<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 12, 1997
REGISTRATION NO. 333-22275
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
BANNER AEROSPACE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 95-2039311
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
</TABLE>
------------------------
300 WEST SERVICE ROAD
WASHINGTON DULLES INTERNATIONAL AIRPORT
WASHINGTON, D.C. 20041
(703) 478-5790
(ADDRESS AND TELEPHONE NUMBER OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
THE CORPORATION TRUST COMPANY
1209 ORANGE STREET
WILMINGTON, DELAWARE 19801
(302) 777-0205
(ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
DONALD B. BRANT, JR. WARREN D. PERSAVICH
MILBANK, TWEED, HADLEY & MCCLOY 300 WEST SERVICE ROAD
1 CHASE MANHATTAN PLAZA WASHINGTON DULLES INTERNATIONAL AIRPORT
NEW YORK, NEW YORK 10005 WASHINGTON, D.C. 20041
(212) 530-5000 (703) 478-5790
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after this Registration Statement becomes effective.
If the only securities being offered on this Form are being offered
pursuant to a dividend or interest reinvestment plan, 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, as amended (the "Securities Act"), please 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 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>
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF SECURITY TO AMOUNT TO BE OFFERING PRICE PER PROPOSED MAXIMUM AGGREGATE AMOUNT OF REGISTRATION
BE REGISTERED REGISTERED(1) UNIT(1)(2) OFFERING PRICE(1)(2) FEE(1)
- ---------------------------------------------------------------------------------------------------------------------------
Rights............................. 7,521,088 -- -- --
- ---------------------------------------------------------------------------------------------------------------------------
Series A Convertible Paid-in-Kind
Preferred Stock, par value
$.01............................. 7,521,088 $9.20 $69,194,009.60 $20,967.88
- ---------------------------------------------------------------------------------------------------------------------------
Common Stock, $1.00 par value...... (3) N/A N/A N/A
===========================================================================================================================
</TABLE>
(1) Includes 2,316,341 shares of Series A Convertible Paid-in-Kind Preferred
Stock representing the maximum numbers of such shares that may be issued as
dividends on outstanding shares of such stock pursuant to its paid-in-kind
feature.
(2) Estimated solely for the purpose of calculating the registration fee.
(3) Such presently indeterminate number of shares of Common Stock as may be
issuable from time to time upon such conversion of the Preferred Stock being
registered hereunder.
------------------------
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 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 2
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 STATE.
SUBJECT TO COMPLETION DATED MAY 12, 1997
PROSPECTUS
RIGHTS TO SUBSCRIBE FOR 5,204,747 SHARES OF
SERIES A CONVERTIBLE PAID-IN-KIND PREFERRED STOCK
BANNER AEROSPACE, INC.
------------------------
Banner Aerospace, Inc. (the "Company") is issuing to holders of shares of
its Common Stock, $1.00 par value ("Common Stock"), non-transferable rights (the
"Rights") to subscribe for shares of Series A Convertible Paid-in-Kind Preferred
Stock, par value $.01 per share (the "Preferred Stock"). The Preferred Stock
will pay semi-annual dividends at the rate of 7.5% per annum of the liquidation
value of $9.20 per share (the "Liquidation Value"). Dividends will be payable in
additional shares of Preferred Stock and not in cash except for fractional
interests. The Preferred Stock is convertible into Common Stock at the
conversion price of $9.20 per share (the "Conversion Price"), resulting in a one
to one share conversion, unless the Conversion Price is subject to anti-dilutive
adjustments upon the occurrence of certain events as described under
"DESCRIPTION OF SECURITIES -- Series A Convertible Paid-in-Kind Preferred
Stock -- Adjustment of Conversion Price." Holders of Preferred Stock will have
no voting rights except as required by law. See "DESCRIPTION OF THE
SECURITIES -- Series A Convertible Paid-in-Kind Preferred Stock". Each holder of
Common Stock of record at 5:00 p.m., New York City time, on May 23, 1997 (the
"Record Date") will receive for every 4.5 shares of Common Stock held, one
Right. No fractional Rights will be issued; however, one Right will be issued in
lieu of any fractional Right to which a holder would otherwise be entitled. Such
holders are entitled to purchase one share of Preferred Stock for each Right
held at a subscription price of $9.20 per share of Preferred Stock (the
"Subscription Price"). In the event all holders of Common Stock (approximately
23 million shares outstanding) were to exercise all the Rights in the Rights
Offering, the Company would issue approximately 5 million shares of Preferred
Stock, for an aggregate consideration of approximately $48 million. The offering
of Preferred Stock issuable upon exercise of the Rights is referred to herein as
the "Rights Offering", and the period during which the Rights may be exercised
is referred to herein as the "Subscription Period". The Rights expire at 5:00
p.m., New York City time, on June 18, 1997 (the "Expiration Date"). Rights not
duly exercised by such time will lapse and will be void and without value. The
Company reserves the right to extend the Subscription Period and the Expiration
Date, subject to obtaining any required regulatory approvals. The Expiration
Date will not be extended beyond June 30, 1997. The Rights are evidenced by
non-transferable subscription certificates (the "Subscription Certificates")
that are being mailed together with this Prospectus to each such holder of
record on the Record Date. See "DESCRIPTION OF THE RIGHTS OFFERING".
The principal stockholder of the Company, The Fairchild Corporation
("Fairchild"), which, at the date hereof, beneficially owns approximately 59% of
the outstanding Common Stock, has advised the Company that, subject to certain
qualifications as described herein, it will exercise all of the Rights it
receives pursuant to the Rights Offering. As a result, Fairchild is expected to
purchase approximately 3 million shares of Preferred Stock at an aggregate price
of approximately $28 million. See "PRINCIPAL STOCKHOLDER'S COMMITMENT".
Prior to the Rights Offering, no shares of Preferred Stock have been issued
and there has been no market for the Preferred Stock. There is no current
intention to list the Preferred Stock on any United States securities exchange.
The Common Stock is listed on the New York Stock Exchange ("NYSE") under the
symbol "BAR". The last reported sales price of the Common Stock on May 8, 1997
was $7.625 per share. Application will be made to list the shares of Common
Stock to be issued upon any conversion of the shares of Preferred Stock on the
NYSE.
SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN RISKS
RELATED TO AN INVESTMENT IN THE PREFERRED STOCK.
------------------------
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>
======================================================================================================
SUBSCRIPTION PROCEEDS TO THE
PRICE COMMISSIONS COMPANY(1)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share of Preferred Stock...................... $9.20 N/A $9.20
Total............................................. $47,883,672.40 N/A $47,883,672.40
======================================================================================================
</TABLE>
(1) Before deducting expenses of the Rights Offering, estimated at $500,000.
------------------------
It is expected that certificates for the Preferred Stock subscribed for in
the Rights Offering will be available for delivery on or about the fifth
business day following the Expiration Date.
, 1997
<PAGE> 3
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and in accordance
therewith files reports and other information with the United States Securities
and Exchange Commission (the "Commission"). Such reports and other information
filed by the Company can be inspected and copied at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549-1004; and at the Commission's Regional Offices at 500
West Madison St., Suite 1400, Chicago, Illinois 60661-2511 and 7 World Trade
Center, 13th Floor, New York, New York 10048. Copies of such material can also
be obtained at prescribed rates from the Public Reference Section of the
Commission at its principal office at 450 Fifth Street, N.W., Washington, D.C.
20549. The Commission also maintains a web site (http://www.sec.gov) that
contains reports, proxy statements and other information regarding the Company.
Such reports and other information concerning the Company can also be inspected
at the offices of the New York Stock Exchange, 11 Wall Street, New York, New
York 10005, on which the Company's Common Stock is listed. Reference is hereby
made to the Registration Statement of which this Prospectus is a part (the
"Registration Statement") and to the exhibits thereto filed with the Commission
for further information with respect to the Company, the Common Stock, the
Rights and the Preferred Stock. Statements contained herein concerning
provisions of documents are necessarily summaries of such documents, and each
statement is qualified in its entirety by reference to the copy of the complete
document filed with the Commission. As permitted by the rules and regulations of
the Commission, this Prospectus omits certain information contained in the
Registration Statement.
------------------------
DOCUMENTS INCORPORATED BY REFERENCE
The following documents heretofore filed by the Company with the Commission
pursuant to the Exchange Act are incorporated by reference in this Prospectus:
a) The Company's Annual Report on Form 10-K for the fiscal year ended
March 31, 1996;
b) The Company's Quarterly Reports on Form 10-Q for the fiscal
quarters ended June 30, 1996, September 30, 1996 and December 31, 1996;
c) The Company's Current Reports on Form 8-K filed February 27, 1996,
March 26, 1996 and January 24, 1997; and
d) The Company's Proxy Statement pursuant to Section 14(a) of the
Exchange Act, dated May 13, 1997.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of the offering made hereby shall be deemed to be incorporated by
reference in this Prospectus and to be a part hereof from the date of filing of
such documents. Any statement contained herein or in a report or document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein or in any subsequently filed report or document which
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
This Prospectus incorporates documents by reference which are not presented
herein or delivered herewith. The Company will provide without charge to each
person, including any beneficial owner of Common Stock to whom this Prospectus
is delivered, on written or oral request of such person, a copy (without
exhibits) of any or all documents incorporated by reference in this Prospectus.
Requests for such copies should be made to Eugene W. Juris, (703) 478-5790.
2
<PAGE> 4
PROSPECTUS SUMMARY
The following is a summary only, the contents of which are necessarily
selective, and should be read in conjunction with the detailed information and
consolidated financial statements (including the notes thereto) appearing
elsewhere in this Prospectus or incorporated by reference herein.
THE COMPANY
The Company is a leading international supplier to the aerospace industry
as a distributor, providing a wide range of aircraft parts and related support
services. The Company's products are divided into three product 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 Company provides a number of services such as immediate
shipment of parts in aircraft on ground situations. The Company also provides
products to original equipment manufacturers and subcontractors ("OEMs") in the
aerospace industry under just-in-time and inventory management programs. The
Company, through its subsidiaries, sells its 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-based operations, corporate
aircraft operators and other aerospace and non-aerospace companies. The mailing
address and telephone number of the principal executive office of the Company
are 300 West Service Road, P.O. Box 20260, Washington, D.C. 20041, (703)
478-5790.
THE RIGHTS OFFERING
ISSUE OF RIGHTS: The Company is issuing non-transferable rights (the
"Rights") to subscribe for up to 5,204,727 shares
of Series A Convertible Paid-in-Kind Preferred
Stock, par value $.01 per share, of the Company
(the "Preferred Stock"). Each holder of the
Company's common stock, $1.00 par value (the
"Common Stock"), of record on the Record Date (as
defined below) is entitled to receive, for every
4.5 shares of Common Stock held, one Right. No
fractional Rights will be issued; however, one
Right will be issued in lieu of any fractional
Right to which a holder would be otherwise
entitled. Such holders are entitled to purchase one
share of non-voting Preferred Stock for each Right
held. Fractional shares of Preferred Stock will not
be issued. In the event all holders of Common Stock
(approximately 23 million shares outstanding) were
to exercise all the Rights in the Rights Offering,
the Company would issue approximately 5 million
shares of Preferred Stock, for an aggregate
consideration of approximately $48 million.
SUBSCRIPTION PRICE: $9.20 per share, payable by the Expiration Date
(the "Subscription Price"). See "DESCRIPTION OF THE
RIGHTS OFFERING".
RECORD DATE: 5:00 p.m., New York City time, on May 23, 1997 (the
"Record Date").
EXPIRATION DATE: June 18, 1997 at 5:00 p.m. New York City time (the
"Expiration Date"). Rights not duly exercised by
such time will lapse and will be void and without
value. The Company reserves the right to extend the
period during which the Rights may be exercised
(the "Subscription Period") and the Expiration
Date, subject to obtaining any required regulatory
approvals. The Expiration Date will not be extended
beyond June 30, 1997.
NON-TRANSFERABILITY OF
RIGHTS: The Rights are non-transferable.
3
<PAGE> 5
SUBSCRIPTION PROCEDURES: The Rights are evidenced by non-transferable
subscription certificates (the "Subscription
Certificates") that are being mailed together with
this Prospectus to each qualified holder of record
on the Record Date. Rights may be exercised in
whole or in part by a qualified record holder of
Common Stock by filling in and signing the relevant
forms on the Subscription Certificate and mailing
or delivering the Subscription Certificate,
together with payment in full for the Rights
subscribed for, to the Subscription Agent (as
defined below) at the address set forth in the
Subscription Certificate, provided that record
holders who hold shares of Common Stock for the
accounts of others must follow the instructions of
such beneficial owners with respect to the Rights
to which such beneficial owners are entitled. See
"DESCRIPTION OF THE RIGHTS OFFERING -- Rights of
Beneficial Owners of Common Stock". A Right will
not be deemed exercised until the Subscription
Agent receives payment and a duly executed
Subscription Certificate by 5:00 p.m., New York
City time, on the Expiration Date. Payment may be
made in U.S. funds by certified check, bank draft
or money order payable at par to the order of
Harris Trust and Savings Bank, 77 Water Street, New
York, New York 10005, Tel No. (212) 701-7624 (the
"Subscription Agent").
USE OF PROCEEDS: The net proceeds to the Company from the sale of
shares of Preferred Stock to be issued with respect
to the Rights, assuming all of the Rights were to
be exercised, are estimated to be approximately $47
million, after deducting expenses of the Rights
Offering estimated to be $500,000. Alternatively,
the net proceeds to the Company, assuming The
Fairchild Corporation ("Fairchild") is the only
stockholder which exercises its Rights, are
estimated to be approximately $28 million, after
deducting expenses of the Rights Offering. Such net
proceeds will be used to repay $28 million borrowed
under a subordinated loan agreement the Company
entered into with RHI Holdings, Inc., a
wholly-owned subsidiary of Fairchild ("RHI"), on
December 20, 1996, of which $16 million was used to
acquire PB Herndon Company. The remainder of any
net proceeds of the Rights Offering will be used to
repay up to approximately $19 million borrowed
under the revolving credit facility pursuant to the
Credit Agreement (as defined under "RISK FACTORS").
See "USE OF PROCEEDS".
TERMS OF THE PREFERRED STOCK
DIVIDENDS: The Preferred Stock will pay semi-annual dividends
at the rate of 7.5% per annum of the Liquidation
Value of $9.20 per share. Dividends will be payable
in additional shares of Preferred Stock and not in
cash except for fractional interests. Fractional
shares of Preferred Stock will not be issued, but a
cash adjustment will be paid in respect of such
fractional interests based on the Liquidation
Value.
OPTIONAL CONVERSION: The shares of Preferred Stock will be convertible
into shares of Common Stock at any time at the
election of the holder.
MANDATORY CONVERSION: To the extent not previously converted, the
Preferred Stock will automatically be converted
into Common Stock on the fifth anniversary of the
date of initial issuance of the Preferred Stock.
4
<PAGE> 6
ACCELERATED MANDATORY
CONVERSION: The Preferred Stock will automatically be converted
into Common Stock if the Company shall be a party
to any merger or consolidation with any third
party, other than an Affiliate (as defined under
Rule 405 of the Securities Act of 1933, as amended
(the "Securities Act")) of the Company (not
including Fairchild).
CONVERSION PRICE: Each share of Preferred Stock converted into Common
Stock will have a value of $9.20 for the purposes
of such conversion. The conversion price per share
of Common Stock in the case of any optional or
mandatory conversion (the "Conversion Price") will
be $9.20 (the average closing sales prices of the
Common Stock on the 15 consecutive trading days
next preceding the fifth trading day prior to the
date the Registration Statement was initially filed
with the Commission), resulting in a one to one
share conversion, unless the Conversion Price is
subject to anti-dilutive adjustments upon the
occurrence of certain events as described under
"DESCRIPTION OF SECURITIES -- Series A Convertible
Paid-in-Kind Preferred Stock -- Adjustment of
Conversion Price."
REDEMPTION: The Preferred Stock will not be redeemable for
cash.
NO VOTING RIGHTS: The shares of Preferred Stock will have no voting
rights except as required by law.
RISK FACTORS: An investment in the Preferred Stock is subject to
certain risks. Among the risk factors relating to
the Company are competition, potential conflicts of
interest with Fairchild, certain restrictions in a
Credit Agreement (as defined in "RISK
FACTORS -- Certain Restrictions in Credit
Agreement"), product liability, ability to
successfully implement acquisitions, and the effect
of shares of Common Stock eligible for future sale.
Risk factors related to the Preferred Stock and the
Rights are the lack of a public market for the
Preferred Stock and the determination of the
Subscription Price and terms of the Preferred
Stock. See "RISK FACTORS".
5
<PAGE> 7
RISK FACTORS
Prospective purchasers of the Preferred Stock should carefully consider all
the information contained herein, including the risk factors set forth below.
The Prospectus contains various forward-looking statements and information
that are based on management's beliefs as well as assumptions made by, and
information currently available to, management. When used in this document, the
words "anticipate", "estimate", "project", "expect", "should" and similar
expressions are intended to identify forward-looking statements. Such statements
are subject to certain risks, uncertainties and assumptions. Should one or more
of these risks or uncertainties materialize, or should underlying assumptions
prove incorrect, actual results may vary materially from those anticipated,
estimated or projected. Among the key factors that have or could have a direct
bearing on the Company's results are those discussed below.
FACTORS RELATING TO THE COMPANY
Competition
As the airline industry continues to emphasize cost reduction to improve
profitability, suppliers of aerospace parts are being forced to become more
competitive. The Company competes with hundreds of competitors in each of the
hardware, rotables and engine groups. The Company believes it is the largest
independent distributor of aircraft hardware in the world, competing with OEMs
such as The Boeing Company, which supports the fleet of Boeing-produced
aircraft, fastener manufacturers and independent distributors. The Company
believes it generally has a price advantage over OEMs which generally charge
high prices for small orders. Many of the Company's customers require small
quantities, and the Company is able to purchase large quantities from OEMs and
sell smaller quantities to its customers at prices lower than those charged by
OEMs. In the rotables group, the competitors with sales comparable to the
Company are AAR Corp. and Air Group Equipment Services ("AGES"). The Company
also competes with Aviation Sales Company, The Memphis Group and other large and
small companies in a very fragmented industry. The major competitors for the
engine group, with sales comparable to the Company, are OEMs such as General
Electric Company and Pratt & Whitney. The Company also competes with the
engine/engine parts divisions of AAR Corp. and AGES and many smaller companies.
Certain of these competitors are larger and have greater financial and other
resources than the Company, primarily the OEMs. However, the Company believes
that none of these competitors dominate the markets they serve.
Potential Conflicts of Interest with Fairchild
Fairchild is the largest stockholder of the Company and owns approximately
59% of the Common Stock. Accordingly, Fairchild is in a position to determine
the election of the Company's directors and most other stockholder actions.
Jeffrey J. Steiner serves as Chairman of the Board and Chief Executive Officer
of both Fairchild and the Company. Mr. Steiner devotes such time to the business
and affairs of the Company as he deems appropriate; however, he has duties and
responsibilities to Fairchild which will require a significant portion of his
time and which may conflict with his duties to the Company. See "RECENT
DEVELOPMENTS".
The Company may be subject to various conflicts of interest arising out of
the relationships among it and Fairchild and their respective affiliates.
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 in
resolving any specific conflict of interest which may occur.
Fairchild has advised the Company that, subject to the receipt and approval
of this Prospectus, it intends to exercise the Rights it receives pursuant to
the Rights Offering. See "PRINCIPAL STOCKHOLDER'S COMMITMENT".
6
<PAGE> 8
Certain Restrictions in Credit Agreement
The Company is party to a second Amended and Restated Credit Agreement
dated as of December 12, 1996, among the Company, Burbank Aircraft Supply, Inc.
(a wholly-owned subsidiary of the Company), Citicorp USA, Inc., as
administrative agent, and the lenders from time to time party thereto (as
amended, the "Credit Agreement"). The Credit Agreement contains covenants which
restrict, among other things, the ability of the Company and each of its
subsidiaries to pay cash dividends or other distributions on their respective
shares of capital stock other than payments to the Company or any of its
subsidiaries. The Company may, during any one fiscal year, pay dividends in an
aggregate amount which is the lesser of $150,000 or the amount of consolidated
net income as such term is defined in the Credit Agreement. The Credit Agreement
does not restrict stock dividends payable to holders of the capital stock of the
Company or dividends to the Company from its subsidiaries.
The Credit Agreement contains other covenants which may limit the Company's
operating flexibility including limitations on, among other things, the
incurrence of indebtedness, the making of investments, the sale of assets and
the acquisition of all or substantially all of the business, property, assets or
stock of any entity. Financial covenants in the Credit Agreement require the
Company to maintain on a consolidated basis a minimum net worth and minimum
ratios of interest coverage, fixed charge coverage and debt to earnings before
interest, taxes, depreciation and amortization, which are measured on a
quarterly basis. Events of default under the Credit Agreement include certain
events which result in a change of control of the Company. There can be no
assurance that such provisions will not adversely affect the Company's ability
to finance its future operations or capital needs or to engage in other business
activities which may be in the interest of the Company.
Product Liability
The Company has product liability insurance policies from independent
insurers in full force and effect that provide coverage for third party product
liability claims arising out of the products that the Company sells. The Company
believes that its insurance policies are consistent with industry standards. The
Company has not been the subject of any material product liability claims;
however, there can be no assurance that the Company's product liability
insurance policies will be sufficient to cover any such claims, or that such
policies can be maintained in force at an acceptable cost. Any liability of the
Company which is not covered by such policies, or is in excess of the limits of
liability of such policies, could have a material adverse effect on the
financial condition of the Company.
Ability to Successfully Implement Acquisitions
The Company has recently completed the acquisition of PB Herndon Company, a
specialty fastener distributor to the aerospace industry, and is in the process
of implementing the Bellyloading Companies Acquisition (as defined under "RECENT
DEVELOPMENTS"), and may in the future capitalize on additional selective
acquisition opportunities. The integration of acquired businesses may result in
unforeseen difficulties that require a disproportionate amount of management's
attention and the Company's resources. There can be no assurance that the
Company will be able to achieve the synergies it anticipates from recent and
current acquisitions or that suitable additional acquisitions, or adequate
financing sources for such acquisitions, will be available on terms acceptable
to the Company.
The Bellyloading Companies have incurred net losses since 1994 and rely on
their parent, RHI, for financial support, including funding for working capital
shortfalls. Failure to continue such financial support by RHI, following the
consummation of the Bellyloading Companies Acquisition and the inability of the
Company to provide for or obtain for the Bellyloading Companies adequate
replacement financial support, would have a significant and immediate adverse
impact on the operations of the Bellyloading Companies. The Bellyloading
Companies' ability to continue as a going concern is dependent on the sales
growth and continued support of RHI or the Company, as the case may be. RHI, the
present parent company, and the Company, as the future parent company, intend to
continue the support of the Bellyloading Companies' operations. There can be no
assurance that continued support of the Bellyloading Companies will not have an
adverse effect on the Company. See "RECENT DEVELOPMENTS".
7
<PAGE> 9
Effect of Shares of Common Stock Eligible for Future Sale
Sales, or the possibility of sales, of substantial amounts of the Common
Stock in the public market could have an adverse effect on the market price of
the Common Stock. The Company has granted to Fairchild certain registration
rights with respect to all of the unregistered Common Stock held by Fairchild so
long as Fairchild holds at least 15% of the issued and outstanding Common Stock
of the Company. As of May 8, 1997, all of Fairchild's approximately 14 million
shares of the Common Stock were unregistered.
FACTORS RELATING TO THE PREFERRED STOCK AND THE RIGHTS
Lack of Public Market for the Preferred Stock
The Preferred Stock is a new issue for which there is currently no trading
market, and there is no current intention to list the Preferred Stock on any
United States securities exchange. If any shares of the Preferred Stock are
traded after their initial issuance, they may trade at a discount or premium
from their initial offering price, depending upon prevailing interest rates, the
market for similar securities and other factors, including general economic
conditions and the financial condition, performance and prospects of the
Company. No assurance can be given that a trading market for the Preferred Stock
will develop or as to the liquidity of any such trading market. See "DESCRIPTION
OF SECURITIES -- SERIES A CONVERTIBLE PAID-IN-KIND PREFERRED STOCK".
Determination of the Subscription Price and Terms of the Preferred Stock
The Subscription Price of the Rights offered hereby and the terms of the
Preferred Stock, including the conversion ratio of the Preferred Stock into
Common Stock, have been arbitrarily determined by the Board of Directors of the
Company and do not necessarily bear any relationship to the Company's net worth,
results of operations or any other generally accepted criterion of value.
There can be no assurance that the market price of the Common Stock will
not decline after the Rights Offering to a level below its current trading
value, or that, following the completion of the Rights Offering and the issuance
of the Preferred Stock sold pursuant thereto, a holder of the Preferred Stock
will be able to sell shares of the Preferred Stock purchased in the Rights
Offering at a price equal to or greater than the Subscription Price. See
"DETERMINATION OF SUBSCRIPTION PRICE".
Rights Not Transferable; No Market for the Rights
The Rights are non-transferable, and thus there will be no market or other
means for holders of the Rights to directly realize any value associated with
the Rights. Accordingly, holders of the Rights must exercise them and acquire
shares of the Preferred Stock in order to have an opportunity to realize any
such value. See "DESCRIPTION OF THE RIGHTS OFFERING" and "MARKET INFORMATION".
THE COMPANY
The Company, a Delaware corporation, is a leading international supplier to
the aerospace industry as a distributor, providing a wide range of aircraft
parts and related support services. The Company's products are divided into
three product 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 Company provides a
number of services such as immediate shipment of parts in aircraft on ground
situations. The Company also provides products to OEMs in the aerospace industry
including just-in-time and inventory management programs. The Company, through
its subsidiaries, sells its products in the United States and abroad to most of
the world's commercial airlines, as well as to air cargo carriers, OEMs, other
distributors, fixed-base operations, corporate aircraft operators and other
aerospace and non-aerospace companies.
As of February 28, 1997, the Company had approximately 825 employees. The
Company's corporate office consists of 10,000 square feet and is located near
the Washington Dulles International Airport in Northern Virginia.
8
<PAGE> 10
RECENT DEVELOPMENTS
ACQUISITION OF THE BELLYLOADING COMPANIES
On June 18, 1997, the stockholders of the Company will be asked to approve
the acquisition by the Company from RHI, a wholly-owned subsidiary of Fairchild,
of Fairchild Scandinavian Bellyloading Company AB, a Swedish company involved in
the design and manufacture of patented cargo loading systems ("FSBC"), and
Scandinavian Bellyloading International, Inc., a California corporation engaged
in sales and marketing of FSBC's cargo loading systems in the United States
("SBIC", and together with FSBC, the "Bellyloading Companies"), pursuant to the
terms of a Stock Exchange Agreement dated as of May 12, 1997, between the
Company and RHI (the "Stock Exchange Agreement"). Each of the Bellyloading
Companies is a wholly-owned subsidiary of RHI. Pursuant to the Stock Exchange
Agreement, once the rescission right of the Company expires, each of the
Bellyloading Companies will become a wholly-owned subsidiary of the Company in
exchange for issuance by the Company to RHI or its designee of 230,000 shares of
Common Stock initially, but subject to certain limitations and adjustments, all
as more fully described in the Proxy Statement incorporated by reference herein
(the "Bellyloading Companies Acquisition").
Upon the issuance of shares of Common Stock under the Stock Exchange
Agreement, the percentage of the Company's voting securities owned of record by
existing holders of shares of Common Stock (not including Fairchild or RHI) will
be reduced. At the date hereof, Fairchild is the beneficial owner of
approximately 13.9 million shares or approximately 59.3% of the outstanding
shares of Common Stock. Upon initial implementation, the Bellyloading Companies
Acquisition would reduce the interest of existing holders of outstanding shares
of Common Stock, other than Fairchild and RHI, to approximately 40.3%, and
increase Fairchild's beneficial ownership to approximately 59.7% of the
outstanding shares of Common Stock. Pursuant to the Stock Exchange Agreement,
the maximum number of shares which the Company will issue to RHI or its designee
is 1.5 million shares (the "Maximum Number of Banner Shares"). Assuming the
Maximum Number of Banner Shares is ultimately issued to RHI or its designee, the
interests of existing holders of outstanding shares of Common Stock, other than
Fairchild and RHI, would be reduced to approximately 38% and Fairchild's
beneficial ownership would be increased to approximately 62% of the outstanding
shares of Common Stock.
INVESTIGATION IN FRANCE
Articles have appeared in the French press reporting an investigation by a
French magistrate into certain allegedly improper business transactions
involving Elf Acquitaine, its former chairman and various third parties. In
connection with this investigation, the magistrate has made inquiry into
allegedly improper transactions between Jeffrey J. 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 has requested
permission to investigate other allegedly improper transactions involving
another French petroleum company and, if granted, inquiry into transactions
between Mr. Steiner and such company 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.
ADDITIONAL FINANCING
On March 31, 1997, the Company's lenders provided the Company with an
additional $40.0 million of long-term debt, substantially all of which will
become payable in August 2002. Interest on the loan is approximately the same
rate as the Company's current bank debt. The Company believes this loan will
increase the Company's flexibility and options in its growth plans.
9
<PAGE> 11
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF THE COMPANY
The following table sets forth selected consolidated financial data of the
Company and has been derived from, and should be read in conjunction with, the
audited consolidated financial statements of the Company, including the notes
thereto, as of and for the fiscal years ended March 31, 1996, 1995, 1994, 1993
and 1992, and the unaudited interim consolidated financial statements of the
Company, including notes thereto, for the nine months ended December 31, 1996
and 1995. See "UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS."
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED DECEMBER 31, FOR THE FISCAL YEARS ENDED MARCH 31,
-------------------------- --------------------------------------------------------
1996 1995 1996 1995 1994 1993 1992
----------- ----------- -------- -------- -------- -------- --------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales............................. $ 275,369 $ 199,145 $287,880 $222,384 $212,391 $224,777 $225,943
----------- ----------- -------- -------- -------- -------- --------
Cost of goods sold.................... 198,262 142,464 209,609 153,261 144,245 159,728 148,374
Selling, general and administrative... 60,194 45,822 64,704 52,389 50,815 59,791 57,331
Restructuring charges................. -- -- -- 11,650 6,000 -- --
----------- ----------- -------- -------- -------- -------- --------
Operating income...................... 16,913 10,859 13,567 5,084 11,331 5,258 20,238
Unusual item.......................... -- -- -- 5,750 -- -- --
Interest expense, net................. (9,249) (8,343) (10,972) (9,809) (9,089) (7,510) (7,095)
----------- ----------- -------- -------- -------- -------- --------
Income (Loss) from continuing
operations before taxes on income... 7,664 2,516 2,595 1,025 2,242 (2,252) 13,143
Provision for taxes................... 3,070 1,010 1,040 550 940 40 5,030
----------- ----------- -------- -------- -------- -------- --------
Income (Loss) from continuing
operations.......................... 4,594 1,506 1,555 475 1,302 (2,292) 8,113
Discontinued operations, net of tax:
Loss from operations.............. -- -- -- -- (1,905) (848) (2,061)
Loss on disposal.................. -- -- -- -- (11,093) -- --
----------- ----------- -------- -------- -------- -------- --------
-- -- -- -- (12,998) (848) (2,061)
----------- ----------- -------- -------- -------- -------- --------
Net income (loss)..................... $ 4,594 $ 1,506 $ 1,555 $ 475 $(11,696) $ (3,140) $ 6,052
=========== =========== ======== ======== ======== ======== ========
Earnings (Loss) per common share:
Continuing operations............. $ 0.20 $ 0.08 $ 0.09 $ 0.03 $ 0.07 $ (0.13) $ 0.45
Discontinued operations........... -- -- -- -- (0.72) (0.04) (0.11)
----------- ----------- -------- -------- -------- -------- --------
Net income (loss) per share........... $ 0.20 $ 0.08 $ 0.09 $ 0.03 $ (0.65) $ (0.17) $ 0.34
=========== =========== ======== ======== ======== ======== ========
Weighted average number of common
shares.............................. 23,406 18,002 18,283 18,002 18,002 18,000 18,000
=========== =========== ======== ======== ======== ======== ========
BALANCE SHEET DATA:
Working capital....................... $ 243,129 $ 186,280 $209,022 $184,087 $214,806 $250,742 $194,558
Total assets.......................... 346,810 265,028 318,209 241,315 272,357 305,809 248,787
Long-term debt, less current
maturities.......................... 139,549 115,200 111,900 102,800 134,017 157,927 98,299
Stockholders' equity.................. 147,284 109,010 142,603 107,504 107,029 118,714 121,854
RATIO OF EARNINGS TO FIXED
CHARGES:(1)......................... 1.69 1.16 1.11 1.05 1.17 -- 2.69
</TABLE>
- ---------------
(1) The deficiency of earnings to cover fixed charges was $2,654 for the fiscal
year ended March 31, 1993.
10
<PAGE> 12
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
INTRODUCTION
The following Unaudited Pro Forma Condensed Consolidated Income Statements
for the fiscal year ended March 31, 1996 and for the nine months ended December
31, 1996 and Balance Sheet as of December 31, 1996 give effect to the
Bellyloading Companies Acquisition by the Company, and assumes that the
Company's rescission right is not exercised and no additional shares, other than
the initial 230,000 shares of Common Stock, are issued. As Fairchild controls
both RHI and the Company, the net assets of the Bellyloading Companies acquired
by the Company will remain at the same carrying value as held by RHI. For
purposes of preparing these statements, it is assumed that the 230,000 shares of
Company Common will be valued at $9.25 per share in exchange for 100% of each of
the Bellyloading Companies' capital stock.
The Unaudited Pro Forma Condensed Consolidated Financial Information is
based on the historical financial information of the Company for the fiscal year
ended March 31, 1996 and the Bellyloading Companies for the fiscal year ended
June 30, 1996. Since the fiscal year ends differ by less than 93 days, as
permitted by the Securities and Exchange Commission rules, the Unaudited Pro
Forma Condensed Consolidated Financial Information as at and for the period
ended March 31, 1996 simply combine the results of the companies as of these
different dates. The Unaudited Pro Forma Condensed Consolidated Financial
Information is presented for informational purposes only and is not necessarily
indicative of what combined earnings and results of operations would have been
had the Company acquired the Bellyloading Companies at the beginning of the
periods presented, nor is such information intended necessarily to be indicative
of the future results of operations that may occur. The Unaudited Pro Forma
Condensed Consolidated Financial information should be read in conjunction with
the financial statements and other financial data of the Company and the
Bellyloading Companies incorporated by reference or included herein.
In addition the Unaudited Pro Forma Condensed Consolidated Financial
Information assumes the issuance and sale of only the pro rata shares of
Preferred Stock for which Fairchild has committed to subscribe. The Unaudited
Pro Forma Condensed Consolidated Financial Information also assumes the
acquisitions of Harco, Inc. ("Harco"), which the Company acquired effective
March 1, 1996, and PB Herndon Company ("PB Herndon"), which the Company acquired
in January 1997, occurred at the beginning of each fiscal year.
11
<PAGE> 13
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED INCOME STATEMENT
FOR THE NINE MONTHS ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRO FORMA
PRIOR TO
BELLYLOADING
(IN THOUSANDS BANNER PB PREFERRED STOCK ELIMINATIONS/ COMPANIES'
EXCEPT PER SHARE DATA) AEROSPACE, INC. HERNDON OFFERING ADJUSTMENTS ACQUISITION
--------------- ------- --------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Net sales................................. $ 275,369 $11,899 $ -- $ -- $287,268
Cost of goods sold........................ 198,262 7,994 -- -- 206,256
--------- ------- -------- -------- --------
Gross profit.......................... 77,107 3,905 -- -- 81,012
Selling, general and administrative....... 60,194 2,457 -- -- 62,651
--------- ------- -------- -------- --------
Operating income (loss)............... 16,913 1,448 -- -- 18,361
Interest (income) expense, net............ 9,249 520 (1,899)(a) 492 (c) 8,362
--------- ------- -------- -------- --------
Income (Loss) from operations......... 7,664 928 1,899 (492) 9,999
Provision (Benefit) for taxes............. 3,070 391 760 (a) (197)(c) 4,024
--------- ------- -------- -------- --------
Net income (loss)..................... 4,594 537 1,139 (295) 5,975
Less net income reserved for preferred
stock
dividends............................... -- -- (1,597)(b) -- (1,597)
--------- ------ -------- -------- --------
Net income available for common....... $ 4,594 $ 537 $ (458) $ (295) $ 4,378
========= ====== ======== ======== ========
Earnings per common share................. $ 0.20 $ 0.19
========= ========
Weighted average number of shares......... 23,406 23,406
========= ========
<CAPTION>
(IN THOUSANDS BELLYLOADING ELIMINATIONS/
EXCEPT PER SHARE DATA) COMPANIES ADJUSTMENTS PRO FORMA
------------ ------------- ---------
<S> <C> <C> <C>
Net sales................................. $2,928 $ -- $290,196
Cost of goods sold........................ 2,594 -- 208,850
------ ------- --------
Gross profit.......................... 334 -- 81,346
Selling, general and administrative....... 1,313 -- 63,964
------ ------- --------
Operating income (loss)............... (979) -- 17,382
Interest (income) expense, net............ -- -- 8,362
------ ------- --------
Income (Loss) from operations......... (979) -- 9,020
Provision (Benefit) for taxes............. -- -- 4,024
------ ------- --------
Net income (loss)..................... (979) -- 4,996
Less net income reserved for preferred
stock
dividends............................... -- -- (1,597)
------ ------- --------
Net income available for common....... $ (979) $ -- $ 3,399
====== ======= ========
Earnings per common share................. $ 0.14
========
Weighted average number of shares......... 230 23,636
======= ========
</TABLE>
The accompanying Notes to Unaudited Pro Forma Condensed Consolidated Financial
Information are an integral part of the
Unaudited Pro Forma Condensed Consolidated Financial Statements.
12
<PAGE> 14
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED INCOME STATEMENT
FOR THE FISCAL YEAR ENDED MARCH 31, 1996
<TABLE>
<CAPTION>
(IN THOUSANDS BANNER PB PREFERRED STOCK ELIMINATIONS/
EXCEPT PER SHARE DATA) AEROSPACE, INC. HARCO(d) HERNDON OFFERING ADJUSTMENTS
--------------- ------- ------- --------------- -------------
<S> <C> <C> <C> <C> <C>
Net sales........................................ $ 287,880 $28,258 $15,158 -- --
Cost of goods sold............................... 209,609 18,144 10,775 -- --
--------- ------- ------- ------- -------
Gross profit................................. 78,271 10,114 4,383 -- --
Selling, general and administrative.............. 64,704 6,480 3,107 -- --
--------- ------- ------- ------- -------
Operating income (loss)...................... 13,567 3,654 1,276 -- --
Interest (income) expense, net................... 10,972 -- 353 (2,605)(a) 670 (c)
--------- ------- ------- ------- -------
Income (Loss) from operations................ 2,595 3,654 923 2,605 (670)
Provision (Benefit) for taxes.................... 1,040 1,308 356 1,042 (a) (268)(c)
--------- ------- ------- ------- -------
Net income (loss)............................ 1,555 2,346 567 1,563 (402)
Less net income reserved for preferred stock
dividends...................................... -- -- -- (2,129)(b) --
--------- ------- ------- ------- -------
Net income available for common.............. $ 1,555 $ 2,346 $ 567 $ (566) $ (402)
========= ======= ======= ======== =======
Earnings per common share........................ $ 0.09
=========
Weighted average number of shares................ 18,283 5,110 (d)
========= =======
<CAPTION>
PRO FORMA
PRIOR TO
BELLYLOADING
(IN THOUSANDS COMPANIES' BELLYLOADING ELIMINATIONS/
EXCEPT PER SHARE DATA) ACQUISITION COMPANIES ADJUSTMENTS PRO FORMA
------------ ------------ ------------- ---------
<S> <C> <C> <C> <C>
Net sales........................................ $331,296 $ 2,247 $ -- $333,543
Cost of goods sold............................... 238,528 1,911 -- 240,439
-------- -------- ------ --------
Gross profit................................. 92,768 336 -- 93,104
Selling, general and administrative.............. 74,271 1,666 -- 75,937
-------- -------- ------ --------
Operating income (loss)...................... 18,497 (1,330) -- 17,167
Interest (income) expense, net................... 9,390 -- -- 9,390
-------- -------- ------ --------
Income (Loss) from operations................ 9,107 (1,330) -- 7,777
Provision (Benefit) for taxes.................... 3,478 -- -- 3,478
-------- -------- ------ --------
Net income (loss)............................ 5,629 (1,330) -- 4,299
Less net income reserved for preferred stock
dividends...................................... (2,129) -- -- (2,129)
-------- -------- ------ --------
Net income available for common.............. $ 3,500 ($ 1,330) -- $ 2,170
======== ======== ====== ========
Earnings per common share........................ $ 0.15 $ 0.09
======== ========
Weighted average number of shares................ 23,393 230 23,623
======== ====== ========
</TABLE>
The accompanying Notes to Unaudited Pro Forma Condensed Consolidated Financial
Information are an integral part of the
Unaudited Pro Forma Condensed Consolidated Financial Statements.
13
<PAGE> 15
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
ASSETS
PREFERRED
BANNER PB STOCK ELIMINATIONS/
(IN THOUSANDS) AEROSPACE, INC. HERNDON OFFERING ADJUSTMENTS
--------------- ------- ----------- -------------
<S> <C> <C> <C> <C>
Current Assets:
Cash....................................................... $ -- $ 124 $ -- $ (50)(g)
Accounts receivable, net................................... 55,304 1,884 -- --
Inventory.................................................. 229,214 12,690 -- --
Other current assets....................................... 15,092 54 -- --
--------- ------- ------- ---------
Total current assets................................... 299,610 14,752 -- (50)
--------- ------- ------- ---------
Net fixed assets............................................... 14,000 361 -- --
Investment in subsidiary....................................... -- -- -- 14,750 (g)
(14,750)(h)
Other Assets:
Cost in excess of net tangible assets of purchased
businesses, net.......................................... 27,792 -- -- 3,194 (h)
Other...................................................... 5,408 441 -- --
--------- ------- ------- ---------
Total other assets..................................... 33,200 441 -- 3,194
--------- ------- ------- ---------
Total assets........................................... $ 346,810 $15,554 $ -- $ 3,144
========= ======= ======= =========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C> <C> <C>
Total current liabilities...................................... $ 56,481 $11,313 $ -- $ (7,500)(f)
Long-Term Liabilities:
Long-term notes payable.................................... 139,549 185 (27,890)(e) 14,700 (g)
Other...................................................... 3,496 -- -- --
--------- ------- ------- ---------
143,045 185 (27,890) 14,700
--------- ------- ------- ---------
Total liabilities...................................... 199,526 11,498 (27,890) 7,200
--------- ------- ------- ---------
Stockholders' Equity:
Preferred stock, par value $.01............................ -- -- 31 (e) --
Common stock, par value $1.00.............................. 23,410 10 -- (10)(h)
Paid-in capital............................................ 113,194 -- 27,859 (e) 7,500 (f)
(7,500)(h)
Retained earnings.......................................... 10,680 4,046 -- (4,046)(h)
Cumulative translation adjustment.......................... -- -- -- --
--------- ------- ------- ---------
Total stockholders' equity............................. 147,284 4,056 27,890 (4,056)
--------- ------- ------- ---------
Total liabilities & stockholders' equity............... $ 346,810 $15,554 $ -- $ 3,144
========= ======= ======= =========
<CAPTION>
ASSETS
PRO FORMA
PRIOR TO
BELLYLOADING
COMPANIES' BELLYLOADING ELIMINATIONS/
(IN THOUSANDS) ACQUISITION COMPANIES ADJUSTMENTS PRO FORMA
------------ ------------ ------------- ---------
<S> <C> <C> <C> <C>
Current Assets:
Cash....................................................... $ 74 $ 408 $ -- $ (482)
Accounts receivable, net................................... 57,189 1,043 -- 58,231
Inventory.................................................. 241,904 1,587 -- 243,491
Other current assets....................................... 15,146 256 -- 15,402
-------- -------- ------- --------
Total current assets................................... 314,312 3,294 -- 317,606
-------- -------- ------- --------
Net fixed assets............................................... 14,361 223 -- 14,584
Investment in subsidiary....................................... -- -- --
Other Assets:
Cost in excess of net tangible assets of purchased
businesses, net.......................................... 30,986 386 -- 31,372
Other...................................................... 5,849 112 -- 5,961
-------- -------- ------- --------
Total other assets..................................... 36,835 498 -- 37,333
-------- -------- ------- --------
Total assets........................................... $365,508 $ 4,015 $ -- $369,523
======== ======== ======= ========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C> <C> <C>
Total current liabilities...................................... $ 60,294 $ 1,931 $ -- $ 62,225
Long-Term Liabilities:
Long-term notes payable.................................... 126,544 -- -- 126,544
Other...................................................... 3,496 -- -- 3,496
-------- -------- ------- --------
130,040 -- -- 130,040
-------- -------- ------- --------
Total liabilities...................................... 190,334 1,931 -- 192,265
-------- -------- ------- --------
Stockholders' Equity:
Preferred stock, par value $.01............................ 31 -- -- 31
Common stock, par value $1.00.............................. 23,410 4,978 (4,748) 23,640
Paid-in capital............................................ 141,053 -- 4,748 145,801
Retained earnings.......................................... 10,680 (2,788) -- 7,892
Cumulative translation adjustment.......................... -- (106) -- (106)
-------- -------- ------- --------
Total stockholders' equity............................. 175,174 2,084 -- 177,258
-------- -------- ------- --------
Total liabilities & stockholders' equity............... $365,508 $ 4,015 $ -- $369,523
======== ======== ======= ========
</TABLE>
The accompanying Notes to Unaudited Pro Forma Condensed Consolidated Financial
Information are an integral part of the
Unaudited Pro Forma Condensed Consolidated Financial Statements.
14
<PAGE> 16
(IN THOUSANDS)
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
(a) The adjustments of $1,899 and $2,605 to interest expense and $760 and $1,042
to provision for taxes for the nine months ended December 31, 1996 and the
fiscal year ended March 31, 1996, respectively, result from the decrease in
the debt balance of $27,890 using proceeds of the Rights Offering to repay
debt, net of $500 of estimated expenses.
(b) The adjustments of $1,597 and $2,129 which represent net income reserved for
Preferred Stock dividends for the nine months ended December 31, 1996 and
the fiscal year ended March 31, 1996, respectively, are based on the 7.5%
semi-annual dividend that would be payable in additional shares of Preferred
Stock to Fairchild as a result of exercising its Rights.
(c) The adjustments of $492 and $670 to interest expense and $197 and $268 to
provision for taxes are to record the increase in interest expense and
related provision for taxes for the nine months ended December 31, 1996 and
the fiscal year ended March 31, 1996, respectively, due to the increase in
the debt balance of $14,700 as a result of the acquisition of PB Herndon
net of the capital contribution of $7,500 received by PB Herndon prior to
its acquisition. PB Herndon was acquired by the Company through its
subsidiary, Dallas Aerospace, Inc., in January 1997. As of the date hereof,
the Company has borrowed $28,000 from RHI of which $16,000 was utilized to
acquire PB Herndon, a specialty fastener distributor to the aerospace
industry, and $12,000 was for additional working capital.
(d) The Company acquired from Fairchild all of the stock of Harco, effective
March 1, 1996. Harco is one of the largest distributors of aerospace
self-locking nuts. In exchange for Harco stock, the Company issued to
Fairchild 5,386 shares of Common Stock with an average market value (at the
time of issuance) of $32,723. Therefore, the Company's consolidated income
statement for the fiscal year ended March 31, 1996 only includes the results
of Harco for the one month ended March 31, 1996. The adjustment to the pro
forma income statement includes the results for Harco for the eleven months
ended February 28, 1997 as if Harco was acquired at the beginning of the
fiscal year.
(e) Fairchild owns 13,886 shares of Common Stock. For every 4.5 shares of
Common Stock Fairchild owns, Fairchild has one Right which it may exercise
for $9.20. The exercise of one Right will produce one share of Preferred
Stock. The total number of shares of Preferred Stock issued to Fairchild as
a result of the exercising all the Rights would be 3,086 at a par value of
$.01. The total proceeds to the Company would be $28,390, less estimated
expenses of $500.
(f) The adjustments of $7,500 to total current liabilities and capital surplus
are to record the pay down of existing debt of PB Herndon as a result of
capital contributions from its former stockholders.
(g) The adjustment of $14,750 to investment in subsidiary and $14,700 to
long-term notes payable and $50 to cash are to record the purchase price
and other costs relating to the acquisition of PB Herndon and to record the
increase in the debt balance as a result of the Company borrowing the funds
to acquire PB Herndon.
(h) The adjustment of $3,194 to cost in excess of net tangible assets of
purchased businesses, net is to record the excess of the purchase price of
PB Herndon over the net tangible assets acquired which is the result of the
investment of $14,750 less the capital contribution of $7,500 and the book
value of PB Herndon of $4,056. The goodwill will be amortized over 40 years.
15
<PAGE> 17
DESCRIPTION OF THE RIGHTS OFFERING
ISSUE OF RIGHTS
The Company is issuing to holders of its Common Stock non-transferable
Rights to subscribe for up to approximately 5 million shares of Preferred Stock.
Each holder of Common Stock of record at 5:00 p.m., New York City time, on the
Record Date is entitled to receive, for every 4.5 shares of Common Stock held,
one Right. No fractional Rights will be issued; however, one Right will be
issued in lieu of any fractional Right to which a holder would otherwise be
entitled. All such holders are entitled to purchase, at the Subscription Price,
one share of Preferred Stock for each Right held. Fractional shares of Preferred
Stock will not be issued. In the event all holders of Common Stock
(approximately 23 million shares outstanding) were to exercise all the Rights in
the Rights Offering, the Company would issue approximately 5 million shares of
Preferred Stock for an aggregate consideration of approximately $48 million. No
Rights are currently outstanding. The Company will bear all the fees and costs
of issuing the Preferred Stock.
The Company believes the issuance of the Preferred Stock, combined with its
$40 million long-term credit facility, are important steps to aggressively
position the Company for growth during this period of rapid expansion and change
in the aerospace industry. The Company believes it must have the resources
available to pursue strategic acquisitions and provide working capital for
internal growth, both of which are essential to capitalize on the current,
favorable industry market conditions and to achieve the Company's long-term
growth strategy.
The Company has filed a Registration Statement, of which this Prospectus is
a part, with the Commission with respect to the Preferred Stock issuable upon
exercise of the Rights and the Common Stock issuable upon any conversion of the
Preferred Stock.
SUBSCRIPTION CERTIFICATES
The Rights are evidenced by non-transferable Subscription Certificates,
evidencing the total number of Rights to which the holder is entitled. A
Subscription Certificate representing Rights to acquire shares of the Preferred
Stock will be sent to each record holder of Common Stock on the Record Date.
Possession of a Subscription Certificate does not constitute the holder
thereof to be a holder of the Preferred Stock to which such Subscription
Certificate relates unless and until such holder subscribes for and is issued
such Preferred Stock.
EXPIRATION DATE
This offering of Rights and the Rights evidenced by the Subscription
Certificates will expire on the Expiration Date at 5:00 p.m., New York City
time. The Company reserves the right to extend the Subscription Period, subject
to obtaining any required regulatory approvals. The Expiration Date will not be
extended beyond June 30, 1997. RIGHTS NOT EXERCISED BY THE EXPIRATION DATE WILL
LAPSE AND BE VOID AND WITHOUT VALUE.
SUBSCRIPTION AGENT
The Subscription Agent for the Rights Offering is Harris Trust and Savings
Bank, 77 Water Street, New York, New York 10005; Tel. (212) 701-7624.
INFORMATION AGENT
Investors who desire additional copies of this Prospectus or additional
information should contact Corporate Investor Communications, Inc., 111 Commerce
Road, Carlstadt, New Jersey 07072-2586; Tel. (800) 932-8494.
16
<PAGE> 18
SUBSCRIPTION FOR PREFERRED STOCK
Rights may be exercised in whole or in part by a record holder of Common
Stock by filling in and signing the relevant forms on the Subscription
Certificate and mailing or delivering the Subscription Certificate, together
with payment in full for the Rights subscribed for, to the Subscription Agent at
the address set forth in the Subscription Certificate. EXCEPT AS PROVIDED BELOW,
A RIGHT WILL NOT BE DEEMED EXERCISED UNTIL THE SUBSCRIPTION AGENT RECEIVES BOTH
PAYMENT OF THE SUBSCRIPTION PRICE AND A DULY EXECUTED SUBSCRIPTION CERTIFICATE
BY 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
Any exercise of Rights pursuant to the Rights Offering will be irrevocable
and will not be subject to withdrawal.
If the recipient of a Subscription Certificate wishes to exercise the
Rights represented thereby, but time will not permit the holder to deliver the
Subscription Certificate to the Subscription Agent prior to the Expiration Date,
the Rights may nevertheless be exercised if all the following conditions are
met:
1. The holder has caused payment in full of the Subscription Price for
the shares of Preferred Stock being subscribed for pursuant to the Rights
to be made (in the form prescribed below under "Payment of Subscription
Price") to the Subscription Agent prior to the Expiration Date.
2. The Subscription Agent receives, prior to the Expiration Date, a
guarantee notice (a "Notice of Guaranteed Delivery"), substantially in the
form delivered with the Subscription Certificate, from a financial
institution having an office or correspondent in the United States, or a
member firm of any registered United States national securities exchange or
of the National Association of Securities Dealers, Inc. (each an "Eligible
Institution"), stating the certificate number of the Subscription
Certificate relating to the Rights, the name and address of the exercising
stockholder, the number of Rights represented by the Subscription
Certificate held by such exercising stockholder, the number of shares of
Preferred Stock being subscribed for pursuant to the Rights and
guaranteeing the delivery to the Subscription Agent of the Subscription
Certificate evidencing such Rights within three New York Stock Exchange
("NYSE") trading days following the date of the Notice of Guaranteed
Delivery.
3. The properly completed Subscription Certificate evidencing the
Rights being exercised, with signatures guaranteed if required, is received
by the Subscription Agent within three NYSE trading days following the date
of the Notice of Guaranteed Delivery relating thereto.
The Notice of Guaranteed Delivery must be delivered to the Subscription
Agent at the address set forth in the Subscription Certificate or may be
transmitted to the Subscription Agent by facsimile transmission (telecopy no.
(212) 701-7636). Additional copies of the Notices of Guaranteed Delivery are
available upon request from the Subscription Agent.
RIGHTS OF BENEFICIAL OWNERS OF COMMON STOCK
Record holders of Common Stock, such as brokers, trustees or securities
depositaries, who hold shares of Common Stock for the accounts of others should
notify such beneficial owners of the Rights Offering as soon as possible and
obtain instructions with respect to the Rights to which such beneficial owners
are entitled. Each such beneficial owner is entitled to exercise, for every 4.5
shares of Common Stock held, one Right. No fractional Rights will be issued;
however, one Right will be issued in lieu of any fractional Right to which a
holder would otherwise be entitled. If such a beneficial owner of Rights so
instructs, the record holder should complete the Subscription Certificate,
including the amount of Preferred Stock each beneficial owner elects to
purchase, and submit it to the Subscription Agent with the proper payment, in
accordance with the terms of the Rights Offering. In addition, beneficial owners
of Common Stock held through record holders should contact such record holders
and request that they effect transactions in accordance with such beneficial
owner's instructions.
Record holders who exercise the Rights on behalf of beneficial owners of
Common Stock will be required to certify to the Subscription Agent and the
Company, in connection with the exercise of the Rights, as to (i) the number of
shares of Common Stock owned by each such beneficial owner and (ii) the number
of
17
<PAGE> 19
shares of Preferred Stock to which such beneficial owner subscribes pursuant to
that person's exercise of the Rights.
THE METHOD OF DELIVERY TO THE SUBSCRIPTION AGENT OF A SUBSCRIPTION
CERTIFICATE AND PAYMENT OF THE SUBSCRIPTION PRICE IS AT THE ELECTION AND RISK OF
EACH STOCKHOLDER. SUBSCRIPTION CERTIFICATES, TOGETHER WITH PAYMENT OF THE
SUBSCRIPTION PRICE, SHOULD BE SENT WITH SUFFICIENT TIME TO ALLOW FOR DELIVERY
PRIOR TO THE EXPIRATION DATE. IF DELIVERY IS MADE BY REGULAR MAIL SERVICE, THE
USE OF REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT REQUESTED, PROPERLY INSURED,
IS RECOMMENDED.
COMPLETED SUBSCRIPTION CERTIFICATES AND PAYMENTS SHOULD BE MAILED OR
DELIVERED TO THE SUBSCRIPTION AGENT AND NOT TO THE COMPANY. QUESTIONS SHOULD BE
DIRECTED TO THE INFORMATION AGENT.
PAYMENT OF SUBSCRIPTION PRICE
The total Subscription Price for the Preferred Stock subscribed for must be
paid to the Subscription Agent in U.S. funds by certified check, bank draft or
money order payable at par (without deduction for bank service charges or
otherwise) to the order of the Subscription Agent. All funds received in payment
of the Subscription Price under the Rights Offering will be promptly remitted by
the Subscription Agent to the Company.
DELIVERY OF STOCK CERTIFICATES
Certificates for shares of Preferred Stock duly subscribed and paid for
will be mailed to the subscriber by the Subscription Agent as soon as
practicable (which is anticipated to be the fifth business day after the
Expiration Date) at the subscriber's registered address on the books of the
Company.
SIGNATURES
Whenever any of the forms on a Subscription Certificate are signed, the
signature must correspond in every particular with the name of the holder as it
appears on the face of the Subscription Certificate. If the Subscription
Certificate is signed by a trustee, executor, administrator, guardian, attorney
or officer of a corporation or any person acting in a fiduciary or
representative capacity, the person so signing should give his full title in
such capacity and, on request, satisfactory evidence of authority to act must be
furnished.
Signatures on all Subscription Certificates must be guaranteed by an
Eligible Institution, unless such Subscription Certificate (i) provides that the
Preferred Stock to be issued pursuant to the exercise of Rights represented
thereby are to be registered in the name of and delivered to the registered
holder of such Rights or (ii) is submitted for the account of an Eligible
Institution.
DETERMINATION AS TO VALIDITY OF SUBSCRIPTIONS
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of any subscription will be determined by the Company,
in its sole discretion, which determination will be final and binding. The
Company reserves the absolute right to reject any subscription if it is not in
proper form or if the acceptance thereof or the issuance of the Preferred Stock
pursuant thereto could be deemed unlawful. The Company also reserves the right
to waive any defect with regard to any particular subscription or request for
transfer. The Company and the Subscription Agent shall not be under any duty to
give notification of any defects or irregularities in subscriptions, nor will
either of them incur any liability for failure to give such notification.
Subscriptions will not be deemed to have been made until any such defects or
irregularities have been cured or waived within such time as the Company will
determine. Subscriptions with defects or irregularities which have not been
cured or waived will be returned by the Subscription Agent to the appropriate
holder of the Rights as soon as practicable.
18
<PAGE> 20
PRINCIPAL STOCKHOLDER'S COMMITMENT
The principal stockholder of the Company, Fairchild, which, at the date
hereof, beneficially owns approximately 59% of the outstanding Common Stock, has
agreed that, subject to the receipt and approval of this Prospectus, it will
exercise all of the Rights it receives pursuant to the Rights Offering. As a
result, Fairchild is expected to purchase approximately 3 million shares of
Preferred Stock for an aggregate amount of approximately $28 million.
USE OF PROCEEDS
The net proceeds to the Company from the sale of shares of Preferred Stock
to be issued with respect to the Rights, assuming all of the Rights are
exercised, are estimated to be approximately $47 million, after deducting
expenses of the Rights Offering estimated to be $500,000. Alternatively, the net
proceeds to the Company, assuming Fairchild is the only stockholder which
exercises its Rights, are estimated to be approximately $28 million, after
deducting expenses of the Rights Offering. Such net proceeds will be used to
repay $28 million borrowed under a subordinated loan agreement the Company
entered into with RHI on December 20, 1996. The loan from RHI bears interest at
an initial rate of 10% and will mature on the earlier of the completion of the
Rights Offering or November 15, 2003. Approximately $16 million of the loan
proceeds from RHI were used to acquire PB Herndon. The remainder of any net
proceeds of the Rights Offering will be used to repay up to $19 million borrowed
under the revolving credit facility pursuant to the Credit Agreement. The
six-year revolving credit facility bears interest at the prime rate plus 1-1/4%
or London Interbank Offered Rate plus 2-1/2% and will mature on August 17, 2000.
The amounts borrowed under the revolving credit facility were used for working
capital purposes and acquisitions. The Company intends to borrow funds under the
revolving credit facility in the future for working capital purposes and further
acquisitions. Any such acquisitions must be approved by the lenders.
DETERMINATION OF SUBSCRIPTION PRICE
The Subscription Price contained in the Rights for the Preferred Stock
offered hereby and the terms of the Preferred Stock, including the conversion
ratio of the Preferred Stock, have been arbitrarily determined by the Board of
Directors of the Company and do not necessarily bear any relationship to the
Company's net worth, results of operations or any other generally accepted
criterion of value. A special committee (the "Special Committee") of the Board
of Directors of the Company, comprised of three directors of the Company who are
neither officers nor employees of the Company or otherwise affiliated with
Fairchild, have approved the Subscription Price and the terms of the Preferred
Stock. As part of the process of determining the terms of the Rights Offering
and the Preferred Stock, the Special Committee and the Board considered, among
other things, the amount of proceeds desired by the Company, pricing and terms
of recent rights offerings, pricing and terms of recently issued preferred
stocks, the trading price of the Common Stock, and the business prospects of the
Company, and the advice of Houlihan Lokey Howard & Zukin, Inc. (the "Financial
Advisor"). The Financial Advisor has rendered its opinion to the Special
Committee in the form attached hereto as Annex A, to the effect that the Rights
Offering is fair to the stockholders of the Company, other than Fairchild, from
a financial point of view.
There can be no assurance that the market price of the Common Stock will
not decline after the Rights Offering to a level below its current trading
value, or that, following the completion of the Rights Offering and the issuance
of the Preferred Stock sold pursuant thereto, a holder of the Preferred Stock
will be able to sell shares of the Preferred Stock purchased in the Rights
Offering at a price equal to or greater than the Subscription Price.
The Board, the Special Committee and the Financial Advisor have expressed
no opinion nor have they made any recommendation as to whether the holders of
the Common Stock should exercise their Rights. Any investment in the Preferred
Stock of the Company must be made pursuant to each subscriber's evaluation of
the Rights Offering, including the factors discussed under "RISK FACTORS", in
the context of his or her best interest.
19
<PAGE> 21
CAPITALIZATION
The following table sets forth the capitalization of the Company (i) as of
December 31, 1996, (ii) as adjusted to give effect to the issuance and sale of
shares of Preferred Stock in the Rights Offering, assuming only Fairchild's
Rights are exercised in the Rights Offering and (iii) as adjusted to give effect
to the issuance and sale of shares of Preferred Stock, assuming all of the
Rights are exercised.
The capitalization table does not assume the issuance of 230,000 additional
shares of Common Stock for the acquisition of the Bellyloading Companies, if
approved by the stockholders. Based on the operating results of the Bellyloading
Companies, the Company will have the ability to either rescind this acquisition
or may be required to provide additional shares. The capitalization table also
does not include the $22 million borrowed under a subordinated loan agreement
the Company entered into with RHI as the funds were borrowed subsequent to
December 31, 1996 for the acquisition of PB Herndon and additional working
capital requirements.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1996
------------------------------------
AS ADJUSTED
------------------------
ACTUAL MINIMUM(1) MAXIMUM(2)
-------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Long-term debt, less current maturities................... $139,549 $111,659 $ 92,169
Stockholders' Equity:
Preferred stock, par value $.01(3)................... -- 31 52
Common stock, par value $1.00(4)..................... 23,410 23,410 23,410
Paid-in capital(5)................................... 113,194 141,053 160,522
Retained earnings.................................... 10,680 10,680 10,680
-------- -------- --------
Total Stockholders' Equity................................ 147,284 175,174 194,664
Total Capitalization(6)................................... $286,833 $286,833 $286,833
======== ======== ========
</TABLE>
- ---------------
(1) Assuming only Fairchild exercises its Rights.
(2) Assuming all of the Rights are exercised.
(3) No shares of Preferred Stock were authorized as of December 31, 1996. Upon
stockholder approval, 10,000,000 shares of Preferred Stock will be
authorized. See "DESCRIPTION OF SECURITIES".
(4) 30,000,000 shares of Common Stock were authorized and 23,410,000 were issued
and outstanding as of December 31, 1996. Upon stockholder approval,
50,000,000 shares of Common Stock will be authorized. See "Description of
Securities". The Company reserved for issuance 2,193,867 shares of its
Common Stock upon the exercise of options granted and available for future
grants under the Company's existing stock option plans. At December 31,
1996, 1,037,200 stock options were outstanding pursuant to the stock option
plans at prices ranging from $4.63 to $8.13 per share. During fiscal 1997
and 1996, 16,833 shares and 4,200 shares of stock options were exercised,
respectively.
(5) After deducting estimated expenses of the Rights Offering of approximately
$500,000. In accordance with U.S. generally accepted accounting principles,
expenses of an offering are netted against the portion of the proceeds of
the offering which is reflected in the paid in capital balance of
stockholders' equity.
(6) Total capitalization equals the sum of long-term debt (less current
maturities) and total stockholders' equity.
20
<PAGE> 22
SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT
The table below sets forth as of December 31, 1996 the number of shares and
percentage 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 such person's address; (ii) each director; (iii) the Company's Chief
Executive Officer ("CEO") and the Company's three most highly compensated
executive officers other than the CEO; 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 the sole voting power and investment power with
respect to all shares shown as beneficially owned by them.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF PERCENT OF
NAME COMMON STOCK CLASS
- -------------------------------------------------------------- ------------------- ----------
<S> <C> <C>
Michael T. Alcox.............................................. 45,000(1) *
Frederick W. Bradley, Jr. .................................... 15,000(2) *
J.J. Cramer & Co. ............................................ 1,766,200(3) 7.5%
100 Wall Street
8th Floor
New York, New York 10005
The Fairchild Corporation..................................... 13,886,477(4) 59.3%
Washington Dulles International Airport
300 West Service Road
Chantilly, Virginia 22021
Steven L. Gerard.............................................. 15,000(2) *
Charles M. Haar............................................... 15,000(2) *
Philippe Hercot............................................... 15,000(2) *
Eugene W. Juris............................................... 95,500(5) *
Samuel J. Krasney............................................. 96,000(6) *
Warren D. Persavich........................................... 148,000(7) *
Dr. Eric I. Steiner........................................... 17,500(2)(8) *
Jeffrey J. Steiner............................................ 14,302,589(9)(10) 60.0%
The Fairchild Corporation
Washington Dulles International Airport
300 West Service Road
Chantilly, Virginia 22021
Leonard Toboroff.............................................. 15,000(2) *
John C. Wertz................................................. 145,000(11) *
All directors and officers of the Company as a group (14
persons).................................................... 14,970,589(12) 61.3%
</TABLE>
- ---------------
(1) Includes stock options for 12,000 shares.
(2) Includes stock options for 15,000 shares.
(3) The information above is of December 31, 1996. On February 20, 1997, J.J.
Cramer and Co. filed a Schedule 13d indicating that its stock ownership in
the Company increased to 2,199,000 shares of Common Stock (9.4% of
outstanding shares of Common Stock).
(4) Includes shares of Common Stock owned of record by Fairchild and its
subsidiaries, as follows: Fairchild Holding Corp., 5,386,477 shares; RHI,
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
acquisition of Harco, Inc. from Fairchild (the "Harco Transaction"),
Fairchild (through its subsidiaries) was issued 4,413,992 shares on March
12, 1996 and 972,485 shares on May 5, 1996. By virtue of the Harco
Transaction, Fairchild's beneficial ownership in the Company increased from
approximately 47% (as of May 31, 1995) to 59% (as of December 31, 1996).
Upon the consummation of the Bellyloading Companies Acquisition (as defined
under "RECENT DEVELOPMENTS"), Fairchild's beneficial ownership in the
Company will increase from 59% (as of February 14, 1997) to up to 62% of
the outstanding shares of Common Stock if the Maximum Number of Banner
Shares (as defined under "RECENT DEVELOPMENTS") is ultimately issued to RHI
or its designee.
(5) Includes stock options for 81,500 shares.
(6) Includes stock options for 5,000 shares.
(7) Includes stock options for 126,000 shares.
(8) The shares are held by Dr. Steiner as guardian for his minor children, and
he disclaims any beneficial interest therein.
(9) 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. Also
includes 2,500 shares held by Mr. Steiner's spouse as custodian for minor
children; Mr. Steiner disclaims any beneficial ownership of such shares.
(10) Includes stock options for 305,000 shares.
(11) Includes stock options for 115,000 shares.
(12) Includes stock options for 780,500 shares.
* Less than 1%
21
<PAGE> 23
MARKET INFORMATION
MARKET FOR THE SECURITIES
The Rights are non-transferable, and thus there will be no market or other
means for holders of the Rights to directly realize any value associated with
the Rights. Accordingly, holders of the Rights must exercise them and acquire
shares of the Preferred Stock in order to realize any such value.
Prior to the Rights Offering, there has been no public market for the
Preferred Stock. It is not expected that the Preferred Stock will be listed on
any securities exchange. There can be no assurance that a public market for the
Preferred Stock will develop or will continue if developed.
The outstanding Common Stock is listed and trades on the NYSE and
application will be made to list the shares of Common Stock to be issued upon
any conversion of the Preferred Stock on the NYSE.
PRICE RANGE OF COMMON STOCK
The Common Stock is currently trading on the NYSE under the symbol BAR. The
following table sets forth, for the quarters indicated, the range of high and
low prices per share of Common Stock as reported on the NYSE.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
FISCAL YEAR ENDED MARCH 31, 1997:
QUARTERS ENDED:
June 30, 1996........................................................... $9 $5 3/8
September 30, 1996...................................................... 8 3/8 7 3/8
December 31, 1996....................................................... 8 5/8 7 3/4
March 31, 1997.......................................................... 9 3/4 7 1/4
FISCAL YEAR ENDED MARCH 31, 1996:
QUARTERS ENDED:
June 30, 1995........................................................... $5 1/8 $3 1/2
September 30, 1995...................................................... 6 1/4 4 1/8
December 31, 1995....................................................... 6 3/8 4 3/4
March 31, 1996.......................................................... 6 3/4 5 1/2
FISCAL YEAR ENDED MARCH 31, 1995:
QUARTERS ENDED:
June 30, 1994........................................................... $5 3/4 $4 1/2
September 30, 1994...................................................... 6 4 5/8
December 31, 1994....................................................... 5 5/8 3 3/4
March 31, 1995.......................................................... 4 3/8 3 3/4
</TABLE>
The closing price of the Common Stock as reported on the NYSE on May 8,
1997 was $7.625 per share.
DIVIDENDS ON COMMON STOCK
It is the Company's current policy to retain earnings to support the growth
of its present operations and to reduce its outstanding debt. The Credit
Agreement contains covenants which restrict, among other things, the ability of
the Company and each of its subsidiaries to pay cash dividends or other
distributions on common stock other than payment to the Company or any of its
subsidiaries. The Company may, during any one fiscal year, pay dividends in an
aggregate amount which is the lesser of $150,000 or the amount of consolidated
net income as such term is defined in the Credit Agreement. Dividends for the
Preferred Stock will be payment-in-kind, paid in additional shares of Preferred
Stock. Any future determination as to the payment of dividends will be at the
discretion of the Board of Directors and will depend on the Company's financial
condition, results of operations and capital requirements, restrictive covenants
in its credit agreement with its senior
22
<PAGE> 24
lenders and such other factors as the Board of Directors deems relevant. No
dividends were declared in fiscal years 1996, 1995 or 1994.
HOLDERS OF RECORD OF COMMON STOCK
The Company had approximately 80 holders of record and 1,200 beneficial
holders of the Common Stock at December 31, 1996.
DESCRIPTION OF SECURITIES
The Company's Restated Certificate of Incorporation authorizes the issuance
of 30,000,000 shares of capital stock. The Board of Directors has adopted a
resolution increasing the capital stock of the Company, to be presented for
shareholder approval at a meeting to be held on June 18, 1997. Fairchild will
cause its shares of Common Stock to be voted in favor of such resolution. Upon
stockholder approval, the Certificate of Incorporation, as amended and restated
(the "Certificate of Incorporation"), will authorize the issuance of 60,000,000
shares of capital stock. Such shares will be divided into two classes. One class
will be designated preferred stock and will consist of 10,000,000 shares of par
value $.01 per share, and the other class will be designated common stock and
will consist of 50,000,000 shares of par value $1.00 per share. The Board of
Directors of the Company has resolved to reserve a sufficient number of shares
of Common Stock to be issued upon the conversion of Preferred Stock.
COMMON STOCK
General
Upon stockholder approval, the Company will be authorized by its
Certificate of Incorporation to issue 50,000,000 shares of Common Stock. As of
December 31, 1996, 23,409,610 shares were issued and outstanding.
Dividends
The holders of Common Stock are entitled to receive dividends when, as and
if declared by the Board of Directors out of legally available sources. The
Credit Agreement contains covenants which restrict the ability of the Company to
pay cash dividends or other distributions on common stock.
Liquidation
In the event of dissolution, liquidation or winding up of the Company,
holders of Common Stock are entitled to share ratably in any assets remaining
after the satisfaction in full of the prior rights of creditors and distribution
to the holders of Preferred Stock of amounts to which they may be preferentially
entitled.
Voting
The Company's common stockholders are entitled to one vote for each share
on all matters voted on by stockholders. Directors are elected annually. Holders
of shares of Common Stock have no cumulative voting rights.
No Other Rights
The holders of shares of Common Stock do not have any conversion,
redemption or preemptive rights.
Transfer Agent
The transfer agent for the Common Stock is Harris Trust and Savings Bank,
311 West Monroe Street, P.O. Box A3504, Chicago, Illinois 60690-3504; Tel. No.
(312) 360-6001.
23
<PAGE> 25
Listing
Shares of the outstanding Common Stock are listed on the NYSE under the
symbol "BAR".
SERIES A CONVERTIBLE PAID-IN-KIND PREFERRED STOCK
General
Upon stockholder approval, the Company will be authorized by its
Certificate of Incorporation to issue 10,000,000 shares of Preferred Stock. This
description of the Preferred Stock is meant to be a summary. The Company's
Certificate of Designations, Preferences, Rights and Limitations of Preferred
Stock (the "Certificate of Designations") filed as Exhibit 4.3 to the
Registration Statement provides the full terms and conditions of the Preferred
Stock.
No Voting Rights
The shares of Preferred Stock will have no voting rights except as required
by law.
Dividends
The holders of outstanding shares of Preferred Stock will be entitled to
receive semi-annual dividends, as and when declared by the Board of Directors
out of legally available sources. Each semi-annual dividend will be paid at the
rate of 7.5% per annum of the Liquidation Value of $9.20 per share, payable in
additional shares of Preferred Stock and not in cash, except for fractional
interests. The number of shares of Preferred Stock issued to pay dividends will
be based on the Preferred Stock's Liquidation Value. Each such dividend will be
payable on or about each April 30 and October 31 (each, a "Dividend Payment
Date"), or if any such date is not a business day, the dividends due on such
Dividend Payment Date will be paid on the next succeeding business day,
beginning on October 31, 1997. Such dividends will be cumulative and will accrue
on each share whether or not earned. Dividends will cease to accrue on shares of
Preferred Stock following conversion into shares of Common Stock. Fractional
shares of Preferred Stock will not be delivered, but a cash adjustment will be
paid in respect of such fractional interests based on the Liquidation Value.
Unless all dividends on the outstanding shares of Preferred Stock that have
accrued and are payable as of any date shall have been paid or declared and
additional shares or funds, as appropriate, set apart for payment thereof, no
dividend or other distribution shall be paid to the holders of Common Stock and
no shares of Common Stock shall be purchased or redeemed by the Company. Holders
of shares of Preferred Stock shall not be entitled to any dividends in excess of
full cumulative dividends, as herein provided, on the Preferred Stock. Any
dividend that is not declared and paid (or set apart for payment) on the
requisite Dividend Payment Date shall accrue additional dividends at the rate of
7.5% per annum compounded on a semi-annual basis and payable on succeeding
Dividend Payment Dates.
Liquidation
In the event of any voluntary or involuntary liquidation, dissolution or
other winding up of the affairs of the Company, subject to the prior preferences
and other rights of any capital stock senior to the Preferred Stock as to
liquidation preferences ("Senior Stock"), the holders of Preferred Stock will be
entitled to be paid out of the assets of the Company in cash or property at its
fair market value as determined, in good faith, by the Board of Directors of the
Company, the Liquidation Value per share plus an amount equal to all accrued and
unpaid dividends and distributions thereon (which to the extent payable in
Preferred Stock will be valued at the Liquidation Value thereof) to the date of
such payment prior to any payment to the holders of Common Stock. After payment
in full of the Liquidation Value per share of the Preferred Stock and other
preferential amounts, the holders of the Preferred Stock as such will have no
right or claim to any of the remaining assets of the Company.
If, upon any such liquidation, dissolution or other winding up of the
affairs of the Company, the assets of the Company shall be insufficient to
permit the payment in full of the Liquidation Value per share of Preferred
Stock, then the assets of the Company remaining after the distributions to
holders of any Senior Stock of the
24
<PAGE> 26
full amounts to which they may be entitled will be ratably distributed among the
holders of Preferred Stock and any other stock ranking on a parity with the
Preferred Stock with respect to distributions upon liquidation, dissolution or
winding up of the affairs of the Company in proportion to the full amounts to
which they would otherwise be respectively entitled if all amounts thereon were
paid in full. Neither the consolidation or merger of the Company into or with
another corporation or corporations nor the sale, lease, transfer or conveyance
of all or substantially all of the assets of the Company to another corporation
or any other entity shall be deemed a liquidation, dissolution or winding up of
the affairs of the Company.
Conversion
Each share of Preferred Stock will be convertible into Common Stock at the
Conversion Price. The Conversion Price per share of Common Stock in the case of
any optional or mandatory conversion will be $9.20 (the average closing sales
prices of the Common Stock on the 15 consecutive trading days next preceding the
fifth trading day prior to the date the Registration Statement is filed with the
Commission). For the purposes of any optional or mandatory conversion, the value
of any shares of Preferred Stock will be deemed to be the Liquidation Value,
resulting in a one to one share conversion, unless the Conversion Price is
subject to anti-dilutive adjustments upon the occurrence of certain events as
described under "-- Adjustment of Conversion Price." Immediately following any
such conversion, the rights of the holders of any converted shares of Preferred
Stock, including without limitation the right to receive dividends on the next
Dividend Payment Date, will cease and the persons entitled to receive shares of
Common Stock upon the conversion of such shares of Preferred Stock will be
treated for all purposes as having become the owners of such shares of Common
Stock. No payments or adjustments will be made upon the conversion on account of
accrued and unpaid dividends and distributions on the shares of Preferred Stock
subject to such conversion.
Optional Conversion
At the option of the holder thereof, shares of Preferred Stock may at any
time be converted into fully paid and non-assessable shares of Common Stock at
the Conversion Price.
Mandatory Conversion
Unless previously converted, each outstanding share of Preferred Stock will
mandatorily convert into shares of fully paid and non-assessable Common Stock on
the fifth anniversary of the date of initial issuance of the Preferred Stock at
the Conversion Price.
Accelerated Mandatory Conversion
In case the Company shall be a party to any merger or consolidation with
any third party, other than an Affiliate of the Company (not including
Fairchild) in which the previously outstanding Common Stock is exchanged for
common stock or other securities of another corporation or interests in a
noncorporate entity or other property (including cash) or any combination of any
of the foregoing, then each outstanding share of Preferred Stock shall be deemed
to be converted into shares of Common Stock at the Conversion Price immediately
prior to the consummation of such transaction (the "Accelerated Conversion
Date") and such holder of shares of Preferred Stock shall be entitled, upon
conversion, to an amount per share equal to (A) the aggregate amount of stock,
securities, cash and/or any other property (payable in kind), as the case may
be, into which or for which each share of Common Stock is changed or exchanged
times (B) the number of shares of Common Stock into which a share of Preferred
Stock is convertible immediately prior to the consummation of such transaction.
For the purposes of this paragraph, the term "Affiliate" shall have the meaning
assigned to it under Rule 405 of the Securities Act.
Fractional Interests
No fractional shares of Common Stock will be issued upon conversion of the
Preferred Stock. If any fraction of a share of Common Stock would, except for
these provisions, be issuable on the conversion of any shares of Preferred
Stock, the Company will make payment in cash in lieu thereof in an amount based
on the last sale price of the Common Stock on the last trading day prior to the
Conversion Date.
25
<PAGE> 27
Adjustment of Conversion Price
The Conversion Price per share of Common Stock issuable upon conversion of
the Preferred Stock will be subject to adjustment in certain events, including,
without limitation, (i) dividends or distributions in shares of Common Stock on
any class of capital stock of the Company; (ii) subdivisions, combinations and
reclassifications of shares of Common Stock; (iii) issuance of rights or
warrants to all holders of Common Stock entitling them to subscribe for or
purchase shares of Common Stock at a price per share less than the current
market price per share and (iv) distributions by the Company or any subsidiary
of the Company to all holders of Common Stock of any of its assets, evidences of
indebtedness or securities other than Common Stock. Any adjustment to the
Conversion Price will allow holders of Preferred Stock to be in the same
position as if such holders converted their shares of Preferred Stock into
shares of Common Stock immediately prior to the event triggering adjustment to
the Conversion Price.
No Other Rights
The Preferred Stock will not be redeemable for cash. Except as may
otherwise be required by law, the shares of Preferred Stock will not have any
powers, preferences or relative, participating, optional or special rights,
other than those specifically set forth in the Certificate of Designations and
the Certificate of Incorporation.
Transfer Agent
The transfer agent for the Preferred Stock is Harris Trust and Savings
Bank, 311 West Monroe Street, P.O. Box A3504, Chicago, Illinois 60690-3504; Tel.
No. (312) 360-6001.
Reservation and Registration of Common Stock
The Company will at all times reserve and keep available out of its
authorized and unissued Common Stock, solely for issuance upon the conversion of
the shares of Preferred Stock, free from preemptive rights, the maximum number
of shares of Common Stock as shall from time to time be issuable upon conversion
of all the shares of Preferred Stock then outstanding.
Listing
The Preferred Stock is a new issue for which there is currently no trading
market. There is no current intention to list the Preferred Stock on any United
States securities exchange.
TAXATION
The following discussion summarizes the material Federal income tax
considerations generally applicable to holders acquiring the Preferred Stock on
original issue but does not purport to be a complete analysis of all potential
consequences. The discussion is based upon the Internal Revenue Code of 1986, as
amended (the "Code"), Treasury regulations, Internal Revenue Service ("IRS")
rulings and judicial decisions now in effect, all of which are subject to change
at any time, possibly with retroactive effect.
The discussion assumes that the holders of the Preferred Stock will hold
the Preferred Stock as a "capital asset" within the meaning of Section 1221 of
the Code. The discussion is not binding on the IRS or the courts. The Company
has not sought and will not seek any rulings from the IRS with respect to the
positions of the Company discussed herein, and there can be no assurance that
the IRS will not take a different position concerning the tax consequences of
the purchase, ownership or disposition of the Preferred Stock.
The tax treatment of a holder of the Preferred Stock may vary depending on
such holder's particular situation or status. Certain holders (including S
corporations, insurance companies, tax-exempt organizations, financial
institutions, broker-dealers, and taxpayers subject to alternative minimum tax)
may be subject to special rules not discussed below. The following discussion is
limited to the United States Federal income tax consequences relevant to a
holder of the Preferred Stock who is a citizen or resident of the United States,
or
26
<PAGE> 28
any state thereof, or a corporation or other entity created or organized under
the laws of the United States, or any political subdivision thereof, or an
estate or trust, the income of which is subject to United States Federal income
tax, regardless of source, or that is otherwise subject to United States Federal
income tax on a net income basis in respect of the Preferred Stock. The
following discussion does not consider all aspects of United States Federal
income tax that may be relevant to the purchase, ownership, and disposition of
the Preferred Stock by a holder in light of such holder's personal
circumstances. In addition, the discussion does not consider the effect of any
applicable foreign, state, local, or other tax laws or estate or gift tax
considerations.
ISSUANCE OF RIGHTS
United States stockholders who receive Rights pursuant to the offering
should not recognize taxable income.
EXERCISE OR LAPSE OF RIGHTS
A United States stockholder who exercises any Right will not recognize any
gain or loss for United States Federal income tax purposes upon the exercise.
The basis of each share of Preferred Stock acquired upon exercise of a Right
will equal the subscription price paid. The holding period for such Preferred
Stock begins upon the exercise of the Rights.
A United States stockholder will not recognize any loss if a Right received
expires without being exercised.
DIVIDENDS ON PREFERRED STOCK
Pursuant to Code section 301(c)(1), United States stockholders of Preferred
Stock will recognize ordinary income upon the receipt of a dividend of
additional shares of Preferred Stock ("Taxable Distribution Stock"), to the
extent of the Company's current or accumulated earnings and profits. The amount
of the distribution for purposes of Code section 301(c) will equal the fair
market value of the shares of Taxable Distribution Stock received. The holding
period of United States stockholders in shares of Taxable Distribution Stock
will commence on the date following the distribution date. Accordingly, holders
may recognize income and incur tax liability with respect to such dividends
without receiving the corresponding amount of cash.
Pursuant to Code section 301(c)(2) and (3), a distribution of shares of
Taxable Distribution Stock in an amount in excess of the Company's current and
accumulated earnings and profits will be a tax free return of capital to the
extent of a holder's tax basis in the shares of Preferred Stock, and thereafter,
capital gain. Any capital gain will be long-term if, as of the date of payment,
the United States stockholder held the shares of Preferred Stock on which the
distribution is made for more than one year, and will be short-term if, as of
the date of payment, the United States stockholder held those shares of
Preferred Stock for one year or less. Short-term capital gain recognized by
individuals is subject to a maximum marginal Federal income tax rate of 39.6%.
For individuals, long-term capital gain is currently subject to a maximum
marginal Federal income tax rate of 28%. The current maximum long-term and
short-term capital gain rate for corporations is 35%.
Pursuant to certain amendments to Section 305(c) of the Code, the IRS has
the authority to promulgate regulations which may treat unpaid cumulative
dividends on preferred stock as being constructively paid to the holder in
certain circumstances, such as when there is no intention for dividends to be
paid currently at the time of issuance of the preferred stock. The IRS has not
yet proposed any such regulations.
Dividends received by corporate holders generally will be eligible for the
70% or 80% dividends-received deduction under Section 243 of the Code. There
are, however, many exceptions and restrictions relating to the availability of
such dividends-received deduction, including without limitation restrictions
relating to (i) the holding period of the stock on which the dividends are
sought to be deducted, (ii) debt-financed portfolio stock, (iii) dividends
treated as "extraordinary dividends" for purposes of Section 1059 of the Code,
and (iv) taxpayers who pay alternative minimum tax. Corporate stockholders
should consult their own tax advisors
27
<PAGE> 29
regarding the extent, if any to which such exceptions and restrictions may apply
to their particular factual situations. In addition, tax legislative proposals
made in 1996 by the Clinton Administration would (i) reduce the 70%
dividends-received deduction to 50% and (ii) require a corporate holder to
satisfy a separate forty-six day holding period requirement with respect to each
dividend to be eligible for such dividends-received deduction. It is not
possible to predict whether such legislative proposals will ultimately be
enacted into law and, if so, the form or effective date of any such legislation.
For United States Federal income tax purposes, a United States stockholder
of a share of Preferred Stock will recognize gain or loss on any sale or
exchange of a share of Preferred Stock measured by the difference between the
selling price and the Preferred Stock share's basis. If the United States
stockholder holds a share of Preferred Stock as a capital asset, the gain or
loss will be a long-term or short-term capital gain or loss depending on the
length of the stockholder's holding period for the share, as described above.
CONVERSION OF PREFERRED STOCK
A United States stockholder will not recognize gain or loss upon the
optional or mandatory conversion of a share of Preferred Stock into one or more
shares of Common Stock ("Converted Common Stock"). However, if the conversion
takes place when there is a dividend arrearage on the Preferred Stock, it is
possible that a portion of the shares of Converted Common Stock received should
be treated like a share of Taxable Distribution Stock to the extent of such
dividend arrearage. Except for any shares of Converted Common Stock treated as
payment of a dividend arrearage, a United States stockholder's holding period in
a share of Preferred Stock will be added to the stockholder's holding period in
the shares of Converted Common Stock, and that holder's tax basis in each share
of Preferred Stock will be allocated to the shares of Converted Common Stock
according to their relative fair market value on the conversion date. The
receipt of cash in lieu of a fractional share upon conversion of the Preferred
Stock to Common Stock will generally be treated as a sale of such fractional
share of Common Stock in which the holder will recognize taxable gain or loss
equal to the difference between the amount of cash received and the holder's tax
basis in the fractional share redeemed. Such gain or loss will be capital gain
or loss and will be long-term or short-term depending on the holder's holding
period for the fractional share deemed redeemed.
ADJUSTMENTS TO CONVERSION PROVISIONS
Treasury regulations issued under Section 305 of the Code treat certain
adjustments to conversion provisions of stock such as the Preferred Stock as
constructive distributions of stock with respect to preferred stock. Such
constructive distributions of stock would be taxable to holders of Preferred
Stock as described above under the caption "Dividends on Preferred Stock." Any
adjustment increasing the number of shares of Common Stock into which the
Preferred Stock can be converted would constitute a constructive distribution of
stock to holders of Preferred Stock unless made pursuant to a bona fide,
reasonable adjustment formula that has the effect of preventing dilution of the
interest of the holders of Preferred Stock. Any adjustment in the conversion
price to compensate for taxable distributions of cash or property on any of the
outstanding Common Stock of the Company will be treated as a constructive
distribution of stock to holders of Preferred Stock. The Company is unable to
predict whether any such adjustment will be made.
BACKUP WITHHOLDING
A holder of Preferred Stock may be subject to backup withholding at a rate
of 31% with respect to dividends paid on, or the proceeds of a sale or exchange
of, the Preferred Stock, unless such holder (a) is a corporation or comes within
certain other exempt categories and when required, demonstrates its exemption or
(b) provides a correct taxpayer identification number, certifies as to no loss
of exemption from backup withholding and otherwise complies with applicable
requirements of the backup withholding rules. A holder of the Preferred Stock
who does not provide the Company with the holder's correct taxpayer
identification number may be subject to penalties imposed by the IRS. Any amount
paid as backup withholding would be creditable against the holder's Federal
income tax liability.
28
<PAGE> 30
This summary is not intended to be, nor should it be, construed as legal or
tax advice to any holder of any Common Stock, Preferred Stock or Right. Further,
because the United States Federal income tax consequences of the offering may
vary depending upon the particular circumstances of each holder and other facts
and because this summary is not exhaustive of all possible Federal income tax
considerations (such as situations involving taxpayers who are securities
dealers or whose functional currency is not the United States dollar), the
Company's stockholders are urged to consult their own tax advisors to determine
the Federal income tax consequences to them of the offering and their ownership
of Common Stock, Preferred Stock and Rights. In addition, holders are urged to
consult their own tax advisors in determining the United States state and local
tax consequences of the offering and ownership of capital stock of the Company
to them.
THE FOREGOING DISCUSSION OF CERTAIN FEDERAL INCOME TAX CONSIDERATIONS DOES
NOT CONSIDER THE FACTS AND CIRCUMSTANCES OF ANY PARTICULAR PROSPECTIVE
PURCHASER'S SITUATION OR STATUS. ACCORDINGLY, EACH PURCHASER OF THE PREFERRED
STOCK SHOULD CONSULT ITS OWN TAX ADVISOR WITH RESPECT TO THE TAX CONSEQUENCES TO
IT, INCLUDING THOSE UNDER STATE, LOCAL, FOREIGN, AND OTHER TAX LAWS.
LEGAL MATTERS
The validity of the Preferred Stock to be issued upon the exercise of the
Rights and the Common Stock to be issued upon any conversion of the Preferred
Stock will be passed upon by Milbank, Tweed, Hadley & McCloy, New York, New
York, counsel for the Company.
EXPERTS
The consolidated financial statements and schedules of the Company
incorporated by reference in this Prospectus from the Company's Annual Report on
Form 10-K for the fiscal year ended March 31, 1996 have been audited by Arthur
Andersen LLP, independent auditors, as set forth in their report thereon and
incorporated herein by reference. Such consolidated financial statements and
schedules have been incorporated herein by reference in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.
29
<PAGE> 31
ANNEX A
, 1997
To the Special Committee of the Board of
Directors of Banner Aerospace, Inc.
To the Board of Directors of Banner Aerospace, Inc.
Committee Members and Directors:
We understand that Banner Aerospace, Inc. (the "Company") is issuing to
holders of shares of its Common Stock, $1.00 par value ("Common Stock"),
non-transferable rights (the "Rights") to subscribe for shares of Series A
Convertible Paid-in-Kind Preferred Stock, par value $.01 (the "Preferred
Stock"). The Preferred Stock will pay semi-annual dividends at the rate of 7.5%
per annum of the liquidation value of $9.20 per share (the "Liquidation Value").
Dividends will be payable in additional shares of Preferred Stock. Fractional
shares of Preferred Stock will not be issued, but a cash adjustment will be paid
in respect of such fractional interests based on the Liquidation Value. The
Preferred Stock is convertible into Common Stock at the option of the holder at
any time on a one-for-one basis, and automatically converts into Common Stock
upon its maturity five years from the date of issuance. Under certain
circumstances the Preferred Stock will be mandatorily converted into Common
Stock prior to its maturity. Each holder of Common Stock is entitled to receive,
for every 4.5 shares of Common Stock held, one Right. No fractional Rights will
be issued; however, one Right will be issued in lieu of any fractional Right to
which a holder would otherwise be entitled. Such holders are entitled to
purchase one share of Preferred Stock for each Right held at a subscription
price of $9.20 per share of Preferred Stock (the "Subscription Price"). In the
event all holders of Common Stock (approximately 23 million shares outstanding)
were to exercise all the Rights in the Rights Offering, the Company would issue
approximately 5 million shares of Preferred Stock, for an aggregate
consideration of approximately $48 million. The offering of Preferred Stock
issuable upon exercise of the Rights is referred to herein as the "Rights
Offering". The Rights Offering and other related transactions disclosed to us
are referred to collectively herein as the "Transaction." The principal
stockholder of the Company, The Fairchild Corporation ("Fairchild"), which, at
the date hereof, beneficially owns approximately 59% of the outstanding Common
Stock, has advised the Company that, subject to certain qualifications as
described herein, it will exercise all of the Rights it receives pursuant to the
Rights Offering. As a result, Fairchild is expected to purchase approximately 3
million shares of Preferred Stock for an aggregate amount of approximately $28
million. It is our understanding that the Company's Board of Directors has
formed a special committee (the "Committee") to consider certain matters
relating to the Transaction.
You have requested our opinion (the "Opinion") as to whether the
Transaction is fair to the stockholders of the Company, other than Fairchild,
from a financial point of view. The Opinion does not address the Company's
underlying business decision to effect the Transaction. We also provided the
Committee with financial and valuation advice on the Transaction and assisted
the Committee in negotiations with respect to the Transaction.
In connection with this Opinion, we have made such reviews, analyses and
inquiries as we have deemed necessary and appropriate under the circumstances.
Among other things, we have:
1. reviewed the initial summary term sheet for the Rights Offering and
the Company's Registration Statement and related Prospectus, both dated
, 1997;
2. reviewed internal financial projections through March 31, 2000 of
Banner (dated November 14, 1996) reflecting the Rights Offering;
3. reviewed the historical market prices and trading volume for the
Company's publicly traded securities;
4. reviewed the terms and characteristics of certain publicly traded
convertible preferred stock issues;
5. reviewed prospectuses of rights offerings that we deem comparable
to the Rights Offering; and
A-1
<PAGE> 32
6. conducted such other studies, analyses and inquiries as we have
deemed appropriate.
We have relied upon and assumed, without independent verification, that the
financial forecasts and projections provided to us have been reasonably prepared
and reflect the best currently available estimates of the future financial
results and condition of the Company, and that there has been no material change
in the assets, financial condition, business or prospects of the Company since
the date of the most recent financial statements made available to us.
We have relied upon, without independent verification, the accuracy and
completeness of the information supplied to us with respect to the Company and
do not assume any responsibility with respect to it. We have not made any
physical inspection or independent appraisal of any of the properties or assets
of the Company. Our opinion is necessarily based on business, economic, market
and other conditions as they exist and can be evaluated by us at the date of
this letter.
Based upon the foregoing, and in reliance thereon, it is our opinion that
the Transaction is fair to the stockholders of the Company, other than
Fairchild, from a financial point of view.
HOULIHAN, LOKEY, HOWARD
& ZUKIN, INC.
A-2
<PAGE> 33
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER IS NOT
AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER IS NOT QUALIFIED TO DO SO,
OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE THEREUNDER SHALL UNDER
ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
OR INCORPORATED BY REFERENCE HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE
DATE HEREOF.
------------------------
TABLE OF CONTENTS
PROSPECTUS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................. 2
Documents Incorporated by Reference... 2
Prospectus Summary.................... 3
Risk Factors.......................... 6
The Company........................... 8
Recent Developments................... 9
Selected Historical Consolidated
Financial Data of the Company....... 10
Unaudited Pro Forma Condensed
Consolidated Financial
Information......................... 11
Description of the Rights Offering.... 16
Principal Stockholder's Commitment.... 19
Use of Proceeds....................... 19
Determination of Subscription Price... 19
Capitalization........................ 20
Security Ownership of Principal
Stockholders and Management......... 21
Market Information.................... 22
Description of Securities............. 23
Taxation.............................. 26
Legal Matters......................... 29
Experts............................... 29
Annex A: Form of Fairness Opinion of
Houlihan Lokey Howard &
Zukin........................ A-1
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
RIGHTS TO SUBSCRIBE FOR
5,204,747 SHARES OF SERIES A
CONVERTIBLE PAID-IN-KIND
PREFERRED STOCK
BANNER AEROSPACE, INC.
------------------------
PROSPECTUS
------------------------
, 1997
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 34
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimated expenses of the Rights Offering are as follows:
<TABLE>
<S> <C>
SEC Registration Fee.............................................. $ 21,000
Printing Costs.................................................... 100,000
Accounting and Financial Advisor Fees and Expenses................ 115,000
Legal Fees and Expenses........................................... 200,000
Blue Sky Fees and Expenses........................................ 7,500
Registrar, Subscription Agent and Information Agent Fees and
Expenses (including counsel fees)............................... 15,000
Stock Exchange Listing Fees....................................... 10,000
Miscellaneous..................................................... 31,500
--------
Total................................................... $500,000
========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article NINTH of the Company's Restated Certificate of Incorporation, as
amended, provides as follows:
To the fullest extent permitted by the General Corporation Law of
the State of Delaware, as may from time to time be in effect,
directors of the Corporation shall not be personally liable to the
Corporation or to the stockholders of the Corporation for breach of
fiduciary duty as a director.
Article VIII of the Company's Amended and Restated Bylaws provides as
follows:
Section 3. The Corporation shall, to the fullest extent permitted
by Section 145 of the Delaware General Corporation Law, as amended
from time to time, indemnify any and all persons which it shall have
power to indemnify under said section from and against any and all of
the expenses, liabilities or other matters referred to in or covered
by said section.
Section 145 of the Delaware General Corporation Law provides
broadly for indemnification of directors and officers against claims
and liabilities against them in their capacities as such.
ITEM 16. EXHIBITS.
<TABLE>
<C> <S>
3.1* Restated Certificate of Incorporation of the Company is incorporated herein
by reference to Exhibit (3)(a) included in the Company's quarterly report on
Form 10-Q dated September 30, 1990
3.2* Form of Proposed Charter Amendments
4.1* Specimen Common Stock Certificate is incorporated herein by reference to
Exhibit 4(b) included in the Company's Registration Statement No. 33-34775
on Form S-1 effective July 26, 1990
4.2* Specimen Series A Convertible Paid-in-Kind Preferred Stock Certificate
4.3 Form of Certificate of Designations, Preferences, Rights and Limitations of
Series A Convertible Paid-in-Kind Preferred Stock
4.4* Form of Subscription Certificate
4.5* Form of Subscription Agent Agreement
4.6* Information Agent Agreement
5.1* Opinion of Milbank, Tweed, Hadley & McCloy as to the legality of the Series
A Convertible Paid-in-Kind Preferred Stock and Common Stock being registered
12.1* Ratio of Earnings to Fixed Charges
23.1 Consent of Arthur Andersen, LLP
23.2* Consent of Milbank, Tweed, Hadley & McCloy (included in Exhibit 5.1)
24.1* Powers of Attorney (included on signature page)
99.1* Consent of Houlihan, Lokey, Howard & Zukin, Inc.
</TABLE>
- ---------------
* Previously filed
II-1
<PAGE> 35
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Act, each
filing of the registrant's annual report pursuant to Section 13(a) or
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
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(2) Insofar as indemnification for liabilities arising under the Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described in Item 15 above, 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 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.
(3) 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.
(4) 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.
II-2
<PAGE> 36
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3, and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in New York, New York on this 12th day of May, 1997.
BANNER AEROSPACE, INC.
By /s/ WARREN D. PERSAVICH
------------------------------------
Name: Warren D. Persavich
Title: Senior Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- ------------------------------------- ------------------------------------ ---------------
<C> <S> <C>
* Chairman and Chief Executive Officer May 12, 1997
- ------------------------------------- (Principal Executive Officer)
Jeffrey J. Steiner
* Senior Vice President and May 12, 1997
- ------------------------------------- Chief Operating Officer
John C. Wertz
/s/ WARREN D. PERSAVICH Senior Vice President and May 12, 1997
- ------------------------------------- Chief Financial Officer (Principal
Warren D. Persavich Financial Officer)
/s/ EUGENE W. JURIS Vice President -- Finance and May 12, 1997
- ------------------------------------- Secretary (Principal Accounting
Eugene W. Juris Officer)
* Director May 12, 1997
- -------------------------------------
Michael T. Alcox
* Director May 12, 1997
- -------------------------------------
Frederick W. Bradley, Jr.
* Director May 12, 1997
- -------------------------------------
Steven L. Gerard
* Director May 12, 1997
- -------------------------------------
Prof. Charles M. Haar
* Director May 12, 1997
- -------------------------------------
Philippe Hercot
* Director May 12, 1997
- -------------------------------------
Samuel J. Krasney
</TABLE>
II-3
<PAGE> 37
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- ------------------------------------- ------------------------------------ ---------------
<C> <S> <C>
* Director May 12, 1997
- -------------------------------------
Dr. Eric J. Steiner
* Director May 12, 1997
- -------------------------------------
Leonard Toboroff
*By: /s/ EUGENE W. JURIS
-------------------------
Attorney-in-Fact
</TABLE>
II-4
<PAGE> 1
EXHIBIT 4.3
CERTIFICATE OF DESIGNATIONS, PREFERENCES,
RIGHTS AND LIMITATIONS
OF
SERIES A CONVERTIBLE PAID-IN-KIND PREFERRED STOCK
OF
BANNER AEROSPACE, INC.
A DELAWARE CORPORATION,
PURSUANT TO SECTION 151 OF THE
DELAWARE GENERAL CORPORATION LAW
BANNER AEROSPACE, INC., a Delaware corporation (the
"Company"), DOES HEREBY CERTIFY THAT:
FIRST: Pursuant to the authority contained in Article FOURTH
of its Certificate of Incorporation, as amended and restated (the "Certificate
of Incorporation") and in accordance with the provisions of Section 141(f) of
the Delaware General Corporation Law, the Board of Directors of the Corporation
at a meeting on January 10, 1997, adopted the following resolutions which
resolutions remain in full force and effect on the date hereof:
RESOLVED, that the Board of Directors hereby finds it to be advisable and in
the best interest of the Corporation that the Restated Certificate of
Incorporation of the Corporation (the "Certificate of Incorporation") be
amended, subject to the receipt of stockholder approval, in the following
manner:
Article FOURTH shall be amended in its entirety to read as follows:
"FOURTH: The total number of shares of stock which the
corporation shall have the authority to issue is 60,000,000. Such
shares shall be divided into two classes. One such class shall be
designated Preferred Stock and shall consist of 10,000,000 shares of
par value $.01 per share, and the other class shall be designated
Common Stock and shall consist of 50,000,000 shares of par value $1.00
per share.
The Board of Directors is hereby authorized, subject to limitations
prescribed by law and the provisions of this article FOURTH, to issue
Preferred Stock in series with such voting powers, full or limited, or
no voting powers and such designations, preferences and relative,
participating, optional or other special rights, with such
qualifications, limitations or restrictions thereof, as shall be
stated and expressed in the resolution or resolutions providing for
the issue of Preferred Stock adopted by the Board of Directors and in
a certificate filed pursuant to the applicable law of the State of
Delaware setting forth a copy of
<PAGE> 2
such resolution or resolutions and the number of shares of Preferred
Stock or any series thereof."
RESOLVED, that the Board of Directors of the Corporation hereby creates a
series of the class of authorized Preferred Stock, par value $.01 per share,
designated as Series A Convertible Paid-In-Kind Preferred Stock, having the
relative, participating, optional and other special rights, and the
qualifications, limitations or restrictions thereof attached hereto.
SECOND: This Certificate of Designations, Preferences, Rights
and Limitations of Series A Convertible Paid-in-Kind Preferred Stock (the
"Certificate of Designations") was duly adopted in accordance with the
provisions of Section 151 of the Delaware General Corporation Law.
IN WITNESS WHEREOF, the Company has caused this Certificate of
Designations to be signed by ____________________, its _____________________,
and attested to by __________________, its ________________, as of the ____ day
of _________, 1997.
----------------------------
Name:
Title:
Attest:
- ----------------------------
Name:
Title:
2
<PAGE> 3
DESIGNATIONS, PREFERENCES, RIGHTS AND LIMITATIONS
OF
SERIES A CONVERTIBLE PAID-IN-KIND PREFERRED STOCK
ARTICLE I
CERTAIN DEFINITIONS
Unless the context otherwise requires, the terms defined in
this Article I shall have, for all purposes of this resolution, the meanings
herein specified:
ACCELERATED CONVERSION DATE. The term "Accelerated Conversion
Date" shall have the meaning set forth in Section 5.1(c) hereof.
AFFILIATE. The term "Affiliate" shall have the meaning
assigned thereto in Rule 405, as presently promulgated under the Securities Act
of 1933, as amended.
COMMON STOCK. The term "Common Stock" shall mean the common
stock, $1.00 par value per share, of the Company as the same exists on the date
of this resolution or as such stock may be reconstituted from time to time.
For purposes of calculating the number of shares of Common Stock outstanding,
shares of Common Stock held in the treasury of the Company shall not be
considered outstanding.
CONVERSION DATE. The term "Conversion Date" shall have the
meaning set forth in Section 5.2(a) hereof.
CONVERSION PRICE. The term "Conversion Price" shall mean,
initially, $9.20, the average closing sales prices of the Common Stock on the
15 consecutive days next preceding the fifth trading day prior to the date the
Registration Statement for the Series A Preferred Stock was initially filed
with the Securities and Exchange Commission, and thereafter, such price as
shall be adjusted pursuant to Section 5.4 hereof.
DIVIDEND PAYMENT DATE. The term "Dividend Payment Date" shall
have the meaning set forth in Section 2.1 hereof.
INITIAL ISSUE DATE. The term "Initial Issue Date" shall mean
the date the shares of Series A Preferred Stock are first issued by the
Company, which date shall not precede the date this Certificate is filed with
the Secretary of State of the State of Delaware.
JUNIOR STOCK. The term "Junior Stock" shall mean the Common
Stock and any class or series of stock the Company authorized after the Initial
Issue Date ranking junior to the Series A Preferred Stock in respect of the
right to receive dividends or in respect of the right to participate in any
distribution upon liquidation, dissolution or winding up of the affairs of the
Company.
LIQUIDATION VALUE. The term "Liquidation Value" shall mean
$9.20 per share of Series A Preferred Stock.
3
<PAGE> 4
MANDATORY CONVERSION DATE. The term "Mandatory Conversion
Date" shall mean _________________, 2002.
PERSON. The term "Person" shall mean an individual,
partnership, joint venture, corporation, trust or unincorporated organization,
a government or any department, agency or political subdivision thereof or
other entity.
RECORD DATE. The term "Record Date" shall have the meaning
set forth in Section 2.1 hereof.
SENIOR STOCK. The term "Senior Stock" shall mean any class or
series of stock of the Company authorized after the Initial Issue Date ranking
senior to the Series A Preferred Stock in respect of the right to receive
dividends or in respect of the right to participate in any distribution upon
liquidation, dissolution or winding up of the affairs of the Company.
SERIES A PREFERRED STOCK. The term "Series A Preferred Stock"
shall mean the Series A Convertible Paid-in-Kind Preferred Stock, par value
$.01 per share, of the Company as the same exists on the date of this
resolution or as such stock may be reconstituted from time to time. For
purposes of calculating the number of shares of Series A Preferred Stock
outstanding, shares of Series A Preferred Stock held in the treasury of the
Company shall not be considered outstanding.
TRANSFER AGENT. The term "Transfer Agent" shall mean Harris
Trust and Savings Bank, 311 West Monroe Street, P.O. Box A3504, Chicago,
Illinois 60690-3504; Tel. No. (312) 360-6001, and its successors and assigns.
4
<PAGE> 5
ARTICLE II
PAID-IN-KIND DIVIDENDS
2.1 GENERAL. The holders of record on the Record Date
(as defined below) of the outstanding Series A Preferred Stock shall be
entitled to receive semi-annual dividends, as and when declared by the Board of
Directors out of legally available funds. Each semi-annual dividend shall be
paid at the rate of 7.5 per cent per annum of the Liquidation Value of $9.20
per share, payable in additional shares of Series A Preferred Stock. The
number of shares of Series A Preferred Stock issued to pay dividends will be
based on the Series A Preferred Stock's Liquidation Value, which is $9.20 per
share. Each such dividend shall be payable on or about each April 30 and
October 31 (each, a "Dividend Payment Date"), or if any such date is not a
business day, the dividends due on such Dividend Payment Date shall be paid on
the next succeeding business day, beginning on October 31, 1997. Such
dividends shall be cumulative and shall accrue on each share whether or not
earned, from and after the Dividend Payment Date coincident with or next
preceding the issuance of such shares, provided, however, that dividends
payable on the first Dividend Payment Date shall so accrue from and after the
date immediately succeeding the Initial Issue Date and provided further that
dividends shall cease to accrue on shares of Series A Preferred Stock following
the Mandatory Conversion Date or on the date of their earlier conversion, as
the case may be. The dividends on the Series A Preferred Stock shall be
payable to holders of record as they appear on the stock register of the
Company on such record date, not less than 15 nor more than 60 days preceding
each Dividend Payment Date, as shall be fixed by the Board of Directors (each,
a "Record Date"). Dividends payable for any partial dividend period (including
the period from the Initial Issue Date to the first Dividend Payment Date)
shall be computed on the basis of the actual days elapsed in such period over a
year of 365 or 366 days. All calculations provided for in this Section 2.1
shall be rounded to the nearest share. Fractional shares of Series A Preferred
Stock will not be delivered, but a cash adjustment will be paid in respect of
such fractional interests based on the Liquidation Value. The number of full
shares of Series A Preferred Stock which shall be issued upon payment of
dividends shall be computed on the basis of the aggregate number of shares of
Series A Preferred Stock held by such holder. The Transfer Agent shall carry
forward any fractional shares such that payment for fractional shares to any
one holder shall not exceed the value of one share.
2.2 LIMITATIONS. Except as hereinafter provided in this
Section 2.2, unless all dividends on the outstanding shares of Series A
Preferred Stock that have accrued and are payable as of any date shall have
been paid, or declared and additional shares or funds, as appropriate, set
apart for payment thereof, no dividend or other distribution shall be paid to
the holders of Junior Stock and no shares of Junior Stock shall be purchased or
redeemed by the Company. Holders of shares of Series A Preferred Stock shall
not be entitled to any dividends in excess of full cumulative dividends, as
herein provided, on the Series A Preferred Stock. Any dividend that is not
declared and paid (or set apart for payment) on the requisite Dividend Payment
Date shall accrue additional dividends at the rate of 7.5 per cent per annum
compounded on a semi-annual basis and payable on succeeding Dividend Payment
Dates.
5
<PAGE> 6
ARTICLE III
DISTRIBUTIONS UPON LIQUIDATION, DISSOLUTION OR WINDING UP
3.1 PREFERENCE ON LIQUIDATION, ETC. In the event of any
voluntary or involuntary liquidation, dissolution or other winding up of the
affairs of the Company, subject to the prior preferences and other rights of
any Senior Stock as to liquidation preferences, the holders of Series A
Preferred Stock shall be entitled to be paid out of the assets of the Company
in cash or property at its fair market value as determined, in good faith, by
the Board of Directors of the Company, the Liquidation Value per share plus an
amount equal to all accrued and unpaid dividends and distributions thereon
(which to the extent payable in Series A Preferred Stock shall be valued at the
Liquidation Value thereof) to the date of such payment prior to any payment to
the holders of Junior Stock. After payment in full of the Liquidation Value
per share of the Series A Preferred Stock and other preferential amounts
provided for in this Section 3.1, the holders of the Series A Preferred Stock
as such shall have no right or claim to any of the remaining assets of the
Company. Except as provided in this Section 3.1, holders of Series A Preferred
Stock shall not be entitled to any distribution in the event of liquidation,
dissolution or winding up of the affairs of the Company.
3.2 LIQUIDATION PRO RATA IF ASSETS INADEQUATE. If, upon
any such liquidation, dissolution or other winding up of the affairs of the
Company, the assets of the Company shall be insufficient to permit the payment
in full of the Liquidation Value per share of Series A Preferred Stock, then
the assets of the Company remaining after the distributions to holders of any
Senior Stock of the full amounts to which they may be entitled shall be ratably
distributed among the holders of Series A Preferred Stock and any other stock
ranking on a parity with the Series A Preferred Stock with respect to
distributions upon liquidation, dissolution or winding up of the affairs of the
Company in proportion to the full amounts to which they would otherwise be
respectively entitled if all amounts thereon were paid in full. Neither the
consolidation or merger of the Company into or with another corporation or
corporations nor the sale, lease, transfer or conveyance of all or
substantially all of the assets of the Company to another corporation or any
other entity shall be deemed a liquidation, dissolution or winding up of the
affairs of the Company within the meaning of this resolution.
ARTICLE IV
VOTING RIGHTS
4.1 VOTING RIGHTS OF HOLDERS OF PREFERRED STOCK. The
shares of Series A Preferred Stock shall have no voting rights except as
required by law.
6
<PAGE> 7
ARTICLE V
CONVERSION
5.1 CONVERSION.
(a) Optional Conversion. Subject to and upon compliance with
the provisions of this Article V, at the option of the holder thereof, shares
of Series A Preferred Stock may at any time be converted into fully paid and
non-assessable shares of Common Stock at the Conversion Price. For this
purpose, the value of any shares of Series A Preferred Stock shall be deemed to
be the Liquidation Value. Immediately following such conversion, the rights of
the holders of any converted shares of Series A Preferred Stock, including
without limitation, the right to receive dividends on the next Dividend Payment
Date, shall cease and the persons entitled to receive shares of Common Stock
upon the conversion of such shares of Series A Preferred Stock shall upon
compliance with the requirements of Section 5.2(a) hereof be treated for all
purposes as having become the owners of such shares of Common Stock. No
payments or adjustments will be made upon the Conversion Date on account of
accrued and unpaid dividends and distributions on the shares of Series A
Preferred Stock subject to such conversion.
(b) Mandatory Conversion. Unless previously converted at the
option of the holder in accordance with Section 5.1(a) hereof or pursuant to a
transaction in accordance with Section 5.1(c) hereof, on _______________, 2002
(the "Mandatory Conversion Date"), each outstanding share of Series A Preferred
Stock shall mandatorily convert into shares of fully paid and non-assessable
Common Stock at the Conversion Price. For this purpose, the value of any
shares of Series A Preferred Stock shall be deemed to be the Liquidation Value.
Immediately following such conversion, the rights of the holders of any
converted shares of Series A Preferred Stock, including without limitation, the
right to receive dividends on the next Dividend Payment Date, shall cease and
the persons entitled to receive shares of Common Stock upon the conversion of
such shares of Series A Preferred Stock shall be treated for all purposes as
having become the owners of such shares of Common Stock, subject to Section
5.2(b) hereof. No payments or adjustments will be made upon the Mandatory
Conversion Date on account of accrued and unpaid dividends and distributions on
the shares of Series A Preferred Stock subject to such conversion.
(c) Accelerated Mandatory Conversion. In case the Company
shall be a party to any merger or consolidation with any third party, other
than an Affiliate of the Company (not including Fairchild), in which the
previously outstanding Common Stock is exchanged for common stock or other
securities of another corporation or interests in a noncorporate entity or
other property (including cash) or any combination of any of the foregoing, then
each outstanding share of Series A Preferred Stock shall be deemed to be
converted into shares of Common Stock at the Conversion Price immediately prior
to the consummation of such transaction (the "Accelerated Conversion Date") and
such holder of shares of Series A Preferred Stock shall be entitled, upon
conversion, to an amount per share equal to (A) the aggregate amount of stock,
securities, cash and/or any other property (payable in kind), as the case may
be, into which or for which each share of Common Stock is changed or exchanged
times (B) the number of shares of Common Stock into which a share of Series A
Preferred Stock is convertible immediately prior to the consummation of such
transaction. For this purpose, the value of any shares of Series A Preferred
Stock shall be deemed to be the Liquidation Value. Immediately following such
conversion, the rights of the holders of any converted shares of Series A
Preferred Stock,
7
<PAGE> 8
including without limitation, the right to receive dividends on the next
Dividend Payment Date, shall cease and the persons entitled to receive shares
of Common Stock upon the conversion of such shares of Series A Preferred Stock
shall be treated for all purposes as having become the owners of such shares of
Common Stock, subject to Section 5.2(b) hereof. No payments or adjustments
will be made upon the Accelerated Conversion Date on account of accrued and
unpaid dividends and distributions on the shares of Series A Preferred Stock
subject to such conversion.
5.2 PROCEDURES.
(a) Procedures for Optional Conversion. To receive
certificates evidencing Common Stock issuable on conversion of Series A
Preferred Stock pursuant to Section 5.1(a) hereof, a holder must (i) surrender
the certificate or certificates evidencing the shares of Series A Preferred
Stock to be converted, duly endorsed in a form reasonably satisfactory to the
Company, at the office of the Company or transfer agent for the Series A
Preferred Stock, (ii) state in writing the name or names in which he or she
wishes the certificate or certificates for shares of Common Stock to be issued,
and (iii) pay any transfer or similar tax if required. The date on which the
holder satisfies all those requirements is the "Conversion Date". The Person
in whose name the Common Stock certificate is registered shall be treated as
the stockholder of record on and after the Conversion Date. As soon as
practicable, but in any event within 10 business days after the Conversion
Date, the Company shall deliver, through the Transfer Agent, a certificate for
the number of full shares of Common Stock issuable upon the conversion and a
check for any fractional share. The number of full shares of Common Stock
issuable to any holder of Series A Preferred Stock upon conversion shall be
based on the total number of shares of Series A Preferred Stock surrendered for
conversion by such holder.
(b) Procedures for Mandatory Conversion. Upon conversion of
Series A Preferred Stock pursuant to Sections 5.1(b), the Company shall make
such arrangements as it deems appropriate for (i) the issuance of certificates
representing shares of Common Stock and (ii) payment of cash in lieu of any
fractional shares of Common Stock in exchange for and contingent upon surrender
of certificates representing shares of Series A Preferred Stock. The Company
may defer the payment of dividends on such shares of Common Stock until, and
make such payment and voting contingent upon, the surrender of certificates
representing the shares of Series A Preferred Stock; provided, that the Company
shall give the holders of shares of Series A Preferred Stock such notice of any
such actions as the Company deems appropriate and, upon such surrender of their
certificates representing the Series A Preferred Stock, such holders shall be
entitled to receive dividends declared and paid, if any, on such shares of
Common Stock subsequent to the Mandatory Conversion Date.
5.3 FRACTIONAL INTERESTS. No fractions of shares or
scrip representing fractions of shares of Common Stock shall be issued upon
conversion of the Series A Preferred Stock. If any fraction of a share of
Common Stock would, except for the provisions of this Section 5.3, be issuable
on the conversion of any shares of Series A Preferred Stock, the Company shall
make payment in lieu thereof in an amount of United
8
<PAGE> 9
States dollars equal to the value of such fraction computed on the basis of the
last sale price of the Common Stock as reported on the Composite Tape for New
York Exchange Listed Stocks (or if not listed or admitted to trading on such
Exchange, then on the principal national securities exchange on which the
Common Stock is listed or admitted to trading, or, if not listed or admitted to
trading on any national securities exchange, on the National Association of
Securities Dealers Automated Quotation/National Market System (the
"NASDAQ/NMS") or a similar organization if NASDAQ/NMS is no longer reporting
information) on the last trading day prior to the Conversion Date or if no such
sale takes place on such day, the last sale price for such day shall be the
average of the closing bid and asked prices regular way on the New York Stock
Exchange (or if not listed or admitted to trading on such Exchange, on the
principal national securities exchange on which the Common Stock is listed or
admitted to trading, or, if not listed or admitted to trading on any national
securities exchange, the average of the highest bid and lowest asked prices on
NASDAQ/NMS or a similar organization if NASDAQ/NMS is no longer reporting
information) for such day (any such last sale price being hereinafter referred
to as the "Last Sale Price"). If on such trading day the Common Stock is not
quoted by any such organization, the fair value of such Common Stock on such
day, as determined by the Board of Directors, shall be used. The number of
full shares of Common Stock which shall be issued upon conversion of Series A
Preferred Stock shall be computed on the basis of the aggregate number of
shares of Series A Preferred Stock held by such holder. The Transfer Agent
shall carry forward any fractional share such that payment for fractional
shares to any one holder shall not exceed the value of one share of Common
Stock.
5.4 ADJUSTMENT OF CONVERSION PRICE. The Conversion Price
per share of Common Stock issuable upon conversion of the Series A Preferred
Stock pursuant to Section 5.1 hereof shall be subject to adjustment from time
to time from and after the date of this resolution as follows:
(a) In case the Company shall (i) pay a dividend or make
a distribution in shares of Common Stock on any class of capital stock
of the Company, (ii) subdivide its outstanding shares of Common Stock
into a greater number of shares or (iii) combine its outstanding
shares of Common Stock into a smaller number of shares, the Conversion
Price in effect immediately prior to such action shall be adjusted so
that the holder of any shares of Series A Preferred Stock thereafter
surrendered for conversion shall be entitled to receive the number of
shares of Common Stock which he or she would have owned immediately
following such action had such shares of Series A Preferred Stock been
converted immediately prior thereto. An adjustment made pursuant to
this subsection (a) shall become effective immediately, except as
provided in subsection (f) below, after the record date in the case of
a dividend or distribution and shall become effective immediately
after the effective date in the case of a subdivision or combination.
(b) In case the Company shall issue rights or warrants to all
holders of Common Stock entitling them to subscribe for or purchase
shares of Common Stock at a price per share less than the current
market price per share (as determined pursuant to subsection (d)
below) of the Common Stock on the record date mentioned below, the
Conversion Price shall be adjusted to a
9
<PAGE> 10
price, computed to the nearest cent, so that the same shall equal the
price determined by multiplying:
(i) the Conversion Price in effect immediately
prior to the date of issuance of such rights
or warrants by a fraction, of which
(ii) the numerator shall be (A) the number of
shares of Common Stock outstanding on the
date of issuance of such rights or warrants,
immediately prior to such issuance, plus (B)
the number of shares which the aggregate
offering price of the total number of shares
so offered for subscription or purchase would
purchase at such current market price
(determined by multiplying such total number
of shares by the exercise price of such
rights or warrants and dividing the product
so obtained by such current market price),
and of which
(iii) the denominator shall be (A) the number of
shares of Common Stock outstanding on the
date of issuance of such rights or warrants,
immediately prior to such issuance, plus (B)
the number of additional shares of Common
Stock which are so offered for subscription
or purchase.
Such adjustment shall become effective immediately, except as
provided in subsection (f) below after the record date for the
determination of holders entitled to receive such rights or warrants.
(c) In case the Company or any subsidiary of the Company
shall distribute to all holders of Common Stock any of its
assets, evidences of indebtedness or securities other than Common
Stock (other than (x) ordinary dividends in cash or other property
whether or not paid out of retained earnings of the Company or (y) any
dividend or distribution referred to in subsection (a) or (b) above),
then in each such case the Conversion Price shall be adjusted so that
the same shall equal the price determined by multiplying the
Conversion Price in effect immediately prior to the date of such
distribution by a fraction of which the numerator shall be the current
market price per share (determined as provided in subsection (d)
below) of the Common Stock immediately prior to the record date
mentioned below less the then fair market value (as determined by the
Board of Directors, whose determination shall, if made in good faith,
be conclusive evidence of such fair market value) of the portion of
the assets so distributed or of such evidences of indebtedness or
other securities applicable to one share of Common Stock, and of which
the denominator shall be such current market price per share of the
Common Stock. Such adjustment shall become effective immediately,
except as provided in subsection (f) below, after the record date for
the determination of stockholders entitled to receive such
distribution. Notwithstanding the foregoing, in the event that the
fair market value of the assets, evidences of indebtedness or other
securities so distributed applicable to one share of Common Stock
equals or exceeds such current market price per share of Common Stock
or such current market price exceeds such fair market value by less
than $1.00 per share, the Conversion
10
<PAGE> 11
Price shall not be adjusted pursuant to this subsection (c) until such
time as the cumulative amount of all such distributions exceeds $1.00
per share.
(d) For the purpose of any computation under subsections (b)
and (c) above, the current market price per share of Common Stock on
any date shall be deemed to be the average of the Last Sale Prices of
a share of Common Stock for the five consecutive trading days selected
by the Company commencing not more than 15 trading days before, and
ending not later than, the earlier of the date in question and the
date before the "'ex' date" with respect to the issuance, distribution
or offer requiring such computation. If on any such trading day the
Common Stock is not quoted by any organization referred to in the
definition of Last Sale Price in Section 5.3 hereof, the fair value of
the Common Stock on such day, as determined by the Board of Directors,
shall be used. For purposes of this paragraph, the term "'ex' date",
when used with respect to any issuance, distribution or payments with
respect to an offer, means the first date on which the Common Stock
trades on the principal national securities exchange on which the
Common Stock trades or on which the Common Stock is listed or admitted
to trading without the right to receive such issuance, distribution or
offer.
(e) In addition to the foregoing adjustments in subsections
(a), (b) and (c) above, the Company will be permitted to make such
reductions in the Conversion Price as it considers to be advisable in
order that any event treated for Federal income tax purposes as a
dividend of stock or stock rights will not be taxable to the holders
of the shares of Common Stock.
(f) In any case in which this Section 5.4 shall require that
adjustment (including by reason of the last sentence of subsection (a)
or (c) above) be made immediately following a record date, the Company
may elect to defer the effectiveness of such adjustment (but in no
event until a date later than the effective time of the event giving
rise to such adjustment), in which case the Company shall, with
respect to any shares of Series A Preferred Stock converted after such
record date pursuant to Section 5.1 hereof and on and before such
adjustment shall have become effective, (i) defer paying any cash
payment pursuant to Section 5.3 hereof or issuing to the holder of
such shares the number of shares of Common Stock and other capital
stock of the Company (or other assets or securities) issuable upon
such conversion in excess of the number of shares of Common Stock and
other capital stock of the Company issuable thereupon only on the
basis of the Conversion Price prior to adjustment, and (ii) not later
than five business days after such adjustment shall have become
effective, pay to such holder the appropriate cash payment pursuant to
Section 5.3 hereof and issue to such holder the additional shares of
Common Stock and other capital stock of the Company issuable on such
conversion.
(g) Before taking any action which would cause an
adjustment reducing the Conversion Price below the then par value, if
any, of Common Stock, the Company will take all corporate action which
may, in the opinion of counsel, be necessary in order that the Company
may validly and legally
11
<PAGE> 12
issue fully paid and non-assessable shares of Common Stock at such
adjusted Conversion Price.
5.5 RESERVATION AND REGISTRATION OF COMMON STOCK.
(a) The Company shall at all times reserve and keep available
out of its authorized and unissued Common Stock, solely for issuance
upon the conversion of the shares of Series A Preferred Stock, as
herein provided, free from preemptive rights, such maximum number of
shares of Common Stock as shall from time to time be issuable upon the
Optional Conversion, Mandatory Conversion or Accelerated Mandatory
Conversion of all the shares of Series A Preferred Stock then
outstanding.
(b) If any shares of Common Stock to be reserved for the
purpose of conversion of shares of Series A Preferred Stock hereunder
require registration with or approval of any governmental authority
under any Federal or state law before such shares may be validly
issued or delivered upon conversion, then the Company covenants that
it will in good faith and as expeditiously as possible endeavor to
secure such registration or approval, as the case may be, provided,
however, that nothing in this Section 5.5 shall be deemed to affect in
any way the obligations of the Company to convert Series A Preferred
Stock into Common Stock as provided in this Article V.
ARTICLE VI
MISCELLANEOUS
6.1 EXCLUSION OF OTHER RIGHTS. Except as may otherwise be
required by law, the shares of Series A Preferred Stock shall not have any
powers, preferences or relative, participating, optional or special rights,
other than those specifically set forth in this Certificate and in the
Certificate of Incorporation.
6.2 HEADINGS OF SUBDIVISIONS. The headings of the various
subdivisions hereof are for convenience of reference only and shall not affect
the interpretation of any of the provisions hereof.
6.3 SEVERABILITY OF PROVISION. If any voting powers,
preferences, and relative, participating, optional or other special rights of
the Series A Preferred Stock and qualifications, limitations, and restrictions
thereof set forth in this resolution are invalid, unlawful or incapable of
being enforced by reason of any rule of law or public policy, all other voting
powers, preferences and relative, participating, optional and other special
rights of the Series A Preferred Stock and qualifications, limitations and
restrictions thereof set forth in this resolution (as so amended) which can be
given effect without the invalid, unlawful or unenforceable voting powers,
preferences and relative, participating, optional and other special rights of
the Series A Preferred Stock and qualifications, limitations and restrictions
thereof shall, nevertheless, remain in full force and effect, and no voting
powers, preferences and relative, participating, optional or other special
rights of the Series A
12
<PAGE> 13
Preferred Stock and qualifications, limitations and restrictions thereof herein
set forth shall be deemed dependent upon any other special rights of the Series
A Preferred Stock and qualifications, limitations and restrictions thereof
unless so expressed herein.
13
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
(and to all references to our Firm) included in or made a part of this
Registration Statement.
/s/ ARTHUR ANDERSEN LLP
Washington, D.C.
May 12, 1997
