FAIRCHILD CORP, S-3, 1997-10-07

FAIRCHILD CORP
S-3, 1997-10-07
BOLTS, NUTS, SCREWS, RIVETS & WASHERS

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<PAGE>

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 6, 1997
REGISTRATION NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

----------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

----------------
THE FAIRCHILD CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 34-0728587
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
WASHINGTON DULLES INTERNATIONAL AIRPORT
300 WEST SERVICE ROAD
P.O. BOX 10803
CHANTILLY, VIRGINIA 20153
(703) 478-5800
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
DONALD E. MILLER, ESQ.
SENIOR VICE PRESIDENT,
GENERAL COUNSEL AND SECRETARY
THE FAIRCHILD CORPORATION
WASHINGTON DULLES INTERNATIONAL AIRPORT
300 WEST SERVICE ROAD
P.O. BOX 10803
CHANTILLY, VIRGINIA 20153
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)

----------------
COPIES TO:
JAMES J. CLARK, ESQ. MARK C. SMITH, ESQ.
CAHILL GORDON & REINDEL SKADDEN, ARPS, SLATE, MEAGHER & FLOM
80 PINE STREET LLP
NEW YORK, NY 10005 919 THIRD AVENUE
(212) 701-3000 NEW YORK, NY 10022-3903

---------------- (212) 735-3000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [_]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
----------------
CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED PROPOSED
MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF AMOUNT AGGREGATE AGGREGATE AMOUNT OF
SECURITIES TO BE TO BE OFFERING PRICE OFFERING REGISTRATION
REGISTERED REGISTERED PER SHARE(1) PRICE(1) FEE
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Common Stock, $.10
par value............... 6,247,000 $28.1875 $176,087,313 $53,360
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(o) under the Securities Act of 1933.
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+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 OCTOBER 6, 1997

PROSPECTUS
, 1997

5,435,000 SHARES
[LOGO] THE FAIRCHILD CORPORATION
CLASS A COMMON STOCK

Of the 5,435,000 shares of Class A Common Stock (the "Class A Common Stock"),
$0.10 par value per share, of The Fairchild Corporation (the "Company") offered
hereby (the "Offering"), 5,000,000 shares will be sold by the Company and
435,000 shares will be sold by certain Selling Stockholders. The Company will
not receive any of the proceeds from the sale of shares by the Selling
Stockholders. See "Principal and Selling Stockholders."

The Class A Common Stock has one vote per share, while the Class B Common
Stock of the Company, par value $0.10 per share (the "Class B Common Stock"
and, together with the Class A Common Stock, the "Common Stock"), has ten votes
per share. Upon completion of the Offering, Jeffrey J. Steiner, the Chairman of
the Board, Chief Executive Officer and President of the Company, who holds
substantially all of the Class B Common Stock, will have approximately % of
the combined voting power of all outstanding shares of capital stock of the
Company (approximately % if the Underwriters' over-allotment option is
exercised in full). For information with respect to the voting rights and
certain other features of the Class A Common Stock compared to the Class B
Common Stock, see "Description of Capital Stock."

The Class A Common Stock is listed on the New York Stock Exchange and the
Pacific Stock Exchange, under the symbol "FA." On October 3, 1997, the last
reported sale price of the Class A Common Stock on the New York Stock Exchange
was $28 1/4 per share. See "Price Range of Class A Common Stock and Dividend
Policy."

SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR CERTAIN CONSIDERATIONS RELEVANT TO
AN INVESTMENT IN THE CLASS A COMMON STOCK OFFERED HEREBY.

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.

<TABLE>
- --------------------------------------------------------------------------------
<CAPTION>
PRICE UNDERWRITING PROCEEDS PROCEEDS TO
TO THE DISCOUNTS AND TO THE THE SELLING
PUBLIC COMMISSIONS (1) COMPANY (2) STOCKHOLDERS
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share....................... $ $ $ $
Total (3)....................... $ $ $ $
- --------------------------------------------------------------------------------
</TABLE>
(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended (the "Securities Act"). See
"Underwriting."
(2) Before deducting expenses estimated at $ , payable by the Company.
(3) The Selling Stockholders have granted to the Underwriters an option,
exercisable within 30 days of the date hereof, to purchase in the aggregate
up to 812,000 additional shares of Class A Common Stock solely to cover
over-allotments, if any. If such option is exercised in full, the total
Price to the Public, Underwriting Discounts and Commissions, and Proceeds
to the Selling Stockholders will be $ , $ and $ , respectively. See
"Underwriting."

The shares of Class A Common Stock are being offered by the several
Underwriters when, as and if delivered to and accepted by the Underwriters
against payment therefor and subject to various prior conditions, including
their right to reject orders in whole or in part. It is expected that delivery
of the shares of Class A Common Stock will be made in New York, New York on or
about , 1997.

DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
BT ALEX. BROWN
SBC WARBURG DILLON READ INC.
<PAGE>

AVAILABLE INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-3 under the Securities Act of
1933 (the "Securities Act") with respect to the Class A Common Stock offered
hereby. This Prospectus, which is part of the Registration Statement, does not
contain all the information set forth in the Registration Statement and the
exhibits and schedules thereto, certain items of which are omitted in
accordance with the rules and regulations of the Commission. The Company is
subject to the information requirements of the Securities Exchange Act of 1934
(the "Exchange Act") and, in accordance therewith, files reports and other
information with the Commission. For further information with respect to the
Company and the Common Stock offered hereby, reference is hereby made to the
Registration Statement and such exhibits and schedules filed as a part thereof
as well as such reports and other information filed by the Company, which may
be inspected and copied at prescribed rates at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the following regional offices of the
Commission: 7 World Trade Center, Suite 1300, New York, New York 10048, and
Northwest Atrium Center, 500 West Madison Street, 14th Floor, Chicago,
Illinois 60661. Copies of all or any portion of the Registration Statement may
be obtained from the Public Reference Section of the Commission, upon payment
of prescribed rates. The Commission also maintains a web site at
http://www.sec.gov which contains reports, proxy, and information statements
and other information regarding registrants that file electronically with the
Commission. The Company's Class A Common Stock is listed on the New York Stock
Exchange and the Pacific Stock Exchange, and such reports, proxy statements,
and other information statements may be inspected and copied at the offices of
the New York Stock Exchange, 20 Broad Street, New York, New York 10005, and at
the offices of the Pacific Stock Exchange, 301 Pine Street, San Francisco,
California 94104. The Company's executive offices are located at Washington
Dulles International Airport, 300 West Service Road, Chantilly, Virginia
22021. Its telephone number is (703) 478-5800.

INCORPORATION OF CERTAIN INFORMATION BY REFERENCE

The Company's Annual Report on Form 10-K for the fiscal year ended June 30,
1997 and the description of the Company's Common Stock contained in the
Company's registration statement on Form 8-A, dated October 5, 1987 in each
case, if applicable, as amended, and all documents subsequently filed by the
Company pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act
subsequent to the date of this Prospectus and prior to the termination of the
Offering described herein shall be deemed to be incorporated in this
Prospectus and to be a part hereof from the date of the filing of such
document. Any statement contained herein or in a document incorporated or
deemed to be incorporated by reference herein shall be deemed to be modified
or superseded for all purposes to the extent that a statement contained in
this Prospectus or in any other subsequently filed document which is also
incorporated or deemed to be incorporated by reference modifies or supersedes
such statement. Any statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of the Registration
Statement or this Prospectus. The Company will provide without charge to each
person to whom this Prospectus is delivered, upon written or oral request of
such person, a copy (without exhibits unless such exhibits are specifically
incorporated by reference into such document) of any or all documents
incorporated by reference in this Prospectus. Requests for such copies should
be directed to Donald E. Miller, Esq., Senior Vice President and General
Counsel, The Fairchild Corporation, Washington Dulles International Airport,
300 West Service Road, P.O. Box 10803, Chantilly, Virginia 20153, by mail, and
if by telephone (703) 478-5800.

----------------

CERTAIN PERSONS PARTICIPATING IN THE CLASS A COMMON STOCK OFFERING MAY
ENGAGE IN TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE
OF THE CLASS A COMMON STOCK. SPECIFICALLY, THE UNDERWRITERS MAY OVER-ALLOT IN
CONNECTION WITH THE CLASS A COMMON STOCK OFFERING AND MAY BID FOR AND PURCHASE
SHARES OF THE CLASS A COMMON STOCK IN THE OPEN MARKET. FOR A DESCRIPTION OF
THESE ACTIVITIES, SEE "UNDERWRITING."

2
<PAGE>

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and Consolidated Financial
Statements (including the notes thereto) appearing elsewhere in, or
incorporated by reference into, this Prospectus. Except where the context
otherwise requires, as used herein, the "Company" refers to The Fairchild
Corporation and its subsidiaries, and "Fiscal" in connection with a year shall
mean the 12 months ended June 30 of such year. Except where otherwise
indicated, the information in this Prospectus assumes that the Underwriters'
over-allotment option is not exercised.

THE COMPANY

GENERAL

The Company is the largest aerospace fastener manufacturer and the largest
independent aerospace parts distributor in the world. Through internal growth
and strategic acquisitions, the Company has become one of the leading aircraft
parts suppliers to aircraft manufacturers such as Boeing, Airbus, Lockheed
Martin, British Aerospace and Bombardier and to airlines such as American
Airlines, Delta Airlines, United Airlines and British Airways.

After consummation of the Spin-Off (as herein defined), the Company's
business will be focused on the aerospace industry and will consist of two
segments-aerospace fasteners and aerospace parts distribution. The aerospace
fasteners segment, which accounted for approximately 41% of the Company's net
sales in Fiscal 1997 on a pro forma basis after giving effect to the Spin-Off
and the Transactions (as herein defined), manufactures and markets fastening
systems used in the manufacturing and maintenance of commercial and military
aircraft. The aerospace distribution segment, which accounted for approximately
59% of the Company's net sales in Fiscal 1997 on a pro forma basis after giving
effect to the Spin-Off and the Transactions, stocks and distributes a wide
variety of aircraft parts to commercial airlines and air cargo carriers,
original equipment manufacturers ("OEMs"), other distributors, fixed-base
operators, corporate aircraft operators and other aerospace and non-aerospace
companies. The Company's aerospace distribution business is conducted through
its 64% owned subsidiary, Banner Aerospace, Inc. ("Banner").

The aerospace parts industry currently is enjoying positive trends driven by
favorable economic conditions, strong growth in new commercial aircraft orders,
an increase in miles flown by existing aircraft and the need to modify older
aircraft to comply with noise regulations. In the first half of 1997, Airbus,
Boeing and McDonnell Douglas deliveries totalled 277 aircraft, a 50% increase
over the comparable period in 1996. In addition, backlog for those three
manufacturers aggregated 2,391 aircraft at June 30, 1997. The Company believes
it is well positioned to take advantage of these favorable industry trends and
intends to leverage its worldwide brand name recognition and leading market
positions in order to increase revenues and operating profits.

The aerospace industry also continues to experience consolidation at both the
manufacturer and supplier level. The Company believes that, upon completion of
the Offering, it will be well positioned to pursue additional strategic
acquisitions and take further advantage of such industry trends. The Company
continually evaluates potential acquisitions and is currently in discussions
with several parties regarding potential acquisitions.

THE REFINANCING AND SPIN-OFF

The Company intends to effect a series of transactions designed to: (i)
reduce its total indebtedness and annual interest expense; (ii) increase the
number of publicly held shares of Class A Common Stock; (iii) focus its
business on the aerospace parts industry; and (iv) increase the Company's
operating and financial flexibility.

3
<PAGE>

THE REFINANCING

The Company intends to enter into a new credit facility (the "New Credit
Facility") that will provide for total lending commitments of $275 million. The
New Credit Facility will be comprised of a $75 million revolving credit
facility and $200 million of term loan facilities. Borrowings under the New
Credit Facility will bear interest at LIBOR plus a spread ranging from 250 to
275 basis points. See "Description of the New Credit Facility."

With the proceeds of the Offering and borrowings under the New Credit
Facility, the Company will refinance (the "Refinancing") substantially all of
its existing indebtedness (other than indebtedness at Banner), consisting of
the 11 7/8% Senior Debentures due 1999, the 12% Intermediate Debentures due
2001, the 13 1/8% Subordinated Debentures due 2006, the 13% Junior Subordinated
Debentures due 2007 and its existing bank indebtedness. The Refinancing will
reduce the Company's total net indebtedness by approximately $125 million and
will reduce the Company's annual interest expense, on a pro forma basis, by
approximately $21 million.

THE SPIN-OFF

In order to focus its operations on the aerospace industry, the Company
intends to distribute (the "Spin-Off") to its stockholders all of the stock of
Fairchild Industrial Holdings Corp. ("FIHC"), which will own substantially all
of the Company's non-aerospace operations. At the time of the Spin-Off, the
business and assets of FIHC are expected to consist of: (i) the Company's
technology products segment, which consists of Fairchild Technologies (a
worldwide producer of equipment for recordable compact disc and semiconductor
manufacturers); (ii) the Company's 31.9% ownership interest in Nacanco
Paketleme (the largest producer of aluminum cans in Turkey); and (iii) certain
of the Company's real estate and miscellaneous investments, including
approximately 80 acres of land in Long Island, New York currently under
development. See "The Spin-Off."

Although the exact timing of the Spin-Off is uncertain, the Company intends
to effect the Spin-Off as soon as is reasonably practicable following receipt
of a solvency opinion relating to FIHC, and all necessary governmental and
third party approvals. The Company may sell, restructure or otherwise change
the assets and liabilities that will be in FIHC at the time of the Spin-Off and
may delay the timing of the Spin-Off to minimize the tax consequences thereof
to the Company and its stockholders. See "Risk Factors--Uncertainty and Tax and
Other Consequences of the Spin-Off."

SOURCES AND USES

The sources and uses of the funds received from the Offering and borrowings
under the New Credit Facility are as follows (assuming an October 15, 1997
closing date and giving effect to changes in outstanding debt amounts
subsequent to June 30, 1997):

<TABLE>
<CAPTION>
SOURCES
- ------- (IN THOUSANDS)
<S> <C>
New Credit Facility............................................. $200,000
Offering........................................................ 140,000
--------
Total sources................................................. $340,000
========
USES
- ----
Partial repayment of Existing Credit Facilities (estimated)..... $ 76,000
Redemption of 11 7/8% Senior Debentures due 1999................ 63,000
Redemption of 12% Intermediate Debentures due 2001.............. 117,815
Redemption of 13 1/8% Senior Subordinated Debentures due 2006... 35,856
Redemption of 13% Junior Subordinated Debentures due 2007....... 25,063
Estimated fees and expenses..................................... 12,125
Excess cash..................................................... 10,141
--------
Total uses.................................................... $340,000
========
</TABLE>

4
<PAGE>

THE OFFERING

<TABLE>
<C> <S>
Class A Common Stock offered:
By the Company........................... 5,000,000 shares
By the Selling Stockholders.............. 435,000 shares
----------------
Total................................ 5,435,000 shares
================
Common Stock outstanding after the Offering:
Class A Common Stock..................... 19,005,305 shares(a)
Class B Common Stock..................... 2,625,616 shares
-----------------
Total................................ 21,630,921 shares
=================
Voting Rights............................... The holders of Class A Common Stock are
entitled to one vote per share and the
holders of Class B Common Stock to ten
votes per share. Each share of Class B
Common Stock is convertible at any time
into one share of Class A Common Stock.
Through beneficial ownership of
substantially all outstanding shares of
Class B Common Stock, Jeffrey J. Steiner,
the Chairman of the Board, Chief Executive
Officer and President of the Company,
controls a majority of the combined voting
power of both classes of Common Stock,
which enables him to elect a majority of
the directors of the Company and to
determine the outcome of any other matter
submitted to stockholders for approval
(except for matters requiring approval of
holders of both classes voting separately).
Upon completion of the Offering, Mr.
Steiner will have % of the combined voting
power of all shares of capital stock of the
Company (approximately % if the
Underwriters over-allotment option is
exercised in full). See "Principal and
Selling Stockholders" and "Description of
Capital Stock."
Use of proceeds............................. Together with borrowings under the New
Credit Facility, the net proceeds of the
Offering will be used to repay existing
indebtedness of the Company. The Company
will not receive any of the proceeds from
the sale of the Class A Common Stock by the
Selling Stockholders.
NYSE Symbol................................. "FA"
</TABLE>

----------------

RISK FACTORS

An investment in the Class A Common Stock involves certain risks that a
prospective investor should carefully consider before investing in the Class A
Common Stock. See "Risk Factors."

- --------------------

(a) Excludes 2,485,440 shares of Class A Common Stock issuable upon exercise of
options and warrants outstanding as of August 31, 1997.

5
<PAGE>

SUMMARY CONSOLIDATED FINANCIAL DATA

The following table sets forth summary financial data for the Company and
should be read in conjunction with the financial statements and related notes
appearing elsewhere in this Prospectus. The summary financial data as of and
for the five years ended June 30, 1997 have been derived from the Company's
Consolidated Financial Statements, which were audited by Arthur Andersen LLP,
the Company's independent accountants. The unaudited pro forma statement of
operations data for the Fiscal year ended June 30, 1997 give effect to the
Offering, the Refinancing, the acquisition of Simmonds, S.A. ("Simmonds") and
the divestiture of Fairchild Scandinavian Bellyloading Company ("SBC")
(collectively, the "Transactions") as if the Transactions occurred on July 1,
1996. The unaudited pro forma balance sheet data as of June 30, 1997 give
effect to the Offering and the Refinancing as if they had occurred on such
date. The pro forma financial data is not intended to be indicative of either
future results of operations or results that might have been achieved had the
Offering, the Refinancing or the Transactions actually occurred on the dates
specified. See "Pro Forma Consolidated Financial Statements."

<TABLE>
<CAPTION>
FISCAL FISCAL 1997
-------------------------------------------- -----------------------
1993 1994 1995 1996 ACTUAL(1) PRO FORMA
--------- --------- --------- ----------- -----------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales............... $ 315,118 $ 277,646 $ 365,550 $ 500,810 $ 738,460 $ 754,615
Gross profit............ 62,241 50,281 65,703 116,891 205,123 206,750
Operating income
(loss)................. (14,907) (30,362) (13,419) 5,445 30,517 30,932
Net interest expense.... 70,338 69,676 67,716 59,040 47,798 26,926
Earnings (loss) from
continuing operations.. (54,930) 13,594 (47,914) 137,370(2) 1,331 15,369
Earnings (loss) per
share from continuing
operations:
Primary............... $ (3.41) $ 0.84 $ (2.97) $ 8.28 $ 0.08 $ 0.69
Fully diluted......... (3.41) 0.84 (2.97) 8.03 0.08 0.69
OTHER DATA:
EBITDA (3).............. $ 20,409 $ 17,960 $ 17,789 $ 37,481 $ 56,452 $ 58,318
EBITDA margin (4)....... 6.5% 6.5% 4.9% 7.5% 7.6% 7.7%
Capital expenditures.... $ 11,594 $ 12,282 $ 16,260 $ 15,122 $ 22,116 $ 22,758
BALANCE SHEET DATA:
Total assets............ $ 941,675 $ 866,621 $ 850,294 $ 1,009,938 $ 1,067,333 $1,091,861
Long-term debt, less
current maturities..... 566,491 522,406 509,715 368,589 416,922 347,739
Stockholders' equity.... 53,754 69,494 40,180 231,168 229,625 356,839
</TABLE>
- --------------------
(1) The actual results for Fiscal 1997 include results of Simmonds, a European
manufacturer of aerospace fasteners, from its date of acquisition in
February 1997.
(2) Earnings from continuing operations for Fiscal 1996 reflect a $163.1
million non-recurring gain from the March 13, 1996 Merger (as herein
defined) of the Company's former communications services segment with
Shared Technologies Inc.
(3) Earnings before interest, taxes, depreciation and amortization ("EBITDA")
represents the sum of operating income before depreciation and amortization
and restructuring charges of $15,469, $18,860, and $2,319 in Fiscal 1993,
1994, and 1996, respectively. EBITDA is not a measure of financial
performance under generally accepted accounting principles ("GAAP") , may
not be comparable to other similarly titled measures of other companies and
should not be considered as an alternative either to net income as an
indicator of the Company's operating performance, or to cash flows as a
measure of the Company's liquidity. See the Company's Consolidated
Financial Statements and the related notes thereto appearing elsewhere in
this Prospectus.
(4) Represents EBITDA as a percentage of net sales.

6
<PAGE>

SUMMARY PRO FORMA FINANCIAL DATA

The following table also sets forth certain unaudited pro forma financial
information for the Company and for FIHC for the year ended June 30, 1997,
giving effect to the Spin-Off and the Transactions. The unaudited pro forma
statement of operations data for the year ended June 30, 1997 give effect to
the Spin-Off and the Transactions as if they occurred on July 1, 1996. The
unaudited pro forma balance sheet data as of June 30, 1997 give effect to the
Spin-Off, the Refinancing and the Offering as if they had occurred on such
date. See "Pro Forma Consolidated Financial Statements." These results are not
necessarily indicative of the results that either the Company or FIHC would
have realized had such transactions occurred on such dates. The pro forma data
presented below should be read in conjunction with the financial statements and
related notes appearing elsewhere in this Prospectus.

<TABLE>
<CAPTION>
COMPANY FIHC
-------- --------
(DOLLARS IN
THOUSANDS, EXCEPT
PER SHARE
AMOUNTS)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.................................................. $702,818 $ 51,797
Gross profit............................................... 185,271 21,479
Operating income (loss).................................... 36,271 (5,339)
Net interest expense....................................... 23,085 3,841
Earnings (loss) from continuing operations................. 21,548 (6,179)
Earnings (loss) per share from continuing operations:
Primary.................................................. $ 0.97 $ (0.28)
Fully diluted............................................ 0.97 (0.28)
OTHER DATA:
EBITDA................................................... $ 62,378 $ (4,060)
EBITDA margin............................................ 8.9% N.M.
Capital expenditures..................................... $ 14,393 $ 8,365
BALANCE SHEET DATA:
Total assets............................................... $932,538 $167,704
Long-term debt, less current maturities.................... 347,739 --
Stockholders' equity....................................... 271,541 85,298
</TABLE>

7
<PAGE>

RISK FACTORS

Prospective purchasers of the Class A Common Stock should carefully consider
the following risk factors, as well as the other information contained in, and
incorporated by reference in, this Prospectus, before making an investment in
the Class A Common Stock. Information contained or incorporated by reference
in this Prospectus contains "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995, which can be identified
by the use of forward-looking terminology such as "believes," "expects,"
"may," "will," "should" or "anticipates" or the negative thereof or other
variations thereon or comparable terminology, or by discussions of strategy.
See, e.g., "Management's Discussion and Analysis of Financial Condition and
Results of Operations". No assurance can be given that the future results
covered by the forward-looking statements will be achieved. The following
matters constitute cautionary statements identifying important factors with
respect to such forward-looking statements, including certain risks and
uncertainties, that could cause actual results to vary materially from the
future results covered in such forward-looking statements. Other factors could
also cause actual results to vary materially from the future results covered
in such forward-looking statements.

AIRLINE INDUSTRY RISKS/CYCLICALITY

The Company's aerospace fasteners and aerospace distribution segments
operate in historically cyclical industries. These segments are sensitive to
general economic conditions and have been adversely affected by past
recessions. Performance of the aerospace fasteners and aerospace distribution
segments is also influenced by conditions generally affecting the aerospace
industry, which, from 1990 to 1994, had experienced reduced demand for
commercial aircraft, a decline in military spending and the postponement of
overhaul and maintenance on existing aircraft.

In past years, the aerospace industry has been adversely affected by a
number of factors, including increased fuel and labor costs and intense price
competition. Several passenger airline carriers encountered significant
financial difficulties, resulting in certain of such carriers ceasing to
conduct business or seeking protection from creditors under federal bankruptcy
laws. Certain passenger airline carriers have continued to operate under the
protection of federal bankruptcy laws and continue to purchase products from
aerospace hardware providers. In the event that any of the Company's aerospace
customers cease to conduct business or seek protection from creditors under
federal bankruptcy laws, it is likely the Company would be classified as a
general unsecured creditor of such customer and the Company would be forced to
incur losses from the write-off of accounts receivable. The loss of any of the
Company's significant customers could result in a decrease in the Company's
net sales and have a material adverse effect upon the Company's business.
Although no one customer accounted for more than 10% of the Company's net
sales in fiscal 1997, the vast majority of the Company's revenues come from
customers providing parts or services to Airbus and Boeing and, accordingly,
the Company is dependent on the business of those manufacturers. A number of
the historical customers of the Company's aerospace distribution business are
smaller domestic and foreign passenger airlines, freight and package carriers,
charter airlines and aircraft leasing companies, which may also suffer from
the factors adversely affecting the airline industry generally. As a result,
certain of the Company's customers may pose credit risks to the Company. The
Company's inability to collect receivables could adversely affect its results
of operations.

COMPETITION

The markets for the Company's products and services are extremely
competitive, and the Company faces competition from a number of sources in
most of its product lines. Some of the Company's competitors have financial
and other resources greater than those of the Company and are also well
established as suppliers to the markets that the Company serves. Quality,
performance, service and price are generally the prime competitive factors.
There can be no assurance that the Company's markets will not attract
additional competitors. See "Business--Competition."

8
<PAGE>

DUAL CLASSES OF COMMON STOCK; CONTROL BY PRINCIPAL STOCKHOLDER

The authorized Common Stock of the Company consists of 40,000,000 shares of
Class A Common Stock and 20,000,000 shares of Class B Common Stock, of which
14,005,305 shares of Class A Common Stock and 2,625,616 shares of Class B
Common Stock were outstanding as of August 31, 1997. Except for voting with
respect to additional issuances of Class B Common Stock and for class votes as
required by Delaware law, holders of both classes of Common Stock vote
together as a single class, with each share of Class A Common Stock having one
vote per share and each share of Class B Common Stock having ten votes per
share. Substantially all of the outstanding shares of the Class B Common Stock
are owned, directly or indirectly, by Jeffrey J. Steiner, the Company's
Chairman of the Board, Chief Executive Officer and President. Through his
ownership of 2,563,996 shares of the Class B Common Stock and 3,648,988 shares
of the Class A Common Stock, Mr. Steiner owns 72.7% of the combined voting
power of both classes of Common Stock ( % upon completion of this offering
and % if the Underwriters' over-allotment option is exercised in full), which
enables him to elect a majority of the directors of the Company and to
determine the outcome of any other matter submitted to stockholders for
approval (except for matters requiring approval of holders of both classes
voting separately). The voting rights of the Class B Common Stock may make the
Company less attractive as the potential target of a hostile tender offer or
other proposal to acquire or merge with the Company, even if such actions
would be in the best interests of the holders of Class A Common Stock. See
"Description of Capital Stock--General." The Class B Common Stock is
convertible into Class A Common Stock on a share-for-share basis and is
subject to certain restrictions on transferability. See "Description of
Capital Stock."

Articles have appeared in the French press reporting an inquiry by a French
magistrate into certain allegedly improper business transactions involving Elf
Aquitaine, its former chairman and various third parties, including Maurice
Bidermann. In connection with this inquiry, the magistrate has made inquiry
into allegedly improper transactions between Mr. Steiner and that petroleum
company. In response to the magistrate's request that Mr. Steiner appear in
France as a witness, Mr. Steiner submitted written statements concerning the
transactions and has offered to appear in person if certain arrangements were
made. According to the French press, the magistrate also requested permission
to commence an inquiry into transactions involving another French petroleum
company, but her request was not granted. If the magistrate were to renew her
request, and if it were granted, inquiry into transactions between such
company and Mr. Steiner could ensue. The Board of Directors of the Company has
formed a special committee of outside directors to advise it with respect to
these matters, and the special committee has retained counsel.

UNCERTAINTY AND TAX AND OTHER CONSEQUENCES OF THE SPIN-OFF

The Company intends to effect the Spin-Off as soon as is reasonably
practicable following receipt of a solvency opinion relating to FIHC and all
necessary governmental and third party approvals. However, the Company may
encounter unexpected delays in effecting the Spin-Off, and the Company can
make no assurance as to the exact timing thereof. In addition, prior to the
consummation of the Spin-Off, the Company may sell, restructure or otherwise
change the assets and liabilities that will be in FIHC, or for other reasons
elect not to consummate the Spin-Off. Consequently, there can be no assurance
that the Spin-Off will occur.

Should the Spin-Off, as presently contemplated, occur prior to June of 1999,
the Spin-Off will be a taxable transaction to shareholders of the Company and
could result in a material tax liability to the Company and its stockholders.
Because circumstances may change and because provisions of the Internal
Revenue Code of 1986, as amended, may be further amended from time to time,
the Company may, depending on various factors, restructure or delay the timing
of the Spin-Off to minimize the tax consequences thereof to the Company and
its stockholders.

Pursuant to the Spin-Off, it is expected that FIHC will assume certain
liabilities (including contingent liabilities) of the Company and will
indemnify the Company for such liabilities. In the event that FIHC is unable
to satisfy the liabilities which it will assume in connection with the Spin-
Off, the Company may have to satisfy such liabilities. See "The Spin-Off."

9
<PAGE>

GOVERNMENT REGULATION

The Federal Aviation Administration ("FAA") prescribes standards and
licensing requirements for aircraft components, and licenses component repair
stations worldwide. Comparable agencies also regulate these matters in other
countries. If the Company fails to obtain a required license for one of its
products or services or loses a license previously granted, the sale of the
subject product or service will be prohibited by law until such license is
obtained or requalified. The Company believes it is currently in material
compliance with FAA requirements as in existence on the date hereof. However,
there can be no assurance that changes in FAA regulations will not be adopted
and that such changes will not adversely affect the results of operations of
the Company.

The Fastener Quality Act of 1991 (the "Fastener Act") regulates the
manufacture and distribution of certain high grade industrial fasteners in the
United States and imposes testing, certification and record keeping
requirements on manufacturers and distributors of these fasteners. As a result
of the Fastener Act, the Company and other distributors of certain types of
fasteners are required to maintain records and product tracking systems. The
Company has implemented tracking and traceability systems that comply with the
regulations. Although compliance with the Fastener Act has not materially
increased expenses for the Company, there can be no assurance that future
regulations will not result in materially increased costs for the Company.

SHARES ELIGIBLE FOR FUTURE SALE

Immediately after completion of the Offering, the Company will have
21,630,921 shares of Common Stock outstanding, of which 14,011,304 shares will
be freely tradable without restrictions or further registration under the
Securities Act. Holders of the remaining shares, primarily Jeffrey J. Steiner,
the Chairman of the Board, Chief Executive Officer and President of the
Company, will be eligible to sell such shares pursuant to Rule 144 ("Rule
144") under the Securities Act at prescribed times and subject to the manner
of sale, volume, notice and information restrictions of Rule 144.

The Company and each of its executive officers and directors, including Mr.
Jeffrey J. Steiner, and the Selling Stockholders have each agreed, subject to
certain exceptions, not to sell or otherwise dispose of any shares of Common
Stock or securities convertible into or exchangeable for Common Stock, without
the prior written consent of Donaldson, Lufkin & Jenrette Securities
Corporation ("DLJ"), for a period of 90 days from the date of this Prospectus.
The foregoing does not prohibit the Company from issuing the shares subject to
the Underwriters' over-allotment option or issuing options pursuant to its
stock option plans or shares pursuant to outstanding options or warrants. See
"Shares Eligible for Future Sale." Sales of substantial numbers of shares of
Class A Common Stock in the public market could adversely affect the market
price of the Class A Common Stock.

10
<PAGE>

USE OF PROCEEDS

The net proceeds to be received by the Company from the Offering are
estimated to be approximately $132 million after deduction of estimated
offering expenses and the underwriting discounts. The net proceeds, together
with borrowings of approximately $200 million under the New Credit Facility,
will be used to repay the following indebtedness of the Company: (i) $63.0
million to redeem the 11 7/8% senior debentures due 1999; (ii) $117.8 million
to redeem the 12% intermediate debentures due 2001; (iii) $35.9 million to
redeem the 13 1/8% subordinated debentures due 2006; (iv) $25.1 million to
redeem the 13% junior subordinated debentures due 2007 and (v) approximately
$76 million of bank indebtedness. The Company will not receive any of the
proceeds from the sale of the Class A Common Stock by the Selling
Stockholders.

DIVIDEND POLICY

The Company has not paid a dividend since Fiscal 1992 on its Common Stock.
The payment of cash dividends in the future will depend on the Company's
earnings, financial condition and capital needs and on other factors deemed
relevant by the Board of Directors at that time. It is the current policy of
the Company's Board of Directors to retain earnings to finance the operations
and expansion of the Company's business.

PRICE RANGE OF CLASS A COMMON STOCK

The Class A Common Stock is quoted on the New York Stock Exchange ("NYSE")
under the symbol "FA." The following table shows, for the periods indicated,
the range of high and low reported sale prices per share for the Class A
Common Stock as quoted on the NYSE.

<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
FISCAL 1996
Quarter ended:
October 1, 1995............................................... $ 6 $ 2 7/8
December 31, 1995............................................. 8 3/4 4 3/4
March 31, 1996................................................ 9 7/8 8
June 30, 1996................................................. 15 7/8 9 1/4
FISCAL 1997
Quarter ended:
September 29, 1996............................................ $ 17 $12 1/4
December 29, 1996............................................. 17 3/4 14 3/8
March 30, 1997................................................ 15 3/8 12 7/8
June 30, 1997................................................. 18 11 5/8
FISCAL 1998
Quarter ended:
September 30, 1997............................................ $28 3/4 $17 1/4
</TABLE>

On October 3, 1997, the last reported sale price of the Class A Common Stock
as quoted on the NYSE was $28 1/4. As of October 1, 1997, there were
approximately 1,370 holders of record of Class A Common Stock and
approximately 53 holders of record of Class B Common Stock.

11
<PAGE>

CAPITALIZATION

The following table sets forth the cash position and the capitalization of
the Company as of June 30, 1997, and on a pro forma basis to give effect to
the sale of 5,000,000 shares of Class A Common Stock by the Company,
additional borrowings of $200 million under the New Credit Facility and the
repayment of indebtedness as described under "Use of Proceeds." This table
should be read in conjunction with the Company's Consolidated Financial
Statements, the Pro Forma Consolidated Financial Statements and the related
notes thereto and the other financial information included elsewhere in this
Prospectus.

<TABLE>
<CAPTION>
JUNE 30, 1997
---------------------------
ACTUAL PRO FORMA(2)
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash and short-term investments(1)................. $ 19,420 $ 44,489
=========== ===========
Short-term debt.................................... $ 15,629 $ 8,192
Existing Credit Facilities......................... 177,250 146,350
New Credit Facility................................ -- 200,000
11 7/8% Senior Debentures due 1999................. 85,852 --
12% Intermediate Debentures due 2001............... 115,359 --
13 1/8% Subordinated Debentures due 2006........... 35,188 --
13% Junior Subordinated Debentures due 2007........ 24,834 --
Other debt......................................... 10,232 10,232
----------- -----------
Total debt......................................... 464,344 364,774
----------- -----------
Stockholders' equity:
Class A Common Stock, $0.10 par value; 40,000,000
shares authorized; 20,233,879 shares (actual);
25,233,879 shares (pro forma) issued; 13,992,283
shares (actual); 18,992,283 shares (pro forma)
outstanding....................................... 2,023 2,523
Class B Common Stock, $0.10 par value; 20,000,000
shares authorized; 2,632,516 shares (actual and
pro forma) issued and outstanding................. 263 263
Paid in capital.................................... 71,015 203,515
Retained earnings.................................. 209,949 204,163
Cumulative translation adjustment.................. (1,860) (1,860)
Net unrealized holding loss on available-for-sale
securities........................................ (46) (46)
Treasury stock..................................... (51,719) (51,719)
----------- -----------
Total stockholders' equity......................... 229,625 356,839
----------- -----------
Total capitalization............................... $ 693,969 $ 721,613
=========== ===========
</TABLE>
- ---------------------
(1) On July 16, 1997, Shared Technologies Fairchild Inc. ("STFI"), a
corporation of which the Company owns approximately 42% of the outstanding
common stock on a fully-diluted basis, entered into a merger agreement
(the "Merger Agreement") with Tel-Save Holdings, Inc. ("Tel-Save")
pursuant to which each common shareholder of STFI shall receive shares of
Tel-Save common stock based on a specified formula. The Company expects to
realize a pre-tax gain in excess of $100 million upon its receipt of the
shares of Tel-Save common stock under the Merger Agreement. Cash and short
term investments does not include such shares of Tel-Save common stock.
(2) On July 18, 1997, the Company borrowed $44.1 million under its existing
bank facility and redeemed $22.9 million of 11 7/8% Senior Debentures due
1999 (the "11 7/8% Debentures") and reduced other debt by $7.3 million.
Consequently, as of July 18, 1997, the aggregate principal amount of the
11 7/8% Debentures was $62.9 million, the aggregate principal amount under
the existing credit facilities was $75.0 million (excluding borrowings by
Banner under its credit facility), and cash balances as of such date were
$9.9 million.

12
<PAGE>

SELECTED CONSOLIDATED FINANCIAL DATA

The following table sets forth selected financial data for the Company and
should be read in conjunction with the financial statements and related notes
appearing elsewhere in this Prospectus. The selected financial data as of and
for the five years ended June 30, 1997 have been derived from the Company's
Consolidated Financial Statements, which were audited by Arthur Andersen LLP,
the Company's independent accountants. The data presented below should be read
in conjunction with the financial statements and related notes appearing
elsewhere in this Prospectus.

<TABLE>
<CAPTION>
FISCAL
------------------------------------------------------
1993 1994 1995 1996 1997(1)
-------- -------- -------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales............... $315,118 $277,646 $365,550 $ 500,810 $ 738,460
Gross profit............ 62,241 50,281 65,703 116,891 205,123
Operating income
(loss)................. (14,907) (30,362) (13,419) 5,445 30,517
Net interest expense.... 70,338 69,676 67,716 59,040 47,798
Earnings (loss) from
continuing operations.. (54,930) 13,594 (47,914) 137,370(2) 1,331
Earnings (loss) per
share from continuing
operations:
Primary............... $ (3.41) $ 0.84 $ (2.97) $ 8.28 $ 0.08
Fully diluted......... (3.41) 0.84 (2.97) 8.03 0.08
OTHER DATA:
EBITDA (3).............. $ 20,409 $ 17,960 $ 17,789 $ 37,481 $ 56,452
EBITDA margin (4)....... 6.5% 6.5% 4.9% 7.5% 7.6%
Capital expenditures.... $ 11,594 $ 12,282 $ 16,260 $ 15,122 $ 22,116
BALANCE SHEET DATA:
Total assets............ $941,675 $866,621 $850,294 $1,009,938 $1,067,333
Long-term debt, less
current maturities..... 566,491 522,406 509,715 368,589 416,922
Stockholders' equity.... 53,754 69,494 40,180 231,168 229,625
</TABLE>
- ---------------------
(1) The actual results for Fiscal 1997 include results of Simmonds from its
date of acquisition in February 1997.
(2) Earnings from continuing operations for Fiscal 1996 reflect a $163.1
million non-recurring gain from the March 13, 1996 Merger of the Company's
former communications services segment with Shared Technologies Inc.
(3) EBITDA represents the sum of operating income before depreciation and
amortization and restructuring charges of $15,469, $18,860, and $2,319 in
Fiscal 1993, 1994, and 1996, respectively. EBITDA is not a measure of
financial performance under GAAP, may not be comparable to other similarly
titled measures of other companies and should not be considered as an
alternative either to net income as an indicator of the Company's
operating performance, or to cash flows as a measure of the Company's
liquidity. See the Company's Consolidated Financial Statements and the
related notes thereto appearing elsewhere in this Prospectus.
(4) Represents EBITDA as a percentage of net sales.

13
<PAGE>

PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS

The unaudited pro forma consolidated balance sheet as of June 30, 1997 has
been prepared to give effect to the Offering, the Refinancing and the Spin-Off
as if they had occurred on that date. The unaudited pro forma consolidated
statement of earnings for the year ended June 30, 1997 has been prepared to
give effect to the Offering, the Refinancing, the acquisition of Simmonds and
the divestiture of SBC (collectively, the "Transactions") and the Spin-Off as
if they had occurred on July 1, 1996. There is no assurance that the Spin-Off
will be consummated or will be consummated on the currently contemplated
terms.

The unaudited pro forma consolidated financial data are not necessarily
indicative of the results that would have been obtained had the Transactions
and the Spin-Off been completed as of the dates presented or for any future
period. The unaudited pro forma consolidated financial data should be read in
conjunction with the Company's Consolidated Financial Statements and notes
thereto included elsewhere in this Prospectus.

THE FAIRCHILD CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET DATA
AS OF JUNE 30, 1997

<TABLE>
<CAPTION>
ADJUSTMENTS FOR FIHC
OFFERING AND AS SPIN- PRO FORMA PRO FORMA
HISTORICAL REFINANCING(1) ADJUSTED OFF(2) COMPANY(3) FIHC(4)
---------- --------------- ---------- --------- ---------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Cash.................... $ 19,420 $ 25,069 $ 44,489 $ -- $ 44,489 $ --
Short-term investments.. 25,647 -- 25,647 (135) 25,512 135
Accounts receivable,
less allowance......... 168,163 -- 168,163 (22,947) 145,216 22,947
Inventory............... 342,736 -- 342,736 (18,504) 324,232 18,504
Prepaid and other
current assets......... 33,631 -- 33,631 (6,684) 26,947 6,684
---------- --------- ---------- --------- -------- --------
Total current assets.. 589,597 25,069 614,666 (48,270) 566,396 48,270
Net fixed assets........ 128,712 -- 128,712 (18,572) 110,140 18,572
Net assets held for
sale................... 26,147 -- 26,147 (26,147) -- 26,147
Investment in
affiliates............. 55,678 -- 55,678 (23,696) 31,982 23,696
Goodwill................ 154,808 -- 154,808 -- 154,808 --
Deferred loan costs..... 9,252 (541) 8,711 -- 8,711 --
Prepaid pension assets.. 59,742 -- 59,742 -- 59,742 --
Other assets............ 43,397 -- 43,397 (42,638) 759 51,019
---------- --------- ---------- --------- -------- --------
Total assets.......... $1,067,333 $ 24,528 $1,091,861 $(159,323) $932,538 $167,704
========== ========= ========== ========= ======== ========
Bank notes payable &
current maturities of
debt................... $ 47,422 $ (30,387) $ 17,035 $ (100) $ 16,935 $ 100
Accounts payable........ 84,953 -- 84,953 (13,048) 71,905 13,048
Other accrued expenses.. 111,080 (3,116) 107,964 (22,897) 85,067 22,897
---------- --------- ---------- --------- -------- --------
Total current
liabilities.......... 243,455 (33,503) 209,952 (36,045) 173,907 36,045
Long-term debt, less
current maturities..... 416,922 (69,183) 347,739 -- 347,739 --
Other long-term
liabilities............ 23,622 -- 23,622 (14,610) 9,012 14,610
Retiree health care
liabilities............ 43,387 -- 43,387 (31,751) 11,636 31,751
Noncurrent income
taxes.................. 42,013 -- 42,013 8,381 50,394 --
Minority interest in
subsidiaries........... 68,309 -- 68,309 -- 68,309 --
---------- --------- ---------- --------- -------- --------
Total liabilities..... 837,708 (102,686) 735,022 (74,025) 660,997 82,406
---------- --------- ---------- --------- -------- --------
Total stockholders'
equity............... 229,625 127,214 356,839 (85,298) 271,541 85,298
---------- --------- ---------- --------- -------- --------
Total liabilities &
stockholders'
equity............... $1,067,333 $ 24,528 $1,091,861 $(159,323) $932,538 $167,704
========== ========= ========== ========= ======== ========
</TABLE>

14
<PAGE>

THE FAIRCHILD CORPORATION

UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS
FOR THE YEAR ENDED JUNE 30, 1997

<TABLE>
<CAPTION>
ADJUSTMENTS FOR ADJUSTMENTS FOR PRO
OFFERING AND ACQUISITIONS/ AS FIHC FORMA PRO FORMA
HISTORICAL REFINANCING(5) DIVESTITURES(6) ADJUSTED SPIN-OFF(7) COMPANY(8) FIHC(9)
---------- --------------- --------------- -------- ----------- ---------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Sales................... $738,460 $ -- $16,155 $754,615 $(51,797) $702,818 $51,797
-------- ------- ------- -------- -------- -------- -------
Costs and expenses:
Costs of sales........ 533,337 -- 14,528 547,865 (30,318) 517,547 30,318
Selling, general &
administrative....... 161,967 -- 622 162,589 (18,879) 143,710 18,879
Research and
development.......... 7,807 -- 614 8,421 (7,707) 714 7,707
Amortization of
goodwill............. 4,832 -- (24) 4,808 (232) 4,576 232
-------- ------- ------- -------- -------- -------- -------
707,943 -- 15,740 723,683 (57,136) 666,547 57,136
-------- ------- ------- -------- -------- -------- -------
Operating income...... 30,517 -- 415 30,932 5,339 36,271 (5,339)
Net interest expense.... (47,798) 20,712 160 (26,926) 3,841 (23,085) (3,841)
Investment income, net.. 6,651 -- -- 6,651 (12) 6,639 12
Equity in earnings of
affiliates............. 7,747 -- -- 7,747 (4,598) 3,149 4,598
Minority interest....... (3,514) -- -- (3,514) -- (3,514) --
Nonrecurring income..... 2,528 -- -- 2,528 -- 2,528 --
-------- ------- ------- -------- -------- -------- -------
Earnings before
taxes................ (3,869) 20,712 575 17,418 4,570 21,988 (4,570)
Income tax provision.... (5,200) 7,249 -- 2,049 (1,609) 440 1,609
-------- ------- ------- -------- -------- -------- -------
Net earnings.......... $ 1,331 $13,463 $ 575 $ 15,369 $ 6,179 $ 21,548 $(6,179)
======== ======= ======= ======== ======== ======== =======
Weighted average shares
outstanding............ 17,230 5,000 22,230 22,230 22,230 (10)
Primary earnings per
share.................. $ 0.08 $ 0.69 $ 0.97 $ (0.28)
</TABLE>

15
<PAGE>

NOTES TO THE UNAUDITED PRO FORMA FINANCIAL STATEMENTS

The following adjustments are incorporated in the pro forma financial
statements:

(1) Represents the refinancing of the Company as follows: (i) the issuance of
5,000,000 shares of Class A common stock at $28.00 per share, net of
underwriting costs; (ii) the proceeds from borrowings under the New Credit
Facility utilized to repay subordinated notes, debentures and existing
bank facilities; (iii) the incurrence of deferred loan costs under the New
Credit Facility; (iv) the write-off of deferred loan costs associated with
the existing bank facilities; and (v) the charge associated with the
write-off of deferred loan fees and the original issue discount of the
subordinated notes and debentures.

(2) Represents the elimination of FIHC's net assets as a result of the Spin-
Off.

(3) Adjusted to reflect the Offering, the Refinancing and the Spin-Off as if
they had occurred on June 30, 1997. In the event that the Spin-Off is
consummated, the Company expects to incur as part of a discontinued
operations charge certain severance and restructuring charges not expected
to exceed $3 million. At this time a formal plan has not yet been adopted
for the Spin-Off and therefore it is not appropriate to consider FIHC as a
discontinued operation at this time.

(4) Presents financial data for FIHC as if the Spin-Off had occurred on June
30, 1997. This financial data reflects a period during which FIHC operated
as a division of the Company and may not necessarily reflect the financial
position of FIHC if FIHC had been an independent, public company during
this period.

(5) Represents the net reduction in interest expense due to (i) net proceeds
from the sale of 5,000,000 shares of newly issued Class A common stock at
$28.00 per share, net of underwriting costs; and (ii) the proceeds from
borrowings under the New Credit Facility utilized to repay subordinated
notes, debentures and existing bank debt.

(6) Reflects: (i) the acquisition of Simmonds, which was completed in February
1997; (ii) the divestiture of Fairchild Scandinavian Bellyloading Company
("SBC"), which was completed in June 1997; and (iii) an adjustment to
sales, and cost of sales and expenses at the Fairchild Technologies
division required in connection with the Spin-Off; as if they had occurred
on July 1, 1996.

(7) Represents the elimination of the results of operations of FIHC as if the
Spin-Off occurred on July 1, 1996.

(8) Adjusted to reflect the Transactions and the Spin-Off as if they had
occurred on July 1, 1996.

(9) Presents financial data for FIHC as if the Spin-Off had occurred on July
1, 1996. This financial data reflects a period during which FIHC operated
as a division of the Company and may not necessarily reflect the results
of operations of FIHC if FIHC had been an independent, public company
during this period.

(10) The number of shares used to compute primary earnings per share is based
on the number of shares of the Company's Common Stock outstanding at June
30, 1997 and assumes a distribution ratio of one share of FIHC common
stock for every share of Company Common Stock.

16
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

GENERAL

After consummation of the Spin-Off, the Company's business will be focused
on the aerospace industry and will consist of two segments--aerospace
fasteners and aerospace parts distribution. The aerospace fasteners segment,
which accounted for approximately 41% of the Company's net sales in Fiscal
1997 on a pro forma basis after giving effect to the Spin-Off and the
Transactions, manufactures and markets fastening systems used in the
manufacturing and maintenance of commercial and military aircraft. The
aerospace distribution segment, which accounted for approximately 59% of the
Company's net sales in Fiscal 1997 on a pro forma basis after giving effect to
the Spin-Off and the Transactions, stocks and distributes a wide variety of
aircraft parts to commercial airlines and air cargo carriers, OEMs, other
distributors, fixed-base operators, corporate aircraft operators and other
aerospace and non-aerospace companies. The Company's aerospace distribution
business is conducted through its 64% owned subsidiary, Banner.

In the last two years, the Company's aerospace business segments have
experienced significant growth. Set forth below is certain financial
information regarding the Company's aerospace segments for the last eight
fiscal quarters.

<TABLE>
<CAPTION>
FOR THE TWELVE (12) MONTHS ENDED JUNE 30,
1996
------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
SALES
Aerospace Fasteners.......... $ 45,261 $ 48,063 $ 52,663 $ 51,112 $197,099
Aerospace Distribution (a)... 73,425 79,753 95,029 94,276 342,483
Intersegment Eliminations.... (2,789) (873) (1,072) (4,771) (9,505)
-------- -------- -------- -------- --------
Total...................... $115,897 $126,943 $146,620 $140,617 $530,077
======== ======== ======== ======== ========
OPERATING INCOME
Aerospace Fasteners.......... $ (2,324) $ (488) $ (50) $ 223 $ (2,639)
Aerospace Distribution (a)... 5,118 3,890 3,588 4,859 17,455
-------- -------- -------- -------- --------
Total...................... $ 2,794 $ 3,402 $ 3,538 $ 5,082 $ 14,816
======== ======== ======== ======== ========
<CAPTION>
FOR THE TWELVE (12) MONTHS ENDED JUNE 30,
1997
------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
SALES
Aerospace Fasteners.......... $ 55,047 $ 56,494 $ 64,073 $ 93,412 $269,026
Aerospace Distribution....... 84,107 96,985 113,743 116,930 411,765
Intersegment Eliminations.... (2,718) (3,857) (3,118) (5,520) (15,213)
-------- -------- -------- -------- --------
Total...................... $136,436 $149,622 $174,698 $204,822 $665,578
======== ======== ======== ======== ========
OPERATING INCOME
Aerospace Fasteners.......... $ 2,108 $ 2,156 $ 3,563 $ 9,563 $ 17,390
Aerospace Distribution....... 5,981 6,072 9,061 9,777 30,891
-------- -------- -------- -------- --------
Total...................... $ 8,089 $ 8,228 $ 12,624 $ 19,340 $ 48,281
======== ======== ======== ======== ========
</TABLE>
- ---------------------
(a) Aerospace Distribution sales and operating income assumes the Company
consolidated Banner's results for the first eight months of Fiscal 1996
and reflects the reclassification of Harco, Inc. to the Aerospace
Distribution segment effective July 1, 1996.

17
<PAGE>

RESULTS OF OPERATIONS

The Company's Aerospace Fasteners and Aerospace Distribution segments
account for over 90% of the Company's consolidated sales. The Company
consolidated, for the period prior to March 13, 1996, the Communications
Services segment and, effective February 25, 1996, began to consolidate the
operating results of the Aerospace Distribution segment. The results of
Fairchild Technologies, together with the results of Camloc Gas Springs
division ("Gas Springs") and the Company's former subsidiary, Fairchild
Scandinavian Bellyloading Company ("SBC"), are included in Corporate and
Other. The following table illustrates the historical sales and operating
income of the Company's operations for the past three years.

<TABLE>
<CAPTION>
FOR THE YEARS ENDED JUNE 30,
-------------------------------
1995 1996 1997
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
SALES BY SEGMENT:
Aerospace Fasteners.......................... $ 215,364 $ 218,059 $ 269,026
Aerospace Distribution (a)................... -- 129,973 411,765
Communications Services (b).................. 108,710 91,290 --
Corporate and Other (e)...................... 41,476 67,330 72,882
Eliminations(c).............................. -- (5,842) (15,213)
--------- --------- ---------
Sales.......................................... $ 365,550 $ 500,810 $ 738,460
========= ========= =========
OPERATING INCOME (LOSS) BY SEGMENT:
Aerospace Fasteners (d)...................... $ (11,497) $ 135 $ 17,390
Aerospace Distribution (a)................... -- 5,625 30,891
Communications Services (b).................. 18,498 14,561 --
Corporate and Other (e)...................... (20,420) (14,876) (17,764)
--------- --------- ---------
Operating income (loss)........................ $ (13,419) $ 5,445 $ 30,517
========= ========= =========
</TABLE>
- ---------------------
(a) Effective February 25, 1996, the Company became the majority shareholder
of Banner and, accordingly, began consolidating their results as of that
date.
(b) Effective March 13, 1996, the Company began recording its investment in
the communications services segment using the equity method.
(c) Represents intersegment sales from the Aerospace Fasteners segment to the
Aerospace Distribution segment.
(d) Includes restructuring charges of $2.3 million in Fiscal 1996.
(e) Includes sales from Fairchild Technologies of $38.0 million, $60.3
million, and $51.8 million in 1995, 1996 and 1997, respectively, and gross
margin from Fairchild Technologies of $11.1 million, $20.8 million, and
$23.8 million, respectively.

The following unaudited pro forma table illustrates sales and operating
income of the Company's operations by segment, on a pro forma basis, as if the
Company had operated in a consistent manner for the past three years. The pro
forma results are based on the historical financial statements of the Company,
Fairchild Communications Services Company ("FCSC") and Banner as though (i)
the merger of Fairchild Industries, Inc. (a former subsidiary of the Company)
with and into Shared Technologies Inc. (the "March 13, 1996 Merger"), (ii) the
transfer of Harco from the Aerospace Fasteners Segment to the Aerospace
Distribution segment, and (iii) the consolidation of Banner, had been in
effect since the beginning of each period. The pro forma information is not
necessarily indicative of the results of operations that would actually have
occurred if the transactions had been in effect since the beginning of each
period, nor is it necessarily indicative of future results of the Company.

18
<PAGE>

<TABLE>
<CAPTION>
FOR THE YEARS ENDED JUNE 30,
-------------------------------
1995 1996 1997
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
PRO FORMA SALES BY SEGMENT:
Aerospace Fasteners (a)..................... $ 190,287 $ 197,099 $ 269,026
Aerospace Distribution...................... 255,722 342,483 411,765
Corporate and Other......................... 41,476 67,330 72,882
Eliminations................................ (5,494) (9,505) (15,213)
--------- --------- ---------
$ 481,991 $ 597,407 $ 738,460
========= ========= =========
PRO FORMA OPERATING INCOME (LOSS) BY SEGMENT:
Aerospace Fasteners (a)..................... $ (15,736) $ (2,639) $ 17,390
Aerospace Distribution...................... 9,349 17,455 30,891
Corporate and Other......................... (20,420) (14,876) (17,764)
--------- --------- ---------
Operating income (loss)....................... $ (26,807) $ (60) $ 30,517
========= ========= =========
</TABLE>
- ---------------------
(a) Fiscal 1997 results include sales of $27.2 million and operating income of
$1.2 million provided by the acquisition of Simmonds S.A. ("Simmonds"), a
European manufacturer of aerospace fasteners acquired in February 1997 for
approximately $62 million.

CONSOLIDATED RESULTS

Net sales of $738.5 million in Fiscal 1997 improved significantly by $237.7
million, or 47.5%, compared to sales of $500.8 million in Fiscal 1996. Sales
growth was stimulated by the resurgent commercial aerospace industry, together
with the effects of several strategic business combinations over the past 18
months. Net sales in Fiscal 1996 were up 37.0% from Fiscal 1995 reflecting
strong sales performances from the Aerospace Fasteners segment and Fairchild
Technologies ("FT"), included in the Corporate and Other business segment, and
the inclusion of four months of sales from the Aerospace Distribution segment.
On a pro forma basis, net sales increased 23.6% and 23.9% in Fiscal 1997 and
1996, respectively, as compared to the previous Fiscal periods.

Gross Margin as a percentage of sales was 27.8%, 23.3%, and 18.0% in Fiscal
1997, 1996, and 1995, respectively. The increase in the current year was
attributable to higher revenues combined with continued productivity
improvements achieved during Fiscal 1997. The increase in Fiscal 1996 compared
to Fiscal 1995 was due to consolidation of plants, elimination of product
lines, substantial downsizing and new productivity programs put in place.

Selling, General & Administrative expense as a percentage of sales was
21.8%, 21.0%, and 20.5% in Fiscal 1997, 1996, and 1995, respectively. The
increase in the current year was attributable primarily to the increase in
selling and marketing costs incurred to support the increase in sales.

Operating income of $30.5 million in Fiscal 1997 increased $25.1 million, or
461%, compared to operating income of $5.4 million in Fiscal 1996. The
increase in operating income was due primarily to the current year's growth in
sales and increased operational efficiencies. Operating income in Fiscal 1996
improved by $18.9 million over Fiscal 1995, due primarily to improved cost
efficiencies applied in the Aerospace Fasteners segment and the sales increase
from FT in the Corporate and Other business segment. On a pro forma basis,
operating income increased $30.6 million in Fiscal 1997, as compared to Fiscal
1996, and $26.7 million in Fiscal 1996, as compared to Fiscal 1995.

Net interest expense decreased 19.0% in Fiscal 1997 compared to Fiscal 1996,
and decreased 12.8% in Fiscal 1996 compared to Fiscal 1995. The decreases are
due to lower borrowings as a result of the sale of D-M-E Company ("DME") and
the March 13, 1996 Merger, both of which significantly reduced the Company's
total debt.

Investment income, net, was $6.7 million, $4.6 million and $5.7 million in
Fiscal 1997, 1996, and 1995, respectively. The 45.4% increase in Fiscal 1997
is due primarily to realized gains from the sale of investments

19
<PAGE>

in Fiscal 1997. The 19.8% decrease in Fiscal 1996 resulted from losses
realized on the write-off of two foreign investments.

Equity in earnings of affiliates increased $2.9 million in Fiscal 1997,
compared to Fiscal 1996, and increased $3.3 million in Fiscal 1996, compared
to Fiscal 1995. The current year's increase is attributable to the
amortization of undervalued investments in STFI as a result of the March 13,
1996 Merger. The prior year's increase was due primarily to higher earnings
from Nacanco, which improved the Company's equity in earnings by $2.6 million.

Nonrecurring income in Fiscal 1997 includes the $2.5 million gain from the
sale of SBC. Nonrecurring income in Fiscal 1996 includes a $163.1 million
nontaxable gain resulting from the March 13, 1996 Merger.

Income Taxes included a $5.2 million tax benefit in Fiscal 1997 on a pre-tax
loss of $3.9 million from continuing operations. The tax benefit was due
primarily to reversing Federal income taxes previously provided due to a
change in the estimate of the required tax accruals. In Fiscal 1996, the tax
benefit from the loss from continuing operations, excluding the nontaxable
nonrecurring gain, was $22.1 million.

Earnings from discontinued operations, net, include the earnings, net of
tax, from DME and Fairchild Data Corporation, both former subsidiaries of the
Company, in Fiscal 1996 and 1995.

The $53.6 million gain on disposal of discontinued operations resulted
primarily from the sale of DME to Cincinnati Milacron Inc. in Fiscal 1996.

Extraordinary items, net, resulted from premiums paid for, and redemption
costs and consent fees associated with, the retirement of the Senior Notes and
the write off of deferred loan fees, related primarily to 12 1/4% Senior
Subordinated Notes due 1996 and bank debt extinguished prior to maturity. This
totaled $10.4 million, net of a tax benefit, in Fiscal 1996.

Net earnings in Fiscal 1997, compared to Fiscal 1996, after excluding the
nonrecurring gain of $163.1 million from the March 13, 1996 Merger and the
$53.6 million gain on sale of discontinued operations in 1996, improved $28.3
million, reflecting a $25.1 million improvement in operating profit. The net
earnings increased $223.5 million in Fiscal 1996, compared to Fiscal 1995, due
primarily to the $163.1 million nonrecurring pre-tax gain recorded from the
March 13, 1996 Merger, and the $53.6 million gain, net of tax, from the sale
of discontinued operations.

SEGMENT RESULTS

AEROSPACE FASTENERS SEGMENT

Sales in the Aerospace Fasteners segment increased by $51.0 million to
$269.0 million, up 23.4% in Fiscal 1997, compared to the Fiscal 1996 period,
reflecting significant growth in the commercial aerospace industry, combined
with the Simmonds acquisition. New orders have been strong in recent months
resulting in a backlog of $195.7 million at June 30, 1997, up from $109.9
million at June 30, 1996. Sales increased slightly in Fiscal 1996 compared to
Fiscal 1995. The Harco division was transferred to the Aerospace Distribution
segment on February 25, 1996. On a pro forma basis, excluding Harco's sales,
sales increased 36.5% in Fiscal 1997, compared to Fiscal 1996 and 3.6% in
Fiscal 1996, compared to Fiscal 1995.

Operating income improved from breakeven to $17.4 million during Fiscal
1997, compared to Fiscal 1996. This improvement was achieved as a result of
accelerated growth in the commercial aerospace industry, particularly in the
second half of the year. Certain efficiencies achieved during Fiscal 1997
continued to have positive effects on operating income. Operating income was
positive in the Aerospace Fasteners segment, which was an $11.6 million
improvement in the Fiscal 1996 period over the corresponding Fiscal 1995
period. During Fiscal 1996, operating losses decreased significantly in the
Aerospace Fasteners segment, due primarily to the cost of management changes
incurred in Fiscal 1995, consolidation of plants, eliminating unprofitable
product lines, pricing adjustments, substantial work force downsizing and new
productivity, quality and marketing

20
<PAGE>

programs. A restructuring charge of $2.3 million was recorded in Fiscal 1996,
primarily for severance pay to employees terminated as a result of further
downsizing. On a pro forma basis, excluding Harco, operating income increased
$20.0 million in Fiscal 1997, as compared to Fiscal 1996, and $13.1 million in
Fiscal 1996, as compared to Fiscal 1995.

AEROSPACE DISTRIBUTION SEGMENT

Aerospace Distribution sales were up $281.8 million and operating income was
up $25.3 million, primarily the result of reporting twelve months in Fiscal
1997 versus four months in Fiscal 1996. On a twelve-month pro forma basis,
sales were up $69.3 million, or 20.2%, and operating income was up $13.4
million, or 77%. Sales increases in all three groups, hardware, rotables and
engines, contributed to these strong results. This segment has benefited from
the extended service lives of existing aircraft, growth from acquisitions and
internal growth, which has increased market share.

In Fiscal 1996, as a result of the transfer of Harco to Banner effective
February 25, 1996, the Company recorded four months of sales and operating
income of Banner, including Harco as part of the Aerospace Distribution
segment. This segment reported $130.0 million in sales and $5.6 million in
operating income for this four-month period ended June 30, 1996. In Fiscal
1996, the first eight months of Harco's sales and operating income were
included in the Aerospace Fasteners segment.

COMMUNICATIONS SERVICES SEGMENT

As a result of the March 13, 1996 Merger, the Company is accounting for its
current investment in Shared Technologies Fairchild Inc. ("STFI"), the merged
company, using the equity method. Sales of $91.3 million were reported for the
communications services segment in Fiscal 1996 for 8 1/2 months, compared to a
full 12 months sales of $108.7 million in Fiscal 1995. Operating income of
$14.6 million was reported for the communications services segment in Fiscal
1996 for the 8 1/2 months prior to the Merger, as compared to $18.5 million in
Fiscal 1995.

CORPORATE AND OTHER

The Corporate and Other segment includes Fairchild Technologies, Camloc Gas
Springs Division and Fairchild Scandinavian Bellyloading Co. AB (formerly the
Technology Products segment). Sales improved at SBC which, was sold effective
as of Fiscal 1997 year-end. Over the past three years, corporate
administrative expense as a percentage of sales has decreased from 3.6% in
1995 to 2.9% in 1996 to 2.2% in 1997.

BACKLOG OF ORDERS

Backlog is significant to all the Company's operations, due to long-term
production requirements of its customers. The Company's backlog of orders as
of June 30, 1997 in the Aerospace Fasteners segment, Aerospace Distribution
segment, and Fairchild Technologies amounted to $195.7 million, $90.9 million,
and $63.1 million, respectively, with a "Book-to-Bill" ratio of 1.3, 1.1, and
1.8, respectively. The Company anticipates that approximately 94.8% of the
aggregate backlog at June 30, 1997 will be delivered by June 30, 1998.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

Working capital at June 30, 1997, was $346.1 million, which was $6.7 million
lower than at June 30, 1996. The principal reasons for this change included a
$175.5 million decrease in cash, investments and notes receivable, offset by a
$71.6 million increase in inventory, a $69.5 million increase in accounts
receivable, a $14.4 million increase in prepaid and other current assets, and
a $13.3 million decrease in current liabilities.

The Company's principal cash requirements include debt service, capital
expenditures, acquisitions, and payment of other liabilities. Other
liabilities that require the use of cash include post-employment benefits for
retirees, environmental investigation and remediation obligations, and
litigation settlements and related costs. The

21
<PAGE>

Company expects that cash on hand, cash generated from operations, and cash
from borrowings and asset sales will be adequate to satisfy cash requirements.

The Company also expects to generate cash from the sale of certain assets
and liquidation of investments. At June 30, 1997, net assets held for sale had
a carrying value of $26.1 million and included two parcels of real estate in
California, two landfill limited partnership projects in Pennsylvania, a real
estate joint venture in California, and several other parcels elsewhere, which
the Company plans to sell, lease or develop, subject to market conditions or,
with respect to certain of the parcels, the resolution of environmental
matters. The Company has reclassified its Farmingdale property, with a book
value of $28.0 million, from net assets held for sale, to other assets, as the
Company has established and pursued a plan to develop this property as
commercial real estate. The Company's capital expenditures for Fiscal 1997
were $22.1 million and are expected to be substantially the same for Fiscal
1998.

The Company intends to enter into a new credit facility that will provide
for total borrowing commitments of $275 million. The New Credit Facility will
be comprised of a $75 million revolving credit facility and $200 million of
term loan facilities. See "Description of the New Credit Facility."

With the proceeds of sale of Class A Common Stock offered hereby and
borrowings under the New Credit Facility, the Company will refinance
substantially all of its existing indebtedness (other than indebtedness at
Banner), consisting of the 11 7/8% Senior Debentures due 1999, the 12%
Intermediate Debentures due 2001, the 13 1/8% Subordinated Debentures due
2006, the 13% Junior Subordinated Debentures due 2007, and the Company's
existing bank indebtedness. The Refinancing will reduce the Company's total
net indebtedness by approximately $125 million and will reduce the Company's
annual interest expense, on a pro forma basis, by approximately $21 million.

Property, plant and equipment increased by $40.8 million from June 30, 1996,
primarily as a result of the Simmonds Acquisition. Goodwill increased by $14.6
million as a result of the Company's acquisitions in the current Fiscal 1997.

On July 16, 1997, STFI entered into a definitive merger agreement (the
"STFI/Tel-Save Merger") with Tel-Save Holdings, Inc. ("Tel-Save"), pursuant to
which Tel-Save will acquire STFI in a business combination accounted for as a
pooling of interests. Upon consummation of the STFI/Tel-Save Merger, the
Company will receive shares of Tel-Save's common stock, in exchange for its
shares of STFI common stock and STFI cumulative convertible preferred stock,
as well as approximately $22.0 million cash in redemption of its shares of
STFI special preferred stock. As a result of the transaction, the Company will
recognize an estimated gain in excess of $100 million. (See Note 24 in Item 8,
"Financial Statements and Supplementary Data").

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In October 1996, the American Institute of Certified Public Accountants
issued Statement of Position 96-1 ("SOP 96-1") "Environmental Remediation
Liabilities." SOP 96-1 provides authoritative guidance on specific accounting
issues related to the recognition, measurement, and display and disclosure of
environmental remediation liabilities. The Company is required to implement
SOP 96-1 in Fiscal 1998. The Company's present policy is similar to the policy
prescribed by SOP 96-1, therefore, there will be no effect from
implementation.

In February 1997, the Financial Accounting Standards Board ("FASB") issued
two pronouncements, Statement of Financial Accounting Standards No. 128 ("SFAS
128") "Earnings Per Share," and Statement of Financial Accounting Standards
No. 129 ("SFAS 129") "Disclosure of Information about Capital Structure." SFAS
128 establishes accounting standards for computing and presenting earnings per
share ("EPS"). SFAS 128 is effective for periods ending after December 15,
1997, including interim periods, and requires restatement of all prior period
EPS data presented. Results from the calculation of simple and diluted
earnings per share, as prescribed by SFAS 128, would not be materially
different from the calculations for primary and fully diluted earnings per
share for years ending June 30, 1997 and June 30, 1996. SFAS 129 establishes
standards for

22
<PAGE>

disclosure of information about the Company's capital structure and becomes
effective for periods ending after December 15, 1997.

In June 1997, FASB issued two pronouncements, Statement of Financial
Accounting Standards No. 130 ("SFAS 130") "Reporting Comprehensive Income,"
and Statement of Financial Accounting Standards No. 131 ("SFAS 131")
"Disclosures about Segments of an Enterprise and Related Information." SFAS
130 establishes standards for reporting and display of comprehensive income
and its components in the financial statements. SFAS 131 supersedes Statement
of Financial Accounting Standards No. 14 "Financial Reporting for Segments of
a Business Enterprise" and requires that a public company report certain
information about its operating segments in annual and interim financial
reports. The Company will adopt SFAS 130 and SFAS 131 in Fiscal 1998.

23
<PAGE>

BUSINESS

GENERAL

After consummation of the Spin-Off, the Company's business will be focused
solely on the aerospace industry and will consist of two segments--aerospace
fasteners and aerospace parts distribution. The aerospace fasteners segment,
which accounted for approximately 41% of the Company's net sales in Fiscal
1997 on a pro forma basis after giving effect to the Spin-Off and the
Transactions, manufactures and markets fastening systems used in the
manufacturing and maintenance of commercial and military aircraft. The
aerospace distribution segment, which accounted for approximately 59% of the
Company's net sales in Fiscal 1997 on a pro forma basis after giving effect to
the Spin-Off and Transactions, stocks and distributes a wide variety of
aircraft parts to commercial airlines and air cargo carriers, OEMs, other
distributors, fixed-base operators, corporate aircraft operators and other
aerospace and non-aerospace companies. The Company's aerospace distribution
business is conducted through its 64% owned subsidiary, Banner.

INDUSTRY OVERVIEW

The aerospace parts industry currently is enjoying favorable trends driven
by strong growth in new commercial aircraft orders, an increase in miles flown
by existing aircraft, the need to modify older aircraft to comply with noise
regulations and increased orders for wide bodied aircraft.

Demand for aerospace fasteners and other aerospace parts is closely related
to delivery and use rates for commercial and military aircraft. Delivery and
use rates are in turn directly related to the actual and projected volume of
passenger and freight traffic, average aircraft age, global fleet size and
government defense expenditures. According to the Boeing 1997 Current Market
Outlook (the "Boeing Market Outlook"), world air traffic grew 6.7% from 1995
to 1996, following a 6.6% increase from 1994 to 1995. Industry sources
forecast that world air traffic will grow by more than 5% per year for the
next ten years. Boeing also projects that during this period domestic and
international airlines will lease or purchase over 7,000 new aircraft, thereby
increasing the worldwide commercial fleet from approximately 11,500 aircraft
at the end of 1996 to approximately 17,000 aircraft (net of retirements) at
the end of 2006.

Boeing, Airbus and McDonnell Douglas delivered over 277 new aircraft in the
first six months of 1997 compared to 184 in the comparable period of the prior
year. Orders for new aircraft at these manufacturers remained stable, with 313
orders in the first six months of 1997 compared to 291 in the comparable
period of 1996. Cancellations, however, were greatly reduced--Boeing
experienced only five cancellations in the first six months of 1997 as
compared to 77 in the first six months of 1996. The Company believes that the
world's airlines must continue to add capacity and order new airplanes to be
able to meet the anticipated demand.

The Company believes that over the next five years airlines will be required
to replace a significant portion of their existing fleets as the large number
of airplanes delivered in the 1960s become increasingly uneconomical to
operate and the deadlines for compliance with the stringent noise regulations
adopted in the United States and Europe approach.

The Company's fastener business benefits from noise reduction modifications
because modifying an airplane to comply with the noise regulations and remain
serviceable requires a substantial number of fasteners. The Boeing Market
Outlook reports that 560 airplanes in the U.S. fleet had been modified to meet
the new noise standards and projects that 1,080 planes in the U.S. fleet will
be noise modified.

24
<PAGE>

The Boeing Market Outlook projects that average airplane size should rise
worldwide over the next ten years. As airlines seek to serve a growing number
of air travelers with existing restrictions on arrival and departure slots,
airport gates and ramp capacity, commercial aircraft OEMs are experiencing
increased orders for heavier, widebodied aircraft of intermediate size.
Widebodied aircraft generally require a greater number of fasteners than
smaller aircraft.

AEROSPACE FASTENERS

The Company, through its Aerospace Fasteners segment, is a leading worldwide
manufacturer and supplier of fastening systems used in the construction and
maintenance of commercial and military aircraft. The Aerospace Fasteners
segment accounted for 36.4% of total Company sales for the year ended June 30,
1997.

PRODUCTS

In general, aerospace fasteners produced by the Company are used to join
materials in applications that are not of themselves critical to flight.
Products range from standard aerospace screws, to more complex systems that
fasten airframe structures, and sophisticated latching or quick disconnect
mechanisms that allow efficient access to internal parts which require regular
servicing or monitoring, The Aerospace Fasteners segment also manufactures and
supplies fastening systems used in non-aerospace industrial and electronic
niche applications. The Aerospace Fasteners segment produces and sells
products under various trade names and trademarks including Voi-Shan(R)
(fasteners for aerospace structures), Screwcorp(R) (standard externally
threaded products for aerospace applications), RAM(R) (custom designed
mechanisms for aerospace applications), Camloc(R) (components for the
industrial, electronic, automotive and aerospace markets), Tridair(R) and
Rosan(R) (fastening systems for highly-engineered aerospace, military and
industrial applications).

Principal product lines of the Aerospace Fasteners segment include:

Standard Aerospace Airframe Fasteners--These fasteners consist of standard
externally threaded fasteners used in non-critical airframe applications on a
wide variety of aircraft. These fasteners include Hi-Torque Speed Drive(R),
Tri-Wing(R), Torq-Set(R), Phillips(R) and Hex Heads(R).

Commercial Aerospace Structural and Engine Fasteners--These fasteners
consist of more highly engineered permanent or semi-permanent fasteners used
in non-critical but more sophisticated airframe and engine applications, which
could involve joining more than two materials. These fasteners are generally
engineered to specific customer requirements or manufactured to specific
customer specifications for special applications, often involving exacting
standards. These fasteners include Hi-Lok(R), Veri-Lite(R), Eddie-Bolt2(R) and
customer proprietary engine nuts.

Proprietary Products and Fastening Systems--These very highly engineered
proprietary fasteners are designed by the Company for specific customer
applications and include high performance structural latches and hold down
mechanisms. These fasteners are usually proprietary in nature and are
primarily used in either commercial aerospace or military applications. These
fasteners include Visu-Lok(R), Composi-Lok(R), Keen-serts(R), Mark IV(TM),
Flatbeam(TM) and Ringlock(TM).

Highly Engineered Fastening Systems for Industrial Applications--These
highly engineered fasteners are designed by the Company for specific niche
applications in the electronic, automotive and durable goods markets and are
sold under the Camloc(R) trade name.

SALES AND MARKETS

The products of the Aerospace Fasteners segment are sold primarily to
domestic and foreign OEMs, and to the maintenance and repair market through
distributors. Sixty-six percent of its sales are domestic. Major customers
include OEMs such as Boeing, McDonnell Douglas and Airbus and their
subcontractors, as well as

25
<PAGE>

major distributors such as Burbank Aircraft Supply, Special-T and Wesco. In
addition, OEMs have implemented programs to reduce inventories and pursue
just-in-time relationships. This has allowed parts distributors to
significantly expand their business due to their ability to better meet OEM
objectives. In response, the Company, which formerly supplied the OEMs
directly, is expanding efforts to provide parts through distributors, by
establishing master distributorship agreements, with Special-T, Wesco and
others. No single customer accounts for more than 10% of consolidated sales.
The Company's backlog of orders in the Aerospace Fasteners segment as of June
30, 1997 was $196 million. The Company anticipates that approximately 95% of
such backlog will be delivered by June 30, 1998.

Products are marketed by a direct sales force team which coordinates efforts
with an internal technical sales force team. The direct sales force team is
organized by customer and region. The internal sales force is organized by
facility and product range and is focused on servicing customers needs,
identifying new product applications, and obtaining the approval of new
products. All the Company's products are leveraged through centralized
advertising and promotional activities.

Revenues in the Aerospace Fasteners segment bear a strong relationship to
aircraft production. As OEMs searched for cost cutting opportunities during
the aerospace industry recession, parts manufacturers, including the Company,
accepted lower-priced and/or smaller orders to maintain market share, at lower
profit margins. However, during the last two years, this situation has
improved as build rates in the aerospace industry have increased and resulted
in capacity constraints. As lead times have increased, the Company has been
able to negotiate contracts with its major customers at more favorable pricing
as well as larger minimum lot sizes that are more economic to manufacture. In
addition, the Company has eliminated "make and hold" contracts under which
large volume buyers require current production of parts for long-term
unspecified dates of delivery. Overall, the Company believes existing backlog
will result in higher margins due to larger and more efficient lot sizes.

Fasteners also have applications in the automotive/industrial markets, where
numerous special fasteners are required (such as engine bolts, wheel bolts and
turbocharger tension bolts). The Company is actively targeting the automotive
market as a hedge against any potential downturn in the aerospace industry.

MANUFACTURING AND PRODUCTION

The Aerospace Fasteners segment has seven primary manufacturing facilities,
of which three are located in the United States and four are located in
Europe. Each facility has virtually complete production capability, and
subcontracts only those orders which exceed capacity. Each plant is designed
to produce a specified product or group of products, determined by production
process involved and certification requirements. The Company's largest
customers have recognized its quality and operational controls by conferring
ISO D1-9000A status at all of its U.S. facilities, and ISO D1-9000 status at
all of its European facilities. The Company is the first and only aerospace
fasteners manufacturing company with all facilities holding ISO-9000 approval.

The Company has a fully operational modern information system at all of its
U.S. facilities and will expand this information system to all its European
operations in Fiscal 1998. The new system performs detailed and timely cost
analysis of production by product and facility. Updated MIS systems also help
the Company to better service its customers. OEMs require each product to be
produced in an OEM-qualified/OEM-approved facility.

COMPETITION

Despite intense competition in the industry, the Company remains the
dominant manufacturer of aerospace fasteners. The worldwide aerospace fastener
market is estimated to be $1.3 billion (before distributor resales). The
Company holds approximately 20% of the market and competes with SPS
Technologies, Hi-Shear and Huck, which the Company believes hold approximately
13%, 11% and 10% of the market, respectively. In Europe, its largest
competitors are Blanc Aero and Southco Fasteners.

26
<PAGE>

The Company competes primarily in the highly engineered "systems" segment,
where its broad product range allows it to more fully serve each OEM and
distributor. The Company's product array is diverse and offers customers a
large selection to address various production needs. In addition, roughly 45%
of the Company's output is unique or is in a market where the Company has a
small number of competitors. The Company seeks to maintain its technological
edge and competitive advantage over its competitors, and has historically
demonstrated its innovative production methods and new products to meet
customer demands at fair price levels.

AEROSPACE DISTRIBUTION

The Company conducts its aerospace parts distribution through Banner. In
February 1996, the Company increased its ownership of Banner from 47.2% to
59.3%, and further increased such ownership interest to 64% in June 1997. The
Company, through its Aerospace Distribution segment, distributes a wide
variety of aircraft parts, which it carries in inventory. In addition to
selling products that it has purchased on the open market, the Company also
acts as a non-exclusive authorized distributor of many different aerospace
related product lines. No single distributor arrangement is material to the
Company's financial condition. The Aerospace Distribution segment accounted
for 55.8% of total Company sales in Fiscal 1997.

PRODUCTS

The Company believes it is the world's largest independent distributor of
aircraft hardware, including bearings, nuts, bolts, screws, rivets and other
types of fasteners that are used on aircraft. The Aerospace Distribution
segment purchases its inventory of hardware principally from manufacturers. An
extensive inventory of products and a quick response time are essential in
providing service to its customers. Another key factor in selling to its
customers is the Aerospace Distribution segment's ability to maintain a system
that provides traceable parts back to the manufacturer.

Products of the Aerospace Distribution segment are divided into three
groups: hardware, rotables and engines. Hardware includes bearings, nuts,
bolts, screws, rivets and other types of fasteners. Rotables include flight
data recorders, radar and navigation systems, instruments, landing gear and
hydraulic and electrical components. Engines include jet engines and engine
parts for use on both narrow and wide body aircraft and smaller engines for
corporate and commuter aircraft. The Aerospace Distribution segment provides a
number of services such as immediate shipment of parts in aircraft-on-ground
situations. The Aerospace Distribution segment also provides products to OEMs
in the aerospace industry under just-in-time and inventory management
programs. The Aerospace Distribution segment also buys and sells commercial
aircraft from time to time.

Hardware is purchased new from manufacturers, but may also be purchased from
other distributors. Hardware is sold only in new condition. Rotable parts are
sometimes purchased as new parts, but are generally purchased as used parts
which are then overhauled for the Company by outside contractors, including
the original manufacturers and FAA-licensed facilities. Rotables are sold in a
variety of conditions such as new, overhauled, serviceable and "as is."
Rotables may also be exchanged instead of sold. An exchange occurs when an
overhauled aircraft part in inventory is exchanged for a used part from the
customer and the customer is charged an exchange fee plus the actual cost to
overhaul the part. Engines and engine components are sold as is, overhauled or
disassembled for resale as parts.

SALES AND MARKETS

Subsidiaries of the Aerospace Distribution segment sell their products in
the United States and abroad to most of the world's commercial airlines and to
air cargo carriers, as well as many OEMs, other distributors, fixed base
operators, corporate aircraft operators and other aerospace and nonaerospace
companies. Approximately 70% of its sales are to domestic purchasers, some of
whom may represent offshore users.

27
<PAGE>

The Aerospace Distribution segment markets its products and services through
direct sales forces, outside representatives and, for some product lines,
overseas sales offices. Sales in the aviation aftermarket depend on price,
service, quality and reputation. The Aerospace Distribution segment's business
does not experience significant seasonal fluctuations or depend on a single
customer. No single customer accounts for more than 10% of the Company's
consolidated revenue. The Company's backlog of orders in the Aerospace
Distribution segment as of June 30, 1997 was $91 million. The Company
anticipates that approximately 90% of such backlog will be delivered by June
30, 1998.

COMPETITION

The hardware product group competes with OEMs such as Boeing, which supports
the fleet of Boeing-produced aircraft, fastener manufacturers, as well as
independent distributors such as Wesco Aircraft Hardware Corp., M&M Aerospace
Hardware, Tri-Star Aerospace, Inc. and many other large and small companies.
Banner believes it generally has a price advantage over manufacturers in the
smaller quantities in which it usually deals, and can generally provide more
expeditious service. In the rotable group the major competitors are AAR Corp.,
Air Ground Equipment Services ("AGES"), Aviation Sales Company, The Memphis
Group and other large and small companies in a very fragmented industry. The
major competitors for Banner's engine group are OEMs such as General Electric
Company and Pratt and Whitney, as well as the engine parts division of AAR
Corp., AGES, and many smaller companies.

RESEARCH AND PATENTS

The Company's research and development activities have included: applied
research; development of new products; testing and evaluation of, and
improvements to, existing products; improvements in manufacturing techniques
and processes; development of product innovations designed to meet government
safety and environmental requirements; and development of technical services
for manufacturing and marketing. The Company's sponsored research and
development expenditures amounted to $7.8 million, $.1 million and $1.0
million for the years ended June 30, 1997, 1996, and 1995, respectively,
substantially all of such expenditures being attributable to Fairchild
Technologies. The Company owns patents relating to the design and manufacture
of certain of its products and is a licensee of technology covered by the
patents of other companies. The Company does not believe that any of its
business segments are dependent upon any single patent.

PERSONNEL

As of June 30, 1997, the Company had approximately 3,900 employees.
Approximately 5% of these employees were covered by collective bargaining
agreements. The Company believes that its relations with its employees are
satisfactory.

PROPERTIES

As of June 30, 1997, the Company owned or leased properties totalling
approximately 2,089,000 square feet, approximately 1,276,000 square feet of
which was owned and 813,000 square feet was leased. The Aerospace Fasteners
segment's properties consisted of approximately 1,020,000 square feet, with
principal operating facilities concentrated in Southern California, France and
Germany. The Aerospace Distribution segment's properties consisted of
approximately 703,000 square feet, with principal operating facilities of
approximately 543,000 square feet located in California, Florida, Missouri,
Texas and Utah.

Corporate and other operating properties consisted of approximately 117,000
square feet, with principal operating facilities of approximately 82,000
square feet located in California and Germany. The Company owns its corporate
headquarters at Washington-Dulles International Airport.

28
<PAGE>

The Company has several parcels of property which it is attempting to
market, lease and/or develop, including: (i) an eighty acre parcel located in
Farmingdale, New York; (ii) a six acre parcel in Temple City, California;
(iii) an eight acre parcel in Chatsworth, California; and (iv) several other
parcels of real estate, primarily located throughout the continental United
States.

The following table sets forth the location of the larger properties used in
the continuing operations of the Company, their square footage, the business
segment or groups they serve and their primary use. Each of the properties
owned or leased by the Company is, in management's opinion, generally well
maintained, suitable to support the Company's business and adequate for the
Company's present needs. All of the Company's occupied properties are
maintained and updated on a regular basis.

<TABLE>
<CAPTION>
OWNED OR SQUARE PRIMARY
LOCATION LEASED FOOTAGE BUSINESS SEGMENT/GROUP USE
-------- -------- ------- ---------------------- -------------
<S> <C> <C> <C> <C>
Saint Cosme, France.. Owned 304,000 Aerospace Fasteners Manufacturing
Torrance,
California.......... Owned 284,000 Aerospace Fasteners Manufacturing
Carrollton, Texas.... Leased 173,000 Aerospace Distribution Distribution
City of Industry,
California.......... Owned 140,000 Aerospace Fasteners Manufacturing
Chantilly, Virginia.. Owned 125,000 Corporate Office
West Valley City,
Utah................ Owned 81,000 Aerospace Distribution Distribution
Suffield,
Connecticut......... Owned 66,000 Aerospace Distribution Distribution
Lakeland, Florida.... Leased 65,000 Aerospace Distribution Distribution
Ft. Lauderdale,
Florida............. Leased 57,000 Aerospace Distribution Distribution
Toulouse, France..... Owned 56,000 Aerospace Fasteners Manufacturing
Fremont, California.. Leased 54,000 Technology Products Manufacturing
El Segundo,
California.......... Leased 51,000 Aerospace Distribution Distribution
Santa Ana,
California.......... Owned 50,000 Aerospace Fasteners Manufacturing
Earth City,
Missouri............ Leased 50,000 Aerospace Distribution Distribution
Vaihingen, Germany... Leased 49,000 Technology Products Manufacturing
Kelkheim, Germany.... Leased 42,000 Aerospace Fasteners Manufacturing
Fremont, California.. Leased 31,000 Technology Products Manufacturing
</TABLE>

ENVIRONMENTAL MATTERS

The Company's operations are subject to stringent Federal, state and local
environmental laws and regulations concerning, among other things, the
discharge of materials into the environment and the generation, handling,
storage, transportation and disposal of waste and hazardous materials. To
date, such laws and regulations have not had a material effect on the
financial condition, results of operations, or net cash flows of the Company,
although the Company has expended, and can be expected to expend in the
future, significant amounts for investigation of environmental conditions and
installation of environmental control facilities, remediation of environmental
conditions and other similar matters, particularly in the Aerospace Fasteners
segment.

In connection with its plans to dispose of certain real estate, the Company
must investigate environmental conditions and may be required to take certain
corrective action prior or pursuant to any such disposition. In addition,
management has identified several areas of potential contamination at or from
other facilities owned, or previously owned, by the Company, that may require
the Company either to take corrective action or to contribute to a clean-up.
The Company is also a defendant in certain lawsuits and proceedings seeking to
require the Company to pay for investigation or remediation of environmental
matters and has been alleged to be a potentially responsible party at various
"Superfund" sites. Management of the Company believes that it has recorded
adequate reserves in its financial statements to complete such investigation
and take any necessary corrective actions or make any necessary contributions.
No amounts have been recorded as due from third parties, including insurers,
or set off against, any liability of the Company, unless such parties are
contractually

29
<PAGE>

obligated to contribute and are not disputing such liability. The Company
expects that FIHC will assume substantially all of the Company's environmental
liabilities in connection with the Spin-Off. See "The Spin-Off." See "Risk
Factors--Uncertainty and Other Tax Consequences of The Spin-Off."

As of June 30, 1997, the consolidated total recorded liabilities of the
Company for environmental matters approximated $8.4 million, which represented
the estimated probable exposures for these matters. It is reasonably possible
that the Company's total exposure for these matters could be approximately
$13.2 million on an undiscounted basis.

LEGAL PROCEEDINGS

The Workers Compensation Bureau of the State of Ohio is seeking
reimbursement from the Company for up to $5,400,000 for workers compensation
claims which were insured under a self-insured program of the Company. The
Company has contested a significant portion of this claim and believes that
the ultimate disposition of this claim will not be material.

The Corporate Administrative Contracting Officer (the "ACO"), based upon the
advice of the United States Defense Contract Audit Agency, has made a
determination that Fairchild Industries, Inc., a former subsidiary of the
Company ("FII"), did not comply with Federal Acquisition Regulations and Cost
Accounting Standards in accounting for (i) the 1985 reversion to FII of
certain assets of terminated defined benefit pension plans, and (ii) pension
costs upon the closing of segments of FII's business (collectively, the
"Pension Reversion Case"). The ACO has directed FII to prepare cost impact
proposals relating to such plan terminations and segment closings and,
following receipt of such cost impact proposals, may seek adjustments to
contract prices. The ACO alleges that substantial amounts will be due if such
adjustments are made. The Company believes it has properly accounted for the
asset reversions in accordance with applicable accounting standards. The
Company has held discussions with the government to attempt to resolve these
pension accounting issues. In connection with the Spin-Off, the Company
expects that FIHC will assume all of the Company's liabilities, if any,
associated with this matter. See "The Spin-Off." See "Risk Factors--
Uncertainty and Other Tax Consequences of Spin-Off."

In the opinion of management, the ultimate resolution of the legal
proceedings, including those discussed above, will not have a material adverse
effect on the financial condition, or future results of operations or net cash
flows of the Company.

30
<PAGE>

THE SPIN-OFF

In order to focus its operations on the aerospace industry, the Company
intends to Spin-Off to its stockholders all of the stock of FIHC, which will
own substantially all of the Company's non-aerospace operations. At the time
of the Spin-Off, the business and assets of FIHC are expected to consist of:
(i) the Company's technology products segment, which consists of Fairchild
Technologies (a worldwide producer of equipment for recordable compact disc
and semiconductor manufacturers); (ii) the Company's 31.9% ownership interest
in Nacanco Paketleme, (the largest producer of aluminum cans in Turkey); and
(iii) certain real estate and miscellaneous investments, including
approximately 80 acres of land in Long Island, New York currently under
development.

Although the exact timing of the Spin-Off is uncertain, the Company intends
to effect the Spin-Off as soon as is reasonably practicable following receipt
of a solvency opinion relating to FIHC and all necessary governmental and
third party approvals. The Company may sell, restructure or otherwise change
the assets and liabilities that will be in FIHC at the time of the Spin-Off
and may delay the timing of the Spin-Off to minimize the tax consequences
thereof to the Company and its stockholders. See "Risk Factors--Uncertainty
and Tax and Other Consequences of The Spin-Off."

In connection with the Spin-Off, it is anticipated that the Company will
enter into an arm's-length management services agreement with FIHC pursuant to
which the Company will provide FIHC with certain tax, accounting, legal and
other services. In addition, the Company and FIHC will enter into an
indemnification agreement pursuant to which FIHC will assume and be solely
responsible for all known and unknown past, present and future claims and
liabilities of any nature relating to the liabilities described below under
FIHC Liabilities.

Set forth below is a brief description of the business and assets of FIHC as
it is currently expected to exist at the time of the Spin-Off.

TECHNOLOGIES

Acquired by the Company in June 1994, Fairchild Technologies
("Technologies") is a global organization that manufactures, markets and
services capital equipment for recordable compact disc ("CD-R") and advanced
semiconductor manufacturing. Technologies' products are used to produce CD-Rs,
CDs and CD-ROMs, as well as integrated circuits for the data processing,
communications, transportation, automotive and consumer electronic industries,
as well as for the military.

PRODUCTS

Technologies is a leader in microlithography manufacturing in Europe and has
four product lines, the first being equipment for wafer microlithography
processing. This includes the mainstay Series 6000 Flexible Wafer Process
Line, consisting of lithographic processing systems with flexible material
flow, modular design and high throughput, and the recently designed Falcon
Modular Microlithography System for 0.25 micron (65/256 Mbit DRAM) device
manufacturing. The Falcon system has a fully modular design and is expandable
to accommodate expected technological advancements and specific customer
configurations.

Technologies has combined new and proven technology and a number of leading
edge components and systems in compact disc processing to recently develop its
Compact Disc Recordable ("CD-R10X") manufacturing system. The CD-R10X system
is a state of the art design for producing cost effective recordable CDs by
combining a high quality injection molding machine with scanning, inspection,
and pneumatic handling systems.

A third line is modular process equipment for use by the fabricators of
liquid crystal displays. Technologies supplies advanced modular solutions with
high throughput, small footprint and minimum cost of ownership.

31
<PAGE>

Technologies is also a leading manufacturer of photolithography processing
equipment for photomask and thinfilm products.

Technologies specializes in providing system solutions, and in coating,
developing, priming, etching, stripping, cleaning and thermal processing of
wafers, substrates and related semiconductor products.

SALES AND MARKETS

With a strong base of controls/clean room technology and software/services
engineering, Technologies is able to provide systems with multiple modular
designs for a variety of customer applications. Today, more than 1,000
Technologies wafer production systems are in operation worldwide.
Approximately 60% of the Company's Fiscal 1997 business was derived from wafer
related products and services. The remaining 40% was divided between LCD and
CD related systems, products, and services. Major customers in the wafer
product line include Motorola, Samsung, Siemens, GEC Plessey, Texas
Instruments, National Semiconductor, Macronix, and Erso. Other major customers
include Philips and Litton for the LCD product line, Sonopress (Bertelsmann),
and Krauss Maffei for the CD product line, and Hyundai, NEC and Canon for the
photomask product line. Approximately 76.3% of Technologies' sales were to
foreign customers.

MANUFACTURING AND PRODUCTION

Technologies has two manufacturing facilities consisting of Fairchild
Technologies GmbH, located in Vaihingen, Germany, and Fairchild Technologies
USA, Inc. located in Fremont, California.

COMPETITION

The wafer product line competes with Tokyo Electron, Dai Nippon Screen and
the Silicon Valley Group. Competitors in the CD product line consist of Robi
Systems, Leybold and Marubeni. Competition in the photomask product line is
provided by Mitsubishi Toyo, Tasmo and Solid State Equipment.

NACANCO PAKETLEME

Established in 1987, Nacanco is the largest manufacturer of aluminum cans
for soft drinks and beer in Turkey with an estimated 80% market share. Nacanco
generated EBITDA of approximately $39 million on annual sales of $107 million
for the fiscal year ended December 31, 1996. The Company owns 31.9% of the
common stock, with Pechiney International SA and its subsidiaries holding
substantially all of the balance. The Company received from Nacanco cash
dividends in excess of $3 million in each of the past two fiscal years.

REAL ESTATE

The Company has significant real estate holdings having a book value of
approximately $54.1 million as of June 30, 1997. The Company's real estate
holdings consist of (1) 80 acres on Long Island, New York which are currently
being developed into retail centers; (ii) various industrial buildings from
which the Company receives rental income; and (iii) property to be used as
landfills upon the receipt of necessary licenses and government approvals.

FIHC LIABILITIES

In addition to the liabilities of the Technologies business, it is expected
that FIHC will also assume the liability, if any, related to: the Pension
Reversion Case (as described under "Business--Legal Proceedings"); certain
environmental liabilities currently recorded as $8.4 million, but for which it
is reasonably possible the total expense could be $13.2 million; certain
retiree medical cost and liabilities related to discontinued operations for
which the Company has accrued approximately $34.7 million as of June 30, 1997
(see Note 11 to the Company's Consolidated Financial Statements); and certain
tax liabilities.

32
<PAGE>

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The following table sets forth information with respect to the directors and
executive officers of the Company.

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <C> <S>
Michael T. Alcox.......... 49 Vice President and Director
Melville R. Barlow........ 68 Director
Robert D. Busey........... 54 Vice President
Mortimer M. Caplin........ 81 Director
Colin M. Cohen............ 46 Senior Vice President, Chief Financial
Officer, Controller and Director
Philip David.............. 66 Director
John L. Flynn............. 51 Senior Vice President
Harold J. Harris.......... 68 Director
Harold R. Johnson......... 74 Senior Vice President
Robert H. Kelley.......... 49 Vice President
Jeffrey P. Kenyon......... 36 Vice President
Samuel J. Krasney......... 71 Director
Daniel Lebard............. 58 Director
Senior Vice President, General Counsel and
Donald E. Miller.......... 50 Secretary
David Wynne-Morgan........ 66 Senior Vice President
Jacques S. Moskovic....... 60 Senior Vice President and Director
Herbert S. Richey......... 75 Director
Moshe Sanbar.............. 71 Director
Karen L. Schneckenburger.. 48 Vice President
Robert A. Sharpe II....... 39 Director
Eric I. Steiner........... 35 Executive Vice President, Chief Operating
Officer and Director
Jeffrey J. Steiner........ 60 Chairman of the Board, Chief Executive
Officer and President
</TABLE>

Michael T. Alcox served as Senior Vice President and the Chief Financial
Officer of the Company from December 1987 through September 1996. He also
served as Treasurer of the Company from September 1990 until November 1991.
Mr. Alcox served as Vice President and Chief Financial Officer of RHI
Holdings, Inc. and as Vice President and Chief Financial Officer of Fairchild
Industries from 1990 through March 1996. Since September 30, 1996, Mr. Alcox
serves as a Vice President to the Company, not employed on a full time basis.
Mr. Alcox is a director of Banner. Mr. Alcox also owns and operates travel and
real estate businesses. He became a director of the Company in 1988.

Melville R. Barlow was a consultant to the Company from September 1995
through June 1996. From July 1991 through March 1994, he was President of
Pilkington Aerospace, Inc., a manufacturer of aircraft transparencies. From
June 1984 through March 1991, he was a Corporate Vice President of General
Dynamics and General Manager of General Dynamics Electronics Division, a
manufacturer of military aircraft automatic test equipment. He became a
director of the Company in 1996.

Robert D. Busey has served as Vice President of the Company since September
1992. Mr. Busey also served as Vice President of Fairchild Industries from
November 1993 through March 1996. Prior to September 1992, Mr. Busey was
Assistant Vice President of the Company and held other management positions
with Fairchild Industries.

Mortimer M. Caplin has been a senior member of the law firm of Caplin &
Drysdale since 1964. Mr. Caplin serves as a director of Presidential Realty
Corporation and Danaher Corporation. He became a director of the Company in
1990.

33
<PAGE>

Colin M. Cohen was Managing Director of Citicorp Securities, Inc. until
September 1996. He served in such capacity for more than five years. Mr. Cohen
became a director of the Company in September 1996, and the Company's Senior
Vice President--Business Development and Finance, and Chief Financial Officer,
effective October 1, 1996. He became Controller of the Company effective March
31, 1997. Pursuant to his employment agreement with the Company, Mr. Cohen is
to be nominated for election as a director every fiscal year during his term
of employment.

Philip David was a consultant to the Company from January 1988 to June 1993.
He was also an employee of the Company from January 1988 to December 1989. He
was a Professor of Urban Development at Massachusetts Institute of Technology
until June 1988. Dr. David is also a director of IRI International, Inc. He
became a director of the Company in 1985.

John L. Flynn has served as Senior Vice President, Tax, of the Company since
September 1994 and Vice President, Tax, since August 1989. Mr. Flynn also
served as Vice President, Tax, of Fairchild Industries from November 1986
through March 1996.

Harold J. Harris is President of Wm. H. Harris, Inc. He is a director of
Capital Properties Incorporated of Rhode Island. He became a director of the
Company in 1985.

Harold R. Johnson, Brig. Gen., USAF (Ret.), has served as Senior Vice
President, Business Development, of the Company since November 1990. General
Johnson also served as Vice President of Fairchild Industries from February
1988 through March 1996.

Robert H. Kelley has served as Vice President, Employee Benefits, of the
Company since November 1993. He also served as Vice President of Fairchild
Industries from November 1993 through March 1996. Prior thereto, he held other
management positions with Fairchild Industries.

Jeffrey P. Kenyon has served as Vice President of the Company since November
1996. Prior to that, he served as Vice President of Citicorp Securities, Inc.,
for more than five years.

Samual J. Krasney retired in 1993 as the Chairman of the Board, Chief
Executive Officer and President of Banner, positions he had held since June
1990. He continues to serve as a director of Banner and also serves as the
Vice Chairman of the Board of the Company. He served as the Chief Operating
Officer of the Company from December 1985 until December 1989. Mr. Krasney has
served as the managing partner of ABBA Capital Enterprises since October 1985.
Mr. Krasney is a director of FabriCenters of America, Inc. and Waxman
Industries, Inc. He became a director of the Company in 1968. Due to health
reasons, Mr. Krasney does not intend to stand for election as a director of
the Company at the November, 1997 annual meeting of stockholders.

Daniel Lebard is the Chairman of the Board of Daniel Lebard Management
Development SA, a consulting firm in Paris, France, which sells management
services. He has served in such capacity for more than the last five years.
Since 1995, he also serves as Chief Executive Officer of Groupe Sofrecid SA
and Kvaerner-Clecim SA, engineering companies whose headquarters are in Paris.
He became a director of the Company in 1996.

Donald E. Miller has served as Senior Vice President and General Counsel of
the Company since January 1991 and Corporate Secretary since January 1995. Mr.
Miller also served as Vice President and General Counsel of Fairchild
Industries from November 1991 through March 1996. Prior to 1991, Mr. Miller
was a principal of the law firm of Temkin & Miller, Ltd. in Providence, Rhode
Island. Mr. Miller is a director of Shared Technologies Fairchild Inc. and
General Counsel of Banner.

David Wynne-Morgan has served as Senior Vice President of the Company
responsible for Corporate Communications since September 11, 1997. He is a
founding partner of WMC Communications Ltd. where he continues to serve. From
1991 to 1994, Mr. Wynne-Morgan served as President and Chief Executive Officer
of Hill Knowlton for Europe, the Middle East and Africa.

Jacques S. Moskovic has served as Senior Vice President of the Company since
October 1996. He has served as President and CEO of Fairchild Technologies
since September 1994, and as Chairman of Fairchild

34
<PAGE>

Technologies since August 1997. Prior to that, he served as Chairman and
President of Compagnie Pour Le Developpement Industriel, a French based
company specializing in the production, sales and service of equipment to the
electronics industry, which was acquired by the Company in 1995. Mr. Moskovic
held such position for more than five years. He became a director of the
Company in 1997.

Herbert S. Richey served as President of Richey Coal Company, a coal
properties-brokerage and consulting company, until December 1993. He became a
director of the Company in 1977.

Karen L. Schneckenburger has served as Vice President of the Company since
September 1992 and as Treasurer of the Company since November 1991. Ms.
Schneckenburger also served as Treasurer of Fairchild Industries from August
1989 through March 1996. Prior thereto, she served as Director of Finance of
Fairchild Industries from 1986 through 1989.

Moshe Sanbar has served as President of the Israel National Committee in Tel
Aviv and as a member of the executive board of the International Chamber of
Commerce in Paris since 1996. He served as a Senior Vice President and
Financial Advisor for the Eisenberg Group of Companies (an international
import-export firm) from 1996 to January 1997. From 1988 through 1995 he was
Chairman of the Board of Bank Leumi (Israel) and its group, worldwide. He
became a director of the Company in 1997.

Robert A. Sharpe II has served as Executive Vice President and Chief
Financial Officer of Fairchild Fasteners, a division of Fairchild Holding
Corp., since July 1996, and as consultant for Fairchild Fasteners from October
1995 through July 1996. He served as Vice President, Corporate Development, of
Smithfield Foods, Inc., a pork-products company, from July 1994 through July
1996. Prior to that time, Mr. Sharpe served as Senior Vice President of
NationsBank Corporation and held other management positions with NationsBank.
Mr. Sharpe is a director of Capital Associates, Inc. and Capital Associates
International, Inc. He became a director of the Company in 1995.

Dr. Eric I. Steiner has served as Executive Vice President and Chief
Operating Officer of the Company since November 1996, and as President and
Chief Executive Officer of Fairchild Fasteners, a division of Fairchild
Holding Corp., since August 1995. Prior thereto, he served as Senior Vice
President, Operations of the Company from May 1992 through November 1996, and
as President of Camloc/RAM Products, one of the Company's operating units,
from September 1993 to February 1995. He served as Vice President, Business
Planning, of the Company from March 1991 until May 1992. He also served as
Vice President of Fairchild Industries from May 1992 through March 1996. He
received an M.B.A. from Insead in France in 1990. Prior thereto, he received
an M.D. in 1988 from Faculte de Medicine de Paris and was a medical doctor at
Hospitaux De Paris in France until November 1989. He has been a director of
Banner since September 1992, and a Senior Vice President of Banner since May
1997. Dr. Steiner became a director of the Company in 1988. He is the son of
Jeffrey J. Steiner.

Jeffrey J. Steiner has served as the Chairman of the Board and the Chief
Executive Officer of the Company since December 1985, and as President of the
Company since July 1, 1991. He has served as the Chairman of the Board, Chief
Executive Officer and President of Banner since September 1993. He has served
as the Chairman, President and Chief Executive Officer of RHI Holdings since
1988. He served as the Vice Chairman of the Board of Rexnord Corporation from
July 1992 to December 1993, and as the Chairman, President and Chief Executive
Officer of Fairchild Industries from July 1991 through March 1996. Mr. Steiner
is and for the past five years has been President of Cedco Holdings Ltd., a
Bermuda corporation (a securities investor). He serves as a director of The
Franklin Corporation and The Copley Fund, and as director and Vice Chairman of
the Board of Shared Technologies Fairchild Inc. He became a director of the
Company in 1985. He is the father of Dr. Eric I. Steiner.

35
<PAGE>

PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth certain information regarding ownership of
the Class A Common Stock and Class B Common Stock as of August 31, 1997 by (i)
each person or entity who owns of record or beneficially five percent or more
of the Company's capital stock, (ii) each director and the five most highly
paid executive officers of the Company, (iii) all directors and executive
officers of the Company as a group, and (iv) each stockholder selling shares
of Common Stock in the Offering (collectively, the "Selling Stockholders"). To
the knowledge of the Company, each of such stockholders has sole voting and
investment power as to the shares shown unless otherwise noted. Unless
otherwise noted, the address of each holder of five percent or more of the
Company's stock is the Company's corporate address.

<TABLE>
<CAPTION>
CLASS A STOCK CLASS B STOCK CLASS A STOCK CLASS B STOCK
BENEFICIALLY OWNED BENEFICIALLY OWNED BENEFICIALLY OWNED BENEFICIALLY OWNED
BEFORE OFFERING BEFORE OFFERING AFTER THE OFFERING AFTER THE OFFERING
------------------------- ---------------------- ---------------------- ----------------------
PERCENT PERCENT PERCENT PERCENT
SHARES(1) OF CLASS SHARES(1) OF CLASS SHARES OF CLASS SHARES OF CLASS
--------- -------- --------- -------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Michael T. Alcox........ 29,175(2) * 600 *
Melville R. Barlow...... -- -- -- --
Mortimer M. Caplin...... 89,500(2) * -- --
Colin M. Cohen.......... 38,042(2) * -- --
J.J. Cramer & Co.(14)... 1,461,300(3) 10.4% -- --
Philip David............ 54,500(2) * -- --
Fairchild Master
Retirement Trust(15)... 1,319,875(4) 9.4% -- --
FMR Corp(16)............ 790,000(5) 5.6% -- --
Harold J. Harris........ 126,950(2)(6) * -- --
Samuel J. Krasney(17)... 700,000 5.0% -- --
Daniel Lebard........... -- -- -- --
Donald E. Miller........ 80,400(2)(7) * -- --
Jacques S. Moskovic..... 28,350(2) * -- --
Paske Investments,
Ltd.(18)............... 6,402,684(4)(8) 37.9% 2,908,996(11) 97.0%
Herbert S. Richey....... 43,000(2) * -- --
Moshe Sanbar............ -- -- -- --
Robert A. Sharpe II..... 18,200(2) * -- --
Eric I. Steiner......... 146,686(2)(9) 1.0% 15,000 *
Jeffrey J. Steiner(19).. 6,751,834(10) 39.5% 2,938,996(12) 98.0%
Peregrine Direct
Investments
Limited(20)............ 250,000 1.8% -- --
Bankers Trust New York
Corporation (21)....... 250,000 1.8% -- --
All directors and
executive officers as a
group (22 persons)..... 8,192,892(2)(13) 46.7% 2,954,596(13) 98.5%
</TABLE>
- ---------------------
* Represents less than one percent.
(1) The Class A Stock column includes shares of Class B Stock, which are
immediately convertible into Class A Stock on a share-for-share basis.
Options that are exercisable immediately or within sixty days after
August 31, 1997 appear in the Class A Stock column. Certain warrants that
may be deemed to be owned by Mr. Jeffrey J. Steiner are exercisable into
shares of either Class A Stock or Class B Stock and appear in both the
Class A Common Stock and Class B Common Stock columns.
(2) Includes exercisable stock options to purchase Class A Common Stock, as
follows: M. Alcox, 19,175 shares; M. Caplin, 10,750 shares; C. Cohen,
37,500 shares; P. David, 32,000 shares; H. Harris, 35,750 shares;
D. Miller, 64,600 shares; J. Moskovic, 28,350 shares; H. Richey, 37,000
shares; R. Sharpe, 18,000 shares; E. Steiner, 81,800 shares; J. Steiner,
163,850 shares; Directors and Executive Officers as a group, 573,275
shares.
(3) Based on information as of August 15, 1997, contained in a Schedule 13D
dated August 25, 1997, filed with the SEC by J.J. Cramer & Co., Cramer
Capital Corporation, Cramer Partners, L.P., James J. Cramer and Karen L.
Cramer.
(4) Based on information provided by the stockholder.

36
<PAGE>

(5) Based on information as of August 31, 1997, contained in a Schedule 13G
dated September 10, 1997, filed with the SEC by Fidelity Management &
Research Company, a wholly owned subsidiary of FMR Corp., and a
registered investment advisor ("FMR"). According to the Schedule 13G: (i)
FMR has sole dispositive power with respect to all 790,000 shares of such
Class A Common Stock, and sole voting power with respect to 383,000
shares of such Class A Common Stock; and (ii) various persons have the
right to receive or the power to direct the receipt of dividends from, or
the proceeds from the sale of, the Class A Common Stock. The Schedule 13G
indicates that the interest of one person, Fidelity Management Trust
Company, in such Class A Common Stock amounted to 423,000 shares or 3.02%
of the total outstanding Class A Common Stock.
(6) Includes 27,000 shares of Class A Common Stock, owned by the Wm. H.
Harris, Inc. Profit-Sharing Plan.
(7) Includes 300 shares of Class A Common Stock owned by Mr. Donald Miller as
custodian for his child; Mr. Miller disclaims any beneficial interest
therein.
(8) Paske Investments, Ltd. owns no shares of record. It is the beneficial
owner of shares of Class A Common Stock owned of record or beneficially
by its indirect wholly owned subsidiaries, as follows: (A) Stinbes
Limited (Address: c/o ATC Trustees (Cayman) Ltd., P.O. Box 30592 SMB,
Piccadilly Centre, 2nd Floor, Grand Cayman, Cayman Islands, B.W.I.),
3,256,296 shares (including (i) 347,300 shares of Class A Common Stock,
(ii) 2,533,996 shares of Class B Common Stock convertible on a one-to-one
basis to Class A Common Stock, and (iii) warrants to purchase 375,000
shares of Class A Common Stock or Class B Common Stock); and (B) Bestin
Ltd. (Address: c/o ATC Trustees (BVI) Ltd., Abbot Building, 2nd Floor,
P.O. Box 933, Road Town, Tortola, B.V.I.), 3,146,388 shares. Of the
foregoing shares, 1,000,000 shares of Class B Common Stock and 3,146,388
of Class A Common Stock have been pledged to NationsBank N.A., to secure
guarantees of loans to Mr. Jeffrey Steiner; and 100,000 shares of Class B
Common Stock have been pledged to Banque de Camondo (Suisse) S.A., to
secure a line of credit to Bestin Worldwide Limited. The warrants to
purchase 375,000 shares of Class A Common Stock or Class B Common Stock
may be exercised only within specified periods after the occurrence of
certain events, as provided in the warrant certificates. Paske
Investments, Ltd. is a wholly-owned subsidiary of The Friday Trust, a
trust organized under the laws of Jersey, Channel Islands, of which the
sole trustee is Lloyds Bank Trust Company (Channel Islands) Limited. The
Friday Trust is deemed the beneficial owner of the same shares of Class A
Common Stock deemed beneficially owned by Paske Investments, Ltd.
(9) Includes 5,000 shares of Class A Common Stock owned by Dr. Eric Steiner
as custodian for his children; Dr. Steiner disclaims any beneficial
interest therein.
(10) Mr. Jeffrey Steiner is the settlor and a beneficiary of The Friday Trust
(the sole stockholder of Paske Investments, Ltd.), and as such may be
deemed to beneficially own the same shares of Class A Common Stock deemed
beneficially owned by Paske Investments, Ltd., as discussed in footnote
(8) to this table. Class A Common Stock shown in the table as owned by
Mr. Jeffrey Steiner include: (i) 6,402,684 shares owned directly or
beneficially by Paske Investments and subsidiaries (see footnote (8));
(ii) 105,400 shares owned of record by Mr. Steiner; (iii) exercisable
stock options to purchase 163,850 shares of Class A Common Stock (see
footnote (2)); (iv) 37,500 shares of Class A Common Stock owned by Mr.
Steiner as custodian for his children; (v) 30,000 shares of Class B
Common Stock (convertible on a one-to-one basis to Class A Common Stock)
owned by Mr. Steiner as custodian for his children; and (vi) 12,400
shares of Class A Common Stock owned by the Jeffrey Steiner Family
Foundation. Mr. Steiner disclaims beneficial ownership of shares owned by
the Jeffrey Steiner Family Foundation and shares owned by him as
custodian for his children.
(11) Paske Investments, Ltd. owns no shares of record. It is the beneficial
owner of shares of Class B Common Stock owned of record or beneficially
by its indirect wholly owned subsidiaries, as follows: (A) Stinbes
Limited (Address: c/o ATC Trustees (Cayman) Ltd., P.O. Box 30592 SMB,
Piccadilly Centre, 2nd Floor, Grand Cayman, Cayman Islands, B.W.I.),
2,908,996 shares (including (i) 2,533,996 shares of Class B Common Stock,
and (ii) warrants to purchase 375,000 shares of Class A Common Stock or
Class B Common Stock).
Paske Investments, Ltd. is a wholly-owned subsidiary of The Friday Trust,
a trust organized under the laws of Jersey, Channel Islands, of which the
sole trustee is Lloyds Bank Trust Company (Channel Islands)

37
<PAGE>

Limited. The Friday Trust is deemed the beneficial owner of the same
shares of Class B Common Stock deemed beneficially owned by Paske
Investments, Ltd.
(12) Mr. Jeffrey Steiner is the settlor and a beneficiary of The Friday Trust
(the sole stockholder of Paske Investments, Ltd.), and as such may be
deemed to beneficially own the same shares of Class B Common Stock deemed
beneficially owned by Paske Investments, Ltd., as disclosed in footnote
(11) to this table. Class B Common Stock shown in the table as owned by
Mr. Jeffrey Steiner include: (i) 2,908,996 shares, or warrants to
purchase shares, owned directly or beneficially by Paske Investments and
subsidiaries (see footnote 11); and (ii) 30,000 shares of Class B Common
Stock owned by Mr. Steiner as custodian for his children. Mr. Steiner
disclaims beneficial ownership of shares owned by him as custodian for
his children.
(13) Includes warrants as described in footnotes above.
(14) J.J. Cramer & Co.'s address is 100 Wall Street, New York, NY 10005.
(15) Fairchild Master Retirement Trust's address is 300 West Service Road,
P.O. Box 10803, Chantilly, VA 20153.
(16) FMR Corp's address is, Fidelity Management & Research Co., 82 Devonshire
Street, Boston, MA 02109.
(17) Samuel J. Krasney's address is 25700 Science Park Drive, Cleveland, OH
44122.
(18) Paske Investments, Ltd.'s address is The Friday Trust, Stinbes Limited,
Bestin Ltd., c/o Lloyds Bank International (Jersey) Ltd., P.O. Box 482,
Commercial House, Commercial Street, St. Helier, Jersey JE4 8W2, Channel
Islands, British Isles.
(19) Jeffrey J. Steiner's address is 110 East 59th Street, New York, NY 10022.
(20) Peregrine Direct Investments Limited's address is 23/F New World Tower,
16-18 Queens Road Central, Hong Kong, China. The shares reflected
represent shares issuable upon exercise of warrants with a $9.00 per
share exercise price.
(21) Bankers Trust New York Corporation address is One Bankers Trust Plaza,
130 Liberty Street, New York, NY 10006. The shares reflected represent
shares issuable upon exercise of warrants with a $9.00 per share exercise
price.

38
<PAGE>

DESCRIPTION OF CAPITAL STOCK

GENERAL

The authorized capital stock of the Company consists of 40,000,000 shares of
Class A Common Stock, par value $0.10 per share, 14,005,305 of which were
issued and outstanding as of August 31, 1997, 20,000,000 shares of Class B
Common Stock, par value $0.10 per share, 2,625,616 of which were issued and
outstanding as of August 31, 1997, and 10,000,000 shares of Preferred Stock,
par value $0.10 per share, none of which are issued and outstanding. The Class
A Common Stock and the Class B Common Stock are sometimes collectively
referred to herein as the "Common Stock."

PREFERRED STOCK

The Board of Directors of the Company is authorized, subject to the
limitations prescribed by law, to provide by resolutions for the issuance of
the Preferred Stock in one or more series, to establish the number of shares
to be included in each such series and to fix and state the voting powers, the
designations, preferences and relative, participating, optional or other
special rights, or qualifications, limitations or restrictions thereof,
applicable to the shares of each series. Satisfaction of any dividend
preferences of outstanding shares of Preferred Stock would reduce the amount
of funds available for the payment of dividends on shares of Common Stock.
Holders of shares of Preferred Stock may be entitled to receive a preference
payment in the event of any liquidation, dissolution or winding-up of the
Company before any payment is made to the holders of shares of Common Stock.
Under certain circumstances, the issuance of shares of Preferred Stock may
render more difficult or tend to discourage a merger, tender offer or proxy
contest, the assumption of control by a holder of a large block of the
Company's securities or the removal of incumbent management. The Board of
Directors of the Company, without stockholder approval, may issue shares of
Preferred Stock with voting and conversion rights which could adversely affect
the holders of shares of Common Stock. Upon consummation of the Offering,
there will be no shares of Preferred Stock outstanding, and the Company has no
present intention to issue any shares of Preferred Stock.

COMMON STOCK

The issued and outstanding shares of Common Stock are, and the shares of
Class A Common Stock being offered in this Offering will be upon payment
therefor, validly issued, fully paid and nonassessable. The powers,
preferences and rights of holders of Class A Common Stock and Class B Common
Stock, and the qualifications, limitations or restrictions thereof, are
substantially identical, except as otherwise required by law or expressly
provided in this section. Each holder of Class A Common Stock is entitled to
one (1) vote per share and each holder of Class B Common Stock is entitled to
ten (10) votes per share. Except as set forth below, all actions submitted to
a vote of stockholders shall be voted on by the holders of Class A Common
Stock and Class B Common Stock voting together as a single class. The holders
of Class A Common Stock and Class B Common Stock shall vote separately as
classes with respect to amendments to the Restated Certificate of
Incorporation that alter or change the powers, preferences or special rights
of their respective classes of stock so as to affect them adversely and with
respect to such other matters as may require class votes under Delaware Law.
Notwithstanding anything in the Restated Certificate of Incorporation to the
contrary, the affirmative vote of the holders of all outstanding shares of
capital stock of the Company entitled to vote, voting together as a single
class, shall be required to authorize additional shares of Class A Common
Stock or Class B Common Stock, or upon certain proposals to issue authorized
but unissued shares of Class B Common Stock. Class B Common Stock is
convertible into Class A Common Stock at any time at the option of the holder
or automatically if at any time the number of outstanding shares of Class B
Common Stock as reflected on the stock transfer books of the Company is less
than 300,000. If the Company at any time (a) declares a stock dividend upon
either class of its Common Stock payable in shares of that same class of
Common Stock, (b) makes any distribution upon either class of its Common Stock
payable in shares of that same class of Common Stock, (c) subdivides its
outstanding shares of either class of its Common Stock into a greater number
of shares, or (d) subdivides its outstanding shares of either class of its
Common Stock into a smaller number of shares, then and in any of such events
the

39
<PAGE>

Company shall make, declare or effect a similar but ratable stock dividend,
distribution or subdivision on the shares of the other class of its Common
Stock but payable in shares of such other class of Common Stock and only on a
share for share basis. Cash dividends are payable in such relative amounts as
the Board of Directors of the Company may determine; provided, however, that
in no event will cash dividends payable with respect to the Class B Common
Stock exceed one hundred percent (100%) of the cash dividends payable with
respect to the Class A Common Stock.

TRANSFER AGENT AND REGISTRAR

The Transfer Agent and Registrar for the Common Stock is ChaseMellon
Shareholder Services LLC.

40
<PAGE>

DESCRIPTION OF THE NEW CREDIT FACILITY

The Company intends to enter into the New Credit Facility to retire the
existing indebtedness of the Company and its subsidiaries and provide for the
working capital needs of the Company. The New Credit Facility will provide for
total lending commitments of $275 million. The New Credit Facility will be
comprised of (i) a $75 million Revolving Credit Facility ("Revolving Credit
Facility"), (ii) a $50 million Term Loan A Facility ("Term Loan A") and (iii)
a $150 million Term Loan B Facility ("Term Loan B", and together with Term
Loan A, the "Term Loan Facilities"). Borrowings under the Term Loan
Facilities, together with the proceeds from the Offering, will be used to
repay the Company's long term indebtedness as described under "Use of
Proceeds." The proceeds of the loans made under the Revolving Credit Facility
may be used to fund the Company's working capital needs, capital expenditures
and other general corporate purposes, including the issuance of letters of
credit.

Borrowings under the New Credit Facility will bear interest annually at the
Company's option at the rate of (i) LIBOR (which rate is based on a formula
relating to the London interbank offered rate for a given interest period)
plus a margin (ranging from % to % in the case of Term Loan A and the
Revolving Credit Facility and % in the case of Term Loan B) or (ii) the
Base Rate (defined as, generally, the higher of the Federal Funds Rate, as
published by the Federal Reserve Bank of New York, plus 0.5%, or the
Administrative Agent's prime lending rate) plus a margin up to %. In
addition, the Company must pay a fee on the face amount of each letter of
credit outstanding at a rate of the LIBOR margin (including a 0.25% fee to the
issuing banks).

The obligations under the New Credit Facility will be secured by a pledge of
all of the capital stock and assets of the domestic subsidiaries of the
Company and by a pledge of 65% of the capital stock of the Company's foreign
subsidiaries.

The New Credit Facility will contain various covenants that limit, among
other things, subject to certain exceptions, indebtedness, liens, transactions
with affiliates, restricted payments and investments, mergers, consolidations
and dissolutions, sales of assets, dividends and distributions and certain
other business activities.

41
<PAGE>

UNDERWRITING

Subject to certain terms and conditions of the Underwriting Agreement, a
syndicate of underwriters named below (the "Underwriters"), for whom Donaldson,
Lufkin & Jenrette Securities Corporation ("DLJ") is acting as representative
(the "Representative"), has agreed severally to purchase from the Company and
the Selling Stockholders an aggregate of 5,435,000 shares of Class A Common
Stock. The number of shares of Class A Common Stock that each Underwriter has
agreed to purchase is set forth opposite its name below.

<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation................
BT Alex. Brown Incorporated........................................
SBC Warburg Dillon Read Inc........................................
---------
Total............................................................ 5,435,000
=========
</TABLE>

The Underwriting Agreement provides that the obligations of the several
Underwriters to purchase and accept delivery of the shares of Class A Common
Stock offered hereby are subject to approval of certain legal matters by
counsel and to certain other conditions. The Underwriters are obligated to
purchase all shares of Common Stock offered hereby (other than those covered by
the over-allotment option described below) if any are purchased. The offering
price and underwriting discounts and commissions per share for shares of Class
A Common Stock offered by the Company and the Selling Stockholders are
identical.

The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments that the Underwriters may be
required to make in respect hereof.

The Representatives have advised the Company that the Underwriters propose to
offer the shares of Class A Common Stock to the public, initially at the price
to the public set forth on the cover page of this Prospectus, and to certain
dealers (who may include the Underwriters) at such price, less a concession not
in excess of $ per share. The Underwriters may allow, and such dealers may
re-allow, a concession not in excess of $ per share. After the Offering, the
public offering price and other selling terms may be changed by the
Underwriters.

Pursuant to the Underwriting Agreement, Selling Stockholders have granted to
the Underwriters an option to purchase up to an aggregate of 812,000 additional
shares of Class A Common Stock at the initial public offering price less
underwriting discounts and commissions. The Underwriters may exercise such
option solely to cover over-allotments, if any, made in connection with the
Offering. To the extent that such option is exercised, each Underwriter will
become obligated, subject to certain conditions, to purchase the same
percentage of such additional shares as the number set forth next to such
Underwriter's name in the preceding table bears to the total number of shares
set forth on the cover page hereof.

The Company, its executive officers and directors and the Selling
Stockholders have each agreed, subject to certain exceptions, not to directly
or indirectly offer, sell, contract to sell, grant any option to purchase, or

42
<PAGE>

otherwise dispose of any shares of Common Stock or any securities convertible
into or exercisable or exchangeable for, or warrants, options or rights to
purchase or acquire, Common Stock or in any other manner transfer all or a
portion of the economic consequences associated with the ownership of any
Common Stock, or enter into any agreement to do any of the foregoing, for a
period of 90 days after the date of this Prospectus (the "Lock-Up Period"),
without the prior written consent of DLJ. In addition, all Selling
Stockholders holding registration rights have agreed that, without the prior
written consent of DLJ, they will not, during the Lock-Up Period, make any
demand for or exercise any right with respect to, the registration of any
shares of Common Stock or any security convertible into or exercisable or
exchangeable for Common Stock.

In connection with the Offering, certain Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Common Stock. Specifically, the Underwriters may overallot the Offering,
creating a syndicate short position. In addition, the Underwriters may bid for
and purchase shares of Common Stock in the open market to cover syndicate
short positions or to stabilize the price of the Common Stock. Finally, the
underwriting syndicate may reclaim selling concessions from syndicate members
in this offering, if the syndicate repurchases previously distributed Common
Stock in syndicate covering transactions, in stabilization transactions or
otherwise. Any of these activities may stabilize or maintain the market price
of the Common Stock above independent market levels. The Underwriters are not
required to engage in these activities and may end any of these activities at
any time.

DLJ from time to time performs investment banking and other financial
services for the Company and its affiliates for which it receives advisory or
transaction fees of the nature and in amounts customary in the industry for
such services. Bankers Trust Company, an affiliate of BT Alex. Brown, is a
lender under the Company's existing credit facilities. A portion of the net
proceeds to be received by the Company from the Offering will be used to repay
indebtedness under the Company's existing credit facilities.

43
<PAGE>

SHARES ELIGIBLE FOR FUTURE SALE

Future sales of substantial amounts of Common Stock in the public market or
the perception that such sales could occur, could adversely affect market
prices prevailing from time to time. Sales of substantial amounts of Common
Stock in the public market could adversely affect the prevailing market price
and the ability of the Company to raise equity capital in the future.

Upon completion of this Offering, the Company will have outstanding
21,630,921 shares of Common Stock, assuming no exercise of the Underwriters'
over-allotment option and no exercise of outstanding options. Of these shares,
14,011,304 shares of Common Stock will be freely tradable without restriction
under the Securities Act, unless owned by "affiliates" of the Company, as that
term is defined in Rule 144. Substantially all the remaining 7,619,617 shares
of Common Stock outstanding upon completion of this Offering are Restricted
Shares. Restricted Shares may be sold in the public market only if registered
or if they qualify for an exemption from registration under Rule 144 or 144(k)
promulgated under the Securities Act, which are summarized below.

In general, under Rule 144 as currently in effect, a person (or persons
whose shares are required to be aggregated) who has beneficially owned shares
of Common Stock for at least one year that were acquired from the Company (or
any "affiliate" of the Company) is entitled to sell within any three month
period a number of shares that does not exceed the greater of one percent of
the then outstanding shares of Common Stock (216,309 shares immediately after
completion of this Offering assuming no exercise of the Underwriters' over-
allotment option) or the average weekly reported trading volume of the Common
Stock during the four calendar weeks preceding the date on which notice of
such sale is given, provided certain manner of sale and notice requirements as
to the availability of current public information are satisfied (which
requirements as to the availability of current public information is currently
satisfied). Affiliates of the Company must also comply with the restrictions
and requirements of Rule 144, other than the one-year holding period
requirement, in order to sell shares of Common Stock that are not "restricted
securities" (such as shares acquired by affiliates of the Company in the
Initial Public Offering, in open-market purchases, or in this Offering). Under
Rule 144(k), a person who is not deemed an "affiliate" of the Company at any
time during the three months preceding a sale by such person, and who has
beneficially owned such shares of Common Stock for at least two years, would
be entitled to sell such shares without regard to volume limitations, manner
of sale provisions, notification requirements or the availability of current
public information concerning the Company. As defined in Rule 144, an
"affiliate" of an issuer is a person that directly or indirectly through one
or more intermediaries controls, or is controlled by, or is under common
control with, such issuer.

The Company, its executive officers and directors, the Selling Stockholders
and certain other holders of Common Stock of the Company have agreed that,
subject to certain exceptions for a period of 90 days after the date of this
Prospectus, they will not offer, sell, contract to sell, pledge or otherwise
dispose of, directly or indirectly, or file with Commission a registration
statement under the Securities Act relating to any additional shares of its
Common Stock, or securities convertible into or exchangeable or exercisable
for any shares of its Common Stock, or disclose the intention to make any such
offer, sale, pledge, disposal or filing, without the prior written consent of
DLJ.

LEGAL MATTERS

Certain legal matters with respect to the shares of Common Stock offered
hereby will be passed upon for the Company by Cahill Gordon & Reindel (a
partnership including a professional corporation), New York, New York, and for
the Underwriters by Skadden, Arps, Slate, Meagher & Flom LLP, New York, New
York.

44
<PAGE>

EXPERTS

The consolidated financial statements of the Company at June 30, 1997 and
for each of the three years in the period ended June 30, 1997 included in this
prospectus and registration statement have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their report with respect
thereto, and are included herein in reliance upon the authority of said firm
as experts in giving said report.

45
<PAGE>

THE FAIRCHILD CORPORATION

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
<S> <C>
Report of Independent Public Accountants................................... F-1
Consolidated Balance Sheets................................................ F-4
Consolidated Statements of Earnings........................................ F-6
Consolidated Statements of Stockholders' Equity............................ F-7
Consolidated Statements of Cash Flows...................................... F-8
Notes to Consolidated Financial Statements................................. F-9
</TABLE>
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To The Fairchild Corporation:

We have audited the accompanying consolidated balance sheets of The
Fairchild Corporation (a Delaware corporation) and subsidiaries as of June 30,
1996 and 1997, and the related consolidated statements of earnings,
stockholders' equity and cash flows for the years ended June 30, 1995, 1996
and 1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of The Fairchild Corporation
and subsidiaries as of June 30, 1996 and 1997, and the results of their
operations and their cash flows for the years ended June 30, 1995, 1996 and
1997, in conformity with generally accepted accounting principles.

Arthur Andersen LLP

Washington, D.C.
September 5, 1997

F-1
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To The Fairchild Corporation:

We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements of The Fairchild Corporation and
subsidiaries included in this Form 10-K and have issued our report thereon
dated September 5, 1997. Our audits were made for the purpose of forming an
opinion on the basic financial statements taken as a whole. The schedule
listed in the index on the preceding page is the responsibility of the
Company's management and is presented for the purpose of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.

Arthur Andersen LLP
Washington, D.C.
September 5, 1997

F-2
<PAGE>

[THIS PAGE INTENTIONALLY LEFT BLANK]

F-3
<PAGE>

THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)

<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
ASSETS 1996 1997
<S> <C> <C>
Current Assets:
Cash and cash equivalents............................... $ 39,649 $ 19,420
(of which $8,224 and $4,839 is restricted, respective-
ly)
Short-term investments.................................. 10,498 25,647
Accounts receivable-trade, less allowances of $6,327 and
$8,103................................................. 98,694 168,163
Notes receivable........................................ 170,384 --
Inventories:
Finished goods........................................ 236,263 297,223
Work-in-process....................................... 16,294 26,887
Raw materials......................................... 18,586 18,626
---------- ----------
271,143 342,736
Prepaid expenses and other current assets............... 19,275 33,631
---------- ----------
Total Current Assets.................................... 609,643 589,597
Property, plant and equipment, net...................... 87,956 128,712
Net assets held for sale................................ 45,405 26,147
Cost in excess of net assets acquired, (Goodwill) less
accumulated amortization of $31,912 and $36,672,
respectively........................................... 140,201 154,808
Investments and advances, affiliated companies.......... 53,471 55,678
Deferred loan costs..................................... 7,825 9,252
Prepaid pension assets.................................. 57,660 59,742
Long-term investments................................... 585 4,120
Notes receivable and other assets....................... 7,192 39,277
---------- ----------
Total Assets............................................ $1,009,938 $1,067,333
========== ==========
</TABLE>

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

F-4
<PAGE>

THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1997
<S> <C> <C>
Current Liabilities:
Bank notes payable and current maturities of long-term
debt.................................................. $ 84,892 $ 47,422
Accounts payable....................................... 65,478 84,953
Accrued salaries, wages and commissions................ 17,367 19,166
Accrued insurance...................................... 16,340 15,397
Accrued interest....................................... 10,748 16,011
Other.................................................. 37,302 54,625
Income taxes........................................... 24,635 5,881
---------- ----------
Total Current Liabilities.............................. 256,762 243,455
Long-term debt......................................... 368,589 416,922
Other long-term liabilities............................ 18,605 23,622
Retiree health care liabilities........................ 44,452 43,387
Noncurrent income taxes................................ 31,737 42,013
Minority interest in subsidiaries...................... 58,625 68,309
---------- ----------
Total Liabilities...................................... 778,770 837,708
Stockholders' Equity:
Class A common stock, 10 cents par value; authorized
40,000,000 shares, 20,233,879, (19,997,756 in 1996)
shares issued, and 13,992,283 (13,756,160 in 1996)
shares outstanding.................................... 2,000 2,023
Class B common stock, 10 cents par value; authorized
20,000,000 shares, 2,632,516 shares issued and
outstanding (2,633,704 in 1996)....................... 263 263
Paid-in capital........................................ 69,366 71,015
Retained earnings...................................... 208,618 209,949
Cumulative translation adjustment...................... 2,760 (1,860)
Net unrealized holding loss on available-for-sale secu-
rities................................................ (120) (46)
Treasury stock, at cost, 6,241,596 shares of Class A
common stock.......................................... (51,719) (51,719)
---------- ----------
Total Stockholders' Equity............................. 231,168 229,625
---------- ----------
Total Liabilities and Stockholders' Equity............. $1,009,938 $1,067,333
========== ==========
</TABLE>

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

F-5
<PAGE>

THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JUNE 30,
-------------------------------
1995 1996 1997
<S> <C> <C> <C>
Revenue:
Net sales of products....................... $ 287,817 $ 445,990 $ 738,460
Revenues from services...................... 77,733 54,820 --
Other income (expense)...................... 1,169 635 (658)
--------- --------- ---------
366,719 501,445 737,802
Costs and expenses:
Cost of goods sold.......................... 245,094 344,914 533,337
Cost of services............................ 54,753 39,005 --
Selling, general & administrative........... 74,797 104,981 161,309
Research and development.................... 974 94 7,807
Amortization of goodwill.................... 4,520 4,687 4,832
Restructuring............................... -- 2,319 --
--------- --------- ---------
380,138 496,000 707,285
Operating income (loss)...................... (13,419) 5,445 30,517
Interest expense............................. 71,087 67,112 52,493
Interest income.............................. (3,371) (8,072) (4,695)
--------- --------- ---------
Net interest expense......................... 67,716 59,040 47,798
Investment income, net....................... 5,705 4,575 6,651
Equity in earnings of affiliates............. 1,607 4,871 7,747
Minority interest............................ (2,293) (1,952) (3,514)
--------- --------- ---------
Loss from continuing operations before
nonrecurring income and taxes............... (76,116) (46,101) (6,397)
Nonrecurring income.......................... -- 161,406 2,528
--------- --------- ---------
Earnings (loss) from continuing operations
before taxes................................ (76,116) 115,305 (3,869)
Income tax benefit........................... 28,202 22,065 5,200
--------- --------- ---------
Earnings (loss) from continuing operations... (47,914) 137,370 1,331
Earnings from discontinued operations, net... 13,994 9,186 --
Gain (loss) on disposal of discontinued
operations, net............................. (259) 53,586 --
--------- --------- ---------
Earnings (loss) before extraordinary items... (34,179) 200,142 1,331
Extraordinary items, net..................... 355 (10,436) --
--------- --------- ---------
Net earnings (loss).......................... $ (33,824) $ 189,706 $ 1,331
========= ========= =========
Primary Earnings (Loss) Per Share:
Earnings (loss) from continuing operations.. $ (2.97) $ 8.28 $ .08
Earnings from discontinued operations, net.. .87 .55 --
Gain (loss) on disposal of discontinued
operations, net............................ (.02) 3.23 --
--------- --------- ---------
Earnings (loss) before extraordinary items.. (2.12) 12.06 .08
Extraordinary items, net.................... .02 (.63) --
--------- --------- ---------
Net earnings (loss) per share............... $ (2.10) $ 11.43 $ .08
========= ========= =========
Fully Diluted Earnings (Loss) Per Share:
Earnings (loss) from continuing operations.. $ (2.97) $ 8.03 $ .08
Earnings from discontinued operations, net.. .87 .54 --
Gain (loss) on disposal of discontinued
operations, net............................ (.02) 3.13 --
--------- --------- ---------
Earnings (loss) before extraordinary items.. (2.12) 11.70 .08
Extraordinary items, net.................... .02 (.61) --
--------- --------- ---------
Net earnings (loss) per share............... $ (2.10) $ 11.09 $ .08
========= ========= =========
Weighted Average Number of Shares used in
Computing Earnings Per Share:
Primary...................................... 16,103 16,600 17,230
Fully diluted................................ 16,103 17,100 17,321
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.

F-6
<PAGE>

THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)

<TABLE>
<CAPTION>
CLASS A CLASS B CUMULATIVE
COMMON COMMON PAID-IN RETAINED TRANSLATION TREASURY
STOCK STOCK CAPITAL EARNINGS ADJUSTMENT STOCK OTHER TOTAL
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, July 1, 1994... $1,965 $ 270 $66,775 $ 52,736 $ 872 $(51,719) $(1,405) $ 69,494
Net loss................ -- -- -- (33,824) -- -- -- (33,824)
Cumulative translation
adjustment, net........ -- -- -- -- 2,989 -- -- 2,989
Gain on purchase of
preferred stock of
subsidiary............. -- -- 236 -- -- -- -- 236
Reduction of minimum
liability for
pensions............... -- -- -- -- -- -- 1,405 1,405
Net unrealized holding
loss on available-for-
sale securities........ -- -- -- -- -- -- (120) (120)
------ ----- ------- -------- ------- -------- ------- --------
Balance, June 30, 1995.. 1,965 270 67,011 18,912 3,861 (51,719) (120) 40,180
Net earnings............ -- -- -- 189,706 -- -- -- 189,706
Cumulative translation
adjustment, net........ -- -- -- -- (1,101) -- -- (1,101)
Fair market value of
stock warrants issued.. -- -- 1,148 -- -- -- -- 1,148
Proceeds received from
stock options
exercised.............. 28 -- 1,481 -- -- -- -- 1,509
Exchange of Class B for
Class A common stock... 7 (7) -- -- -- -- -- --
Gain realized on
retirement of preferred
stock of subsidiary.... -- -- (274) -- -- -- -- (274)
------ ----- ------- -------- ------- -------- ------- --------
Balance, June 30, 1996.. 2,000 263 69,366 208,618 2,760 (51,719) (120) 231,168
Net earnings............ -- -- -- 1,331 -- -- -- 1,331
Cumulative translation
adjustment, net........ -- -- -- -- (4,620) -- -- (4,620)
Fair market value of
stock warrants issued.. -- -- 546 -- -- -- -- 546
Proceeds received from
options exercised...... 23 -- 1,103 -- -- -- -- 1,126
Net unrealized holding
gain on available-for-
sale securities........ -- -- -- -- -- -- 74 74
------ ----- ------- -------- ------- -------- ------- --------
Balance, June 30, 1997
....................... $2,023 $ 263 $71,015 $209,949 $(1,860) $(51,719) $ (46) $229,625
====== ===== ======= ======== ======= ======== ======= ========
</TABLE>

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

F-7
<PAGE>

THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
FOR THE YEARS ENDED JUNE 30,
------------------------------
1995 1996 1997
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss)........................... $(33,824) $ 189,706 $ 1,331
Adjustments to reconcile net earnings (loss)
to net cash used for operating activities:
Depreciation and amortization............... 31,208 29,717 25,935
Accretion of discount on long-term
liabilities................................ 4,773 4,686 4,963
Net gain on the merger of subsidiaries...... -- (162,703) --
Net gain on the sale of discontinued
operations................................. -- (53,942) --
Extraordinary items, net of cash payments... -- 4,501 --
Provision for restructuring (excluding cash
payments of $777 in 1996).................. -- 1,542 --
(Gain) loss on sale of property, plant and
equipment.................................. 655 (9) (72)
Undistributed earnings of affiliates........ (500) (3,857) (1,055)
Minority interest........................... 2,293 1,952 3,514
Change in trading securities................ 1,879 (5,346) (5,733)
Change in receivables....................... (14,414) (5,999) (55,965)
Change in inventories....................... (9,611) (10,744) (46,389)
Change in other current assets.............. (2,928) (615) (14,237)
Change in other non-current assets.......... 4,469 (1,089) (17,859)
Change in accounts payable, accrued
liabilities, and other long-term
liabilities................................ (13,093) (36,537) 8,610
Non-cash charges and working capital changes
of discontinued operations................. 3,568 -- --
-------- --------- ---------
Net cash used for operating activities........ (25,525) (48,737) (96,957)
Cash flows from investing activities:
Proceeds received from (used for) investment
securities, net.............................. 12,281 265 (12,951)
Purchase of property, plant and equipment..... (16,260) (15,122) (22,116)
Proceeds from sale of property, plant and
equipment.................................... 151 122 213
Equity investments in affiliates.............. (1,051) (2,361) (1,749)
Minority interest in subsidiaries............. -- (2,817) (1,610)
Acquisition of subsidiaries, net of cash
acquired..................................... (12,157) -- (55,916)
Net proceeds from the sale of discontinued
operations................................... -- 71,559 173,719
Changes in net assets held for sale........... 1,441 5,894 385
Investing activities of discontinued
operations................................... (3,561) -- --
-------- --------- ---------
Net cash (used for) provided by investing
activities................................... (19,156) 57,540 79,975
Cash flows from financing activities:
Proceeds from issuance of debt................ 71,712 157,877 154,394
Debt repayments and repurchase of debentures.. (59,367) (198,761) (156,975)
Issuance of Class A common stock.............. -- 1,509 1,126
-------- --------- ---------
Net cash provided by (used for) financing
activities................................... 12,345 (39,375) (1,455)
Effect of exchange rate changes on cash....... 1,150 (961) (1,792)
Net decrease in cash and cash equivalents..... (31,186) (31,533) (20,229)
Cash and cash equivalents, beginning of the
year......................................... 102,368 71,182 39,649
-------- --------- ---------
Cash and cash equivalents, end of the year.... $ 71,182 $ 39,649 $ 19,420
======== ========= =========
</TABLE>

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

F-8
<PAGE>

THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Corporate Structure: The Fairchild Corporation (the "Company") was
incorporated in October 1969, under the laws of the State of Delaware. RHI
Holdings, Inc. ("RHI") is a direct subsidiary of the Company. RHI is the owner
of 100% of Fairchild Holding Corp. ("FHC") and the majority owner of Banner
Aerospace, Inc., ("Banner"). The Company's principal operations are conducted
through FHC and Banner. The Company also holds significant equity interests in
Shared Technologies Fairchild Inc. ("STFI") and Nacanco Paketleme ("Nacanco").

Fiscal Year: The fiscal year ("Fiscal") of the Company ends June 30. All
references herein to "1995", "1996", and "1997" mean the fiscal years ended
June 30, 1995, 1996 and 1997, respectively.

Consolidation Policy: The accompanying consolidated financial statements are
prepared in accordance with generally accepted accounting principles and
include the accounts of the Company and all of its wholly-owned and majority-
owned subsidiaries. All significant intercompany accounts and transactions
have been eliminated in consolidation. Investments in companies in which
ownership interest range from 20 to 50 percent are accounted for using the
equity method (see Note 9).

Cash Equivalents/Statements of Cash Flows: For purposes of the Statements of
Cash Flows, the Company considers all highly liquid investments with original
maturity dates of three months or less as cash equivalents. Total net cash
disbursements (receipts) made by the Company for income taxes and interest
were as follows:

<TABLE>
<CAPTION>
1995 1996 1997
<S> <C> <C> <C>
Interest........................................... $66,262 $66,843 $48,684
Income Taxes....................................... (3,056) 9,279 (1,926)
</TABLE>

Restricted Cash: On June 30, 1996 and 1997, the Company had restricted cash
of $8,224 and $4,839, respectively, all of which is maintained as collateral
for certain debt facilities. Cash investments are in short-term certificates
of deposit.

Investments: Management determines the appropriate classification of its
investments at the time of acquisition and reevaluates such determination at
each balance sheet date. Trading securities are carried at fair value, with
unrealized holding gains and losses included in earnings. Available-for-sale
securities are carried at fair value, with unrealized holding gains and
losses, net of tax, reported as a separate component of stockholders' equity.
Investments in equity securities and limited partnerships that do not have
readily determinable fair values are stated at cost and are categorized as
other investments. Realized gains and losses are determined using the specific
identification method based on the trade date of a transaction. Interest on
corporate obligations, as well as dividends on preferred stock, are accrued at
the balance sheet date.

Inventories: Inventories are stated at the lower of cost or market. Cost is
determined using the last-in, first-out ("LIFO") method at principal domestic
aerospace manufacturing operations and using the first-in, first-out ("FIFO")
method elsewhere. If the FIFO inventory valuation method had been used
exclusively, inventories would have been approximately $4,756 and $4,868
higher at June 30, 1996 and 1997, respectively. Inventories from continuing
operations are valued as follows:

<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1996 1997
(IN THOUSANDS)
<S> <C> <C>
First-in, first-out (FIFO)................................ $239,800 $312,840
Last-in, first-out (LIFO)................................. 31,343 29,896
-------- --------
Total inventories......................................... $271,143 $342,736
======== ========
</TABLE>

F-9
<PAGE>

THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)

Properties and Depreciation: The cost of property, plant and equipment is
depreciated over estimated useful lives of the related assets. The cost of
leasehold improvements is depreciated over the lesser of the length of the
related leases or the estimated useful lives of the assets. Depreciation is
computed using the straight-line method for financial reporting purposes and
using accelerated depreciation methods for Federal income tax purposes. No
interest costs were capitalized in any of the years presented. Property, plant
and equipment consisted of the following:

<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1996 1997
<S> <C> <C>
Land.................................................... $ 10,408 $ 13,438
Buildings and improvements.............................. 40,853 56,124
Machinery and equipment................................. 94,406 158,944
Transportation vehicles................................. 767 899
Furniture and fixtures.................................. 18,466 26,815
Construction in progress................................ 2,329 6,524
-------- ---------
167,229 262,744
Less: Accumulated depreciation (79,273) (134,032)
-------- ---------
Net property, plant and equipment....................... $ 87,956 $ 128,712
======== =========
</TABLE>

Amortization of Goodwill: Goodwill, which represents the excess of the cost
of purchased businesses over the fair value of their net assets at dates of
acquisition, is being amortized on a straight-line basis over 40 years.

Deferred Loan Costs: Deferred loan costs associated with various debt issues
are being amortized over the terms of the related debt, based on the amount of
outstanding debt, using the effective interest method. Amortization expense
for these loan costs for 1995, 1996 and 1997 was $3,794, $3,827, and $2,847,
respectively.

Impairment of Long-Lived Assets: In Fiscal 1997, the Company adopted
Statement of Financial Accounting Standards No. 121 ("SFAS 121"), "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of". SFAS 121 establishes accounting standards for the impairment of
long-lived assets, certain identifiable intangibles, and goodwill related to
those assets to be held and used, and for long-lived assets and certain
identifiable intangibles to be disposed of. The Company reviews its long-lived
assets, including property, plant and equipment, identifiable intangibles and
goodwill, for impairment whenever events or changes in circumstances indicate
that the carrying amount of the assets may not be fully recoverable. To
determine recoverability of its long-lived assets the Company evaluates the
probability that future undiscounted net cash flows will be less than the
carrying amount of the assets. Impairment is measured based on the difference
between the carrying amount of the assets and fair value. The implementation
of SFAS 121 did not have a material effect on the Company's consolidated
results of operations.

Foreign Currency Translation: For foreign subsidiaries whose functional
currency is the local foreign currency, balance sheet accounts are translated
at exchange rates in effect at the end of the period and income statement
accounts are translated at average exchange rates for the period. The
resulting translation gains and losses are included as a separate component of
stockholders' equity. Foreign transaction gains and losses are included in
other income and were insignificant in Fiscal 1995, 1996 and 1997.

Research and Development: The Company capitalizes software development costs
upon the establishment of technological feasibility. The establishment of
technological feasibility and the ongoing assessment of recoverability require
considerable judgment by management with respect to certain external factors,
including anticipated future revenues, estimated economic life and changes in
software and hardware technologies.

F-10
<PAGE>

THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)

Software development costs are amortized on a straight-line basis over the
lesser of five years or the expected life of the product. All other Company-
sponsored research and development expenditures are expensed as incurred.
Capitalized software development costs were $3,651 at June 30, 1997.

Capitalization of interest and taxes: The Company capitalizes interest
expense and property taxes relating to property being developed.

Nonrecurring Income: Nonrecurring income in 1997 resulted from the $2,528
gain recorded from the sale of Fairchild Scandinavian Bellyloading Company
("SBC"), (See Note 2). Nonrecurring income for 1996 was $161,406 and includes
a $163,130 nontaxable gain resulting from the merger of Fairchild
Communications Services Company into Shared Technologies Inc. (See Note 3).
Expenses incurred in 1996 in connection with other, alternative transactions
considered but not consummated were netted against the above gain in 1996.

Earnings Per Share: Primary and fully diluted earnings per share are
computed by dividing net income available to holders of the Company's common
stock, by the weighted average number of shares and share equivalents
outstanding during the period. To compute the incremental shares resulting
from stock options and warrants for primary earnings per share, the average
market price of the Company's stock during the period is used. To compute the
incremental shares resulting from stock options and warrants for fully diluted
earnings per share, the greater of the ending market price or the average
market price of the Company's stock is used. In computing primary and fully
diluted earnings per share for 1997 and in computing fully diluted earnings
per share for 1996, the conversion of options and warrants was assumed, as the
effect was dilutive. In computing primary earnings per share for Fiscal 1996,
only the dilutive effect from the conversion of options was assumed, as the
effect from the conversion of warrants alone was antidilutive. In computing
primary and fully diluted earnings per share for Fiscal 1995, the conversion
of options and warrants was not assumed, as the effect was antidilutive.

Stock-Based Compensation: In Fiscal 1997, the Company implemented Statement
of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-
Based Compensation". SFAS 123 establishes financial accounting standards for
stock-based employee compensation plans and for transactions in which an
entity issues equity instruments to acquire goods or services from non-
employees. As permitted by SFAS 123, the Company will continue to use the
intrinsic value based method of accounting prescribed by APB Opinion No. 25,
for its stock-based employee compensation plans. Fair market disclosures
required by SFAS 123 are included in Note 15.

Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

Reclassifications: Certain amounts in prior years' financial statements have
been reclassified to conform to the 1997 presentation.

Recently Issued Accounting Pronouncements: In October 1996, the American
Institute of Certified Public Accountants issued Statement of Position 96-1
("SOP 96-1") "Environmental Remediation Liabilities". SOP 96-1 provides
authoritative guidance on specific accounting issues related to the
recognition, measurement, and the display and disclosure of environmental
remediation liabilities. The Company is required to implement SOP 96-1 in
Fiscal 1998. The Company's present policy is similar to the policy prescribed
by SOP 96-1; therefore there will be no effect from implementation.

F-11
<PAGE>

THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)

In February 1997, the Financial Accounting Standards Board ("FASB") issued
two pronouncements, Statement of Financial Accounting Standards No. 128 ("SFAS
128") "Earnings Per Share", and Statement of Financial Accounting Standards
No. 129 ("SFAS 129") "Disclosure of Information about Capital Structure". SFAS
128 establishes accounting standards for computing and presenting earnings per
share ("EPS"). SFAS 128 is effective for periods ending after December 15,
1997, including interim periods, and requires restatement of all prior period
EPS data presented. Results from the calculation of simple and diluted
earnings per share, as prescribed by SFAS 128, would not differ materially
from the calculations for primary and fully diluted earnings per share for the
years ending June 30, 1995, 1996 and 1997. SFAS 129 establishes standards for
disclosure of information about the Company's capital structure and becomes
effective for periods ending after December 15, 1997.

In June 1997, FASB issued two pronouncements, Statement of Financial
Accounting Standards No. 130 ("SFAS 130") "Reporting Comprehensive Income",
and Statement of Financial Accounting Standards No. 131 ("SFAS 131")
"Disclosures about Segments of an Enterprise and Related Information". SFAS
130 establishes standards for reporting and display of comprehensive income
and its components in the financial statements. SFAS 131 supersedes Statement
of Financial Accounting Standards No. 14 "Financial Reporting for Segments of
a Business Enterprise" and requires that a public company report certain
information about its operating segments in annual and interim financial
reports. The Company will adopt SFAS 130 and SFAS 131 in Fiscal 1998.

2. ACQUISITIONS

The Company's acquisitions described in this section have been accounted for
using the purchase method. The purchase prices assigned to the net assets
acquired were based on the fair value of such assets and liabilities at the
respective acquisition dates.

In January 1997, Banner, through its subsidiary, Dallas Aerospace, Inc.,
acquired PB Herndon Company ("PB Herndon") in a business combination accounted
for as a purchase. PB Herndon is a distributor of specialty fastener lines and
similar aerospace related components. The total cost of the acquisition was
$16,000, which exceeded the fair value of the net assets of PB Herndon by
approximately $3,451. The excess is being amortized using the straight-line
method over 40 years. The Company purchased PB Herndon with available cash.

In February 1997, the Company completed a transaction (the "Simmonds
Acquisition") pursuant to which the Company acquired common shares and
convertible debt representing an 84.2% interest, on a fully diluted basis, of
Simmonds S.A. ("Simmonds"). The Company initiated a tender offer to purchase
the remaining shares and convertible debt held by the public. By Fiscal year-
end, the Company had purchased, or placed sufficient cash in escrow to
purchase, all the remaining shares and convertible debt of Simmonds. The total
purchase price of Simmonds, including the assumption of debt, was
approximately $62,000, which the Company funded with available cash. The
Company recorded approximately $13,000 in goodwill as a result of this
acquisition. Simmonds is one of Europe's leading manufacturers and
distributors of aerospace and automotive fasteners.

In September 1994, the Company acquired all of the outstanding common stock
of Fairchild Scandinavian Bellyloading Company AB ("SBC") for the assumption
of a minimal amount of debt. SBC is a designer and manufacturer of a patented
cargo loading system, which is installed in the cargo area of commercial
aircraft. On June 30, 1997, the Company sold all the patents of SBC to
Teleflex Incorporated ("Teleflex") for $5,000, and immediately thereafter sold
all the stock of SBC to a wholly owned subsidiary of Teleflex for $2,000. The
Company may also receive an additional amount of up to $7,000 based on future
net sales of SBC's patented products and services. In Fiscal 1997, the Company
recorded a $2,528 nonrecurring gain as a result of these transactions.

F-12
<PAGE>

THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)

On November 28, 1994, the Company's former Communications Services segment
completed the acquisition of substantially all of the telecommunications
assets of JWP Telecom, Inc. ("JWP") for approximately $11,000, plus the
assumption of approximately $3,000 of liabilities. JWP is a telecommunications
system integrator, specializing in the distribution, installation and
maintenance of voice and data communications equipment.

Pro forma information is not required for these acquisitions.

3. MERGER AGREEMENT

The Company, RHI and Fairchild Industries, Inc. ("FII"), RHI's subsidiary,
entered into an Agreement and Plan of Merger dated as of November 9, 1995 (as
amended, the "Merger Agreement") with Shared Technologies Inc. ("STI"). On
March 13, 1996, in accordance with the Merger Agreement, STI succeeded to the
telecommunications systems and services business operated by the Company's
Fairchild Communications Services Company ("FCSC").

The transaction was effected by a Merger of FII with and into STI (the
"Merger") with the surviving company renamed Shared Technologies Fairchild
Inc. ("STFI"). Prior to the Merger, FII transferred all of its assets to, and
all of its liabilities were assumed by FHC, except for the assets and
liabilities of FCSC, and $223,500 of the FII's existing debt and preferred
stock. As a result of the Merger, the Company received shares of Common Stock
and Preferred Stock of STFI representing approximately a 41% ownership
interest in STFI.

The Merger was structured as a reorganization under section 386(a)(1)(A) of
the Internal Revenue Code of 1986, as amended. In 1996, the Company recorded a
$163,130 nonrecurring gain from this transaction.

4. MAJORITY INTEREST BUSINESS COMBINATION

Effective February 25, 1996, the Company completed a transfer of the
Company's Harco Division ("Harco") to Banner in exchange for 5,386,477 shares
of Banner common stock. The exchange increased the Company's ownership of
Banner common stock from approximately 47.2% to 59.3%, resulting in the
Company becoming the majority shareholder of Banner. Accordingly, the Company
has consolidated the results of Banner since February 25, 1996. The Company
recorded a $427 nonrecurring loss from outside expenses incurred for this
transaction in 1996. Banner is a leading international supplier to the
aerospace industry as a distributor, providing a wide range of aircraft parts
and related support services. Harco is a distributor of precision fasteners to
the aerospace industry.

In May 1997, Banner granted all of its stockholders certain rights to
purchase Series A Convertible Paid-in-Kind Preferred Stock. In June 1997,
Banner received net proceeds of $33,876 and issued 3,710,955 shares of
preferred stock. The Company purchased $28,390 of the preferred stock issued
by Banner, increasing its voting percentage to 64.0%.

In connection with the Company's December 23, 1993 sale of its interest in
Rexnord Corporation to BTR Dunlop Holdings, Inc. ("BTR"), the Company placed
shares of Banner, with a fair market value of $5,000, in escrow to secure the
Company's remaining indemnification of BTR against a contingent liability.
Once the contingent liability is resolved, the escrow will be released.

5. DISCONTINUED OPERATIONS AND NET ASSETS HELD FOR SALE

On February 22, 1996, pursuant to an Asset Purchase Agreement dated January
26, 1996, the Company, through one of its subsidiaries, completed the sale of
certain assets, liabilities and the business of the D-M-E

F-13
<PAGE>

THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)

Company ("DME") to Cincinnati Milacron Inc. ("CMI"), for a sales price of
approximately $244,331, as adjusted. The sales price consisted of $74,000 in
cash, and two 8% promissory notes in the aggregate principal amount of
$170,331 (together, the "8% CMI Notes"). On July 29, 1996, CMI paid in full
the 8% CMI Notes.

As a result of the sale of DME in 1996, the Company recorded a gain on
disposal of discontinued operations of approximately $54,012, net of a $61,929
tax provision.

On January 27, 1996, FII completed the sale of Fairchild Data Corporation
("Data") to SSE Telecom, Inc. ("SSE") for book value of approximately $4,400
and 100,000 shares of SSE's common stock valued at $9.06 per share, or $906,
at January 26, 1996, and warrants to purchase an additional 50,000 shares of
SSE's common stock at $11.09 per share.

Accordingly, the results of DME and Data have been accounted for as
discontinued operations. The combined net sales of DME and Data totaled
$180,773 and $108,131 for 1995 and 1996, respectively. Net earnings from
discontinued operations was $13,994 net of $10,183 for taxes in 1995 and,
$9,186, net of $5,695 for taxes in 1996.

Net assets held for sale at June 30, 1997, includes two parcels of real
estate in California, and several other parcels of real estate located
primarily throughout the continental United States, which the Company plans to
sell, lease or develop, subject to the resolution of certain environmental
matters and market conditions. Also included in net assets held for sale are
limited partnership interests in (i) a real estate development joint venture,
and (ii) a landfill development partnership.

Net assets held for sale are stated at the lower of cost or at estimated net
realizable value, which reflect anticipated sales proceeds, and other carrying
costs to be incurred during the holding period. Interest is not allocated to
net assets held for sale.

6. PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)

The following unaudited pro forma information for the twelve months ended
June 30, 1995 and June 30, 1996, provides the results of the Company's
operations as though (i) the disposition of DME and Data, (ii) the Merger of
FCSC, and (iii) the transfer of Harco to Banner, resulting in the
consolidation of Banner, had been in effect since the beginning of each
period. The pro forma information is based on the historical financial
statements of the Company, DME, FCSC and Banner, giving effect to the
aforementioned transactions. In preparing the pro forma data, certain
assumptions and adjustments have been made which (i) reduce interest expense
for revised debt structures, (ii) increase interest income for notes
receivable, (iii) reduce minority interest from Series C Preferred Stock of
FII being redeemed, and (iv) adjust equity in earnings of affiliates to
include the estimated results of STFI.

The following unaudited pro forma financial information is not necessarily
indicative of the results of operations that actually would have occurred if
the transactions had been in effect since the beginning of each period, nor is
it necessarily indicative of future results of the Company.

<TABLE>
<CAPTION>
1995 1996
<S> <C> <C>
Sales.................................................... $481,991 $597,407
Loss from continuing operations.......................... (32,972) (15,766)
Primary loss from continuing operations per share........ (2.05) (.96)
Net loss................................................. (32,876) (15,766)
Primary net loss per share............................. (2.04) (.96)
</TABLE>

F-14
<PAGE>

THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)

The pro forma financial information has not been adjusted for nonrecurring
income and gains from disposal of discontinued operations that have occurred
from these transactions.

7. EXTRAORDINARY ITEMS

During Fiscal 1996, the Company used the Merger transaction and cash
available to retire fully all of the FII's 12 1/4% senior notes ("Senior
Notes"), FII's 9 3/4% subordinated debentures due 1998, and bank loans under a
credit agreement of a former subsidiary of the Company, VSI Corporation. The
redemption of the Senior Notes at a premium, consent fees paid to holders of
the Senior Notes, the write-off of the original issue discount on FII 9 3/4%
subordinated debentures and the write off of the remaining deferred loan fees
associated with the issuance of the debt retired, resulted in an extraordinary
loss of $10,436, net of a tax benefit, in 1996.

During Fiscal 1995, the Company recognized extraordinary gains and losses
from the early extinguishment of debt resulting from repurchases of its
debentures on the open market or in negotiated transactions, and the write-
offs of certain deferred costs associated with the issuance of securities
repurchased. Early extinguishment of the Company's debt resulted in an
extraordinary gain of $355, net of a tax provision, in 1995.

8. INVESTMENTS

Short-term investments at June 30, 1997, consist primarily of common stock
investments in public corporations which are classified as trading securities.
All other short-term investments and all long-term investments do not have
readily determinable fair values and consist primarily of investments in
preferred and common stocks of private companies and limited partnerships. A
summary of investments held by the Company consists of the following:

<TABLE>
<CAPTION>
1996 1997
----------------- -----------------
AGGREGATE AGGREGATE
NAME OF ISSUER OR FAIR COST FAIR COST
TYPE OF EACH ISSUE VALUE BASIS VALUE BASIS
<S> <C> <C> <C> <C>
Short-term investments:
Trading securities:
Common stock............................. $10,362 $ 5,954 $16,094 $ 7,398
Other investments........................ 136 136 9,553 9,553
------- ------- ------- -------
$10,498 $ 6,090 $25,647 $16,951
======= ======= ======= =======
Other long-term investments:
Other investments........................ $ 585 $ 585 $ 4,120 $ 4,120
======= ======= ======= =======

Investment income is summarized as follows:

<CAPTION>
1995 1996 1997
<S> <C> <C> <C> <C>
Gross realized gain (loss) from sales.... $ 3,948 $(1,744) $ 1,673
Change in unrealized holding gain (loss)
from trading securities................. (36) 5,527 4,289
Gross realized loss from impairments..... (652) -- --
Dividend income.......................... 2,445 792 689
------- ------- -------
$ 5,705 $ 4,575 $ 6,651
======= ======= =======
</TABLE>

F-15
<PAGE>

THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)

9. INVESTMENTS AND ADVANCES, AFFILIATED COMPANIES

The following table presents summarized historical financial information on
a combined 100% basis of the Company's principal investments, which are
accounted for using the equity method.

<TABLE>
<CAPTION>
1995 1996 1997
<S> <C> <C> <C>
Statement of Earnings:
Net sales......................................... $313,888 $351,695 $292,049
Gross profit...................................... 100,644 114,248 133,734
Earnings from continuing operations............... 9,623 15,183 10,216
Discontinued operations, net...................... -- -- (1)
Net earnings...................................... 9,623 15,183 10,215
Balance Sheet at June 30,:
Current assets.................................... $ 93,925 $ 89,408
Non-current assets................................ 377,547 369,464
Total assets...................................... 471,472 458,872
Current liabilities............................... 87,858 75,090
Non-current liabilities........................... 275,025 281,301
</TABLE>

The Company owns approximately 31.9% of Nacanco common stock. The Company
recorded equity earnings of $2,859, $5,487, and $4,673 from this investment
for 1995, 1996 and 1997, respectively.

Since March 13, 1996, as a result of the March 13, 1996 Merger in which the
Company received a 41% interest in STFI, the Company has accounted for its
investment in STFI using the equity method. Prior to March 13, 1996, the
Company consolidated the results of FCSC, which was merged into STI (see Note
3). The Company recorded equity earnings of $50 and $3,149 from this
investment in 1996 and 1997, respectively.

On June 30, 1997, the Company's investments in STFI consisted of (i) $21,985
carrying value for the $25,000 face value 6% cumulative Convertible Preferred
Stock, (ii) $11,156 carrying value for the $20,000 face value Special
Preferred Stock, and (iii) $(1,163) carrying value for 6,225,000 shares of
common stock of STFI. At the close of trading on June 30, 1997, STFI's common
stock was quoted at $7.75 per share. Based on this price, the Company's 39.3%
investment in STFI common stock had an approximate market value of $48,244.
The Company is amortizing its discounted investment in each security of STFI
over the 11 and 12 year life of such security. Included in 1996 and 1997
equity earnings was $939 and $4,104, respectively, from such amortization.
(See Note 24 for subsequent events).

Effective February 25, 1996, the Company increased its percentage of
ownership of Banner common stock from 47.2% to approximately 59.3%. Since
February 25, 1996, the Company has consolidated Banner's results. Prior to
February 25, 1996, the Company accounted for its investment in Banner using
the equity method and held its investment in Banner as part of investments and
advances, affiliated companies. The Company recorded equity in earnings of
$138 and $363 from this investment for 1995 and 1996, respectively.

The Company is accounting for an investment in a public fund, which is
controlled by an affiliated investment group of the Company, at market value.
The amortized cost basis of the investment was $923 and had been written down
by $71, before tax, to market value. The Company recorded a gross unrealized
holding gain (loss) of $(120) and $114 from this investment in 1995 and 1997,
respectively.

F-16
<PAGE>

THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)

The Company's share of equity in earnings of all unconsolidated affiliates
for 1995, 1996 and 1997 was $1,607, $4,871, and $7,747, respectively. The
carrying value of investments and advances, affiliated companies consists of
the following:

<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1996 1997
<S> <C> <C>
Nacanco.................................................... $20,886 $20,504
STFI....................................................... 30,559 31,978
Others..................................................... 2,026 3,196
------- -------
$53,471 $55,678
======= =======
</TABLE>

On June 30, 1997, approximately $9,056 of the Company's $209,949
consolidated retained earnings was from undistributed earnings of 50 percent
or less currently owned affiliates accounted for by the equity method.

10. NOTES PAYABLE AND LONG-TERM DEBT

At June 30, 1996 and 1997, notes payable and long-term debt consisted of the
following:

<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1996 1997
<S> <C> <C>
Bank credit agreements................................. $ 73,500 $ 100
Other short-term notes payable......................... 3,035 15,529
-------- --------
Short-term notes payable (weighted average interest
rates of 8.6% and 7.8% in 1996 and 1997,
respectively)......................................... $ 76,535 $ 15,629
======== ========
Bank credit agreements................................. $112,500 $177,250
11 7/8% RHI Senior debentures due 1999................. 85,769 85,852
12% Intermediate debentures due 2001................... 114,495 115,359
13 1/8% Subordinated debentures due 2006............... 35,061 35,188
13% Junior Subordinated debentures due 2007............ 24,800 24,834
10.65% Industrial revenue bonds........................ 1,500 1,500
Capital lease obligations, interest from 4.4% to
10.5%................................................. 65 1,897
Other notes payable, collateralized by property, plant
and equipment, interest from 4.3% to 10.0%............ 2,756 6,835
-------- --------
376,946 448,715
Less: Current maturities............................... (8,357) (31,793)
-------- --------
Net long-term debt..................................... $368,589 $416,922
======== ========
</TABLE>

Bank Credit Agreements: The Company maintains credit agreements (the "Credit
Agreements") with a consortium of banks, which provide revolving credit
facilities to RHI, FHC and Banner, and term loans to Banner (collectively the
"Credit Facilities").

On July 26, 1996, the Company amended and restated the terms and provisions
of FHC's credit agreement, in their entirety (the "FHC Credit Agreement"). The
FHC Credit Agreement extends to July 28, 2000, the maturity of FHC's revolving
credit facility (the "FHC Revolver"). The FHC Revolver has a borrowing limit
of $52,000, however, availability is determined monthly by calculation of a
borrowing base comprised of specified percentages of FHC's accounts
receivable, inventories and the appraised value of equipment and real
property. The FHC Revolver generally bears interest at a base rate of 1 1/2%
over the greater of (i) Citibank New York's

F-17
<PAGE>

THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)

base rate, or (ii) the Federal Funds Rate plus 1 1/2% for domestic borrowings
and at 2 1/2% over Citibank London's base rate for foreign borrowings. FHC's
Revolver is subject to a non-use commitment fee of 1/2% on the average unused
availability; and outstanding letters of credit are subject to fees of 2 3/4%
per annum. The FHC Credit Agreement was further amended on February 21, 1997
to permit the Simmonds Acquisition. Terms modified by the February 21, 1997
amendment included a provision in which the borrowing rate on the FHC Revolver
will increase by 1/4% on each of September 30, 1997 and December 31, 1997, in
the event that the FHC Credit Agreement is not restructured or refinanced by
such date.

The FHC Credit Agreement requires FHC to comply with certain financial and
non-financial loan covenants, including maintaining a minimum net worth of
$150,000 and maintaining certain interest and fixed charge coverage ratios at
the end of each Fiscal Quarter. Additionally, the FHC Credit Agreement
restricts annual capital expenditures of FHC to $12,000. Substantially all of
FHC's assets are pledged as collateral under the FHC Credit Agreement. At June
30, 1997, FHC was in compliance with all the covenants under the FHC Credit
Agreement. FHC may transfer available cash as dividends to the Company.
However, the FHC Credit Agreement restricts the Company from paying any
dividends to stockholders.

On July 18, 1997, the FHC Credit Agreement was restructured to provide FHC
with a $150,000 senior secured credit facility (the "FHC Facility") consisting
of (i) up to $75,000 in revolving loans, with a letter of credit sub-facility
of $12,000, and (ii) a $75,000 term loan. Advances made under the FHC Facility
would generally bear interest at a rate of, at the Company's option, (i) 2%
over the Citibank N.A. base rate, or (ii) 3 1/4% over the Eurodollar Rate
("LIBOR"). The FHC Facility is subject to a non-use commitment fee of 1/2% of
the aggregate unused availability; and outstanding letters of credit are
subject to fees of 3 1/2% per annum. A borrowing base is calculated monthly to
determine the amounts available under the FHC Facility. The borrowing base is
determined monthly based upon specified percentages of (i) FHC's accounts
receivable, inventories, and the appraised value of equipment and real
property, and (ii) assets pledged by RHI to secure the facility. The FHC
Facility matures on July 28, 2000. The FHC Facility provides that on December
31, 1998, the Company must repay the term loan, in full, together with an
amount necessary to reduce the outstanding revolving loans to $52,000, if the
Company has not complied with certain financial covenant requirements as of
September 30, 1998.

The Credit Agreements provide RHI with a $4,250 revolving credit facility
(the "RHI Credit Agreement") which (i) generally bears a base interest rate of
1/2% over the prime rate, (ii) requires a commitment fee of 1/2%, and (iii)
matures on August 12, 1998. RHI's Credit Agreement requires RHI to comply with
specified covenants and maintain a consolidated net worth of $175,000.
Additionally, RHI's capital expenditures are restricted, except for certain
leasehold improvements, to $2,000 per annum plus the selling price of fixed
assets for such Fiscal Year. The Company was in compliance with all the
covenants under RHI's Credit Agreement at June 30, 1997.

Banner has a credit agreement (the "Banner Credit Agreement") which provides
Banner and its subsidiaries with funds for working capital and potential
acquisitions. The facilities under the Banner Credit Agreement consist of (i)
a $55,000 six-year term loan (the "Banner Term Loan"), (ii) a $30,000 seven-
year term loan (the "Tranche B Loan"), (iii) a $40,000 six-year term loan (the
"Tranche C Loan"), and (iv) a $71,500 revolving credit facility (the "Banner
Revolver"). The Banner Credit Agreement requires certain semiannual term loan
payments. The Banner Term Loan and the Banner Revolver bear interest at prime
plus 1 1/4% or LIBOR plus 2 1/2% and may increase by 1/4% or decrease by up to
1% based upon certain performance criteria. As a result of Banner's
performance level through March 31, 1997, borrowings under the Banner Term
Loan and the Banner Revolver bore an interest rate of prime plus 3/4% and
LIBOR plus 2% for the quarter ending June 30, 1997. The Tranche B Loan bears
interest at prime plus 1 3/4% or LIBOR plus 3%. The Tranche C Loan initially
bears

F-18
<PAGE>

THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)

interest at prime plus 1 1/2% or LIBOR plus 2 3/4% and may decrease by 1/4%
based upon certain performance criteria. The Banner Credit Agreement requires
that loans made to Banner may not exceed a defined borrowing base, which is
based upon a percentage of eligible inventories and accounts receivable.
Banner's revolving credit facility is subject to a non-use fee of 55 basis
points of the unused availability.

The Banner Credit Agreement requires quarterly compliance with various
financial and non-financial loan covenants, including maintenance of minimum
net worth, and minimum ratios of interest coverage, fixed charge coverage, and
debt to earnings before interest, taxes, depreciation and amortization. Banner
also has certain limitations on the incurrence of additional debt. As of June
30, 1997, Banner was in compliance with all covenants under the Banner Credit
Agreement. Substantially all of Banner's assets are pledged as collateral
under the Banner Credit Agreement.

In September 1995, Banner entered into several interest rate hedge
agreements ("Hedge Agreements") to manage its exposure to increases in
interest rates on its variable rate debt. The Hedge Agreements provide
interest rate protection on $60,000 of debt through September 2000, by
providing an interest rate cap of 7% if the 90-day LIBOR rate exceeds 7%. If
the 90-day LIBOR rate drops below 5%, Banner will be required to pay interest
at a floor rate of approximately 6%.

In November 1996, Banner entered into an additional hedge agreement
("Additional Hedge Agreement") with one of its major lenders to provide
interest rate protection on $20,000 of debt for a period of three years.
Effectively, the Additional Hedge Agreement provides for a cap of 7 1/4% if
the 90-day LIBOR exceeds 7 1/4%. If the 90-day LIBOR drops below 5%, Banner
will be required to pay interest at a floor rate of approximately 6%. No cash
outlay was required to obtain the Additional Hedge Agreement as the cost of
the cap was offset by the sale of the floor.

The Company recognizes interest expense under the provisions of the Hedge
Agreements and the Additional Hedge Agreement based on the fixed rate. The
Company is exposed to credit loss in the event of non-performance by the
lenders; however, such non-performance is not anticipated.

The following table summarizes the Credit Facilities under the Credit
Agreements at June 30, 1997:

<TABLE>
<CAPTION>
REVOLVING TERM TOTAL
CREDIT LOAN AVAILABLE
FACILITIES FACILITIES FACILITIES
<S> <C> <C> <C>
RHI Holdings, Inc.
Revolving credit facility................. $ 100 $ -- $ 4,250
Fairchild Holding Corp.
Revolving credit facility................. 30,900 -- 52,000
Banner Aerospace, Inc.
Revolving credit facility................. 32,000 -- 71,500
Term Loan................................. -- 44,500 44,500
Tranche B Loan............................ -- 29,850 29,850
Tranche C Loan............................ -- 40,000 40,000
------- -------- --------
Total....................................... $63,000 $114,350 $242,100
======= ======== ========
</TABLE>

At June 30, 1997, the Company had outstanding letters of credit of $10,811,
which were supported by the Credit Agreement and other bank facilities on an
unsecured basis. At June 30, 1997, the Company had unused bank lines of credit
aggregating $53,939, at interest rates slightly higher than the prime rate.
The Company also has short-term lines of credit relating to foreign
operations, aggregating $9,350, against which the Company owed $5,967 at June
30, 1997.

F-19
<PAGE>

THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)

Summarized below are certain items and other information relating to the
debt outstanding at June 30, 1997:

<TABLE>
<CAPTION>
12% 13% 11 7/8%
13 1/8% INTERMEDIATE JUNIOR RHI SENIOR
SUBORDINATED SUBORDINATED SUBORDINATED SUBORDINATED
DEBENTURES DEBENTURES DEBENTURES DEBENTURES
<S> <C> <C> <C> <C>
Date Issued................ March 1986 Oct. 1986 March 1987 March 1987
Face Value................. $75,000 $160,000 $102,000 $126,000
Balance June 30, 1997...... $35,188 $115,359 $ 24,834 $ 85,852
Percent Issued at.......... 95.769 93.470 98.230 99.214
Bond Discount.............. $ 3,173 $ 10,448 $ 1,805 $ 990
Amortization 1995.......... $ 103 $ 687 $ 27 $ 94
1996................. $ 118 $ 761 $ 30 $ 82
1997................. $ 127 $ 864 $ 34 $ 82
Yield to Maturity.......... 13.80% 13.06% 13.27% 12.01%
Interest Payments.......... Semi-Annual Semi-Annual Semi-Annual Semi-Annual
Sinking Fund Start Date.... 3/15/97 10/15/97 3/1/98 3/1/97
Sinking Fund Installments.. $ 7,500 $ 32,000 $ 10,200 $ 31,500
Fiscal Year Maturity....... 2006 2002 2007 1999
Callable Option on......... 3/15/89 10/15/89 3/1/92 3/1/92
</TABLE>

Under the most restrictive covenants of the above indentures, the Company's
consolidated net worth, as defined, must not be less than $35,000. RHI's
consolidated net worth must not be less than $125,000. At June 30, 1997,
consolidated net worth was $229,625 at the Company and $438,830 at RHI. At the
present time, none of the Company's consolidated retained earnings are
available for capital distributions due to a cumulative earnings restriction.
The indentures also provide restrictions on the amount of additional
borrowings by the Company.

The annual maturity of long-term debt obligations (exclusive of capital
lease obligations) for each of the five years following June 30, 1997, are as
follows: $31,207 for 1998, $93,544 for 1999, $42,288 for 2000, $77,407 for
2001, and $77,772 for 2002.

11. PENSIONS AND POSTRETIREMENT BENEFITS

PENSIONS

The Company and its subsidiaries have defined benefit pension plans covering
most of its employees. Employees in foreign subsidiaries may participate in
local pension plans, which are in the aggregate insignificant. The Company's
funding policy is to make the minimum annual contribution required by
applicable regulations. The following table provides a summary of the
components of net periodic pension expense (income) for the plans:

<TABLE>
<CAPTION>
1995 1996 1997
<S> <C> <C> <C>
Service cost (current period attribution)....... $ 3,917 $ 3,513 $ 2,521
Interest cost of projected benefit obligation... 14,860 14,499 15,791
Actual return on plan assets.................... (14,526) (39,430) (31,400)
Amortization of prior service cost.............. 81 81 (180)
Net amortization and deferral................... (4,341) 21,495 11,157
-------- -------- --------
(9) 158 (2,111)
Net periodic pension expense (income) for other
plans including foreign plans.................. 78 (118) 142
-------- -------- --------
Net periodic pension expense (income)........... $ 69 $ 40 $ (1,969)
======== ======== ========
</TABLE>

F-20
<PAGE>

THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)

Assumptions used in accounting for the plans were:

<TABLE>
<CAPTION>
1995 1996 1997
<S> <C> <C> <C>
Discount rate.............................................. 8.5% 8.5% 7.75%
Expected rate of increase in salaries...................... 4.5% 4.5% 4.5%
Expected long-term rate of return on plan assets........... 9.0% 9.0% 9.0%
</TABLE>

In Fiscal 1996, the Company recognized one-time charges of $857 from the
divestiture of subsidiaries, which resulted in a recognition of prior service
costs, and $84 from the early retirement window program at the Company's
corporate office. The reduction in liabilities due from the cessation of
future salary increases is not immediately recognizable in income, but will be
used as an offset against existing unrecognized losses. The Company will have
a future savings benefit from a lower net periodic pension cost, due to the
amortization of a smaller unrecognized loss.

The following table sets forth the funded status and amounts recognized in
the Company's consolidated balance sheets at June 30, 1996, and 1997, for the
plans:

<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1996 1997
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested................................................... $164,819 $183,646
Nonvested................................................ 6,169 7,461
-------- --------
Accumulated benefit obligation........................... 170,988 191,107
Effect of projected future compensation increases........ 905 683
-------- --------
Projected benefit obligation............................... 171,893 191,790
Plan assets at fair value.................................. 224,692 237,480
-------- --------
Plan assets in excess of projected benefit obligations..... 52,799 45,690
Unrecognized net loss...................................... 20,471 29,592
Unrecognized prior service cost............................ (354) (571)
Unrecognized net transition assets......................... (608) (315)
-------- --------
Prepaid pension cost prior to SFAS 109 implementation...... 72,308 74,396
Effect of SFAS 109 implementation.......................... (14,648) (14,654)
-------- --------
Prepaid pension cost....................................... $ 57,660 $ 59,742
======== ========
</TABLE>

Plan assets include Class A Common Stock of the Company valued at a fair
market value of $11,094 and $26,287 at June 30, 1996 and 1997, respectively.
Substantially all of the plan assets are invested in listed stocks and bonds.

F-21
<PAGE>

THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)

POSTRETIREMENT HEALTH CARE BENEFITS

The Company provides health care benefits for most retired employees.
Postretirement health care expense from continuing operations totaled $701,
$779, and $642 for 1995, 1996 and 1997, respectively. The Company has accrued
approximately $36,995 and 34,965 as of June 30, 1996 and 1997, respectively,
for postretirement health care benefits related to discontinued operations.
This represents the cumulative discounted value of the long-term obligation
and includes interest expense of $3,872, $3,877, and $3,349 for the years
ended June 30, 1995, 1996 and 1997, respectively. The components of expense in
Fiscal 1995, 1996 and 1997 are as follows:

<TABLE>
<CAPTION>
1995 1996 1997
<S> <C> <C> <C>
Service cost of benefits earned...................... $ 321 $ 281 $ 140
Interest cost on liabilities......................... 4,385 4,377 3,940
Net amortization and deferral........................ (133) (2) (89)
------ ------ ------
Net periodic postretirement benefit cost............. $4,573 $4,656 $3,991
====== ====== ======
</TABLE>

A one-time credit of $3,938, resulting from the divestitures of
subsidiaries, was offset by $4,361 from DME's accumulated postretirement
benefit obligation for active employees, which was transferred to CMI as part
of the sale. The Company recognized the net effect of $423 as an expense in
1996.

The following table sets forth the funded status for the Company's
postretirement health care benefit plans at June 30,:

<TABLE>
<CAPTION>
1996 1997
<S> <C> <C>
Accumulated postretirement benefit obligations:
Retirees.................................................. $46,846 $48,145
Fully eligible active participants........................ 347 390
Other active participants................................. 1,887 2,335
------- -------
Accumulated postretirement benefit obligation............... 49,080 50,870
Unrecognized net loss....................................... 2,086 6,173
------- -------
Accrued postretirement benefit liability.................... $46,994 $44,697
======= =======
</TABLE>

The accumulated postretirement benefit obligation was determined using a
discount rate of 7.75%, and a health care cost trend rate of 7.0% for pre-age-
65 and post-age-65 employees, respectively, gradually decreasing to 5.5% in
the year 2003 and thereafter.

Increasing the assumed health care cost trend rates by 1% would increase the
accumulated postretirement benefit obligation as of June 30, 1997, by
approximately $1,871, and increase the net periodic postretirement benefit
cost by approximately $132 for Fiscal 1997.

F-22
<PAGE>

THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)

12. INCOME TAXES

The provision (benefit) for income taxes from continuing operations is
summarized as follows:

<TABLE>
<CAPTION>
1995 1996 1997
<S> <C> <C> <C>
Current:
Federal...................................... $ (8,315) $(41,595) $ 6,143
State........................................ 424 1,203 1,197
Foreign...................................... 1,191 669 (45)
-------- -------- --------
(6,700) (39,723) 7,295
Deferred:
Federal...................................... (19,450) 21,315 (15,939)
State........................................ (2,052) (3,657) 3,444
-------- -------- --------
(21,502) 17,658 (12,495)
-------- -------- --------
Net tax benefit................................ $(28,202) $(22,065) $ (5,200)
======== ======== ========
</TABLE>

The income tax provision (benefit) for continuing operations differs from
that computed using the statutory Federal income tax rate of 35%, in Fiscal
1995, 1996 and 1997, for the following reasons:

<TABLE>
<CAPTION>
1995 1996 1997
<S> <C> <C> <C>
Computed statutory amount..................... $(26,641) $ 40,357 $(1,354)
State income taxes, net of applicable federal
tax benefit.................................. (1,794) 782 778
Nondeductible acquisition valuation items..... 1,420 1,329 1,064
Tax on foreign earnings, net of tax credits... 2,965 1,711 (1,938)
Difference between book and tax basis of
assets acquired and liabilities assumed...... 1,366 1,040 (1,102)
Nontaxable gain related to the Merger......... -- (60,681) --
Revision of estimate for tax accruals......... (5,000) (3,500) (5,335)
Other......................................... (518) (3,103) 2,687
-------- -------- -------
Net tax benefit............................... $(28,202) $(22,065) $(5,200)
======== ======== =======
</TABLE>

F-23
<PAGE>

THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)

The following table is a summary of the significant components of the
Company's deferred tax assets and liabilities, and deferred provision or
benefit for the following periods:

<TABLE>
<CAPTION>
1995 1996 1997
DEFERRED DEFERRED DEFERRED
(PROVISION) (PROVISION) JUNE 30, (PROVISION) JUNE 30,
BENEFIT BENEFIT 1996 BENEFIT 1997
<S> <C> <C> <C> <C> <C>
Deferred tax assets:
Accrued expenses...... $(2,218) $ (1,643) $ 5,936 $ 504 $ 6,440
Asset basis differ-
ences................ (7,292) 1,787 2,064 (1,492) 572
Inventory............. -- -- -- 2,198 2,198
Employee compensation
and benefits......... 106 (26) 5,408 (267) 5,141
Environmental re-
serves............... (1,202) (737) 4,512 (1,253) 3,259
Loss and credit
carryforward......... 17,991 (23,229) 8,796 (8,796) --
Postretirement bene-
fits................. 514 (1,273) 19,334 138 19,472
Other................. 1,530 2,186 5,519 2,079 7,598
------- -------- -------- ------- --------
9,429 (22,935) 51,569 (6,889) 44,680
Deferred tax liabili-
ties:
Asset basis differ-
ences................ 4,129 16,602 (22,565) (3,855) (26,420)
Inventory............. 3,176 4,684 (2,010) 2,010 --
Pensions.............. 1,074 1,516 (18,243) (1,038) (19,281)
Other................. 3,694 (17,525) (29,507) 22,267 (7,240)
------- -------- -------- ------- --------
12,073 5,277 (72,325) 19,384 (52,941)
------- -------- -------- ------- --------
Net deferred tax liabil-
ity.................... $21,502 $(17,658) $(20,756) $12,495 $ (8,261)
======= ======== ======== ======= ========
</TABLE>

The amounts included in the balance sheet are as follows:

<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1996 1997
<S> <C> <C>
Prepaid expenses and other current assets:
Current deferred........................................ $ 8,012 $11,307
======= =======
Income taxes payable:
Current deferred........................................ $20,797 $(2,735)
Other current........................................... 3,838 8,616
------- -------
$24,635 $ 5,881
======= =======
Noncurrent income tax liabilities:
Noncurrent deferred..................................... $ 7,971 $22,303
Other noncurrent........................................ 23,766 19,710
------- -------
$31,737 $42,013
======= =======
</TABLE>

The 1995, 1996 and 1997 net tax benefits include the results of reversing
$5,000, $3,500 and $5,335, respectively, of federal income taxes previously
provided for due to a change in the estimate of required tax accruals.

Domestic income taxes, less available credits, are provided on the
unremitted income of foreign subsidiaries and affiliated companies, to the
extent that such earnings are intended to be repatriated. No domestic income

F-24
<PAGE>

THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)

taxes or foreign withholding taxes are provided on the undistributed earnings
of foreign subsidiaries and affiliates, which are considered permanently
invested, or which would be offset by allowable foreign tax credits. At June
30, 1997, the amount of domestic taxes payable upon distribution of such
earnings was not significant.

In the opinion of management, adequate provision has been made for all
income taxes and interest, and any liability that may arise for prior periods
will not have a material effect on the financial condition or results of
operations of the Company.

13. MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES

Included in the Company's $68,309 of minority interest at June 30, 1997, is
$67,649, representing approximately 40.7% of Banner's common stock effectively
outstanding on a consolidated basis.

14. EQUITY SECURITIES

The Company had 13,992,283 shares of Class A common stock and 2,632,516
shares of Class B common stock outstanding at June 30, 1997. Class A common
stock is traded on both the New York and Pacific Stock Exchanges. There is no
public market for the Class B common stock. Shares of Class A common stock are
entitled to one vote per share and cannot be exchanged for shares of Class B
common stock. Shares of Class B common stock are entitled to ten votes per
share and can be exchanged, at any time, for shares of Class A common stock on
a share-for-share basis. In Fiscal 1997, 234,935 shares of Class A common
stock were issued as a result of the exercise of stock options, and
shareholders converted 1,188 shares of Class B common stock into Class A
common stock.

RHI holds an investment of 4,319,423 shares of the Company's Class A common
stock. At June 30, 1997, RHI's market value was approximately $78,649. The
Company accounts for the Class A common stock held by RHI as Treasury Stock.

15. STOCK OPTIONS AND WARRANTS

STOCK OPTIONS

The Company's 1986 Non-Qualified and Incentive Stock Option Plan (the "1986
Plan"), authorizes the issuance of 4,320,000 shares of Class A Common Stock
upon the exercise of stock options issued under the 1986 Plan. The purpose of
the 1986 Plan is to encourage continued employment and ownership of Class A
Common Stock by officers and key employees of the Company and its
subsidiaries, and provide additional incentive to promote the success of the
Company. At the Company's 1996 annual meeting, the Company's stockholders
approved an extension of the expiration date of the 1986 Plan from April 9,
1996 to April 9, 2006. The 1986 Plan authorizes the granting of options at not
less than the market value of the common stock at the time of the grant. The
option price is payable in cash or, with the approval of the the Company's
Compensation and Stock Option Committee of the Board of Directors, in shares
of common stock, valued at fair market value at the time of exercise. The
options normally terminate five years from the date of grant, subject to
extension of up to 10 years or for a stipulated period of time after an
employee's death or termination of employment.

At the Company's 1996 annual meeting, the Company's stockholders approved
the 1996 Non-Employee Directors Stock Option Plan (the "1996 NED Plan"). The
ten-year 1996 NED Plan authorizes the issuance of 250,000 shares of Class A
Common Stock upon the exercise of stock options issued under the 1996 NED
Plan. The 1996 NED Plan authorizes the granting of options at the market value
of the common stock on the date of grant. An initial stock option grant for
30,000 shares of Class A Common Stock will be made to each person

F-25
<PAGE>

THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)

who becomes a new non-employee Director, on such date, with the options to
vest 25% each year from the date of grant. On the date of each annual meeting,
each person elected as a non-employee Director at such meeting will be granted
an option for 1,000 shares of Class A Common Stock, which will vest
immediately. The exercise price is payable in cash or, with the approval of
the Stock Option Committee, in shares of Class A or Class B Common Stock,
valued at fair market value at the date of exercise. All options issued under
the 1996 NED Plan will terminate five years from the date of grant or a
stipulated period of time after a Non-Employee Director ceases to be a member
of the Board. The 1996 NED Plan is designed to maintain the Company's ability
to attract and retain highly qualified and competent persons to serve as
outside directors of the Company.

On November 17, 1994, the Company's stockholders approved the grant of stock
options of 190,000 shares to outside Directors of the Company to replace
expired stock options. These stock options expire five years from the date of
the grant.

Summaries of stock option transactions under the 1986 Plan, the 1996 NED
Plan, and prior plans are presented in the following tables:

<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE
SHARES PRICE
<S> <C> <C>
Outstanding at July 1, 1994.............................. 1,520,706 $5.57
Granted................................................ 356,600 3.78
Expired................................................ (116,875) 5.44
Forfeited.............................................. (60,650) 5.94
--------- -----
Outstanding at June 30, 1995............................. 1,699,781 5.14
Granted................................................ 540,078 4.33
Exercised.............................................. (286,869) 5.26
Expired................................................ (659,850) 6.06
Forfeited.............................................. (19,653) 4.30
--------- -----
Outstanding at June 30, 1996............................. 1,273,487 4.27
Granted................................................ 457,350 14.88
Exercised.............................................. (234,935) 4.79
Expired................................................ (1,050) 4.59
Forfeited.............................................. (9,412) 3.59
--------- -----
Outstanding at June 30, 1997............................. 1,485,440 $7.46
========= =====
Exercisable at June 30, 1995............................. 1,159,306 $5.68
Exercisable at June 30, 1996............................. 399,022 $4.59
Exercisable at June 30, 1997............................. 486,855 $4.95
</TABLE>

A summary of options outstanding at June 30, 1997 is presented as follows:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------- -----------------------
WEIGHTED AVERAGE WEIGHTED
AVERAGE REMAINING AVERAGE
RANGE OF NUMBER EXERCISE CONTRACT NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING PRICE LIFE EXERCISABLE PRICE
<S> <C> <C> <C> <C> <C>
$ 3.50 -- 8.625 1,022,700 $ 4.10 2.6 years 452,509 $ 4.10
$13.625--16.25 462,740 $14.89 4.4 years 34,346 $16.19
- --------------- --------- ------ --------- ------- ------
$ 3.50 --16.25 1,485,440 $ 7.46 3.2 years 486,855 $ 4.95
=============== ========= ====== ========= ======= ======
</TABLE>

F-26
<PAGE>

THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)

The weighted average grant date fair value of options granted during 1996
and 1997 was $1.95 and $6.90, respectively. The fair value of each option
granted is estimated on the grant date using the Black-Scholes option pricing
model. The following significant assumptions were made in estimating fair
value:

<TABLE>
<CAPTION>
ASSUMPTION 1996 1997
<S> <C> <C>
Risk-free interest rate................................ 5.5%--6.6% 6.0%--6.7%
Expected life in years................................. 4.27 4.65
Expected volatility.................................... 46%--47% 43%--45%
Expected dividends..................................... none none
</TABLE>

The Company applies APB Opinion 25 in accounting for its stock option plans.
Accordingly, no compensation cost has been recognized for the stock option
plans in 1996 or 1997. If stock options granted in 1996 and 1997 were
accounted for based on their fair value as determined under SFAS 123, pro
forma earnings would be as follows:

<TABLE>
<CAPTION>
1996 1997
<S> <C> <C>
Net earnings:
As reported............................................... $189,706 $1,331
Pro forma................................................. 189,460 283
Primary earnings per share:
As reported............................................... $ 11.43 $ .08
Pro forma................................................. 11.41 .02
Fully diluted earnings per share:
As reported............................................... $ 11.09 $ .08
Pro forma................................................. 11.08 .02
</TABLE>

The pro forma effects of applying SFAS 123 are not representative of the
effects on reported net earnings for future years. SFAS 123 does not apply to
awards made prior to 1996, and additional awards in future years are expected.

STOCK WARRANTS

On April 25, 1997, the Company issued warrants to purchase 100,000 shares of
Class A Common Stock, at $12.25 per share, to Dunstan Ltd. as incentive
remuneration for the performance of certain investment banking services. The
warrants may be earned on a pro-rata basis over a six-month period ending
October 31, 1997. The warrants become exercisable on November 1, 1997 and
expire on November 8, 2000. The Company recorded a selling, general &
administrative expense of $191 in 1997, for stock warrants earned in 1997,
based on a grant-date fair value of $5.46.

Effective as of February 21, 1997, the Company approved the continuation of
an existing warrant to purchase 375,000 shares of the Company's Class A or
Class B Common Stock at $7.67 per share. The warrant was modified to extend
the exercise period from March 13, 1997, to March 13, 2002, and to increase
the exercise price per share by $.002 for each day subsequent to March 13,
1997, but fixed at $7.80 per share after June 30, 1997. In addition, the
warrant was modified to provide that the warrant may not be exercised except
within the following window periods: (i) within 365 days after the merger of
STFI with AT&T Corporation, MCI Communications, Worldcom Inc., Tel-Save
Holdings, Inc., or Teleport Communications Group, Inc.; (ii) within 365 days
after a change of control of the Company, as defined in the FHC Credit
Agreement; or (iii) within 365 days after a change of control of Banner, as
defined in the Banner Credit Agreement. In no event may the warrant be
exercised after March 13, 2002.

F-27
<PAGE>

THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)

On November 9, 1995, the Company issued warrants to purchase 500,000 shares
of Class A Common Stock, at $9.00 per share, to Peregrine Direct Investments
Limited ("Peregrine"), in exchange for a standby commitment it received on
November 8, 1995, from Peregrine. The Company elected not to exercise its
rights under the Peregrine commitment. The warrants are immediately
exercisable and will expire on November 8, 2000.

On February 21, 1996, the Company issued warrants to purchase 25,000 shares
of Class A Common Stock, at $9.00 per share, to a non-employee for services
provided in connection with the Company's various dealings with Peregrine. The
warrants issued are immediately exercisable and will expire on November 8,
2000.

The Company recorded nonrecurring expenses of $1,148 for the grant date fair
value of the stock warrants issued in 1996. The warrants issued in 1996 were
outstanding at June 30, 1997.

16. FAIR VALUE OF FINANCIAL INSTRUMENTS

Statement of Financial Accounting Standards No. 107, ("SFAS 107")
"Disclosures about Fair Value of Financial Instruments", requires disclosures
of fair value information about financial instruments, whether or not
recognized in the balance sheet, for which it is practicable to estimate that
value. In cases where quoted market prices are not available, fair values are
based on estimates using present value or other valuation techniques. Those
techniques are significantly affected by the assumptions used, including
discount rate and estimates of future cash flows. In that regard, the derived
fair value estimates cannot be substantiated by comparison to independent
markets and, in many cases, could not be realized in immediate settlement of
the instrument. SFAS 107 excludes certain financial instruments and all non-
financial instruments from its disclosure requirements. Accordingly, the
aggregate fair value amounts presented do not represent the underlying value
of the Company.

The following methods and assumptions were used by the Company in estimating
its fair value disclosures for financial instruments:

The carrying amount reported in the balance sheet approximates the fair
value for cash and cash equivalents, short-term borrowings, current maturities
of long-term debt, and all other variable rate debt (including borrowings
under the Credit Agreements).

Fair values for equity securities, and long-term public debt issued by the
Company are based on quoted market prices, where available. For equity
securities not actively traded, fair values are estimated by using quoted
market prices of comparable instruments or, if there are no relevant
comparable instruments, on pricing models or formulas using current
assumptions. The fair value of limited partnerships, other investments, and
notes receivable are estimated by discounting expected future cash flows using
a current market rate applicable to the yield, considering the credit quality
and maturity of the investment.

The fair value for the Company's other fixed rate long-term debt is
estimated using discounted cash flow analyses, based on the Company's current
incremental borrowing rates for similar types of borrowing arrangements.

Fair values for the Company's off-balance-sheet instruments (letters of
credit, commitments to extend credit, and lease guaranties) are based on fees
currently charged to enter into similar agreements, taking into account the
remaining terms of the agreements and the counter parties' credit standing.
The fair value of the Company's off-balance-sheet instruments at June 30,
1997, was not material.

F-28
<PAGE>

THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)

The carrying amounts and fair values of the Company's financial instruments
at June 30, 1996 and 1997, are as follows:

<TABLE>
<CAPTION>
JUNE 30, 1996 JUNE 30, 1997
----------------- -----------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
<S> <C> <C> <C> <C>
Cash and cash equivalents.................. $ 39,649 $ 39,649 $ 19,420 $ 19,420
Investment securities:
Short-term equity securities............. 10,362 10,362 16,094 16,122
Short-term other investments............. 136 167 9,553 9,592
Long-term other investments.............. 585 1,451 4,120 4,617
Notes receivable:
Current.................................. 170,384 170,384 -- --
Long-term................................ 3,702 3,702 1,300 1,300
Short-term debt............................ 76,535 76,535 15,629 15,629
Long-term debt:
Bank credit agreement.................... 112,500 112,500 177,250 177,250
Senior notes and subordinated deben-
tures................................... 260,125 264,759 261,233 270,995
Industrial revenue bonds................. 1,500 1,500 1,500 1,500
Capitalized leases....................... 65 65 1,897 1,897
Other.................................... 2,756 2,756 6,835 6,835
</TABLE>

17. RESTRUCTURING CHARGES

In Fiscal 1996, the Company recorded restructuring charges in the Aerospace
Fasteners segment in the categories shown below. All costs classified as
restructuring were the direct result of formal plans to close plants, to
terminate employees, or to exit product lines. Substantially all of these
plans have been executed. Other than a reduction in the Company's existing
cost structure and manufacturing capacity, none of the restructuring charges
resulted in future increases in earnings or represented an accrual of future
costs. The costs included in restructuring were predominately nonrecurring in
nature and consisted of the following significant components:

<TABLE>
<S> <C>
Write down of inventory to net realizable value related to
discontinued product lines (a).................................... $ 156
Write down of fixed assets related to discontinued product lines... 270
Severance benefits for terminated employees (substantially all paid
within twelve months)............................................. 1,368
Plant closings facility costs (b).................................. 389
Contract termination claims........................................ 136
------
$2,319
======
</TABLE>
- ---------------------
(a) Write down was required because product line was discontinued.
(b) Includes lease settlements, write-off of leasehold improvements,
maintenance, restoration and clean up costs.

18. RELATED PARTY TRANSACTIONS

Corporate office administrative expense recorded by FHC and its predecessors
was billed to the Company on a monthly basis during 1995, 1996 and 1997. These
costs represent the cost of services incurred on behalf of affiliated
companies. Each of these affiliated companies has reimbursed FHC for such
services.

F-29
<PAGE>

THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)

The Company and its wholly-owned subsidiaries are all parties to a tax
sharing agreement whereby the Company files a consolidated federal income tax
return. Each subsidiary makes payments to the Company based on the amount of
federal income taxes, if any, the subsidiary would have paid if it had filed a
separate tax return.

Prior to the consolidation of Banner on February 25, 1996, the Aerospace
Fasteners segment had sales to Banner of $5,494 and $3,663 in Fiscal 1995, and
1996, respectively.

19. LEASES

The Company holds certain of its facilities and equipment under long-term
leases. The minimum rental commitments under non-cancelable operating leases
with lease-terms in excess of one year, for each of the five years following
June 30, 1997, are as follows: $5,182 for 1998, $4,127 for 1999, $2,937 for
2000, $2,271 for 2001, and $1,732 for 2002. Rental expense on operating leases
from continuing operations for Fiscal 1995, 1996 and 1997 was $6,695, $6,197,
and $4,928, respectively. Minimum commitments under capital leases for each of
the five years following June 30, 1997, was $651 for 1998, $693 for 1999, $262
for 2000, $210 for 2001, and $137 for 2002, respectively. At June 30, 1997,
the present value of capital lease obligations was $1,897. At June 30, 1997,
capital assets leased, included in property, plant, and equipment consisted
of:

<TABLE>
<S> <C>
Buildings and improvements....................................... $ 1,396
Machinery and equipment.......................................... 8,017
Furniture and fixtures........................................... 114
Less: Accumulated depreciation................................... (7,700)
-------
$ 1,827
=======
</TABLE>

20. CONTINGENCIES

CL MOTOR FREIGHT ("CL") LITIGATION

The Workers Compensation Bureau of the State of Ohio is seeking
reimbursement from the Company for up to $5,400 for CL workers compensation
claims which were insured under a self-insured program of CL. The Company has
contested a significant portion of this claim and believes that the ultimate
disposition of this claim will not be material.

GOVERNMENT CLAIMS

The Corporate Administrative Contracting Officer (the "ACO"), based upon the
advice of the United States Defense Contract Audit Agency, has made a
determination that FII did not comply with Federal Acquisition Regulations and
Cost Accounting Standards in accounting for (i) the 1985 reversion to FII of
certain assets of terminated defined benefit pension plans, and (ii) pension
costs upon the closing of segments of FII's business. The ACO has directed FII
to prepare cost impact proposals relating to such plan terminations and
segment closings and, following receipt of such cost impact proposals, may
seek adjustments to contract prices. The ACO alleges that substantial amounts
will be due if such adjustments are made. The Company believes it has properly
accounted for the asset reversions in accordance with applicable accounting
standards. The Company has held discussions with the government to attempt to
resolve these pension accounting issues.

ENVIRONMENTAL MATTERS

F-30
<PAGE>

THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)

handling, storage, transportation and disposal of waste and hazardous
materials. To date, such laws and regulations have not had a material effect
on the financial condition, results of operations, or net cash flows of the
Company, although the Company has expended, and can be expected to expend in
the future, significant amounts for investigation of environmental conditions
and installation of environmental control facilities, remediation of
environmental conditions and other similar matters, particularly in the
Aerospace Fasteners segment.

As of June 30, 1997, the consolidated total recorded liabilities of the
Company for environmental matters approximated $8,420, which represented the
estimated probable exposures for these matters. It is reasonably possible that
the Company's total exposure for these matters could be approximately $13,200
on an undiscounted basis.

OTHER MATTERS

The Company is involved in various other claims and lawsuits incidental to
its business, some of which involve substantial amounts. The Company, either
on its own or through its insurance carriers, is contesting these matters. In
the opinion of management, the ultimate resolution of the legal proceedings,
including those aforementioned, will not have a material adverse effect on the
financial condition, or future results of operations or net cash flows of the
Company.

F-31
<PAGE>

THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)

21. BUSINESS SEGMENT INFORMATION

The Company reports in two principal business segments. The Aerospace
Fasteners segment includes the manufacture of high performance specialty
fasteners and fastening systems. The Aerospace Distribution segment
distributes a wide range of aircraft parts and related support services to the
aerospace industry. The results of Fairchild Technologies, which is primarily
engaged in the designing and manufacturing of capital equipment and systems
for recordable compact disc and advance semiconductor manufacturing, are
reported under Corporate and Other, along with results two smaller operations.
Prior to the Merger on March 13, 1996, the Company operated in the
Communications Services segment.

The Company's financial data by business segment is as follows:

<TABLE>
<CAPTION>
1995 1996 1997
<S> <C> <C> <C>
Sales:
Aerospace Fasteners......................... $215,364 $ 218,059 $ 269,026
Aerospace Distribution (a).................. -- 129,973 411,765
Communications Services (b)................. 108,710 91,290 --
Corporate and Other......................... 41,476 67,330 72,882
Eliminations (c)............................ -- (5,842) (15,213)
-------- ---------- ----------
Total Sales................................... $365,550 $ 500,810 $ 738,460
======== ========== ==========
Operating Income (Loss):
Aerospace Fasteners (d)..................... $(11,497) $ 135 $ 17,390
Aerospace Distribution (a).................. -- 5,625 30,891
Communications Services (b)................. 18,498 14,561 --
Corporate and Other......................... (20,420) (14,876) (17,764)
-------- ---------- ----------
Operating Income (Loss)....................... $(13,419) $ 5,445 $ 30,517
======== ========== ==========
Capital Expenditures:
Aerospace Fasteners......................... $ 4,974 $ 3,841 $ 8,964
Aerospace Distribution...................... -- 1,556 4,787
Communications Services..................... 10,349 8,500 --
Corporate and Other......................... 937 1,225 8,365
-------- ---------- ----------
Total Capital Expenditures.................... $ 16,260 $ 15,122 $ 22,116
======== ========== ==========
Depreciation and Amortization:
Aerospace Fasteners......................... $ 15,619 $ 14,916 $ 16,112
Aerospace Distribution...................... -- 1,341 5,138
Communications Services..................... 10,329 8,064 --
Corporate and Other......................... 5,260 5,396 4,685
-------- ---------- ----------
Total Depreciation and Amortization........... $ 31,208 $ 29,717 $ 25,935
======== ========== ==========
Identifiable Assets at June 30:
Aerospace Fasteners......................... $290,465 $ 252,200 $ 346,533
Aerospace Distribution...................... -- 329,477 428,436
Communications Services..................... 108,666 -- --
Corporate and Other......................... 451,163 428,261 292,364
-------- ---------- ----------
Total Identifiable Assets..................... $850,294 $1,009,938 $1,067,333
======== ========== ==========
</TABLE>
- ---------------------
(a) Effective February 25, 1996, the Company became the majority shareholder
of Banner Aerospace, Inc. and, accordingly, began consolidating their
results.
(b) Effective March 13, 1996, the Company's investment in the Communications
Services segment was recorded using the equity method.
(c) Represents intersegment sales from the Aerospace Fasteners segment to the
Aerospace Distribution segment.
(d) Includes restructuring charges of $2.3 million in Fiscal 1996.

F-32
<PAGE>

THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)

22. FOREIGN OPERATIONS AND EXPORT SALES

The Company's operations are located primarily in the United States and
Europe. Inter-area sales are not significant to the total sales of any
geographic area. The Company's financial data by geographic area is as
follows:

<TABLE>
<CAPTION>
1995 1996 1997
<S> <C> <C> <C>
Sales by Geographic Area:
United States.............................. $283,811 $ 393,247 $ 601,834
Europe..................................... 80,945 107,186 136,626
Other...................................... 794 377 --
-------- ---------- ----------
Total Sales.................................. $365,550 $ 500,810 $ 738,460
======== ========== ==========
Operating Income by Geographic Area:
United States.............................. $(13,024) $ (342) $ 24,299
Europe..................................... (432) 5,935 6,218
Other...................................... 37 (148) --
-------- ---------- ----------
Total Operating Income....................... $(13,419) $ 5,445 $ 30,517
======== ========== ==========
Identifiable Assets by Geographic Area at
June 30:
United States.............................. $763,734 $ 932,311 $ 857,943
Europe..................................... 85,668 77,627 209,390
Other...................................... 892 -- --
-------- ---------- ----------
Total Identifiable Assets.................... $850,294 $1,009,938 $1,067,333
======== ========== ==========

Export sales are defined as sales to customers in foreign countries by the
Company's domestic operations. Export sales amounted to the following:

<CAPTION>
1995 1996 1997
<S> <C> <C> <C>
Export Sales
Europe..................................... $ 13,329 $ 27,330 $ 48,490
Asia (excluding Japan)..................... 1,526 8,920 29,145
Japan...................................... 4,140 11,958 19,819
Canada..................................... 2,810 8,878 17,955
Other...................................... 911 8,565 15,907
-------- ---------- ----------
Total Export Sales........................... $ 22,716 $ 65,651 $ 131,316
======== ========== ==========
</TABLE>

F-33
<PAGE>

THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)

23. QUARTERLY FINANCIAL DATA (UNAUDITED)

The following table of quarterly financial data has been prepared from the
financial records of the Company without audit, and reflects all adjustments
which are, in the opinion of management, necessary for a fair presentation of
the results of operations for the interim periods presented:

<TABLE>
<CAPTION>
FISCAL 1996 QUARTERS ENDED OCT. 1 DEC. 31 MARCH 31 JUNE 30
<S> <C> <C> <C> <C>
Net sales............................... $107,926 $103,450 $135,451 $153,983
Gross profit............................ 23,591 23,036 29,846 40,418
Earnings (loss) from continuing opera-
tions.................................. (9,286) (9,016) 155,095 577
per share............................. (.58) (.56) 9.27 .03
Earnings from discontinued operations,
net.................................... 3,870 3,420 1,769 127
per share............................. .24 .21 .11 .01
Gain (loss) from disposal of discontin-
ued operations, net.................... (20) (7) 61,286 (7,673)
per share............................. -- -- 3.66 (.45)
Extraordinary items, net................ -- -- (10,436) --
per share............................. -- -- (.62) --
Net earnings (loss)..................... (5,436) (5,603) 207,714 (6,969)
per share............................. (.34) (.35) 12.42 (.41)
Market price range of Class A Stock
High.................................. 6 8 3/4 9 7/8 15 7/8
Low................................... 2 7/8 4 3/4 8 9 1/4
Close................................. 5 1/8 8 1/2 9 3/8 14 5/8
</TABLE>

<TABLE>
<CAPTION>
FISCAL 1997 QUARTERS ENDED SEPT. 29 DEC. 29 MAR. 30 JUNE 30
<S> <C> <C> <C> <C>
Net sales................................. $146,090 $159,912 $190,782 $241,676
Gross profit.............................. 39,810 38,775 52,788 73,750
Earnings (loss) from continuing opera-
tions.................................... (4,618) (2,977) 40 8,886
per share............................... (.28) (.18) -- .51
Net earnings (loss)....................... (4,618) (2,977) 40 8,886
per share............................... (.28) (.18) -- .51
Market price of Class A Stock:
High.................................... 17 17 3/4 15 3/8 18
Low..................................... 12 1/4 14 3/8 12 7/8 11 5/8
Close................................... 16 14 5/8 13 3/8 18
</TABLE>

Included in earnings (loss) from continuing operations are (i) a $2,528
nonrecurring gain from the sale of SBC in the fourth quarter of Fiscal 1997,
(ii) charges to reflect the cost of restructuring the Company's Aerospace
Fasteners segment, of $285, $959 and $1,075 in the second, third and fourth
quarters of Fiscal 1996, respectively, and (iii) nonrecurring income of
$161,406 resulting primarily from the gain on the merger of FCSC into STI in
the third quarter of Fiscal 1996. Earnings from discontinued operations, net,
includes the results of DME and Data in each Fiscal 1996 quarter.
Extraordinary items relate to the early extinguishment of debt by the Company.
(See Note 7).

F-34
<PAGE>

THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)

24. SUBSEQUENT EVENTS

On July 16, 1997, STFI entered into a definitive merger agreement (the
"STFI/Tel-Save Merger") with Tel-Save Holdings, Inc. ("Tel-Save"), pursuant to
which Tel-Save plans to acquire STFI in a business combination accounted for
as a pooling of interests. Upon consummation of the STFI/Tel-Save Merger, the
Company will receive shares of Tel-Save's common stock in exchange for its
shares of STFI common stock and STFI cumulative convertible preferred stock.
The price to be paid by Tel-Save is $11.25 for each share of STFI. This price
may increase depending on the price of Tel-Save prior to the effective date of
the merger. In addition, the Company will receive approximately $22,000 cash
in redemption for its shares of STFI special preferred stock. The Company
expects the merger to be consummated prior to December 31, 1997. As a result
of the transaction, the Company will recognize an estimated gain in excess of
$100,000.

F-35
<PAGE>

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY IN-
FORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFER CONTAINED HEREIN AND, IF GIVEN OR MADE, SUCH OTHER
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHO-
RIZED BY THE COMPANY, ANY SELLING STOCKHOLDER, ANY UNDERWRITER OR ANY OTHER
PERSON. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY, ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES TO
WHICH IT RELATES, OR AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY, TO
ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHO-
RIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALI-
FIED TO DO SO, OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SO-
LICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUN-
DER 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 IN-
FORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.

------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
<S> <C>
Available Information.................................................... 2
Incorporation of Certain Information by Reference........................ 2
Prospectus Summary....................................................... 3
The Company.............................................................. 3
Risk Factors............................................................. 8
Use of Proceeds.......................................................... 11
Dividend Policy.......................................................... 11
Price Range of Class A Common Stock...................................... 11
Capitalization........................................................... 12
Selected Consolidated Financial Data..................................... 13
Pro Forma Consolidated Financial Statements.............................. 14
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 17
Business................................................................. 24
The Spin-Off............................................................. 31
Management............................................................... 33
Principal and Selling Stockholders....................................... 36
Description of Capital Stock............................................. 39
Description of New Credit Facility....................................... 41
Underwriting............................................................. 42
Shares Eligible for Future Sale.......................................... 44
Legal Matters............................................................ 44
Experts.................................................................. 45
Index to Financial Statements............................................ F-1
</TABLE>

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

5,435,000 SHARES

THE FAIRCHILD CORPORATION

CLASS A COMMON STOCK

[LOGO]

----------------

PROSPECTUS

----------------

DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION

BT ALEX. BROWN

SBC WARBURG DILLON READ INC.

, 1997

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, incurred in connection with the sale
of Common Stock being registered (all amounts are estimated except the SEC
registration fee, the NASD filing fee and the New York Stock Exchange listing
fee). The Company will bear all expenses incurred in connection with the sale
of the Common Stock being registered hereby.

<TABLE>
<S> <C>
SEC Registration Fee................................................ $53,360
NASD Filing Fee..................................................... 18,109
New York Stock Exchange Listing Fee................................. *
Printing............................................................ *
Legal Fees and Expenses............................................. *
Accounting Fees and Expenses........................................ *
Blue Sky Fees and Expenses.......................................... *
Stock Certificates and Transfer Agent Fees.......................... *
Miscellaneous....................................................... *
-------
Total............................................................. $ *
=======
</TABLE>
- ---------------------
* To be completed by amendment.

ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Section 145 of the Delaware General Corporation Law (the "DGCL") makes
provision for the indemnification of officers and directors of corporations in
terms sufficiently broad to indemnify the officers and directors of the
registrant under certain circumstances for liabilities (including
reimbursement of expenses incurred) arising under the Securities Act of 1933,
as amended (the "Act").

The registrant's Bylaws (the "Bylaws") provide that the registrant may
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action by or
in the right of the registrant), by reason of the fact that he is or was a
director, officer, employee or agent of the registrant or is or was serving at
the request of the registrant as a director, officer, employee or agent of
another corporation or enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding.

ITEM 16. EXHIBITS.

(a) Exhibits

<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
<C> <S>
*1.1 Form of Underwriting Agreement.
3.1 Registrant's Restated Certificate of Incorporation (incorporated
by reference to Exhibit "C" of Registrant's Proxy Statement dated
October 27, 1989).
3.2 Registrant's Amended and Restated By-Laws (incorporated by
reference to the Registrant's Annual Report on Form 10-K for the
fiscal year ended June 30, 1996).
4.1 Specimen of Class A Common Stock certificate (incorporated by
reference to Registration Statement No. 33-15359 on Form S-2).
</TABLE>

II-1
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
<C> <S>
4.2 Specimen of Class B Common Stock certificate (incorporated by
reference to Registrant's Annual Report on Form 10-K for the
fiscal year ended June 30, 1989 (the "1989 10-K")).
4.3 Form of Indenture between Registrant and J. Henry Schroder Bank &
Trust Company, pursuant to which Registrant's 13 1/8% Subordinated
Debentures due 2006 (the "Senior Debentures") were issued (the
"Debenture Indenture"), and specimen of Senior Debenture
(incorporated by reference to Registration Statement No. 33-3521
on Form S-2).
4.4 First Supplemental Indenture dated as of November 26, 1986, to the
Debenture Indenture (incorporated by reference to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended December 31,
1986 (the "December 1986 10-Q")).
4.5 Form of Indenture between Registrant and Manufacturers Hanover
Trust Company pursuant to which Registrant's 12 1/4% Senior
Subordinated Notes due 1996 (the "Senior Notes") were issued (the
"Note Indenture"), and specimen of Senior Note (incorporated by
reference to Registration Statement No. 33-03521 on Form S-2).
4.6 First Supplemental Indenture dated as of November 26, 1986, to the
Note Indenture (incorporated by reference to the December 1986 10-
Q).
4.7 Indenture between Registrant and Connecticut National Bank (as
successor to National Westminster Bank) dated as of October 15,
1986, pursuant to which Registrant's Intermediate Subordinated
Debentures due 2001 (the "Intermediate Debentures") were issued,
and specimen of Intermediate Debenture (incorporated by reference
to Registrant's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1986 (the "September 1986 10-Q")).
4.8 Indenture between Rexnord Acquisition Corp. ("RAC") and Bank of
New York (as successor to Irving Trust Company) dated as of March
2, 1987, pursuant to which RAC's Senior Subordinated Debentures
due 1999 (the "Rexnord Senior Debentures") were issued (the
"Rexnord Senior Indenture"), and specimen of Rexnord Senior
Debenture incorporated by reference to Registrant's Annual Report
on Form 10-K for fiscal year ended June 30, 1987 (the "1987 10-
K").
4.9 First Supplemental Indenture between Rexnord Inc. ("Rexnord") (as
successor to RAC) and Irving Trust Company dated as of July 1,
1987, to the Rexnord Senior Indenture (incorporated by reference
to Registration Statement No. 33-15359 on Form S-2).
4.10 Second Supplemental Indenture between Rexnord Holdings Inc., now
known as RHI Holdings, Inc. ("RHI") (as successor to Rexnord) and
Irving Trust Company dated as of August 16, 1988, to the Rexnord
Senior Indenture (incorporated by reference to Registrant's Annual
Report on Form 10-K for the fiscal year ended June 30, 1988 (the
"1988 10-K")).
4.11 Indenture between Registrant and Norwest Bank Minneapolis, N.A.
dated as of March 2, 1987, pursuant to which Registrant's Junior
Subordinated Debentures due 2007 (the "Junior Debentures") were
issued, and specimen of Junior Debenture (incorporated by
reference to Final Amendment to Tender Offer Statement on Schedule
14D-1 of Banner Acquisition Corp. ("BAC") dated March 9, 1987).
4.12 First Supplemental Indenture between Registrant and Norwest Bank,
Minnesota Bank, N.A., dated as of February 28, 1991, to Indenture
dated as of March 2, 1987, relating to the Junior Debentures
(incorporated by reference to the 1991 10-K).
4.13 Securities Purchase Agreement dated as of October 15, 1986, by and
among Registrant and each of the Purchasers of the Intermediate
Debentures (incorporated by reference to the September 1986 10-Q).
4.14 Securities Purchase Agreement dated as of March 2, 1987, by and
among Registrant, RAC and each of the Purchasers of the Junior
Debentures, the Rexnord Senior Debentures and other securities
(incorporated by reference to the 1987 10-K).
</TABLE>

II-2
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
<C> <S>
4.15 Registration Rights Agreement dated as of October 15, 1986, by and
among Registrant and each of the purchasers of the Intermediate
Debentures (incorporated by reference to the September 1986 10-Q).
4.16 Registration Rights Agreement dated as of March 2, 1987, by and
among Registrant, RAC and each of the purchasers of the Junior
Debentures, the Rexnord Senior Debentures and other securities
(incorporated by reference to Registrant's Report on Form 8-K
dated March 17, 1987).
*5.1 Opinion of Cahill Gordon & Reindel as to the legality of the
Common Stock.
23.1 Consent of Arthur Andersen LLP, independent public accountants.
*23.2 Consent of Cahill Gordon & Reindel (included in Exhibit 5.1).
24.1 Powers of Attorney (set forth on the signature page of the
Registration Statement).
</TABLE>
- ---------------------
* To be filed by amendment.

ITEM 17. UNDERTAKINGS.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer, or controlling person of the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, 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. The undersigned Registrant hereby
undertakes to provide to the Underwriters at the closing specified in the
Underwriting Agreement certificates in such denominations and registered in
such names as required by the Underwriters to permit prompt delivery to each
purchaser. The undersigned Registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
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.

(3) For the purposes of determining any liability under the Securities
Act of 1933, each filing of the registrant's annual report pursuant to
section 13(a) or section 15(d) of the securities Exchange Act of 1934 (and,
where applicable, each filing of an employee benefit plan's annual report
pursuant to section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the registration statement shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.

II-3
<PAGE>

(4) To deliver or cause to be delivered with the prospectus, to each
person to whom the prospectus is sent or given, the latest annual report to
security holders that is incorporated by reference in the prospectus and
furnished pursuant to and meeting the requirements of Rule 14a-3 or Rule
14c-3 under the Securities Exchange Act of 1934; and, where interim
financial information required to be presented by Article 3 of Regulation
S-X are not set forth in the prospectus, to deliver, or cause to be
delivered to each person to whom the prospectus is sent or given, the
latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information.

II-4
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in The City of New York,
State of New York on October 6, 1997.

/s/ Colin M. Cohen
By: _________________________________

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Colin M. Cohen, Donald E. Miller and John L.
Flynn and each of them, 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 other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said attorneys-in-
fact and agents, and each of them, full power and authority to do and perform
each and every act and thing requisite or necessary to be done in and about
the premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that each said attorneys-in-fact
and agents or any of them or their or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacity indicated on October 6, 1997.

SIGNATURE TITLE

/s/ Jeffrey J. Steiner Chairman of the Board, Chief
- ------------------------------------- Executive Officer and President
JEFFREY J. STEINER (Principal Chief Executive
Officer)

/s/ Michael T. Alcox Director
- -------------------------------------
MICHAEL T. ALCOX

/s/ Melville R. Barlow Director
- -------------------------------------
MELVILLE R. BARLOW

/s/ Mortimer M. Caplin Director
- -------------------------------------
MORTIMER M. CAPLIN

II-5
<PAGE>

SIGNATURE TITLE

/s/ Colin M. Cohen Senior Vice President, Chief
- ------------------------------------- Financial Officer, Controller and
COLIN M. COHEN Director (Principal Accounting
Officer) (Principal Financial
Officer)

/s/ Philip David Director
- -------------------------------------
PHILIP DAVID

/s/ Harold J. Harris Director
- -------------------------------------
HAROLD J. HARRIS

/s/ Samuel J. Krasney Vice Chairman and Director
- -------------------------------------
SAMUEL J. KRASNEY

/s/ Daniel Lebard Director
- -------------------------------------
DANIEL LEBARD

/s/ Jacques S. Moskovic Director
- -------------------------------------
JACQUES S. MOSKOVIC

/s/ Herbert S. Richey Director
- -------------------------------------
HERBERT S. RICHEY

/s/ Moshe Sanbar Director
- -------------------------------------
MOSHE SANBAR

/s/ Robert A. Sharpe, II Director
- -------------------------------------
ROBERT A. SHARPE, II

/s/ Eric I. Steiner Director
- -------------------------------------
ERIC I. STEINER

II-6
<PAGE>

INDEX TO EXHIBITS

<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBIT NO. DESCRIPTION PAGE NUMBER
<C> <S> <C>
*1.1 Form of Underwriting Agreement.
3.1 Registrant's Restated Certificate of Incorporation
(incorporated by reference to Exhibit "C" of
Registrant's Proxy Statement dated October 27,
1989).
3.2 Registrant's Amended and Restated By-Laws
(incorporated by reference to the Registrant's
Annual Report on Form 10-K for the fiscal year
ended June 30, 1996).
4.1 Specimen of Class A Common Stock certificate
(incorporated by reference to Registration
Statement No. 33-15359 on Form S-2).
4.2 Specimen of Class B Common Stock certificate
(incorporated by reference to Registrant's Annual
Report on Form 10-K for the fiscal year ended June
30, 1989 (the "1989 10-K")).
4.3 Form of Indenture between Registrant and J. Henry
Schroder Bank & Trust Company, pursuant to which
Registrant's 13 1/8% Subordinated Debentures due
2006 (the "Senior Debentures") were issued (the
"Debenture Indenture"), and specimen of Senior
Debenture (incorporated by reference to
Registration Statement No. 33-3521 on Form S-2).
4.4 First Supplemental Indenture dated as of November
26, 1986, to the Debenture Indenture (incorporated
by reference to the Registrant's Quarterly Report
on Form 10-Q for the quarter ended December 31,
1986 (the "December 1986 10-Q")).
4.5 Form of Indenture between Registrant and
Manufacturers Hanover Trust Company pursuant to
which Registrant's 12 1/4% Senior Subordinated
Notes due 1996 (the "Senior Notes") were issued
(the "Note Indenture"), and specimen of Senior Note
(incorporated by reference to Registration
Statement No. 33-03521 on Form S-2).
4.6 First Supplemental Indenture dated as of November
26, 1986, to the Note Indenture (incorporated by
reference to the December 1986 10-Q).
4.7 Indenture between Registrant and Connecticut
National Bank (as successor to National Westminster
Bank) dated as of October 15, 1986, pursuant to
which Registrant's Intermediate Subordinated
Debentures due 2001 (the "Intermediate Debentures")
were issued, and specimen of Intermediate Debenture
(incorporated by reference to Registrant's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1986 (the "September 1986 10-Q")).
4.8 Indenture between Rexnord Acquisition Corp. ("RAC")
and Bank of New York (as successor to Irving Trust
Company) dated as of March 2, 1987, pursuant to
which RAC's Senior Subordinated Debentures due 1999
(the "Rexnord Senior Debentures") were issued (the
"Rexnord Senior Indenture"), and specimen of
Rexnord Senior Debenture incorporated by reference
to Registrant's Annual Report on Form 10-K for
fiscal year ended June 30, 1987 (the "1987 10-K").
4.9 First Supplemental Indenture between Rexnord Inc.
("Rexnord") (as successor to RAC) and Irving Trust
Company dated as of July 1, 1987, to the Rexnord
Senior Indenture (incorporated by reference to
Registration Statement No. 33-15359 on Form S-2).
</TABLE>
<PAGE>

<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBIT NO. DESCRIPTION PAGE NUMBER
<C> <S> <C>
4.10 Second Supplemental Indenture between Rexnord
Holdings Inc., now known as RHI Holdings, Inc.
("RHI") (as successor to Rexnord) and Irving Trust
Company dated as of August 16, 1988, to the Rexnord
Senior Indenture (incorporated by reference to
Registrant's Annual Report on Form 10-K for the
fiscal year ended June 30, 1988 (the "1988 10-K")).
4.11 Indenture between Registrant and Norwest Bank
Minneapolis, N.A. dated as of March 2, 1987,
pursuant to which Registrant's Junior Subordinated
Debentures due 2007 (the "Junior Debentures") were
issued, and specimen of Junior Debenture
(incorporated by reference to Final Amendment to
Tender Offer Statement on Schedule 14D-1 of Banner
Acquisition Corp. ("BAC") dated March 9, 1987).
4.12 First Supplemental Indenture between Registrant and
Norwest Bank, Minnesota Bank, N.A., dated as of
February 28, 1991, to Indenture dated as of March
2, 1987, relating to the Junior Debentures
(incorporated by reference to the 1991 10-K).
4.13 Securities Purchase Agreement dated as of October
15, 1986, by and among Registrant and each of the
Purchasers of the Intermediate Debentures
(incorporated by reference to the September 1986
10-Q).
4.14 Securities Purchase Agreement dated as of March 2,
1987, by and among Registrant, RAC and each of the
Purchasers of the Junior Debentures, the Rexnord
Senior Debentures and other securities
(incorporated by reference to the 1987 10-K).
4.15 Registration Rights Agreement dated as of October
15, 1986, by and among Registrant and each of the
purchasers of the Intermediate Debentures
(incorporated by reference to the September 1986
10-Q).
4.16 Registration Rights Agreement dated as of March 2,
1987, by and among Registrant, RAC and each of the
purchasers of the Junior Debentures, the Rexnord
Senior Debentures and other securities
(incorporated by reference to Registrant's Report
on Form 8-K dated March 17, 1987).
Opinion of Cahill Gordon & Reindel as to the
*5.1 legality of the Common Stock.
Consent of Arthur Andersen LLP, independent public
23.1 accountants.
Consent of Cahill Gordon & Reindel (included in
*23.2 Exhibit 5.1).
Powers of Attorney (set forth on the signature page
24.1 of the Registration Statement).
</TABLE>
- ---------------------
* To be filed by amendment.

<PAGE>

EXHIBIT 23.1

CONSENT OF ARTHUR ANDERSEN LLP

As independent public accountants, we hereby consent to the use of our
report (and to all references to our firm) included in or made a part of this
registration statement.

/s/ Arthur Andersen LLP
-------------------------------------
ARTHUR ANDERSEN LLP

October 6, 1997.