default, if the Collateral Agent so directs any Assignor, such Assignor agrees (x) to cause all payments on account of the Receivables and Contracts to be made directly to the Cash Collateral Account, (y) that the Collateral Agent may, at its option, directly notify the obligors with respect to any Receivables and/or under any Contracts to make payments with respect thereto as provided in the preceding clause (x) and (z) that the Collateral Agent may enforce collection of any such Receivables and Contracts and may adjust, settle or compromise the amount of payment thereof, in the same manner and to the same extent as such Assignor. Without notice to or assent by any Assignor, the Collateral Agent may apply any or all amounts then in, or thereafter deposited in, the Cash Collateral Account in the manner provided in Section 7.4 of this Agreement. The costs and expenses (including attorneys' fees) of collection, whether incurred by an Assignor or the Collateral Agent, shall be borne by the relevant Assignor. D. Modification of Terms; etc. Except in the ordinary course of business and except as may be permitted by and in accordance with the provisions of the Credit Agreement, no Assignor shall rescind or cancel any indebtedness evidenced by any Receivable or under any Contract, or modify any term thereof or make any adjustment with respect thereto, or extend or renew the same, or compromise or settle any dispute, claim, suit or legal proceeding relating thereto, or sell any Receivable or Contract, or interest therein, without the prior written consent of the Collateral Agent. Each Assignor will duly fulfill all obligations on its part to be fulfilled under or in connection with the Receivables and Contracts and will do nothing to impair the rights of the Collateral Agent in the Receivables or Contracts. EXHIBIT I Page 8 E. Collection. Each Assignor shall cause to be collected from the account debtor named in each of its Receivables or obligor under any Contract, as and when due (including, without limitation, amounts which are delinquent, such amounts to be collected in accordance with generally accepted lawful collection procedures) any and all amounts owing under or on account of such Receivable or Contract, and apply promptly upon receipt thereof all such amounts as are so collected to the outstanding balance of such Receivable or under such Contract, except that, prior to the occurrence of an Event of Default, any Assignor may allow in the ordinary course of business as adjustments to amounts owing under its Receivables and Contracts (i) an extension or renewal of the time or times of payment, or settlement for less than the total unpaid balance, which such Assignor finds appropriate in accordance with reasonable business judgment and (ii) a refund or credit due as a result of returned or damaged merchandise or improperly performed services or for other reasons which such Assignor finds appropriate in accordance with reasonable business judgment. The reasonable costs and expenses (including, without limitation, attorneys' fees) of collection, whether incurred by an Assignor or the Collateral Agent, shall be borne by the relevant Assignor. F. Instruments. If any Assignor owns or acquires any Instrument, such Assignor will within 10 Business Days notify the Collateral Agent thereof, and upon request by the Collateral Agent will promptly deliver such Instrument (other than checks payable to any Assignor and processed in the ordinary course of business) to the Collateral Agent appropriately endorsed to the order of the Collateral Agent as further security hereunder. G. Assignors Remain Liable Under Receivables. Anything herein to the contrary notwithstanding, the Assignors shall remain liable under each of the Receivables to observe and perform all of the conditions and obligations to be observed and performed by them thereunder, all in accordance with the terms of any agreement giving rise to such Receivables. Neither the Collateral Agent nor any other Secured Creditor shall have any obligation or liability under any Receivable (or any agreement giving rise thereto) by reason of or arising out of this Agreement or the receipt by the Collateral Agent or any other Secured Creditor of any payment relating to such Receivable pursuant hereto, nor shall the Collateral Agent or any other Secured Creditor be obligated in any manner to perform any of the obligations of any Assignor under or pursuant to any Receivable (or any agreement giving rise thereto), to make any payment, to make any inquiry as to the nature or the sufficiency of any payment received by them or as to the sufficiency of any performance by any party under any Receivable (or any agreement giving rise thereto), to present or file any claim, to take any action to enforce any performance or to collect the payment of any amounts which may have been assigned to them or to which they may be entitled at any time or times. H. Assignors Remain Liable Under Contracts. Anything herein to the contrary notwithstanding, the Assignors shall remain liable under each of the Contracts to observe and perform all of the conditions and obligations to be observed and performed by them thereunder, all in accordance with and pursuant to the terms and provisions of each Contract. Neither the Collateral Agent nor any other Secured Creditor shall have any obligation or liability under any Contract by reason of or arising out of this Agreement or the receipt by the Collateral Agent or any other Secured Creditor of any payment relating to such contract pursuant hereto, nor shall the EXHIBIT I Page 9 Collateral Agent or any other Secured Creditor be obligated in any manner to perform any of the obligations of any Assignor under or pursuant to any Contract, to make any payment, to make any inquiry as to the nature or the sufficiency of any performance by any party under any Contract, to present or file any claim, to take any action to enforce any performance or to collect the payment of any amounts which may have been assigned to them or to which they may be entitled at any time or times. I. Further Actions. Each Assignor will, at its own expense, make, execute, endorse, acknowledge, file and/or deliver to the Collateral Agent from time to time such vouchers, invoices, schedules, confirmatory assignments, conveyances, financing statements, transfer endorsements, powers of attorney, certificates, reports and other assurances or instruments and take such further steps relating to its Receivables, Contracts, Instruments and other property or rights covered by the security interest hereby granted, as the Collateral Agent may reasonably require. ARTICLE 34. SPECIAL PROVISIONS CONCERNING TRADEMARKS A. Additional Representations and Warranties. Each Assignor represents and warrants that it is the true and lawful owner of or otherwise has the right to use the Marks listed in Annex D hereto for such Assignor and that said listed Marks include all United States marks and applications for registrations of United States marks in the United States Patent and Trademark Office that such Assignor owns or uses in connection with its business as of the date hereof and that said registrations are valid, subsisting and have not been cancelled. Each Assignor represents and warrants that it owns, is licensed to use or otherwise has the right to use all material Marks that it uses. Each Assignor further warrants that it is aware of no third party claim that any aspect of such Assignor's present or contemplated business operations infringes or will infringe any trademark, service mark or trade name. Each Assignor represents and warrants that it is the true and lawful owner of or otherwise has the right to use all U.S. trademark registrations and applications listed in Annex D hereto and that said registrations are valid, subsisting, have not been cancelled and that such Assignor is not aware of any third-party claim that any of said registrations is invalid or unenforceable, or is not aware that there is any reason that any of said registrations is invalid or unenforceable, or is not aware that there is any reason that any of said applications will not pass to registration. Each Assignor hereby grants to the Collateral Agent an absolute power of attorney to sign, upon the occurrence and during the continuance of an Event of Default, any document which may be required by the United States Patent and Trademark Office in order to effect an absolute assignment of all right, title and interest of such Assignor in each Mark, and record the same. B. Licenses and Assignments. Except as otherwise permitted by the Credit Agreement or this Agreement, each Assignor hereby agrees not to divest itself of any right under any Mark absent prior written approval of the Collateral Agent. C. Infringements. Each Assignor agrees, promptly upon learning thereof, to notify the Collateral Agent in writing of the name and address of, and to furnish such pertinent EXHIBIT I Page 10 information that may be available with respect to, any party who such Assignor believes is infringing or diluting or otherwise violating in any material respect any of such Assignor's rights in and to any significant Mark, or with respect to any party claiming that such Assignor's use of any significant Mark violates in any material respect any property right of that party. Each Assignor further agrees, unless otherwise agreed by the Collateral Agent, to prosecute any Person infringing any significant Mark owned by such Assignor in accordance with reasonable business practices. D. Preservation of Marks. Each Assignor agrees to use its significant Marks in interstate commerce during the time in which this Agreement is in effect, sufficiently to preserve such Marks as trademarks or service marks under the laws of the United States. E. Maintenance of Registration. Each Assignor shall, at its own expense, diligently process all documents required to maintain trademark registrations, including but not limited to affidavits of use and applications for renewals of registration in the United States Patent and Trademark Office for all of its significant registered Marks, and shall pay all fees and disbursements in connection therewith and shall not abandon any such filing of affidavit of use or any such application of renewal prior to the exhaustion of all administrative and judicial remedies without prior written consent of the Collateral Agent. F. Future Registered Marks. If any Mark registration issues hereafter to any Assignor as a result of any application now or hereafter pending before the United States Patent and Trademark Office, within 30 days of receipt of such certificate, such Assignor shall deliver to the Collateral Agent a copy of such certificate, and an assignment for security in such Mark, to the Collateral Agent and at the expense of such Assignor, confirming the assignment for security in such Mark to the Collateral Agent hereunder, the form of such security to be substantially the same as the form hereof. G. Remedies. If an Event of Default shall occur and be continuing, the Collateral Agent may, by written notice to the relevant Assignor, take any or all of the following actions: (i) declare the entire right, title and interest of such Assignor in and to each of the Marks and the goodwill of the business associated therewith, together with all trademark rights and rights of protection to the same, vested in the Collateral Agent for the benefit of the Secured Creditors, in which event such rights, title and interest shall immediately vest, in the Collateral Agent for the benefit of the Secured Creditors, and the Collateral Agent shall be entitled to exercise the power of attorney referred to in Section 4.1 hereof to execute, cause to be acknowledged and notarized and record said absolute assignment with the applicable agency; (ii) take and use or sell the Marks and the goodwill of such Assignor's business symbolized by the Marks and the right to carry on the business and use the assets of such Assignor in connection with which the Marks have been used; (iii) in connection with the exercise of any of the other remedies provided for in this Agreement or any other Security Document, direct such Assignor to refrain, in which event such Assignor shall refrain, from using the Marks in any manner whatsoever, directly or indirectly, and, if requested by the Collateral Agent, change such Assignor's corporate name to eliminate therefrom any use of any Mark; and (iv) direct such Assignor to execute such other and further documents that the Collateral Agent may reasonably request to further confirm the foregoing and to transfer ownership of the Marks and registrations and any pending trademark application in the United States Patent and Trademark Office to the Collateral Agent. EXHIBIT I Page 11 ARTICLE 35. SPECIAL PROVISIONS CONCERNING PATENTS, COPYRIGHTS AND TRADE SECRETS A. Additional Representations and Warranties. Each Assignor represents and warrants that it is the true and lawful owner or licensee of all rights in (i) all United States trade secrets and proprietary information necessary to operate the business of such Assignor (the "Trade Secret Rights"), (ii) the Patents listed in Annex E hereto for such Assignor and that said Patents include all United States patents and applications for United States patents that such Assignor owns as of the date hereof and (iii) the Copyrights listed in Annex F hereto for such Assignor and that said Copyrights constitute all the United States copyrights registered with the United States Copyright Office and applications to United States copyrights that such Assignor now owns. Each Assignor further warrants that it has no knowledge of any third party claim that any aspect of such Assignor's present or contemplated business operations infringes or will infringe any patent or any copyright or such Assignor has misappropriated any trade secret or proprietary information. Each Assignor hereby grants to the Collateral Agent an absolute power of attorney to sign, upon the occurrence and during the continuance of any Event of Default, any document which may be required by the United States Patent and Trademark Office or United States Copyright Office, as the case may be, in order to effect an absolute assignment of all right, title and interest in each Patent and Copyright, and to record the same. B. Licenses and Assignments. Except as otherwise permitted by the Credit Agreement, each Assignor hereby agrees not to divest itself of any right under any Patent or Copyright absent prior written approval of the Collateral Agent. C. Infringements. Each Assignor agrees, promptly upon learning thereof, to furnish the Collateral Agent in writing with all pertinent information available to such Assignor with respect to any infringement, contributing infringement or active inducement to infringe in any significant Patent or Copyright or to any claim that the practice of any significant Patent or the use of any significant Copyright violates any property right of a third party, or with respect to any misappropriation of any significant Trade Secret Right or any claim that practice of any significant Trade Secret Right violates any property right of a third party. Each Assignor further agrees, absent direction of the Collateral Agent to the contrary, diligently to prosecute any Person infringing any significant Patent or Copyright or any Person misappropriating any significant Trade Secret Right to the extent that such Assignor reasonably believes that such infringement is material to its business. D. Maintenance of Patents or Copyrights. At its own expense, each Assignor shall make timely payment of all post-issuance fees required to maintain in force rights under each significant Patent or Copyright, absent prior written consent of the Collateral Agent. E. Prosecution of Patent or Copyright Application. At its own expense, each Assignor shall diligently prosecute all applications for (i) significant Patents listed in Annex E hereto and (ii) significant Copyrights listed in Annex F hereto, in each case for such Assignor. EXHIBIT I Page 12 F. Other Patents or Copyrights. Within 30 days of the acquisition or issuance of a Patent or Copyright or of filing of an application for a Patent or Copyright, the relevant Assignor shall deliver to the Collateral Agent a copy of said certificate or registration of, or application for, said Patent or Copyright, as the case may be, with an assignment for security as to such Patent or Copyright, as the case may be, to the Collateral Agent and at the expense of such Assignor, confirming the assignment for security, the form of such assignment for security to be substantially the same as the form attached hereto. G. Remedies. If an Event of Default shall occur and be continuing, the Collateral Agent may by written notice to the relevant Assignor, take any or all of the following actions: (i) declare the entire right, title, and interest of such Assignor in each of the Patents and Copyrights vested in the Collateral Agent for the benefit of the Secured Creditors, in which event such right, title, and interest shall immediately vest in the Collateral Agent for the benefit of the Secured Creditors, in which case the Collateral Agent shall be entitled to exercise the power of attorney referred to in Section 5.1 hereof to execute, cause to be acknowledged and notarized and to record said absolute assignment with the applicable agency; (ii) in connection with the exercise of any of the other remedies provided for in this Agreement or any other Security Document, take and practice or sell the Patents and Copyrights; (iii) in connection with the exercise of any of the other remedies provided for in this Agreement or any other Security Document, direct such Assignor to refrain, in which event such Assignor shall refrain, from practicing the Patents and Copyrights directly or indirectly; and (iv) direct such Assignor to execute such other and further documents as the Collateral Agent may request further to confirm the foregoing and to transfer ownership of the Patents and Copyrights to the Collateral Agent for the benefit of the Secured Creditors. ARTICLE 36. PROVISIONS CONCERNING ALL COLLATERAL A. Protection of Collateral Agent's Security. Each Assignor will do nothing to impair the rights of the Collateral Agent in the Collateral (other than (i) as a result of Equipment which is temporarily in transit or held pending repair thereof or (ii) as otherwise permitted under the Credit Documents). Each Assignor will at all times keep its Inventory and Equipment insured in favor of the Collateral Agent, at such Assignor's own expense to the extent and in the manner provided in the Credit Agreement; all policies or certificates with respect to such insurance (and any other insurance maintained by such Assignor) (i) shall be endorsed to the Collateral Agent's satisfaction for the benefit of the Collateral Agent (including, without limitation, by naming the Collateral Agent as additional insured or loss payee), (ii) shall state that such insurance policies shall not be cancelled or revised without at least 30 days' prior written notice thereof by the insurer to the Collateral Agent and (iii) shall provide that the respective insurers irrevocably waive any and all rights of subrogation with respect to the Collateral Agent and the Secured Creditors. The Collateral Agent shall, at the time such proceeds of such insurance are distributed to the Secured Creditors, apply such proceeds in accordance with Section 7.4 hereof (it being understood that the receipt and distribution of such proceeds shall be subject to the provisions of Section 4.02 of the Credit Agreement). Each Assignor assumes all liability and responsibility in connection with the Collateral acquired by it and the liability of such Assignor to pay the Obligations shall in no way EXHIBIT I Page 13 be affected or diminished by reason of the fact that such Collateral may be lost, destroyed, stolen, damaged or for any reason whatsoever unavailable to such Assignor. B. Warehouse Receipts Non-negotiable. Each Assignor agrees that if any warehouse receipt or receipt in the nature of a warehouse receipt is issued with respect to any of its Inventory, such Assignor shall request that such warehouse receipt or receipt in the nature thereof shall not be "negotiable" (as such term is used in Section 7-104 of the Uniform Commercial Code as in effect in any relevant jurisdiction or under other relevant law). C. Further Actions. Each Assignor will, at its own expense, make, execute, endorse, acknowledge, file and/or deliver to the Collateral Agent from time to time such lists, descriptions and designations of its Collateral, warehouse receipts, receipts in the nature of warehouse receipts, bills of lading, documents of title, vouchers, invoices, schedules, confirmatory assignments, conveyances, financing statements, transfer endorsements, powers of attorney, certificates, reports and other assurances or instruments and take such further steps relating to the Collateral and other property or rights covered by the security interest hereby granted, which the Collateral Agent reasonably deems appropriate or advisable to perfect, preserve or protect its security interest in the Collateral. D. Financing Statements. Each Assignor agrees to execute and deliver to the Collateral Agent such financing statements, in form reasonably acceptable to the Collateral Agent, as the Collateral Agent may from time to time request or as are necessary or desirable in the opinion of the Collateral Agent to establish and maintain a valid, enforceable and first priority perfected security interest, subject only to Permitted Liens, in the Collateral as provided herein and in the other rights and security contemplated hereby all in accordance with the Uniform Commercial Code as enacted in any and all relevant jurisdictions or any other relevant law. Each Assignor will pay any applicable filing fees, recordation taxes and related expenses relating to its Collateral. Each Assignor hereby authorizes the Collateral Agent to file any such financing statements without the signature of such Assignor where permitted by law. ARTICLE 37. REMEDIES UPON OCCURRENCE OF EVENT OF DEFAULT A. Remedies; Obtaining the Collateral Upon Default. Each Assignor agrees that, if any Event of Default shall have occurred and be continuing, then and in every such case, the Collateral Agent, in addition to any rights now or hereafter existing under applicable law, shall have all rights as a secured creditor under the Uniform Commercial Code in all relevant jurisdictions and may: (i) personally, or by agents or attorneys, immediately take possession of the Collateral or any part thereof, from such Assignor or any other Person who then has possession of any part thereof with or without notice or process of law, and for that purpose may enter upon such Assignor's premises where any of the Collateral is located and remove the same and use in connection with such removal any and all services, supplies, aids and other facilities of such Assignor; EXHIBIT I Page 14 (ii) instruct the obligor or obligors on any agreement, instrument or other obligation (including, without limitation, the Receivables and the Contracts) constituting the Collateral to make any payment required by the terms of such agreement, instrument or other obligation directly to the Collateral Agent and may exercise any and all remedies of such Assignor in respect of such Collateral; (iii) withdraw all moneys, securities and instruments in the Cash Collateral Account for application to the Obligations in accordance with Section 7.4 hereof; (iv) sell, assign or otherwise liquidate any or all of the Collateral or any part thereof in accordance with Section 7.2 hereof, or direct the relevant Assignor to sell, assign or otherwise liquidate any or all of the Collateral or any part thereof, and, in each case, take possession of the proceeds of any such sale or liquidation; (v) take possession of the Collateral or any part thereof, by directing the relevant Assignor in writing to deliver the same to the Collateral Agent at any place or places designated by the Collateral Agent in which event such Assignor shall at its own expense: (x) forthwith cause the same to be moved to the place or places so designated by the Collateral Agent and there delivered to the Collateral Agent; (y) store and keep any Collateral so delivered to the Collateral Agent at such place or places pending further action by the Collateral Agent as provided in Section 7.2 hereof; (z) while the Collateral shall be so stored and kept, provide such guards and maintenance services as shall be necessary to protect the same and to preserve and maintain them in good condition; and (vi) license or sublicense, whether on an exclusive or nonexclusive basis, any Marks, Patents and Copyrights included in the Collateral for such term and on such conditions and in such manner as the Collateral Agent shall in its sole judgment determine; it being understood that each Assignor's obligation so to deliver the Collateral is of the essence of this Agreement and that, accordingly, upon application to a court of equity having jurisdiction, the Collateral Agent shall be entitled to a decree requiring specific performance by such Assignor of said obligation. The Secured Creditors agree that this Agreement may be enforced only by the action of the Administrative Agent or the Collateral Agent, in each case acting upon the instructions of the Required Banks (or, after the date on which all Credit Document Obligations have been paid in full, the holders of at least the majority of the outstanding Other Obligations) and that no other Secured Creditor shall have any right individually to seek to enforce or to enforce this Agreement or to realize upon the security to be granted hereby, it being understood and agreed that such rights and remedies may be exercised by the Administrative Agent or the Collateral Agent or the holders of at least a majority of the outstanding Other Obligations, as the case maybe, for the benefit of the Secured Creditors upon the terms of this Agreement. EXHIBIT I Page 15 B. Remedies; Disposition of the Collateral. Any Collateral repossessed by the Collateral Agent under or pursuant to Section 7.1 hereof and any other Collateral whether or not so repossessed by the Collateral Agent, may be sold, assigned, leased or otherwise disposed of under one or more contracts or as an entirety, and without the necessity of gathering at the place of sale the property to be sold, and in general in such manner, at such time or times, at such place or places and on such terms as the Collateral Agent may, in compliance with any mandatory requirements of applicable law, determine to be commercially reasonable. Any of the Collateral may be sold, leased or otherwise disposed of, in the condition in which the same existed when taken by the Collateral Agent or after any overhaul or repair at the expense of the relevant Assignor which the Collateral Agent shall determine to be commercially reasonable. Any such disposition which shall be a private sale or other private proceedings permitted by such requirements shall be made upon not less than 10 days' written notice to the relevant Assignor specifying the time at which such disposition is to be made and the intended sale price or other consideration therefor, and shall be subject, for the 10 days after the giving of such notice, to the right of the relevant Assignor or any nominee of such Assignor to acquire the Collateral involved at a price or for such other consideration at least equal to the intended sale price or other consideration so specified. Any such disposition which shall be a public sale permitted by such requirements shall be made upon not less than 10 days' written notice to the relevant Assignor specifying the time and place of such sale and, in the absence of applicable requirements of law, shall be by public auction (which may, at the Collateral Agent's option, be subject to reserve), after publication of notice of such auction not less than 10 days prior thereto in two newspapers in general circulation in the City of New York. To the extent permitted by any such requirement of law, the Collateral Agent and the other Secured Creditors may bid for and become the purchaser of the Collateral or any item thereof, offered for sale in accordance with this Section without accountability to the relevant Assignor. If, under mandatory requirements of applicable law, the Collateral Agent shall be required to make disposition of the Collateral within a period of time which does not permit the giving of notice to the relevant Assignor as hereinabove specified, the Collateral Agent need give such Assignor only such notice of disposition as shall be reasonably practicable in view of such mandatory requirements of applicable law. Each Assignor agrees to do or cause to be done all such other acts and things as may be reasonably necessary to make such sale or sales of all or any portion of the Collateral valid and binding and in compliance with any and all applicable laws, regulations, orders, writs, injunctions, decrees or awards of any and all courts, arbitrators or governmental instrumentalities, domestic or foreign, having jurisdiction over any such sale or sales, all at such Assignor's expense. C. Waiver of Claims. Except as otherwise provided in this Agreement, EACH ASSIGNOR HEREBY WAIVES, TO THE EXTENT PERMITTED BY APPLICABLE LAW, NOTICE AND JUDICIAL HEARING IN CONNECTION WITH THE COLLATERAL AGENT'S TAKING POSSESSION OR THE COLLATERAL AGENT'S DISPOSITION OF ANY OF THE COLLATERAL, and each Assignor hereby further waives, to the extent permitted by law: (i) all damages occasioned by the Collateral Agent's taking of possession of any of the Collateral except any damages which are the direct result of the Collateral Agent's gross negligence or willful misconduct; (ii) all other requirements as to the time, place and terms of sale or other requirements with respect to the enforcement of the Collateral Agent's rights hereunder; and EXHIBIT I Page 16 (iii) all rights of redemption, appraisement, valuation, stay, extension or moratorium now or hereafter in force under any applicable law in order to prevent or delay the enforcement of this Agreement or the absolute sale of the Collateral or any portion thereof, and each Assignor, for itself and all who may claim under it, insofar as it or they now or hereafter lawfully may, hereby waives the benefit of all such laws. Any sale of, or the grant of options to purchase, or any other realization upon, any Collateral shall operate to divest all right, title, interest, claim and demand, either at law or in equity, of the relevant Assignor therein and thereto, and shall be a perpetual bar both at law and in equity against such Assignor and against any and all Persons claiming or attempting to claim the Collateral so sold, optioned or realized upon, or any part thereof, from, through and under such Assignor. D. Application of Proceeds. 1. All moneys collected by the Collateral Agent (or, to the extent the Pledge Agreement, the Mortgages or Additional Security Documents require proceeds of collateral under such Security Documents to be applied in accordance with the provisions of this Agreement, the Pledgee or Mortgagee under such other Security Document) upon any sale or other disposition of the Collateral, together with all other moneys received by the Collateral Agent hereunder, shall be applied as follows: a. first, to the payment of all Obligations owing the Collateral Agent of the type provided in clauses (iii) and (iv) of the definition of Obligations; b. second, to the extent proceeds remain after the application pursuant to the preceding clause (i), an amount equal to the outstanding Primary Obligations shall be paid to the Secured Creditors as provided in Section 7.4(e) hereof, with each Secured Creditor receiving an amount equal to its outstanding Primary Obligations or, if the proceeds are insufficient to pay in full all such Primary Obligations, its Pro Rata Share (as defined below) of the amount remaining to be distributed; c. third, to the extent proceeds remain after the application pursuant to the preceding clauses (i) and (ii), an amount equal to the outstanding Secondary Obligations shall be paid to the Secured Creditors as provided in Section 7.4(e) hereof, with each Secured Creditor receiving an amount equal to its outstanding Secondary Obligations or, if the proceeds are insufficient to pay in full all such Secondary Obligations, its Pro Rata Share of the amount remaining to be distributed; and d. fourth, to the extent proceeds remain after the application pursuant to the preceding clauses (i), (ii) and (iii) and following the termination of this Agreement pursuant to Section 10.8 hereof, to the relevant Assignor or, to the extent directed by such Assignor or a court of competent jurisdiction, to whomever may be lawfully entitled to receive such surplus. 2. For purposes of this Agreement, (x) "Pro Rata Share" shall mean, when calculating a Secured Creditor's portion of any distribution or amount, that amount (expressed as a percentage) equal to a fraction the numerator of which is the then unpaid amount of such Secured Creditor's Primary Obligations or Secondary Obligations, as the case may be, and the denominator of which is the then outstanding amount of all Primary Obligations or Secondary Obligations, as the EXHIBIT I Page 17 case may be, (y) "Primary Obligations" shall mean (i) in the case of the Credit Document Obligations, all principal of, and interest on, all Loans, all Unpaid Drawings theretofore made (together with all interest accrued thereon), and the aggregate Stated Amounts of all Letters of Credit issued under the Credit Agreement, and all Fees and (ii) in the case of the Other Obligations, all amounts due under the Interest Rate Protection Agreements or Other Hedging Agreements (other than indemnities, fees (including, without limitation, attorneys' fees) and similar obligations and liabilities) and (z) "Secondary Obligations" shall mean all Obligations other than Primary Obligations. 3. When payments to Secured Creditors are based upon their respective Pro Rata Shares, the amounts received by such Secured Creditors hereunder shall be applied (for purposes of making determinations under this Section 7.4 only) (i) first, to their Primary Obligations (with the amount to be applied by any Secured Creditor to its Primary Obligations to be applied (x) first, to interest and (y) second, to any other Primary Obligations) and (ii) second, to their Secondary Obligations. If any payment to any Secured Creditor of its Pro Rata Share of any distribution would result in overpayment to such Secured Creditor, such excess amount shall instead be distributed in respect of the unpaid Primary Obligations or Secondary Obligations, as the case may be, of the other Secured Creditors, with each Secured Creditor whose Primary Obligations or Secondary Obligations, as the case may be, have not been paid in full to receive an amount equal to such excess amount multiplied by a fraction the numerator of which is the unpaid Primary Obligations or Secondary Obligations, as the case may be, of such Secured Creditor and the denominator of which is the unpaid Primary Obligations or Secondary Obligations, as the case may be, of all Secured Creditors entitled to such distribution. 4. Each of the Secured Creditors agrees and acknowledges that if the Bank Creditors are to receive a distribution on account of undrawn amounts with respect to Letters of Credit issued under the Credit Agreement (which shall only occur after all outstanding Loans and Unpaid Drawings with respect to such Letters of Credit have been paid in full), such amounts shall be paid to the Administrative Agent under the Credit Agreement and held by it, for the equal and ratable benefit of the Bank Creditors, as cash security for the repayment of Obligations owing to the Bank Creditors as such. If any amounts are held as cash security pursuant to the immediately preceding sentence, then upon the termination of all outstanding Letters of Credit, and after the application of all such cash security to the repayment of all Obligations owing to the Bank Creditors after giving effect to the termination of all such Letters of Credit, if there remains any excess cash, such excess cash shall be returned by the Administrative Agent to the Collateral Agent for distribution in accordance with Section 7.4(a) hereof. 5. Except as set forth in Section 7.4(c) hereof, all payments required to be made to the Bank Creditors hereunder shall be made to the Administrative Agent under the Credit Agreement for the account of the Bank Creditors and all payments required to be made to the Other Creditors hereunder shall be made directly to the respective Other Creditor. 6. For purposes of applying payments received in accordance with this Section 7.4, the Collateral Agent shall be entitled to rely upon (i) the Administrative Agent under the Credit Agreement and (ii) the Other Creditors for a determination (which the Administrative Agent, each Other Creditor and the Secured Creditors agree (or shall agree) to provide upon request of the Collateral Agent) of the outstanding Obligations owed to the Bank Creditors or the Other Creditors, EXHIBIT I Page 18 as the case may be. Unless it has actual knowledge (including by way of written notice from a Bank Creditor or an Other Creditor) to the contrary, the Administrative Agent under the Credit Agreement, in furnishing information pursuant to the preceding sentence, and the Collateral Agent, in acting hereunder, shall be entitled to assume that (x) no Secondary Obligations are owing to any Bank Creditor or Other Creditor and (y) no Interest Rate Protection Agreement or Other Hedging Agreement, or Other Obligations in respect thereof, are in existence. 7. It is understood that the Assignors shall remain jointly and severally liable to the extent of any deficiency between the amount of the proceeds of the Collateral and the aggregate amount of the sums referred to in clause (a) of this Section 7.4 with respect to the relevant Assignor. E. Remedies Cumulative. Each and every right, power and remedy hereby specifically given to the Collateral Agent shall be in addition to every other right, power and remedy specifically given under this Agreement, the Interest Rate Protection Agreements or Other Hedging Agreements, the other Credit Documents or now or hereafter existing at law, in equity or by statute and each and every right, power and remedy whether specifically herein given or otherwise existing may be exercised from time to time or simultaneously and as often and in such order as may be deemed expedient by the Collateral Agent. All such rights, powers and remedies shall be cumulative and the exercise or the beginning of the exercise of one shall not be deemed a waiver of the right to exercise any other or others. No delay or omission of the Collateral Agent in the exercise of any such right, power or remedy and no renewal or extension of any of the Obligations shall impair any such right, power or remedy or shall be construed to be a waiver of any Default or Event of Default or an acquiescence therein. No notice to or demand on any Assignor in any case shall entitle it to any other or further notice or demand in similar or other circumstances or constitute a waiver of any of the rights of the Collateral Agent to any other or further action in any circumstances without notice or demand. In the event that the Collateral Agent shall bring any suit to enforce any of its rights hereunder and shall be entitled to judgment, then in such suit the Collateral Agent may recover expenses, including attorneys' fees, and the amounts thereof shall be included in such judgment. F. Discontinuance of Proceedings. In case the Collateral Agent shall have instituted any proceeding to enforce any right, power or remedy under this Agreement by foreclosure, sale, entry or otherwise, and such proceeding shall have been discontinued or abandoned for any reason or shall have been determined adversely to the Collateral Agent, then and in every such case the relevant Assignor, the Collateral Agent and each holder of any of the Obligations shall be restored to their former positions and rights hereunder with respect to the Collateral subject to the security interest created under this Agreement, and all rights, remedies and powers of the Collateral Agent shall continue as if no such proceeding had been instituted. ARTICLE 38. INDEMNITY A. Indemnity. 1. Each Assignor jointly and severally agrees to indemnify, reimburse and hold the Collateral Agent, each other Secured Creditor and their respective succes- EXHIBIT I Page 19 sors, permitted assigns, employees, agents and servants (hereinafter in this Section 8.1 referred to individually as "Indemnitee," and collectively as "Indemnitees") harmless from any and all liabilities, obligations, damages, injuries, penalties, claims, demands, actions, suits, judgments and any and all costs, expenses or disbursements (including attorneys' fees and expenses) (for the purposes of this Section 8.1 the foregoing are collectively called "expenses") of whatsoever kind and nature imposed on, asserted against or incurred by any of the Indemnitees in any way relating to or arising out of this Agreement, any Interest Rate Protection Agreement or Other Hedging Agreement, any other Credit Document or any other document executed in connection herewith or therewith or in any other way connected with the administration of the transactions contemplated hereby or thereby or the enforcement of any of the terms of, or the preservation of any rights under any thereof, or in any way relating to or arising out of the manufacture, ownership, ordering, purchase, delivery, control, acceptance, lease, financing, possession, operation, condition, sale, return or other disposition, or use of the Collateral (including, without limitation, latent or other defects, whether or not discoverable), the violation of the laws of any country, state or other governmental body or unit, any tort (including, without limitation, claims arising or imposed under the doctrine of strict liability, or for or on account of injury to or the death of any Person (including any Indemnitee), or property damage), or contract claim; provided that no Indemnitee shall be indemnified pursuant to this Section 8.1(a) for losses, damages or liabilities to the extent caused by the gross negligence or willful misconduct of such Indemnitee. Each Assignor agrees that upon written notice by any Indemnitee of the assertion of such a liability, obligation, damage, injury, penalty, claim, demand, action, suit or judgment, the relevant Assignor shall assume full responsibility for the defense thereof. Each Indemnitee agrees to use its best efforts to promptly notify the relevant Assignor of any such assertion of which such Indemnitee has knowledge. 2. Without limiting the application of Section 8.1(a) hereof, each Assignor agrees, jointly and severally, to pay, or reimburse the Collateral Agent for any and all fees, costs and expenses of whatever kind or nature incurred in connection with the creation, preservation or protection of the Collateral Agent's Liens on, and security interest in, the Collateral, including, without limitation, all fees and taxes in connection with the recording or filing of instruments and documents in public offices, payment or discharge of any taxes or Liens upon or in respect of the Collateral, premiums for insurance with respect to the Collateral and all other fees, costs and expenses in connection with protecting, maintaining or preserving the Collateral and the Collateral Agent's interest therein, whether through judicial proceedings or otherwise, or in defending or prosecuting any actions, suits or proceedings arising out of or relating to the Collateral. 3. Without limiting the application of Section 8.1(a) or (b) hereof, each Assignor agrees, jointly and severally, to pay, indemnify and hold each Indemnitee harmless from and against any loss, costs, damages and expenses which such Indemnitee may suffer, expend or incur in consequence of or growing out of any misrepresentation by any Assignor in this Agreement, any Interest Rate Protection Agreement or Other Hedging Agreement, any other Credit Document or in any writing contemplated by or made or delivered pursuant to or in connection with this Agreement, any Interest Rate Protection Agreement or Other Hedging Agreement, or any other Credit Document. 4. If and to the extent that the obligations of any Assignor under this Section 8.1 are unenforceable for any reason, such Assignor hereby agrees to make the maximum contribution to the payment and satisfaction of such obligations which is permissible under applicable law. EXHIBIT I Page 20 B. Indemnity Obligations Secured by Collateral; Survival. Any amounts paid by any Indemnitee as to which such Indemnitee has the right to reimbursement shall constitute Obligations secured by the Collateral. The indemnity obligations of each Assignor contained in this Article VIII shall continue in full force and effect notwithstanding the full payment of all the Notes issued under the Credit Agreement, the termination of all Interest Rate Protection Agreements or Other Hedging Agreements and the payment of all other Obligations and notwithstanding the discharge thereof. ARTICLE 39. DEFINITIONS The following terms shall have the meanings herein specified. Such definitions shall be equally applicable to the singular and plural forms of the terms defined. "Administrative Agent" shall have the meaning provided in the recitals to this Agreement. "Agreement" shall mean this Security Agreement, as the same may be modified, supplemented or amended from time to time in accordance with its terms. "Assignor" shall have the meaning provided in the first paragraph of this Agreement. "Bank Creditors" shall have the meaning provided in the recitals to this Agreement. "Banks" shall have the meaning provided in the recitals to this Agreement. "Borrower" shall have the meaning provided in the recitals to this Agreement. "Cash Collateral Account" shall mean a non-interest bearing cash collateral account maintained with, and in the sole dominion and control of, the Collateral Agent for the benefit of the Secured Creditors. "Chattel Paper" shall have the meaning provided in the Uniform Commercial Code as in effect on the date hereof in the State of New York. "Class" shall have the meaning provided in Section 10.2 of this Agreement. "Collateral" shall have the meaning provided in Section 1.1(a) of this Agreement. "Collateral Agent" shall have the meaning provided in the first paragraph of this Agreement. "Contract Rights" shall mean all rights of any Assignor (including, without limitation, all rights to payment) under each Contract. EXHIBIT I Page 21 "Contracts" shall mean all contracts between any Assignor and one or more additional parties (including, without limitation, any Interest Rate Protection Agreement or Other Hedging Agreement), but excluding any contract to the extent that the terms thereof prohibit (after giving effect to any approvals or waivers) the assignment of, or granting a security interest in, such contract (it being understood and agreed, however, that notwithstanding the foregoing, all rights to payment for money due or to become due pursuant to any such excluded contract shall be subject to the security interests created by this Agreement). "Copyrights" shall mean any United States or foreign copyright owned by any Assignor, including any registrations of any Copyrights, in the United States Copyright Office or the equivalent thereof in any foreign country, as well as any application for a United States copyright registration now or hereafter made with the United States Copyright Office by any Assignor. "Credit Agreement" shall have the meaning provided in the recitals to this Agreement. "Credit Document Obligations" shall have the meaning provided in the definition of "Obligations" in this Article IX. "Default" shall mean any event which, with notice or lapse of time, or both, would constitute an Event of Default. "Documents" shall have the meaning provided in the Uniform Commercial Code as in effect on the date hereof in the State of New York. "Equipment" shall mean any "equipment," as such term is defined in the Uniform Commercial Code as in effect on the date hereof in the State of New York, now or hereafter owned by any Assignor and, in any event, shall include, but shall not be limited to, all machinery, equipment, furnishings, movable trade fixtures and vehicles now or hereafter owned by any Assignor and any and all additions, substitutions and replacements of any of the foregoing, wherever located, together with all attachments, components, parts, equipment and accessories installed thereon or affixed thereto. "Event of Default" shall mean any Event of Default under, and as defined in, the Credit Agreement and shall in any event, without limitation, include any payment default on any of the Obligations after the expiration of any applicable grace period. "General Intangibles" shall have the meaning provided in the Uniform Commercial Code as in effect on the date hereof in the State of New York. "Goods" shall have the meaning provided in the Uniform Commercial Code as in effect on the date hereof in the State of New York. "Indemnitee" shall have the meaning provided in Section 8.1 of this Agreement. "Instrument" shall have the meaning provided in the Uniform Commercial Code as in effect on the date hereof in the State of New York. EXHIBIT I Page 22 "Inventory" shall mean merchandise, inventory and goods, and all additions, substitutions and replacements thereof, wherever located, together with all goods, supplies, incidentals, packaging materials, labels, materials and any other items used or usable in manufacturing, processing, packaging or shipping same; in all stages of production -- from raw materials through work-in-process to finished goods -- and all products and proceeds of whatever sort and wherever located and any portion thereof which may be returned, rejected, reclaimed or repossessed by the Collateral Agent from any Assignor's customers, and shall specifically include all "inventory" as such term is defined in the Uniform Commercial Code as in effect on the date hereof in the State of New York, now or hereafter owned by any Assignor. "Liens" shall mean any security interest, mortgage, pledge, lien, claim, charge, encumbrance, title retention agreement, lessor's interest in a financing lease or analogous instrument, in, of, or on any Assignor's property. "Marks" shall mean all right, title and interest in and to any United States or foreign trademarks, service marks and trade names now held or hereafter acquired by any Assignor, including any registration of any trademarks and service marks, or the equivalent thereof in any foreign country, in the United States Patent and Trademark Office and any trade dress including logos and/or designs used by any Assignor in the United States or any foreign country. "Obligations" shall mean (i) the full and prompt payment when due (whether at the stated maturity, by acceleration or otherwise) of all obligations (including obligations which, but for the automatic stay under Section 362(a) of the Bankruptcy Code, would become due) and liabilities of each Assignor, now existing or hereafter incurred under, arising out of or in connection with any Credit Document to which it is a party and the due performance and compliance by each Assignor with the terms of each such Credit Document (all such obligations and liabilities under this clause (i), except to the extent consisting of obligations or indebtedness with respect to Interest Rate Protection Agreements or Other Hedging Agreements, being herein collectively called the "Credit Document Obligations"); (ii) the full and prompt payment when due (whether at the stated maturity, by acceleration or otherwise) of all obligations (including obligations which, but for the automatic stay under Section 362(a) of the Bankruptcy Code, would become due) and liabilities of each Assignor now existing or hereafter incurred under, arising out of or in connection with any Interest Rate Protection Agreement or Other Hedging Agreement with the Secured Creditors including, in the case of Assignors other than the Borrower, all obligations of such Assignor under the Guaranty to which such Assignor is a party in respect of Interest Rate Protection Agreements or Other Hedging Agreements (all such obligations and liabilities under this clause (ii) being herein collectively called the "Other Obligations"); (iii) any and all sums advanced by the Collateral Agent in order to preserve the Collateral or preserve its security interest in the Collateral; (iv) in the event of any proceeding for the collection or enforcement of any indebtedness, obligations, or liabilities of any Assignor referred to in clauses (i) and (ii) above, after an Event of Default shall have occurred and be continuing, the reasonable expenses of re-taking, holding, preparing for sale or lease, selling or otherwise disposing of or realizing on the Collateral, or of any exercise by the Collateral Agent of its rights hereunder, together with reasonable attorneys' fees and court costs; and (v) all amounts paid by any Indemnitee as to which such Indemnitee has the right to reimbursement under Section 8.1 of this Agreement. "Other Creditors" shall have the meaning provided in the recitals to this Agreement. EXHIBIT I Page 23 "Other Obligations" shall have the meaning provided in the definition of "Obligations" in this Article IX. "Patents" shall mean any United States or foreign patent to which any Assignor now or hereafter has title and any divisions or continuations thereof, as well as any application for a United States or foreign patent now or hereafter made by any Assignor. "Primary Obligations" shall have the meaning provided in Section 7.4(b) of this Agreement. "Proceeds" shall have the meaning provided in the Uniform Commercial Code as in effect in the State of New York on the date hereof or under other relevant law and, in any event, shall include, but not be limited to, (i) any and all proceeds of any insurance, indemnity, warranty or guaranty payable to the Collateral Agent or any Assignor from time to time with respect to any of the Collateral, (ii) any and all payments (in any form whatsoever) made or due and payable to any Assignor from time to time in connection with any requisition, confiscation, condemnation, seizure or forfeiture of all or any part of the Collateral by any governmental authority (or any person acting under color of governmental authority) and (iii) any and all other amounts from time to time paid or payable under or in connection with any of the Collateral. "Pro Rata Share" shall have the meaning provided in Section 7.4(b) of this Agreement. "Receivables" shall mean any "account" as such term is defined in the Uniform Commercial Code as in effect on the date hereof in the State of New York, now or hereafter owned by any Assignor and, in any event, shall include, but shall not be limited to, all of such Assignor's rights to payment for goods sold or leased or services performed by such Assignor, whether now in existence or arising from time to time hereafter, including, without limitation, rights evidenced by an account, note, contract, security agreement, chattel paper, or other evidence of indebtedness or security, together with (a) all security pledged, assigned, hypothecated or granted to or held by such Assignor to secure the foregoing, (b) all of any Assignor's right, title and interest in and to any goods, the sale of which gave rise thereto, (c) all guarantees, endorsements and indemnifications on, or of, any of the foregoing, (d) all powers of attorney for the execution of any evidence of indebtedness or security or other writing in connection therewith, (e) all books, records, ledger cards, and invoices relating thereto, (f) all evidences of the filing of financing statements and other statements and the registration of other instruments in connection therewith and amendments thereto, notices to other creditors or secured parties, and certificates from filing or other registration officers, (g) all credit information, reports and memoranda relating thereto and (h) all other writings related in any way to the foregoing. "Requisite Creditors" shall have the meaning provided in Section 10.2 of this Agreement. "Secondary Obligations" shall have the meaning provided in Section 7.4(b) of this Agreement. EXHIBIT I Page 24 "Secured Creditors" shall have the meaning provided in the recitals to this Agreement. "Termination Date" shall have the meaning provided in Section 10.8 of this Agreement. "Trade Secret Rights" shall have the meaning provided in Section 5.1 of this Agreement. ARTICLE 40. MISCELLANEOUS A. Notices. Except as otherwise specified herein, all notices, requests, demands or other communications to or upon the respective parties hereto shall be deemed to have been duly given or made when delivered to the party to which such notice, request, demand or other communication is required or permitted to be given or made under this Agreement, addressed: 1. if to any Assignor, at its address set forth opposite its signature below; 2. if to the Collateral Agent: Bankers Trust Company 130 Liberty Street New York, NY 10006 Telephone No.: (212) 250-4886 Telecopier No.: (212) 250-7218 Attention: Anthony Logrippo 3. if to any Bank Creditor (other than the Collateral Agent), at such address as such Bank Creditor shall have specified in the Credit Agreement; 4. if to any Other Creditor, at such address as such Other Creditor shall have specified in writing to each Assignor and the Collateral Agent; or at such other address as shall have been furnished in writing by any Person described above to the party required to give notice hereunder. B. Waiver; Amendment. None of the terms and conditions of this Agreement may be changed, waived, modified or varied in any manner whatsoever unless in writing duly signed by each Assignor directly affected thereby and the Collateral Agent (with the consent of either (x) the Required Banks or, to the extent required by Section 13.12 of the Credit Agreement, all of the Banks, at all times prior to the time on which all Credit Document Obligations have been paid in full or (y) the holders of at least a majority of the outstanding Other Obligations at all times after the time on which all Credit Document Obligations have been paid in full); provided, that any change, waiver, modification or variance affecting the rights and benefits of a single Class of Secured EXHIBIT I Page 25 Creditors (and not all Secured Creditors in a like or similar manner) shall also require the written consent of the Requisite Creditors of such Class of Secured Creditors. For the purpose of this Agreement, the term "Class" shall mean each class of Secured Creditors, i.e., whether (x) the Bank Creditors as holders of the Credit Document Obligations or (y) the Other Creditors as the holders of the Other Obligations. For the purpose of this Agreement, the term "Requisite Creditors" of any Class shall mean each of (x) with respect to the Credit Document Obligations, the Required Banks and (y) with respect to the Other Obligations, the holders of at least a majority of all obligations outstanding from time to time under the Interest Rate Protection Agreements or Other Hedging Agreements. C. Obligations Absolute. The obligations of each Assignor hereunder shall remain in full force and effect without regard to, and shall not be impaired by, (a) any bankruptcy, insolvency, reorganization, arrangement, readjustment, composition, liquidation or the like of such Assignor; (b) any exercise or non-exercise, or any waiver of, any right, remedy, power or privilege under or in respect of this Agreement, any other Credit Document or any Interest Rate Protection Agreement or Other Hedging Agreement; (c) any renewal, extension, amendment or modification of or addition or supplement to or deletion from any Credit Document or any Interest Rate Protection Agreement or Other Hedging Agreement or any security for any of the Obligations; (d) any waiver, consent, extension, indulgence or other action or inaction under or in respect of any such agreement or instrument including, without limitation, this Agreement; (e) any furnishing of any additional security to the Collateral Agent or its assignee or any acceptance thereof or any release of any security by the Collateral Agent or its assignee; or (f) any limitation on any party's liability or obligations under any such instrument or agreement or any invalidity or unenforceability, in whole or in part, of any such instrument or agreement or any term thereof; whether or not any Assignor shall have notice or knowledge of any of the foregoing. D. Successors and Assigns. This Agreement shall be binding upon each Assignor and its successors and assigns and shall inure to the benefit of the Collateral Agent and each other Secured Creditor and their respective successors and assigns; provided, that no Assignor may transfer or assign any or all of its rights or obligations hereunder without the prior written consent of the Collateral Agent. All agreements, statements, representations and warranties made by each Assignor herein or in any certificate or other instrument delivered by such Assignor or on its behalf under this Agreement shall be considered to have been relied upon by the Secured Creditors and shall survive the execution and delivery of this Agreement, the other Credit Documents and the Interest Rate Protection Agreements or Other Hedging Agreements regardless of any investigation made by the Secured Creditors or on their behalf. E. Headings Descriptive. The headings of the several sections of this Agreement are inserted for convenience only and shall not in any way affect the meaning or construction of any provision of this Agreement. F. Governing Law. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAW OF THE STATE OF NEW YORK. G. Assignor's Duties. It is expressly agreed, anything herein contained to the contrary notwithstanding, that each Assignor shall remain liable to perform all of the obligations, EXHIBIT I Page 26 if any, assumed by it with respect to the Collateral and the Collateral Agent shall not have any obligations or liabilities with respect to any Collateral by reason of or arising out of this Agreement, nor shall the Collateral Agent be required or obligated in any manner to perform or fulfill any of the obligations of any Assignor under or with respect to any Collateral. H. Termination; Release. 1. After the Termination Date, this Agreement shall terminate (provided that all indemnities set forth herein including, without limitation, in Section 8.1 hereof shall survive such termination) and the Collateral Agent, at the request and expense of the respective Assignor, will promptly execute and deliver to such Assignor a proper instrument or instruments (including Uniform Commercial Code termination statements on form UCC-3) acknowledging the satisfaction and termination of this Agreement, and will duly assign, transfer and deliver to such Assignor (without recourse and without any representation or warranty) such of the Collateral as may be in the possession of the Collateral Agent and as has not theretofore been sold or otherwise applied or released pursuant to this Agreement. As used in this Agreement, "Termination Date" shall mean the date upon which the Total Commitments and all Interest Rate Protection Agreements or Other Hedging Agreements have been terminated, no Note under the Credit Agreement is outstanding (and all Loans have been repaid in full), and all Letters of Credit have been terminated and all Obligations then owing have been paid in full. 2. In the event that any part of the Collateral is sold (except to Holdings or any of its Subsidiaries) in connection with a sale permitted by Section 9.02 of the Credit Agreement or otherwise released at the direction of the Required Banks (or all Banks if required by Section 13.12 of the Credit Agreement) and the proceeds of such sale or sales or from such release are applied in accordance with the provisions of Section 4.02 of the Credit Agreement, to the extent required to be so applied, such Collateral will be sold free and clear of the Liens created by this Agreement and the Collateral Agent, at the request and expense of the relevant Assignor, will duly assign, transfer and deliver to such Assignor (without recourse and without any representation or warranty) such of the Collateral as is then being (or has been) so sold or released and has not theretofore been released pursuant to this Agreement and will promptly execute and deliver to such Assignor a proper instrument or instruments (including UCC termination statements on form UCC-3) acknowledging the release of such Collateral pursuant to this Agreement. 3. At any time that an Assignor desires that the Collateral Agent take any action to acknowledge or give effect to any release of Collateral pursuant to the foregoing Section 10.8(a) or (b), as the case may be, it shall deliver to the Collateral Agent a certificate signed by an executive officer of such Assignor stating that the release of the respective Collateral is permitted pursuant to such Section 10.8(a) or (b), as the case may be. 4. The Collateral Agent shall have no liability whatsoever to any other Secured Creditor as a result of any release of Collateral by it in accordance with this Section 10.8. I. Counterparts. This Agreement may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which when so executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. EXHIBIT I Page 27 J. Severability. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. K. The Collateral Agent. The Collateral Agent will hold in accordance with this Agreement all items of the Collateral at any time received under this Agreement. It is expressly understood and agreed that the obligations of the Collateral Agent as holder of the Collateral and interests therein and with respect to the disposition thereof, and otherwise under this Agreement, are only those expressly set forth in this Agreement and Section 12 of the Credit Agreement. The Collateral Agent shall act hereunder and thereunder on the terms and conditions set forth herein and in Section 12 of the Credit Agreement. L. Benefit of Agreement. This Agreement shall be binding upon the parties hereto and their respective successors and assigns and shall inure to the benefit of and be enforceable by each of the parties hereto and its successors and assigns. M. Additional Assignors. It is understood and agreed that no Domestic Subsidiaries of the Borrower exist on the date hereof. Any such Subsidiary established or created after the date hereof and that is required to execute a counterpart of this Agreement pursuant to the Credit Agreement shall automatically become an Assignor hereunder by executing a counterpart hereof and delivering the same to the Collateral Agent. * * * IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and delivered by their duly authorized officers as of the date first above written. Addresses: 333 Western Avenue FSC SEMICONDUCTOR CORPORATION, South Portland, ME 04106 as an Assignor Telephone No.: (207) 775-8755 Telecopier No.: (207) 761-6020 Attention: Dan Boxer By ---------------------------- Title: 333 Western Avenue FAIRCHILD SEMICONDUCTOR South Portland, ME 04106 CORPORATION, as an Assignor Telephone No.: (207) 775-8755 Telecopier No.: (207) 761-6020 Attention: Dan Boxer By ---------------------------- Title: BANKERS TRUST COMPANY, as Collateral Agent 130 Liberty Street New York, New York 10006 By Telephone No.: (212) 250-4886 ---------------------------- Telecopier No.: (212) 250-7218 Title: Attention: Anthony Logrippo ANNEX A to SECURITY AGREEMENT SCHEDULE OF CHIEF EXECUTIVE OFFICES AND OTHER RECORD LOCATIONS ANNEX B to SECURITY AGREEMENT SCHEDULE OF INVENTORY AND EQUIPMENT LOCATIONS ANNEX C to SECURITY AGREEMENT SCHEDULE OF TRADE AND FICTITIOUS NAMES ANNEX D to SECURITY AGREEMENT SCHEDULE OF MARKS ANNEX E to SECURITY AGREEMENT SCHEDULE OF PATENTS AND APPLICATIONS ANNEX F to SECURITY AGREEMENT SCHEDULE OF COPYRIGHTS AND APPLICATIONS ANNEX G to SECURITY AGREEMENT ASSIGNMENT OF SECURITY INTEREST IN UNITED STATES TRADEMARKS AND PATENTS FOR GOOD AND VALUABLE CONSIDERATION, receipt and sufficiency of which are hereby acknowledged, [Name of Assignor], a __________ corporation (the "Assignor") with principal offices at ____________________________, hereby assigns and grants to Bankers Trust Company, as Collateral Agent, with principal offices at 130 Liberty Street, New York, New York 10006 (the "Assignee"), a security interest in (i) all of the Assignor's right, title and interest in and to the United States trademarks, trademark registrations and trademark applications (the "Marks") set forth on Schedule A attached hereto, (ii) all of the Assignor's right, title and interest in and to the United States patents and pending patent applications (the "Patents") set forth on Schedule B attached hereto, in each case together with (iii) all Proceeds (as such term is defined in the Security Agreement referred to below) and products of the Marks and Patents, (iv) the goodwill of the businesses with which the Marks are associated and (v) all causes of action arising prior to or after the date hereof for infringement of any of the Marks and Patents or unfair competition regarding the same. THIS ASSIGNMENT OF SECURITY INTEREST is made to secure the satisfactory performance and payment of all the Obligations of the Assignor, as such term is defined in the Security Agreement among the Assignor, the other assignors from time to time party thereto and the Assignee, dated as of March 11, 1997 (as amended from time to time, the "Security Agreement"). Upon the occurrence of the Termination Date (as defined in the Security Agreement), the Assignee shall, upon such satisfaction, execute, acknowledge, and deliver to the Assignor an instrument in writing releasing the security interest in the Marks and Patents acquired under this Assignment of Security Interest. This Assignment of Security Interest has been granted in conjunction with the security interest granted to the Assignee under the Security Agreement. The rights and remedies ANNEX G Page 2 of the Assignee with respect to the security interest granted herein are without prejudice to, and are in addition to those set forth in the Security Agreement, all terms and provisions of which are incorporated herein by reference. In the event that any provisions of this Assignment of Security Interest are deemed to conflict with the Security Agreement, the provisions of the Security Agreement shall govern. IN WITNESS WHEREOF, the undersigned have executed this Assignment of Security Interest as of the ____ day of _________, 199__. [NAME OF ASSIGNOR], Assignor By_____________________________ Name: Title: BANKERS TRUST COMPANY, as Collateral Agent, Assignee By_____________________________ Name: Title: STATE OF NEW YORK ) ) ss.: COUNTY OF NEW YORK ) On this ____ day of _________, 199_, before me personally came _________________________ who, being by me duly sworn, did state as follows: that [s]he is _______________ of [Name of Assignor], that [s]he is authorized to execute the foregoing Assignment of Security Interest on behalf of said corporation and that [s]he did so by authority of the Board of Directors of said corporation. ------------------------- Notary Public STATE OF NEW YORK ) ) ss.: COUNTY OF NEW YORK ) On this ____ day of _________, 199_, before me personally came _____________________________ who, being by me duly sworn, did state as follows: that [s]he is __________________ of Bankers Trust Company, that [s]he is authorized to execute the foregoing Assignment of Security Interest on behalf of said corporation and that [s]he did so by authority of the Board of Directors of said corporation. ------------------------- Notary Public SCHEDULE A MARK REG. NO. REG. DATE SCHEDULE B PATENT PATENT NO. ISSUE DATE ANNEX H ASSIGNMENT OF SECURITY INTEREST IN UNITED STATES COPYRIGHTS WHEREAS, [Name of Assignor], a _______________ corporation (the "Assignor"), having its chief executive office at , ________________________ , is the owner of all right, title and interest in and to the United States copyrights and associated United States copyright registrations and applications for registration set forth in Schedule A attached hereto; WHEREAS, BANKERS TRUST COMPANY, as Collateral Agent, having its principal offices at 130 Liberty Street, New York, New York 10006 (the "Assignee"), desires to acquire a security interest in, and lien upon, all of Assignor's right, title and interest in and to Assignor's copyrights and copyright registrations and applications therefor; and WHEREAS, the Assignor is willing to assign and grant to the Assignee a security interest in, and lien upon, the copyrights and copyright registrations and applications therefor described above. NOW, THEREFORE, for good and valuable consideration, the sufficiency and receipt of which is hereby acknowledged, and subject to the terms and conditions of the Security Agreement, dated as of March 11, 1997, made by the Assignor, the other assignors from time to time party thereto and the Assignee (as amended from time to time, the "Security Agreement"), the Assignor hereby assigns and grants to the Assignee a security interest in, and lien upon, all of Assignor's right, title and interest in and to Assignor's copyrights and copyright registrations and applications therefor set forth in Schedule A attached hereto (the "Copyrights"), together with (i) all Proceeds (as such term is defined in the Security Agreement referred to below) of the ANNEX H Page 2 Copyrights, and (ii) all causes of action arising prior to or after the date hereof for infringement of any Copyright. This Assignment of Security Interest is made to secure the satisfactory performance and payment of all Obligations (as such term is defined in the Security Agreement) of the Assignor and shall be effective as of the date of the Security Agreement. Upon the occurrence of the Termination Date (as such term is defined in the Security Agreement), the Assignee shall, upon such satisfaction, execute, acknowledge, and deliver to Assignor an instrument in writing releasing the security interest in the Copyrights acquired under this Assignment of Security Interest. This Assignment of Security Interest has been granted in conjunction with the security interest granted to the Assignee under the Security Agreement. The rights and remedies of the Assignee with respect to the security interest granted herein are without prejudice to, and are in addition to those set forth in the Security Agreement, all terms and provisions of which are incorporated herein by reference. In the event that any provisions of this Assignment are deemed to conflict with the Security Agreement, the provisions of the Security Agreement shall govern. ANNEX H Page 3 IN WITNESS WHEREOF, the undersigned have executed this Assignment of Security Interest at New York, New York as of the __ day of ____________, 199_. [NAME OF ASSIGNOR], Assignor By_______________________________ Name: Title: BANKERS TURST COMPANY, as Collateral Agent, Assignee By_______________________________ Name: Title: STATE OF NEW YORK ) ) ss.: COUNTY OF NEW YORK ) On this __ day of ________, 199_ before me personally came _______________, who being duly sworn, did depose and say that [s]he is ___________________ of [Name of Assignor], that [s]he is authorized to execute the foregoing Assignment of Security Interest on behalf of said corporation and that [s]he did so by authority of the Board of Directors of said corporation. ---------------------------------- Notary Public STATE OF NEW YORK ) ) ss.: COUNTY OF NEW YORK ) On this __ day of ________, 199_ before me personally came _______________, who being duly sworn, did depose and say that [s]he is _______________ of Bankers Trust Company, that [s]he is authorized to execute the foregoing Assignment of Security Interest on behalf of said corporation and that [s]he did so by authority of the Board of Directors of said corporation. --------------------------------- Notary Public SCHEDULE A COPYRIGHTS REGISTRATION PUBLICATION NUMBERS DATE COPYRIGHT TITLE EXHIBIT J FORM OF CONSENT LETTER [Letterhead of Agent for Service of Process] [Date] To the Agent and the Banks party to the Credit Agreement referred to below: Ladies and Gentlemen: Reference is made to the Credit Agreement, dated as of March 11, 1997, among FSC Semiconductor Corporation ("Holdings"), Fairchild Semiconductor Corporation (the "Borrower"), the various Banks from time to time party thereto, Bankers Trust Company, as Administrative Agent (the "Administrative Agent"), Credit Suisse First Boston, as Syndication Agent and Canadian Imperial Bank of Commerce, as Documentation Agent (as such Credit Agreement may be modified, supplemented or amended from time to time, the "Credit Agreement"). Each of Holdings and the Borrower, pursuant to Section 13.08 of the Credit Agreement, and each Subsidiary Guarantor pursuant to Section 20 of the Subsidiaries Guaranty has irrevocably designated, appointed and empowered the undersigned, Corporation Service Company, with offices currently located at 500 Central Avenue, Albany, New York 12206, as its authorized designee, appointee and agent to receive, accept and acknowledge for and on its behalf, and in respect of its property, service of any and all legal process, summons, notices and documents which may be served in any such legal action or proceeding with respect to the Credit Agreement or any other Credit Document (as defined in the Credit Agreement) in the courts of the State of New York or of the United States of America for the Southern District of New York. The undersigned hereby informs you that it irrevocably accepts such appointment as agent as set forth in the above-referenced Sections of the respective Credit Documents and agrees with you that the undersigned (i) shall inform the Administrative Agent promptly in writing of any change of its address in the State of New York, (ii) shall perform its obligations as such process agent in accordance with the provisions of such Sections and (iii) shall forward promptly to Holdings or the Borrower, as the case may be, any legal process received by the undersigned in its capacity as process agent. EXHIBIT J Page 2 As process agent, the undersigned, and its successor or successors, agree to discharge the above-mentioned obligations and will not refuse fulfillment of such obligations under the above-referenced Sections of the respective Credit Documents. Very truly yours, CORPORATION SERVICE COMPANY By_______________________________ Title: EXHIBIT K OFFICER'S SOLVENCY CERTIFICATE I, the undersigned, Chief Financial Officer of [FSC Semiconductor Corporation] [and] [Fairchild Semiconductor Corporation], do hereby certify on behalf of [FSC Semiconductor Corporation] [and] [Fairchild Semiconductor Corporation] that: 1. This Certificate is furnished to the Agents and the Banks pursuant to Section 5.17 of the Credit Agreement, dated as of March 11, 1997 among FSC Semiconductor Corporation ("Holdings"), Fairchild Semiconductor Corporation (the "Borrower"), various lenders from time to time party thereto (the "Banks"), Bankers Trust Company, as Administrative Agent (together with any successor administrative agent, the "Administrative Agent"), Credit Suisse First Boston, as Syndication Agent (the "Syndication Agent") and Canadian Imperial Bank of Commerce, as Documentation Agent (the "Documentation Agent" and, together with the Administrative Agent and the Syndication Agent, collectively, the "Agents") (such Credit Agreement, as in effect on the date of this Certificate, being herein called the "Credit Agreement"). Unless otherwise defined herein, capitalized terms used in this Certificate shall have the meanings set forth in the Credit Agreement. 2. For purposes of this Certificate, the terms below shall have the following definitions: (a) "Fair Value" The amount at which the assets, in their entirety, of Holdings and its Subsidiaries (on a consolidated basis) and the Borrower (on a stand-alone basis), as applicable, would change hands between a willing buyer and a willing seller, within a commercially reasonable period of time, each having reasonable knowledge of the relevant facts, with neither being under any compulsion to act. (b) "Present Fair Saleable Value" The amount that could be obtained by an independent willing seller from an independent willing buyer if the assets of Holdings and its Subsidiaries (on a consolidated basis) and the Borrower (on EXHIBIT K Page 2 a stand-alone basis), as applicable, are sold with reasonable promptness under normal selling conditions in a current market. (c) "New Financing" The Indebtedness incurred or to be incurred by Holdings and its Subsidiaries under the Credit Documents (assuming the full utilization by the Borrower of the Total Commitments under the Credit Agreement) and the other Documents and all other financings contemplated by the Documents, in each case after giving effect to the Transaction and the incurrence of all financings contemplated therewith. (d) "Stated Liabilities" The recorded liabilities (including contingent liabilities) that would be recorded in accordance with generally accepted accounting principles ("GAAP") of Holdings and its Subsidiaries (on a consolidated basis) and the Borrower (on a stand-alone basis), in each case at March 11, 1997 after giving effect to the Transaction, determined in accordance with GAAP consistently applied, together with, (x) the net change in long-term debt (including current maturities) between May 26, 1996 and the date hereof and (y) without duplication, the amount of all New Financing. (e) "Identified Contingent Liabilities" The maximum estimated amount of liabilities reasonably likely to result from pending litigation, asserted claims and assessments, guaranties, uninsured risks (after taking into account the effect of any indemnity therefor and the likelihood of payment thereunder) and other contingent liabilities of each of Holdings and its Subsidiaries (on a consolidated basis) and the Borrower (on a stand-alone basis), as applicable, after giving effect to the Transaction (exclusive of such contingent liabilities to the extent reflected in Stated Liabilities), as set forth on Annex A hereto. EXHIBIT K Page 3 (f) "Will be able to pay its Stated Liabilities and Identified Contingent Liabilities, as they mature" For the period from the date hereof through March 11, 2003, each of Holdings and its Subsidiaries (on a consolidated basis) and the Borrower (on a stand-alone basis), as applicable, will have sufficient assets and cash flow to pay their respective Stated Liabilities and Identified Contingent Liabilities as those liabilities mature or otherwise become payable. (g) "Does not have Unreasonably Small Capital" For the period from the date hereof through March 11, 2003, each of Holdings and its Subsidiaries (on a consolidated basis) and the Borrower (on a stand-alone basis), as applicable after consummation of the Transaction and all Indebtedness (including the Loans) being incurred or assumed and Liens created by the Borrower and its Subsidiaries in connection therewith, is a going concern and has sufficient capital to ensure that it will continue to be a going concern. 3. For purposes of this Certificate, I, or officers of the Borrower under my direction and supervision, have performed the following procedures as of and for the periods set forth below. (a) I have reviewed the financial statements (including the pro forma financial statements) and Projections referred to in Sections 7.05(a) and (d) of the Credit Agreement. (b) I have made inquiries of certain officials of Holdings and its Subsidiaries, who have responsibility for financial and accounting matters regarding (i) the existence and amount of Identified Contingent Liabilities associated with the business of Holdings and its Subsidiaries and (ii) whether the unaudited combined balance sheets and related combined statements of operations referred to in Section 7.05(a) of the Credit Agreement are in conformity with GAAP applied on a basis substantially consistent with that of the audited financial statements as at May 26, 1996. EXHIBIT K Page 4 (c) I have knowledge of and have reviewed to my satisfaction the Credit Documents and the other Documents, and the respective Schedules and Exhibits thereto. (d) With respect to Identified Contingent Liabilities, I: 1. inquired of certain officials of Holdings and its Subsidiaries, who have responsibility for legal, financial and accounting matters as to the existence and estimated liability with respect to all contingent liabilities known to them; 2. confirmed with officers of Holdings and its Subsidiaries that, to the best of such officers' knowledge, (i) all appropriate items were included in Stated Liabilities or the listing of Identified Contingent Liabilities and that (ii) the amounts relating thereto were the maximum estimated amount of liabilities reasonably likely to result therefrom as of the date hereof; and 3. I hereby certify that, to the best of my knowledge, Annex A hereto constitutes a true and complete list of all material liabilities that may arise from any pending litigation, asserted claims and assessments, guarantees, uninsured risks (after taking into account the effect of any indemnity therefor and the likelihood of payment thereunder) and other contingent liabilities of Holdings and its Subsidiaries (exclusive of such contingent liabilities to the extent reflected in Stated Liabilities), and with respect to each such item sets forth the estimable maximum liability with respect thereto. (e) I have examined the Projections relating to Holdings and its Subsidiaries which have been previously delivered to the Banks and considered the effect thereon of any changes since the date of the preparation thereof on the results projected therein. After such review, I hereby certify that in my opinion the Projections are reasonable and attainable, and that the Projections support the conclusions contained in paragraph 4 below. EXHIBIT K Page 5 (f) I have made inquiries of certain officers of Holdings and its Subsidiaries who have responsibility for financial reporting and accounting matters regarding whether they were aware of any events or conditions that, as of the date hereof, would cause either of Holdings and its Subsidiaries (on a consolidated basis) or the Borrower (on a stand-alone basis), after giving effect to the Transaction and the related financing transactions (including the incurrence of the New Financing), to (i) have assets with a Fair Value or Present Fair Saleable Value that are less than the sum of Stated Liabilities and Identified Contingent Liabilities; (ii) have Unreasonably Small Capital; or (iii) not be able to pay its Stated Liabilities and Identified Contingent Liabilities as they mature or otherwise become payable. 4. Based on and subject to the foregoing, I hereby certify on behalf of each of Holdings and its Subsidiaries (on a consolidated basis) and the Borrower (on a stand-alone basis) that, after giving effect to the Transaction and the related financing transactions (including the incurrence of the New Financing), it is my informed opinion that (a) the Fair Value and Present Fair Saleable Value of the assets of each of Holdings and its Subsidiaries (on a consolidated basis) and the Borrower (on a stand-alone basis) exceed its Stated Liabilities and Identified Contingent Liabilities; (b) each of Holdings and its Subsidiaries (on a consolidated basis) and the Borrower (on a stand-alone basis) does not have Unreasonably Small Capital; and (c) each of Holdings and its Subsidiaries (on a consolidated basis) and the Borrower (on a stand-alone basis) will be able to pay its Stated Liabilities and Identified Contingent Liabilities, as they mature or otherwise become payable. EXHIBIT K Page 6 IN WITNESS WHEREOF, I have hereto set my hand this ___ day of March, 1997. [FSC SEMICONDUCTOR CORPORATION] [FAIRCHILD SEMICONDUCTOR CORPORATION] By__________________________ Title: ANNEX A IDENTIFIED CONTINGENT LIABILITIES Pursuant to the Asset Purchase Agreement dated March 11, 1997 between the Borrower and National Semiconductor Corporation, the Borrower assumed the following contingent liabilities: 1. Heather Baker v. National Semiconductor Corporation, Cumberland County, Maine Superior Court, Case No. CV-95-1171. Claim for approximately $300,000 resulting from termination of independent contractor in South Portland. 2. Mark Fortin v. National Semiconductor Corporation, Maine Human Rights Commission, Charge No. E96-0210. Claim for approximately $300,000 regarding termination of employment; alleging discrimination. 3. Paul Filarowski v. National Semiconductor Corporation, Boston Area Office of EEOC, Charge No. 161970014. Claim for approximately $300,000 in connection with termination of employment; alleging age discrimination. 4. Empire Computer & Components, Inc. v. Pioneer Technology Group, Santa Clara, California Superior Court, Case No. CV-75-5410. Claim for approximately $2.1 million against National Semiconductor Corporation ("National") distributor ("Distributor") for breach of contract. National has agreed to indemnify Distributor. On October 8, 1996, the plaintiff served a verified notice on the defendant that plaintiff was striking from its complaint for $10 million for loss of business reputation. EXHIBIT L ASSIGNMENT AND ASSUMPTION AGREEMENT Date: _______ __, 19__ Reference is made to the Credit Agreement described in Item 2 of Annex I hereto (as such Credit Agreement may hereafter be amended, supplemented or otherwise modified from time to time, the "Credit Agreement"). Unless defined in Annex I hereto, terms defined in the Credit Agreement are used herein as therein defined. _____________________ (the "Assignor") and _________________ (the "Assignee") hereby agree as follows: 1. The Assignor hereby sells and assigns to the Assignee without recourse and without representation or warranty (other than as expressly provided herein), and the Assignee hereby purchases and assumes from the Assignor, that interest in and to all of the Assignor's rights and obligations under the Credit Agreement as of the date hereof which represents the percentage interest specified in Item 4 of Annex I hereto (the "Assigned Share") of all of the outstanding rights and obligations under the Credit Agreement relating to the facilities listed in Item 4 of Annex I hereto, including, without limitation, [(v) in the case of any assignment of all or any portion of the Total Tranche A Term Loan Commitment, all rights and obligations with respect to the Assigned Share of such Total Tranche A Term Loan Commitment,](1) [(w) in the case of any assignment of all or any portion of the Tranche B Term Loan Commitment, all rights and obligations with respect to the Assigned Share of such Total Tranche B Term Loan Commitment,](2) (x) in the case of any assignment of outstanding Tranche A Term Loans, all rights and obligations with respect to the Assigned Share of such Tranche A Term Loans, (y) in the case of any assignment of outstanding Tranche B Term Loans, all rights and obligations with respect to the Assigned Share of such outstanding Tranche B Term Loans, and (z) in the case of any assignment of all or any portion of the Total Revolving Loan Commitment, all rights and obligations with respect to the Assigned Share of such Total Revolving Loan Commitment and of any outstanding Revolving - ---------- (1) Delete bracketed language in Assignment and Assumption Agreements executed after the termination of the Total Tranche A Term Loan Commitment. (2) Delete bracketed language in Assignment and Assumption Agreements executed after the termination of the Total Tranche B Term Loan Commitment. EXHIBIT L Page 2 Loans and Letters of Credit. After giving effect to such sale and assignment, the Assignee's Revolving Loan Commitment[, Tranche A Term Loan Commitment](3) [, Tranche B Term Loan Commitment](4) and the amount of the outstanding Term Loans owing to the Assignee will be as set forth in Item 4 of Annex I hereto. 2. The Assignor (i) represents and warrants that it is the legal and beneficial owner of the interest being assigned by it hereunder and that such interest is free and clear of any adverse claim; (ii) makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with the Credit Agreement or the other Credit Documents or the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Credit Agreement or the other Credit Documents or any other instrument or document furnished pursuant thereto; and (iii) makes no representation or warranty and assumes no responsibility with respect to the financial condition of Holdings, the Borrower or any of its Subsidiaries or the performance or observance by Holdings, the Borrower or any of its Subsidiaries of any of their obligations under the Credit Agreement or the other Credit Documents to which they are a party or any other instrument or document furnished pursuant thereto. 3. The Assignee (i) confirms that it has received a copy of the Credit Agreement and the other Credit Documents, together with copies of the financial statements referred to therein and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment and Assumption Agreement; (ii) agrees that it will, independently and without reliance upon the Administrative Agent, the Assignor or any other Bank or Agent and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Credit Agreement; (iii) confirms that it is an Eligible Transferee under Section 13.04(b) of the Credit Agreement; (iv) appoints and authorizes the Administrative Agent and the Collateral Agent to take such action as agent on its behalf and to exercise such powers under the Credit Agreement and the other Credit Documents as are delegated to the Administrative Agent and the Collateral Agent, as the case may be, by the terms thereof, together with such powers as are reasonably incidental thereto; [and] (v) agrees that it will perform in accordance with their terms all of the obligations which by the terms of the Credit Agreement - ---------- (3) Delete bracketed language in Assignment and Assumption Agreements executed after the termination of the Total Tranche A Term Loan Commitment. (4) Delete bracketed language in Assignment and Assumption Agreements executed after the termination of the Total Tranche B Term Loan Commitment. 5 Include if the Assignee is organized under the laws of a jurisdiction outside of the United States. EXHIBIT L Page 3 are required to be performed by it as a Bank[; and (vii) to the extent legally entitled to do so, attaches the forms described in Section 13.04(b) of the Credit Agreement](5). 4. Following the execution of this Assignment and Assumption Agreement by the Assignor and the Assignee, an executed original hereof (together with all attachments) will be delivered to the Administrative Agent. This Assignment and Assumption Agreement shall be effective, unless otherwise specified in Item 5 of Annex I hereto (the "Settlement Date"), upon the receipt of the consent of the Administrative Agent to the extent required by Section 13.04(b) of the Credit Agreement, receipt by the Administrative Agent of the administrative fee referred to in such Section 13.04(b), and the registration of the transfer as provided by Section 13.17 of the Credit Agreement. 5. Upon the Settlement Date of this Assignment and Assumption Agreement, (i) the Assignee shall be a party to the Credit Agreement and, to the extent provided in this Assignment and Assumption Agreement, have the rights and obligations of a Bank thereunder and under the other Credit Documents and (ii) the Assignor shall, to the extent provided in this Assignment and Assumption Agreement, relinquish its rights and be released from its obligations under the Credit Agreement and the other Credit Documents except with respect to indemnification provisions under the Credit Agreement (including without limitation, Sections 1.10, 1.11, 2.05, 4.04, 13.01 and 13.06). 6. It is agreed that the Assignee shall be entitled to (x) all interest on the Assigned Share of the Loans at the rates specified in Item 6 of Annex I; (y) all Commitment Commission (if applicable) on the Assigned Share of the Total Revolving Loan Commitment and/or Total Term Loan Commitment (if not theretofore terminated) at the rate specified in Item 7 of Annex I hereto; and (z) all Letter of Credit Fees (if applicable) on the Assignee's participation in all Letters of Credit at the rate specified in Item 8 of Annex I hereto, which, in each case, accrue on and after the Settlement Date, such interest and, if applicable, Commitment Commission and Letter of Credit Fees, to be paid by the Administrative Agent directly to the Assignee. It is further agreed that all payments of principal made on the Assigned Share of the Loans which occur on and after the Settlement Date will be paid directly by the Administrative Agent to the Assignee. Upon the Settlement Date, the Assignee shall pay to the Assignor an amount specified by the Assignor in writing which represents the Assigned Share of the principal amount of the respective Loans made by the Assignor pursuant to the - ---------- (5) Include if the Assignee is organized under the laws of a jurisdiction outside of the United States. EXHIBIT L Page 4 Credit Agreement which are outstanding on the Settlement Date, and which are being assigned hereunder. The Assignor and the Assignee shall make all appropriate adjustments in payments under the Credit Agreement for periods prior to the Settlement Date directly between themselves. 7. THIS ASSIGNMENT AND ASSUMPTION AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. EXHIBIT L Page 5 IN WITNESS WHEREOF, the parties hereto have caused their duly authorized officers to execute and deliver this Assignment and Assumption Agreement, as of the date first above written, such execution also being made on Annex I hereto. Accepted this ____ day [NAME OF ASSIGNOR] of _______, 19__ as Assignor By ----------------------------- Title: [NAME OF ASSIGNEE] as Assignee By ----------------------------- Title: Acknowledged: BANKERS TRUST COMPANY as Administrative Agent By -------------------------------- Title: ANNEX FOR ASSIGNMENT AND ASSUMPTION AGREEMENT ANNEX I 1. Borrower: Fairchild Semiconductor Corporation. 2. Name and Date of Credit Agreement: Credit Agreement, dated as of March 11, 1997 among FSC Semiconductor Corporation, Fairchild Semiconductor Corporation, the Banks party thereto from time to time, Bankers Trust Company, as Administrative Agent, Credit Suisse First Boston, as Syndication Agent, and Canadian Imperial Bank of Commerce, as Documentation Agent . 3. Date of Assignment Agreement: 4. Amounts (as of date of item #3 above):
[Total [Total Outstanding Outstanding Tranche A Tranche B Principal of Principal of Revolving Term Loan Term Loan Tranche A Tranche B Loan Commitment Commitment Term Term Commitment ---------- ---------- ----- ---- ---------- Loans Loans ----- ----- a. Aggregate Amount for all Banks $---------- $---------- $---------- $---------- $--------- b. Assigned Share _________% _________% _________% _________% _________% c. Amount of Assigned Share $________] $________] $__________ $__________ $_________ (6) (7) -
- -------- (6) This column should be deleted in the case of Assignment and Assumption Agreements executed after the termination of the Total Tranche A Term Loan Commitment. (7) This column should be deleted in the case of Assignment and Assumption Agreements executed after the termination of the Total Tranche B Term Loan Commitment. Annex I Page 2 5. Settlement Date: 6. Rate of Interest As set forth in Section 1.08 to the Assignee: of the Credit Agreement (unless otherwise agreed to by the Assignor and the Assignee)(8) 7. Commitment As set forth in Section 3.01(a) of the Credit Commission to Agreement (unless otherwise agreed to by the the Assignee: Assignor and the Assignee)(9) 8. Letter of Credit As set forth in Section 3.01(b) Fees to the of the Credit Agreement (unless Assignee: otherwise agreed to by the Assignor and the Assignee)(10) - ---------- (8) The Borrower and the Administrative Agent shall direct the entire amount of the interest to the Assignee at the rate set forth in Section 1.08 of the Credit Agreement, with the Assignor and Assignee effecting the agreed upon sharing of the interest through payments by the Assignee to the Assignor. (9) Insert "Not Applicable" in lieu of text if no portion of the Total Revolving Loan Commitment is being assigned. The Borrower and the Administrative Agent shall direct the entire amount ofthe Commitment Commission to the Assignee at the rate set forth in Section 3.01(a) of the Credit Agreemenmt, with the Assignor and the Assignee effecting the agreed upon sharing of Commitment Commission through payment by the Assignee to the Assignor. (10) Insert "Not Applicable" in lieu of text if no portion of the Total Revolving Loan Commitment is being assigned. Otherwise, the Borrower and the Administrative Agent shall direct the entire amount of the Letter of Credit Fees to the Assignee at the rate set forth in Section 3.10(b) of the Credit Agreement, with the Assignor and the Assignee effecting the agreed upon sharing of Letter of Credit Fees through payment by the Assignee to the Assignor. Annex I Page 3 9. Notice: ASSIGNOR: --------------------- --------------------- --------------------- Attention: Telephone: Telecopier: Reference: ASSIGNEE: Senior Debt Portfolio --------------------- --------------------- --------------------- Attention: Telephone: Telecopier: Reference: Payment Instructions: ASSIGNOR: --------------------- --------------------- --------------------- Attention: Reference: Annex I Page 4 ASSIGNEE: --------------------- --------------------- --------------------- Attention: Reference: Accepted and Agreed: [NAME OF ASSIGNEE] [NAME OF ASSIGNOR] By By ----------------------- ---------------------- ----------------------- ---------------------- (Print Name and Title) (Print Name and Title) EXHIBIT M SUBORDINATION PROVISIONS Each promissory note evidencing Indebtedness (as defined in the Credit Agreement to which this Exhibit M is attached) incurred by Fairchild Semiconductor Corporation, a Delaware corporation, (the "Borrower") or any of its Domestic Subsidiaries, owing to any of the Borrower's Foreign Subsidiaries shall have the following subordination provisions attached as Annex A thereto, and shall include in the text of such promissory note the language: "THE INDEBTEDNESS EVIDENCED BY THIS NOTE IS SUBORDINATE AND JUNIOR IN RIGHT OF PAYMENT TO ALL SENIOR INDEBTEDNESS (AS DEFINED IN ANNEX A HERETO) TO THE EXTENT PROVIDED IN ANNEX A." ANNEX A TO PROMISSORY NOTE - -------------------------------------------------------------------------------- Section 1.01. Subordination of Liabilities. [Name of Company] (the "Company"), for itself, its successors and assigns, covenants and agrees and each holder of the promissory note to which this Annex A is attached (the "Note") by its acceptance thereof likewise covenants and agrees that the payment of the principal of, and interest on, and all other amounts owing in respect of, the Note is hereby expressly subordinated, to the extent and in the manner hereinafter set forth, to the prior payment in full of Senior Indebtedness (as defined in Section 1.07) in cash. The provisions of this Annex A shall constitute a continuing offer to all persons who, in reliance upon such provisions, become holders of, or continue to hold, Senior Indebtedness, and such provisions are made for the benefit of the holders of Senior Indebtedness, and such holders are hereby made obligees hereunder to the same extent as if their names were written herein as such, and they and/or each of them may proceed to enforce such provisions. Section 1.02. Company Not to Make Payments with Respect to Notes in Certain Circumstances. (a) Upon the maturity of any Senior Indebtedness (including interest thereon or fees or any other amounts owing in respect thereof), whether at stated maturity, by acceleration or otherwise, all principal thereof and premium, if any, and interest thereon or fees or any other amounts owing in respect thereof, in each case to the extent due and owing at such time, shall first be paid in full in cash, or such payment duly provided for in cash or in a manner satisfactory EXHIBIT M Page 2 to the holder or holders of such Senior Indebtedness, before any payment is made on account of the principal of (including installments thereof), or interest on, or any amount otherwise owing in respect of, the Note. Each holder of the Note hereby agrees that, so long as an Event of Default (as defined below), or event which with notice or lapse of time or both would constitute an Event of Default, in respect of any Senior Indebtedness exists, it will not ask, demand, sue for, or otherwise take, accept or receive, any amounts owing in respect of the Note. As used herein, the term "Event of Default" shall mean any Event of Default, under and as defined in, the relevant documentation governing any Senior Indebtedness which has arisen as a result of the failure to make any payments with respect to Senior Indebtedness or as a result of any bankruptcy, insolvency or similar proceeding with respect to the Company, and in any event shall include any payment default with respect to any Senior Indebtedness. (b) In the event that notwithstanding the provisions of the preceding subsection (a) of this Section 1.02, the Company shall make any payment on account of the principal of, or interest on, or amounts otherwise owing in respect of, the Note at a time when payment is not permitted by said subsection (a), such payment shall be held by the holder of the Note, in trust for the benefit of, and shall be paid forthwith over and delivered to, the holders of Senior Indebtedness or their representative or representatives under the agreements pursuant to which the Senior Indebtedness may have been issued, as their respective interests may appear, for application pro rata to the payment of all Senior Indebtedness remaining unpaid to the extent necessary to pay all Senior Indebtedness in full in cash in accordance with the terms of such Senior Indebtedness, after giving effect to any concurrent payment or distribution to or for the holders of Senior Indebtedness. Without in any way modifying the provisions of this Annex A or affecting the subordination effected hereby, if such notice is not given, the Company shall give the holder of the Note prompt written notice of any maturity of Senior Indebtedness after which such Senior Indebtedness remains unsatisfied. Section 1.03. Note Subordinated to Prior Payment of all Senior Indebtedness on Dissolution, Liquidation or Reorganization of Company. Upon any distribution of assets of the Company upon any dissolution, winding up, liquidation or reorganization of the Company (whether in bankruptcy, insolvency or receivership proceedings or upon an assignment for the benefit of creditors or otherwise): EXHIBIT M Page 3 (a) the holders of all Senior Indebtedness shall first be entitled to receive payment in full in cash or in a manner satisfactory to the holder or holders of such Senior Indebtedness of the principal thereof, premium, if any, and interest (including, without limitation, all interest accruing after the commencement of any bankruptcy, insolvency, receivership or similar proceeding at the rate provided in the governing documentation whether or not such interest is an allowed claim in such proceeding) and all other amounts due thereon before the holder of the Note is entitled to receive any payment on account of the principal of or interest on or any other amount owing in respect of the Note; (b) any payment or distributions of assets of the Company of any kind or character, whether in cash, property or securities to which the holder of the Note would be entitled except for the provisions of this Annex A, shall be paid by the liquidating trustee or agent or other person making such payment or distribution, whether a trustee or agent, directly to the holders of Senior Indebtedness or their representative or representatives under the agreements pursuant to which the Senior Indebtedness may have been issued, to the extent necessary to make payment in full of all Senior Indebtedness remaining unpaid, after giving effect to any concurrent payment or distribution to the holders of such Senior Indebtedness; and (c) in the event that, notwithstanding the foregoing provisions of this Section 1.03, any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities, shall be received by the holder of the Note on account of principal of, or interest or other amounts due on, the Note before all Senior Indebtedness is paid in full in cash or in a manner satisfactory to the holder or holders of such Senior Indebtedness, or effective provisions made for its payment, such payment or distribution shall be received and held in trust for and shall be paid over to the holders of the Senior Indebtedness remaining unpaid or unprovided for or their representative or representatives under the agreements pursuant to which the Senior Indebtedness may have been issued, for application to the payment of such Senior Indebtedness until all such Senior Indebtedness shall have been paid in full in cash or in a manner satisfactory to the holder or holders of such Senior Indebtedness, after giving effect to any concurrent payment or distribution to the holders of such Senior Indebtedness. EXHIBIT M Page 4 Without in any way modifying the provisions of this Annex A or affecting the subordination effected hereby, if such notice is not given, the Company shall give prompt written notice to the holder of the Note of any dissolution, winding up, liquidation or reorganization of the Company (whether in bankruptcy, insolvency or receivership proceedings or upon an assignment for the benefit of creditors or otherwise). Section 1.04. Subrogation. Subject to the prior payment in full of all Senior Indebtedness in cash, the holder of the Note shall be subrogated to the rights of the holders of Senior Indebtedness to receive payments or distributions of assets of the Company applicable to the Senior Indebtedness until all amounts owing on the Note shall be paid in full, and for the purpose of such subrogation no payments or distributions to the holders of the Senior Indebtedness by or on behalf of the Company or by or on behalf of the holder of the Note by virtue of this Annex A which otherwise would have been made to the holder of the Note, shall be deemed to be payment by the Company to or on account of the Senior Indebtedness, it being understood that the provisions of this Annex A are and are intended solely for the purpose of defining the relative rights of the holder of the Note, on the one hand, and the holders of the Senior Indebtedness, on the other hand. Section 1.05. Obligation of the Company Unconditional. Nothing contained in this Annex A or in the Note is intended to or shall impair, as between the Company and the holder of the Note, the obligation of the Company, which is absolute and unconditional, to pay to the holder of the Note the principal of and interest on the Note as and when the same shall become due and payable in accordance with their terms, or is intended to or shall affect the relative rights of the holder of the Note and creditors of the Company other than the holders of the Senior Indebtedness, nor shall anything herein or therein prevent the holder of the Note from exercising all remedies otherwise permitted by applicable law, subject to the rights, if any, under this Annex A of the holders of Senior Indebtedness in respect of cash, property, or securities of the Company received upon the exercise of any such remedy. Upon any distribution of assets of the Company referred to in this Annex A, the holder of the Note shall be entitled to rely upon any order or decree made by any court of competent jurisdiction in which such dissolution, winding up, liquidation or reorganization proceedings are pending, or a certificate of the liquidating trustee or agent or other person making any distribution to the holder of the Note, for the purpose of ascertaining the persons entitled to participate in such distribution, the holders of the Senior Indebtedness and other EXHIBIT M Page 5 indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Annex A. Section 1.06. Subordination Rights not Impaired by Acts or Omissions of Company or Holders of Senior Indebtedness. No right of any present or future holders of any Senior Indebtedness to enforce subordination as herein provided shall at any time in any way be prejudiced or impaired by an act or failure to act on the part of the Company or by any act or failure to act in good faith by any such holder, or by any noncompliance by the Company with the terms and provisions of the Note, regardless of any knowledge thereof which any such holder may have or be otherwise charged with. The holders of the Senior Indebtedness may, without in any way affecting the obligations of the holder of the Note with respect thereto, at any time or from time to time and in their absolute discretion, change the manner, place or terms of payment of, change or extend the time of payment of, or renew or alter, any Senior Indebtedness, or amend, modify or supplement any agreement or instrument governing or evidencing such Senior Indebtedness or any other document referred to therein, or exercise or refrain from exercising any other of their rights under the Senior Indebtedness including, without limitation, the waiver of a default thereunder and the release of any collateral securing such Senior Indebtedness, all without notice to or assent from the holder of the Note. Section 1.07. Senior Indebtedness. (a) The term "Senior Indebtedness" shall mean all Obligations (as defined below) (i) of the Borrower and/or its Subsidiaries (as defined below) under, or with respect to, the Credit Agreement (as defined below) and any renewal, extension, restatement or refunding thereof and (ii) of the Borrower and/or its Subsidiaries in respect of all Interest Rate Protection or Other Hedging Agreements (as defined below) with Other Creditors (as defined below). (b) As used in this Agreement, the terms set forth below shall have the respective meanings provided below: "Credit Agreement" shall mean the Credit Agreement, dated as of March 11, 1997, among [the Company] [Fairchild Semiconductor Corporation], FSC Semiconductor Corporation, various financial institutions from time to time party thereto (the "Banks"), Bankers Trust Company, as Administrative Agent, Credit Suisse First Boston, as Syndication Agent, and Canadian Imperial Bank of EXHIBIT M Page 6 Commerce, as Documentation Agent, together with the related documents thereto (including, without limitation, the term loans and revolving loans thereunder, any guarantees and security documents), as same may be amended, modified, extended, renewed, replaced, restated, supplemented or refinanced from time to time, and including any agreement extending the maturity of, refinancing or restructuring all or any portion of, the indebtedness under such agreement or of any successor agreements. "Interest Rate Protection Agreement" shall have the meaning provided in the Credit Agreement. "Obligations" shall mean any principal, interest, premium, penalties, fees, expenses, indemnities and other liabilities and obligations payable under the documentation governing any Senior Indebtedness (including, without limitation, all interest accruing after the commencement of any bankruptcy, insolvency, receivership or similar proceeding at the rate provided in the governing documentation, whether or not such interest is an allowed claim in such proceeding). "Other Creditors" shall mean any Bank or Affiliate thereof which enters into, or which participates in, the extension of Interest Rate Protection Agreements or Other Hedging Agreements (even if the respective Bank ceases to be a Bank under the Credit Agreement for any reason) and their subsequent assigns, if any, in all such cases in their capacity as creditors with respect to Interest Rate Protection or Other Hedging Agreements. "Other Hedging Agreement" shall have the meaning provided in the Credit Agreement. "Subsidiary" shall have the meaning provided in the Credit Agreement. EX-10.15 13 EX-10.15 Exhibit 10.15 Quit rent has been changed from RM 2,402 to Rm. 4,966-00 pursuant to Section 101 of the National Land Code commencing form 1st January 1994 (Penang) P.U. No. 18 dated 28th April 1994) quit rent has been ENGLISH TRANSLATION changed from RM992-00 to RM2, 483-00 pursuant (amended) (N.L.C. 20A) to Section 101 of the National Land Code National Land Code commencing from 1st January 1984 (Penang) Form 11A P.U. No. 38 dated 22nd December 1983) (Section 177) (Qualified Title Corresponding to Registry Title) Q.T. Register : District of SOUTH WEST Q.T. (R) No. 19 State of PENANG DOCUMENT OF QUALIFIED TITLE CATEGORY OF LANDUSE: /INDUSTRY *Mukim 12 L.O. No. PDBP.609/41/72 *Lease for a term of sixty (60) years Provisional Area 1.14 acres-49659 sq. ft. Expiring on 21st May 2033 Annual Rent $992-00 (PTG/PM/BD/26(2)) SPECIAL CONDITIONS OF QUALIFIED TITLE 1. This title is subject to the provisions of the National Land Code and to the all the express conditions and restrictions: (a) that is, the alienation herein is Delete (a), (b) approved subject to the aforesaid, (c) as appropriate see the letter numbered PTG/PM/BD/26(2) (c) enclosure herein 2. In the plan of the land below, the To be used for the boundaries shown in red, not having been purpose of established by survey, are provisional only. amalgamation only Sketch Plan The land described above is held by the proprietor for the time being named in the record of proprietorship below. Registered this 22nd May 1973 Seal of the Registrar of Land Titles, Penang .......... Registrar National Land Code commencing from 1st January 1994 (Penang) P.U. No. 18 dated 28th April 1994) quit rent has been ENGLISH TRANSLATION changed from RM992-00 to RM2, 483-00 (N.L.C. 20A) pursuant to Section National Land Code 101 of the National Land Code commencing Form 11A from 1st January 1984 (Penang) P.U. No. 38 dated 22nd December 1983) (Section 177) (Qualified Title Corresponding to Registry Title) Q.T. Register: District of SOUTH WEST Q.T. (R) No. 19 State of PENANG DOCUMENT OF QUALIFIED TITLE CATEGORY OF LANDUSE: /INDUSTRY *Mukim 12 L.O. No. PDBP.609/41/72 *Lease for a term of sixty (60) years Provisional Area 1.14 acres-49659 sq. ft. Expiring on 21st May 2033 Annual Rent $992-00 (PTG/PM/BD/26(2)) SPECIAL CONDITIONS OF QUALIFIED TITLE 1. This title is subject to the provisions of the National Land Code and to the all the express conditions and restrictions: (a) that is, the alienation Delete (a), (b) herein is approved subject to (c) as appropriate the aforesaid, see the letter numbered PTG/PM/BD/26(2) (b) enclosure herein To be used for the purpose of amalgamation only 2. In the plan of the land below, the boundaries shown in red, not having been established by survey, are provisional only. Sketch Plan The land described above is held by the proprietor for the time being named in the record of proprietorship below. Registered this 22nd May 1973 Seal of the Registrar of Land Titles, Penang Registrar Issue document of title issued this 22nd May 1973 Seal of the Registrar of Land Titles, Penang . Pendaftar To be completed when the title is issued in continuation Date of first alienation No. of original title (final or qualified) No. of immediately preceding title (if different from above) RECORD OF PROPRIETORSHIP, OF DEALINGS AND OF OTHER MATTERS AFFECTING TITLE PENANG DEVELOPMENT CORPORATION No longer in force Seal of the Registrar of Land Titles, Penang Land Transfer Presentation No. 70/76 Volume No. 179 Folio No. 13 All/ share of the land belonging to PENANG DEVELOPMENT CORPORATION is transferred to : Transferee Share NS Electronics Sdn. Bhd. ALL Registered on 6th January 1976 at 2.44 a.m./p.m. Seal of the Registrar of land Titles, Penang Payment of RM60-00 for certified copy had been paid vide Receipt no. 1021 dated 17/1/97 Certified Copy Legal Seal RECORD OF PROPRIETORSHIP, OF DEALINGS AND OF OTHER MATTERS AFFECTING TITLE ENCLOSURE "A" Express Conditions : (i) The proprietor shall within two years from the date of alienation or within such further term as may be approved by the State Authority erect a factory building or buildings on the land hereby alienated in accordance with the plan approved by the local authority and shall maintain the building or buildings so erected to the satisfaction of the Collector of Land Revenue, Balik Pulau. (ii) The proprietor shall treat, dispose of, or caused to be treated and disposed of trade effluents in a manner to the satisfaction of the Collector of Land Revenue, Balik Pulau. (iii) The proprietor shall pay and discharge all taxes, rates, assessments and charges whatsoever which may be payable for the time being in respect of the land hereby alienated or any part thereof, levied by the Rural District Council, Penang Island, or any other authority. (iv) The proprietor shall ensure that 25% of the employees engaged in the business for which the land is hereby alienated shall be Malays. Restrictions in Interest (i) The land hereby alienated shall not be transferred, charged, leased, subleased or otherwise in any manner dealt with or disposed of without the written sanction of the State Authority. Quit rent has been changed from RM 2,402 to Rm. 4,966-00 pursuant to Section 101 of the National Land Code commencing form 1st January 1994 (Penang) P.U. No. 18 dated 28th April 1994) quit rent has been changed ENGLISH TRANSLATION from RM992-00 to RM2, 483-00 pursuant to National Land Code (N.L.C. 20A) Section 101 of the National Land Code commencing from Form 11A 1st January 1984 (Penang) P.U. No. 38 dated 22nd December 1983) (Section 177) (Qualified Title Corresponding to Registry Title) Q.T. Register: District of SOUTH WEST Q.T. (R) No. 44 State of PENANG DOCUMENT OF QUALIFIED TITLE CATEGORY OF LANDUSE: INDUSTRY *Town/Mukim 12 *Grant in perpetuity L.O. No. PDBP.609/41/72 *Lease for a term of sixty (60) years Provisional Area approximately 5 acres Expiring on 7th May 2036 Annual Rent $4,350-00 (PTG/PM/BD/53(52) PTBP/PM/3/74) SPECIAL CONDITIONS OF QUALIFIED TITLE 1. This title is subject to the provisions of the National Land Code and to the all the express conditions and restrictions: EXPRESS CONDITIONS (i) The Proprietor shall within two years from the date of alienation or within such further term as may be approved by the State Authority erect a factory building or buildings on the land hereby alienated in accordance with the plan approved by the local authority and shall maintain the building or buildings so erected to the satisfaction of the State Authority. (ii) The Proprietor shall treat, dispose of, or caused to be treated and disposed of trade effluents in a manner to the satisfaction of the State Authority. (iii) The Proprietor shall pay and discharge all taxes, rates, assessments and charges whatsoever which may be payable for the time being in respect of the land hereby alienated or any part thereof, levied by the Rural District Council, Penang. (iv) The Proprietor shall ensure that 30% of the employees engaged in the business for which the land is hereby alienated shall be Malays. RESTRICTIONS IN INTEREST (i) The land hereby alienated shall not be transferred, charged, leased, subleased or otherwise in any manner dealt with or disposed of without the written sanction of the State Authority. The land hereby alienated shall not be subdivided. To be used 2. In the plan of the land below, the boundaries shown in red, not having for the been established by survey, are provisional only. purpose of amalgamation only Sketch Plan The land described above is held Issue document of title issued this by the proprietor for the time being 8th March 1976 named in the record of proprietorship below. Registered this 8th March 1976 Seal of the Registrar Seal of the Registrar of Land titles, Penang of Land Titles, Penang Illegible Illegible Registrar Registrar To be completed when the title is issued in continuation RECORD OF PROPRIETORSHIP, OF DEALINGS AND OF OTHER MATTERS AFFECTING TITLE A/share of land is leased by National Semiconductor Sdn. Bhd. To Tenaga Nasional Berhad for 30 years commence- ing on 5th January 199 to 4th January 2023 Registered on 16th August 1994 at 2:45p.m. Seal of the Registrar of Land Titles, Penang Land Transfer Presentation No. 11688/79 Volume No. 290 Folio No. 38 All/ share of the land belonging to MALAYSIAN INDUSTRIAL ESTATES SENDIRAN BERHAD is transferred to : Transferee Share N.S. ELECTRONIC SD. BHD. ALL Registered on 21st September 1979 at 10.42 a.m./ Seal of the Registrar of Land Titles, Penang Change of Name Volume 84 Folio 118 name N.S. Electronics Sdn. Bhd. Is changed to as follows: National Semiconductor Sdn. Bhd. Registered on 16th August 1994 at 2.45/p.m. Seal of the Registrar of Land Titles, Penang Quit rent has been changed ENGLISH TRANSLATION from RM. . . to RM22,515-00 pursuant to Section 101 of ISSUE DOCUMENT the National Land Code OF TITLE commencing form 1st (N.L.C. 20A-Pin. 2/76) January 1994 (Penang) National Land Code P.U. No. 18 dated 28th April 1994) Form 11A Section 177) (Qualified Title Corresponding to Registry Title) Q.T. Register : District of SOUTH WEST Q.T. (R) No. 3400-Mk 12 State of PENANG DOCUMENT OF QUALIFIED TITLE CATEGORY OF LANDUSE: INDUSTRY *Town/Village//Mukim 12 *Grant in Perpetuity L.O. No. 215 *Lease for a term of sixty (60) years Provisional Area 5.16864 acres. Expiring on 17th November 2042 Annual Rent $1,497-50 $4,567-50 PTG/PM/BD/62/A(4) PTBP/A/17/81 SPECIAL CONDITIONS OF QUALIFIED TITLE 1. This title is subject to the provisions of the National Land Code and to the following express conditions and restrictions : EXPRESS CONDITIONS (i) The subsequent proprietor registered after the Penang Development Corporation shall within two years from the date of alienation or within such further term as may be approved by the State Authority erect a factory building or buildings on the land hereby alienated in accordance with the plan approved by the local authority and shall maintain the building or buildings so erected to the satisfaction of the State Authority. (ii) The subsequent proprietor registered after the Penang Development Corporation shall treat, dispose of, or caused to be treated and disposed of trade effluents in a manner to the satisfaction of the State Authority. (iii) The subsequent proprietor registered after the Penang Development Corporation shall pay and discharge all taxes, rates, assessments and charges whatsoever which may be payable for the time being in respect of the land hereby alienated or any part thereof, levied by the Penang Municipal Council. (iv) The subsequent proprietor registered after the Penang Development Corporation shall ensure that 30% of the employees engaged in the business for which the land is hereby alienated shall be Mmalays. Payment of RM60-00 for certified copy had been paid vide Receipt no. 1021 dated 17/7/97 Certified copy RESTRICTIONS IN INTEREST (i) The land hereby alienated shall not be transferred, charged, leased, subleased or otherwise in any manner dealt with or disposed of without the subleased or otherwise in any manner dealt with or disposed of without the written sanction of the State Authority. (ii) The land hereby alienated shall not be subdivided. 2. In the Plan of the land below, the boundaries shown in red, not having been established by survey, are provisional only. Sketch Plan The land described above is held Issue document of title issued by the proprietor for the time being this 18th November 1982 named in the record of proprietorship below. Registered on 18th November 1982 Seal of the Registrar Seal of the Registrar of Land Titles, Penang of Land Titles, Penang Illegible Illegible ......... ....... Registrar Registrar To be completed when the title is issued in continuation Date of first alienation - No. of original title (final or qualified) - No. of immediately preceding title (if different from above) RECORD OF PROPRIETORSHIP, OF DEALINGS AND OF OTHER MATTERS AFFECTING TITLE No longer in force Seal of the Registrar of Land Titles, Penang Transfer of Land Presentation No. 6679/83 Volume No. 417 Folio No. 198 All/ share of the land belonging to PENANG DEVELOPMENT CORPORATION is transferred to : Transferee Share - ---------- ----- NATIONAL SEMICONDUCTOR SENDIRIAN BERHAD ALL Registered on 9th June 1983 at 10.43 a.m. Seal of the Registrar of Land Titles, Penang DATED THIS DAY OF 1997 BETWEEN NATIONAL SEMICONDUCTOR SDN BHD (the "Vendor") AND FAIRCHILD SEMICONDUCTOR (MALASIA) SADN BHD (the "Purchase") SALE AND PURCHASE AGREEMENT CONTENTS NO DESCRIPTION PAGE - -- ----------- ---- 1. AGREEMENT SALE.................................................. 2 2. AGREEMENT UNCONDITIONAL......................................... 2 3. PAYMENT OF TOTAL PURCHASE....................................... 2 4. CLOSING DATE.................................................... 2 5. THE PURCHASER'S SOLICITORW OBLIGATION IN RESPECT OF THE RETENTION SUM.......................................... 3 6. RETENTION SUM................................................... 3 7. COMPLIANCE WITH THE REAL PROPERTY GAIN TAX ACT 1976............. 4 8. EXECUTION OF TRANSFER........................................... 4 9. TENANCY......................................................... 4 10. APPORTIONMENT OF QUIT RENT AND ASSESSMENTS...................... 4 11. COVENANTS, WARRANTIES AND UNDERTAKINGS OF THE VENDOR............ 5 12. INDEMNITY....................................................... 6 13. ACQUISITION..................................................... 6 14. CAVEAT.......................................................... 6 15. TIME............................................................ 6 16. COSTS........................................................... 7 17. NOTICE.......................................................... 7 18. SUCCESSORS, ETC. BOUND.......................................... 7 19. GOVERNING LAW................................................... 7 20. MASTER ASSET PURCHASE AGREEMENT................................. 7 EXECUTION....................................................... 8 THIS AGREEMENT is made this day of 1997 BETWEEN NATIONAL SEMICONDUCTOR SDN BHD a private limited company incorporated in Malaysia having its registered address at Bayan Lepas Free Industrial Zone, 11900 Bayan Lepas, Penang, Malaysia (the "Vendor") AND FAIRCHILD SEMICONDUCTOR (MALAYSIA) SDN BHD a private limited company incorporated in Malaysia and having its registered office at No. 16-2B, Second Floor, Jalan 1/76D, Desa Panda, 55100 Kuala Lumpur (the "Purchaser") of the other part. WHEREAS: (A) The Vendor is the registered proprietor of all that piece of land held under H.S.(D) 3400 Mk12 PT 215, Mukim 12 Daerah Barat Daya, Penang, measuring approximately an area of 5.16864 acres (hereinafter referred to as the "Said Property"). (B) The document of title to the Said Property is endorsed with express conditions and/or restrictions-in-interest (C) The Vendor has agreed to sell and the Purchaser has agreed to purchase the Said Property subject to the conditions of title express or implied affecting the same but otherwise free from all encumbrances and with an existing tenancy on one storey of a two storey building situated on the Said Property with Dynacraft Industries Sdn Bhd pursuant to a tenancy agreement dated 20 January 1996 (the "Tenancy") at the total purchase price of price of Ringgit Thirty Three Million Five Hundred Thousand only (RM33,500,000) (hereinafter referred to as the "Total Purchase Price") subject to the terms and conditions hereinafter appearing. NOW IT IS HEREBY AGREED as follows: 1. AGREEMENT FOR SALE Subject to the provisions of this Agreement, the Vendor shall sell and the Purchaser shall purchase the Said Property subject to the conditions of title express or implied affecting the same but otherwise free from all encumbrances and with vacant possession at the Total Purchase Price and upon the terms and subject to the conditions herein contained. 2. AGREEMENT UNCONDITIONAL The Agreement shall be unconditional. 3. PAYMENT OF TOTAL PURCHASE PRICE 3.1 The Total Purchase Price shall be paid by the Purchaser to the Vendor on 11 March 1997 (the "Closing Date"). 3.2 All moneys paid to the Vendor pursuant to this Agreement are paid on the condition that they shall become repayable to the Purchaser if the Transfer (as hereinafter defined) cannot be registered for any reason whatsoever due to the Purchaser's default. In such event, the Vendor hereby agrees to refund all the said moneys upon the expiry of seven (7) days from the date of receipt by the Vendor of a notice from the Purchaser requesting for such refund, failing which the Vendor shall in addition pay to the Purchaser interest thereon at the rate often per centum (10%) per annum, calculated from the day next after the expiry of the said seven (7) days to the date of receipt by the Purchaser of such payment based on a three hundred and sixty-five (365) day year on the actual number of days elapse, such interest to be payable together with the said moneys. 4. CLOSING DATE 4.1 Upon payment buy the Purchaser of the Total Purchase Price on or before the expiry of the Closing Date, the Vendor shall deliver or cause to be delivered to the Purchaser's Solicitors: (a) the valid and registerable memorandum of transfer of the Said Property from the Vendor in favour of the Purchaser (hereinafter referred to as the "Transfer"); (b) all other relevant documents including the issue document of title to the Said Property to effect the registration of the Purchaser as the proprietor of the Said Property; and (c) the latest receipts for payment of all quit rent and assessment payable in respect of the Said Property. 5. THE PURCHASER'S SOLICITORS OBLIGATION IN RESPECT OF THE RETENTION SUM Shearn Delamore, of 6 Floor Wisma Penang Gardeb, No. 42 Jalan Sultan Ahmad Shab 10050, Penang (the "Purchaser's Solicitors") shall be paid by the Vendor on the Closing Date, such sum (hereinafter referred to as the "Retention Sum") as shall be required to be retained by Purchaser pursuant to the provisions of the Real Property Gains Tax Act 1976 or any amendment, re-enactment or re-certification htereof (hereinafter referred to as the "Act"). 6. RENTION SUM The Retention Sum shall be deposited by the Purchaser's Solicitors with a bank or other financial institution (hereinafter referred to as the "Bank") and placed on fixed deposit in the name of the Purchaser's Solicitors for period of one (1) month each. The Purchaser's Solicitors shall, and the parties hereto hereby authorize them to do so, pay to the Director-General of the Inland Revenue Board, Malaysia, out of the Retention Sum and all interest earned thereon such sum as may be deemed by requisition as defined in the Act served on the Purchaser or the Vendor pursuant to the Act unless the Purchaser's Solicitors shall have received a notice of clearance from the Director-General to the effect that no real property gains tax is payable or that the said tax as assessed by the Director-General has been paid, as the case may be, in which event the Retention Sum shall be released forthwith to the Vendor by the Purchaser's Solicitors together with all interest earned thereon upon receipt of such notice of clearance from the Director-General. PROVIDED FURTHER that if the sale and purchase hereunder of the Said Property shall be rescinded in accordance with the provisions of this Agreement, the Purchaser's Solicitors shall unless the Purchaser otherwise direct immediately cause the Retention Sum together with all interest earned thereon to be withdrawn from fixed deposit upon withdrawal immediately pay the same (after deduction or any penalty levied by the Bank for early withdrawal) to the Purchaser. 7. COMPLIANCE WITH THE REAL PROPERTY GAINS TAX ACT 1976 7.1 Each party hereto hereby covenants and undertakes with the other party hereto: (a) to duly submit such notifications and execute and do all documents acts and things on each of their part to be executed and done under the Act; and (b) to indemnify and save harmless the other party hereto against all liabilities penalties actions proceedings demands and costs resulting from their respective default if any in complying with the Act. 7.2 Without prejudice to the generality of the foregoing, the Vendor hereby undertakes that it will bear and pay all taxes if any chargeable under the Act on the disposal of the Said Property (if any) and keep the Purchaser, their successors-in-title, assigns and persons deriving title thereunder indemnified in respect thereof. 8. EXECUTION OF TRANSFER The parties hereto shall simultaneously with the execution of this Agreement, execute the Transfer and deliver the same to the Purchaser's Solicitors to present the same to the Collector of Stamp Duty for adjudication as to the stamp duty chargeable thereon. 9. TENANCY The Said Property shall be sold subject to the Tenancy. 10. APPORTIONMENT OF QUIT RENT AND ASSESSMENTS All quit rent and assessment charges payable in respect of the Said Property shall be apportioned as at the Closing Date, as the case may be, and any sum due by virtue of such apportionment shall be paid or allowed as the case may be on the date of apportionment. PROVIDED ALWAYS that the Vendor shall indemnify the Purchaser, their successors-in-title, assigns and persons deriving title thereunder in respect of all penalties fines and damages which may arise as a result of any late payments or defaults in payment by the Vendor in respect of such quit rent and assessment charges if such are incurred prior to the date of apportionment. 11. COVENANTS, WARRANTIES AND UNDERTAKINGS OF THE VENDOR 11.1 Subject to Clause 9, as at the date hereof, the Vendor hereby covenants, undertakes, warrants and represents to and with the Purchaser that: (a) the Vendor has the power and authority to enter into this Agreement and to do all acts and things on its part to be done and performed pursuant hereto; (b) the Said Property is free from all encumbrances and to the best of this knowledge and belief no impediment exists which would impede, prevent, affect or obstruct the registration of the Transfer of the Said Property from the Vendor to the Purchaser; (c) there are no rates, charges, taxes or other outgoings which are in arrears and outstanding in respect of the Said Property; (d) all express and implied conditions of title to the Said Property have been complied with; (e) there are no subsisting sale and purchase agreements in respect of the Said Property or any part thereof between the Vendor and any third party or parties; (f) the Vendor shall not hereafter save with consent of the Purchaser mortgage, charge, transfer, sell, convey or otherwise deal with the Said Property so as to encumber, encroach upon or divest the Purchaser of its rights, title and interest to the Said Property. 11.2 The Vendor further covenants, warrants and undertakes to and with the Purchaser that all warranties and undertakings on his part herein contained will be fulfilled down to and will be true and correct at completion in all respects as if they had been entered into afresh at completion. 11.3 Notwithstanding the completion of the sale and purchase hereunder, all covenants, warranties, undertakings and obligations, given hereunder or undertaken herein shall continue hereafter to subsist for so long as may be necessary to give effect to each and every one of them in accordance with the terms hereof. 12. INDEMNITY The Vendor shall indemnify the Purchaser, its successors-in-title and assigns against all losses, claims, damages and costs suffered or otherwise incurred by the Purchaser arising out of or resulting from any misrepresentation or breach of warranty or covenant of the Vendor as herein set out and against all liability in respect of any taxes fees or charges payable in respect of the Said Property prior to the Closing Date under any Act of Parliament or any instrument rule or order made under any Act of Parliament or any regulation bye-law or instrument of any local authority or of any statutory or other appropriate body. 13. ACQUISITION The Vendor hereby warrants and undertakes to the Purchase that as at the date of execution of this Agreement there has not been any acquisition of the Said Property or any part thereof and that the same is not subject to any acquisition or intended acquisition by any governmental statutory urban or municipal authority and that no advertisement in the Government Gazette of such intention has been published pursuant to the Land Acquisition Act 1960 or any amendment re-enactment or re-certification hereof. 14. CAVEAT The Purchaser shall be entitled at any time after the execution of this Agreement at its own cost and expense to lodge with the appropriate authorities a private caveat against any dealing with the Said Property until the registration of the Transfer in favour of the Purchaser. PROVIDED THAT in the event this Agreement is terminated pursuant to the provisions hereof, the Purchaser shall at its own cost and expense withdraw the aforesaid private caveat PROVIDED FURTHER THAT for the purpose of effecting the registration of the Transfer the Purchaser shall at its own cost and expense withdraw the aforesaid private caveat. 15. TIME Time is of the essence of this Agreement. 16. COSTS Each party shall bear its own solicitor's costs in respect of the sale and purchase hereunder. The parties shall bear in equal proportion the expenses of all stamp and registration fees together with such other disbursements of and incidental to the registration of the Transfer of the Said Property. 17. NOTICE Any notice or request with reference to this Agreement shall be in writing and shall be deemed to have been sufficiently served or given for all purposes herein on the respective parties hereto if left by hand, or sent by facsimile, telex, telegram or prepaid registered post to the party to whom it is addressed at the address above stated or to such address as the addressee party may notify to the other in writing or to their respective solicitors or agents duly authorised and shall in the case of a notice or request sent by facsimile be deemed to have been served on the day of the transmission of such notice or communication provided such day is a business day and if it is not, such notice or communication shall be deemed to be served on the next succeeding business day and confirmation of transmission is received or registered and a confirmation of the facsimile is sent by prepaid registered post. Any notice or communication sent by telex, telegram or prepaid registered post shall be deemed to have been given a the time when it ought in the ordinary course of transmission or post have been received. 18. SUCCESSORS, ETC. BOUND This Agreement shall be binding upon the respective heirs, personal representatives, successors-in-title and permitted assigns of the parties hereto. 19. GOVERNING LAW The validity, interpretation and performance of this Agreement shall be interpreted in accordance with the laws of Malaysia. 20. MASTER ASSET PURCHASE AGREEMENT This Agreement is entered into to fulfill the terms of the Asset Purchase Agreement between National Semiconductor Corporation and Fairchild Semiconductor Corporation dated the same date hereof (the "Master Asset Purchase Agreement"). If there shall be any inconsistency between the provisions of this Agreement and the Master Asset Purchase Agreement, the provisions of the Master Asset Purchase Agreement shall prevail. IN WITNESS WHEREOF the parties hereto have hereunto set their hands hereunder. The Vendor Signed by ) for and on behalf of ) in the presence of ) The Purchaser Signed by ) for and on behalf of ) in the presence of ) DATED THIS DAY OF 1997 BETWEEN NATIONAL SEMICONDUCTOR SDN BHD (the "Vendor") AND FAIRCHILD SEMICONDUCTOR (MALAYSIA) SDN BHD (the "Purchaser") SALE AND PURCHASE AGREEMENT CONTENTS NO DESCRIPTION PAGE - --- ------------ ---- 1. AGREEMENT FOR SALE 2 2. AGREEMENT UNCONDITIONAL 2 3. PAYMENT OF TOTAL PURCHASE 2 4. CLOSING DATE 2 5. THE PURCHASER'S SOLICITORS OBLIGATION IN RESPECT OF THE RETENTION SUM 3 6. RETENTION SUM 3 7. COMPLIANCE WITH THE REAL PROPERTY GAIN TAX ACT 1976 4 8. EXECUTION OF TRANSFER 4 9. TENANCY 4 10. APPORTIONMENT OF QUIT RENT AND ASSESSMENTS 4 11. COVENANTS, WARRANTIES AND UNDERTAKINGS OF THE VENDOR 5 12. INDEMNITY 6 13. ACQUISITION 6 14. CAVEAT 6 15. TIME 6 16. COSTS 7 17. NOTICE 7 18. SUCCESSORS, ETC. BOUND 7 19. GOVERNING LAW 7 20. MASTER ASSET PURCHASE AGREEMENT 7 EXECUTION 7 THIS AGREEMENT is made this day of 1997. BETWEEN NATIONAL SEMICONDUCTOR SDN BHD a private limited company incorporated in Malaysia having its registered address at Bayan Lepas Free Industrial Zone, 11900 Bayan Lepas, Penang, Malaysia (the "Vendor"). AND FAIRCHILD SEMICONDUCTOR (MALAYSIA) SDN BHD a private limited company incorporated in Malaysia and having its registered office at No. 16-2B, Second Floor, Jalan 1/76D, Desa Pandan, 55100 Kuala Lumpur (the "Purchaser") of the other part. WHEREAS: (A) The Vendor is the registered proprietor of all that piece of land held under H.S. (D) 19 No. PT PDBP, 609/41/72, Mukim 12 Daerah Barat Daya, Penang, measuring approximately an area of 1.14 acres (hereinafter referred to as the "Said Property"). (B) The document of title to the Said Property is endorsed with express conditions and/or restrictions-in-interest. (C) The Vendor has agreed to sell and the Purchaser has agreed to purchase the Said Property subject to the conditions of title express or implied affecting the same but otherwise free from all encumbrances and with vacant possession at the total purchase price of Ringgit Three Million Five Hundred and Fifty Thousand only (RM3,550,000) (hereinafter referred to as the "Total Purchase Price") subject to the terms and conditions hereinafter appearing. NOW IT IS HEREBY AGREED as follows:- 1. AGREEMENT FOR SALE Subject to the provisions of this Agreement, the Vendor shall sell and the Purchaser shall purchase the Said Property subject to the conditions of title express or implied affecting the same but otherwise free from all encumbrances and with vacant possession at the Total Purchase Price and upon the terms and subject to the conditions herein contained. 2. AGREEMENT UNCONDITIONAL This Agreement shall be unconditional. 3. PAYMENT OF TOTAL PURCHASE PRICE 3.1 The Total Purchase Price shall be paid by the Purchaser to the Vendor on 11 March 1997 (the "Closing Date"). 3.2 All moneys paid to the Vendor pursuant to this Agreement are paid on the condition that they shall become repayable to the Purchaser if the Transfer (as hereinafter defined) cannot be registered for any reason whatsoever not due to the Purchaser's default. In such event, the Vendor hereby agrees to refund all the said moneys upon the expiry of seven (7) days from the date of receipt by the Vendor of a notice from the Purchaser requesting for such refund, failing which the Vendor shall in addition pay to the Purchaser interest thereon at the rate often per centum (10%) per annum, calculated from the day next after the expiry of the said seven (7) days to the date of receipt by the Purchaser of such payment based on a three hundred and sixty-five (365) day year on the actual number of days elapsed, such interest to be payable together with the said moneys. 4. CLOSING DATE 4.1 Upon payment by the Purchaser of the Total Purchaser Price on or before the expiry of the Closing Date, the Vendor shall deliver or cause to be delivered to the Purchaser's Solicitors:- (a) the valid and registerable memorandum of transfer of the Said Property from the Vendor in favour of the Purchaser (hereinafter referred to as the "Transfer"); (b) all other relevant documents including the issue document of title to the Said Property to effect the registration of the Purchaser as the proprietor of the Said Property; and (c) the latest receipts for payments of all quit rent and assessment payable in respect of the Said Property. 5. THE PURCHASER'S SOLICITORS OBLIGATION IN RESPECT OF THE RENTENTION SUM Shearn Delamore, of 6 Floor Wisma Penang Garden, No. 42 Jalan Sultan Ahmad Shah 10050, Penang (the "Purchaser's Solicitors") shall be paid by the Vendor on the Closing Date, such sum (hereinafter referred to as the "Retention Sum") as shall be required to be retained by the Purchaser pursuant to the provisions of the Real Property Gains Tax Act 1976 or any amendment, re-enactment or re-certification thereof (hereinafter referred to as the "Act"). 6. RETENTION SUM 6.1. The Retention Sum shall be deposited by the Purchaser's Solicitors with a bank or other financial institution (hereinafter referred to as the "Bank") and placed on fixed deposit in the name of the Purchaser's Solicitors for periods of one (1) month each. The Purchaser's Solicitors shall, ad the parties hereto hereby authorise them to do so, pay to the Director-General of the Inland Revenue Board, Malaysia, out of the Retention Sum and all interest earned thereon such sum as may be demanded by requisition as defined in the Act served on the Purchaser or the Vendor pursuant to the Act unless the Purchaser's Solicitors shall have received a notice of clearance from the Director-General to the effect that no real property gains tax is payable or that the said tax as assessed by the Director-General has been paid, as the case may be, in which event the Retention Sum shall be released forthwith to the Vendor by the Purchaser's Solicitors together with all interests earned thereon upon receipt of such notice of clearance from the Director-General. PROVIDED FURTHER that if the sale and purchase hereunder of the Said Property shall be rescinded in accordance with the provisions of this Agreement, the Purchaser's Solicitors shall unless the Purchaser otherwise direct immediately cause the Retention Sum together with all interest earned thereon to be withdrawn from fixed deposit and upon withdrawal immediately pay the same (after deduction or any penalty levied by the Bank for early withdrawal) to the Purchaser. 7. COMPLIANCE WITH THE REAL PROPERTY GAINS TAX ACT 1976 7.1 Each party hereto covenants and undertakes with the other party hereto:- (a) to duly submit such notifications and execute and do all documents acts and things on each of their part to be executed and done under the Act, and (b) to indemnify and save harmless the other party hereto against all liabilities penalties actions proceedings demands and costs resulting from their respective default if any in complying with the Act. 7.2 Without prejudice to the generality of the foregoing, the Vendor hereby undertakes that it will bear and pay all taxes if any chargeable under the Act on the disposal of the Said Property (if any) and keep the Purchaser, their successors-in-title, assigns and persons deriving title thereunder indemnified in respect thereof. 8. EXECUTION OF TRANSFER The parties hereto shall simultaneously with the execution of this Agreement, execute the Transfer and deliver the same to the Purchaser's Solicitors to present the same to the Collector of Stamp Duty for adjudication as to the stamp duty chargeable thereon. 9. VACANT POSSESSION Vacant possession of the Said Property shall be delivered by the Vendor to the Purchaser upon receipt of the Total Purchase Price by the Purchaser's Solicitors in accordance with Clause 3 hereof. 10. APPORTIONMENT OF QUIT RENT AND ASSESSMENTS All quit rent and assessment charges payable in respect of the Said Property shall be apportioned as at the date of delivery of vacant possession of the Said Property and any sums due by virtue of such apportionment shall be paid or allowed as the case may be on the date of apportionment. PROVIDED ALWAYS that the Vendor shall indemnify the Purchaser, their successors-in-title, assigns and persons deriving title thereunder in respect of all penalties fines and damages which may arise as a result of any late payments or defaults in payment by the Vendor in respect of such quit rent and assessment charges if such are incurred prior to the date of apportionment. 11. COVENANTS, WARRANTIES AND UNDERTAKINGS OF THE VENDOR 11.1 As at the date hereof, the Vendor hereby covenants, undertakes, warrants and represents to and with the Purchase that:- (a) the Vendor has the power and authority to enter into this Agreement and to do all acts and things on its part to be done and performed pursuant hereto; (b) the Said Property is free from all encumbrances and to the best of this knowledge and belief no impediment exists which would impede, prevent, affect or obstruct the registration of the Transfer of the Said Property from the Vendor to the Purchaser. (c) there are no rates, charges, taxes or other outgoings which are in arrears and outstanding in respect of the Said Property. (d) all express and implied conditions of title to the Said Property have been complied with; (e) there are no subsisting sale and purchase agreements in respect of the Said Property or any part thereof between the Vendor and any third party or parties; (f) there are no other party or parties with any valid or legal claim interest or benefit in the Said Property or any part thereof; (g) the Vendor shall not hereafter save with the consent of the Purchaser mortgage, charge, transfer, sell, convey or otherwise deal with the Said Property so as to encumber, encroach upon or divest the Purchaser of its rights, title and interest to the Said Property. 11.2 The Vendor further covenants, warrants and undertakes to and with Purchaser that all warranties and undertakings on his part herein contained will be fulfilled down to and will be true and correct at completion in all respects as if they had been entered into afresh at completion. 11.3 Notwithstanding the completion of the sale and purchase hereunder, all covenants, warranties, undertakings and obligations given hereunder or undertaken herein shall continue hereafter to subsist for so long as may be necessary to give effect to each and every one of them in accordance with the terms hereof. 12. INDEMNITY The Vendor shall indemnify the Purchaser, its successors-in-title and assigns against all losses, claims, damages and costs suffered or otherwise incurred by the Purchaser arising out of or resulting from any misrepresentation or breach of warranty or covenant of the Vendor as herein set out and against all liability in respect of any taxes fees or charges payable in respect of the Said Property prior to the date of delivery of vacant possession of the Said Property referred to in Clause 9 hereof under any Act of Parliament or any instrument rule or order made under any Act of Parliament or any regulation bye-law or instrument of any local authority or of any statutory or other appropriate body. 13. ACQUISITION 13.1 The Vendor hereby warrants and undertakes to the Purchase that as at the date of execution of this Agreement there has not been any acquisition of the Said Property or any part thereof and that the same is not subject to any acquisition or intended acquisition by any governmental statutory urban or municipal authority and that no advertisement in the Government Gazette of such intention has been published pursuant to the Land Acquisition Act 1960 or any amendment re-enactment or re-certification hereof. 14. CAVEAT The Purchaser shall be entitled at any time after the execution of this Agreement at its own cost and expense to lodge with the appropriate authorities a private caveat against any dealing with the Said Property until the registration of the Transfer in favor of the Purchaser. PROVIDED THAT in the event this Agreement is terminated pursuant to the provisions hereof, the Purchaser shall at its own cost and expense withdraw the aforesaid private caveat PROVIDED FURTHER THAT for the purpose of effecting the registration of the Transfer the Purchaser shall at its own cost and expense withdraw the aforesaid private caveat. 15. TIME Time is of the essence of this Agreement. 16. COSTS Each party shall bear its own solicitor's costs in respect of the sale and purchase hereunder. The parties shall bear in equal proportion, the expenses of all stamp and registration fees together with such other disbursements of and incidental to the registration of the Transfer of the Said Property. 17. NOTICE Any notice or request with reference to this Agreement shall be in writing and shall be deemed to have been sufficiently served or given for all purposes herein on the respective parties hereto if left by hand or sent by facsimile, telex, telegram or prepaid registered post to the party to whom it is addressed at the address above stated or to such address as the addressee party may notify to the other in writing or to their respective solicitors or agents duly authorized and shall in the case of a notice or request sent by facsimile be deemed to have been served on the day of the transmission of such notice or communication provided such day is a business day and if it is not, such notice or communication shall be deemed to be served on the next succeeding business day and conformation of transmission is received or registered and a confirmation of the facsimile is sent by prepaid registered post. Any notice or communication sent by telex, telegram or prepaid registered post shall be deemed to have been given at the time when it ought in the ordinary course of transmission or post to have been received. 18. SUCCESSORS, ETC BOUND This Agreement shall be binding upon the respective heirs, personal representatives, successors-in-title and permitted assigns of the parties hereto. 19. GOVERNING LAW The validity, interpretation and performance of this Agreement shall be interpreted in accordance with the laws of Malaysia. 20. MASTER ASSET PURCHASE AGREEMENT This Agreement is entered into to fulfill the terms of the Asset Purchase Agreement between National Semiconductor Corporation and Fairchild Semiconductor Corporation dated the same date hereof (the "Master Asset Purchase Agreement"). If there shall be any inconsistency between the provisions of this Agreement and the Master Asset Purchase Agreement, the provisions of the Master Asset Purchase Agreement shall prevail. IN WITNESS WHEREOF the parties hereto have hereunto set their hands hereunder. The Vendor Signed by ) for and on behalf of ) in the presence of ) The Purchaser Signed by ) for and on behalf of ) in the presence of ) DATED THIS 11TH DAY OF MARCH, 1997 BETWEEN NATIONAL SEMICONDUCTOR SDN BHD (the "Vendor") AND FAIRCHILD SEMICONDUCTOR (MALAYSIA) SDN BHD (the "Purchaser") ------------------------------------------- SALE AND PURCHASE AGREEMENT ------------------------------------------- CONTENTS NO DESCRIPTION PAGE - -- ----------- ---- 1. AGREEMENT FOR SALE.......................................2 2. AGREEMENT UNCONDITIONAL..................................2 3. PAYMENT OF TOTAL PURCHASE................................2 4. CLOSING DATE.............................................2 5. THE PURCHASER'S SOLICITORW OBLIGATION IN RESPECT OF THE RETENTION SUM.....................................3 6. RETENTION SUM............................................3 7. COMPLIANCE WITH THE REAL PROPERTY GAIN TAX ACT 1976......4 8. EXECUTION OF TRANSFER....................................4 9. TENANCY..................................................4 10. APPORTIONMENT OF QUIT RENT AND ASSESSMENTS...............4 11. COVENANTS, WARRANTIES AND UNDERTAKINGS OF THE VENDOR.....5 12. INDEMNITY................................................6 13. ACQUISITION..............................................6 14. CAVEAT...................................................6 15. TIME.....................................................6 16. COSTS....................................................7 17. NOTICE...................................................7 18. SUCCESSORS, ETC. BOUND...................................7 19. GOVERNING LAW............................................7 20. MASTER ASSET PURCHASE AGREEMENT..........................7 EXECUTION 8 THIS AGREEMENT is made this day of MARCH 11, 1997 BETWEEN NATIONAL SEMICONDUCTOR SDN BHD a private limited company incorporated in Malaysia having its registered address at Bayan Lepas Free Industrial Zone, 11900 Bayan Lepas, Penang, Malaysia (the "Vendor") AND FAIRCHILD SEMICONDUCTOR (MALAYSIA) SDN BHD a private limited company incorporated in Malaysia and having its registered office at No. 16-2B, Second Floor, Jalan 1/76D, Desa Pandan, 55100 Kuala Lumpur (the "Purchaser") of the other part. WHEREAS:- (A) The Vendor is the registered proprietor of all that piece of land held under H.S.(D) 44 PT 169, Mukim 12 Dacrah Barat Daya, Penang, measuring approximately an area of 5 acres (hereinafter referred to as the "Said Property"). (B) The document of title to the Said Property is endorsed with express conditions and/or restrictions-in-interest. (C) The Vendor has agreed to sell and the Purchaser has agreed to purchase the Said Property subject to the conditions of title express or implied affecting the same but otherwise free from all encumbrances and with vacant possession at the total purchase price of Ringgit Twenty Two Million Two Hundred Thousand (RM22,200,000) (hereinafter referred to as the "Total Purchase Price") subject to the terms and conditions hereinafter appearing. NOW IT IS HEREBY AGREED as follows: 1. AGREEMENT FOR SALE Subject to the provisions of this Agreement, the vendor shall sell and the Purchaser shall purchase the Said Property subject to the conditions of title express or implied affecting the same but otherwise free from all encumbrances and with vacant possession at the Total Purchase Price and upon the terms and subject to the conditions herein contained. 2. AGREEMENT UNCONDITIONAL This Agreement shall be unconditional. 3. PAYMENT OF TOTAL PURCHASE PRICE 3.1 The Total Purchase Price shall be paid by the Purchaser to the Vendor on 11 March 1997 (the "Closing Date"). 3.2 All moneys paid to the Vendor pursuant to this Agreement are paid on the conditions that they shall become repayable to the Purchaser if the Transfer (as hereinafter defined) cannot be registered for any reason whatsoever not due to the Purchaser's default. In such event, the Vendor hereby agrees to refund all the said moneys upon the expiry of seven (7) days from the date of receipt by the Vendor of a notice from the Purchaser requesting for such refund, failing which the Vendor shall in addition pay to the Purchaser interest thereon at the rate of often per centum (10%) per annum, calculated from the day next after the expiry of the said seven (7) days to the date of receipt by the Purchaser of such payment based on a three hundred and sixty-five (365) day year on the actual number of days elapsed, such interest to be payable together with the said moneys. 4. CLOSING DATE 4.1 Upon payment by the Purchaser of the Total Purchase Price on or before the expiry of the Closing Date, the vendor shall deliver or cause to be delivered to the Purchaser's Solicitors: (a) the valid and registrable memorandum of transfer of the Said Property from the Vendor in favour of the Purchaser (hereinafter referred to as the "Transfer"); (b) all other relevant documents including the issue document of title to the Said Property to effect the registration of the Purchaser as the proprietor of the Said Property; and (c) the latest receipts for payments of all quit rent and assessment payable in respect of the Said Property. 5. THE PURCHASER'S SOLICITORS OBLIGATION IN RESPECT OF THE RETENTION SUM Shearn Delamore, of 6 Floor Wisma Penang Garden, No. 42 Jalan Sultan Ahmad Shah 10050, Penang (the "Purchaser's Solicitors:) shall be paid by the Vendor on the Closing Date, such sum (hereinafter referred to as the "Retention Sum") as shall be required to be retained by the Purchaser pursuant to the provisions of the Real Property Gains Tax Act 1976 or any amendment, re-enactment or re-certification thereof (hereinafter referred to as the "Act"). 6. RETENTION SUM 6.1 The Retention Sum shall be deposited by the Purchaser's Solicitors with a bank or other financial institution (hereinafter referred to as the "Bank") and placed on fixed deposit in the name of the Purchaser's Solicitors for periods of one (1) month each. The Purchaser's Solicitors shall, and the parties hereto hereby authorize them to do so, pay to the Director-General of the Inland Revenue Board, Malaysia, out of the retention Sum and all interest earned thereon such sum as may be demanded by requisition as defined in the act served on the Purchaser or the Vendor pursuant to the Act unless Purchaser's Solicitors shall have received a notice of clearance from the Director-General to the effect that no real property gains tax is payable or that the said tax as assessed by the Director-General has been paid, as the case may be, in which event the Retention Sum shall be released forthwith to the vendor by the Purchaser's Solicitors together with all interest earned thereon upon receipt of such notice of clearance from the director-general. PROVIDED FURTHER that if the sale and purchase hereunder of the Said Property shall be rescinded in accordance with the provisions of this Agreement, the Purchaser's Solicitors shall unless the Purchaser otherwise direct immediately cause the Retention Sum together with the interest earned thereon to be withdrawn from fixed deposit and upon withdrawal immediately pay the same (after deduction or any penalty levied by the Bank for early withdrawal) to the Purchaser. 7. COMPLIANCE WITH THE REAL PROPERTY GAINS TAX ACT 1976 7.1 Each party hereto hereby covenants and undertakes with the other party hereto:- a) to duly submit such notifications and execute and do all documents acts and things on each of their part to be executed and done under the Act, and (b) to indemnify and save harmless the other party hereto against all liabilities penalties actions proceedings demands and costs resulting from their respective default if any in complying with the Act. 7.2. Without prejudice to the generality of the foregoing, the Vendor hereby undertakes that it will bear and pay all taxes if any chargeable under the Act on the disposal of the said Property (if any) and keep the Purchaser, their successors-in-title, assigns and persons deriving title thereunder indemnified in respect thereof. 8. EXECUTION OF TRANSFER The parties hereto shall simultaneously with the execution of this Agreement, execute the Transfer and deliver the same to the Purchaser's Solicitors to present the same to the collector of Stamp Duly for adjudication as to the stamp duly chargeable thereon. 9. VACANT POSSESSION Vacant possession of the Said Property shall be delivered by the Vendor to the Purchaser upon receipt of the Total Purchase Price by the Purchaser's Solicitors in accordance with Clause 3 hereof. 10. APPORTIONMENT OF QUIT RENT AND ASSESSMENTS All quit rent and assessment charges payable in respect of the Said Property shall be apportioned as at the date of delivery of vacant possession of the Said Property and any sums due by virtue of such apportionment shall be paid or allowed as the case may be on the date of apportionment. PROVIDED ALWAYS that the Vendor shall indemnify the Purchaser, their successors-in-title, assigns and persons deriving title thereunder in respect of all penalties fines and damages which may arise as a result of any late payments or defaults in payments by the Vendor in respect of such quit rent and assessment charges if such are incurred prior to the date of apportionment. 11. COVENANTS, WARRANTIES AND UNDERTAKINGS OF THE VENDOR 11.1 As at the date hereof, the Vendor hereby covenants, undertakes, warrants and represents to and with the Purchaser that: (a) the Vendor has the power and authority to enter into this Agreement and to do all acts and things on its part to be done and performed pursuant hereto; (b) the Said Properly is free from all encumbrances and to the best of this knowledge and belief no impediment exists which would impede, prevent, affect or obstruct the registration of the Transfer of the Said Property from the Vendor to the Purchaser; (c) there are no rates, charges, taxes or other outgoings which are in arrears and outstanding in respect of the Said Property; (d) all express and implied conditions of title to the Said Property have been complied with; (e) there are no subsisting sale and purchase agreements in respect of the Said Property or any part thereof between the Vendor and any third party or parties; (f) there are no other party or parties with any valid or legal claim interest or benefit in the Said Property or any part thereof. (g) the Vendor shall not hereafter save with the consent of the Purchaser mortgage, charge, transfer, sell, convey or otherwise deal with the Said Property so as to encumber, encroach upon or divest the Purchaser of its rights, title and interest to the Said Property. 11.2. The Vendor further covenants, warrants and undertakes to and with the Purchaser that all warranties and undertakings on his part herein contained will be fulfilled down to and will be true and correct at completion in all respects as if they had been entered into afresh at completion. 11.3 Notwithstanding the completion of the sale and purchase hereunder, all covenants warranties, undertakings and obligations given hereunder or undertaken herein shall continue hereafter to subsist for so long as may be necessary to give effect to each and every one of them in accordance with the terms hereof. 12. INDEMNITY The Vendor shall indemnify the Purchaser, its successors-in-title and assigns against all losses, claims, damages and costs suffered or otherwise incurred by Purchaser arising out of or resulting from any misrepresentation or breach of warranty or covenant of the Vendor as herein set out and against all liability in respect of any taxes fees or charges payable in respect of the Said Property prior to the date of delivery of vacant possession of the Said Property referred to in Clause 9 hereof under any Act of Parliament or any instrument rule or order made under any Act of Parliament or any regulation bye-law or instrument of any local authority or of any statutory or other appropriate body. 13. ACQUISITION 13.1 The Vendor hereby warrants and undertakes to the Purchase that as at the date of execution of this Agreement there has not been any acquisition of the Said Property or any part thereof and that the same is not subject to any acquisition or intended acquisition by any government statutory urban or municipal authority and that no advertisement in the Government Gazette of such intention has been published pursuant to the Land Acquisition Act 1960 or any amendment re-enactment or re-certification hereof. 14. CAVEAT The Purchaser shall be entitled at any time after the execution of this Agreement at its own cost and expense to lodge with the appropriate authorities a private caveat against any dealing with the Said Property until the registration of the Transfer in favor of the Purchaser. PROVIDED THAT in the event this Agreement is terminated pursuant to the provisions hereof, the Purchaser shall at its own cost and expense withdraw the aforesaid private caveat PROVIDED FURTHER THAT for the purpose of effecting the registration of the Transfer the Purchaser shall at its own cost and expense withdraw the aforesaid private caveat. 15. TIME Time is of the essence of this Agreement. 16. COSTS Each party shall bear its own solicitor's costs in respect of the sale and purchase hereunder. The parties shall bear in equal proportion, the expenses of all stamp and registration fees together with such other disbursements of and incidental to the registration of the Transfer of the Said Property. 17. NOTICE Any notice or request with reference to this Agreement shall be in writing and shall be deemed to have been sufficiently served or given for all purposes herein on the respective parties hereto if left by hand or sent by facsimile, telex, telegram or prepaid registered post to the party to whom it is addressed at the address above stated or to such address as the addressee party may notify to the other in writing or to their respective solicitors or agents duly authorized and shall in the case of a notice or request sent by facsimile be deemed to have been served on the day of the transmission of such notice or communication shall be deemed to be served on the next succeeding business day and confirmation of transmission is received or registered and a confirmation of the facsimile is sent by prepaid registered post. Any notice or communication sent by telex, telegram or prepaid registered post shall be deemed to have been given at the time when it ought in the ordinary course of transmission or post to have been received. 18. SUCCESSORS, ETC BOUND This Agreement shall be binding upon the respective heirs, personal representatives, successors-in-title and permitted assigns of the parties hereto. 19. GOVERNING LAW The validity, interpretation and performance of this Agreement shall be interpreted in accordance with the laws of Malaysia. 20. MASTER ASSET PURCHASE AGREEMENT This Agreement is entered into to fulfill the terms of the Asset purchase Agreement between National Semiconductor Corporation and Fairchild Semiconductor corporation dated the same date hereof (the "Master Asset Purchase Agreement"). If there shall be any inconsistency between the provisions of this Agreement and the Master Asset Purchase Agreement, the provisions of the Master Asset Purchase Agreement shall prevail. IN WITNESS WHEREOF the parties hereto have hereunto set their hands hereunder: The Vendor - ---------- Signed by ) for and on behalf of ) in the presence of ) The Purchaser - ------------- Signed by ) for and on behalf of ) in the presence of ) DATED THIS 11th DAY OF MARCH 1997 BETWEEN NATIONAL SEMICONDUCTOR SDN BHD (the "Vendor") AND FAIRCHILD SEMICONDUCTOR (MALAYSIA) SDN BHD (the "Purchaser") -------------------------------------- SALE AND PURCHASE AGREEMENT -------------------------------------- TABLE OF CONTENTS 1. AGREEMENT FOR SALE.......................................................38 2. AGREEMENT UNCONDITIONAL..................................................38 3. PAYMENT OF TOTAL PURCHASE PRICE..........................................38 4. CLOSING DATE.............................................................39 5. THE PURCHASER'S SOLICITORS OBLIGATION IN RESPECT OF THE RETENTION SUM....39 6. RETENTION SUM............................................................39 7. COMPLIANCE WITH THE REAL PROPERTY GAINS TAX 1976.........................40 8. EXECUTION OF TRANSFER....................................................40 9. VACANT POSSESSION........................................................40 10. APPOINTMENT OF QUIT RENT AND ASSESSMENTS.................................41 11. COVENANTS WARRANTIES AND UNDERTAKING OF THE VENDOR.......................41 12. INDEMNIFY................................................................42 13. ACQUISITION..............................................................42 14. CAVEAT...................................................................42 15. TIME.....................................................................42 16. COSTS....................................................................43 17. NOTICE...................................................................43 18. SUCCESSOR ETC BOUND......................................................43 19. GOVERNING LAW............................................................43 20. MASTER ASSET PURCHASE AGREEMENT..........................................43 THIS AGREEMENT is made this day of March 11, 1997 BETWEEN NATIONAL SEMICONDUCTOR SDN BHD a private limited company incorporated in Malaysia having its registered address at Bayan Lepas Free Industrial Zone, 11900 Bayan Lepas, Penang, Malaysia (the "Vendor") AND FAIRCHILD SEMICONDUCTOR (MALAYSIA) SDN BHD a private limited company incorporated in Malaysia and having its registered office at No. 16-2B, Second Floor, Jalan 1/76D, Desa Pandan, 55100 Kuala Lumpur (the "Purchaser") of the other part. WHEREAS- (A) The Vendor is the registered proprietor of all that piece of land held under H.S.(D) 19 No. PT PDBP. 609/411/72, Mukim 12 Daerah Barat Daya, Penang, measuring approximately an area of 1.14 acres (hereinafter referred to as the "Said Property"). (B) The document of title to the Said Property is endorsed with express conditions and/or restrictions-in-interest. (C) The Vendor has agreed to sell and the Purchaser has agreed to purchase the Said Property subject to the conditions of title express or implied affecting the same but otherwise free from all encumbrances and with vacant possession at the total purchase price of Ringgit Three Million Five Hundred and Fifty Thousand only (RM3.550,000) (hereinafter referred to as the "Total Purchase Price") subject to the terms and conditions hereinafter appearing. NOW IT IS HEREBY AGREED as follows- I. AGREEMENT FOR SALE ------------------ Subject to the provisions of this Agreement, the Vendor shall sell and the Purchaser shall purchase the Said Property subject to the conditions of title express or implied affecting the same but otherwise free from all encumbrances and with vacant possession at the Total Purchase Price and upon the terms and subject to the conditions herein contained. II. AGREEMENT UNCONDITIONAL ----------------------- This Agreement shall be unconditional. III. PAYMENT OF TOTAL PURCHASE PRICE ------------------------------- A. The Total Purchase Price shall be paid by the Purchaser to the Vendor on 11 March 1997 (the "Closing Date"). B. All moneys paid to the Vendor pursuant to this Agreement are paid on the condition that they shall become repayable to the Purchaser if the Transfer (as hereinafter defined) cannot be registered for any reason whatsoever not due to the Purchaser' s default. In such event, the Vendor hereby agrees to refund all the said moneys upon the expiry of seven (7) days from the date of receipt by the Vendor of a notice from the Purchaser requesting for such refund, failing which the Vendor shall in addition pay to the Purchaser interest thereon at the rate often per centum (10%) per annum, calculated from the day next after the expiry of the said seven (7) days to the date of receipt by the Purchaser of such payment based on a three hundred and sixty-five (365) day year on the actual number of days elapsed, such interest to be payable together with the said moneys. IV. CLOSING DATE ------------ A. Upon payment by the Purchaser of the Total Purchase Price on or before the expiry of the Closing Date, the Vendor shall deliver or cause to be delivered to the Purchaser's Solicitors:- 1. the valid and registrable memorandum of transfer of the Said Property from the Vendor in favour of the Purchaser (hereinafter referred to as the "Transfer"); 2. all other relevant documents including the issue document of title to the Said Property to effect the registration of the Purchaser as the proprietor of the Said Property; and 3. the latest receipts for payments of all quit rent and assessment payable in respect of the Said Property. V. THE PURCHASER'S SOLICITORS OBLIGATION IN RESPECT OF THE ------------------------------------------------------- RETENTION SUM ------------- Shearn Delarmore, of 6 Floor Wisma, Penang Garden, No. 42 Jalan Sultan Ahmad Shah 10050, Penang (the "Purchaser's Solicitors") shall be paid by the Vendor on the Closing Date, such sum (hereinafter referred to as the "Retention Sum") as shall be required to be retained by the Purchaser pursuant to the provisions of the Real Property Gains Tax Act 1976 or any amendment, re-enactment or re-certification thereof (hereinafter referred to as the "Act"). VI. RETENTION SUM ------------- A. The Retention Sum shall be deposited by the Purchaser' s Solicitors with a bank or other financial institution (hereinafter referred to as the "Bank") and placed on fixed deposit in the name of the Purchaser's Solicitors for periods of one (1) month each. The Purchaser's Solicitors shall, and the parties hereto hereby authorize them to do so, pay to the Director-General of the Inland Revenue Board, Malaysia, out of the Retention Sum and all interest earned thereon such sum as may be demanded by requisition as defined in the Act served on the Purchaser or the Vendor pursuant to the Act unless the Purchaser's Solicitors shall have received a notice of clearance from the Director-General to the effect that no real property gains tax is payable or that the said tax as assessed by the Director-General has been paid, as the case may be, in which event the Retention Sum shall be released forthwith to the Vendor by the Purchaser's Solicitors together with all interest earned thereon upon receipt of such notice of clearance from the Director General. PROVIDED FURTHER that if the sale and purchase hereunder of the Said Property shall be rescinded in accordance with the provisions of this Agreement, the Purchaser's Solicitors shall unless the Purchaser otherwise direct immediately cause the Retention Sum together with all interest earned thereon to be withdrawn from fixed deposit and upon withdrawal immediately pay the same (after deduction or any penalty levied by the Bank for early withdrawal) to the Purchaser. VII. COMPLIANCE WITH THE REAL PROPERTY GAINS TAX 1976 ------------------------------------------------ A. Each party hereto hereby covenants and undertakes with the other party hereto: 1. to duly submit such notifications and execute and do all documents acts and things on each of their part to be executed and done under the Act; and 2. to indemnify and save harmless the other party hereto against all liabilities, penalties, actions, proceedings, demands and costs resulting from their respective default if any in complying with the Act. B. Without prejudice to the generality of the foregoing, the Vendor hereby undertakes that it will bear and pay all taxes if any chargeable under the Act on the disposal of the Said Property (if any) and keep the Purchaser, their successors-in-title, assigns and persons deriving title thereunder indemnified in respect thereof. VIII. EXECUTION OF TRANSFER --------------------- The parties hereto shall simultaneously with the execution of this Agreement, execute the Transfer and deliver the same to the Purchaser's Solicitors to present the same to the Collector of Stamp Duty for adjudication as to the stamp duty chargeable thereon. IX. VACANT POSSESSION ----------------- Vacant possession of the Said Property shall be delivered by the Vendor to the Purchaser upon receipt of the Total Purchase Price by the Purchaser's Solicitors in accordance with Clause 3 hereof. X. APPOINTMENT OF QUIT RENT AND ASSESSMENTS ---------------------------------------- All quit rent and assessment charges payable in respect of the Said Property shall be apportioned as at the date of delivery of vacant possession of the Said Properly and any sums due by virtue of such apportionment shall be paid or allowed as the case may be on the date of apportionment. PROVIDED ALWAYS that the Vendor shall indemnify the Purchaser, their successors-in-title, assigns and persons deriving title thereunder in respect of all penalties fines and damages which may arise as a result of any late payments or defaults in payment by the Vendor in respect of such quit rent and assessment charges if such are incurred prior to the date of apportionment. XI. COVENANTS WARRANTIES AND UNDERTAKING OF THE VENDOR -------------------------------------------------- A. As at the date hereof, the Vendor hereby covenants, undertakes, warrants and represents to and with the Purchaser that:- 1. the Vendor has the power and authority to enter into this Agreement and to do all acts and things on its part to be done and performed pursuant hereto; 2. the Said Properly is free from all encumbrances and to the best of this knowledge and belief no impediment exists which would impede, prevent, affect or obstruct the registration of the Transfer of the Said Property from the Vendor to the Purchaser, 3. there are no rates, charges, taxes or other outgoings which are in arrears and outstanding in respect of the Said Property; 4. all express and implied conditions of title to the Said Property have been complied with; 5. there are no subsisting sale and purchase agreements in respect of the Said Property or any part thereof between the Vendor and any third party or parties; 6. there are no other party or parties with any valid or legal claim interest or benefit in the Said Property or any part thereof 7. the Vendor shall not hereafter save with the consent of the Purchaser mortgage, charge, transfer, sell, convey or otherwise deal with the Said Property so as to encumber, encroach upon or divest the Purchaser of its rights, title and interest to the Said Property. B. The Vendor further covenants, warrants and undertakes to and with the Purchaser that warranties and undertakings on his part herein contained will be fulfilled down to and will be true and correct at completion in all respects as if they had been entered into afresh at competition. C. Notwithstanding the completion of the sale and purchase hereunder, all covenants, warranties, undertakings and obligations given hereunder or undertaken herein shall continue hereafter to subsist for so long as may be necessary to give effect to each and every one of them in accordance with the terms hereof. XII. INDEMNIFY --------- The Vendor shall indemnify the Purchaser. its successors-in-title and assigns against all losses, claims, damages and costs suffered or otherwise incurred by the Purchaser arising out of or resulting from any misrepresentation or breach of warranty or covenant of the Vendor as herein set out and against all liability in respect of any taxes fees or charges payable in respect of the Said Property prior to the date of delivery of vacant possession of the Said Property referred to in Clause 9 hereof under any Act of Parliament or any instrument rule or order made under any Act of Parliament or any regulation bye-law or instrument of any local authority or of any statutory or other appropriate body. XIII. ACQUISITION ----------- A. The Vendor hereby warrants and undertakes to the Purchase that as at the date of execution of this Agreement there has not been any acquisition of the Said Property or any pan thereof and that the same is not subject to any acquisition or intended acquisition by any governmental, statutory, urban, or municipal authority and that no advertisement in the Government Gazette of such intention has been published pursuant to the Land Acquisition Act 1960 or any amendment re-enactment or re-certification hereof. XIV. CAVEAT ------ The Purchaser shall be entitled at any time after the execution of this Agreement at its own cost and expense to lodge with the appropriate authorities a private caveat against any dealing with the Said Property until the registration of the Transfer in favour of the Purchaser. PROVIDED THAT in the event this Agreement is terminated pursuant to the provisions hereof the Purchaser shall at its own cost and expense withdraw the aforesaid private caveat PROVIDED FURTHER THAT for the purpose of effecting the registration of the Transfer the Purchaser shall at its own cost and expense withdraw the aforesaid private caveat. XV. TIME ---- Time is of the essence of this Agreement. XVI. COSTS ----- Each party shall bear its own solicitor's costs in respect of the sale and purchase hereunder. The parties shall bear in equal proportion, the expenses of all stamp and registration fees together with such other disbursements of and incidental to the registration of the Transfer of the Said Property. XVII. NOTICE ------ Any notice or request with reference to this Agreement shall be in writing and shall be deemed to have been sufficiently served or given for all purposes herein on the respective parties hereto if left by hand or sent by facsimile, telex, telegram or prepaid registered post to the party to whom it is addressed at the address above stated or to such address as the addressee party may notify to the other in writing or to their respective solicitors or agents duly authorized and shall in the case of a notice or request sent by facsimile be deemed to have been served on the day of the transmission of such notice or communication provided such day is a business day and if it is not, such notice or communication shall be deemed to be served on the next succeeding business day and confirmation of transmission is received or registered and a confirmation of the facsimile is sent by prepaid registered post. Any notice or communication sent by telex, telegram or prepaid registered post shall be deemed to have been given at the nine when it ought in the ordinary course of transmission or post to have been received. XVIII.SUCCESSOR ETC BOUND ------------------- This Agreement shall be binding upon the respective heirs, personal representatives, successors-in-title and permitted assigns of the parties hereto. XIX. GOVERNING LAW ------------- The validity, interpretation and performance of this Agreement shall be interpreted in accordance with the laws of Malaysia, XX. MASTER ASSET PURCHASE AGREEMENT ------------------------------- This Agreement is entered into to fulfill the terms of the Asset Purchase Agreement between National Semiconductor Corporation and Fairchild Semiconductor Corporation dated the same date hereof (the "Master Asset Purchase Agreement"). If there shall be any inconsistency between the provisions of this Agreement and the Master Asset Purchase Agreement, the provisions of the Master Asset Purchase Agreement shall prevail. IN WITNESS WHEREOF the parties hereto have hereunto set their hands hereunder. The Vendor - ---------- Signed by ) for and on behalf of ) in the presence of ) The Purchaser - ------------- Signed by ) for and on behalf of ) in the presence of ) DATED THIS 11th DAY OF MARCH 1997 BETWEEN NATIONAL SEMICONDUCTOR SDN BHD (the "Vendor") AND FAIRCHILD SEMICONDUCTOR (MALAYSIA) SDN BHD (the "Purchaser") --------------------------------- SALE AND PURCHASE AGREEMENT --------------------------------- CONTENTS NO. DESCRIPTION PAGE - --- ----------- ---- 1. AGREEMENT FOR SALE................................................... 2 2. AGREEMENT UNCONDITIONAL.............................................. 2 3. PAYMENT 0F TOTAL PURCHASE PRICE...................................... 2 4. CLOSING DATE......................................................... 2 5. THE PURCHASER'S SOLICITORS OBLIGATION IN RESPECT OF THE RETENTION SUM................................................................ 3 6. RETENTION SUM........................................................ 3 7. COMPLIANCE WITH THE REAL PROPERTY GAINS TAX ACT 1976................. 4 8. EXECUTION OF TRANSFER................................................ 4 9. TENANCY.............................................................. 4 10. APPORTIONMENT OF QUIT RENT AND ASSESSMENTS........................... 4 11. COVENANTS, WARRANTIES AND UNDERTAKINGS OF THE VENDOR................. 4 12. INDEMNITY............................................................ 5 13. ACQUISITION.......................................................... 6 14. CAVEAT............................................................... 6 15. TIME................................................................. 6 16. COSTS................................................................ 6 17. NOTICE............................................................... 6 18. SUCCESSORS, ETC. BOUND............................................... 7 19. GOVERNING LAW........................................................ 7 20. MASTER ASSET PURCHASE AGREEMENT...................................... 7 EXECUTION............................................................ 8 i THIS AGREEMENT is made this day of March 11, 1997 BETWEEN NATIONAL SEMICONDUCTOR SDN BHD a private limited company incorporated in Malaysia having its registered address at Bayan Lepas Free Industrial Zone., 11900 Bayan Lepas, Penang, Malaysia (the "Vendor") AND FAIRCHILD SEMICONDUCTOR (MALAYSIA) SDN, BHD a private limited company incorporated in Malaysia and having its registered office at No. 16-2B, Second Floor, Jalan 1/76D, Desa Pandan, 55100 Kuala Lumpur (the " Purchaser`) of the other part. WHEREAS:- (A) The Vendor is the registered proprietor of all that piece of land held under H.S.(D) 3400.M4k12 PT 215, Mukim 12 Daerah Barat Daya, Penang, measuring approximately an area of 5.16864 acres (hereinafter referred to as the "Said Property"). (B) The document of title to the Said Property is endorsed with express conditions and/or restrictions-in-interest. (C) The Vendor has agreed to sell and the Purchaser has agreed to purchase the Said Property subject to the conditions of title express or implied affecting the same but otherwise free from all encumbrances and with an existing tenancy on one storey of a two storey building situated on the Said Property with Dynacraft Industries Sdn Bhd pursuant to a tenancy agreement dated 20 January 1996 (the "Tenancy") at the total purchase price of price of Ringgit Thirty Three Million Five Hundred Thousand only (R.M33,500,000) (hereinafter referred to as the "Total Purchase Price") subject to the terms and conditions hereinafter appearing. NOW IT TS HEREBY AGREED as follows: XXI. AGREEMENT FOR SALE Subject to the provisions of this Agreement, the Vendor shall sell and the Purchaser shall purchase the Said Property subject to the conditions of title express or implied affecting the same but otherwise free from all encumbrances and with vacant possession at the Total Purchase Price and upon the terms and subject to the conditions herein contained. XXII. AGREEMENT UNCONDITIONAL This Agreement shall be unconditional. XXIII. PAYMENT 0F TOTAL PURCHASE PRICE A. The Total Purchase Price shall be paid by the Purchaser to the Vendor on 11 March 1997 (the "Closing Date"). B. All moneys paid to the Vendor pursuant to this Agreement are paid on the condition that they shall become repayable to the Purchaser if the Transfer (as hereinafter defined) cannot be registered for any reason whatsoever not due to the Purchaser' s default. In such event, the Vendor hereby agrees to refund all the said moneys upon the expiry of seven (7) days from the date of receipt by the Vendor of a notice from the Purchaser requesting for such refund, failing which the Vendor shall in addition pay to the Purchaser interest thereon at the rate often per centum (10%) per annum, calculated from the day next after the expiry of the said seven (7) days to the date of receipt by the Purchaser of such payment based on a three hundred and sixty-five (365) day year on the actual number of days elapsed, such interest to be payable together with the said moneys. XXIV. CLOSING DATE A. Upon payment by the Purchaser of the Total Purchase Price on or before the expiry of the Closing Date, the Vendor shall deliver or cause to be delivered to the Purchaser's Solicitors:- 1. the valid and registrable memorandum of transfer of the Said Property from the Vendor in favour of the Purchaser (hereinafter referred to as the "Transfer"); 2. all other relevant documents including the issue document of title to the Said Property to effect the registration of the Purchaser as the proprietor of the Said Property, and 2 3. the latest receipts for payments of all quit rent and assessment payable in respect of the Said Property. XXV. THE PURCHASER'S SOLICITORS OBLIGATION IN RESPECT OF THE RETENTION SUM Shearn Delamore, of 6 Floor Wisma Penang Garden, No. 42 Jalan Sultan Ahmad Shah 10050, Penang (the "Purchaser's Solicitors") shall be paid by the Vendor on the Closing Date, such sum (hereinafter referred to as the "Retention Sum") as shall be required to be retained by the Purchaser pursuant to the provisions of the Real Property Gains Tax Act 1976 or any amendment. re-enactment or re-certification thereof (hereinafter referred to as the "Act"). XXVI. RETENTION SUM The Retention Sum shall be deposited by the Purchaser' s Solicitors with a bank or other financial institution (hereinafter referred to as the "Bank") and placed on fixed deposit in the name of the Purchaser's Solicitors for periods of one (1) month each. The Purchaser's Solicitors shall, and the parties hereto hereby authorize them to do so, pay to the Director-General of the Inland Revenue Board, Malaysia, out of the Retention Sum and all interest earned thereon such sum as may be demanded by requisition as defined in the Act served on the Purchaser or the Vendor pursuant to the Act unless the Purchaser's Solicitors shall have received a notice of clearance from the Director-General to the effect that no real property gains tax is payable or that the said tax as assessed by the Director-General has been paid, as the case may be, in which event the Retention Sum shall be released forthwith to the Vendor by the Purchaser's Solicitors together with all interest earned thereon upon receipt of such notice of clearance from the Director General. PROVIDED FURTHER that if the sale and purchase hereunder of the Said Property shall be rescinded in accordance with the provisions of this Agreement, the Purchaser's Solicitors shall unless the Purchaser otherwise direct immediately cause the Retention Sum together with all interest earned thereon to be withdrawn from fixed deposit and upon withdrawal immediately pay the same (after deduction or any penalty levied by the Bank for early withdrawal) to the Purchaser. 3 XXVII. COMPLIANCE WITH THE REAL PROPERTY GAINS TAX ACT 1976 A. Each party hereto hereby covenants and undertakes with the other party hereto:- 1. to duly submit such notifications and execute and do all documents acts and things on each of their part to be executed and done under the Act, and 2. to indemnify and save harmless the other party hereto against all liabilities penalties actions proceedings demands and costs resulting from their respective default if any in complying with the Act. B. Without prejudice to the generality of the foregoing, the Vendor hereby undertakes that it will bear and pay all taxes if any chargeable under the Act on the disposal of the Said Property (if any) and keep the Purchaser, their successors-in-title, assigns and persons deriving title thereunder indemnified in respect thereof XXVIII. EXECUTION OF TRANSFER The parties hereto shall simultaneously with the execution of this Agreement, execute the Transfer and deliver the same to the Purchaser's Solicitors to present the same to the Collector of Stamp Duty for adjudication as to the stamp duty chargeable thereon. XXIX. TENANCY The Said Property shall be sold subject to the Tenancy. XXX. APPORTIONMENT OF QUIT RENT AND ASSESSMENTS All quit rent and assessment charges payable in respect of the Said Property shall be apportioned as at the Closing Date, as the case may be, and any sum due by virtue of such apportionment shall be paid or allowed as the case may be on the date of apportionment. PROVIDED ALWAYS that the Vendor shall indemnify the Purchaser, their successors-in-title, assigns and persons deriving title thereunder in respect of all penalties fines and damages which may arise as a result of any late payments or defaults in payment by the Vendor in respect of such quit rent and assessment charges if such are incurred prior to the date of apportionment. XXXI. COVENANTS, WARRANTIES AND UNDERTAKINGS OF THE VENDOR A. Subject to Clause 9, as at the date hereof, the Vendor hereby covenants, undertakes, warrants and represents to and with the Purchaser that:- 4 1. the Vendor has the power and authority to enter into this Agreement and to do all acts and things on its part to be done and performed pursuant hereto. 2. the Said Property is free from all encumbrances and to the best of this knowledge and belief no impediment exists which would impede, prevent, affect or obstruct the registration of the Transfer of the Said Property from the Vendor to the Purchaser, 3. there are no rates, charges., taxes or other outgoings which are in arrears and outstanding in respect of the Said Property, 4. all express and implied conditions of title to the Said Property have been complied with, 5. there are no subsisting sale and purchase agreements in respect of the Said Property or any part thereof between the Vendor and any third party or parties', 6. the Vendor shall not hereafter save with the consent of the Purchaser mortgage, charge, transfer, sell, convey or otherwise deal with the Said Property so as to encumber, encroach upon or divest the Purchaser of its rights, title and interest to the Said Property. B. The Vendor further covenants, warrants and undertakes to and with the Purchaser that all warranties and undertakings on his part herein contained will be fulfilled down to and will be true and correct at completion in all respects as if they had been entered into afresh at completion. C. Notwithstanding the completion of the sale and purchase hereunder, all covenants, warranties, undertakings and obligations given hereunder or undertaken herein shall continue hereafter to subsist for so long as may be necessary to give effect to each and every one of them in accordance with the terms hereof XXXII. INDEMNITY The Vendor shall indemnify the Purchaser, its successors-in-title and assigns against all losses, claims, damages and costs suffered or otherwise incurred by the Purchaser arising out of or resulting from any misrepresentation or breach of warranty or covenant of the Vendor as herein set out and against all liability in respect of any taxes fees or charges payable in respect of the Said Property prior to the Closing Date under any Act of Parliament or any instrument rule or order made under any Act of Parliament or any regulation by-law or instrument of any local authority or of any statutory or other appropriate body. 5 XXXIII. ACQUISITION The Vendor hereby warrants and undertakes to the Purchase that as at the date of execution of this Agreement there has not been any acquisition of the Said Property or any part thereof and that the same is not subject to any acquisition or intended acquisition by any governmental statutory urban or municipal authority and that no advertisement in the Government Gazette of such intention has been published pursuant to the Land Acquisition Act 1960 or any amendment re-enactment or re-certification hereof XXXIV. CAVEAT The Purchaser shall be entitled at any time after the execution of this Agreement at its own cost and expense to lodge with the appropriate authorities a private caveat against any dealing with the Said Property unto the registration of the Transfer in favour of the Purchaser. PROVIDED THAT in the event this Agreement is terminated pursuant to the provisions hereof, the Purchaser shall at its own cost and expense withdraw the aforesaid private caveat PROVIDED FURTHER THAT for the purpose of effecting the registration of the Transfer the Purchaser shall at its own cost and expense withdraw the aforesaid private caveat. XXXV. TIME Time is of the essence of this Agreement. XXXVI. COSTS Each party shall bear its own solicitor's costs in respect of the sale and purchase hereunder. The parties shall bear in equal proportion, the expenses of all stamp and registration fees together with such other disbursements of and incidental to the registration of the Transfer of the Said Property. XXXVII. NOTICE Any notice or request with reference to this Agreement shall be in writing and shall be deemed to have been sufficiently served or given for all purposes herein on the respective parties hereto if left by hand or sent by facsimile, telex, telegram or prepaid registered post to the party to whom it is addressed at the address above stated or to such address as the addressee party may notify to the other in writing or to their respective solicitors or agents duly authorized and shall in the case of a notice or request sent by facsimile be deemed to have been served on the day of the transmission of such notice or communication provided such day is a business day and if it is not, such notice or communication shall be deemed to be served on the next succeeding business day and 6 confirmation or transmission is received or registered and a confirmation of the facsimile is sent by prepaid registered post. Any notice or communication sent by telex, telegram or prepaid registered post shall be deemed to have been given at the time when it ought in the ordinary course of transmission or post to have been received. XXXVIII. SUCCESSORS, ETC. BOUND This Agreement shall be binding upon the respective heirs, personal representatives, successors-in-title and permitted assigns of the parties hereto. XXXIX. GOVERNING LAW The validity, interpretation and performance of this Agreement shall be interpreted in accordance with the laws of Malaysia. XL. MASTER ASSET PURCHASE AGREEMENT This Agreement is entered into to fulfill the terms of the Asset Purchase Agreement between National Semiconductor Corporation and Fairchild Semiconductor Corporation dated the same date hereof (the "Master Asset Purchase Agreement"). If there shall be any inconsistency between the provisions of this Agreement and the Master Asset Purchase Agreement, the provisions of the Master Asset Purchase Agreement shall prevail. 7 IN WITNESS WHEREOF the parties hereto have hereunto set their hands hereunder. The Vendor Signed by ) for and on behalf of ) in the presence of ) The Purchaser Signed by ) for and on behalf of ) in the presence of ) 8 DATED THIS 11th DAY OF MARCH 1997 BETWEEN NATIONAL SEMICONDUCTOR SDN BHD (the "Vendor") AND FAIRCHILD SEMICONDUCTOR (MALAYSIA) SDN BHD (the "Purchaser") --------------------------------- SALE AND PURCHASE AGREEMENT --------------------------------- CONTENTS NO DESCRIPTION Page - -- ----------- ---- 1. AGREEMENT FOR SALE................................................ 1 2. AGREEMENT UNCONDITIONAL........................................... 1 3. PAYMENT OF TOTAL PURCHASE PRICE................................... 2 4. CLOSING DATE...................................................... 2 5. THE PURCHASER'S SOLICITORS OBLIGATION IN RESPECT OF THE RETENTION SUM............................................................... 2 6. RETENTION SUM..................................................... 2 7. COMPLIANCE WITH THE REAL PROPERTY GAINS TAX ACT 1976.............. 3 8. EXECUTION OF TRANSFER............................................. 3 9. VACANT POSSESSION................................................. 3 10. APPORTIONMENT OF QUIT RENT AND ASSESSMENTS........................ 3 11. COVENANTS, WARRANTIES AND UNDERTAKINGS OF THE VENDOR.............. 4 12. INDEMNITY......................................................... 4 13. AMMUM............................................................. 5 14. CAVEAT............................................................ 5 15. TIME.............................................................. 5 16. COSTS............................................................. 5 17. NOTICE............................................................ 5 18. SUCCESSORS, ETC. BOUND............................................ 6 i 19. GOVERNING LAW..................................................... 6 20. MASTER ASSET PURCHASE AGREEMENT................................... 6 EXECUTION......................................................... 7 ii THIS AGREEMENT is made this day of March 11, 1997 BETWEEN NATIONAL SEMICONDUCTOR SDN BHD a private limited company incorporated in Malaysia having its registered address at Bayan Lepas Free Industrial Zone, 11900 Bayan Lepas, Penang, Malaysia (the "Vendor") AND FAIRCHILD SEMICONDUCTOR (MALAYSIA) SDN BHD a private limited company incorporated in Malaysia and having its registered office at No 16-2B, Second Floor, Jalan 1/76D, Desa Pandan, 55100 Kuala Lumpur (the "Purchaser") of the other part. WHEREAS:- (A) The Vendor is the registered proprietor of all that piece of land held under H.S.(D) 44 PT 169, Mukim 12 Dacrah Barat Daya, Penang, measuring approximately an area of 5 acres (hereinafter referred to as the "Said Property"). (B) The document of title to the Said Property is endorsed with express conditions and/or restrictions-in-interest. (C) The Vendor has agreed to sell and the Purchaser has agreed to purchase the Said Property subject to the conditions of title express or implied affecting the same but otherwise free from all encumbrances and with vacant possession at the total purchase price of Ringgit Twenty Two Million Two Hundred Thousand (RM22,200,000) (hereinafter referred to as the "Total Purchase Price") subject to the terms and conditions hereinafter appearing. NOW IT IS HEREBY AGREED as follows: XLI. AGREEMENT FOR SALE Subject to the provisions of this Agreement, the Vendor shall sell and the Purchaser shall purchase the Said Property subject to the conditions of title express or implied affecting the same but other-wise free from all encumbrances and with vacant possession at the Total Purchase Price and upon the terms and subject to the conditions herein contained. XLII. AGREEMENT UNCONDITIONAL This Agreement shall be unconditional. XLIII. PAYMENT OF TOTAL PURCHASE PRICE A. The Total Purchase Price shall be paid by the Purchaser to the Vendor on 11 March 1997 (the "Closing Date"). B. All moneys paid to the Vendor pursuant to this Agreement are paid on the condition that they shall become repayable to the Purchaser if the Transfer (as hereinafter defined) cannot be registered for any reason whatsoever not due to the Purchaser' s default. In such event, the Vendor hereby agrees to refund all the said moneys upon the expiry of seven (7) days from the date of receipt by the Vendor of a notice from the Purchaser requesting for such refund, failing which the Vendor shall in addition pay to the Purchaser interest thereon at the rate often per centum (10%) per annum, calculated from the day next after the expiry of the said seven (7) days to the date of receipt by the Purchaser of such payment based on a three hundred and sixty-five (365) day year on the actual number of days elapsed, such interest to be payable together with the said moneys. XLIV. CLOSING DATE A. Upon payment by the Purchaser of the Total Purchase Price on or before the expiry of the Closing Date, the Vendor shall deliver or cause to be delivered to the Purchaser's Solicitors:- 1. the valid and registrable memorandum of transfer of the Said Property from the Vendor in favour of the Purchaser (hereinafter referred to as the "Transfer"); 2. all other relevant documents including the issue document of title to the Said Property to effect the registration of the Purchaser as the proprietor of the Said Property; and 3. the latest receipts for payments of all quit rent and assessment payable in respect of the Said Property. XLV. THE PURCHASER'S SOLICITORS OBLIGATION IN RESPECT OF THE RETENTION SUM Sheam Delamore, of 6 Floor Wisma Penang Garden, No.42 Jalan Sultan Ahmad Shah 10050, Penang (the "Purchaser's Solicitors") shall be paid by the Vendor on the Closing Date, such sum (hereinafter referred to as the "Retention Sum") as shall be required to be retained by the Purchaser pursuant to the provisions of the Real Property Gains Tax Act 1976 or any amendment, re-enactment or re-certification thereof (hereinafter referred to as the "Act"). XLVI. RETENTION SUM A. The Retention Sum shall be deposited by the Purchaser's Solicitors with a bank or other financial institution (hereinafter referred to as the "Bank") and placed on fixed deposit in the name of the Purchaser's Solicitors for periods of one (1) month each. The Purchaser's Solicitors shall, and the parties hereto hereby authorize 2 them to do so, pay to the Director-General of the Inland Revenue Board, Malaysia, out of the Retention Sum and all interest earned thereon such sum as may be demanded by requisition as defined in the Act served on the Purchaser or the Vendor pursuant to the Act unless the Purchaser's Solicitors shall have received a notice of clearance from the Director-General to the effect that no real property gains tax is payable or that the said tax as assessed by the Director-General has been paid, as the case may be, in which event the Retention Sum shall be released forthwith to the Vendor by the Purchaser's Solicitors together with all interest earned thereon upon receipt of such notice of clearance from the Director General, PROVIDED FURTHER that if the sale and purchase hereunder of the Said Property shall be rescinded in accordance with the provisions of this Agreement, the Purchaser's Solicitors shall unless the Purchaser otherwise direct immediately cause the Retention Sum together with all interest earned thereon to be withdrawn from fixed deposit and upon withdrawal immediately pay the same (after deduction or any penalty levied by the Bank for early withdrawal) to the Purchaser. XLVII. COMPLIANCE WITH THE REAL PROPERTY GAINS TAX ACT 1976 A. Each party hereto hereby covenants and undertakes with the other party hereto:- 1. to duly submit such notifications and execute and do all documents acts and things on each of their part to be executed and done under the Act; and 2. to indemnify and save harmless the other party hereto against all liabilities penalties actions proceedings demands and costs resulting from their respective default if any in complying with the Act. B. Without prejudice to the generality of the foregoing, the Vendor hereby undertakes that it will bear and pay all taxes if any chargeable under the Act on the disposal of the Said Property (if any) and keep the Purchaser, their successors-in-title, assigns and persons deriving title thereunder indemnified in respect thereof. XLVIII. EXECUTION OF TRANSFER The parties hereto shall simultaneously with the execution of this Agreement, execute the Transfer and deliver the same to the Purchasers Solicitors to present the same to the Collector of Stamp Duty for adjudication as to the stamp duty chargeable thereon. XLIX. VACANT POSSESSION Vacant possession of the Said Property shall be delivered by the Vendor to the Purchaser upon receipt of the Total Purchase Price by the Purchaser's Solicitors in accordance with Clause 3 hereof. L. APPORTIONMENT OF QUIT RENT AND ASSESSMENTS All quit rent and assessment charges payable in respect of the Said Property shall be apportioned as at the date of delivery of vacant possession of the Said Property and any sums due by virtue of such apportionment shall be paid or allowed as the case may be on the date of apportionment. PROVIDED ALWAYS that the Vendor shall indemnify the 3 Purchaser, their successors-in-title, assigns and persons deriving title thereunder in respect of all penalties fines and damages which may arise as a result of any late payments or defaults in payment by the Vendor in respect of such quit rent and assessment charges if such are incurred prior to the date of apportionment. LI. COVENANTS, WARRANTIES AND UNDERTAKINGS OF THE VENDOR A. As at the date hereof, the Vendor hereby covenants, undertakes, ,warrants and represents to and with the Purchaser that:- 1. the Vendor the power and authority to enter into this Agreement and to do all acts and things on its part to be done and performed pursuant hereto; 2. the Said Properly is free from all encumbrances and to the best of this knowledge and belief no impediment exists which would impede, prevent, affect or obstruct the registration of the Transfer of the Said Properly from the Vendor to the Purchaser; 3. there are no rates, charges, taxes or other outgoings which are in arrears and outstanding in respect of the Said Property; 4. all express and implied conditions of title to the Said Property have been complied with, 5. there are no subsisting sale and purchase agreements in respect of the Said Property or any part thereof between the Vendor and any third party or parties'; 6. there are no other party or parties with any valid or legal claim interest or benefit in the Said Property or any part thereof, 7. the Vendor shall not hereafter save with the consent of the Purchaser mortgage, charge, transfer, sell, convey or otherwise deal with the Said Property so as to encumber, encroach upon or divest the Purchaser of its rights, title and interest to the Said Property. B. The Vendor further covenants, warrants and undertakes to and with the Purchaser that all warranties and undertakings on his part herein contained will be fulfilled down to and will be true and correct at completion in all respects as if they had been entered into afresh at completion. C. Notwithstanding the completion of the sale and purchase hereunder, all covenants, warranties, undertakings and obligations given hereunder or undertaken herein shall continue hereafter to subsist for so long as may be necessary to give effect to each and every one of them in accordance with the terms hereof. LII. INDEMNITY The Vendor shall indemnify the Purchaser, its successors-in-title and assigns against all losses, claims, damages and costs suffered or otherwise incurred by the Purchaser arising out of or resulting from any misrepresentation or breach of warranty or covenant of the Vendor as herein set out and against all liability in respect of any taxes fees or charges payable in respect of the Said Property prior to the date of delivery of vacant Possession of the Said Property referred to in Clause 9 hereof under any Act of Parliament or any 4 instrument rule or order made under any Act of Parliament or any regulation bye-law of instrument of any local authority or of any statutory or other appropriate body. LIII. AMMUM A. The Vendor hereby warrants and undertakes to the Purchase that as at the date of execution of this Agreement there has not been any acquisition of the Said Property or any par, thereof and that the same is not subject to any acquisition or intended acquisition by any governmental statutory urban or municipal authority and that no advertisement in the Government Gazette of such intention has been published pursuant to the Land Acquisition Act 1960 or by any amendment re-enactment or re-certification hereof. LIV. CAVEAT The Purchaser shall be entitled at any time after the execution of this Agreement at its own cost and expense to lodge with the appropriate authorities a private caveat against any dealing with the Said Property until the registration of the Transfer in favour of the Purchaser, PROVIDED THAT in the event this Agreement is terminated pursuant to the provisions hereof, the Purchaser shall at its own cost and expense withdraw the aforesaid private caveat PROVIDED THAT for the purpose of effecting the registration of the Transfer the Purchaser shall at its own cost and expense withdraw the aforesaid private caveat. LV. TIME Time is of the essence of this Agreement, LVI. COSTS Each party shall bear its own solicitor's costs in respect of the sale and purchase hereunder. The parties shall bear in equal proportion, the expenses of all stamp and registration fees together with such other disbursements of and incidental to the registration of the Transfer of the Said Property. LVII. NOTICE Any notice or request with reference to this Agreement shall be in writing and shall be deemed to have been sufficiently served or given for all purposes herein on the respective parties hereto if left by hand or sent by facsimile, telex, telegram or prepaid registered post to the party to whom it is addressed at the address above stated or to such address as the addressee party may notify to the other in writing or to their respective solicitors or agents duly authorized and shall in the case of a notice or request sent by facsimile be deemed to have been served on the day of the transmission of such notice or communication provided such day is a business day and if it is not, such notice or communication shall be deemed to be served on the next succeeding business day and confirmation of transmission is 5 received or registered and a confirmation of the facsimile is sent by prepaid registered post. Any notice or communication sent by telex, telegram or prepaid registered post shall be deemed to have been given at the time when it ought in the ordinary course of transmission or post to have been received. LVIII. SUCCESSORS, ETC. BOUND This Agreement shall be binding upon the respective heirs, personal representatives, successors-in-title and permitted assigns of the parties hereto. LIX. GOVERNING LAW The validity, interpretation and performance of this Agreement shall be interpreted in accordance with the laws of Malaysia. LX. MASTER ASSET PURCHASE AGREEMENT This Agreement is entered into to fulfill the terms of the Asset Purchase Agreement between National Semiconductor Corporation and Fairchild Semiconductor Corporation dated the same date hereof (the "Master Asset Purchase Agreement"). If there shall be any inconsistency between the provisions of this Agreement and the Master Asset Purchase Agreement, the provisions of the Master Asset Purchase Agreement shall prevail. IN WITNESS WHEREOF the parties hereto have hereunto set their hands hereunder, The Vendor Signed by ) for and on behalf of ) in the presence of ) The Purchaser Signed by ) for and on behalf of ) in the presence of ) 6 EX-10.16 14 EX-10.16 Exhibit 10.16 LEASE AGREEMENT KNOW ALL MEN BY THESE PRESENT: This Contract of Lease made and entered into in the City of Manila on this 10th day of October, 1979, by and between: Export Processing Zone Authority, a government corporation created and operating under Pres. Decree No. 66 with office address at 4th Floor, Legaspi Towers 300, Vito Cruz, Pasay, Metro-Manila, represented herein by its Acting Chairman, MR. TEODORO Q. PENA, who has been duly authorized, hereinafter referred to as "LESSOR". - and - Fairchild Semiconductor (Hong Kong) Limited, a foreign corporation duly authorized to do business in the Philippines, with office address at 135 Hoi Bun Road, Kwun Tong, Kowloon, Hong-kong, represented herein by its Philippines Branch General manger and Comptroller, MR. Y. I. LEE and MR. ARNOLD P. AGAYANI, respectively, who have been duly authorized, hereinafter referred to as "LESSEE". WHEREAS, a portion of the public land located in Mactan Island, Province of Cebu, Philippines, designated as Mactan Export Processing Zone, has been proclaimed an export processing zone and the ownership, management and operation thereof is vested in LESSOR pursuant to executive Proclamation No. 1811 issued by the President of the Philippines on January 15, 1979; -1- WHEREAS, LESSEE has applied with LESSOR as a zone registered enterprise under Pres. Decree No. 66, as amended, and desires to lease a portion of said zone for its proposed electronics manufacturing plant (hereinafter called "the plant"); WHEREAS, in the exercise of its powers duties under Pres. Decree No. 66, LESSOR has approved LESSEE's application as a zone registered enterprise and the lease of said land to LESSEE. It is therefor agreed: 1. Lease of Land. LESSOR hereby leases to LESSEE, and LESSEE hereby accepts in lease from LESSOR that parcel of land in Mactan Export Processing Zone with an area of two (2) hectares, more or less, and more particularly bounded and described in the attached survey plan marked as Annex "A" (hereinafter called "the leased premises") and made a integral part hereof. During any renewal term the "leased premises" shall include all buildings and improvements on the land. In the event test borings and site survey prove the site unsuitable in the opinion of LESSEE, the parties shall negotiate to agree upon an alternative location within the Mactan Export Processing Zone and should the parties fail to agree within two (2) months from the date notice is given by LESSEE to LESSOR of its determination that the original site is not suitable, then LESSEE (shall have the right to terminate this lease with immediate effect. 2. Ownership of Leased Premises. LESSOR represents it is the owner of the leased premises and the same is free from any occupants, liens or encumbrances. LESSOR further represents it has the right to make this lease and covenants it will executed and deliver to -2- LESSEE such documents as may be necessary or proper to effect the registration of this lease by LESSEE in the event a certificate of title is issued for the leased premises or such registration is allowed under existing laws, and procure any necessary assurances of title that may be reasonably required for the protection of LESSEE. All expenses for the registration of the lease shall be for the account of LESSEE. 3. Term. This contract shall take effect on the date of execution by both parties but the lease term shall be for a period of twenty-five (25) years commencing on January 1, 1980 (also called the commencement date of the lease") unless sooner terminated as hereinafter provided. LESSEE shall have the option to renew this lease for another period of twenty-five (25) years under the same terms and conditions as herein provided, except the annual rental which shall be as hereinafter provided. Such option shall be exercised by LESSEE giving LESSOR written notice of LESSEE's intention to renew not later than two (2) years prior to the expiration of the original term. 4. Rental. Starting on January 1, 1980, LESSEE shall pay semi-annually in advance to LESSOR ass rental for the leased premises, without any deduction, set-off, prior notice or demand, the monthly sums for the five-year periods herein provided, in accordance with the following schedule:
Rental Per Square Meter Per Month Five-Year Period (Pesos) - --------------------------------------------------------------- Original term: (a) During the period of construction of the plan but in no case to exceed January 1, 1980 No Rent (b) January 1, 1980 to December 31, 1984 1.00 -3-
(c) January 1, 1985 to December 31, 1989 1.25 (d) January 1, 1990 to December 31, 1994 1.5625 (e) January 1, 1995 to December 31, 1999 1.9531 (f) January 1, 2000 to December 31, 2004 2.4413
The rentals shall be paid in the office of LESSOR in Manila without necessity of demand. Renewal term - January 1, 2005 - Subject to negotiation as to rental rates but not to exceed P4.20 per square meter per month. Rental during the entire term, including any renewals, shall be computed strictly on land measurement (without reference to buildings or improvements). 5. Construction of plant. LESSEE shall within a reasonable period after the execution of this Agreement construct or cause to be constructed on the leased premises the plant as shown in the preliminary plans hereto attached as Annex "B", in accordance with Lessor's guidelines and in compliance with all applicable laws, ordinances and , regulations, all at LESSEE's cost and expense. From the date of execution of this Agreement and during the course of such construction, LESSEE, its employees, agents, invitees, architects, contractors and their laborers, may enter at all times the leased premises for the purpose of making such examinations, tests, checks, test borings, excavations, take or remove soil, water, and kindred materials found or contained in the leased premises, install water and telephone lines, drainage and sewage systems, and all other services necessary or convenient therefor. Such rights of access herein granted shall, however, be exercised in such manner as not to destroy, stop, diminish or impair the water pipelines, installations and other facilities located in the adjoining properties of LESSORS not covered by this lease. -4- 6. Enjoyment and use of leased premises. (a) LESSEE shall have at all times during the lease term peaceful and quiet enjoyment of the leased premises. (b) LESSEE shall use and occupy the leased premises exclusively for the business to be carried on by it as a registered zone enterprise and any other awful purposes connected with said business. (c) LESSEE shall comply with all laws and regulations of the national, provincial and municipal authorities applicable to the business to be conducted in the leased premises. LESSEE, at its sole expense, shall obtain all licenses or permits which may be required for the conduct of its business, or for the construction of buildings and other improvements, installations of machinery and equipment, and the making of repairs, alterations, improvements, or additions thereto, and LESSOR, when necessary, will assist LESSEE in applying for and securing all such permits or licenses. (d) Subject to LESSOR's prior approval which shall not be unreasonably withheld, LESSEE may place and maintain in and about the leased premises and in or to the inside and outside walls and windows of the buildings in its plant, such fencing and neat and appropriate signs advertising its business as it shall desire. (e) LESSEE shall not use or permit the use of the leased premises, or any part thereof, for any purpose prohibited by law. (f) LESSEE shall make every reasonable effort to beautify the leased premises. -5- (g) LESSEE shall provide for the safe disposal of all injurious waste produced in the leased premises. 7. Buildings and Improvements. LESSEE may erect such buildings and installations and make such improvements on the leased premises, undertake repairs and additions thereto, and install machinery and equipment, of every description and character, as it shall see fit for the purpose of carrying on its business. All buildings, installations and improvements, repairs and additions, thereto, machinery and equipment, erected or installed by LESSEE, even though attached to the leased premises in a fixed or permanent manner, shall during the original lease term remain the property of LESSEE and be considered as personal property for all purposes, and LESSEE may remove, sell, or in any manner dispose of them at anytime during the original lease term: In the case of a sale as stated in the previous paragraph; LESSEE shall first offer the buildings and permanent improvements to LESSOR. The terms on which LESSEE shall make such offer to LESSOR shall be the same as those on which it intends to sell to a third party. In the event such option (the "right of first refusal") is not accepted by LESSOR within ninety (90) days from receipt of notice thereof from LESSEE, LESSEE shall be free to sell to third parties without further restrictions except that the contract price in the subsequent offer shall not be more favorable to third parties than that presented to LESSOR. In the event LESSEE shall fail to consummate the sale to a third party within one (1) year from LESSOR's decision not to exercise its right of first refusal, then LESSEE cannot present such offer to third parties without again re-offering the same to LESSOR. In case such sale is consummated with third parties, such sale shall be subject to the terms and conditions provided in this Lease Contract and to LESSOR's -6- current rental and policies and relevant laws, decrees, rules and regulations. In the case of the voluntary sale by LESSEE of the buildings during original lease term, LESSOR shall be entitled to one twenty-fifth (1/25) part of such sale proceeds for every year from the date this lease was in effect to the date of the sale. LESSEE shall not, in removing such buildings, installations and improvements, repairs and additions thereto, and machinery and equipment, cause substantial damage or injury to the leased premises. No injury shall be considered substantial if it is promptly corrected by restoration to the condition prior to such installation (except for whatever was authorized to be removed) if so required by LESSOR. Provided, however, that in case LESSEE shall voluntarily terminate its operations and vacate the leased premises at anytime after the expiration of the twenty-five year lease term, all buildings and permanent improvements remaining on the leased premises at that time shall become the property of LESSOR. However, all machinery, equipment and facility improvements, such as wall partitions, of every description and character, installed on the leased premises, and all movable and other property not attached to the leased premises in a fixed or permanent manner remaining on the leased premises at the time, shall continue to be the property of LESSEE and may be removed by LESSEE within a reasonable time after the termination of this lease or the renewal thereof, or the assignment or subletting to a third party. In the event LESSEE wishes to dispose of its interests in the property by assignment or sublease, LESSOR shall not unreasonably withhold consent provided that the proposed assignee or sublessee is qualified by LESSOR to operate in the Mactan Export Processing Zone and further provided that any assignment or sublease shall be limited to the original twenty-five (25)-year term and shall not include the right of renewal. -7- 8. Utilities. LESSOR agrees to provide and bring to the boundary of the leased premises accessible to LESSEE water, electricity, power, telephone, sewerage and other utilities to the leased premises. Roads and utility services shall be provided by LESSOR as set forth on Annex C. LESSEE agrees to pay all the water, fuel, gas; oil, heat, electricity, power, materials and services which may be furnished by LESSOR and other persons to LESSEE in or about the leased premises during the term of this lease. 9. Taxes. LESSEE shall pay all taxes, fees and assessments due, if any, on the leased premises. LESSEE shall also pay all taxes, fees and assessments due on the buildings, installations, improvements, machinery and equipment erected or installed, as well as on the business or activities carried on or conducted by it on the leased premises. LESSEE shall have the right to contest the validity or amount in whole or in part of any tax, fee or assessment asserted against it by any authority which it deems to have been improperly levied or assessed. 10. Sale of Leased Premises. Should LESSOR desire to sell the land during the original term of this Agreement, or the land and/or buildings during the renewal thereof, LESSOR shall first give written notice of such intention to LESSEE, (and providing, as to the land, that LESSEE is then allowed by the Constitution and laws of the Philippines to acquire land) LESSEE shall have the first option to purchase the leased premises at the same price offered or to be offered to third persons. If LESSEE chooses not to purchase and LESSOR sells to a third party, LESSOR agrees that it will require such third party to acknowledge and respect the terms of this lease and any sale of land and/or buildings shall be subject to this lease. 11. Default: Termination. This lease is made upon express condition and LESSEE agrees that should LESSEE fail to pay the rental herein stipulated, or any part thereof, or any -8- other sum required of LESSEE to be paid to LESSOR at the time or in the manner herein provided; or if default should be made in any of the other covenants or conditions on LESSEE's part herein and no corrective or remedial measures satisfactory to LESSOR are instituted within thirty (30) days from receipt of written notice by LESSOR or LESSOR's agent to LESSEE of such default, such default, breach or act shall give LESSOR the right to terminate this lease. Should (i) LESSEE be prevented by the Government authorities from successfully and profitably carrying on its business on the leased premises, (ii) LESSOR breach the terms and conditions of this Agreement, or (iii) any of the benefits and incentives granted to LESSEE by Pres. Decree No. 66, as amended, or any of the rights, guarantees, commitments, or assurances given by the government authorities be withdrawn, suspended, reduced or restricted; then the LESSEE may, at its option, terminate this lease, or any renewal thereof, and neither party shall have any claim against the other by reason of such termination except that rentals paid by LESSEE for the unexpired portion of the lease shall be refunded by LESSOR and the provisions of Par. 7 hereof shall apply. 12. Insurance and Indemnity. (a) LESSEE shall keep, save and hold LESSOR harmless from all liabilities, penalties, losses, damages, costs, expenses, causes of action, and/or judgment arising out or by reason of any injury or liability caused by any person or persons, from any cause or causes whatsoever, while in, upon or in any way connected with the leased premises during the term of this lease. For this purpose, LESSEE shall take out at its own expense and keep in force during the term of this lease public liability insurance with an insurance company acceptable to LESSOR in an amount not less than One Million United States Dollars (US$1,000,000) combined single -9- limit of liability for bodily injury and property damage arising out of the use of or resulting from any accident occurring in or about the leased premises, and LESSOR shall be named as an additional insured thereon. (b) LESSEE shall, at its expense, take out and keep in force during the term of this agreement a policy or policies of fire insurance covering the buildings and improvements to be erected on the leased premises against fire and extended coverage perils in the amount of the replacement cost of subject property; provided, however, that any such policy may contain deductibles in such amounts as may be consistent with LESSEE's corporate insurance programs. Such policy or policies shall name LESSEE as insured thereon and LESSOR shall be provided with a loss payable endorsement which shall provide for adjustment of loss as the respective interests of LESSOR and LESSEE may appear at the time of any such loss; provided, however, that the parties hereto specifically understand and agree that LESSEE, as named insured and to the extent provided in any such policy, may in its sole discretion first apply any such insurance proceeds in the event of loss to the reconstruction or repair of subject property. (c) LESSEE shall provide LESSOR with certificates of such insurance policies as provided hereinabove as soon as practicable following the execution of this Agreement. 13. Waiver. The receipt by LESSOR of any rent payment with or without knowledge of the breach of any covenant hereof, shall not be deemed a waiver of any such breach, and no waiver of any sum or right due hereunder shall be valid unless made in writing and signed by the party waiving said sum or right. No delay or omission in the exercise of any right or remedy accruing ...to any party hereto upon any breach of obligation -provided in this Lease Contract -10- entered into by the LESSEE and LESSOR shall impair such right or remedy or be construed as a waiver of any such breach thereafter occurring. 14. Notices. All notices under this Agreement shall be sent by registered mail to the parties at their addresses set forth above, or at such addresses as the parties may advise each other in writing. 15. Entire Agreement. This Agreement constitutes the entire agreement between the parties hereto and cannot be changed in any manner except in writing subscribed by the parties through their duly authorized officers. 16. Benefit. This Agreement shall be binding upon and inure to the benefit of the parties and their successors and assigns. IN WITNESS WHEREOF, the parties hereto have signed these presents in the City of Manila, Philippines, this -11- Annex "C" A B 10,000 Sq. Ft. 100,000 Sq. Ft. POWER 60 KW At 480 volts primary 75 KVA 1200 KVA 220/120 secondary 60 cycle WATER and SEWERAGE 7200 gal. per day 2000 people-50,000 gal. per day 4000 people-96,000 gal. per day Includes all needs Flow rates-75-100 gal. per min. (on 24 hour basis) TELEPHONE 5 Lines 10 Lines TELEX One Line One Line -12- _____ day of _________, 1979. EXPORT PROCESSING ZONE FAIRCHILD SEMICONDUCTOR AUTHORITY (HONG KONG) LIMITED (AUTHORITY) (REGISTRANT) By: TEODORO Q. PENA Y.I. LEE ARNOLD P. AGBAYANI Acting Chairman Philippine Branch Philippine Branch General Manager Comptroller SIGNED IN THE PRESENCE OF _______________________________ _____________________________ A C K N O W L E D G M E N T Republic of the Philippines ) City of Manila ) s.s. BEFORE ME, in the City of Manila, Philippines, this 10th day of Oct. , 1979 personally appeared: NAME RESIDENCE TAX CERTIFICATES TEODORO Q. PENA AB -0202668 Acting chairman Issued -Las Pinas EXPORT PROCESSING ZONE March 12,1979 AUTHORITY Y. I. LEE, Philippine Branch R260166 Manager, FAIRCHILD, SEMI- Issued-Korea (South) CONDUCTOR (HONGKONG) LIMITED MARCH 31,1978 ARNOLD P. AAGBAYANI OH-10447 Philippine. Branch Comptroller Issued- Chicago FAIRCHILD SEMI-CONDUCTOR May 29, 1979 (HONK KONG) Limited -13- All known to me and to me , known to be the same persons who executed the foregoing instrument and acknowledged before me that the same is their free and voluntary act and deed as well as that of the entities represented. Said instrument refers to a LEASE AGREEMENT consisting of twelve (12) pages, including this page of acknowledgment, signed by the parties and their witnesses on each and every page thereof and sealed with my notarial seal. VICTORIA CARINA VIQUERUBIN NOTARY PUBLIC UNTIL DECEMBER 31, 1979 Doc. No. 174 Page No 26 PRT No. 26078 Book No III Series of 1979 Issued at MANILA ON JAN. 5, 1979 -14- SUPPLEMENTAL AGREEMENT KNOW ALL BY THESE PRESENTS: This Agreement, made and entered into by and between: EXPORT PROCESSING ZONE AUTHORITY, a government corporation created and operating under Presidential Decree No. 66, as amended, with office address at 4th floor, Legaspi Towers 300, Roxas Boulevard, Metro-Manila, represented herein by its Administrator, Mr. GERARDO S. ESPINA, who has been duly authorized hereinafter referred to as the "AUTHORITY -AND- FAIRCHILD SEMICONDUCTOR (Hong Kong) Limited, a foreign corporation duly organized and authorized to do business in the Philippines with office address at LSS Holbun Road, Kwun Tong, Kowloon , Hong Kong, represented herein by its Philippine Branch General Manager and Comptroller, Messrs. Y.I. Lee and Arnold P. Aghayani, respectively, who have been duly authorized, hereinafter referred to as the "REGISTRANT". W I T N E S S E T H That: WHEREAS, on October 10, 1979, the Authority and Registrant executed a Lease Agreement hereinafter referred to as "Original Contract", which contract was acknowledged before Atty. Victoria Cavina V. Quarabin a notary public for and in the City of Manila and appearing in her notarial register on Doc. No. 174 Page No. 30. Book No. III, Series of 1979. WHEREAS, the Original provided for the Lease of a particular portion of Mactan Export Processing Zone containing an area of two (2) hectares, more or less: WHEREAS. under Resolution No. 82-014 dated March 20, 1932, of the EPZA Board of Commissioners, an additional area of One Hundred (100) square meters of land was allocated in favor of the Registrant for the construction of its mechanized garbage disposal system; -15- NOW, THEREFORE, in view of the foregoing promises, and for and in consideration of the actual covenants and undertakings hereinafter provided, the parties hereto have agreed as follows 1. That paragraph 1 of Section 1 the Original Contract is hereby amended, to read as follows: Section 1 (par. 1). Lease of Land - Lessor hereby leases to Lessor and Lessee hereby accepts in lease from Lessor that parcel of land in Hactn Export Processing Zone with an area of two (2) hectares (2), more or less , and more particularly bounded and described in the attached survey plan marked as Annex "A" (hereinafter called "the leased premises") and made an integral part hereof and an additional area of ONE HUNDRED (100) sq a of land adjacent to said leased premises to be utilized for its mechanized garbage disposal system. During any removal term, the "leased premises" shall include all buildings and improvements on the land. 2. It is understood that the rentals rate which shall govern the lease of the additional area shall be the rate prevailing at the time of the execution of this Agreement. 3. Nothing herein contained shall be construed as modifying or (2) spending any of the terms and conditions of the Original Contract, except as herein expressly provided. IN WITNESS WHEREOF, the parties hereto have signed these presents this 10th day of May , 1982 at ____________ Manila, Philippines. EXPORT PROCESSING ZONE FAIRCHILD SEMICONDUCTOR LIMITED AUTHORITY (REGISTRANT) (AUTHORITY) By: By: GERARDO B. ESPINA Y. I LEE Administrator -16- SIGNED IN THE PRESENCE OF 1. A.L. PADILLA 2. R.B. BALAJADIA A C K N O W L E D G M E N T REPUBLIC OF THE PHILIPPINES ) CITY OF MANILA ) S.S. BEFORE ME, in the City of Manila, Philippines, this ____ day of May , 1982, personally appeared: NAME RESIDENCE TAX CERTIFICATES GERARDO S. ESPINA A/B Administrator Y.I. LEE A/B - 1032679-A, dtd. 1-29-82 -17- N A M E RESIDENCE TAX CERTIFICATES ARNOLD P. AGBAYNI A/B both known to me and to me known to be the same persons who executed the forgoing instrument and acknowledged before me that the same is their free and voluntary act and deed as well as that of the entities represented. Said instrument refers to a SUPPLEMENTAL AGREEMENT consisting of four (4) pages, including this page of acknowledgment, signed by the parties and their witnesses on each and every page thereof and sealed with my notarial seal. NOTARY PUBLIC ATTY. LEVY B. FERNANDO NOTARY PUBLIC UNTIL DEC. 31.1982 Doc. No.192 page no 40 Book No. I Series of 1982 -18- SECOND SUPPLEMENTAL AGREEMENT KNOW ALL MEN BY THESE PRESENT This AGREEMENT, made and entered into by and between the - EXPORT PROCESSING ZONE AUTHORITY, a government corporation created and operating under Presidential Decree No. 66, as amended, with office address as 4th Floor, Legaspi Towers 300, Roxas Blvd., Metro-Manila, represented herein by its Administrator, Mr. GERARDO S. ESPINA, who has been duly authorized, hereinafter referred to as the "AUTHORITY". - and - FAIRCHILD SEMICONDUCTOR (HONGKONG) Limited, a foreign corporation duly organized and authorized to do business in the Philippines with office address at Mactan Export Processing Zone, Lapu-Lapu City, represented herein by its General Manager, Mr. KENT A. GOHEEN, who is likewise duly authorized, hereinafter referred to as the "REGISTRANT". W I T N E S S E T H: WHEREAS, on October 10, 1979, the AUTHORITY, and the REGISTRANT executed a Lease Agreement hereinafter referred to as "original Contract:, which contract was acknowledged before Atty. Victoria Cavina V. Querubin, a Notary Public for and in the City of Manila and appearing in her notarial register as Doc. No. 174; Page No. 36; Book No. III, Series of 1979: WHEREAS, the Original Contract provided for the lease of a particular portion of Mactan Export Processing Zone containing an area of two (2) hectares more or less: WHEREAS, under Resolution No. 82-044 dated March 20, 1982, of the EPZA Board of Commissioners, an additional area of One Hundred (100) Square Meters of land was allocated in favor of the REGISTRANT for the construction of its mechanized garbage disposal system; WHEREAS, on August 4, 1983, the REGISTRANT has requested to lease another additional area of TWO HUNDRED THIRTY (230) Sq. M. for its Incinerator Plant; WHEREAS, under Resolution No. 83-112 dated September 6, 1983, the EPZA Board of Commissioners has approved said request; -19- NOW, THEREFORE, in view of the foregoing premises and for and in consideration of the mutual covenants and undertakings hereinafter provided, the parties hereto have agreed as follows: 1. That paragraph 1 of Section 1 of the Original Contract is hereby further amended to read as follows: "Section 1 (Para1). Lease of Land. Lessor hereby leases to Lessee and Lessee hereby accepts in lease from Lessor that parcel of land in Mactan Export Processing Zone with an area of two (2) hectares more or less, and more particularly bounded and described in the attached survey plan marked as Annex "A" (hereinafter called the "leased premises"), and made an integral part hereof and an additional area of One Hundred (100) Square Meters of land adjacent to said leased garbage disposal system and another additional area of TWO HUNDRED THIRTY (230) Sq. M. of land to be utilized for its incinerator plant. During any renewal term, the "leased premises" shall include all buildings and improvements on the land". 2. It is understood that the rental rate which shall govern the lease of the additional area shall be the rate prevailing at the time of the execution of this Agreement. 3. Nothing herein contained shall be construed as modifying or amending any of the terms and conditions of the Original Contract, except as herein expressly provided. 4. This Second Supplemental Agreement shall form part of the Original Contract. IN WITNESS WHEREOF, the parties hereto have signed these presents this 12th day of December, 1983, in the City of Manila, Philippines. EXPORT PROCESSING ZONE FAIRCHILD SEMICONDUCTOR AUTHORITY (HONKKONG) (AUTHORITY) (REGISTRANT) By By: ORIGINAL SIGNED GERARDO S. ESPINA KENT A. GOHEEN Administrator General Manager SIGNED IN THE PRESENCE OF : 1. ROGELIO B. BALAJADIA 2. ARTHUR L. PADILLA A C K N O W L E D G M E N T -20- REPUBLIC OF THE PHILIPPINES ) CITY OF MANILA ) S. S. BEFORE ME, in the City of Manila, this 12th day of December, 1983, personally appeared the following: NAME RESIDENCE TAX CERTIFICATE GERARDO S. ESPINA A/B 9874552 Administrator April 8, 1983 Manila KENT A. GOHEEN A/B 1203912 January 18, 1983 Lapulapu City both known to me and to me known to be the same persons who executed the foregoing instrument and acknowledged before me that the same is free and voluntary act and deed as well as that of the entities they represent. Said instrument refers to a SECOND SUPPLEMENTAL AGREEMENT consisting of four (4) pages, including this page of acknowledgment signed by the parties and their witnesses on each and every page thereof and sealed with my notarial seal. ROMEO V. PEREZ NOTARY PUBLIC UNTIL DEC. 31. 1984 PTR-J90254-MLA-1-3 83 TAN-P6260-D0447-A7 Doc. No. 361 Page No. 39 Book No. XXIV Series of 1983 ... -21- THIRD SUPPLEMENTAL AGREEMENT KNOW ALL MEN BY THESE PRESENTS: This Agreement, made and entered into by and between - EXPORT PROCESSING ZONE Authority a government corporation created and operating under Presidential Decree No. 66, as amended, with office address at the 4th Floor, Legaspi Towers 300, Roxas Boulevard, Metro Manila, represented herein by its Administrator Mr. RENATO L. CAYETANO, who has been duly authorized, hereinafter referred to as the "AUTHORITY". - and - FAIRCHILD SEMICONDUCTOR (HONKKONG) LIMITED, a foreign corporation duly registered and authorized to do business in the Philippines with office address at Mactan EXPORT Processing Zone, Lapulapu City, represented herein by its General Manager, MR. KINT A. GOHEEN, who is likewise duly authorized, hereinafter referred to as the "REGISTRANT" W I T N E S S E T H That: WHEREAS, on October 10, 1979, the AUTHORITY and the REGISTRANT executed a Lease Agreement hereinafter referred to as "Original Contract" which contract was acknowledged before Atty. Victoria Cavina V. Querbin, a Notary Public for and in the City of Manila and appearing in her Notarial Register as Doc. No. 174, Page No. 36; Book No. III; and Series of 1979; WHEREAS, the Original Contract provided for the lease of a particular portion of Mactan Export Processing Zone containing an area of two (2) hectares, more of less; WHEREAS, under Resolution No. 82-044 dated March 20,1982, of the EPZA Board of Commissioners. an additional area of One Hundred (100 sq. ms.) square meters of land was allocated in favor of the REGISTRANT for the construction of its mechanized garbage disposal system. WHEREAS, on August 4, 1983, the REGISTRANT again Requested an additional area of TWO HUNDRED (200 sq. Ms.) SQUARE METERS of land for their incinerator plant of the disposal of their chemical wastes which request was farvorably recommended by the Zone Manager, MEPZ, to the Administrator and subsequently approved by the latter on August 10, 1983: -22- WHEREAS, under Resolution No. 83-141 dated December 6, 1983, of the EPZA Board of Commissioners, another additional area of ONE HUNDRED FIFTY (150 Sq. Ms.) SQUARE METERS of land was allocated in favor of the REGISTRANT to be used in the expansion of its Nitrogen Gas Tank Area subject to the payment of rentals in accordance with the schedule of rates fixed under Resolution No. 82-042 dated March 8,1982. NOW, THEREFORE, in view of the foregoing premises, and for and in consideration of the mutual covenants and undertakings hereinafter provided, the parties hereto have agreed as follows: 1. That paragraph 1 of Section 1 of the Original Contract is hereby further amended to read as follows: "Section I (Par. 1). Lease of Land - LESSOR hereby leases to LESSEE and LESSEE hereby accepts in lease from LESSOR that parcel of land in Mactan Export Processing Zone with an area of two (2) hectares, more or less, and more particularly bounded and described in the attached Survey Plan marked as Annex "A". (hereinafter called "The Leased Premises") and made an integral part hereof and an additional areas of : (a) One Hundred (100 Sq. Ms.) Square Meters to be utilized for its mechanized garbage disposal system; (b) Two Hundred (200 Sq. Ms.) Square Meters for its incinerator plant; and (c) One Hundred Fifty (150 Sq. Ms.) Square Meters to be used in the expansion of its Nitrogen Gas Tank Area. During any 4enewal term, the "leased premises" shall include all buildings and improvements on the land." 2. Nothing herein contained shall be construed as modifying or amending any of the terms and conditions of the Original Contract and the First and Second Supplemental Agreement, except as herein expressly provided. IN WITNESS WHEREOF, the parties hereto have signed these presents, this _____ day of __________________, 1984 at _________________ Philippines. EXPORT PROCESSING ZONE FAIRCHILD SEMICONDUCTOR AUTHORITY (HONKKONG) LIMITED -23- By: By: RENATO CAYETANO KENT A. GOHEEN Administrator General Manager SIGNED IN THE PRESENCE OF A C K N O W L E D G M E N T REPUBLIC OF THE PHILIPPINES )S.S. CITY OF CEBU ) BEFORE ME, in the City of Cebu, Philippines, this 17th day of August, 1984, personally appeared: NAM E RESIDENCE TAX CERTIFICATE KENT A. GOHEEN A/B-13939661-Lapu-lapu City General Manager February 21,1984 known to be the same person who executed this contract and acknowledged before me that the same is his free act and deed. Said instrument refers to THIRD SUPPLEMENTAL AGREEMENT, consisting of four (4) pages, including this page of acknowledgment signed by the parties and their witnesses on each and every page thereof and sealed with my notarial seal. MANUEL P. LEGASPI NOTARY PUBLIC UNTIL 1985 PTR. No. 5235457 JAN. 25,1984 PLACER SURIGAO NORTE Doc. No. 187 page No. 39 Book No. XIV Series of 1984 -24- A C K N O W L E D G M E N T REPUBLIC OF THE PHILIPPINES ) CITY OF MANILA ) S.S BEFORE ME, in the City of Manila, Philippines, this ____day of September, 1984, personal appeared: NAME RESIDENCE TAX CERTIFICATE RENATO L. CAYETANO LB-172950-Patros M.M. Administrator Jan. 23, 1984 known to be the same person who executed this contract and acknowledge before me that the same is his free act and deed. Said instrument refers to THIRD SUPPLEMENTAL AGREEMENT, consisting of four (4) pages, including this page of acknowledgment signed by the parties and their witnesses on each and every page thereof and sealed with my notarial seal. Doc. No. 438 Page No. 89 Book No. II Series of 1984 -25- FOURTH SUPPLEMENTAL AGREEMENT KNOW ALL MEN BY THESE PRESENTS: This AGREEMENT made and entered into by and between: EXPORT PROCESSING ZONE AUTHORITY, a government corporation created and operating under Presidential Decree No 66, as amended, with office address at the 4th floor, Legaspi Towers 300, Roxas Blvd., Metro Manila, represented herein by its Chairman-Administrator, MR. JAIME L. GUERRERO, who has been duly authorized, hereinafter referred to as the "AUTHORITY." - and - FAIRCHILD SEMICONDUCTOR (HONKKONG) LIMITED, a foreign corporation duly registered and authorized to do business in the Philippines with office address as Mactan, Export Processing Zone, Lapu-Lapu City, represented herein by its General Manager, MR. JAMES D. STILSON, who is likewise duly authorized, hereinafter referred to as the "REGISTRANT". W I T N E S S E T H That: WHEREAS, on October 10, 1979, the AUTHORITY and the REGISTRANT executed a Registration Agreement hereinafter referred to as the "Original Contract," which contract was acknowledged before Atty. Victoria Casina V. Querubin, a Notary Public for and in the City of Manila and appearing in her Notarial Register as Doc. No. 174; Page No. 36; Book No. III; and Series of 1979; WHEREAS, the Original Contract provided for the lease by the REGISTRANT of a particular portion of Mactan Export Processing Zone containing an area of two (2) hectares, more or less; WHEREAS, the REGISTRANT requested to lease several additional areas - 100, 200, and 150 square meters, which were the subject of the First, Second and Third Supplemental Agreements, respectively; WHEREAS, on November 7, 1986, the REGISTRANT requested again to lease additional land area of TWO THOUSAND SEVEN HUNDRED FORTY THREE (2,743 Sq. Ms.) SQUARE METERS which the Chairman-Administrator approved upon the recommendation of the AUTHORITY's Project Evaluation and Review Department. -26- NOW, THEREFORE, in view of the foregoing premises, and for and in consideration of the mutual covenants and undertakings hereinafter provided, the parties hereto have agreed as follows: 1. That paragraph 1 of Section 1 of the Original Contract is hereby further amended to read as follows: Section 1. (Para. 1). Lease of Land - "LESSOR hereby leases to LESSEE, LESSEE hereby accepts in lease from LESSOR that parcel of land in Mactan Export Processing Zone with an area of two (2) hectares, more or less, and more particularly bounded and described in the attached Survey Plan marked as Annex "A" (hereinafter called "The Leased Premises") and made an integral part herof and additional areas of: a) One Hundred (100 sq.m.) Square Meters to be utilized for its mechanized garbage disposal system (Plan attached and marked as Annex "B"); b) Two Hundred (200 sq.m.) Square Meters for its incinerator plans (Plan attached and marked as Annex "C:); c) One Hundred Fifty (150 sq.m.) Square Meters to be used in the expansion of its Nitrogen Gas Tank Area (Plan attached an marked as Annex "D"); and d) Two Thousand Seven Hundred Forty Three (2,743 sq.m.) Square Meters(Plan attached and marked as (Annex "E"). During any renewal term, the "leased premises" shall include all buildings and improvements on the land. 2. The schedule of rental rates to be applied on the 2,743 sq.m. space shall be the rates provided under Board Resolution No. 85-033 dated March 18, 1985, as follows: Jan. 1, 1985 to Dec. 31, 1989.................... 4.20/sq.m./mo. Jan. 1, 1990 to Dec. 31, 1994.................... 6.09/sq.m./mo. Jan. 1, 1995 to Dec. 31, 1999.................... 8.83/sq.m./mo. Jan. 1, 2000 to Dec. 31, 2004.................... 12.80/sq.m./mo. 3. The REGISTRANT shall deposit with the AUTHORITY an amount equivalent to two (2) months rental in the amount of Twenty Three Thousand Forty-One and 20/100 (p23,041.20) Pesos, which deposit shall be forfeited in favor of the AUTHORITY in case -27- implementation of the project is not effected within ninety (90) days from date of signing of this Fourth Supplemental Agreement; 4. The REGISTRANT shall start payment of regular rentals thereon on the 90th day from date of the signing of this Fourth Supplemental Agreement or on the 90th day from date of actual occupancy of the lot as certified by the MEPZ Zone Manager, whichever date comes earlier; 5. The expansion to be authorized herein shall be on that area indicated by red color marks on the location map attached hereto as Annex "E," specifically described as 21 meters away from the existing perimeter fence on the North west elevation and 15 meters on the southeast elevation; 6. Nothing herein contained shall be construed as amending or modifying any of the terms and conditions of the Original Contract, "First, "Second" and "Third Supplemental Agreements," except as herein expressly provided. 7. This Fourth Supplemental agreement shall form part of the "Original Contract," "First." "Second" "Third Supplemental Agreements." IN WITNESS WHEREOF, the parties hereto have signed those presents this 10th day of March, 1987 in the City of Manila, Philippines. EXPORT PROCESSING ZONE FAIRCHILD SEMICONDUCTOR AUTHORITY (HONKKONG) LIMITED (AUTHORITY) (REGISTRANT) By: By: JAIME L. GUERRERO JAMES D. STILSON Chairman-Administrator General Manager SIGNED IN THE PRESENCE OF: _______________________________ _____________________________ A C K N O W L E D G M E N T REPUBLIC OF THE PHILIPPINES )S.S. CITY OF CEB ) BEFORE ME in the City of Cebu, Philippines, this ____ day of ____, 1987, personally appeared: NAME RESIDENCE TAX CERTIFICATE -28- JAMES D, STILSON Passport no. 0510-13285 General Manager issued on: Feb. 24, 1986 known to be the same person who executed this contract and acknowledged before me that the same is his free act and deed. Said instrument refers to FOURTH SUPPLEMENTAL AGREEMENT, consisting of four (40) pages, including this page of acknowledgment signed by the parties and their witnesses on each and every page thereof and sealed with my notarial seal. MANUEL A ESPINA NOTARY PUBLIC UNTIL DECEMBER 31,1988 PTR _______-- Doc. No. ______ Page No. _______ Book No. ______ Series of 1987 A C K N O W L E D G M E N T REPUBLIC OF THE PHILIPPINES ) S.S. CITY OF MANILA ) BEFORE ME, in the City of Manila, Philippines, this ____day of _____, 1987, personally appeared: NAME RESIDENCE TAX CERTIFICATE JAIME L. GUERRERO A/B 6764959, Feb. 3,1987 Chairman-Administrator Manila known to be the same person who executed this contract and acknowledged before me that the same is his free act and deed. Said instrument refers to FOURTH SUPPLEMENTAL AGREEMENT, consisting of four (4) pages, including this page of acknowledgment signed by the parties and their witnesses on each and every page thereof and sealed with my notarial seal. NOTARY OF PUBLIC Doc. No___; Page No. ___; -29- Book No.___; Series of 1987. /iea -30- SIXTH SUPPLEMENTAL AGREEMENT KNOW ALL MEN BY THESE PRESENTS; This Agreement made and entered into by and between - EXPORT PROCESSING ZONE AUTHORITY, a government corporation created and operating under Presidential Decree No. 66, as amended, with office address at the 4th Floor, Legaspi Towers 300, Roxas Blvd., Metro Manila, represented herein by its Administrator, MR. RAMON J. FAROLAN, who is duly authorized, hereinafter referred to as the "AUTHORITY", - and - NATIONAL SEMICONDUCTOR (HK) DISTRIBUTION LTD., a foreign corporation duly registered and authorized to do business in the Philippines with office address at the Mactan Export Processing Zone, Lapulapu City, represented herein by its Managing Director, MR. ROBERT M. GAGNE, who is likewise duly authorized, hereinafter referred to as the "REGISTRANT". W I T N E S S E T H, That: WHEREAS, on October 10, 1979, the AUTHORITY and the REGISTRANT executed a Registration Agreement, hereinafter referred to as the "Original Contract", which Agreement was acknowledged before Atty. Victoria Quirubin, a Notary Public for and in the City of Manila and appearing in her Notarial Register as Doc. No, 124; Page No. 36; Book No. III , Series of 1979; WHEREAS, the REGISTRANT requested for an additional area at the Mactan Export Processing Zone to be utilized as a disposal area for its solid wastes resulting from its operations and as an expansion area; WHEREAS, the AUTHORITY's Board of Commissioners under its Resolution No. 87-088 has approved the request of the REGISTRANT; NOW, THEREFORE , in view of the foregoing premises and the mutual covenants and undertakings hereinafter provided, the parties hereto have agreed as follows: 1. The AUTHORITY hereby leases unto the registrant the following parcels of land at the Mactan Export Processing Zone, which areas are clearly indicated by bold red marks in the plan attached hereto as Annex "A" an make and integral part hereof, to wit: -31- a. A particular portion of the Zone containing an area of about ONE THOUSAND THREE HUNDRED TWENTY (1,320) SQUARE METERS as garbage disposal area; and b. A particular portion of the Zone containing an area of ONE THOUSAND EIGHT HUNDRED NINETY (1,890) SQUARE METERS as an expansion area. 2. The following schedule of rentals shall be applied on the above mentioned leased premises: Jan. 1, 1985 to Dec. 31, 1989.................... P4.20/sq.m./mo Jan. 1, 1990 to Dec. 31, 1994.................... 6.09/sq.m./mo. Jan. 1, 1995 to Dec. 31, 1999.................... 8.38/sq.m./mo. Jan. 1, 2000 to Dec. 31, 2004.................... 12.00/sq.m./mo. Thereafter, by appropriate Board Resolution 3. Payment of rentals for the garbage disposal area shall commence on the 91st day from April 28, 1987 date when the MEPZ Zone Manager approved the REGISTRANT's request to start site grading and construction, while on the expansion area, payment of rental, shall commence on the 91st day from the date of actual occupancy as certified by the MEPZ Zone Manager, thereafter, monthly rentals shall be payable to the AUTHORITY in advance on or before the 5th day of every month without necessity of demand. In case of delinquency in the payment of the rentals, as herein specified, such delinquent payment shall bear interest at the rate of two (2%) per cent a month computed from the date of delinquency. 4. The term of the lease of the above mentioned areas shall be coterminous with the term of the Original Contract. 5. The REGISTRANT shall deposit with the AUTHORITY an amount equivalent to two (2) months rentals on the above - mentioned leased premises upon the signing of this Agreement. 6. Nothing herein contained shall be construed as amending or modifying any of the terms and conditions of the Original Contract, First, Second, Third, and Fourth Supplemental Agreement except as herein expressly provided. 7. This Sixth Supplemental Agreement shall form integral part of the Original Contract. IN WITNESS WHEREOF, the parties hereto have signed these presents this 16th day of February 1990 at the City of Manila and Lapulapu, Philippines. EXPORT PROCESSING ZONE NATIONAL SEMICONDUCTOR AUTHORITY (HK) DISTRIBUTION LTD. (Authority) (Registrant) -32- By: By: RAMON J. FAROLAN ROBERT M. GAGNE Administrator Managing Director SIGNED IN THE PRESENCE OF: __________________________________ ________________________ ACKNOWLEDGMENT REPUBLIC OF THE PHILIPPINES ) CITY OF LAPULAPU ) S.S. BEFORE ME in Lapulapu City, Philippines, this 16th day of February 1990, personally appeared ROBERT M. GAGNE, Managing Director of the NATIONAL SEMICONDUCTOR DISTRIBUTION (HONGKONG) LIMITED with ________ No. 051349266 issued on Oct. 6, 1986 at _____ CA USA who is known to me and to me known to be the same person who executed the foregoing instrument and acknowledged before me that the same is his free and voluntary act and deed. Said instrument refers to FIFTH SUPPLEMENTAL AGREEMENT, consisting of three (3) pages, including this page of acknowledgment signed by the parties and their witnesses on each and every page thereof and sealed with notarial seal. JOSEPH SONG TANCO NOTARY PUBLIC Until December 31, 1991 P.T.R. No. 5220585 Cebu City, January 5, 1990 Doc. No. 458; Page No. 93;: Book No. II; Series of 1990. -33- SUPPLEMENTAL AGREEMENT KNOW ALL MEN BY THESE PRESENTS: This Supplemental Agreement made and entered into in the City of Manila and LAPU LAPU by and between - EXPORT PROCESSING ZONE AUTHORITY, a government corporation created and operating under Presidential Decree No.66, as amended revising Republic Act 5490, with office address at the 4th floor Legaspi Tower 300, Roxas Blvd., Metro Manila, represented herein by its Administrator MR. ---TAGUMPAY R. JARDINIANO, who is duly authorized, hereinafter referred to as the "AUTHORITY", - and - NATIONAL SEMICONDUCTOR (HK) DISTRIBUTION LTD., a corporation July organized and existing under the laws of the Philippines, with office address at Mactan Export Processing Zone , represented herein by its Finance Controller, MS. MERLYNDE PESIRLA, who is likewise duly authorized, hereinafter referred to as the "REGISTRANT". W I T N E S S E T H that; WHEREAS, on October 10. 1979, the AUTHORITY and the REGISTRANT executed a Registration Agreement, which contract was acknowledged before Atty. Victoria Querubin, a Notary Public for and in the City of Manila and appearing in her notarial register as Doc. No. 173, Page No. 36; Book No. III and Series of 1979; WHEREAS, under the Original Contract, the scope of the REGISTRANT's registered activity was limited to the manufacture of electronic products at the Mactan Export Processing Zone. WHEREAS, the REGISTRANT applied for the registration of its expansion project involving the acquisition and installation of additional machinery and equipment for the production of SOT-23 transistors, a semi-conductor device used as an electronic component In the assembly of electrical and electronic machineries at the MEPZ; WHEREAS, under Board Resolution No. 93-120 dated August 16, 1993 of its Board of Commissioners, the AUTHORITY approved the said application: WHEREAS, the REGISTRANT is presently occupying a total leased area of 30,159,32 sq. m. under the Original Contract, which area is now fully utilized by it; -34- WHEREAS, the REGISTRANT requested to lease an additional area of 8,642 sq. m. for the expansion of its manufacturing capability effective November 1, 1993; WHEREAS, the AUTHORITY has approved the said request; NOW, THEREFORE, in view of the foregoing premises and the mutual covenants and undertakings hereinafter provided, the parties hereto have agreed as follows: 1. In addition to the Manufacture of electronic products at the MEPZ, the production of SOT-23 transistors, a semi-conductor device used as an electronic component in the assembly of electrical and electronic machineries is hereby included in the REGISTRANT'S registered activity as an expansion project in accordance with its representations, commitments and proposal set forth in its application and for ___ an integral part hereof 2. Within ninety (90) days from date of registration, the REGISTRANT shall submit to the AUTHORITY (PERD) an Environmental Clearance Certificate issued by the Environmental Management Bureau; 3. The registered capacity for the subject expansion project shall be 685 million pieces of SOT-23 per year; 4. The REGISTRANT shall strictly adhere to the following timetable; Installation of Machinery and Equipment August, 1993 Start of Commercial Operation September, 1993 5. REGISTRANT shall present proof of increase in capitalization by US $2.0 M within one (1) year from the start of commercial operation of the expansion project; 6. The REGISTRANT shall establish a separate book of account for the project and shall set up an accounting system consistent with Item R No. 3 of its application with EPZA compatible with EPZA reporting requirements under General Circular No. 84-001: 7. That REGISTRANT shall furnish the AUTHORITY with copies of reports which by law or regulation it is required to submit to the National Census and Statistics Office, Central Bank, Department of Labor and Employment, Bureau of Internal Revenue, Social Security System and Securities Exchange Commission covering operations capital investments and other matter in its operations in accordance with and within the person(s) fixed under Section 13, Rule __ of the Amended EPZA Rules and Regulations Implementing PD 66. as further amended by the Omnibus Investments Code of 1987. -35- 8. That REGISTRANT shall formally notify the MEPZ Zone Manager of the date it is to start commercial production of its product and shall submit a sworn certificate of the start of its commercial operation within thirty (30) days from such date to the AUTHORITY (PERD); 9. In addition to the lot area of 30,159.32 sq. ms. allocated to the REGISTRANT under the Original Contract, the AUTHORITY hereby leases to the REGISTRANT an additional area of EIGHT THOUSAND SIX HUNDRED FORTY TWO (8,642,00 sq. ms.) at the Mactan Export Processing Zone for its exclusive use and, which area is clearly indicated by bold red marks in the plan attached hereto as Annex "A" and made and integral part hereof Said area is hereinafter refereed to as the "Leased Premises". 10. The REGISTRANT shall commence to pay rentals based on the rates stated in par. 3.1 of Article III of the Original Contract on the additional 8,642 sq. m. effective November 1, 1983 thereafter, the regular rentals on the Leased Premises shall be payable to the AUTHORITY in advance on of before the 5th day or every month without necessity of demand. In case of delinquency in the payment of rentals, such delinquent payment shall bear interest at the rate of two (2%) percent a month computed from the date of delinquency. 11. That on or upon signing of this Agreement, the REGISTRANT shall deposit with the AUTHORITY an amount equivalent to two month rental on the Leased premises, which deposit shall be forfeited in favor of the AUTHORITY in the event that project Implementation is not started ninety (90) days from date of registration. If the project is started within the said period, the deposit shall be held in trust by the AUTHORITY and shall be credited as payment of land rentals or other obligations that may be due to the AUTHORITY only upon the termination of the lease period unless the same is renewed and/or unless the REGISTRANT has violated the terms and conditions of this Agreement, the Amended EPZA Rules and Regulations and the applicable EPZA circulary or memoranda. In the latter case, the deposit shall continue to be held in trust by the AUTHORITY or be considered as liquidated damages by way of penalty. 12. The REGISTRANT recognizes the right of the AUTHORITY to conduct an inventory of REGISTRANT's machineriess, equipments stocks of finished or semifinished products, work in process, raw materials, supplies and other assets, at any hour of the day or night upon a 24-hour notice given by the AUTHORITY. The REGISTRANT shall not prevent, obstruct impede or otherwise frustrate the exercise of this prerogative by the AUTHORITY. It is understood that in the exercise of this power to conduct an inventory, the AUTHORITY acting thru its duly authorized representatives, may break open any door, window, wall floor or ceiling of any enclosure where such equipments stocks or machineries are kept without being liable for prosecution or damages therefor when itis determined that the items/goods to be inventoried are intentionally placed in the enclosure to prevent their examination, or when despite the notice as required, the enclosures were locked, sealed or otherwise closed in any manner to prevent entry therein by the AUTHORITY's representative/s. -36- The AUTHORITY may only (2) employ such force and cause such damage as may be necessary to cause entry into the premises. 13. Nothing herein contained shall be construed as amending or modifying any of the terms and conditions of the Original Contract except as herein expressly provided. 14. This Supplemental Agreement shall form integrap part of the Original Contract. IN WITNESS WHEREOF, the parties hereunto have signed these presentation on ____ day of AUG 25 1994 EXPORT PROCESSING ZONE NATIONAL SEMICONDUCTOR (HK) AUTHORITY DISTRIBUTION LTD. (Authority ) (Registrant) By: By: TAGUMPAY R. JARDINIANO MERLYNDE PESIRLA Administrator Finance Controller SIGNED IN THE PRESENCE OF; _____________________________ ________________________ ACKNOWLEDGMENT Republic of the Philippines ) Lapulapu City )s.s. BEFORE ME, this __day of Aug 25. 1994, 1994 personally appeared MERLYNDE PESIRLA, Finance Controller, National Semiconductor (HK) Distribution, Ltd., both known to me and to me known to be the same person who executed the foregoing instrument and acknowledged to me that the same is her free and voluntary act and deed as well as that of the entity represented with Residence Cert. #20324487, issued March 23, 1994, Mandaue City. Said instrument refers to a Supplemental Agreement consisting of six (6) pages including this page of acknowledgment signed by the parties and their witnesses on each and every page thereof and sealed with my notarial seal. ENRIQUE M.O. DIOLA, JR. NOTARY OF PUBLIC Until December 31, 1995 Privilege Tax Receipt No. 0486073 Cebu City. 1-28-94 -37- Doc. no. 23; Page No. 6; Book No. VI; Series of 1994 Before me personally appeared Tagumpay R. Jordiniano R. C. #23647723, January 7, 1994, Muntinlupa, Rizal, known to me to be the same person who executed the foregoing document consisting of 6 pages including this acknowledgment signed according to law and he acknowledged before me that the same is his free act and deed. Makati, Metro Manila , August 12,1994. Doc. No. 64; Page 143 -38- (MAP) -39- SUPPLEMENTAL AGREEMENT KNOW ALL MEN BY THESE PRESENTS: This Supplemental Agreement made and entered by and between - EXPORT PROCESSING ZONE AUTHORITY, a government corporation, created and operating under Presidential Decree No. 66, as amended, Revising Republic Act 5490. with office address at the 4th floor. Legaspi Towers 300. Roxas Boulevard, Metro-Manila. represented herein by its Administrator. MR. TAGUMPAY R. FARDINIANO. who is duly authorized. hereinafter referred to as the "AUTHORITY" - and - NATIONAL SEMICONDUCTOR (HK) DISTRIBUTION LTD., a corporation duly organized and existing under the laws of the Philippines with office address at Mactan Export Processing Zone, Mactan, Lapu-Lapu City, represented herein by its Finance Comptroller. MS. MERLYNDE PESIRLA. who is likewise duly authorized. hereinafter referred to as the "REGISTRANT" W I T N E S S E T H: WHEREAS on October 10, 1979, the AUTHORITY and the REGISTRANT executed a Registration Agreement, which Querbin, a Notary Public for and in the City of Manila and which contract was acknowledged before Atty. Victoria appearing in her notarial Register as Doc. No. 173, Page No. 36, Book No. III and series of 1979; WHEREAS, on several occasions, the REGISTRANT requested to lease additional land areas inside the Mactan Export Processing Zone (MEPZ) which requests were approved and were the subject of the several Supplemental Agreements. WHEREAS, the REGISTRANT requested a new to lease additional 1,249.85 sq.m. of lot inside the MEPZ for the installation of additional cooling tower of its air conditioning system, which request was approved by the AUTHORITY subject to the standard lease terms and conditions. NOW, THEREFORE, in view of the foregoing premises and the mutual covenants and undertakings hereinafter provided, the parties hereto have agreed as follows: 1. The AUTHORITY hereby leasee unto the the REGISTRANT an additional ONE THOUSAND TWO HUNDRED FORTY NINE AND 85/100 (1.259.85 sq.m.) SQUARE METERS of land at the MEPZ for its exclusive use and purposes subject to the following schedule of rental rates: -40- Up to Dec. 31, 1994 - P6.09 sq.m./mo. 01 Jan. 1995 - 31 Dec. 1999 - 8.38/ sq.m/mo. 01 Jan. 2000- 31 Dec. 2004 - 12.80/ sq.m./mo. Thereafter. by appropriate Board Resolution. 2. The REGISTRANT shall commence to pay rentals on the said additional 1,249.85 sq.m. of leased area on the date when the REGISTRANT started fencing the subject area as certified by the MEPZ Zone Manager, thereafter, the regular rentals on the leased premises shall be payable to the AUTHORITY in advance on or before the 5th day of every month without the necessity of demand 3. That on or upon the signing of this Agreement, the REGISTRANT shall deposit with the AUTHORITY an amount equivalent to two (2) months rentals on the leased premise, which deposit shall be forfeited in favor of the AUTHORITY in the event that the implementation of the project is not started ninety (90) days from the date of registration. If the project is started within the said period, the deposit shall be held in trust by the AUTHORITY and shall be credited as payment of land rentals or other obligations that may be due to the AUTHORITY only upon the termination of the lease period unless the same is renewed and/or unless the REGISTRANT has violated the terms and conditions of this Agreement, the Amended EPZA Rules and Regulations, and the applicable EPZA circulars or memoranda. In the latter case, the deposit shall continue to be held in trust by the AUTHORITY or be considered as liquidated damages by way of penalty. In case of delinquency in the payment of rentals, such delinquent payment shall bear interest at the rate of two (2%) percent a month computed from the date of delinquency. 4. Nothing herein contained shall be construed as amending or modifying any of the terms and conditions of the Original Contract except as herein expressly provided. 5. This Supplemental Agreement shall form integral part of the Original Contract. IN WITNESS WHEREOF the parties hereto have signed this present this 29th day of May 1995 at the City of Manila, Philippines. EXPORT PROCESSING ZONE NATIONAL SEMICONDUCTOR AUTHORITY (HK) DISTRIBUTION. LTD. (Authority) (Registrant) BY: BY: TAGUMPAY R. JARDINIANO MERIYNDE PESIRLA Administrator Finance Comptroller W I T N E S S E S - - - - - - - - - -41- A C K N O W L E D G M E N T - - - - - - - - - - - - - - Republic of the Philippines ) City of Makili )s.s. BEFORE ME, this 29th day of May, 1995 personally appeared the following: NAME CTC/PASSPORT NO. TAGUMPAY R. JARDINIANO No. 3480315 1-23/95 Muntinlupa MERLYNDE PESIRLA Res. Cert. No. 1786976 Mandaue, Cebu 1/04/1995 both known to me and to me known to be the same persons who executed the foregoing instrument and acknowledged to me that the same is their free and voluntary act and deed as well as that of the entities represented. Said instrument refers to a Supplemental Agreement consisting of three (3) pages including this page signed by the parties and their witnesses on each and every page thereof and sealed with my notarial seal. NOTARY PUBLIC DOC. NO. 202 BOOK NO. 42 PAGE NO. I SERIES OF 1995 -42- SUPPLEMENTAL AGREEMENT KNOW ALL MEN BY THESE PRESENTS: This Supplemental Agreement, made and entered into in the Cities of Manila and Lapu-Lapu by and between --- EXPORT PROCESSING ZONE AUTHORITY, a government corporation created and operating under Presidential Decree No. 66, as amended revising Republic Act 5490, with office address at the 4th Floor, Leraspi Towers 300, Roxas Blvd., Metro Manila, represented herein by its Administrator. MR. TAGUMPAY R. JARDINIANO, who is duly authorized hereinafter referred to as the "AUTHORITY" -and- NATIONAL SEMICONDUCTOR (HK) DISTRIBUTION LTD., a corporation duly organized and existing under the laws of the Philippines, with office address at Mactan Export Processing Zone represented herein by its Finance Controller, MS. MERLYNDE PESIRLA, who is likewise duly authorized, hereinafter referred to as the "REGISTRANT." WITNESSETH That: WHEREAS, on October 10, 1979 the AUTHORITY and the REGISTRANT executed a Registration Agreement, which contract was acknowledged before Atty. Victoria Querubin, a Notary Public for and in the City of Manila and appearing in her Notarial Register as Doc. No. 173: Page No. 36: Book No. III and Series of 1979; WHEREAS, the Original Contract was amended by a Supplemental Agreement dated August 25, 1994 authorizing the inclusion in the scope of the REGISTRANT's registration activity of an expansion project consisting in the production of SOT - 23 transistors and the lease of an area of 8,642 sq. m. in MEPZ in addition to the lot of 30,159.32 sq.m. allocated to the REGISTRANT under the Original Contract: WHEREAS, in a Memorandum dated March 24, 1995, the AUTHORITY informed the REGISTRANT that the leased premises under the said Supplemental Agreement was an integral part of the Original Contract and therefore ownership of all structures and improvements thereon, including a new additional building which is scheduled to be completed by July, 1995, shall revert to the AUTHORITY after December 31, 2004, the expiration of the Original Contract; WHEREAS, the REGISTRANT in a letter dated May 22, 1995, requested for a reconsideration of the AUTHORITY's foregoing position on the following grounds: -43- 1. That the subject leased premises does not form part of the original parcel of land covered by the Original Contract which was executed in 1979; 2. That the subject leased premises was made available to the REGISTRANT in 1993 and the corresponding Supplemental Agreement was approved in 1994: 3. That the lease of the above mentioned leased premises should be subject to a longer term of 25 years renewable for another 25 years as provided under R.A. 7652; 4. That the term and condition of the Original Contract will reduce the life of the said building by less than 10 years, thus preventing the Registrant from making a reasonable recovery of its additional capital investment: WHEREAS, the AUTHORITY has approved the REGISTRANT's request; NOW, THEREFORE, in view of the foregoing premises and the mutual covenants and undertakings hereinafter provided, the parties hereto have agreed as follows: 1. The term of the lease of the additional 8,642 sq.m. of land in MEPZ under the subject Supplemental Agreement shall be for a period of twenty-five (25) years commencing from November 1, 1993, unless sooner terminated as hereinafter provided. The lease of the leased premises shall be renewable at the option of the REGISTRANT for a period of twenty-five (25) pursuant to the provisions hereinafter set forth. The option to renew the lease shall be exercised in writing by the REGISTRANT, not later than sixty (60) days prior to the expiration of the Original term. The execution of the renewal Contract shall be made prior to the termination of the first twenty-year period. Upon the expiration of the first twenty-five year term of the lease, the REGISTRANT's factory building(s) and improvements shall automatically belong to the AUTHORITY without cost and without the need of judicial demand. Thereafter, subject to such terms and conditions as may be mutually agreed upon by the parties, a new lease agreement may be entered into on the said factory building and in the zone area occupied by it. 2. It is understood, however, that in all cases, the period of the lease shall be co-terminous with the registration of the REGISTRANT with the AUTHORITY. In the event the REGISTRANT's registration is canceled or revoked prior to the expiration of the lease period, the lease over the leased premises as provided, herein, shall be deemed automatically terminated without the need of judicial or extrajudicial demand/action: Provided, further, that the lease on the leased premises shall thereafter be treated or month-to-month basis effective from the payment of rentals by REGISTRANT in accordance with the rental rates fixed in par.10 of the subject Supplemental Agreement or with the prevailing rental rates in MEPZ, whichever is applicable. Provided, further, That within two (2) months from the date of the said cancellation or revocation, unless this period is extended upon written request and upon written approval of the AUTHORITY based on meritorious grounds, the REGISTRANT shall have the option to: (a) sell its building(s) and permanent improvements to another zone export enterprise after giving a one-month notice to the AUTHORITY; or -44- (b) remove the said building(s) and permanent improvements at its own expense after giving a one-month notice to the AUTHORITY. However, both options shall be subject to the pre-emptive right of the AUTHORITY to acquire the said building(s) and permanent improvements upon payment of compensation therefor, in an amount equivalent to the book value thereof less depreciation cost at the rate of five (5%) percent per annum. In the event the AUTHORITY decides not to exercise its pre-emptive right to acquire the said building(s) and permanent improvements, it shall communicate the same to the zone export enterprise within two (2) months from receipt of the latter's notice to sell or to remove the same. If the REGISTRANT cannot sell its factory building to another zone-registered enterprise or to an entity qualified to become a zone-registered enterprise within the said two-month option period to sell or to remove/demolish its factory building or within the extension period that may have been granted and the AUTHORITY did not exercise its pre-emptive right to acquire the same, REGISTRANT shall remove or demolish the factory building at its own expense, failing which the AUTHORITY shall remove or demolish the same without the need of a judicial order or demand and the cost thereof shall be chargeable to the REGISTRANT. 3. The REGISTRANT shall pay all real property taxes, fees and charges under the provisions of the real property tax code and other laws in respect to the provisions leased by it. 4. Nothing herein contained shall construed as amending or modifying any of the terms and conditions of the Original Contract except as herein expressly provided. 5. This Supplemental Agreement shall form an integral part of the Original Contract. IN WITNESS WHEREOF, the parties hereto have signed these presents on this ______ day of May, 1995. EXPORT PROCESSING ZONE NATIONAL SEMICONDUCTOR (HK) AUTHORITY DISTRIBUTION LTD. (Authority) (Registrant) By: By: TAGUMPAY R. JARDINIANO MERLYNDE PESIRLA Administrator Finance Controller SIGNED IN THE PRESENCE OF : _______________________ ______________________ -45- A C K N O W L E D G M E N T Republic of the Philippines ) City of Manila ) BEFORE ME, this __________ day of __________________, 1995 personally appeared the following: NAME RESIDENCE TAX CERTIFICATE MERLYNDE PESIRLA NO. 1786976 Jan. 1, 1995 both known to me and to me know to be the same persons who executed the foregoing instrument and acknowledged to me that the same is their free and voluntary act and deed as well as that of the entities represented. Said instrument refers to a Supplemental Agreement consisting of five (5) pages including this page of acknowledgment signed by the parties and their witnesses on each and every page thereof and sealed with my notarial seal. Doc. No. 84; Page No. 18; Book No. VII; Series of 1995. -46- ACKNOWLEDGMENT -------------- Republic of the Philippines ) City of Manila ) BEFORE ME, this _____ day of _______, 1995 personally appeared the following: NAME RESIDENCE TAX CERTIFICATE TAGUMPAY R. JARDINIANO No. 3480135, Jan. 23, 1995 both known to me and to me known to be same persons who executed the foregoing instrument and acknowledged to me that the same is their free and voluntary act and deed as well that of the entities represented. Doc. No. 212: Page No. 44: Book No. I: Series of 1995 -47- SEVENTH SUPPLEMENTAL AGREEMENT KNOW ALL MEN BY THESE PRESENTS: This Supplemental Agreement, made and entered into in the City of Manila, by and between - PHILIPPINE ECONOMIC ZONE AUTHORITY, a government corporation created and operating under Republic Act 7916 otherwise known as Special Economic Zone Act of 1995, with office address at the 4th Floor Legaspi Towers 300, Roxas Blvd., Metro Manila, represented herein by its Director General, MS. LILIA B. DE LIMA, who is duly authorized, hereinafter referred to as the "PEZA". - and - NATIONAL SEMICONDUCTOR (HK) DISTRIBUTION LTD., a corporation duly organized and existing under the laws of the Philippines with office address at Mactan Export Processing Zone, Mactan, Lapu-Lapu City, represented herein by its Finance Comptroller, MS. MERLYNDE PESIRLA, who is likewise duly authorized, hereinafter referred to as the "REGISTRANT" W I T N E S S E T H That: WHEREAS, on October 10, 1979, the Export Processing Zone Authority (EPZA) and the REGISTRANT executed a Registration Agreement, which contract was acknowledged before Atty. Victoria Querubin, a Notarial Public for and in the City of Manila and appearing in her Notarial Register as Doc. No. 173, Page No. 36, Book No. III and series of 1979; WHEREAS, with the effectivity of R.A. 7916 (the Special Economic Zone Act of 1995) and its implementing Rules and Regulations, all the rights, obligations and interests of EPZA under the Original Contract have been transferred to and assumed by the Philippine Economic Zone Authority (PEZA); WHEREAS, on several occasions, the REGISTRANT requested to lease additional land areas inside the Mactan Export Processing Zone (MEPZ) which requests were approved and were the subject of the several Supplemental Agreements; WHEREAS, the REGISTRANT requested anew to lease additional 1,845.60 sq. ms. of land located between Registrant's factory building and CLIGCO inside Mactan ECOZONE which request was approved by the PEZA subject to the standard lease terms and conditions. NOW, THEREFORE, in view of the foregoing premises and the mutual covenants and undertakings hereinafter provided, the parties hereto have agreed as follows: -48- 1. The PEZA hereby leases unto the REGISTRANT an additional ONE THOUSAND EIGHT HUNDRED AND FORTY-FIVE AND 60/100 (1,845.60 sq. ms.) SQUARE METERS of land at the MEPZ for its exclusive use and purposes subject to the following schedule of rental rates: 01 Jan. 1995 - 31 Dec. 1999 - P 8.83/sq.m./mo. 01 Jan. 2000 - 31 Dec. 2004 - 12.80/sq.m./mo. Thereafter, by appropriate Board Resolution. 2. The REGISTRANT shall commence to pay rentals on the said additional 1,845.60 sq. ms. of leased area on the date when the REGISTRANT started fencing or occupying the subject area as certified by the Mactan ECOZONE Administrator thereafter, the regular rentals on the leased premises shall be payable to the PEZA in advance on or before the 5th day of every month without the necessity of demand. 3. That on or upon the signing of this Agreement, the REGISTRANT shall deposit with the PEZA an amount equivalent to two (2) months rentals on the leased premises, which deposit shall be forfeited in favor of the PEZA in the event that the implementation of the project is not started ninety (90) days from the date of registration. If the project is started within the said period, the deposit shall be held in trust by the PEZA and shall be credited as payment of land rentals or other obligations that may be due to the PEZA only upon the termination of the lease period unless the same is renewed and/or unless the REGISTRANT has violated the terms and conditions of this Agreement, the Amended EPZA Rules and Regulations, and the applicable EPZA circulars or memoranda. In the latter case, the deposit shall continue to be held in trust by the PEZA or be considered as liquidated damages by way of penalty. 4. The term of the lease of the additional 1,845.60 sq.ms. of land in Mactan ECOZONE Administrator under the subject Supplemental Agreement shall be for a period of fifty (50) years commencing from March 24, 1995, unless sooner terminated as hereinafter provided. The lease of the Leased premises shall be renewable at the option of the REGISTRANT for a period of twenty-five (25) pursuant to the provisions of Republic Act No. 7652 (Investor's Lease Act), Section 30 of Republic Act No. 7916 and Rule V of the latter's implementing Rules and Regulations. The option to renew the lease shall be exercised in writing by the REGISTRANT, not later than sixty (60) days prior to the expiration of the Original Term. The execution of the renewal Contract shall be made prior to the termination of the first twenty-year period. 5. It is understood, however, that in all cases the period of the lease shall be co-terminous with the registration of the REGISTRANT with the PEZA. In the event the REGISTRANT'S registration is canceled or revoked prior to the expiration of the lease period, the lease over the leased premises as provided, herein, shall be deemed automatically terminated without the need of judicial or extrajudicial demand/action. Provided, further, that the lease on the leased premises shall thereafter be treated or month-to-month basis effective from the payment of rentals by REGISTRANT in accordance with the rental rates fixed in par. 10 of the subject Supplemental Agreement or with the prevailing rental rates in MEPZ, whichever is applicable. Provided, further, That within two (2) months from the date of said cancellation or revocation, -49- unless this period is extended upon written approval of the PEZA based on meritorious grounds, the REGISTRANT shall have the option to: (a) sell its building(s) and permanent improvements to another zone export enterprise after giving one-month notice to the PEZA; or (b) remove the said building(s) and permanent improvements at its own expense after giving a one-month notice to the PEZA. However, both options shall be subject to the pre-emptive right of the PEZA to acquire the said building(s) and permanent improvements upon payment of compensation therefore, in an amount equivalent to the book value thereof less depreciation cost at the rate of five (5%) percent per annum. In the event the PEZA decides not to exercise its pre-emptive improvements, it shall communicate the same to the zone export enterprise within two (2) months from receipt of the latter's notice to sell or to remove the same. If the REGISTRANT cannot sell its factory building to another zone-registered enterprise or to an entity qualified to become a zone-registered enterprise within the said two-month option period to sell or to remove/demolish its factory building or within the extension period that may have been granted and the PEZA did not exercise its pre-emptive right to acquire the same, REGISTRANT shall remove or demolish the factory building at its own expense, failing which the PEZA shall remove or demolish the same without the need of a judicial order or demand and the cost thereof shall be chargeable to the REGISTRANT. 6. The REGISTRANT shall pay all real property taxes, fees and charges under the provisions of the real property tax code and other laws in respect to the provisions leased by it. 7. Nothing herein contained shall be construed as amending or modifying any of the terms and conditions of the Original Contract except as herein expressly provided. 8. This Supplemental Agreement shall form an integral part of the Original Contract. IN WITNESS WHEREOF, the parties hereto have signed this _____ day of _________, 1995 at the City of Manila, Philippines. PHILIPPINE ECONOMIC ZONE NATIONAL SEMICONDUCTOR AUTHORITY (HK) DISTRIBUTION, LTD. (PEZA) (Registrant) BY: BY: LILIA B. DE LIMA MERLINDE PESIRLA Director General Finance Controller -50- WITNESSES _______________________ ______________________ ACKNOWLEDGMENT REPUBLIC OF THE PHILIPPINES ) CITY OF MANILA ) S.S. BEFORE ME, this _______day of ____________, 1995 personally appeared the following: NAME RESIDENCE CERTIFICATE NO. LILIA B. DE LIMA MERLYNDE PESIRLA both known to me and to me known to be the same persons who executed the foregoing instrument and acknowledged to me that the same is their free and voluntary act and deed as well as that of the entities represented. Said instrument refers to a Supplemental Agreement consisting of five (5) pages including this page of acknowledgment signed by the parties and their witnesses on each and every page thereof and sealed with my notarial seal. Doc. No. 147 Page No 30 Book No._____ Series of 1995. -51- SUPPLEMENTAL AGREEMENT KNOW ALL MEN BY THESE PRESENTS: This Supplemental Agreement made and entered into by and between- PHILIPPINE ECONOMIC ZONE AUTHORITY, a government corporation created and operating under Republic Act No. 7916, with office address at Almeda Building, Roxas Blvd., cor. San Luis St., Pasay City, represented herein by its Director General, MS. LILIA B. DE LIMA, who is duly authorized, hereinafter referred to as the "PEZA", -- and - NATIONAL SEMICONDUCTOR (HK) DISTRIBUTION LTD., a corporation duly organized and existing under Philippine laws, with office address at the Mactan Ecozone, Lapu-Lapu City, represented herein by its Managing Director, MR. K. H. KHOR, who is likewise duly authorized, hereinafter referred to as the "REGISTRANT". WITNESSETH That: WHEREAS, on October 10, 1979, the then Export Processing Zone Authority (EPZA) and the REGISTRANT executed a Registration Agreement, hereinafter referred to as the "Original Contract", which contract was acknowledged before Atty. Victoria Querubin, a Notary Public for and in the City of Manila and appearing in her Notarial Register as Doc. No. 173, Page No. 36, Book No. III, Series of 1979; WHEREAS, upon the effectivity of R.A. 7916 creating the Philippine Economic Zone Authority (PEZA) and E.O. No. 282 governing the evolution of EPZA into PEZA, all rights and obligations of EPZA under the Original Contract were transferred to and assumed by the PEZA; WHEREAS, on several occasions, the REGISTRANT requested to lease additional land areas inside the Mactan Ecozone, which requests were approved by the PEZA and were subject of a number of supplemental agreements; WHEREAS, as per information of the MEZ Administrator pursuant to a previous survey, the total area leased by the REGISTRANT is 40,647 sq. ms. and not 36,324 sq.ms. as indicated in the Original LeaseAgreement and subsequent supplemental agreements; WHEREAS, in response to the request for clarification by the Legal Services Department (PEZA) at the instance of the REGISTRANT, the MEZ officials concerned conducted a geodetic survey of the area occupied by the former and found that the said area consists of 40,216 sq.ms. only; -52- WHEREAS, pursuant to a summary of areas leased by the REGISTRANT that was prepared and submitted by MEZ, out of the said total area of 40,216 sq.ms., a portion consisting of 2,046 sq.ms. is not covered by supplemental agreement; WHEREAS, the REGISTRANT requested for the correction of PEZA's official records to reflect the actual area leased by it; WHEREAS, the REGISTRANT likewise requested to amend the term of the Original Lease Agreement and subsequent supplemental agreements to fifty (50) years pursuant to the pertinent provision of the PEZA Law; WHEREAS, the PEZA approved the said requests; NOW, THEREFORE, in view of the foregoing premises and the mutual covenants and undertakings hereinafter provided, the parties hereto have agreed as follows: 1. In addition to the 38,170.45 sq.ms. of land leased by it under the Original Lease Agreement and subsequent supplemental agreements, the PEZA hereby leases to the REGISTRANT and the latter hereby accepts in lease that parcel of land at the Mactan Ecozone consisting of 2,046 sq.ms., more or less, now used and occupied by it but without a lease contract. 2. The rental rates to be applied to the said additional area shall be as follows: Jan. 1, 1996 - Dec. 31, 1999 - 8.83/sq.m./mo. Jan. 1, 2000 - Dec. 31, 2004 - 12.80/sq.m./mo. Thereafter, by appropriate PEZA Board Resolution. Monthly rentals shall be payable to the PEZA in advance on or before the 5th day of every month without necessity of demand. In case of delinquency in the payment of the rentals, as herein specified, such delinquent payment shall bear interest at the rate of two (2%) percent a month computed from the date of delinquency. The term of the lease of the entire leased premises consisting of 40,216 sq.ms. shall be for a period of FIFTY (50) years commencing as follows: (a) For the following lots covered by the Original Lease Agreement and subsequent supplemental agreements consisting of a total area of 38,170.45 square meters - from the date of execution thereof, to wit: Date of Execution of Original Supplemental Lease Agreement Lot Area (Sq. Ms.) October 10, 1979 (Original) 20,000 -53- May 24, 1982 100 December 12, 1983 230 August 17, 1984 150 March 10, 1987 2,743 February 16, 1990 1,320 February 16, 1990 1,890 August 25, 1994 8,642 May 27, 1995 1,249.85 November 9, 1995 1,845.60 (b) For the additional area of 2,046 square meters - from January 1, 1996 as per the attached certification of the MEZ Administrator dated September 18, 1996. The lease of the leased premises shall be renewable once at the option of the REGISTRANT for a period of not more than TWENTY-FIVE (25) years pursuant to the provisions of R.A. No. 7952 (Investor's Lease Act), Section 30 of R.A. No. 7916 and Rule V of the latter's implementing Rules and Regulations. The REGISTRANT must, however, present proof that it has made social and economic contributions to the country; otherwise, the application for renewal/extension shall be disapproved. The option to renew the lease shall be exercised in writing by the REGISTRANT not later than sixty (60) days prior to the expiration of the original term. 3. It is understood, however, that in all cases the period of the lease shall be coterminous with the registration of the REGISTRANT with PEZA. In the event the REGISTRANT's registration is canceled or revoked for whatever valid reasons, as well as cessation from operation by the REGISTRANT for a continuous period of two (2) months unless this period is extended by PEZA on meritorious grounds upon written request of the REGISTRANT, prior to the expiration of the lease period, the lease over the leased premises as provided herein shall be deemed automatically terminated without the need of judicial or extrajudicial demand/action. Provided, that the lease on the leased premises shall thereafter be treated on a month-to-month basis effective from the date of said cancellation or revocation subject to the payment of rentals by the REGISTRANT to PEZA in accordance with the rental rates in the Mactan Ecozone, whichever is applicable. Provided, further, that within two (2) months from the date of said cancellation or revocation, unless this period is extended upon written request and written approval of the PEZA based on meritorious grounds, the REGISTRANT shall have the option to: -54- a. sell its building(s) and permanent improvements to another ecozone export enterprise after giving a one month notice to PEZA; or b. remove the said building(s) and permanent improvements at its own expense after giving a one-month notice to PEZA. 4. The REGISTRANT shall see to it that its operation during the course of manufacture or production will not endanger public safety or public health nor violate the anti-pollution requirements of the government and shall comply with the medical, dental, occupational health and safety laws, regulations and standards of the Labor Code of the Philippines, as amended as well as other provisions therein and rules and regulations promulgated thereunder and other labor laws and regulations governing labor relations, fixing of minimum wage, terms and conditions of employment, etc. For this purpose, the REGISTRANT shall comply with the Master Employment Contract that shall be prescribed by PEZA in coordination with the Department of Labor and Employment and the policies and declarations promulgated for the preservation of industrial peace within the Mactan Ecozone pursuant to Sections 39 and 38, respectively of R.A. 7916 and Rule XXIII of its implementing Rules and Regulations. 5. The REGISTRANT may assign, transfer, convey, sell, mortgage or otherwise encumber its building(s)/structure(s), its machinery and equipment or this Registration Agreement or leasehold rights arising therefrom, provided a written consent of PEZA is obtained by the REGISTRANT fifteen (15) days prior to such assignment, transfer, conveyance, sale, mortgage or encumbrance and subject to such conditions and restrictions as may be imposed by PEZA. Any and all rights and interests accruing to third parties in violation of this provision shall not be binding against the PEZA. 6. The REGISTRANT shall keep, save and hold the PEZA free and harmless from all liabilities, penalties, losses, damages, costs, expenses, causes, claims and/or judgments arising out of or by reason of any injury or liability caused by any person or persons from any cause or causes whatsoever during the term of this Agreement by obtaining appropriate insurance with an insurance company as would amply protect both parties herein against any liability arising from its registered operations, including insurance against losses from fire and fortuitous events. 7. The REGISTRANT recognizes the right of the PEZA to conduct an inventory of REGISTRANT's machineries, equipment, stocks of finished or semi-finished products, work-in-process, raw materials, supplies and other assets, at any hour of the day or night, upon a 24-hour notice given by the PEZA. The REGISTRANT shall not prevent, obstruct, impede or otherwise frustrate the exercise of this prerogative by the PEZA. 8. The REGISTRANT agrees that the PEZA may disapprove or withhold any application for permit to import, to export, to farm-out or to sell locally or to avail of any incentive being administered by the PEZA as the case may be, if REGISTRANT is delinquent in payment of rentals and other fees and charges due or has violated any provision of the Original Contract or this Agreement, R.A. 7916 and its implementing Rules and Regulations and relevant PEZA memoranda and circulars. Damages that may result due to the said disapproval or -55- withholding shall be solely borne by the REGISTRANT and the PEZA shall be wholly free from liability for whatever damages that may result therefrom. 9. For all actions brought by either of the parties hereto against the other, the party prevailing in said action shall be entitled to recover costs of suits and reasonable attorney's fees which shall in no case be less than TEN THOUSAND and ( 10,000) PESOS. 10. The parties hereto agree that any court action arising out of this Agreement shall be filed in the proper court in the City of Lapu-Lapu. 11. The REGISTRANT shall present proof that it has settled all its accounts with PEZA pertaining to its lease of the leased premises prior to the execution of this supplemental agreement. 12. Nothing herein contained shall be construed as amending or modifying any of the terms and conditions of the Original Contract except as herein expressly provided. 13. This Supplemental Agreement shall form an integral part of the Original Contract. IN WITNESS WHEREOF, the parties hereto have signed those presents this ___ day of ________________, 1996 in the City of Pasay, Philippines. PHILIPPINE ECONOMIC ZONE NATIONAL SEMICONDUCTOR AUTHORITY (HK) DISTRIBUTOR LTD. (PEZA) (REGISTRANT) By: By: LILIA B. DE LIMA K. H. KHOR Director General Managing Director SIGNED IN THE PRESENCE OF: ___________________________ __________________________ ACKNOWLEDGMENT REPUBLIC OF THE PHILIPPINES ) Metro Manila ) S.S. BEFORE ME, a Notary Public for and in Metro Manila, on this ____ day of ______________, 1996 personally appeared: -56- NAME CTC/PASSPORT NO. LILIA B. DE LIMA K. H. KHOR both known to me and to me known to be the same persons who executed the foregoing instrument and acknowledged to me that the same is their free and voluntary act and deed as well as that of the entities represented. Said instrument refers to a Supplemental Agreement consisting of seven (7) pages, including this page of acknowledgment signed by the parties on each and every page thereof and sealed with my notarial seal. NOTARY PUBLIC Doc. No. 585 Page No. 118 Book No. II Series of 1996. -57- EX-10.17 15 EX-10.17 Exhibit 10.17 LEASE (Santa Clara) THIS LEASE (the "Lease") is made and entered into as of the 11th day of March, 1997, by and between NATIONAL Semiconductor Corporation, a Delaware corporation ("Landlord"), and FAIRCHILD Semiconductor Corporation, a Delaware corporation ("Tenant"). WITNESETH: WHEREAS, Landlord is the owner of two buildings known as Building 4 and Building 9 (the "Buildings") located on a property having the address described in Exhibit A (the "Property"); and WHEREAS, Landlord desires to lease that portion of the Buildings described on Exhibit A (hereinafter, the "Premises"). NOW THEREFORE, in consideration of the mutual covenants and agreements herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by each of the parties, Landlord and Tenant hereby stipulate and agree as follows: 1. PREMISES. Landlord hereby leases to Tenant and Tenant hereby leases from Landlord the Premises on the terms and conditions set forth in this Lease. 2. TERM. The term of this Lease shall commence on the date hereof and shall terminate on May 31, 1998 (the "Expiration Date"), unless sooner terminated pursuant to the terms hereof, by which date Tenant agrees to vacate the Premises. The term of this Lease may be extended by the mutual agreement of the parties. Without limiting Landlord's right to refuse to enter into such a mutual agreement, Landlord may require an increase in rental as a condition to any such extension. Tenant may, without penalty, terminate this Lease prior to the Expiration Date, at any time, by written notice to Landlord specifying the date for the termination of the Lease and delivered to Landlord at least thirty (30) days prior to such date (the earlier of the Expiration Date and the date so specified is hereinafter referred to as the "Termination Date"). 3. USE. Tenant shall use the Premises in a manner consistent with its historical use. 4. RENT. Tenant shall pay to Landlord base rent as adjusted pursuant to Section 5 below (the "Base Rent") in accordance with the terms of the Base Rent Schedule attached hereto and made a part hereof as Exhibit B. The monthly Base Rent shall be paid no later than the fifth day of each month for space provided in that month. If the term of this Lease begins or ends on any day other than the first day of a calendar month, then the rental payments for such periods shall be prorated on a per diem basis. 5. INCLUDED SERVICES. Payment of Base Rent shall entitle Tenant, without payment of additional charge, to use and receive, to the extent available at the Property, such services as are both (i) normally provided for and included in the per Accounting Period occupancy charge allocated to all other occupants of the Property who are engaged in similar activities at the Property as the uses thereof permitted Tenant hereby, and (ii) currently provided to the Tenant's operations, (collectively, "Included Services"). Included Services shall include, but are not limited to: electricity, natural gas, water, sewer, and garbage collection, heat, air conditioning, routine maintenance (e.g. cleaning services), normal repair to maintain facilities in good condition, janitorial services, security and badging services, parking in all parking areas and garages, and cafeteria services. Tenant's right to use and receive any Included Services without charge shall be limited in volume and level to that which is reasonable and which is consistent with Tenant's historical use. Landlord shall not be responsible for any decrease or interruption in the availability of any Included Service caused by third parties or circumstances beyond Landlord's control. Should any such decrease occur, Landlord shall allocate the available supply of such Included Service on an equitable basis. In addition to the Included Services, payment of Base Rent shall cover all state and local real property taxes and assessments levied against the Property, but Tenant shall be responsible for the payment of any taxes levied upon its personalty located at the Property. 6. ADDITIONAL SERVICES. Additional services as are both (i) normally provided at a variable monthly allocated charge for all other occupants of the Property who are engaged in similar activities at the Property as the uses thereof permitted Tenant hereby, and (ii) currently provided to the Tenant's operations, (collectively, "Additional Services"), shall be provided to Tenant at the same rates as are charged to Landlord's departments and working groups occupying the Property. Additional Services include, but are not limited to: computer and network services, desktop computer maintenance and repair services, voice and data communication services, shipping and receiving services including, without limitation, mail delivery and package distribution, requested maintenance and janitorial services beyond the scope included within Included Services, and maintenance, janitorial and repair services necessitated by the negligence of Tenant or its agents, employees or invitees. Additional Services shall be available to Tenant at a level and subject to terms and limitations consistent with the availability of such services to the other occupants of the Property. 2 7. EXPANSION OR DECREASE OF LEASED SPACE. (a) Tenant may decrease the amount of space it occupies in the Premises upon thirty (30) days prior written notice to Landlord; however, such space may not be increased without the consent of Landlord, which consent shall not be unreasonably withheld. (b) For any month in which the square footage of space used by Tenant increases or decreases from the amount set forth on Exhibit B, the amount paid with respect to the Premises shall be equitably apportioned to reflect Tenant's actual utilization. (c) If Tenant requires additional space due to an increase in the number of Tenant's workforce at the Premises, then, at Tenant's request made on or before May 1, 1997, Landlord will provide up to twenty-seven (27) additional offices by relocating the Mask Technology group from Building 4 and renovating the area at Landlord's expense. Landlord shall have no obligation hereunder to comply with any such request made after May 1, 1997. Tenant shall reimburse Landlord for the unamortized portion of any such expense to the extent that, following such renovations, Tenant terminates this Lease or decreases the space of the Premises prior to the Expiration Date. Expansion efforts will commence when Tenant establishes ten (10) open personnel requisitions for additional employees and will be scheduled for completion on an all commercially reasonable efforts basis within twelve (12) to sixteen (16) weeks. (d) Upon substantial completion of such renovations (including the issuance of any certificate of occupancy or temporary certificate of occupancy required as a condition to Tenant's occupancy), such additional space shall be added to the Premises and additional Base Rent of $2.65 per square foot per four (4) week period shall be payable with respect to such additional space. In such event, the Landlord and Tenant shall execute an amendment to this Lease to reflect the additional Premises and the additional Base Rent, but this Lease shall remain unmodified in all other respects. 8. RIGHT TO RELOCATE. (a) Landlord reserves the right to reasonably relocate Tenant employees as deemed necessary to provide proper segregation from Landlord operations. Such relocation shall be made only with the consent of Tenant, which consent shall not be unreasonably withheld. (b) All relocation requested by Landlord shall be accomplished at Landlord's sole expense and shall be performed in a manner that minimizes the impact to Tenant's ongoing operations. 3 (c) Upon any such relocation, Landlord and Tenant shall execute an amendment to this Lease to reflect such change, but this Lease shall remain unmodified in all other respects, including the Base Rent payable hereunder. 9. AS-IS CONDITION. Subject to the provisions of Section 7 of this Lease, Tenant accepts the Premises and any and all fixtures and improvements therein in their "as is" "where is" condition and acknowledges that (i) no representation with respect to the condition of the Premises or any such fixtures and improvements has been made to Tenant by or on behalf of Landlord, and (ii) Landlord has no responsibility for improving the space for Tenant. 10. PERSONAL PROPERTY AND CONDITION AT TERMINATION. The conference room furniture, partitions and modular furniture in the Premises, including Building 4 and Building 9, shall be considered the sole property of Landlord and shall not be removed by Tenant. Chairs, detached file cabinets and all office equipment shall be considered the personal property of Tenant. On or before the Termination Date, Tenant shall remove all of its personal property, including, without limitation, its trade fixtures, from the Premises at its sole cost and expense and shall leave the Premises broom clean and otherwise in the same condition as it was on the date hereof, normal wear and tear and loss by casualty or condemnation excepted. 11. DEFAULT BY TENANT. Landlord shall notify Tenant of any default by Tenant of Tenant's obligations under this Lease. Tenant shall have ten (10) days from its receipt of such notice to cure any monetary default and thirty (30) days after receipt of such notice to cure any other default; provided that with respect to non-monetary defaults which do not materially impair the value of the Premises, Tenant may have such additional time to effect such cure as is reasonably required as long as Tenant is diligently pursuing such cure. Upon the termination of the applicable grace period, Landlord may terminate this Lease and exercise any and all other remedies available to it at law or in equity with respect to this Lease. 12. INSURANCE. (a) At all times during the Term of this Lease, Tenant shall maintain (i) commercial general liability insurance (including, without limitation, premises, independent contractors, contractual liability, and a broad form of comprehensive general liability endorsement) with limits of not less than Three Million Dollars ($3,000,000) combined for bodily injury, death and property damage; (such amount of insurance to be increased from time to time as is customary for insurance of such type to reasonably reflect inflation and other matters); and (ii) casualty insurance on its personal property and equipment which insurance may have deductible amounts which are consistent with Landlord's historical deductible amounts with respect to such coverage on its personal property and on the Buildings and the Premises. 4 (b) At all times during the Term of this Lease, Landlord shall maintain (i) commercial general liability insurance (including, without limitation, premises, independent contractors, contractual liability, and a broad form of comprehensive general liability endorsement) with limits of not less than Three Million Dollars ($3,000,000) combined for bodily injury, death and property damage (such amount of insurance to be increased from time to time as is customary for insurance of such type to reasonably reflect inflation and other matters); (ii) all risk extended fire and casualty insurance, written at replacement cost value with replacement cost endorsements, insuring the Buildings and Premises, exclusive of Tenant's personal property ("Landlord's Casualty Policy"); and (iii) casualty insurance on its personal property and equipment which insurance may have deductible amounts which are consistent with Landlord's historical deductible amounts with respect to such coverage on its personal property and on the Buildings and the Premises. (c) All public liability insurance required by this Lease to be maintained by Landlord or Tenant shall name the other party as an additional insured. Each party shall provide to the other current certificates of such insurance as it is required to maintain. Such certificates shall provide that any change restricting or reducing any such coverage or the cancellation of any policy under which any such certificate is issued shall not be valid except upon twenty (20) days notice in writing to Landlord and Tenant of such change or cancellation. All such policies shall be obtained from responsible insurance companies qualified to do business in the State of California and in good standing therein. Insofar as and to the extent that the following provisions may be effective without invalidating or making it impossible to secure insurance coverage obtainable from responsible insurance companies doing business in the State of California (even though extra premium may result therefrom), Landlord and Tenant mutually agree, and their insurance policies shall provide, that with respect to any loss which is covered by insurance then being carried by them, respectively, or which would be covered by insurance policies required by this Lease if such policies had no deductible amount, the one carrying or required to carry such insurance and suffering said loss releases the other of and from any and all claims with respect to such loss; and they further mutually agree that their respective insurance companies shall have no right of subrogation against the other on account thereof, nor shall the party suffering the loss have any claim against the other party with respect to any such loss not covered by its insurance that would have been covered had insurance policies maintained by the injured party had no deductible amount. This provision is intended to restrict each party (as permitted by law) to recovery against insurance carriers to the extent of such coverage, and waive fully, and for the benefit of each, any rights and/or claims which might give rise to a right of subrogation in any insurance carrier. (d) In the event that at any time during the Term of this Lease the Premises or other portions of the improvements within which the Premises are located shall be damaged or destroyed to any material degree in whole or in part by fire or other cause, either Landlord or Tenant may elect to terminate this Lease, but if neither party so elects, Landlord shall be required to repair and restore the Premises and the improvements in which the Premises are located within a reasonable time period. During such time as the Premises, 5 as a result of such damage or destruction, cannot be occupied by Tenant, there shall be an equitable reduction in the payment of Base Rent. In any case where a party has the right to elect to terminate this Lease in accordance with this Section such party shall make such election by notice to the other party given not later than sixty (60) days after the occurrence of the damage or destruction giving rise to such election. If either party elects to terminate as hereinabove provided, then this Lease and the term thereof shall cease and come to an end, and any unearned Base Rent or other charges paid in advance shall be refunded to Tenant. 13. ENVIRONMENTAL. (a) Landlord and Tenant acknowledge that there are environmental conditions at, near or affecting the Property for which Landlord or one of its affiliates is currently performing investigation, remediation or other response actions (collectively, "Remediation"). Landlord covenants and agrees that Remediation is being and will continue to be performed pursuant to and in compliance with applicable federal, state, county and municipal laws, rules, regulations, orders, permits and directives relating to human health or the environment ("Environmental Laws"), and the performance of Remediation does not and will not have an adverse effect on the Premises or unreasonably interfere with the Tenant's use and/or operation thereat. Landlord will retain full responsibility for any violations of Environmental Laws and Remediation required now or in the future relating to environmental conditions (including, but not limited to responsibility for any fines and penalties) unless environmental conditions or violations or Remediation results from Tenant's activities. (b) In addition to indemnifications in Section 14 of this Lease and in the Asset Purchase Agreement between Fairchild Semiconductor Corporation, as Buyer, and National Semiconductor Corporation, as Seller, dated as of the date hereof ("Purchase Agreement"), Landlord agrees to indemnify, defend and hold Tenant harmless from and against any and all actions, demands, claims, losses, damages, costs and liabilities and expenses (including, without limitation, reasonable attorney's fees) (collectively, "Claims") asserted against, imposed upon or incurred by Tenant which arise out of, result from or in any way relate to (i) any environmental conditions existing at, on, under, about or migrating to or from the Premises as of the commencement of this Lease, (ii) Landlord's performance of Remediation (whether performed or required to be performed before or after the commencement of the Lease), (iii) any violation of Environmental Law prior to the date of this Lease, (including, without limitation, any violation relating to the Remediation, the Premises or the Landlord's activities thereat), and (iv) environmental conditions or violations of Environmental Laws not caused by Tenant's activities, regardless of when such violations occur or conditions arise. Landlord agrees to respond on Tenant's behalf to such Claims or, at Tenant's election, to pay the costs of Tenant's response. In the event that Landlord fails to comply with the obligations of this Section, Tenant, at its sole discretion and notwithstanding anything to the contrary, shall have the option to terminate this Lease. 6 (c) Landlord hereby waives and releases Tenant from any and all claims, known and unknown, foreseen or unforeseen, which exist or may arise under common or statutory environmental law, including the Comprehensive Environmental Response, Compensation and Liability Act, as amended ("CERCLA") or any other statutes now or hereafter in effect, except for those matters for which Tenant is obligated to indemnify Landlord under this Lease. (d) Tenant covenants and agrees to defend, indemnify and hold Landlord harmless from and against any and all Claims that are asserted against or incurred by Landlord or the Premises to the extent such Claims relate to or arise out of any environmental condition caused by Tenant's activities at the Premises, or Tenant's violation of any Environmental Law, (which violation was not in existence prior to the date hereof), provided, however, that Tenant shall not be obligated to indemnify Landlord for any Claim for which Landlord is required to indemnify Tenant under this Lease. (e) Tenant shall not use, store or bring upon the Premises any chemicals or toxic or hazardous materials or substances of an type, without the prior written consent of Landlord, which may be granted or denied in its sole and absolute discretion. Notwithstanding the foregoing, Tenant may, without obtaining such consent, use, store and bring upon the Premises incidental amounts of (i) those chemicals that, as of the date hereof, Tenant was using or storing at the Premises in connection with the uses of the Premises permitted by this Lease, and (ii) any other chemicals as become necessary or desirable for Tenant to continue to use the Premises as permitted herein in the ordinary course of its business. 14. INDEMNIFICATION. (a) Tenant covenants and agrees, as its sole cost and expense and in addition to any other right or remedy of Landlord hereunder, to indemnify and save harmless Landlord from and against all loss, cost, expense, liability and claims (but excluding any liability arising out of the negligence or willful misconduct of Landlord or its agents, employees or contractors), including, without limitation, reasonable attorneys' fees and court costs, arising from or in connection with (i) Tenant's use, occupancy, operation and control of the Premises, (ii) the conduct or management of any work, or any act or omission done in or on the Premises by or under the direction or at the request of Tenant, (iii) any breach or default on the part of Tenant in the payment of any rent or performance of any covenant or agreement on the part of Tenant to be performed pursuant to the terms of this Lease, or (iv) any act or negligence of Tenant or any of its agents, contractors, servants, employees, licensees or invitees. The provisions of this Section shall survive the termination or expiration of this Lease. 7 (b) In the event that any action or proceeding is brought against Landlord by reason of any claims covered by the foregoing indemnity, Tenant will, upon notice from Landlord, resist or defend such action or proceeding by counsel reasonably satisfactory to Landlord. Landlord will not defend such action or proceeding by counsel so long as Tenant is diligently doing so on Landlord's behalf. Landlord will give prompt notice to Tenant of any action or proceeding brought against Landlord by reason of any claims covered by the foregoing indemnity, together with copies of any documents served in connection therewith, and Landlord will not settle any such claim without Tenant's written consent. (c) Landlord covenants and agrees, at its sole cost and expense and in addition to any other right or remedy of Tenant hereunder, to indemnify and save harmless Tenant from and against any and all loss, costs, expense, liability and claims (but excluding any liability arising out of the negligence or willful misconduct of Tenant or its agents, employees or contractors or the failure by Tenant to comply with any provision of this Lease), including without limitation, reasonable attorneys' fees and court costs, arising from and in connection with (i) Landlord's use, ownership or control of the Buildings, (ii) the conduct or management of any work, or any act or omission done in or on the Buildings by or under the direction or at the request of Landlord, (iii) any breach or default on the part of Landlord in the performance of any obligation or covenant to be performed pursuant to the terms of this Lease, (iv) any act or negligence of Landlord or any of its agents, contractors, servants, employees, licensees or invitees, or (v) any failure of the Buildings to be or remain in compliance with all laws, ordinances, orders and regulations affecting the Buildings and the cleanliness, safety, accessibility, occupation and use of the same, including without limitation, any Environmental Laws (other than non-compliance resulting from acts or omissions of Tenant). The provisions of this Section shall survive the termination or expiration of this Lease. (d) In the event that any action or proceeding is brought against Tenant by reason of any claims covered by the foregoing indemnity, Landlord will, upon notice from Tenant, resist or defend such action or proceeding by counsel reasonably satisfactory to Tenant. Tenant will not defend such action or proceeding so long as Landlord is diligently doing so on Tenant's behalf. Tenant will give prompt notice to Landlord of any action or proceeding brought against Tenant by reason of any claims covered by the foregoing indemnity, together with copies of any documents served on Tenant in connection therewith, and Tenant will not settle any such claim without Landlord's written consent. 15. ACCESS. Tenant hereby covenants and agrees that it will not and will take all necessary steps to prevent its employees, agents and invitees from entering into or upon any portion of the Facility restricted by Landlord (any such portion is hereinafter referred to as a "Restricted Access Area"). Following the execution of this Lease, Landlord shall provide Tenant with a Site Plan of the Facility indicating all of the Restricted Access Areas. Tenant acknowledges that it is the intent of the parties that Tenant shall only have access to those parts of the Facility as are reasonably necessary or desirable for its use and enjoyment 8 of the Premises and of the services available to it hereunder or under any other agreement between Landlord and Tenant and dated of even date herewith. 16. ASSIGNMENT AND SUBLETTING. (a) Subject to the provisions of Section 16(c) below. Tenant may not assign this Lease or sublet the Premises or any part thereof without obtaining the consent of Landlord therefor, which consent shall not be unreasonably withheld, and without first offering to Landlord the right to accept an assignment or sublease of the Premises on the same terms that Tenant proposed to assign or sublease to a third party. If Landlord fails to accept or reject Tenant's offer of assignment or sublease of the Premises within fifteen (15) days of receipt of the making of such offer, then Landlord shall be deemed to have rejected such offer. If Landlord fails to accept or reject Tenant's request for consent to the assignment or sublease of the Demised Premised by a third party within thirty (30) days of receipt of such request for consent, the Landlord shall be deemed to have consented to the proposed assignment or sublease to such third party. Any attempted assignment or sublease in violation of this Section shall be void and shall confer no rights on the purported assignee. The consent by Landlord to an assignment or subletting shall not relieve Tenant from primary liability hereunder or from the obligation to obtain the express consent in writing of Landlord to any future assignment or subletting. (b) Notwithstanding the foregoing, Tenant shall have the right to assign this Lease or to grant a leasehold mortgage on Tenant's leasehold interest under this Lease as security to any lender making a loan to Tenant for Tenant's business. After receiving written notice from any person, firm, or other entity, stating that it holds a mortgage or security interest on Tenant's leasehold interest under this Lease, Landlord shall, so long as such mortgage is outstanding, be required to give to such holder the same notices as are required to be given to Tenant under the terms of this Lease, but such notices may be given by Landlord to Tenant and such holder concurrently. It is further agreed that such holder shall have the same opportunity to cure any default, and the same time within which to effect such curing, as is available to Tenant; and if necessary to cure such a default, such holder shall have access to the Premises and the Buildings. Landlord further agrees to recognize such holder, its successors or assigns, as successor Tenant under this Lease in the event of the foreclosure, or transfer in lieu of foreclosure, of such lender's security interest or mortgage, provided that such holder or its successor or assign cures all defaults of Tenant hereunder that can be cured by the expenditure of money. (c) No sale of stock or transfer of any ownership interest of Tenant shall be deemed to be an assignment of this Lease. Tenant shall have the right to sublease or assign this Lease or Tenant's rights hereunder in whole or in part, to any Affiliated Entity as hereinafter defined, without the consent of Landlord and without first offering to assign or sublet to Landlord, and the provisions of Subsection 16(a) shall not apply to any such assignment or sublease. The term "Affiliated Entity" shall mean any limited liability company, corporation, partnership, joint venture or other entity (x) of which Tenant holds 9 one hundred percent (100%) of the voting authority or ownership interests of Tenant; or (y) any entity in which one hundred percent (100%) of the voting authority or ownership interests are held by persons or entities holding one hundred percent (100%) of the ownership interests or voting authority of Tenant. Tenant shall promptly notify Landlord of the occurrence of any such sublease or assignment of this Lease. 17. ALTERATIONS. Tenant shall not make any alterations to the Premises without the prior written consent of Landlord, which shall not be unreasonably withheld or delayed. 18. COMPLIANCE WITH LAWS. Tenant shall use and occupy the Premises in accordance with all applicable federal, state, county and municipal laws, rules and regulations and all rules and regulations imposed by Landlord. 19. QUIET ENJOYMENT. Landlord covenants and agrees that Tenant, upon performing the terms and conditions of this Lease to be performed by Tenant shall have peaceable and quiet enjoyment and possession of the Premises during the term without interruption by Landlord or its successors or assigns or any other person or company lawfully claiming by or through it. 20. SUBORDINATION. Tenant accepts this Lease subject and subordinate in all respects to any mortgage which may now or hereafter be placed on or affect the fee interest in the Property and/or Landlord's interest therein (each a "Mortgage"), and to each advance made, or hereafter to be made, under any Mortgage, and to all renewals, modifications, consolidations, replacements, extensions and substitutions of and for any Mortgage, provided holder of any Mortgage (each a "Mortgagee") shall agree not to disturb Tenant's use and occupancy of the Premises so long as Tenant is not in substantial default hereunder. Notwithstanding the aforesaid, if any Mortgagee elects to have Tenant's interest in this Lease be superior to any Mortgage held by it, then by notice to Tenant from such Mortgagee this Lease shall be deemed superior to such Mortgage, whether this Lease is executed before or after same. This Section 20 shall be self-operative and no further instrument of subordination shall be required. In confirmation of such subordination, however, Tenant shall execute and deliver promptly any certificate that Landlord and/or any Mortgagee or their respective successors in interest may request. Tenant hereby constitutes and appoints Landlord and/or any mortgagee and/or their respective successors in interest as Tenant's attorney-in-fact to execute and deliver any such certificate or certificates for and on behalf of Tenant if Tenant shall fail to do so within ten (10) days after written request therefor. 21. EMINENT DOMAIN. (a) If, after the execution prior to the expiration of the Term hereof, the whole of the Premises shall be taken under the power of eminent domain, then this Lease 10 and the term thereof shall cease and terminate as of the date of taking of possession by the taking authority, and any unearned rent or other charges, if any, paid in advance shall be refunded to Tenant. (b) If at any time during the Term of this Lease, a portion of the Premises shall be so taken under the power of eminent domain so as to render the Premises untenantable, then Landlord, at its own cost and expense, may, unless this Lease is terminated pursuant to the provisions of this Section, repair and restore the Premises, to the extent possible within the limits of damages paid to Landlord, to substantiate the condition at which they were immediately prior to such taking and within the period of time which, under all prevailing circumstances, shall be reasonable, or it may terminate this Leases. During such time as the Premises as a result of such taking cannot be occupied by Tenant, the rent shall be equitably adjusted. Upon termination as aforesaid by Landlord, this Lease and the term thereof shall cease and come to an end, and any unearned Base Rent or other charges paid in advance shall be refunded to Tenant. (c) The entire award for any taking shall belong to Landlord without any deduction for any leasehold estate or interest now or hereafter vested in Tenant. 22. NOTICES. All notices given under this Lease shall be sent in writing through certified mail, or via a reputable overnight carrier providing evidence of receipt (e.g., Federal Express), postage prepaid, to Tenant and to Landlord at their respective addresses shown on Exhibit C attached hereto or to such other addresses which may be designated in writing from time to time. 23. BROKERS. Landlord and Tenant warrant and represent that they have dealt with no real estate broker in connection with this Lease and that no broker is entitled to any commission on account of this Lease. Each of Landlord and Tenant shall indemnify and hold harmless the other from any loss, cost, damage or expense, including reasonable attorney fees, which the other shall incur on account of the falsity of the maker's foregoing representation and warranty. 24. ENTIRE AGREEMENT. This Lease, the exhibits attached hereto, which are hereby incorporated herein by reference, contain the entire agreement between the parties concerning the Premises and supersede any other agreements between the parties concerning the subject matter hereof, whether oral or written. This Lease shall not be modified, cancelled or amended except by written agreement, signed by both parties. 25. SUCCESSORS AND ASSIGNS. The obligations of this Lease shall bind and benefit the successors and permitted assigns of the parties with the same effect as if mentioned in each instance where a party hereto is named or referred to. 11 26. GOVERNING LAW. This Lease shall be governed by the laws of the State of California (without regard to its conflicts of laws rules). 12 IN WITNESS WHEREOF, Landlord and Tenant have set their hands and seals hereto as of the day and year first above written. Signed, Sealed and Delivered in the Presence of: LANDLORD: By: - ------------------------- ---------------------------------- - ------------------------- Its Authorized Signatory TENANT: By: - ------------------------- ---------------------------------- - ------------------------- Its Authorized Signatory 13 STATE OF ) ) ss. COUNTY OF ) On this ____ day of __________________, 1997, personally appeared ____________________________________, as Authorized Signatory of ____________________ signer and sealer of the foregoing instrument, and acknowledged the same to be his/her free act and deed and the free act and deed of said corporation, before me. ------------------------------------------ Notary Public STATE OF ) ) ss. COUNTY OF ) On this ____ day of __________________, 1997, personally appeared ____________________________________, as Authorized Signatory of ______________________ signer and sealer of the foregoing instrument, and acknowledged the same to be his/her free act and deed and the free act and deed of said corporation, before me. -------------------------------------- Notary Public 14 EXHIBIT A The "Property" All that certain real property situate in the City of Santa Clara, County of Santa Clara, State of California, described as follows: Lots 1, 2, and 3 as shown on that certain Map entitled "Tract No. 1786 San Ysidro Tract," which Map was filed for record in the office of the Recorder of the County of Santa Clara, State of California on October 22, 1956 in Book 73 of Maps, at page 25. The real property has a building of 16,250 square feet thereon and is identified as street address 2920 San Ysidro Way, Santa Clara, California 95051. Property and building thereon are referred to by National Semiconductor Corporation as Building #4. Space occupied is identified in attached Exhibit A-1. Space still occupied by National shaded in gray. 2. All that certain property situate in the City of Santa Clara, County of Santa Clara, State of California, described as follows: Lot 8, as shown on that certain Map of Tract No. 1786, which Map was filed for record in the office the Recorder of the County of Santa Clara, State of California on October 22, 1956, in Book 73 of Maps, page(s) 25. Property and building thereon are identified as 3697 Tahoe Way, Santa Clara, California, and is referred to by National Semiconductor Corporation as Building #9. Entire building to be occupied by Fairchild. See attached Exhibit A-2. EXHIBIT A-1 [FLOORPLAN - BUILDING #4] EXHIBIT A-2 [FLOORPLAN - BUILDING #9] EXHIBIT B BASE RENT SCHEDULE BLDG# SPACE NET SQ FT COST/SQ FT RENT PER FOUR TYPE WEEK PERIOD 4 Office 9,500 $2.65 $25,175.00 9 Type 1 13,648 $2.65 $36,167.20 9 Lab Type 2 300 $6.10 $ 1,830.00 ---------- ---------- TOTALS: 23,448 $63,172.20 EXHIBIT C Notice Addresses Landlord: National Semiconductor Corporation 1120 Kifer Road M/S 10-460 Sunnyvale, CA 94086-3737 Attention: Real Estate Manager Tenant: Fairchild Semiconductor Corporation 3693 Tahoe Way, M/S 9-150 Santa Clara, CA 95051 Attention: Foundry Manager with a copy to: Fairchild Semiconductor Corporation 333 Western Avenue, M/S 01-00 Portland, Maine 04106 Attention: General Counsel EX-10.18 16 EX-10.18 Exhibit 10.18 National Semiconductor Corporation SHARED FACILITIES AGREEMENT THIS AGREEMENT, made this 11th day of March, 1997 by and between National Semiconductor Corporation ("National") and The Fairchild Semiconductor Corporation ("Fairchild"). WHEREAS National owns and operates a semiconductor manufacturing facility on Western Avenue in South Portland, Maine (the "South Portland Facility"); and WHEREAS the various components of the South Portland Facility have been operated as a single integrated facility; and WHEREAS the South Portland Facility is now to be divided into two separately operated and managed facilities, to be know as the Fairchild Site and the National Site, with the Fairchild Site to be transferred to Fairchild; and WHEREAS there are certain physical assets which will be shared between the two sites and the parties wish to provide for a sharing of such facilities and the costs relative thereto and to assign responsibilities for providing such services from such facilities, all as herein set forth. WHEREAS the parties have entered into certain other agreements regarding the site being the Leases for Building 10 and Buildings 12/23, the Declaration of Easements, the Asset Purchase Agreement, the Site Plan as recorded, the Environmental Side Letter (the "Transaction Documents"). NOW THEREFORE, in consideration of one dollar and other valuable consideration and in consideration of the mutual covenants herein contained, the parties do hereby agree as follows: 1. Division of Premises. The South Portland Facility will be divided substantially as shown on the site plan entitled "Standard Boundary Survey-Property Division Plan-Property of Fairchild Semiconductor Corporation, 333 Western Avenue, South Portland, Maine and National Semiconductor Corporation, 5 Foden Road, South Portland, Maine, Property Division Plan C-01 and C-02," prepared by OEST Associates, Inc. dated December 3, 1996, with revisions to March___, 1997, to be recorded in the Cumberland County Registry of Deeds, a reduced photocopy of which is attached hereto as Exhibit A, with Buildings 10, 11, 12, 18, 19, 21, 22 and 23 and the MacBride building, approximately 49.26 acres of land and approximately 1473 parking spaces to be retained by National. The remainder of the Facility will be transferred to Fairchild; provided that Buildings 14 and 24, while located on the Fairchild Site, are owned and operated by British Oxygen Corporation pursuant to an agreement with National. Easements for ingress and egress will be agreed upon and provided to each party across the premises of the other so as to allow each of the parties to travel across existing roadways, truck yards and parking areas in order to get to and from their respective facilities. Each of the parties shall cooperate with the other in (a) seeing that property lines are properly drawn and in taking such other action as is necessary in dividing the South Portland Facility in a way that results in compliance to the maximum extent possible with existing zoning, land use, environmental and similar laws and regulations, and (b) seeking such permits, variances 2 and changes to such existing laws and regulations as are necessary to accomplish such division. 2. Shared Facilities. Set forth in Exhibit B hereto is a list and description of shared facilities and services to be provided by each of the parties to the other in connection with the use by the parties of the physical facilities consisting of the South Portland Facility following the division of that Facility between the two parties. Unless otherwise provided in Exhibit B the following shall apply with respect to all shared services or facilities and all services provided pursuant to this agreement: a) Exhibit C attached hereto sets forth facilities which remain to be completed. National shall complete construction of the new VOC incinerator on the Fairchild Site as provided in Exhibit B. To the extent that such facilities are now under construction or otherwise incomplete, National shall, at its sole cost and expense, complete the facilities in accordance with existing plans and specs in a good and workmanlike manner, as modified from time to time by agreement among the parties, so that such facilities will be operational and functional for the purposes intended. b) A party obligated to perform a service or provide a product under this Agreement shall do so using standards of care consistent with and the high quality of performance historically experienced at the South Portland Facility, substantially as now being provided, and with such quantities as the other party may reasonably request. All facilities to be operated by either party shall be operated and maintained in a manner consistent with the obligations of that party to perform hereunder. Unless otherwise agreed, all costs and expenses of operating and maintaining a facility shall be paid by the 3 party owning that facility, subject to allocations as herein provided or as provided in the leases referred to in paragraph 3 hereof. c) To the extent that (i) there are physical connections between the two sites such as for piping, wiring, conduits and the like or (ii) there is a physical flow from one site to the other of any substance such as water, electricity, gas, stormwater, groundwater, or the like, each party grants to the other an easement over, under and across its site for such purpose. Such easements shall initially be located at the present location thereof but may be relocated by the party whose site is affected thereby at such party's sole cost and expense so long as such relocation does not interrupt or adversely affect the service provided to the other party through such easement. The easements required by this subparagraph are set forth in the Declaration of Reciprocal Easements between Fairchild and National dated of even date herewith, which Declaration of Easements shall control in the event of any inconsistencies with this subparagraph. d) Except as otherwise specifically provided herein or in the Exhibits hereto, whenever a service or product is to be provided at a party's cost of providing such service or product, all direct costs of providing that service which standard cost accounting practices require to be included and all depreciation costs shall be included in determining the cost, and such costs shall be allocated to the recipient of the product or service based upon actual usage. If the cost of providing the product or service to the recipient cannot be separately determined, then the total cost to the provider in supplying such product or service to itself and to the recipient shall be allocated between the provider and the recipient based upon relative usage between the two parties. Overhead 4 not directly associated with a service or product shall not be included in the allocated costs. e) Each party shall render to the other a monthly statement for amounts due for shared services and facilities under this Agreement for the previous month. Each party shall keep complete and accurate books and records of account relating to the cost of shared facilities pursuant to this Agreement and make such books and records available to the other party for inspection upon reasonable request. 3. Leases. National will rent to Fairchild, at a rental based on cost per square foot to be agreed upon, space in Buildings 10 and 12 (including the new loading dock adjacent to Building 12). No structural modifications will be permitted without the prior written consent of National. The lease for Building 10 will be for an initial term of three (3) years and thereafter will renew automatically for additional one (1) year terms unless terminated by written notice of either party delivered to the other at least six (6) months prior to the end of any such one (1) year renewal term. The lease for Building 12 also shall also be for an initial term of three (3) years and thereafter will renew automatically for additional two (2) year terms unless terminated by written notice of either party delivered to the other at least eighteen (18) months prior to the end of any such two (2) year renewal. The leases required by this paragraph are the Lease Agreement Building 10 and the Lease Agreement Building 12 and Building 23 between National as Landlord and Fairchild as Tenant dated of even date herewith, which leases shall control in the event of an inconsistencies with this paragraph. 5 Under the lease for Building 10, Fairchild will be provided with parking spaces for its occupants of Building 10 for the duration of the lease term. The leases shall include such other terms and conditions as shall be negotiated in good faith by the parties. 4. Entire Agreement. This Agreement is intended to be a complete and integrated agreement with respect to the subject matter thereof, superseding all prior agreements and understanding with respect thereto and may not be amended or modified except by an instrument in writing signed by the parties hereto. 5. Miscellaneous. a) Assignment. Neither party may assign or delegate this Agreement or the rights and obligations created hereunder without the prior written consent of the other, whether by way of transfer, merger with or into such party, consolidation, reorganization or otherwise except in connection with a sale or transfer of the assigning party's entire interest in this South Portland facility in which event such Assignment of this agreement to the transferee of the property shall be permitted. Any purported assignment without such consent shall be void and constitute a breach of this Agreement. Subject to the foregoing, all of the terms and provisions of this Agreement shall be binding upon, and inure to the benefit of, and shall be enforceable by, the respective successors and assigns of the parties hereto. b) Waiver. No failure or delay on the part of either party in the exercise of any power, right or privilege arising hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privilege. 6 c) Severability. If any provision of this Agreement is for any reason found to be ineffective, unenforceable or illegal, such condition shall not affect the validity or enforceability of any of the remaining portions hereof; provided, further, that the parties shall negotiate in good faith to replace any ineffective, unenforceable or illegal provision with an effective replacement as soon as is practical. d) Multiple Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original but both of which together constitute one and the same instrument. e) No Partnership Or Agency Created. Nothing contained herein or done in pursuance of this Agreement shall constitute the parties as entering upon a joint venture or partnership, or shall constitute either party the agent for the other party for any purpose or in any sense whatsoever. f) Choice Of Law. This Agreement shall be construed in accordance with and governed by the laws of the State of Maine, without reference to the conflict of laws provisions thereof. g) Consequential and Incidental Changes. NEITHER PARTY SHALL BE LIABLE FOR ANY CONSEQUENTIAL OR INCIDENTAL DAMAGES ARISING OUT OF SAID PARTY'S PERFORMANCE OR NON-PERFORMANCE OF THIS AGREEMENT. h) Effect Of Headings. The headings of the Articles and Sections contained herein are for convenience of reference only and are not intended to be and shall not be construed as part of or to affect the meaning or interpretation of this Agreement. 7 i) Notices. All notices, requests, demands and other communications which are required or may be given under this Agreement shall be in writing and shall be deemed to have been duly given when received if personally delivered; when transmitted if transmitted by telecopy, electronic or digital transmission method; the day after it is sent, if sent for next day delivery to a domestic address by recognized overnight delivery services (e.g., Federal Express); and upon receipt, if sent by certified or registered mail, return receipt requested. In each case notice shall be sent to: If to National , address to: 2900 Semiconductor Drive, M/S 16-135 Santa Clara, California 95052-8090 Attention: General Counsel If to Fairchild, addressed to: 333 Western Avenue, M/S 01-00 South Portland, ME 04106 Attention: General Counsel or to such other place and with such other copies as such party may designate as to itself by written notice to the others. j) Noise, Vibration, Etc. The parties agree that existing noise, vibrations, odor, dust, gas fumes, glare and other emissions (collectively, "emissions") at the sites are at acceptable levels and hereby waive any rights either may have to contest or challenge such levels. The parties further agree to allow each other to make reasonable modifications and/or expansions of such emissions. k) Controlling Documents. Any other provision of this Agreement to the contrary notwithstanding, in the event of any inconsistencies between any provision of this 8 Agreement any of the Transaction Documents the provisions of the Transaction Documents shall be controlling. IN WITNESS WHEREOF, the parties hereto have had this Agreement executed by their respective authorized officers as of the date first written above. NATIONAL SEMICONDUCTOR CORPORATION By: ------------------------------- Its: ------------------------------ FAIRCHILD SEMICONDUCTOR By: ------------------------------- Its: ------------------------------ 9 EXHIBIT A Shared Services and Facilities Site Plan 10 EXHIBIT B Shared Services and Facilities A. Bulk Gas. 1) Description of Service or Facility. The Nitrogen plant is owned by British Oxygen Corporation ("BOC") and operated by BOC under a contract with National. National will continue to be the contracting party with BOC and supply nitrogen and oxygen from the plant to all Fairchild buildings that require nitrogen or oxygen. Nitrogen will be supplied from the existing nitrogen plant (#14 on Exhibit A) until the new nitrogen plant (#24 on Exhibit A) is completed and operating. Both plants are located on the Fairchild site. Fairchild will grant appropriate access easements with respect to operation and maintenance of the nitrogen facilities. Nitrogen and oxygen will be piped from the nitrogen plant to Buildings 10, 12 and 18 on the National premises. Each party will be responsible for supplying its own argon and hydrogen. Each party agrees to use good faith commercially reasonable efforts to cause BOC to enter into an agreement among BOC, Fairchild and National promptly after the execution of this Agreement in which BOC acknowledges that Fairchild is the owner of the sites on which the BOC plants are located and that Fairchild is a third party beneficiary of the On-Site Product Supply Agreement between National and BOC dated as of August 1, 1996 and acknowledges that such agreement shall remain in full force and effect. 2) Cost Allocation. Initially nitrogen and oxygen shall be provided to the parties at the following formula for allocating fixed and operating costs: 11 System National/Fairchild ------ ------------------ Nitrogen/Oxygen 55%/45% LN2 Tanks 50%/50% Red. Volt. Starter 50%/50% On-Site Support 75%/25% Notwithstanding the foregoing, Fairchild's aggregate share of the foregoing costs shall not exceed $77,150 per month. Once National's usage of the nitrogen plant is such that, if the parties' costs were determined by separate metering, Fairchild's total monthly costs for three (3) consecutive months would be equal to or less than $77,150, then all of the foregoing costs for gas usage shall thereafter be allocated to the parties on the basis of actual usage of the gases as determined by metering each party's usage, with fixed, electrical and other related costs to be allocated in the same ratio. The cost of installing meters for this purpose shall be shared equally by the parties. Costs of any nitrogen plant expansion and/or costs of using liquid nitrogen shall be allocated between the parties in the same ratio as the average allocation of nitrogen/oxygen costs to each party over the six months prior to such expansion (the "usage ratio"), unless the reason for the expansion is an increase in one party's manufacturing capacity. In such event, the estimated additional nitrogen/oxygen usage resulting from such increased capacity shall be added to the expanding party's actual usage over the previous six (6) months in calculating the usage ratio. 3) Duration. This service shall continue until terminated by mutual agreement of the parties. 12 B. Deionized Water 1) Description of Service. Fairchild will provide deionized water to National for Building 10. Fairchild shall provide all deionized water that it needs in connection with its occupancy of Building 12. 2) Cost. The services provided to National pursuant to this paragraph for Building 10 shall be provided at Fairchild's cost thereof, with usage to be determined by metering. Fairchild shall bear the cost of all deionized water it uses in Building 12. 3) Duration. The services to be provided by Fairchild with respect to Building 10 pursuant to this paragraph shall be provided through December, 1997 unless earlier terminated by National by 90 days written notice to Fairchild. Fairchild will provide deionized water to Building 12 so long as it occupies Building 12. C. Acid Neutralization. Each party shall be responsible for neutralizing its own waste. D. Industrial Discharge. 1) Description. The existing industrial discharge capacity will be divided between National and Fairchild, with 2 million gallons per day available to National and 700,000 gallons per day available to Fairchild. Each party shall maintain its own industrial discharge system and capacity. 2) Cost Allocation. Each party's usage will be determined by separate meter and each party will pay the water district for its metered charges. 3) Duration. Separate meters will be provided or soon as practicable and thereafter each party shall continue on its separate meters. 13 E. Waste Solvent. Each party shall be responsible for collecting, storing and disposing of its own waste solvents. F. Fuel Oil. Each party will be responsible for supplying its own fuel oil. G. City Water. 1) Description. Fairchild will provide city water from the main plant to Building 12 for its own use in connection with that Building and shall bear all costs of same. 2) Duration. This shall continue so long as Fairchild is the primary user of Building 12. H. Steam. 1) Description. Fairchild will provide steam for heating Buildings 10 and 12 from the boiler in Fairchild's main plant. 2) Cost. Steam will be provided at Fairchild's cost with usage to be determined by separate meter. 3) Duration. This service will be provided for a temporary period only, through December, 1998, unless earlier terminated by 90 days written notice from National to Fairchild. I. Chilled Water. 1) Description. Fairchild will provide chilled water for air conditioning to Building 12. 14 2) Cost. Chilled water will be provided at Fairchild's cost; provided that National shall give a credit to Fairchild under the lease against rent payments for the portion of this cost allocable to National's use of Building 12 based on square footage. 3) Duration. This service will be provided during the term of the Fairchild lease of Building 12, or until National connects to its own system for this purpose. J. Fire Alarm, Facilities Management and Security Systems. 1) Description. Fairchild will provide monitoring for the fire alarm system , facilities management system and security system for Buildings 10 and 12. National will provide same for Building 18 and Building 23. The parties will cooperate in good faith on all of the foregoing issues. At such time as National takes over the monitoring of the fire alarm system, the facilities management system, and/or the security system, National will permit Fairchild, at its sole costs and expense, to install such equipment as may be necessary for Fairchild to receive alarm signals directly with respect to Buildings 10, 12 and 23 for so long as Fairchild continues to lease space in any such building. 2) Cost. System monitoring services to be provided to National at Fairchild's cost, with joint costs to be allocated on building square footage. 3) Duration. Fairchild monitoring services will be provided for a temporary period through December, 1997 unless earlier terminated by National by 90 days' written notice to Fairchild. K. Storm Water Collection. 1) Description. Oest Associates has performed a stormwater analysis of the sites for the parties dated January 14, 1997._The parties agree to take all actions necessary 15 and to grant all easements to the other necessary to meet state or local requirements regarding stormwater drainage as indicated by the engineer's report. 2) Cost. The cost of constructing, maintaining and repairing pipes or other components of the stormwater system located solely on one party's facility and serving only that facility will be borne by that party. All other costs shall be shared by the parties in proportion to the serviced surface area. 3) Duration. This service shall continue until terminated by mutual agreement of the parties. 16 L. Groundwater Collection and Treatment. 1) Description. The parties have entered into certain agreements regarding groundwater collection and treatment and other matters which are set forth in the Environmental Side Letter and the Declaration of Easements between the parties of even date herewith. M. Wellness Center. 1) Description of Services. The Wellness Center will be owned by Fairchild, be staffed and operated by Fairchild and be available for use by employees of both parties so long as it continues as a wellness center. National and Fairchild shall have proportional representation on the Wellness Center Advisory Board and Board of Directors based on total head count; provided, however, that regardless of total head count, Fairchild shall always maintain and be entitled to a majority of at least one (1) on the Board of Directors. Use of this facility by NSC includes conference rooms within the Wellness Center building. 2) Cost Allocation. The costs of operating the facility including building expenses in excess of amounts paid by employees shall be shared in proportion to the number of employees of each party on site, determined on a monthly basis. 3) Duration. This arrangement shall continue until terminated by mutual agreement of the parties so long as it remains a wellness center; provided, however, that upon six (6) months' written notice, Fairchild may change the use of said building, in which case National will no longer have any rights to use it. 17 N. VOC Incineration. 1) Description. The existing VOC incinerator will be owned by National and operated by National for incineration of VOC's from the operation of both National and Fairchild. National will, at its cost,complete construction of the VOC incinerator for Fairchild on the Fairchild Site, meeting all applicable requirements for VOC incinerators. 2) Cost. If both National and Fairchild are using the existing VOC incinerator for any period, the costs during such period shall be shared equally. 3) Duration. National will make the existing VOC incinerator available for use by Fairchild until such time or the new VOC incinerator on the Fairchild Site is completed and permitted, after which time each of the parties will operate and use its own incinerator at its own cost and expense. P. Power 1) Description. Subject to approval of the power supplier, National will maintain the existing contract with Central Maine Power Co. and Fairchild has granted National an easement for the land under the 35KV power distribution system ; provided that after an initial three (3) year period, and upon eighteen month notice (which Fairchild agrees to extend for a reasonable period if necessary so as not to disrupt National's manufacturing operation), Fairchild may require National to relocate its 35KV power distribution system to another mutually acceptable site. Reasonable costs of such relocation shall be borne by Fairchild. National will contract for power for both sites and provide power to Fairchild through a separate submeter. Fairchild will, through December, 1998, step down power from its switch for buildings 10, 12, and 23 and other facilities currently served by that switch unless National elects to terminate this 18 arrangement prior to such date by 90 days prior written notice from National to Fairchild. Fairchild will allow National to double its 35KV yard area and run a future duct bank and wiring from the expanded yard to a future fab facility, and either use existing underground ducts from Western Avenue or run an overhead 35KV line. Fairchild and National each have entered into separate agreements with Central Maine Power Company ("CMP") dated as of March 10, 1997 with respect to the purchase of power, and National and Fairchild agree to use good faith commercially reasonable efforts to enter into a separate agreements between themselves with respect to the purchase and allocation of power promptly after the execution of this Agreement (said agreements collectively referred to as the "Electric Utility Service Agreements"). The parties agree that in the event of any inconsistency between this Agreement and the Electric Utility Service Agreements, the Electric Utility Service Agreements shall control. 2) Cost. Direct charges from the power supplier for power will be allocated based on usage, provided that a minimum of 56 million kilowatt hours per year will be allocated to Fairchild through December, 2000. Usage will be determined by metering. Each party shall be responsible for costs of maintaining its own switch and the parties shall share costs of maintaining the 40 MW line to the switch yard, proportional to usage. 3) Duration. This service will continue to be provided until terminated by mutual agreement by the parties. R. Fire Protection System and Fire Sprinkler Loop. 1) Description. Each party will be responsible for maintaining and operating its own fire protection system. Each party may control the divisional and riser values on 19 its site, but no divisional values will be closed without appropriate notice to the other party. Each party may draw from the other's fire pond as needed. 2) Cost. Cost of operation, maintenance, repairs, testing shall be borne by each party for its system. 3) Duration. This arrangement shall continue until terminated by mutual agreement of the parties. S. Parking. 1) Description. In addition to the parking spaces to be provided under the Building 10 lease, National shall provide Fairchild with up to 100 additional parking spaces on the National Site at a location between Building 10 and the FSC plant or in Parking Area D shown on Exhibit A upon 60 days' notice from Fairchild. During the term, any or all such spaces requested by Fairchild may be canceled by 30 days' written notice from Fairchild and then reinstated upon 60 days' notice by Fairchild. 2) Cost. $20 per month per space, payable monthly. 3) Duration. Three years from the date hereof. T. Compressed Air 1) Description. National will provide compressed air from Building 10 to Fairchild Building 2 (Main Plant) at a maximum capacity of 500 CFM. 2) Cost. Fairchild to pay for compressed air at National's cost to be determined using activity based costing methods. 3) Duration. Through December, 1997. COR:87999-1.DOC 20 Exhibit C Shared Services and Facilities 1. VOC System #2 2. Oil Conversion for Building 2 3. Volleyball Courts 4. Landscaping Associated with 200 MM Project 5. BOC Plant D - including Roadway & Gate 6. Building 12 Renovations Associated with 200 MM Project 21 EX-10.19 17 EX-10.19 Exhibit 10.19 Environmental Side Letter March 11, 1997 National Semiconductor Corporation Re: Asset Purchase Agreement dated March 11, 1997, by and between National Semiconductor Corporation ("National") and Fairchild Semiconductor Corporation ("Fairchild") ("Asset Purchase Agreement") Gentlemen and Ladies: This will confirm our agreement with respect to certain environmental matters relating to the West Jordan, Utah facility ("West Jordan Facility"), the South Portland, Maine facility ("South Portland Facility") the Cebu, Philippines facility ("Cebu Facility") and the Penang, Malaysia facility ("Penang Facility") (collectively referred to as the "Facilities"). Any terms used but not defined herein have the meaning ascribed to them in the Asset Purchase Agreement. Subject to and in addition to the terms of the Asset Purchase Agreement, the Parties agree to the following: National has been conducting Remediation at the South Portland and West Jordan Facilities before and up to Closing. After the Closing Fairchild will perform or arrange for the performance of the Remediation which was being conducted by National at the South Portland and West Jordan Facilities. Fairchild will perform the investigation and decommissioning of the Dynacraft DCIP1 (the "DCIP1 Decommissioning") area at the Penang Facility which has already been commenced by National and an investigation and clean-up of the oil release near the powerhouse at the Cebu Facility. National and the Maine Department of Environmental Protection ("MDEP") are in the process of restating the Administrative Agreement relating to the South Portland Facility to incorporate the amendments that have occurred since the original Administrative Agreement was signed. In connection with such amendment, the parties have agreed that National will remain the ordered party and it has so informed MDEP by letter dated January 30, 1997. If the MDEP or other Governmental Authority determines that new, additional or modified permits or approvals, the cost or impact of which would be significant, Fairchild agrees that, if required by the MDEP or other Governmental Authority to avoid such permit obligations, Fairchild may be added as an additional ordered party. - --------------------- 1. Administrative Agreement Regarding Groundwater Improvement by and between Fairchild Camera and Instrument Corporation and the State of Maine Board of Environmental Protection (hereinafter referred to as the "MDEP"), effective June 8, 1983, as subsequently amended (the "Administrative Agreement"). The parties agree that from and after the Closing Date neither will deposit or stockpile additional soil, either VOC-impacted or clean, at, on or about the other's portion of the South Portland Facility. National agrees that if for any commercially reasonable purpose related to the Business Fairchild desires to excavate, move or alter the deposited and/or stockpiled soil located on the Fairchild portion of the South Portland Facility, National will, at National's sole cost and expense, dispose of or arrange for the disposal of such soil in full compliance with all applicable Environmental Laws, and will, if permitted by Environmental Law, identify itself as the generator of such soils. National has agreed to prepay the presently anticipated future costs of the Remediation projects at the Facilities. Therefore, at Closing, National will pay Fairchild the present value amount as set forth on Schedule I to pay the annual costs of the Remediation projects at the National South Portland and West Jordan Facilities and the costs specified on Schedule I for the Cebu and Penang Facilities (the "Estimates" and each, an "Estimate"). National will be responsible for any and all losses, claims, demands, liabilities, obligations, causes of action, damages, costs and expenses, fines or penalties (including, without limitation, reasonable attorney fees and other defense costs) asserted against or incurred by Fairchild arising out of or relating to the Remediation projects (including, without limitation, any resulting from amendments to the Administrative Agreement), in excess of the applicable Estimate on a pre-discounted basis whether or not the costs and expenses were included in the Estimates. Fairchild will provide National with annual updates of the costs incurred and an accounting of the funds remaining for the Remediation projects and will notify National reasonably promptly upon becoming aware of any additional costs and expenses. Upon the completion of each Remediation project, Fairchild will refund any amount of the applicable Estimate not expended. Fairchild will not undertake any new activity in connection with the aforementioned Remediation projects which shall individually cost in excess of $100,000 for which Fairchild intends to apply the prepaid amount without the prior written consent of National, which consent shall not be unreasonably withheld (taking into account Fairchild's operations). The parties agree to cooperate as necessary to effectuate the agreements in this letter, including granting any easements, if necessary. Fairchild will prepare and submit any required submittals necessary in connection with the Remediation projects; provided, however, that National shall execute any documents for which its signature is required, and Fairchild will provide National with copies of any final environmental reports submitted to any Governmental Authority. If a Governmental Authority determines that Fairchild is not properly performing the Remediation at the South Portland Facility or any other facility and if Fairchild fails to correct, remedy, cure, appeal or contest such deficiency within such time period as is reasonable under the circumstances (but in no event in a time period in excess of the time provided by a Governmental Authority) or demonstrate that the Governmental Authority's concerns are unfounded, and a Governmental Authority determines in writing that National is legally responsible for taking action and the failure to do so will result in fines or penalties, Fairchild will provide National access to such facility to correct, remedy or cure such deficiency at National's sole cost and expense. In connection with the foregoing, National agrees to (1) provide Fairchild prior notice of its access requirements, (2) inform Fairchild of any proposed activities prior to the implementation thereof and provide Fairchild a reasonable opportunity to review and comment on any such proposals prior to their implementation, (3) perform activities so as not to unreasonably interfere with Fairchild's operations, (4) keep Fairchild reasonably informed about the progress of National's activities, and (5) comply with all applicable Environmental Laws and other laws and Fairchild's reasonable health and safety requirements. 2 To the extent either party is performing activities in connection with the Remediation work it will: (i) perform such work promptly, diligently and in a good and workmanlike manner and in a manner consistent with industry standards relating to such activities, (ii) comply with all laws, orders, rules and regulations, including all Environmental Laws, and (iii) promptly provide the other party with copies of (a) all agreements entered into with any Governmental Authority and material correspondence relating to such activities and (b) all contracts and agreements with any third party in connection with such work (provided such contract is for work in excess of $100,00), including (without limitation) such contracts with contractors and consultants. Fairchild will provide National reasonable access (upon prior written notice) to Fairchild's facilities to inspect the progress of such activities and to Fairchild's employees to discuss such activities. National will provide Fairchild reasonable access to monitoring wells on National's portion of the South Portland Facility for monitoring pursuant to the Administrative Agreement. National shall have the right to attend and participate in any meetings with any Governmental Authority relating to the Remediation project in connection with the South Portland Facility or at any other facility because a Governmental Authority determined that National is legally responsible for performing Remediation as set forth above. Each party will indemnify and hold harmless the other (and all directors, officers, employees and agents thereof) from all claims, liabilities, losses, expenses (including reasonable attorney's fees) and costs arising out of or relating to its negligence or willful misconduct or any of its agents, contractors or employees in connection with the Remediation work on the other party's property. Please confirm your agreement to the above by signing and returning a copy to the undersigned. Very truly yours, FAIRCHILD SEMICONDUCTOR CORPORATION BY: KIRK P. POND President and Chief Executive Officer The foregoing is hereby agreed to and accepted by: NATIONAL SEMICONDUCTOR CORPORATION BY: DONALD MACLEOD Executive Vice President & Chief Financial Officer 3 EX-10.20 18 EX-10.20 2900 Semiconductor Drive Santa Clara, CA 95052 March 11, 1997 Fairchild Semiconductor Corporation 333 Western Avenue Portland, Maine 04106 Attention: Kirk P. Pond Gentlemen: Reference is hereby made to the Master Lease Agreement (the "Lease"), dated as of December 13, 1994, between General Electric Capital Corporation ("GECC") and National Semiconductor Corporation ("NSC"), as amended by Amendment No. 1 thereto, dated as of December 13, 1994, which Lease you hereby represent you have read and fully understand. Subject to the terms and conditions set forth below, we hereby agree to sublease to you, and you hereby agree to sublease from us, the equipment (the "Equipment") described in Annex A to any schedule to the Lease as of the date hereof (any such schedule, a "Schedule"). You hereby agree to pay to us as sublease payments an amount equal to the amounts we pay to GECC as lease payments pursuant to the Lease, such payments to be received by us on the date payments by us are due under the Lease, and we agree to remit such payments to GECC on such date. We agree to continue the Lease for your benefit and to exercise all of the rights under the Lease solely for your benefit and at your request. You agree to perform or assist us in performing our obligations under the Lease other than lease payments which will be paid directly by us; provided, that you make payments to us in accordance with the immediately preceding paragraph. You shall look solely to GECC to satisfy all obligations of GECC under the Lease. We shall use our reasonable efforts to cooperate with you in seeking satisfaction from GECC of GECC's obligations under the Lease; provided, however, that you shall indemnify and hold us harmless from and against all liabilities, claims, losses, costs and expenses (including, without limitations, attorneys' fees) incurred by us in connection with or arising out of such cooperation except to the extent resulting from our negligence or willful misconduct. The term of this Sublease with respect to any piece of Equipment shall be the period specified in the applicable Schedule. You may terminate this Sublease at any time on the same terms and conditions as we may terminate the Lease. We agree not to terminate the Lease without your consent. Upon expiration of this sublease and upon your timely written request and our receipt of an amount equal to the amount to be paid to exercise such option plus any costs and expenses to be incurred by us in connection with such exercise, (i) we shall use our best efforts to exercise, to the extent practicable, our purchase option contained in and in accordance with Section XIX of the Lease and (ii) we shall transfer the Equipment so purchased to you pursuant to a mutually acceptable transfer agreement. Very truly yours, NATIONAL SEMICONDUCTOR CORPORATION By: _____________________________ Name: Title: AGREED AND ACCEPTED: FAIRCHILD SEMICONDUCTOR CORPORATION By: __________________________ Name: Title: MASTER LEASE AGREEMENT THIS MASTER LEASE AGREEMENT, dated as of Dec. 13, 1994 ("Agreement"), between General Electric Capital Corporation, with an office at 2200 Powell Street Suite 600, Emeryville, CA 94608 (hereinafter called, together with its successors and assigns, if any, "Lessor"), and National Semiconductor Corporation, a corporation organized and existing under the laws of the State of Delaware with its mailing address and chief place of business at 2900 Semiconductor Drive, Santa Clara, CA 95052 (hereinafter called "Lessee"). WITNESSETH: I. LEASING: (a) Subject to the terms and conditions set forth below, Lessor agrees to lease to Lessee, and Lessee agrees to lease from Lessor, the equipment ("Equipment") described in Annex A to any schedule hereto ("Schedule"). Terms defined in a Schedule and not otherwise defined herein shall have the meanings ascribed to them in such Schedule. (b) The obligation of Lessor to purchase Equipment from the manufacturer or supplier thereof ("Supplier") and to lease the same to Lessee under any Schedule shall be subject to receipt by Lessor, prior to the Lease Commencement Date (with respect to such Equipment), of each of the following documents in form and substance satisfactory to Lessor: (i) a Schedule relating to the Equipment then to be leased hereunder, (ii) a Purchase Order Assignment and Consent in the form of Annex B to the applicable Schedule, unless Lessor shall have delivered its purchase order for such Equipment, (iii) evidence of insurance which complies with the requirements of Section X, and (iv) such other documents as Lessor may reasonable request. As a further condition to such obligations to Lessor, Lessee shall, upon delivery of such Equipment (but not later than the Last Delivery Date specified in the applicable Schedule) execute and deliver to Lessor a Certificate of Acceptance (in the form of Annex C to the applicable Schedule) covering such Equipment, and deliver to Lessor a bill of sale therefor (in form and substance satisfactory to Lessor). Lessor hereby appoints Lessee its agent for inspection and acceptance of the Equipment from the Supplier. Upon execution by Lessee of any Certificate of Acceptance, the Equipment described thereon shall be deemed to have been delivered to, and irrevocably accepted by, Lessee for lease hereunder. II. TERM, RENT AND PAYMENT: (a) The rent payable hereunder and Lessee's right to use the Equipment shall commence on the date of execution by Lessee of the Certificate of Acceptance for such Equipment ("Lease Commencement Date"). The term of this Agreement shall be the period specified in the applicable Schedule. If any term is extended, the word "term" shall be deemed to refer to all extended terms, and all provisions of this Agreement shall apply during any extended terms, except as may be otherwise specifically provided in writing. (b) Rent shall be paid to Lessor at its address stated above, except as otherwise directed by Lessor. Payments of rent shall be in the amount set forth in, and due in accordance with, the provisions of the applicable Schedule. If one or more Advance Rentals are payable, such Advance Rental shall be (i) set forth on the applicable Schedule, (ii) due upon acceptance by Lessor of such Schedule, and (iii) when received by Lessor, applied to the first rent payment and the balance, if any, to the final rental payment(s) under such Schedule. In no event shall any Advance Rental or any other rent payments be refunded to Lessee. If rent is not paid within ten days of its due date, Lessee agrees to pay a late charge of five cents ($.05) per dollar on, and in addition to, the amount of such rent but not exceeding the lawful maximum, if any. III. RENT ADJUSTMENT: (a) The periodic rent payments in each Schedule have been calculated on the assumption (which, as between Lessor and Lessee, is mutual) that the maximum effective corporate income tax rate (exclusive of any minimum tax rate) for calendar-year taxpayers ("Effective Rate") will be thirty-five percent (35%) each year during the lease term. (b) If, solely as a result of Congressional enactment of any law (including, without limitation, any modification of, or amendment or addition to, the Internal Revenue Code of 1986, as amended, (the "Code")), the Effective Rate is higher than thirty-five percent (35%) for any year during the lease term, then Lessor shall have the right to increase such rent payments by requiring payment of a single additional sum equal to the product of (i) the Effective Rate (expressed as a decimal) for such year less .35 (or, in the event that any adjustment has been made hereunder for any previous year, the Effective Rate (expressed as a decimal) used in calculating the next previous adjustment) times (ii) the adjusted Termination Value divided by the difference between the new Effective Tax Rate (expressed as a decimal) and one (1). The adjusted Termination Value shall be the Termination Value (calculated as of the first rental due in the year for which such adjustment is being made) less the Tax Benefits that would be allowable under Section 168 of the Code (as of the first day of the year for which such adjustment is being made and all subsequent years of the lease term). Lessee shall pay to Lessor the full amount of the additional rent payment on the later of (i) receipt of notice or (ii) the first day of the year for which such adjustment is being made. (c) Lessee's obligations under this Section III shall survive any expiration or termination of this Agreement. IV. TAXES: Except as provided in Sections III and XV(c), Lessee shall have no liability for taxes imposed by the United States of America or any State or political subdivision thereof which are on or measured by the net income of Lessor. Lessee shall report (to the extent that it is legally permissible) and pay promptly all other taxes, fees and assessments due, imposed, assessed or levied against any Equipment (or the purchase, ownership, delivery, leasing, possession, use or operation thereof), this Agreement (or any rentals or receipt hereunder), any Schedule. Lessor or Lessee by any foreign, federal, state or local government or taxing authority during or related to the term of this Agreement, including, without limitation, all license and registration fees, and all sales, use, personal property, excise, gross receipts, franchise, stamp or other taxes, imposts, duties and charges, together with any penalties, fines or interest thereon (all hereinafter called "Taxes"). Lessee shall (i) reimburse Lessor upon receipt of written request for reimbursement for any Taxes charged to or assessed against Lessor, (ii) on request of Lessor, submit to Lessor written evidence of Lessee's payment of Taxes, (iii) on all reports or returns show the ownership of the Equipment by Lessor, and (iv) send a copy thereof to Lessor. V. REPORTS: (a) Lessee will notify Lessor in writing, within ten (10) days after any tax or other lien shall attach to any Equipment, of the full particulars thereof and of the location of such Equipment on the date of such notification. (b) Lessee will within ninety (90) days of the close of each fiscal year of Lessee, deliver to Lessee, Lessee's balance sheet and profit and loss statement, certified by a recognized firm of certificate public accountants. Upon request Lessee will deliver to Lessor quarterly, within ninety (90) days of the close of each fiscal quarter of Lessee, in reasonable detail, copies of Lessee's quarterly financial report certified by the chief financial officer of Lessee. (c) Lessee will permit Lessor to inspect any Equipment during normal business hours. (d) Lessee will keep the Equipment at the Equipment Location (specified in the applicable Schedule) and will promptly notify Lessor of any relocation of Equipment. Upon the written request of Lessor, Lessee will notify Lessor forthwith in writing of the location of any Equipment as of the date of such notification. (e) Lessee will promptly and fully report to Lessor in writing if any Equipment is lost or damaged (where the estimated repair costs would exceed ten percent (10%) of its then fair market value), or is otherwise involved in an accident causing personal injury or property damage. (f) Within sixty (60) days after any request by Lessor, Lessee will furnish a certificate of an authorized officer of Lessee stating that he has reviewed the activities of Lessee and that, to the best of his knowledge, there exists no default (as described in Section XII) or event which with notice or lapse of time (or both) would become such a default. VI. DELIVERY, USE AND OPERATION: (a) All Equipment shall be shipped directly from the Supplier to Lessee. (b) Lessee agrees that the Equipment will be used by Lessee solely in the conduct of its business and in a manner complying with all applicable federal, state and local laws and regulations. (c) LESSEE SHALL NOT ASSIGN, MORTGAGE, SUBLET OR HYPOTHECATE ANY EQUIPMENT, OR THE INTEREST OF LESSEE HEREUNDER. NOR SHALL LESSEE REMOVE ANY EQUIPMENT FOR THE CONTINENTAL UNITED STATES, WITHOUT THE PRIOR WRITTEN CONSENT OF THE LESSOR. (d) Lessee will keep the Equipment free and clear of all liens and encumbrances other than those which result from acts of Lessor. VII. SERVICE: (a) Lessee will, at its sole expense, maintain each unit of Equipment in good operating order, repair, condition and appearance in accordance with manufacturer's recommendations, normal wear and tear excepted. Lessee shall, if at any time requested by Lessor, affix in a prominent position on each unit of Equipment plates, tags or other identifying labels showing ownership thereof by Lessor. (b) Lessee will not, without the prior consent of Lessor, affix or install any accessory, equipment or device on any Equipment if such addition will impair the originally intended function or use of such Equipment. All additions, repairs, parts, supplies, accessories, equipment, and devices furnished, attached or affixed to any Equipment which are not readily removable shall be made only in compliance with applicable law, including Internal Revenue Service guidelines, and shall become the property of Lessor. Lessee will not, without the prior written consent of Lessor and subject to such conditions as Lessor may impose for its protection, affix or install any Equipment to or in any other personal or real property. (c) Any alterations or modifications to the Equipment that may, at any time during the term of this Agreement, be required to comply with any applicable law, rule or regulation shall be made at the expense of Lessee. VIII. STIPULATED LOSS VALUE: Lessee shall promptly and fully notify Lessor in writing if any unit of Equipment shall be or become worn out, lost, stolen, destroyed, irreparably damaged in the reasonable determination of Lessee, or permanently rendered unfit for use from any cause whatsoever (such occurrences being hereinafter called "Casualty Occurrences"). On the rental payment date next succeeding a Casualty Occurrence (the "Payment Date"), Lessee shall pay Lessor the sum of (x) the Stipulated Loss Value of such unit calculated as of the rental next preceding such Casualty Occurrence ("Calculation Date"); and (y) all rental and other amounts which are due hereunder as of the Payment Date. Upon payment of all sums due hereunder, the term of this lease as to such unit shall terminate and (except in the case of the loss, theft or complete destruction of such unit) Lessor shall be entitled to recover possession of such unit. IX. LOSS OR DAMAGE: Lessee hereby assumes and shall bear the entire risk of any loss, theft, damage to, or destruction of, any unit of Equipment from any cause whatsoever from the time the Equipment is shipped to Lessee. X. INSURANCE: Lessee agrees, at its own expense, to keep all Equipment insured for such amounts and against such hazards as Lessor may require, including, but not limited to, insurance for damages to or loss of such equipment and liability coverage for personal injuries, death or property damage, with Lessor named as additional insured and with a loss payable clause in favor of Lessor, as its interest may appear, irrespective of any breach of warranty or other act or omission of Lessee. All such policies shall be with companies, and on terms, satisfactory to Lessor. Lessee agrees to deliver to Lessor evidence of insurance satisfactory to Lessor. No insurance shall be subject to any co-insurance clause. Lessee hereby appoints Lessor as Lessee's attorney-in-fact to make proof of loss and claim for insurance, and to make adjustments with insurers and to receive payment of and execute or endorse all documents, checks or drafts in connection with payments made as a result of such insurance policies. Any expense of Lessor in adjusting or collecting insurance shall be borne by Lessee. Lessee will not make adjustments with insurers except (i) with respect to claims for damage to any unit of Equipment where the repair costs do not exceed ten percent (10%) of such unit's fair market value, or (ii) with Lessor's written consent. Said policies shall provide that the insurance may not be altered or canceled by the insurer until after thirty (30) days written notice to Lessor. Lessor may, at its option, apply proceeds of insurance, in whole or in part, to (i) repair or replace Equipment or any portion thereof, or (ii) satisfy any obligation of Lessee to Lessor hereunder. XI. RETURN OF EQUIPMENT: (a) Upon any expiration or termination of this Agreement or any Schedule, Lessee shall promptly, at its own cost and expense: (i) perform any testing and repairs required to place the affected units of Equipment in the same condition and appearance as when received by Lessee (reasonable wear and tear excepted) and in good working order for their originally intended purpose; (ii) if deinstallation, disassembly or crating is required, cause such units to be deinstalled, disassembled and crated by an authorized manufacturer's representative or such other service person as is satisfactory to Lessor, and (iii) return such units to a location within the continental United States as Lessor shall direct. (b) Until Lessee has fully complied with the requirements of Section XI(a) above, Lessee's rent payment obligation and all other obligations under this Agreement shall continue from month to month notwithstanding any expiration or termination of the lease term. Lessor may terminate such continued leasehold interest upon ten (10) days notice to Lessee. XII. DEFAULT: (a) Lessor may in writing declare this Agreement in default if: Lessee breaches its obligation to pay rent or any other sum when due and fails to cure the breach within ten (10) days; Lessee breaches any of its insurance obligations under Section X; Lessee breaches any of its other obligations and fails to cure that breach within thirty (30) days after written notice thereof; any representation or warranty made by Lessee in connection with this Agreement shall be false or misleading in any material respect; Lessee becomes insolvent or ceases to do business as a going concern; any Equipment is illegally used; or a petition is filed by or against Lessee or any guarantor of Lessee's obligations to Lessor under any bankruptcy or insolvency laws. Such declaration shall apply to all Schedules except as specifically excepted by Lessor. (b) After default, at the request of Lessor, Lessee shall comply with the provisions of Section XI(a). Lessee hereby authorizes Lessor to enter, with or without legal process, any premises where any Equipment is believed to be and take possession thereof. Lessee shall, without further demand, forthwith pay to Lessor (i) as liquidated damages for loss of a bargain and not as a penalty, the Stipulated Loss Value of the Equipment (calculated as of the rental next preceding the declaration of default), and (ii) all rentals and other sums then due hereunder. Lessor may, but shall not be required to, sell Equipment at private or public sale, in bulk or in parcels, with or without notice, and without having the Equipment present at the place of sale; or Lessor may, but shall not be required to, lease, otherwise dispose of or keep idle all or part of the Equipment; and Lessor may use Lessee's premises for any or all of the foregoing without liability for rent, costs, damages or otherwise. The proceeds of sale, lease or other disposition, if any, shall be applied in the following order of priorities: (1) to pay all of Lessor's costs, charges and expenses incurred in taking, removing, holding, repairing and selling, leasing or otherwise disposing of Equipment; then, (2) to the extent not previously paid by Lessee, to pay Lessor all sums due from Lessee hereunder; then (3) to reimburse to Lessee any sums previously paid by Lessee as liquidated damages; and (4) any surplus shall be retained by Lessor. Lessee shall pay any deficiency in (1) and (2) forthwith. (c) The foregoing remedies are cumulative, and any or all thereof may be exercised in lieu of or in addition to each other or any remedies at law, in equity, or under statute. Lessee waives notice of sale or other disposition (and the time and place thereof), and the manner and place of any advertising. Lessee shall pay Lessor's actual attorney's fees incurred in connection with the enforcement, assertion, defense or preservation of Lessor's rights and remedies hereunder, or if prohibited by law, such lesser sum as may be permitted. Waiver of any default shall not be a waiver of any other or subsequent default. (d) Any default under the terms of this or any other agreement between Lessor and Lessee may be declared by Lessor a default under this and any such other agreement. XIII. ASSIGNMENT: Lessor may, without the consent of Lessee, assign this Agreement or any Schedule. Lessee agrees that if Lessee receives written notice of an assignment from Lessor, Lessee will pay all rent and all other amounts payable under any assigned Equipment Schedule to such assignee or as instructed by Lessor. Lessee further agrees to confirm in writing receipt of the notice of assignment as may be reasonably requested by assignee. Lessee hereby waives and agrees not to assert against any such assignee any defense, set-off, recoupment claim or counterclaim which Lessee has or may at any time have against Lessor for any reason whatsoever. XIV. NET LEASE; NO SET-OFF, ETC: This Agreement is a net lease. Lessee's obligation to pay rent and other amounts due hereunder shall be absolute and unconditional. Lessee shall not be entitled to any abatement or reductions of, or set-offs against, said rent or other amounts, including, without limitation, those arising or allegedly arising out of claims (present or future, alleged or actual, and including claims arising out of strict tort or negligence of Lessor) of Lessee against Lessor under this Agreement or otherwise. Nor shall this Agreement terminate or the obligations of Lessee be affected by reason of any defect in or damage to, or loss of possession, use or destruction of, any Equipment from whatsoever cause. It is the intention of the parties that rents and other amounts due hereunder shall continue to be payable in all events in the manner and at the times set forth herein unless the obligation to do so shall have been terminated pursuant to the express terms hereof. XV. INDEMNIFICATION: (a) Lessee hereby agrees to indemnify, save and keep harmless Lessor, its agents, employees, successors and assigns from and against any and all losses, damages, penalties, injuries, claims, actions and suits, including legal expenses, of whatsoever kind and nature, in contract or tort, whether caused by the active or passive negligence of Lessor or otherwise, and including, but not limited to, Lessor's strict liability in tort, arising out of (i) the selection, manufacture, purchase, acceptance or rejection of Equipment, the ownership of Equipment during the term of this Agreement, and the delivery, lease, possession, maintenance, uses, condition, return or operation of Equipment (including, without limitation, latent and other defects, whether or not discoverable by Lessor or Lessee and any claim of patent, trademark or copyright infringement or environmental damage) or (ii) the condition of Equipment sold or disposed of after use by Lessee, any sublessee or employees of Lessee. Lessee shall, upon request, defend any actions based on, or arising out of, any of the foregoing. (b) Lessee hereby represents, warrants and covenants that (i) on the Lease Commencement Date for any unit of Equipment, such unit will qualify for all of the items of deduction and credit specified in Section C of the applicable Schedule ("Tax Benefits") in the hands of Lessor (all references to Lessor in this Section XV include Lessor and the consolidated taxpayer group of which Lessor is a member), and (ii) at no time during the term of this Agreement will Lessee take or omit to take, nor will it permit any sublessee or assignee to take or omit to take, any action (whether or not such act or omission is otherwise permitted by Lessor or the terms of this Agreement), which will result in the disqualification of any Equipment for, or recapture of, all or any portion of such Tax Benefits. (c) If as a result of a breach of any representation, warranty or covenant of the Lessee contained in this Agreement or any Schedule (x) tax counsel of Lessor shall determine that Lessor is not entitled to claim on its Federal income tax return all or any portion of the Tax Benefits with respect to any Equipment, or (y) any such Tax Benefit claimed on the Federal income tax return of Lessor is disallowed or adjusted by the Internal Revenue Service, or (z) any such Tax Benefit is recomputed or recaptured (any such determination, disallowance, adjustment, recomputation or recapture being hereinafter called a "Loss"), then Lessee shall pay to Lessor, as an indemnity and as additional rent, such amount as shall, in the reasonable opinion of Lessor, cause Lessor's after tax economic yields and cash flows, computed on the same assumptions, including tax rates (unless any adjustment has been made under Section III hereof, in which case the Effective Rate used in the next preceding adjustment shall be substituted), as were utilized by Lessor in originally evaluating the transaction (such yields and flows being hereinafter called the "Net Economic Return") to equal the Net Economic Return that would have been realized by Lessor if such Loss had not occurred. Such amount shall be payable upon demand accompanied by a statement describing in reasonable detail such Loss and the computation of such amount. (d) All of Lessor's rights, privileges and indemnities contained in this Section XV shall survive the expiration of other termination of this Agreement and the rights, privileges and indemnities contained herein are expressly made for the benefit of, and shall be enforceable by Lessor, its successors and assigns. XVI. DISCLAIMER: LESSEE ACKNOWLEDGES THAT IT HAS SELECTED THE EQUIPMENT WITHOUT ANY ASSISTANCE FROM LESSOR, ITS AGENTS OR EMPLOYEES. LESSOR DOES NOT MAKE, HAS NOT MADE, NOR SHALL BE DEEMED TO MAKE OR HAVE MADE, ANY WARRANTY OR REPRESENTATION, EITHER EXPRESS OR IMPLIED, WRITTEN OR ORAL, WITH RESPECT TO THE EQUIPMENT LEASED HEREUNDER OR ANY COMPONENT THEREOF, INCLUDING, WITHOUT LIMITATION, ANY WARRANTY AS TO DESIGN, COMPLIANCE WITH SPECIFICATIONS, QUALITY OF MATERIALS OR WORKMANSHIP, MERCHANTABILITY, FITNESS FOR ANY PURPOSE, USE OR OPERATION, SAFETY, PATENT, TRADEMARK OR COPYRIGHT INFRINGEMENT, OR TITLE. All such risks, as between Lessor and Lessee, are to be borne by Lessee. Without limiting the foregoing, Lessor shall have no responsibility or liability to Lessee or any other person with respect to any of the following, regardless of any negligence of Lessor (i) any liability, loss or damage caused or alleged to be caused directly or indirectly by any Equipment, any inadequacy thereof, any deficiency or defect (latent or otherwise) therein, or any other circumstance in connection therewith; (ii) the use, operation or performance of any Equipment or any risks relating thereto; (iii) any interruption of service, loss of business or anticipated profits or consequential damages; or (iv) the delivery, operation, servicing, maintenance, repair, improvement or replacement of any Equipment. If, and so long as, no default exists under this Lease, Lessee shall be, and hereby is, authorized during the term of this Lease to assert and enforce, at Lessee's sole cost and expense, from time to time, in the name of and for the account of Lessor and/or Lessee, as their interests may appear, whatever claims and rights Lessor may have against any Supplier of the Equipment. XVII. REPRESENTATIONS AND WARRANTIES OF LESSEE: Lessee hereby represents and warrants to Lessor that on the date hereof and on the date of execution of each Schedule: (a) Lessee has adequate power and capacity to enter into, and perform under, this Agreement and all related documents (together, the "Documents") and is duly qualified to do business wherever necessary to carry on its present business and operations, including the jurisdiction(s) where the Equipment is or is to be located. (b) The Documents have been duly authorized, executed and delivered by Lessee and constitute valid, legal and binding agreements, enforceable in accordance with their terms, except to the extent that the enforcement of remedies therein provided may be limited under applicable bankruptcy and insolvency laws. (c) No approval, consent or withholding of objections is required from any governmental authority or instrumentality with respect to the entry into or performance by Lessee of the Documents except such as have already been obtained. (d) The entry into and performance by Lessee of the Documents will not: (i) violate any judgment, order, law or regulation applicable to Lessee or any provision of Lessee's Certificate of Incorporation or By-Laws; or (ii) result in any breach of, constitute a default under or result in the creation of any lien, charge, security interest or other encumbrance upon any Equipment pursuant to any indenture, mortgage, deed of trust, bank loan or credit agreement or other instrument (other than this Agreement) to which Lessee is a party. (e) There are no suits or proceedings pending or threatened in court or before any commission, board or other administrative agency against or affecting Lessee, which will have a material adverse effect on the ability of Lessee to fulfill its obligations under this Agreement. (f) The Equipment accepted under any Certificate of Acceptance is and will remain tangible personal property. (g) Each Balance Sheet and Statement of Income delivered to Lessor has been prepared in accordance with generally accepted accounting principles, and since the date of the most recent such Balance Sheet and Statement of Income, there has been no material adverse change. (h) Lessee is and will be at all times validly existing and in good standing under the laws of the State of its incorporation (specified in the first sentence of this Agreement). (i) The Equipment will at all times be used for commercial or business purposes. XVIII. EARLY TERMINATION: (a) On or after the First Termination Date (specified in the applicable Schedule), Lessee may, so long as no default exists hereunder, terminate this Agreement as to all (but not less than all) of the Equipment on such Schedule as of a rent payment date ("Termination Date") upon at least ninety (90) days prior written notice to Lessor. (b) Lessee shall, and Lessor may, solicit cash bids for the Equipment on an AS IS, WHERE IS BASIS without recourse to or warranty from Lessor, express or implied ("AS IS BASIS"). Prior to the Termination Date, Lessee shall (i) certify to Lessor any bids received by Lessee and (ii) pay to Lessor (A) the Termination Value (calculated as of the rental due on the Termination Date) for the Equipment, and (B) all rent and other sums due and unpaid as of the Termination Date. (c) Provided that all amounts due hereunder have been paid on the Termination Date. Lessor shall (i) sell the Equipment on an AS IS BASIS for cash to the highest bidder and (ii) refund the proceeds of such sale (net of any related expenses) to Lessee up to the amount of the Termination Value. If such sale is not consummated, no termination shall occur and Lessor shall refund the Termination Value (less any expenses incurred by Lessor) to Lessee. (d) Notwithstanding the foregoing, Lessor may elect by written notice, at any time prior to the Termination Date, not to sell the Equipment. In that event, on the Termination Date Lessee shall (i) return the Equipment (in accordance with Section XI) and (ii) pay to the Lessor all amounts required under Section XVIII(b) less the amount of the highest and bid certified by Lessee to Lessor. XIX. PURCHASE OPTION: (a) So long as no default exists hereunder and the lease has not been earlier terminated, Lessee may at lease expiration, upon at least one hundred eighty (180) days prior written notice to Lessor, purchase all (but not less than all) of the Equipment in any Schedule on an AS IS BASIS for cash equal to its then Fair Market Value (plus all applicable sales taxes). (b) "Fair Market Value" shall mean the price which a willing buyer (who is neither a lessee in possession nor a used equipment dealer) would pay for the Equipment in an arm's-length transaction to a willing seller under no compulsion to sell; provided, however, that in such determination: (i) the Equipment shall be assumed to be in the condition in which it is required to be maintained and returned under this Agreement; (ii) in the case of any installed Equipment, that Equipment shall be valued on an installed basis; and (iii) costs of removal from current location shall not be a deduction from such valuation. If Lessor and Lessee are unable to agree on the Fair Market Value at least one hundred thirty-five (135) days before lease expiration, Lessor shall appoint an independent appraiser (reasonably acceptable to Lessee) to determine Fair Market Value, and that determination shall be final, binding and conclusive. Lessee shall bear all costs associated with any such appraisal. (c) Lessee shall be deemed to have waived this option unless it provides Lessor with written notice of its irrevocable election to exercise the same within fifteen (15) days after Fair Market Value is determined (by agreement or appraisal). XX. MISCELLANEOUS: (a) LESSEE HEREBY UNCONDITIONALLY WAIVES ITS RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF, DIRECTLY OR INDIRECTLY, THIS LEASE, ANY OF THE RELATED DOCUMENTS, ANY DEALINGS BETWEEN LESSEE AND LESSOR RELATING TO THE SUBJECT MATTER OF THIS TRANSACTION OR ANY RELATED TRANSACTIONS, AND/OR THE RELATIONSHIP THAT IS BEING ESTABLISHED BETWEEN LESSEE AND LESSOR. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT (INCLUDING, WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS). THIS WAIVER IS IRREVOCABLE MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THE WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS LEASE, ANY RELATED DOCUMENTS, OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THIS TRANSACTION OR ANY RELATED TRANSACTION. IN THE EVENT OF LITIGATION, THIS LEASE MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT. (b) Unless and until Lessee exercises its rights under Section XIX above, nothing herein contained shall give or convey to Lessee any right, title or interest in and to any Equipment except as a lessee. Any cancellation or termination by Lessor, pursuant to the provision of this Agreement, any Schedule, supplement or amendment hereto, or the lease of any Equipment hereunder, shall not release Lessee from any then outstanding obligations to Lessor hereunder. All Equipment shall at all times remain personal property of Lessor regardless of the degree of its annexation to any real property and shall not by reason of any installation in, or affixation to, real or personal property become a part thereof. (c) Time is of the essence of this Agreement, Lessor's failure at any time to require strict performance by Lessee of any of the provisions hereof shall not waive or diminish Lessor's right thereafter to demand strict compliance therewith. Lessee agrees, upon Lessor's request, to execute any instrument necessary or expedient for filing, recording or perfecting the interest of Lessor. All notices required to be given hereunder shall be deemed adequately given if sent by registered or certified mail to the addressee at its address stated herein, or at such other place as such addressee may have designated in writing. This Agreement and any Schedule and Annexes thereto constitute the entire agreement of the parties with respect to the subject matter hereof. NO VARIATION OR MODIFICATION OF THIS AGREEMENT OR ANY WAIVER OF ANY OF ITS PROVISIONS OR CONDITIONS, SHALL BE VALID UNLESS IN WRITING AND SIGNED BY AN AUTHORIZED REPRESENTATIVE OF THE PARTIES HERETO. (d) In case of a failure of Lessee to comply with any provision of this Agreement, Lessor shall have the right, but shall not be obligated to, effect such compliance, in whole or in part; and all moneys spent and expenses and obligations incurred or assumed by Lessor in effecting such compliance shall constitute additional rent due to Lessor within five days after the date Lessor sends notice to Lessee requesting payment. Lessor's effecting such compliance shall not be a waiver of Lessee's default. (e) Any rent or other amount not paid to Lessor when due hereunder shall bear interest, both before and after any judgment or termination hereof, at the lesser of eighteen percent (18%) per annum or the maximum rate allowed by law. Any provisions in this Agreement and any Schedule which are in conflict with any statute, law or applicable rule shall be deemed omitted, modified or altered to conform thereto. IN WITNESS WHEREOF, Lessee and Lessor have caused this Agreement to be executed by their duly authorized representatives as of the date first above written. LESSOR: LESSEE: General Electric Capital Corporation National Semiconductor Corporation By: By: -------------------------------- ------------------------------- Title: Title: ----------------------------- ---------------------------- AMENDMENT NO. 1 TO MASTER LEASE AGREEMENT DATED Dec. 13, 1994 (the "Lease") BY AND BETWEEN NATIONAL SEMICONDUCTOR CORPORATION ('Lessee') AND GENERAL ELECTRIC CAPITAL Co M RATION ("GE CAPITAL") ("Lessor") WHEREAS, Lessor and Lessee have entered into or simultaneously herewith are entering into the Lease; and WHEREAS, Lessor and Lessee desire to amend certain provisions of the Lease as hereinafter provided; NOW THEREFORE, for good and valuable consideration, Lessor and Lessee hereby agree to amend the Lease as follows: 1. Section II(b) is amended by deleting the last sentence thereof and replacing with the following: (b) if rent is not paid within ten days of its due date, and such delay in caused by the acts or omissions of Lessee, Lessee agrees to pay a late charge of five cents ($0.05) per dollar on, and in addition to, the amount of such rent but not exceeding the lawful maximum, if any. 2. Section III of the Lease in deleted in its entirety. 3. Section V(c) is deleted and replaced with the following: (c) Lessee will permit Lessor to inspect any Equipment during normal business hours upon not less than 2 days prior notice by Lessor to Lessee. 4. Section VII(b) is amended by adding at the and thereof, "except as necessary to put the Equipment in working order for its originally intended purpose." 5. Section X is amended by inserting the following as a new sixth sentence after the sentence that begins "Lessee hereby appoints .": Notwithstanding any provision hereof to the contrary, Lessor shall not exercise its power as Lessee's attorney-in-fact unless Lessee shall be in default under this Lease. 6. Section XI(a) is amended deleting clause (ii) of the last sentence and replacing with the following: (ii) if deinstallation, disassembly or crating is required, cause such units to be deinstalled, disassembled and crated in accordance with the manufacturer's standards and reasonable recommendations, if any, and in any case in accordance with industry standards applicable to Equipment of that kind. 7. Section XII(b) is amended by deleting the second sentence thereof and replacing with the following Leases hereby authorized Lessor to enter, with or without legal process, any premises where any Equipment is reasonably believed to be located and take possession thereof, provided Lessor complies with Lessee's reasonable worksite and security rules while on Lessee's premises. 8. Section XII(c) is amended by deleting "actual" after "Lessor's" and before "attorney's" and replacing with "reasonable". 9. Section XII(d) is deleted and replaced with the following: Any default by Lessee of its obligations under this Lease or any Schedule hereunder may be declared by Lessor to be a default under all Schedules. 10. Section XIII is amended by deleting the second sentence thereof and replacing with the following: Lessee agrees that if Lessee receives written notice of an assignment from Lessor, Lessee will pay all rent and all other amounts payable under any assigned Equipment Schedule to such assignee or as instructed by Lessor, but Lessee shall not be responsible to pay any assignee unless so notified. and is further amended by adding the following at the and of the Section: Nothing in this Section shall limit Lessee's rights to commence a proceeding against Lessor before any tribunal of competent jurisdiction to seek damages or other remedies for any claim Lessee may have against Lessor, nor shall this Section have any effect on Lessee's rights against any assignee with respect to any acts or omissions of that assignee. 10. Section XV(a) is amended by adding the following at the end thereof: Defense and indemnification under this Section is conditioned upon Lessor giving Lessee timely written notice of any claim against which Lessor wishes to be indemnified hereunder (unless Lessee learns of any such claim from a third party, or unless Lessor does not learn of such claim until such time as Lessor, acting prudently on its own behalf, would be precluded from defending by applicable law or rules), and Lessor giving Lessee necessary and appropriate information and assistance in the defense of same. Lessee's obligation to pay or reimburse reasonable fees of counsel selected by Lessor to defend any such claim shall be conditioned upon Lessee's approval of such counsel, which approval shall not be unreasonably withheld or delayed. Lessor shall provide Lessee with periodic status reports on the defense or settlement of such claim, upon Lessee's reasonable request, and Lessor shall seek Lessee's consent to any proposed settlement of such claim. If Lessee does not consent to a proposed settlement of a claim, it shall advise Lessor of its specific objections to the proposed settlement and shall identify with particularity the terms, if any, upon which it would consent to a settlement of the claim. If Lessor settles any such claim without Lessee's consent and Lessee objects to indemnifying Lessor for such settlement, then Lessor and Lessee agree to submit the question of the reasonableness of the settlement to binding arbitration. In such arbitration, the arbitrator shall be jointly selected by the parties (or, if they cannot agree on an arbitrator, one shall be selected according to the rules of the American Arbitration Association), and the arbitrator shall determine to what extent, if any, Lessee shall indemnify Lessor for both the settlement and any attorneys' fees incurred in connection with the defense and settlement of the claim. The decision of the arbitrator shall be final and binding upon both parties, and neither party shall seek recourse to a court of law or other authorities to appeal for revision of such decision or any other ruling of the arbitrator. The cost of the arbitration shall be borne by both parties in equal amounts. 12. Section XVII(g) is amended by inserting "in Lessee's financial condition" at the end thereof. 13. Section XIX(a) is amended by deleting "one hundred eighty (180)" and replacing with "sixty (60)". 14. Section XIX(b) is deleted and replaced with the following: (b) "Fair Market Value", shall mean the price which a willing buyer (who is neither a lessee in possession nor a used equipment dealer buying at wholesale) would pay for the Equipment in an arm's-length transaction to a willing seller under no compulsion to sell; provided, however, that in such determination: (i) the Equipment shall be assumed to be in the condition in which it is required to be maintained and returned under this Agreement; (ii) in the case of any installed Equipment, that Equipment shall be valued on an installed basis; and (iii) costs of removal from current location shall not be a deduction from such valuation. If Lessor and Lessee are unable to agree on the Fair Market Value at least forty-five (45) days before lease expiration, Lessor and Lessee shall each appoint an independent appraiser to provide an estimate of the Fair Market Value. If the estimates differ by an amount that is less than or equal to 15% of the lower estimate, the Fair Market Value shall be conclusively determined to be the average of the two estimates. If the estimates differ by more than 15% of the lower estimate, the two appraisers shall jointly appoint a third appraiser, who shall provide an estimate of the Fair Market Value, and the Fair Market Value shall be the average of the two estimates that differ by the least amount, provided, however, if the middle estimate differs from the lowest and the highest by the same amount, than the Fair Market Value shall be conclusively determined to be the amount of the middle estimate. Each party shall bear the expense of the appraiser appointed by it, and the parties shall equally bear the expense of the third appraiser. 15. Section XX(e) is amended by deleting "eighteen percent (18%) per annum" in the second line, and replacing with "a per annum rate equal to the sum of the "prime rate" as published in the "Money Rates" column of the Wall Street Journal, Western Edition, on the business day preceding the due date of such payment, plus 2% per annum (200 basic points)." This Amendment shall be deemed to have been entered into contemporaneously with and integrated into the terms and conditions of the Lease. Except as set out herein, Lessor and Lessee hereby agree that the terms and conditions of the Lease shall remain in full force and effect an entered into by the parties on or prior to the date hereof. LESSEE: LESSOR: NATIONAL SEMICONDUCTOR GENERAL ELECTRIC CAPITAL CORPORATION CORPORATION By:--------------------------- By:---------------------------- Its:-------------------------- Its:--------------------------- Dated:------------------------ Dated:------------------------- (Article 2A notice letter) November 21, 1994 National Semiconductor Corporation 2900 Semiconductor Drive Santa Clara, CA 95052 Attn: Mr. Richard Crowley Dear Mr. Crowley: General Electric Capital Corporation is entering into a lease Agreement dated December 13, 1994 (the "Agreement") with National Semiconductor Corporation for the lease of certain equipment set forth on the attached Annex A (the "Equipment") to the Agreement. In accordance with the requirements of Article 2A of the Uniform Commercial Code, Lessor hereby makes the following disclosures to Lessee prior to execution of the Agreement, (a) the person supplying the Equipment is See Annex A (the "Supplier"), (b) Lessee is entitled to the promises and warranties, including those of any third party, provided to the Lessor by Supplier, which is supplying the Equipment in connection with or as part of the contract by which Lessor acquired the Equipment and (c) with respect to such Equipment, Lessee may communicate with Supplier and receive an accurate and complete statement of such promises and warranties, including any disclaimers and limitations of them or of remedies. General Electric Capital Corporation By: --------------------------------- Its: Senior Operations Analyst -------------------------------- Acknowledged and Agreed: National Semiconductor Corporation By: ---------------------------- Its: --------------------------- ADDENDUM NO, 01 TO SCHEDULE NO. 001,002,003,004,005,006,007&008 TO MASTER LEASE AGREEMENT DATED AS OF December 13, 1994 RETURN CONDITIONS - ELECTRONICS EQUIPMENT In addition to the provisions provided for in Section XI of the Lease, and provided that the Lessee has not elected its option to purchase the Equipment, Lessee shall,. at its expense: (A) Upon the request of Lessor, Lessee shall no later than 180 days prior to the expiration or other termination of the lease provide: 1. a detailed inventory of the Equipment (including the model and serial number of each major component thereof), including, without limitation, all internal circuit boards, module boards, and software features; 2. a complete and current set of all manuals, blue prints, process flow diagrams, equipment configuration diagrams, maintenance records and other data reasonably requested by Lessor concerning the configuration and operation of the Equipment; and (B) Upon the request of Lessor, Lessee shaft, not later than 120 days prior to the expiration or other termination of the Lease make the Equipment available for on-site operational inspection by persons designated by the Lessor who shall be duly qualified to inspect the Equipment in its operational environment. (C) All Equipment shall be cleaned and treated with respect to rust, corrosion and appearance in accordance with manufacturer's recommendations and consistent with the best practices of dealers in used equipment similar to the Equipment; shall have no Lessee installed markings of labels which are not necessary for the operation, maintenance or repair of the Equipment, and shall be in compliance with all applicable government laws, rules and regulations. (D) The Equipment shall be de-installed and packed in accordance with manufacturer's recommendations. Without limitation, all internal fluids will either be drained and disposed of or filled and secured in accordance with manufacturer's recommendations and applicable government laws, rules and regulations. (E) The Equipment will be transported in accordance with manufacturer's recommendations and applicable government laws, rules and regulations to not more than one individual location within the continental United States selected by Lessor. LESSOR: LESSEE: GENERAL ELECTRIC CAPITAL NATIONAL SEMICONDUCTOR CORPORATION CORPORATION By: By: ---------------------------- ---------------------------- ANNEX A TO SCHEDULE NO. 008 TO MASTER LEASE AGREEMENT DATED AS OF DESCRIPTION OF EQUIPMENT Vendor Name Invoice # Inv. Date Equipment Cost - ----------- --------- --------- --------- ---- Applied 112459 3/16/94 (1) Precision 5000 $1,659,620.00 Materials Mark II Tungsten System and attachments and accessories described more fully on invoice #112459 attached hereto and made a part hereof. $3,451.76 Freight Applied 112459 3/16/94 (2) 5000 Tungsten-Etch $56,930.00 Materials Back CES (2) Window/A1203 $4,315.00 (1) Tyland MFC $48,300.00 LESS DISCOUNT {$85,827.50} Varian 035460 10/19/93 Varian 64120 System $2,902,157.00 Assoc. and attachments and accessories described more fully on invoice #035460 attached hereto and made a part hereof. Varian 035460 11/04/93 Process Development $24,000.00 Assoc. Varian 034988D 2/25/94 Varian Products $33,611.00 Assoc. described more fully on invoice #034988D attached hereto and made a part hereof. Freight $83.40 Varian 0349883 3/2/94 0981-F8473-301, Helium $1,314.03 Assoc. Calibrated Leak, 10-7 Range Varian 034988G 3/17/94 0960-L6910-301 $28,347.00 Assoc. LD-Pump, 960T0/50-60HZ/115V Freight $83.40 Varian 04952## 4/12/94 (6) 982-1111 (Y224) $48,504.00 Assoc. BTO Assembly for Edwards Scroll Pump INVOICE $4,724,889.09 COST ANNEX B TO SCHEDULE NO. 008 TO MASTER LEASE AGREEMENT DATED AS OF December 13, 1994 BILL OF SALE National Semiconductor Corporation (the "Seller"), in consideration of the sum of Four Million Seven Hundred Twenty-four Thousand Eight Hundred Eighty-nine Dollars and Nine Cents Dollars ($4,724,889.09) plus sales taxes in the amount of zero Dollars ($00.00) (if exemption from sales tax is claimed, an exemption certificate must be furnished to Buyer herewith), paid by General Electric Capital Corporation (the "Buyer"), receipt of which is acknowledged, hereby grants, sells, assigns, transfers and delivers to Buyer the equipment (the "Equipment") described in the above schedule (said schedule and related lease being collectively referred to as "Lease"), along with whatever claims and rights Seller may have against the manufacturer and/or supplier of the Equipment (the "Supplier"), including but not limited to all warranties and representations. At Buyer's request, Seller will cause Supplier to execute the attached Acknowledgment. Buyer is purchasing the Equipment for leasing back to Seller pursuant to the Lease. Seller represents and warrants to Buyer that (1) Buyer will acquire by the terms of this Bill of Sale good title to the Equipment free from all liens and encumbrances whatsoever; (2) Seller has the right to sell the Equipment; and (3) the Equipment has been delivered to Seller in good order and condition, and conforms to the specifications, requirements and standards applicable thereto; and (4) the equipment has been accurately labeled, consistent with the requirements of 40 CFR part 82 Subpart E, with respect to products manufactured with a controlled (ozone-depleting) substance. Seller agrees to save and hold harmless Buyer from and against any and all federal, state, municipal and local license fees and taxes of any kind or nature, including, without limiting the generality of the foregoing, any and all excise, personal property, use and sales taxes, and from and against any and all liabilities, obligations, losses, damages, penalties, claims, actions and suits resulting therefrom and imposed upon, incurred by or asserted against Buyer as a consequence of the sale of the Equipment to Buyer. IN WITNESS WHEREOF, Seller has executed this Bill of Sale this ________ day of ________, 19__. SELLER: National Semiconductor Corporation By:_______________________________ Title:____________________________ ANNEX C TO SCHEDULE NO. 008 TO MASTER LEASE AGREEMENT DATED AS OF December 13, 1994 CERTIFICATE OF ACCEPTANCE To: General Electric Capital Corporation ("Lessor") Pursuant to the provisions of the above schedule and lease (collectively, the "Lease"), Lessee hereby certifies and warrants that (a) all Equipment listed in the related Bill of Sale is in good condition and appearance, installed (if applicable) and in working order; and (b) Lessee accepts the Equipment for all purposes of the Lease, the purchase documents and all attendant documents. Lessee does further certify that as of the date hereof (i) Lessee is not in default under the Lease; (ii) the representations and warranties made by Lessee pursuant to or under the Lease are true and correct on the date hereof and (iii) Lessee has reviewed and approves of the purchase documents for the Equipment, if any. DESCRIPTION OF EQUIPMENT Manufacturer Serial Type and Numbers Model of Number of Cost Per Equipment Units Unit See Annex A Attached hereto and Made A Part Hereof ________________________________ Authorized Representative Dated: December 13, 1994 -------------------------- ANNEX D TO SCHEDULE NO 008 TO MASTER LEASE AGREEMENT DATED AS OF December 13, 1994 STIPULATED LOSS AND TERMINATION VALUE TABLE* TERMINATION VALUE STIPULATED LOSS VALUE RENTAL PERCENTAGE PERCENTAGE - ------------- ---------------------- -------------------------- 1 103.789 107.973 2 103.052 107.328 3 102.306 106.674 4 101.546 106.006 5 100.773 105.325 6 99.986 104.631 7 99.186 103.922 8 98.377 103.205 9 97.554 102.474 10 96.717 101.730 11 95.872 100.976 12 95.013 100.209 13 94.140 99.428 14 93.258 98.638 15 92.367 97.840 16 91.467 97.032 17 90.557 96.214 18 89.638 95.387 19 88.709 94.550 20 87.772 93.704 21 86.824 92.849 22 85.867 91.984 23 84.901 91.110 24 83.925 90.226 25 82.940 89.332 26 81.945 88.429 27 80.941 87.517 28 79.930 86.598 29 78.911 85.672 30 77.886 84.738 31 76.853 83.798 32 75.810 82.847 33 74.761 81.890 34 73.704 80.925 35 72.638 79.951 36 71.564 78.969 37 70.480 77.977 38 69.060 76.649 39 67.627 75.308 40 66.186 73.959 41 64.736 72.601 42 63.277 71.234 43 61.809 69.858 44 60.328 68.469 45 58.838 67.072 TERMINATION VALUE STIPULATED LOSS VALUE RENTAL PERCENTAGE PERCENTAGE - ------------- ---------------------- -------------------------- 46 57.340 65.665 47 55.829 64.246 48 54.308 62.817 49 52.778 61.380 50 51.236 59.929 51 49.681 58.466 52 48.118 56.995 53 46.548 55.517 54 44.970 54.032 55 43.385 52.539 56 41.787 51.033 57 40.182 49.519 PAYMENT AUTHORIZATION General Electric Capital Corporation 2200 Powell Street Suite 600 Emeryville, CA 94608 You are hereby authorized to pay the proceeds from our sale to you of certain Equipment as evidenced on the attached Bill of Sale to the following parties in the amount(s) designated below. National SemiConductor $4,724,889.09 Corporation 2900 Semiconductor Drive Santa Clara, CA 95052- 8090 For reimbursement of funds previously paid to various vendors for equipment plus attachments and accessories including labor described on Annex A attached hereto and made a part hereof. Very truly yours, National Semiconductor Corporation By:_____________________________ Title:______________________________ Date:_______________________________ CERTIFICATE CONCERNING PAYMENT OF PERSONAL PROPERTY TAXES To: General Electric Capital Corporation To insure Lessee's compliance with the provisions of a Master Lease Agreement dated as of December 13, 1994 (the "Lease") by and between the undersigned as Lessee and General Electric Capital Corporation as Lessor, Lessee hereby agrees to one of the following options with respect to the payment of personal property taxes on the Equipment described in Annex A to the Lease, such agreement to be conclusively evidenced by the initials and signature of an authorized agent of Lessee in the appropriate spaces provided below: Please choose one of the options below by placing an "X" in the appropriate box and initialing where indicated. Initial ONLY ONE Choice of Option OPTION 1 Lessee's Initials: (Applicable in Jurisdictions Requiring Lessor to List Equipment): Lessee agrees that it will not list any of such Equipment for property tax purposes or report any property tax assessed against such Equipment until otherwise directed in writing by Lessor. Upon receipt of any property tax bill pertaining to such Equipment from the appropriate taxing authority, Lessor will pay such tax and will invoice Lessee for the expense. Upon receipt of such invoice, Lessee will promptly reimburse Lessor for such expense; OPTION 2 Lessee's Initials: (Applicable in Jurisdictions Permitting Lessee to List Equipment): Lessee agrees that it will (a) list all such Equipment, (b) report all property taxes assessed against such Equipment and (c) pay all such taxes when due directly to the appropriate taxing authority until Lessor shall otherwise direct in writing. LESSEE: National Semiconductor Corporation By:____________________________ Title:________________________________ Date:_________________________________ ELECTRONIC AND TEST EQUIPMENT SCHEDULE SCHEDULE NO. 008 DATED THIS DECEMBER 13, 1994 TO MASTER LEASE AGREEMENT DATED AS OF DECEMBER 13, 1994 Lessor & Mailing Address: Lessee & Mailing Address: General Electric Capital National Semiconductor Corporation Corporation 2200 Powell Street, Suite 600 2900 Semiconductor Drive Emeryville, CA 94608 Santa Clara, CA 95052 Capitalized terms not defined herein shall have the meanings assigned to them in the Master Lease Agreement identified above ("Agreement"; said Agreement and this Schedule being collectively referred to as "Lease"). A. Equipment Pursuant to the terms of the Lease, Lessor agrees to acquire and lease to Lessee the Equipment listed on Annex A attached hereto and made a part hereof. B. Financial Terms 1. Advance Rent (if any): $69,039.61 2. Capitalized Lessor's Cost: $4,724,889.09 3. Basic Term Lease Rate Factor: Mons. 1-36 1.46119, Mons. 37-72 1.78557 4. Daily Lease Rate Factor: Mons. 1-36 .04871, Mons. 37-72 .05952 5. Basic Term (No. of Months): 72 6. Basic Term Commencement Date: 01/03/95 7. Equipment Location: 333 Western Avenue, South Portland, ME 8. Lessee Federal Tax ID No.: 952095071 9. Last Delivery Date: 10. First Termination Date: Sixty (60) months after the Basic Term Commencement Date. C. Tax Benefits Depreciation Deductions: a. Depreciation Method (check one): X The 200% declining balance method, switching to straight line method for the 1st taxable year for which using the straight line method with respect to the adjusted basis as of the beginning of such year will yield a larger allowance; OR ____ The method determined by applying to the unadjusted basis the applicable percentages set forth in Section 168(b)(1) of the Code, as in effect prior to the adoption of the Tax Reform Act of 1986. b. Recovery Period: Five Years c. Basis: 100% of Capitalized Lessor's Cost. D. Rent 1. Interim Rent. For the period from and including the Lease Commence Date to the Basic Term Commencement Date ("Interim Period"), Lessee shall pay as rent ("Interim Rent") for each unit of Equipment, an amount equal to (a) the product of the "Prime Rate" as published in the "Money Rates" column of the Wall Street Journal, Western Edition, on the business day preceding the Acceptance Date, times the Capitalized Lessor's Cost of such unit times the number of days in the Interim Period, divided by (b) 360. Interim Rent shall be on 12/13/94 . 2. Basic Term Rent. Commencing on 01/03/95 and on the same day of each month thereafter (each, a "Rent Payment Date") during the Basic Term, Lessee shall pay as rent ("Basic Term Rent") the product of the Basic Term Lease Rate Factor times the Capitalized Lessor's Cost of all Equipment on this Schedule. 3. [Deleted] E. Insurance 1. Public Liability: $1,000,000 total liability per occurrence. 2. Casualty and Property Damage: An amount equal to the higher of the Stipulated Loss Value or the full replacement cost of the Equipment. F. Modifications and Additions to Lease For purposes of this Schedule only, the Agreement is amended as follows: 1. Section I(b) of the Agreement is hereby deleted in its entirety and the following substituted in its stead: (b) The obligation of Lessor to purchase the Equipment from Lessee and to lease the same to Lessee shall be subject to receipt by Lessor, on or prior to the earlier of the Lease Commencement Date or Last Delivery Date therefor, of each of the following documents in form and substance satisfactory to Lessor: (i) a Schedule relating to the Equipment then to be leased hereunder, (ii) a Bill of Sale, in the form of Annex B to the applicable Schedule, transferring title to the Equipment to Lessor, (iii) evidence of insurance which complies with the requirements of Section X, and (iv) such other documents as Lessor may reasonably request. Simultaneously with the execution of the Bill of Sale, Lessee shall also execute a Certificate of Acceptance, in the form of Annex C to the applicable Schedule, covering all of the Equipment described in the Bill of Sale. 2. Section VI(a) shall be deleted and the following substituted in its stead: (a) The parties acknowledge that this is a sale/leaseback transaction and the Equipment is in Lessee's possession as of the Lease Commencement Date. 3. Section VII of the Lease is amended by adding the following as the third sentence in subsection (a): Lessee agrees that upon return of the Equipment, it will be in good condition and working order, giving consideration to reasonable wear and tear and the age of the Equipment. Lessee shall, if requested by Lessor and if reasonably possible, obtain a service report from the manufacturer attesting to such condition. 4. Each reference contained in this Agreement to: (a) "Adverse Environmental Condition" shall refer to (i) the existence or the continuation of the existence, of an Environmental Emission (including, without limitation, a sudden or non-sudden accidental or non-accidental Environmental Emission), of, or exposure to, any substance, chemical, material, pollutant, Contaminant, odor or audible noise or other release or emission in, into or onto the environment (including, without limitation, the air, ground, water or any surface) at, in, by, from or related to any Equipment from the time it leaves the Supplier's possession for delivery to lessee until the time it is delivered to Lessor, (ii) the environmental aspect of the transportation, storage, treatment or disposal of materials in connection with the operation of any Equipment by Lessee or Lessee's agents or (iii) the violation, or alleged violation by Lessee of any statutes, ordinances, orders, rules regulations, permits or licenses of, by or from any governmental authority, agency or court relating to environmental matters connected with any Equipment. (b) "Affiliate" shall refer, with respect to any given Person, to any Person that directly or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, such Person. (c) "Contaminant" shall refer to those substances which are regulated by or form the basis of liability under any Environmental Law, including, without limitation, asbestos, polychlorinated biphenyls ("PCBs"), and radioactive substances, or other material or substance which has in the past or could in the future constitute a health, safety or environmental hazard to any Person, property or natural resources. (d) "Environmental Claim" shall refer to any accusation, allegation, notice of violation, claim, demand, abatement or other order on direction (conditional or otherwise) by any governmental authority or any Person for person injury (including sickness, disease or death), tangible or intangible property damage, damage to the environment or other adverse effects on the environment, or for fines, penalties or restrictions, resulting from or based upon any Adverse Environmental Condition. (e) "Environmental Emission" shall refer to any actual or threatened release, spill, emission, leaking, pumping, injection, deposit, disposal, discharge, dispersal, leaching or migration into the indoor or outdoor environment, or into or out of any of the Equipment, including, without limitation, the movement of any Contaminant or other substance through or in the air, soil, surface water, groundwater or property. (f) "Environmental Law" shall mean any federal, foreign, state or local law, rule or regulation pertaining to the protection of the environment, including, but not limited to, the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") (42 U.S.C. Section 9601 et seq.), the Hazardous Material Transportation Act (49 U.S.C. Section 1801 et seq.), the Federal Water Pollution Control Act (33 U.S.C. Section 1251 et seq.), the Resource Conversation and Recovery Act (42 U.S.C. Section 6901 et seq.), the Clean Air Act (42 U.S.C. Section 7401 et seq.), the Toxic Substances Control Act (15 U.S.C. Section 2601 et seq.), the Federal Insecticide, Fungicide, and Rodenticide Act (7 U.S.C. Section 1361 et seq.), and the Occupational Safety and Health Act (19 U.S.C. section 651 et seq.), as these laws have been amended or supplemented, and any analogous foreign, federal, state or local statutes, and the regulation promulgated pursuant thereto. (g) "Environmental Loss" shall mean any loss, cost, damage, liability, deficiency, fine, penalty or expense (including without limitation, reasonable attorneys' fees, engineering and other professional or export fees), investigation, removal, cleanup and remedial costs (voluntarily or involuntarily incurred) and damages to, loss of the use of or decrease in value of the Equipment arising out of or related to any Adverse Environmental Condition. (h) "Person" shall include any individual, partnership, corporation, trust, unincorporated organization, government or department or agency thereof and any other entity. 5. Lessee shall fully and promptly pay, perform, discharge, defend, indemnify and hold harmless Lessor and its Affiliates, successors and assigns, directors, officers, employees and agents from and against any Environmental Claim or Environmental Loss. Defense and indemnification under this Section is conditioned upon Lessor giving Lessee timely written notice of any claim against which Lessor wishes to be indemnified hereunder (unless Lessee learns of any such claim from a third party, or unless Lessor does not learn of such claim until such time as Lessor, acting prudently on its own behalf, would be precluded from defending by applicable law or rules), and Lessor giving Lessee necessary and appropriate information and assistance in the defense of same. Lessee's obligation to pay or reimburse reasonable fees of counsel selected by Lessor to defend any such claim shall be conditioned upon Lessee's approval of such counsel, which approval shall not be unreasonably withheld or delayed. Lessor shall provide Lessee with periodic status reports on the defense or settlement of such claim, upon Lessee's reasonable request, and Lessor shall seek Lessee's consent to a proposed settlement of a claim, it shall advise Lessor of its specific objections to the proposed settlement and shall identify with particularity the terms, if any, upon which it would consent to a settlement of the claim. If Lessor settles any such claim without Lessee's consent and Lessee objects to indemnifying Lessor for such settlement, then Lessor and Lessee agree to submit the question of the reasonableness of the settlement to binding arbitration. In such arbitration, the arbitrator shall be jointly selected by the parties (or, if they cannot agree on an arbitrator, one shall be selected according to the rules of the American Arbitration Association), and the arbitrator shall determine to what extent, if any, Lessee shall indemnify Lessor for both the settlement and any attorneys' fees incurred in connection with the defense and settlement of the claim. The decision of the arbitrator shall be final and binding upon both parties, and neither party shall seek recourse to a court of law or other authorities to appeal for revision of such decision or any other ruling of the arbitrator. The cost of the arbitration shall be borne by both parties in equal amounts. 6. ADDITIONS AND ALTERATIONS. Subject to the conditions set out in this paragraph, Lessor hereby agrees, if so requested by Lessee, to purchase alterations, additions or Features for the Equipment and lease them to Lessee under the same terms and conditions and with the same expiration date of the Initial Term as the applicable Equipment Schedule, ad at a periodic Rental Payment that shall be mutually satisfactory to Lessor and Lessee. Lessor's obligation to purchase and lease such alterations, additions or Features shall be conditioned on the following: no default hereunder by Lessee shall have occurred and be continuing; there shall have been no material adverse change (as determined by Lessor in its reasonable exercise of business judgment) in Lessee's financial condition or business prospects from the Commencement Date of the applicable Schedule; and such alterations, additions or Features shall be acceptable for acquisition and lease under Lessor's then standard business practices. Lessee may obtain financing for such alterations, additions or Features from third parties provided that (i) such alterations, additions or Features can be undone or removed without damaging or impairing the functionality, utility or value of the Equipment as compared to Equipment on which such alterations, additions or Features had never been installed, and (ii) such financing shall not in any event create a security interest in, or lien or other encumbrance on, Lessor's Equipment. 7. EARLY PURCHASE OPTION: (a) Provided that the Lease has not been earlier terminated and provided further that Lessee is not in default under the Lease or any other agreement between Lessor and Lessee, Lessee may, UPON AT LEAST 30 DAYS BUT NO MORE THAN 270 DAYS PRIOR WRITTEN NOTICE TO LESSOR OR LESSEE'S IRREVOCABLE ELECTION TO EXERCISE SUCH OPTION, purchase all (but not less than all) of the Equipment listed and described in this Schedule on the rent payment date (the "Early Purchase Date") which is 60 months from the Basic Term Commencement Date of the Schedule for a price equal to $ 1,448,887.24 (the "FMV Early Option Price"), plus all applicable sales taxes on an AS IS BASIS. Lessor and Lessee agree that the FMV Early Option Price is a reasonable prediction of the Fair Market Value (as such term is defined in Section XIX(b) hereof) of the Equipment at the time the option is exercisable. Lessor and Lessee agree that if Lessee makes any non-severable improvement to the Equipment which is not leased by Lessor to Lessee and which increases the value of the Equipment and is not required or permitted by Sections VII or XI of the Lease prior to lease expiration, then at the time of such option being exercised, Lessor and Lessee shall adjust the purchase price to reflect any addition to the price anticipated to result from such improvement. (The purchase option granted by this subsection shall be referred to herein as the "Early Purchase Option".) (b) If Lessee exercises its Early Purchase Option with respect to the Equipment leased hereunder, then on the Early Purchase Option Date, Lessee shall pay to Lessor any Rent and other sums due and unpaid on the Early Purchase Option Date and Lessee shall pay the FMV Early Option Price, plus all applicable sales taxes, to Lessor in cash. Except as expressly modified hereby, all terms and provisions of the Agreement shall remain in full force and effect. This Schedule is not binding or effective with respect to the Agreement or Equipment until executed on behalf of Lessor and Lessee by authorized representatives of Lessor and Lessee, respectively. IN WITNESS WHEREOF, Lessee and Lessor have caused this Schedule to be executed by their duly authorized representatives as of the date first above written. LESSEE: LESSOR: NATIONAL SEMICONDUCTOR GENERAL ELECTRIC CAPITAL CORPORATION CORPORATION By:_________________________________ By:__________________________________ ______ ______ ____________________________________ _____________________________________ ______ ______ (Typed or printed name and (Typed or printed name and title) title) ELECTRONIC AND TEST EQUIPMENT SCHEDULE SCHEDULE NO. 001 DATED THIS DECEMBER 13, 1994 TO MASTER LEASE AGREEMENT DATED AS OF DECEMBER 13, 1994 Lessor & Mailing Address: Lessee & Mailing Address: General Electric Capital National Semiconductor Corporation Corporation 2200 Powell Street, Suite 600 2900 Semiconductor Drive Emeryville, CA 94608 Santa Clara, CA 95052 Capitalized terms not defined shall have the meanings assigned to them in the Master Lease Agreement identified above ("Agreement"; said Agreement and this Schedule being collectively referred to as "Lease"). A. Equipment Pursuant to the terms of the Lease, Lessor agrees to acquire and lease to Lessee the Equipment listed on Annex A attached hereto and made a part hereof. B. Financial Terms 1. Advance Rent (if any): $15,919.72 2. Capitalized Lessor's Cost: $1,103,933.71 3. Basic Term Lease Rate Factor: Mons. 1-36 1.44209, Mons. 37-72 1.76223 4. Daily Lease Rate Factor: Mons. 1-36 .04807, Mons. 37-72 .05874 5. Basic Term (No. of Months): 72 6. Basic Term Commencement Date: 01/03/95 7. Equipment Location: 333 Western Avenue, South Portland, ME 8. Lessee Federal Tax ID No.: 952095071 9. Last Delivery Date: 10. First Termination Date: Sixty (60) months after the Basic Term Commence Date. C. Tax Benefits Depreciation Deductions: a. Depreciation Method (check one): X The 200% declining balance method, switching to straight line method for the 1st taxable year for which using the straight line method with respect to the adjusted basis as of the beginning of such year will yield a larger allowance; OR ____ The method determined by applying to the unadjusted basis the applicable percentages set forth in Section 168(b)(1) of the Code, as in effect prior to the adoption of the Tax Reform Act of 1986. b. Recovery Period: Five Years c. Basis: 100% of Capitalized Lessor's Cost. D. Rent 1. Interim Rent. For the period from and including the Lease Commencement Date to the Basic Term Commencement Date ("Interim Period"), Lessee shall pay as rent ("Interim Rent") for each unit of Equipment, an amount equal to (a) the product of the "Prime Rate" as published in the "Money Rates" column of the Wall Street Journal, Western Edition, on the business day preceding the Acceptance Date, times the Capitalized Lessor's Cost of such unit times the number of days in the Interim Period, divided by (b) 360. Interim Rent shall be on 12/13/94 . 2. Basic Term Rent. Commencing on 01/03/95 and on the same day of each month thereafter (each, a "Rent Payment Date") during the Basic Term, Lessee shall pay as rent ("Basic Term Rent") the product of the Basic Term Lease Rate Factor times the Capitalized Lessor's Cost of all Equipment on this Schedule. 3. [Deleted] E. Insurance 1. Public Liability: $1,000,000 total liability per occurrence. 2. Casualty and Property Damage: An amount equal to the higher of the Stipulated Loss Value or the full replacement cost of the Equipment. F. Modifications and Additions to Lease For purposes of this Schedule only, the Agreement is amended as follows: 1. Section I(b) of the Agreement is hereby deleted in its entirety and the following substituted in its stead: (b) The obligation of Lessor to purchase the Equipment from Lessee and to lease the same to Lessee shall be subject to receipt by Lessor, on or prior to the earlier of the Lease Commence Date or Last Delivery Date therefor, of each of the following documents in form and substance satisfactory to Lessor: (i) a Schedule relating to the Equipment then to be leased hereunder, (ii) a Bill of Sale, in the form of Annex B to the applicable schedule, transferring title to the Equipment to Lessor, (iii) evidence of insurance which complies with the requirements of Section X, and (iv) such other documents as Lessor may reasonably request. Simultaneously with the execution of the Bill of Sale, Lessee shall also execute a Certificate of Acceptance, in the form of Annex C to the applicable Schedule, covering all of the Equipment described in the Bill of Sale. 2. Section VI(a) shall be deleted and the following substituted in its stead: (a) The parties acknowledge that this is a sale/leaseback transaction and the Equipment is in Lessee's possession as of the Lease Commencement Date. 3. Section VII of the Lease is amended by adding the following as the third sentence in subsection (a): Lessee agrees that upon return of the Equipment, it will be in good condition and working order, giving consideration to reasonable wear and tear and the age of the Equipment. Lessee shall, if requested by Lessor and if reasonably possible, obtain a service report from the manufacturer attesting to such condition. 4. Each reference contained in this Agreement to: (a) "Adverse Environmental Condition" shall refer to (i) the existence or the continuation of the existence, of an Environmental Emission (including, without limitation, a sudden or non-sudden accidental or non-accidental Environmental Emission), of, or exposure to, any substance, chemical, material, pollutant, Contaminant, odor or audible noise or other release or emission in, into or onto the environment (including, without limitation, the air, ground, water or any surface) at, in, by, from or related to any Equipment from the time it leaves the Supplier's possession for delivery to lessee until the time it is delivered to Lessor, (ii) the environmental aspect of the transportation, storage, treatment or disposal of materials in connection with the operation of any Equipment by Lessee or Lessee's agents or (iii) the violation, or alleged violation by Lessee of any statutes, ordinances, orders, rules regulations, permits or licenses of, by or from any governmental authority, agency or court relating to environmental matters connected with any Equipment. (b) "Affiliate" shall refer, with respect to any given Person, to any Person that directly or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, such Person. (c) "Contaminant" shall refer to those substances which are regulated by or form the basis of liability under any Environmental Law, including, without limitation, asbestos, polychlorinated biphenyls ("PCBs"), and radioactive substances, or other material or substance which has in the past or could in the future constitute a health, safety or environmental hazard to any Person, property or natural resources. (d) "Environmental Claim" shall refer to any accusation, allegation, notice of violation, claim, demand, abatement or other order on direction (conditional or otherwise) by any governmental authority or any Person for person injury (including sickness, disease or death), tangible or intangible property damage, damage to the environment or other adverse effects on the environment, or for fines, penalties or restrictions, resulting from or based upon any Adverse Environmental Condition. (e) "Environmental Emission" shall refer to any actual or threatened release, spill, emission, leaking, pumping, injection, deposit, disposal, discharge, dispersal, leaching or migration into the indoor or outdoor environment, or into or out of any of the Equipment, including, without limitation, the movement of any Contaminant or other substance through or in the air, soil, surface water, groundwater or property. (f) "Environmental Law" shall mean any federal, foreign, state or local law, rule or regulation pertaining to the protection of the environment, including, but not limited to, the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") (42 U.S.C. Section 9601 et seq.), the Hazardous Material Transportation Act (49 U.S.C. Section 1801 et seq.), the Federal Water Pollution Control Act (33 U.S.C. Section 1251 et seq.), the Resource Conversation and Recovery Act (42 U.S.C. Section 6901 et seq.), the Clean Air Act (42 U.S.C. Section 7401 et seq.), the Toxic Substances Control Act (15 U.S.C. Section 2601 et seq.), the Federal Insecticide, Fungicide, and Rodenticide Act (7 U.S.C. Section 1361 et seq.), and the Occupational Safety and Health Act (19 U.S.C. section 651 et seq.), as these laws have been amended or supplemented, and any analogous foreign, federal, state or local statutes, and the regulation promulgated pursuant thereto. (g) "Environmental Loss" shall mean any loss, cost, damage, liability, deficiency, fine, penalty or expense (including without limitation, reasonable attorneys' fees, engineering and other professional or export fees), investigation, removal, cleanup and remedial costs (voluntarily or involuntarily incurred) and damages to, loss of the use of or decrease in value of the Equipment arising out of or related to any Adverse Environmental Condition. (h) "Person" shall include any individual, partnership, corporation, trust, unincorporated organization, government or department or agency thereof and any other entity. 5. Lessee shall fully and promptly pay, perform, discharge, defend, indemnify and hold harmless Lessor and its Affiliates, successors and assigns, directors, officers, employees and agents from and against any Environmental Claim or Environmental Loss. Defense and indemnification under this Section is conditioned upon Lessor giving Lessee timely written notice of any claim against which Lessor wishes to be indemnified hereunder (unless Lessee learns of any such claim from a third party, or unless Lessor does not learn of such claim until such time as Lessor, acting prudently on its own behalf, would be precluded from defending by applicable law or rules), and Lessor giving Lessee necessary and appropriate information and assistance in the defense of same. Lessee's obligation to pay or reimburse reasonable fees of counsel selected by Lessor to defend any such claim shall be conditioned upon Lessee'' approval of such counsel, which approval shall not be unreasonably withheld or delayed. Lessor shall provide Lessee with periodic status reports on the defense or settlement of such claim, upon Lessee's reasonable request, and Lessor shall seek Lessee's consent to a proposed settlement of a claim, it shall advise Lessor of its specific objections to the proposed settlement and shall identify with particularity the terms, if any, upon which it would consent to a settlement of the claim. If Lessor settles any such claim without Lessee's consent and Lessee objects to indemnifying Lessor for such settlement, then Lessor and Lessee agree to submit the question of the reasonableness of the settlement to binding arbitration. In such arbitration, the arbitrator shall be jointly selected by the parties (or, if they cannot agree on an arbitrator, one shall be selected according to the rules of the American Arbitration Association), and the arbitrator shall determine to what extent, if any, Lessee shall indemnify Lessor for both the settlement and any attorneys' fees incurred in connection with the defense and settlement of the claim. The decision of the arbitrator shall be final and binding upon both parties, and neither party shall seek recourse to a court of law or other authorities to appeal for revision of such decision or any other ruling of the arbitrator. The cost of the arbitration shall be borne by both parties in equal amounts. 6. ADDITIONS AND ALTERATIONS. Subject to the conditions set out in this paragraph, Lessor hereby agrees, if so requested by Lessee, to purchase alterations, additions or Features for the Equipment and lease them to Lessee under the same terms and conditions and with the same expiration date of the Initial Term as the applicable Equipment Schedule, and at a periodic Rental Payment that shall be mutually satisfactory to Lessor and Lessee. Lessor's obligation to purchase and lease such alterations, additions or Features shall be conditioned on the following: no default hereunder by Lessee shall have occurred and be continuing; there shall have been no material adverse change (as determined by Lessor in its reasonable exercise of business judgment) in Lessee's financial condition or business prospects from the Commencement Date of the applicable Schedule; and such alterations, additions or Features shall be acceptable for acquisition and lease under Lessor's then standard business practices. Lessee may obtain financing for such alterations, additions or Features from third parties provided that (i) such alterations, additions or Features can be undone or removed without damaging or impairing the functionality, utility or value of the Equipment as compared to Equipment on which such alterations, additions or Features had never been installed, and (ii) such financing shall not in any event create a security interest in, or lien or other encumbrance on, Lessor's Equipment. 7. EARLY PURCHASE OPTION: (a) Provided that the Lease has not been earlier terminated and provided further that Lessee is not in default under the Lease or any other agreement between Lessor and Lessee, Lessee may, UPON AT LEAST 30 DAYS BUT NO MORE THAN 270 DAYS PRIOR WRITTEN NOTICE TO LESSOR OR LESSEE'S IRREVOCABLE ELECTION TO EXERCISE SUCH OPTION, purchase all (but not less than all) of the Equipment listed and described in this Schedule on the rent payment date (the "Early Purchase Date") which is 60 months from the Basic Term Commencement Date of the Schedule for a price equal to $ 354,417.92 (the "FMV Early Option Price"), plus all applicable sales taxes on an AS IS BASIS. Lessor and Lessee agree that the FMV Early Option Price is a reasonable prediction of the Fair Market Value (as such term is defined in Section XIX(b) hereof) of the Equipment at the time the option is exercisable. Lessor and Lessee agree that if Lessee makes any non-severable improvement to the Equipment which is not leased by Lessor to Lessee and which increases the value of the Equipment and is not required or permitted by Sections VII or XI of the Lease prior to lease expiration, then at the time of such option being exercised, Lessor and Lessee shall adjust the purchase price to reflect any addition to the price anticipated to result from such improvement. (The purchase option granted by this subsection shall be referred to herein as the "Early Purchase Option".) (b) If Lessee exercises its Early Purchase Option with respect to the Equipment leased hereunder, then on the Early Purchase Option Date, Lessee shall pay to Lessor any Rent and other sums due and unpaid on the Early Purchase Option Date and Lessee shall pay the FMV Early Option Price, plus all applicable sales taxes, to Lessor in cash. Except as expressly modified hereby, all terms and provisions of the Agreement shall remain in full force and effect. This Schedule is not binding or effective with respect to the Agreement or Equipment until executed on behalf of Lessor and Lessee by authorized representatives of Lessor and Lessee, respectively. IN WITNESS WHEREOF, Lessee and Lessor have caused this Schedule to be executed by their duly authorized representatives as of the date first above written. LESSEE: LESSOR: NATIONAL SEMICONDUCTOR GENERAL ELECTRIC CAPITAL CORPORATION CORPORATION By:______________________________ By:____________________________ _______ _______ _________________________________ _______________________________ _______ _______ (Typed or printed name and (Typed or printed name and title) title) ADDENDUM NO, 01 TO SCHEDULE NO. 001,002,003,004,005,006,007&008 TO MASTER LEASE AGREEMENT DATED AS OF December 13, 1994 RETURN CONDITIONS - ELECTRONICS EQUIPMENT In addition to the provisions provided for in Section XI of the Lease, and provided that the Lessee has not elected its option to purchase the Equipment, Lessee shall, at its expense: (A) Upon the request of Lessor, Lessee shall no later than 180 days prior to the expiration or other termination of the least provide: 1. a detailed inventory of the Equipment (including the model and serial number of each major component thereof), including, without limitation, all internal circuit boards, module boards, and software features; 2. a complete and current set of all manuals, blue prints, process flow diagrams, equipment configuration diagrams, maintenance records and other data reasonably requested by Lessor concerning the configuration and operation of the Equipment; and (B) Upon the request of Lessor, Lessee shall, not later than 120 days prior to the expiration or other termination of the Lease make the Equipment available for on-site operational inspection by persons designated by the Lessor who shall be duly qualified to inspect the Equipment in its operational environment. (C) All Equipment shall be cleaned and treated with respect to rust, corrosion and appearance in accordance with manufacturer's recommendations and consistent with the best practices of dealers in used equipment similar to the Equipment; shall have no Lessee installed markings of labels which are not necessary for the operation, maintenance or repair of the Equipment, and shall be in compliance with all applicable government laws, rules and regulations. (D) The Equipment shall be de-installed and packed in accordance with manufacturer's recommendations. Without limitation, all internal fluids will either be drained and disposed of or filled and secured in accordance with manufacturer's recommendations and applicable government laws, rules and regulations. (E) The Equipment will be transported in accordance with manufacturer's recommendations and applicable government laws, rules and regulations to not more than one individual location within the continental United States selected by Lessor. LESSOR: LESSEE: GENERAL ELECTRIC CAPITAL NATIONAL SEMICONDUCTOR CORPORATION CORPORATION By:__________________________ By:_________________________ ANNEX A TO SCHEDULE NO. 001 TO MASTER LEASE AGREEMENT DATED AS OF DESCRIPTION OF EQUIPMENT
INVOICE VENDOR NAME # INV. DATE EQUIPMENT COST - ------------- --------- --------- ---------------------------------------------------------- --------------- Opal 93209 11/28/93 Opal 7830 CD-SEM and attachments and accessories described $ 1,098,.091.00 more fully on invoice #93209 attached hereto and made a part hereof. Freight: $ 1,892.71 Neslab 399823 6/22/94 Spare Parts $ 2,700.00 Opal 94028 5/18/94 Vibration, EMI and acoustic survey $ 1,250.00
INVOICE COST: $1,103,933.71 Initials: -------------------------------------- -------------------------------------- Lessor Lessee
ANNEX B TO SCHEDULE NO. 001 TO MASTER LEASE AGREEMENT DATED AS OF December 13, 1994 BILL OF SALE National Semiconductor Corporation (the "Seller"), in consideration of the sum of One Million One Hundred Three Thousand Nine Hundred Thirty-three Dollars and Seventy-one Cents Dollars ($1,103,933.71) plus sales taxes in the amount of zero Dollars ($00.00) (if exemption from sales tax is claimed, an exemption certificate must be furnished to Buyer herewith), paid by General Electric Capital Corporation (the "Buyer"), receipt of which is acknowledged, hereby grants, sells, assigns, transfers and delivers to Buyer the equipment (the "Equipment") described in the above schedule (said schedule and related lease being collectively referred to as "Lease"), along with whatever claims and rights Seller may have against the manufacturer and/or supplier of the Equipment (the "Supplier"), including but not limited to all warranties and representations. At Buyer's request, Seller will cause Supplier to execute the attached Acknowledgment. Buyer is purchasing the Equipment for leasing back to Seller pursuant to the Lease. Seller represents and warrants to Buyer that (1) Buyer will acquire by the terms of this Bill of Sale good title to the Equipment free from all liens and encumbrances whatsoever; (2) Seller has the right to sell the Equipment; and (3) the Equipment has been delivered to Seller in good order and condition, and conforms to the specifications, requirements and standards applicable thereto; and (4) the equipment has been accurately labeled, consistent with the requirements of 40 CFR part 82 Subpart E, with respect to products manufactured with a controlled (ozone-depleting) substance. Seller agrees to save and hold harmless Buyer from and against any and all federal, state, municipal and local license fees and taxes of any kind or nature, including, without limiting the generality of the foregoing, any and all excise, personal property, use and sales taxes, and from and against any and all liabilities, obligations losses, damages, penalties, claims, actions and suits resulting therefrom and imposed upon, incurred by or asserted against Buyer as a consequence of the sale of the Equipment to Buyer. IN WITNESS WHEREOF, Seller has executed this Bill of Sale this thirteenth day of December ,1994. - ----------- ------------ SELLER: National Semiconductor Corporation By:_______________________________ Title:____________________________ ANNEX C TO SCHEDULE NO. 001 TO MASTER LEASE AGREEMENT DATED AS OF December 13, 1994 CERTIFICATE OF ACCEPTANCE To: General Electric Capital Corporation ("Lessor") Pursuant to the provisions of the above schedule and lease (collectively, the "Lease"), Lessee hereby certifies and warrants that (a) all Equipment listed in the related Bill of Sale is in good condition and appearance, installed (if applicable) and in working order; and (b) Lessee accepts the Equipment for all purposes of the Lease, the purchase documents and all attendant documents. Lessee does further certify that as of the date hereof (i) Lessee is not in default under the Lease; (ii) the representations and warranties made by Lessee pursuant to or under the Lease are true and correct on the date hereof and (iii) Lessee has reviewed and approves of the purchase documents for the Equipment, if any. DESCRIPTION OF EQUIPMENT Manufacturer Serial Type and Number of Cost Per Numbers Model of Units Unit Equipment See Annex A Attached hereto and Made A Part Hereof _____________________________ Authorized Representative Dated: December 13, 1994 -------------------------- ANNEX D TO SCHEDULE NO 008 TO MASTER LEASE AGREEMENT DATED AS OF December 13, 1994 STIPULATED LOSS AND TERMINATION VALUE TABLE* TERMINATION VALUE STIPULATED LOSS VALUE RENTAL PERCENTAGE PERCENTAGE - ------------- ---------------------- -------------------------- 1 103.788 107.923 2 103.070 107.272 3 102.343 106.613 4 101.602 105.940 5 100.848 105.254 6 100.081 104.554 7 99.300 103.840 8 98.510 103.118 9 97.707 102.383 10 96.890 101.633 11 96.064 100.875 12 95.225 100.103 13 94.372 99.318 14 93.510 98.524 15 92.640 97.721 16 91.760 96.909 17 90.871 96.087 18 89.972 95.256 19 89.064 94.415 20 88.147 93.566 21 87.220 92.707 22 86.284 91.838 23 85.339 90.961 24 84.384 90.073 25 83.420 89.177 26 82.447 88.271 27 81.464 87.356 28 80.475 86.434 29 79.478 85.505 30 78.474 84.569 31 77.463 83.625 32 76.443 82.673 33 75.416 81.713 34 74.381 80.746 35 73.337 79.770 36 72.286 78.786 37 71.225 77.793 38 69.832 76.467 39 68.427 75.130 40 67.013 73.783 41 65.590 72.428 42 64.159 71.065 43 62.719 69.692 44 61.266 68.307 45 59.805 66.913 TERMINATION VALUE STIPULATED LOSS VALUE RENTAL PERCENTAGE PERCENTAGE - ------------- ---------------------- -------------------------- 46 58.335 65.510 47 56.852 64.095 48 55.360 62.671 49 53.859 61.238 50 52.346 59.792 51 50.820 58.333 52 49.286 56.867 53 47.746 55.394 54 46.198 53.914 55 44.643 52.426 56 43.075 50.926 57 41.499 49.418 PAYMENT AUTHORIZATION General Electric Capital Corporation 2200 Powell Street Suite 600 Emeryville, CA 94608 You are hereby authorized to pay the proceeds from our sale to you of certain Equipment as evidenced on the attached Bill of Sale to the following parties in the amount(s) designated below. National Semiconductor $1,103,933.71 Corporation 2900 Semiconductor Drive Santa Clara, CA 95052-8090 For reimbursement of funds previously paid to various vendors for equipment plus attachments and accessories including labor described on Annex A attached hereto and made a part hereof. Very truly yours, National Semiconductor Corporation By:_______________________________ Title:____________________________ Date:_____________________________ CERTIFICATE CONCERNING PAYMENT OF PERSONAL PROPERTY TAXES To: General Electric Capital Corporation To insure Lessee's compliance with the provisions of a Master Lease Agreement dated as of December 13, 1994 (the "Lease") by and between the undersigned as Lessee and General Electric Capital Corporation as Lessor, Lessee hereby agrees to one of the following options with respect to the payment of personal property taxes on the Equipment described in Annex A to the Lease, such agreement to be conclusively evidenced by the initials and signature of an authorized agent of Lessee in the appropriate spaces provided below: Please choose one of the options below by placing an "X" in the appropriate box and initialing where indicated. Initial ONLY ONE Choice of Option OPTION 1 Lessee's Initials: (Applicable in Jurisdictions Requiring Lessor to List Equipment): Lessee agrees that it will not list any of such Equipment for property tax purposes or report any property tax assessed against such Equipment until otherwise directed in writing by Lessor. Upon receipt of any property tax bill pertaining to such Equipment from the appropriate taxing authority, Lessor will pay such tax and will invoice Lessee for the expense. Upon receipt of such invoice, Lessee will promptly reimburse Lessor for such expense; OPTION 2 Lessee's Initials: (Applicable in Jurisdictions Permitting Lessee to List Equipment): Lessee agrees that it will (a) list all such Equipment, (b) report all property taxes assessed against such Equipment and (c) pay all such taxes when due directly to the appropriate taxing authority until Lessor shall otherwise direct in writing. LESSEE: National Semiconductor Corporation By:_______________________________ Title:____________________________ Date:_____________________________ ELECTRONIC AND TEST EQUIPMENT SCHEDULE SCHEDULE NO. 002 DATED THIS DECEMBER 13, 1994 TO MASTER LEASE AGREEMENT DATED AS OF DECEMBER 13, 1994 Lessor & Mailing Address: Lessee & Mailing Address: General Electric Capital National Semiconductor Corporation Corporation 2200 Powell Street, Suite 600 2900 Semiconductor Drive Emeryville, CA 94608 Santa Clara, CA 95052 Capitalized terms not defined shall have the meanings assigned to them in the Master Lease Agreement identified above ("Agreement"; said Agreement and this Schedule being collectively referred to as "Lease"). A. Equipment Pursuant to the terms of the Lease, Lessor agrees to acquire and lease to Lessee the Equipment listed on Annex A attached hereto and made a part hereof. B. Financial Terms 1. Advance Rent (if any): $36,202.71 2. Capitalized Lessor's Cost: $2,515,037.57 3. Basic Term Lease Rate Factor: Mons. 1-36 1.43945, Mons. 37-72 1.75901 4. Daily Lease Rate Factor: Mons. 1-36 .04798, Mons. 37-72 .05863 5. Basic Term (No. of Months): 72 6. Basic Term Commencement Date: 01/03/95 7. Equipment Location: 333 Western Avenue, South Portland, ME 8. Lessee Federal Tax ID No.: 952095071 9. Last Delivery Date: 10. First Termination Date: Sixty (60) months after the Basic Term Commence Date. C. Tax Benefits Depreciation Deductions: a. Depreciation Methods (check one): X The 200% declining balance method, switching to straight line method for the 1st taxable year for which using the straight line method with respect to the adjusted basis as of the beginning of such year will yield a larger allowance; OR ____ The method determined by applying to the unadjusted basis the applicable percentages set forth in Section 168(b)(1) of the Code, as in effect prior to the adoption of the Tax Reform Act of 1986. b. Recovery Period: Five Years c. Basis: 100% of Capitalized Lessor's Cost. D. Rent 1. Interim Rent. For the period from and including the Lease Commencement Date to the Basic Term Commencement Date ("Interim Period"), Lessee shall pay as rent ("Interim Rent") for each unit of Equipment, an amount equal to (a) the product of the "Prime Rate" as published in the "Money Rates" column of the Wall Street Journal, Western Edition, on the business day preceding the Acceptance Date, times the Capitalized Lessor's Cost of such unit times the number of days in the Interim Period, divided by (b) 360. Interim Rent shall be due on 12/13/94 . 2. Basic Term Rent. Commencing on 01/03/95 and on the same day of each month thereafter (each, a "Rent Payment Date") during the Basic Term, Lessee shall pay as rent ("Basic Term Rent") the product of the Basic Term Lease Rate Factor times the Capitalized Lessor's Cost of all Equipment on this Schedule. 3. [Deleted] E. Insurance 1. Public Liability: $1,000,000 total liability per occurrence. 2. Casualty and Property Damage: An amount equal to the higher of the Stipulated Loss Value or the full replacement cost of the Equipment. F. Modifications and Additions to Lease For purposes of this Schedule only, the Agreement is amended as follows: 1. Section I(b) of the Agreement is hereby deleted in its entirety and the following substituted in its stead: (b) The obligation of Lessor to purchase the Equipment from Lessee and to lease the same to Lessee shall be subject to receipt by Lessor, on or prior to the earlier of the Lease Commence Date or Last Delivery Date therefor, of each of the following documents in form and substance satisfactory to Lessor: (i) a Schedule relating to the Equipment then to be leased hereunder, (ii) a Bill of Sale, in the form of Annex B to the applicable Schedule, transferring title to the Equipment to Lessor, (iii) evidence of insurance which complies with the requirements of Section X, and (iv) such other documents as Lessor may reasonably request. Simultaneously with the execution of the Bill of Sale, Lessee shall also execute a Certificate of Acceptance, in the form of Annex C to the applicable Schedule, covering all of the Equipment described in the Bill of Sale. 2. Section VI(a) shall be deleted and the following substituted in its stead: (a) The parties acknowledge that this is a sale/leaseback transaction and the Equipment is in Lessee's possession as of the Lease Commencement Date. 3. Section VII of the Lease is amended by adding the following as the third sentence in subsection (a): Lessee agrees that upon return of the Equipment, it will be in good condition and working order, giving consideration to reasonable wear and tear and the age of the Equipment. Lessee shall, if requested by Lessor and if reasonably possible, obtain a service report from the manufacturer attesting to such condition. 4. Each reference contained in this Agreement to: (a) "Adverse Environmental Condition" shall refer to (i) the existence or the continuation of the existence, of an Environmental Emission (including, without limitation, a sudden or non-sudden accidental or non-accidental Environmental Emission), of, or exposure to, any substance, chemical, material, pollutant, Contaminant, odor or audible noise or other release or emission in, into or onto the environment (including, without limitation, the air, ground, water or any surface) at, in, by, from or related to any Equipment from the time it leaves the Supplier's possession for delivery to lessee until the time it is delivered to Lessor, (ii) the environmental aspect of the transportation, storage, treatment or disposal of materials in connection with the operation of any Equipment by Lessee or Lessee's agents or (iii) the violation, or alleged violation by Lessee of any statutes, ordinances, orders, rules regulations, permits or licenses of, by or from any governmental authority, agency or court relating to environmental matters connected with any Equipment. (b) "Affiliate" shall refer, with respect to any given Person, to any Person that directly or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, such Person. (c) "Contaminant" shall refer to those substances which are regulated by or form the basis of liability under any Environmental Law, including, without limitation, asbestos, polychlorinated biphenyls ("PBCs"), and radioactive substances, or other material or substance which has in the past or could in the future constitute a health, safety or environmental hazard to any Person, property or natural resources. (d) "Environmental Claim" shall refer to any accusation, allegation, notice of violation, claim, demand, abatement or other order on direction (conditional or otherwise) by any governmental authority or any Person for person injury (including sickness, disease or death), tangible or intangible property damage, damage to the environment or other adverse effects on the environment, or for fines, penalties or restrictions, resulting from or based upon any Adverse Environmental Condition. (e) "Environmental Emission" shall refer to any actual or threatened release, spill, emission, leaking, pumping, injection, deposit, disposal, discharge, dispersal, leaching or migration into the indoor or outdoor environment, or into or out of any of the Equipment, including, without limitation, the movement of any Contaminant or other substance through or in the air, soil, surface water, groundwater or property. (f) "Environmental Law" shall mean any federal, foreign, state or local law, rule or regulation pertaining to the protection of the environment, including, but not limited to, the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") (42 U.S.C. Section 9601 et seq.), the Hazardous Material Transportation Act (49 U.S.C. Section 1801 et seq.), the Federal Water Pollution Control Act (33 U.S.C. Section 1251 et seq.), the Resource Conversation and Recovery Act (42 U.S.C. Section 6901 et seq.), the Clean Air Act (42 U.S.C. Section 7401 et seq.), the Toxic Substances Control Act (15 U.S.C. Section 2601 et seq.), the Federal Insecticide Fungicide, and Rodenticide Act (7 U.S.C. Section 1361 et seq.), and the Occupational Safety and Health Act (19 U.S.C. section 651 et seq.), as these laws have been amended or supplemented, and any analogous foreign, federal, state or local statutes, and the regulation promulgated pursuant thereto. (g) "Environmental Loss" shall mean any loss, cost, damage, liability, deficiency, fine, penalty or expense (including without limitation, reasonable attorneys' fees, engineering and other professional or export fees), investigation, removal, cleanup and remedial costs (voluntarily or involuntarily incurred) and damages to, loss of the use of or decrease in value of the Equipment arising out of or related to any Adverse Environmental Condition. (h) "Person" shall include any individual, partnership, corporation, trust, unincorporated organization, government or department or agency thereof and any other entity. 5. Lessee shall fully and promptly pay, perform, discharge, defend, indemnify and hold harmless Lessor and its Affiliates, successors and assigns, directors, officers, employees and agents from and against any Environmental Claim or Environmental Loss. Defense and indemnification under this Section is conditioned upon Lessor giving Lessee timely written notice of any claim against which Lessor wishes to be indemnified hereunder (unless Lessee learns of any such claim from a third party, or unless Lessor does not learn of such claim until such time as Lessor, acting prudently on its own behalf, would be precluded from defending by applicable law or rules), and Lessor giving Lessee necessary and appropriate information and assistance in the defense of same. Lessee's obligation to pay or reimburse reasonable fees of counsel selected by Lessor to defend any such claim shall be conditioned upon Lessee'' approval of such counsel, which approval shall not be unreasonably withheld or delayed. Lessor shall provide Lessee with periodic status reports on the defense or settlement of such claim, upon Lessee's reasonable request, and Lessor shall seek Lessee's consent to a proposed settlement of a claim, it shall advise Lessor of its specific objections to the proposed settlement and shall identify with particularity the terms, if any, upon which it would consent to a settlement of the claim. If Lessor settles any such claim without Lessee's consent and Lessee objects to indemnifying Lessor for such settlement, then Lessor and Lessee agree to submit the question of the reasonableness of the settlement to binding arbitration. In such arbitration, the arbitrator shall be jointly selected by the parties (or, if they cannot agree on an arbitrator, one shall be selected according to the rules of the American Arbitration Association), and the arbitrator shall determine to what extent, if any, Lessee shall indemnify Lessor for both the settlement and any attorneys' fees incurred in connection with the defense and settlement of the claim. The decision of the arbitrator shall be final and binding upon both parties, and neither party shall seek recourse to a court of law or other authorities to appeal for revision of such decision or any other ruling of the arbitrator. The cost of the arbitration shall be borne by both parties in equal amounts. 6. ADDITIONS AND ALTERATIONS. Subject to the conditions set out in this paragraph, Lessor hereby agrees, if so requested by Lessee, to purchase alterations, additions or Features for the Equipment and lease them to Lessee under the same terms and conditions and with the same expiration date of the Initial Term as the applicable Equipment Schedule, and at a periodic Rental Payment that shall be mutually satisfactory to Lessor and Lessee. Lessor's obligation to purchase and lease such alterations, additions or Features shall be conditioned on the following: no default hereunder by Lessee shall have occurred and be continuing; there shall have been no material adverse change (as determined by Lessor in its reasonable exercise of business judgment) in Lessee's financial condition or business prospects from the Commencement Date of the applicable Schedule; and such alterations, additions or Features shall be acceptable for acquisition and lease under Lessor's then standard business practices. Lessee may obtain financing for such alterations, additions or Features from third parties provided that (i) such alterations, additions or Features can be undone or removed without damaging or impairing the functionality, utility or value of the Equipment as compared to Equipment on which such alterations, additions or Features had never been installed, and (ii) such financing shall not in any event create a security interest in, or lien or other encumbrance on, Lessor's Equipment. 7. EARLY PURCHASE OPTION: (a) Provided that the Lease has not been earlier terminated and provided further that Lessee is not in default under the Lease or any other agreement between Lessor and Lessee, Lessee may, UPON AT LEAST 30 DAYS BUT NO MORE THAN 270 DAYS PRIOR WRITTEN NOTICE TO LESSOR OR LESSEE'S IRREVOCABLE ELECTION TO EXERCISE SUCH OPTION, purchase all (but not less than all) of the Equipment listed and described in this Schedule on the rent payment date (the "Early Purchase Date") which is 60 months from the Basic Term Commencement Date of the Schedule for a price equal to $ 812,432.59 (the "FMV Early Option Price"), plus all applicable sales taxes on an AS IS BASIS. Lessor and Lessee agree that the FMV Early Option Price is a reasonable prediction of the Fair Market Value (as such term is defined in Section XIX(b) hereof) of the Equipment at the time the option is exercisable. Lessor and Lessee agree that if Lessee makes any non-severable improvement to the Equipment which is not leased by Lessor to Lessee and which increases the value of the Equipment and is not required or permitted by Sections VII or XI of the Lease prior to lease expiration, then at the time of such option being exercised, Lessor and Lessee shall adjust the purchase price to reflect any addition to the price anticipated to result from such improvement. (The purchase option granted by this subsection shall be referred to herein as the "Early Purchase Option".) (b) If Lessee exercises its Early Purchase Option with respect to the Equipment leased hereunder, then on the Early Purchase Option Date, Lessee shall pay to Lessor any Rent and other sums due and unpaid on the Early Purchase Option Date and Lessee shall pay the FMV Early Option Price, plus all applicable sales taxes, to Lessor in cash. Except as expressly modified hereby, all terms and provisions of the Agreement shall remain in full force and effect. This Schedule is not binding or effective with respect to the Agreement or Equipment until executed on behalf of Lessor and Lessee by authorized representatives of Lessor and Lessee, respectively. IN WITNESS WHEREOF, Lessee and Lessor have caused this Schedule to be executed by their duly authorized representatives as of the date first above written. LESSEE: LESSOR: NATIONAL SEMICONDUCTOR GENERAL ELECTRIC CAPITAL CORPORATION CORPORATION By:____________________________ By:____________________________ _______________________________ _______________________________ (Typed or printed name and title) (Typed or printed name and title) ADDENDUM NO, 01 TO SCHEDULE NO. 001,002,003,004,005,006,007&008 TO MASTER LEASE AGREEMENT DATED AS OF December 13, 1994 RETURN CONDITIONS - ELECTRONICS EQUIPMENT In addition to the provisions provided for in Section XI of the Lease, and provided that the Lessee has not elected its option to purchase the Equipment, Lessee shall,. at its expense: (A) Upon the request of Lessor, Lessee shall no later than 180 days prior to the expiration or other termination of the lease provide: 1. a detailed inventory of the Equipment (including the model and serial number of each major component thereof), including, without limitation, all internal circuit boards, module boards, and software features; 2. a complete and current set of all manuals, blue prints, process flow diagram, equipment configuration diagrams, maintenance records and other data reasonably requested by Lessor concerning the configuration and operation of the Equipment; and (B) Upon the request of Lessor, Lessee shall, not later than 120 days prior to the expiration or other termination of the Lease make the Equipment available for on-site operational inspection by persons designated by the Lessor who shall be duly qualified to inspect the Equipment in its operational environment. (C) All Equipment shall be cleaned and treated with respect to rust, corrosion and appearance in accordance with manufacturer's recommendations and consistent with the best practices of dealers in used equipment similar to the Equipment; shall have no Lessee installed markings of labels which are not necessary for the operation, maintenance or repair of the Equipment, and shall be in compliance with all applicable government laws, rules and regulations. (D) The Equipment shall be de-installed and packed in accordance with manufacturer's recommendations. Without limitation, all internal fluids will either be drained and disposed of or filled and secured in accordance with manufacturer's recommendations and applicable government laws, rules and regulations. (E) The Equipment will be transported in accordance with manufacturer's recommendations and applicable government laws, rules and regulations to not more than one individual location within the continental United States selected by Lessor. LESSOR: LESSEE: GENERAL ELECTRIC CAPITAL NATIONAL SEMICONDUCTOR CORPORATION CORPORATION By:__________________________ By:_________________________ ANNEX A TO SCHEDULE NO. 002 TO MASTER LEASE AGREEMENT DATED AS OF DESCRIPTION OF EQUIPMENT
INVOICE INV. VENDOR NAME # DATE EQUIPMENT COST - ------------------------------------ --------- --------- ------------------------------------ --------------- Integrated Solutions 320124 5/10/94 GCA 8500-003 Stepper 2142 G- Line 8500SE (NSC) $ 750,000.00 Freight: $ 1,200.00 Anderson DeBartolo Pan 41016 5/13/94 Professional Services $ 17,658.00 Anderson DeBartolo Pan 40915 4/29/94 Professional Services $ 1,962.00 Tylan General 66965 4/12/94 Misc. Repairs $ 1,775.00 Lam Research Corp 171405 9/15/93 TCP 9600 S/N#4058 $ 1,374,623.25 Matheson Elect. Products Group 16847 7/15/94 Auto-purge system for 8C13 for LAM 9600 and attachments and accessories described more fully on invoice 16847 attached hereto and made a $ 63,263.25 part hereof. Freight $1,529.41 Vector Tech. 047741 10/4/93 ES-400 Base Unit, Type-7 Entry Kit, ES-Series Elec Cont. Box Assbly $ 17,085.00 Semix Inc. 15536 2/9/93 Sog Spin Coater, Indexers Basic repair parts kit, Cleaning and $ 285,122.00 consumable kit Freight $819.66
INVOICE COST: $2,515,037.57 Initials: ------------------------------ --------------------------------- Lessor Lessee ANNEX B TO SCHEDULE NO. 002 TO MASTER LEASE AGREEMENT DATED AS OF December 13, 1994 BILL OF SALE National Semiconductor Corporation (the "Seller"), in consideration of the sum of Two Million Five Hundred Fifteen Thousand Thirty-Seven Dollars and Fifty-seven Cents Dollars ($2,515,037.57) plus sales taxes in the amount of zero Dollars ($00.00) (if exemption from sales tax is claimed, an exemption certificate must be furnished to Buyer herewith), paid by General Electric Capital Corporation (the "Buyer"), receipt of which is acknowledged, hereby grants, sells, assigns, transfers and delivers to Buyer the equipment (the "Equipment") described in the above schedule (said schedule and related lease being collectively referred to as "Lease"), along with whatever claims and rights Seller may have against the manufacturer and/or supplier of the Equipment (the "Supplier"), including but not limited to all warranties and representations. At Buyer's request, Seller will cause Supplier to execute the attached Acknowledgment. Buyer is purchasing the Equipment for leasing back to Seller pursuant to the Lease. Seller represents and warrants to Buyer that (1) Buyer will acquire by the terms of this Bill of Sale good title to the Equipment free from all liens and encumbrances whatsoever; (2) Seller has the right to sell the Equipment; and (3) the Equipment has been delivered to Seller in good order and condition, and conforms to the specifications, requirements and standards applicable thereto; and (4) the equipment has been accurately labeled, consistent with the requirements of 40 CFR part 82 Subpart E, with respect to products manufactured with a controlled (ozone-depleting) substance. Seller agrees to save and hold harmless Buyer from and against any and all federal, state, municipal and local license fees and taxes of any kind or nature, including, without limiting the generality of the foregoing, any and all excise, personal property, use and sales taxes, and from and against any and all liabilities, obligations losses, damages, penalties, claims, actions and suits resulting therefrom and imposed upon, incurred by or asserted against Buyer as a consequence of the sale of the Equipment to Buyer. IN WITNESS WHEREOF, Seller has executed this Bill of Sale this thirteenth day of December ,1994. SELLER: National Semiconductor Corporation By: --------------------------- Title: Assistant Treasurer ------------------------ ANNEX C TO SCHEDULE NO. 002 TO MASTER LEASE AGREEMENT DATED AS OF December 13, 1994 CERTIFICATE OF ACCEPTANCE To: General Electric Capital Corporation ("Lessor") Pursuant to the provisions of the above schedule and lease (collectively, the "Lease"), Lessee hereby certifies and warrants that (a) all Equipment listed in the related Bill of Sale is in good condition and appearance, installed (if applicable) and in working order; and (b) Lessee accepts the Equipment for all purposes of the Lease, the purchase documents and all attendant documents. Lessee does further certify that as of the date hereof (i) Lessee is not in default under the Lease; (ii) the representations and warranties made by Lessee pursuant to or under the Lease are true and correct on the date hereof and (iii) Lessee has reviewed and approves of the purchase documents for the Equipment, if any. DESCRIPTION OF EQUIPMENT Manufacturer Serial Type and Numbers Model of Number of Cost Per Equipment Units Unit See Annex A Attached hereto and Made A Part Hereof -------------------------- Authorized Representative Dated: December 13, 1994 ----------------------- ANNEX D TO SCHEDULE NO 002 TO MASTER LEASE AGREEMENT DATED AS OF December 13, 1994 STIPULATED LOSS AND TERMINATION VALUE TABLE* TERMINATION VALUE STIPULATED LOSS VALUE RENTAL PERCENTAGE PERCENTAGE - ------------- ---------------------- -------------------------- 1 103.788 107.916 2 103.072 107.265 3 102.348 106.605 4 101.610 105.931 5 100.859 105.244 6 100.094 104.543 7 99.315 103.829 8 98.529 103.106 9 97.728 102.370 10 96.914 101.620 11 96.091 100.861 12 95.254 100.089 13 94.404 99.303 14 93.545 98.508 15 92.677 97.704 16 91.800 96.892 17 90.914 96.069 18 90.018 95.238 19 89.113 94.396 20 88.198 93.546 21 87.275 92.687 22 86.342 91.818 23 85.399 90.940 24 84.448 90.052 25 83.486 89.155 26 82.516 88.249 27 81.536 87.334 28 80.550 86.411 29 79.556 85.482 30 78.556 84.545 31 77.548 83.602 32 76.531 82.649 33 75.506 81.689 34 74.475 80.721 35 73.434 79.745 36 72.386 78.761 37 71.328 77.767 38 69.939 76.442 39 68.537 75.105 40 67.127 73.759 41 65.709 72.405 42 64.281 71.041 43 62.845 69.669 44 61.396 68.285 TERMINATION VALUE STIPULATED LOSS VALUE RENTAL PERCENTAGE PERCENTAGE - ------------- ---------------------- -------------------------- 45 59.939 66.891 46 58.472 65.489 47 56.993 64.074 48 55.505 62.651 49 54.008 61.218 50 52.499 59.773 51 50.977 58.315 52 49.448 56.850 53 47.911 55.378 54 46.367 53.898 55 44.816 52.411 56 43.252 50.911 57 41.681 49.404 PAYMENT AUTHORIZATION General Electric Capital Corporation 2200 Powell Street Suite 600 Emeryville, CA 94608 You are hereby authorized to pay the proceeds from our sale to you of certain Equipment as evidenced on the attached Bill of Sale to the following parties in the amount(s) designated below. National Semiconductor $2,515,037.57 Corporation 2900 Semiconductor Drive Santa Clara, CA 95052-8090 For reimbursement of funds previously paid to various vendors for equipment plus attachments and accessories including labor described on Annex A attached hereto and made a part hereof. Very truly yours, National Semiconductor Corporation By: --------------------------------- Title: Assistant Treasurer ------------------------------ Date: December 13, 1994 ------------------------------- CERTIFICATE CONCERNING PAYMENT OF PERSONAL PROPERTY TAXES To: General Electric Capital Corporation To insure Lessee's compliance with the provisions of a Master Lease Agreement dated as of December 13, 1994 (the "Lease") by and between the undersigned as Lessee and General Electric Capital Corporation as Lessor, Lessee hereby agrees to one of the following options with respect to the payment of personal property taxes on the Equipment described in Annex A to the Lease, such agreement to be conclusively evidenced by the initials and signature of an authorized agent of Lessee in the appropriate spaces provided below: Please choose one of the options below by placing an "X" in the appropriate box and initialing where indicated. Initial ONLY ONE Choice of Option OPTION 1 Lessee's Initials: (Applicable in Jurisdictions Requiring Lessor to List Equipment): Lessee agrees that it will not list any of such Equipment for property tax purposes or report any property tax assessed against such Equipment until otherwise directed in writing by Lessor. Upon receipt of any property tax bill pertaining to such Equipment from the appropriate taxing authority, Lessor will pay such tax and will invoice Lessee for the expense. Upon receipt of such invoice, Lessee will promptly reimburse Lessor for such expense; OPTION 2 Lessee's Initials: (Applicable in Jurisdictions Permitting Lessee to List Equipment): Lessee agrees that it will (a) list all such Equipment, (b) report all property taxes assessed against such Equipment and (c) pay all such taxes when due directly to the appropriate taxing authority until Lessor shall otherwise direct in writing. LESSEE: National Semiconductor Corporation By: ------------------------------- Title: Assistant Treasurer ---------------------------- Date: December 13, 1994 ----------------------------- ELECTRONIC AND TEST EQUIPMENT SCHEDULE SCHEDULE NO. 003 DATED THIS DECEMBER 13, 1994 TO MASTER LEASE AGREEMENT DATED AS OF DECEMBER 13, 1994 Lessor & Mailing Address: Lessee & Mailing Address: General Electric Capital Corporation National Semiconductor Corporation 2200 Powell Street, Suite 600 2900 Semiconductor Drive Emeryville, CA 94608 Santa Clara, CA 95052 Capitalized terms not defined herein shall have the meanings assigned to them in the Master Lease Agreement identified above ("Agreement"; said Agreement and this Schedule being collectively referred to as "Lease"). A. Equipment Pursuant to the terms of the Lease, Lessor agrees to acquire and lease to Lessee the Equipment listed on Annex A attached hereto and made a part hereof. B. Financial Terms 1. Advance Rent (if any): $15,531.46 2. Capitalized Lessor's Cost: $1,109,397.74 3. Basic Term Lease Rate Factor: Mons. 1-36 1.39999, Mons. 37-72 1.71079 4. Daily Lease Rate Factor: Mons. 1-36 .04667, Mons. 37-72 .05703 5. Basic Term (No. of Months): 72 6. Basic Term Commencement Date: 01/03/95 7. Equipment Location: 333 Western Avenue, South Portland, ME 8. Lessee Federal Tax ID No.: 952095071 9. Last Delivery Date: 10. First Termination Date: Sixty (60) months after the Basic Term Commence Date. C. Tax Benefits Depreciation Deductions: a. Depreciation Methods (check one): X The 200% declining balance method, switching to straight line method for the 1st taxable year for which using the straight line method with respect to the adjusted basis as of the beginning of such year will yield a larger allowance; OR ____ The method determined by applying to the unadjusted basis the applicable percentages set forth in Section 168(b)(1) of the Code, as in effect prior to the adoption of the Tax Reform Act of 1986. b. Recovery Period: Five Years ------------------------ c. Basis: 100% of Capitalized Lessor's Cost. ------------------------ D. Rent 1. Interim Rent. For the period from and including the Lease Commencement Date to the Basic Term Commencement Date ("Interim Period"), Lessee shall pay as rent ("Interim Rent") for each unit of Equipment, an amount equal to (a) the product of the "Prime Rate" as published in the "Money Rates" column of the Wall Street Journal, Western Edition, on the business day preceding the Acceptance Date, times the Capitalized Lessor's Cost of such unit times the number of days in the Interim Period, divided by (b) 360. Interim Rent shall be due on 12/13/94 . 2. Basic Term Rent. Commencing on 01/03/95 and on the same day of each month thereafter (each, a "Rent Payment Date") during the Basic Term, Lessee shall pay as rent ("Basic Term Rent") the product of the Basic Term Lease Rate Factor times the Capitalized Lessor's Cost of all Equipment on this Schedule. 3. [Deleted] E. Insurance 1. Public Liability: $1,000,000 total liability per occurrence. 2. Casualty and Property Damage: An amount equal to the higher of the Stipulated Loss Value or the full replacement cost of the Equipment. F. Modifications and Additions to Lease For purposes of this Schedule only, the Agreement is amended as follows: 1. Section I(b) of the Agreement is hereby deleted in its entirety and the following substituted in its stead: (b) The obligation of Lessor to purchase the Equipment from Lessee and to lease the same to Lessee shall be subject to receipt by Lessor, on or prior to the earlier of the Lease Commencement Date or Last Delivery Date therefor, of each of the following documents in form and substance satisfactory to Lessor: (i) a Schedule relating to the Equipment then to be leased hereunder, (ii) a Bill of Sale, in the form of Annex B to the applicable Schedule, transferring title to the Equipment to Lessor, (iii) evidence of insurance which complies with the requirements of Section X, and (iv) such other documents as Lessor may reasonably request. Simultaneously with the execution of the Bill of Sale, Lessee shall also execute a Certificate of Acceptance, in the form of Annex C to the applicable Schedule, covering all of the Equipment described in the Bill of Sale. 2. Section VI(a) shall be deleted and the following substituted in its stead: (a) The parties acknowledge that this is a sale/leaseback transaction and the Equipment is in Lessee's possession as of the Lease Commencement Date. 3. Section VII of the Lease is amended by adding the following as the third sentence in subsection (a): Lessee agrees that upon return of the Equipment, it will be in good condition and working order, giving consideration to reasonable wear and tear and the age of the Equipment. Lessee shall, if requested by Lessor and if reasonably possible, obtain a service report from the manufacturer attesting to such condition. 4. Each reference contained in this Agreement to: (a) "Adverse Environmental Condition" shall refer to (i) the existence or the continuation of the existence, of an Environmental Emission (including, without limitation, a sudden or non-sudden accidental or non-accidental Environmental Emission), of, or exposure to, any substance, chemical, material, pollutant, Contaminant, odor or audible noise or other release or emission in, into or onto the environment (including, without limitation, the air, ground, water or any surface) at, in, by, from or related to any Equipment from the time it leaves the Supplier's possession for delivery to lessee until the time it is delivered to Lessor, (ii) the environmental aspect of the transportation, storage, treatment or disposal of materials in connection with the operation of any Equipment by Lessee or Lessee's agents or (iii) the violation, or alleged violation by Lessee of any statutes, ordinances, orders, rules regulations, permits or licenses of, by or from any governmental authority, agency or court relating to environmental matters connected with any Equipment. (b) "Affiliate" shall refer, with respect to any given Person, to any Person that directly or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, such Person. (c) "Contaminant" shall refer to those substances which are regulated by or form the basis of liability under any Environmental Law, including, without limitation, asbestos, polychlorinated biphenyls ("PBCs"), and radioactive substances, or other material or substance which has in the past or could in the future constitute a health, safety or environmental hazard to any Person, property or natural resources. (d) "Environmental Claim" shall refer to any accusation, allegation, notice of violation, claim, demand, abatement or other order on direction (conditional or otherwise) by any governmental authority or any Person for person injury (including sickness, disease or death), tangible or intangible property damage, damage to the environment or other adverse effects on the environment, or for fines, penalties or restrictions, resulting from or based upon any Adverse Environmental Condition. (e) "Environmental Emission" shall refer to any actual or threatened release, spill, emission, leaking, pumping, injection, deposit, disposal, discharge, dispersal, leaching or migration into the indoor or outdoor environment, or into or out of any of the Equipment, including, without limitation, the movement of any Contaminant or other substance through or in the air, soil, surface water, groundwater or property. (f) "Environmental Law" shall mean any federal, foreign, state or local law, rule or regulation pertaining to the protection of the environment, including, but not limited to, the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") (42 U.S.C. Section 9601 et seq.), the Hazardous Material Transportation Act (49 U.S.C. Section 1801 et seq.), the Federal Water Pollution Control Act (33 U.S.C. Section 1251 et seq.), the Resource Conversation and Recovery Act (42 U.S.C. Section 6901 et seq.), the Clean Air Act (42 U.S.C. Section 7401 et seq.), the Toxic Substances Control Act (15 U.S.C. Section 2601 et seq.), the Federal Insecticide, Fungicide, and Rodenticide Act (7 U.S.C. Section 1361 et seq.), and the Occupational Safety and Health Act (19 U.S.C. section 651 et seq.), as these laws have been amended or supplemented, and any analogous foreign, federal, state or local statutes, and the regulation promulgated pursuant thereto. (g) "Environmental Loss" shall mean any loss, cost, damage, liability, deficiency, fine, penalty or expense (including without limitation, reasonable attorneys' fees, engineering and other professional or export fees), investigation, removal, cleanup and remedial costs (voluntarily or involuntarily incurred) and damages to, loss of the use of or decrease in value of the Equipment arising out of or related to any Adverse Environmental Condition. (h) "Person" shall include any individual, partnership, corporation, trust, unincorporated organization, government or department or agency thereof and any other entity. 5. Lessee shall fully and promptly pay, perform, discharge, defend, indemnify and hold harmless Lessor and its Affiliates, successors and assigns, directors, officers, employees and agents from and against any Environmental Claim or Environmental Loss. Defense and indemnification under this Section is conditioned upon Lessor giving Lessee timely written notice of any claim against which Lessor wishes to be indemnified hereunder (unless Lessee learns of any such claim from a third party, or unless Lessor does not learn of such claim until such time as Lessor, acting prudently on its own behalf, would be precluded from defending by applicable law or rules), and Lessor giving Lessee necessary and appropriate information and assistance in the defense of same. Lessee's obligation to pay or reimburse reasonable fees of counsel selected by Lessor to defend any such claim shall be conditioned upon Lessee'' approval of such counsel, which approval shall not be unreasonably withheld or delayed. Lessor shall provide Lessee with periodic status reports on the defense or settlement of such claim, upon Lessee's reasonable request, and Lessor shall seek Lessee's consent to any proposed settlement of such claim. If Lessee does not consent to a proposed settlement of a claim, it shall advise Lessor of its specific objections to the proposed settlement and shall identify with particularity the terms, if any, upon which it would consent to a settlement of the claim. If Lessor settles any such claim without Lessee's consent and Lessee objects to indemnifying Lessor for such settlement, then Lessor and Lessee agree to submit the question of the reasonableness of the settlement to binding arbitration. In such arbitration, the arbitrator shall be jointly selected by the parties (or, if they cannot agree on an arbitrator, one shall be selected according to the rules of the American Arbitration Association), and the arbitrator shall determine to what extent, if any, Lessee shall indemnify Lessor for both the settlement and any attorneys' fees incurred in connection with the defense and settlement of the claim. The decision of the arbitrator shall be final and binding upon both parties, and neither party shall seek recourse to a court of law or other authorities to appeal for revision of such decision or any other ruling of the arbitrator. The cost of the arbitration shall be borne by both parties in equal amounts. 6. ADDITIONS AND ALTERATIONS. Subject to the conditions set out in this paragraph, Lessor hereby agrees, if so requested by Lessee, to purchase alterations, additions or Features for the Equipment and lease them to Lessee under the same terms and conditions and with the same expiration date of the Initial Term as the applicable Equipment Schedule, ad at a periodic Rental Payment that shall be mutually satisfactory to Lessor and Lessee. Lessor's obligation to purchase and lease such alterations, additions or Features shall be conditioned on the following: no default hereunder by Lessee shall have occurred and be continuing; there shall have been no material adverse change (as determined by Lessor in its reasonable exercise of business judgment) in Lessee's financial condition or business prospects from the Commencement Date of the applicable Schedule; and such alterations, additions or Features shall be acceptable for acquisition and lease under Lessor's then standard business practices. Lessee may obtain financing for such alterations, additions or Features from third parties provided that (i) such alterations, additions or Features can be undone or removed without damaging or impairing the functionality, utility or value of the Equipment as compared to Equipment on which such alterations, additions or Features had never been installed, and (ii) such financing shall not in any event create a security interest in, or lien or other encumbrance on, Lessor's Equipment. 7. EARLY PURCHASE OPTION: (a) Provided that the Lease has not been earlier terminated and provided further that Lessee is not in default under the Lease or any other agreement between Lessor and Lessee, Lessee may, UPON AT LEAST 30 DAYS BUT NO MORE THAN 270 DAYS PRIOR WRITTEN NOTICE TO LESSOR OR LESSEE'S IRREVOCABLE ELECTION TO EXERCISE SUCH OPTION, purchase all (but not less than all) of the Equipment listed and described in this Schedule on the rent payment date (the "Early Purchase Date") which is 60 months from the Basic Term Commencement Date of the Schedule for a price equal to $391,484.27 (the "FMV Early Option Price"), plus all applicable sales taxes on an AS IS BASIS. Lessor and Lessee agree that the FMV Early Option Price is a reasonable prediction of the Fair Market Value (as such term is defined in Section XIX(b) hereof) of the Equipment at the time the option is exercisable. Lessor and Lessee agree that if Lessee makes any non-severable improvement to the Equipment which is not leased by Lessor to Lessee and which increases the value of the Equipment and is not required or permitted by Sections VII or XI of the Lease prior to lease expiration, then at the time of such option being exercised, Lessor and Lessee shall adjust the purchase price to reflect any addition to the price anticipated to result from such improvement. (The purchase option granted by this subsection shall be referred to herein as the "Early Purchase Option".) (b) If Lessee exercises its Early Purchase Option with respect to the Equipment leased hereunder, then on the Early Purchase Option Date, Lessee shall pay to Lessor any Rent and other sums due and unpaid on the Early Purchase Option Date and Lessee shall pay the FMV Early Option Price, plus all applicable sales taxes, to Lessor in cash. Except as expressly modified hereby, all terms and provisions of the Agreement shall remain in full force and effect. This Schedule is not binding or effective with respect to the Agreement or Equipment until executed on behalf of Lessor and Lessee by authorized representatives of Lessor and Lessee, respectively. IN WITNESS WHEREOF, Lessee and Lessor have caused this Schedule to be executed by their duly authorized representatives as of the date first above written. LESSEE: LESSOR: NATIONAL SEMICONDUCTOR GENERAL ELECTRIC CAPITAL CORPORATION CORPORATION By:_______________________________ By:_______________________________ __________________________________ __________________________________ (Typed or printed name and title) (Typed or printed name and title) . ADDENDUM NO, 01 TO SCHEDULE NO. 001,002,003,004,005,006,007&008 TO MASTER LEASE AGREEMENT DATED AS OF December 13, 1994 RETURN CONDITIONS - ELECTRONICS EQUIPMENT In addition to the provisions provided for in Section XI of the Lease, and provided that the Lessee has not elected its option to purchase the Equipment, Lessee shall, at its expense: (A) Upon the request of Lessor, Lessee shall no later than 180 days prior to the expiration or other termination of the lease provide: 1. a detailed inventory of the Equipment (including the model and serial number of each major component thereof), including, without limitation, all internal circuit boards, module boards, and software features; 2. a complete and current set of all manuals, blue prints, process flow diagram, equipment configuration diagrams, maintenance records and other data reasonably requested by Lessor concerning the configuration and operation of the Equipment; and (B) Upon the request of Lessor, Lessee shall, not later than 120 days prior to the expiration or other termination of the Lease make the Equipment available for on-site operational inspection by persons designated by the Lessor who shall be duly qualified to inspect the Equipment in its operational environment. (C) All Equipment shall be cleaned and treated with respect to rust, corrosion and appearance in accordance with manufacturer's recommendations and consistent with the best practices of dealers in used equipment similar to the Equipment; shall have no Lessee installed markings of labels which are not necessary for the operation, maintenance or repair of the Equipment, and shall be in compliance with all applicable government laws, rules and regulations. (D) The Equipment shall be de-installed and packed in accordance with manufacturer's recommendations. Without limitation, all internal fluids will either be drained and disposed of or filled and secured in accordance with manufacturer's recommendations and applicable government laws, rules and regulations. (E) The Equipment will be transported in accordance with manufacturer's recommendations and applicable government laws, rules and regulations to not more than one individual location within the continental United States selected by Lessor. LESSOR: LESSEE: GENERAL ELECTRIC CAPITAL NATIONAL SEMICONDUCTOR CORPORATION CORPORATION By:___________________________ By:__________________________ ANNEX A TO SCHEDULE NO. 003 TO MASTER LEASE AGREEMENT DATED AS OF DESCRIPTION OF EQUIPMENT
INVOICE VENDOR NAME # INV. DATE EQUIPMENT COST - ------------ --------- --------- ------------------------------------------------------------ --------------- Lam 172965 10/27/93 851-010003-101 Assembly System R4520 Oxide Etch System $ 1,066,575.00 Research SN#2736 and attachments and accessories described more fully Corp. on invoice #172965 attached hereto and made a part hereof Lam 179955 4/25/94 Spare Parts to 4520 System described more fully on invoice $ 38,732.10 Research #179955 attached hereto and made a part hereof. Corp. Lam 180409 5/4/94 Encoder Shaft Freight $ 561.54 $6.00 Research Corp. Lam 180170 4/28/94 Funnel, Quartz P.S. Module $ 3,523.10 Research Corp.
INVOICE COST: $1,109,397.74 Initials: --------------------------- ------------------------------ Lessor Lessee ANNEX B TO SCHEDULE NO. 003 TO MASTER LEASE AGREEMENT DATED AS OF December 13, 1994 BILL OF SALE National Semiconductor Corporation (the "Seller"), in consideration of the sum of One Million One Hundred Nine Thousand Three Hundred Ninety-seven Dollars and Seventy-four Cents Dollars ($1,109,397.74) plus sales taxes in the amount of zero Dollars ($00.00) (if exemption from sales tax is claimed, an exemption certificate must be furnished to Buyer herewith), paid by General Electric Capital Corporation (the "Buyer"), receipt of which is acknowledged, hereby grants, sells, assigns, transfers and delivers to Buyer the equipment (the "Equipment") described in the above schedule (said schedule and related lease being collectively referred to as "Lease"), along with whatever claims and rights Seller may have against the manufacturer and/or supplier of the Equipment (the "Supplier"), including but not limited to all warranties and representations. At Buyer's request, Seller will cause Supplier to execute the attached Acknowledgment. Buyer is purchasing the Equipment for leasing back to Seller pursuant to the Lease. Seller represents and warrants to Buyer that (1) Buyer will acquire by the terms of this Bill of Sale good title to the Equipment free from all liens and encumbrances whatsoever; (2) Seller has the right to sell the Equipment; and (3) the Equipment has been delivered to Seller in good order and condition, and conforms to the specifications, requirements and standards applicable thereto; and (4) the equipment has been accurately labeled, consistent with the requirements of 40 CFR part 82 Subpart E, with respect to products manufactured with a controlled (ozone-depleting) substance. Seller agrees to save and hold harmless Buyer from and against any and all federal, state, municipal and local license fees and taxes of any kind or nature, including, without limiting the generality of the foregoing, any and all excise, personal property, use and sales taxes, and from and against any and all liabilities, obligations, losses, damages, penalties, claims, actions and suits resulting therefrom and imposed upon, incurred by or asserted against Buyer as a consequence of the sale of the Equipment to Buyer. IN WITNESS WHEREOF, Seller has executed this Bill of Sale this thirteenth day of December ,1994. SELLER: National Semiconductor Corporation By:_____________________ Title: Assistant Treasurer ------------------------- - ------ ANNEX C TO SCHEDULE NO. 003 TO MASTER LEASE AGREEMENT DATED AS OF December 13, 1994 CERTIFICATE OF ACCEPTANCE To: General Electric Capital Corporation ("Lessor") Pursuant to the provisions of the above schedule and lease (collectively, the "Lease"), Lessee hereby certifies and warrants that (a) all Equipment listed in the related Bill of Sale is in good condition and appearance, installed (if applicable) and in working order; and (b) Lessee accepts the Equipment for all purposes of the Lease, the purchase documents and all attendant documents. Lessee does further certify that as of the date hereof (i) Lessee is not in default under the Lease; (ii) the representations and warranties made by Lessee pursuant to or under the Lease are true and correct on the date hereof and (iii) Lessee has reviewed and approves of the purchase documents for the Equipment, if any. DESCRIPTION OF EQUIPMENT Type and Manufacturer Serial Model of Number of Cost Per Numbers Equipment Units Unit See Annex A Attached hereto and Made A Part Hereof ______________________________ Authorized Representative Dated: December 13, 1994 ---------------------- - -------- ANNEX D TO SCHEDULE NO 003 TO MASTER LEASE AGREEMENT DATED AS OF December 13, 1994 STIPULATED LOSS AND TERMINATION VALUE TABLE* STIPULATED TERMINATION VALUE LOSS VALUE RENTAL PERCENTAGE PERCENTAGE - ------------- ------------------------- -------------- 1 103.793 107.820 2 103.116 107.157 3 102.431 106.485 4 101.733 105.800 5 101.021 105.102 6 100.296 104.391 7 99.558 103.666 8 98.811 102.933 9 98.051 102.186 10 97.277 101.426 11 96.496 100.658 12 95.700 99.876 13 94.891 99.080 14 94.074 98.276 15 93.248 97.464 16 92.413 96.643 17 91.569 95.812 18 90.715 94.972 19 89.853 94.123 20 88.982 93.265 21 88.101 92.398 22 87.211 91.522 23 86.313 90.637 24 85.405 89.742 25 84.487 88.838 26 83.561 87.926 27 82.626 87.005 28 81.685 86.077 29 80.736 85.142 30 79.781 84.200 31 78.818 83.251 32 77.847 82.293 33 76.869 81.328 34 75.883 80.356 35 74.889 79.375 36 73.888 78.388 37 72.877 77.390 38 71.544 76.071 39 70.199 74.739 40 68.846 73.400 STIPULATED TERMINATION VALUE LOSS VALUE RENTAL PERCENTAGE PERCENTAGE - ------------- ------------------------- -------------- 41 67.484 72.052 42 66.114 70.695 43 64.735 69.330 44 63.344 67.952 45 61.945 66.567 46 60.537 65.172 47 59.117 63.766 48 57.689 62.351 49 56.251 60.927 50 54.802 59.491 51 53.340 58.043 52 51.872 56.588 53 50.396 55.126 54 48.914 53.657 55 47.424 52.181 56 45.922 50.692 57 44.413 49.196 PAYMENT AUTHORIZATION General Electric Capital Corporation 2200 Powell Street Suite 600 Emeryville, CA 94608 You are hereby authorized to pay the proceeds from our sale to you of certain Equipment as evidenced on the attached Bill of Sale to the following parties in the amount(s) designated below. National Semiconductor $1,109,397.74 Corporation 2900 Semiconductor Drive Santa Clara, CA 95052-8090 For reimbursement of funds previously paid to various vendors for equipment plus attachments and accessories including labor described on Annex A attached hereto and made a part hereof. Very truly yours, National Semiconductor Corporation By: ------------------------------- Title: Assistant Treasurer --------------------------- Date: December 13, 1994 ---------------------------- CERTIFICATE CONCERNING PAYMENT OF PERSONAL PROPERTY TAXES To: General Electric Capital Corporation To insure Lessee's compliance with the provisions of a Master Lease Agreement dated as of December 13, 1994 (the "Lease") by and between the undersigned as Lessee and General Electric Capital Corporation as Lessor, Lessee hereby agrees to one of the following options with respect to the payment of personal property taxes on the Equipment described in Annex A to the Lease, such agreement to be conclusively evidenced by the initials and signature of an authorized agent of Lessee in the appropriate spaces provided below: Please choose one of the options below by placing an "X" in the appropriate box and initialing where indicated. Initial ONLY ONE Choice of Option OPTION 1 Lessee's Initials: (Applicable in Jurisdictions Requiring Lessor to List Equipment): Lessee agrees that it will not list any of such Equipment for property tax purposes or report any property tax assessed against such Equipment until otherwise directed in writing by Lessor. Upon receipt of any property tax bill pertaining to such Equipment from the appropriate taxing authority, Lessor will pay such tax and will invoice Lessee for the expense. Upon receipt of such invoice, Lessee will promptly reimburse Lessor for such expense; OPTION 2 Lessee's Initials: (Applicable in Jurisdictions Permitting Lessee to List Equipment): Lessee agrees that it will (a) list all such Equipment, (b) report all property taxes assessed against such Equipment and (c) pay all such taxes when due directly to the appropriate taxing authority until Lessor shall otherwise direct in writing. LESSEE: National Semiconductor Corporation By: ------------------------------- Title: Assistant Treasurer ---------------------------- Date: December 13, 1994 --------------------------- ELECTRONIC AND TEST EQUIPMENT SCHEDULE SCHEDULE NO. 004 DATED THIS DECEMBER 13, 1994 TO MASTER LEASE AGREEMENT DATED AS OF DECEMBER 13, 1994 Lessor & Mailing Address: Lessee & Mailing Address: General Electric Capital National Semiconductor Corporation Corporation 2200 Powell Street, Suite 600 2900 Semiconductor Drive Emeryville, CA 94608 Santa Clara, CA 95052 Capitalized terms not defined shall have the meanings assigned to them in the Master Lease Agreement identified above ("Agreement"; said Agreement and this Schedule being collectively referred to as "Lease"). A. Equipment Pursuant to the terms of the Lease, Lessor agrees to acquire and lease to Lessee the Equipment listed on Annex A attached hereto and made a part hereof. B. Financial Terms 1. Advance Rent (if any): $16,503.52 2. Capitalized Lessor's Cost: $1,178,831.45 3. Basic Term Lease Rate Factor: Mons. 1-36 1.39999, Mons. 37-72 1.71079 4. Daily Lease Rate Factor: Mons. 1-36 .04667, Mons. 37-72 .05703 5. Basic Term (No. of Months): 72 6. Basic Term Commencement Date: 01/03/95 7. Equipment Location: 333 Western Avenue, South Portland, ME 8. Lessee Federal Tax ID No.: 952095071 9. Last Delivery Date: 10. First Termination Date: Sixty (60) months after the Basic Term Commence Date. C. Tax Benefits Depreciation Deductions: a. Depreciation Methods (check one): X The 200% declining balance method, switching to straight line method for the 1st taxable year for which using the straight line method with respect to the adjusted basis as of the beginning of such year will yield a larger allowance; OR ____ The method determined by applying to the unadjusted basis the applicable percentages set forth in Section 168(b)(1) of the Code, as in effect prior to the adoption of the Tax Reform Act of 1986. b. Recovery Period: Five Years ------------------------------ c. Basis: 100% of Capitalized Lessor's Cost. --------------- D. Rent 1. Interim Rent. For the period from and including the Lease Commence Date to the Basic Term Commencement Date ("Interim Period"), Lessee shall pay as rent ("Interim Rent") for each unit of Equipment, an amount equal to (a) the product of the "Prime Rate" as published in the "Money Rates" column of the Wall Street Journal, Western Edition, on the business day preceding the Acceptance Date, times the Capitalized Lessor's Cost of such unit times the number of days in the Interim Period, divided by (b) 360. Interim Rent shall be on 12/13/94 . 2. Basic Term Rent. Commencing on 01/03/95 and on the same day of each month thereafter (each, a "Rent Payment Date") during the Basic Term, Lessee shall pay as rent ("Basic Term Rent") the product of the Basic Term Lease Rate Factor times the Capitalized Lessor's Cost of all Equipment on this Schedule. 3. [Deleted] E. Insurance 1. Public Liability: $1,000,000 total liability per occurrence. 2. Casualty and Property Damage: An amount equal to the higher of the Stipulated Loss Value or the full replacement cost of the Equipment. F. Modifications and Additions to Lease For purposes of this Schedule only, the Agreement is amended as follows: 1. Section I(b) of the Agreement is hereby deleted in its entirety and the following substituted in its stead: (b) The obligation of Lessor to purchase the Equipment from Lessee and to lease the same to Lessee shall be subject to receipt by Lessor, on or prior to the earlier of the Lease Commence Date or Last Delivery Date therefor, of each of the following documents in form and substance satisfactory to Lessor: (i) a Schedule relating to the Equipment then to be leased hereunder, (ii) a Bill of Sale, in the form of Annex B to the applicable Schedule, transferring title to the Equipment to Lessor, (iii) evidence of insurance which complies with the requirements of Section X, and (iv) such other documents as Lessor may reasonably request. Simultaneously with the execution of the Bill of Sale, Lessee shall also execute a Certificate of Acceptance, in the form of Annex C to the applicable Schedule, covering all of the Equipment described in the Bill of Sale. 2. Section VI(a) shall be deleted and the following substituted in its stead: (a) The parties acknowledge that this is a sale/leaseback transaction and the Equipment is in Lessee's possession as of the Lease Commencement Date. 3. Section VII of the Lease is amended by adding the following as the third sentence in subsection (a): Lessee agrees that upon return of the Equipment, it will be in good condition and working order, giving consideration to reasonable wear and tear and the age of the Equipment. Lessee shall, if requested by Lessor and if reasonably possible, obtain a service report from the manufacturer attesting to such condition. 4. Each reference contained in this Agreement to: (a) "Adverse Environmental Condition" shall refer to (i) the existence or the continuation of the existence, of an Environmental Emission (including, without limitation, a sudden or non-sudden accidental or non-accidental Environmental Emission), of, or exposure to, any substance, chemical, material, pollutant, Contaminant, odor or audible noise or other release or emission in, into or onto the environment (including, without limitation, the air, ground, water or any surface) at, in, by, from or related to any Equipment from the time it leaves the Supplier's possession for delivery to lessee until the time it is delivered to Lessor, (ii) the environmental aspect of the transportation, storage, treatment or disposal of materials in connection with the operation of any Equipment by Lessee or Lessee's agents or (iii) the violation, or alleged violation by Lessee of any statutes, ordinances, orders, rules regulations, permits or licenses of, by or from any governmental authority, agency or court relating to environmental matters connected with any Equipment. (b) "Affiliate" shall refer, with respect to any given Person, to any Person that directly or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, such Person. (c) "Contaminant" shall refer to those substances which are regulated by or from the basis of liability under any Environmental Law, including, without limitation, asbestos, polychlorinated biphenyls ("PBCs"), and radioactive substances, or other material or substance which has in the past or could in the future constitute a health, safety or environmental hazard to any Person, property or natural resources. (d) "Environmental Claim" shall refer to any accusation, allegation, notice of violation, claim, demand, abatement or other order on direction (conditional or otherwise) by any governmental authority or any Person for person injury (including sickness, disease or death), tangible or intangible property damage, damage to the environment or other adverse effects on the environment, or for fines, penalties or restrictions, resulting from or based upon any Adverse Environmental Condition. (e) "Environmental Emission" shall refer to any actual or threatened release, spill, emission, leaking, pumping, injection, deposit, disposal, discharge, dispersal, leaching or migration into the indoor or outdoor environment, or into or out of any of the Equipment, including, without limitation, the movement of any Contaminant or other substance through or in the air, soil, surface water, groundwater or property. (f) "Environmental Law" shall mean any federal, foreign, state or local law, rule or regulation pertaining to the protection of the environment, including, but not limited to, the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") (42 U.S.C. Section 9601 et seq.), the Hazardous Material Transportation Act (49 U.S.C. Section 1801 et seq.), the Federal Water Pollution Control Act (33 U.S.C. Section 1251 et seq.), the Resource Conversation and Recovery Act (42 U.S.C. Section 6901 et seq.), the Clean Air Act (42 U.S.C. Section 7401 et seq.), the Toxic Substances Control Act (15 U.S.C. Section 2601 et seq.), the Federal Insecticide, Fungicide, and Rodenticide Act (7 U.S.C. Section 1361 et seq.), and the Occupational Safety and Health Act (19 U.S.C. section 651 et seq.), as these laws have been amended or supplemented, and any analogous foreign, federal, state or local statutes, and the regulation promulgated pursuant thereto. (g) "Environmental Loss" shall mean any loss, cost, damage, liability, deficiency, fine, penalty or expense (including without limitation, reasonable attorneys' fees, engineering and other professional or export fees), investigation, removal, cleanup and remedial costs (voluntarily or involuntarily incurred) and damages to, loss of the use of or decrease in value of the Equipment arising out of or related to any Adverse Environmental Condition. (h) "Person" shall include any individual, partnership, corporation, trust, unincorporated organization, government or department or agency thereof and any other entity. 5. Lessee shall fully and promptly pay, perform, discharge, defend, indemnify and hold harmless Lessor and its Affiliates, successors and assigns, directors, officers, employees and agents from and against any Environmental Claim or Environmental Loss. Defense and indemnification under this Section is conditioned upon Lessor giving Lessee timely written notice of any claim against which Lessor wishes to be indemnified hereunder (unless Lessee learns of any such claim from a third party, or unless Lessor does not learn of such claim until such time as Lessor, acting prudently on its own behalf, would be precluded from defending by applicable law or rules), and Lessor giving Lessee necessary and appropriate information and assistance in the defense of same. Lessee's obligation to pay or reimburse reasonable fees of counsel selected by Lessor to defend any such claim shall be conditioned upon Lessee's approval of such counsel, which approval shall not be unreasonably withheld or delayed. Lessor shall provide Lessee with periodic status reports on the defense or settlement of such claim, upon Lessee's reasonable request, and Lessor shall seek Lessee's consent to any proposed settlement of such claim. If Lessee does not consent to a proposed settlement of a claim, it shall advise Lessor of its specific objections to the proposed settlement and shall identify with particularity the terms, if any, upon which it would consent to a settlement of the claim. If Lessor settles any such claim without Lessee's consent and Lessee objects to indemnifying Lessor for such settlement, then Lessor and Lessee agree to submit the question of the reasonableness of the settlement to binding arbitration. In such arbitration, the arbitrator shall be jointly selected by the parties (or, if they cannot agree on an arbitrator, one shall be selected according to the rules of the American Arbitration Association), and the arbitrator shall determine to what extent, if any, Lessee shall indemnify Lessor for both the settlement and any attorneys' fees incurred in connection with the defense and settlement of the claim. The decision of the arbitrator shall be final and binding upon both parties, and neither party shall seek recourse to a court of law or other authorities to appeal for revision of such decision or any other ruling of the arbitrator. The cost of the arbitration shall be borne by both parties in equal amounts. 6. ADDITIONS AND ALTERATIONS. Subject to the conditions set out in this paragraph, Lessor hereby agrees, if so requested by Lessee, to purchase alterations, additions or Features for the Equipment and lease them to Lessee under the same terms and conditions and with the same expiration date of the Initial Term as the applicable Equipment Schedule, ad at a periodic Rental Payment that shall be mutually satisfactory to Lessor and Lessee. Lessor's obligation to purchase and lease such alterations, additions or Features shall be conditioned on the following: no default hereunder by Lessee shall have occurred and be continuing; there shall have been no material adverse change (as determined by Lessor in its reasonable exercise of business judgment) in Lessee's financial condition or business prospects from the Commencement Date of the applicable Schedule; and such alterations, additions or Features shall be acceptable for acquisition and lease under Lessor's then standard business practices. Lessee may obtain financing for such alterations, additions or Features from third parties provided that (i) such alterations, additions or Features can be undone or removed without damaging or impairing the functionality, utility or value of the Equipment as compared to Equipment on which such alterations, additions or Features had never been installed, and (ii) such financing shall not in any event create a security interest in, or lien or other encumbrance on, Lessor's Equipment. 7. EARLY PURCHASE OPTION: (a) Provided that the Lease has not been earlier terminated and provided further that Lessee is not in default under the Lease or any other agreement between Lessor and Lessee, Lessee may, UPON AT LEAST 30 DAYS BUT NO MORE THAN 270 DAYS PRIOR WRITTEN NOTICE TO LESSOR OR LESSEE'S IRREVOCABLE ELECTION TO EXERCISE SUCH OPTION, purchase all (but not less than all) of the Equipment listed and described in this Schedule on the rent payment date (the "Early Purchase Date") which is 60 months from the Basic Term Commencement Date of the Schedule for a price equal to $ 415,986.04 (the "FMV Early Option Price"), plus all applicable sales taxes on an AS IS BASIS. Lessor and Lessee agree that the FMV Early Option Price is a reasonable prediction of the Fair Market Value (as such term is defined in Section XIX(b) hereof) of the Equipment at the time the option is exercisable. Lessor and Lessee agree that if Lessee makes any non-severable improvement to the Equipment which is not leased by Lessor to Lessee and which increases the value of the Equipment and is not required or permitted by Sections VII or XI of the Lease prior to lease expiration, then at the time of such option being exercised, Lessor and Lessee shall adjust the purchase price to reflect any addition to the price anticipated to result from such improvement. (The purchase option granted by this subsection shall be referred to herein as the "Early Purchase Option".) (b) If Lessee exercises its Early Purchase Option with respect to the Equipment leased hereunder, then on the Early Purchase Option Date, Lessee shall pay to Lessor any Rent and other sums due and unpaid on the Early Purchase Option Date and Lessee shall pay the FMV Early Option Price, plus all applicable sales taxes, to Lessor in cash. Except as expressly modified hereby, all terms and provisions of the Agreement shall remain in full force and effect. This Schedule is not binding or effective with respect to the Agreement or Equipment until executed on behalf of Lessor and Lessee by authorized representatives of Lessor and Lessee, respectively. IN WITNESS WHEREOF, Lessee and Lessor have caused this Schedule to be executed by their duly authorized representatives as of the date first above written. LESSEE: LESSOR: NATIONAL SEMICONDUCTOR GENERAL ELECTRIC CAPITAL CORPORATION CORPORATION By:_______________________________ By:_______________________________ __________________________________ __________________________________ (Typed or printed name and title) (Typed or printed name and title) ADDENDUM NO, 01 TO SCHEDULE NO. 001,002,003,004,005,006,007&008 TO MASTER LEASE AGREEMENT DATED AS OF December 13, 1994 RETURN CONDITIONS - ELECTRONICS EQUIPMENT In addition to the provisions provided for in Section XI of the Lease, and provided that the Lessee has not elected its option to purchase the Equipment, Lessee shall,. at its expense: (A) Upon the request of Lessor, Lessee shall no later than 180 days prior to the expiration or other termination of the lease provide: 1. a detailed inventory of the Equipment (including the model and serial number of each major component thereof), including, without limitation, all internal circuit boards, module boards, and software features; 2. a complete and current set of all manuals, blue prints, process flow diagram, equipment configuration diagrams, maintenance records and other data reasonably requested by Lessor concerning the configuration and operation of the Equipment; and (B) Upon the request of Lessor, Lessee shall, not later than 120 days prior to the expiration or other termination of the Lease make the Equipment available for on-site operational inspection by persons designated by the Lessor who shall be duly qualified to inspect the Equipment in its operational environment. (C) All Equipment shall be cleaned and treated with respect to rust, corrosion and appearance in accordance with manufacturer's recommendations and consistent with the best practices of dealers in used equipment similar to the Equipment; shall have no Lessee installed markings of labels which are not necessary for the operation, maintenance or repair of the Equipment, and shall be in compliance with all applicable government laws, rules and regulations. (D) The Equipment shall be de-installed and packed in accordance with manufacturer's recommendations. Without limitation, all internal fluids will either be drained and disposed of or filled and secured in accordance with manufacturer's recommendations and applicable government laws, rules and regulations. (E) The Equipment will be transported in accordance with manufacturer's recommendations and applicable government laws, rules and regulations to not more than one individual location within the continental United States selected by Lessor. LESSOR: LESSEE: GENERAL ELECTRIC CAPITAL NATIONAL SEMICONDUCTOR CORPORATION CORPORATION By:__________________________ By:_________________________ ANNEX A TO SCHEDULE NO. 004 TO MASTER LEASE AGREEMENT DATED AS OF DESCRIPTION OF EQUIPMENT
INVOICE INV. VENDOR NAME # DATE EQUIPMENT COST - ------------- --------- --------- ------------------------------------------------------------ --------------- Lam Research 183107 6/30/94 850-010000-151 R4520S Oxide Etch System SN#2953 and $ 1,058,898.75 Corp. attachments and accessories described more fully on invoice #183107 attached hereto and made a part hereof. Freight: $ 2,719.53 Lam Research 187044 9/21/94 Ring Filler $ 4,180.00 Corp. Lam Res. 187077 9/23/94 (2) Silicon 6" Electrodes $ 11,450.00 Corp. Lam Res. 187947 10/10/9 4 Quartz Funnel, 8.12 Dim. $ 4,325.00 Corp. Lam Research 187519 9/30/94 Spare Parts and attachments and accessories described more $ 30,044.00 Corp. fully on invoice #187519 attached hereto and made a part hereof. Ebara Tec h. 105987 8/8/94 40x20 Dry Pump, Plugs/Cords $ 21,165.00 Inc. Freight $ 196.62 Ebara Tec h. 106006 8/10/94 80, 280V 4520S 4520I $ 38,080.00 Inc. Freight $ 329.07 Ebara Tec h. 106001 8/10/94 Cont. PNL, 208V, 80, 4040, LAM4520S $ 7,404.00 Inc. Freight $ 39.48
INVOICE COST: $1,178,831.45 Initials: ------------------------- ------------------------------ Lessor Lessee ANNEX B TO SCHEDULE NO. 004 TO MASTER LEASE AGREEMENT DATED AS OF December 13, 1994 BILL OF SALE National Semiconductor Corporation (the "Seller"), in consideration of the sum of One Million One Hundred Seventy-eight Thousand Eight Hundred Thirty-one Dollars and Forty-five Cents Dollars ($1,178,831.45) plus sales taxes in the amount of zero Dollars ($00.00) (if exemption from sales tax is claimed, an exemption certificate must be furnished to Buyer herewith), paid by General Electric Capital Corporation (the "Buyer"), receipt of which is acknowledged, hereby grants, sells, assigns, transfers and delivers to Buyer the equipment (the "Equipment") described in the above schedule (said schedule and related lease being collectively referred to as "Lease"), along with whatever claims and rights Seller may have against the manufacturer and/or supplier of the Equipment (the "Supplier"), including but not limited to all warranties and representations. At Buyer's request, Seller will cause Supplier to execute the attached Acknowledgment. Buyer is purchasing the Equipment for leasing back to Seller pursuant to the Lease. Seller represents and warrants to Buyer that (1) Buyer will acquire by the terms of this Bill of Sale good title to the Equipment free from all liens and encumbrances whatsoever; (2) Seller has the right to sell the Equipment; and (3) the Equipment has been delivered to Seller in good order and condition, and conforms to the specifications, requirements and standards applicable thereto; and (4) the equipment has been accurately labeled, consistent with the requirements of 40 CFR part 82 Subpart E, with respect to products manufactured with a controlled (ozone-depleting) substance. Seller agrees to save and hold harmless Buyer from and against any and all federal, state, municipal and local license fees and taxes of any kind or nature, including, without limiting the generality of the foregoing, any and all excise, personal property, use and sales taxes, and from and against any and all liabilities, obligations, losses, damages, penalties, claims, actions and suits resulting therefrom and imposed upon, incurred by or asserted against Buyer as a consequence of the sale of the Equipment to Buyer. IN WITNESS WHEREOF, Seller has executed this Bill of Sale this thirteenth day of December ,1994. SELLER: National Semiconductor Corporation By:_______________________ Title: Assistant Treasurer ------------------------ - ----- ANNEX C TO SCHEDULE NO. 004 TO MASTER LEASE AGREEMENT DATED AS OF December 13, 1994 CERTIFICATE OF ACCEPTANCE To: General Electric Capital Corporation ("Lessor") Pursuant to the provisions of the above schedule and lease (collectively, the "Lease"), Lessee hereby certifies and warrants that (a) all Equipment listed in the related Bill of Sale is in good condition and appearance, installed (if applicable) and in working order; and (b) Lessee accepts the Equipment for all purposes of the Lease, the purchase documents and all attendant documents. Lessee does further certify that as of the date hereof (i) Lessee is not in default under the Lease; (ii) the representations and warranties made by Lessee pursuant to or under the Lease are true and correct on the date hereof and (iii) Lessee has reviewed and approves of the purchase documents for the Equipment, if any. DESCRIPTION OF EQUIPMENT Type and Manufacture Serial Model of Number of Cost Per Numbers Equipment Units Unit See Annex A Attached hereto and Made A Part Hereof _____________________________ Authorized Representative Dated: December 13, 1994 --------------------- ANNEX D TO SCHEDULE NO 004 TO MASTER LEASE AGREEMENT DATED AS OF December 13, 1994 STIPULATED LOSS AND TERMINATION VALUE TABLE* TERMINATION VALUE STIPULATED LOSS VALUE RENTAL PERCENTAGE PERCENTAGE - ------------- ---------------------- -------------------------- 1 103.793 107.820 2 103.116 107.157 3 102.431 106.485 4 101.733 105.800 5 101.021 105.102 6 100.296 104.391 7 99.558 103.666 8 98.811 102.933 9 98.051 102.186 10 97.277 101.426 11 96.496 100.658 12 95.700 99.876 13 94.891 99.080 14 94.074 98.276 15 93.248 97.464 16 92.413 96.643 17 91.569 95.812 18 90.715 94.972 19 89.853 94.123 20 88.982 93.265 21 88.101 92.398 22 87.211 91.522 23 86.313 90.637 24 85.405 89.742 25 84.487 88.838 26 83.561 87.926 27 82.626 87.005 28 81.685 86.077 29 80.736 85.142 30 79.781 84.200 31 78.818 83.251 32 77.847 82.293 33 76.869 81.328 34 75.883 80.356 35 74.889 79.375 36 73.888 78.388 37 72.877 77.390 38 71.544 76.071 39 70.199 74.739 40 68.846 73.400 41 67.484 72.052 TERMINATION VALUE STIPULATED LOSS VALUE RENTAL PERCENTAGE PERCENTAGE - ------------- ---------------------- -------------------------- 42 66.114 70.695 43 64.735 69.330 44 63.344 67.952 45 61.945 66.567 46 60.537 65.172 47 59.117 63.766 48 57.689 62.351 49 56.251 60.927 50 54.802 59.491 51 53.340 58.043 52 51.872 56.588 53 50.396 55.126 54 48.914 53.657 55 47.424 52.181 56 45.922 50.692 57 44.413 49.196 cont. PAYMENT AUTHORIZATION General Electric Capital Corporation 2200 Powell Street Suite 600 Emeryville, CA 94608 You are hereby authorized to pay the proceeds from our sale to you of certain Equipment as evidenced on the attached Bill of Sale to the following parties in the amount(s) designated below. National Semiconductor $1,178,831.45 Corporation 2900 Semiconductor Drive Santa Clara, CA 95052-8090 For reimbursement of funds previously paid to various vendors for equipment plus attachments and accessories including labor described on Annex A attached hereto and made a part hereof. Very truly yours, National Semiconductor Corporation By: -------------------------------- Title: Assistant Treasurer ----------------------------- Date: December 13, 1994 ------------------------------ CERTIFICATE CONCERNING PAYMENT OF PERSONAL PROPERTY TAXES To: General Electric Capital Corporation To insure Lessee's compliance with the provisions of a Master Lease Agreement dated as of December 13, 1994 (the "Lease") by and between the undersigned as Lessee and General Electric Capital Corporation as Lessor, Lessee hereby agrees to one of the following options with respect to the payment of personal property taxes on the Equipment described in Annex A to the Lease, such agreement to be conclusively evidenced by the initials and signature of an authorized agent of Lessee in the appropriate spaces provided below: Please choose one of the options below by placing an "X" in the appropriate box and initialing where indicated. Initial ONLY ONE Choice of Option OPTION 1 Lessee's Initials: (Applicable in Jurisdictions Requiring Lessor to List Equipment): Lessee agrees that it will not list any of such Equipment for property tax purposes or report any property tax assessed against such Equipment until otherwise directed in writing by Lessor. Upon receipt of any property tax bill pertaining to such Equipment from the appropriate taxing authority, Lessor will pay such tax and will invoice Lessee for the expense. Upon receipt of such invoice, Lessee will promptly reimburse Lessor for such expense; OPTION 2 Lessee's Initials: (Applicable in Jurisdictions Permitting Lessee to List Equipment): Lessee agrees that it will (a) list all such Equipment, (b) report all property taxes assessed against such Equipment and (c) pay all such taxes when due directly to the appropriate taxing authority until Lessor shall otherwise direct in writing. LESSEE: National Semiconductor Corporation By: ------------------------------- Title: Assistant Treasurer ---------------------------- Date: December 13, 1994 ----------------------------- ELECTRONIC AND TEST EQUIPMENT SCHEDULE SCHEDULE NO. 005 DATED THIS DECEMBER 13, 1994 TO MASTER LEASE AGREEMENT DATED AS OF DECEMBER 13, 1994 Lessor & Mailing Address: Lessee & Mailing Address: General Electric Capital National Semiconductor Corporation Corporation 2200 Powell Street, Suite 600 2900 Semiconductor Drive Emeryville, CA 94608 Santa Clara, CA 95052 Capitalized terms not defined herein shall have the meanings assigned to them in the Master Lease Agreement identified above ("Agreement"; said Agreement and this Schedule being collectively referred to as "Lease"). A. Equipment Pursuant to the terms of the Lease, Lessor agrees to acquire and lease to Lessee the Equipment listed on Annex A attached hereto and made a part hereof. B. Financial Terms 1. Advance Rent (if any): $15,318.40 2. Capitalized Lessor's Cost: $1,078,009.08 3. Basic Term Lease Rate Factor: Mons. 1-36 1.42099, Mons. 37-72 1.73644 4. Daily Lease Rate Factor: Mons. 1-36 .04737, Mons. 37-72 .05788 5. Basic Term (No. of Months): 72 6. Basic Term Commencement Date: 01/03/95 7. Equipment Location: 333 Western Avenue, South Portland, ME 8. Lessee Federal Tax ID No.: 952095071 9. Last Delivery Date: 10. First Termination Date: Sixty (60) months after the Basic Term Commence Date. C. Tax Benefits Depreciation Deductions: a. Depreciation Methods (check one): X The 200% declining balance method, switching to straight line method for the 1st taxable year for which using the straight line method with respect to the adjusted basis as of the beginning of such year will yield a larger allowance; OR ____ The method determined by applying to the unadjusted basis the applicable percentages set forth in Section 168(b)(1) of the Code, as in effect prior to the adoption of the Tax Reform Act of 1986. b. Recovery Period: Five Years c. Basis: 100% of Capitalized Lessor's Cost. D. Rent 1. Interim Rent. For the period from and including the Lease Commencement Date to the Basic Term Commencement Date ("Interim Period"), Lessee shall pay as rent ("Interim Rent") for each unit of Equipment, an amount equal to (a) the product of the "Prime Rate" as published in the "Money Rates" column of the Wall Street Journal, Western Edition, on the business day preceding the Acceptance Date, times the Capitalized Lessor's Cost of such unit times the number of days in the Interim Period, divided by (b) 360. Interim Rent shall be on 12/13/94 . 2. Basic Term Rent. Commencing on 01/03/95 and on the same day of each month thereafter (each, a "Rent Payment Date") during the Basic Term, Lessee shall pay as rent ("Basic Term Rent") the product of the Basic Term Lease Rate Factor times the Capitalized Lessor's Cost of all Equipment on this Schedule. 3. [Deleted] E. Insurance 1. Public Liability: $1,000,000 total liability per occurrence. 2. Casualty and Property Damage: An amount equal to the higher of the Stipulated Loss Value or the full replacement cost of the Equipment. F. Modifications and Additions to Lease For purposes of this Schedule only, the Agreement is amended as follows: 1. Section I(b) of the Agreement is hereby deleted in its entirety and the following substituted in its stead: (b) The obligation of Lessor to purchase the Equipment from Lessee and to lease the same to Lessee shall be subject to receipt by Lessor, on or prior to the earlier of the Lease Commence Date or Last Delivery Date therefor, of each of the following documents in form and substance satisfactory to Lessor: (i) a Schedule relating to the Equipment then to be leased hereunder, (ii) a Bill of Sale, in the form of Annex B to the applicable schedule, transferring title to the Equipment to Lessor, (iii) evidence of insurance which complies with the requirements of Section X, and (iv) such other documents as Lessor may reasonably request. Simultaneously with the execution of the Bill of Sale, Lessee shall also execute a Certificate of Acceptance, in the form of Annex C to the applicable Schedule, covering all of the Equipment described in the Bill of Sale. 2. Section VI(a) shall be deleted and the following substituted in its stead: (a) The parties acknowledge that this is a sale/leaseback transaction and the Equipment is in Lessee's possession as of the Lease Commencement Date. 3. Section VII of the Lease is amended by adding the following as the third sentence in subsection (a): Lessee agrees that upon return of the Equipment, it will be in good condition and working order, giving consideration to reasonable wear and tear and the age of the Equipment. Lessee shall, if requested by Lessor and if reasonably possible, obtain a service report from the manufacturer attesting to such condition. 4. Each reference contained in this Agreement to: (a) "Adverse Environmental Condition" shall refer to (i) the existence or the continuation of the existence, of an Environmental Emission (including, without limitation, a sudden or non-sudden accidental or non-accidental Environmental Emission), of, or exposure to, any substance, chemical, material, pollutant, Contaminant, odor or audible noise or other release or emission in, into or onto the environment (including, without limitation, the air, ground, water or any surface) at, in, by, from or related to any Equipment from the time it leaves the Supplier's possession for delivery to lessee until the time it is delivered to Lessor, (ii) the environmental aspect of the transportation, storage, treatment or disposal of materials in connection with the operation of any Equipment by Lessee or Lessee's agents or (iii) the violation, or alleged violation by Lessee of any statutes, ordinances, orders, rules regulations, permits or licenses of, by or from any governmental authority, agency or court relating to environmental matters connected with any Equipment. (b) "Affiliate" shall refer, with respect to any given Person, to any Person that directly or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, such Person. (c) "Contaminant" shall refer to those substances which are regulated by or from the basis of liability under any Environmental Law, including, without limitation, asbestos, polychlorinated biphenyls ("PBCs"), and radioactive substances, or other material or substance which has in the past or could in the future constitute a health, safety or environmental hazard to any Person, property or natural resources. (d) "Environmental Claim" shall refer to any accusation, allegation, notice of violation, claim, demand, abatement or other order on direction (conditional or otherwise) by any governmental authority or any Person for person injury (including sickness, disease or death), tangible or intangible property damage, damage to the environment or other adverse effects on the environment, or for fines, penalties or restrictions, resulting from or based upon any Adverse Environmental Condition. (e) "Environmental Emission" shall refer to any actual or threatened release, spill, emission, leaking, pumping, injection, deposit, disposal, discharge, dispersal, leaching or migration into the indoor or outdoor environment, or into or out of any of the Equipment, including, without limitation, the movement of any Contaminant or other substance through or in the air, soil, surface water, groundwater or property. (f) "Environmental Law" shall mean any federal, foreign, state or local law, rule or regulation pertaining to the protection of the environment, including, but not limited to, the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") (42 U.S.C. Section 9601 et seq.), the Hazardous Material Transportation Act (49 U.S.C. Section 1801 et seq.), the Federal Water Pollution Control Act (33 U.S.C. Section 1251 et seq.), the Resource Conservation and Recovery Act (42 U.S.C. Section 6901 et seq.), the Clean Air Act (42 U.S.C. Section 7401 et seq.), the Toxic Substances Control Act (15 U.S.C. Section 2601 et seq.), the Federal Insecticide, Fungicide, and Rodenticide Act (7 U.S.C. Section 1361 et seq.), and the Occupational Safety and Health Act (19 U.S.C. section 651 et seq.), as these laws have been amended or supplemented, and any analogous foreign, federal, state or local statutes, and the regulation promulgated pursuant thereto. (g) "Environmental Loss" shall mean any loss, cost, damage, liability, deficiency, fine, penalty or expense (including without limitation, reasonable attorneys' fees, engineering and other professional or expert fees), investigation, removal, cleanup and remedial costs (voluntarily or involuntarily incurred) and damages to, loss of the use of or decrease in value of the Equipment arising out of or related to any Adverse Environmental Condition. (h) "Person" shall include any individual, partnership, corporation, trust, unincorporated organization, government or department or agency thereof and any other entity. 5. Lessee shall fully and promptly pay, perform, discharge, defend, indemnify and hold harmless Lessor and its Affiliates, successors and assigns, directors, officers, employees and agents from and against any Environmental Claim or Environmental Loss. Defense and indemnification under this Section is conditioned upon Lessor giving Lessee timely written notice of any claim against which Lessor wishes to be indemnified hereunder (unless Lessee learns of any such claim from a third party, or unless Lessor does not learn of such claim until such time as Lessor, acting prudently on its own behalf, would be precluded from defending by applicable law or rules), and Lessor giving Lessee necessary and appropriate information and assistance in the defense of same. Lessee's obligation to pay or reimburse reasonable fees of counsel selected by Lessor to defend any such claim shall be conditioned upon Lessee's approval of such counsel, which approval shall not be unreasonably withheld or delayed. Lessor shall provide Lessee with periodic status reports on the defense or settlement of such claim, upon Lessee's reasonable request, and Lessor shall seek Lessee's consent to a proposed settlement of a claim. If Lessee does not consent a proposed settlement of a claim, it shall advise Lessor of its specific objections to the proposed settlement and shall identify with particularity the terms, if any, upon which it would consent to a settlement of the claim. If Lessor settles any such claim without Lessee's consent and Lessee objects to indemnifying Lessor for such settlement, then Lessor and Lessee agree to submit the question of the reasonableness of the settlement to binding arbitration. In such arbitration, the arbitrator shall be jointly selected by the parties (or, if they cannot agree on an arbitrator, one shall be selected according to the rules of the American Arbitration Association), and the arbitrator shall determine to what extent, if any, Lessee shall indemnify Lessor for both the settlement and any attorneys' fees incurred in connection with the defense and settlement of the claim. The decision of the arbitrator shall be final and binding upon both parties, and neither party shall seek recourse to a court of law or other authorities to appeal for revision of such decision or any other ruling of the arbitrator. The cost of the arbitration shall be borne by both parties in equal amounts. 6. ADDITIONS AND ALTERATIONS. Subject to the conditions set out in this paragraph, Lessor hereby agrees, if so requested by Lessee, to purchase alterations, additions or Features for the Equipment and lease them to Lessee under the same terms and conditions and with the same expiration date of the Initial Term as the applicable Equipment Schedule, ad at a periodic Rental Payment that shall be mutually satisfactory to Lessor and Lessee. Lessor's obligation to purchase and lease such alterations, additions or Features shall be conditioned on the following: no default hereunder by Lessee shall have occurred and be continuing; there shall have been no material adverse change (as determined by Lessor in its reasonable exercise of business judgment) in Lessee's financial condition or business prospects from the Commencement Date of the applicable Schedule; and such alterations, additions or Features shall be acceptable for acquisition and lease under Lessor's then standard business practices. Lessee may obtain financing for such alterations, additions or Features from third parties provided that (i) such alterations, additions or Features can be undone or removed without damaging or impairing the functionality, utility or value of the Equipment as compared to Equipment on which such alterations, additions or Features had never been installed, and (ii) such financing shall not in any event create a security interest in, or lien or other encumbrance on, Lessor's Equipment. 7. EARLY PURCHASE OPTION: (a) Provided that the Lease has not been earlier terminated and provided further that Lessee is not in default under the Lease or any other agreement between Lessor and Lessee, Lessee may, UPON AT LEAST 30 DAYS BUT NO MORE THAN 270 DAYS PRIOR WRITTEN NOTICE TO LESSOR OF LESSEE'S IRREVOCABLE ELECTION TO EXERCISE SUCH OPTION, purchase all (but not less than all) of the Equipment listed and described in this Schedule on the rent payment date (the "Early Purchase Date") which is 60 months from the Basic Term Commencement Date of the Schedule for a price equal to $ 363,235.16 (the "FMV Early Option Price"), plus all applicable sales taxes on an AS IS BASIS. Lessor and Lessee agree that the FMV Early Option Price is a reasonable prediction of the Fair Market Value (as such term is defined in Section XIX(b) hereof) of the Equipment at the time the option is exercisable. Lessor and Lessee agree that if Lessee makes any non-severable improvement to the Equipment which is not leased by Lessor to Lessee and which increases the value of the Equipment and is not required or permitted by Sections VII or XI of the Lease prior to lease expiration, then at the time of such option being exercised, Lessor and Lessee shall adjust the purchase price to reflect any addition to the price anticipated to result from such improvement. (The purchase option granted by this subsection shall be referred to herein as the "Early Purchase Option".) (b) If Lessee exercises its Early Purchase Option with respect to the Equipment leased hereunder, then on the Early Purchase Option Date, Lessee shall pay to Lessor any Rent and other sums due and unpaid on the Early Purchase Option Date and Lessee shall pay the FMV Early Option Price, plus all applicable sales taxes, to Lessor in cash. Except as expressly modified hereby, all terms and provisions of the Agreement shall remain in full force and effect. This Schedule is not binding or effective with respect to the Agreement or Equipment until executed on behalf of Lessor and Lessee by authorized representatives of Lessor and Lessee, respectively. IN WITNESS WHEREOF, Lessee and Lessor have caused this Schedule to be executed by their duly authorized representatives as of the date first above written. LESSEE: LESSOR: NATIONAL SEMICONDUCTOR GENERAL ELECTRIC CAPITAL CORPORATION CORPORATION By:______________________________ By:______________________________ _________________________________ _________________________________ (Typed or printed name and title) (Typed or printed name and title) ADDENDUM NO, 01 TO SCHEDULE NO. 001,002,003,004,005,006,007&008 TO MASTER LEASE AGREEMENT DATED AS OF December 13, 1994 RETURN CONDITIONS - ELECTRONICS EQUIPMENT In addition to the provisions provided for in Section XI of the Lease, and provided that the Lessee has not elected its option to purchase the Equipment, Lessee shall, at its expense: (A) Upon the request of Lessor, Lessee shall no later than 180 days prior to the expiration or other termination of the lease provide: 1. a detailed inventory of the Equipment (including the model and serial number of each major component thereof), including, without limitation, all internal circuit boards, module boards, and software features; 2. a complete and current set of all manuals, blue prints, process flow diagrams, equipment configuration diagrams, maintenance records and other data reasonably requested by Lessor concerning the configuration and operation of the Equipment; and (B) Upon the request of Lessor, Lessee shall, not later than 120 days prior to the expiration or other termination of the Lease make the Equipment available for on-site operational inspection by persons designated by the Lessor who shall be duly qualified to inspect the Equipment in its operational environment. (C) All Equipment shall be cleaned and treated with respect to rust, corrosion and appearance in accordance with manufacturer's recommendations and consistent with the best practices of dealers in used equipment similar to the Equipment; shall have no Lessee installed markings of labels which are not necessary for the operation, maintenance or repair of the Equipment, and shall be in compliance with all applicable government laws, rules and regulations. (D) The Equipment shall be de-installed and packed in accordance with manufacturer's recommendations. Without limitation, all internal fluids will either be drained and disposed of or filled and secured in accordance with manufacturer's recommendations and applicable government laws, rules and regulations. (E) The Equipment will be transported in accordance with manufacturer's recommendations and applicable government laws, rules and regulations to not more than one individual location within the continental United States selected by Lessor. LESSOR: LESSEE: GENERAL ELECTRIC CAPITAL CORPORATION NATIONAL SEMICONDUCTOR CORPORATION By:_________________________________ By:______________________________ ANNEX A TO SCHEDULE NO. 005 TO MASTER LEASE AGREEMENT DATED AS OF DESCRIPTION OF EQUIPMENT
INVOICE VENDOR NAME # INV. DATE EQUIPMENT COST - ------------- ----------- --------- --------------------------------------------------------- ------------- Lam Research 171404 9/15/93 LAM 4420 S/N #2686 $ 773,527.30 Corp Lam Research 171860 9/27/93 Software, Lamstation/4420/4500 $ 13.195.00 Corp Ebara Tech., 103990 10/14/93 (2) 80x25 H-100, SN#932496 (2) 40x20 w/o Cooler $ 118,490.00 Inc. Ebara Tech, 104011 10/18/93 (1) 208V Flsw PS Sol Crds/Plug $ 21,165.00 Inc. Ebara Tech, 104048 10/25/93 (1) 40#2 208V Sol Cords & Plugs and attachments and $ 78,795.00 Inc. accessories described more fully on invoice #104048 attached hereto and made a part hereof. Ebara Tech, 104122 11/9/93 Pump System, 40x20, SN#932590 and attachments and $ 42,488.10 Inc. accessories described more fully on invoice #104122 attached hereto and made a part hereof. MG Industries G00485 11/24/93 (1) Guardian 4 Gas Protection System, Natural Gas and $ 29,334.74 attachments and accessories described more fully on invoice #G00485 attached hereto and made a part hereof. Freight $658.86 Freight 355.08
INVOICE COST: $1,078,009.08 Initials: --------------------------- ------------------------------- Lessor Lessee ANNEX B TO SCHEDULE NO. 005 TO MASTER LEASE AGREEMENT DATED AS OF December 13, 1994 BILL OF SALE National Semiconductor Corporation (the "Seller"), in consideration of the sum of One Million Seventy-eight Thousand Nine Dollars and Eight Cents Dollars ($1,078,009.08) plus sales taxes in the amount of zero Dollars ($00.00) (if exemption from sales tax is claimed, an exemption certificate must be furnished to Buyer herewith), paid by General Electric Capital Corporation (the "Buyer"), receipt of which is acknowledged, hereby grants, sells, assigns, transfers and delivers to Buyer the equipment (the "Equipment") described in the above schedule (said schedule and related lease being collectively referred to as "Lease"), along with whatever claims and rights Seller may have against the manufacturer and/or supplier of the Equipment (the "Supplier"), including but not limited to all warranties and representations. At Buyer's request, Seller will cause Supplier to execute the attached Acknowledgment. Buyer is purchasing the Equipment for leasing back to Seller pursuant to the Lease. Seller represents and warrants to Buyer that (1) Buyer will acquire by the terms of this Bill of Sale good title to the Equipment free from all liens and encumbrances whatsoever; (2) Seller has the right to sell the Equipment; and (3) the Equipment has been delivered to Seller in good order and condition, and conforms to the specifications, requirements and standards applicable thereto; and (4) the equipment has been accurately labeled, consistent with the requirements of 40 CFR part 82 Subpart E, with respect to products manufactured with a controlled (ozone-depleting) substance. Seller agrees to save and hold harmless Buyer from and against any and all federal, state, municipal and local license fees and taxes of any kind or nature, including, without limiting the generality of the foregoing, any and all excise, personal property, use and sales taxes, and from and against any and all liabilities, obligations losses, damages, penalties, claims, actions and suits resulting therefrom and imposed upon, incurred by or asserted against Buyer as a consequence of the sale of the Equipment to Buyer. IN WITNESS WHEREOF, Seller has executed this Bill of Sale this thirteenth day of December ,1994. - ----------- ------------ SELLER: National Semiconductor Corporation By: ---------------------------- Title: Assistant Treasurer ------------------------- ANNEX C TO SCHEDULE NO. 005 TO MASTER LEASE AGREEMENT DATED AS OF December 13, 1994 CERTIFICATE OF ACCEPTANCE To: General Electric Capital Corporation ("Lessor") Pursuant to the provisions of the above schedule and lease (collectively, the "Lease"), Lessee hereby certifies and warrants that (a) all Equipment listed in the related Bill of Sale is in good condition and appearance, installed (if applicable) and in working order; and (b) Lessee accepts the Equipment for all purposes of the Lease, the purchase documents and all attendant documents. Lessee does further certify that as of the date hereof (i) Lessee is not in default under the Lease; (ii) the representations and warranties made by Lessee pursuant to or under the Lease are true and correct on the date hereof and (iii) Lessee has reviewed and approves of the purchase documents for the Equipment, if any. DESCRIPTION OF EQUIPMENT Type and Manufacturer Serial Model of Number of Cost Per Numbers Equipment Units Unit See Annex A Attached hereto and Made A Part Hereof -------------------------- Authorized Representative Dated: December 13, 1994 -------------------------- ANNEX D TO SCHEDULE NO 005 TO MASTER LEASE AGREEMENT DATED AS OF STIPULATED LOSS AND TERMINATION VALUE TABLE* TERMINATION VALUE STIPULATED LOSS VALUE RENTAL PERCENTAGE PERCENTAGE - ------------- ---------------------- -------------------------- 1 103.787 107.868 2 103.089 107.211 3 102.384 106.546 4 101.664 105.867 5 100.931 105.175 6 100.185 104.469 7 99.425 103.750 8 98.657 103.022 9 97.876 102.281 10 97.080 101.526 11 96.277 100.763 12 95.459 99.986 13 94.628 99.196 14 93.789 98.397 15 92.941 97.589 16 92.083 96.773 17 91.217 95.946 18 90.341 95.111 19 89.455 94.266 20 88.561 93.413 21 87.658 92.550 22 86.745 91.677 23 85.823 90.796 24 84.892 89.905 25 83.951 89.005 26 83.001 88.096 27 82.043 87.178 28 81.077 86.253 29 80.104 85.321 30 79.125 84.382 31 78.138 83.436 32 77.143 82.480 33 76.140 81.518 34 75.130 80.549 35 74.111 79.570 36 73.085 78.585 37 72.049 77.589 38 70.686 76.267 39 69.311 74.932 40 67.927 73.589 41 66.535 72.238 42 65.134 70.878 TERMINATION VALUE STIPULATED LOSS VALUE RENTAL PERCENTAGE PERCENTAGE - ------------- ---------------------- -------------------------- 43 63.725 69.509 44 62.304 68.128 45 60.873 66.738 46 59.434 65.340 47 57.983 63.929 48 56.523 62.509 49 55.054 61.081 50 53.572 59.640 51 52.078 58.187 52 50.578 56.726 53 49.070 55.259 54 47.554 53.784 55 46.032 52.302 56 44.497 50.808 57 42.955 49.306 cont. PAYMENT AUTHORIZATION General Electric Capital Corporation 2200 Powell Street Suite 600 Emeryville, CA 94608 You are hereby authorized to pay the proceeds from our sale to you of certain Equipment as evidenced on the attached Bill of Sale to the following parties in the amount(s) designated below. National Semiconductor $1,078,009.08 Corporation 2900 Semiconductor Drive Santa Clara, CA 95052-8090 For reimbursement of funds previously paid to various vendors for equipment plus plus attachments and accessories including labor described on Annex A attached hereto and made a part hereof. Very truly yours, National Semiconductor Corporation By:___________________________ Title: Assistant Treasurer --------------------------------- - ---------------- Date: December 13, 1994 ---------------------------------- - ---------------- CERTIFICATE CONCERNING PAYMENT OF PERSONAL PROPERTY TAXES To: General Electric Capital Corporation To insure Lessee's compliance with the provisions of a Master Lease Agreement dated as of Dec. 13, 1994 (the "Lease") by and between the undersigned as Lessee and General Electric Capital Corporation as Lessor, Lessee hereby agrees to one of the following options with respect to the payment of personal property taxes on the Equipment described in Annex A to the Lease, such agreement to be conclusively evidenced by the initials and signature of an authorized agent of Lessee in the appropriate spaces provided below: Please choose one of the options below by placing an "X" in the appropriate box and initialing where indicated. Initial ONLY ONE Choice of Option OPTION 1 / / --------- Lessee's Initials: -------------- (Applicable in Jurisdictions Requiring Lessor to List Equipment): Lessee agrees that it will not list any of such Equipment for property tax purposes or report any property tax assessed against such Equipment until otherwise directed in writing by Lessor. Upon receipt of any property tax bill pertaining to such Equipment from the appropriate taxing authority, Lessor will pay such tax and will invoice Lessee for the expense. Upon receipt of such invoice, Lessee will promptly reimburse Lessor for such expense; OPTION 2 / / --------- Lessee's Initials: -------------- (Applicable in Jurisdictions Permitting Lessee to List Equipment): Lessee agrees that it will (a) list all such Equipment, (b) report all property taxes assessed against such Equipment and (c) pay all such taxes when due directly to the appropriate taxing authority until Lessor shall otherwise direct in writing. LESSEE: National Semiconductor Corporation By:____________________________ Title: Assistant Treasurer ------------------------------- - ------------- Date: December 13, 1994 -------------------------------- - ------------- ELECTRONIC AND TEST EQUIPMENT SCHEDULE SCHEDULE NO. 006 DATED THIS DECEMBER 13, 1994 TO MASTER LEASE AGREEMENT DATED AS OF December 13, 1994 Lessor & Mailing Address: Lessee & Mailing Address: General Electric Capital National Semiconductor Corporation Corporation 2200 Powell Street, Suite 600 2900 Semiconductor Drive Emeryville, CA 94608 Santa Clara, CA 95052 Capitalized terms not defined herein shall have the meanings assigned to them in the Master Lease Agreement identified above ("Agreement"; said Agreement and this Schedule being collectively referred to as "Lease"). A. Equipment Pursuant to the terms of the Lease, Lessor agrees to acquire and lease to Lessee the Equipment listed on Annex A attached hereto and made a part hereof. B. Financial Terms 1. Advance Rent (if any): $18,090.04 2. Capitalized Lessor's Cost: $1,273,059.02 3. Basic Term Lease Rate Factor: Mons. 1-36 1.42099, Mons. 37-72 1.73644 4. Daily Lease Rate Factor: Mons. 1-36 .04737, Mons. 37-72 .05788 5. Basic Term (No. of Months): 72 6. Basic Term Commencement Date: 01/03/95 7. Equipment Location: 333 Western Avenue, South Portland, ME 8. Lessee Federal Tax ID No.: 952095071 9. Last Delivery Date: 10. First Termination Date: Sixty (60) months after the Basic Term Commencement Date. C. Tax Benefits Depreciation Methods (check one): a. Depreciation Deductions: X The 200% declining balance method, switching to straight line method for the 1st taxable year for which using the straight line method with respect to the adjusted basis as of the beginning of such year will yield a larger allowance; OR ____ The method determined by applying to the unadjusted basis the applicable percentages set forth in Section 168(b)(1) of the Code, as in effect prior to the adoption of the Tax Reform Act of 1986. b. Recovery Period: Five Years c. Basis: 100% of Capitalized Lessor's Cost. D. Rent 1. Interim Rent. For the period from and including the Lease Commencement Date to the Basic Term Commencement Date ("Interim Period"), Lessee shall pay as rent ("Interim Rent") for each unit of Equipment, an amount equal to (a) the product of the "Prime Rate" as published in the "Money Rates" column of the Wall Street Journal, Western Edition, on the business day preceding the Acceptance Date, times the Capitalized Lessor's Cost of such unit times the number of days in the Interim Period, divided by (b) 360. Interim Rent shall be on 12/13/94 . 2. Basic Term Rent. Commencing on 01/03/95 and on the same day of each month thereafter (each, a "Rent Payment Date") during the Basic Term, Lessee shall pay as rent ("Basic Term Rent") the product of the Basic Term Lease Rate Factor times the Capitalized Lessor's Cost of all Equipment on this Schedule. 3. [Deleted] E. Insurance 1. Public Liability: $1,000,000 total liability per occurrence. 2. Casualty and Property Damage: An amount equal to the higher of the Stipulated Loss Value or the full replacement cost of the Equipment. F. Modifications and Additions to Lease For purposes of this Schedule only, the Agreement is amended as follows: 1. Section I(b) of the Agreement is hereby deleted in its entirety and the following substituted in its stead: (b) The obligation of Lessor to purchase the Equipment from Lessee and to lease the same to Lessee shall be subject to receipt by Lessor, on or prior to the earlier of the Lease Commence Date or Last Delivery Date therefor, of each of the following documents in form and substance satisfactory to Lessor: (i) a Schedule relating to the Equipment then to be leased hereunder, (ii) a Bill of Sale, in the form of Annex B to the applicable Schedule, transferring title to the Equipment to Lessor, (iii) evidence of insurance which complies with the requirements of Section X, and (iv) such other documents as Lessor may reasonably request. Simultaneously with the execution of the Bill of Sale, Lessee shall also execute a Certificate of Acceptance, in the form of Annex C to the applicable Schedule, covering all of the Equipment described in the Bill of Sale. 2. Section VI(a) shall be deleted and the following substituted in its stead: (a) The parties acknowledge that this is a sale/leaseback transaction and the Equipment is in Lessee's possession as of the Lease Commencement Date. 3. Section VII of the Lease is amended by adding the following as the third sentence in subsection (a): Lessee agrees that upon return of the Equipment, it will be in good condition and working order, giving consideration to reasonable wear and tear and the age of the Equipment. Lessee shall, if requested by Lessor and if reasonably possible, obtain a service report from the manufacturer attesting to such condition. 4. Each reference contained in this Agreement to: (a) "Adverse Environmental Condition" shall refer to (i) the existence or the continuation of the existence, of an Environmental Emission (including, without limitation, a sudden or non-sudden accidental or non-accidental Environmental Emission), of, or exposure to, any substance, chemical, material, pollutant, Contaminant, odor or audible noise or other release or emission in, into or onto the environment (including, without limitation, the air, ground, water or any surface) at, in, by, from or related to any Equipment from the time it leaves the Supplier's possession for delivery to lessee until the time it is delivered to Lessor, (ii) the environmental aspect of the transportation, storage, treatment or disposal of materials in connection with the operation of any Equipment by Lessee or Lessee's agents or (iii) the violation, or alleged violation by Lessee of any statutes, ordinances, orders, rules regulations, permits or licenses of, by or from any governmental authority, agency or court relating to environmental matters connected with any Equipment. (b) "Affiliate" shall refer, with respect to any given Person, to any Person that directly or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, such Person. (c) "Contaminant" shall refer to those substances which are regulated by or form the basis of liability under any Environmental Law, including, without limitation, asbestos, polychlorinated biphenyls ("PBCs"), and radioactive substances, or other material or substance which has in the past or could in the future constitute a health, safety or environmental hazard to any Person, property or natural resources. (d) "Environmental Claim" shall refer to any accusation, allegation, notice of violation, claim, demand, abatement or other order on direction (conditional or otherwise) by any governmental authority or any Person for person injury (including sickness, disease or death), tangible or intangible property damage, damage to the environment or other adverse effects on the environment, or for fines, penalties or restrictions, resulting from or based upon any Adverse Environmental Condition. (e) "Environmental Emission" shall refer to any actual or threatened release, spill, emission, leaking, pumping, injection, deposit, disposal, discharge, dispersal, leaching or migration into the indoor or outdoor environment, or into or out of any of the Equipment, including, without limitation, the movement of any Contaminant or other substance through or in the air, soil, surface water, groundwater or property. (f) "Environmental Law" shall mean any federal, foreign, state or local law, rule or regulation pertaining to the protection of the environment, including, but not limited to, the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") (42 U.S.C. Section 9601 et seq.), the Hazardous Material Transportation Act (49 U.S.C. Section 1801 et seq.), the Federal Water Pollution Control Act (33 U.S.C. Section 1251 et seq.), the Resource Conversation and Recovery Act (42 U.S.C. Section 6901 et seq.), the Clean Air Act (42 U.S.C. Section 7401 et seq.), the Toxic Substances Control Act (15 U.S.C. Section 2601 et seq.), the Federal Insecticide Fungicide, and Rodenticide Act (7 U.S.C. Section 1361 et seq.), and the Occupational Safety and Health Act (19 U.S.C. section 651 et seq.), as these laws have been amended or supplemented, and any analogous foreign, federal, state or local statutes, and the regulation promulgated pursuant thereto. (g) "Environmental Loss" shall mean any loss, cost, damage, liability, deficiency, fine, penalty or expense (including without limitation, reasonable attorneys' fees, engineering and other professional or expert fees), investigation, removal, cleanup and remedial costs (voluntarily or involuntarily incurred) and damages to, loss of the use of or decrease in value of the Equipment arising out of or related to any Adverse Environmental Condition. (h) "Person" shall include any individual, partnership, corporation, trust, unincorporated organization, government or department or agency thereof and any other entity. 5. Lessee shall fully and promptly pay, perform, discharge, defend, indemnify and hold harmless Lessor and its Affiliates, successors and assigns, directors, officers, employees and agents from and against any Environmental Claim or Environmental Loss. Defense and indemnification under this Section is conditioned upon Lessor giving Lessee timely written notice of any claim against which Lessor wishes to be indemnified hereunder (unless Lessee learns of any such claim from a third party, or unless Lessor does not learn of such claim until such time as Lessor, acting prudently on its own behalf, would be precluded from defending by applicable law or rules), and Lessor giving Lessee necessary and appropriate information and assistance in the defense of same. Lessee's obligation to pay or reimburse reasonable fees of counsel selected by Lessor to defend any such claim shall be conditioned upon Lessee's approval of such counsel, which approval shall not be unreasonably withheld or delayed. Lessor shall provide Lessee with periodic status reports on the defense or settlement of such claim, upon Lessee's reasonable request, and Lessor shall seek Lessee's consent to a proposed settlement of a claim. If Lessee does not consent to a proposed settlement of a claim, it shall advise Lessor of its specific objections to the proposed settlement and shall identify with particularity the terms, if any, upon which it would consent to a settlement of the claim. If Lessor settles any such claim without Lessee's consent and Lessee objects to indemnifying Lessor for such settlement, then Lessor and Lessee agree to submit the question of the reasonableness of the settlement to binding arbitration. In such arbitration, the arbitrator shall be jointly selected by the parties (or, if they cannot agree on an arbitrator, one shall be selected according to the rules of the American Arbitration Association), and the arbitrator shall determine to what extent, if any, Lessee shall indemnify Lessor for both the settlement and any attorneys' fees incurred in connection with the defense and settlement of the claim. The decision of the arbitrator shall be final and binding upon both parties, and neither party shall seek recourse to a court of law or other authorities to appeal for revision of such decision or any other ruling of the arbitrator. The cost of the arbitration shall be borne by both parties in equal amounts. 6. ADDITIONS AND ALTERATIONS. Subject to the conditions set out in this paragraph, Lessor hereby agrees, if so requested by Lessee, to purchase alterations, additions or Features for the Equipment and lease them to Lessee under the same terms and conditions and with the same expiration date of the Initial Term as the applicable Equipment Schedule, ad at a periodic Rental Payment that shall be mutually satisfactory to Lessor and Lessee. Lessor's obligation to purchase and lease such alterations, additions or Features shall be conditioned on the following: no default hereunder by Lessee shall have occurred and be continuing; there shall have been no material adverse change (as determined by Lessor in its reasonable exercise of business judgment) in Lessee's financial condition or business prospects from the Commencement Date of the applicable Schedule; and such alterations, additions or Features shall be acceptable for acquisition and lease under Lessor's then standard business practices. Lessee may obtain financing for such alterations, additions or Features from third parties provided that (i) such alterations, additions or Features can be undone or removed without damaging or impairing the functionality, utility or value of the Equipment as compared to Equipment on which such alterations, additions or Features had never been installed, and (ii) such financing shall not in any event create a security interest in, or lien or other encumbrance on, Lessor's Equipment. 7. EARLY PURCHASE OPTION: (a) Provided that the Lease has not been earlier terminated and provided further that Lessee is not in default under the Lease or any other agreement between Lessor and Lessee, Lessee may, UPON AT LEAST 30 DAYS BUT NO MORE THAN 270 DAYS PRIOR WRITTEN NOTICE TO LESSOR OR LESSEE'S IRREVOCABLE ELECTION TO EXERCISE SUCH OPTION, purchase all (but not less than all) of the Equipment listed and described in this Schedule on the rent payment date (the "Early Purchase Date") which is 60 months from the Basic Term Commencement Date of the Schedule for a price equal to $428,957.24 (the "FMV Early Option Price"), plus all applicable sales taxes on an AS IS BASIS. Lessor and Lessee agree that the FMV Early Option Price is a reasonable prediction of the Fair Market Value (as such term is defined in Section XIX(b) hereof) of the Equipment at the time the option is exercisable. Lessor and Lessee agree that if Lessee makes any non-severable improvement to the Equipment which is not leased by Lessor to Lessee and which increases the value of the Equipment and is not required or permitted by Sections VII or XI of the Lease prior to lease expiration, then at the time of such option being exercised, Lessor and Lessee shall adjust the purchase price to reflect any addition to the price anticipated to result from such improvement. (The purchase option granted by this subsection shall be referred to herein as the "Early Purchase Option".) (b) If Lessee exercises its Early Purchase Option with respect to the Equipment leased hereunder, then on the Early Purchase Option Date, Lessee shall pay to Lessor any Rent and other sums due and unpaid on the Early Purchase Option Date and Lessee shall pay the FMV Early Option Price, plus all applicable sales taxes, to Lessor in cash. Except as expressly modified hereby, all terms and provisions of the Agreement shall remain in full force and effect. This Schedule is not binding or effective with respect to the Agreement or Equipment until executed on behalf of Lessor and Lessee by authorized representatives of Lessor and Lessee, respectively. IN WITNESS WHEREOF, Lessee and Lessor have caused this Schedule to be executed by their duly authorized representatives as of the date first above written. LESSEE: LESSOR: NATIONAL SEMICONDUCTOR GENERAL ELECTRIC CAPITAL CORPORATION CORPORATION By:____________________________ By:____________________________ _______ _______ _______________________________ _______________________________ _______ _______ (Typed or printed name and (Typed or printed name and title) title) ADDENDUM NO, 01 TO SCHEDULE NO. 001,002,003,004,005,006,007&008 TO MASTER LEASE AGREEMENT DATED AS OF December 13, 1994 RETURN CONDITIONS - ELECTRONICS EQUIPMENT In addition to the provisions provided for in Section XI of the Lease, and provided that the Lessee has not elected its option to purchase the Equipment, Lessee shall, at its expense: (A) Upon the request of Lessor, Lessee shall no later than 180 days prior to the expiration or other termination of the least provide: 1. a detailed inventory of the Equipment (including the model and serial number of each major component thereof), including, without limitation, all internal circuit boards, module boards, and software features; 2. a complete and current set of all manuals, blue prints, process flow diagrams, equipment configuration diagrams, maintenance records and other data reasonably requested by Lessor concerning the configuration and operation of the Equipment; and (B) Upon the request of Lessor, Lessee shaft, not later than 120 days prior to the expiration or other termination of the Lease make the Equipment available for on-site operational inspection by persons designated by the Lessor who shall be duly qualified to inspect the Equipment in its operational environment. (C) All Equipment shall be cleaned and treated with respect to rust, corrosion and appearance in accordance with manufacturer's recommendations and consistent with the best practices of dealers in used equipment similar to the Equipment; shall have no Lessee installed markings of labels which are not necessary for the operation, maintenance or repair of the Equipment, and shall be in compliance with all applicable government laws, rules and regulations. (D) The Equipment shall be de-installed and packed in accordance with manufacturer's recommendations. Without limitation, all internal fluids will either be drained and disposed of or filled and secured in accordance with manufacturer's recommendations and applicable government laws, rules and regulations. (E) The Equipment will be transported in accordance with manufacturer's recommendations and applicable government laws, rules and regulations to not more than one individual location within the continental United States selected by Lessor. LESSOR: LESSEE: GENERAL ELECTRIC CAPITAL NATIONAL SEMICONDUCTOR CORPORATION CORPORATION By:_________________________ By:__________________________ ANNEX A TO SCHEDULE NO. 006 TO MASTER LEASE AGREEMENT DATED AS OF DESCRIPTION OF EQUIPMENT
INVOICE VENDOR NAME # INV. DATE EQUIPMENT COST - ------------- ----------- --------- --------------------------------------------------------- ------------- Applied 111260 & 12/23/93 Precision 5000 Mark II CVD $ 870,510.00 Materials 111259 Freight $ 2,950.49 Ebara Tech, 104370 1/7/94 (4) 50x20 208 Volt Dry Pumps (2) 40x20 (#2) Dry Pumps $ 157,050.00 Inc. Freight $ 1,397.88 Ebara Tech, 104882 2/18/94 (1) 50x20 208 Volt Dry Pump (1) 40x20 (#2) Dry Pumps $ 48,600.00 Inc. 104928 2/25/94 (1) 50x20 208 Volt Dry Pump $ 29,925.00 Freight $ 619.96 Ebara Tech, 104903 2/24/94 (1) 50x20 208 Volt Dry Pump $ 29,925.00 Inc. Freight $ 325.50 Ebara Tech, 104942 2/28/94 (1) 40x20W/CLRS, 208V, 3/8" Exhpurge $ 23,715.00 Inc. Freight $ 382.80 MG Industries G00464 10/25/93 (3) Guardian 4 Gas Protection System, Natural Gas and $ 107,657.39 attachments and accessories described more fully on invoice #G00464 attached hereto and made a part hereof.
INVOICE COST: $1,273,059.02 Initials: ---------------------------- -------------------------------- Lessor Lessee ANNEX B TO SCHEDULE NO. 006 TO MASTER LEASE AGREEMENT DATED AS OF December 13, 1994 BILL OF SALE National Semiconductor Corporation (the "Seller"), in consideration of the sum of One Million Two Hundred Seventy-three Thousand Fifty-nine Hundred Dollars and Two Cents Dollars ($1,273,059.02) plus sales taxes in the amount of zero Dollars ($00.00) (if exemption from sales tax is claimed, an exemption certificate must be furnished to Buyer herewith), paid by General Electric Capital Corporation (the "Buyer"), receipt of which is acknowledged, hereby grants, sells, assigns, transfers and delivers to Buyer the equipment (the "Equipment") described in the above schedule (said schedule and related lease being collectively referred to as "Lease"), along with whatever claims and rights Seller may have against the manufacturer and/or supplier of the Equipment (the "Supplier"), including but not limited to all warranties and representations. At Buyer's request, Seller will cause Supplier to execute the attached Acknowledgment. Buyer is purchasing the Equipment for leasing back to Seller pursuant to the Lease. Seller represents and warrants to Buyer that (1) Buyer will acquire by the terms of this Bill of Sale good title to the Equipment free from all liens and encumbrances whatsoever; (2) Seller has the right to sell the Equipment; and (3) the Equipment has been delivered to Seller in good order and condition, and conforms to the specifications, requirements and standards applicable thereto; and (4) the equipment has been accurately labeled, consistent with the requirements of 40 CFR part 82 Subpart E, with respect to products manufactured with a controlled (ozone-depleting) substance. Seller agrees to save and hold harmless Buyer from and against any and all federal, state, municipal and local license fees and taxes of any kind or nature, including, without limiting the generality of the foregoing, any and all excise, personal property, use and sales taxes, and from and against any and all liabilities, obligations losses, damages, penalties, claims, actions and suits resulting therefrom and imposed upon, incurred by or asserted against Buyer as a consequence of the sale of the Equipment to Buyer. IN WITNESS WHEREOF, Seller has executed this Bill of Sale this thirteenth day of December ,1994. SELLER: National Semiconductor Corporation By: --------------------------- Title: Assistant Treasurer ------------------------ ANNEX C TO SCHEDULE NO. 006 TO MASTER LEASE AGREEMENT DATED AS OF December 13, 1994 CERTIFICATE OF ACCEPTANCE To: General Electric Capital Corporation ("Lessor") Pursuant to the provisions of the above schedule and lease (collectively, the "Lease"), Lessee hereby certifies and warrants that (a) all Equipment listed in the related Bill of Sale is in good condition and appearance, installed (if applicable) and in working order; and (b) Lessee accepts the Equipment for all purposes of the Lease, the purchase documents and all attendant documents. Lessee does further certify that as of the date hereof (i) Lessee is not in default under the Lease; (ii) the representations and warranties made by Lessee pursuant to or under the Lease are true and correct on the date hereof and (iii) Lessee has reviewed and approves of the purchase documents for the Equipment, if any. DESCRIPTION OF EQUIPMENT Type and Manufacturer Serial Model of Number of Cost Per Numbers Equipment Units Unit See Annex A Attached hereto and Made A Part Hereof -------------------------------- Authorized Representative Dated: December 13, 1994 -------------------------- ANNEX D TO SCHEDULE NO 006 TO MASTER LEASE AGREEMENT DATED AS OF DECEMBER 13, 1994 STIPULATED LOSS AND TERMINATION VALUE TABLE* TERMINATION VALUE STIPULATED LOSS VALUE RENTAL PERCENTAGE PERCENTAGE - ------------- ---------------------- -------------------------- 1 103.787 107.868 2 103.089 107.211 3 102.384 106.546 4 101.664 105.867 5 100.931 105.175 6 100.185 104.469 7 99.425 103.750 8 98.657 103.022 9 97.876 102.281 10 97.080 101.526 11 96.277 100.763 12 95.459 99.986 13 94.628 99.196 14 93.789 98.397 15 92.941 97.589 16 92.083 96.773 17 91.217 95.946 18 90.341 95.111 19 89.455 94.266 20 88.561 93.413 21 87.658 92.550 22 86.745 91.677 23 85.823 90.796 24 84.892 89.905 25 83.951 89.005 26 83.001 88.096 27 82.043 87.178 28 81.077 86.253 29 80.104 85.321 30 79.125 84.382 31 78.138 83.436 32 77.143 82.480 33 76.140 81.518 34 75.130 80.549 35 74.111 79.570 36 73.085 78.585 37 72.049 77.589 38 70.686 76.267 39 69.311 74.932 40 67.927 73.589 41 66.535 72.238 TERMINATION VALUE STIPULATED LOSS VALUE RENTAL PERCENTAGE PERCENTAGE - ------------- ---------------------- -------------------------- 42 65.134 70.878 43 63.725 69.509 44 62.304 68.128 45 60.873 66.738 46 59.434 65.340 47 57.983 63.929 48 56.523 62.509 49 55.054 61.081 50 53.572 59.640 51 52.078 58.187 52 50.578 56.726 53 49.070 55.259 54 47.554 53.784 55 46.032 52.302 56 44.497 50.808 57 42.955 49.306 cont. PAYMENT AUTHORIZATION General Electric Capital Corporation 2200 Powell Street Suite 600 Emeryville, CA 94608 You are hereby authorized to pay the proceeds from our sale to you of certain Equipment as evidenced on the attached Bill of Sale to the following parties in the amount(s) designated below. National Semiconductor $1,273,059.02 Corporation 2900 Semiconductor Drive Santa Clara, CA 95052-8090 For reimbursement of funds previously paid to various vendors for equipment plus plus attachments and accessories including labor described on Annex A attached hereto and made a part hereof. Very truly yours, National Semiconductor Corporation By: ----------------------------- Title: Assistant Treasurer -------------------------- Date: December 13, 1994 -------------------------- CERTIFICATE CONCERNING PAYMENT OF PERSONAL PROPERTY TAXES To: General Electric Capital Corporation To insure Lessee's compliance with the provisions of a Master Lease Agreement dated as of Dec. 13, 1994 (the "Lease") by and between the undersigned as Lessee and General Electric Capital Corporation as Lessor, Lessee hereby agrees to one of the following options with respect to the payment of personal property taxes on the Equipment described in Annex A to the Lease, such agreement to be conclusively evidenced by the initials and signature of an authorized agent of Lessee in the appropriate spaces provided below: Please choose one of the options below by placing an "X" in the appropriate box and initialing where indicated. Initial ONLY ONE Choice of Option OPTION 1 / / Lessee's Initials: ----- ----- (Applicable in Jurisdictions Requiring Lessor to List Equipment): Lessee agrees that it will not list any of such Equipment for property tax purposes or report any property tax assessed against such Equipment until otherwise directed in writing by Lessor. Upon receipt of any property tax bill pertaining to such Equipment from the appropriate taxing authority, Lessor will pay such tax and will invoice Lessee for the expense. Upon receipt of such invoice, Lessee will promptly reimburse Lessor for such expense; OPTION 2 / / Lessee's Initials: ----- ----- (Applicable in Jurisdictions Permitting Lessee to List Equipment): Lessee agrees that it will (a) list all such Equipment, (b) report all property taxes assessed against such Equipment and (c) pay all such taxes when due directly to the appropriate taxing authority until Lessor shall otherwise direct in writing. LESSEE: National Semiconductor Corporation By: ----------------------------- Title: Assistant Treasurer -------------------------- Date: December 13, 1994 -------------------------- ELECTRONIC AND TEST EQUIPMENT SCHEDULE SCHEDULE NO. 007 DATED THIS DECEMBER 13, 1994 TO MASTER LEASE AGREEMENT DATED AS OF DECEMBER 13, 1994 Lessor & Mailing Address: Lessee & Mailing Address: General Electric Capital Corporation National Semiconductor Corporation 2200 Powell Street, Suite 600 2900 Semiconductor Drive Emeryville, CA 94608 Santa Clara, CA 95052 Capitalized terms not defined herein shall have the meanings assigned to them in the Master Lease Agreement identified above ("Agreement"; said Agreement and this Schedule being collectively referred to as "Lease"). A. Equipment Pursuant to the terms of the Lease, Lessor agrees to acquire and lease to Lessee the Equipment listed on Annex A attached hereto and made a part hereof. B. Financial Terms 1. Advance Rent (if any): $15,634.76 2. Capitalized Lessor's Cost: $1,100,272.07 3. Basic Term Lease Rate Factor: Mons. 1-36 1.42099, Mons. 37-72 1.73644 4. Daily Lease Rate Factor: Mons. 1-36 .04737, Mons. 37-72 .05788 5. Basic Term (No. of Months): 72 6. Basic Term Commencement Date: 01/03/95 7. Equipment Location: 333 Western Avenue, South Portland, ME 8. Lessee Federal Tax ID No.: 952095071 9. Last Delivery Date: 10. First Termination Date: Sixty (60) months after the Basic Term Commence Date. C. Tax Benefits Depreciation Deductions: a. Depreciation Methods (check one): X The 200% declining balance method, switching to straight line method for the 1st taxable year for which using the straight line method with respect to the adjusted basis as of the beginning of such year will yield a larger allowance; OR ____ The method determined by applying to the unadjusted basis the applicable percentages set forth in Section 168(b)(1) of the Code, as in effect prior to the adoption of the Tax Reform Act of 1986. b. Recovery Period: Five Years c. Basis: 100% of Capitalized Lessor's Cost. D. Rent 1. Interim Rent. For the period from and including the Lease Commencement Date to the Basic Term Commencement Date ("Interim Period"), Lessee shall pay as rent ("Interim Rent") for each unit of Equipment, an amount equal to (a) the product of the "Prime Rate" as published in the "Money Rates" column of the Wall Street Journal, Western Edition, on the business day preceding the Acceptance Date, times the Capitalized Lessor's Cost of such unit times the number of days in the Interim Period, divided by (b) 360. Interim Rent shall be on 12/13/94 . 2. Basic Term Rent. Commencing on 01/03/95 and on the same day of each month thereafter (each, a "Rent Payment Date") during the Basic Term, Lessee shall pay as rent ("Basic Term Rent") the product of the Basic Term Lease Rate Factor times the Capitalized Lessor's Cost of all Equipment on this Schedule. 3. [Deleted] E. Insurance 1. Public Liability: $1,000,000 total liability per occurrence. 2. Casualty and Property Damage: An amount equal to the higher of the Stipulated Loss Value or the full replacement cost of the Equipment. F. Modifications and Additions to Lease For purposes of this Schedule only, the Agreement is amended as follows: 1. Section I(b) of the Agreement is hereby deleted in its entirety and the following substituted in its stead: (b) The obligation of Lessor to purchase the Equipment from Lessee and to lease the same to Lessee shall be subject to receipt by Lessor, on or prior to the earlier of the Lease Commencement Date or Last Delivery Date therefor, of each of the following documents in form and substance satisfactory to Lessor: (i) a Schedule relating to the Equipment then to be leased hereunder, (ii) a Bill of Sale, in the form of Annex B to the applicable Schedule, transferring title to the Equipment to Lessor, (iii) evidence of insurance which complies with the requirements of Section X, and (iv) such other documents as Lessor may reasonably request. Simultaneously with the execution of the Bill of Sale, Lessee shall also execute a Certificate of Acceptance, in the form of Annex C to the applicable Schedule, covering all of the Equipment described in the Bill of Sale. 2. Section VI(a) shall be deleted and the following substituted in its stead: (a) The parties acknowledge that this is a sale/leaseback transaction and the Equipment is in Lessee's possession as of the Lease Commencement Date. 3. Section VII of the Lease is amended by adding the following as the third sentence in subsection (a): Lessee agrees that upon return of the Equipment, it will be in good condition and working order, giving consideration to reasonable wear and tear and the age of the Equipment. Lessee shall, if requested by Lessor and if reasonably possible, obtain a service report from the manufacturer attesting to such condition. 4. Each reference contained in this Agreement to: (a) "Adverse Environmental Condition" shall refer to (i) the existence or the continuation of the existence, of an Environmental Emission (including, without limitation, a sudden or non-sudden accidental or non-accidental Environmental Emission), of, or exposure to, any substance, chemical, material, pollutant, Contaminant, odor or audible noise or other release or emission in, into or onto the environment (including, without limitation, the air, ground, water or any surface) at, in, by, from or related to any Equipment from the time it leaves the Supplier's possession for delivery to lessee until the time it is delivered to Lessor, (ii) the environmental aspect of the transportation, storage, treatment or disposal of materials in connection with the operation of any Equipment by Lessee or Lessee's agents or (iii) the violation, or alleged violation by Lessee of any statutes, ordinances, orders, rules regulations, permits or licenses of, by or from any governmental authority, agency or court relating to environmental matters connected with any Equipment. (b) "Affiliate" shall refer, with respect to any given Person, to any Person that directly or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, such Person. (c) "Contaminant" shall refer to those substances which are regulated by or form the basis of liability under any Environmental Law, including, without limitation, asbestos, polychlorinated biphenyls ("PBCs"), and radioactive substances, or other material or substance which has in the past or could in the future constitute a health, safety or environmental hazard to any Person, property or natural resources. (d) "Environmental Claim" shall refer to any accusation, allegation, notice of violation, claim, demand, abatement or other order on direction (conditional or otherwise) by any governmental authority or any Person for person injury (including sickness, disease or death), tangible or intangible property damage, damage to the environment or other adverse effects on the environment, or for fines, penalties or restrictions, resulting from or based upon any Adverse Environmental Condition. (e) "Environmental Emission" shall refer to any actual or threatened release, spill, emission, leaking, pumping, injection, deposit, disposal, discharge, dispersal, leaching or migration into the indoor or outdoor environment, or into or out of any of the Equipment, including, without limitation, the movement of any Contaminant or other substance through or in the air, soil, surface water, groundwater or property. (f) "Environmental Law" shall mean any federal, foreign, state or local law, rule or regulation pertaining to the protection of the environment, including, but not limited to, the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") (42 U.S.C. Section 9601 et seq.), the Hazardous Material Transportation Act (49 U.S.C. Section 1801 et seq.), the Federal Water Pollution Control Act (33 U.S.C. Section 1251 et seq.), the Resource Conversation and Recovery Act (42 U.S.C. Section 6901 et seq.), the Clean Air Act (42 U.S.C. Section 7401 et seq.), the Toxic Substances Control Act (15 U.S.C. Section 2601 et seq.), the Federal Insecticide, Fungicide, and Rodenticide Act (7 U.S.C. Section 1361 et seq.), and the Occupational Safety and Health Act (19 U.S.C. section 651 et seq.), as these laws have been amended or supplemented, and any analogous foreign, federal, state or local statutes, and the regulation promulgated pursuant thereto. (g) "Environmental Loss" shall mean any loss, cost, damage, liability, deficiency, fine, penalty or expense (including without limitation, reasonable attorneys' fees, engineering and other professional or expert fees), investigation, removal, cleanup and remedial costs (voluntarily or involuntarily incurred) and damages to, loss of the use of or decrease in value of the Equipment arising out of or related to any Adverse Environmental Condition. (h) "Person" shall include any individual, partnership, corporation, trust, unincorporated organization, government or department or agency thereof and any other entity. 5. Lessee shall fully and promptly pay, perform, discharge, defend, indemnify and hold harmless Lessor and its Affiliates, successors and assigns, directors, officers, employees and agents from and against any Environmental Claim or Environmental Loss. Defense and indemnification under this Section is conditioned upon Lessor giving Lessee timely written notice of any claim against which Lessor wishes to be indemnified hereunder (unless Lessee learns of any such claim from a third party, or unless Lessor does not learn of such claim until such time as Lessor, acting prudently on its own behalf, would be precluded from defending by applicable law or rules), and Lessor giving Lessee necessary and appropriate information and assistance in the defense of same. Lessee's obligation to pay or reimburse reasonable fees of counsel selected by Lessor to defend any such claim shall be conditioned upon Lessee's approval of such counsel, which approval shall not be unreasonably withheld or delayed. Lessor shall provide Lessee with periodic status reports on the defense or settlement of such claim, upon Lessee's reasonable request, and Lessor shall seek Lessee's consent to a proposed settlement of a claim. If Lessee does not consent to a proposed settlement of a claim, it shall advise Lessor of its specific objections to the proposed settlement and shall identify with particularity the terms, if any, upon which it would consent to a settlement of the claim. If Lessor settles any such claim without Lessee's consent and Lessee objects to indemnifying Lessor for such settlement, then Lessor and Lessee agree to submit the question of the reasonableness of the settlement to binding arbitration. In such arbitration, the arbitrator shall be jointly selected by the parties (or, if they cannot agree on an arbitrator, one shall be selected according to the rules of the American Arbitration Association), and the arbitrator shall determine to what extent, if any, Lessee shall indemnify Lessor for both the settlement and any attorneys' fees incurred in connection with the defense and settlement of the claim. The decision of the arbitrator shall be final and binding upon both parties, and neither party shall seek recourse to a court of law or other authorities to appeal for revision of such decision or any other ruling of the arbitrator. The cost of the arbitration shall be borne by both parties in equal amounts. 6. ADDITIONS AND ALTERATIONS. Subject to the conditions set out in this paragraph, Lessor hereby agrees, if so requested by Lessee, to purchase alterations, additions or Features for the Equipment and lease them to Lessee under the same terms and conditions and with the same expiration date of the Initial Term as the applicable Equipment Schedule, and at a periodic Rental Payment that shall be mutually satisfactory to Lessor and Lessee. Lessor's obligation to purchase and lease such alterations, additions or Features shall be conditioned on the following: no default hereunder by Lessee shall have occurred and be continuing; there shall have been no material adverse change (as determined by Lessor in its reasonable exercise of business judgment) in Lessee's financial condition or business prospects from the Commencement Date of the applicable Schedule; and such alterations, additions or Features shall be acceptable for acquisition and lease under Lessor's then standard business practices. Lessee may obtain financing for such alterations, additions or Features from third parties provided that (i) such alterations, additions or Features can be undone or removed without damaging or impairing the functionality, utility or value of the Equipment as compared to Equipment on which such alterations, additions or Features had never been installed, and (ii) such financing shall not in any event create a security interest in, or lien or other encumbrance on, Lessor's Equipment. 7. EARLY PURCHASE OPTION: (a) Provided that the Lease has not been earlier terminated and provided further that Lessee is not in default under the Lease or any other agreement between Lessor and Lessee, Lessee may, UPON AT LEAST 30 DAYS BUT NO MORE THAN 270 DAYS PRIOR WRITTEN NOTICE TO LESSOR OR LESSEE'S IRREVOCABLE ELECTION TO EXERCISE SUCH OPTION, purchase all (but not less than all) of the Equipment listed and described in this Schedule on the rent payment date (the "Early Purchase Date") which is 60 months from the Basic Term Commencement Date of the Schedule for a price equal to $370,736.67 (the "FMV Early Option Price"), plus all applicable sales taxes on an AS IS BASIS. Lessor and Lessee agree that the FMV Early Option Price is a reasonable prediction of the Fair Market Value (as such term is defined in Section XIX(b) hereof) of the Equipment at the time the option is exercisable. Lessor and Lessee agree that if Lessee makes any non-severable improvement to the Equipment which is not leased by Lessor to Lessee and which increases the value of the Equipment and is not required or permitted by Sections VII or XI of the Lease prior to lease expiration, then at the time of such option being exercised, Lessor and Lessee shall adjust the purchase price to reflect any addition to the price anticipated to result from such improvement. (The purchase option granted by this subsection shall be referred to herein as the "Early Purchase Option".) (b) If Lessee exercises its Early Purchase Option with respect to the Equipment leased hereunder, then on the Early Purchase Option Date, Lessee shall pay to Lessor any Rent and other sums due and unpaid on the Early Purchase Option Date and Lessee shall pay the FMV Early Option Price, plus all applicable sales taxes, to Lessor in cash. Except as expressly modified hereby, all terms and provisions of the Agreement shall remain in full force and effect. This Schedule is not binding or effective with respect to the Agreement or Equipment until executed on behalf of Lessor and Lessee by authorized representatives of Lessor and Lessee, respectively. IN WITNESS WHEREOF, Lessee and Lessor have caused this Schedule to be executed by their duly authorized representatives as of the date first above written. LESSEE: LESSOR: NATIONAL SEMICONDUCTOR GENERAL ELECTRIC CAPITAL CORPORATION CORPORATION By:______________________________ By:____________________________ _________________________________ _________________________________ (Typed or printed name and title) (Typed or printed name and title) ADDENDUM NO, 01 TO SCHEDULE NO. 001,002,003,004,005,006,007&008 TO MASTER LEASE AGREEMENT DATED AS OF December 13, 1994 RETURN CONDITIONS - ELECTRONICS EQUIPMENT In addition to the provisions provided for in Section XI of the Lease, and provided that the Lessee has not elected its option to purchase the Equipment, Lessee shall, at its expense: (A) Upon the request of Lessor, Lessee shall no later than 180 days prior to the expiration or other termination of the least provide: 1. a detailed inventory of the Equipment (including the model and serial number of each major component thereof), including, without limitation, all internal circuit boards, module boards, and software features; 2. a complete and current set of all manuals, blue prints, process flow diagrams, equipment configuration diagrams, maintenance records and other data reasonably requested by Lessor concerning the configuration and operation of the Equipment; and (B) Upon the request of Lessor, Lessee shall, not later than 120 days prior to the expiration or other termination of the Lease make the Equipment available for on-site operational inspection by persons designated by the Lessor who shall be duly qualified to inspect the Equipment in its operational environment. (C) All Equipment shall be cleaned and treated with respect to rust, corrosion and appearance in accordance with manufacturer's recommendations and consistent with the best practices of dealers in used equipment similar to the Equipment; shall have no Lessee installed markings of labels which are not necessary for the operation, maintenance or repair of the Equipment, and shall be in compliance with all applicable government laws, rules and regulations. (D) The Equipment shall be de-installed and packed in accordance with manufacturer's recommendations. Without limitation, all internal fluids will either be drained and disposed of or filled and secured in accordance with manufacturer's recommendations and applicable government laws, rules and regulations. (E) The Equipment will be transported in accordance with manufacturer's recommendations and applicable government laws, rules and regulations to not more than one individual location within the continental United States selected by Lessor. LESSOR: LESSEE: GENERAL ELECTRIC CAPITAL NATIONAL SEMICONDUCTOR CORPORATION CORPORATION By:_________________________ By:_________________________ ANNEX A TO SCHEDULE NO. 007 TO MASTER LEASE AGREEMENT DATED AS OF DESCRIPTION OF EQUIPMENT
INVOICE INV. VENDOR NAME # DATE EQUIPMENT COST - ------------- --------- --------- ------------------------------------------------------------ --------------- Applied 298232 & 3/30/94 Refurbished 5000 TEOS Three Chamber System S/N 5268 $ 1,072,500.00 Materials, 330809 Freight: $ 4,057.07 Inc. Ebara Tech., 105212 4/13/94 (1) 40x20W/CLRS, 208V, 3/8" Exhpurge S/N 916651 $ 23,715.00 Inc. INVOICE COST: $1,100,272.07 Initials: ------------------------------ ------------------------------- Lessor Lessee
ANNEX B TO SCHEDULE NO. 007 TO MASTER LEASE AGREEMENT DATED AS OF December 13, 1994 BILL OF SALE National Semiconductor Corporation (the "Seller"), in consideration of the sum of One Million One Hundred Thousand Two Hundred Seventy-two Dollars and Seven Cents Dollars ($1,100,272.07) plus sales taxes in the amount of zero Dollars ($00.00) (if exemption from sales tax is claimed, an exemption certificate must be furnished to Buyer herewith), paid by General Electric Capital Corporation (the "Buyer"), receipt of which is acknowledged, hereby grants, sells, assigns, transfers and delivers to Buyer the equipment (the "Equipment") described in the above schedule (said schedule and related lease being collectively referred to as "Lease"), along with whatever claims and rights Seller may have against the manufacturer and/or supplier of the Equipment (the "Supplier"), including but not limited to all warranties and representations. At Buyer's request, Seller will cause Supplier to execute the attached Acknowledgment. Buyer is purchasing the Equipment for leasing back to Seller pursuant to the Lease. Seller represents and warrants to Buyer that (1) Buyer will acquire by the terms of this Bill of Sale good title to the Equipment free from all liens and encumbrances whatsoever; (2) Seller has the right to sell the Equipment; and (3) the Equipment has been delivered to Seller in good order and condition, and conforms to the specifications, requirements and standards applicable thereto; and (4) the equipment has been accurately labeled, consistent with the requirements of 40 CFR part 82 Subpart E, with respect to products manufactured with a controlled (ozone-depleting) substance. Seller agrees to save and hold harmless Buyer from and against any and all federal, state, municipal and local license fees and taxes of any kind or nature, including, without limiting the generality of the foregoing, any and all excise, personal property, use and sales taxes, and from and against any and all liabilities, obligations, losses, damages, penalties, claims, actions and suits resulting therefrom and imposed upon, incurred by or asserted against Buyer as a consequence of the sale of the Equipment to Buyer. IN WITNESS WHEREOF, Seller has executed this Bill of Sale this thirteenth day of December ,1994. SELLER: National Semiconductor Corporation By:________________________ Title: Assistant Treasurer ------------------------ - ------ ANNEX C TO SCHEDULE NO. 007 TO MASTER LEASE AGREEMENT DATED AS OF December 13, 1994 CERTIFICATE OF ACCEPTANCE To: General Electric Capital Corporation ("Lessor") Pursuant to the provisions of the above schedule and lease (collectively, the "Lease"), Lessee hereby certifies and warrants that (a) all Equipment listed in the related Bill of Sale is in good condition and appearance, installed (if applicable) and in working order; and (b) Lessee accepts the Equipment for all purposes of the Lease, the purchase documents and all attendant documents. Lessee does further certify that as of the date hereof (i) Lessee is not in default under the Lease; (ii) the representations and warranties made by Lessee pursuant to or under the Lease are true and correct on the date hereof and (iii) Lessee has reviewed and approves of the purchase documents for the Equipment, if any. DESCRIPTION OF EQUIPMENT Type and Manufacturer Serial Model of Number of Cost Per Numbers Equipment Units Unit See Annex A Attached hereto and Made A Part Hereof ________________________________ Authorized Representative Dated: December 13, ---------------------- 1994 - -------- ANNEX D TO SCHEDULE NO 007 TO MASTER LEASE AGREEMENT DATED AS OF December 13, 1994 STIPULATED LOSS AND TERMINATION VALUE TABLE* TERMINATION VALUE STIPULATED LOSS VALUE RENTAL PERCENTAGE PERCENTAGE - ------------- ---------------------- -------------------------- 1 103.787 107.868 2 103.089 107.211 3 102.384 106.546 4 101.664 105.867 5 100.931 105.175 6 100.185 104.469 7 99.425 103.750 8 98.657 103.022 9 97.876 102.281 10 97.080 101.526 11 96.277 100.763 12 95.459 99.986 13 94.628 99.196 14 93.789 98.397 15 92.941 97.589 16 92.083 96.773 17 91.217 95.946 18 90.341 95.111 19 89.455 94.266 20 88.561 93.413 21 87.658 92.550 22 86.745 91.677 23 85.823 90.796 24 84.892 89.905 25 83.951 89.005 26 83.001 88.096 27 82.043 87.178 28 81.077 86.253 29 80.104 85.321 30 79.125 84.382 31 78.138 83.436 32 77.143 82.480 33 76.140 81.518 34 75.130 80.549 35 74.111 79.570 36 73.085 78.585 37 72.049 77.589 38 70.686 76.267 39 69.311 74.932 40 67.927 73.589 41 66.535 72.238 42 65.134 70.878 43 63.725 69.509 44 62.304 68.128 45 60.873 66.738 TERMINATION VALUE STIPULATED LOSS VALUE RENTAL PERCENTAGE PERCENTAGE - ------------- ---------------------- -------------------------- 46 59.434 65.430 47 57.983 63.929 48 56.523 62.509 49 55.054 61.081 50 53.572 59.640 51 52.078 58.187 52 50.578 56.726 53 49.070 55.259 54 47.554 53.784 55 46.032 52.302 56 44.497 50.808 57 42.955 49.306 cont. PAYMENT AUTHORIZATION General Electric Capital Corporation 2200 Powell Street Suite 600 Emeryville, CA 94608 You are hereby authorized to pay the proceeds from our sale to you of certain Equipment as evidenced on the attached Bill of Sale to the following parties in the amount(s) designated below. National Semiconductor $1,100,272.07 Corporation 2900 Semiconductor Drive Santa Clara, CA 95052-8090 For reimbursement of funds previously paid to various vendors for equipment plus plus attachments and accessories including labor described on Annex A attached hereto and made a part hereof. Very truly yours, National Semiconductor Corporation By:_____________________________ Title: Assistant Treasurer ------------------------------ - -------------------------- Date: December 13, 1994 ------------------------------- - -------------------------- CERTIFICATE CONCERNING PAYMENT OF PERSONAL PROPERTY TAXES To: General Electric Capital Corporation To insure Lessee's compliance with the provisions of a Master Lease Agreement dated as of December 13, 1994 (the "Lease") by and between the undersigned as Lessee and General Electric Capital Corporation as Lessor, Lessee hereby agrees to one of the following options with respect to the payment of personal property taxes on the Equipment described in Annex A to the Lease, such agreement to be conclusively evidenced by the initials and signature of an authorized agent of Lessee in the appropriate spaces provided below: Please choose one of the options below by placing an "X" in the appropriate box and initialing where indicated. Initial ONLY ONE Choice of Option OPTION 1 Lessee's Initials: (Applicable in Jurisdictions Requiring Lessor to List Equipment): Lessee agrees that it will not list any of such Equipment for property tax purposes or report any property tax assessed against such Equipment until otherwise directed in writing by Lessor. Upon receipt of any property tax bill pertaining to such Equipment from the appropriate taxing authority, Lessor will pay such tax and will invoice Lessee for the expense. Upon receipt of such invoice, Lessee will promptly reimburse Lessor for such expense; OPTION 2 Lessee's Initials: (Applicable in Jurisdictions Permitting Lessee to List Equipment): Lessee agrees that it will (a) list all such Equipment, (b) report all property taxes assessed against such Equipment and (c) pay all such taxes when due directly to the appropriate taxing authority until Lessor shall otherwise direct in writing. LESSEE: National Semiconductor Corporation By:____________________________ Title: Assistant Treasurer ------------------------------- - ------------------------- Date: December 13, 1994 -------------------------------- - ------------------------- EX-10.21 19 EX-10.21 Exhibit 10.21 FAIRCHILD NSC DEFERRED COMPENSATION PLAN TRUST (Established Effective March 11, 1997) (Also Rabbi Trust) TABLE OF CONTENTS Section 1. Establishment of Trust............................................1 Section 2. Payments to Plan Participants and Their Beneficiaries.............2 Section 3. Trustee Responsibility Regarding Payments to Trust Beneficiary When the Company Is Insolvent.........................3 Section 4. Payments to the Company...........................................4 Section 5. Investment Authority..............................................4 Section 6. Disposition of Income.............................................5 Section 7. Accounting by Trustee.............................................6 Section 8. Responsibility of Trustee.........................................6 Section 9. Compensation and Expenses of Trustee..............................7 Section 10. Resignation and Removal of Trustee................................8 Section 11. Appointment of Successor..........................................8 Section 12. Amendment or Termination..........................................9 Section 13. Miscellaneous.....................................................9 Section 14. Effective Date....................................................9 FAIRCHILD NSC DEFERRED COMPENSATION PLAN TRUST This Agreement is made effective as of the 11th day of March, 1997 by and between Fairchild Semiconductor Corporation, a Delaware corporation (the "Company"), and H.M. Payson & Co., a Maine corporation (the "Trustee"). WHEREAS, the Company has assumed sponsorship of the National Semiconductor Corporation Deferred Compensation Plan (the "Plan"), a nonqualified supplemental deferred compensation plan, as amended, effective January 30, 1997, a true and complete copy of which is attached hereto as Schedule A; WHEREAS, the Company has incurred or expects to incur liability under the terms of the Plan with respect to the individuals participating in such Plan; WHEREAS, pursuant to its reserved powers under the Plan, the Company wishes to establish a trust (the "Trust"), to which National Semiconductor Corporation shall contribute on behalf of the Company, in accordance with certain benefit deferrals made under or subject to the Plan, which Trust assets shall be held therein, subject to the claims of the Company's creditors in the event of the Company's Insolvency, as herein defined, until paid to Plan participants and their beneficiaries in such manner and at such times as specified in the Plan; WHEREAS, the Company wishes to appoint the Trustee to serve as trustee of the Trust, and the Trustee wishes to serve as trustee of the Trust, pursuant to the terms hereof; WHEREAS, it is the intention of the parties that this Trust shall constitute an unfunded arrangement and shall not affect the status of the Plan as an unfunded plan maintained for the purpose of providing deferred compensation for a select group of management or highly compensated employees for purposes of Title I of the Employee Retirement Income Security Act of 1974, as amended; WHEREAS, it is the intention of the Company to make contributions to the Trust to provide itself with a source of funds to assist it in the meeting of its liabilities under the Plan; WHEREAS, the Plan and this Trust may be assumed and continued by FSC Semiconductor Corporation, a Delaware corporation (the corporate parent of the Company), immediately after the assumption of the Plan and establishment of this Trust by the Company; NOW, THEREFORE, the parties do hereby establish the Trust and agree that the Trust shall be comprised, held and disposed of as follows: Section 1. Establishment of Trust (a) Pursuant to participating employee deferrals made under or subject to the Plan, National Semiconductor Corporation shall deposit with the Trustee a certain sum of cash, which shall become the initial principal of the Trust to be held, administered and disposed of by the Trustee as provided in this Trust Agreement. 1 (b) The Trust hereby established is irrevocable. (c) The Trust is intended to be a grantor trust, of which the Company is the grantor, within the meaning of subpart E, part I, subchapter J, chapter 1, subtitle A of the Internal Revenue Code of 1986, as amended, and shall be construed accordingly. (d) The principal of the Trust, and any earnings thereon shall be held separate and apart from other funds of the Company and shall be used exclusively for the uses and purposes of Plan participants and general creditors of the Company as herein set forth. Plan participants and their beneficiaries shall have no preferred claim on, or any beneficial ownership interest in, any assets of the Trust. Any benefit rights created under the Plan and this Trust Agreement shall be mere unsecured contractual rights of Plan participants and their beneficiaries against the Company. Any assets held by the Trust will be subject to the claims of the Company's general creditors under federal and state law in the event of Insolvency, as defined in Section 3(a) herein. (e) The Company, in its sole discretion, in accordance with the Plan, may at any time, or from time to time, make additional deposits of cash or other property in trust with the Trustee to augment the principal to be held, administered and disposed of by the Trustee as provided in this Trust agreement. Neither the Trustee nor any Plan participant or beneficiary shall have any right to compel such additional deposits. Section 2. Payments to Plan Participants and Their Beneficiaries (a) The Company, by action of the Committee designated as the Plan Administrator under the Plan (the "Committee"), shall from time to time deliver to the Trustee a schedule and any amendments thereto (the "Payment Schedule") that indicates the amounts payable in respect of each Plan participant (and his or her beneficiaries), that provides a formula or other instructions acceptable to the Trustee for determining the amounts so payable, the form in which such amount is to be paid (as provided for or available under the Plan, including both in kind and cash distributions), and the time of commencement for payment of such amounts; provided, however, that no such Payment Schedule shall be inconsistent with the terms of the Stockholders Agreement (as hereinafter defined) or applicable law. The Trustee shall be entitled to rely on any schedule signed by the Committee as the Payment Schedule, or any amendment thereto. Except as otherwise provided herein, the Trustee shall make payments to the Plan participants and their beneficiaries in accordance with such Payment Schedule as from time to time in effect. Subject to the next succeeding sentence, the Trustee shall make provision for the reporting and withholding of any federal, state or local taxes that may be required to be withheld with respect to the payment of benefits pursuant to the terms of the Plan and shall pay amounts withheld to the appropriate taxing authorities or determine that such amounts have been reported, withheld and paid by the Company. Each Plan participant or beneficiary shall be given the opportunity to elect whether to have taxes withheld from any distribution to him or her from the Trust, and Trust assets may be liquidated (if FSC Stock (as defined herein), then by such price and method provided under the Stockholders Agreement referenced in Section 5 below) to provide for such withholding and payment of taxes. The foregoing provisions of this paragraph (a) to the contrary notwithstanding, 2 in the event that the Trust assets consist of FSC Stock, or any other assets that the Trustee is unable to liquidate, then (i) the Payment Schedule must provide for in-kind distributions and (ii) the Company shall be solely responsible for the reporting and withholding of any federal, state or local taxes that may be required to be withheld with respect to the payment of benefits pursuant to the terms of the Plan. (b) The entitlement of a Plan participant or his or her beneficiaries to benefits under the Plan shall be determined by the Committee, and any claim for such benefits shall be considered and reviewed by the Committee under the procedures set out in the Plan. (c) The Company may make payment of benefits directly to Plan participants or their beneficiaries as they become due under the terms of the Plan. The Company shall notify the Trustee of its decision to make payment of benefits directly prior to the time amounts are payable to Plan participants or their beneficiaries, and shall amend the Payment Schedule accordingly. In addition, if the principal of the Trust, and any earnings thereon, are not sufficient to make payments of benefits in accordance with the terms of the Plan, the Company shall make the balance of each such payment as it falls due. The Trustee shall notify the Company if principal and earnings are not sufficient. Section 3. Trustee Responsibility Regarding Payments to Trust Beneficiary When the Company Is Insolvent (a) The Trustee shall cease payment of benefits to Plan participants and their beneficiaries if the Company is Insolvent. The Company shall be considered "Insolvent" for purposes of this Trust Agreement if (i) the Company is unable to pay its debts as they become due, or (ii) the Company is subject to a pending proceeding as a debtor under the United States Bankruptcy Code. (b) At all times during the continuance of this Trust, as provided in Section 1(d) hereof, the principal and income of the Trust shall be subject to claims of general creditors of the Company under federal and state law as set forth below. (1) The Board of Directors and the President of the Company shall have the duty to inform the Trustee in writing of the Company's Insolvency. If the Trustee receives a notice in writing from any Director or the President of the Company that the Company is Insolvent, the Trustee may conclusively rely on such notice as a determination that the Company is Insolvent. If a person claiming to be a creditor of the Company alleges in writing to the Trustee that the Company has become Insolvent, the Trustee shall determine whether the Company is Insolvent and, pending such determination, the Trustee shall discontinue payment of benefits to Plan participants or their beneficiaries. (2) Unless the Trustee has actual knowledge of the Company's Insolvency, or has received notice from the Company or a person claiming to be a creditor alleging that the Company is Insolvent, the Trustee shall have no duty to inquire whether the Company is Insolvent. The Trustee may in all events rely on such evidence concerning the Company's 3 solvency as may be furnished to or obtained by the Trustee and that provides the Trustee with a reasonable basis for making a determination concerning the Company's solvency, including without limitation the advice of experts retained by the Trustee pursuant to Section 8 hereof. (3) If at any time the Trustee has determined that the Company is Insolvent, the Trustee shall discontinue payments to Plan participants or their beneficiaries and shall hold the assets of the Trust to cover the expenses of administering the Trust and for the benefit of the Company's general creditors. Nothing in this Trust Agreement shall in any way diminish any rights of Plan participants or their beneficiaries to pursue their rights as general creditors of the Company with respect to benefits due under the Plan or otherwise. (4) The Trustee shall resume the payment of benefits to Plan participants or their beneficiaries in accordance with Section 2 of this Trust Agreement only after the Trustee has determined that the Company is not Insolvent (or is no longer Insolvent). (5) To determine whether the Company is Insolvent, as provided in Parts (1) and (2) above, or not Insolvent (or no longer Insolvent) as provided in Part (4) above, the Trustee may at any time retain an independent public accounting firm to analyze whether the Company is Insolvent, and the Trustee shall be entitled to conclusively rely on the findings of such independent public accounting firm. If the Trustee at any time retains an independent public accounting firm for this purpose, the Company shall fully cooperate and provide such firm with any information that it may reasonably request to perform its analysis. (c) If the Trustee discontinues the payment of benefits from the Trust pursuant to Section 3(b) hereof and subsequently resumes such payments, the first payment following such discontinuance shall include the aggregate amount of all payments due to Plan participants or their beneficiaries under the terms of the Plan for the period of such discontinuance, less the aggregate amount of any payments made to Plan participants or their beneficiaries by the Company in lieu of the payments provided for hereunder during any such period of discontinuance. The Committee shall amend the Payment Schedule to reflect how payment should be made of the amount remaining in this Trust. Section 4. Payments to the Company Except as provided in Section 3 hereof, after the Trust has become irrevocable, the Company shall have no right or power to direct the Trustee to return to the Company or to divert to others any of the Trust assets before all payment of benefits have been made to Plan participants and their beneficiaries pursuant to the terms of the Plan, as reflected in the Payment Schedule. Section 5. Investment Authority It is understood and agreed that consistent with the purposes of the Plan and the measurement of earnings designated by Plan Participants under the Plan (as set forth on Schedule A hereto), the Trustee may invest all of the assets of the Trust in securities or obligations of the Company or an affiliate of the Company including an investment of all of the assets of the Trust in 4 common or preferred stock of FSC Semiconductor Corporation (the "FSC Stock"), and FSC Stock may continue to be held or invested in by the Trust even after the issuer ceases to be an affiliate of the Company). As deposits are made to the Trust, the Trustee may apply each deposit (or such portion thereof as instructed by the Company) promptly toward the purchase of shares of FSC Stock, although the Trustee shall have discretion to invest other than as directed by the Committee in order to fulfill the purposes of the Plan. Except as otherwise provided herein, all rights associated with assets of the Trust shall be exercised by the Trustee or any person(s) designated by the Trustee; provided, however, such rights shall in no event be exercisable by or rest with Plan participants. The Company shall have the right, at any time and from time to time, in its sole discretion, to substitute assets of equal fair market value (with respect to FSC Stock, using the per share price determined in accordance with the Securities Purchase and Holders Agreement (the "Stockholders Agreement") by and among FSC Semiconductor Corporation, Sterling Holding Company, LLC, National Semiconductor Corporation and certain Management Investors entered into on or about the effective date of this Trust, unless such Stock is then publicly-traded) for any asset held by the Trust; provided, however, that if the Company exercises such right, or if FSC Semiconductor Corporation redeems any FSC Stock held by the Trust or exchanges any FSC Stock held by the Trust for debentures or any other securities, the Trustee shall have no obligation to achieve the measurement of earnings designated by Plan participants and shall not bear any responsibility for the performance of the assets transferred to the Trust. This right is exercisable by the Company in a nonfiduciary capacity without the approval or consent of any person in a fiduciary capacity. If the Trustee becomes the holder of shares of FSC Stock, it is authorized and directed to execute and deliver the Stockholders Agreement and Registration Rights Agreement for Common Stock, and to perform its obligations thereunder. Notwithstanding the foregoing, the Committee shall direct the Trustee how to respond to a tender offer or other discretionary offer to purchase of any FSC Stock held by the Trust. The Committee may direct the Trustee in the exercise of any voting rights appurtenant to any FSC Stock held by the Trust; in the absence of such direction, the Trustee may abstain from voting such FSC Stock. Section 6. Disposition of Income During the term of this Trust, all income received by the Trust, net of expenses and taxes, shall be accumulated and reinvested. 5 Section 7. Accounting by Trustee The Trustee shall keep accurate and detailed records of all investments, receipts, disbursements, and all other transactions required to be made, including such specific records as shall be agreed upon in writing between the Company and the Trustee. Within 60 days following the close of each calendar year and within 60 days after the removal or resignation of the Trustee, the Trustee shall deliver to the Company a written account of its administration of the Trust during such year or during the period from the close of the last preceding year to the date of such removal or resignation, setting forth all investments, receipts, disbursements and other transactions effected by it, including a description of all securities and investments purchased and sold with the cost or net proceeds of such purchases or sales (accrued interest paid or receivable being shown separately), and showing all cash, securities and other property held in the Trust at the end of such year or as of the date of such removal or resignation, as the case may be. Section 8. Responsibility of Trustee; Indemnification (a) The duties and obligations of the Trustee shall be limited to those expressly set forth in this Trust Agreement, notwithstanding any reference herein to the Plan. The Trustee shall act with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent person acting in like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims, provided, however, that the Trustee shall not be responsible for and shall incur no liability to any person for any action taken pursuant to a direction, request or approval given by the Company or the Committee or any action taken by the Company or the Committee which is contemplated by, and in conformity with, the terms of the Plan or this Trust and is given in writing. The Trustee may rely and act upon any certificate, notice or direction of the Committee, or of a person authorized to act on its behalf, or of the Company which the Trustee believes to be genuine and to have been signed by person or persons duly authorized to sign such certificate, notice or direction. The Trustee shall be under no duty or obligation to review any action to be taken, nor to recommend any action to be taken, at the direction of the Company or the Committee. (b) In the event of any dispute or question concerning the administration of this Trust, the Trustee may apply to a court of competent jurisdiction to resolve the dispute or question. In any such action, it shall be necessary to join as parties thereto only the Trustee, the Company and (where relevant) the Committee; any judgment or decree entered in such action shall be deemed conclusive upon all persons having or claiming any interest in the Trust assets or the Plan. If the Trustee undertakes or defends any litigation arising in connection with this Trust, the Company agrees to indemnify the Trustee against the Trustee's costs, expenses and liabilities (including, without limitation, attorneys' fees and expenses) relating thereto and to be primarily liable for such payments. (c) The Trustee may consult with legal counsel (who may also be counsel for the Company generally) with respect to any question which may arise under this Trust Agreement or the Plan. An opinion of such counsel shall be full and complete protection with respect to any 6 action taken, or omitted, by the Trustee hereunder in good faith in accordance with the opinion of such counsel. (d) The Trustee may hire agents, accountants, actuaries, investment advisors, financial consultants or other professionals to assist it in performing any of its duties or obligations hereunder. (e) The Trustee shall have, without exclusion, all powers conferred on Trustees by applicable law, unless expressly provided otherwise herein, provided, however, that if an insurance policy is held as an asset of the Trust, the Trustee shall have no power to name a beneficiary of the policy other than the Trust, to assign the policy (as distinct from conversion of the policy to a different form) other than to a successor Trustee, or to loan to any person the proceeds of any borrowing against such policy. (f) Notwithstanding any powers granted to the Trustee pursuant to this Trust Agreement or to applicable law, the Trustee shall not have any power that could give this Trust the objective of carrying on a business and dividing the gains therefrom, within the meaning of section 301.7701-2 of the Procedure and Administrative Regulations promulgated pursuant to the Internal Revenue Code. (g) Notwithstanding any other provision of this Trust Agreement and to the fullest extent permitted by law, the Company agrees to indemnify, defend and hold harmless the Trustee, and each of its officers, managing directors, directors and agents, against any and all costs, damages, liabilities and expenses incurred by or imposed upon it or them in connection with any pending or threatened action, suit, or proceeding, whether civil, criminal, administrative, or investigative (including any arbitration or other dispute resolution proceeding), in which it or they may be involved by reason of (i) the Trustee being, or having been, a trustee under the Plan; or (ii) any action or inaction by it or them in connection with this Trust Agreement, other than acts of willful or reckless misconduct. Indemnified expenses shall include, without limitation, attorneys' fees, costs of investigation, expert witness fees, judgments, fines, amounts paid in settlement, and other similar or related expenses reasonably incurred by the Trustee in connection with the action, suit or proceeding. (h) If fiduciary liability insurance is purchased by or on behalf of the Company, the Trustee shall be added as a covered insured. Section 9. Compensation and Expenses of Trustee The Company agrees to pay the Trustee the compensation set forth on Schedule B hereto (as the same may be adjusted from time to time by written agreement of the Company and the Trustee), and to pay or promptly reimburse all fees and expenses reasonably incurred by or on behalf of the Trustee hereunder (including, without limitation, those arising under Section 8 and any indemnifiable expenses). If the Company has not paid any such amount within 30 days of receipt of an invoice for payment, the Trustee may pay such amount from the Trust. The Trustee is authorized to sell Trust assets in order to fund such liabilities, subject however to any applicable restrictions on sale of FSC Stock. 7 Section 10. Resignation and Removal of Trustee (a) The Trustee may resign at any time by written notice to the Company, which shall be effective 30 days after receipt of such notice unless the Company and the Trustee agree otherwise. (b) The Trustee may be removed by the Company on 30 days' written notice, or upon shorter written notice, accepted by the Trustee. Such removal shall be only for cause, consisting of the Trustee's breach of a material obligation under this Trust Agreement which breach the Trustee fails or refuses to cure within a reasonable period after notice thereof by the Company. (c) Upon resignation or removal of the Trustee and appointment of a successor Trustee, all assets shall subsequently be transferred to the successor Trustee. The transfer shall be completed within 30 days after receipt of notice of resignation, removal or transfer, unless the Company extends the time limit. Notwithstanding the foregoing, the Trustee may reserve such money or other assets as it shall in its sole and absolute discretion deem advisable for payment of its fees and all expenses, and any balance of such reserve remaining after the payment of such charges shall be paid over to the successor Trustee. Upon completion of the succession and the rendering of its final accounts, the Trustee shall have no further responsibilities whatsoever under this Trust Agreement or the Plan. (d) If the Trustee resigns or is removed, a successor shall be appointed, in accordance with Section 11 hereof, by the effective date of resignation or removal under paragraph (a) or (b) of this section. If no such appointment has been made, the Trustee may apply to a court of competent jurisdiction for appointment of a successor or for instructions. All expenses of the Trustee in connection with the proceeding shall be paid by the Company or, if the Company fails to pay, allowed as administrative expenses of the Trust. Section 11. Appointment of Successor (a) If the Trustee resigns, or is removed, in accordance with Section 10(a) or (b) hereof, the Company may appoint any third party, such as a bank trust department or other party that may be granted corporate trustee powers under state law, as a successor to replace the Trustee upon resignation or removal. The appointment shall be effective when accepted in writing by the new Trustee, who shall have all of the rights and powers of the former Trustee, including ownership rights in the Trust assets. The former Trustee shall execute any instrument necessary or reasonably requested by the Company or the successor Trustee to evidence the transfer. (b) The successor Trustee need not examine the records and acts of any prior Trustee and may retain or dispose of existing Trust assets, subject to Sections 7 and 8 hereof. The successor Trustee shall not be responsible for, and the Company shall indemnify and defend the successor Trustee from, any claim or liability resulting from any action or inaction of any prior Trustee or from any other past event, or any condition existing at the time it becomes successor Trustee. 8 Section 12. Amendment or Termination (a) This Trust Agreement may be amended by a written instrument executed by the Trustee and the Company. Notwithstanding the foregoing, no such amendment shall conflict with the terms of the Plan or shall make the Trust revocable after it has become irrevocable in accordance with Section 1(b) hereof. (b) Except in accordance with (c) below, the Trust shall not terminate until the earlier of (i) the date on which Plan participants and their beneficiaries are no longer entitled to benefits pursuant to the terms of the Plan, or (ii) the date on which there are no assets remaining in the Trust. Upon termination of the Trust, any assets remaining in the Trust shall be returned to the Company. (c) Upon written approval of the Plan participants entitled to payment of benefits pursuant to the terms of the Plan, the Company may terminate this Trust by providing written notice to the Trustee prior to the time all benefit payments under the Plan have been made. The Trustee may rely conclusively on a written notice from the Committee that the Plan participants have so approved a termination of the Trust. All assets in the Trust upon such a termination shall be returned to the Company. Section 13. Miscellaneous (a) Any provision of this Trust Agreement prohibited by law shall be ineffective to the extent of any such prohibition without invalidating the remaining provisions hereof. (b) Benefits payable to Plan participants and their beneficiaries under this Trust Agreement may not be anticipated, assigned (either at law or in equity), alienated, pledged, encumbered or subjected to attachment, garnishment, levy, execution or other legal or equitable process. (c) This Trust Agreement shall be governed by and construed in accordance with the laws of the State of Maine. (d) Any communication to the Trustee, including any notice, direction, designation, certification, order, instruction or objection, shall be in writing and signed by the Company or another person authorized under the Plan to give the communication. Any such communication shall be deemed effective upon receipt or, if earlier, on the fourth business day after mailing thereof by U.S. registered or certified mail, return receipt requested, to H.M. Payson & Co., One Portland Square, P.O. Box 31, Portland, ME 04112, Attn: President. Section 14. Effective Date The effective date of this Trust Agreement shall be March 11, 1997. 9 IN WITNESS WHEREOF, the Company and the Trustee have caused this Trust Agreement to be executed and delivered as of the effective date. FAIRCHILD SEMICONDUCTOR H.M. PAYSON & CO. CORPORATION acting solely as Trustee By: ____________________________ By: ___________________________ Its: ____________________________ Its: __________________________ SCHEDULE A Plan Document NATIONAL SEMICONDUCTOR CORPORATION DEFERRED COMPENSATION PLAN 1. Purpose. This plan is the National Semiconductor Corporation Deferred Compensation Plan (the "Plan"), established by National Semiconductor Corporation (the "Company"), a Delaware corporation, to permit certain employees ("Employees" or, singly, an "Employee") of the Memory, Discrete and Logic divisions of the Company ("Fairchild") to defer certain payments relating to the recapitalization of Fairchild, and to consolidate and restate certain deferrals. This Plan is expressly conditional upon the consummation of the reorganization of Fairchild pursuant to the Agreement and Plan of Recapitalization (the "Recapitalization Agreement") between the Company and Sterling Holding Company, LLC dated as of January 24, 1997 (the "Transaction"), and will be null and void if the Transaction is not so consummated. Subject to the preceding condition, the Plan shall be effective as of the date it is adopted by the Company. It is understood that the corporation that succeeds to the Fairchild business shall, as a part of the consummation of the Transaction, assume this Plan and all liabilities of the Company with respect to the payments due hereunder ("Plan Liabilities"). 2. Eligible Employees. The group of Employees eligible to participate in this Plan shall consist of each Employee (i) who is expected to become an employee of the corporation that will succeed to the Fairchild business pursuant to the Recapitalization Agreement, (ii) who has participated in and deferred amounts under the Company's Key Employee Incentive Plan ("KEIP"), who is a participant in the Discrete Retention Bonus Plan ("Retention Bonus Plan") and/or the enhanced benefits under the Discrete Performance Incentive Plan ("DPIP") -Executive Level as described in a memorandum dated August 21, 1996, or who has entered into any one of the letter agreements the Company issued concerning certain Employees' continued employment with the Company and certain payments relating to the Transaction (a "Transaction Letter"), and (iii) who is a member of a select group of management or highly compensated employees of the Company who is selected to participate in this Plan by the Retirement and Savings Program Administrative Committee of the Company. 3. Deferrals. Each eligible Employee who is selected to participate in the Plan may previously have made one or more irrevocable elections to defer amounts that otherwise would have become payable pursuant to KEIP prior to the Company's 1997 fiscal year (a "Prior Deferral"). In addition, each eligible Employee may be electing, by completing his Schedule of Deferrals, to defer amounts that otherwise would become payable pursuant to KEIP for the Company's 1997 fiscal year, the Retention Bonus Plan, DPIP, and/or a Transaction Letter (the term "Transaction Letter" shall also include a certain Retention Agreement by and between the Company and Kirk P. Pond, dated July 2, 1996, as amended) (the "Payments"). The Prior Deferrals and the Payments that each Employee elects to defer (the "Deferrals") shall be listed on the Employee's Schedule of Deferrals, each of which shall constitute a part of this Plan, a form of which is attached hereto as Schedule A. Each Employee who participates in this Plan also shall elect by so designating on his Schedule of Deferrals the proportion (if any) of each Prior Deferral and of each Payment that shall be subject to deferral pursuant to, and all of the terms and conditions of, this Plan. Further, each Employee who participates in this Plan shall enter into a new written payment election form, a new written beneficiary designation form, and a new measurement of earnings form, which will set forth the terms and conditions of payment applicable to the Deferrals as of the effective date of this Plan, which elections, together with this Plan, shall restate the terms of each Prior Deferral agreement, except those terms relating to the election to defer amounts otherwise payable. Finally, each Employee, by executing his Schedule of Deferrals, shall consent to the assumption of this Plan and the Plan Liabilities by the corporation that succeeds to the Fairchild business and shall release the Company from the Plan Liabilities when those liabilities are assumed by that corporation in connection with the Transaction. A form of Payment Election Form, a form of Designation of Beneficiary Form, and a form of Measurement of Earnings Form are attached to this Plan as Schedules B, C and D, respectively. 4. Administration. This Plan shall be administered by the Retirement and Savings Program Administrative Committee of the Company, or such other Committee as may be appointed from time to time ("Committee") by the Company or, upon consummation of the Transaction, by the Committee appointed by the corporation that succeeds to the Fairchild business, or by such other committee as may be appointed from time to time by that corporation or any other successor corporation that assumes this Plan (as applicable, the "Employer"). The Committee may, from time to time, adopt or rescind rules and regulations for carrying out the provisions and purposes of this Plan. Subject to the express provisions of this Plan, the Committee shall have authority and discretion to do everything necessary or appropriate to administer this Plan, including, without limitation, interpreting the provisions of this Plan and the election forms thereunder. All determinations made by the Committee with respect to this Plan shall be final, binding and conclusive. No member of the Committee shall be liable for any act or omission of the Committee or any other member of the Committee, or for any act or omission on his own part, in connection with the administration of this Plan, unless it resulted from the member's own willful misconduct. 5. Deferral Account. Each Employee's Deferral amounts shall be credited to a separate deferred compensation account that shall be established on the books of the Employer (the "Account"). Each Employee's Deferrals shall be credited to the Account on the day following the effective date of the Plan or such later date as such Deferrals otherwise would have been payable to the Employee had he not elected to defer receipt of them. The Account shall be used solely as a device for the measurement and determination of the amount of the Deferrals and earnings to be paid to the Employee in accordance with this Plan. The Account shall not constitute or be treated as a trust fund of any kind, the Employer shall be under no obligation to segregate any of its assets for purposes of the Account, and all amounts at any time credited to the Account shall be and remain the sole property of the Employer. No Employee shall have by virtue of his Account any ownership interest or rights of any nature with respect to specific assets of the Employer. Each Employee's rights shall be limited to those of a recipient of an unfunded, unsecured promise to pay amounts in the future and the Employee's position with respect to the amounts credited to his Account shall be that of a general unsecured creditor of the Employer. The amounts credited to each Employee's Account shall not be subject to seizure for the payment of any debts or judgments against him, and the Employee shall have no right to transfer, modify, anticipate, assign or encumber any of such amounts. Any purported seizure, transfer, modification, anticipation, assignment, encumbrance or transfer by operation of law shall be void. The Employer may establish one or more trusts (a so-called "rabbi trust") to provide a source for payments of Deferrals under this Plan but any assets owned or held by any such trust shall at all times and for all purposes be and remain unsegregated general assets that are the sole property of the Employer, as described in this Section 5. 6. Earnings Credited to Account. Each Employee's Account shall be credited with earnings and losses, gains and expenses in accordance with the terms of his Measurement of Earnings Form, attached hereto as Schedule D. 7. Payment of Account. The amount credited to each Employee's Account shall be paid or commence to be paid to the Employee at such time(s) and in accordance with such method(s) of payment as the Employee and the Employer agree in a written election in substantially the form attached hereto as Schedule B, which election shall be valid only if entered into at least thirteen consecutive calendar months prior to the date when the first payment is to be made. To the extent that the earnings and losses, gains and expenses on any amounts payable were measured as though the amounts were invested in Employer stock, those amounts shall be paid in Employer stock, other than any fractional shares, and all other amounts payable shall be paid in cash. Notwithstanding the immediately preceding paragraph, the total unpaid amount credited to an Employee's Account shall be paid as soon as practicable in a single lump sum in cash upon the occurrence of any of the following events: a. a liquidation or dissolution of the Employer, any sale of 50% or more of the equity interests in the Employer in a single transaction or a related series of transactions, the consummation of any consolidation or merger of the Employer with or into another entity, or any sale of all or substantially all the assets of the Employer, other than the Transaction; b. to the Employee's beneficiary, upon the death of the Employee. "Beneficiary" shall mean the person(s) (which may include an individual, a trust, a corporation, or any other entity) the Employee designates as such in substantially the form attached hereto as Schedule C or, if there is no such designated beneficiary in existence at the time of the Employee's death, the Employee's spouse or, if none, the Employee's estate. c. the one year anniversary of the lapse of the last of all the restrictions on the transfer of securities under the Securities Purchase and Holders Agreement by and among FSC Semiconductor Corporation, Sterling Holding Company, LLC, the Company, and certain management investors entered into as of the date of closing of the Transaction, to the extent all amounts credited to each Employee's Account have not then been paid. 8. Hardship. The Employer, in its sole discretion, may accelerate payments of amounts credited to an Employee's Account if requested to do so. Such acceleration may occur only in the event of unforeseeable financial emergency or severe hardship resulting from one or more recent events beyond the control of the Employee and is limited to the amount deemed reasonably necessary to satisfy the emergency or hardship. Any such acceleration must be approved by the members of the Committee. 9. Taxes. Each Employee, by signing his Schedule of Deferrals, agrees that, at the time the amount deferred is paid or, where required, earned, the Employer may withhold from any compensation or other payment made to the Employee the amount necessary, and/or that the Employee (whether or not he is then an employee of the Employer) otherwise will make appropriate arrangements with the Employer, for satisfaction of such tax withholding as may be required under federal, state, or local law with respect to such payment or deferred amount pursuant to any law or governmental regulation, ruling or order, and the Employer shall pay when due any taxes the Employer is required to pay with respect to the amount deferred. 10. No Alienation. Except as otherwise provided herein, amounts credited to an Employee's Account shall not in any way be subject to the debts or other obligations of the Employee and may not be voluntarily or involuntarily sold, transferred or assigned by him. 11. No Promise of Continuation. Nothing in this Plan shall confer upon any Employee the right to continue in the employment of the Employer or to receive any, or any particular rate of, compensation for services rendered as such; nor shall it interfere with or restrict in any way the rights of the Employer to discharge any Employee at any time for any reason whatsoever, with or without cause; nor shall it impose any obligation on any Employee to remain in the employ of the Employer. 12. Amendment and Termination. The Employer may at any time and from time to time modify, amend or terminate this Plan in any respect effective as of any date the Employer determines; provided, that no such action may adversely affect the rights of any Employee or beneficiary with respect to any amount credited to the Employee's Account on or before the date of such action. 13. Headings. The titles and headings used in this Plan are included for convenience only and shall not be construed as in any way affecting or modifying the text of this Plan, which text shall control. 14. Governing Law. This Plan, and all determinations made and actions taken pursuant to the Plan, shall be governed by and construed in accordance with the laws of the State of Maine, without giving effect to the conflicts of laws provisions thereof. 15. Claims Procedure. Claims for benefits under the Plan shall be filed in writing with the Committee. Written notice of the Committee's disposition of a claim generally shall be furnished to the claimant within 60 days after the application therefor is filed. However, if special circumstances exist of which the Committee notifies the claimant within such 60 day period, the Committee may extend such period to the extent necessary, but in no event beyond 120 days after the claim is filed. In the event the claim is denied, the reasons for the denial shall be specifically set forth in writing, pertinent provisions of the Plan shall be cited and, where appropriate, an explanation as to how the claimant can perfect the claim will be provided. Any claimant who has been denied a benefit shall be entitled, upon request to the Committee, to appeal the denial of his claim within 60 days following the Committee's determination described in the preceding sentence. Upon such appeal, the claimant, or his representative, shall be entitled to examine pertinent documents, submit issues and comments in writing to the Committee, and meet with the Committee. The Committee shall review its decision and issue a final decision to the claimant in writing, generally within 60 days following such appeal. However, if special circumstances exist of which the Committee notifies the claimant within such 60 day period, the Committee may extend such period to the extent necessary, but in no event beyond 120 days following such appeal. SCHEDULE A DEFERRED COMPENSATION PLAN Schedule of Deferrals Employee:____________ Kind of Deferral Applicable? (Y/N) Deferral (% or $) - ---------------- ----------------- ----------------- Prior KEIP Deferrals: No 1. 2. Fiscal Year 1997 KEIP Retention Bonus Plan DPIP Transaction Letter: 1. Stay-On Bonus 2. Participation Pool 3. Sales Bonus Retention Agreement By signing and dating this Schedule, I hereby consent, agree and elect that all amounts of the Deferrals (including Prior Deferrals that are deferred hereunder) shall be governed, as of the Plan's effective date, by the terms of the Plan, which shall constitute a restatement of the Prior Deferrals to the extent provided in Sections 1 and 3 of the Plan. I further consent to the assumption of the Plan and the Plan Liabilities by the corporation that succeeds to the Fairchild business and shall release the Company from the Plan Liabilities when those liabilities are assumed by that corporation in connection with the Transaction. Date:_______________ ____________________________________ [Signature of Employee] Instruction: Return signed Schedule to Nancy Ludgus, NSSC M/S 16-135 by February 21, 1997. Unless alternative arrangements are made in advance, applicable social security and medicare taxes will be withheld from deferrals. 2 SCHEDULE B DEFERRED COMPENSATION PLAN Payment Election Form Employee:____________ I hereby elect to receive the amount credited to my deferred compensation Account under the attached Deferred Compensation Plan as follows: 1. With respect to the amount credited to my Account the earnings and losses, gains and expenses ("Earnings") on which are determined as though the amounts were invested in either Class A common or Series A cumulative compounding preferred stock of the Employer: a. I elect that in no event shall I receive a payment prior to a date as soon as practicable following the date that any such shares, if actually held, would be redeemed by the Employer at that time either upon written request or in accordance with other agreements or governing instruments to which the Employer is then subject ("Agreements") to the extent that at that time all restrictions on the transfer of such shares imposed by law or under any Agreements have lapsed. b. In addition, I further elect to receive payment (you must select one item from this list): / / i. In all events as stated in (a) above. / / ii. If later than the date stated in (a), as soon as practicable following my termination of service with the Employer and its affiliates for any reason; / / iii. If later than the date stated in (a), as soon as practicable following the date I attain age . / / iv. Upon the later of (ii) or (iii) above. / / v. Upon the earlier of (ii) or (iii) above. 2. With respect to the amount credited to my Account that is credited with Earnings based on the yield on the Federated U.S. Trust Short-Term Government Money Market Fund, as reported by that fund I elect to receive payment (you must select one item from this list): / / i. As soon as practicable following the date that any such shares, if actually held, would be redeemed by the Employer at that time either upon written request or in accordance with other agreements or governing instruments to which the Employer is then subject ("Agreements") to the extent that at that time all restrictions on the transfer of such shares imposed by law or under any Agreements have lapsed. 3 / / ii. As soon as practicable following my termination of service with the Employer and its affiliates for any reason; / / iii. As soon as practicable following the date I attain age. / / iv. Upon the latest of (i), (ii) or (iii) above. / / v. Upon the earliest of (i), (ii) or (iii) above. Date:_______________ ______________________________________________ [Name of Employee] 4 SCHEDULE C DEFERRED COMPENSATION PLAN Designation of Beneficiary Form Employee:____________ If my death occurs before all amounts credited to my deferred compensation Account under the attached Deferred Compensation Plan have been distributed, I hereby designate the following person(s) as my primary and, if desired, secondary beneficiary(ies) to receive such amounts, in the percentages indicated, pursuant to Section 7 of the Plan. If no percentages are indicated, the balance of my deferred compensation Account is to be distributed in equal portions to each Beneficiary. Primary Beneficiary(ies) _______________% ________________________________________ Name ________________________________________ Address ________________________________________ Social Security Number _______________% ________________________________________ Name ________________________________________ Address ________________________________________ Social Security Number Secondary Beneficiary(ies) _______________% ________________________________________ Name ________________________________________ Address ________________________________________ Social Security Number _______________% ________________________________________ Name ________________________________________ Address ________________________________________ Social Security Number Date:_______________ ________________________________________ [Signature of Employee] Instruction: Return signed Schedule to Nancy Ludgus, NSSC M/S 16-135 by February 21, 1997. 5 SCHEDULE D DEFERRED COMPENSATION PLAN Measurement of Earnings Form Employee:________________ I hereby elect, effective as of the date I become a participant in the Plan, that 100% of my Account shall be credited with interest set at the rate for long term A-rated corporate bonds, as reported by the investment banking firm of Salomon Brothers Inc. of New York City (or such other investment banking firm as the Committee hereafter may specify). I hereby elect, effective as of the closing date of the Transaction, to have earnings, losses, gains, and expenses of the amount credited to my deferred compensation Account under the Plan measured as follows: ___%/$___of my Account shall be credited with earnings, losses, gains, and expenses as if said amount were invested in shares of Series A Cumulative Compounding Preferred Stock, par value $.01 per share, of the Employer ("Preferred Stock"), based on the price per share being paid by Sterling Holding Company, LLC and the management investors under Section 2.2(e) and (f) of the Recapitalization Agreement, and remained invested in Preferred Stock at all times. If any dividends are paid on Preferred Stock during the deferral period under the Plan in cash or stock, my Account will be credited with the amount of cash or the number of shares of Preferred Stock, respectively, that would have been paid had I actually owned the shares then credited to my Account. Any amount credited to the Account as a result of cash dividends shall be credited thereafter with earnings, losses, gains, and expenses based on the yield on the Federated U.S. Trust Short-Term Government Money Market Fund, as reported by that fund. ____%/$___of my Account shall be credited with earnings, losses, gains, and expenses as if said amount were invested in shares of Class A Common Stock, par value $.01 per share, of the Employer ( "Common Stock"), based on the price per share being paid by Sterling Holding Company, LLC and the management investors under Section 2.2(e) and (f) of the Recapitalization Agreement, and remained invested in Common Stock at all times. If any dividends are paid on Common Stock during the deferral period under the Plan in cash or stock, my Account will be credited with the amount of cash or the number of shares of Common Stock, respectively, that would have been paid had I actually owned the shares then credited to my Account. Any amount credited to the Account as a result of cash dividends shall be credited thereafter with earnings, losses, gains, and expenses based on the yield on the Federated U.S. Trust Short-Term Government Money Market Fund, as reported by that fund. ___%/$___ of my Account shall be credited with earnings, losses, gains, and expenses based on the yield on the Federated U.S. Trust Short-Term Government Money Market Fund, as reported by that fund. Date:_______________ ______________________________________________ [Name of Employee] 6 First Amendment to Fairchild NSC Deferred Compensation Plan Effective January 30, 1997 WHEREAS, National Semiconductor Corporation established the National Semiconductor Corporation Deferred Compensation Plan (the "Plan"), effective January 30, 1997, pursuant to the terms of that certain Agreement and Plan of Recapitalization, dated January 24, 1997; and WHEREAS, Fairchild Semiconductor Corporation (together with FSC Semiconductor Corporation, its parent corporation, the "Employer") is assuming the Plan and establishing a grantor trust in connection with the Plan as of March 10, 1997; and WHEREAS, the Employer and certain Plan participants are parties, with others, to a Securities Purchase and Holders Agreement, of even date herewith, which agreement contains limitations that could, under certain circumstances, conflict with the terms of the Plan and the obligations of the trustee under the associated trust; and WHEREAS, the Employer wishes to amend the Plan to cause the Plan (including all schedules thereto) to conform to the limitations set forth in the Securities Purchase and Holders Agreement; and WHEREAS, the Employer has reserved the right to amend the Plan, in its sole discretion, under Section 12 of the Plan document, subject to certain limitations; and WHEREAS, as of the date hereof, no amounts have been credited to the account of any participant under the Plan, or associated trust. NOW, THEREFORE, the Employer hereby amends the Plan, effective January 30, 1997, as follows: 1. The second paragraph of Section 7 is hereby amended and restated in its entirety to read as follows: "Notwithstanding the immediately preceding paragraph, the unpaid amount credited to an Employee's Account shall be paid upon the occurrence of any of the following events as follows: a. the total unpaid amount shall be paid as soon as practicable upon a liquidation or dissolution of the Employer without an assumption and continuation of the Plan by another entity; a payment in this event shall be made in cash except that, to the extent an Employee has elected pursuant to Section 6 that earnings and losses, gains and expenses ("Earnings") be 7 credited to his Account as if it were invested in shares of stock of the Employer ("Shares"), the amount credited to the Employee's Account shall be payable in cash only to the extent such Shares if actually held would be redeemed, repurchased or otherwise retired or cancelled for cash by the Employer at that time either upon written request or in accordance with other agreements or governing instruments to which the Employer is then subject ("Redeemed"), and the remainder of the amount credited to the Employee's Account, if any, shall be paid in such Shares. b. in cash upon any sale of 50% or more of the equity interests in the Employer's stock in a single transaction or a related series of transactions, the consummation of any consolidation or merger of the Employer with or into another entity, or any sale of all or substantially all of the assets of the Employer, other than the Transaction; a payment in this event shall be made as soon as practicable except that, to the extent an Employee has elected pursuant to Section 6 that Earnings be credited to his Account as if it were invested in Shares, the portion of the Employee's Account so credited shall be payable only to the extent such Shares, if actually held, would be Redeemed in connection with any such transaction, and the remainder of the amount credited to the Employee's Account shall not be paid by reason of this clause (b) of Section 7; c. in cash to the Employee's beneficiary upon the death of the Employee; a payment in this event shall be made as soon as practicable except that, to the extent the Employee has elected pursuant to Section 6 that Earnings be credited to his Account as if it were invested in Shares, the portion of the Employee's Account so credited shall be payable only to the extent such Shares, if actually held, would be Redeemed, and the remainder of the amount credited to the Employee's Account shall be paid as soon as practicable in cash each time any additional portion of such Shares would be Redeemed; d. the total unpaid amount credited to each Employee's Account shall be paid in cash as soon as practicable upon the Employer's mandatory redemption of its Series A Cumulative Compounding Preferred Stock, par value $.01 per share, pursuant to the applicable provisions of the Employer's Certificate of Incorporation. 2. The first sentence of Section 4 of the Plan is amended by adding the following proviso at the end thereof: "provided, however, that no member of the Committee may be a participant in the Plan or an employee who may become eligible to participate in the Plan." 8 3. The election forms attached to the Plan as Schedules A, B, C, and D shall be modified (and, if necessary, new forms shall be executed by participants) as and to the extent necessary to reflect the foregoing amendments. In particular, the last sentence of each of the first two indented paragraphs on Schedule D is hereby amended and restated in its entirety to read as follows: "Any amount credited to the Account as a result of cash dividends shall be credited thereafter with interest set at the rate of for long-term A-rated corporate bonds, as reported by the investment banking firm of Salomon Brothers Inc., of New York City (as reported by such other investment banking firm as the Committee may specify in its sole discretion)." IN WITNESS WHEREOF, this Amendment, having first been duly adopted by the Board of Directors of the Employer, has been executed by a duly authorized officer of the Employer on this 10th day of March, 1997, to be effective as of January 30, 1997. FAIRCHILD SEMICONDUCTOR CORPORATION ___________________________________ By: Its: 9 SCHEDULE B Trustee Fees START UP FEE $2,000.00 (payable at inception) CUSTODY FEE $2,400.00 per annum (payable (for Trust assets quarterly) consisting of common or preferred stock of FSC Semiconductor Corporation) TRUST SERVICE FEE 8/10 percent for first $1 Million; (for Trust assets other 6/10 percent for second $1 Million; than common or preferred 4/10 percent for amounts greater stock of FSC than $2 Million Semiconductor Corporation) INCOME FEE 2% of income collected (not including accrued but unpaid dividends on preferred stock of FSC Semiconductor Corporation paid upon termination of Trust) 10 EX-10.23 20 EX-10.23 Exhibit 10.23 FAIRCHILD BENEFIT RESTORATION PLAN Effective March 10, 1997 FAIRCHILD BENEFIT RESTORATION PLAN TABLE OF CONTENTS ARTICLE 1 - DEFINITIONS.................................................1 ARTICLE II - ELIGIBILITY................................................3 2.01 Eligibility....................................................3 ARTICLE III - BENEFITS..................................................3 3.01 Benefits.......................................................3 3.02 Savings Restoration Amount.....................................3 3.03 Matching Restoration Amount....................................4 3.04 Participant's Account..........................................4 3.05 Allocation to Participant Account and Interest.................4 ARTICLE IV - DISTRIBUTION OF BENEFIT....................................4 4.01 Separation from Service........................................4 4.02 Hardship.......................................................5 ARTICLE V - ADMINISTRATION; AMENDMENTS AND TERMINATION; RIGHTS AGAINST THE COMPANY..............................................5 5.01 Administration.................................................5 5.02 Amendment and Termination......................................5 5.03 Rights Against the Employer....................................6 ARTICLE VI - GENERAL AND MISCELLANEOUS..................................6 6.01 Spendthrift Clause.............................................6 6.02 Severability...................................................6 6.03 Construction of Plan...........................................6 6.04 Gender.........................................................6 6.05 Governing Law..................................................6 6.06 Unfunded Top Hat Plan..........................................7 6.07 Divestment for Cause...........................................7 i FAIRCHILD BENEFIT RESTORATION PLAN THIS BENEFIT RESTORATION PLAN ("Plan") is adopted by FSC Semiconductor Corporation, a corporation organized and existing under the laws of the State of Delaware, (hereinafter referred to as the "Employer"), effective as of March 10, 1997. WITNESSETH: WHEREAS, the Employer desires to establish a benefit restoration income plan for the exclusive benefit of certain participants in the Fairchild Semiconductor Corporation Personal Savings and Retirement Plan (the "Retirement Plan") so as to reward them for their loyal and faithful service to the Employer and to aid them in increasing their economic security by providing additional funds at retirement with respect to those benefits that are reduced because of the limitations of Sections 401(a)(17), 402(g)(1), 401(k) and 415 of the Internal Revenue Code of 1986, as amended; and WHEREAS, the Employer has been authorized by its Board of Directors to adopt this Plan in order to provide for the benefits specified; and WHEREAS, this Plan is intended to be an unfunded plan primarily for the benefit of a select group of management or highly compensated employees, so as to fall within the "top-hat" plan exemption from most ERISA regulation; NOW, THEREFORE, in consideration of the premises herein contained, it is hereby declared as follows: ARTICLE 1 - DEFINITIONS When used herein, the words and phrases defined hereinafter shall have the following meaning unless a different meaning is clearly required by the context. 1.01 "Account" shall mean the Accounts and subaccounts established pursuant to Section 3.05 of the Plan. 1.02 "Beneficiary" shall mean the person or persons last designated by a Participant, by written notice filed with the Committee, to receive a Plan benefit upon his or her death. In the event a Participant fails to designate a person or persons as provided above or if no Beneficiary so designated survives the Participant, then for all purposes of this Plan, the Beneficiary shall be the person(s) designated as the beneficiaries by the Participant under the Retirement Plan, and, if none, the Participant's estate. The Beneficiary of a married Participant shall be the Participant's spouse unless the spouse consents in writing to the Participant's designation of some other Beneficiary. 1.03 "Board" shall mean the Board of Directors of FSC Semiconductor Corporation, or of any corporate successor or assign. 1.04 "Code" shall mean the Internal Revenue Code of 1986, as amended. 1.05 "Committee" shall mean the Retirement Plan Administrative Committee, as determined by the Board. 1.06 "Elected Contribution" shall mean the amount the Participant agrees to defer under this Plan, pursuant to procedures established by the Committee, up to the maximum permitted deferral pursuant to Section 3.02 of the Plan. 1.07 "Employer" shall mean FSC Semiconductor Corporation, or any successor or assign that adopts or assumes the Plan. For purposes of all Plan Sections except 5.02, the term "Employer" also shall refer to any subsidiary or affiliate of FSC Semiconductor Corporation which adopts the Plan with the approval of FSC Semiconductor Corporation. 1.08 "Interest" shall mean the rate for long-term A-rated corporate bonds, reported by the investment banking firm of Salomon Brothers of New York City (or such other investment banking firm as the Committee may specify) during the first week of each Plan Year. The interest rate will be reset at the beginning of each Plan Year. 1.09 "Matching Restoration Amount" shall mean the amount determined in accordance with Section 3.03 of the Plan. 1.10 "Participant" shall mean an employee of the Employer participating in the Retirement Plan, who satisfies the eligibility requirements of Section 2.01 of the Plan and such other conditions that are established from time to time by the Committee. 1.11 "Plan" shall mean the Fairchild Benefit Restoration Plan, as set forth in this document and as amended from time to time. 1.12 "Plan Year" shall mean the twelve consecutive month period ending on the last day of May, which period also corresponds to the Employer's fiscal year. The first Plan Year, however, shall be a short year beginning on the effective date of the Plan and ending on the last day of the Employer's then-current fiscal year. 1.13 "Retirement Plan" shall mean the Fairchild Personal Savings and Retirement Plan, effective March 10, 1997 (as it may subsequently be amended). 1.14 "Savings Restoration Amount" shall mean the amount determined in accordance with Section 3.02 of the Plan. 1.15 Capitalized Terms not defined herein shall have the meaning attributed to them in the Retirement Plan. 2 ARTICLE II - ELIGIBILITY 2.01 Eligibility. An employee of the Employer who is participating in the Retirement Plan shall be eligible to participate in this Plan if the employee (i) elects a salary deferral contribution to the Retirement Plan which equals or exceeds the maximum such contribution that employee is legally permitted to make to the Retirement Plan, and (ii) is an exempt status employee in job grade 9 or higher with the Employer. An employee who is eligible for this Plan may participate in the Plan by filing a written salary deferral contribution election under this Plan in accordance with Section 3.02. Once an employee commences participation in this Plan he shall remain a Participant until no account balance remains in his name under the Plan, but the Participant shall not be eligible to elect salary deferral contributions to this Plan for any Plan Year or portion thereof for which (i) the Participant is not making the maximum permissible salary deferral contribution under the Retirement Plan, or (ii) the Participant does not satisfy the job grade and exempt status eligibility conditions stated above. ARTICLE III - BENEFITS 3.01 Benefits. Except as provided in Sections 4.02 and 6.07, a Participant's benefit under the Plan shall equal the final balance of the Participant's Accounts as determined upon the date or event which triggers his right to a benefit distribution. All benefit distributions shall be made in accordance with Article IV. 3.02 Savings Restoration Amount. The maximum Savings Restoration Amount from which an eligible Participant may make an Elected Contribution for a Plan Year shall be equal to the difference, if any, between (a) and (b) below: (a) The maximum salary deferral contribution the Participant could make under the Retirement Plan but for the statutory limits on compensation and deferral amounts from time to time applicable to the Retirement Plan; less (b) The amount of the Participant's actual deferral contribution allocated to his credit under the Retirement Plan for the Plan Year. The Participant's Savings Restoration Amount shall be equal to the Participant's Elected Contribution for the Plan Year. The Participant's election shall be made in writing, signed by the Participant and filed with the Committee prior to its taking effect. Each deferral election shall apply only to payroll periods commencing after the date the election is filed, and may be changed 3 by a superseding election of the Participant at any time. Any Participant who suspends deferrals during a Plan Year may not resume such deferrals before the next Plan Year. 3.03 Matching Restoration Amount. The Matching Restoration Amount which shall be credited to a Participant's Account for a Plan Year shall equal the difference between the matching contribution actually credited to his account under the Retirement Plan for that Plan Year (as adjusted, if necessary, for legal limits) and the matching contribution that would have been made to his Retirement Plan account, based on his aggregate salary deferrals for the Plan Year to the Retirement Plan and this Plan, but for the statutory limits applicable to matching contributions under the Retirement Plan. 3.04 Participant's Account. The Committee shall create and maintain adequate records to reflect the interest of each Participant in the Plan. Such records shall be in the form of individual Accounts. When appropriate, a Participant's Account shall consist of a savings restoration account, a matching restoration account, a transfer account, and any other account or subaccounts deemed necessary by the Committee. Such Accounts shall be kept for recordkeeping purposes only and shall not be construed as providing for assets to be held in trust or escrow or any other form of asset segregation for the Participant or Beneficiary to whom benefits are to be paid pursuant to the terms of the Plan. 3.05 Allocation to Participant Account and Interest. The Participant's Savings Restoration Amount shall be credited to the Participant's Account as of the date such amount would have been paid to such Participant as remuneration for services, and the Participant's Matching Restoration Amount shall be credited to the Participant's Account as of the last day of the Plan Year. The Participant's balance in his Accounts shall be credited with Interest, in accordance with Section 1.08, at such times and in such manner as determined in the sole discretion of the Committee. ARTICLE IV - DISTRIBUTION OF BENEFIT 4.01 Separation from Service. In the event of a Participant's termination of employment with the Employer for any reason (including retirement, disability or death), the final balance of his Accounts shall be distributed in cash in a single sum not later than sixty (60) days after the close of the Plan Year in which such termination occurs. If the Participant elects to forfeit his contribution and Interest allocations for that Plan Year, then his reduced benefit shall be accelerated and distributed within sixty (60) days after such election is filed. Any Participant also may elect an earlier distribution of his savings restoration account (the balance of his Savings Restoration Amounts, adjusted for Interest and any prior withdrawals) as of a date preselected by the Participant on a written 4 election that becomes valid and effective on (but not before) the day after the one-year anniversary of its making. 4.02 Hardship. Payment of part or all of the benefits under this Plan may be accelerated in the case of severe hardship, which shall mean an emergency or unexpected situation in the Participant's financial affairs, including, but not limited to, illness or accident involving the Participant or any of the Participant's dependents. All payments in case of hardship must be approved in advance by the Committee. Hardship distributions may, upon request, include an amount estimated to cover the income tax attributable to the hardship withdrawal. ARTICLE V - ADMINISTRATION; AMENDMENTS AND TERMINATION; RIGHTS AGAINST THE COMPANY 5.01 Administration. The Committee shall administer this Plan. With respect to the Plan, the Committee shall have, and shall exercise and perform, in its sole discretion, all the powers, rights, authorities and duties set forth in the Retirement Plan with the same effect as if set forth in full herein with respect to this Plan (but without modifying any of the substantive benefit rights of Participants set forth in this Plan). Except as expressly set forth herein, any determination or decision by the Committee shall be conclusive and binding on all persons who at any time have or claim to have any interest whatever under this Plan. 5.02 Amendment and Termination. The Employer, solely, and without the approval of the Committee or any Participant or Beneficiary, shall have the right to amend this Plan at any time and from time to time, by a written instrument adopted by the Employer's Board of Directors or any delegatee of that Board for this purpose. Any such amendment shall become effective upon the date stated therein. Notwithstanding the foregoing, no amendment shall adversely affect the rights of any Participant or Beneficiary who was previously receiving benefits under this Plan to continue to receive such benefits or of all other Participants and Beneficiaries to receive the benefits promised under the Plan immediately prior to the later of the effective date or the date of adoption of the amendment. The Employer has established this Plan with the bona fide intention and expectation that it will deem it advisable to continue the Plan in effect indefinitely. However, circumstances not now foreseen or circumstances beyond the Employer's control may make it impossible or inadvisable to continue the Plan. Therefore, the Employer, in its sole discretion, reserves the right to terminate the Plan, in whole or in part, for any reason and at any time; provided, however, that in such event any Participant or Beneficiary who was receiving benefits under this Plan as of the termination date shall continue to receive such benefits, and all other Participants and Beneficiaries shall 5 remain entitled to receive the benefits promised under the Plan immediately prior to the termination of the Plan. 5.03 Rights Against the Employer. The establishment of this Plan shall not be construed as giving to any Participant, Beneficiary, employee or any person whomsoever, any legal, equitable or other rights against the Employer, or its officers, directors, agents or shareholders, except as specifically provided for herein, or as giving to any Participant or Beneficiary any equity or other interest in the assets, business or shares of the Employer, or as giving any employee the right to be retained in the employment of the Employer. All employees and Participants shall be subject to discharge to the same extent that they would have been if this Plan had never been adopted. Subject to the rights of the Employer to terminate this Plan or any benefit hereunder, the rights of a Participant or Beneficiary hereunder shall be solely those of an unsecured creditor of the Employer. ARTICLE VI - GENERAL AND MISCELLANEOUS 6.01 Spendthrift Clause. No right, title or interest of any kind in the Plan shall be transferable or assignable by any Participant or Beneficiary or any other person or be subject to alienation, anticipation, encumbrance, garnishment, attachment, execution or levy of any kind, whether voluntary or involuntary. Any attempt to alienate, sell, transfer, assign, pledge, garnish, attach or otherwise encumber or dispose of any interest in the Plan shall be void. 6.02 Severability. In the event that any provision of this Plan shall be declared illegal or invalid for any reason, said illegality or invalidity shall not affect the remaining provisions of this Plan but shall be fully severable, and this Plan shall be construed and enforced as if said illegal or invalid provision had never been inserted herein. 6.03 Construction of Plan. The article and section headings and numbers are included only for convenience of reference and are not to be taken as limiting or extending the meaning of any of the terms and provisions of this Plan. Whenever appropriate, words used in the singular shall include the plural or the plural may be read as the singular. 6.04 Gender. The personal pronoun of the masculine gender shall be understood to apply to women as well as men, except where specific reference is made to one or the other. 6.05 Governing Law. 6 The validity and effect of this Plan and the rights and obligations of all persons affected hereby shall be construed and determined in accordance with the laws of the United States and the laws of the State of Delaware, without regard to its otherwise applicable principles of conflicts of laws. 6.06 Unfunded Top Hat Plan. It is the Employer's intention that this Plan be a Top Hat Plan, defined as an unfunded plan maintained primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees, as provided in Sections 201(2), 301(a)(3), and 401(a)(1) of the Employee Retirement Income Security Act of 1974, as amended from time to time. The Employer may establish and fund one or more trusts for the purpose of paying some or all of the benefits promised to Participants and Beneficiaries under the Plan; provided, however, that (i) any such trust(s) shall at all times be subject to the claims of the Employer's general creditors in the event of the insolvency or bankruptcy of the Employer, and (ii) notwithstanding the creation or funding of any such trust(s), the Employer shall remain primarily liable for any obligation hereunder. Notwithstanding the establishment of any such trust(s), the Participants and Beneficiaries shall have no preferred claim on, or any beneficial ownership interest in, any assets of any such trust or of the Employer. 6.07 Divestment for Cause. Notwithstanding any other provisions of this Plan to the contrary, the right of any Participant, former Participant or Beneficiary of either to receive or to have paid to any other person, or the right of any such other person to receive any benefits attributable to the Matching Restoration Amount plus Interest hereunder, shall be forfeited, if such Participant's employment with the Employer is terminated because of or the Participant is discovered to have engaged in fraud, embezzlement, dishonesty or criminality against (or adversely affecting) the Employer, obtaining funds or property under false pretenses, assisting a competitor without permission, interfering with the relationship of the Employer or any subsidiary or affiliate thereof with a customer, breaching any employment policies or employment-related agreement with the Employer, or failing to carry out any significant task assigned to him as an Employee or to otherwise perform his duties for the Employer. A Participant's or Beneficiary's benefits shall be forfeited for any of the above reasons regardless of whether such act is discovered prior to or subsequent to the Participant's termination from the Employer or the payment of benefits under the Plan. If payment has been made, such payment shall be restored to the Employer by the Participant or Beneficiary. IN WITNESS WHEREOF, this Benefit Restoration Plan, having been first duly adopted, is hereby executed below by a duly authorized officer of the Employer on this 10th day of March, 1997, to take effect as provided herein. FSC SEMICONDUCTOR CORPORATION By: --------------------------------- Print Name: 7 Its President 8 EX-10.24 21 EX-10.24 Exhibit 10.24 FAIRCHILD INCENTIVE PROGRAM Effective March 10, 1997 FAIRCHILD INCENTIVE PROGRAM TABLE OF CONTENTS 1. Objective and Structure......................................... 1 2. Definitions..................................................... 1 3. Effective Date.................................................. 3 4. Eligibility for Plan Participation.............................. 3 5. Target Awards and Incentive Levels.............................. 4 6. Plan Performance Goals.......................................... 4 7. Calculation and Payment of Awards............................... 5 8. Termination of Employment....................................... 6 9. Deferral of Awards.............................................. 7 10. Interpretations and Rule-Making................................. 8 11. Declaration of Incentives, Amendment, or Discontinuance......... 9 12. Miscellaneous................................................... 9 i FAIRCHILD INCENTIVE PROGRAM 1. Objective and Structure The Fairchild Incentive Program (the "Plan") is designed to help retain eligible employees and reward them for contributing to the success and profitability of the Company. These objectives are accomplished by making incentive awards under the Plan and providing Participants with a proprietary interest in the growth and performance of the Company. The Plan consists of two incentive plans combined in a single Plan document. One plan is the Employee Incentive Plan (the "Incentive Plan"), which is a non-ERISA cash bonus plan providing cash awards on an annual basis to eligible employees based on measures of business performance for the year. The other plan is a Select Employee Incentive Deferral Plan (the "Deferral Plan"), primarily set forth in Article 9 below, which is an unfunded plan for a select group of management or highly compensated employees, and hence is substantially exempt from ERISA. The Deferral Plan provides an opportunity for a limited number of management employees to defer receipt of their awards under the Incentive Plan until termination of their employment or other distributable event. 2. Definitions Whenever used in the Plan, unless otherwise indicated, the following terms shall have the respective meanings set forth below: Award: The amount, if any, to be paid to a Plan Participant for a particular Plan Period. Award Date: The later of sixty (60) days after the end of the Company's fiscal year, or fifteen (15) days after consolidated financial statements for the fiscal year are completed and accepted by the Company. As provided in Section 7, for certain Participants an additional mid-year Award Date shall apply, which shall be the later of sixty (60) days after the end of the Company's second fiscal quarter or fifteen (15) days after consolidated financial statements for the second fiscal quarter are completed and accepted by the Company. Base Salary: The annualized rate of base remuneration received by a Participant from the Company as of the end of the Plan Period, excluding all overtime, bonuses, fringe benefits and extraordinary items. Company: FSC Semiconductor Corporation ("FSC") or any corporate successor assign which adopts or assumes the Plan. The term "Company," as used herein, shall also refer to any subsidiary or affiliate of FSC which adopts the Plan with the approval of FSC. Committee: The Compensation Committee appointed by the Board of Directors of FSC. Disability: Inability to perform any services for the Company, combined with eligibility to receive disability benefits under the standards used by the Company's long-term disability benefit plan. Employee: An individual in the regular full-time or regular part-time employ of the Company at any time during the Plan Period, not including interim employees, college co-ops, summer interns, or contract employees. Members of a collective bargaining unit shall be considered Employees for purposes of the Plan only if they satisfy the eligibility conditions of the preceding sentence and their collective bargaining agreement provides for their participation in the Plan. In addition, executive employees who are eligible for the Company's 1997 Executive Officer Incentive Plan Agreement, or any successor incentive plan exclusively for Company executives or directors, shall not be considered Employees under this Plan. Extraordinary Events that, in the opinion of the Committee, are beyond the Occurrence: significant influence of Plan Participants or the Company and cause a significant unintended effect, positive or negative, on Company operating and financial results. Incentive The allocation of Participants into groups, by job grade or Levels: management selection, as set forth in Article 5, for which a single Target Award level applies within the group but different Target Award levels may apply to different groups. Employees of foreign Company locations shall be assigned Incentive Levels by the Committee by tracking each of those Employees to the respective job grade listed on Schedule A which most closely matches the international job grade or classification of that foreign Employee. Participant: An Employee who at the time shall be a Participant in accordance with the provisions of Article 4. Performance Levels of performance shall be set in accordance with one Goal: or more financial and strategic goals developed by the Committee for the Company and, if desired by the Committee, for any Division, department, or other business unit or Employee group within the Company. For each goal, four levels of performance shall be set, as follows: (i) Threshold - The minimum acceptable level of performance for which an Award may be earned on a particular Performance Goal. (ii) Target - Good performance, usually set at a level equal to the Strategic Business Plan for financial measures, reflecting a degree of difficulty which has a reasonable probability of achievement. 2 (iii) Stretch - Better than Target performance and reflecting a degree of difficulty with only a moderate probability of achievement. (iv) Best Expected - Exceptional performance far exceeding the Target level because of the great degree of difficult and the limited (10%-20%) probability of achievement. A Participant's Award shall be determined based on his or her weighted average level of performance for all goals applicable to that Participant for the Plan Period, in accordance with Articles 6 and 7. Plan Period: The fiscal year of the Company. Because the Plan takes effect during the fourth quarter of the Company's 1997 fiscal year, the initial Plan Period shall only take into account prospective goals and performance for the balance of that fiscal year. Retirement: An Employee's permanent termination of employment with the Company at a time when both (a) and (b) apply: (a) either (i) age is at least sixty-five (65) or (ii) age is at least fifty-five (55) and age plus years of service in the employ of the Company totals sixty-five (65) or more, and (b) the terminating employee has certified to the Committee that he or she does not intend to engage in a full-time vocation. Target Award: The Award, expressed as a percentage of Base Salary, that is earned by a Participant for achievement of the Target level of performance. 3. Effective Date The Plan will be conditioned upon, and effective commencing with, the closing date of the reorganization of the three Fairchild divisions of National Semiconductor Corporation (the Discrete, Logic and Memory divisions) pursuant to the Agreement and Plan of Recapitalization between Sterling Holding Company, LLC and National Semiconductor Corporation dated January 31, 1997. 4. Eligibility for Plan Participation A. All Employees shall participate in the Plan, subject to the further provisions of this Article 4. B. Participants will be notified of their participation and Incentive Level during the first quarter of each Plan Period, or by the end of the first quarter beginning after their Employee status commences, if later. C. Newly hired Employees and newly promoted Employees shall be added as Participants to the Plan during the Plan Period. Participants who are added to the Plan during the Plan Period will receive a prorated Award based on relative length of time of participation in the Plan for that Plan Period as an Employee. 3 D. A Participant who is no longer an Employee on the last day of the Plan Period will not be eligible for any Award for that Plan Period, except as provided in Section 8 below. 5. Target Awards and Incentive Levels A. Each Participant will be assigned an Incentive Level based upon his or her job grade. A Target Award level, expressed as a percentage of Base Salary, shall be assigned to each Incentive Level and that Target Award may vary for each Incentive Level. The Incentive Levels, and corresponding Target Award levels, shall be as listed from time to time on attached Schedule A, which is hereby incorporated as part of the Plan. B. In the event that a Participant changes positions during the Plan Period and the change results in a change in Incentive Level, whether due to promotion or demotion, his Award for the Plan Period will be based on the Incentive Level attributable to his position as of the close of the Plan Period, without regard to any other Incentive Levels under which he participated during the Plan Period. 6. Plan Performance Goals A. Performance Goals for each Plan Period, and associated weights, will be established by the Committee from time to time and set forth in attached Schedule B, which is hereby incorporated as part of the Plan. Participants in defined business units may have the same Performance Goals, as determined by the Committee. Each Performance Goal will have a defined Threshold, Target, and Stretch level of performance. A Best Expected level of performance may also be specified for one or more Performance Goals, subject to discretion of the Committee. Performance Goals and their associated weights may change from one Plan Period to another Plan Period to reflect the Company's operational and strategic goals. B. Awards may range between 0% and 200% of Target, except as provided in Section 7.A(4) below. A scale showing the amount of the Participant's Award relative to the Target Award at the various performance levels will be developed for each Performance Goal. Performance Goals and associated Awards (as a percent of the Target Award) will be set in a straight linear relationship from Threshold to Target, and from Target to Stretch Performance Goals, with Awards at the Stretch level being 150% of the Target Award, Awards at the Target level being 100% of the Target Award, and Awards at the Threshold level being 50% of the Target Award. The sum of the scoring on the Performance Goals will determine the total performance level. Awards for performance levels falling between or beyond the four Performance Goals will be determined by interpolation or extrapolation on the same straight linear basis. As a general rule, a Threshold performance level of 50% must be achieved in order for any Award to be paid, but the Committee has the discretion to make awards even if the Threshold level of performance is not met. If performance in excess of the Stretch Performance Goal is achieved, an award may be paid at the Best Expected Award level, which may be up to 200% of the Target Award, but payment of Awards beyond the Stretch level is subject to Committee discretion. C. Under exceptional circumstances, revisions to Performance Goals may be made by the Committee during the Plan Period if the business environment or key planning assumptions change significantly from conditions assumed at the start of the Plan Period. In addition, 4 Performance Goals, performance scales, and Awards may be adjusted in the event the Committee determines there has been an Extraordinary Occurrence during the Plan Period that (i) affects one or more Performance Goals; (ii) unreasonably distorts Award calculations; or (iii) results in undue benefit or detriment to the Plan Participants. Adjustments under the preceding sentence will be made solely for the purpose of neutralizing the effect of the Extraordinary Occurrence. D. In the event that a Participant changes business units during the Plan Period, the Participant's goals will be changed, if necessary, to reflect that of the new business unit. The Participant's Award will then be prorated to reflect both (i) the performance achieved by and Targets assigned to each business unit the Participant belonged to during the Plan Period and (ii) the length of time the Participant spent in each business unit during the Plan Period. 7. Calculation and Payment of Awards A. The maximum amount available to be paid for Awards for any group of Participants or Incentive Level for the Plan Period shall be the applicable Incentive Level times the Base Salary of every Participant in the group, unless such maximum limit is adjusted by the Committee that Plan Year for that particular group. Subject to this maximum amount, a Participant's Award will be calculated as a percentage of Base Salary as follows: 1) The performance of the Participant's group is scored on an overall basis at the end of the Plan Period, which score determines what percentage of the Target Award for the group becomes the Award level for each eligible Participant in the group for that Plan Period. 2) For exceptional cases, Company management has discretion to recommend adjustments to individual Awards based on significantly greater or lesser individual contributions toward the group's overall performance score, which adjustments shall require the approval of the Committee. Without the approval of the Committee, no individual Award may exceed 200% of the Participant's Target Award amount. 3) Total Awards within the Participant's group may not exceed the maximum limit set for Awards for that group for the Plan Period. As a result, Award amounts may be adjusted to ensure conformance with the maximum limit for the group. B. Measurement of performance on Performance Goals for Participants will be scored annually as approved by the President of FSC for each Plan Period in a range between 0% and 200%, based on actual performance by the group, Company, business unit or individual whose performance is measured for that Performance Goal. C. Awards will be paid in cash on or about the Award Date, except as provided in Section F below. D. Awards will reflect the Participant's Base Salary in effect at the end of the Plan Period. Participants who take an unpaid leave of absence during the Plan Period will have their 5 Awards reduced on a prorata basis to reflect the unpaid leave of absence, except as otherwise required by applicable law. A Participant on leave of absence (whether paid or unpaid) on the Award Date will not receive the Award until he or she returns from the leave of absence. E. Awards shall be paid, if at all, as of an annual Award Date for Participants in Grade 7 or above. For Participants in Grade 6 or below, Awards shall be paid, if at all, on a semi-annual basis applying the Performance Goals set forth in attached Schedule B for each respective half of the Company's fiscal year, and such Awards are payable on or about the corresponding mid-year and year-end Award Dates described in Section 2. F. All or any portion of the Award may be deferred under the Deferral Plan if an eligible Participant makes a voluntary irrevocable election to defer payment to a future date pursuant to the deferral terms contained in Article 9. 8. Termination of Employment A. Except as provided below, if a Participant's employment is terminated before the end of a Plan Period, then for that Plan Period the Participant will receive an Award (if any) reduced to reflect performance and Base Salary for the Participant's actual period of employment as an Employee during that Plan Period. B. Unless local law or regulation provides otherwise, payments of Awards made upon termination of employment by death, or on behalf of a Participant who dies prior to receiving the Award, shall be made on the Award Date to: (i) beneficiaries designated by the Participant; if none, then (ii) to a legal representative of the Participant; if none, then (iii) to the person(s) entitled thereto as determined by a court of competent jurisdiction. The written consent of the Participant's spouse shall be required before the designation of a beneficiary other than that spouse will be valid. C. Notwithstanding any other provisions of the Plan to the contrary, the right of a Participant to receive an Award under this Plan shall be forfeited if the Participant's employment is terminated for cause. For purposes hereof, the term "cause" shall mean that the Board of Directors of FSC (in the case of the President or the Chief Financial Officer of FSC) or the President of FSC (in all other cases) has determined, in its or his reasonable judgment, that any one or more of the following has occurred: (i) The Participant shall have committed an act or acts of dishonesty or criminality that has had or could have an adverse effect on the Company; (ii) The Participant shall have committed any act of fraud, embezzlement or misappropriation of funds; (iii) The Participant shall have breached, in any material respect, any of the provisions of any employment or other agreement between the Participant and the Company; (iv) A failure by the Participant to take or refrain from taking any material action, which action Participant is then capable of taking or refraining from taking, as 6 specified in written directions of the Board of Directors or President of FSC within a reasonable time following receipt by the Participant of such written direction; or (v) A failure by the Participant to perform his or her duties as an employee of the Company as determined by the Board of Directors of FSC, with the approval of the President of FSC. A Participant's Award will be forfeited for any of the above reasons regardless of whether such act is discovered prior to or subsequent to the Participant's termination of employment or payment of an Award. If an Award has been paid, such payment shall be repaid to the Company by the Participant. 9. Deferral of Awards A. Except to the extent prohibited by applicable law and regulations, an eligible Participant may elect to make an irrevocable election to defer receipt of all or any portion of any Award in accordance with this Article 9. Such Notice of Deferral Election must be completed at least thirty (30) days before the end of the preceding Plan Period. Notices of Deferral Election are not self-renewing and must be completed for each Plan Period if deferral is desired for the applicable Plan Period. Only Participants in a grade 9 position or higher shall be eligible to defer an Award under this Article. Thus, this Article 9 shall apply only to a select group of management or highly compensated employees and shall constitute a separate, unfunded plan for them. This separate plan shall be known as the Fairchild Select Employee Incentive Deferral Plan. It shall consist of this Article 9 and such defined terms and other provisions of the Fairchild Incentive Program document as are necessary to understand and implement the operation and administration of this Deferral Plan, which terms and provisions are incorporated by this reference. Those provisions include, without limitation, Articles 1 through 4, Sections 7.E. and 8.C., and Articles 10 through 12. B. For each Participant who elects deferral, the Company will establish and maintain book entry accounts which will reflect the deferred Award and any interest credited to the account. Each Participant with a deferred account under this Article shall have an unsecured claim for benefits from the Company, in accordance with Section 12.D. below. C. For deferred Awards, Participant deferred accounts will be credited each Award Date with interest set at the rate for long-term A-rated corporate bonds, as reported by the investment banking firm of Salomon Brothers Inc. of New York City (or such other investment banking firm as the Committee may specify) during the first week of each calendar year. The interest rate will be reset at the beginning of each calendar year. Interest will begin to accrue on the Award Date and will be credited each Award Date until the date payment is actually made. If a Participant's Award is distributed at any time other than on an Award Date, the Participant's account will be credited with interest until the date of distribution. D. A Participant will become entitled to receive any deferred Award, plus credited interest thereon, as of the earlier of the Participant's termination of employment for any reason (including, but not limited to, Retirement, Disability, sale of the Participant's business unit, or death) or a date pre-selected at least one year in advance by the Participant. The account balance 7 will be paid in a lump sum in the month following the earlier of the Participant's termination of employment for any reason or the pre-selected date, unless installment payments have been elected by the Participant. To elect installment payments, a Participant who has previously elected to defer an Award may irrevocably elect (such election to be valid only if made at least twelve (12) months prior to the Participant's termination of employment date) to have the balance of the deferred Award, plus credited interest thereon, paid to the Participant in periodic annual installments over a period of not more than ten (10) years. Payments shall commence in the month following the Participant's termination of employment and shall be made annually by the Company on a day each year that is within thirty (30) days of the anniversary of the Participant's termination of employment. If a Participant has requested installment payments and dies either before or after distribution has begun, the unpaid balance will be paid in a lump sum in the month following the Participant's death. E. Payment of part or all of any deferred Awards may be accelerated in the case of severe hardship, which shall mean an emergency or unexpected situation in the Participant's financial affairs, including, but not limited to, illness or accident involving the Participant or any of the Participant's dependents. All payments in case of hardship must be specifically approved by the Committee. F. No Participant may borrow against his or her account. G. Except to the extent prohibited by applicable law and regulations, the Participant may designate a beneficiary to receive deferred Awards in the event of the Participant's death. The Participant's beneficiary may be changed without the consent of any prior beneficiary, except as follows: In those jurisdictions where spouses are granted rights by law in a Participant's earnings, if the Participant is married at the time of designation, the Participant's spouse must consent to the beneficiary designation and the Participant's spouse must consent to any change in beneficiary. If no beneficiary is chosen or the beneficiary does not survive the Participant, the Award will be paid in accordance with Section 8.C. of the Plan or as otherwise required by applicable law or regulation. 10. Interpretations and Rule-Making The Committee shall have the right and power to: (i) interpret the provisions of the Plan, and resolve questions thereunder, which interpretations and resolutions shall be final and conclusive; (ii) adopt such rules and regulations with regard to the administration of the Plan as it deems necessary in its discretion; and (iii) generally take all action to equitably administer the operation of the Plan. The President of FSC may delegate any of his rights and duties under this Plan to one or more other officers of the Company. 11. Declaration of Incentives, Amendment, or Discontinuance The Committee, acting within his sole discretion, may: (i) determine, on or before an Award Date, not to make Awards to any or all Participants for the related Plan Period; (ii) make any modification or amendment to the Plan for any or all Participants; or (iii) discontinue the Plan for any or all Participants. Any amendment or termination of the Plan shall be done by written action of the Committee, approved by a majority of its members, but the Plan also may be 8 contractually assigned by the Company to, or assumed by, any successor corporation without the need for action by the Committee. 12. Miscellaneous A. Except as provided in Section 9.G., no right or interest in the Plan is transferable or assignable except by will or the laws of descent and distribution. B. Participation in this Plan does not guarantee any right to continued employment, and management reserves the right to dismiss Participants for any reason whatsoever. Participation in one Plan Period does not guarantee the Participant the right to participation in any subsequent Plan Period. C. The Company reserves the right to deduct from all Awards under this Plan any taxes or other amounts required by law to be withheld with respect to Award payments. Unless prohibited by applicable law and regulations, Participants and beneficiaries shall be given the opportunity to choose whether to have income taxes withheld from their Award payments. Employment taxes, such as FICA and FUTA, shall be deducted from Participants' deferred accounts as of the close of each taxable year as and to the extent required by applicable law and regulations. D. This Plan constitutes an unfunded Plan of deferred compensation. As such, any amounts payable hereunder will be paid out of the general corporate assets of the Company and shall not be transferred into a trust or otherwise set aside. All accounts under the Plan will be for bookkeeping purposes only and shall not represent a claim against specific assets of the Company. The Participant will be considered a general creditor of the Company and the obligation of the Company is purely contractual and shall not be funded or secured in any way. E. Maintenance of financial information relevant to measuring performance during the Plan Period will be the responsibility of the Chief Financial Officer of FSC. F. The provisions of the Plan shall not limit, or restrict, the right or power of the Company's Board of Directors to adopt such other plans or programs, or to make salary, bonus, incentive, or other payments, with respect to compensation of officers or Employees, as in its sole judgment it may deem proper. G. No member of the Committee or the Company's Board of Directors, nor any officer, employee, or agent of the Company, shall have any liability to any person, firm, or corporation based on or arising out of this Plan. 9 IN WITNESS WHEREOF, this Plan, having been first duly adopted, is hereby executed below on this 10th day of March, 1997, to take effect as provided herein. FSC SEMICONDUCTOR CORPORATION By: _______________________________ Print Name: President: 10 FAIRCHILD INCENTIVE PROGRAM Schedule A Incentive and Target Award Levels (Non-Executive) ------------------------------------------------ Exempt Employee Non-Exempt Employee Job Grade Target Award Level Target Award Level --------- ------------------ ------------------ Grade 9 15% 8% Grade 8 10% 8% Grade 7 10% 8% Grade 6 and below 8% 8% Incentive and Target Award Levels (Executive) --------------------------------------------- Job Grade Target Level --------- ------------ 3 35% 4A 30% 4 30% 5 20% 6 20% FAIRCHILD INCENTIVE PROGRAM Schedule B Performance Goals I. For the Plan Period from the closing date to and including the Sunday nearest preceding or on May 31, 1997 (the "First Plan Period"), the Participant's incentive Award shall be calculated as follows: (A) the Participant's Base Salary paid during the First Plan Period, multiplied by (B) the Participant's Incentive Level, multiplied by (C) (i) 0.5, if FSC's EBITDA (as defined in the Securities Purchase and Holders Agreement to be entered into by National, Sterling Holding Company, LLC and the Management Investors) for the First Plan Period equals $33.9 million multiplied by a fraction (the "First Plan Period Fraction"), the numerator of which equals the number of days in the First Plan Period and the denominator of which equals the number of days in the fiscal quarter of the Company and its predecessor which includes the First Plan Period (the "Threshold Amount"), (ii) 1.0, if FSC's EBITDA for the First Plan Period equals $35.4 million multiplied by the First Plan Period Fraction (the "Target Amount"), (iii) 1.5, if FSC's EBITDA for the First Plan Period equals $37.9 million multiplied by the First Plan Period Fraction (the "Stretch Amount"), or (iv) if FSC's EBITDA for the First Plan Period exceeds the Threshold Amount but is less than the Target Amount, or exceeds the Target Amount but is less than the Stretch Amount, such number between .5 and 1.0 or between 1.0 and 1.5, respectively, as reflects, on a proportionate basis, the relationship between actual EBITDA for such period and such benchmarks. If FSC's EBITDA for the First Period is less than the Threshold Amount or greater than the Stretch Amount, the Committee may, as contemplated by the Plan, make Awards, on a case by case basis, based on multipliers of less than 0.5 or greater than 1.5 (but in no event greater than 2.0), respectively. For purposes of this provision, the Best Expected Amount for the First Plan Period shall equal $40.3 million of EBITDA multiplied by the First Plan Period Fraction. II. For the Plan Period from the Sunday nearest preceding or on May 31, 1997 to the Sunday nearest preceding or on May 31, 1998 (the "1998 Fiscal Year"), the Participant's incentive Award for a Participant in Grade 7 or above shall be calculated as follows: (A) the Participant's Base Salary paid during the 1998 Fiscal Year, multiplied by (B) the Participant's Incentive Level, multiplied by (C) (i) 0.5, if FSC's EBITDA (as defined in the Securities Purchase and Holders Agreement (the "Stockholders Agreement") to be entered into by National, Sterling Holding Company, LLC and the Management Investors) for the 2 1998 Fiscal Year equals $144.5 million or, in the case of persons who are Management Investors, as defined in the Stockholders Agreement, $164.0 million (the "Threshold Amount"), (ii) 1.0, if FSC's EBITDA for the 1998 Fiscal Year equals $174.2 million (the "Target Amount"), (iii) 1.5, if FSC's EBITDA for the 1998 Fiscal Year equals $183.7 million (the "Stretch Amount"), or (iv) if FSC's EBITDA for the 1998 Fiscal Year exceeds the Threshold Amount but is less than the Target Amount, or exceeds the Target Amount but is less than the Stretch Amount, such number between .5 and 1.0 or between 1.0 and 1.5, respectively, as reflects, on a proportionate basis, the relationship between actual EBITDA for such period and such benchmarks. If FSC's EBITDA for the 1998 Fiscal Year is less than the Threshold Amount or greater than the Stretch Amount, the Committee may, as contemplated by the Plan, make Awards on a case by case basis, based on multipliers of less than 0.5 or greater than 1.5 (but in no event greater than 2.0), respectively. For purposes of this provision, the Best Expected Amount for the 1998 Fiscal Year shall equal $193.1 million of EBITDA. III. For the semi-annual Plan Period from the Sunday nearest preceding or on May 31, 1997 to the Sunday nearest preceding or on November 30, 1997 (the "First 1998 Period"), the incentive Award for a Participant in Grade 6 or below shall be calculated as follows: (A) the Participant's Base Salary paid during the First 1998 Period, multiplied by (B) the Participant's Incentive Level, multiplied by (C) (i) 0.5, if FSC's EBITDA for the First 1998 Period equals $72.25 million (the "Threshold Amount"), (ii) 1.0, if FSC's EBITDA for the First 1998 Period equals $80.1 million (the "Target Amount"), (iii) 1.5, if FSC's EBITDA for the First 1998 Period equals $84.5 million (the "Stretch Amount"), or (iv) if FSC's EBITDA for the First 1998 Period exceeds the Threshold Amount but is less than the Target Amount, or exceeds the Target Amount but is less than the Stretch Amount, such number between 0.5 and 1.0 or between 1.0 and 1.5, respectively, as reflects, on a proportionate basis, the relationship between actual EBITDA for such period and such benchmarks. If FSC's EBITDA for the First 1998 Period is less than the Threshold Amount or greater than the Stretch Amount, the Committee may, as contemplated by the Plan, make Awards on a case by case basis, based on multipliers of less than 0.5 or greater than 1.5 (but in no event greater than 2.0), respectively. For purposes of this provision, the Best Expected Amount for the First 1998 Period shall equal $88.8 million of EBITDA. IV. For the semi-annual Plan Period from the Sunday nearest preceding or on November 30, 1997 to the Sunday nearest preceding or on May 31, 1998 (the "Second 1998 Period"), the incentive Award for a Participant in Grade 6 or below shall be calculated as follows: 3 (A) the Participant's Base Salary paid during the Second 1998 Period, multiplied by (B) the Participant's Incentive Level, multiplied by (C) (i) 0.5, if FSC's EBITDA for the Second 1998 Period equals $72.25 million (the "Threshold Amount"), (ii) 1.0, if FSC's EBITDA for the Second 1998 Period equals $94.1 million (the "Target Amount"), (iii) 1.5 if FSC's EBITDA for the Second 1998 Period equals $99.2 million (the "Stretch Amount"), or (iv) if FSC's EBITDA for the Second 1998 Period exceeds the Threshold Amount but is less than the Target Amount, or exceeds the Target Amount but is less than the Stretch Amount, such number between 0.5 and 1.0 or between 1.0 and 1.5, respectively, as reflects, on a proportionate basis, the relationship between actual EBITDA for such period and such benchmarks. If FSC's EBITDA for the Second 1998 Period is less than the Threshold Amount or greater than the Stretch Amount, the Committee may, as contemplated by the Plan, make Awards on a case by case basis, based on multipliers of less than 0.5 or greater than 1.5 (but in no event greater than 2.0), respectively. For purposes of this provision, the Best Expected Amount for the Second 1998 Period shall equal $104.3 million of EBITDA. 4 EX-10.25 22 EX-10.25 Exhibit 10.25 FSC SEMICONDUCTOR CORPORATION 1997 EXECUTIVE OFFICER INCENTIVE PLAN AGREEMENT ARTICLE I Definitions Whenever used in the Agreement, unless otherwise indicated, the following terms shall have the respective meanings set forth below: Agreement: This Executive Officer Incentive Plan Agreement. Award: The amount to be paid to a Participant. Award Date: The date set by the Committee for payment of Awards, usually approximately forty days after the Company makes public its consolidated financial statements for the fiscal year. Base Salary: Except where the context otherwise suggests, the annualized base remuneration received by a Participant from the Company at the end of the fiscal year. Extraordinary items, including but not limited to prior awards, relocation expenses, international assignment allowances and tax adjustments, sales incentives, amounts recognized as income from stock or stock options, disability benefits (whether paid by the Company or a third party) and all other remuneration are excluded from the computation of Base Salary. Company: FSC Semiconductor Corporation ("FSC"), a Delaware corporation, and any other corporation in which FSC controls directly or indirectly fifty percent (50%) or more of the combined voting power of voting securities, and which has adopted this Agreement. Committee: A committee comprised of two or more directors of the Company who are outside directors of the Company within the meaning of Internal Revenue Code Section 162(m). Disability: Inability to perform any services for the Company and eligible to receive disability benefits under the standards used by the Company's disability benefit plan or any successor plan thereto. Executive Officer: An officer of the Company who is (or would be, if FSC had a publicly traded class of equity securities) subject to the reporting and liability provisions of Section 16 of the Securities and Exchange Act of 1934. Incentive Levels: The grouping of those Executive Officers designated as Participants as set forth in Article 4. Participant: An Executive Officer designated as a Participant in accordance with the provisions of Article 3. Performance Goal: Objective factors considered and scored to determine the amount of a Participant's Award, which shall be based on criteria established by the Committee. Performance Goals will have four levels of performance as follows: (i) Threshold -- The minimum acceptable level of performance. (ii) Target -- Good performance, as established by the Committee, reflecting a degree of difficulty which has a reasonable probability of achievement. (iii) Stretch -- Better than Target performance and reflecting a degree of difficulty with only a moderate probability of achievement. (iv) Best Expected -- Exceptional performance far exceeding the Target level because of the great degree of difficulty and the limited probability of achievement. Retirement: Permanent termination of employment with the Company, and (a) the Participant's age is either sixty-five (65) or age is at least fifty-five (55) and age plus years of service in the employ of the Company is sixty-five (65) or more, and (b) the retiring Participant certifies to the Chief Financial Officer of the Company that he or she does not intend to engage in a full-time vocation. Target Award: The Award, expressed as a percentage of Base Salary, that may be earned by a Participant for achievement of the Target level of performance. ARTICLE 2 Effective Date The Agreement will become effective as of March 11, 1997, to be effective for the Company's fiscal year 1998 ("Fiscal Year 1998"), as well as the portion of the Company's fiscal year 1997 between the effective date and the start of Fiscal Year 1998 (the "Initial Period"), and shall be automatically renewed for each fiscal year thereafter unless modified by the Committee, subject, however, to the provisions of any employment or other written agreements between the 2 Company and any Participant. For purposes of this Agreement, the Initial Period will be treated as one fiscal year of the Company. ARTICLE 3 Eligibility for Plan Participation A. Set forth in Schedule 1 hereto are the names of those Executive Officers who shall be Participants and their respective Incentive Levels. B. Continued participation will be determined by the Committee annually at the beginning of each fiscal year subsequent to the Company's 1998 fiscal year. C. Newly hired Executive Officers and persons who are promoted to Executive Officers may be added as Participants to the Agreement by the Committee during the fiscal year. Such Participants will receive a prorated Award based on time of participation in the Agreement. ARTICLE 4 Incentive Levels In the event that a Participant changes positions during the Initial Period or a subsequent fiscal year and the change results in a change in Incentive Level, whether due to promotion or demotion, the Participant's Incentive Level will be prorated to reflect the time spent in each position. ARTICLE 5 Plan Performance Goals A. Performance Goals and levels of performance for Fiscal Year 1998 (and the Initial Period) are set forth in Schedule 2. Performance Goals and associated weights will be established by the Committee for all subsequent periods. Each Performance Goal will have a defined Threshold, Target, Stretch and Best Expected level of performance. Performance Goals and their associated weights may change for subsequent fiscal years to reflect the Company's operational and strategic goals. B. Actual Award amounts may range between 0% and 200% of the Target Award. A scale showing the amount of the Participant's Award relative to the Target Award at the various performance levels have been and will, for future fiscal years, be developed by the Committee, subject to the provisions of any written employment agreements between the Company and Participants. Performance levels and associated Awards (as a percentage of the Target Award) have been and will be, for future fiscal years, set from Threshold to Best Expected for the Performance Goals, with Awards ranging from 50% at the Threshold level to 200% of the Target Award at the Best Expected level. A Threshold performance level must be achieved in order for any Award to be paid. Each Performance Goal will be scored at end of the fiscal year at a rating 3 from 0% to 200%. The sum of the scoring on the Performance Goals will determine the total performance level for the year. ARTICLE 6 Calculation and Payment of Awards A. A Participant's Award will be calculated as a percentage of Base Salary as follows: 1) The Participant's Incentive Level for the Initial Period and Fiscal Year 1998 is set forth in Schedule 1 hereof and, for future periods, shall be determined by the Committee prior to the beginning of the fiscal year. 2) The performance of each Participant is scored at the end of the fiscal year. 3) No one individual Award may exceed 200% of the Participant's Target Award amount. B. The Committee will score the performance of the Participants. Awards will be paid only after the Committee certifies in writing that the ratings on the Performance Goals have been attained. C. Awards will be paid in cash on or about the Award Date. D. Awards will reflect the Participant's Base Salary in effect at the end of the fiscal year. Participants who take an unpaid leave of absence during the fiscal year for good cause shown to the satisfaction of the Committee will have their Awards prorated to reflect actual pay earned during the fiscal year. E. All or any portion of the Award may be deferred if the Participant makes a voluntary irrevocable election to defer payment to a future date pursuant to the deferral terms contained in Article 8. ARTICLE 7 Termination of Employment A. Except as otherwise provided in this Article 7, if a Participant's employment is terminated during the fiscal year, the Participant will receive an Award reflecting the Participant's performance and actual period of full-time employment during the fiscal year. B. Unless local law or regulation provides otherwise, payments of Awards made upon termination of employment by death shall be made on the Award Date to: (a) beneficiaries designated by the Participant; if none, then (b) to a legal representative of the Participant; if none, then (c) to the persons entitled thereto as determined by a court of competent jurisdiction. 4 C. The Committee reserves the right to reduce an Award to reflect a Participant's absence from work during a fiscal year. A Participant absent on the Award Date will not receive an Award until he or she returns from the absence and satisfies the Committee the absence was for good cause shown. D. The right of a Participant to receive an Award shall be forfeited if the Participant's employment is terminated for cause. For purposes hereof, the term "cause" shall mean that the Board of Directors of FSC (in the case of the President or the Chief Financial Officer) or the President (in all other cases) has determined, in its or his reasonable judgment, that any one or more of the following has occurred: (i) The Participant shall have committed an act or acts of dishonesty or criminality that has had or could have an adverse effect on the Company; (ii) The Participant shall have committed any act of fraud, embezzlement or misappropriation of funds; (iii) The Participant shall have breached, in any material respect, any of the provisions of any employment or other agreement between the Participant and the Company; (iv) A failure by the Participant to take or refrain from taking any material action, which action Participant is then capable of taking or refraining from taking, as specified in written directions of the Board of Directors of FSC or the President within a reasonable time following receipt by the Participant of such written direction; or (v) A failure by the Participant to perform his or her duties as an employee of the Company as determined by the Board of Directors of FSC, with the approval of the President. A Participant's Award will be forfeited for any of the above reasons regardless of whether such act is discovered prior to or subsequent to the Participant's termination of employment or payment of an Award. If an Award has been paid, such payment shall be repaid to the Company by the Participant. ARTICLE 8 Deferral of Awards A. If permitted by local law and regulations, a Participant is entitled to make an irrevocable election (in the form of the Notice of Election attached) to defer receipt of all or any portion of any Award. For any fiscal year, the Notice of Election must be completed prior to thirty (30) days before the end of the preceding fiscal year. Notices of Election are not self-renewing and must be completed for each fiscal year if deferral is desired for the applicable fiscal year. 5 B. For each Participant who elects deferral, the Company will establish and maintain book entry accounts which will reflect the deferred Award and any interest credited to the account. C. For deferred Awards, Participant deferred accounts will be credited each Award Date with interest set at the rate for long-term A-rated corporate bonds, as reported by the investment banking firm of Salomon Brothers Inc. of New York City (or such other investment banking firm as the Committee may specify) during the first week of each calendar year. The interest rate will be reset at the beginning of each calendar year. Interest will begin to accrue on the Award Date and will be credited each Award Date until the date payment is actually made. If a Participant's Award is distributed at any time other than on an Award Date, the Participant's account will be credited with interest until the date of distribution. D. Participants will not receive deferred Awards until the earlier of termination of employment for any reason (including Retirement, Disability, or death) or a date pre-selected by the Participant. The account balance will be paid in a lump sum in the month following the earlier of termination of employment for any reason or the pre-selected date unless installment payments are permitted and have been elected as follows: Upon termination of employment by reason of Retirement or Disability, a Participant who has previously elected to defer an Award may irrevocably elect to have the balance of the deferred Award plus accrued interest paid to the Participant in periodic, annual installments over a period of ten (10) years. Payments shall commence or be made annually on a day that is within thirty (30) days of the anniversary date following the Participant's Retirement or Disability. E. Subject to Section 7.D., if the Participant's employment is terminated for any reason other than death, Disability or Retirement, the Participant will be paid the entire account balance in a lump sum in the month after termination, less any sums due the Company. If a Participant has requested installment payments and dies either before or after distribution has begun, the unpaid balance will be paid in a lump sum in the month following the Participant's death, less any sums due the Company. F. Payment of part or all of the deferred Award may be accelerated in the case of severe hardship for good cause shown to the satisfaction of the Committee, which shall mean an emergency or unexpected situation including, but not limited to, illness or accident involving the Participant or any of the Participant's dependents. All payments in case of hardship must be specifically approved by the Committee. G. No Participant may assign, pledge or borrow against his or her account except as provided in this Agreement. H. If permitted by local law and regulations, the Participant may designate a beneficiary to receive deferred Awards in the event of the Participant's death. The Participant's beneficiary may be changed without the consent of any prior beneficiary except as follows: In those jurisdictions where spouses are granted rights by law in a Participant's earnings, if the Participant is married at the time of designation, the Participant's spouse must consent to the beneficiary designation and any change in beneficiary. If no beneficiary is chosen or the 6 beneficiary does not survive the Participant, the Award account balance will be paid in accordance with the terms of this Agreement or as otherwise required by local law or regulation. ARTICLE 9 Interpretations and Rule-Making The Committee shall have the sole right and power to: (i) interpret the provisions of the Agreement, and resolve questions thereunder, which interpretations and resolutions shall be final and conclusive; (ii) adopt such rules and regulations with regard to the administration of the Plan as are consistent with the terms of the Plan and the Agreement; and (iii) generally take all action to equitably administer the operation of the Plan and this Agreement. ARTICLE 10 Miscellaneous A. Except as provided in Section 8.H, no right or interest in the Plan is transferable or assignable except by will or the laws of descent and distribution. B. Participation in this Plan does not guarantee any right to continued employment and the Committee and management reserve the right to dismiss Participants for any reason whatsoever, subject to the terms of any written employment agreement between the Company and a Participant. Participation in one fiscal year does not guarantee a Participant the right to participation in any subsequent fiscal year. C. The Company reserves the right to deduct from all Awards under this Plan any sums due the Company as well as any taxes or other amounts required by law to be withheld with respect to Award payments. D. This Plan constitutes an unfunded plan of deferred compensation. As such, any amounts payable hereunder will be paid out of the general corporate assets of the Company and shall not be transferred into a trust or otherwise set aside. All accounts under the Plan will be for bookkeeping purposes only and shall not represent a claim against specific assets of the Company. The Participant will be considered a general creditor of the Company and the obligation of the Company is purely contractual and shall not be funded or secured in any way. E. Maintenance of financial information relevant to measuring performance during the fiscal year will be the responsibility of the Chief Financial Officer of the Company. F. The provisions of the Plan shall not limit, or restrict, the right or power of the Committee or the President, as applicable, to continue to adopt such other plans or programs, or to make salary, bonus, incentive, or other payments, with respect to compensation of Executive Officers, as in its sole judgment it may deem proper. 7 G. Except to the extent superseded by federal law, this Agreement shall be construed in accordance with the laws of the State of Maine. H. No member of the Company's board of directors or any officer, employee, or agent of the Company shall have any liability to any person, firm or corporation based on or arising out of this Agreement or the Plan. I. Any dispute relating to or arising from this Agreement shall be determined by binding arbitration by a three member panel chosen under the auspices of the American Arbitration Association and acting pursuant to its Commercial Rules, sitting in Portland, Maine. The panel may assess all fees, costs and other expenses, including reasonable counsel fees, as the panel sees fit. Notwithstanding the parties' election to use arbitration to resolve disputes under this Agreement, nothing contained in that election shall preclude either party, if the circumstances warrant, from seeking extraordinary relief, such as injunction and attachment, from any court of competent jurisdiction in Maine. 8 SCHEDULE 1 to FSC Semiconductor Corporation 1997 Executive Officer Incentive Plan Agreement
Name of Incentive Level/ Executive Officer Title Target Award* - ------------------- --------------------------- ------------------ Kirk P. Pond President and CEO 70% Joseph R. Martin Executive Vice President 40% and Chief Financial Officer W. Wayne Carlson Executive Vice President 40% Jerry Baker Executive Vice President 40% Darrell Mayeux Senior Vice President 40% Daniel E. Boxer Senior Vice President, 40% Chief Administrative Officer, General Counsel and Secretary
________________ * As a percentage of Base Salary. 9 Schedule 2 I. For the period from the Closing to and including the Sunday nearest preceding or on May 31, 1997 (the "First Period"), the Participant's annual incentive award shall be calculated as follows: (A) the Participant's base salary paid during the First Period, multiplied by (B) the Participant's Incentive Level, multiplied by (C) (i) 0.5, if Fairchild's EBITDA (as defined in the Securities Purchase and Holders Agreement to be entered into by National, Sterling Holding Company, LLC and the Management Investors) for the First Period equals $33.9 million multiplied by a fraction (the "First Period Fraction"), the numerator of which equals the number of days in the First Period and the denominator of which equals the number of days in the fiscal quarter of the Company and its predecessor which includes the First Period (the "Threshold Amount"), (ii) 1.0, if Fairchild's EBITDA for the First Period equals $35.4 million multiplied by the First Period Fraction (the "Target Amount"), (iii) 1.5, if Fairchild's EBITDA for the First Period equals $37.9 million multiplied by the First Period Fraction (the "Stretch Amount"), (iv) 2.0, if Fairchild's EBITDA for the First Period equals or exceeds $40.3 million multiplied by the First Period Fraction (the "Best Expected Amount"), or (v) if the Company's EBITDA for the First Period exceeds the Threshold Amount but is less than the Target Amount, or exceeds the Target Amount but is less than the Stretch Amount, or exceeds the Stretch Amount but is less than the Best Expected Amount, such number between .5 and 1.0 or between 1.0 and 1.5 or between 1.5 and 2.0, respectively, as reflects, on a proportionate basis, the relationship between actual EBITDA for such period and such benchmarks, If Fairchild's EBITDA for the First Period is less than the Threshold Amount, no awards shall be paid with respect to the First Period. II. For the period from the Sunday nearest preceding or on May 31, 1997 to the Sunday nearest preceding or on May 31, 1998 (the "1998 Fiscal Year"), the Participant's annual incentive award shall be calculated as follows: (A) the Participant's base salary paid during the 1998 Fiscal Year, multiplied by (B) the Participant's Incentive Level, multiplied by (C) (i) 0.5, if Fairchild's EBITDA (as defined in the Securities Purchase and Holders Agreement to be entered into by National, Sterling Holding Company, LLC and the Management Investors) for the 1998 Fiscal Year equals $164.0 million (the "Threshold Amount"), (ii) 1.0, if Fairchild's EBITDA for the 1998 Fiscal Year equals $174.2 million (the "Target Amount"), 10 (iii) 1.5, if Fairchild's EBITDA for the 1998 Fiscal Year equals $183.7 million (the "Stretch Amount"), (iv) 2.0, if Fairchild's EBITDA equals or exceeds $193.1 million (the "Best Expected Amount"), or (v) if the Company's EBITDA for the 1998 Fiscal Year exceeds the Threshold Amount but is less than the Target Amount, or exceeds the Target Amount but is less than the Stretch Amount, or exceeds the Stretch Amount but is less than the Best Expected Amount, such number between .5 and 1.0 or between 1.0 and 1.5 or between 1.5 and 2.0, respectively, as reflects, on a proportionate basis, the relationship between actual EBITDA for such period and such benchmarks. If Fairchild's EBITDA for the 1998 Fiscal Year is less than the Threshold Amount, no awards shall be paid hereunder with respect to the 1998 Fiscal Year. 11 EX-10.26 23 EX-10.26 Exhibit 10.26 FSC SEMICONDUCTOR CORPORATION STOCK OPTION PLAN 1. TITLE OF PLAN The title of this Plan is the FSC Semiconductor Corporation Stock Option Plan, hereinafter referred to as the "Plan". 2. PURPOSE The Plan is intended to align the interests of eligible key employees of FSC Semiconductor Corporation (hereinafter called the "Corporation") and its subsidiaries (as hereinafter defined) with the interests of the stockholders of the Corporation and to provide incentives for such employees to exert maximum efforts for the success of the Corporation. By extending to key employees the opportunity to acquire proprietary interests in the Corporation and to participate in its success, the Plan may be expected to benefit the Corporation and its stockholders by making it possible for the Corporation to attract and retain the best available talent and by rewarding key management and technical personnel for their part in increasing the value of the Corporation's shares. It is further intended that options granted pursuant to this Plan may be incentive stock options under Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), or may be options which are not incentive stock options (hereafter called "non-qualified stock options"). 3. STOCK SUBJECT TO THE PLAN There will be reserved for issue upon the exercise of options granted under the Plan 821,000 shares of the Corporation's Class A Common Stock, par value $.01 per share, subject to adjustment as provided in Paragraph 8, which may be unissued shares, reacquired shares, or shares bought on the market. If any option which shall have been granted shall expire or terminate for any reason without having been exercised in full, the unpurchased shares shall again become available for the purposes of the Plan (unless the Plan shall have been terminated). 4. ADMINISTRATION (a) The Plan shall be administered by a committee of the Board of Directors of the Corporation (the "Committee"), consisting of two or more members of the Board of Directors. The Committee shall be constituted to permit the Plan to comply with (i) Rule 16b-3 promulgated under the Securities Exchange Act of 1934 ("Exchange Act") and any successor rule and (ii) IRS regulations issued under Section 162(m) of the Code. (b) The Committee shall have the plenary power, subject to and within the limits of the express provisions of the Plan: (i) To determine from time to time which of the eligible persons shall be granted options under the Plan; the time or times (during the term of the option) within which all or portions of each option may be exercised and the number of shares for which an option or options shall be granted to each of them. (ii) To construe and interpret the Plan and options granted under it, and to establish, amend, and revoke rules and regulations for its administration. The Committee, in the exercise of this power, shall generally determine all questions of policy and expediency that may arise, may correct any defect, or supply any omission or reconcile any inconsistency in the Plan or in any option agreement in a manner and to the extent it shall deem necessary or expedient to make the Plan fully effective. (iii) To prescribe the terms and provisions of each option granted (which need not be identical). (iv) To determine whether options granted shall be incentive stock options or non-qualified stock options. (v) To determine whether options granted shall be transferable without consideration to immediate family members or family trusts for the benefit of optionee's immediate family members. As used herein, "immediate family" means parents, spouses and children. (c) The Committee shall not have the authority to grant new options in exchange for the cancellation of stock options previously granted under the Plan or under any other stock option plan of the Corporation. 5. ELIGIBILITY Options may be granted only to regular salaried officers and key employees of the Corporation and its subsidiaries. The term "subsidiary" corporation shall mean any corporation in which the Corporation controls, directly or indirectly, fifty percent (50%) or more of the combined voting power of all classes of stock. A director of the Corporation shall not be eligible for the benefits of the Plan unless such person also is a regular salaried employee of the Corporation and/or of any subsidiary. 6. TERMS OF OPTION AND OPTION AGREEMENTS Each option shall be evidenced by a written Stock Option Agreement which shall expressly identify the options as incentive stock options or as non-qualified stock options, and be in such form and contain such provisions as the Committee shall from time to time deem appropriate; provided, however, that the grant of a non-qualified option pursuant to this Plan shall in no way be construed to be an alternative to the right of an employee to purchase stock pursuant to any incentive stock option heretofore or hereafter granted to an employee pursuant to any stock option plans now in existence or hereafter adopted by the Corporation. The terms of the option agreements need not be identical, but each option agreement shall include, by appropriate language, or be subject to, the substance of all of the applicable following provisions: 2 (a) The purchase price under each option granted shall be as determined by the Committee but shall in no instance be less than 100% of fair market value on the date of grant. The fair market value on the date of grant shall be determined by the Committee; provided, however, that (i) if the Common Stock is admitted to quotation on the National Association of Securities Dealers Automated Quotation System on the date the option is granted, fair market value shall not be less than the average of the highest bid and lowest asked prices of the Common Stock on such System on such date or the last date preceding such date on which a sale was reported, or (ii) if the Common Stock is admitted to trading on a national securities exchange on the date the option is granted, fair market value shall not be less than the last sale price reported for the Common Stock on such exchange on such date or, if there was no sale on such date, the last date preceding such date on which a sale was reported. (b) The maximum term of any incentive stock option shall be ten years from the date it was granted. (c) The maximum term of any non-qualified stock option shall be ten years and one day from the date it was granted. (d) An option may not be exercised to any extent, either by the person to whom it was granted or by the grantee's transferee, or by any person after the grantee's death, unless the person to whom the option was granted has remained in the continuous employ of the Corporation, or of a subsidiary, for not less than six months from the date when the option was granted. Otherwise, each option shall be exercisable as determined by the Committee. (e) The Corporation, during the terms of options granted under the Plan, at all times will keep available the number of shares of stock required to satisfy such options. (f) The Corporation will seek to obtain from each regulatory commission or agency having jurisdiction such authority as may be required to issue and sell shares of stock to satisfy such options. Inability of the Corporation to obtain from any such regulatory commission or agency authority which counsel for the Corporation deems necessary for the lawful issuance and sale of its stock to satisfy such options shall relieve the Corporation from any liability for failure to issue and sell stock to satisfy such options pending the time when such authority is obtained or is obtainable. (g) Neither a person to whom an option is granted nor his or her transferee, legal representative, heir, legatee, or distributee, shall be deemed to be the holder of, or to have any of the rights of a holder with respect to, any shares subject to such option unless and until he or she has exercised his or her option pursuant to the terms thereof. (h) In order to be exempt under Section 16 of the Exchange Act and qualify as an incentive stock option, the option may not be transferable except by will or by the laws of descent or distribution, and during the lifetime of the person to whom the option is granted he or she alone may exercise it. 3 (i) An option shall terminate and may not be exercised if the person to whom it is granted ceases to be continuously employed by the Corporation, or by a subsidiary of the Corporation, except (subject nevertheless to the last sentence of this subparagraph (i)): (1) if the grantee's continuous employment is terminated for any reason other than (i) retirement, (ii) permanent disability, or (iii) death, the grantee or the grantee's transferee may exercise the option to the extent that the grantee was entitled to exercise such option at the date of such termination at any time within a period of three (3) months following the date of such termination, or if the grantee shall die within the period of three (3) months following the date of such termination without having exercised such option, the option may be exercised within a period of one year following the grantee's death by the grantee's transferee or the person or persons to whom the grantee's rights under the option pass by will or by the laws of descent or distribution but only to the extent exercisable at the date of such termination; (2) if the grantee's continuous employment is terminated by (i) retirement, (ii) permanent disability, or (iii) death, the option may be exercised in accordance with its terms and conditions at any time within a period of five (5) years following the date of such termination by the grantee or the grantee's transferee, or in the event of the grantee's death, by the persons to whom the grantee's rights under the option shall pass by will or by the laws of descent or distribution; (3) if the grantee's continuous employment is terminated and within a period of ninety (90) days thereafter the grantee is recalled to the active payroll, the Committee may reinstate any portion of the option previously granted but not exercised. Nothing contained in this subparagraph (i) is intended to extend the stated term of the option and in no event may an option be exercised by anyone after the expiration of its stated term. (j) Option agreements evidencing incentive stock options shall contain such terms and provisions as may be necessary to render them incentive stock options pursuant to Section 422 of the Code and the income tax regulations thereunder, as the same or any successor statute or regulations may at the time be in effect. (k) No employee shall receive during any one (1) year period options to purchase more than 50,000 shares of Common Stock. (l) Nothing in this Plan or in any option granted hereunder shall confer on any optionee any right to continue in the employ of the Corporation or any of its subsidiaries, or to interfere in any way with the right of the Corporation or any of its subsidiaries to terminate his or her employment at any time. 7. TIME OF GRANTING OPTION The Committee shall determine the date on which options are granted under the Plan. All options granted must be approved at a meeting of the Committee by a majority of the members of the Committee. If an option agreement is not executed by an employee and returned to the Corporation on or prior to ninety (90) days after the date the option is granted (or such earlier date as the Committee may specify), such option shall terminate. 8. ADJUSTMENT IN NUMBER OF SHARES AND IN OPTION PRICE 4 In the event there is any change in the shares of the Corporation through the declaration of stock dividends or a stock split-up, or through recapitalization resulting in share split-ups, or combinations or exchanges of shares, or otherwise, the number of shares available for option, as well as the shares subject to any option and the option price thereof, shall be appropriately adjusted by the Committee. 9. PAYMENT OF PURCHASE PRICE AND WITHHOLDING TAXES (a) The purchase price for all shares purchased pursuant to options exercised must be either paid in full in cash, or paid in full, with the consent of the Committee, in Common Stock of the Corporation valued at fair market value on the date of exercise or a combination of cash and Common Stock. Fair market value on the date of exercise shall be determined in the same manner as provided in Section 6(a) hereof. (b) The Committee may permit the payment of all or part of the applicable withholding taxes due upon exercise of an option, up to the highest marginal rates then in effect, by the withholding of shares otherwise issuable upon exercise of the option. Option shares withheld in payment of such taxes shall be valued at the fair market value of the Corporation's Common Stock on the date of exercise as provided in Section 6(a) hereof. 10. CHANGE IN CONTROL In the event the Corporation is merged into or acquired by another entity in a transaction involving a change in control, the Committee shall have the complete authority and discretion, but not the obligation, to accelerate the vesting of any outstanding options granted hereunder. The Committee may also ask the Board of Directors to negotiate, as part of any agreement involving a sale or merger of the Corporation, a sale of substantially all the Corporation's assets or similar transaction, terms providing protection for employees holding options under the Plan. 11. AMENDMENT, SUSPENSION, OR TERMINATION OF THE PLAN (a) The Board may amend, modify, suspend or terminate the Plan for the purpose of meeting or addressing any changes in legal requirements or for any other purpose permitted by law. The Board will seek stockholder approval of an amendment if determined to be required by or advisable under regulations of the Securities and Exchange Commission or the Internal Revenue Service, the rules of any stock exchange on which the Corporation's stock is listed, or other applicable law or regulation. (b) The Plan shall continue in effect until all shares available for issuance under the Plan have been issued. An option may not be granted while the Plan is suspended or after it is terminated. (c) The rights and obligations under any options granted while the Plan is in effect shall not be altered or impaired by amendment, suspension or termination of the Plan, except with the consent of the person to whom the option was granted or the grantee's transferee or the 5 person to whom rights under an option shall have passed by will or by the laws of descent and distribution. 12. EFFECTIVE DATE The Plan shall become effective on March 10, 1997, subject to approval by the stockholders of the Corporation within twelve (12) months after said date. 6 EX-10.27 24 EX-10.27 Exhibit 10.27 EMPLOYMENT AGREEMENT AGREEMENT, entered into as of the 11th day of March, 1997, by and among FAIRCHILD SEMICONDUCTOR CORPORATION, a Delaware corporation (the "Company"), FSC SEMICONDUCTOR CORPORATION, a Delaware corporation ("Holdings"), Sterling Holding Company, LLC, a Delaware limited liability company ("Sterling"), and KIRK P. POND (the "Executive"). WHEREAS, the Company and Holdings have been established to acquire the Logic, Memory and Discrete Products divisions of National Semiconductor Corporation ("NSC") and certain of its affiliates (the "NSC Parties") through a series of recapitalization transactions (the "Recapitalization"), pursuant to that certain Recapitalization Agreement dated as of January 24, 1997 (the "Recapitalization Agreement") between NSC and Sterling and that certain Asset Purchase Agreement, dated as of March 11, 1997, between NSC and the Company; WHEREAS, the Company, Holdings and Sterling desire to engage the full-time services of the Executive and the Executive desires to be so employed by the Company, Holdings and Sterling; and WHEREAS, the operations of the Company and its affiliates are a complex matter requiring direction and leadership in a variety of areas; and the Company, Holdings and Sterling desire to be assured that the unique and expert services of the Executive will be available solely to the Company, Holdings and Sterling, and that the Executive is willing and able to render such services on the terms and conditions hereinafter set forth; and WHEREAS, the Company, Holdings and Sterling desire to be assured that the confidential information and goodwill of the Company will be preserved for the exclusive benefit of the Company. NOW, THEREFORE, in consideration of such employment and the mutual covenants and promises herein contained, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company, Holdings, Sterling and the Executive agree as follows: Section 1. EMPLOYMENT. Effective as of the Closing Date (as defined in the Recapitalization Agreement), the Company, Holdings and Sterling hereby employ the Executive and the Executive hereby accepts such employment under and subject to the terms and conditions hereinafter set forth. If the Recapitalization Agreement shall be terminated pursuant to Section 9.1 thereof prior to the Closing (as defined therein), this Agreement shall terminate automatically and have no further force or effect. Section 2. TERM. Unless sooner terminated as provided herein, the term of employment under this Agreement shall begin on the Closing Date and shall conclude on the third anniversary thereof (the "Initial Term"). This Agreement shall be renewed automatically for up to two (2) additional consecutive one year terms (each a "Renewal Term") unless either the Company or the Executive shall give to the other written notice not less than ninety (90) days prior to the end of the Term or the first Renewal Term that it or he does not wish to renew this Agreement. The Initial Term and any Renewal Term are sometimes collectively referred to herein as the "Term." Section 3. DUTIES. During the Term, the Executive shall serve as Chairman of the Boards of Directors and as Chief Executive Officer of the Company and Holdings. The Executive also agrees to serve, without further compensation, as a director and/or officer of one or more of the Company's affiliates if so elected or appointed from time to time. The Executive shall be subject to the direction of the Boards of Directors of the Company and Holdings (collectively, the "Board"), and shall be the Chief Executive Officer of the Company and Holdings, with authority and responsibility for the management of the business and affairs of the Company and its affiliates, subject to the customary role of the Board of Directors of the Company. Subject to the foregoing, Executive's duties shall include, without limitation, the authority to retain or terminate the employment of all Company personnel and, subject to budgets or general compensation policies approved by the Board, to establish from time to time the compensation and other incentives and terms of employment of all Company personnel to be at least generally consistent and competitive with those offered by NSC and semiconductor industry standards in general. The Executive hereby agrees to devote his full business time and best efforts to the faithful performance of such duties and to the advancement of the business and affairs of the Company and its affiliates during the Term. The Executive shall not engage in any other business activity during the Term, except as may be expressly approved by the Board in writing. The Executive may not be required to relocate his residence or his principal office during the Term. Section 4. SALARY COMPENSATION. In consideration of the services rendered by the Executive under this Agreement, the Company shall pay the Executive during the Term a base salary at the rate of not less than Four Hundred and Fifty Thousand Dollars ($450,000) per year. The base salary shall be paid in such installments and at such times as the Company pays its regularly salaried executive employees. The base salary will be subject to additional increases from time to time by the Board, in its sole discretion. Such base salary, as from time to time increased, is hereinafter referred to as the "Base Salary." The Base Salary shall be prorated for any period of service during the Term which covers less than one full calendar year. Section 5. EXECUTIVE OFFICER INCENTIVE COMPENSATION. During the Term, the Company from time to time shall award the Executive annual incentive compensation ("Incentive Compensation") based upon a target (the "Target") which shall be seventy percent (70%) of the Base Salary, with the actual annual incentive award ranging from zero to two hundred percent (200%) at the best expected level, in accordance with the achievement of financial or other performance measures contained in the Company's 1997 Executive Officer Incentive Plan (the "Plan"), in which Executive shall participate during the Initial Term and any Renewal Term. Any compensation paid to the Executive as Incentive Compensation shall be in addition to the Base Salary and in lieu of participation in any other incentive, profit sharing or bonus compensation program (other than pursuant to any stock option plan described in Section 6.02) which the Company or Holdings maintains; provided that, to the extent determined by the Board from time to time, the Executive will be eligible to participate in profit sharing, incentive compensation or bonus compensation programs adopted in the future. Section 6. STOCK SUBSCRIPTION; STOCK OPTIONS. 6.01. STOCK SUBSCRIPTION. Pursuant to a Securities Purchase and Holders Agreement (the "Stockholders Agreement") to be executed at the Closing, the Executive (or, at Executive's 2 option, one or more trusts for the benefit of Executive's children or a "rabbi" or other trust for the benefit of Executive (an "Executive Trust"), or a combination thereof) shall purchase from Holdings and Holdings shall sell to the Executive (or, at Executive's option, one or more Executive Trusts, or a combination thereof) shares of Holdings stock for an aggregate purchase price as provided therein; such purchase and sale to be for securities of the same class or classes sold in connection with the Recapitalization to (and at per share prices equal to those paid by) NSC for such shares in connection with the Recapitalization. 6.02. STOCK OPTIONS. Holdings shall establish and adopt a stock option plan in substantially the form attached hereto as Exhibit A, which allows the Board (based upon Executive's recommendations) to grant, in the aggregate, options to purchase up to five percent (5%) of all outstanding Holdings Common Stock to employees designated by the Board who are not parties to the Stockholders Agreement (or beneficiaries of a trust that is a party to such agreement) and at a price equal to that paid per share of Common Stock pursuant to said Agreement. Executive shall also have the right to participate in a stock option plan to be developed immediately prior to or after any public offering of Holdings stock, which shall provide for options with exercise prices equal to the fair market value of such stock on the date such options are granted. Section 7. BENEFITS. In addition to the compensation detailed in Sections 4, 5 and 6 of this Agreement, the Executive shall be entitled to the following additional benefits: 7.01. FRINGE BENEFITS. During the Term and subject to any contribution therefor generally required of executives of the Company, the Executive shall be eligible to participate in all employee fringe benefit programs as are made available from time to time to the Company's executive employees. The Executive shall be eligible to participate in the Company's 401(k) and deferred compensation plans to be adopted by the Company consistent with such plans offered by NSC and pursuant to which employees covered thereby may defer receipt of all or any portion of any bonus amounts payable to them until future periods. The Company will provide to the Executive health benefits comparable to the health benefits provided to the Executive by NSC prior to the Closing Date. Such participation in fringe benefit and option programs shall be subject to (i) the terms of the applicable plan documents, and (ii) generally applicable Company policies. In addition, during the Term, the Company will pay or reimburse the Executive for reasonable medical examination costs incurred as part of the Executive's routine annual physical examination, and will pay the cost of maintaining the existing life insurance policy provided by NSC to the Executive, and will obtain and maintain in effect for Executive's benefit a supplemental long-term disability insurance policy with coverage of not less than eighty percent (80%) of Executive's base salary for the duration of such disability. 7.02. PAID VACATION. The Executive shall be entitled to five (5) weeks paid vacation per calendar year, such vacation to extend for such periods and to be taken at such intervals as shall be appropriate and consistent with the proper performance of the Executive's duties hereunder. Any unused, accrued vacation time may be accumulated from one calendar year to another, provided that the Executive shall not be entitled to compensation for vacation time not taken. 7.03. REIMBURSEMENT OF EXPENSES. The Company shall reimburse the Executive for all reasonable expenses actually incurred by the Executive in connection with the business affairs of the Company and the performance of his duties hereunder. The Executive shall comply with such 3 reasonable limitations and reporting requirements with respect to such expenses as the Board may establish from time to time. 7.04. FINANCIAL PLANNING. During the Term, the Company will reimburse the Executive for up to Six Thousand ($6,000) Dollars per year in connection with tax planning, tax return preparation and financial planning for the Executive. 7.05. SEVERANCE. In the event Executive's employment hereunder is terminated by the Company pursuant to Section 8.04 or by the Executive pursuant to Section 8.05, the Company will pay the Executive, his designated beneficiary or, if none, his estate, monthly severance payments during the greater of twenty-four (24) months and the remaining number of months in the Initial Term, each to be payable on the last day of the month commencing with the end of the month following the date of termination, and shall continue throughout such period, at the Company's expense, all of Executive's benefits then being made available or to which Executive is entitled pursuant to Section 7 hereof. Each monthly severance payment shall be in an amount equal to the sum of (a) one-twelfth (1/12) of the Base Salary in effect at the time of such termination plus (b) one-twelfth (1/12) of 100% of what the Executive's Target Award would have been for the Company's fiscal year preceding the year in which the termination occurs, irrespective of what the Executive's actual award was under the Plan for such preceding fiscal year (annualized in the event such prior fiscal year was a partial year for purposes of the Plan). In addition, in the event of any such termination, all options theretofore granted to Executive as contemplated by Section 6.02 shall become fully and immediately exercisable notwithstanding any limitations contained in the Plan or any Stock Option Agreement. Section 8. TERMINATION. Notwithstanding the provisions of Section 2, this Agreement shall terminate prior to the expiration of the Term under the following circumstances: 8.01. DEATH. In the event of the Executive's death during the Term, the Executive's employment hereunder shall immediately and automatically terminate and the Company shall pay to the Executive's designated beneficiary or, if no beneficiary has been designated by the Executive, to his estate (i) any Base Salary earned but unpaid through the date of his death plus (ii) at the times the Company pays its Incentive Compensation in accordance with its general payroll policies, an amount equal to that portion of the Incentive Compensation which but for his death would have been earned by the Executive during the year of his death (pro-rated based on the number of days during the year of his death during which the Executive was employed by the Company on an active status). 8.02. DISABILITY. 8.02.1 The Company may terminate the Executive's employment hereunder, upon notice to the Executive, in the event that the Executive becomes disabled during his employment hereunder through any illness, injury, accident or condition of either a physical or psychological nature and, as a result, is unable to perform substantially all of his duties and responsibilities hereunder for an aggregate of one hundred eighty (180) days during any period of three hundred and sixty (360) consecutive calendar days. 4 8.02.2 The Board may designate another employee to act in the Executive's place during any period of the Executive's disability. Notwithstanding any such designation, the Executive shall continue to receive the Base Salary in accordance with Section 4 and to receive benefits in accordance with Section 7.01, to the extent permitted by the then-current terms of the applicable benefit plans, until the Executive becomes eligible for disability income benefits under any disability income plan maintained by the Company or until the termination of his employment, whichever shall first occur. 8.02.3 While receiving disability income payments under any disability income plan maintained by the Company, the Executive shall not be entitled to receive any Base Salary under Section 4 or Incentive Compensation (except as otherwise provided under the Plan), but shall continue to participate in the Company's benefit plans in accordance with Section 7.01 and the terms of such plans, until the termination of his employment. In the event the Executive's employment hereunder is terminated pursuant to Section 8.02.1, the Company shall pay or provide to the Executive, at the times the Company pays its executives bonuses in accordance with its general payroll policies, an amount equal to that portion of the Incentive Compensation which but for his disability would have been earned by the Executive during the year in which his employment was terminated under Section 8.02.1 (pro-rated based on the number of days during which the Executive was employed by the Company on an active status during the year of such termination). Section 8.03. BY THE COMPANY FOR CAUSE. The employment of the Executive may be terminated at any time by the Company for Cause (as defined below), effective immediately, in accordance with the provisions of Section 8.03.2. For purposes hereof, the term "Cause" shall mean the Board has determined, in its reasonable judgment, that any one or more of the following has occurred: (i) The Executive shall have committed an act or acts of dishonesty or criminality that, in the good faith judgment of the Board of Directors of the Company, has had or could have an adverse effect on the Company; (ii) The Executive shall have committed any act of fraud, embezzlement or misappropriation of funds; or (iii) The Executive shall have breached, in any material respect, any of the provisions of this Agreement. Upon the effectiveness of the termination of the Executive's termination for Cause, the Company, Holdings and Sterling shall have no further obligation or liability to the Executive relating to the Executive's employment hereunder, or the termination thereof, other than for Base Salary earned but unpaid through the date of termination. Section 8.04. BY THE COMPANY WITHOUT CAUSE. The Company may terminate the Executive's employment at any time during the Initial Term or any Renewal Term without Cause. In the event of such termination, then the Company shall pay or provide the Executive (i) Base Salary to the extent earned but unpaid through the date of termination plus (ii) the amounts specified in Section 7.05 plus (iii) at the times the Company pays its executives incentive 5 compensation in accordance with its general payroll policies, an amount which, but for such termination, the Executive would have earned during the year of such termination (pro-rated based on the number of days during the year of such termination of employment for which the Executive was employed by the Company on an active status). In addition, any options granted to the Executive as contemplated by Section 6.02 shall become fully exercisable upon any such termination, notwithstanding any limitations in the Plan or any Stock Option Agreement. Any nonrenewal of this Agreement by the Company shall in no event be deemed a termination for purposes of this Section 8.04. Section 8.05. BY THE EXECUTIVE FOR GOOD REASON. The Executive may terminate his employment at any time during the Initial Term or any Renewal Term for Good Reason. In the event of such termination, the Company shall pay or provide the Executive (i) base salary to the extent earned but unpaid through the date of termination plus (ii) the amount and benefits specified in Section 7.05 plus (iii) at the times the Company pays its executives incentive compensation in accordance with its general payroll policies, an amount which, but for such termination, the Executive would have earned during the year of such termination (pro-rated based on the number of days during the year of such termination of employment for which the Executive was employed by the Company on an active status). In addition, any options granted to the Executive as contemplated by Section 6.02 shall become fully and immediately exercisable upon any such termination, notwithstanding any limitations in the plan or any stock option agreement. Any non-renewal of this Agreement by the Company shall in no event be deemed a termination for purposes of this Section 8.05. As used herein, "Good Reason" means a resignation by the Executive within thirty (30) days after (i) any demotion or similar change in his duties such that the duties assigned to the Executive after such change represent a substantial decrease in the Executive's duties, responsibilities or status with the Company relative to such duties, responsibilities or status as of the date hereof, (ii) being required to relocate his principal place of employment beyond a ten (10) mile radius of Portland, Maine or (iii) the Company's failure to make any payment or to provide any benefit due to the Executive hereunder when due; provided, however, that the Executive shall have first given the Company written notice of such failure to pay or provide and such failure to pay or provide shall not have been cured within ten (10) days after the receipt by the Company of such notice. Section 8.06. BY THE EXECUTIVE WITHOUT GOOD REASON. The Executive may terminate his employment hereunder at any time upon ninety (90) days' notice to the Company. In the event of termination of the Executive pursuant to this Section 8.06, the Board may elect to waive the period of notice, or any portion thereof, and, unless the Board so elects, the Company will pay the Executive his Base Salary for the notice period. Upon termination of the Executive's employment hereunder pursuant to this Section 8.06, the Company shall have no further obligation or liability to the Executive relating to the Executive's employment hereunder, or the termination thereof, other than payment to the Executive of his Base Salary for the period (or portion of such period) indicated above. Section 8.07. POST-AGREEMENT EMPLOYMENT. In the event the Executive remains in the employ of the Company, Holdings, Sterling or any of their affiliates following termination of this Agreement, by the expiration of the Term or otherwise, then such employment shall be at will, unless otherwise agreed in writing. 6 Section 8.08. MITIGATION. Any amounts payable to the Executive hereunder pursuant to Section 7.05, 8.04 or 8.05 shall not be reduced by any amounts earned by the Executive from any other employer or source following termination of the Executive's employment with the Company, Holdings and Sterling, except in the event of a violation of Section 11 hereof; provided, however, that the amounts payable to Executive pursuant to clause (b) of Section 7.05 hereof shall be subject to prospective (and not retrospective) offset to the extent of any cash compensation actually received by Executive from any other employer during the period in which such amounts would otherwise be payable to Executive. Notwithstanding the foregoing, the Executive shall be under no obligation to take or refrain from taking any action to mitigate the Company's potential liability to make such severance payments. Section 9. EFFECT OF TERMINATION. The provisions of this Section 9 shall apply in the event of termination of employment whether due to the expiration of the Term, pursuant to Section 8 or otherwise. Section 9.01. PAYMENT IN FULL. Payment by the Company of any Base Salary and other amounts and contributions to the cost of the Executive's continued receipt of benefits that may be due the Executive under the applicable termination provision of Section 8 shall constitute the entire obligation of the Company to the Executive. Acceptance by the Executive of performance by the Company shall constitute full settlement of any claim that the Executive might otherwise assert against the Company, its affiliates or any of their respective shareholders, partners, directors, officers, employees or agents relating to such termination. Section 9.02. SURVIVAL OF CERTAIN PROVISIONS. Provisions of this Agreement shall survive any termination of employment if so provided herein or if necessary or desirable fully to accomplish the purposes of such provision, including, without limitation, the obligations of the Executive under Sections 10 and 11 hereof. The obligation of the Company to make payments to or on behalf of the Executive under Sections 7.05, 8.04 or 8.05 hereof is expressly conditioned upon the Executive's continued full performance of obligations under Section 10 and 11 hereof. The Executive recognizes that, except as expressly provided in Section 7.05, 8.04 or 8.05, no compensation is earned after termination of employment. Section 9.03. PUBLIC STATEMENT OF TERMINATION. In the event the Executive's employment terminates for any reason, the Company and the Executive shall agree upon a public statement pertaining to the Executive's termination of employment, and the terms of said statement shall not be subject to subsequent modification by either party unless required by law; provided, however, that in the event the Company and the Executive are unable in good faith to agree on such a statement, the Company may make public statements as are necessary to comply with the law. Section 10. PROPRIETARY INFORMATION; INVENTIONS IN THE FIELD. Section 10.01. PROPRIETARY INFORMATION. In the course of his service to the Company (and to its predecessor, NSC), the Executive has had and will continue to have access to confidential specifications, know-how, strategic or technical data, marketing research data, product research and development data, manufacturing techniques, financial performance, confidential customer lists, costs, sources of supply and trade secrets, names and addresses of the people and organizations with whom the Company and its affiliates have business relationships and such 7 relationships, and special needs of customers of the Company and its affiliates, all of which are confidential and may be proprietary and are owned or used by the Company or its affiliates. Such information shall hereinafter be called "Proprietary Information" and shall include any and all items enumerated in the preceding sentence and coming within the scope of the business of the Company or its affiliates as to which the Executive may have had or may in the future have access, whether conceived or developed by others or by the Executive alone or with others during the period of his service to the Company or its affiliates (or to NSC and its affiliates), whether or not conceived or developed during regular working hours. The term "Proprietary Information" also shall be deemed to include comparable information that the Company or any of its affiliates (or NSC or any of its affiliates) have received belonging to others or which was received by the Company or any of its affiliates (or NSC or any of its affiliates) with any understanding that it would not be disclosed. Proprietary Information shall not include any records, data or information which are in the public domain during the period of service by the Executive provided the same are not in the public domain as a consequence of disclosure, directly or indirectly by the Executive in violation of this Agreement. Section 10.02. FIDUCIARY OBLIGATIONS. The Executive agrees that Proprietary Information is of critical importance to the Company and its affiliates, and that a violation of this Section 10.02 or Section 10.03 would seriously and irreparably impair and damage the Company's business. The Executive agrees that he shall keep all Proprietary Information in a fiduciary capacity for the sole benefit of the Company. Section 10.03. NON-USE AND NON-DISCLOSURE. The Executive shall not during the Term or at any time thereafter, regardless of the reason for termination of the Executive's employment (a) disclose, directly or indirectly, any Proprietary Information to any person other than the Company or authorized employees thereof at the time of such disclosure, or such other persons to whom the Executive has been specifically instructed to make disclosure by the Board and in all such cases only to the extent required in the course of the Executive's service to the Company or (b) use any Proprietary Information, directly or indirectly, for his own benefit or for the benefit of any other person or entity. The parties agree and acknowledge that nothing contained in this Section 10.03 is intended to preclude the Executive from utilizing general or industry-specific business skills developed by him over his career, or to effectively extend the restrictions contained in Section 11 hereof beyond the Non-Competition Period (as defined therein), and that this Section 10.03 shall be applicable only to specific, demonstrable instances of improper disclosure or use by the Executive of Proprietary Information. The Company shall have the burden of establishing that Executive has violated Section 10.03 and shall not be entitled to withhold or recover any amounts or benefits payable or to be provided to Executive hereunder until and unless there has been a final adjudication that Executive has breached this Section 10.03. Section 10.04. RETURN OF DOCUMENTS. All notes, letters, documents, records, tapes and other media of every kind and description relating to the business, present or otherwise, of the Company or its affiliates and any copies, in whole or in part, thereof (collectively, the "Documents"), whether or not prepared by the Executive, shall be the sole and exclusive property of the Company. The Executive shall safeguard all Documents and shall surrender to the Company at the time his employment terminates, or at such earlier time or times as the Board or its designee may specify, all Documents then in the Executive's possession or control. 8 Section 10.05. ASSIGNMENT OF RIGHTS TO INTELLECTUAL PROPERTY. The Executive shall promptly and fully disclose all Intellectual Property to the Company. The Executive hereby assigns and agrees to assign to the Company (or as otherwise directed by the Board) the Executive's full right, title and interest in and to all Intellectual Property. The Executive agrees to execute any and all applications for domestic and foreign patents, copyrights or other proprietary rights and to do such other acts (including without limitation the execution and delivery of instruments of further assurance or confirmation) requested by the Company to assign the Intellectual Property to the Company and to permit the Company and its affiliates to enforce any patents, copyrights or other proprietary rights to the Intellectual Property. For purposes of this Section 10.05, "Intellectual Property" means inventions, discoveries, developments, methods, processes, compositions, works, concepts and ideas (whether or not patentable or copyrightable or constituting trade secrets) conceived, made, created, developed or reduced to practice by the Executive (whether alone or with others, whether or not during normal business hours or on or off Company premises) during the Executive's employment that relate to either any business, venture or activity being conducted or proposed to be conducted by the Company or its affiliates at any time during the term of this Agreement. Section 11. RESTRICTIONS ON ACTIVITIES OF THE EXECUTIVE. Section 11.01. ACKNOWLEDGMENTS. The Executive agrees that he is being employed hereunder in a key management capacity with the Company, that the Company is engaged in a highly competitive business and that the success of the Company's business in the marketplace depends upon its goodwill and reputation for quality and dependability. The Executive further agrees that reasonable limits may be placed on his ability to compete against the Company and its affiliates as provided herein so as to protect and preserve their legitimate business interests and goodwill. Section 11.02. AGREEMENT NOT TO COMPETE OR SOLICIT. 11.02.1 During the Non-Competition Period (as defined below), the Executive will not engage or participate in, directly or indirectly, as principal, agent, employee, employer, consultant, investor or partner, or assist in the management of, any business which is Competitive with the Company (as defined below). 11.02.2 During the Non-Competition Period, the Executive will not, directly or indirectly through any other entity, hire or attempt to hire, any officer, director, consultant, executive or employee of the Company or any of its affiliates during his or her engagement with the Company or such affiliate. During the Non-Competition Period, the Executive will not call upon, solicit, divert or attempt to solicit or divert from the Company or any of its affiliates any of their customers or suppliers or potential customers or suppliers of whose names he was aware during the Term (other than customers or suppliers or potential customers or suppliers contacted by the Executive solely in connection with a business that is not Competitive with the Company). 11.02.3 The "Non-Competition Period" shall mean the Term and a period consisting of the greater of (a) twenty-four (24) consecutive months or (b) the remaining number of months in the Initial Term after (x) the Executive's employment terminates 9 under any circumstances whatsoever, or (y) any expiration or nonrenewal of this Agreement. 11.02.4. A business shall be considered "Competitive with the Company" if it is engaged in any business, venture or activity in the Restricted Area (as defined below) which competes or plans to compete with any business, venture or activity being conducted or actively and specifically planned to be conducted within the Non-Competition Period (as evidenced by the Company's internal written business plans or memoranda) by the Company, or any group, division or affiliate of the Company, at the date the Executive's employment hereunder is terminated. 11.02.5. The "Restricted Area" shall mean the United States of America and any other country where the Company, or any group, division or affiliate of the Company, is conducting, or has proposed to conduct within the Non-Competition Period (as evidenced by the Company's internal written business plans or memoranda), any business, venture or activity, at the date the Executive's employment hereunder is terminated. 11.02.6. Notwithstanding the provisions of this Section 11.02, the parties agree that (i) ownership of not more than three percent (3%) of the voting stock of any publicly held corporation shall not, of itself, constitute a violation of this Section 11.02 and (ii) working as an employee of an entity that has a stand-alone division or business unit which is Competitive with the Company shall not, of itself, constitute a violation of this Section 11.02 if the Executive is not, in any way (directly or indirectly, as principal, agent, employee, employer, consultant, advisor, investor or partner), responsible for, compensated with respect to, or involved in the activities of such stand-alone division or business unit and does not (directly or indirectly) provide information or assistance to such stand-alone division or business unit. Section 12. REMEDIES. It is specifically understood and agreed that any breach of the provisions of Section 10 or 11 of this Agreement is likely to result in irreparable injury to the Company and that the remedy at law alone will be an inadequate remedy for such breach, and that in addition to any other remedy it may have, the Company shall be entitled to enforce the specific performance of this Agreement by the Executive and to obtain both temporary and permanent injunctive relief without the necessity of proving actual damages. Section 13. SEVERABLE PROVISIONS. The provisions of this Agreement are severable and the invalidity of any one or more provisions shall not affect the validity of any other provision. In the event that a court of competent jurisdiction shall determine that any provision of this Agreement or the application thereof is unenforceable in whole or in part because of the duration or scope thereof, the parties hereto agree that said court in making such determination shall have the power to reduce the duration and scope of such provision to the extent necessary to make it enforceable, and that the Agreement in its reduced form shall be valid and enforceable to the full extent permitted by law. Section 14. NOTICES. All notices hereunder, to be effective, shall be in writing and shall be delivered by hand or mailed by certified mail, postage and fees prepaid, as follows: 10 To the Executive: Kirk P. Pond 1 Center Lane Cape Elizabeth, Maine 04107 To Holdings, Sterling Fairchild Semiconductor Corporation or the Company: 333 Western Avenue South Portland, Maine 04106 Attention: General Counsel or to such other address as a party may notify the other pursuant to a notice given in accordance with this Section 14. Section 15. MISCELLANEOUS. Section 15.01. NO OTHER BENEFITS. Except as specifically provided in this Agreement, the Executive shall not be entitled to any compensation, severance or other benefits from the Company, Holdings or any of their affiliates, whether during the Term or upon the termination of this Agreement for any reason whatsoever. Section 15.02. MODIFICATION: WAIVER. This Agreement constitutes the entire Agreement between the parties hereto with regard to the subject matter hereof, superseding all prior understandings and agreements, whether written or oral. This Agreement may not be amended or revised except by a writing signed by the parties. No waiver of any provision hereof shall be effective unless made in writing and signed by the waiving party. The failure of any party to require the performance of any term or obligation of this Agreement, or the waiver by any party of any breach of this Agreement, shall not prevent any subsequent enforcement of such term or obligation or be deemed a waiver of any subsequent breach. Section 15.03. WITHHOLDING OF TAXES. The Company may withhold from any amounts payable under this Agreement any local, state or federal taxes as shall be required pursuant to any applicable law. Section 15.04. ASSIGNMENT AND TRANSFER. This Agreement shall not be terminated by the merger or consolidation of the Company with any corporate or other entity or by the transfer of all or substantially all of the assets of the Company to any other person, corporation, firm or entity, and the consent of the Executive shall not be required in connection with the assignment of the rights and obligations of the Company, Holdings and Sterling pursuant to any such transaction. The Company shall use its commercially reasonable efforts to cause the successor to its business (as a result of a merger, consolidation or transfer of all or substantially all of its assets), to assume the obligations of the Company hereunder. Neither this Agreement nor any of the rights, duties or obligations of the Executive shall be assignable by the Executive, nor shall any of the payments required or permitted to be made to the Executive by this Agreement be encumbered, transferred or in any way anticipated. This Agreement shall inure to the benefit of, and be binding upon, the parties hereto and their respective successors, executors, administrators, heirs-and permitted assigns. 11 Section 15.05. AFFILIATES. For purposes of this Agreement, an "affiliate" of the Company or Holdings shall mean all persons and entities directly or indirectly controlling, controlled by or under common control with the Company, Holdings or Sterling, as the case may be. Section 15.06. GOVERNING LAW. This Agreement shall be construed under and enforced in accordance with the laws of the State of Maine, other than conflict of laws principles. Section 15.07. CONSENT TO JURISDICTION. Each of the Company, Holdings, Sterling and the Executive, by its or his execution hereof, (i) subject to the provisions of Section 15.08 hereof, hereby irrevocably submits to the exclusive jurisdiction of the state courts of the State of Maine for the purpose of any claim or action arising out of or based upon this Agreement or relating to the subject matter hereof, and (ii) hereby waives any right to trial by jury. Each of the Company, Holdings, Sterling and the Executive hereby consents to service of process in any such proceeding in any manner permitted by Maine law, and agrees that service of process by registered or certified mail, return receipt requested, at its address specified pursuant to Section 14 hereof is reasonably calculated to give actual notice. Section 15.08. ARBITRATION. The parties agree and acknowledge that (other than actions for injunctive relief pursuant to Section 12 hereof) any and all disputes arising out of or in connection with this Agreement shall be resolved by binding arbitration pursuant to the Commercial Arbitration Rules of the American Arbitration Association ("AAA") before a single arbitrator selected by AAA. Such arbitration shall be held in Portland, Maine. Section 15.09. DISCLAIMER OF DAMAGES. The maximum liability of the Company on account of this Agreement (or any breach of this Agreement) shall under no circumstances exceed the amount of salary, benefits and other compensation (including severance) required to be paid hereunder. Without limiting the generality of the foregoing, Executive hereby acknowledges that the Company and Holdings, acting through the Board, shall have the right and power to remove Executive from office and terminate his employment at any time and for any reason whatsoever without incurring liability to Executive other than the payment of such salary, benefits and other compensation (including severance) as may be required under this Agreement, including without limitation liability in connection with claims by the Executive that such termination, in and of itself, has damaged the Executive's career or prospects for securing other employment, or that such termination has impaired the value of the Executive's investment in Holdings. The parties agree that no party to this Agreement (or any of its affiliates) shall be liable to any other party hereto for any incidental, consequential, special, exemplary or punitive damages based on any claim arising out of this Agreement; provided, however, that the foregoing limitation shall not apply to claims arising out of any breach by the Executive of Sections 10 or 11 of the Agreement, and that such limitation, and (in the case of claims by the Executive) the limitation contained in the first sentence of this Section 15.09, shall not apply to any defamation, slander, libel or similar claim by the Company or the Executive. In the event that Executive's employment hereunder terminates, whether pursuant to Section 8.06 hereof or otherwise, neither the Company nor Holdings shall be entitled to recover from the Executive any costs of identifying, engaging or retaining any successor to the Executive. Section 15.10. COSTS OF ENFORCEMENT. The parties agree and acknowledge that the prevailing party in any proceeding arising under this Agreement shall be entitled to receive, in 12 addition to any amounts or benefits to which he or it is entitled hereunder, all costs (including reasonable attorneys' fees) incurred by him or it in enforcing or collecting upon any obligation of any other party under this Agreement. Section 15.11. DRAFTING. The parties agree and acknowledge that this Agreement is the product of arms' length negotiation among the parties, who have been represented by counsel throughout, and that, accordingly, no party shall be deemed to be the drafter of this Agreement and no presumptions as to the construction of any provisions hereof shall be applicable as a consequence of any party's role in the drafting hereof. IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as a sealed instrument as of the day and year first above written. FAIRCHILD SEMICONDUCTOR CORPORATION By:__________________________________ Name ________________________________ Title:_______________________________ FSC SEMICONDUCTOR CORPORATION By:__________________________________ Name:________________________________ Title:_______________________________ STERLING HOLDING COMPANY, LLC By:__________________________________ Name:________________________________ Title:_______________________________ _____________________________________ Kirk P. Pond 13 EX-10.28 25 EX-10.28 Exhibit 10.28 EMPLOYMENT AGREEMENT AGREEMENT, entered into as of the 11th day of March, 1997, by and among Fairchild Semiconductor Corporation, a Delaware corporation (the "Company"), FSC Semiconductor Corporation, a Delaware corporation ("Holdings"), Sterling Holding Company, LLC, a Delaware limited liability company ("Sterling"), and Joseph R. Martin (the "Executive"). WHEREAS, the Company and Holdings have been established to acquire the Logic, Memory and Discrete Products divisions of National Semiconductor Corporation ("NSC") and certain of its affiliates (the "NSC Parties") through a series of recapitalization transactions (the "Recapitalization"), pursuant to that certain Recapitalization Agreement dated as of January 24 1997 (the "Recapitalization Agreement") between NSC and Sterling and that certain Asset Purchase Agreement, dated as of March 11, 1997, between NSC and the Company; WHEREAS, the Company, Holdings and Sterling desire to engage the full-time services of the Executive and the Executive desires to be so employed by the Company, Holdings and Sterling; and WHEREAS, the operations of the Company and its affiliates are a complex matter requiring direction and leadership in a variety of areas; and the Company, Holdings and Sterling desire to be assured that the unique and expert services of the Executive will be available solely to the Company, Holdings and Sterling, and that the Executive is willing and able to render such services on the terms and conditions hereinafter set forth; and WHEREAS, the Company, Holdings and Sterling desire to be assured that the confidential information and goodwill of the Company will be preserved for the exclusive benefit of the Company. NOW, THEREFORE, in consideration of such employment and the mutual covenants and promises herein contained, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company, Holdings, Sterling and the Executive agree as follows: Section 1. Employment. Effective as of the Closing Date (as defined in the Recapitalization Agreement), the Company, Holdings and Sterling hereby employ the Executive and the Executive hereby accepts such employment under and subject to the terms and conditions hereinafter set forth. If the Recapitalization Agreement shall be terminated pursuant to Section 9.1 thereof prior to the Closing (as defined therein), this Agreement shall terminate automatically and have no further force or effect. Section 2. Term. Unless sooner terminated as provided herein, the term of employment under this Agreement shall begin on the Closing Date and shall conclude on the third anniversary thereof (the "Initial Term"). This Agreement shall be renewed automatically for up to two (2) additional consecutive one year terms (each a "Renewal Term") unless either the Company or the Executive shall give to the other written notice not less than ninety (90) days prior to the end of the Term or the first Renewal Term that it or he does not wish to renew this Agreement. The Initial Term and any Renewal Term are sometimes collectively referred to herein as the "Term." Section 3. Duties. During the Term, the Executive shall serve as Executive Vice President and Chief Financial Officer of the Company and Holdings and shall be a member of the Boards of Directors of the Company and Holdings. The Executive also agrees to serve, without further compensation, as a director and/or officer of one or more of the Company's affiliates if so elected or appointed from time to time. The Executive shall be subject to the direction of the Boards of Directors of the Company and Holdings (collectively, the "Board") and the Chief Executive Officer of the Company and Holdings. The Executive shall be the Company's and Holdings' chief financial officer, with authority and responsibility for all of the financial aspects of the business and affairs of the Company and its affiliates, subject to the customary roles of the Board of Directors and the President and Chief Executive Officer of the Company. The Executive hereby agrees to devote his full business time and best efforts to the faithful performance of such duties and to the advancement of the business and affairs of the Company and its affiliates during the Term. The Executive shall not engage in any other business activity during the Term, except as may be expressly approved by the Board in writing. The Executive may not be required to relocate his residence or his principal office during the Term. Section 4. Salary Compensation. In consideration of the services rendered by the Executive under this Agreement, the Company shall pay the Executive during the Term a base salary at the rate of not less than Two Hundred and Fifty Thousand Dollars ($250,000) per year. The base salary shall be paid in such installments and at such times as the Company pays its regularly salaried executive employees. The base salary will be subject to additional increases from time to time by the Board, in its sole discretion. Such base salary, as from time to time increased, is hereinafter referred to as the "Base Salary." The Base Salary shall be prorated for any period of service during the Term which covers less than one full calendar year. Section 5. Executive Officer Incentive Compensation. During the Term, the Company from time to time shall award the Executive annual incentive compensation ("Incentive Compensation") based upon a target (the "Target") which shall be forty percent (40%) of the Base Salary, with the actual annual incentive award ranging from zero to two hundred percent (200%) at the best expected level, in accordance with the achievement of financial or other performance measures contained in the Company's 1997 Executive Officer Incentive Plan (the "Plan"), in which Executive shall participate during the Initial Term and any Renewal Term. Any compensation paid to the Executive as Incentive Compensation shall be in addition to the Base Salary and in lieu of participation in any other incentive, profit sharing or bonus compensation program (other than pursuant to any stock option plan described in Section 6.02) which the Company or Holdings maintains; provided that, to the extent determined by the Board from time to time, the Executive will be eligible to participate in profit sharing, incentive compensation or bonus compensation programs adopted in the future. Section 6. Stock Subscription; Stock Options. 6.01. Stock Subscription. Pursuant to a Securities Purchase and Holders Agreement (the "Stockholders Agreement") to be executed at the Closing, the Executive (or, at Executive's 2 option, one or more trusts for the benefit of Executive's children or a "rabbi" or other trust for the benefit of Executive (an "Executive Trust"), or a combination thereof) shall purchase from Holdings and Holdings shall sell to the Executive (or, at Executive's option, one or more Executive Trusts, or a combination thereof) shares of Holdings stock for an aggregate purchase price as provided therein; such purchase and sale to be for securities of the same class or classes sold in connection with the Recapitalization to (and at per share prices equal to those paid by) NSC for such shares in connection with the Recapitalization. 6.02. Stock Options. Holdings shall establish and adopt a stock option plan in substantially the form attached hereto as Exhibit A, which allows the Board (based upon Executive's recommendations) to grant, in the aggregate, options to purchase up to five percent (5%) of all outstanding Holdings Common Stock to employees designated by the Board who are not parties to the Stockholders Agreement (or beneficiaries of a trust that is a party to such agreement) and at a price equal to that paid per share of Common Stock pursuant to said Agreement. Executive shall also have the right to participate in a stock option plan to be developed immediately prior to or after any public offering of Holdings stock, which shall provide for options with exercise prices equal to the fair market value of such stock on the date such options are granted. Section 7. Benefits. In addition to the compensation detailed in Sections 4, 5 and 6 of this Agreement, the Executive shall be entitled to the following additional benefits: 7.01. Fringe Benefits. During the Term and subject to any contribution therefor generally required of executives of the Company, the Executive shall be eligible to participate in all employee fringe benefit programs as are made available from time to time to the Company's executive employees. The Executive shall be eligible to participate in the Company's 401(k) and deferred compensation plans to be adopted by the Company consistent with such plans offered by NSC and pursuant to which employees covered thereby may defer receipt of all or any portion of any bonus amounts payable to them until future periods. The Company will provide to the Executive health benefits comparable to the health benefits provided to the Executive by NSC prior to the Closing Date. Such participation in fringe benefit and option programs shall be subject to (i) the terms of the applicable plan documents, and (ii) generally applicable Company policies. In addition, during the Term, the Company will pay or reimburse the Executive for reasonable medical examination costs incurred as part of the Executive's routine annual physical examination, and will pay the cost of maintaining a life insurance policy substantially similar to the existing life insurance policy provided by the Company to the President and Chief Executive Officer, and will obtain and maintain in effect for Executive's benefit a supplemental long-term disability insurance policy with coverage of not less than eighty percent (80%) of Executive's base salary for the duration of such disability. 7.02. Paid Vacation. The Executive shall be entitled to five (5) weeks paid vacation per calendar year, such vacation to extend for such periods and to be taken at such intervals as shall be appropriate and consistent with the proper performance of the Executive's duties hereunder. Any unused, accrued vacation time may be accumulated from one calendar year to another, provided that the Executive shall not be entitled to compensation for vacation time not taken. 3 7.03. Reimbursement of Expenses. The Company shall reimburse the Executive for all reasonable expenses actually incurred by the Executive in connection with the business affairs of the Company and the performance of his duties hereunder. The Executive shall comply with such reasonable limitations and reporting requirements with respect to such expenses as the Board may establish from time to time. 7.04. Financial Planning. During the Term, the Company will reimburse the Executive for up to Four Thousand ($4,000) Dollars per year in connection with tax planning, tax return preparation and financial planning for the Executive. 7.05. Severance. In the event Executive's employment hereunder is terminated by the Company pursuant to Section 8.04 or by the Executive pursuant to Section 8.05, the Company will pay the Executive, his designated beneficiary or, if none, his estate, monthly severance payments during the greater of twenty-four (24) months and the remaining number of months in the Initial Term, each to be payable on the last day of the month commencing with the end of the month following the date of termination, and shall continue throughout such period, at the Company's expense, all of Executive's benefits then being made available or to which Executive is entitled pursuant to Section 7 hereof. Each monthly severance payment shall be in an amount equal to the sum of (a) one-twelfth (1/12) of the Base Salary in effect at the time of such termination plus (b) one-twelfth (1/12) of 100% of what the Executive's Target Award would have been for the Company's fiscal year preceding the year in which the termination occurs, irrespective of what the Executive's actual award was under the Plan for such preceding fiscal year (annualized in the event such prior fiscal year was a partial year for purposes of the Plan). In addition, in the event of any such termination, all options theretofore granted to Executive as contemplated by Section 6.02 shall become fully and immediately exercisable notwithstanding any limitations contained in the Plan or any Stock Option Agreement. Section 8. Termination. Notwithstanding the provisions of Section 2, this Agreement shall terminate prior to the expiration of the Term under the following circumstances: 8.01. Death. In the event of the Executive's death during the Term, the Executive's employment hereunder shall immediately and automatically terminate and the Company shall pay to the Executive's designated beneficiary or, if no beneficiary has been designated by the Executive, to his estate (i) any Base Salary earned but unpaid through the date of his death plus (ii) at the times the Company pays its Incentive Compensation in accordance with its general payroll policies, an amount equal to that portion of the Incentive Compensation which but for his death would have been earned by the Executive during the year of his death (pro-rated based on the number of days during the year of his death during which the Executive was employed by the Company on an active status). 8.02. Disability. 8.02.1 The Company may terminate the Executive's employment hereunder, upon notice to the Executive, in the event that the Executive becomes disabled during his employment hereunder through any illness, injury, accident or condition of either a physical or psychological nature and, as a result, is unable to perform substantially all of 4 his duties and responsibilities hereunder for an aggregate of one hundred eighty (180) days during any period of three hundred and sixty (360) consecutive calendar days. 8.02.2 The Board may designate another employee to act in the Executive's place during any period of the Executive's disability. Notwithstanding any such designation, the Executive shall continue to receive the Base Salary in accordance with Section 4 and to receive benefits in accordance with Section 7.01, to the extent permitted by the then-current terms of the applicable benefit plans, until the Executive becomes eligible for disability income benefits under any disability income plan maintained by the Company or until the termination of his employment, whichever shall first occur. 8.02.3 While receiving disability income payments under any disability income plan maintained by the Company, the Executive shall not be entitled to receive any Base Salary under Section 4 or Incentive Compensation (except as otherwise provided under the Plan), but shall continue to participate in the Company's benefit plans in accordance with Section 7.01 and the terms of such plans, until the termination of his employment. In the event the Executive's employment hereunder is terminated pursuant to Section 8.02.1, the Company shall pay or provide to the Executive, at the times the Company pays its executives bonuses in accordance with its general payroll policies, an amount equal to that portion of the Incentive Compensation which but for his disability would have been earned by the Executive during the year in which his employment was terminated under Section 8.02.1 (pro-rated based on the number of days during which the Executive was employed by the Company on an active status during the year of such termination). Section 8.03. By The Company For Cause. The employment of the Executive may be terminated at any time by the Company for Cause (as defined below), effective immediately, in accordance with the provisions of Section 8.03.2. For purposes hereof, the term "Cause" shall mean the Board has determined, in its reasonable judgment, that any one or more of the following has occurred: (i) The Executive shall have committed an act or acts of dishonesty or criminality that, in the good faith judgment of the Board of Directors of the Company, has had or could have an adverse effect on the Company; (ii) The Executive shall have committed any act of fraud, embezzlement or misappropriation of funds; or (iii) The Executive shall have breached, in any material respect, any of the provisions of this Agreement. Upon the effectiveness of the termination of the Executive's termination for Cause, the Company, Holdings and Sterling shall have no further obligation or liability to the Executive relating to the Executive's employment hereunder, or the termination thereof, other than for Base Salary earned but unpaid through the date of termination. 5 Section 8.04. By the Company Without Cause. The Company may terminate the Executive's employment at any time during the Initial Term or any Renewal Term without Cause. In the event of such termination, then the Company shall pay or provide the Executive (i) Base Salary to the extent earned but unpaid through the date of termination plus (ii) the amounts specified in Section 7.05 plus (iii) at the times the Company pays its executives incentive compensation in accordance with its general payroll policies, an amount which, but for such termination, the Executive would have earned during the year of such termination (pro-rated based on the number of days during the year of such termination of employment for which the Executive was employed by the Company on an active status). In addition, any options granted to the Executive as contemplated by Section 6.02 shall become fully exercisable upon any such termination, notwithstanding any limitations in the Plan or any Stock Option Agreement. Any nonrenewal of this Agreement by the Company shall in no event be deemed a termination for purposes of this Section 8.04. Section 8.05. By the Executive for Good Reason. The Executive may terminate his employment at any time during the Initial Term or any Renewal Term for Good Reason. In the event of such termination, the Company shall pay or provide the Executive (i) base salary to the extent earned but unpaid through the date of termination plus (ii) the amount and benefits specified in Section 7.05 plus (iii) at the times the Company pays its executives incentive compensation in accordance with its general payroll policies, an amount which, but for such termination, the Executive would have earned during the year of such termination (pro-rated based on the number of days during the year of such termination of employment for which the Executive was employed by the Company on an active status). In addition, any options granted to the Executive as contemplated by Section 6.02 shall become fully and immediately exercisable upon any such termination, notwithstanding any limitations in the plan or any stock option agreement. Any non-renewal of this Agreement by the Company shall in no event be deemed a termination for purposes of this Section 8.05. As used herein, "Good Reason" means a resignation by the Executive within thirty (30) days after (i) any demotion or similar change in his duties such that the duties assigned to the Executive after such change represent a substantial decrease in the Executive's duties, responsibilities or status with the Company relative to such duties, responsibilities or status as of the date hereof, (ii) being required to relocate his principal place of employment beyond a ten (10) mile radius of Portland, Maine or (iii) the Company's failure to make any payment or to provide any benefit due to the Executive hereunder when due; provided, however, that the Executive shall have first given the Company written notice of such failure to pay or provide and such failure to pay or provide shall not have been cured within ten (10) days after the receipt by the Company of such notice. Section 8.06. By the Executive Without Good Reason. The Executive may terminate his employment hereunder at any time upon ninety (90) days' notice to the Company. In the event of termination of the Executive pursuant to this Section 8.06, the Board may elect to waive the period of notice, or any portion thereof, and, unless the Board so elects, the Company will pay the Executive his Base Salary for the notice period. Upon termination of the Executive's employment hereunder pursuant to this Section 8.06, the Company shall have no further obligation or liability to the Executive relating to the Executive's employment hereunder, or the termination thereof, other than payment to the Executive of his Base Salary for the period (or portion of such period) indicated above. 6 Section 8.07. Post-Agreement Employment. In the event the Executive remains in the employ of the Company, Holdings, Sterling or any of their affiliates following termination of this Agreement, by the expiration of the Term or otherwise, then such employment shall be at will, unless otherwise agreed in writing. Section 8.08. Mitigation. Any amounts payable to the Executive hereunder pursuant to Section 7.05, 8.04 or 8.05 shall not be reduced by any amounts earned by the Executive from any other employer or source following termination of the Executive's employment with the Company, Holdings and Sterling, except in the event of a violation of Section 11 hereof; provided, however, that the amounts payable to Executive pursuant to clause (b) of Section 7.05 hereof shall be subject to prospective (and not retrospective) offset to the extent of any cash compensation actually received by Executive from any other employer during the period in which such amounts would otherwise be payable to Executive. Notwithstanding the foregoing, the Executive shall be under no obligation to take or refrain from taking any action to mitigate the Company's potential liability to make such severance payments. Section 9. Effect of Termination. The provisions of this Section 9 shall apply in the event of termination of employment whether due to the expiration of the Term, pursuant to Section 8 or otherwise. Section 9.01. Payment in Full. Payment by the Company of any Base Salary and other amounts and contributions to the cost of the Executive's continued receipt of benefits that may be due the Executive under the applicable termination provision of Section 8 shall constitute the entire obligation of the Company to the Executive. Acceptance by the Executive of performance by the Company shall constitute full settlement of any claim that the Executive might otherwise assert against the Company, its affiliates or any of their respective shareholders, partners, directors, officers, employees or agents relating to such termination. Section 9.02. Survival of Certain Provisions. Provisions of this Agreement shall survive any termination of employment if so provided herein or if necessary or desirable fully to accomplish the purposes of such provision, including, without limitation, the obligations of the Executive under Sections 10 and 11 hereof. The obligation of the Company to make payments to or on behalf of the Executive under Sections 7.05, 8.04 or 8.05 hereof is expressly conditioned upon the Executive's continued full performance of obligations under Section 10 and 11 hereof. The Executive recognizes that, except as expressly provided in Section 7.05, 8.04 or 8.05, no compensation is earned after termination of employment. Section 9.03. Public Statement of Termination. In the event the Executive's employment terminates for any reason, the Company and the Executive shall agree upon a public statement pertaining to the Executive's termination of employment, and the terms of said statement shall not be subject to subsequent modification by either party unless required by law; provided, however, that in the event the Company and the Executive are unable in good faith to agree on such a statement, the Company may make public statements as are necessary to comply with the law. 7 Section 10. Proprietary Information; Inventions in the Field. Section 10.01. Proprietary Information. In the course of his service to the Company (and to its predecessor, NSC), the Executive has had and will continue to have access to confidential specifications, know-how, strategic or technical data, marketing research data, product research and development data, manufacturing techniques, financial performance, confidential customer lists, costs, sources of supply and trade secrets, names and addresses of the people and organizations with whom the Company and its affiliates have business relationships and such relationships, and special needs of customers of the Company and its affiliates, all of which are confidential and may be proprietary and are owned or used by the Company or its affiliates. Such information shall hereinafter be called "Proprietary Information" and shall include any and all items enumerated in the preceding sentence and coming within the scope of the business of the Company or its affiliates as to which the Executive may have had or may in the future have access, whether conceived or developed by others or by the Executive alone or with others during the period of his service to the Company or its affiliates (or to NSC and its affiliates), whether or not conceived or developed during regular working hours. The term "Proprietary Information" also shall be deemed to include comparable information that the Company or any of its affiliates (or NSC or any of its affiliates) have received belonging to others or which was received by the Company or any of its affiliates (or NSC or any of its affiliates) with any understanding that it would not be disclosed. Proprietary Information shall not include any records, data or information which are in the public domain during the period of service by the Executive provided the same are not in the public domain as a consequence of disclosure, directly or indirectly by the Executive in violation of this Agreement. Section 10.02. Fiduciary Obligations. The Executive agrees that Proprietary Information is of critical importance to the Company and its affiliates, and that a violation of this Section 10.02 or Section 10.03 would seriously and irreparably impair and damage the Company's business. The Executive agrees that he shall keep all Proprietary Information in a fiduciary capacity for the sole benefit of the Company. Section 10.03. Non-Use and Non-Disclosure. The Executive shall not during the Term or at any time thereafter, regardless of the reason for termination of the Executive's employment (a) disclose, directly or indirectly, any Proprietary Information to any person other than the Company or authorized employees thereof at the time of such disclosure, or such other persons to whom the Executive has been specifically instructed to make disclosure by the Board and in all such cases only to the extent required in the course of the Executive's service to the Company or (b) use any Proprietary Information, directly or indirectly, for his own benefit or for the benefit of any other person or entity. The parties agree and acknowledge that nothing contained in this Section 10.03 is intended to preclude the Executive from utilizing general or industry-specific business skills developed by him over his career, or to effectively extend the restrictions contained in Section 11 hereof beyond the Non-Competition Period (as defined therein), and that this Section 10.03 shall be applicable only to specific, demonstrable instances of improper disclosure or use by the Executive of Proprietary Information. The Company shall have the burden of establishing that Executive has violated Section 10.03 and shall not be entitled to withhold or recover any amounts or benefits payable or to be provided to Executive hereunder until and unless there has been a final adjudication that Executive has breached this Section 10.03. 8 Section 10.04. Return of Documents. All notes, letters, documents, records, tapes and other media of every kind and description relating to the business, present or otherwise, of the Company or its affiliates and any copies, in whole or in part, thereof (collectively, the "Documents"), whether or not prepared by the Executive, shall be the sole and exclusive property of the Company. The Executive shall safeguard all Documents and shall surrender to the Company at the time his employment terminates, or at such earlier time or times as the Board or its designee may specify, all Documents then in the Executive's possession or control. Section 10.05. Assignment of Rights to Intellectual Property. The Executive shall promptly and fully disclose all Intellectual Property to the Company. The Executive hereby assigns and agrees to assign to the Company (or as otherwise directed by the Board) the Executive's full right, title and interest in and to all Intellectual Property. The Executive agrees to execute any and all applications for domestic and foreign patents, copyrights or other proprietary rights and to do such other acts (including without limitation the execution and delivery of instruments of further assurance or confirmation) requested by the Company to assign the Intellectual Property to the Company and to permit the Company and its affiliates to enforce any patents, copyrights or other proprietary rights to the Intellectual Property. For purposes of this Section 10.05, "Intellectual Property" means inventions, discoveries, developments, methods, processes, compositions, works, concepts and ideas (whether or not patentable or copyrightable or constituting trade secrets) conceived, made, created, developed or reduced to practice by the Executive (whether alone or with others, whether or not during normal business hours or on or off Company premises) during the Executive's employment that relate to either any business, venture or activity being conducted or proposed to be conducted by the Company or its affiliates at any time during the term of this Agreement. Section 11. Restrictions on Activities of the Executive. Section 11.01. Acknowledgments. The Executive agrees that he is being employed hereunder in a key management capacity with the Company, that the Company is engaged in a highly competitive business and that the success of the Company's business in the marketplace depends upon its goodwill and reputation for quality and dependability. The Executive further agrees that reasonable limits may be placed on his ability to compete against the Company and its affiliates as provided herein so as to protect and preserve their legitimate business interests and goodwill. Section 11.02. Agreement Not to Compete or Solicit. 11.02.1 During the Non-Competition Period (as defined below), the Executive will not engage or participate in, directly or indirectly, as principal, agent, employee, employer, consultant, investor or partner, or assist in the management of, any business which is Competitive with the Company (as defined below). 11.02.2 During the Non-Competition Period, the Executive will not, directly or indirectly through any other entity, hire or attempt to hire, any officer, director, consultant, executive or employee of the Company or any of its affiliates during his or her 9 engagement with the Company or such affiliate. During the Non-Competition Period, the Executive will not call upon, solicit, divert or attempt to solicit or divert from the Company or any of its affiliates any of their customers or suppliers or potential customers or suppliers of whose names he was aware during the Term (other than customers or suppliers or potential customers or suppliers contacted by the Executive solely in connection with a business that is not Competitive with the Company). 11.02.3 The "Non-Competition Period" shall mean the Term and a period consisting of the greater of (a) twenty-four (24) consecutive months or (b) the remaining number of months in the Initial Term after (x) the Executive's employment terminates under any circumstances whatsoever, or (y) any expiration or nonrenewal of this Agreement. 11.02.4. A business shall be considered "Competitive with the Company" if it is engaged in any business, venture or activity in the Restricted Area (as defined below) which competes or plans to compete with any business, venture or activity being conducted or actively and specifically planned to be conducted within the Non-Competition Period (as evidenced by the Company's internal written business plans or memoranda) by the Company, or any group, division or affiliate of the Company, at the date the Executive's employment hereunder is terminated. 11.02.5. The "Restricted Area" shall mean the United States of America and any other country where the Company, or any group, division or affiliate of the Company, is conducting, or has proposed to conduct within the Non-Competition Period (as evidenced by the Company's internal written business plans or memoranda), any business, venture or activity, at the date the Executive's employment hereunder is terminated. 11.02.6. Notwithstanding the provisions of this Section 11.02, the parties agree that (i) ownership of not more than three percent (3%) of the voting stock of any publicly held corporation shall not, of itself, constitute a violation of this Section 11.02 and (ii) working as an employee of an entity that has a stand-alone division or business unit which is Competitive with the Company shall not, of itself, constitute a violation of this Section 11.02 if the Executive is not, in any way (directly or indirectly, as principal, agent, employee, employer, consultant, advisor, investor or partner), responsible for, compensated with respect to, or involved in the activities of such stand-alone division or business unit and does not (directly or indirectly) provide information or assistance to such stand-alone division or business unit. Section 12. Remedies. It is specifically understood and agreed that any breach of the provisions of Section 10 or 11 of this Agreement is likely to result in irreparable injury to the Company and that the remedy at law alone will be an inadequate remedy for such breach, and that in addition to any other remedy it may have, the Company shall be entitled to enforce the specific performance of this Agreement by the Executive and to obtain both temporary and permanent injunctive relief without the necessity of proving actual damages. 10 Section 13. Severable Provisions. The provisions of this Agreement are severable and the invalidity of any one or more provisions shall not affect the validity of any other provision. In the event that a court of competent jurisdiction shall determine that any provision of this Agreement or the application thereof is unenforceable in whole or in part because of the duration or scope thereof, the parties hereto agree that said court in making such determination shall have the power to reduce the duration and scope of such provision to the extent necessary to make it enforceable, and that the Agreement in its reduced form shall be valid and enforceable to the full extent permitted by law. Section 14. Notices. All notices hereunder, to be effective, shall be in writing and shall be delivered by hand or mailed by certified mail, postage and fees prepaid, as follows: To the Executive: Joseph R. Martin 1 Beechtree Lane Yarmouth, Maine 04096 To Holdings, Sterling Fairchild Semiconductor Corporation or the Company: 333 Western Avenue South Portland, Maine 04106 Attention: General Counsel or to such other address as a party may notify the other pursuant to a notice given in accordance with this Section 14. Section 15. Miscellaneous. Section 15.01. No Other Benefits. Except as specifically provided in this Agreement, the Executive shall not be entitled to any compensation, severance or other benefits from the Company, Holdings or any of their affiliates, whether during the Term or upon the termination of this Agreement for any reason whatsoever. Section 15.02. Modification: Waiver. This Agreement constitutes the entire Agreement between the parties hereto with regard to the subject matter hereof, superseding all prior understandings and agreements, whether written or oral. This Agreement may not be amended or revised except by a writing signed by the parties. No waiver of any provision hereof shall be effective unless made in writing and signed by the waiving party. The failure of any party to require the performance of any term or obligation of this Agreement, or the waiver by any party of any breach of this Agreement, shall not prevent any subsequent enforcement of such term or obligation or be deemed a waiver of any subsequent breach. Section 15.03. Withholding of Taxes. The Company may withhold from any amounts payable under this Agreement any local, state or federal taxes as shall be required pursuant to any applicable law. 11 Section 15.04. Assignment and Transfer. This Agreement shall not be terminated by the merger or consolidation of the Company with any corporate or other entity or by the transfer of all or substantially all of the assets of the Company to any other person, corporation, firm or entity, and the consent of the Executive shall not be required in connection with the assignment of the rights and obligations of the Company, Holdings and Sterling pursuant to any such transaction. The Company shall use its commercially reasonable efforts to cause the successor to its business (as a result of a merger, consolidation or transfer of all or substantially all of its assets), to assume the obligations of the Company hereunder. Neither this Agreement nor any of the rights, duties or obligations of the Executive shall be assignable by the Executive, nor shall any of the payments required or permitted to be made to the Executive by this Agreement be encumbered, transferred or in any way anticipated. This Agreement shall inure to the benefit of, and be binding upon, the parties hereto and their respective successors, executors, administrators, heirs-and permitted assigns. Section 15.05. Affiliates. For purposes of this Agreement, an "affiliate" of the Company or Holdings shall mean all persons and entities directly or indirectly controlling, controlled by or under common control with the Company, Holdings or Sterling, as the case may be. Section 15.06. Governing Law. This Agreement shall be construed under and enforced in accordance with the laws of the State of Maine, other than conflict of laws principles. Section 15.07. Consent to Jurisdiction. Each of the Company, Holdings, Sterling, and the Executive, by its or his execution hereof, (i) subject to the provisions of Section 15.08 hereof, hereby irrevocably submits to the exclusive jurisdiction of the state courts of the State of Maine for the purpose of any claim or action arising out of or based upon this Agreement or relating to the subject matter hereof, and (ii) hereby waives any right to trial by jury. Each of the Company, Holdings, Sterling and the Executive hereby consents to service of process in any such proceeding in any manner permitted by Maine law, and agrees that service of process by registered or certified mail, return receipt requested, at its address specified pursuant to Section 14 hereof is reasonably calculated to give actual notice. Section 15.08. Arbitration. The parties agree and acknowledge that (other than actions for injunctive relief pursuant to Section 12 hereof) any and all disputes arising out of or in connection with this Agreement shall be resolved by binding arbitration pursuant to the Commercial Arbitration Rules of the American Arbitration Association ("AAA") before a single arbitrator selected by AAA. Such arbitration shall be held in Portland, Maine. Section 15.09. Disclaimer of Damages. The maximum liability of the Company on account of this Agreement (or any breach of this Agreement) shall under no circumstances exceed the amount of salary, benefits and other compensation (including severance) required to be paid hereunder. Without limiting the generality of the foregoing, Executive hereby acknowledges that the Company and Holdings, acting through the Board, shall have the right and power to remove Executive from office and terminate his employment at any time and for any reason whatsoever without incurring liability to Executive other than the payment of such salary, benefits and other compensation (including severance) as may be required under this Agreement, including without limitation liability in connection with claims by the Executive that such termination, in and of 12 itself, has damaged the Executive's career or prospects for securing other employment, or that such termination has impaired the value of the Executive's investment in Holdings. The parties agree that no party to this Agreement (or any of its affiliates) shall be liable to any other party hereto for any incidental, consequential, special, exemplary or punitive damages based on any claim arising out of this Agreement; provided, however, that the foregoing limitation shall not apply to claims arising out of any breach by the Executive of Sections 10 or 11 of this Agreement, and that such limitation, and (in the case of claims by the Executive) the limitation contained in the first sentence of this Section 15.09, shall not apply to any defamation, slander, libel or similar claim by the Company or the Executive. In the event that Executive's employment hereunder terminates, whether pursuant to Section 8.06 hereof or otherwise, neither the Company nor Holdings shall be entitled to recover from the Executive any costs of identifying, engaging or retaining any successor to the Executive. Section 15.10. Costs of Enforcement. The parties agree and acknowledge that the prevailing party in any proceeding arising under this Agreement shall be entitled to receive, in addition to any amounts or benefits to which he or it is entitled hereunder, all costs (including reasonable attorneys' fees) incurred by him or it in enforcing or collecting upon any obligation of any other party under this Agreement. Section 15.11. Drafting. The parties agree and acknowledge that this Agreement is the product of arms' length negotiation among the parties, who have been represented by counsel throughout, and that, accordingly, no party shall be deemed to be the drafter of this Agreement and no presumptions as to the construction of any provisions hereof shall be applicable as a consequence of any party's role in the drafting hereof. 13 IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as a sealed instrument as of the day and year first above written. FAIRCHILD SEMICONDUCTOR CORPORATION By:__________________________________ Name:________________________________ Title:_______________________________ FSC SEMICONDUCTOR CORPORATION By:__________________________________ Name:________________________________ Title:_______________________________ STERLING HOLDING COMPANY, LLC By:__________________________________ Name:________________________________ Title:_______________________________ _____________________________________ Joseph R. Martin 14 EX-12.01 26 STATEMENT OF EARNINGS
Exhibit 12.01 Historical Pro Forma Pro Forma ---------------------------------------------------- -------------------- -------------------- Fairchild Fairchild Fairchild Holdings Nine months ended Year Nine months Year Nine months Years ended May February ended ended ended ended ---------------------------------------------------- May 26, February 23, May 26, February 23 1992 1993 1994 1995 1996 1996 1997 1996 1997 1996 1997 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- Net income (loss) before income taxes for the period Before Preferred Stock dividends (34.8) 24.7 125.5 74.3 72.3 67.6 9.6 46.5 (0.4) 37.5 (8.0) After Preferred Stock dividends 29.1 (15.1) Fixed Charges: Interest portion of rent 2.7 2.3 1.5 1.0 1.6 1.2 1.3 1.6 1.3 1.6 1.3 Interest Expense 40.3 29.7 49.3 37.3 Amortization of deferred financing costs 2.6 1.7 2.6 1.7 --------------------------------------------------------------------------------------------- Total Fixed Charges 2.7 2.3 1.5 1.0 1.6 1.2 1.3 44.5 32.7 53.5 40.3 Preferred Stock Dividend 8.4 7.1 --------------------------------------------------------------------------------------------- Combined noted charges and preferred stock dividends 2.7 2.3 1.5 1.0 1.6 1.2 1.3 44.5 32.7 61.9 47.4 Earnings: Net income before tax plus fixed charges (32.1) 27.0 127.0 75.3 73.9 68.8 10.9 91.0 32.3 91.0 32.3 Net income before tax plus combined fixed charges (32.1) 27.0 127.0 75.3 73.9 68.8 10.9 91.0 32.3 91.0 32.3 Ratio: Earnings to fixed charges n/a 11.7 84.7 75.3 46.2 57.3 8.4 2.0 n/a 1.7 N/A Earnings to combined fixed charges n/a 11.7 84.7 75.3 46.2 57.3 8.4 2.0 n/a 1.5 n/a Deficiency of earnings available to cover: Fixed charges 34.8 -- -- -- -- -- -- -- (0.4) -- (8.0) Combined fixed charges and dividends on Preferred Stock 34.8 (0.4) (15.1)
EX-21.01 27 EX-21.01 Exhibit 21.01--Subsidiaries of the Company
Name of subsidiary Jurisdiction of incorporation or organization - ------------------ --------------------------------------------- Fairchild Semiconductor Limited United Kingdom Fairchild Semiconductor GmbH Germany Fairchild Semiconductor Asia Singapore Pacific Pte. Ltd. Fairchild Semiconductor Malaysia (Malaysia) Sdn. Bhd. Fairchild Semiconductor Hong Kong Limited Hong Kong Fairchild Semiconductor Hong Kong Hong Kong (Holdings) Limited Fairchild Semiconductor Japan K.K. Japan Fairchild Semiconductor Srl Italy
EX-23.02 28 EX. 23.02 - CONSENT OF INDEPENDENT AUDITORS Exhibit 23.02 CONSENT OF INDEPENDENT AUDITORS The Board of Directors Fairchild Semiconductor Corporation: We consent to the use of our reports included herein and to the reference to our firm under the heading "Experts" in the prospectus. San Jose, California May 12, 1997 EX-25.01 29 EX-25.01 Exhibit 25.01 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 ------------------------- FORM T-1 STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE ------------------------- CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO Section 305(b)(2) _______ ------------------------- UNITED STATES TRUST COMPANY OF NEW YORK (Exact name of trustee as specified in its charter) New York 13-3818954 (Jurisdiction of incorporation (I. R. S. Employer if not a U. S. national bank) Identification No.) 114 West 47th Street 10036-1532 New York, New York (Zip Code) (Address of principal executive offices) ------------------------- Fairchild Semiconductor Corporation (Exact name of obligor as specified in its charter) Delaware 77-0449095 (State or other jurisdiction of I.R.S. Employer incorporation or organization) Identification No.) 333 Western Avenue South Portland, Maine 04106 (Address of principal executive offices) ------------------------- 10 1/8% Senior Subordinated Note due 2007 (Title of the indenture securities) GENERAL 1. General Information Furnish the following information as to the trustee: (a) Name and address of each examining or supervising authority to which it is subject. Federal Reserve Bank of New York (2nd District), New York, New York (Board of Governors of the Federal Reserve System). Federal Deposit Insurance Corporation, Washington, D. C. New York State Banking Department, Albany, New York (b) Whether it is authorized to exercise corporate trust powers. The trustee is authorized to exercise corporate trust powers. 2. Affiliations with the Obligor If the obligor is an affiliate of the trustee, describe each such affiliation. None. 3. Voting Securities of the Trustee 2,999,020 shares of Common Stock - par value $5 per share 4. Trusteeships under Other Indentures Not applicable. 5. Interlocking Directorates and Similar Relationships with the Obligor or Underwriters Not applicable. 2 6. Voting Securities of the Trustee Owned by the Obligor or its Officials Not applicable. 7. Voting Securities of the Trustee Owned by Underwriters or their Officials Not applicable. 8. Securities of the Obligor Owned or Held by the Trustee Not applicable. 9. Securities of Underwriters Owned or Held by the Trustee Not applicable. 10. Ownership or Holdings by the Trustee of Voting Securities of Certain Affiliates or Securities Holders of the Obligor Not applicable. 11. Ownership or Holdings by the Trustee of any Securities of a Person Owning 50 Percent or More of the Voting Securities of the Obligor Not applicable. 12. Indebtedness of the Obligor to the Trustee Not applicable. 13. Defaults by the Obligor Not applicable. 14. Affiliations with the Underwriters Not applicable. 3 15. Foreign Trustee Not applicable. 16. List of Exhibits T-1.1 -- Organization Certificate, as amended, issued by the State of New York Banking Department to transact business as a Trust Company, is incorporated by reference to Exhibit T-1.1 to Form T-1 filed on October 6, 1995 with the Commission pursuant to the Trust Indenture Act of 1939, as amended by the Trust Indenture Reform Act of 1990 in an amended filing to an original Registration Statement filed on August 28, 1995 (Registration No. 33-96262). T-1.2 - Included in Exhibit T-1.1. T-1.3 -- Included in Exhibit T-1.1. T-1.4 -- The By-Laws of United States Trust Company of New York, as amended, is incorporated by reference to Exhibit T-1.4 to Form T-1 filed on October 6, 1995 with the Commission pursuant to the Trust Indenture Act of 1939, as amended by the Trust Indenture Reform Act of 1990 in an amended filing to an original Registration Statement filed on August 28, 1995 (Registration No. 33-96262). T-1.6 -- The consent of the trustee required by Section 321(b) of the Trust Indenture Act of 1939, as amended by the Trust Indenture Reform Act of 1990. T-1.7 -- A copy of the latest report of condition of the trustee pursuant to law or the requirements of its supervising or examining authority. NOTE As of April 21,1997 the trustee had 2,999,020 shares of Common Stock outstanding, all of which are owned by its parent company, U. S. Trust Corporation. The term "trustee" in Item 2, refers to each of United States Trust Company of New York and its parent company, U. S. Trust Corporation. In answering Item 2 in this statement of eligibility, as to matters peculiarly within the knowledge of the obligor or its directors, the trustee has relied upon information furnished to it by the obligor and will rely on information to be furnished by the obligor and the trustee disclaims responsibility for the accuracy or completeness of such information. --------------------- 4 Pursuant to the requirements of the Trust Indenture Act of 1939, the trustee, United States Trust Company of New York, a corporation organized and existing under the laws of the State of New York, has duly caused this statement of eligibility to be signed on its behalf by the undersigned, thereunto duly authorized, all in the City of New York, and State of New York, on the 21st day of April, 1997. UNITED STATES TRUST COMPANY OF NEW YORK, Trustee /s/ By: John Guiliano Vice President 5 Exhibit T-1.6 The consent of the trustee required by Section 321(b) of the Act. United States Trust Company of New York 114 West 47th Street New York, NY 10036 September 1, 1995 Securities and Exchange Commission 450 5th Street, N.W. Washington, DC 20549 Gentlemen: Pursuant to the provisions of Section 321(b) of the Trust Indenture Act of 1939, as amended by the Trust Indenture Reform Act of 1990, and subject to the limitations set forth therein, United States Trust Company of New York ("U.S. Trust") hereby consents that reports of examinations of U.S. Trust by Federal, State, Territorial or District authorities may be furnished by such authorities to the Securities and Exchange Commission upon request therefor. Very truly yours, UNITED STATES TRUST COMPANY OF NEW YORK /s/ ----------------------------- By: Gerard F. Ganey Senior Vice President EXHIBIT T-1.7 UNITED STATES TRUST COMPANY OF NEW YORK CONSOLIDATED STATEMENT OF CONDITION DECEMBER 31, 1996 (IN THOUSANDS) ASSETS Cash and Due from Banks $ 75,754 Short-Term Investments 276,399 Securities, Available for Sale 925,886 Loans 1,638,516 Less: Allowance for Credit Losses 13,168 ----------- Net Loans 1,625,348 Premises and Equipment 61,278 Other Assets 120,903 ----------- Total Assets $3,085,568 ----------- ----------- LIABILITIES Deposits: Non-Interest Bearing $ 645,424 Interest Bearing 1,694,581 ----------- Total Deposits 2,340,005 Short-Term Credit Facilities 449,183 Accounts Payable and Accrued Liabilities 139,261 ----------- Total Liabilities $2,928,449 ----------- ----------- STOCKHOLDER'S EQUITY Common Stock 14,995 Capital Surplus 42,394 Retained Earnings 98,926 Unrealized Gains (Losses) on Securities Available for Sale, Net of Taxes 804 ----------- Total Stockholder's Equity 157,119 ----------- Total Liabilities and Stockholder's Equity $3,085,568 ----------- ----------- I, Richard E. Brinkmann, Senior Vice President & Comptroller of the named bank do hereby declare that this Statement of Condition has been prepared in conformance with the instructions issued by the appropriate regulatory authority and is true to the best of my knowledge and belief. Richard E. Brinkmann, SVP & Controller April 9, 1997 EX-99.01 30 EX-99.01 EXHIBIT 99.01 THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON , 1997, UNLESS EXTENDED (THE "EXPIRATION DATE"). TENDERS OF EXISTING NOTES MAY BE WITHDRAWN AT ANY TIME PRIOR TO 5:00 P.M. ON THE EXPIRATION DATE. FAIRCHILD SEMICONDUCTOR CORPORATION LETTER OF TRANSMITTAL 10 1/8% SENIOR SUBORDINATED NOTES DUE 2007 TO: UNITED STATES TRUST COMPANY OF NEW YORK, THE EXCHANGE AGENT BY REGISTERED OR CERTIFIED MAIL: BY OVERNIGHT COURIER: United States Trust Company of New York United States Trust Company of New York P.O. Box 844 770 Broadway Cooper Station New York, New York 10003 New York, New York 10276-0844 Attn: Corporate Trust BY HAND: BY FACSIMILE: United States Trust Company of New York United States Trust Company of New York 111 Broadway (212) 420-6152 Lower Level Attn: Corporate Trust Corporate Trust Window CONFIRM BY TELEPHONE: New York, New York 10006 (800) 548-6565
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER THAN THE ONE LISTED ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED. HOLDERS WHO WISH TO BE ELIGIBLE TO RECEIVE NEW NOTES FOR THEIR EXISTING NOTES PURSUANT TO THE EXCHANGE OFFER MUST VALIDLY TENDER (AND NOT WITHDRAW) THEIR EXISTING NOTES TO THE EXCHANGE AGENT PRIOR TO THE EXPIRATION DATE. The undersigned acknowledges receipt of the Prospectus dated , 1997 (the "Prospectus") of FAIRCHILD SEMICONDUCTOR CORPORATION (the "Company") and this Letter of Transmittal (the "Letter of Transmittal"), which together constitute the Company's Offer to Exchange (the "Exchange Offer") $1,000 principal amount of its 10 1/8% Senior Subordinated Notes Due 2007 (the "Exchange Notes"), which have been registered under the Securities Act of 1933, as amended (the "Securities Act"), pursuant to a Registration Statement of which the Prospectus is a part, for each $1,000 principal amount of its outstanding 10 1/8% Senior Subordinated Notes Due 2007 (the "Existing Notes"), of which $300,000,000 principal amount is outstanding, upon the terms and conditions set forth in the Prospectus. Other capitalized terms used but not defined herein have the meaning given to them in the Prospectus. For each Existing Note accepted for exchange, the holder of such Existing Note will receive an Exchange Note having a principal amount equal to that of the surrendered Existing Note. Interest on the Exchange Notes will accrue from the last interest payment date on which interest was paid on the Existing Notes surrendered in exchange therefor or, if no interest has been paid on the Existing Notes, from the date of original issue of the Existing Notes. Holders of Existing Notes accepted for exchange will be deemed to have waived the right to receive any other payments or accrued interest on the Existing Notes. The Company reserves the right, at any time or from time to time, to extend the Exchange Offer at its discretion, in which event the term "Expiration Date" shall mean the latest time and date to which the Exchange Offer is extended. The Company shall notify holders of the Existing Notes of any extension by means of a press release or other public announcement prior to 9:00 A.M., New York City time, on the next business day after the previously scheduled Expiration Date. This Letter of Transmittal is to be used by Holders if: (i) certificates representing Existing Notes are to be physically delivered to the Exchange Agent herewith by Holders; (ii) tender of Existing Notes is to be made by book-entry transfer to the Exchange Agent's account at The Depository Trust Company ("DTC"), pursuant to the procedures set forth in the Prospectus under "The Exchange Offer--Procedures for Tendering Existing Notes" by any financial institution that is a participant in DTC and whose name appears on a security position listing as the owner of Existing Notes; or (iii) tender of Existing Notes is to be made according to the guaranteed delivery procedures set forth in the prospectus under "The Exchange Offer--Guaranteed Delivery Procedures." DELIVERY OF DOCUMENTS TO DTC DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT. The term "Holder" with respect to the Exchange Offer means any person: (i) in whose name Existing Notes are registered on the books of the Company or any other person who has obtained a properly completed bond power from the registered Holder; or (ii) whose Existing Notes are held of record by DTC who desires to deliver such Existing Notes by book-entry transfer at DTC. The undersigned has completed, executed and delivered this Letter of Transmittal to indicate the action the undersigned desires to take with respect to the Exchange Offer. The instructions included with this Letter of Transmittal must be followed. Questions and requests for assistance or for additional copies of the Prospectus, this Letter of Transmittal and the Notice of Guaranteed Delivery may be directed to the Exchange Agent. See Instruction 11 herein. HOLDERS WHO WISH TO ACCEPT THE EXCHANGE OFFER AND TENDER THEIR EXISTING NOTES MUST COMPLETE THIS LETTER OF TRANSMITTAL IN ITS ENTIRETY. PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL CAREFULLY BEFORE CHECKING ANY BOX BELOW DESCRIPTION OF 10- 1/8% SENIOR SUBORDINATED NOTES DUE 2007 (EXISTING NOTES)
AGGREGATE PRINCIPAL PRINCIPAL AMOUNT AMOUNT TENDERED NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S) CERTIFICATE REGISTERED BY (IF LESS THAN (PLEASE FILL IN, IF BLANK) NUMBER(S)* CERTIFICATE(S) ALL)**
* Need not be completed by Holders tendering by book-entry transfer. ** Unless indicated in the column labeled "Principal Amount Tendered," any tendering Holder of Existing Notes will be deemed to have tendered the entire aggregate principal amount represented by the column labeled "Aggregate Principal Amount Represented by Certificate(s)." If the space provided above is inadequate, list the certificate numbers and principal amounts on a separate signed schedule and affix the list to this Letter of Transmittal. The minimum permitted tender is $1,000 in principal amount of Existing Notes. All other tenders must be integral multiples of $1,000. SPECIAL PAYMENT INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS (SEE INSTRUCTIONS 4, 5 AND 6) (SEE INSTRUCTIONS 4, 5 AND 6) To be completed ONLY if certificates for Existing To be accepted ONLY if certificates for Existing Notes in a principal amount not tendered or not Notes in a principal amount not tendered or not accepted for exchange, or Exchange Notes issued accepted for exchange, are to be sent to someone in exchange for Existing Notes accepted for other than the undersigned, or to the undersigned exchange, are to be issued in the name of someone at an address other than that shown above. other than the undersigned, or if the Existing Notes tendered by book-entry transfer that are not accepted for exchange are to be credited to an account maintained by DTC. Issue certificate(s) to: Mail to: Name: Name: Address: Address: (Include Zip Code) (Include Zip Code) (Tax Identification or Social Security No.) (Tax Identification or Social Security No.)
/ / CHECK HERE IF TENDERED EXISTING NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER TO THE EXCHANGE AGENT'S ACCOUNT AT DTC AND COMPLETE THE FOLLOWING: Name of Tendering Institution: _____________________________________________ DTC Book-Entry Account No.: ________________________________________________ Transaction Code No.: ______________________________________________________ / / CHECK HERE IF TENDERED EXISTING NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE THE FOLLOWING: Name(s) of Registered Holder(s): ___________________________________________ Window Ticket Number (if any): _____________________________________________ Date of Execution of Notice of Guaranteed Delivery: ________________________ IF DELIVERED BY BOOK-ENTRY TRANSFER, COMPLETE THE FOLLOWING: Account Number: _________ Transaction Code Number: _________ 2 / / CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO. Name:______________________________________________________________________ Address:___________________________________________________________________ / / CHECK HERE IF YOU ARE A BROKER-DEALER AND ARE RECEIVING EXCHANGE NOTES FOR YOUR OWN ACCOUNT IN EXCHANGE FOR EXISTING NOTES THAT WERE ACQUIRED AS A RESULT OF MARKET MAKING ACTIVITIES OR OTHER TRADING ACTIVITIES. Name:______________________________________________________________________ Address:___________________________________________________________________ LADIES AND GENTLEMEN: Subject to the terms and conditions of the Exchange Offer, the undersigned hereby tenders to the Company the principal amount of Existing Notes indicated above. Subject to and effective upon the acceptance for exchange of the principal amount of Existing Notes tendered in accordance with this Letter of Transmittal, the undersigned sells, assigns and transfers to, or upon the order of, the Company all right, title and interest in and to the Existing Notes tendered hereby. The undersigned hereby irrevocably constitutes and appoints the Exchange Agent its agent and attorney-in-fact (with full knowledge that the Exchange Agent also acts as the agent of the Company and as Trustee under the Indenture for the Existing Notes and Exchange Notes) with respect to the tendered Existing Notes with full power of substitution to (i) deliver certificates for such Existing Notes to the Company, or transfer ownership of such Existing Notes on the account books maintained by DTC and deliver all accompanying evidence of transfer and authenticity to, or upon the order of, the Company and (ii) present such Existing Notes for transfer on the books of the Company and receive all benefits and otherwise exercise all rights of beneficial ownership of such Existing Notes, all in accordance with the terms and subject to the conditions of the Exchange Offer. The power of attorney granted in this paragraph shall be deemed irrevocable and coupled with an interest. The undersigned hereby represents and warrants that the undersigned has full power and authority to tender, sell, assign and transfer the Existing Notes tendered hereby and that the Company will acquire good and unencumbered title thereto, free and clear of all liens, restrictions, charges and encumbrances and not subject to any adverse claim, when the same are acquired by the Company. The undersigned hereby further represents that any Exchange Notes acquired in exchange for Existing Notes tendered hereby will have been acquired in the ordinary course of business of the Holder receiving such Exchange Notes, whether or not such person is the Holder, that neither the Holder nor any such other person has any arrangement or understanding with any person to participate in the distribution of such Exchange Notes and that neither the Holder nor any such other person is an "affiliate," as defined in Rule 405 under the Securities Act, of the Company or any of its subsidiaries. The undersigned also acknowledges that this Exchange Offer is being made in reliance on an interpretation by the staff of the Securities and Exchange Commission (the "SEC") that the Exchange Notes issued in exchange for the Existing Notes pursuant to the Exchange Offer may be offered for resale, resold and otherwise transferred by holders thereof (other than any such holder that is an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act), without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that such Exchange Notes are acquired in the ordinary course of such holders' business and such holders have no arrangements with 3 any person to participate in the distribution of such Exchange Notes. If the undersigned is not a broker-dealer, the undersigned represents that it is not engaged in, and does not intend to engage in, a distribution of Exchange Notes. If the undersigned is a broker-dealer that will receive Exchange Notes for its own account in exchange for Existing Notes that were acquired as a result of market-making activities or other trading activities, it acknowledges that it will deliver a prospectus in connection with any resale of such Exchange Notes: however, by so acknowledging and by delivering a prospectus, the undersigned will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. The undersigned will, upon request, execute and deliver any additional documents deemed by the Exchange Agent or the Company to be necessary or desirable to complete the assignment, transfer and purchase of the Existing Notes tendered hereby. All authority conferred or agreed to be conferred by this Letter of Transmittal shall survive the death, incapacity or dissolution of the undersigned and every obligation of the undersigned under this Letter of Transmittal shall be binding upon the undersigned's heirs, personal representatives, successors and assigns, trustees in bankruptcy or other legal representatives of the undersigned. This tender may be withdrawn only in accordance with the procedures set forth in "The Exchange Offer--Withdrawal Rights" section of the Prospectus. For purposes of the Exchange Offer, the Company shall be deemed to have accepted validly tendered Existing Notes when, as and if the Company has given oral or written notice thereof to the Exchange Agent. If any tendered Existing Notes are not accepted for exchange pursuant to the Exchange Offer for any reason, certificates for any such unaccepted Existing Notes will be returned (except as noted below with respect to tenders through DTC), without expense, to the undersigned at the address shown below or at a different address as may be indicated under "Special Delivery Instructions" as promptly as practicable after the Expiration Date. The undersigned understands that tenders of Existing Notes pursuant to the procedures described under the caption "The Exchange Offer--Procedures for Tendering Existing Notes" in the Prospectus and in the instructions hereto will constitute a binding agreement between the undersigned and the Company upon the terms and subject to the conditions of the Exchange Offer. Unless otherwise indicated under "Special Payment Instructions," please issue the certificates representing the Exchange Notes issued in exchange for the Existing Notes accepted for exchange and return any Existing Notes not tendered or not exchanged in the name(s) of the undersigned (or in either such event in the case of the Existing Notes tendered through DTC, by credit to the undersigned's account, at DTC). Similarly, unless otherwise indicated under "Special Delivery Instructions," please send the certificates representing the Exchange Notes issued in exchange for the Existing Notes accepted for exchange and any certificates for Existing Notes not tendered or not exchanged (and accompanying documents, as appropriate) to the undersigned at the address shown below the undersigned's signature(s), unless, in either event, tender is being made through DTC. In the event that both "Special Payment Instructions" and "Special Delivery Instructions" are completed, please issue the certificates representing the Exchange Notes issued in exchange for the Existing Notes accepted for exchange and return any Existing Notes not tendered or not exchanged in the name(s) of, and send said certificates to, the person(s) so indicated. The undersigned recognizes that the Company has no obligation pursuant to the "Special Payment Instructions" and "Special Delivery Instructions" to transfer any Existing Notes from the name of the registered Holder(s) thereof if the Company does not accept for exchange any of the Existing Notes so tendered. Holders of Existing Notes who wish to tender their Existing Notes and (i) whose Existing Notes are not immediately available or (ii) who cannot deliver their Existing Notes, this Letter of Transmittal or any other documents required hereby to the Exchange Agent, or cannot complete the procedure for book-entry transfer, prior to the Expiration Date, may tender their Existing Notes according to the guaranteed delivering procedures set forth in the Prospectus under the caption "The Exchange Offer--Guaranteed 4 Delivery Procedures." See Instruction 1 regarding the completion of the Letter of Transmittal printed below. PLEASE SIGN HERE WHETHER OR NOT EXISTING NOTES ARE BEING PHYSICALLY TENDERED HEREBY X Date X Signature(s) of Registered Holder(s) Date Or Authorized Signatory
Area Code and Telephone Number ____________________________ The above lines must be signed by the registered Holder(s) of Existing Notes as their name(s) appear(s) on the Existing Notes or, if the Existing Notes are tendered by a participant in DTC, as such participant's name appears on a security position listing as the owner of Existing Notes, or by person(s) authorized to become registered Holder(s) by a properly completed bond power from the registered Holder(s), a copy of which must be transmitted with this Letter of Transmittal. If Existing Notes to which this Letter of Transmittal relates are held of record by two or more joint Holders, then all such holders must sign this Letter of Transmittal. If signature is by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation or other person acting in a fiduciary or representative capacity, such person must (i) set forth his or her full title below and (ii) unless waived by the Company, submit evidence satisfactory to the Company of such person's authority to act. See Instruction 4 regarding the completion of this Letter of Transmittal printed below. Name:___________________________________________________________________________ (Please Print) Capacity:_______________________________________________________________________ Address:________________________________________________________________________ (Include Zip Code) Signature(s) Guaranteed by an Eligible Institution: (If required by Instruction 4) ------------------------------------------------------------------ (Authorized Signature) -------------------------------------------------------------- (Title) -------------------------------------------------------------- (Name of Firm) Dated:_______________________________ 5 INSTRUCTIONS FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER 1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND EXISTING NOTES; GUARANTEED DELIVERY PROCEDURES. This Letter is to be completed by noteholders, either if certificates are to be forwarded herewith or if tenders are to be made pursuant to the procedures for delivery by book-entry transfer set forth in "The Exchange Offer--Book-Entry Transfer" section of the Prospectus. Certificates for all physically tendered Existing Notes, or Book-Entry Confirmation, as the case may be, as well as a properly completed and duly executed Letter of Transmittal (or manually signed facsimile hereof) and any other documents required by this Letter of Transmittal, must be received by the Exchange Agent at the address set forth herein on or prior to the Expiration Date, or the tendering holder must comply with the guaranteed delivery procedures set forth below. Existing Notes tendered hereby must be in denominations of principal amount of maturity of $1,000 and any integral multiple thereof. Noteholders whose certificates for Existing Notes are not immediately available or who cannot deliver their certificates and all other required documents to the Exchange Agent on or prior to the Expiration Date, or who cannot complete the procedure for book-entry transfer on a timely basis, may tender their Existing Notes pursuant to the guaranteed delivery procedures set forth in "The Exchange Offer-- Guaranteed Delivery Procedures" section of the Prospectus. Pursuant to such procedures, (i) such tender must be made through an Eligible Institution (as defined in Instruction 4 below), (ii) prior to the Expiration Date, the Exchange Agent must receive from such Eligible Institution a properly completed and duly executed Letter of Transmittal (or facsimile thereof) and Notice of Guaranteed Delivery, substantially in the form provided by the Company (by facsimile transmission, mail or hand delivery), setting forth the name and address of the holder of Existing Notes and the amount of Existing Notes tendered, stating that the tender is being made thereby and guaranteeing that within five New York Stock Exchange ("NYSE") trading days after the date of execution of the Notice of Guaranteed Delivery, the certificates for all physically tendered Existing Notes, or a Book-Entry Confirmation, and any other documents required by this Letter of Transmittal will be deposited by the Eligible Institution with the Exchange Agent, and (iii) the certificates for all physically tendered Existing Notes, in proper form for transfer, or Book-Entry Confirmation, as the case may be, and all other documents required by this Letter of Transmittal, are received by the Exchange Agent within five NYSE trading days after the date of execution of the Notice of Guaranteed Delivery. The method of delivery of this Letter of Transmittal, the Existing Notes and all other required documents is at the election and risk of the tendering holders, but the delivery will be deemed made only when actually received or confirmed by the Exchange Agent. If Existing Notes are sent by mail, it is suggested that the mailing be made sufficiently in advance of the Expiration Date to permit the delivery to the Exchange Agent prior to 5:00 p.m. New York City time, on the Expiration Date. See "The Exchange Offer" section in this Prospectus. 2. TENDER BY HOLDER. Only a holder of Existing Notes may tender such Existing Notes in the Exchange Offer. Any beneficial holder of Existing Notes who is not the registered holder and who wishes to tender should arrange with the registered holder to execute and deliver this Letter of Transmittal on his or her behalf or must, prior to completing and executing this Letter of Transmittal and delivering his or her Existing Notes, either make appropriate arrangements to register ownership of the Existing Notes in such holder's name or obtain a properly completed bond power from the registered holder. 3. PARTIAL TENDERS. Tenders of Existing Notes will be accepted only in integral multiples of $1,000. If less than the entire principal amount of any Existing Notes is tendered, the tendering holder should fill in the principal amount tendered in the fourth column of the box entitled "Description of 10 1/8% Senior 6 Subordinated Notes Due 2007 (Existing Notes)" above. The entire principal amount of Existing Notes delivered to the Exchange Agent will be deemed to have been tendered unless otherwise indicated. If the entire principal amount of all Existing Notes is not tendered, then Existing Notes for the principal amount of Existing Notes not tendered and a certificate or certificates representing Exchange Notes issued in exchange for any Existing Notes accepted will be sent to the Holder at his or her registered address, unless a different address is provided in the appropriate box on this Letter of Transmittal promptly after the Existing Notes are accepted for exchange. 4. SIGNATURES ON THIS LETTER OF TRANSMITTAL; POWERS OF ATTORNEY AND ENDORSEMENTS; GUARANTEE OF SIGNATURES. If this Letter of Transmittal is signed by the registered holder of the Existing Notes tendered hereby, the signature must correspond exactly with the name as written on the face of the certificates without any change whatsoever. If any tendered Existing Notes are owned of record by two or more joint owners, all such owners must sign this Letter of Transmittal. If any tendered Existing Notes are registered in different names on several certificates, it will be necessary to complete, sign and submit as many separate copies of this Letter of Transmittal as there are different registrations of certificates. When this Letter of Transmittal is signed by the registered holder or holders of the Existing Notes specified herein and tendered hereby, no endorsements of certificates or separate powers of attorney are required. If, however, the Exchange Notes are to be issued, or any untendered Existing Notes are to be reissued, to a person other than the registered holder, then endorsements of any certificates transmitted hereby or separate powers of attorney are required. Signatures on such certificate(s) must be guaranteed by an Eligible Institution. If this Letter of Transmittal is signed by a person other than the registered holder or holders of any certificate(s) specified herein, such certificate(s) must be endorsed or accompanied by appropriate powers of attorney, in either case signed exactly as the names on the registered holder or holders appear(s) on the certificate(s) and signatures on such certificate(s) must be guaranteed by an Eligible Institution. If this Letter of Transmittal or any certificates or powers of attorney are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing, and unless waived by the Company, proper evidence satisfactory to the Company of their authority to so act must be submitted. Endorsements on certificates for Existing Notes or signatures on powers of attorney required by this Instruction 4 must be guaranteed by a firm which is a participant in a recognized signature guarantee medallion program ("Eligible Institutions"). Signatures on this Letter of Transmittal must be guaranteed by an Eligible Institution unless the Existing Notes are tendered (i) by a registered holder of Existing Notes (which term, for purposes of the Exchange Offer, includes any participant in the Book-Entry Transfer Facility system whose name appears on a security position listing as the holder of such Existing Notes) who has not completed the box entitled "Special Issuance Instructions" or "Special Delivery Instructions" on this Letter of Transmittal, or (ii) for the account of an Eligible Institution. 5. SPECIAL PAYMENT AND DELIVERY INSTRUCTIONS. Tendering holders should indicate, in the applicable box or boxes, the name and address to which Exchange Notes or substitute Existing Notes for principal amounts not tendered or not accepted for exchange are to be issued or sent, if different from the name and address of the person signing this Letter of Transmittal (or in the case of tender of Existing Notes through DTC, if different from DTC). In the case of issuance in a different name, the taxpayer identification or social security number of the person named must also be indicated. Noteholders tendering Existing Notes by book-entry transfer may request that Existing Notes not exchanged be credited to such account 7 maintained at the Book-Entry Transfer Facility as such noteholder may designate hereon. If no such instructions are given, such Existing Notes not exchanged will be returned to the name and address of the person signing this Letter of Transmittal. 6. TAX IDENTIFICATION NUMBER. Federal income tax law requires that a holder whose offered Existing Notes are accepted for exchange must provide the Company (as payer) with his, her or its correct Taxpayer Identification Number ("TIN"), which, in the case of an exchanging holder who is an individual, is his or her social security number. If the Company is not provided with the correct TIN or an adequate basis for exemption, such holder may be subject to a $50 penalty imposed by the Internal Revenue Service (the "IRS"), and payments made with respect to Existing Notes purchased pursuant to the Exchange Offer may be subject to backup withholding at a 31% rate. If withholding results in an overpayment of taxes, a refund may be obtained. Exempt holders (including, among others, all corporations and certain foreign individuals) are not subject to these backup withholding and reporting requirements. See the enclosed "Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9." To prevent backup withholding, each exchanging holder must provide his, her or its correct TIN by completing the Substitute Form W-9 enclosed herewith, certifying that the TIN provided is correct (or that such Holder is awaiting a TIN) and that (i) the holder is exempt from backup withholding, (ii) the holder has been notified by the IRS that he, she or it is subject to backup withholding as a result of a failure to report all interest or dividends, or (iii) the IRS has notified the holder that he, she or it is no longer subject to backup withholding. In order to satisfy the Exchange Agent that a foreign individual qualifies as an exempt recipient, such holder must submit a statement signed under penalty of perjury attesting to such exempt status. Such statements may be obtained from the Exchange Agent. If the Existing Notes are in more than one name or are not in the name of the actual owner, consult the Substitute Form W-9 for information on which TIN to report. If you do not provide your TIN to the Company within 60 days, backup withholding will begin and continue until you furnish your TIN to the Company. 7. TRANSFER TAXES. The Company will pay all transfer taxes, if any, applicable to the exchange of Existing Notes pursuant to the Exchange Offer. If, however, certificates representing Exchange Notes or Existing Notes for principal amounts not tendered or accepted for exchange are to be delivered to, or are to be registered or issued in the name of, any person other than the registered holder of the Existing Notes tendered hereby, or if tendered Existing Notes are registered in the name of any person other than the person signing this Letter of Transmittal, or if a transfer tax is imposed for any reason other than the exchange of Existing Notes pursuant to the Exchange Offer, then the amount of any such transfer taxes (whether imposed on the registered holder or on any other persons) will be payable by the tendering holder. If satisfactory evidence of payment of such taxes or exemption therefrom is not submitted herewith, the amount of such transfer taxes will be billed directly to such tendering holder. Except as provided in this Instruction 7, it will not be necessary for transfer tax stamps to be affixed to the Existing Notes listed in this letter. 8. WAIVER OF CONDITIONS. The Company reserves the absolute right to amend, waive or modify specified conditions in the Exchange Offer in the case of any Existing Notes tendered. 9. NO CONDITIONAL TRANSFERS. No alternative, conditional, irregular or contingent tenders will be accepted. All tendering holders of Existing Notes, by execution of this Letter of Transmittal, shall waive any right to receive notice of the acceptance of their Existing Notes for exchange. Neither the Company, the Exchange Agent nor any other person is obligated to give notice of any defect or irregularity with respect to any tender of Existing Notes nor shall any of them incur any liability for failure to give any such notice. 8 10. MUTILATED, LOST, STOLEN OR DESTROYED EXISTING NOTES. Any tendering holder whose Existing Notes have been mutilated, lost, stolen or destroyed should contact the Exchange Agent at the address indicated herein for further instructions. 11. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions and requests for assistance for additional copies of the Prospectus, this Letter of Transmittal and the Notice of Guaranteed Delivery may be directed to the Exchange Agent at the address specified in the Prospectus. 9 (DO NOT WRITE IN THE SPACE BELOW)
CERTIFICATE ENTERING NOTES EXISTING NOTES SURRENDERED TENDERED ACCEPTED - ------------------------------------ ------------------------------------ ------------------------------------ - ------------------------------------ ------------------------------------ ------------------------------------ - ------------------------------------ ------------------------------------ ------------------------------------ - ------------------------------------ ------------------------------------ ------------------------------------
Delivery Prepared by ------------------------------------Checked By ------------------------------------Date ---------------------------------------------- PAYER'S NAME: FAIRCHILD SEMICONDUCTOR CORPORATION Name (if joint names, list first and circle the name of the person or entity whose number you enter in Part I below. See instructions if your name has changed.) Address ------------------------------------------------------------ City, state and ZIP code ----------------------------------------------------- List account number(s) here (optional) ---------------------------------------- SUBSTITUTE FORM W-9 DEPARTMENT OF THE TREASURY PART 1--PLEASE PROVIDE YOUR Social security number INTERNAL REVENUE SERVICE TAXPAYER IDENTIFICATION NUM- or TIN BER ("TIN") IN THE BOX AT ----------------------------- RIGHT AND CERTIFY BY SIGNING AND DATING BELOW. PART 2--Check the box if you are NOT subject to backup PAYER'S REQUEST FOR TIN withholding under the provisions of section 3408(a)(1)(C) of the Internal Revenue Code because (1) you have not been notified that you are subject to backup withholding as a result of failure to report all interest or dividends or (2) the Internal Revenue Service has notified you that you are no longer subject to backup withholding. CERTIFICATION--UNDER THE PEN- PART 3--AWAITING TIN / / ALTIES OF PERJURY, I CERTIFY THAT THE INFORMATION PRO- VIDED ON THIS FORM IS TRUE, CORRECT AND COMPLETE. Signature --------------------------- Date -----------------------------
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE EXCHANGE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER OR SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS. 10 EX-99.02 31 EX-99.02 EXHIBIT 99.02 NOTICE OF GUARANTEED DELIVERY FOR 10 1/8% SENIOR SUBORDINATED NOTES DUE 2007 FAIRCHILD SEMICONDUCTOR CORPORATION As set forth in the Prospectus dated , 1997 (the "Prospectus") of FAIRCHILD SEMICONDUCTOR CORPORATION (the "Company") and in the accompanying Letter of Transmittal and instructions thereto (the "Letter of Transmittal"), this form or one substantially equivalent hereto must be used to accept the Company's offer to exchange (the "Exchange Offer") all of its outstanding 10 1/8% Senior Subordinated Notes Due 2007 (the "Existing Notes") for its 10 1/8% Senior Subordinated Notes Due 2007, which have been registered under the Securities Act of 1933, as amended (the "Exchange Notes"), if certificates for the Existing Notes are not immediately available or if the Existing Notes, the Letter of Transmittal or any other documents required thereby cannot be delivered to the Exchange Agent, or the procedure for book-entry transfer cannot be completed, prior to 5:00 P.M., New York City time, on the Expiration Date (as defined in the Prospectus). This form may be delivered by an Eligible Institution by hand or transmitted by facsimile transmission, overnight courier or mail to the Exchange Agent as set forth below. Capitalized terms used but not defined herein have the meaning given to them in the Prospectus. THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON , 1997, UNLESS THE OFFER IS EXTENDED (THE "EXPIRATION DATE"). TENDERS OF EXISTING NOTES MAY BE WITHDRAWN AT ANY TIME PRIOR TO 5:00 P.M. ON THE EXPIRATION DATE. TO: UNITED STATES TRUST COMPANY OF NEW YORK, THE EXCHANGE AGENT
BY REGISTERED OR CERTIFIED MAIL: BY OVERNIGHT COURIER: United States Trust Company of New United States Trust Company of New York York P.O. Box 844 770 Broadway Cooper Station New York, New York 10003 New York, New York 10276-0844 Attention: Corporate Trust BY HAND: BY FACSIMILE: United States Trust Company of New United States Trust Company of New York York 111 Broadway (212) 420-6152 Lower Level Attention: Corporate Trust Corporate Trust Window CONFIRM BY TELEPHONE: New York, New York 10006 (800) 548-6565
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS, OR TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE, OTHER THAN AS SET FORTH ABOVE, DOES NOT CONSTITUTE A VALID DELIVERY. This form is not to be used to guarantee signatures. If a signature on the Letter of Transmittal to be used to tender Existing Notes is required to be guaranteed by an "Eligible Institution" under the instructions thereto, such signature guarantee must appear in the applicable space provided in the Letter of Transmittal. Ladies and Gentlemen: The undersigned hereby tenders to FAIRCHILD SEMICONDUCTOR CORPORATION, a Delaware corporation (the "Company"), upon the terms and subject to the conditions set forth in the Prospectus and the Letter of Transmittal (which together constitute the "Exchange Offer"), receipt of which is hereby acknowledged, $ principal amount of Existing Notes pursuant to the guaranteed delivery procedures set forth in Instruction 1 of the Letter of Transmittal. The undersigned understands that tenders of Existing Notes will be accepted only in principal amounts equal to $1,000 or integral multiples thereof. The undersigned understands that tenders of Existing Notes pursuant to the Exchange Offer may not be withdrawn after 5:00 p.m., New York City time, on the Expiration Date. All authority herein conferred or agreed to be conferred by this Notice of Guaranteed Delivery shall survive the death, incapacity or dissolution of the undersigned and every obligation of the undersigned under this Notice of Guaranteed Delivery shall be binding upon the heirs, personal representatives, executors, administrators, successors, assigns, trustees in bankruptcy and other legal representatives of the undersigned. NOTE: SIGNATURES MUST BE PROVIDED WHERE INDICATED BELOW. Certificate No(s). for Existing Notes (if Name(s) of Record Holder(s) available) PLEASE PRINT OR TYPE Principal Amount of Existing Notes Address Area Code and Tel. No. Signature(s) Dated: If Existing Notes will be delivered by book-entry transfer at the Depository Trust Company, Depository Account No.
This Notice of Guaranteed Delivery must be signed by the registered holder(s) of Existing Notes exactly as its (their) name(s) appear on certificates for Existing Notes or on a security position listing as the owner of Existing Notes, or by person(s) authorized to become registered holder(s) by endorsements and documents transmitted with this Notice of Guaranteed Delivery. If signature is by a trustee, executor, administrator, guardian, attorney-in-fact, officer or other person acting in a fiduciary or representative capacity, such person must provide the following information: PLEASE PRINT NAME(S) AND ADDRESS(ES) Name(s): _______________________________________________________________________ Capacity: ______________________________________________________________________ Address(es): ___________________________________________________________________ 2 GUARANTEE (NOT TO BE USED FOR SIGNATURE GUARANTEE) The undersigned, a member firm of a registered national securities exchange or of the National Association of Securities Dealers, Inc., or a commercial bank or trust company having an office or correspondent in the United States or an "eligible guarantor institution" within the meaning of Rule 17Ad-15 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), hereby (a) represents that the above named person(s) "own(s)" the Existing Notes tendered hereby within the meaning of Rule 14e-4 under the Exchange Act, (b) represents that such tender of Existing Notes complies with Rule 14e-4 under the Exchange Act and (c) guarantees that delivery to the Exchange Agent of certificates for the Existing Notes tendered hereby, in proper form for transfer (or confirmation of the book-entry transfer of such Existing Notes into the Exchange Agent's Account at the Depository Trust Company, pursuant to the procedures for book-entry transfer set forth in the Prospectus), with delivery of a properly completed and duly executed Letter of Transmittal (or manually signed facsimile thereof) with any required signatures and any other required documents, will be received by the Exchange Agent at one of its addresses set forth above within five New York Stock Exchange ("NYSE") trading days after the execution of this Notice of Guaranteed Delivery. THE UNDERSIGNED ACKNOWLEDGES THAT IT MUST DELIVER THE LETTER OF TRANSMITTAL AND EXISTING NOTES TENDERED HEREBY TO THE EXCHANGE AGENT WITHIN THE TIME PERIOD SET FORTH AND THAT FAILURE TO DO SO COULD RESULT IN FINANCIAL LOSS TO THE UNDERSIGNED.
Name of Firm Authorized Signature Address Name Please Print or Type Title Zip Code Area Code and Tel. No. Date Dated:, 1997
NOTE: DO NOT SEND EXISTING NOTES WITH THIS FORM; EXISTING NOTES SHOULD BE SENT WITH YOUR LETTER OF TRANSMITTAL SO THAT THEY ARE RECEIVED BY THE EXCHANGE AGENT WITHIN FIVE NYSE TRADING DAYS AFTER THE EXECUTION OF THIS NOTICE OF GUARANTEED DELIVERY. 3 EX-27.01 32 EXHIBIT 27 FINACIAL DATA STATEMENT WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
5 1,000 U.S. DOLLARS YEAR 9-MOS MAY-26-1996 MAY-25-1997 MAY-29-1995 MAY-27-1996 MAY-26-1996 FEB-23-1997 1 1 0 0 0 0 0 0 0 0 93,100 67,300 112,300 85,500 665,400 679,700 (347,100) (375,900) 432,700 390,200 83,500 76,200 0 0 0 0 0 0 0 0 349,200 314,000 432,700 390,200 775,400 509,700 775,400 509,700 560,300 408,200 560,300 408,200 142,800 91,900 0 0 0 0 72,300 9,600 0 0 72,300 9,600 0 0 0 0 0 0 72,300 9,600 0 0 0 0
-----END PRIVACY-ENHANCED MESSAGE-----