<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
Banner Aerospace, Inc.
- - --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- - --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
- - --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- - --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
- - --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- - --------------------------------------------------------------------------------
(5) Total fee paid:
- - --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
- - --------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
- - --------------------------------------------------------------------------------
(3) Filing party:
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(4) Date filed:
- - --------------------------------------------------------------------------------
<PAGE> 2
BANNER AEROSPACE, INC.
300 WEST SERVICE ROAD
P.O. BOX 20260
WASHINGTON, DC 20041
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD SEPTEMBER 12, 1997
------------------------
To the Stockholders of Banner Aerospace, Inc.:
The Annual Meeting of Stockholders of Banner Aerospace, Inc., a Delaware
corporation (the "Company"), will be held at the Marriott Hotel, Washington
Dulles International Airport, 333 West Service Road, Chantilly, Virginia 22021
on Friday, September 12, 1997, at 10:00 a.m., for the following purposes:
1. To elect nine directors of the Company for the ensuing year;
2. To amend the 1990 Non-Qualified and Incentive Stock Option Plan;
3. To approve the grant of options to certain employees under the 1990
Non-Qualified and Incentive Stock Option Plan;
4. To approve the Board of Directors' selection of independent auditors
of the Company; and
5. To transact such other business as may properly come before the
meeting or any adjournments or postponements thereof.
Only stockholders of record as of the close of business on July 21, 1997,
will be entitled to notice of and to vote at the Annual Meeting and at any
adjournments or postponements thereof.
By Order of the Board of Directors
Eugene W. Juris
Secretary
August 8, 1997
KINDLY DATE AND SIGN THE ENCLOSED PROXY CARD AND PROMPTLY RETURN IT IN THE
ENCLOSED STAMPED, ADDRESSED ENVELOPE.
<PAGE> 3
BANNER AEROSPACE, INC.
300 WEST SERVICE ROAD
P.O. BOX 20260
WASHINGTON, DC 20041
AUGUST 8, 1997
------------------------
PROXY STATEMENT
------------------------
This Proxy Statement is furnished in connection with the solicitation of
proxies on behalf of the Board of Directors (the "Board") of Banner Aerospace,
Inc. (the "Company") for use at the Annual Meeting of Stockholders (the "Annual
Meeting") to be held at 10:00 a.m. on Friday, September 12, 1997, and at any
adjournments or postponements thereof, at the Marriott Hotel, Washington Dulles
International Airport, 333 West Service Road, Chantilly, Virginia 22021. Only
holders of record of the Company's common stock, $1.00 par value ("Common
Stock"), at the close of business on July 21, 1997 will be entitled to vote at
the Annual Meeting. On July 21, 1997, there were 23,429,277 shares of Common
Stock outstanding and eligible to vote. Each share of Common Stock entitles the
holder thereof to one vote on each matter scheduled to come before the Annual
Meeting.
This Proxy Statement and enclosed proxy form are first being mailed to the
Company's shareholders on or about August 8, 1997.
Any proxy given pursuant to this solicitation and received in time for the
Annual Meeting will be voted as specified in such proxy. If no instructions are
given, proxies will be voted "FOR" the election of the nominees named below
under the caption "Election of Directors -- Information as to Nominees," and
"FOR" each of the other proposals set forth in the Notice of Annual Meeting and
this Proxy Statement.
The holders of record of a majority of the outstanding shares of Common
Stock will constitute a quorum for the transaction of business at the Annual
Meeting. Abstentions and broker non-votes (shares held by a broker or nominee
which are represented at the Annual Meeting, but with respect to which such
broker or nominee is not empowered to vote on a particular proposal) are counted
for purposes of determining the presence or absence of a quorum for the
transaction of business.
In the election of directors, holders of Common Stock are entitled to elect
nine directors with the nine candidates who receive the highest number of
affirmative votes being elected. Votes against a candidate and votes withheld
have no legal effect.
The proposals in this Proxy Statement (other than the election of
directors) require the affirmative vote of a majority of shares of Common Stock
in person or represented by proxy and entitled to vote at the Annual Meeting.
Abstentions from voting in such proposals have the effect of a negative vote.
Broker non-votes are not deemed entitled to vote and have no effect for purposes
of determining whether a proposal has been approved. However, under New York
Stock Exchange rules, all votes cast either for or against such proposals must
(in the aggregate) represent at least 50% of the outstanding shares of Common
Stock. Abstentions and broker non-votes make it more difficult to meet this New
York Stock Exchange requirement.
The Board does not know of any matter, other than those specified herein,
which will be presented for action at the Annual Meeting. In the event that any
other matters should properly come before the Annual Meeting, it is the
intention of the persons named in the enclosed proxy to vote the proxy in
accordance with their best judgment on such matters.
<PAGE> 4
Any proxy may be revoked at any time prior to its exercise by notifying the
Company's Secretary in writing at the above address, by delivering a duly
executed proxy bearing a later date or by attending the Annual Meeting and
voting in person.
ITEM 1 -- ELECTION OF DIRECTORS
Nine directors are to be elected for the ensuing year to hold office until
the next annual meeting of stockholders and until their successors are elected
and qualified. In fiscal year 1997 the Board consisted of eleven members.
Starting with the Annual Meeting, the number of directors on the Board will be
reduced to nine members. With the exceptions of Mr. Samuel J. Krasney, who has
resigned from the Board, and Mr. Frederick W. Bradley, Jr., who is not standing
for reelection, all of the incumbent directors are nominees for election at the
Annual Meeting.
Mr. Krasney resigned from the Board due to health reasons. Mr. Krasney
founded the original Banner Industries, Inc., which later became The Fairchild
Corporation. When, in 1990, Fairchild initiated an initial public offering of
Banner Aerospace stock, Mr. Krasney became the Company's first Chairman and
Chief Executive Officer. Since 1990, he has ably served on the Board. Mr.
Krasney's contributions to the Company's growth, vitality and strength, provided
an underpinning for today's marketplace leadership. The Company thanks Mr.
Krasney for his years of service, his wisdom, and stewardship.
INFORMATION AS TO NOMINEES
Set forth below is information about each nominee for election as a
director, based on information supplied by him, including his name, age and
principal occupations during the past five years, and certain directorships held
by him.
MICHAEL T. ALCOX, 49, has served as a Director of the Company since 1990.
He served as Vice President of the Company from March 1990 through May 1990.
From 1987 through September 1996 he served as Senior Vice President and Chief
Financial Officer of The Fairchild Corporation ("Fairchild"), a worldwide
aerospace fasteners manufacturer and semiconductor process equipment company. He
presently serves as a Vice President of Fairchild, not employed on a full time
basis. Fairchild is a substantial shareholder of the Company. Mr. Alcox also
owns and operates travel and real estate businesses. Mr. Alcox is a director of
Fairchild. (2) (4)
STEVEN L. GERARD, 52, has served as a Director of the Company since 1992.
Mr. Gerard has served as the Chairman and the Chief Executive Officer of Ocean
View Capital, Inc., the successor to Triangle Wire and Cable, Inc., a
manufacturer of insulated wire and cable, since September 1992. Mr. Gerard
previously served as the Chief Executive Officer and a director of Mountleigh
Group, plc, a London-based company engaged in property management, from April
1992 until July 1992. Mr. Gerard was hired in connection with a restructuring of
Mountleigh. In connection with the restructuring, Mountleigh was placed in U.K.
receivership on May 23, 1992. From July 1990 to April 1992, Mr. Gerard served as
a Senior Managing Director of Citibank, N.A. ("Citibank") and was responsible
for credit, portfolio and risk management for Citibank's corporate and
investment banking activities in the United States, Japan, Europe and Australia.
Mr. Gerard is also a director of Deeptech International, Inc. and U.S. Home
Corp. (2) (3) (4) (6) (7)
CHARLES M. HAAR, 76, has served as a Director of the Company since 1992. He
has been a professor of law at Harvard University since 1956. He has served as a
consultant to Skadden, Arps, Slate, Meagher & Flom for more than the past five
years. Professor Haar is a director of American Health Properties. (3) (4) (5)
(6)
PHILIPPE HERCOT, 30, has served as a Director of the Company since 1995. He
has served as a managing partner for Capital Industrie (an investment and
consulting firm) since
2
<PAGE> 5
May 1997. Prior thereto, he was employed by Apax Partners (an investment
company) as an associate from September 1996 to April 1997 and by Donaldson,
Lufkin & Jenrette (an investment banking firm) as an associate from August 1993
to August 1996. Mr. Hercot received his M.B.A. in June 1993 from Harvard
Business School. During his schooling, Mr. Hercot was a consultant for McKinsey
& Co. (a consulting firm) in Paris, France. Mr. Hercot is the son-in-law of Mr.
Jeffrey J. Steiner. (4)
WARREN D. PERSAVICH, 44, has served as Senior Vice President and Chief
Financial Officer of the Company since June 1990 and a Director since 1990. From
March 1990 to June 1990, he served as Vice President of the Company. (1)
DR. ERIC I. STEINER, 35, has served as Senior Vice President of the Company
since May 1997 and as a Director of the Company since 1992. He has served as
Executive Vice President and Chief Operating Officer of Fairchild since November
1996, Senior Vice President -- Operations of Fairchild since May 1992 and
President of Fairchild Fasteners (a division of a Fairchild subsidiary), since
February 1995. Prior thereto, he served as President of Camloc/RAM Products
Division, a division of Fairchild Fasteners, from September 1993 to February
1995. Dr. Steiner is a director of Fairchild. Dr. Eric I. Steiner is the son of
Mr. Jeffrey J. Steiner. (1)
JEFFREY J. STEINER, 60, has served as Chairman of the Board, Chief
Executive Officer and President of the Company since September 1993. He served
as Vice Chairman of the Board of the Company from August 1990 to September 1993.
He has served as Chairman of the Board, Chief Executive Officer and President of
Fairchild for more than the past five years. Mr. Steiner is, and for the past
five years has served as, the President of Cedco Holdings, Ltd., a Bermuda
Corporation (an investment company). He is a director of The Franklin
Corporation, RHI Holdings, Inc., The Copley Fund and Shared Technologies
Fairchild, Inc. Mr. Jeffrey J. Steiner is the father of Dr. Eric I. Steiner and
the father-in-law of Mr. Philippe Hercot. (1)
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. In connection with
this inquiry, the magistrate has made inquiry into allegedly improper
transactions between Jeffrey Steiner and that petroleum company. In response to
the magistrate's request that Mr. Steiner appear in France as a witness, Mr.
Steiner submitted a written statement 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 has formed a special committee of outside
directors to advise it with respect to these matters, and the special committee
has retained counsel.
LEONARD TOBOROFF, 64, has served as a Director of the Company since 1992.
He has served as Executive Vice President and a director of Riddell Sports,
Inc., a manufacturer and licenser of sports equipment, since April 1988. He has
also served as a Vice President and the Vice Chairman of the Board of
Allis-Chalmers Corporation, a holding company, since May 1988. For more than the
past five years, Mr. Toboroff has been a private investor. Mr. Toboroff is a
director of Engex Corp. and Saratoga Beverages, Inc. (3) (4) (5) (6) (7)
3
<PAGE> 6
JOHN C. WERTZ, 58, has served as Senior Vice President and Chief Operating
Officer of the Company since August 1993 and has served as a Director since
1993. Prior thereto, he was employed by the Hamilton Standard Division
(manufacturer of aerospace equipment) of United Technologies Corporation as Vice
President of Commercial Aftermarket Business from October 1990 to July 1993; as
Vice President of Manufacturing Planning and Support from March 1990 to October
1990; and as Vice President-Operations from February 1988 to March 1990. (1)
- - ------------
(1) Member of the Executive Committee.
(2) Member of the Audit Committee.
(3) Member of the Compensation and Stock Option Committee.
(4) Member of the Nominating Committee.
(5) Member of the Ethics Committee.
(6) Member of the Special Bellyloading/Rights Offering Committee.
(7) Member of the Special Committee.
BOARD OF DIRECTORS AND CERTAIN COMMITTEE MATTERS
The Board held four meetings during fiscal 1997. Except for Mr. Krasney,
who, because of his health, did not attend any of the meetings, no incumbent
director attended less than 75% of the total number of meetings of the Board
during his term and all meetings of each committee of the Board on which he
served.
The Board has (1) an Executive Committee which has the authority to
exercise all the power of the Board when the latter is not in session; (2) an
Audit Committee whose primary functions are to assist the Board with respect to
internal control, accounting and reporting practices of the Company and to
maintain communication with the independent auditors of the Company; (3) a
Compensation and Stock Option Committee whose functions are to review and
approve the compensation and benefits of the corporate officers, to review and
advise management regarding the benefits, including bonuses, and other terms and
conditions of employment of other employees of the Company, to review and
recommend for the approval of the full Board the compensation of directors, to
administer the Company's stock option plans and to award employee stock options;
(4) a Nominating Committee whose primary functions are to review possible
candidates for members of the Board of Directors and recommend a slate of
nominees for election as directors at the Company's Annual Meeting of
Stockholders; and (5) an Ethics Committee whose primary function is to oversee
and review the ethical standards of the Company. During fiscal 1997, the
Compensation and Stock Option Committee held two meetings and the Audit
Committee held two meetings. The Executive, Nominating and Ethics Committees did
not hold any meetings during the fiscal year.
In September 1996, the Board appointed a special committee (the "Special
Bellyloading/Rights Offering Committee") which was comprised of three Directors
of the Company who were neither officers nor employees of the Company or
otherwise affiliated with Fairchild. The purpose of the Special
Bellyloading/Rights Offering Committee was to evaluate the acquisition of
Fairchild Scandinavian Bellyloading Company, AB ("Bellyloading") from Fairchild.
The Special Bellyloading/Rights Offering Committee met several times with its
financial and legal advisors to analyze the suitability and value of the
Bellyloading acquisition. During the last quarter of calendar 1996, preliminary
terms for a Bellyloading acquisition were reached between the Company and
Fairchild. The agreement was approved by the Special Bellyloading/Rights
Offering Committee, the Board of Directors and shareholders. In addition, the
Special Bellyloading/Rights Offering Committee evaluated a proposed preferred
stock rights offering. The rights offering for Series A Convertible Paid-in-Kind
Preferred Stock, par value $.01 per share, 7.5% per annum dividend rate, was
effective May 1997. See discussion below under "Certain Transactions" regarding
the Bellyloading transaction.
4
<PAGE> 7
The Board also appointed a special committee (the "Special Committee")
which is comprised of three Directors of the Company who are neither officers
nor employees of the Company or otherwise affiliated with Fairchild. The purpose
of the Special Committee is to look into allegations raised in articles that
have appeared in the French press reporting an inquiry by a French magistrate.
This matter is discussed above under the biographical information for Mr.
Jeffrey Steiner. The Special Committee held five meetings with its legal
advisors during fiscal 1997.
The Nominating Committee will consider written recommendations for nominees
for next year's annual meeting submitted prior to April 10, 1998 by stockholders
to the Secretary of the Company. Biographical information and the written
consent of the potential nominee must accompany the recommendation.
INFORMATION AS TO EXECUTIVE OFFICERS
Set forth below is certain information about each executive officer of the
Company who is not a director of the Company or a nominee, based on information
supplied by him, including his name, age and principal occupations during the
past five years. All of the executive officers of the Company are elected by the
Board to serve until the next annual meeting of the Board and until their
successors are elected and qualified.
EUGENE W. JURIS, 39, has served as Vice President -- Finance and Secretary
of the Company since September 1993. Prior thereto, he served as the Treasurer
of the Company from June 1990 to September 1993, Vice President of the Company
from March 1990 to September 1993 and the Controller of the Company from June
1990 to December 1990.
No director or officer failed to file timely any Form 3, 4 or 5 required to
be filed by him during fiscal 1997.
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<PAGE> 8
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following Summary Compensation Table sets forth the aggregate cash and
non-cash compensation paid or accrued for each of the last three fiscal years,
to the chief executive officer and each of the other executive officers whose
salary and bonus exceeded $100,000 for fiscal 1997.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION --------------------------
--------------------------------------------------- SECURITIES
NAME AND FISCAL OTHER ANNUAL UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS(1) COMPENSATION(2) OPTIONS COMPENSATION
- - ----------------------------------- ------ -------- -------- --------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Jeffrey J. Steiner, 1997 $300,000 $273,375 $-- 80,000 $ 720(4)
Chairman, President and 1996 262,500 157,500 -- 150,000 --
Chief Executive Officer 1995 250,000 75,000 -- 75,000 --
John C. Wertz, 1997 180,000 110,344 -- 25,000 5,311(3)(4)
Senior Vice President and 1996 162,750 81,375 -- 35,000 5,841(3)
Chief Operating Officer 1995 155,000 38,750 2,387 25,000 3,750(3)
Warren D. Persavich, 1997 180,000 110,344 -- 25,000 5,311(3)(4)
Senior Vice President and 1996 162,750 81,375 -- 46,000 5,841(3)
Chief Financial Officer 1995 155,000 38,750 (1,623) 25,000 3,750(3)
Eugene W. Juris, 1997 130,000 80,094 -- 15,000 4,457(3)(4)
Vice President--Finance 1996 120,750 60,375 1,398 24,000 4,032(3)
and Secretary 1995 115,000 28,750 13,440 20,000 3,450(3)
</TABLE>
- - ------------
(1) Bonuses are shown for the year earned, but are primarily paid in the
following year.
(2) Tax gross-up payments related to reimbursement of relocation costs and
temporary living expenses.
(3) Company 401(k) matching contributions.
(4) Includes premiums paid for group term life insurance policies, as follows:
<TABLE>
<S> <C>
Jeffrey J. Steiner $ 720
John C. Wertz 432
Warren D. Persavich 432
Eugene W. Juris 312
</TABLE>
OPTIONS GRANTED IN FISCAL YEAR 1997
The following table sets forth information concerning individual grants of
stock options made during the last fiscal year to each named executive officer.
<TABLE>
<CAPTION>
% OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO EXERCISE GRANT DATE
OPTIONS EMPLOYEES IN PRICE EXPIRATION PRESENT
NAME GRANTED FISCAL 1997 ($/SH) DATE VALUE(4)
- - -------------------------- ---------- ------------ -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Jeffrey J. Steiner 80,000(2) 23.0% $6.875 5/29/01 $245,088
John C. Wertz(1) 25,000(3) 7.2% 6.875 5/29/01 76,590
Warren D. Persavich(1) 25,000(2) 7.2% 6.875 5/29/01 76,590
Eugene W. Juris(1) 15,000(2) 4.3% 6.875 5/29/01 45,954
</TABLE>
- - ------------
(1) Options granted to Messrs. Wertz, Persavich and Juris are subject to
shareholder approval, as provided in Items 2 and 3 of this Proxy Statement.
(2) Options granted vest ratably over three years.
(3) Options granted vest 0% in year 1, 25% in year 2, 25% in year 3 and 50% in
year 4.
(4) Value of Options using the Black-Scholes model.
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<PAGE> 9
OPTION YEAR END VALUES
The following table sets forth information concerning the fiscal year end
value of unexercised stock options of each of the named executive officers.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF
UNDERLYING UNEXERCISED IN-THE-MONEY UNEXERCISED
OPTIONS AT 3/31/97 OPTIONS AT 3/31/97
----------------------------- -----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- - ----------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Jeffrey J. Steiner 100,000 205,000 $ 366,195 $ 744,336
John C. Wertz 58,334 56,666 189,642 202,843
Warren D. Persavich 62,000 64,000 204,233 232,026
Eugene W. Juris 43,833 37,667 142,034 135,239
</TABLE>
No options were exercised by the executive officers during fiscal 1997.
EMPLOYMENT AGREEMENTS AND CHANGE IN CONTROL ARRANGEMENTS
Mr. Jeffrey J. Steiner has a three year employment agreement with the
Company which became effective September 9, 1992; however, each year the
remainder of the term of Mr. Steiner's employment is extended for an additional
one year period unless either party gives timely notice of its or his intention
not to extend further the term of the employment agreement. The employment
agreement provides for a base salary of not less than $250,000 per annum and
also provides for participation in the Company's bonus plan, retirement plan,
and other executive benefits. If Mr. Steiner dies during the term or any
extended term of the agreement, his legal representatives will receive monthly
or semi-monthly installments of his base salary up to and including the first
anniversary of the last day of the month in which Mr. Steiner's death occurs. In
addition, his legal representatives will receive benefits to which Mr. Steiner
would have been entitled, through the end of the fiscal year in which his death
occurs, under any additional compensation plan. For any fiscal year during which
the agreement is terminated due to Mr. Steiner's disability for more than nine
consecutive months, or shorter periods aggregating nine months during any twelve
month period, he will receive fifty percent of his base salary for two years,
plus all benefits to which he would have been entitled for the fiscal year
during which termination of his employment has occurred. The agreement also has
certain change in control provisions. Upon the occurrence of a change in control
or trigger event, Mr. Steiner is entitled to a cash payment equal to 2.99 times
the total of his then base salary plus bonus in the immediately preceding fiscal
year, less the portion of payments, under stock options vested solely due to a
change in control or trigger event, which is considered a parachute payment
under Section 280G of the Internal Revenue Code of 1986 ("Code"). A change in
control occurs if an event requires a response to Item 5(f) of Schedule 14A of
Regulation 14A under the Securities Exchange Act of 1934 as in effect January 1,
1986. There is a trigger event (i) if any person other than Jeffrey J. Steiner
or an affiliate of Jeffrey J. Steiner is or becomes the beneficial owner of
securities of the Company representing 20% of the then outstanding voting power
for the election of directors ("Voting Power"); (ii) if during a period of two
consecutive fiscal years individuals who at the beginning of such period
constitute the Board of Directors cease to be a majority of the Board unless the
election or nomination of each director was approved by a two-thirds vote of the
directors then still in office who were directors at the beginning of the
period; (iii) if the Company shall become a subsidiary of another corporation or
shall be reorganized, merged or consolidated into another corporation (unless it
is a reorganization under Section 368(a)(1)(f) of the Code) unless, in each
case, the holders of more than 80% of the Voting Power will retain similar
voting power of such other corporation's voting securities; (iv) if
substantially all the assets of the Company are sold to another company; (v) if
the Company is liquidated; or (vi) if the Company issues Common Stock
representing a majority of the Voting Power of the Company.
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<PAGE> 10
Mr. Wertz has a letter agreement which provided for an initial term of
employment ending March 31, 1995; however, each year the term of Mr. Wertz's
employment is extended for an additional one year period unless either party
gives timely notice of its or his intention not to extend further the term of
the employment agreement. The agreement provides for a base salary of not less
than $155,000 per annum, plus a bonus arrangement of 50% of base compensation if
certain performance targets are met. If at any time during the term of
employment, the agreement shall be terminated by the Company for any reason
other than with cause, Mr. Wertz or his estate will receive a continuation of
his base salary, at its then current rate, through a period of six months from
the effective date of termination.
Mr. Persavich has an employment agreement which was amended on September 1,
1993 to provide for a salary of not less than $155,000 per annum, plus a bonus
arrangement of 50% of base compensation if certain performance targets are met.
The amended agreement was initially for a period of three years. Commencing on
the first anniversary of the amended agreement, the term will be extended each
day by one day so that the remaining term is always two years, until terminated
by either party. Termination without cause by the Company will result in a two
year severance payment to Mr. Persavich, plus bonuses and certain other fringe
benefits.
Mr. Juris has an employment agreement which was amended on September 1,
1993 to provide for a salary of not less than $115,000 per annum, plus a bonus
arrangement of 50% of base compensation if certain performance targets are met.
The amended agreement was initially for a period of three years. Commencing on
the first anniversary of the amended agreement, the term will be extended each
day by one day so that the remaining term is always two years, until terminated
by either party. Termination without cause by the Company will result in a two
year severance payment to Mr. Juris, plus bonuses and certain other fringe
benefits.
RETIREMENT BENEFITS
The Company has a Supplemental Executive Retirement Plan for certain key
executives which provides a retirement benefit based on final average earnings
and years of service. Benefits which may be payable under this plan are not
included in the Summary Compensation Table. This plan provides a maximum
retirement benefit equal to the difference between sixty percent of the
participant's average base salary for the last five years of employment and the
participant's primary Social Security benefit. This plan is unfunded,
unqualified and is not subject to the Employee Retirement Income Security Act of
1974, as amended. The plan was adopted in September 1994 to provide for lump sum
preretirement advances on an actuarially reduced basis at the election of
participants age sixty-five or over, contingent upon approval of the
Compensation and Stock Option Committee. All persons named in the Summary
Compensation Table are eligible for participation in this plan. The estimated
annual benefits payable upon retirement at normal retirement age for each of the
named executive officers is as follows: Jeffrey Steiner, $187,000; John Wertz,
$115,000; Warren Persavich, $184,000; and Eugene Juris, $155,000.
DIRECTORS COMPENSATION
Fees. Outside directors are currently paid an annual retainer of $12,000,
payable in cash in equal quarterly payments of $3,000. In addition, each outside
director receives $1,000 for each Board meeting attended. If a committee meeting
is attended on a day other than a Board meeting, each outside director receives
$500. Travel expenses are reimbursed for all meetings. Total outside directors
fees paid for normal meetings during fiscal year 1997 were $167,000 in the
aggregate.
Stock Options. Pursuant to the 1996 Non-Employee Director Stock Option
Plan ("1996 NED Plan"), commencing with the 1996 Annual Meeting, outside
directors receive stock options for 5,000 shares of Common Stock at the time
they are first elected to serve on the Board and,
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<PAGE> 11
thereafter, they receive stock options for 1,000 shares of Common Stock for each
additional year in which they are elected to serve on the Board. Of the nominees
for election at the 1997 Annual Meeting, Messrs. Alcox, Gerard, Haar, Hercot and
Toboroff qualify as outside directors under the 1996 NED Plan. Pursuant to the
1996 NED Plan: (i) on the date of 1996 Annual Meeting, the Company granted
options for 40,000 shares of Common Stock in the aggregate to outside directors;
and (ii) on the date of the 1997 Annual Meeting, the Company will grant options
for 5,000 shares of Common Stock in the aggregate to outside directors.
Compensation for Special Committees. In fiscal 1997, Messrs. Gerard, Haar
and Toboroff served as members of the Special Bellyloading/Rights Offering
Committee and Messrs. Bradley, Gerard and Toboroff served as members of the
Special Committee. The purpose for each of these committees is described above
under "BOARD OF DIRECTORS AND CERTAIN COMMITTEE MATTERS." As compensation for
their services, Mr. Gerard, as Chairman of the Special Bellyloading/Rights
Offering Committee, received $20,000 and Messrs. Haar and Toboroff each received
$10,000. The Special Committee met five times during fiscal 1997. Each member
received $1,000 per meeting as compensation for his services. Total outside
director fees paid for special meetings during fiscal 1997 were $55,000 in the
aggregate.
Management Directors. Management directors receive no fees or stock
options for their services as directors.
COMPENSATION AND STOCK OPTION COMMITTEE
REPORT ON EXECUTIVE COMPENSATION
The Compensation and Stock Option Committee of the Board of Directors
("Committee") has furnished this report on executive compensation. The Committee
is comprised of the individuals listed below, all of whom are outside directors.
The Committee has responsibility for the compensation matters relating to
Company executive officers. The Committee makes recommendations for executive
compensation and submits the recommendations to the Board for approval. No
member of the Committee has served as an officer of the Company nor is eligible
to participate in any of the compensation plans or programs it administers other
than the 1996 Non-Employee Director Stock Option Plan.
COMPENSATION PHILOSOPHY
Since its initial public offering ("IPO") in August 1990, the Company's
compensation philosophy has been i) to provide a base compensation sufficient to
attract and retain key executives; ii) to provide an annual incentive program
related to specific performance goals designed to motivate key executives to
enhance stockholder value and to encourage the retention of a sound management
team; and iii) to provide a longer term incentive program where, through the
grant of stock options, rewards are related to the market performance of the
Company's Common Stock. The Committee believes its approach to compensation
should be consistent over time and be fair to the Company, its officers and
stockholders.
EMPLOYMENT AGREEMENT -- CEO
Mr. Steiner has had an employment agreement with the Company since
September 1992. He became the Chief Executive Officer ("CEO") of the Company
upon the retirement of Samuel J. Krasney in September 1993. He provides
direction and motivation to the management of the Company's subsidiaries and is
responsible for acquisitions and divestitures. The CEO formulates the goals and
objectives of the Company and is responsible for implementing strategies to
accomplish them. The employment agreement initially established Mr. Steiner's
annual base salary at $250,000 and was subsequently increased to $262,500 in
April 1995. In April 1996, the Committee increased Mr. Steiner's annual salary
from $262,500 to $300,000, an increase of approximately fourteen percent. This
increase was based on the Committee's determination to
9
<PAGE> 12
continue providing Mr. Steiner with a competitive salary as compared to other
companies of similar size in similar industries. In addition, the Committee took
into account the fact that Mr. Steiner only received one salary increase over
the past six years. Mr. Steiner's employment arrangements also provide for an
annual bonus award of 60% of base compensation if certain performance targets,
established by the Committee and approved by the Board, are achieved. Mr.
Steiner may also receive additional bonus awards if the performance targets are
exceeded.
EMPLOYMENT AGREEMENTS -- OTHER EXECUTIVE OFFICERS
The other executive officers of the Company also have existing employment
agreements. The employment agreements for Messrs. Persavich and Juris were
amended in fiscal 1994 to reflect the relocation of the corporate office from
Cleveland, Ohio to Washington, DC. In conjunction with the relocation, the base
compensation for each of Messrs. Persavich and Juris, which was established at
the IPO in August 1990, was increased to reflect the current market conditions
for the positions held. In fiscal 1994, an employment agreement for Mr. Wertz
was established based on current market conditions for individuals in similar
capacities. In April 1996, the Committee increased the base compensation of
Messrs. Wertz and Persavich by approximately ten percent and Mr. Juris by
approximately eight percent. These salary increases were awarded based on the
Committee's philosophy that the executive officers should receive a base salary
which is competitive with other executives of companies of similar size in
similar positions. The employment agreements for Messrs. Wertz, Persavich and
Juris provide for annual bonus awards of 50% of base compensation if certain
performance targets, established by the Committee and approved by the Board, are
achieved. Messrs. Wertz, Persavich and Juris may also receive additional bonus
awards if the performance targets are exceeded.
BONUS PLAN
The Committee believes that a substantial portion of the annual income of
executive officers should be based on the financial and operating performance of
the Company for that year through a goal-based incentive compensation program
("Bonus Plan"). The objective of the program is to provide total annual income
to officers that is competitive with compensation at other companies facing
similar challenges, while linking the payment of compensation to the Company's
achievement of certain financial and operating goals. In fiscal 1997, bonuses
awarded to the CEO and other executive officers were based on two components.
The first component was based on a goal for the Company to achieve certain
levels of earnings before interest and taxes. The second component was based on
qualitative and quantitative factors, including the achievement of a number of
key corporate objectives, such as: i) the completion of strategic acquisitions
to complement its existing businesses, ii) market penetration and development,
and iii) development of cost efficiencies. The executive officers were also
provided incentives to relocate the Company's hardware inventory to the new
distribution center by a certain targeted date. In the opinion of the Committee,
Mr. Steiner and the other executive officers achieved these objectives and Mr.
Steiner was awarded a bonus of $273,375 (representing a bonus of 91.1% of base
compensation) and the other executive officers were awarded a bonus of $300,782,
in the aggregate (representing a bonus of 61.4% of base compensation).
STOCK OPTIONS
The Committee also administers and grants stock options under the Company's
1990 Non-Qualified and Incentive Stock Option Plan. The Committee believes that
stock option grants provide a desirable long-term method of compensation because
they align management's long-range interests with those of the Company and its
stockholders by providing management with an opportunity to build a meaningful
stake in the Company. In fiscal 1997, the Committee granted options to Mr.
Steiner of 80,000 shares and the other executive officers of 65,000 shares in
the aggregate, in connection with the long-term goals established by the
Company. The stock
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<PAGE> 13
options awarded in fiscal 1997 were awarded using a vesting schedule of three to
four years based on employment tenure with the Company. This vesting schedule
better aligns the Company's desire to retain and provide long term compensation
to executives.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
The Company has a Supplemental Executive Retirement Plan for the benefit of
the executive officers which provides a retirement benefit based on final
average earnings and years of service. The Plan provides a maximum retirement
benefit equal to the difference between sixty percent of the participant's
average base salary for the last five years of employment and the participant's
primary Social Security benefit.
INTERNAL REVENUE CODE SECTION 162(m)
The Committee has considered the impact of the recently enacted provision
of the Internal Revenue Code of 1986, as amended (the "Code"), which provision
in certain circumstances disallows income tax deductions for compensation in
excess of $1,000,000. No officer of the Company earns compensation in excess of
$1,000,000. However, if this provision ever becomes applicable to the Company,
the Committee intends to structure the Company's incentive compensation awards
in a manner that complies with the Code's requirements to ensure full
deductibility.
Leonard Toboroff, Chairman
Steven L. Gerard
Charles M. Haar
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<PAGE> 14
PERFORMANCE GRAPH
The following performance graph compares the total stockholder return on
the Company's Common Stock compared with the cumulative return on the S&P 500
Stock Index and a Peer Group. The graph assumes that the value of the investment
in the Company's Common Stock and each Index was $100 on March 31, 1992.
The Peer Group is weighted according to the respective issuer's stock
market capitalization on March 31, 1992, with all returns (capital gains and
dividends) reinvested. The Peer Group includes one aircraft parts distributor,
one airline, and the rest are companies which manufacture products for the
aircraft industry. Some of the companies in the Peer Group are suppliers to
and/or customers of the Company. The Peer Group consists of AAR Corp., Alaska
Air Group, Inc., Curtiss-Wright Corp., Fansteel, Inc., Hexcel Corp., Hi-Shear
Industries, Inc., Moog, Inc., Rohr, Inc., Trimble Navigation Ltd. and UNC
Incorporated.
[GRAPH]
<TABLE>
<CAPTION>
Measurement Period
(Fiscal Year Covered) Banner Aerospace Peer Group S&P 500 Index
<S> <C> <C> <C>
1992 100.00 100.00 100.00
1993 66.10 85.49 111.89
1994 79.66 91.72 110.42
1995 54.24 99.52 124.03
1996 79.66 150.06 159.90
1997 101.69 162.27 187.55
</TABLE>
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<PAGE> 15
SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT
The table below sets forth as of May 31, 1997 the number of shares and
percent of Common Stock beneficially owned by (i) each person known by the
Company to own beneficially more than 5% of any class of Common Stock together
with his address; (ii) each director and nominee; (iii) each executive officer
named in the summary compensation table; and (iv) the directors and officers of
the Company as a group. Except as otherwise indicated in the footnotes to the
table, the persons named possess sole voting power and investment power with
respect to all shares shown as beneficially owned by them. As of May 31, 1997,
there were 23,423,610 shares of Common Stock issued and outstanding.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OF
NAME OF COMMON STOCK CLASS
-------------------------------- ---------------- ----------
<S> <C> <C>
Michael T. Alcox 45,000(1) *
Frederick W. Bradley, Jr. 15,000(3) *
J.J. Cramer & Co. 2,473,400(6) 10.6%
100 Wall Street, 8th Floor
New York, New York 10005
Dimensional Fund Advisors, Inc. 1,470,000(13) 6.3%
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
The Fairchild Corporation 13,886,477(2) 59.3%
Washington Dulles International Airport
300 West Service Road
Chantilly, Virginia 22021
Steven L. Gerard 15,000(3) *
Charles M. Haar 15,000(3) *
Philippe Hercot 15,000(3) *
Eugene W. Juris 69,500(4) *
Samuel J. Krasney 96,000(12) *
Warren D. Persavich 100,667(5) *
Dr. Eric I. Steiner 17,500(3)(7) *
Jeffrey J. Steiner 14,146,755(8)(9) 60.0%
The Fairchild Corporation
Washington Dulles International Airport
300 West Service Road
Chantilly, Virginia 22021
Leonard Toboroff 15,000(3) *
John C. Wertz 96,667(10) *
All directors and officers of the 14,647,089(11) 61.3%
Company as a group (12 persons)
</TABLE>
- - ------------
(1) Includes exercisable stock options for 12,000 shares.
(2) Includes shares of Common Stock owned of record by Fairchild and its
subsidiaries as of May 31, 1997, as follows: Fairchild Holding Corp.,
5,386,477 shares; RHI Holdings, Inc., 8,488,194 shares; Banner Aerospace
Holding Company II, Inc., 11,806 shares. 13,262,971 of such shares of
Common Stock have been pledged by Fairchild or its subsidiaries as
collateral for a loan facility with Citicorp N.A. and 611,700 shares have
been pledged by Fairchild or its subsidiaries as collateral under an escrow
agreement with BTR Dunlop Holdings, Inc., a wholly-owned subsidiary of BTR
plc.
In connection with the Company's Rights Offering (described below under
"Certain Transactions") Fairchild (through its subsidiaries) was issued
3,085,885 shares of Preferred Stock on June 25, 1997, which shares are
convertible (at the election of the
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<PAGE> 16
holder) into 3,085,885 shares of Common Stock. By virtue of this
transaction, Fairchild's beneficial ownership of the Company increased
from 59.3% (as of May 31, 1997) to 62.6% (as of June 25, 1997).
(3) Includes exercisable stock options for 15,000 shares.
(4) Includes exercisable stock options for 55,500 shares.
(5) Includes exercisable stock options for 78,667 shares.
(6) Stock ownership based on information provided by J.J. Cramer & Co. as of
May 31, 1997.
(7) Includes 2,500 shares are held by Dr. Steiner as guardian for his minor
children, and he disclaims any beneficial interest therein.
(8) Includes 105,000 shares of Common Stock owned of record by Mr. Steiner and
3,612 shares owned by Mr. Steiner through the Company's Profit
Sharing/401(k) Plan. Also includes 13,886,477 shares owned directly or
indirectly by Fairchild; Mr. Steiner disclaims beneficial ownership of such
shares except to the extent of his pecuniary interest therein.
(9) Includes exercisable stock options for 151,667 shares.
(10) Includes exercisable stock options for 66,667 shares.
(11) Includes exercisable stock options for 459,500 shares.
(12) Includes exercisable stock options for 5,000 shares.
(13) Stock ownership based on information provided by Dimensional Fund Advisors,
Inc. as of March 31, 1997.
* Less than 1%
As a result of their beneficial ownership of Common Stock, Fairchild and
Mr. Jeffrey J. Steiner will have a significant influence on the election of
directors and any other business that may come before the meeting.
CERTAIN TRANSACTIONS
RELATIONSHIPS BETWEEN THE COMPANY AND FAIRCHILD
General Statement. The Company may be subject to various conflicts of
interest arising out of the relationships among it, Fairchild and their
respective affiliates, such as the purchase and sale of products in the ordinary
course of business, the purchase and sale of a business between the two
companies and a business opportunity of interest to both companies. Although no
specific measures to resolve such conflicts of interest have been formulated,
management of the Company has a fiduciary obligation to deal fairly and in good
faith with the Company, and will exercise reasonable judgment and take such
steps as they may then, under all the circumstances, deem necessary in resolving
any specific conflict of interest which may occur and what, if any, specific
measures such as retention of an independent advisor, independent counsel or
special committee as they may determine to be necessary or appropriate under the
circumstances. Fairchild is a substantial shareholder of the Company. Messrs.
Jeffrey Steiner (CEO and Director of the Company), Michael Alcox (Director of
the Company) and Eric Steiner (Senior Vice President and Director of the
Company) are officers, directors and shareholders of Fairchild.
Fasteners. The Fastener Group of Fairchild, particularly Screwcorp,
Voi-Shan, Tridair and Camloc, has historically been a supplier of fasteners to
the Company, and the Company also competes with them, in the sale to some end
users. All transactions between the Company and Fairchild have been and will
continue to be on terms that are no less favorable to the Company than those
that might be obtained in arms-length transactions with unaffiliated third
parties. Sales to Fairchild amounted to approximately $122,000 and purchases
from Fairchild amounted to approximately $9,384,000 for the fiscal year ended
March 31, 1997.
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<PAGE> 17
Building Lease and Services. The Company entered into a lease with
Fairchild on April 1, 1996 to lease approximately 10,000 square feet of office
space in the Fairchild building for a term of ten years with the option to
terminate the lease after five years. The annual lease rate is approximately
$170,000 subject to escalation. The Company has a letter agreement with
Fairchild in which Fairchild provides tax preparation and consulting services to
the Company. The agreement terminates on September 30, 1997. The annual fee for
the tax services rendered is $98,000. The Company has a letter agreement with
Fairchild pursuant to which Fairchild's in-house attorneys provide legal
services to the Company. This agreement is on a month-to-month basis and the
Company pays Fairchild $12,500 per month. As a result, Fairchild's General
Counsel (Donald E. Miller) also serves as General Counsel for the Company. The
Company has a letter agreement with Fairchild in which the Company provides
accounting and financial reporting services to Fairchild. This agreement is on a
month-to-month basis and Fairchild pays the Company $15,500 per month. In
addition, an indirect 41% affiliate of Fairchild (Shared Technologies Fairchild,
Inc.), provides the Company with communication services for the office space in
the Fairchild building as well as at substantially all subsidiary locations. All
services are provided in the normal course of business and are on terms that are
no less favorable to the Company than those that might be obtained in
arms-length transactions with unaffiliated third parties.
Joint Marketing. The Company is a party to several agreements with
Fairchild which provide for various methods of expense sharing related to
combined sales and marketing efforts to obtain customers in foreign countries.
As of March 31, 1997, the Company had contributed less than $125,000 under these
agreements. Fairchild and the Company will share commission income to the extent
commissions exceed expenses. No such commissions have been received to date.
Tax Indemnity Agreement. Under a Tax Indemnity Agreement ("Tax
Indemnity"), Fairchild has agreed to indemnify the Company from and against any
federal, state, local and foreign income, franchise, withholding and alternative
minimum taxes (including interest, additions to tax and penalties with respect
thereto) for periods ending on or before August 2, 1990 when the sale of 52.8%
of the Common Stock was sold in the IPO. The Company has agreed to pay Fairchild
for any tax savings it realizes after the IPO as a result of adjustments to, or
utilization of net operating loss or tax credit carryforwards attributable to,
income tax returns for prior periods. Although Fairchild has agreed to indemnify
the Company for taxes for periods ending on or before the IPO, the Tax Indemnity
is not binding upon either the IRS or upon state, local or foreign taxing
authorities, any of which are permitted to collect from the Company all relevant
taxes owed by the Company and, in certain instances, by Fairchild and its
subsidiaries for periods covered by the Tax Indemnity. The effectiveness of the
Tax Indemnity is therefore dependent on the ability of Fairchild to pay amounts
owed, if any, under the Tax Indemnity.
Registration Rights. As long as Fairchild owns 15% or more of the issued
and outstanding Common Stock, it has the unlimited right to require the Company
to use its best efforts pursuant to a Registration Rights Agreement to register,
under the Agreement, all the shares of Common Stock beneficially owned by
Fairchild at any time and from time to time, at Fairchild's expense. In
addition, Fairchild has piggyback registration rights that are subject to
certain limitations.
Indebtedness. On October 17, 1996, the Company borrowed $5.0 million from
RHI Holdings, Inc. (a Fairchild subsidiary) ("RHI"); such amount was repaid on
March 27, 1997; interest expense pursuant to such indebtedness was $156,000. In
addition, on December 20, 1996, the Company entered into a Subordinated Loan
Agreement with RHI, pursuant to which RHI agreed to lend the Company up to $30.0
million for acquisitions to be consummated by the Company. The initial interest
rate under such loan agreement was 10.0% per annum. Payment under such loan
agreement was due on the earlier of completion of the Company's Rights Offering
or November 15, 2003. The Company borrowed an aggregate of $28.0 million from
RHI under such loan, of which $16 million was used for a subsidiary to acquire
PB Herndon Company
15
<PAGE> 18
(a specialty fastener distributor to the aerospace industry), and the balance
was used for working capital. On June 25, 1997, pursuant to the Company's Rights
Offering, such indebtedness ($28.0 million in principal) was satisfied by the
issuance of 3,043,478 shares of Preferred Stock to RHI and its affiliates.
Stock Exchange Agreement. The Company entered into a Stock Exchange
Agreement with Fairchild, effective May 12, 1997, pursuant to which the Company
may acquire Fairchild Scandinavian Bellyloading Company AB from Fairchild in
exchange for 230,000 shares of Common Stock initially. This transaction was
approved by a special committee of the Board of Directors, and was approved by
the Company's stockholders at a meeting on June 18, 1997. Under the terms of the
Stock Exchange Agreement, Fairchild could terminate the agreement if it sold
Fairchild Scandinavian Bellyloading Company AB to a third party by reason of an
unsolicited offer, provided that Fairchild pays the Company a reasonable
termination fee and the Company's out-of-pocket expenses. Fairchild exercised
its option to terminate the Stock Exchange Agreement on July 1, 1997.
Acquisition of Preferred Stock. On May 23, 1997, the Company granted all
its stockholders certain rights to purchase Preferred Stock (Series A
Convertible Paid-in-Kind Preferred Stock, $.01 par value). On June 18, 1997,
Fairchild exercised its rights to acquire 3,085,885 shares of Preferred Stock
for $28,390,142.
Joint Insurance. The Company and Fairchild have entered into a joint
insurance policy which provides, among other coverages, for a combined annual
aggregate limit for the Company and Fairchild of $100 million related to certain
earthquake exposures. The Company and Fairchild have entered into an agreement
addressing the resolution process to be applied in the event that both companies
suffer damages from earthquakes aggregating in excess of the $100 million limit.
OTHER TRANSACTIONS
Mr. Samuel J. Krasney, a Director of the Company, entered into a sublease
agreement with the Company for 1,500 square feet of office space which is a
portion of what was formerly the corporate headquarters in Cleveland, Ohio. The
lease term commenced on October 1, 1993 and expires on October 31, 1998. The
annual rent is approximately $19,600 and is based on competitive market
conditions for similar office space.
In fiscal 1995, Mr. Steiner had suggested to the management of the Company
that it should consider purchasing a certificate of deposit from a Turkish bank,
because he believed that by establishing a relationship with one of the Turkish
banks, the Company might be provided additional opportunities to expand its
business in Turkey. Following Mr. Steiner's suggestion, the Company purchased a
$750,000 certificate of deposit (the "Certificate") from Marmara Bankasi A.S.,
which was subsequently forced by governmental action to cease business. Because
he had suggested consideration of this involvement, Mr. Steiner agreed that he
would attempt to effect collection of the Certificate and would have one of his
affiliates purchase the Certificate from the Company for $750,000, payable over
two years. Mr. Steiner's affiliate has paid the Company $500,000, but has
received no payments from the issuer of the Certificate. In May 1996, the Board
of Directors decided that the entire loss on the Certificate should not be borne
by Mr. Steiner's affiliate; therefore, the Board agreed to make the last
$250,000 payment conditional upon the collection of any proceeds received by the
affiliate from the Certificate. The Turkish bank subsequently filed for
Bankruptcy; accordingly, the Company has determined that the balance of the
indebtedness relating to the Certificate ($250,000) is uncollectible, and has
fully reserved for the debt.
The Company pays for a chartered aircraft used from time to time for
business related travel. The owner of the chartered aircraft is a company 51%
owned by an immediate family member of Mr. Jeffrey Steiner. Cost for such
flights charged to the Company are comparable to
16
<PAGE> 19
those charged in arm's length transactions between unaffiliated third parties.
Payments by the Company in fiscal 1997 were approximately $137,000.
ITEM 2 -- APPROVAL OF AMENDMENT TO THE 1990 NON-QUALIFIED AND
INCENTIVE STOCK OPTION PLAN
INTRODUCTION
At the Annual Meeting, the Company's stockholders will be asked to approve
an amendment to the Company's 1990 Non-Qualified and Incentive Stock Option Plan
(the "1990 Plan").
On July 11, 1997, the Board adopted an amendment to the 1990 Plan (the
"1997 Plan Amendment"), to be effective as of January 1, 1997, subject to
approval by the Company's stockholders. The purpose of the 1997 Plan Amendment,
as more fully set forth below, is to permit stock options issued under the 1990
Plan to certain officers (the Senior Vice President and Chief Operating Officer,
the Senior Vice President and Chief Financial Officer, the Senior Vice
President, and the Vice President -- Finance and Secretary) to qualify as
performance-based compensation that is fully deductible for tax purposes.
DESCRIPTION OF THE PLAN AND THE 1997 AMENDMENT
Set forth below is a summary of certain important features of the 1990 Plan
and the 1997 Plan Amendment. This description is qualified in its entirety by
reference to the complete text of the 1990 Plan, which has been filed as an
Exhibit to the Company's Form 10-K, and the complete text of the 1997 Plan
Amendment, which appears as Exhibit A to this Proxy Statement.
General Information. 2,000,000 shares of Common Stock are authorized for
issuance upon exercise of stock options under the 1990 Plan. As of May 31, 1997,
five executive officers (including directors who are officers) and approximately
100 employees were eligible to participate in the 1990 Plan, including officers
and employees of Company subsidiaries. As of May 31, 1997, an aggregate of
36,133 shares of Common Stock were issued pursuant to the 1990 Plan, and there
remained outstanding unexercised stock options to purchase 1,243,200 shares of
Common Stock. Adjustments are to be made in the number and kind of shares
subject to the 1990 Plan, and in the exercise price of stock options under the
1990 Plan, to reflect changes in the Company's Common Stock as a result of
corporate restructure, reclassification, merger, stock split or similar events.
Stock Options. The 1990 Plan provides for the granting of options intended
to meet the requirements of Section 422 of the Internal Revenue Code of 1986, as
amended ("Incentive Stock Options"), as well as the granting of options that do
not meet those requirements ("Non-Qualified Stock Options"), or a combination of
the foregoing. Under the 1990 Plan, options must be granted at not less than
fair market value; however, Incentive Stock Options granted to participants
owning more than 10% of the total combined voting power of all classes of stock
of the Company or, if applicable, a subsidiary or parent of the Company, must be
granted at not less than 110% of the fair market value. The exercise price is
payable in cash or, with the approval of the Compensation and Stock Option
Committee, in shares of Common Stock (valued at their fair market value at the
date of exercise) or a combination of such Common Stock and cash.
Eligibility and Administration. Officers (including officers who are
members of the Board) and key employees of the Company or its subsidiaries are
eligible to receive Incentive Stock Options and/or Non-Qualified Stock Options
under the 1990 Plan. Non-employee consultants of the Company or its subsidiaries
are eligible to receive Non-Qualified Stock Options under the 1990 Plan. The
1990 Plan is administered by a committee (the "Compensation and Stock Option
Committee") of members of the Board of Directors who are "Non-Employee
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<PAGE> 20
Directors" within the meaning of Rule 16b-3 promulgated by the Securities and
Exchange Commission under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). The 1990 Plan provides that the Compensation and Stock Option
Committee will select those employees to whom options under the 1990 Plan will
be granted and will otherwise administer the 1990 Plan, taking into account the
duties of the employees, their present and potential contributions to the
success of the Company and such other factors as the Compensation and Stock
Option Committee deems relevant in connection with accomplishing the purposes of
the 1990 Plan. No stock options may be granted under the 1990 Plan after August
2, 2000. All stock options outstanding as of August 2, 2000 shall continue to be
exercisable pursuant to their terms. The Board may from time to time amend the
1990 Plan, provided, however, that no amendments shall be made without
stockholder approval if stockholder approval is required under Section 422 of
the Internal Revenue Code or Rule 16b-3 under the Exchange Act.
Exercise. Stock options under the 1990 Plan may be exercisable for a term
of not more than seven years from the date of grant. Typically, a stock option
granted under the 1990 Plan is exercisable only during the term of its holder's
employment with the Company and for a prescribed period thereafter. In the event
of an unusual corporate even such as liquidation, merger, other business
combination, or acquisition or change in control of the Company, the Board, in
its sole discretion, and on a case-by-case basis, may terminate options
effective 90 days after the occurrence of such unusual corporate event, in which
event the right to exercise such terminated options is accelerated.
1997 Plan Amendment. The 1997 Plan Amendment is being proposed in response
to Internal Revenue Code Section 162(m) which generally denies a corporate tax
deduction for annual compensation exceeding $1 million paid to the chief
executive officer or any of the four other most highly compensated officers of a
public corporation. Certain types of compensation that qualify as
"performance-based" within the meaning of Internal Revenue Code Section 162(m)
are generally excluded from this deduction limit. Such compensation includes
options granted with an exercise price not less than the fair market value on
the date of grant of the underlying stock, if the plan under which they were
granted states a maximum number of shares that may be granted to any individual
in a specified period. The maximum number of shares of Common Stock that may be
issued under the 1990 Plan as a result of options is 2,000,000. Of that number,
the maximum number of shares which may be issued as a result of options granted
to Jeffrey Steiner (Chairman and Chief Executive Officer) (including all
presently outstanding options and all future options granted through August 2,
2000), shall not exceed a total of 1,700,000. The 1997 Plan Amendment adds
similar limits to the number of shares that may be issued as a result of options
granted to the Company's Senior Vice President and Chief Operating Officer, the
Senior Vice President and Chief Financial Officer, the Senior Vice President,
and the Vice President -- Finance and Secretary to 1,700,000 per person
(including, for each person, all presently outstanding options and all future
options granted through August 2, 2000), in all events subject to the overall
limitation on the number of shares available for issuance under the 1990 Plan.
The Company has not historically granted stock options in numbers that approach
the above-stated limits and, in any event could not issue shares as a result of
options to any one or more such officers which in the aggregate exceed the
maximum number of shares permitted to be issued under the 1990 Plan. However,
the Board did not want to unduly limit the flexibility of the Compensation and
Stock Option Committee to grant options in accordance with its judgment under
the circumstances existing at any particular time and, accordingly, the Board
set the limit at a high level.
TAX CONSEQUENCES
The following discussion addresses certain federal income tax consequences
in connection with the 1990 Plan. State tax treatment is subject to individual
state laws and is not reviewed in this discussion.
18
<PAGE> 21
Incentive Stock Options. An Incentive Stock Option results in no taxable
income to the optionee or a deduction to the Company at the time it is granted
or exercised. If the optionee retains the stock received as a result of an
exercise of an Incentive Stock Option for at least two years from the date of
the grant and one year from the date of exercise, then the gain is treated as
long-term capital gain. If the shares are disposed of during this period, the
options will be treated as a Non-Qualified Stock Option. The Company receives a
tax deduction only if the shares are disposed of during such period. The
deduction is equal to the amount of taxable income to the optionee.
Non-Qualified Stock Options. A Non-Qualified Stock Option results in no
taxable income to the optionee or deduction to the Company at the time it is
granted. An optionee exercising such an option will, at that time, realize
taxable compensation in the amount of the difference between the option price
and the then market value of the shares. Subject to the applicable provisions of
the Internal Revenue Code, a deduction for federal income tax purposes will be
allowable to the Company in the year of exercise in an amount equal to the
taxable compensation realized by the optionee.
BENEFICIARIES OF PLAN
The number of options available under the 1990 Plan is 2,000,000 shares.
Because awards are made on a case by case basis by the Compensation and Stock
Option Committee, it is not possible to determine at this time how many options
are available for issuance for named executive officers. The tables in this
Proxy Statement under "Executive Compensation -- Options Granted in Fiscal Year
1997" and "Executive Compensation -- Option Year End Values" summarize the
outstanding options under the 1990 Plan. Since future awards under the 1990 Plan
(as amended) are subject to approval by the Compensation and Stock Option
Committee, it is not possible to determine how many stock options will be
awarded to the named executive officers, to executive officers as a group, or to
other employees as a group, nor the dollar value of such future stock options.
THE BOARD RECOMMENDS A VOTE "FOR" THE PROPOSED AMENDMENT TO THE 1990
NON-QUALIFIED AND INCENTIVE STOCK OPTION PLAN.
ITEM 3 -- APPROVAL OF GRANTS OF STOCK OPTIONS TO CERTAIN EMPLOYEES UNDER THE
1990 NON-QUALIFIED AND INCENTIVE STOCK OPTION PLAN
At the Annual Meeting, the Stockholders will be asked to approve the grant
of stock options for certain employees.
On July 11, 1997, subject to approval by the Company's stockholders, the
Board amended the 1990 Plan to comply with certain provisions of Internal
Revenue Code Section 162(m) by limiting the number of stock options that can be
issued to the Senior Vice President and Chief Operating Officer, the Senior Vice
President and Chief Financial Officer, the Senior Vice President, and the Vice
President -- Finance and Secretary (collectively, the "Subject Employees"). See
discussion under Item 2 above (Approval of Amendment to the 1990 Non-Qualified
and Incentive Stock Option Plan).
The effective date of such amendment is January 1, 1997. Any awards granted
to the Subject Employees under the 1990 Plan from the period of January 1, 1997
through the date of the Annual Meeting are contingent on the following action:
(i) approval by the Company's stockholders of the amendment to the 1990 Plan (as
discussed in Item 2 above -- Approval of Amendment to the 1990 Non-Qualified and
Incentive Stock Option Plan), and (ii) approval of such awards by the Company's
stockholders at the Annual Meeting.
19
<PAGE> 22
The following awards made to the Subject Employees after January 1, 1997
are submitted for approval by the Company's stockholders:
<TABLE>
<CAPTION>
NUMBER OF
SHARES
UNDERLYING PER SHARE EXPIRATION
EMPLOYEE DATE STOCK OPTIONS EXERCISE PRICE DATE
- - --------------------- ------------- ------------- -------------- ------------
<S> <C> <C> <C> <C>
John C. Wertz May 21, 1997 40,000 7.625 May 21, 2004
Warren D. Persavich May 21, 1997 40,000 7.625 May 21, 2004
Eric I. Steiner May 21, 1997 30,000 7.625 May 21, 2004
Eugene W. Juris May 21, 1997 30,000 7.625 May 21, 2004
</TABLE>
The exercise price for such stock options is the fair market value of the
Company's Common Stock at the time of the original award by the Compensation and
Stock Option Committee (date of grant noted in the table above). Such stock
options are subject to all of the terms and conditions of the 1990 Plan (as
amended by the 1997 Plan Amendment).
Tax Consequences. For federal income tax purposes, such stock options
constitute Non-Qualified Stock Options. Please see discussion under Item 2 above
(Approval of Amendment to the 1990 Non-Qualified and Incentive Stock Option
Plan), under caption "Tax Consequences -- Non-Qualified Stock Options" for a
discussion of the tax consequences of Non-Qualified Stock Options. The stock
options are also intended to qualify as "performance-based" compensation within
the meaning of Internal Revenue Code Section 162(m). See discussion under Item 2
above (Approval of Amendment to the 1990 Non-Qualified and Incentive Stock
Option Plan), under caption "1997 Plan Amendment."
Effect of Contingency. If the amendment to the 1990 Plan (Item 2 above) is
not approved by the Company's stockholders, or if the stock options under this
Item 3 are not approved by the Company's stockholders, such stock options shall
be null and void. If both contingencies are satisfied, such stock options shall
be deemed awarded as of the date the Compensation and Stock Option Committee
made each such award.
THE BOARD RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE
GRANT OF STOCK OPTIONS TO CERTAIN EMPLOYEES.
ITEM 4 -- APPROVAL OF INDEPENDENT PUBLIC ACCOUNTANTS
Although the bylaws of the Company do not require the submission of the
election of independent public accountants to the stockholders for approval, the
Board considers it desirable that its designation of independent public
accountants be ratified by the stockholders. The firm of Arthur Andersen LLP, an
international firm of public accountants, has audited the annual financial
statements of the Company since 1990. The Board considers them to be well
qualified and will ask the stockholders at the Annual Meeting to approve the
designation of this firm as independent public accountants for the Company for
the year ending March 31, 1998.
Representatives of Arthur Andersen LLP are expected to be present at the
Annual Meeting and they will have an opportunity to make a statement, should
they desire to do so, and to respond to appropriate questions.
THE BOARD RECOMMENDS A VOTE "FOR" RATIFICATION OF THE SELECTION
OF THE INDEPENDENT PUBLIC ACCOUNTANTS.
20
<PAGE> 23
OTHER MATTERS
To the extent that information contained in this Proxy Statement is
peculiarly within the knowledge of persons other than the management of the
Company, it has relied upon such persons for the accuracy and completeness
thereof.
EXPENSES OF SOLICITATION
The cost of soliciting these proxies will be borne by the Company. In
addition to the use of the mail, proxies may be solicited by directors, officers
or employees of the Company, in person or by telephone or fax. The Company will
also reimburse brokerage firms and others for forwarding proxy material to
beneficial owners of the Common Stock.
STOCKHOLDER PROPOSALS
Any stockholder who wishes to submit a proposal for inclusion in the proxy
material to be disseminated by the Company in connection with its annual meeting
for fiscal 1998 must do so no later than April 10, 1998 and such proposal must
conform to the requirements set forth in Regulation 14A under the Securities
Exchange Act of 1934.
ANNUAL REPORT
The Company's Annual Report to Stockholders for the fiscal year ended March
31, 1997, has previously been, or will simultaneously herewith be, furnished to
stockholders of record. A copy of the Annual Report on Form 10-K of the Company
for fiscal year 1997 is included with the Annual Report. THE ANNUAL REPORT ON
FORM 10-K, INCLUDING FINANCIAL STATEMENTS AND SCHEDULES, MAY BE OBTAINED BY ANY
PERSON WITHOUT CHARGE UPON WRITTEN REQUEST TO: BANNER AEROSPACE, INC., P.O. BOX
20260, WASHINGTON, DC 20041, ATTENTION: WARREN D. PERSAVICH, SENIOR VICE
PRESIDENT AND CHIEF FINANCIAL OFFICER.
By Order of the Board of Directors
Eugene W. Juris
Secretary
21
<PAGE> 24
EXHIBIT A
AMENDMENT DATED AS OF JANUARY 1, 1997, TO 1990 NON-QUALIFIED &
INCENTIVE STOCK OPTION PLAN OF BANNER AEROSPACE, INC.
(PREVIOUSLY AMENDED AND RESTATED AS OF MAY 29, 1996)
The 1990 Non-Qualified and Incentive Stock Option Plan of Banner Aerospace,
Inc. as amended and restated May 29, 1996 (the "Plan") is hereby amended,
effective as of the date set forth below, as follows.
1. This Amendment shall be effective if and only if it is approved by
the stockholders of Banner Aerospace, Inc. (the "Company") at their
annual meeting in 1997, and if so approved, this Amendment shall be
effective as of January 1, 1997. Awards made by the Committee to the
Senior Vice President and Chief Operating Officer, the Senior Vice
President and Chief Financial Officer, the Senior Vice President, and
the Vice President -- Finance and Secretary during the period of
January 1, 1997 through the date of the Company's 1997 annual meeting
of stockholders shall be contingent on shareholder ratification and
(if such ratification is obtained) shall be effective as of the date
the Committee made such awards.
2. Section 6.4 of the Plan is amended in its entirety to read as
follows:
"6.4 Limits on Grant of Options."
From and after May 29, 1996, the number of shares of Common Stock
subject to Awards granted under the Plan to Jeffrey Steiner, Chairman
and Chief Executive Officer (including all unexercised Awards
outstanding as of May 29, 1996 and all Awards granted from and after May
29, 1996 through August 2, 2000), shall not exceed a total of 1,700,000
shares.
From and after January 1, 1997, the number of shares of Common
Stock subject to Awards granted under the Plan to each of the Company's
Senior Vice President and Chief Operating Officer, the Senior Vice
President and Chief Financial Officer, the Senior Vice President, and
the Vice President -- Finance and Secretary (including, for each such
person, all unexercised Awards to such person outstanding as of January
1, 1997 and all Awards granted to such person from and after January 1,
1997 through August 2, 2000), shall not exceed a total of 1,700,000
shares per person, subject to the overall limitation on the number of
shares available for issuance under the Plan.
Determinations under this Section shall be made in a manner
consistent with Section 162 (m) of the Code.
3. Except as amended hereby, the Plan shall remain in full force and
effect.
<PAGE> 25
PROXY BANNER AEROSPACE, INC. PROXY
380 WEST SERVICE ROAD
P.O. BOX 20260 WASHINGTON, D.C. 20041
This Proxy is Solicited on Behalf of the Board of Directors
For the Annual Meeting of Stockholders - September 12, 1997
The undersigned hereby appoints Jeffery J. Steiner, Warren D. Persavich and
Eugene W. Juris as proxies, each with the power to appoint his substitute and
hereby authorizes them to represent and vote, as designated below, all the
shares of Common Stock, par value $1.00 per share, of Banner Aerospace, Inc.
held of record by the undersigned on July 21, 1997, at the Annual Meeting of
Stockholders to be held September 12, 1997, at any adjournments of postponements
thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
FOR ALL LISTED NOMINEES AND FOR APPROVAL OF PROPOSALS 2, 3 AND 4.
PLEASE VOTE, SIGN, DATE AND RETURN THIS PROXY CARD
PROMPTLY USING THE ENCLOSED ENVELOPE.
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE.)
<PAGE> 26
BANNER AEROSPACE, INC.
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY.
<TABLE>
<S> <C>
1. ELECTION OF DIRECTORS. Michael T. Alcox, Steven L. Gerard, Charles M. Haar, For Withheld For All
Phillipe Hercol, Warren D. Persavich, Dr. Eric I. Steiner, Jeffrey J. All All Except
Steiner, Leonard Toboroff and John C. Wertz.
/ / / / / /
FOR ALL EXCEPT NOMINEES WRITTEN IN BELOW:
- - ------------------------------------------------
2. A proposal to amend the 1990 Non-Qualified and Incentive Stock Option Plan. For Against Abstain
/ / / / / /
3. A proposal to approve the grant of options to certain employees under the For Against Abstain
1990 Non-Qualified and Incentive Stock Option Plan.
/ / / / / /
4. A proposal to approve the Board of Directors' selection of Auditors. For Against Abstain
/ / / / / /
5. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting.
</TABLE>
Dated:_________________________________, 1997
Signature(s)
------------------------------------------------
- - ------------------------------------------------------------
When shares are held by joint tenants, both should sign. When signing as
attorney, executor, administrator, trustee or guardian, please give full title
as such. If a corporation, please sign in full corporate name by the President
or other partnership name by authorized person.
