<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
BANNER AEROSPACE, INC.
- --------------------------------------------------------------------------------
(Name of Registrant As Specified In Its Charter)
BANNER AEROSPACE, INC.
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2), or
Item 22(a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
Fairchild Scandinavian Bellyloading Company AB Capital Stock, no par
value, and Scandinavian Bellyloading International, Inc. Common Stock,
no par value
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
2,000(1)
- --------------------------------------------------------------------------------
(3) Per unit price of other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
$1,042(2)
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
$2,084,000
- --------------------------------------------------------------------------------
(5) Total fee paid:
$417(3)
- --------------------------------------------------------------------------------
[X] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- --------------------------------------------------------------------------------
(3) Filing Party:
- --------------------------------------------------------------------------------
(4) Date Filed:
- --------------------------------------------------------------------------------
- ---------------
(1) Includes 1,500 shares of Fairchild Scandinavian Bellyloading Company AB
("FSBC") and 500 shares of Scandinavian Bellyloading International, Inc.
("SBIC", and together with FSBC, the "Bellyloading Companies").
(2) The per unit price has been computed based on the quotient obtained by
dividing (x) the combined book value of the Bellyloading Companies as of
December 31, 1996 by (y) 2,000.
(3) The filing fee of $417 has been computed pursuant to Rule 0-11(a)(4) and
(c)(1) and Rule 14a-6 under the Securities Exchange Act of 1934, as amended,
and is based on one-fiftieth of one percent of the product of (x) the number
of shares of capital stock of FSBC (1,500) and SBIC (500) which Banner
Aerospace, Inc. will receive in exchange for issuance of its stock to RHI
Holdings, Inc. or its designee and (y) $1,042, which represents the per
share book value of the Bellyloading Companies as of December 31, 1996.
<PAGE> 2
[BANNER AEROSPACE LOGO]
Mail Address
May 13, 1997
Dear Banner Aerospace,
Inc. Stockholder:
As the airline industry continues to emphasize cost reductions to improve
profitability, suppliers of aerospace parts are being forced to become more
competitive. To succeed in this increasingly competitive environment, the Board
of Directors of Banner Aerospace, Inc. (the "Company") continues to seek new
alternatives to increase the Company's profitability including, without
limitation, growth through acquisitions and/or strategic alliances. The Board of
Directors presents for your approval several proposals designed to give the
Company additional flexibility and opportunities needed to succeed in this
competitive environment. The proposals described below will be considered at a
Special Meeting of Stockholders of the Company to be held at 9:00 A.M., local
time, on Wednesday, June 18, 1997, at the Marriott Hotel, Washington Dulles
International Airport, 333 West Service Road, Chantilly, Virginia.
The principal purpose of this important meeting is to seek your approval of
the Company's acquisition (the "Acquisition") from RHI Holdings, Inc. ("RHI") of
two companies: (i) Fairchild Scandinavian Bellyloading Company AB ("FSBC"), a
designer and manufacturer of patented cargo loading systems which are installed
in the cargo area of commercial aircraft, enabling cargo to be loaded rapidly
and efficiently; and (ii) Scandinavian Bellyloading International, Inc. ("SBIC",
and together with FSBC, the "Bellyloading Companies"), engaged in sales and
marketing of FSBC's cargo loading systems in the United States. Each of the
Bellyloading Companies is an indirect wholly-owned subsidiary of The Fairchild
Corporation ("Fairchild"). Fairchild, through RHI and Fairchild Holding Corp.,
currently controls 59.3% of the Company's common stock. In connection with the
Acquisition, the Company would issue initially 230,000 shares of its common
stock to RHI or its designee which would increase Fairchild's control position
in the Company from 59.3% to approximately 59.7% of the voting power of the
Company, which percentage may increase based upon the purchase price as
ultimately adjusted.
The Company's acquisition of the Bellyloading Companies should enhance the
Company's reputation as a leading international distributor to the aerospace
industry. After careful consideration of a number of critical factors, including
the terms of the Stock Exchange Agreement, dated as of May 12, 1997, by and
between RHI and the Company (the "Stock Exchange Agreement"), and the long-term
benefits that may be derived from the combination of the Company and the
Bellyloading Companies, THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU
VOTE FOR THE ACQUISITION. The Stock Exchange Agreement, which sets forth the
terms of the Acquisition, is attached as Annex A and is more fully described in
the accompanying Proxy Statement.
In addition, in order to provide management with needed flexibility for
future corporate purposes including, without limitation, pursuing additional
acquisition opportunities, it is proposed that the Company increase its
authorized capital in order to increase the authorized common stock and create a
class of preferred stock that would be issuable in series as designated by the
Board of Directors. Accordingly, at this important meeting, you will also be
asked to vote on the following set of proposals: (i) to increase the total
number of shares of capital stock which the Company has the authority to issue
from 30,000,000 to 60,000,000; (ii) to increase the number of authorized shares
of the Company's common stock from 30,000,000 to 50,000,000; and (iii) to create
a new class of Preferred Stock, par value $.01 per
Logo
<PAGE> 3
share, and to give the Company the authority to issue 10,000,000 shares of such
Preferred Stock (collectively, the "Charter Amendments"). In conjunction with
the Charter Amendments, the Company plans to issue rights to its existing
shareholders pursuant to which each shareholder will have the right to acquire a
certain number of shares of a newly established 7.5% convertible Preferred Stock
based on a predefined formula. Fairchild has signed a commitment to subscribe
for its pro rata share of such newly established Preferred Stock. The proceeds
received from the rights offering will be used to reduce outstanding debt.
We firmly believe that we have reached a critical stage in the growth and
development of the Company and that it is in the long-term best interests of the
Company and its stockholders, employees and customers that each of the Charter
Amendments be approved so that the Company can finance future strategic
corporate acquisitions. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU
VOTE FOR THE CHARTER AMENDMENTS. THE CHARTER AMENDMENTS WILL BE EFFECTED ONLY IF
ALL OF THE CHARTER AMENDMENTS ARE APPROVED BY THE STOCKHOLDERS AT THE SPECIAL
MEETING. FAIRCHILD HAS INDICATED TO THE COMPANY THAT IT INTENDS TO VOTE ITS
SHARES OF THE COMPANY'S COMMON STOCK IN FAVOR OF THE ACQUISITION AND THE CHARTER
AMENDMENTS.
Details of each of the proposals that you will be asked to consider at the
Special Meeting are set forth in the accompanying Proxy Statement. We urge you
to read carefully the entire Proxy Statement. It is important that your shares
be represented at the Special Meeting, no matter how many shares you own. Even
if you plan to attend the Special Meeting, please sign, date and mail promptly
the enclosed Proxy in the postage-paid envelope. This action will not limit your
right to vote in person if you wish to attend the Special Meeting.
On behalf of the Board of Directors, thank you for your cooperation and
your continued support.
Sincerely,
/s/ JEFFREY J. STEINER
JEFFREY J. STEINER
Chairman of the Board,
Chief Executive Officer and President
<PAGE> 4
BANNER AEROSPACE, INC.
300 WEST SERVICE ROAD
P.O. BOX 20260
WASHINGTON, D.C. 20041
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 18, 1997
To the Stockholders of
BANNER AEROSPACE, INC.:
A Special Meeting of Stockholders (the "Special Meeting") of Banner
Aerospace, Inc. (the "Company") will be held at the Marriott Hotel, Washington
Dulles International Airport, 333 West Service Road, Chantilly, Virginia, on
Wednesday, June 18, 1997 at 9:00 A.M., local time, for the following purposes:
1. To approve the acquisition by the Company from RHI Holdings, Inc.
("RHI") 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"),
each a wholly-owned subsidiary of RHI, pursuant to the terms of a
Stock Exchange Agreement dated as of May 12, 1997, between the
Company and RHI (the "Stock Exchange Agreement"), under which the
Bellyloading Companies would become wholly-owned subsidiaries of
the Company in exchange for issuance by the Company to RHI or its
designee of 230,000 shares of the Company's common stock, par value
$1.00 ("Company Common"), initially, but subject to certain
limitations and adjustments, all as more fully described in the
accompanying Proxy Statement which forms a part of this Notice (the
"Acquisition Proposal");
2. To adopt an amendment to Article FOURTH of the Company's Restated
Certificate of Incorporation (the "Certificate of Incorporation")
to increase the total number of shares of capital stock which the
Company has the authority to issue from 30,000,000 to 60,000,000;
3. To adopt an amendment to Article FOURTH of the Certificate of
Incorporation to increase the number of authorized shares of
Company Common, from 30,000,000 shares to 50,000,000 shares;
4. To adopt an amendment to Article FOURTH of the Certificate of
Incorporation to create a new class of Preferred Stock, par value
$.01 per share, and to give the Company the authority to issue
10,000,000 shares of such Preferred Stock (the Acquisition Proposal
and Proposals 2, 3 and 4 are collectively referred to as the
"Proposals"); and
5. To consider such other matters as may properly come before the
Special Meeting or any and all adjournments or postponements
thereof.
The Acquisition Proposal is being submitted to stockholders for their
approval to satisfy the rules of the New York Stock Exchange (the "NYSE").
Pursuant to the NYSE rules, the Company's stockholders must approve the
Acquisition Proposal because it contemplates the issuance of voting securities
of the Company representing in excess of 1% of the outstanding voting power to
RHI, a substantial securityholder of the Company. The NYSE will not accept an
application for listing of the Company Common to be issued to RHI or its
designee in exchange for the Bellyloading Companies until the Acquisition
Proposal is approved by the Company's stockholders.
<PAGE> 5
THE COMPANY'S BOARD OF DIRECTORS HAS UNANIMOUSLY (WITH ONE DIRECTOR ABSENT)
APPROVED THE PROPOSALS AND RECOMMENDS THAT YOU VOTE FOR THE PROPOSALS.
Only holders of record of Company Common at the close of business on May 8,
1997 are entitled to notice of, and to vote at, the Special Meeting or any
adjournment or postponement thereof. A complete list of stockholders entitled to
vote at the Special Meeting will be kept at the Company's offices at 300 West
Service Road, P.O. Box 20260, Washington, D.C. 20041, for a period of ten days
prior to the Special Meeting and will be available for examination by any
stockholder for any purpose germane to the Special Meeting during ordinary
business hours.
By Order of the Board of Directors,
/s/ EUGENE W. JURIS
EUGENE W. JURIS
Secretary
PLEASE SIGN AND DATE THE ACCOMPANYING PROXY AND RETURN IT PROMPTLY IN THE
ENCLOSED ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
<PAGE> 6
TABLE OF CONTENTS
<TABLE>
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PAGE
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INTRODUCTION......................................................................... 1
Proxy Solicitation.............................................................. 1
Revocability of Proxies......................................................... 2
SUMMARY.............................................................................. 3
The Proposals................................................................... 3
The Company..................................................................... 4
The Bellyloading Companies...................................................... 4
Other Parties Related to the Acquisition Proposal............................... 4
The Special Meeting............................................................. 5
Background of and Reasons for the Acquisition Proposal.......................... 6
Recommendation of the Board of Directors........................................ 6
Opinion of Financial Advisor Regarding the Acquisition Proposal................. 6
Material Contracts and Arrangements Among the Company, Fairchild and Mr.
Steiner........................................................................ 7
Additional Considerations....................................................... 8
Interests of Certain Persons in the Acquisition Proposal........................ 9
Certain Terms of the Stock Exchange Agreement................................... 9
Effects of the Acquisition Proposal Upon Rights of Existing Holders of Company
Common......................................................................... 11
Charter Amendments.............................................................. 12
Price Range of Company Common; Dividend Policy.................................. 14
Comparative Per Share Data for the Company...................................... 14
ACQUISITION OF THE BELLYLOADING COMPANIES (Proposal No. 1)........................... 16
CERTAIN INFORMATION CONCERNING THE COMPANY........................................... 16
SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT.......................... 17
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF THE COMPANY....................... 19
CERTAIN INFORMATION CONCERNING THE BELLYLOADING COMPANIES............................ 20
History of FSBC................................................................. 20
Description of FSBC Business and Sales.......................................... 20
Manufacturing and Other Facilities.............................................. 21
Marketing....................................................................... 21
Competition..................................................................... 21
Material Contracts.............................................................. 22
SELECTED HISTORICAL COMBINED FINANCIAL DATA OF THE BELLYLOADING COMPANIES............ 22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OF THE BELLYLOADING COMPANIES...................................................... 23
OTHER PARTIES RELATED TO THE ACQUISITION PROPOSAL.................................... 24
The Fairchild Corporation....................................................... 24
Jeffrey J. Steiner.............................................................. 25
THE ACQUISITION PROPOSAL............................................................. 25
Background of and Reasons for the Acquisition Proposal.......................... 25
Recommendation of the Board of Directors........................................ 27
Opinion of Financial Advisor.................................................... 28
Additional Considerations....................................................... 33
Interests of Certain Persons in the Acquisition Proposal........................ 34
Regulatory Matters.............................................................. 35
</TABLE>
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PAGE
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Effects of the Acquisition Proposal Upon Rights of Existing Holders of Company
Common......................................................................... 35
MATERIAL CONTRACTS AND ARRANGEMENTS AMONG THE COMPANY, FAIRCHILD AND MR. STEINER..... 35
Intercompany Expenses and Sales Between Fairchild and the Company............... 35
Company Contracts with Fairchild and Mr. Steiner................................ 36
STOCK EXCHANGE AGREEMENT............................................................. 38
Exchange of Company Common...................................................... 38
Representations and Warranties.................................................. 39
Pre-Closing Covenants........................................................... 40
Conditions to Closing........................................................... 41
Indemnification................................................................. 42
Tax Treatment and Indemnification............................................... 42
Termination and Termination Fee................................................. 42
Expenses........................................................................ 42
Registration Rights Agreement................................................... 43
Accounting Treatment............................................................ 43
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION..................... 43
MATERIAL FEDERAL INCOME TAX CONSEQUENCES............................................. 49
AMENDMENTS TO THE COMPANY'S CERTIFICATE OF INCORPORATION
(Proposals No. 2, 3 and 4)......................................................... 50
General......................................................................... 50
Terms of the Rights Offering.................................................... 50
Terms of the New Series of Preferred Stock...................................... 50
Reasons for the Charter Amendments.............................................. 51
Effects of the Charter Amendments upon Rights of Existing Holders of Company
Common......................................................................... 52
Additional Considerations....................................................... 53
INCORPORATION OF DOCUMENTS BY REFERENCE.............................................. 53
OTHER MATTERS........................................................................ 54
PROPOSALS FOR 1997 ANNUAL MEETING.................................................... 54
INDEPENDENT AUDITORS................................................................. 54
INDEX TO FINANCIAL STATEMENTS........................................................ F-1
ANNEX A Stock Exchange Agreement..................................................... A-1
ANNEX B Fairness Opinion of Houlihan Lokey Howard & Zukin............................ B-1
ANNEX C Proposed Charter Amendments.................................................. C-1
ANNEX D Form of Certificate of Designations.......................................... D-1
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BANNER AEROSPACE, INC.
------------------
PROXY STATEMENT
SPECIAL MEETING OF STOCKHOLDERS
JUNE 18, 1997
------------------
INTRODUCTION
PROXY SOLICITATION
This Proxy Statement is being furnished in connection with the solicitation
of proxies by the Board of Directors of the Company, for use at a special
meeting of stockholders of the Company to be held on Wednesday, June 18, 1997,
at 9:00 A.M., local time, at the Marriott Hotel, Washington Dulles International
Airport, 333 West Service Road, Chantilly, Virginia, or at any adjournment or
postponement thereof (the "Special Meeting"), for the purpose set forth in the
foregoing Notice of Special Meeting. This Proxy Statement and a form of proxy
are first being mailed on or about May 13, 1997.
The cost of soliciting proxies will be borne by the Company and will
consist of expenses of printing, postage and handling, including the expenses of
brokerage houses, custodians, nominees and fiduciaries in forwarding documents
to beneficial owners. Solicitation may also be made by the Company's officers,
directors or regular employees personally or by telephone. The firm of Corporate
Investor Communications, Inc., Carlstadt, New Jersey, has been retained to
assist in the solicitation of proxies for the Special Meeting at an estimated
fee of $3,000 plus direct out-of-pocket expenses.
The principal executive office of the Company is located at 300 West
Service Road, P.O. Box 20260, Washington, D.C. 20041.
Vote Required. The presence, in person or by properly executed proxy, of
the holders of shares entitled to cast a majority of the votes entitled to be
cast by the holders of all outstanding shares of Company Common is necessary to
constitute a quorum at the Special Meeting. Shares of Company Common represented
by a properly signed, dated and returned proxy will be treated as present at the
Special Meeting for purposes of determining a quorum, without regard to whether
the proxy is marked as casting a vote or abstaining. Proxies relating to "street
name" shares that are voted by brokers will be counted as shares present for
purposes of determining the presence of a quorum, but will not be treated as
shares having voted at the Special Meeting as to any proposal as to which
authority to vote is withheld by the broker. The affirmative vote of a majority
of the total votes cast by the holders of record of shares of Company Common at
the Special Meeting is required to approve the Acquisition Proposal and the
transactions contemplated thereby. The affirmative vote of the holders of a
majority of the shares of Company Common outstanding on the Record Date (as
defined below) is required for the adoption of each of the Charter Amendments.
Abstentions will have no effect on the Acquisition Proposal but will have the
effect of a vote against each of the Charter Amendments. Broker non-votes will
have no effect in determining whether the Acquisition Proposal has received the
requisite number of affirmative votes by the Company's stockholders, but will
have the effect of a vote against each of the Charter Amendments.
Record Date; Voting Rights. Holders of record of Company Common at the
close of business on May 8, 1997 (the "Record Date") are entitled to notice of
and to vote at the Special Meeting. As of the close of business on the Record
Date, there were 23,423,610 shares of Company Common outstanding. The holders of
shares of Company Common vote as a single class with regard to all matters to be
acted upon at the Special Meeting. Each share of Company Common entitles the
holder thereof to one vote on each of the Proposals. The Company Common
<PAGE> 9
is the Company's only class of voting securities outstanding. As described below
under "THE ACQUISITION PROPOSAL -- Interests of Certain Persons in the
Proposal", Fairchild through RHI and FHC beneficially owns 13.9 million shares
(the "Fairchild Shares") of Company Common (representing approximately 59.3% of
the shares of Company Common outstanding), and it will cause the Fairchild
Shares to be voted in favor of the Charter Amendments and the Acquisition
Proposal at the Special Meeting, which would ensure stockholder approval of all
of the Proposals.
Absence of Appraisal Rights. Stockholders are not entitled to appraisal
rights under the Delaware General Corporation Law (DGCL) or otherwise in respect
of any of the Proposals.
REVOCABILITY OF PROXIES
Shares of Company Common represented by properly executed proxies received
prior to or at the Special Meeting, unless such proxies have been revoked, will
be voted in accordance with the instructions indicated on the proxies. IF NO
INSTRUCTIONS ARE INDICATED ON A PROPERLY EXECUTED PROXY, THE SHARES WILL BE
VOTED FOR EACH OF THE PROPOSALS AND, IN ANY CASE, IN THE JUDGMENT OF THE PROXY
HOLDER AS TO ANY OTHER BUSINESS THAT MAY COME BEFORE THE SPECIAL MEETING.
Any proxy given pursuant to this solicitation or otherwise may be revoked
by the person giving it, any time before it is voted, by delivering to the
Secretary of the Company, at 300 West Service Road, P.O. Box 20260, Washington,
D.C. 20041, on or before the business day prior to the Special Meeting or at the
Special Meeting itself, a subsequent written notice of revocation or
subsequently-dated proxy relating to the same shares or by attending the Special
Meeting and voting in person. However, attendance at the Special Meeting will
not in itself constitute the revocation of a proxy.
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SUMMARY
The following is a brief summary (the "Summary") of the information in this
Proxy Statement. The Summary is not intended to be complete and is qualified in
its entirety by the more detailed information contained elsewhere in this Proxy
Statement and in the Annexes to this Proxy Statement. Cross references in the
Summary are to the captions of sections of this Proxy Statement unless otherwise
indicated. Stockholders are urged to read this Proxy Statement and its Annexes
in their entirety.
THE PROPOSALS
The four proposals described in this Proxy Statement (the "Proposals")
consist of the following:
(1) the approval of the acquisition (the "Acquisition") by Banner
Aerospace, Inc. (the "Company") from RHI Holdings, Inc. ("RHI") 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"), each a subsidiary of RHI, pursuant to the terms of a Stock
Exchange Agreement dated as of May 12, 1997, between the Company and RHI
(the "Stock Exchange Agreement"), under which 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 the
Company's common stock, par value $1.00 ("Company Common"), initially, but
subject to certain limitations and adjustments. The terms of the
acquisition of the Bellyloading Companies are collectively referred to
herein as the "Acquisition Proposal". ("PROPOSAL NO. 1 -- ACQUISITION
PROPOSAL");
(2) the adoption of an amendment to Article FOURTH of the Company's
Restated Certificate of Incorporation (the "Certificate of Incorporation")
to increase the total number of shares of capital stock which the Company
has the authority to issue from 30,000,000 to 60,000,000 ("PROPOSAL NO.
2");
(3) the adoption of an amendment to Article FOURTH of the Certificate
of Incorporation to increase the number of authorized shares of Company
Common from 30,000,000 shares to 50,000,000 shares ("PROPOSAL NO. 3"); and
(4) the adoption of an amendment to Article FOURTH of the Certificate
of Incorporation to create a new class of Preferred Stock, par value $.01
per share ("Preferred Stock"), and to give the Company the authority to
issue 10,000,000 shares of such Preferred Stock. ("PROPOSAL NO. 4," and
together with Proposals No. 2 and 3, the "Charter Amendments").
Approval of the Acquisition Proposal by the requisite vote of the
stockholders of the Company is a condition to the consummation of the
acquisition under the Stock Exchange Agreement. The Charter Amendments will be
effected only if all of the Charter Amendments are approved by the stockholders
at the Special Meeting. If all of the Charter Amendments are approved by the
Company's stockholders at the Special Meeting, the Charter Amendments will be
effected regardless of whether the Acquisition Proposal is approved or the
acquisition is consummated. If the Acquisition Proposal is approved by the
Company's stockholders at the Special Meeting, the Acquisition will be
consummated regardless of whether the Charter Amendments are approved.
The Acquisition Proposal set forth in the foregoing Notice of Special
Meeting of Stockholders is being submitted to stockholders to satisfy rules of
the New York Stock Exchange ("NYSE") with respect to the listing of the shares
of Company Common to be issued in
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connection with the Acquisition Proposal. Pursuant to the NYSE rules, the
Company's stockholders must approve the Acquisition Proposal because it
contemplates the issuance of voting securities of the Company representing in
excess of 1% of the outstanding voting power to RHI, a substantial
securityholder of the Company.
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 also 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 P.O. Box 20260, Washington, D.C. 20041, (703)
478-5790. See "CERTAIN INFORMATION CONCERNING THE COMPANY."
THE BELLYLOADING COMPANIES
FSBC, incorporated in 1986, began as a university research and development
project. FSBC manufactures and markets a conveyor belt system (the "System")
which is permanently installed into the belly of a narrow bodied aircraft for
onboard loading and unloading in the aircraft. The mailing address and telephone
number of the principal executive office of FSBC are Porfyrvagen 14, S-224 78
Lund, Sweden, 011-46-46-19-7800. SBIC, incorporated in 1990, was formed solely
to sell and market FSBC's Systems in the United States. The mailing address and
telephone number of the principal executive office of SBIC are 300 West Service
Road, P.O. Box 10803, Chantilly, Virginia 20153, (703) 478-5800. See "CERTAIN
INFORMATION CONCERNING THE BELLYLOADING COMPANIES."
In September 1994, RHI purchased all of the issued and outstanding shares
of FSBC (formerly known as "Scandinavian Bellyloading Company AB") from Anders
Helmner ("Mr. Helmner") for $1.00. In addition, RHI was required to invest
$500,000 into FSBC at the closing to provide FSBC with working capital. Pursuant
to the acquisition agreement, FSBC entered into a profit sharing agreement with
a company wholly-owned by Mr. Helmner which requires FSBC to pay such company
10% of FSBC's annual profits. The profit sharing agreement will expire on
September 9, 1998.
OTHER PARTIES RELATED TO THE ACQUISITION PROPOSAL
The Fairchild Corporation. The Fairchild Corporation ("Fairchild") is a
holding company which owns all of the issued and outstanding stock of RHI. RHI
is the 100% owner of each of the Bellyloading Companies and Fairchild Holding
Corp. ("FHC") and is the majority owner of the Company. RHI and FHC together
hold approximately 59.3% of the issued and outstanding Company Common (the
"Fairchild Shares"). Fairchild conducts its operations through RHI and FHC in
three business segments: Aerospace Fasteners, Aerospace Distribution and
Technology Products (formerly Industrial Products). The mailing address and
telephone number of the
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principal executive office of Fairchild are 300 West Service Road, P.O. Box
10803, Chantilly, Virginia 20153, (703) 478-5800. See "OTHER PARTIES RELATED TO
THE ACQUISITION PROPOSAL -- The Fairchild Corporation."
Jeffrey J. Steiner. Jeffrey J. Steiner ("Mr. Steiner") has served as
Chairman of the Board, Chief Executive Officer and President of the Company
since September 1993. He served as Vice Chairman of the Board from August 1990
to September 1993. He has served as Chairman of the Board, Chief Executive
Officer and President of Fairchild for more than the past five years. Mr.
Steiner is also a member of the Executive Committee of the Company. As of
December 18, 1996, Mr. Steiner controlled approximately 72.9% of the voting
power of all of the outstanding shares of common stock of Fairchild and 60.0% of
the outstanding shares of Company Common which includes shares of Company Common
beneficially owned by Fairchild and affiliates of Mr. Steiner and Fairchild. See
"SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT" and "OTHER PARTIES
RELATED TO THE ACQUISITION PROPOSAL -- Jeffrey J. Steiner."
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 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. See
"OTHER PARTIES RELATED TO THE ACQUISITION PROPOSAL -- Jeffrey J. Steiner."
THE SPECIAL MEETING
Proxy Solicitation. This Proxy Statement is being furnished in connection
with the solicitation of proxies for the adoption of the Proposals by the Board
of Directors for use at a special meeting of stockholders of the Company to be
held on Wednesday, June 18, 1997, at 9:00 A.M., local time, at the Marriott
Hotel, Washington Dulles International Airport, 333 West Service Road,
Chantilly, Virginia, or at any adjournment or postponement thereof (the "Special
Meeting").
Vote Required. Approval by the Company's stockholders of the issuances of
shares of Company Common to RHI pursuant to the Stock Exchange Agreement is
required by the rules of the New York Stock Exchange ("NYSE"). Each share of
Company Common will be entitled to one vote on each of the Proposals. The
affirmative vote of a majority of the votes cast by the holders of record of
shares of Company Common at the Special Meeting is required to approve the
Acquisition Proposal and the transactions contemplated thereby. The affirmative
vote of the holders of a majority of the shares of Company Common outstanding on
the Record Date (as defined below) is required for the adoption of each of the
Charter Amendments. The presence, in person or by properly executed proxy, of
the holders of at least a majority of the outstanding shares of Company Common
is necessary to constitute a quorum at the Special Meeting. Abstentions will
have no effect on the Acquisition Proposal but will have the effect of a vote
against each of the Charter Amendments. Broker non-votes will have no effect in
determining whether the Acquisition Proposal has received the requisite number
of affirmative votes by the Company's stockholders, but will have the effect of
a vote against each of the Charter Amendments. Stockholders should be aware that
Fairchild will cause the Fairchild Shares to be
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voted in favor of the Acquisition Proposal and the Charter Amendments, ensuring
their adoption.
Shares of Company Common represented by properly executed proxies received
prior to or at the Special Meeting, unless such proxies have been revoked, will
be voted in accordance with the instructions indicated on the proxies. IF NO
INSTRUCTIONS ARE INDICATED ON A PROPERLY EXECUTED PROXY, THE SHARES WILL BE
VOTED FOR THE PROPOSALS.
Record Date. The record date for the Special Meeting is May 8, 1997 (the
"Record Date").
BACKGROUND OF AND REASONS FOR THE ACQUISITION PROPOSAL
Combining the Company and the Bellyloading Companies will enable the
Company to expand its relationships with key airline customers and expand its
business in Europe. In addition, the Acquisition will constitute another step
towards implementing the Company's strategic plan which contemplates, among
other things, expanding the Company's business through acquisitions. Although
the acquisition of the Bellyloading Companies had been informally discussed by
the Company with Fairchild for several months, Fairchild's formal proposal of a
possible combination of the Bellyloading Companies and the Company did not occur
until a meeting of the Company's Board of Directors (the "Board of Directors")
held on September 13, 1996. At that meeting, a Special Committee of the Board of
Directors (the "Special Committee") comprised of three directors of the Company
who are neither officers nor employees of the Company or otherwise affiliated
with Fairchild or RHI was appointed to evaluate the acquisition of the
Bellyloading Companies and, if necessary, to negotiate the definitive terms of
such an acquisition, subject to final approval by the Board of Directors. In
November and December of 1996, the Special Committee met several times with its
financial and legal advisors to analyze the suitability and value of the
acquisition of the Bellyloading Companies. On December 11, 1996, the Special
Committee met to discuss the terms negotiated by the Company's management and
determined to recommend the Acquisition Proposal to the Board of Directors. For
further information on the background of the Acquisition Proposal and the
factors considered by the Special Committee and the Board of Directors, see "THE
ACQUISITION PROPOSAL -- Background of and Reasons for the Acquisition Proposal",
"-- Opinion of Financial Advisor" and "-- Additional Considerations."
RECOMMENDATION OF THE BOARD OF DIRECTORS
On January 10, 1997, at a meeting duly called and held, the Board of
Directors, based upon the recommendation of the Special Committee and the terms
of the draft fairness opinion and oral opinion of Houlihan Lokey Howard & Zukin
("Houlihan Lokey"), determined that, subject to the receipt of Houlihan Lokey's
written fairness opinion, the Acquisition Proposal is fair to and in the best
interests of the Company and its stockholders, other than Fairchild and RHI, and
recommended that stockholders approve the Acquisition Proposal. See "THE
ACQUISITION PROPOSAL -- Recommendation of the Board of Directors."
OPINION OF FINANCIAL ADVISOR REGARDING THE ACQUISITION PROPOSAL
The Special Committee retained Houlihan Lokey on behalf of the Board of
Directors to render a fairness opinion with respect to the Acquisition Proposal.
At the meeting of the Special Committee held on December 11, 1996, at which the
Special Committee reviewed and approved the Acquisition Proposal and determined
to recommend it to the Board of Directors, Houlihan Lokey delivered its oral
opinion to the Special Committee to the effect that based upon and subject to
certain matters as stated in the opinion, the Acquisition Proposal is fair to
the Company's stockholders, other than Fairchild and RHI, from a financial point
of view. The opinion was confirmed in writing and addressed to the Special
Committee and the Board of
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<PAGE> 14
Directors on May 13, 1997. See "THE ACQUISITION PROPOSAL -- Recommendation of
the Board of Directors" and "-- Opinion of Financial Advisor." A copy of the
Houlihan Lokey written opinion dated the date of this Proxy Statement, which
sets forth the assumptions made, matters considered and limits on the review
undertaken, is attached to this Proxy Statement as Annex B, and should be read
carefully in its entirety by stockholders.
MATERIAL CONTRACTS AND ARRANGEMENTS AMONG
THE COMPANY, FAIRCHILD AND MR. STEINER
As described below, the Company pays Fairchild for various expenses such as
rent, tax, legal and communications services. All of these services are included
in the Company's selling, general and administrative expenses. In addition, the
Company sells its products to and purchases products from Fairchild, all in the
ordinary course of business. See "MATERIAL CONTRACTS AND ARRANGEMENTS BETWEEN
THE COMPANY, FAIRCHILD AND MR. STEINER -- Intercompany Expenses and Sales
between Fairchild and the Company."
Fairchild is a party to a number of contracts with the Company, including
the following: (i) a lease for office space in the Fairchild building; (ii) a
letter agreement in which Fairchild provides tax preparation and consulting
services to the Company; (iii) a tax indemnity agreement for certain tax
liabilities and benefits which occurred prior to and after the Company's public
offering; (iv) a letter agreement in which Fairchild provides certain legal
services to the Company; (v) an agreement in which an indirect 41% affiliate of
Fairchild provides the Company with communication services for the office space
in the Fairchild building as well as at substantially all subsidiary locations;
(vi) a registration rights agreement whereby Fairchild can request the Company
to register shares of Company Common issued to Fairchild in connection with the
Company's acquisition of a subsidiary of Fairchild; (vii) a letter agreement in
which the Company paid Fairchild $262,000 for employing a former senior
executive of one of the Company's subsidiaries who had been terminated; and
(viii) a joint-property insurance agreement, pursuant to which the Company and
Fairchild (and their subsidiaries) are named in the same property insurance
policy for all risk coverage including earthquake and flood coverage. In
addition, Mr. Steiner has an employment agreement with the Company.
The Company is a party to several agreements with Fairchild which provide
for various methods of expense sharing related to combined sales and marketing
efforts to obtain customers in foreign countries. As of December 31, 1996, the
Company had contributed less than $125,000 under these agreements. Fairchild and
the Company will share commission income to the extent commissions exceed
expenses. No such commissions have been received to date. In addition, the
Company pays for a chartered aircraft used from time to time for business
related travel. The owner of the chartered aircraft is a company 51% owned by an
immediate family member of Mr. Jeffrey Steiner. Costs for such flights charged
to the Company are comparable to those charged in arm's length transactions
between unaffiliated third parties. Payments by the Company for the use of the
chartered aircraft for fiscal year ended March 31, 1996 were approximately
$116,000 and approximately $88,000 for the nine months ended December 31, 1996.
Mr. Steiner had suggested to the management of the Company that it purchase
a certificate of deposit from a Turkish bank because he believed that by
establishing a relationship with one of the Turkish banks, the Company might be
provided additional opportunities to expand its business in Turkey. Following
Mr. Steiner's suggestion, the Company purchased a $750,000 certificate of
deposit (the "Certificate") from Maramara Bankasi A.S., which was subsequently
forced by governmental action to cease business. Because he had suggested this
investment, Mr. Steiner agreed that he would attempt to effect collection of the
Certificate and would have one of his affiliates purchase the Certificate from
the Company for $750,000, payable over two years. Mr. Steiner's affiliate has
paid the Company $500,000, but has received no payments from
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<PAGE> 15
the issuer of the Certificate. In May 1996, the Board of Directors decided that
the entire loss on the Certificate should not be borne by Mr. Steiner's
affiliate; therefore, they agreed to make the last $250,000 payment conditional
upon the collection of any proceeds received by the affiliate from the
Certificate. The Turkish bank subsequently filed for bankruptcy.
On October 17, 1996, the Company borrowed $5.0 million from RHI under an
unsecured demand promissory note ("Promissory Note"). On March 27, 1997, the
Company repaid the Promissory Note to RHI. Interest expense paid pursuant to the
Promissory Note was $156,000.
In addition, on December 20, 1996 the Company entered into a Subordinated
Loan Agreement with RHI (the "Subordinated Loan Agreement") pursuant to which
RHI agreed to lend the Company up to $30.0 million for acquisitions consummated
by the Company. Pursuant to the Subordinated Loan Agreement, the Company agreed
to pay an initial interest rate of 10.0% per annum and agreed to repay the loan
on the earlier of the completion of the proposed rights offering described below
or November 15, 2003. As of the date hereof, the Company has borrowed $28.0
million from RHI, of which $16 million was utilized to acquire PB Herndon
Company, a specialty fastener distributor to the aerospace industry, and
additional working capital. Furthermore, on December 20, 1996 Fairchild entered
into a Commitment to Exercise Rights with the Company whereby Fairchild
committed to participate in the proposed rights offering on a pro rata basis.
See "MATERIAL CONTRACTS AND ARRANGEMENTS BETWEEN THE COMPANY, FAIRCHILD AND MR.
STEINER -- Company Contracts with Fairchild and Mr. Steiner and "-- Intercompany
Expenses and Sales Between Fairchild and the Company."
ADDITIONAL CONSIDERATIONS
While each of the Special Committee and the Board of Directors is of the
opinion that each of the Proposals is in the best interests of the Company and
its stockholders, stockholders should consider the following factors when
evaluating each of the Proposals: (i) Mr. Steiner's status as Chairman, Chief
Executive Officer and President of the Company and of Fairchild; (ii) dilution
of the voting rights of the existing holders of Company Common due to the
initial issuance of 230,000 shares of Company Common to RHI and the potential
subsequent issuance of 1,270,000 shares of Company Common to RHI or its
designee; (iii) directors and officers of Fairchild comprise four of the eleven
members of the Company's Board of Directors; (iv) the Bellyloading Companies
have incurred net losses since RHI acquired FSBC in 1994; (v) the Bellyloading
Companies' sales are dependent on a small number of customers; (vi) the
Bellyloading Companies are dependent on outside financial support and will be
unable to continue as a going concern without such support or sales growth;
(vii) the aircraft parts industry is characterized by intense competition and
some of the Bellyloading Companies' competitors have substantially greater
capital resources than the Bellyloading Companies; (viii) the Bellyloading
Companies' profitability depends, in part, on their ability to establish and
maintain patent protection for its proprietary technologies, products and
processes, and the preservation of their trade secrets; (ix) changes in the
Swedish government's economic and regulatory policies and fluctuations in
currency and exchange rates could affect the Bellyloading Companies'
profitability; (x) the Bellyloading Companies' profitability depends on its
ability to establish and maintain the appropriate certificates issued by the
relevant regulatory agencies; (xi) the Company does not intend to list the
Series A Preferred Stock on any securities exchange; and (xii) assuming the
maximum number of shares of Company Common ultimately is issued to RHI or its
designee under the Acquisition Proposal, and assuming Fairchild is the only
stockholder who participates in the Rights Offering, Fairchild (through RHI and
FHC) would increase its control to approximately 66.0% of the voting power of
the outstanding Company Common. See "THE ACQUISITION PROPOSAL -- Additional
Considerations" and "AMENDMENTS TO THE COMPANY'S CERTIFICATE OF
INCORPORATION -- Additional Considerations."
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<PAGE> 16
INTERESTS OF CERTAIN PERSONS IN THE ACQUISITION PROPOSAL
In considering the recommendations of the Special Committee and the Board
of Directors with respect to the Acquisition Proposal, stockholders should be
aware that Fairchild and certain members of the Board of Directors and
management have interests with respect to the Acquisition Proposal that may
conflict with and are in addition to the interests of the public stockholders of
the Company.
Fairchild through RHI and FHC currently owns 13.9 million shares or
approximately 59.3% of the outstanding shares of Company Common. Upon
consummation of the Acquisition, Fairchild will immediately control
approximately 59.7% of the voting power of the Company, which percentage may
increase based upon the purchase price as ultimately determined. If the maximum
number of shares of Company Common is issued to Fairchild pursuant to the Stock
Exchange Agreement, Fairchild will control approximately 62.0% of the voting
power of the Company. In addition, directors and officers of Fairchild comprise
four of the eleven members of the Company's Board of Directors. Michael T.
Alcox, a director of the Company, is a Vice President and a director of
Fairchild; Samuel J. Krasney, a director of the Company, is Vice Chairman,
Emeritus and a director of Fairchild; Eric I. Steiner, a director of the
Company, is Executive Vice President, Chief Operating Officer and a director of
Fairchild and the son of Jeffrey J. Steiner; and Jeffrey J. Steiner, Chairman,
Chief Executive Officer, President and a director of the Company, is Chairman,
Chief Executive Officer and President of Fairchild and a director of Fairchild
and RHI and the father of Eric I. Steiner. Philippe Hercot, a director of the
Company, is the son-in-law of Jeffrey J. Steiner. Donald E. Miller is the
general counsel of both the Company and Fairchild. Stockholders should also be
aware that Fairchild will cause the Fairchild Shares to be voted in favor of the
Acquisition Proposal and the Charter Amendments, ensuring their adoption. See
"THE ACQUISITION PROPOSAL -- Interests of Certain Persons in the Proposal."
CERTAIN TERMS OF THE STOCK EXCHANGE AGREEMENT
The Company and RHI entered into the Stock Exchange Agreement on May 12,
1997. Pursuant to the terms of the Stock Exchange Agreement, the Company has
agreed, subject to the terms and conditions set forth therein, to issue to RHI
or its designee at the first closing of the transaction contemplated by the
Stock Exchange Agreement (the "First Closing") 230,000 shares of Company Common
(the "First Installment Shares") in exchange for all of the issued and
outstanding shares of capital stock of the Bellyloading Companies. The First
Installment Shares will be held in escrow pending a second closing. The escrow
agent will have voting rights with respect to the First Installment Shares but
has agreed not to vote the shares while such shares are held in escrow.
Dividends on the First Installment Shares will be held in escrow and released
with the First Installment Shares to RHI or the Company, as the case may be. A
second installment of shares of Company Common, if any, will be issued to RHI or
its designee at a second closing (the "Second Closing") following the
calculation of the Bellyloading Companies' earnings before taxes ("EBT") for the
twelve months ended March 31, 1999 (the "Second Installment Shares"). The First
Installment Shares will be released from escrow at the Second Closing. The
Second Installment Shares will be a number of shares of Company Common which
aggregate in value an amount equal to (x) five times the average EBT for the
fiscal years ended March 31, 1998 and 1999 (the "Average EBT"), minus (y) the
First Installment Shares. For this purpose, the Company Common will have a per
share value equal to the average of the closing sales prices of Company Common
on the fifteen consecutive trading days next preceding the fifth trading day
prior to the First Closing (the "Average Banner Price"). The sum of the First
Installment Shares and the Second Installment Shares to be delivered to RHI at
the Second Closing will in no event exceed 1.5 million shares of Company Common
(the "Maximum Number of Banner Shares"). The Company may rescind the transaction
and cause RHI to take back all of the shares of capital stock of the
Bellyloading Companies
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<PAGE> 17
(the "Rescission Right") if the EBT for the twelve months ended March 31, 1998
is less than $750,000 (adjusted for certain fluctuations in the Swedish krona)
or if the Average EBT is less than $500,000 (adjusted for certain fluctuations
in the Swedish krona). If the Company elects to exercise its Rescission Right,
the First Installment Shares will be released from escrow and returned to the
Company for cancellation and the Second Installment Shares will not be issued.
In addition, if the Company elects to exercise its Rescission Right: (i) if
there has been a decrease in the Bellyloading Companies' net operating assets
(as defined) since March 31, 1997 ("NOA Decrease"), the Company will pay RHI an
amount in cash equal to such NOA Decrease; (ii) if there has been an increase in
the Bellyloading Companies' net operating assets since March 31, 1997 ("NOA
Increase"), RHI will pay the Company an amount equal to such NOA Increase; and
(iii) RHI will pay the Company 50% of the Bellyloading Companies' EBT losses, if
any. In addition, if the Company sells the Bellyloading Companies to a third
party before the Second Closing, the Average EBT will be determined on the basis
of an agreed-on estimate of what the Average EBT would have been for the
relevant period (or if the parties cannot agree, on the estimate of an
independent investment banker). See "STOCK EXCHANGE AGREEMENT -- Exchange of
Company Common."
The following description of the Stock Exchange Agreement does not purport
to be complete and is qualified in its entirety by reference to the Stock
Exchange Agreement, a copy of which is attached hereto as Annex A and
incorporated herein by reference. Also, see "STOCK EXCHANGE AGREEMENT"
generally.
Representations and Warranties. The Company and RHI make customary
representations and warranties to each other in the Stock Exchange Agreement
concerning, among other things, each party's organization and similar corporate
matters, the authorization, execution, delivery and performance and
enforceability of the Stock Exchange Agreement and the transactions contemplated
thereby, the absence of pending or threatened legal proceedings, the absence of
undisclosed liabilities and the receipt of required consents or approvals. All
of these representations and warranties will survive the First Closing. See
"STOCK EXCHANGE AGREEMENT -- Representations and Warranties."
Covenants. Under the Stock Exchange Agreement, RHI has agreed, among other
things, that prior to the First Closing, (i) each of the Bellyloading Companies
will conduct its business in the ordinary course consistent with past practice,
and (ii) RHI will not, nor will it permit either Bellyloading Company to, (x)
incur indebtedness in respect of either Bellyloading Company in an aggregate
principal amount exceeding $25,000, (y) engage in any merger or other business
combination or (z) make capital expenditures or commitments for additions to
capital assets of either Bellyloading Company in an aggregate amount exceeding
$25,000. RHI has the right to participate in discussions or negotiations with
any person or group which makes an unsolicited bona fide Alternative Proposal
(as defined below) if its Board of Directors determines in good faith that such
action is required for RHI's Board of Directors to comply with its fiduciary
duties to its stockholder imposed by law because such proposal is more favorable
to RHI's stockholder than the Acquisition. However, RHI otherwise agreed prior
to the Closing to refrain from initiating or soliciting any inquiry, proposal or
offer with respect to a merger, consolidation or other business combination
including either of the Bellyloading Companies or any acquisition or similar
transaction involving the purchase of (i) all or any significant portion of the
assets of the Bellyloading Companies taken as a whole, or (ii) all of the
outstanding shares of the Bellyloading Companies (an "Alternative Proposal").
See "STOCK EXCHANGE AGREEMENT -- Pre-Closing Covenants."
Indemnification. Each party has agreed to indemnify the other party for
any losses up to $5,000,000 incurred as a result of any breach of a
representation or warranty or the nonfulfillment of any covenant by such party.
Notwithstanding the foregoing, the Company may not make an indemnity claim
against RHI at any time after the Company elects to exercise its Rescission
Right.
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<PAGE> 18
Conditions. The obligations of the Company and RHI to effect the First
Closing are subject to the satisfaction of various conditions which include, in
addition to certain other customary closing conditions, the approval of the
Acquisition Proposal by the Company's stockholders. In addition, the obligation
of the Company to effect the First Closing is subject to the payment by RHI to
the Bellyloading Companies of an amount equal to any EBT losses incurred by the
Bellyloading Companies from June 30, 1996 to the date of the First Closing. See
"STOCK EXCHANGE AGREEMENT -- Conditions to Closing."
Termination and Termination Fee. The Stock Exchange Agreement may be
terminated before the First Closing under various circumstances, including, (i)
if the First Closing has not occurred on or before December 31, 1997, or (ii) by
RHI if, by reason of an unsolicited bona fide Alternative Proposal, its Board of
Directors determines in good faith that termination of the Stock Exchange
Agreement is required for RHI's Board of Directors to comply with its fiduciary
duties to its stockholder imposed by law. In the event that any person or group
makes an Alternative Proposal and thereafter RHI terminates the Stock Exchange
Agreement, then RHI is required to pay to the Company on the date of termination
a reasonable termination fee and the Company's out-of-pocket expenses. See
"STOCK EXCHANGE AGREEMENT -- Termination and Termination Fee."
EFFECTS OF THE ACQUISITION PROPOSAL UPON
RIGHTS OF EXISTING HOLDERS OF COMPANY COMMON
Assuming the issuance of the shares of Company Common under the Stock
Exchange Agreement as proposed by this Proxy Statement, the percentage of the
Company's voting securities owned of record by existing holders of shares of
Company Common (not including Fairchild and its affiliates) will be reduced.
Fairchild is the beneficial owner of 13.9 million shares or approximately 59.3%
of the outstanding shares of Company Common. The Acquisition Proposal, if
approved by the stockholders, upon initial implementation would reduce the
interest of existing holders of outstanding shares of Company Common, other than
Fairchild and its affiliates to approximately 40.3%, and increase Fairchild's
beneficial ownership to approximately 59.7% of the outstanding shares of Company
Common. Assuming the Maximum Number of Banner Shares is ultimately issued to RHI
or its designee, then the interest of existing holders of outstanding shares of
Company Common, other than Fairchild and its affiliates, would be reduced to
approximately 38.0% and Fairchild's beneficial ownership would be increased to
approximately 62.0% of the outstanding shares of Company Common.
Fairchild, as a beneficial holder of greater than 50.0% of the outstanding
shares of Company Common, is today and will continue to be able to elect all of
the directors of the Company and to direct corporate policy. The NYSE rules,
however, require the Company to have at least two outside directors on its Board
of Directors. The Company currently has four outside directors. Fairchild has
informed the Company that it currently does not intend to change the composition
of the Board of Directors. See "THE ACQUISITION PROPOSAL -- Effects of the
Acquisition Proposal Upon Rights of Existing Holders of Company Common."
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CHARTER AMENDMENTS
General. At the Special Meeting, the stockholders will consider the
adoption of the Charter Amendments. The Company's long-term strategies include
growth through acquisitions and/or strategic alliances. In order to provide
management with flexibility to pursue acquisition opportunities, it is proposed
that the Company increase its authorized capital in order to increase the
authorized Company Common and to create a class of preferred stock that would be
issuable in series having terms designated by the Board of Directors. The
Company intends to conduct a rights offering in which it would issue to each
holder of Company Common a non-transferrable right (a "Right") to subscribe for
shares of a first series of the newly authorized preferred stock (the "Rights
Offering"). The proceeds of the Rights Offering will be used to reduce
outstanding debt. The Company intends to borrow under its revolving line of
credit facility in the future for working capital and to finance acquisitions.
Terms of Rights Offering. Each holder of Company Common of record on May
23, 1997, will receive one Right for every 4.5 shares of Company Common held. 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 holder
will be entitled to purchase one share of Series A Preferred Stock (as defined
below) for each Right held at a subscription price of $9.20 per share of Series
A Preferred Stock. The Rights expire on June 18, 1997. Fairchild has signed a
commitment to subscribe for its pro rata share of Series A Preferred Stock. The
Company has no current intention to list the Series A Preferred Stock on any
securities exchange.
Terms of the New Series of Preferred Stock. The Company intends to create
a new series of preferred stock entitled "Series A Convertible Paid-in-Kind
Preferred Stock" ("Series A Preferred Stock") and the number of shares initially
constituting such series shall be 5,204,747 shares. The Series A Preferred Stock
will accrue semi-annual cumulative dividends at a 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 Series A Preferred Stock and not in cash
except for fractional interests. 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 Liquidation Value. The Series A Preferred Stock
will have no voting rights except as required by law. The Series A Preferred
Stock will be convertible into shares of Company Common at any time at the
election of the holder. To the extent not previously converted, any share of
Series A Preferred Stock will automatically be converted into shares of Company
Common on the fifth anniversary of the date of initial issuance of the Series A
Preferred Stock. In addition, in the event the Company is 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 Company Common 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, immediately prior to the consummation of
such transaction the Series A Preferred Stock will automatically be converted
into Company Common. The conversion price per share of Company Common in the
case of either an optional or mandatory conversion will be $9.20, resulting
initially in a one to one share conversion. The Series A Preferred Stock will
not be redeemable. A registration statement relating to the shares of Series A
Preferred Stock and Company Common underlying the Rights has been filed with the
Securities and Exchange Commission but has not yet become effective. These
securities may not be sold nor may offers to buy be accepted prior to the time
the registration statement becomes effective. This Proxy Statement shall not
constitute an offer to sell or the solicitation of an offer to buy nor shall
there be any sale of these securities in any state in which such offer,
solicitation or sale would be unlawful prior to registration or qualification
under the securities laws of any such state.
The following description of the terms of the Series A Preferred Stock does
not purport to be complete and is qualified in its entirety by reference to the
Certificate of Designations, a copy of
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which is attached hereto as Annex D and incorporated by reference. Also, see
"AMENDMENTS TO THE COMPANY'S CERTIFICATE OF INCORPORATION."
Effects of the Charter Amendments Upon Rights of Existing Holders of
Company Common. The Charter Amendments would not change the terms and conditions
of any shares of Company Common. Each certificate representing shares of Company
Common outstanding immediately prior to the effective date of the Charter
Amendments, if they are adopted by the stockholders at the Special Meeting,
would remain outstanding and represent the same number of shares of Company
Common as before such effective date. Since the issuance of shares of Series A
Preferred Stock pursuant to the Rights Offering will be made on a pro-rata basis
to all stockholders, dilution of ownership interest will not occur unless a
stockholder does not participate in the Rights Offering. In addition, dilution
of voting power of existing stockholders will not occur until stockholders
convert their shares of Series A Preferred Stock to Company Common. Completion
of the Rights Offering will not dilute primary earnings per share since the
Series A Preferred Stock would not be treated as a common stock equivalent.
Based on the December 31, 1996 pro forma financial information, fully dilutive
earnings per share is considered to be the same as the primary earnings per
share, since the effect of certain potentially dilutive securities would not be
material. Primary earnings per common share will be computed by dividing net
income (less preferred dividends) by the weighted average number of common
shares and common share equivalents outstanding during the period. On a
fully-diluted basis, both net earnings and shares outstanding will be adjusted
to assume the conversion of the Series A Preferred Stock at the date of
issuance. See "AMENDMENTS TO THE COMPANY'S CERTIFICATE OF INCORPORATION."
13
<PAGE> 21
PRICE RANGE OF COMPANY COMMON; DIVIDEND POLICY
The Company Common is listed on the NYSE under the symbol "BAR." The
following table sets forth, for the fiscal quarters indicated, the range of high
and low prices per share of Company Common as reported on the NYSE. Stockholders
are urged to obtain current market quotations for Company Common.
<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>
In addition, the closing price per share of Company Common as reported on
the NYSE on February 24, 1997, the last trading before the Company announced the
initial agreement in principle to acquire the Bellyloading Companies, was
$8 3/4. The Company had approximately 80 holders of record and 1,200 beneficial
holders at December 31, 1996.
It is the Company's current policy to retain earnings to support the growth
of its present operations and to reduce its outstanding debt. 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 lenders and such other factors as the Board of
Directors deems relevant. No dividends were declared in fiscal years 1996 or
1995 or for the nine months ended December 31, 1996.
COMPARATIVE PER SHARE DATA FOR THE COMPANY
The following table sets forth certain unaudited per share data of the
Company on both a historical basis and pro forma consolidated basis as if the
Acquisition Proposal had been consummated and the Rescission Right had expired
without being exercised prior to the periods indicated. The per share data of
the Bellyloading Companies has been omitted because it is not material to the
Acquisition Proposal. This table should be read in conjunction with the
historical financial statements and pro forma financial information, and the
related notes thereto, of the Company incorporated by reference or appearing
elsewhere in this Proxy Statement. See "INCORPORATION OF DOCUMENTS BY REFERENCE"
and "UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION." The
unaudited pro forma financial data is presented for informational purposes only,
and is not necessarily indicative of the operating results or financial position
that would have occurred had the Acquisition Proposal
14
<PAGE> 22
upon which the Unaudited Pro Forma Condensed Consolidated Financial Information
is based been completed on the dates indicated, nor is it indicative of future
operating results or financial position.
COMPARATIVE PER SHARE DATA
<TABLE>
<CAPTION>
AS OF AND
FOR THE AS OF AND
NINE MONTHS FOR THE FISCAL
ENDED YEAR ENDED
DEC. 31, 1996 MARCH 31, 1996
------------- --------------
<S> <C> <C>
THE COMPANY:
Earnings per common share
Historical................................................. $0.20 $ 0.09
Pro Forma -- Prior to Bellyloading Companies Acquisition... $0.19 $ 0.15
Pro Forma -- Including Bellyloading Companies.............. $0.14 $ 0.09
Dividends per common share
Historical................................................. $ -- $ --
Book value per common share
Historical................................................. $6.29 $ 6.10
Pro Forma -- Prior to Bellyloading Companies Acquisition... $7.48 $ 7.29
Pro Forma -- Including Bellyloading Companies.............. $7.49 $ 7.26
</TABLE>
15
<PAGE> 23
ACQUISITION OF THE BELLYLOADING COMPANIES (PROPOSAL NO. 1)
CERTAIN INFORMATION CONCERNING 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 commuter aircraft. The Company also 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 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 occupies 10,000 square feet and is located near the
Washington Dulles International Airport in Northern Virginia.
16
<PAGE> 24
SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS
AND MANAGEMENT
The table below sets forth as of December 31, 1996 the number of shares and
percentage of Company Common (the Company's only class of equity securities)
beneficially owned by (i) each person known by the Company to own beneficially
more than 5% of the Company Common together with his 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
NAME COMMON STOCK OF 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 as of December 31, 1996. On February 20, 1997,
J.J. Cramer & Co. filed a Schedule 13d indicating that its stock ownership
in the Company has increased to 2,199,000 shares of Company Common (9.4% of
outstanding shares of Company Common).
(4) Includes shares of Company Common owned of record by Fairchild and its
subsidiaries, as follows: Fairchild Holding Corp., 5,386,477 shares; RHI
Holdings, Inc., 8,488,194 shares; Banner Aerospace Holding Company II,
Inc., 11,806 shares. Of such shares of Company Common 13,262,971 have been
pledged by Fairchild or subsidiaries as collateral for a loan facility with
Citicorp N.A. and 611,700 shares have been pledged by Fairchild or subsidi-
17
<PAGE> 25
aries as collateral under an escrow agreement with BTR Dunlop Holdings,
Inc., a wholly-owned subsidiary of BTR plc.
(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. Eric Steiner as guardian for his minor children,
and he disclaims any beneficial interest therein.
(9) Includes 105,000 shares of Company Common owned of record by Mr. Steiner
and 3,612 shares owned by Mr. Steiner through the Company's Amended and
Restated 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%
Fairchild and Mr. Jeffrey J. Steiner have informed the Company that the
Company Common beneficially owned by them will be voted for each of the
Proposals, which would result in stockholder approval of each of the Proposals.
18
<PAGE> 26
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, incorporated by reference in this Proxy Statement. See "UNAUDITED PRO
FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION."
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED DECEMBER 31, FOR THE FISCAL YEARS ENDED MARCH 31,
------------------------- -------------------------------------------------------------------
1996 1995 1996 1995 1994 1993 1992
----------- ----------- ----------- ----------- ----------- ----------- -----------
(IN THOUSANDS) (UNAUDITED) (UNAUDITED)
<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
</TABLE>
19
<PAGE> 27
CERTAIN INFORMATION CONCERNING
THE BELLYLOADING COMPANIES
HISTORY OF FSBC
FSBC's business began as a project at the Lund Institute of Technology in
Lund, Sweden. FSBC was incorporated in 1986 to produce the Sliding Carpet
Loading Systems(TM)(the "System"), in response to a need expressed by
Scandinavian Airlines System ("SAS") to find a loading and unloading system for
SAS's narrow-bodied aircraft.
SAS has been an integral part of FSBC's initial growth. FSBC installed its
first prototype in one of SAS's DC9-41 aircraft in March 1987 and its second
prototype in the same aircraft six months later. Since the initial
installations, both prototypes have remained in full commercial operation. SAS
has assisted FSBC in improving the technical knowledge used for the System and
has helped FSBC market the System to other airlines.
From the start, FSBC has worked closely with the Federal Aviation
Administration ("FAA") and its Swedish counterpart, Luftfartsverket ("LFV"), to
obtain a Type Certificate from LFV and a Supplementary Type Certificate ("STC")
from the FAA for the System. These two certificates are needed to sell and
market the System internationally. The LFV has also granted a Production
Certificate ("PC") to FSBC which is a special license allowing FSBC to sell the
System. The LFV may cancel or amend the PC if the LFV has been notified of any
serious mechanical problems relating to the System. If the LFV cancels the PC,
then FSBC may not sell any System relating to such PC. Each of the above
referenced certificates must be obtained for each type of aircraft which
installs the System.
In September 1994, RHI purchased all of the issued and outstanding shares
of FSBC (formerly known as "Scandinavian Bellyloading Company AB") from Mr.
Anders Helmner, currently the president and chief executive officer of FSBC
("Mr. Helmner"), for $1.00. In addition, RHI was required to invest $500,000
into FSBC at the closing to provide FSBC with working capital. Pursuant to the
acquisition agreement, FSBC entered into a profit sharing agreement with a
company wholly-owned by Mr. Helmner which requires FSBC to pay such company 10%
of FSBC's annual profits. The profit sharing agreement will expire on September
9, 1998.
SBIC was formed solely to sell and market FSBC's Systems in the United
States.
DESCRIPTION OF FSBC BUSINESS AND SALES
The System is a conveyor belt permanently installed into the belly of a
narrow-bodied aircraft for onboard loading and unloading. The System has been
developed to fit several models of narrow-bodied aircraft presently on the
market and, since October 1994, has been installed in new production aircraft
during the aircraft assembly process at Boeing Commercial Aircraft Inc.,
Seattle, Washington ("Boeing").
Even though several major airlines have expressed an interest in this
product and Delta Air Lines has placed a significant order with FSBC, it is
difficult for FSBC to mass-market the System and increase its sales since each
System is custom-made for each type of aircraft. Boeing recently approved the
installation of the System into certain new Boeing aircraft -- the B757, as well
as the later versions of the B737, when ordered by the purchaser. In addition,
Boeing includes the System as an available feature in its aircraft marketing
materials pursuant to its marketing efforts to sell Boeing aircraft.
Presently, FSBC is producing Systems for existing and new customers as well
as qualifying Systems with the FAA and LFV for other existing types of aircraft
and aircraft under production. To prepare for anticipated future growth, FSBC is
seeking to assure supplier capacity and reduce unit costs.
20
<PAGE> 28
MANUFACTURING AND OTHER FACILITIES
FSBC's primary office and manufacturing facility are located in one
building in Lund, Sweden. The facility consists of:
<TABLE>
<S> <C>
Factory 10,000 sq. ft.
Office 5,000 sq. ft.
</TABLE>
The total rent is approximately $91,000 annually including utilities. The
current contract is in force until December 31, 1997. FSBC is currently
negotiating with the landlord to extend the lease.
FSBC purchases parts for the System from various manufacturers and then
assembles the parts to produce the System. FSBC does not manufacture any of the
parts used in the System. FSBC tests the System in a rig that simulates the
baggage loading compartment. Once the System is fully tested, it is disassembled
for shipment to the customer for installation into the aircraft.
FSBC employs 21 persons with an additional 1 to 3 engineering consultants.
In Sweden, unions negotiate directly with the government and publish a manual
which must be adhered to by all employees. Although FSBC does not have separate
union contracts, it is subject to compliance with such manual. SBIC has no
employees but engages one consultant.
MARKETING
FSBC has concentrated on the market for all narrow-bodied aircraft not
utilizing cargo containers. However, each aircraft model has a different design
which requires separate development and regulatory certification. Although the
regulatory certification is required for each product FSBC sells, such approval
generally is easily obtained. FSBC has currently developed Systems for McDonnell
Douglas, Boeing and Fokker aircraft. FSBC is currently developing a System for
the Airbus A320 series aircraft which Airbus markets with or without a cargo
container system.
The System could be used anywhere in the world. Advantages of the System
over the traditional manual loading procedures include reducing the time of
loading/unloading cargo, reducing baggage damage and improving working
environment for personnel.
COMPETITION
McDonnell Douglas, Boeing and Fokker do not manufacture container systems.
FSBC's System, however, competes with the Airbus container system and the
Telescopic Bin built by Air Cargo Equipment Corporation ("ACE"). Airbus designed
a container system for use on the Airbus A320 series aircraft. It is aboard
approximately 50% of these aircraft delivered, primarily to European airlines.
Those aircraft not fitted with a container system are candidates for FSBC's
System and ACE's Telescopic Bin.
The Telescopic Bin, developed 15 years ago, is a system name for the ACE
product used mainly for the Boeing B757. The system was regularly installed into
new Boeing B757 aircraft on-line at Boeing's facilities. Although this system
has many technical disadvantages including its heavy weight and large space
utilization, no other equipment was available for the Boeing B757 when it was
introduced in 1983. It is estimated that over 800 Telescopic Bins have been
installed. ACE's Telescopic Bin is a telescoping sheet metal design that is
heavier and requires more space than FSBC's design. ACE does not have a design
for the McDonnell Douglas MD80-90 aircraft but does have a design for the Boeing
B737. ACE also has a design for the Airbus A320 which FSBC currently does not
have. For airlines like Northwest Airlines that have a mix of Boeing B757s and
Airbus A320s that they want to equip, FSBC is at a disadvantage because airlines
would prefer to use the same system in all their aircraft. FSBC recently
21
<PAGE> 29
received its first Airbus order from CONDOR Flugdienst GmbH, a subsidiary of
Lufthansa, and plans to have a unit available in February 1998.
The greatest opportunity available to FSBC is the ability to sell its
System to the major airlines who have no systems for their Boeing B757s,
McDonnell Douglas MD80/90s or Airbus A320s such as American Airlines, Northwest
Airlines, Continental Airlines Inc., Trans World Airlines and Lufthansa. ACE has
installed Systems in Boeing B757s at United Airlines Inc., US Air Inc., British
Airways and Delta Air Lines. Delta Air Lines, however, is buying all of its new
Boeing B757s with FSBC's System. The Boeing B737 will provide additional
installation opportunities with the launch of two new stretched versions of the
Boeing B737-700 and Boeing B737-800 which, with their added length, will make
the System more desirable since large aircraft usually require additional
personnel to manually load and unload.
MATERIAL CONTRACTS
Mr. Helmner had invented the main products used in connection with FSBC's
business. Accordingly, in connection with RHI's purchase of FSBC, on September
9, 1994 FSBC entered into an Agreement Regarding Patents ("Patent Agreement")
with Lena Patent AB, a Swedish corporation and affiliate of Mr. Helmner
("Lena"), and Mr. Helmner. Pursuant to the Patent Agreement, Lena assigned to
FSBC all of its right, title and interest in and to certain patents in exchange
for a purchase price plus a schedule of royalty payments based on sales of
relevant products. The consummation of the Acquisition will not affect the terms
of the Patent Agreement.
SELECTED HISTORICAL COMBINED FINANCIAL DATA
OF THE BELLYLOADING COMPANIES
The following table sets forth selected combined financial data of the
Bellyloading Companies and has been derived from, and should be read in
conjunction with, the audited combined financial statements of the Bellyloading
Companies, including the notes thereto, as of and for the fiscal year ended June
30, 1996, and the unaudited combined financial statements of the Bellyloading
Companies, including the notes thereto, for the six months ended December 29,
1996 and December 31, 1995, and the ten months ended June 30, 1995.
<TABLE>
<CAPTION>
FOR THE SIX MONTHS FOR THE FISCAL YEARS
ENDED ENDED JUNE 30,
-------------------------- --------------------------
DEC. 29, DEC. 31, 1995
1996 1995 1996 (TEN MOS.)
----------- ----------- ----------- -----------
(IN THOUSANDS) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales................................... $ 2,442 $ 1,149 $ 2,247 $ 1,697
Cost of sales............................... 2,138 925 1,911 1,597
------- ------- --------- -------
Gross profit................................ 304 224 336 100
Selling, general and administrative......... 833 790 1,666 1,029
------- ------- --------- -------
Loss before income taxes.................... (529) (566) (1,330) (929)
Provision for income taxes.................. -- -- -- --
------- ------- --------- -------
Net loss.................................... $ (529) $ (566) $ (1,330) $ (929)
======= ======= ========= =======
BALANCE SHEET DATA:
Working capital............................. $ 1,363 $ 491 $ 169 $ 234
Total assets................................ 4,015 2,248 1,606 2,248
Shareholder's equity........................ 2,084 1,295 929 996
</TABLE>
22
<PAGE> 30
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF THE BELLYLOADING COMPANIES
The following discussion should be read in conjunction with the combined
financial statements and notes thereto of the Bellyloading Companies included
elsewhere herein (unaudited except for the year ended June 30, 1996).
The following Management's Discussion and Analysis includes forward looking
statements with respect to the Bellyloading Companies' future financial
performance. These forward looking statements are subject to various risks and
uncertainties that could cause actual results to differ materially from
historical results or those currently anticipated.
Comparative for the Six Months Ended December 29, 1996 and December 31, 1995
NET SALES
Net sales for the six months ended December 29, 1996, increased
significantly to $2,442 from $1,149 for the prior period. The increase is due
primarily to orders from Delta Airlines in the current year.
COST OF SALES
Cost of sales for the six months ended December 29, 1996, increased to
$2,138 from $925 for the six month period ended December 31, 1995. The
significant increase was due to costs incurred by FSBC to meet demand for orders
from Delta Airlines along with other current demands.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the six months ended
December 29, 1996, increased slightly to $833 from $790 for the six months ended
December 31, 1995. This increase related to greater marketing efforts, partially
offset by management's efforts to maintain lower administrative expenses.
PROVISION FOR INCOME TAXES
No provision for income taxes was recorded in either period due to the
continuing losses from operations.
NET LOSS
Net losses decreased from $558 to $529 due primarily to the increase in
sales discussed above.
Comparative for Fiscal 1996 and 1995
NET SALES
Net sales for the fiscal year ended June 30, 1996 increased 32.4% to $2,247
from $1,697 for the ten-month period ended June 30, 1995. If the fiscal 1995
ten-month results were annualized, net sales would have been $2,036, for an
increase of 10.3%, and the increase reflects FSBC's initiative to obtain market
penetration outside of SAS.
23
<PAGE> 31
COST OF SALES
Cost of sales for the fiscal year ended June 30, 1996, increased 19.7% to
$1,911 from $1,597 for the ten-month period ended June 30, 1995. If the fiscal
1995 ten-month results were annualized, cost of sales would have been $1,916
with a significant reduction in costs of sales as a percentage of sales from
94.1% for 1995 to 85.0% for 1996. This decrease in percentage of sales resulted
from FSBC obtaining certain manufacturing economies of scale by achieving
additional orders.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the fiscal year ended June
30, 1996, increased 61.9% to $1,666 from $1,029 for the ten months ended June
30, 1995. If the fiscal 1995 ten-month results were annualized, selling, general
and administrative expenses would have been $1,235, or an increase of 34.9% in
fiscal 1996, compared to the prior period. The increase was due to management's
additional marketing efforts to obtain greater market share.
PROVISION FOR INCOME TAXES
No provision for income taxes was recorded in either year due to the
continuing losses from operations.
NET LOSS
Net losses increased from $929 to $1,330 due primarily to the increase in
selling, general and administrative expenses as a percentage of net revenues as
discussed above.
Liquidity and Capital Resources
The working capital and total assets remained consistent on a period to
period basis due to continued cash investments from Fairchild. Management
believes additional investments from the parent will be required in order to
fund FSBC's future growth and operations. The Company intends to institute a
variety of measures, including more aggressive marketing, in order to enable
FSBC to become self-supporting, although there is no guarantee that such
measures will succeed.
OTHER PARTIES RELATED TO THE ACQUISITION PROPOSAL
THE FAIRCHILD CORPORATION
Fairchild is a holding company which owns all of the issued and outstanding
stock of RHI, and through RHI and FHC beneficially owns approximately 59.3% of
the issued and outstanding shares of Company Common.
Fairchild conducts its operations through RHI and FHC in three business
segments: Aerospace Fasteners, Aerospace Distribution and Technology Products
(formerly Industrial Products). The Aerospace Fasteners segment designs,
manufactures and markets high performance specialty fastening systems, primarily
for aerospace applications. The Aerospace Distribution segment, which is
represented by the Company, is a leading international distributor to the
aerospace industry providing a wide range of aircraft parts and related support
services. The Industrial Products segment designs, manufactures and markets wet
processing tools, equipment and systems required for the manufacture of
semiconductor chips and related products.
Through RHI and FHC, Fairchild is the largest stockholder of the Company.
Fairchild also owns a significant equity interest in Nacanco Paketleme
("Nacanco"), which manufacturers
24
<PAGE> 32
customized cans for soft drinks and beer in Turkey, and Shared Technologies
Fairchild, Inc., which provides telecommunications services and systems
domestically.
JEFFREY J. STEINER
Mr. Steiner has served as Chairman of the Board, Chief Executive Officer
and President of the Company since September 1993. He served as Vice Chairman of
the Board from August 1990 to September 1993. He has served as Chairman of the
Board, Chief Executive Officer and President of Fairchild for more than the past
five years. Mr. Steiner is also a member of the Executive Committee of the
Company. As of December 18, 1996, Mr. Steiner beneficially owned approximately
3.7 million shares of Fairchild Class A Common Stock, par value $0.10 ("Class A
Stock"), or 26.4% of the outstanding shares of Class A Stock, and 2.6 million
shares of Fairchild Class B Common Stock, par value $0.10 per share ("Class B
Stock"), or 97.6% of the outstanding shares of Class B Stock. Class B stock is
immediately convertible into Class A stock. Each share of Class A Stock entitles
the holder thereof to one vote, and each share of Class B Stock entitles the
holder thereof to ten votes. As of December 18, 1996, Mr. Steiner held the power
to vote (excluding his stock options and warrants) 72.9% of the combined voting
power of all of the issued and outstanding shares of Common Stock of Fairchild.
As of December 31, 1996, Mr. Steiner beneficially owned approximately 14.3
million shares of Company Common or 60.0% of the outstanding shares of Company
Common which include shares of Company Common beneficially owned by Fairchild
and affiliates of Mr. Steiner and Fairchild. See "SECURITY OWNERSHIP OF
PRINCIPAL STOCKHOLDERS AND MANAGEMENT."
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 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.
THE ACQUISITION PROPOSAL
BACKGROUND OF AND REASONS FOR THE ACQUISITION PROPOSAL
In the summer of 1994, the Company retained the Canaan Group, Ltd. (the
"Canaan Group") to assist management in developing data for a strategic plan.
The Canaan Group specializes in consulting in the aerospace and airline
business. In December 1994, the Canaan Group presented its results to the Board
of Directors. The Canaan Group study concluded, among other things, that as the
aerospace industry continues to change, it would place increasing value on large
suppliers (such as the Company) with a strong corporate identity, product and
technical expertise, and worldwide presence. The study concluded that the
successful suppliers of the future would not be small specialty suppliers or
those who offered only the traditional customer-supplier relationship. It noted
that the Company because of its reputation, size and strength could add value to
small businesses due to its (i) financial resources and staying power, (ii)
long-term commitment to the aerospace industry, (iii) worldwide presence, (iv)
high quality, low cost and highly responsive reputation, (v) ability to have
high-level access at key large customers, (vi) ability to raise the profile of
specific products and businesses, and (vii) ability to support sales campaigns
as necessary. The
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Company adopted a strategy of improving and expanding its existing operations by
concentrating on these strengths and considering the possibility of acquiring
new companies which would allow the Company to take advantage of such strengths
and move the Company into other business segments related to the aerospace
industry. The acquisition of the Bellyloading Companies is one of several
initiatives taken by the Company in pursuit of this business strategy.
In the summer of 1996, Mr. Steiner had determined that it was an ideal time
to expand the Company for the following reasons: (i) the ongoing consolidation
in the aviation industry; (ii) a growing demand for high quality services in the
aviation industry; and (iii) the potential synergies for the Company due to its
present position in the aviation industry. Mr. Steiner directed the management
team aggressively to seek acquisitions. Among other potential acquisitions
discussed, at a meeting of the Board of Directors held on September 13, 1996,
Mr. Steiner proposed that the Company acquire the Bellyloading Companies. Mr.
Steiner pointed out that such an acquisition would be another step towards
implementing the Company's strategic plan. Following Mr. Steiner's proposal, the
Board of Directors established a committee of three directors, none of whom is
an officer or employee of the Company or affiliated with Fairchild or any of its
affiliates (the "Special Committee"), to assist the Board of Directors in
assessing the Acquisition Proposal and the Rights Offering. The members of the
Special Committee were Charles Haar, Leonard Toboroff and Steven Gerard, who was
designated its Chairman.
The Company has decided to compensate the members of the Special Committee
for the time they spent on analyzing and negotiating the Acquisition Proposal
and the Rights Offering. Mr. Gerard, as Chairman of the Special Committee, will
receive $20,000 and each of the other two members of the Special Committee will
receive $10,000. Each of the Special Committee members will also receive their
reasonable out-of-pocket expenses incurred in connection with their work on the
Acquisition Proposal and the Rights Offerings. The fees and expenses will be
considered earned regardless of whether or not the Acquisition Proposal or the
Rights Offerings is completed.
On October 15th there was a meeting in Washington, D.C. where Chairman
Gerard met with management of the Company and Fairchild to further develop the
preliminary ideas which were previously formed regarding acquisition of the
Bellyloading Companies including structure, funding prior to closing, rescission
right and risks relating to funding any working capital losses. In addition, the
participants discussed additional data necessary to consummate the transaction
and developed a preliminary timetable and list of other outside resources
necessary to complete the process.
Also in October 1996, Chairman Gerard retained legal counsel for the
Special Committee. On November 12, 1996, the Special Committee retained Houlihan
Lokey to assist in the analysis and negotiation of the transaction and to render
a fairness opinion. Houlihan Lokey was retained based on its experience in
providing a range of investment banking and financial advisory services,
including valuation of businesses and their securities.
During November and December 1996, Houlihan Lokey and the officers of the
Company (including its Chief Operating Officer) separately conducted due
diligence investigations with respect to each of the Bellyloading Companies and
its businesses, operations and properties. During the last quarter of calendar
1996, the Company's management negotiated the preliminary terms of the
Acquisition with Fairchild's management.
On November 15, 1996, the Special Committee received an Acquisition
Analysis done by the Company's management which highlighted the preliminary due
diligence conducted by the Company's officers on the Acquisition Proposal. The
report contained, but was not limited to, a history of the Bellyloading
Companies, a review of their product line, a description of their manufacturing
and other facilities, an analysis of their market, competitors, suppliers and
their
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risk and opportunities, an appraisal of personnel, actual and potential customer
profiles, historical financials and financial projections.
On November 25, 1996, the Special Committee met with its legal advisors and
Houlihan Lokey to discuss the Special Committee's responsibilities. The Chairman
explained that the Special Committee had been formed to analyze the Acquisition
Proposal and the Rights Offering proposal. Houlihan Lokey reviewed for the
Special Committee the methodology to be employed by Houlihan Lokey in connection
with reviewing the fairness of the Acquisition Proposal to the Company's public
stockholders, other than Fairchild and RHI, from a financial point of view.
In December 1996, the Special Committee received and studied available
historical financial statements with respect to the Bellyloading Companies
(including the results for the fiscal year ended June 30, 1996) and the
Bellyloading Companies' financial plan for each of the fiscal years ended 1997,
1998 and 1999.
On December 11, 1996, the Special Committee met with Houlihan Lokey, its
legal advisors and the Company's management to review Houlihan Lokey's valuation
analysis of the acquisition of the Bellyloading Companies and the due diligence
report prepared by the Company's management. At that meeting, Houlihan Lokey
delivered an oral fairness opinion, and the Special Committee then resolved to
recommend the acquisition of the Bellyloading Companies to the Board of
Directors.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE SPECIAL COMMITTEE AND THE BOARD OF DIRECTORS UNANIMOUSLY (WITH ONE
DIRECTOR ABSENT) RECOMMEND THAT THE COMPANY'S STOCKHOLDERS VOTE FOR APPROVAL OF
THE ACQUISITION PROPOSAL.
On January 10, 1997, the Board of Directors met to receive the
recommendation of the Special Committee. Prior to the meeting, each Director
received a memorandum from the Special Committee summarizing the essential terms
upon which the Special Committee recommended the acquisition of the Bellyloading
Companies, along with a draft of the fairness opinion of Houlihan Lokey. All
Directors, except Samuel J. Krasney, were present at the meeting. The Chairman
of the Special Committee explained at length the activities and deliberations of
the Special Committee and the roles of Company management and Houlihan Lokey in
conducting due diligence, advising the Special Committee and assisting in
connection with negotiation of the definitive terms proposed to the Board of
Directors by the Special Committee. In reaching its conclusions, the Board of
Directors considered a number of factors, including primarily the recommendation
of the Special Committee, the draft of the Houlihan Lokey fairness opinion
addressed to the Special Committee and the Board of Directors and the oral
opinion of Houlihan Lokey to the effect that the terms of the Acquisition
Proposal are fair to the stockholders of the Company, other than Fairchild and
RHI, from a financial point of view (see "-- Opinion of Financial Adviser"), and
that during the negotiation of the Acquisition Proposal, the interests of the
minority stockholders of the Company were represented by the Special Committee
and its legal and financial advisers. The Directors present unanimously
determined that, subject to the receipt of Houlihan Lokey's written fairness
opinion, the Acquisition Proposal, as recommended by the Special Committee, is
in the best interests of the Company and its stockholders, noting particularly
the following factors which were stressed in the recommendation of the Special
Committee: (i) the acquisition of the Bellyloading Companies will expand (x) the
Company's worldwide presence, especially in Europe, and (y) relationships with
key airline customers; (ii) the joint marketing capabilities of the Bellyloading
Companies with the Company, along with the Company's name and resources, will
expand FSBC product penetration within the Company's customer base; (iii) the
Company's desire to enter into the field of cargo loading; (iv) the fact that
FSBC has a proven product with over 300 Systems installed; (v) the Company's
Rescission Right which allows the Company to return the shares of the
Bellyloading
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Companies to RHI if FSBC fails to achieve a defined level of earnings; and (vi)
the acquisition of the Bellyloading Companies fits within the Company's
strategic goals of diversifying the Company's products and increasing its
overall market share in the aerospace industry. Neither the Special Committee
nor the Board of Directors found it practical to, and did not, quantify or
otherwise assign relative weights to the individual factors considered in
reaching their determinations.
OPINION OF FINANCIAL ADVISOR
Houlihan Lokey Engagement. Houlihan Lokey was retained by the Company to
render the fairness opinion (the "Fairness Opinion") described below to the
Board of Directors and the Special Committee in connection with the Acquisition
of the Bellyloading Companies. In connection with such engagement, the Special
Committee instructed Houlihan Lokey to evaluate the fairness of the Acquisition
Proposal to the stockholders of the Company, other than Fairchild and RHI, from
a financial point of view. Houlihan Lokey rendered its oral opinion to the
Committee on December 11, 1996 and to the Board of Directors on January 10,
1997, which opinion Houlihan Lokey subsequently confirmed in writing on May 13,
1997, to the effect that, as of the date of such opinion and based upon the
matters presented to the Special Committee and the Board of Directors, the
Acquisition Proposal was fair to the stockholders of the Company, other than
Fairchild and RHI, from a financial point of view.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. The
following is a summary and general description of the valuation methodologies
followed by Houlihan Lokey. The summary does not purport to be a complete
statement of the analyses and procedures applied, the judgments made or the
conclusions reached by Houlihan Lokey, or a complete description of its
presentation. Houlihan Lokey believes and so advised the Special Committee, that
its analyses must be considered as a whole, and that selecting portions of its
analyses and of the factors considered by it, without considering all factors
and analyses, could create an incomplete view of the process underlying its
analyses and opinion.
In connection with its opinion Houlihan Lokey reviewed, among other things:
(i) the Company's annual reports to shareholders and Form 10-Ks for the fiscal
years ended March 31, 1991 to March 31, 1996 and 10-Qs for the periods ended
June 30, 1996, September 30, 1996 and December 31, 1996 (which Company
management has identified as the most current financial information available);
(ii) internal financial projections through March 31, 2000 of the Company both
on a stand-alone basis and on a combined company basis, dated respectively
November 14, 1996 and November 15, 1996; (iii) the Bellyloading Companies'
preliminary financial projections for the fiscal years ending June 30, 1997
through June 30, 1999, which were prepared by certain members of the Company's
senior management in conjunction with management of the Bellyloading Companies;
(iv) the Bellyloading Companies' unaudited historical financial information for
the fiscal year ended June 30, 1996 and the six months ended December 29, 1996;
(v) the Bellyloading Companies' Acquisition Analysis dated December 4-5, 1996
prepared by certain members of the Company's senior management in conjunction
with management of the Bellyloading Companies; (vi) the summary term sheet for
the Acquisition Proposal and the corresponding Stock Exchange Agreement dated
May 12, 1997; and (vii) the Company's Proxy Statement dated May 13, 1997. In
addition, Houlihan Lokey has interviewed certain members of the senior
management of the Company and of the Bellyloading Companies regarding the
operations, financial condition, future prospects and projected operations and
performance of the respective companies, and has visited FSBC's facilities in
Lund, Sweden. Houlihan Lokey has also reviewed the reported prices and trading
activity of the Company Common, compared certain financial and stock market
information for the Company with similar information for certain other companies
with publicly traded securities, reviewed certain recent business combinations
in the aerospace parts distribution and repair industries,
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and performed such other studies and analyses as it considered appropriate. The
Company determined the amount and structure of the consideration to be paid for
the Bellyloading Companies and Houlihan Lokey analyzed the fairness of the
Acquisition Proposal from a financial point of view. In its analysis, Houlihan
Lokey used the above information to, among other things, assess the
reasonableness of the trading value of the Company Common, determine an
appropriate range of value of the Bellyloading Companies, and assess the terms
of the Acquisition Proposal. On the basis of these analyses and as described
below, Houlihan Lokey determined that (i) the value of the Company Common being
paid as acquisition consideration for the capital stock of each of the
Bellyloading Companies was within the range of fair market value of the
Bellyloading Companies, and (ii) the Acquisition Proposal structure is
appropriate. The methods and procedures used by Houlihan Lokey in completing its
analyses are described below.
Historical Stock Trading Analysis. Houlihan Lokey reviewed the trading
prices and volumes for the Company Common and the common stocks of the aerospace
parts distributors and repair group of selected companies (see Selected Company
Analysis below) to assess the reasonableness of the trading value of the Company
Common. Based upon the price and trading volume information analyzed and the
comparative analysis described below, Houlihan Lokey concluded that the trading
price of the Company Common was a reasonable indicator of fair market value.
This conclusion supported Houlihan Lokey's overall fairness conclusion because
it established that the trading value of the Company Common was not unreasonably
low relative to its fair market value.
The analyses described below, which were performed prior to the January 10,
1997 meeting of the Board of Directors at which Houlihan Lokey provided its oral
fairness opinion to the Board of Directors and the Committee, were updated by
Houlihan Lokey prior to confirming its fairness opinion in writing on May 13,
1997. In its analysis of the selected aerospace parts distribution and repair
companies, Houlihan Lokey took into consideration that subsequent to the January
10, 1997 Board of Directors meeting, Greenwich Air Services agreed to acquire
UNC Incorporated and that later General Electric Co. agreed to acquire both
companies in a transaction which is expected to close in mid-1997. Because the
stock prices for both companies increased substantially upon the announcement of
these transactions, Houlihan Lokey concluded that multiples calculated based
upon their current trading price partially reflect a premium for controlling
interest. Since the Company Common being paid in the Acquisition does not
represent a controlling interest, Houlihan Lokey determined that this premium
should not be taken into consideration when comparing the Company's trading
multiples to those of Greenwich Air Services and UNC Incorporated.
Selected Company Analysis. Houlihan Lokey reviewed selected financial,
operating and stock market information for the Company and for the Bellyloading
Companies in comparison with corresponding information for two groups of
selected public companies. Houlihan Lokey advised the Special Committee that
there are no companies directly comparable to the Company or to either of the
Bellyloading Companies and that their analyses had to be considered in light of
that qualification. The purpose of these analyses was to ascertain how the
Company and the Bellyloading Companies compared to respective peers in relation
to certain financial indicators, including size, growth, profitability and
leverage. The multiples and ratios for each of the selected companies were based
on the most recent publicly available information and selected analysts'
earnings estimates. With respect to the selected companies, Houlihan Lokey
considered Total Invested Capital ("TIC", the summation of the current trading
market value of common equity plus the book value of last reported preferred
equity and funded debt) as a multiple of certain representative earnings levels
for the latest twelve months ("LTM") 1996 and estimated fiscal years 1996 and
1997.
In its analysis of the Company, Houlihan Lokey selected a group comprised
of aerospace parts distribution and repair companies, including: AAR
Corporation, Aviall Incorporated,
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Greenwich Air Services Incorporated and UNC Incorporated. The analyses indicated
TIC to earnings before interest, taxes, depreciation and amortization ("EBITDA")
multiples of LTM 1996 EBITDA of 8.6x-19.7x, to fiscal year 1996 EBITDA of
7.8x-17.7x and to fiscal year 1997 EBITDA of 4.2x-11.1x for the aerospace parts
distribution and repair group. Houlihan Lokey also considered the current
trading market value for common equity (common equity value) as a multiple of
LTM 1996 and estimated fiscal years 1996 and 1997 net income. The analyses
indicated common equity value multiples of LTM 1996 net income of 25.9x-45.3x,
of estimated 1996 net income of 21.8x-26.9x and of estimated 1997 net income of
10.5x-16.0x for the aerospace parts distribution and repair group. Based on its
analysis, Houlihan Lokey concluded that the corresponding TIC multiples yielded
by the sum of the Company Common trading value and book value of debt were in
line with the multiples of the selected companies, and that the trading value of
the Company Common is a reasonable indicator of its fair market value.
In its analysis of the Bellyloading Companies, Houlihan Lokey selected a
group comprised of aerospace components and parts development and manufacturing
companies, including: BE Aerospace Incorporated, Precision Standard
Incorporated, Simula Incorporated, Cade Industries Incorporated, Ducommun
Incorporated, Rohr Incorporated, and UNC Incorporated. The analyses indicated
TIC multiples of LTM 1996 EBITDA of 6.5x-22.3x and fiscal year 1997 EBITDA of
7.9x-10.2x for the aerospace manufacturing group. The analyses also indicated
TIC multiples of LTM 1996 EBIT of 12.5x-25.1x and fiscal year 1997 EBIT of
10.0x-13.1x. EBIT and EBITDA multiples for 1996 were not considered in the
valuation of the Bellyloading Companies because the Bellyloading Companies
projected negative earnings levels for 1996 (fiscal year ended March 1997).
However, Houlihan Lokey did consider the projected average earnings levels for
fiscal years ended March 1998 and March 1999 in its analysis. Houlihan Lokey
selected the aforementioned representative earnings levels, as opposed to
reported net income, because the Bellyloading Companies have experienced net
losses historically due to the stage of the development of their businesses thus
far. Based on its analyses, Houlihan Lokey concluded that the 5.0x earnings
before tax multiple of projected average earnings for fiscal years ended March
31, 1998 and March 31, 1999 called for under the terms of the Acquisition
Proposal is reasonable and in line with the multiples indicated by its analyses
of the selected companies. This conclusion supported Houlihan Lokey's overall
fairness conclusion because it established that the proposed acquisition
multiple was not unreasonably high relative to the trading multiples witnessed
for similar aerospace components and parts development and manufacturing
companies.
Discounted Cash Flow Analysis. Houlihan Lokey also utilized a discounted
cash flow ("DCF") analysis, based on projections for the Company and the
Bellyloading Companies prepared by the Company's management and the management
of the Bellyloading Companies, to supplementally validate its fairness
conclusion. The cash flows projected were analyzed on a "debt-free" basis
(before cash payments to equity and interest-bearing-debt investors) in order to
develop TIC value indications for the Company and the Bellyloading Companies. A
provision for the value of the Company and the Bellyloading Companies at the end
of the forecast period, or terminal value, was also made based on multiples
similar to those used in the Selected Company Analysis. The present value of the
cash flows and the terminal value was determined using an appropriate range of
risk- adjusted rates of return or discount rates. The range of discount rates,
in turn, was developed through an analysis of rates of return on alternative
investment opportunities on investments in companies with similar risk
characteristics to the Company and the Bellyloading Companies. The DCF analysis
completed with respect to the Company was used only indirectly by Houlihan Lokey
in arriving at its fairness conclusion in that the results of the DCF analysis
were consistent with Houlihan Lokey's conclusion that the trading value of the
Company Common was a reasonable indicator of its fair market value. Accordingly,
the financial projections of the Company, which reflects earnings per share
comparable to prevailing investment community estimates, are not included
herein. In arriving
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at its overall fairness conclusion, Houlihan Lokey did not rely significantly on
the DCF analysis completed with respect to the Bellyloading Companies because
the Acquisition Proposal does not set a fixed purchase price for the
Bellyloading Companies which can be compared to the valuation indications
produced by the DCF analysis. The financial projections of the Bellyloading
Companies are not material because the Acquisition is not material to the
Company and therefore such projections are not included herein.
Based upon the above analyses, Houlihan Lokey determined: (i) an
appropriate range of earnings before taxes multiples for valuing the
Bellyloading Companies; (ii) that the fair market value of the Company Common is
reasonably indicated by its trading price and (iii) that the value of the
Company Common being paid as acquisition consideration for the capital stock of
the Bellyloading Companies was within the range of value to be paid for the
Bellyloading Companies pursuant to the Acquisition.
No Use of Selected Combination Analysis. Houlihan Lokey performed analyses
of certain recent transactions in the aerospace industry. Due to the specific
nature of the Company's and each of the Bellyloading Companies' businesses and
the lack of publicly available information regarding many of the specific
transactions, Houlihan Lokey did not believe that there were transactions
appropriate for direct comparison to the potential sale of the Bellyloading
Companies, and accordingly these analyses were not presented to the Committee.
Analysis of Acquisition Terms. In analyzing the terms of the Acquisition
Proposal, Houlihan Lokey considered two important factors which it deemed
favorable to the Company. First, the ultimate purchase price is tied to the
future profitability of the Bellyloading Companies and not to the Bellyloading
Companies' projected operating results. If the Bellyloading Companies' average
pre-tax earnings for the years ended March 1998 and March 1999 is lower than
projected, the value of the Second Installment Shares issued by the Company
decreases accordingly. Due to this structure, Houlihan Lokey's fairness analysis
focused on the reasonableness of the multiple being paid in the Acquisition,
rather than on the Bellyloading Companies' ability to meet their financial
projections. The financial projections of the Bellyloading Companies are not
material because the Acquisition is not material to the Company and therefore
such projections are not included herein. Second, under certain scenarios, the
Company has the right to force RHI to take back all the shares of the
Bellyloading Companies in exchange for the First Installment Shares (the
"Rescission Right"). In addition, if the Company elects to exercise its
Rescission Right: (i) if there has been a decrease in the Bellyloading
Companies' net operating assets since March 31, 1997 ("NOA Decrease"), the
Company will pay RHI an amount in cash equal to such NOA Decrease; (ii) if there
has been an increase in the Bellyloading Companies' net operating assets since
March 31, 1997 ("NOA Increase"), RHI will pay the Company an amount in cash
equal to such NOA Increase; and (iii) RHI will pay the Company an amount in cash
equal to 50% of the Bellyloading Companies' pre-tax losses, if any. The Company
will have the ability to exercise its Rescission Right if the Bellyloading
Companies' average annual pre-tax earnings for the fiscal years ending March 31,
1998 and March 31, 1999 are less than $500,000 (adjusted for certain
fluctuations in the Swedish krona). The Company will also have the Rescission
Right if the Bellyloading Companies' pre-tax earnings for the twelve months
ending March 31, 1998 are less than $750,000 (adjusted for certain fluctuations
in the Swedish krona). Based on these factors, Houlihan Lokey has determined
that the terms of the Acquisition Proposal are reasonable and adequately protect
the Company should the Bellyloading Companies fail to meet their projected
operating results. Because of the prospective nature of the Bellyloading
Companies' future operating results, such protection pursuant to the Rescission
Right was weighted heavily by Houlihan Lokey at arriving at its fairness
conclusion.
These analyses were prepared solely for the purposes of Houlihan Lokey
providing its opinion and are not appraisals or representations of prices at
which businesses or securities may actually be sold. Analyses based on forecasts
of future results are not necessarily indicative of actual future results, which
may be more or less favorable than suggested by such analyses. These analyses
are based upon numerous factors and events that are beyond the control of the
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parties and their respective advisors. Hence, none of the Company, the
Bellyloading Companies, Houlihan Lokey, or any other person, assumes
responsibility if future results are materially different from those forecasted.
Houlihan Lokey relied upon and assumed, without independent verification,
that the financial forecasts and projections provided to it had been reasonably
prepared and reflected the best currently available estimates of the future
financial results and condition of the Company and the Bellyloading Companies,
and that there has been no material change in the assets, financial condition,
business or prospects of the Company or either Bellyloading Company since the
date of the most recent financial statements made available to it. Houlihan
Lokey has not independently verified the accuracy and completeness of the
information supplied to it with respect to the Company and the Bellyloading
Companies and does not assume any responsibility with respect to it. Houlihan
Lokey has not made any physical inspection or independent appraisal of any of
the properties or assets of the Company or either Bellyloading Company. Houlihan
Lokey's opinion is necessarily based on business, economic, market and other
conditions as they exist and can be evaluated by it at the date of its opinion.
Based upon the foregoing, and in reliance thereon, it was Houlihan Lokey's
opinion that the Acquisition Proposal is fair to the common stockholders of the
Company, other than Fairchild and RHI, from a financial point of view. Houlihan
Lokey noted that its opinion was necessarily based upon financial, stock market
and other conditions and circumstances existing and disclosed to Houlihan Lokey
as of the date of its opinion.
THE FULL TEXT OF HOULIHAN LOKEY'S WRITTEN OPINION DATED THE DATE OF THIS
PROXY STATEMENT, WHICH SETS FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND
LIMITATIONS ON THE REVIEW UNDERTAKEN, IS ATTACHED AS APPENDIX B TO THIS PROXY
STATEMENT AND IS INCORPORATED HEREIN BY REFERENCE. THE COMPANY'S STOCKHOLDERS
ARE URGED TO READ THIS OPINION CAREFULLY IN ITS ENTIRETY. HOULIHAN LOKEY'S
OPINION IS DIRECTED ONLY TO THE FAIRNESS TO THE COMPANY'S STOCKHOLDERS, OTHER
THAN FAIRCHILD AND RHI, OF THE ACQUISITION PROPOSAL FROM A FINANCIAL POINT OF
VIEW, DOES NOT ADDRESS ANY OTHER ASPECT OF THE ACQUISITION PROPOSAL AND DOES NOT
CONSTITUTE A RECOMMENDATION TO ANY COMPANY STOCKHOLDER AS TO HOW SUCH
STOCKHOLDER SHOULD VOTE AT THE COMPANY'S SPECIAL MEETING OF THE SHAREHOLDERS.
THE SUMMARY OF THE OPINION OF HOULIHAN LOKEY SET FORTH IN THIS PROXY STATEMENT
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION.
Houlihan Lokey is a nationally recognized investment banking firm with
special expertise in, among other things, valuing businesses and securities and
rendering fairness opinions. Houlihan Lokey is continually engaged in the
valuation of businesses and securities in connection with mergers and
acquisitions, leveraged buyouts, private placements of debt and equity,
corporate reorganizations, employee stock ownership plans, and other purposes.
The Special Committee selected Houlihan Lokey because of its experience and
expertise in performing valuation and fairness analysis. In addition, the same
Special Committee engaged Houlihan Lokey last year for its financial advisory
services in connection with a similar acquisition. In connection with such
services, Houlihan Lokey received fees of (i) $125,000 in connection with
providing a fairness opinion with respect to the Harco Transaction, and (ii)
$100,000 for advising the Company and the Special Committee of the Company's
Board of Directors in connection with the same transaction. Houlihan Lokey does
not beneficially own nor has it ever beneficially owned any interest in the
Company or Fairchild.
Fees and Expenses. As compensation for its financial advisory services in
connection with the Acquisition Proposal (whether or not it is consummated),
Houlihan Lokey will receive a $65,000 fee from the Company. Houlihan Lokey
received a payment of $30,000 upon the execution of its engagement letter with
the Company (which will be credited against the $65,000 fee payable to Houlihan
Lokey). Whether or not the Acquisition Proposal is consummated the Company has
agreed to reimburse Houlihan Lokey for reasonable expenses incurred by Houlihan
Lokey, including fees and disbursements of counsel, provided that such expenses
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may not exceed $5,000 without prior written approval of the Company. The Company
has also agreed to indemnify Houlihan Lokey and certain related persons against
certain liabilities to which Houlihan Lokey may become subject as a result of
its engagement, including liabilities under the federal securities laws.
ADDITIONAL CONSIDERATIONS
While each of the Special Committee and the Board of Directors is of the
opinion that the Acquisition Proposal is in the best interest of the Company and
its stockholders, and recommends stockholder approval, stockholders should
consider the following factors when evaluating the Acquisition Proposal:
Fairchild's Significant Influence. Fairchild will continue to have
significant influence over the management and policies of the Company through
Mr. Steiner's status as Chairman, Chief Executive Officer and President of the
Company and of Fairchild.
Dilution. The Stock Exchange Agreement contemplates the initial issuance
by the Company of approximately 230,000 shares of Company Common to RHI,
representing approximately 1.0% of the voting power of the outstanding Company
Common. If the Maximum Number of Banner Shares is subsequently issued to RHI,
Fairchild (through RHI and FHC) will control approximately 62.0% of the voting
power of the outstanding Company Common. The issuance of Company Common will
dilute the voting rights of existing holders of Company Common.
Director Interlocks. Directors and officers of Fairchild comprise four of
the eleven members of the Company's Board of Directors.
Net Losses. The Bellyloading Companies have incurred net losses and
negative operating cash flow at least since Fairchild acquired FSBC in 1994.
Accordingly, the Bellyloading Companies rely on RHI for financial support,
including funding for working capital shortfalls. The failure to continue such
financial support by the Bellyloading Companies' parent 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 sales growth and continued support of its parent.
Few Customers. The Bellyloading Companies sales are dependent on a small
number of customers. The loss of one or more contracts could have a significant
impact on the Bellyloading Companies revenues.
Competition. The aircraft parts industry is characterized by intense
competition. Certain of Bellyloading Companies' competitors are larger and have
greater capital resources than the Bellyloading Companies. There can be no
assurance that competitors of the Bellyloading Companies will not succeed in
developing or marketing products which are more effective or efficient than the
System. Such developments may render the System obsolete or noncompetitive.
Accordingly, the Bellyloading Companies' success is dependent in part upon its
ability to respond quickly to technological changes through the development and
introduction of new Systems.
Reliance on Patents and Proprietary Technology. The Bellyloading
Companies' profitability depends in part on its ability to establish and
maintain patent protection for its proprietary technologies, products and
processes, and the preservation of its trade secrets. In addition, the
Bellyloading Companies must operate without infringing upon the proprietary
rights of other parties. There can be no assurance that any United States or
international patents issued or licensed to the Bellyloading Companies will not
be successfully challenged, invalidated or circumvented, or that patents will be
issued in respect of patent applications to which the Bellyloading Companies
currently hold rights. Although the Bellyloading Companies are not aware of any
claim by third parties that any of its products or technology infringe upon any
patents or proprietary rights of such parties, there can be no assurance that
the Bellyloading Companies will not be subject to such claims in the future. The
defense and prosecution of
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patent claims is costly and time consuming, regardless of an outcome favorable
to the Bellyloading Companies, and can result in the diversion of substantial
financial and managerial resources away from the Bellyloading Companies' primary
business activities. Additionally, adverse outcomes of such claims could have a
material adverse effect on the Bellyloading Companies' business and financial
condition.
Foreign Operations and Currency Fluctuations and Exchange Rates. FSBC's
operations and products are subject to Swedish laws and there can be no
assurances that changes by the Swedish government to current economic and
regulatory policies will not have an adverse impact on the Bellyloading
Companies' business and financial condition in the future. In addition, in 1996
100% of the Bellyloading Companies' sales were derived from customers located
outside of Sweden, while approximately 20% of its total operating expenses were
incurred outside of Sweden. Changes in exchange rates have a direct effect on
the Bellyloading Companies' results of operations, balance sheet and cash flow
and an indirect effect on the Bellyloading Companies' competitiveness, which
will over time affect the Bellyloading Companies' results. For example, currency
movements may affect the Bellyloading Companies' pricing of the Systems sold and
materials purchased in foreign currencies as well as those of its competitors,
which may be affected differently by such movements. There can be no assurance
that exchange rate fluctuations and currency movements will not adversely affect
the Bellyloading Companies' results of operations, cash flow, financial
condition or relative price competitiveness in the future.
Governmental Regulation. The Bellyloading Companies are subject to the
regulatory authority of the FAA and LFV. The FAA and LFV have the authority to
request that the Bellyloading Companies modify or cease selling the System if
the System has serious mechanical problems. In the event that such order was
issued, the Bellyloading Companies would be required to conform the System or
cease selling it, which could result in significant additional expenditures or
loss of revenues for the Bellyloading Companies. There can be no assurance that
changes to current regulations or additional regulations imposed by the FAA and
LFV will not have an adverse impact on the Bellyloading Companies' business and
financial condition in the future. See "CERTAIN INFORMATION CONCERNING THE
BELLYLOADING COMPANIES."
INTERESTS OF CERTAIN PERSONS IN THE ACQUISITION PROPOSAL
In considering the recommendations of the Special Committee and the Board
of Directors with respect to the Acquisition Proposal, stockholders should be
aware that Fairchild and certain members of the Board of Directors and
management, through their affiliations with Fairchild as described below, have
interests with respect to the Acquisition Proposal that may conflict with and
are in addition to the interests of the public stockholders of the Company. Each
of the Special Committee and the Board of Directors was aware of these interests
and considered them, among other matters, in approving unanimously the
Acquisition Proposal.
Director and Executive Interlocks. Fairchild currently indirectly owns
13,886,477 shares or approximately 59.3% of the outstanding shares of Company
Common. Upon consummation of the Acquisition Proposal, Fairchild will initially
control approximately 59.7% of the voting power of the Company. Assuming the
Maximum Number of Banner Shares ultimately is issued to RHI or its designee,
Fairchild will beneficially own approximately 62% of the outstanding shares of
the voting power of the Company. Directors and officers of Fairchild comprise
four of the eleven members of the Company's Board. Michael T. Alcox, a director
of the Company, is Vice President and a director of Fairchild; Samuel J.
Krasney, a director of the Company, is Vice Chairman, Emeritus and a director of
Fairchild; Eric I. Steiner, a director of the Company, is Executive Vice
President, Chief Operating Officer and a director of Fairchild and is the son of
Jeffrey J. Steiner; and Jeffrey J. Steiner, Chairman, Chief Executive Officer,
President and a director of the Company, is Chairman, Chief Executive Officer
and President of Fairchild and a director of Fairchild and RHI and is the father
of Eric I. Steiner. Philippe Hercot, a director of
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the Company, is the son-in-law of Jeffrey J. Steiner. Donald E. Miller is the
general counsel of both the Company and Fairchild.
Fairchild Shares. In connection with the execution of the Stock Exchange
Agreement, Fairchild, an indirect owner of 59.3% of the outstanding Company
Common as of the Record Date, will cause the Fairchild Shares to be voted in
favor of each of the Charter Amendments and the Acquisition Proposal, which will
result in stockholder approval of all of the Proposals.
REGULATORY MATTERS
The Company is not aware of any material regulatory approvals or filings
required in connection with the consummation of the Proposals.
EFFECTS OF THE ACQUISITION PROPOSAL UPON RIGHTS OF EXISTING HOLDERS OF COMPANY
COMMON
Assuming the issuance of the shares of Company Common under the Stock
Exchange Agreement as proposed by this Proxy Statement, the percentage of the
Company's voting securities owned of record by existing holders of shares of
Company Common (not including Fairchild or its affiliates) will be reduced.
Fairchild is the beneficial owner of 13.9 million shares or approximately 59.3%
of the outstanding shares of Company Common. The Acquisition Proposal, if
approved by the stockholders, upon initial implementation would reduce the
interest of existing holders of outstanding shares of Company Common, other than
Fairchild to approximately 40.3%, and increase Fairchild's beneficial ownership
to approximately 59.7% of the outstanding shares of Company Common. Assuming the
Maximum Number of Banner Shares is ultimately issued to RHI or its designee, the
interest of existing holders of outstanding shares of Company Common, other than
Fairchild and its affiliates, would be reduced to approximately 38.0% and
Fairchild's beneficial ownership would be increased to approximately 62.0% of
the outstanding shares of Company Common.
Fairchild, as a beneficial owner of more than 50% of the outstanding shares
of Company Common, is today and will continue to be able to elect all of the
directors of the Company and to direct corporate policy. The NYSE rules,
however, require the Company to have at least two outside directors on its
Board. The Company currently has four outside directors. Fairchild has informed
the Company that it currently does not intend to change the composition of the
Board of Directors.
MATERIAL CONTRACTS AND ARRANGEMENTS AMONG THE COMPANY, FAIRCHILD AND MR. STEINER
INTERCOMPANY EXPENSES AND SALES BETWEEN FAIRCHILD AND THE COMPANY.
The Company paid to Fairchild $456,000, $276,000 and $121,000 during fiscal
1996, 1995 and 1994, respectively, for various expenses such as rent, tax, legal
and communication services. The Company paid to Fairchild $353,000 during the
nine-month period ended December 31, 1996 for rent, tax and legal services. In
March 1996, Fairchild transferred part of its interest in its communication
services to the extent that it now owns only 41% of Shared Technologies
Fairchild, Inc. The Company has paid to Shared Technologies Fairchild, Inc.
approximately $725,000 for such services for the nine months ended December 31,
1996. All services are and have been in the ordinary course of business and were
included in selling, general and administrative expenses. The Company had sales
of products to Fairchild of $48,000, $28,000 and $68,000, and purchases of
products from Fairchild of $5,522,000, $4,814,000 and $11,744,000, in fiscal
1996, 1995 and 1994, respectively, all in the ordinary course of business. The
Company had sales of products to Fairchild of $115,000 and purchases of products
from Fairchild of $8,017,000 for the nine months ended December 31, 1996.
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COMPANY CONTRACTS WITH FAIRCHILD AND MR. STEINER.
Fairchild is party to a number of contracts with the Company. The Company
has entered into a lease with Fairchild to lease approximately 10,000 square
feet of office space in the Fairchild building for an annual rate of
approximately $170,000 with a 3% escalation per year for a term of ten years
with an option to terminate the lease after five years.
The Company has a letter agreement with Fairchild in which Fairchild
provides tax preparation and consulting services to the Company. This agreement
terminates on September 30, 1997. The annual fee for the tax services rendered
is $98,000. In addition, immediately prior to the 1990 public offering ("IPO"),
Fairchild and the Company entered into a Tax Indemnity Agreement whereby
Fairchild agreed to indemnify the Company from and against any federal, state,
local and foreign income, franchise, withholding and alternative minimum taxes
(including interest, additions to tax and penalties with respect thereto) for
periods ending on or before the closing of the IPO. The Company, in turn, agreed
to pay Fairchild for any tax savings it realized after the IPO as a result of
adjustments to, or utilization of net operating loss or tax credit carryforwards
attributable to, income tax returns for prior periods.
Pursuant to a letter agreement with Fairchild, the Company uses the
services of attorneys who are employed by Fairchild to provide certain legal
services to the Company. This agreement is on a month-to-month basis. The
Company pays Fairchild approximately $8,000 a month for such services. In
addition, as noted above an indirect 41% affiliate of Fairchild provides the
Company with communication services for the office space in the Fairchild
building as well as substantially all subsidiary locations.
As long as Fairchild owns 15% or more of the issued and outstanding shares
of Company Common, it has the unlimited right to require the Company to use its
best efforts pursuant to a Registration Rights Agreement to register under the
Agreement all shares of Company Common beneficially owned by Fairchild at any
time and from time to time, at Fairchild's expense. In addition, Fairchild has
piggyback registration rights that are subject to certain limitations.
Pursuant to the Stock Exchange Agreement, effective March 1, 1996, the
Company acquired from FHC all of the stock of Harco, Inc. (the "Harco
Transaction"). Harco, Inc. is one of the largest distributors of aerospace
self-locking nuts. In exchange for Harco, Inc. stock, the Company issued to FHC
5,386,477 shares of Company Common with market value (at the time of issuance)
of $32,722,848. The Harco Transaction was approved by a special committee of the
Board of Directors, and was approved by the Company's stockholders at a meeting
on March 12, 1996. Fairchild is the Company's largest stockholder.
Mr. Steiner had suggested to the management of the Company that it purchase
a certificate of deposit from a Turkish bank because he believed that by
establishing a relationship with one of the Turkish banks, the Company might be
provided additional opportunities to expand its business in Turkey. Following
Mr. Steiner's suggestion, the Company purchased a $750,000 certificate of
deposit (the "Certificate") from Maramara Bankasi A.S., which was subsequently
forced by governmental action to cease business. Because he had suggested this
investment, Mr. Steiner agreed that he would attempt to effect collection of the
Certificate and would have one of his affiliates purchase the Certificate from
the Company for $750,000, payable over two years. Mr. Steiner's affiliate has
paid the Company $500,000, but has received no payments from the issuer of the
Certificate. In May 1996, the Board of Directors decided that the entire loss on
the Certificate should not be borne by Mr. Steiner's affiliate; therefore, they
agreed to make the last $250,000 payment conditional upon the collection of any
proceeds received by the affiliate from the Certificate. The Turkish bank
subsequently filed for bankruptcy.
On December 20, 1996 Fairchild entered into a Commitment to Exercise Rights
with the Company whereby Fairchild committed to participate in the Rights
Offering on a pro rata basis.
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The Company is a party to several agreements with Fairchild which provide
for various methods of expense sharing related to combined sales and marketing
efforts to obtain customers in foreign countries. As of December 31, 1996, the
Company had contributed less than $125,000 under these agreements. Fairchild and
the Company will share commission income to the extent commissions exceed
expenses. No such commissions have been received to date. In addition, the
Company pays for a chartered aircraft used from time to time for business
related travel. The owner of the chartered aircraft is a company 51% owned by an
immediate family member of Mr. Jeffrey Steiner. Costs for such flights charged
to the Company are comparable to those charged in arm's length transactions
between unaffiliated third parties. Payments by the Company for the use of the
chartered aircraft for fiscal year ended March 31, 1996 were approximately
$116,000 and were approximately $88,000 for the nine months ended December 31,
1996.
On October 17, 1996, the Company borrowed $5.0 million from RHI under an
unsecured demand promissory note ("Promissory Note"). On March 27, 1997, the
Company repaid the Promissory Note to RHI. Interest expense paid pursuant to the
Promissory Note was $156,000.
In addition, on December 20, 1996 the Company entered into a Subordinated
Loan Agreement with RHI (the "Subordinated Loan Agreement") pursuant to which
RHI agreed to lend the Company up to $30.0 million for acquisitions consummated
by the Company. Pursuant to the Subordinated Loan Agreement, the Company agreed
to pay an initial interest rate of 10.0% per annum and agreed to repay the loan
on the earlier of the completion of the proposed rights offering or November 15,
2003. As of the date hereof, the Company has borrowed $28.0 million from RHI, of
which $16 million was used to acquire PB Herndon Company, a specialty fastener
distributor to the aerospace industry, and for additional working capital.
Mr. Jeffrey J. Steiner has a three-year employment agreement with the
Company which became effective September 9, 1992; however, each year the
remainder of the term of Mr. Steiner's employment is extended for an additional
one-year period unless either party gives timely notice of its or his intention
not to extend further the term of the employment agreement. The employment
agreement provides for a base salary of not less than $250,000 per annum and
also provides for participation in the Company's bonus plan, retirement plan,
and other executive benefits. If Mr. Steiner dies during the term or any
extended term of the agreement, his legal representatives will receive monthly
or semimonthly installments of his base salary up to and including the first
anniversary of the last day of the month in which Mr. Steiner's death occurs. In
addition, his legal representatives will receive benefits to which Mr. Steiner
would have been entitled, through the end of the fiscal year in which his death
occurs, under any additional compensation plan. For any fiscal year during which
the term of the agreement is terminated due to Mr. Steiner's disability for more
than nine consecutive months, or shorter periods aggregating nine months during
any twelve-month period, he will receive fifty percent of his base salary for
two years, plus all benefits to which he would have been entitled for the fiscal
year during which termination of his employment has occurred. The agreement also
has certain change in control provisions. Upon the occurrence of a change in
control or trigger event, Mr. Steiner is entitled to a cash payment equal to
2.99 times the total of his then base salary plus bonus in the immediately
preceding fiscal year, less the portion of payments, under stock options vested
solely due to a change in control or trigger event, which is considered a
parachute payment under Section 280G of the Internal Revenue Code of 1986
("Code"). A change in control occurs if an event requires a response to Item
5(f) of Schedule 14A of Regulation 14A under the Securities Exchange Act of 1934
as in effect January 1, 1986. There is a trigger event (i) if any person other
than Jeffrey J. Steiner or an affiliate of Jeffrey J. Steiner is or becomes the
beneficial owner of securities of the Company representing 20% of the then
outstanding voting power for the election of directors ("Voting Power"); (ii) if
during a period of two consecutive fiscal years individuals who at the beginning
of such period constitute the Board of Directors cease to be a majority of the
Board unless the election or nomination of each director
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was approved by a two-thirds vote of the directors then still in office who were
directors at the beginning of the period; (iii) if the Company shall become a
subsidiary of another corporation or shall be reorganized, merged or
consolidated into another corporation (unless it is a reorganization under
Section 368((a)(1)(f) of the Code) unless, in each case, the holders of more
than 80% of the Voting Power will retain similar voting power of such other
corporation's voting securities; (iv) if substantially all the assets of the
Company are sold to another company; (v) if the Company is liquidated; or (vi)
if the Company issues Company Common representing a majority of the Voting Power
of the Company.
STOCK EXCHANGE AGREEMENT
The stockholders are being asked to approve the Stock Exchange Agreement
and the performance by the Company of all transactions and acts on the part of
the Company contemplated under the Stock Exchange Agreement, including the
issuance to RHI or its designee of shares of Company Common. The following is a
summary of certain provisions of the Stock Exchange Agreement, which is attached
as Annex A to this Proxy Statement and is incorporated herein by reference. Such
summary is qualified in its entirety by reference to the Stock Exchange
Agreement.
The Board of Directors reserves the right, pursuant to the Stock Exchange
Agreement, to amend the provisions of the Stock Exchange Agreement, in all
respects, without stockholder approval before or after approval of the
Acquisition Proposal by the Company's stockholders. The Board of Directors also
reserves the right to terminate the Stock Exchange Agreement in accordance with
its terms notwithstanding stockholder approval.
EXCHANGE OF COMPANY COMMON
Pursuant to the terms of the Stock Exchange Agreement, the Company has
agreed, subject to the terms and conditions summarized below, to issue to RHI or
its designee at the first closing of the transactions contemplated by the Stock
Exchange Agreement (the "First Closing") 230,000 shares of Company Common (the
"First Installment Shares") in exchange for all of the issued and outstanding
shares of capital stock of the Bellyloading Companies. RHI and the Company
expect the First Closing to take place shortly after the Special Meeting. The
First Installment Shares will be held in escrow by Harris Trust and Savings Bank
(as Escrow Agent) pending a second closing. The Escrow Agent will have voting
rights with respect to the First Installment Shares but has agreed not to vote
the shares while such shares are held in escrow. Dividends on the First
Installment Shares will be held in escrow and released with the First
Installment Shares to RHI or the Company, as the case may be. A second
installment of shares of Company Common, if any, will be issued to RHI or its
designee at a second closing (the "Second Closing") following the calculation of
the Bellyloading Companies' earnings before taxes ("EBT") for the twelve months
ended March 31, 1999 (the "Second Installment Shares"). The First Installment
Shares will be released from escrow at the Second Closing. The Second
Installment Shares shall be a number of shares of Company Common which aggregate
in value an amount equal to (x) five times the average EBT for the fiscal years
ended March 31, 1998 and 1999 (the "Average EBT"), minus (y) the First
Installment Shares. For this purpose, the Company Common shall have a per share
value equal to the average of the closing sales prices of Company Common on the
fifteen consecutive trading days next preceding the fifth trading day prior to
the First Closing (the "Average Banner Price"). Notwithstanding the above, the
sum of the First Installment Shares and the Second Installment Shares to be
delivered to RHI at the Second Closing will in no event exceed 1.5 million
shares of Company Common (the "Maximum Number of Banner Shares"). The Company
may rescind the transaction and cause RHI to take back all of the shares of the
capital stock of the Bellyloading Companies (the "Rescission Right") if the EBT
for the twelve months ended March 31, 1998 is less than $750,000 (adjusted for
certain fluctuations in the Swedish krona), or if the Average EBT is less than
$500,000
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(adjusted for certain fluctuations in the Swedish krona). If the Company elects
to exercise its Rescission Right, then the First Installment Shares will be
released from escrow and returned to the Company for cancellation and the Second
Installment Shares will not be issued. In addition, if the Company elects to
exercise its Rescission Right, then the parties have agreed as follows: (i) if
there has been a decrease in the Bellyloading Companies' net operating assets
since March 31, 1997 ("NOA Decrease"), then the Company will pay RHI an amount
in cash equal to such NOA Decrease; (ii) if there has been an increase in the
Bellyloading Companies' net operating assets since March 31, 1997 ("NOA
Increase"), then RHI will pay the Company an amount in cash equal to such NOA
Increase; and (iii) RHI will pay the Company an amount in cash equal to 50% of
the Bellyloading Companies' EBT losses, if any. "Net Operating Assets" is
defined in the Stock Exchange Agreement as (a) the sum of (x) any indebtedness
between either of the Bellyloading Companies and Fairchild or any affiliate of
Fairchild (including the Company and the Company's affiliates), and (y) the
Bellyloading Companies' net worth as defined in generally accepted accounting
principles, minus (b) the Bellyloading Companies' goodwill. In addition, if the
Company sells the Bellyloading Companies to a third party before the Second
Closing, the Average EBT will be determined on the basis of an agreed-on
estimate of what the Average EBT would have been for the relevant period (or if
the parties cannot agree, on the estimate of an independent investment banker).
REPRESENTATIONS AND WARRANTIES
The Stock Exchange Agreement contains various customary representations and
warranties of the parties, which survive the First Closing, made as of the date
of the Stock Exchange Agreement and as of the date of the First Closing,
including, among other things: (A) representations from both parties relating to
(i) each party's organization and similar corporate matters, (ii) the
authorization, execution, delivery, performance and enforceability of the Stock
Exchange Agreement and related matters, (iii) the absence of pending or
threatened legal proceedings, (iv) the absence of undisclosed liabilities, (v)
the absence of any governmental or regulatory authorization, consent or approval
required to consummate the Acquisition, other than as disclosed, (vi) the
absence of any (a) conflict with such party's charter or bylaws, (b) violation
of applicable law or (c) conflict with certain contracts, other than as
disclosed, (vii) the acquisition of Company Common or the capital stock of the
Bellyloading Companies, as the case may be, being for such party's own account
and not with a view towards distribution, (viii) the absence of any brokerage,
finder's or investment banker fee due in connection with the Acquisition (except
in the case of the Company to Houlihan Lokey), and (ix) full disclosure to the
other party; (B) representations from RHI relating to (i) the organization of
each Bellyloading Company, (ii) the capital structure of the Bellyloading
Companies, (iii) neither Bellyloading Company having any subsidiaries, (iv)
certain tax matters, (v) matters concerning the benefit plans of the
Bellyloading Companies, (vi) matters concerning intellectual property rights of
the Bellyloading Companies, (vii) the absence of any material adverse changes to
the business, properties, assets, condition (financial or otherwise),
liabilities or operations of the Bellyloading Companies , (viii) certain
environmental matters, (ix) certain matters relating to the preparation of the
audited financial statements of the Bellyloading Companies, (x) matters
concerning the Bellyloading Companies' books and records, (xi) certain matters
concerning contracts of each Bellyloading Company, (xii) certain insurance
matters, (xiii) matters concerning licenses owned by the Bellyloading Companies,
(xiv) certain matters concerning real property leased by either of the
Bellyloading Companies, (xv) matters concerning the Bellyloading Companies'
tangible personal property and investment assets, (xvi) the absence of affiliate
transactions, other than as disclosed, (xvii) matters concerning employees of
the Bellyloading Companies, (xviii) matters relating to substantial customers
and suppliers of the Bellyloading Companies, (xix) matters concerning the
Bellyloading Companies' bank and brokerage accounts, (xx) the absence of any
power of attorney granted by either Bellyloading Company, other than as
disclosed, (xxi) certain matters relating to the Bellyloading Companies'
accounts receivable and (xxii) matters concern-
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ing the Bellyloading Companies' inventory; and (C) representations from the
Company relating to (i) the capital structure of the Company, (ii) the
authorization of the issuance of the shares of Company Common in connection with
the Acquisition and the absence of any restrictions on such shares, (iii) the
documents and reports filed by the Company with the SEC and the accuracy of the
information contained therein, and (iv) the absence of any material adverse
changes to the Company's financial condition, assets, liabilities, reserves,
business or operations taken as a whole.
PRE-CLOSING COVENANTS
RHI has agreed that prior to the First Closing, unless otherwise consented
to by the Company, it will, or will cause each of the Bellyloading Companies to,
among other things: (i) afford the Company and its representatives full access
during normal business hours to its properties, books and records and personnel;
(ii) use commercially reasonable efforts to preserve intact the business and
reputation of each of the Bellyloading Companies; (iii) endeavor to preserve the
goodwill of customers, suppliers, lenders and other persons to whom each of the
Bellyloading Companies sell goods or provide services or with whom they have
significant business relationships; (iv) use commercially reasonable efforts to
maintain its insurance coverages; and (v) comply with all applicable laws and
regulations. Further, RHI has agreed that prior to the First Closing, unless
otherwise agreed by the Company, RHI will not, nor will it permit either
Bellyloading Company to, among other things: (i) amend the certificate of
incorporation or by-laws of either Bellyloading Company; (ii) authorize, issue,
sell or otherwise dispose of any shares of capital stock of or option with
respect to either Bellyloading Company, or modify or amend any right of any
holder of outstanding shares of capital stock of or option with respect to
either Bellyloading Company; (iii) declare, set aside or pay any dividend or
other distribution in respect of the capital stock of either Bellyloading
Company, or redeem, purchase or otherwise acquire any capital stock of or any
option with respect to either Bellyloading Company; (iv) other than as
contemplated by the Stock Exchange Agreement, dispose of or incur any material
liens on the assets or properties of either Bellyloading Company except in the
ordinary course of business consistent with past practice; (v) enter into,
modify, amend, terminate or grant any waiver with respect to any material
contract or license of either Bellyloading Company; (vi) grant any irrevocable
powers of attorney in respect of either Bellyloading Company; (vii) violate,
breach or default in any material respect, or take actions or fail to take
actions that would constitute a material violation under, any contract or
license held by either Bellyloading Company; (viii) incur indebtedness in
respect of either Bellyloading Company in an aggregate principal amount
exceeding $25,000 (net of any indebtedness discharged during such period and
except for goods or services purchased in the ordinary course of business) or
voluntarily purchase, cancel, prepay or otherwise provide for a discharge, in
advance of a scheduled payment date with respect to, or waive any right in
respect of, indebtedness of or owing to either Bellyloading Company; (ix) engage
in any merger or other business combination; (x) make capital expenditures or
commitments for additions to capital assets of either Bellyloading Company in an
aggregate amount exceeding $25,000; (xi) make any change in the lines of
business in which either Bellyloading Company is engaged; or (xii) write off or
write down any assets of either Bellyloading Company other than in the ordinary
course consistent with past practice.
Additionally, except as may be required by law, RHI will refrain from, and
will cause each Bellyloading Company to refrain from, directly or indirectly (i)
making any oral or written representation or promise to any officer, employee or
consultant of either Bellyloading Company concerning any benefit plan, (ii)
making any material increases in the salary, wages or other compensation of any
officer, employee or consultant of either Bellyloading Company, (iii) adopting,
entering into or becoming bound by any benefit plan, employment-related contract
or collective bargaining agreement in respect of either Bellyloading Company, or
amending, modifying or terminating the same, (iv) establishing or modifying any
targets, goals,
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pools or similar provisions under any benefit plan, employment-related contract
or other employee compensation arrangement or establishing or modifying any
salary ranges, increase guidelines or similar provisions in respect of any
benefit plan, employment-related contract or other employee compensation
arrangement, in each instance in respect of either Bellyloading Company, or (v)
terminating, other than for cause, any employees of either Bellyloading Company
or inducing any employees to terminate their employment with either Bellyloading
Company, or transferring any such employees out of either Bellyloading Company.
Furthermore, RHI has agreed that, except for certain contracts with Anders
Helmner and his affiliates and for the intercompany debt between RHI and FSBC,
immediately prior to the First Closing, all indebtedness and other amounts owing
under any contract between RHI, any officer, director or affiliate (other than
the Bellyloading Companies) of RHI, on the one hand, and either Bellyloading
Company on the other hand, will be paid in full, and RHI will terminate and will
cause any such officer, director or affiliate to terminate each contract with
such Bellyloading Company.
RHI has the right to participate in discussions or negotiations with any
person or group which makes an unsolicited bona fide Alternative Proposal (as
defined below) if its Board of Directors determines in good faith that such
action is required for RHI's Board of Directors to comply with its fiduciary
duties to its stockholder imposed by law because such proposal is more favorable
to RHI's stockholder than the Acquisition. However, RHI otherwise agreed prior
to the Closing to refrain from initiating or soliciting any inquiry, proposal or
offer with respect to a merger, consolidation or other business combination
including either of the Bellyloading Companies or any acquisition or similar
transaction involving the purchase of (i) all or any significant portion of the
assets of the Bellyloading Companies taken as a whole, or (ii) all of the
outstanding shares of the Bellyloading Companies (an "Alternative Proposal").
Each of RHI and the Company agreed to (i) obtain all consents, approvals or
actions of, make all filings with and give all notices for governmental or
regulatory authorities or any other person required by such party to consummate
the Acquisition and (ii) take all commercially reasonable steps necessary to
satisfy each condition to the obligations of the other party.
CONDITIONS TO CLOSING
In addition to the approval and adoption of the Acquisition Proposal by the
stockholders of the Company, the obligations of the Company and RHI to
consummate the acquisition of the Bellyloading Companies are subject to the
fulfillment or waiver of certain conditions specified in the Stock Exchange
Agreement, including, among others: (i) the continuing accuracy in all material
respects of the representations and warranties of the other party contained in
the Stock Exchange Agreement; (ii) the performance and compliance in all
material respects of all obligations under the Stock Exchange Agreement required
to be performed by the other party on or prior to the date of Closing; (iii) the
receipt of certain material consents, approvals and waivers from regulators and
third parties; (iv) the execution and delivery of an escrow agreement with
respect to the First Installment Shares; and (v) the absence of any injunction
or other order by any federal, state or foreign court preventing consummation of
the acquisition of the Bellyloading Companies.
In addition to the foregoing conditions, the obligation of the Company to
consummate the acquisition of the Bellyloading Companies is subject to RHI
paying to the Bellyloading Companies an amount equal to the EBT loss, if any,
incurred by the Bellyloading Companies from June 30, 1996 to the date of the
First Closing. Furthermore, the obligation of RHI to consummate the transaction
is subject to the Company's execution and delivery of an amendment to its
current Registration Rights Agreement (as defined below) to include the First
Installment Shares, Second Installment Shares and the Indemnification Shares (as
defined below) and the receipt by the Company of a written fairness opinion of
Houlihan Lokey dated the date of the Proxy Statement to the effect that the
Acquisition Proposal is fair to the stockholders of the Company, other than
Fairchild and RHI, from a financial point of view.
41
<PAGE> 49
INDEMNIFICATION
In addition, each party has agreed to indemnify the other party for any
losses incurred as a result of any breach of a representation or warranty or the
nonfulfillment of any covenant by such party. No amounts of indemnity, however,
will be payable to either party in respect of such losses (a) unless such party
has suffered losses in excess of $75,000, in which event such party will be
entitled to claim indemnity for the full amount of the losses, and (b) unless
upon payment thereof such party has received payments of $5,000,000 or less in
the aggregate. Most of the representations and warranties, covenants and
agreements contained in the Stock Exchange Agreement survive the First Closing
for a period of three years. Notwithstanding the foregoing, the Company may not
make an indemnity claim against RHI at any time after the Company elects to
exercise its Rescission Right.
TAX TREATMENT AND INDEMNIFICATION
In addition to the indemnification referred to above, the Stock Exchange
Agreement also provides that RHI will indemnify the Company for any liabilities
relating to the Bellyloading Companies' taxes for all taxable periods ending on
or before the First Closing.
The Acquisition will be treated as a tax free reorganization under Section
368(a)(1)(B) of the Internal Revenue Code of 1986 as amended (the "Code") for
tax purposes. Pursuant to the Stock Exchange Agreement, if the Internal Revenue
Service ("IRS") makes a final determination that the Acquisition does not
qualify as a tax free reorganization under Section 368(a)(1)(B) of the Code,
then the Company has agreed under certain circumstances to issue additional
shares of Company Common (the "Indemnification Shares") to Fairchild equal in
value to 50% of the federal and state income tax liability incurred by the
Fairchild tax consolidated group as a result of such final determination. For
this purpose, Company Common shall have a per share value equal to the average
of the closing sales prices of Company Common on the fifteen consecutive trading
days next preceding the fifth trading day prior to the issuance of the
Indemnification Shares.
TERMINATION AND TERMINATION FEE
The Stock Exchange Agreement may be terminated at any time before the First
Closing (a) by mutual written consent of the parties; (b) by either party (i) if
the acquisition has not occurred on or before December 31, 1997, provided the
terminating party is not otherwise in breach of its representations, warranties,
covenants or agreements under the Stock Exchange Agreement; and (ii) (A) in the
event of a material breach of the Stock Exchange Agreement by the
non-terminating party if such non-terminating party fails to cure such breach
within ten business days following notification by the terminating party, or (B)
upon notification of the non-terminating party by the terminating party that the
satisfaction of any condition to the terminating party's obligations under the
Stock Exchange Agreement becomes impossible or impracticable with the use of
commercially reasonable efforts if the failure of such condition to be satisfied
is not caused by a breach by the terminating party; and (c) by RHI if, by reason
of an unsolicited bona fide Alternative Proposal, its Board of Directors
determines in good faith that termination of the Stock Exchange Agreement is
required for RHI's Board of Directors to comply with its fiduciary duties to its
stockholder imposed by law.
In the event that any person or group makes an Alternative Proposal and
thereafter RHI terminates the Stock Exchange Agreement, then RHI is required to
pay to the Company on the date of termination, a reasonable termination fee and
the Company's out-of-pocket expenses.
EXPENSES
The Stock Exchange Agreement provides that each party will pay its own
costs and expenses, and RHI will pay the costs and expenses of the Bellyloading
Companies, incurred in connection therewith; provided that if the Stock Exchange
Agreement is terminated as described
42
<PAGE> 50
in the immediately preceding paragraph, any party whose willful breach of the
Stock Exchange Agreement existed at the time of such termination would be
subject to claims for damages and attorney fees by the terminating party in
respect of such breach.
REGISTRATION RIGHTS AGREEMENT
Pursuant to the Stock Exchange Agreement, at the Second Closing, the
Company will enter into an amendment to the Registration Rights Agreement, dated
as of August 2, 1990, as amended on March 12, 1996, between the Company and an
affiliate of Fairchild (the "Registration Rights Agreement") under which certain
registration rights have been granted in respect of the shares of Company Common
now held by RHI and FHC, in order to extend such registration rights to the
First Installment Shares, the Second Installment Shares and the Indemnification
Shares. The Registration Rights Agreement provides that as long as Fairchild
owns 15% or more of the issued and outstanding shares of Company Common, it has
the unlimited right to require the Company to use its best efforts to register
all shares of Company Common beneficially owned by Fairchild at any time and
from time to time, at Fairchild's expense. In addition, Fairchild has piggyback
rights that are subject to certain limitations.
ACCOUNTING TREATMENT
The Company believes the acquisition of the Bellyloading Companies will
occur for accounting purposes if the contingency period expires and the
Rescission Right is not exercised. Following the acquisition of the Bellyloading
Companies by the Company, the income or loss and net assets of the Bellyloading
Companies will be included in the consolidated financial statements of the
Company. The net assets will be reported in the Company's financial statements
at the carrying value of such net assets to RHI since both RHI and the Company
are entities controlled by Fairchild. The unaudited pro forma consolidated
financial information included in this document gives effect to the acquisition
and assumes that the Company's Rescission Right is not exercised. Upon
expiration of such Rescission Right, the assets and liabilities of the
Bellyloading Companies will be consolidated into the Company's consolidated
financial statements. Until the expiration of the Rescission Right, the Company
will record its profits or losses from the Bellyloading Companies based on the
Stock Exchange Agreement.
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
acquisition of the Bellyloading Companies by the Company, and assumes that the
Company's Rescission Right is not exercised and no additional shares other than
the First Installment Shares will be 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. Upon expiration
of such Rescission Right, the assets and liabilities of the Bellyloading
Companies will be consolidated into the Company's consolidated financial
statements. Until expiration of the Rescission Right, the Company will record
profits or losses from managing the Bellyloading Companies based on the Stock
Exchange Agreement. The proposed acquisition price is to issue 230,000 shares of
Company Common to RHI or its designee which shall aggregate an estimated
$2,127,500 in value initially, but subject to certain limitations and
adjustments, in exchange for 100.0% of the outstanding shares of each of the
Bellyloading Companies. 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.
43
<PAGE> 51
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 Series
A Preferred Stock for which Fairchild has committed to subscribe. If the Charter
Amendments are approved by the stockholders, the Company intends to conduct a
rights offering in which it would offer each holder of shares of Company Common
the right to buy shares of the Series A Preferred Stock. See "AMENDMENTS TO THE
COMPANY'S CERTIFICATE OF INCORPORATION." The Unaudited Pro Forma Condensed
Consolidated Financial Information also assumes that the Harco Transaction and
the acquisition of PB Herndon Company ("PB Herndon") which the Company acquired
in January 1997 occurred at the beginning of each fiscal year.
44
<PAGE> 52
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED INCOME STATEMENT
FOR THE NINE MONTHS ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
BANNER PREFERRED
(IN THOUSANDS AEROSPACE, PB STOCK ELIMINATIONS/
EXCEPT PER SHARE DATA) INC. HERNDON OFFERING ADJUSTMENTS
-------- ------- ------ ------
<S> <C> <C> <C> <C>
Net sales.................. $275,369 $11,899 $ -- $ --
Cost of goods sold......... 198,262 7,994 -- --
-------- ------- ------ -----
Gross profit........... 77,107 3,905 -- --
Selling, general and
administrative........... 60,194 2,457 -- --
-------- ------- ------ -----
Operating income
(loss)............... 16,913 1,448 -- --
Interest (income) expense,
net...................... 9,249 520 (1,899)(a) 492 (c)
-------- ------- ------ -----
Income (Loss) from
operations........... 7,664 928 1,899 (492)
Provision (Benefit) for
taxes.................... 3,070 391 760 (a) (197) (c)
-------- ------- ------ -----
Net income (loss)...... 4,594 537 1,139 (295)
Less net income reserved
for preferred stock
dividends................ -- -- (1,597)(b) --
-------- ------- ------ -----
Net income available
for common........... $ 4,594 $ 537 $ (458) $(295)
======== ======= ====== =====
Earnings per common
share.................... $ 0.20
========
Weighted average number of
shares................... 23,406
========
<CAPTION>
PRO
FORMA
PRIOR TO
BELLYLOADING
(IN THOUSANDS COMPANIES' BELLYLOADING ELIMINATIONS/ PRO
EXCEPT PER SHARE DATA) ACQUISITION COMPANIES ADJUSTMENTS FORMA
-------- ------ ------ --------
<S> <C> <C> <C> <C>
Net sales.................. $287,268 $2,928 $ -- $290,196
Cost of goods sold......... 206,256 2,594 -- 208,850
-------- ------ ---- --------
Gross profit........... 81,012 334 -- 81,346
Selling, general and
administrative........... 62,651 1,313 -- 63,964
-------- ------ ---- --------
Operating income
(loss)............... 18,361 (979) -- 17,382
Interest (income) expense,
net...................... 8,362 -- -- 8,362
-------- ------ ---- --------
Income (Loss) from
operations........... 9,999 (979) -- 9,020
Provision (Benefit) for
taxes.................... 4,024 -- -- 4,024
-------- ------ ---- --------
Net income (loss)...... 5,975 (979) -- 4,996
Less net income reserved
for preferred stock
dividends................ (1,597) -- -- (1,597)
-------- ------ ---- --------
Net income available
for common........... $ 4,378 $ (979) $ -- $ 3,399
======== ====== ==== ========
Earnings per common
share.................... $ 0.19 $ 0.14
======== ========
Weighted average number of
shares................... 23,406 230 23,636
======== ==== ========
</TABLE>
The accompanying Notes to Unaudited Pro Forma Condensed Consolidated Financial
Information are an integral part of these Unaudited Pro Forma Condensed
Consolidated Financial Statements
45
<PAGE> 53
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED INCOME STATEMENT
FOR THE FISCAL YEAR ENDED MARCH 31, 1996
<TABLE>
<CAPTION>
PRO FORMA
PRIOR TO
BELLYLOADING
(IN THOUSANDS BANNER PB PREFERRED STOCK ELIMINATIONS/ COMPANIES'
EXCEPT PER SHARE DATA) AEROSPACE, INC. HARCO(D) HERNDON OFFERING ADJUSTMENTS ACQUISITION
--------------- ------- ------- --------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net sales........................ $ 287,880 $28,258 $15,158 -- -- $331,296
Cost of goods sold............... 209,609 18,144 10,775 -- -- 238,528
--------- ------- ------- ------- ----- --------
Gross profit................. 78,271 10,114 4,383 -- -- 92,768
Selling, general and
administrative................. 64,704 6,480 3,107 -- -- 74,271
--------- ------- ------- ------- ----- --------
Operating income (loss)...... 13,567 3,654 1,276 -- -- 18,497
Interest (income) expense, net... 10,972 -- 353 (2,605)(a) 670(c) 9,390
--------- ------- ------- ------- ----- --------
Income (Loss) from
operations................. 2,595 3,654 923 2,605 (670) 9,107
Provision (Benefit) for taxes.... 1,040 1,308 356 1,042(a) (268)(c) 3,478
--------- ------- ------- ------- ----- --------
Net income (loss)............ 1,555 2,346 567 1,563 (402) 5,629
Less net income reserved for
preferred stock dividends...... -- -- -- (2,129)(b) -- (2,129)
--------- ------- ------- ------- ----- --------
Net income available for
common..................... $ 1,555 $ 2,346 $ 567 $ (566) $(402) $ 3,500
========= ======= ======= ======= ===== ========
Earnings per common share........ $ 0.09 $ 0.15
========= ========
Weighted average number of
shares......................... 18,283 5,110(d) 23,393
========= ========
<CAPTION>
(IN THOUSANDS BELLYLOADING ELIMINATIONS/
EXCEPT PER SHARE DATA) COMPANIES ADJUSTMENTS PRO FORMA
------------ ------------- ---------
<S> <C> <C> <C>
Net sales........................ $ 2,247 $ -- $333,543
Cost of goods sold............... 1,911 -- 240,439
-------- ------- --------
Gross profit................. 336 -- 93,104
Selling, general and
administrative................. 1,666 -- 75,937
-------- ------- --------
Operating income (loss)...... (1,330) -- 17,167
Interest (income) expense, net... -- -- 9,390
-------- ------- --------
Income (Loss) from
operations................. (1,330) -- 7,777
Provision (Benefit) for taxes.... -- -- 3,478
-------- ------- --------
Net income (loss)............ (1,330) -- 4,299
Less net income reserved for
preferred stock dividends...... -- -- (2,129)
-------- ------- --------
Net income available for
common..................... $ (1,330) -- $ 2,170
======== ======= ========
Earnings per common share........ $ 0.09
========
Weighted average number of
shares......................... 230 23,623
======= ========
</TABLE>
The accompanying Notes to Unaudited Pro Forma Condensed Consolidated Financial
Information are an integral part of these Unaudited Pro Forma Condensed
Consolidated Financial Statements
46
<PAGE> 54
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1996
ASSETS
<TABLE>
<CAPTION>
PRO FORMA
PRIOR TO
PREFERRED BELLYLOADING
BANNER PB STOCK ELIMINATIONS/ COMPANIES'
(IN THOUSANDS) AEROSPACE, INC. HERNDON OFFERING ADJUSTMENTS ACQUISITION
--------------- ------- --------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Current Assets:
Cash........................................... $ -- $ 124 $ -- $ (50)(g) $ 74
Accounts receivable, net....................... 55,304 1,884 -- -- 57,189
Inventory...................................... 229,214 12,690 -- -- 241,904
Other current assets........................... 15,092 54 -- -- 15,146
-------- ------- ------- --------- --------
Total current assets....................... 299,610 14,752 -- (50) 314,312
-------- ------- ------- --------- --------
Net fixed assets................................... 14,000 361 -- -- 14,361
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) 30,986
Other.......................................... 5,408 441 -- -- 5,849
-------- ------- ------- --------- --------
Total other assets......................... 33,200 441 -- 3,194 36,835
-------- ------- ------- --------- --------
Total assets............................... $ 346,810 $15,554 $ -- $ 3,144 $365,508
======== ======= ======= ========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Total current liabilities.......................... $ 56,481 $11,313 $ -- $ (7,500)(f) $ 60,294
Long-Term Liabilities:
Long-term notes payable........................ 139,549 185 (27,890)(e) 14,700(g) 126,544
Other.......................................... 3,496 -- -- -- 3,496
--------- ------- ------- --------- --------
143,045 185 (27,890) 14,700 130,040
--------- ------- ------- --------- --------
Total liabilities.......................... 199,526 11,498 (27,890) 7,200 190,334
--------- ------- ------- --------- --------
Stockholders' Equity:
Preferred stock, par value $.01................ -- -- 31(e) -- 31
Common stock, par value $1.00.................. 23,410 10 -- (10)(h) 23,410
Paid-in capital................................ 113,194 -- 27,859(e) 7,500(f) 141,053
(7,500)(h)
Retained earnings.............................. 10,680 4,046 -- (4,046)(h) 10,680
Cumulative translation adjustment.............. -- -- -- -- --
--------- ------- ------- --------- --------
Total stockholders' equity................. 147,284 4,056 27,890 (4,056) 175,174
--------- ------- ------- --------- --------
Total liabilities & stockholders' equity... $ 346,810 $15,554 $ -- $ 3,144 $365,508
========= ======= ======= ========= ========
<CAPTION>
BELLYLOADING ELIMINATIONS/
(IN THOUSANDS) COMPANIES ADJUSTMENTS PRO FORMA
------------ ------------- ---------
<S> <C<C> <C> <C>
Current Assets:
Cash........................................... $ 408 $ -- $ 482
Accounts receivable, net....................... 1,043 -- 58,231
Inventory...................................... 1,587 -- 243,491
Other current assets........................... 256 -- 15,402
-------- ------- --------
Total current assets....................... 3,294 -- 317,606
-------- ------- --------
Net fixed assets................................... 223 -- 14,584
Investment in subsidiary........................... -- --
Other Assets:
Cost in excess of net tangible assets of
purchased businesses, net.................... 386 -- 31,372
Other.......................................... 112 -- 5,961
-------- ------- --------
Total other assets......................... 498 -- 37,333
-------- ------- --------
Total assets............................... $ 4,015 $ -- $369,523
======== ======= ========
LIABILI
Total current liabilities.......................... $ 1,931 $ -- $ 62,225
Long-Term Liabilities:
Long-term notes payable........................ -- -- 126,544
Other.......................................... -- -- 3,496
-------- ------- --------
-- -- 130,040
-------- ------- --------
Total liabilities.......................... 1,931 -- 192,265
-------- ------- --------
Stockholders' Equity:
Preferred stock, par value $.01................ -- -- 31
Common stock, par value $1.00.................. 4,978 (4,748) 23,640
Paid-in capital................................ -- 4,748 145,801
Retained earnings.............................. (2,788) -- 7,892
Cumulative translation adjustment.............. (106) -- (106)
-------- ------- --------
Total stockholders' equity................. 2,084 -- 177,258
-------- ------- --------
Total liabilities & stockholders' equity... $ 4,015 $ -- $369,523
======== ======= ========
</TABLE>
The accompanying Notes to Unaudited Pro Forma Condensed Consolidated Financial
Information are an integral part of these Unaudited Pro Forma Condensed
Consolidated Financial Statements
47
<PAGE> 55
(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) These 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
Series A 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 and $12,000 was for working capital.
(d) Harco was acquired by the Company effective March 1, 1996. 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 Company Common. For every 4.5 shares of
Company Common Fairchild owns, Fairchild has one Right which it may
exercise for $9.20. The exercise of one Right entitles the holder thereof
to one share of Series A Preferred Stock. The total number of shares of
Series A Preferred Stock issued to Fairchild as a result of exercising all
of its Rights would be 3,086 at a par value of $.01. The total proceeds
would be $28,390, less the estimated expenses of $500.
(f) The adjustments of $7,500 to total current liabilities and capital surplus
are to record the paydown of existing debt of PB Herndon as a result of
capital contributions from its prior shareholders.
(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.
48
<PAGE> 56
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material Federal income tax consequences
to the Company and its current stockholders as a consequence of the Acquisition
Proposal. This discussion is based upon the laws, regulations, and reported
rulings and decisions in effect at the time of this Proxy Statement (or, in the
case of certain regulations, proposed as of such date), all of which are subject
to change, retroactively or prospectively, and to possibly differing
interpretations.
No ruling on the Federal income tax consequences of the Acquisition
Proposal has been or will be requested from the Internal Revenue Service or from
any other tax authority. This discussion does not address any foreign, state, or
local income or other tax consequences of the Acquisition Proposal.
ACCORDINGLY, EACH CURRENT STOCKHOLDER IS STRONGLY URGED TO CONSULT SUCH
CURRENT STOCKHOLDER'S OWN TAX ADVISOR REGARDING ANY SPECIFIC TAX CONSEQUENCES OF
THE ACQUISITION PROPOSAL, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN, INCOME
AND OTHER TAX CONSEQUENCES OF THE ACQUISITION PROPOSAL AND POTENTIAL CHANGES IN
APPLICABLE TAX LAWS.
FEDERAL INCOME TAX CONSEQUENCES FOR THE COMPANY
The Company will not recognize any gain or loss as a result of the
Acquisition Proposal. The Federal income tax consequences of the Acquisition
Proposal for the Company will depend on whether, for Federal income tax
purposes, the Acquisition Proposal is treated as a reorganization under section
368(a)(1)(B) (a "Type B Reorganization") of the Internal Revenue Code of 1986,
as amended, and the rules and regulations promulgated thereunder (the "Code").
The Company and RHI have agreed, for Federal income tax purposes, to treat this
transaction as a Type B Reorganization.
If the Acquisition Proposal qualifies as a Type B Reorganization, the
Company will not recognize any gain or loss as a result of the Acquisition
Proposal, and the tax basis of the shares of the Bellyloading Companies in the
hands of the Company will be the same as the tax basis of such shares of stock
in the hands of RHI immediately prior to completion of the Acquisition Proposal.
If the Acquisition Proposal does not qualify as a Type B Reorganization, it
is likely to be treated as a taxable exchange of shares of Company Common for
the Bellyloading Companies' capital stock. Under such treatment, the Company's
tax basis in the Bellyloading Companies' capital stock would be the fair market
value of the acquisition consideration (the value of Company Common to be issued
to RHI or its designee), and the holding period of the Bellyloading Companies'
capital stock in the hands of the Company would begin on the date of the
Acquisition Proposal.
FEDERAL INCOME TAX CONSEQUENCES FOR THE CURRENT STOCKHOLDERS OTHER THAN
FAIRCHILD AND RHI
Whether or not the Acquisition Proposal qualifies as a Type B
Reorganization, the current stockholders of the Company, other than Fairchild
and RHI, will not recognize any gain or loss as a result of the Acquisition
Proposal.
49
<PAGE> 57
AMENDMENTS TO THE COMPANY'S CERTIFICATE OF INCORPORATION
(PROPOSALS NO. 2, 3 AND 4)
GENERAL
The Company's long-term strategies include growth through acquisitions
and/or strategic alliances. In order to provide management with flexibility to
pursue acquisition opportunities, it is proposed that the Company increase its
authorized capital in order to increase the authorized Company Common and to
create a class of preferred stock that would be issuable in series having terms
designated by the Board of Directors. The Company intends to conduct a rights
offering in which it would issue to each holder of Company Common a
non-transferrable right (a "Right") to subscribe for shares of a first series of
the newly authorized preferred stock (the "Rights Offering"). The net proceeds
from the Rights Offering will be used to reduce outstanding debt. The Company
intends to borrow funds under its revolving credit facility in the future for
working capital purposes and to finance acquisitions. In order to complete the
Rights Offering the Company must increase its authorized capital. Accordingly,
stockholders are being asked to approve the following amendments to Article
FOURTH of the Company's Certificate of Incorporation: (i) increase the total
number of shares of capital stock which the Company has the authority to issue
from 30,000,000 to 60,000,000; (ii) increase the number of authorized shares of
Company Common from 30,000,000 to 50,000,000; and (iii) to create a new class of
Preferred Stock, par value $.01 per share, and to give the Company the authority
to issue 10,000,000 shares of such Preferred Stock.
TERMS OF THE RIGHTS OFFERING
Each holder of Company Common of record on May 23, 1997, will receive one
Right for every 4.5 shares of Company Common held. 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 will be entitled to
purchase one share of Series A Preferred Stock (as defined below) for each Right
held at a subscription price of $9.20 per share of Series A Preferred Stock. In
the event all holders of Company Common (approximately 23 million shares
outstanding not including the issuance of the shares of Company Common pursuant
to the Acquisition Proposal) were to exercise all of the Rights in the Rights
Offering, the Company would issue approximately 5.2 million shares of Series A
Preferred Stock, for an aggregate consideration of approximately $48 million.
The Rights expire on June 18, 1997. Fairchild has signed a commitment to
subscribe for its pro rata share of Series A Preferred Stock. As a result,
Fairchild is expected to purchase approximately 3 million shares of Series A
Preferred Stock at an aggregate price of approximately $28 million. The Company
has no current intention to list the Series A Preferred Stock on any securities
exchange. If the Charter Amendments are approved, there will be sufficient
shares of preferred stock authorized in order to permit the Company's Board of
Directors to create additional series of preferred stock in connection with
future acquisitions and for other corporate purposes.
TERMS OF THE NEW SERIES OF PREFERRED STOCK
The Company intends to create a new series of preferred stock entitled
"Series A Convertible Paid-in-Kind Preferred Stock" ("Series A Preferred Stock")
and the number of shares initially constituting such series shall be 5,204,747
shares. The following is a summary of certain provisions of the Certificate of
Designation for the Series A Preferred Stock, which is attached as Annex D to
this Proxy Statement and is incorporated by reference. Such summary is qualified
in its entirety by reference to the Certificate of Designations.
The Series A Preferred Stock will accrue semi-annual cumulative dividends
at a 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 Series
A Preferred Stock and not in cash except
50
<PAGE> 58
for fractional shares. 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. 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 thereto, no dividend or other distribution
shall be paid to the holders of Company Common and no shares of Company Common
shall be purchased or redeemed by the Company. The Series A Preferred Stock will
have no voting rights except as required by law. The Series A Preferred Stock
will be convertible into shares of Company Common at any time at the election of
the holder. To the extent not previously converted, any share of Series A
Preferred Stock will automatically be converted into shares of Company Common on
the fifth anniversary of the date of initial issuance of the Series A Preferred
Stock. In addition, in the event the Company is 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 Company Common 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, immediately prior to the consummation of
such transaction the Series A Preferred Stock will automatically be converted
into Company Common. The conversion price per share of Company Common in the
case of either an optional or mandatory conversion will be $9.20, resulting
initially in a one to one share conversion. The Series A Preferred Stock will
not be redeemable. A registration statement relating to the shares of Series A
Preferred Stock and Company Common underlying the Rights has been filed with the
Securities and Exchange Commission but has not yet become effective. These
securities may not be sold nor may offers to buy be accepted prior to the time
the registration statement becomes effective. This Proxy Statement shall not
constitute an offer to sell or the solicitation of an offer to buy nor shall
there be any sale of these securities in any state in which such offer,
solicitation or sale would be unlawful prior to registration or qualification
under the securities laws of any such state.
REASONS FOR THE CHARTER AMENDMENTS
In the summer of 1994, the Company retained the Canaan Group to assist
management in developing data for a strategic plan. In December 1994, the Cannan
Group presented its results to the Board of Directors. The Canaan Group study
concluded, among other things, that as the aerospace industry continues to
change, it would place increasing value on large suppliers (such as the Company)
with a strong corporate identity, product and technical expertise, and with a
world wide presence. The study concluded that the successful suppliers of the
future would not be small specialty suppliers or those who offered only the
traditional customer/suppliers relationship. See "ACQUISITION
PROPOSAL -- Background of and Reasons for the Acquisition Proposal."
As a result of the Canaan Group study, the Company looked primarily at
strategies for both improving and expanding its existing operations in the
aerospace business and at the possibility of acquiring companies which could
help the Company in implementing its strategy. One of the Company's long-term
strategies is to grow both internally through increased market share at each
subsidiary and externally by acquisitions and/or strategic alliances.
In connection with this business strategy, the Company currently is
examining several acquisition prospects which would require substantial
additional capital to complete. The Company intends to raise approximately $30
million to $50 million of capital to finance these acquisitions through the
Rights Offering.
The Certificate of Incorporation currently authorizes the issuance of 30
million shares of Company Common. As of December 31, 1996, 23,409,610 shares of
Company Common were outstanding, no shares of Company Common were held in
treasury and 2,193,867 shares of Company Common were reserved for issuance upon
the exercise of options granted and
51
<PAGE> 59
available for future grants under the Company's existing stock option plans. If
the Charter Amendments are approved, a balance of 24,396,523 authorized shares
of Company Common will be available to the Board of Directors for future
issuances and 7,521,088 authorized shares of Company Common will be reserved for
issuance for the conversion of the Series A Preferred Stock.
The Board of Directors has adopted amendments to Article FOURTH of the
Certificate of Incorporation that, subject to stockholder approval, increase the
total number of shares of capital stock which the Company has the authority to
issue to 60,000,000, increase the total number of authorized shares of Company
Common to 50,000,000 and create a new class of the
preferred stock and gives the Company the authority to issue 10,000,000 shares
of such preferred stock. The Board of Directors believes that the authorization
of such additional shares of Company Common and the new preferred stock is
appropriate in order to provide added flexibility for future corporate purposes,
which may include capital and financing needs, business acquisitions and other
general corporate purposes. The increase in the number of authorized shares of
Company Common and the creation of the preferred stock will permit the Board of
Directors to approve the issuance of additional shares of Company Common or
preferred stock if warranted without the need for further action by stockholders
to authorize such shares, subject to present or future requirements of any stock
exchange upon which the Company Common may be listed and applicable law.
Currently, the rules of the NYSE require stockholder approval by a majority of
the total votes cast in person or by proxy prior to the issuance of designated
securities by an issuer with securities quoted on the NYSE (1) where the
issuance would result in a change of control of the issuer, (2) in connection
with the acquisition of the stock or assets of another company if any affiliate
of the issuer has certain interlocking interests with the company to be acquired
and where the issuer issues more than 1% of its currently outstanding shares or
(3) in connection with a transaction, other than a public offering for cash,
involving the sale or issuance of more than 20% of the common stock or voting
power outstanding before the issuance. The Board of Directors believes that the
availability of such additional shares of Company Common and of the shares of
preferred stock would enable the Company to act promptly to take advantage of
other acquisition opportunities whenever they may arise. The form of the Charter
Amendments, setting forth the terms thereof, is attached as Annex C to this
Proxy Statement and is incorporated by reference. The foregoing summary is
qualified in its entirety by reference to such Charter Amendments.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE COMPANY'S
STOCKHOLDERS VOTE FOR APPROVAL OF THE CHARTER AMENDMENTS.
EFFECTS OF THE CHARTER AMENDMENTS UPON RIGHTS OF EXISTING HOLDERS OF COMPANY
COMMON
The Charter Amendments would not change the terms and conditions of any
shares of Company Common. Each certificate representing shares of Company Common
outstanding immediately prior to the effective date of the Charter Amendments,
if they are adopted by the stockholders at the Special Meeting, would remain
outstanding and represent the same number of shares of Company Common as before
such effective date. Since the issuance of shares of Series A Preferred Stock
pursuant to the Rights Offering will be made on a pro-rata basis to all
stockholders, dilution of ownership interest will not occur unless a stockholder
does not participate in the Rights Offering. In addition, dilution of voting
power of existing stockholders will not occur until stockholders convert their
shares of Series A Preferred Stock to Company Common. Completion of the Rights
Offering will not dilute primary earnings per share since the Series A Preferred
Stock would not be treated as a common stock equivalent. Based on the December
31, 1996 pro forma financial information, fully dilutive earnings per share is
considered to be the same as the primary earnings per share, since the effect of
certain potentially dilutive securities would not be material. Primary earnings
per share of Company Common will be computed by dividing net income (less
preferred dividends) by the weighted
52
<PAGE> 60
average number of common shares and common share equivalents outstanding during
the period. On a fully-diluted basis, both net earnings and shares outstanding
will be adjusted to assume the conversion of the Series A Preferred Stock at the
date of issuance.
ADDITIONAL CONSIDERATIONS
While each of the Special Committee and the Board of Directors is of the
opinion that each of the Charter Amendments is in the best interests of the
Company and its stockholders, and recommends stockholder approval, stockholders
should consider the following factors when evaluating the Charter Amendments
proposals:
Absence of a Public Market for the shares of Series A Preferred
Stock. There is no existing market for the Series A Preferred Stock and there
can be no assurance as to the liquidity of any markets that may develop for the
Series A Preferred Stock, the ability of holders of Series A Preferred Stock to
sell their shares of Series A Preferred Stock or the price at which such holders
would be able to sell their Series A Preferred Stock. The Company does not
intend to apply for listing of the Series A Preferred Stock on any securities
exchange.
Fairchild's Increased Ownership. Assuming the Maximum Number of Banner
Shares is subsequently issued to RHI under the Acquisition Proposal, and
assuming Fairchild is the only stockholder that participates in the Rights
Offering, Fairchild (through RHI and FHC) will control approximately 66.0% of
the voting power of the outstanding Company Common.
INCORPORATION OF DOCUMENTS BY REFERENCE
The following documents heretofore filed by the Company with the Securities
and Exchange Commission are incorporated into this Proxy Statement by reference:
1. The Company's Annual Report on Form 10-K for the year ended March
31, 1996;
2. The Company's Quarterly Reports on Form 10-Q for the quarters ended
June 30, 1996, September 30, 1996 and December 31, 1996; and
3. The Company's Current Reports on Form 8-K, filed February 27, 1996,
March 26, 1996 and January 24, 1997.
All reports and other documents filed by the Company with the SEC pursuant
to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date hereof
and prior to the date of the Special Meeting of the Stockholders shall be deemed
to be incorporated by reference into this Proxy Statement and to be a part of
this Proxy Statement from the dates of filing of such reports and other
documents. Any statement contained in a document incorporated or deemed
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Proxy Statement to the extent that a statement contained
herein, or in any other subsequently filed document which also is incorporated
or deemed to be incorporated by reference herein, modifies or supersedes such
statement. Any statement so modified or superseded shall not be deemed, except
as so modified or superseded, to constitute a part of this Proxy Statement.
The Company will provide without charge to any person to whom this Proxy
Statement is delivered, on the written or oral request of such person, a copy of
any or all of the foregoing documents incorporated by reference (other than
exhibits not specifically incorporated by reference into the texts of such
documents). Request for such documents should be directed to: Eugene Juris,
Secretary, Banner Aerospace, Inc., P.O. Box 20260, Washington, D.C. 20041, (703)
478-5790.
------------------
53
<PAGE> 61
OTHER MATTERS
As of the date of this Proxy Statement, the Company knows of no business
that will be presented for consideration at the Special Meeting other than that
which has been referred to above. As to other business, if any, that may come
before the Special Meeting, it is intended that proxies in the enclosed form
will be voted in accordance with the judgment of the proxy holder.
PROPOSALS FOR 1997 ANNUAL MEETING
The Company anticipates that the 1997 Annual Meeting of Stockholders will
be held on or about September 12, 1997. A stockholder who intends to present a
proposal at that Annual Meeting must have submitted the written text of the
proposal so that it is received by the Company at its principal executive
offices no later than March 28, 1997, in order for the proposal to be considered
for inclusion in the Company's Proxy Statement for that meeting.
INDEPENDENT AUDITORS
The Board of Directors has appointed Arthur Andersen LLP as the Company's
independent auditors for the fiscal year ending March 31, 1997. Arthur Andersen
LLP has served as the Company's independent auditors for more than the past 20
years. Representatives of Arthur Andersen LLP will not attend the Special
Meeting.
By Order of the Board of Directors,
/s/ EUGENE W. JURIS
---------------------
Eugene W. Juris
Secretary
May 13, 1997
54
<PAGE> 62
INDEX TO FINANCIAL STATEMENTS
FAIRCHILD SCANDINAVIAN BELLYLOADING COMPANY AB
BELLYLOADING COMPANIES COMBINED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Public Accountants............................................. F-2
Combined Fairchild Scandinavian Bellyloading Company AB and Scandinavian Bellyloading
International, Inc. Balance Sheets as of December 29, 1996 (unaudited), June 30,
1996 (audited) and June 30, 1995 (unaudited)....................................... F-3
Combined Fairchild Scandinavian Bellyloading Company AB and Scandinavian Bellyloading
International, Inc. Statements of Loss for the six months ended December 29, 1996
(unaudited) and December 31, 1995 (unaudited), the year ended June 30, 1996
(audited) and the ten months ended June 30, 1995 (unaudited)....................... F-4
Combined Fairchild Scandinavian Bellyloading Company AB and Scandinavian Bellyloading
International, Inc. Statements of Shareholder's Equity for the ten months ended
June 30, 1995 (unaudited), the year ended June 30, 1996 (audited) and the six
months ended December 29, 1996 (unaudited)......................................... F-5
Combined Fairchild Scandinavian Bellyloading Company AB and Scandinavian Bellyloading
International, Inc. Statements of Cash Flows for the six months ended December 29,
1996 (unaudited) and December 31, 1995 (unaudited), the year ended June 30, 1996
(audited) and the ten months ended June 30, 1995 (unaudited)....................... F-6
Notes to Financial Statements........................................................ F-7
</TABLE>
F-1
<PAGE> 63
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Fairchild Scandinavian Bellyloading Company AB and Scandinavian Bellyloading
International, Inc.:
We have audited the accompanying combined balance sheet of Fairchild
Scandinavian Bellyloading Company AB (a Swedish corporation) and Scandinavian
Bellyloading International, Inc. (a California corporation), each an indirect
wholly owned subsidiary of The Fairchild Corporation, as of June 30, 1996, and
the related combined statement of loss, shareholder's equity and cash flows for
the year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Fairchild
Scandinavian Bellyloading Company AB and Scandinavian Bellyloading
International, Inc., as of June 30, 1996, and the combined results of their
operations and their cash flows for the year then ended, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Washington, D.C.,
February 10, 1997
F-2
<PAGE> 64
FAIRCHILD SCANDINAVIAN BELLYLOADING COMPANY AB AND
SCANDINAVIAN BELLYLOADING INTERNATIONAL, INC.
COMBINED BALANCE SHEETS
AS OF DECEMBER 29, 1996 (UNAUDITED),
JUNE 30, 1996 AND JUNE 30, 1995 (UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 29, JUNE 30, JUNE 30,
1996 1996 1995
------------ -------- ------------
(IN THOUSANDS) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash............................................... $ 408 $ 80 $ 434
Accounts receivable................................ 1,043 227 457
Inventories-
Finished goods................................ 683 -- --
Work-in-process............................... 369 102 438
Raw materials................................. 535 389 --
------------ -------- -----------
1,587 491 438
Prepaid expenses................................... 256 48 157
------------ -------- -----------
Total current assets.......................... 3,294 846 1,486
Property and equipment, less accumulated depreciation of
$119, $94 and $28, respectively....................... 223 238 213
Goodwill................................................ 386 398 423
Other assets............................................ 112 124 126
------------ -------- -----------
Total assets.................................. $ 4,015 $ 1,606 $2,248
============ ======== ===========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accounts payable................................... $ 1,434 $ 238 $ 830
Other current liabilities..................... 497 439 422
------------ -------- -----------
Total current liabilities..................... 1,931 677 1,252
Shareholder's equity:
Parent company investment.......................... $ 4,978 $ 3,260 1,925
Accumulated deficit................................ (2,788) (2,259) (929)
------------ -------- -----------
Cumulative translation adjustment.................. (106) (72) --
------------ -------- -----------
Total shareholder's equity.................... 2,084 929 996
------------ -------- -----------
Total liabilities and shareholder's equity.... $ 4,015 $ 1,606 $2,248
============ ======== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE> 65
FAIRCHILD SCANDINAVIAN BELLYLOADING COMPANY AB
AND SCANDINAVIAN BELLYLOADING INTERNATIONAL, INC.
COMBINED STATEMENTS OF LOSS
FOR THE SIX MONTHS ENDED DECEMBER 29, 1996
(UNAUDITED) AND DECEMBER 31, 1995 (UNAUDITED),
THE FISCAL YEAR ENDED JUNE 30, 1996 AND THE TEN
MONTHS ENDED JUNE 30, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 29, DECEMBER 31, JUNE 30, JUNE 30,
1996 1995 1996 1995
------------ ------------ -------- ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
(IN THOUSANDS) (6 MOS.) (6 MOS.) (10 MOS.)
<S> <C> <C> <C> <C>
Net sales................................. $2,442 $1,149 $ 2,247 $1,697
Cost of sales........................ 2,138 925 1,911 1,597
Selling, general and administrative
expenses........................... 833 790 1,666 1,029
---------- ---------- --------- ----------
Operating loss............................ (529) (566) (1,330) (929)
Provision for income taxes........... -- -- -- --
---------- ---------- --------- ----------
Net loss.................................. $ (529) $ (566) $ (1,330) $ (929)
========== ========== ========= ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE> 66
FAIRCHILD SCANDINAVIAN BELLYLOADING COMPANY AB
AND SCANDINAVIAN BELLYLOADING INTERNATIONAL, INC.
COMBINED STATEMENTS OF SHAREHOLDER'S EQUITY
FOR THE TEN MONTHS ENDED JUNE 30, 1995 (UNAUDITED),
THE YEAR ENDED JUNE 30, 1996 AND THE SIX
MONTHS ENDED DECEMBER 29, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Balance, September 1, 1994 (unaudited)............................................ $ 500
Net change in parent company investment and advances......................... 1,425
Net loss..................................................................... (929)
--------
Balance, June 30, 1995 (unaudited)................................................ $ 996
Net change in parent company investment and advances......................... 1,335
Net loss..................................................................... (1,330)
Change in accumulated translation adjustment................................. (72)
--------
Balance, June 30, 1996............................................................ 929
Net change in parent company investment and advances......................... 1,718
Net loss..................................................................... (529)
Change in accumulated translation adjustment................................. (34)
--------
Balance, December 29, 1996 (unaudited)............................................ $ 2,084
========
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE> 67
FAIRCHILD SCANDINAVIAN BELLYLOADING COMPANY AB
AND SCANDINAVIAN BELLYLOADING INTERNATIONAL, INC.
COMBINED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED DECEMBER 29, 1996 (UNAUDITED)
AND DECEMBER 31, 1995 (UNAUDITED)
AND THE YEAR ENDED JUNE 30, 1996 AND THE
TEN MONTHS ENDED JUNE 30, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 29, DECEMBER 31, JUNE 30, JUNE 30,
1996 1995 1996 1995
------------ ------------ -------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
(IN THOUSANDS) (6 MOS.) (6 MOS.) (10 MOS.)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................... $ (529) $ (566) $(1,330) $ (929)
Adjustments to reconcile net loss to
net cash used for operating
activities --
Depreciation....................... 49 39 91 61
Changes in assets and liabilities:
Accounts receivable........... (816) 23 230 (429)
Inventory..................... (1,096) (390) (53) (188)
Prepaid expenses.............. (208) 45 109 (124)
Other assets.................. -- 1 2 49
Accounts payable.............. 1,196 (347) (592) 571
Other current liabilities and
accrued expenses............ 58 48 17 82
------------ ------------ -------- -----------
Net cash used for operating
activities........................... (1,346) (1,147) (1,526) (907)
------------ ------------ -------- -----------
Cash flows from investing activities:
Purchases of property and equipment......... (10) (47) (56) (84)
------------ ------------ -------- -----------
Cash flows from financing activities:
Capital received from parent company, net... 1,718 800 1,335 1,425
------------ ------------ -------- -----------
Effects of foreign currency..................... (34) 30 (107) --
------------ ------------ -------- -----------
Net increase (decrease) in cash................. 328 (364) (354) 434
------------ ------------ -------- -----------
Cash, beginning of period....................... 80 434 434 0
------------ ------------ -------- -----------
Cash, end of period............................. $ 408 $ 70 $ 80 $ 434
=========== =========== ======= ===========
Supplemental disclosures of cash flow
information:
Cash paid during the year for
Interest............................... $ -- $ 8 $ 19 $ 7
Income taxes........................... $ -- $ -- $ -- $ --
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE> 68
FAIRCHILD SCANDINAVIAN BELLYLOADING COMPANY AB
AND SCANDINAVIAN BELLYLOADING INTERNATIONAL, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
1. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES:
Operations
Fairchild Scandinavian Bellyloading Company AB ("FSBC"), a Swedish
corporation and wholly owned subsidiary of RHI Holdings, Inc. ("RHI"),
manufactures a loading system which is installed in the cargo area of large
commercial aircraft. The system employs an electrically driven continuous carpet
that positions baggage and cargo in the lower compartments of aircraft when
loading and unloading. Scandinavian Bellyloading International, Inc. is engaged
in sales and marketing of FSBC's cargo loading systems in the United States. Due
to the acquisition discussed below, these companies have been combined for
financial reporting purposes. Together, Fairchild Scandinavian Bellyloading
Company AB and Scandinavian Bellyloading International, Inc. are referred to
herein as the "Bellyloading Companies".
Stock Exchange Agreement
In February 1997, RHI (which is wholly owned by The Fairchild Corporation)
agreed to transfer the Bellyloading Companies to Banner Aerospace, Inc.
("Banner"), a majority owned subsidiary of RHI, in exchange for 230,000 shares
of Banner common stock to be held in escrow. Banner will maintain a right to
rescind its purchase of the Bellyloading Companies if the Bellyloading Companies
fail to meet certain earnings before tax ("EBT") targets established in the
Stock Exchange Agreement dated as of May 12, 1997 (the "Agreement"). Pursuant to
the Agreement, if the Bellyloading Companies fail to generate EBT of at least
$750,000 (adjusted for certain fluctuations in the Swedish krona) for the twelve
months ended March 31, 1998 or an average EBT of at least $500,000 (adjusted for
certain fluctuations in the Swedish krona) for the fiscal years ended March 31,
1998 and 1999, then Banner will have the right, but not the obligation, to
return the Bellyloading Companies to RHI. If Banner does not exercise its right
to rescind, Banner will release the 230,000 shares in escrow to RHI or its
designee and will provide additional shares of Banner Common Stock to RHI based
on a contingent purchase price calculation stated in the Agreement. In no event
will the total shares provided to RHI exceed 1,500,000. In addition, if the
Company elects to exercise its right to rescind then the parties have agreed as
follows: (i) if there has been a decrease in the Bellyloading Companies' net
operating assets since March 31, 1997 ("NOA Decrease"), then Banner will pay RHI
an amount in cash equal to such NOA Decrease; (ii) if there has been an increase
in the Bellyloading Companies' net operating assets since March 31, 1997 ("NOA
Increase"), then RHI will pay Banner an amount in cash equal to such NOA
Increase; and (iii) RHI will pay Banner an amount in cash equal to 50% of the
Bellyloading Companies' EBT losses, if any.
Banner believes the acquisition of the Bellyloading Companies will occur if
the contingency period expires and the Rescission Right is not exercised. As
both the Bellyloading Companies and Banner are under common control of RHI, the
transfer of the net assets of the Bellyloading Companies to Banner will be
recorded at book value. The amount of the Second Installment Shares issued will
cause an increase in the shares outstanding for Banner and will dilute Banner's
earnings per share, but will not otherwise impact the Banner Financial
Statements or impact the Bellyloading Companies' Financial Statements. Until the
expiration of the Rescission Right, Banner will report its profits or losses
from managing the Bellyloading Companies based on the Stock Exchange Agreement.
Risks and Other Factors
The Bellyloading Companies rely on RHI for financial support, including
funding for working capital shortfalls. Failure to continue such financial
support by RHI or Banner would have a significant and immediate adverse impact
on the operations of the Bellyloading Compa-
F-7
<PAGE> 69
1. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES: -- (CONTINUED)
nies. The Bellyloading Companies's ability to continue as a going concern is
dependent on the sales growth and continued support of RHI or Banner. The parent
company, RHI, and the future parent company, Banner, intend to continue the
support of the Bellyloading Companies' operations.
Fiscal Year
The fiscal year of the Bellyloading Companies ends on June 30. All
references herein to "1996" mean the full fiscal year ended June 30, 1996. All
references to "1995" mean the ten-month period ended June 30, 1995, as FSBC was
acquired in September 1994.
Inventory
Inventory is stated at the lower of cost or market. Market is based on the
lower of replacement cost or estimated net realizable value. Inventory is
accounted for primarily on a first-in-first-out basis.
Goodwill
Goodwill relates to the acquisition of the Bellyloading Companies by RHI in
September 1994. The excess of cost of the purchased business over the fair value
of the net assets acquired at the acquisition date is being amortized on a
straight-line basis over 40 years.
Property and Equipment
Property and equipment are stated at cost and are depreciated on the
straight-line basis over their estimated useful lives of six to ten years.
Income Taxes
The Bellyloading Companies account for income taxes in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for
Income Taxes." Under SFAS No. 109, deferred tax assets and liabilities are
computed based on the difference between the financial statement and tax basis
of assets and liabilities using the enacted marginal tax rate in effect for the
year in which the differences are expected to reverse. Deferred income taxes are
recognized for certain expense items that are reported for tax purposes in
different years than for financial reporting purposes. Deferred income taxes
were not significant.
There was no provision or benefit for current or deferred income taxes from
continuing operations due to the historical losses of continuing operations.
The fiscal 1996 income tax provision for continuing operations differs from
that computed using the statutory Federal income tax rate of 35% for the
following reasons:
<TABLE>
<S> <C>
Computed statutory amount.......................................... $ (466)
Effect of foreign tax rates........................................ 94
Effect of valuation allowance for net operating losses............. 372
------
$ --
======
</TABLE>
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Significant estimates for the Bellyloading Companies include
estimates to complete contracts and estimates for inventory and bad debt
reserves. Actual results could differ from those estimates.
F-8
<PAGE> 70
1. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES: -- (CONTINUED)
Impairment of Long-Lived Assets
The Bellyloading Companies review their long-lived assets, including
property, plant and equipment, identifiable intangibles and goodwill, for
impairment whenever events or changes in circumstances indicate that the
carrying amount of the assets may not be fully recoverable. To determine
recoverability of its long-lived assets, the Bellyloading Companies evaluate the
probability that future undiscounted net cash flows, without interest charges,
will be less than the carrying amount of the assets. Impairment is measured at
fair value.
Foreign Currency Translation
Assets and liabilities are translated into U.S. dollars using current
exchange rates and the effect of translation directly impacts equity.
Interim Financial Statements
The accompanying interim combined financial statements, as of December 29,
1996 and for the six months ended December 31, 1995 and December 29, 1996 and
for the ten months ended June 30, 1995, of the Bellyloading Companies have been
prepared by the Bellyloading Companies without audit. Certain information and
footnote disclosures normally included in financial statements presented in
accordance with generally accepted accounting principles have been omitted from
the accompanying interim statements. The Bellyloading Companies believe the
disclosures made are adequate to make the information presented not misleading.
In the opinion of the Bellyloading Companies, the accompanying unaudited
interim consolidated financial statements reflect all adjustments (which include
only normal recurring adjustments) necessary to present fairly the financial
position of the Bellyloading Companies as of December 29, 1996 and the results
of their operations and cash flows for the six months ended December 29, 1996
and December 31, 1995.
Interim results are not necessarily indicative of annual performance
because of the impact of seasonal variations.
2. OPERATING LEASES:
Future minimum lease payments under operating leases at June 30, 1996 are
as follows.
<TABLE>
<S> <C>
1997............................................................. $ 77,000
1998............................................................. 77,000
1999............................................................. 38,000
---------
$ 192,000
=========
</TABLE>
Rent expense for fiscal 1996 was approximately $77,000.
3. COMMITMENTS AND CONTINGENCIES:
Pursuant to RHI's acquisition of FSBC in September 1994, FSBC entered into
a profit sharing agreement with a company wholly-owned by the seller. This
acquisition agreement requires FSBC to pay such company 10% of FSBC's annual
profits. The profit sharing agreement will expire on September 9, 1998.
4. SIGNIFICANT CUSTOMERS:
Sales to SAS represented 45% and 47% of total sales for the six months
ended December 29, 1996 and fiscal 1996, respectively. Sales to Delta Air Lines
represented 29% and 10% of total sales for the six month ended December 29, 1996
and fiscal 1996, respectively. Sales to DBA represented 26% of total sales for
fiscal 1996.
F-9
<PAGE> 71
- --------------------------------------------------------------------------------
BANNER AEROSPACE, INC.
380 WEST SERVICE ROAD
P P.O. BOX 20260
R WASHINGTON, D.C. 20041
O
X THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
Y
The undersigned hereby appoints John C. Wertz and Warren D. Persavich as
Proxies, each with the power to appoint his substitute, and hereby
authorizes them, and each of them, to represent and vote, as designated
below, all the shares of Common Stock of Banner Aerospace, Inc. (the
"Company") which the undersigned is entitled to vote at the Special Meeting
of Stockholders to be held at the Marriott Hotel, Washington Dulles
International Airport, 333 West Service Road, Chantilly, Virginia, on
June 18, 1997 at 9:00 A.M., local time and any adjournment or
postponement thereof (the "Special Meeting"), with all the powers the
undersigned would possess if personally present, upon the matters noted
below.
PLEASE SIGN EXACTLY AS NAME APPEARS BELOW.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
------------
SEE REVERSE
SIDE
------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[x] Please mark your
votes as in the
example.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE STOCK EXCHANGE
AGREEMENT.
<TABLE>
<S> <C> <C> <C> <C>
FOR AGAINST ABSTAIN
1. Approval of the Stock Exchange [ ] [ ] [ ]
Agreement dated as of May
12, 1997 (the "Stock Exchange
Agreement) between RHI
Holdings, Inc. and the Company
contemplated thereby.
4. Approval of an amendment to [ ] [ ] [ ]
FOR AGAINST ABSTAIN Article FOURTH of the Company's
2. Approval of an amendment to [ ] [ ] [ ] Restated Certificate of
Article FOURTH of the Company's Incorporation to create a new
Restated Certificate of class of Preferred Stock, par
Incorporation to increase the value $.01 per share, and to
total number of shares of give the Company the authority
capital stock which the Company to issue 10,000,000 shares of
has the authority to issue from such Preferred Stock.
30,000,000 to 60,000,000.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE
FOR AGAINST ABSTAIN FOREGOING AMENDMENTS TO THE COMPANY'S
3. Approval of an amendment to [ ] [ ] [ ] RESTATED CERTIFICATE OF INCORPORATION
Article FOURTH of the
Company's Restated Certificate 5. In their discretion, the Proxies
of Incorporation to increase are authorized to vote upon such
the number of authorized shares other matters as may properly be
of Common Stock, from 30,000,000 presented incident to the
shares to 50,000,000 shares. conduct of the meeting
(including, without limitation,
adjournment of the meeting in
order to allow for additional
solicitation of stockholder
votes in order to obtain a
quorum or in order to obtain
more votes in favor of any of
the proposals).
This proxy, when properly executed,
will be voted in the manner
dictated by the undersigned
stockholder. If no direction is
made, this proxy will be voted
FOR the adoption of Proposals 1,
2, 3 and 4.
SIGNATURE(S) DATE
--------------------------------------------- -------------
SIGNATURE(S) DATE
--------------------------------------------- -------------
NOTE: When shares are held by joint tenants, both should sign. When signing as
attorney, executor, administrator, trustee or guardian, please give full title
as such. If a corporation, please sign in full corporate name by the President
or other partnership name by authorized person.
</TABLE>
- --------------------------------------------------------------------------------
<PAGE> 72
ANNEX A
STOCK EXCHANGE AGREEMENT
DATED AS OF MAY 12, 1997
BY AND BETWEEN
BANNER AEROSPACE, INC.
AND
RHI HOLDINGS, INC.
WITH RESPECT TO ALL
OUTSTANDING CAPITAL STOCK OF
FAIRCHILD SCANDINAVIAN
BELLYLOADING COMPANY AB
AND
SCANDINAVIAN BELLYLOADING
INTERNATIONAL, INC.
<PAGE> 73
TABLE OF CONTENTS
This Table of Contents is not part of the Agreement to which it is attached
but is inserted for convenience only.
<TABLE>
<CAPTION>
PAGE
NO.
----
<C> <S> <C>
ARTICLE I
EXCHANGE OF SHARES; CLOSING AND 1997 EBT LOSS
1.01 Exchange of Shares........................................................... A- 1
1.02 Closing; Escrow.............................................................. A- 3
1.03 Further Assurances; Post-Closing Cooperation................................. A- 4
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SELLER
2.01 Organization of Seller....................................................... A- 5
2.02 Authority.................................................................... A- 5
2.03 Organization of each Company................................................. A- 5
2.04 Capital Stock................................................................ A- 5
2.05 Subsidiaries................................................................. A- 5
2.06 No Conflicts................................................................. A- 5
2.07 Governmental Approvals and Filings........................................... A- 6
2.08 Books and Records............................................................ A- 6
2.09 Financial Statements......................................................... A- 6
2.10 Absence of Changes........................................................... A- 7
2.11 No Undisclosed Liabilities................................................... A- 8
2.12 Taxes........................................................................ A- 8
2.13 Legal Proceedings............................................................ A- 9
2.14 Compliance With Laws and Orders.............................................. A-10
2.15 Benefit Plans; ERISA......................................................... A-10
2.16 Real Property................................................................ A-12
2.17 Tangible Personal Property; Investment Assets................................ A-12
2.18 Intellectual Property Rights................................................. A-12
2.19 Contracts.................................................................... A-13
2.20 Licenses..................................................................... A-14
2.21 Insurance.................................................................... A-14
2.22 Affiliate Transactions....................................................... A-14
2.23 Employees; Labor Relations................................................... A-15
2.24 Environmental Matters........................................................ A-15
2.25 Substantial Customers and Suppliers.......................................... A-16
2.26 Bank and Brokerage Accounts; Investment Assets............................... A-16
2.27 No Powers of Attorney........................................................ A-17
2.28 Accounts Receivable.......................................................... A-17
2.29 Inventory.................................................................... A-17
2.30 Brokers...................................................................... A-17
2.31 Disclosure................................................................... A-17
2.32 Purchase for Investment...................................................... A-18
</TABLE>
i
<PAGE> 74
<TABLE>
<CAPTION>
PAGE
NO.
----
<C> <S> <C>
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PURCHASER
3.01 Organization................................................................. A-18
3.02 Capitalization............................................................... A-18
3.03 Authority.................................................................... A-18
3.04 No Conflicts................................................................. A-18
3.05 Governmental Approvals and Filings........................................... A-19
3.06 Legal Proceedings............................................................ A-19
3.07 Banner Shares Authorized..................................................... A-19
3.08 Purchaser SEC Documents...................................................... A-19
3.09 No Share Restrictions........................................................ A-19
3.10 No Undisclosed Liabilities................................................... A-19
3.11 Absence of Material Changes.................................................. A-19
3.12 Compliance With Law.......................................................... A-20
3.13 Disclosure................................................................... A-20
3.14 Purchase for Investment...................................................... A-20
3.15 Brokers...................................................................... A-20
ARTICLE IV
COVENANTS OF SELLER
4.01 Regulatory and Other Approvals............................................... A-20
4.02 Investigation by Purchaser................................................... A-21
4.03 Conduct of Business.......................................................... A-21
4.04 Financial Statements and Reports; Filings.................................... A-21
4.05 Employee Matters............................................................. A-22
4.06 Certain Restrictions......................................................... A-22
4.07 Affiliate Transactions....................................................... A-23
4.08 Books and Records............................................................ A-23
4.09 Fulfillment of Conditions.................................................... A-23
4.10 No Solicitations............................................................. A-24
ARTICLE V
COVENANTS OF PURCHASER
5.01 Regulatory and Other Approvals............................................... A-24
5.02 Fulfillment of Conditions.................................................... A-24
ARTICLE VI
CONDITIONS TO OBLIGATIONS OF PURCHASER
6.01 Representations and Warranties............................................... A-25
6.02 Performance.................................................................. A-25
6.03 Officers' Certificates....................................................... A-25
6.04 Orders and Laws.............................................................. A-25
6.05 Regulatory Consents and Approvals............................................ A-25
6.06 Third Party Consents......................................................... A-25
6.07 Resignations of Directors and Officers....................................... A-26
6.08 Escrow Agreement............................................................. A-26
6.09 Proceedings.................................................................. A-26
</TABLE>
ii
<PAGE> 75
<TABLE>
<CAPTION>
PAGE
NO.
----
<C> <S> <C>
6.10 Fairness Opinion............................................................. A-26
6.11 1997 EBT Loss................................................................ A-26
ARTICLE VII
CONDITIONS TO OBLIGATIONS OF SELLER
7.01 Representations and Warranties............................................... A-26
7.02 Performance.................................................................. A-27
7.03 Officers' Certificates....................................................... A-27
7.04 Orders and Laws.............................................................. A-27
7.05 Regulatory Consents and Approvals............................................ A-27
7.06 Third Party Consents......................................................... A-27
7.07 Escrow Agreement............................................................. A-27
7.08 Proceedings.................................................................. A-27
7.09 Registration Rights Agreement................................................ A-27
ARTICLE VIII
TAX MATTERS AND POST-CLOSING TAXES
8.01 Transfer Taxes............................................................... A-27
8.02 Tax Periods Ending on or Before the Closing Date............................. A-28
8.03 Taxes for Stub Period........................................................ A-28
8.04 Consistent Tax Treatment..................................................... A-28
8.05 sec.338...................................................................... A-28
8.06 Books and Records............................................................ A-28
ARTICLE IX
EMPLOYEE BENEFITS MATTERS
9.01 Employment and Benefits...................................................... A-28
9.02 No Assumption or Continuity of Liabilities................................... A-29
ARTICLE X
SURVIVAL OF REPRESENTATIONS, WARRANTIES,
COVENANTS AND AGREEMENTS
10.01 Survival of Representations, Warranties, Covenants and Agreements............ A-29
ARTICLE XI
INDEMNIFICATION
11.01 Tax Indemnification; Post-Closing Adjustments; Notification; Control;
Refunds...................................................................... A-30
11.02 Other Indemnification........................................................ A-31
11.03 Method of Asserting Claims................................................... A-32
ARTICLE XII
TERMINATION
12.01 Termination.................................................................. A-34
12.02 Effect of Termination........................................................ A-34
</TABLE>
iii
<PAGE> 76
<TABLE>
<CAPTION>
PAGE
NO.
----
<C> <S> <C>
ARTICLE XIII
DEFINITIONS
13.01 Definitions.................................................................. A-35
ARTICLE XIV
MISCELLANEOUS
14.01 Notices...................................................................... A-43
14.02 Entire Agreement............................................................. A-43
14.03 Expenses..................................................................... A-43
14.04 Public Announcements......................................................... A-43
14.05 Confidentiality.............................................................. A-44
14.06 Waiver....................................................................... A-44
14.07 Amendment.................................................................... A-44
14.08 No Third Party Beneficiary................................................... A-44
14.09 No Assignment; Binding Effect................................................ A-45
14.10 Headings..................................................................... A-45
14.11 Submission to Jurisdiction; Waivers.......................................... A-45
14.12 Invalid Provisions........................................................... A-45
14.13 Governing Law................................................................ A-46
14.14 Counterparts................................................................. A-46
</TABLE>
iv
<PAGE> 77
This STOCK EXCHANGE AGREEMENT dated as of May 12, 1997 is made and entered
into by and between Banner Aerospace, Inc., a Delaware corporation
("Purchaser"), and RHI Holdings, Inc., a Delaware corporation ("Seller").
Capitalized terms not otherwise defined herein have the meanings set forth in
Section 13.01.
WHEREAS, Seller owns fifteen hundred (1,500) shares of capital stock of
Fairchild Scandinavian Bellyloading Company AB, a Swedish corporation ("FSBC"),
constituting all issued and outstanding shares of capital stock of FSBC (the
"FSBC Shares") and five hundred (500) shares of common stock, no par value, of
Scandinavian Bellyloading International, Inc., a California corporation ("SBIC",
and together with FSBC, the "Companies") constituting all issued and outstanding
shares of capital stock of SBIC (the "SBIC Shares") (such FSBC Shares and SBIC
Shares being collectively referred to herein as the "Shares"); and
WHEREAS, Seller desires to dispose of, and Purchaser desires to acquire,
the Shares solely through the exchange of the Shares for the voting common stock
of Purchaser, on the terms and subject to the conditions set forth in this
Agreement;
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth in this Agreement, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
ARTICLE I
EXCHANGE OF SHARES; CLOSING AND 1997 EBT LOSS
1.01 Exchange of Shares. (a) Seller agrees to assign and deliver to
Purchaser all of the right, title and interest in and to the Shares and
Purchaser agrees to acquire the Shares, solely in exchange for newly issued
shares of the voting common stock, par value $1.00 per share ("Banner Common
Stock"), of Purchaser ("Banner Shares") as set forth in paragraphs (b) and (c)
below, subject to the Rescission Right provided for in paragraph (d) below, and
otherwise on the terms and subject to the conditions set forth in this
Agreement.
(b) The number of Banner Shares to be exchanged for the Shares at the
Closing shall be 230,000 Banner Shares (the "First Installment Shares"). The
First Installment Shares shall be held in escrow as set forth in Section 1.02.
(c) (i) Within ninety (90) days following March 31, 1999, the Companies'
income statement for the fiscal year ended March 31, 1999 (the "1999 Income
Statement, and together with the 1998 Income Statement, the "Income
Statements"), prepared in a manner consistent with the Audited Financial
Statements, shall be made available to Seller. Seller's Representatives may
participate in and observe the preparation of the Income Statements. Purchaser
shall make all of its work papers and other relevant documents in connection
with the preparation of the Income Statements available to Seller, and shall
make the persons in charge of the preparation of the Income Statements available
for reasonable inquiry by Seller. The Income Statements made available to Seller
shall be accompanied by a calculation of the Average EBT and the Average EBT
Threshold. If Seller fails to notify Purchaser of its disagreement with the
Average EBT or the Average EBT Threshold based on the Income Statements in
accordance with clause (iii) of paragraph (d) of this Section 1.01, the Average
EBT and the Average EBT Threshold based on the Income Statements shall be final
and binding on Seller and Purchaser for all purposes of this Agreement. If the
Average EBT is greater than or equal to the Average EBT Threshold, or if the
Average EBT is less than the Average EBT Threshold but Purchaser elects not to
exercise its Rescission Right, then on the 1999 Return Closing Date (as defined
in paragraph (d) (ii) herein) Purchaser shall direct the Escrow Agent to
release the First Installment Shares from escrow and deliver to Seller or its
designee the First Installment Shares and issue to Seller or its designee an
additional number of Banner Shares (the "Second Installment Shares") as required
so that together with the First Installment Shares the
A-1
<PAGE> 78
aggregate number of Banner Shares delivered to Seller or its designee equals the
quotient obtained by dividing (a) five times the Average EBT by (b) the Average
Purchaser Price. Notwithstanding the above, the sum of the First Installment
Shares plus the Second Installment Shares will in no event exceed 1.5 million
Banner Shares.
(ii) The First Installment Shares and the Second Installment Shares shall
be delivered free and clear of all Liens by delivery of a certificate or
certificates in genuine and unaltered form, with the requisite stock transfer
stamps, if any, attached.
(d) (i) Within ninety (90) days following March 31, 1998, the Companies'
income statement for the twelve months ended March 31, 1998 (the "1998 Income
Statement"), prepared in a manner consistent with the Audited Financial
Statements, shall be made available to Seller. If Seller fails to notify
Purchaser of its disagreement with the 1998 EBT or the 1998 EBT Threshold based
on the 1998 Income Statement in accordance with clause (iii) of this paragraph
(d) of this Section 1.01, the 1998 EBT and the 1998 EBT Threshold based on the
1998 Income Statement shall be final and binding on Seller and Purchaser for all
purposes of this Agreement. In the event that the 1998 EBT is less than the 1998
EBT Threshold, Purchaser may exercise its Rescission Right. If Purchaser elects
to exercise its Rescission Right, then Purchaser shall, within thirty days
following the date the determination of the 1998 EBT and the 1998 EBT Threshold
becomes final and binding on Seller and Purchaser (the "1998 Return Closing
Date"), assign and transfer to Seller the Shares free and clear of all Liens by
delivering to Seller a certificate or certificates representing the Shares, in
genuine and unaltered form, duly endorsed in blank or accompanied by duly
executed stock powers endorsed in blank, with requisite stock transfer tax
stamps, if any, attached. In addition, Purchaser and Seller, as the case may be,
shall pay each other any amounts owed pursuant to the Rescission Right by wire
transfer of immediately available funds to such account as such party has
directed by written notice on the 1998 Return Closing Date. Simultaneously, the
Escrow Agent shall deliver to Purchaser a certificate or certificates
representing the First Installment Shares.
(ii) In the event that the Average EBT based on the Income Statements and
determined in accordance with paragraph (c) of this Section 1.01 is less than
the Average EBT Threshold, Purchaser may exercise its Rescission Right. If
Purchaser elects to exercise its Rescission Right, then Purchaser shall, within
thirty days following the date the determination of the Average EBT and the
Average EBT Threshold becomes final and binding on Seller and Purchaser (the
"1999 Return Closing Date"), (x) assign and transfer to Seller the Shares free
and clear of all Liens by delivering to Seller a certificate or certificates
representing the Shares, in genuine and unaltered form, duly endorsed in blank
or accompanied by duly executed stock powers endorsed in blank, with requisite
stock transfer tax stamps, if any, attached. In addition, Purchaser and Seller,
as the case may be, shall pay each other any amounts owed pursuant to the
Rescission Right by wire transfer of immediately available funds to such account
as such party has directed by written notice on the 1999 Return Closing Date.
Simultaneously, the Escrow Agent shall deliver to Purchaser a certificate or
certificates representing the First Installment Shares.
(iii) Seller shall notify Purchaser in writing within sixty (60) days
following receipt of the 1998 Income Statement or the 1999 Income Statement, as
the case may be, if it does not agree with the calculations set forth therein,
in which case Seller and Purchaser will use good faith efforts during the 60-day
period following the date of such written notice to resolve any differences they
may have. Such written notice will identify with reasonable specificity the
calculations with which Seller disagrees or other bases for such disagreement;
provided that Seller may not set forth any disagreement with any item on the
Income Statements to the extent that such item is calculated in a manner
consistent with the Audited Financial Statements. If Seller and Purchaser cannot
reach agreement during such 60-day period, their disagreements shall be promptly
submitted to an independent public accounting firm jointly selected by Seller
and Purchaser (the "Independent Accountant"), which shall conduct such
additional review as is necessary to resolve the specific disagreements referred
to it and, based thereon and having
A-2
<PAGE> 79
due regard for consistency with the Audited Financial Statements, shall
determine the 1998 EBT and the 1998 EBT Threshold, or the Average EBT and the
Average EBT Threshold, as the case may be. The review of the Independent
Accountant will be restricted as to scope to address only those matters as to
which Seller and Purchaser have not reached agreement pursuant to the preceding
sentence. The Independent Accountant's determination of 1998 EBT and the 1998
EBT Threshold or the Average EBT and the Average EBT Threshold, as the case may
be, shall be completed as promptly as practicable but in no event later than 30
days following its selection, shall be confirmed by the Independent Accountant
in writing to, and shall be final and binding on, Seller and Purchaser for
purposes of paragraphs (c) and (d) of this Section 1.01.
(iv) The fees of and expenses incurred by the Independent Accountant in
connection with the determination of the Average EBT or the 1998 EBT, as the
case may be, shall be shared equally by Purchaser and Seller.
(e) (i) In the event that Purchaser sells to a third party (i) all or
substantially all of the assets of the Bellyloading Companies taken as a whole,
or (ii) all of the outstanding shares of the Bellyloading Companies prior to the
1999 Return Closing Date, then Purchaser shall direct the Escrow Agent to
release the First Installment Shares from escrow and deliver to Seller or its
designee, the First Installment Shares on the closing date of such sale and
Purchaser shall promptly notify Seller in writing of such sale; Seller and
Purchaser will use their good faith efforts during the 20-day period following
the date of such written notice to agree what the Average EBT would have been
but for the fact that Purchaser sold the Bellyloading Companies (the "Negotiated
Average EBT"). Within five days after Seller and Purchaser agree to the
Negotiated Average EBT (the "Alternative Proposal Closing Date"), Purchaser
shall issue to Seller or its designee the Second Installment Shares, if any, as
required so that together with the First Installment Shares the aggregate number
of Banner Shares delivered to Seller or its designee (which in no event shall be
less than the First Installment Shares) equals the quotient obtained by dividing
(a) five times the Negotiated Average EBT by (b) the Average Purchaser Price.
Notwithstanding the above, the sum of the First Installment Shares plus the
Second Installment Shares will in no event exceed 1.5 million Banner Shares.
Purchaser's Rescission Right will terminate on the Alternative Proposal Closing
Date.
(ii) If Seller and Purchaser cannot reach an agreement on the Negotiated
Average EBT during such 20-day period, their disagreement shall be promptly
submitted to an independent investment banking firm jointly selected by Seller
and Purchaser (the "Independent Investment Banking Firm"), which shall conduct
such additional review as is necessary to resolve the specific disagreement
referred to it and, based thereon and having due regard for consistency with the
Audited Financial Statements, shall determine the Negotiated Average EBT. The
Independent Accountant's determination of the Negotiated Average EBT shall be
completed as promptly as practicable but in no event later than 20 days
following its selection, shall be confirmed by the Independent Investment
Banking Firm in writing to, and shall be final and binding on, Seller and
Purchaser for purposes of paragraph (e) of this Section 1.01.
(iii) The fees of and expenses incurred by the Independent Investment
Banking Firm in connection with the determination of the Negotiated Average EBT
shall be shared equally by Purchaser and Seller.
1.02 Closing; Escrow. The Closing will take place at the offices of
Milbank, Tweed, Hadley & McCloy, One Chase Manhattan Plaza, New York, New York
10005, or at such other place as Purchaser and Seller mutually agree, at 10:00
A.M. local time, on the Closing Date. The First Installment Shares shall be
delivered free and clear of all Liens to Harris Trust and Savings Bank, as
escrow agent (the "Escrow Agent"), under an escrow agreement to be entered into
on the Closing Date by Seller, Purchaser and the Escrow Agent substantially in
the form of Exhibit A hereto (the "Escrow Agreement"). At the Closing, Purchaser
shall deliver to the Escrow Agent a certificate or certificates representing the
First Installment Shares in genuine
A-3
<PAGE> 80
and unaltered form, duly endorsed in blank or accompanied by duly executed stock
powers endorsed in blank, with requisite stock transfer tax stamps, if any,
attached. Simultaneously, Seller will assign and transfer to Purchaser all of
Seller's right, title and interest in and to the Shares by delivering to
Purchaser certificates representing the Shares, in genuine and unaltered form,
duly endorsed in blank or accompanied by duly executed stock powers endorsed in
blank, with requisite stock transfer tax stamps, if any, attached. At the
Closing, there shall also be delivered to Seller and Purchaser the opinions,
certificates and other documents and instruments to be delivered under Articles
VI and VII.
1.03 Further Assurances; Post-Closing Cooperation. (a) At any time or
from time to time after the Closing, Seller or Purchaser, as the case may be,
shall execute and deliver to the other such other documents and instruments,
provide such materials and information and take such other actions as such party
may reasonably request more effectively to vest title to the Shares in Purchaser
or the Banner Shares in Seller or its designee, as the case may be, and, Seller,
to the full extent permitted by Law, shall execute and deliver to Purchaser such
other documents and instruments, provide such materials and information and take
such other actions as Purchaser may reasonably request to put Purchaser in
actual possession and operating control of each Company and its Assets and
Properties and Books and Records, and otherwise to cause Seller to fulfill its
obligations under this Agreement and the Operative Agreements to which it is a
party.
(b) Following the Closing, each party will afford the other party, its
counsel and its accountants, during normal business hours, reasonable access to
the books, records and other data relating to the Business or Condition of the
Companies in its or any of its Affiliate's possession with respect to periods
prior to the Closing and the right to make copies and extracts therefrom, to the
extent that such access may be reasonably required by the requesting party in
connection with (i) the preparation of Tax Returns, (ii) the determination or
enforcement of rights and obligations under this Agreement, (iii) compliance
with the requirements of any Governmental or Regulatory Authority, (iv) the
determination or enforcement of the rights and obligations of any party to this
Agreement or any of the Operative Agreements or (v) in connection with any
actual or threatened Action or Proceeding. Further, each party agrees for a
period extending six (6) years after the Closing Date not to destroy or
otherwise dispose of, and to cause their respective Affiliates not to destroy or
otherwise dispose of, any such books, records and other data unless such party
shall first offer in writing to surrender such books, records and other data to
the other party and such other party shall not agree in writing to take
possession thereof during the thirty (30) day period after such offer is made.
(c) If, in order properly to prepare its Tax Returns, other documents or
reports required to be filed with Governmental or Regulatory Authorities or its
financial statements or to fulfill its obligations hereunder, it is necessary
that a party be furnished with additional information, documents or records
relating to the Business or Condition of the Companies not referred to in
paragraph (b) above, and such information, documents or records are in the
possession or control of the other party or its Affiliates, such other party
shall use its best efforts to furnish or make available such information,
documents or records (or copies thereof) at the recipient's request, cost and
expense. Any information obtained by Seller or its Affiliates in accordance with
this paragraph shall be held confidential by Seller and its Affiliates in
accordance with Section 14.05.
(d) Notwithstanding anything to the contrary contained in this Section
1.03, if the parties are in an adversarial relationship in litigation or
arbitration, the furnishing of information, documents or records in accordance
with any provision of this Section shall be subject to applicable rules relating
to discovery.
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ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller hereby represents and warrants to Purchaser as follows:
2.01 Organization of Seller. Seller is a corporation duly organized,
validly existing and in good standing under the Laws of the State of Delaware.
Seller has full corporate power and authority to execute and deliver this
Agreement and the Operative Agreements to which it is a party and to perform its
obligations hereunder and thereunder and to consummate the transactions
contemplated hereby and thereby, including without limitation to own, hold, sell
and transfer (pursuant to this Agreement) the Shares.
2.02 Authority. The execution and delivery by Seller of this Agreement
and the Operative Agreements to which it is a party, and the performance by
Seller of its obligations hereunder and thereunder, have been duly and validly
authorized by the Board of Directors of Seller, no other corporate action on the
part of Seller or its stockholder being necessary. This Agreement has been duly
and validly executed and delivered by Seller and constitutes, and upon the
execution and delivery by Seller of the Operative Agreements to which it is a
party, such Operative Agreements will constitute, legal, valid and binding
obligations of Seller enforceable against Seller in accordance with their terms.
2.03 Organization of each Company. Each Company is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation. Each Company has full corporate power and
authority to conduct its business as and to the extent now conducted and to own,
use and lease its Assets and Properties. Each Company is duly qualified,
licensed or admitted to do business and is in good standing in those
jurisdictions specified in Section 2.03 of the Disclosure Schedule, which are
the only jurisdictions in which the ownership, use or leasing of its Assets and
Properties, or the conduct or nature of its business, makes such qualification,
licensing or admission necessary, except for those jurisdictions in which the
adverse effects of all such failures by such Company to be qualified, licensed
or admitted and in good standing can in the aggregate be eliminated without
material cost or expense by such Company becoming qualified or admitted and in
good standing. The name of each director and officer of each of the Companies on
the date hereof, and the position with such Company held by each, are listed in
Section 2.03 of the Disclosure Schedule. Seller has prior to the execution of
this Agreement delivered to Purchaser true and complete copies of the
certificate of incorporation and by-laws or other comparable corporate charter
documents of each Company as in effect on the date hereof.
2.04 Capital Stock. The authorized capital stock of FSBC consists solely
of two thousand (2,000) shares of FSBC Capital Stock, of which only the FSBC
Shares have been issued. The authorized capital stock of SBIC consists solely of
one million (1,000,000) shares of SBIC Common Stock, of which only the SBIC
Shares have been issued. The Shares are duly authorized, validly issued,
outstanding, fully paid and nonassessable. Seller owns the Shares, beneficially
and of record, and as at the Closing will be free and clear of all Liens. Except
for this Agreement, there are no outstanding Options with respect to either
Company. The delivery of certificates at the Closing representing the Shares in
the manner provided in Section 1.02 will transfer to Purchaser good and valid
title to the Shares, free and clear of all Liens.
2.05 Subsidiaries. Neither Company has any subsidiaries nor does it own,
directly or indirectly, any capital stock of or other equity interest in any
Person.
2.06 No Conflicts. The execution and delivery by Seller of this Agreement
do not, and the execution and delivery by Seller of the Operative Agreements to
which it is a party, the performance by Seller of its obligations under this
Agreement and such Operative Agreements and the consummation of the transactions
contemplated hereby and thereby will not:
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(a) conflict with or result in a violation or breach of any of the terms,
conditions or provisions of the certificate of incorporation or by-laws (or
other comparable corporate charter documents) of Seller or either Company;
(b) subject to obtaining the consents, approvals and actions, making the
filings and giving the notices disclosed in Section 2.07 of the Disclosure
Schedule, conflict with or result in a violation or breach of any term or
provision of any Law or Order applicable to Seller or either Company or any of
their respective Assets and Properties; or
(c) except as disclosed in Section 2.06 of the Disclosure Schedule, (i)
conflict with or result in a violation or breach of, (ii) constitute (with or
without notice or lapse of time or both) a default under, (iii) require Seller
or either Company to obtain any consent, approval or action of, make any filing
with or give any notice to any Person as a result or under the terms of, (iv)
result in or give to any Person any right of termination, cancellation,
acceleration or modification in or with respect to, (v) result in or give to any
Person any additional rights or entitlement to increased, additional,
accelerated or guaranteed payments under, or (vi) result in the creation or
imposition of any Lien upon the Shares, either Company or any of their
respective Assets and Properties under, any Contract or License to which either
Company is a party or by which any of their respective Assets and Properties is
bound.
2.07 Governmental Approvals and Filings. Except as disclosed in Section
2.07 of the Disclosure Schedule, no consent, approval or action of, filing with
or notice to any Governmental or Regulatory Authority on the part of Seller or
either Company is required in connection with the execution, delivery and
performance of this Agreement or any of the Operative Agreements to which it is
a party or the consummation of the transactions contemplated hereby or thereby.
2.08 Books and Records. The minute book and other similar records of each
Company as made available to Purchaser prior to the execution of this Agreement
contain a true and complete record, in all material respects, of all action
taken at all meetings and by all written consents in lieu of meetings of the
stockholders, the board of directors and committees of the board of directors of
each Company. The stock transfer ledgers and other similar records of each
Company as made available to Purchaser prior to the execution of this Agreement
accurately reflect all record transfers prior to the execution of this Agreement
in the capital stock of each Company. Except as set forth in Section 2.08 of the
Disclosure Schedule, neither Company has any of its Books and Records recorded,
stored, maintained, operated or otherwise wholly or partly dependent upon or
held by any means (including any electronic, mechanical or photographic process,
whether computerized or not) which (including all means of access thereto and
therefrom) are not under the exclusive ownership and direct control of such
Company or its auditors.
2.09 Financial Statements. Prior to the execution of this Agreement,
Seller has delivered to Purchaser true and complete copies of the audited
balance sheet of the Companies for the fiscal year ended June 30, 1996 and the
related audited consolidated statement of operations, stockholders' equity and
cash flows for the then ended, together with a true and correct copy of the
report on such audited information by Arthur Andersen LLP, and all such letters
from such accountants with respect to the results of such audits. Except as set
forth in the notes thereto and as disclosed in Section 2.09 of the Disclosure
Schedule, all such financial statements (i) were prepared in accordance with
GAAP, (ii) fairly present the consolidated financial condition and results of
operations of the Companies as of the respective dates thereof and for the
respective periods covered thereby, and (iii) were compiled from the Books and
Records of the Companies regularly maintained by management and used to prepare
the financial statements of the Companies in accordance with the principles
stated therein. Each Company has maintained its Books and Records in a manner
sufficient to permit the preparation of financial statements in accordance with
GAAP.
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2.10 Absence of Changes. Except for the execution and delivery of this
Agreement and the transactions to take place pursuant hereto on or prior to the
Closing Date, since the Audited Financial Statement Date there has not been any
material adverse change, or any event or development which, individually or
together with other such events, could reasonably be expected to result in a
material adverse change, in the Business or Condition of the Companies. Without
limiting the foregoing, except as disclosed in Section 2.10 of the Disclosure
Schedule, there has not occurred between the Audited Financial Statement Date
and the date hereof:
(i) any declaration, setting aside or payment of any dividend or
other distribution in respect of the capital stock of either Company, or
any direct or indirect redemption, purchase or other acquisition by either
Company of any such capital stock of or any Option with respect to such
Company;
(ii) any authorization, issuance, sale or other disposition by either
Company of any shares of capital stock of or Option with respect to such
Company, or any modification or amendment of any right of any holder of any
outstanding shares of capital stock of or Option with respect to such
Company;
(iii) any increase in the salary, wages or other compensation of any
officer, employee or consultant of either Company in an amount greater than
(A) 5% of such officer's, employee's, or consultant's salary, wages or
compensation or (B) $5,000;
(iv) (A) incurrences by either Company of Indebtedness in an
aggregate principal amount exceeding $25,000 (net of any amounts discharged
during such period), or (B) any voluntary purchase, cancellation,
prepayment or complete or partial discharge in advance of a scheduled
payment date with respect to, or waiver of any right of either Company
under, any Indebtedness of or owing to such Company;
(v) any physical damage, destruction or other casualty loss (whether
or not covered by insurance) affecting any of the plant, real or personal
property or equipment of either Company in an aggregate amount exceeding
$25,000;
(vi) any material change in (x) any pricing, investment, accounting,
financial reporting, inventory, credit, allowance or Tax practice or policy
of either Company, or (y) any method of calculating any bad debt,
contingency or other reserve of either Company for accounting, financial
reporting or Tax purposes, or any change in the fiscal year of such
Company;
(vii) any write-off or write-down of or any determination to write
off or write down any of the Assets and Properties of either Company in an
aggregate amount exceeding $25,000;
(viii) any acquisition or disposition of, or incurrence of a Lien
(other than a Permitted Lien) on, any Assets and Properties of either
Company, other than in the ordinary course of business consistent with past
practice;
(ix) any (x) amendment of the certificate of incorporation or by-laws
(or other comparable corporate charter documents) of either Company, (y)
recapitalization, reorganization, liquidation or dissolution of either
Company or (z) merger or other business combination involving either
Company and any other Person;
(x) any entering into, amendment, modification, termination (partial
or complete) or granting of a waiver under or giving any consent with
respect to (A) any Contract which is required (or had it been in effect on
the date hereof would have been required) to be disclosed in the Disclosure
Schedule pursuant to Section 2.19(a) or (B) any material License held by
either Company;
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(xi) capital expenditures or commitments for additions to property,
plant or equipment of either Company constituting capital assets in an
aggregate amount exceeding $25,000;
(xii) any commencement or termination by either Company of any line
of business;
(xiii) any transaction by either Company with Seller, any officer,
director or Affiliate (other than such Company) of Seller (A) outside the
ordinary course of business consistent with past practice or (B) other than
on an arm's-length basis, other than pursuant to any Contract in effect on
the Audited Financial Statement Date and disclosed pursuant to Section
2.19(a)(vii) of the Disclosure Schedule;
(xiv) any entering into of a Contract to do or engage in any of the
foregoing after the date hereof; or
(xv) any other transaction involving or development affecting either
Company outside the ordinary course of business consistent with past
practice.
2.11 No Undisclosed Liabilities. Except as reflected or reserved against
in the balance sheet included in the Audited Financial Statements or in the
notes thereto or as disclosed in Section 2.11 of the Disclosure Schedule or any
other Section of the Disclosure Schedule, there are no Liabilities against,
relating to or affecting either Company or any of its Assets and Properties,
other than Liabilities (i) incurred in the ordinary course of business
consistent with past practice or (ii) which, individually or in the aggregate,
are not material to the Business or Condition of the Companies. Each Company has
adequately reserved against all Liabilities relating to or affecting such
Company or any of its Assets and Properties in the balance sheet included in the
Audited Financial Statements.
2.12 Taxes. Since FSBC is a Swedish corporation, Seller intends that the
following tax representations (i) incorporate all Swedish tax authority that
parallels the U.S. federal income tax law and (ii) has the full force and effect
under such Swedish tax authority.
(a) Tax Return Filings. Except as set forth in Section 2.12 of the
Disclosure Schedule, each Company has filed all Tax Returns (or such Tax Returns
have been filed on behalf of each Company) required to be filed by applicable
law on a timely basis. Each Company (i) has paid all Taxes that are shown to be
due, or claimed or asserted by any taxing authority to be due, from such Company
for the periods covered by such Tax Returns or (ii) have duly and fully provided
reserves adequate to pay all Taxes in accordance with GAAP.
(b) Tax Reserves. Except as set forth in Section 2.12 of the Disclosure
Schedule, each Company will have established prior to the Closing on their books
and records reserves adequate to pay all Taxes not yet due and payable as of the
Closing in accordance with GAAP.
(c) Tax Liens. Except as set forth in Section 2.12 of the Disclosure
Schedule, there are no Tax Liens upon any Assets and Properties of either
Company, except for Permitted Liens.
(d) Withholding Taxes. Except as set forth in Section 2.12 of the
Disclosure Schedule, each Company has complied (and until the Closing will
comply) with all applicable laws, rules, and regulations relating to the payment
and withholding of Taxes (including withholding and reporting requirements under
Code sec.sec.1441 through 1464, 3401 through 3406, 6041 and 6049 and similar
provisions under any other laws) and has, within the time and in the manner
prescribed by law, withheld from employee wages and paid over to the proper
governmental authorities all amounts required.
(e) Extensions of Time for Filing Returns. Except as set forth in Section
2.12 of the Disclosure Schedule, each Company has not requested any extension of
time within which to file any Tax Return, which Tax Return has not since been
filed.
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(f) Waivers of Statute of Limitations. Except as set forth in Section
2.12 of the Disclosure Schedule, each Company has not executed any outstanding
waivers or comparable consents regarding the application of the statute of
limitations with respect to any Taxes or Tax Returns.
(g) Powers of Attorney. Except as set forth in Section 2.12 of the
Disclosure Schedule, no power of attorney currently in force has been granted by
either Company concerning any Tax matter.
(h) Availability of Tax Returns. Seller has made available (or, in the
case of Tax Returns filed after the Closing Date, will make available) to
Purchaser complete and accurate copies of all Tax Returns, and any amendments
thereto relating to each Company for all taxable years ending on or prior to the
Closing Date.
(i) Tax Sharing Agreements. Except as provided in this Agreement, no
agreements relating to allocating or sharing of Taxes (i) shall exist among The
Fairchild Corporation ("Fairchild"), Seller or either Company on the Closing
Date, or (ii) shall bind either Company after the Closing Date.
(j) Code sec.280G. Except as set forth in Section 2.12 of the Disclosure
Schedule, neither Company is a party to any agreement, contract, or arrangement
that would result, separately or in the aggregate, in the payment of any "excess
parachute payments" within the meaning of Code sec.280G.
(k) Intercompany Transactions. Except as set forth in Section 2.12 of the
Disclosure Schedule, neither Company has engaged in any transaction with
Fairchild or any Affiliate of Fairchild (other than Purchaser or any subsidiary
of Purchaser) which would result in the recognition of income by Company with
respect to such transaction for any period ending after the Closing Date.
(l) Code sec.341(f). Except as set forth in Section 2.12 of the
Disclosure Schedule, neither Company has filed (nor will it file prior to
Closing) a consent pursuant to Code sec.341(f) or agreed to have Code
sec.341(f)(2) apply to any disposition of a subsection (f) asset (as that term
is defined in Code sec.341(f)(4)) owned by such Company.
(m) Tax Indemnity Agreements. Neither Company is liable for any Taxes of
another person pursuant to any Tax indemnity agreement.
2.13 Legal Proceedings. Except as disclosed in Section 2.13 of the
Disclosure Schedule:
(a) there are no Actions or Proceedings pending or, to the Knowledge of
Seller, threatened against, relating to or affecting Seller or either Company or
any of their respective Assets and Properties which (i) could reasonably be
expected to result in the issuance of an Order restraining, enjoining or
otherwise prohibiting or making illegal the consummation of any of the
transactions contemplated by this Agreement or any of the Operative Agreements
or otherwise result in a material diminution of the benefits contemplated by
this Agreement or any of the Operative Agreements to Purchaser, or (ii) if
determined adversely to Seller or either Company, could reasonably be expected
to result in (x) any injunction or other equitable relief against such Company
that would interfere in any material respect with its business or operations or
(y) Losses by such Company, individually or in the aggregate with Losses in
respect of other such Actions or Proceedings, exceeding $10,000; and
(b) there are no Orders outstanding against either Company.
None of the responses of counsel for Seller and the Companies issued within
the last two years in response to auditors' requests for information in
connection with the Audited Financial Statements (together with any updates
provided by such counsel) have contained any information regarding Actions or
Proceedings pending or threatened against, relating to or affecting the
Companies.
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2.14 Compliance With Laws and Orders. Except as disclosed in Section 2.14
of the Disclosure Schedule, neither Company is nor has it at any time within the
last two (2) years been, nor has it received any written notice from any
Governmental or Regulatory Authority that it is or has at any time within the
last five (5) years been, in violation of or in default under any Law or Order
applicable to such Company or any of its Assets and Properties which would have
a material adverse effect on such Company.
2.15 Benefit Plans; ERISA.
(a) Section 2.15(a) of the Disclosure Schedule (i) contains a true and
complete list and description of each of the Benefit Plans, (ii) identifies each
of the Benefit Plans that is a Qualified Plan, (iii) identifies each Benefit
Plan which at any time during the five-year period preceding the date of this
Agreement was a Defined Benefit Plan and (iv) lists, describes and identifies
each other Plan maintained, established, sponsored or contributed to by an ERISA
Affiliate, or any predecessor thereof, which, during the five-year period
preceding the date of this Agreement, was at any time a Defined Benefit Plan.
Neither Company has scheduled nor has it agreed upon future increases of benefit
levels (or creations of new benefits) with respect to any Benefit Plan, and no
such increases or creation of benefits have been proposed, made the subject of
representations to employees or requested or demanded by employees under
circumstances which make it reasonable to expect that such increases will be
granted. Except as disclosed in Section 2.15(a) of the Disclosure Schedule, no
loan is outstanding between either Company and any employee.
(b) Except as set forth in Section 2.15(b) of the Disclosure Schedule,
Neither Company maintains nor is it obligated to provide benefits under any
life, medical or health plan (other than as an incidental benefit under a
Qualified Plan) which provides benefits to retirees or other terminated
employees.
(c) Except as set forth in Section 2.15(c) of the Disclosure Schedule,
each Benefit Plan covers only employees who are employed by each Company (or
former employees or beneficiaries with respect to service with such Company), so
that the transactions contemplated by this Agreement will require no spin-off of
assets and liabilities or other division or transfer of rights with respect to
any such plan.
(d) Neither the Companies, any ERISA Affiliate nor any other corporation
or organization controlled by or under common control with any of the foregoing
within the meaning of Section 4001 of ERISA has at any time contributed to any
"multiemployer plan", as that term is defined in Section 4001 of ERISA.
(e) Each of the Benefit Plans is, and its administration is and has been
since inception, in all material respects in compliance with, and neither
Company has received any claim or notice that any such Benefit Plan is not in
compliance with, all applicable Laws and Orders and prohibited transactions
exemptions, including, if applicable, the requirements of ERISA, the Code, the
Age Discrimination in Employment Act, the Equal Pay Act and Title VII of the
Civil Rights Act of 1964. Each Qualified Plan is qualified under Section 401(a)
of the Code, and, if applicable, complies with the requirements of Section
401(k) of the Code.
(f) Neither Seller nor either Company is in default in performing any of
its contractual obligations under any of the Benefit Plans or any related trust
agreement or insurance contract. All contributions and other payments required
to be made by Seller or the Companies to any Benefit Plan with respect to any
period ending before or at or including the Closing Date have been made or
reserves adequate for such contributions or other payments have been or will be
set aside therefor and have been or will be reflected in Financial Statements in
accordance with GAAP. There are no material outstanding liabilities of any
Benefit Plan other than liabilities for benefits to be paid to participants in
such Benefit Plan and their beneficiaries in accordance with the terms of such
Benefit Plan.
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(g) No event has occurred, and there exists no condition or set of
circumstances in connection with any Benefit Plan, under which either Company,
directly or indirectly (through any indemnification agreement or otherwise),
could reasonably be expected to be subject to any risk of material liability
under Section 409 of ERISA, Section 502(i) of ERISA, Title IV of ERISA or
Section 4975 of the Code.
(h) No transaction contemplated by this Agreement will result in liability
to the PBGC under Section 302(c)(ii), 4062, 4063, 4064 or 4069 of ERISA, or
otherwise, with respect to either Company, Purchaser or any corporation or
organization controlled by or under common control with any of the foregoing
within the meaning of Section 4001 of ERISA, and no event or condition exists or
has existed which could reasonably be expected to result in any such liability
with respect to Purchaser, either Company, or any such corporation or
organization. No "reportable event" within the meaning of Section 4043 of ERISA
has occurred with respect to any Defined Benefit Plan. No termination
re-establishment or spin-off re-establishment transaction has occurred with
respect to any Subject Defined Benefit Plan. No Subject Defined Benefit Plan has
incurred any accumulated funding deficiency whether or not waived. No filing has
been made and no proceeding has been commenced for the complete or partial
termination of, or withdrawal from, any Benefit Plan which is a Pension Benefit
Plan.
(i) No benefit under any Benefit Plan, including, without limitation, any
severance or parachute payment plan or agreement, will be established or become
accelerated, vested, funded or payable by reason of any transaction contemplated
under this Agreement.
(j) To the Knowledge of Seller, there are no pending or threatened claims
by or on behalf of any Benefit Plan, by any Person covered thereby, or
otherwise, which allege violations of Law which could reasonably be expected to
result in liability on the part of Purchaser, either Company or any fiduciary of
any such Benefit Plan, nor is there any basis for such a claim.
(k) No employer securities, employer real property or other employer
property is included in the assets of any Benefit Plan.
(l) The fair market value of the assets of each Subject Defined Benefit
Plan, as determined as of the last day of the plan year of such plan which
coincides with or first precedes the date of this Agreement, was not less than
the present value of the projected benefit obligations under such plan at such
date as established on the basis of the actuarial assumptions applicable under
such Subject Defined Benefit Plan at said date and, to the Knowledge of Seller,
there have been no material changes in such values since said date.
(m) Complete and correct copies of the following documents have been
furnished to Purchaser prior to the execution of this Agreement:
(i) the Benefit Plans and any predecessor plans referred to therein,
any related trust agreements, service provider agreements, agreements
between the Seller or either Company and any Governmental or Regulatory
Agency, insurance contracts or agreements with investment managers,
including without limitation, all amendments thereto;
(ii) current summary Plan descriptions of each Benefit Plan subject
to ERISA, and any similar descriptions of all other Benefit Plans;
(iii) the most recent Form 5500 and Schedules thereto for each
Benefit Plan subject to ERISA reporting requirements;
(iv) the most recent determination of the IRS with respect to the
qualified status of each Qualified Plan;
(v) the most recent accountings with respect to any Benefit Plan
funded through a trust, other than a trust maintained by a Governmental or
Regulatory Authority; and
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(vi) the most recent actuarial report of the qualified actuary of any
Subject Defined Benefit Plan or any other Benefit Plan with respect to
which actuarial valuations are conducted, other than actuarial valuations
conducted by a Governmental or Regulatory Authority.
2.16 Real Property. (a) Neither of the Companies owns any real property.
Section 2.16(a) of the Disclosure Schedule contains a true and correct list of
each parcel of real property leased by the Companies (as lessor or lessee).
(b) Each Company has a valid and subsisting leasehold estate in and the
right to quiet enjoyment of the real properties leased by it for the full term
of the lease thereof to the extent allowed by applicable law. Each lease
referred to in paragraph (a) above is a legal, valid and binding agreement,
enforceable in accordance with its terms, of such Company and, to the Knowledge
of Seller, of each other Person that is a party thereto, and except as set forth
in Section 2.16(b) of the Disclosure Schedule, there is no, and neither Company
has received written notice from the landlord of any, default (or any condition
or event which, after notice or lapse of time or both, would constitute a
default) thereunder. Neither Company owes any brokerage commissions with respect
to any such leased space.
(c) Seller has delivered to Purchaser prior to the execution of this
Agreement true and complete copies of all leases (including any amendments and
renewal letters) with respect to the real property leased by each of the
Companies.
2.17 Tangible Personal Property; Investment Assets. (a) Each Company is
in possession of and has good title to, or has valid leasehold interests in or
valid rights under Contract to use, all tangible personal property used in or
reasonably necessary for the conduct of its business, including all tangible
personal property reflected on the balance sheet included in the Audited
Financial Statements and tangible personal property acquired since the Audited
Financial Statement Date other than property disposed of since such date in the
ordinary course of business consistent with past practice.
(b) Section 2.17(b) of the Disclosure Schedule describes each Investment
Asset owned by the Companies on the date hereof. Except as disclosed in Section
2.17(b) of the Disclosure Schedule, all such Investment Assets are owned by each
Company free and clear of all Liens other than Permitted Liens.
2.18 Intellectual Property Rights. Each Company has interests in or uses
only the Intellectual Property disclosed in Section 2.18 of the Disclosure
Schedule, each of which such Company either has all right, title and interest in
or a valid and binding rights under Contract to use. No other Intellectual
Property is used or necessary in the conduct of the business of either Company.
Except as disclosed in Section 2.18 of the Disclosure Schedule, (i) either
Company has the exclusive right to use the Intellectual Property disclosed in
Section 2.18 of the Disclosure Schedule, (ii) all registrations with and
applications to Governmental or Regulatory Authorities in respect of such
Intellectual Property are valid and in full force and effect and are not subject
to the payment of any Taxes or maintenance fees or the taking of any other
actions by such Company to maintain their validity or effectiveness, (iii) there
are no restrictions on the direct or indirect transfer of any Contract, or any
interest therein, held by such Company in respect of such Intellectual Property,
(iv) Seller has delivered to Purchaser prior to the execution of this Agreement
documentation with respect to any invention, process, design, computer program
or other know-how or trade secret included in such Intellectual Property, which
documentation is accurate in all material respects and reasonably sufficient in
detail and content to identify and explain such invention, process, design,
computer program or other know-how or trade secret and to facilitate its full
and proper use without reliance on the special knowledge or memory of any
Person, (v) each Company has taken reasonable security measures to protect the
secrecy, confidentiality and value of their trade secrets, (vi) neither Company
is, nor has it received any written notice from any other party thereto that it
is, in
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default (or with the giving of notice or lapse of time or both, would be in
default) under any material Contract to use such Intellectual Property and (vii)
to the Knowledge of Seller, no such Intellectual Property is being infringed by
any other Person. Neither Seller nor either Company has received written notice
from any other Person that either Company is infringing any Intellectual
Property of any such Person, no claim is pending or, to the Knowledge of Seller,
has been made to such effect that has not been resolved and, to the Knowledge of
Seller, neither Company is infringing any Intellectual Property of any other
Person.
2.19 Contracts. (a) Section 2.19(a) of the Disclosure Schedule (with
paragraph references corresponding to those set forth below) contains a true and
complete list of each of the following Contracts or other arrangements (true and
complete copies or, if none, reasonably complete and accurate written
descriptions of which, together with all written amendments and supplements
thereto and all waivers of any terms thereof, have been delivered to Purchaser
prior to the execution of this Agreement), to which either Company is a party or
by which any of its Assets and Properties is bound:
(i) (A) all Contracts (excluding Benefit Plans) providing for a
commitment of employment or consultation services for a specified or
unspecified term or otherwise relating to employment or the termination of
employment, the name, position and rate of compensation of each Person
party to such a Contract and the expiration date of each such Contract; and
(B) any written or unwritten representations, commitments, promises,
communications or courses of conduct (excluding Benefit Plans and any such
Contracts referred to in clause (A)) involving an obligation of either
Company to make payments in any year, other than with respect to salary or
incentive compensation payments in the ordinary course of business, to any
employee exceeding $10,000 or any group of employees exceeding $25,000 in
the aggregate;
(ii) all Contracts with any Person containing any provision or
covenant prohibiting or limiting the ability of either Company to engage in
any business activity or compete with any Person or prohibiting or limiting
the ability of any Person to compete with either Company;
(iii) all partnership, joint venture, shareholders' or other similar
Contracts with any Person;
(iv) all Contracts relating to Indebtedness of either Company in
excess of $25,000 or to preferred stock issued by either Company;
(v) all Contracts with distributors, dealers, manufacturer's
representatives, sales agencies or franchisees;
(vi) all Contracts relating to (A) the future disposition or
acquisition of any Assets and Properties, other than dispositions or
acquisitions in the ordinary course of business consistent with past
practice, and (B) any merger or other business combination;
(vii) all Contracts between or among either Company, on the one hand,
and Seller, any officer, director or Affiliate (other than such Company) of
Seller, on the other hand;
(viii) all collective bargaining or similar labor Contracts;
(ix) all Contracts that (A) limit or contain restrictions on the
ability of either Company to declare or pay dividends on, to make any other
distribution in respect of or to issue or purchase, redeem or otherwise
acquire its capital stock, to incur Indebtedness, to incur or suffer to
exist any Lien, to purchase or sell any Assets and Properties, to change
the lines of business in which it participates or engages or to engage in
any Business Combination or (B) require either Company to maintain
specified financial ratios or levels of net worth or other indicia of
financial condition; and
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(x) all other Contracts (other than Benefit Plans, leases listed in
Section 2.16(a) of the Disclosure Schedule and insurance policies listed in
Section 2.21 of the Disclosure Schedule) that (A) involve the payment or
potential payment, pursuant to the terms of any such Contract, by or to
either Company of more than $50,000 annually and (B) cannot be terminated
within sixty (60) days after giving notice of termination without resulting
in any material cost or penalty to either Company.
(b) Each Contract required to be disclosed in Section 2.19(a) of the
Disclosure Schedule is in full force and effect and constitutes a legal, valid
and binding agreement, enforceable in accordance with its terms, of such Company
and, to the knowledge of the Seller, of each other party thereto; and except as
disclosed in Section 2.19(b) of the Disclosure Schedule neither the Companies,
nor, to the Knowledge of Seller, any other party to such Contract is, or has
received notice that it is, in violation or breach of or default under any such
Contract (or with notice or lapse of time or both, would be in violation or
breach of or default under any such Contract) in any material respect.
2.20 Licenses. Section 2.20 of the Disclosure Schedule contains a true
and complete list of all Licenses used in and material, individually or in the
aggregate, to the business or operations of each Company (and all pending
applications for any such Licenses), setting forth the grantor, the grantee, the
function and the expiration and renewal date of each. Prior to the execution of
this Agreement, Seller has delivered to Purchaser true and complete copies of
all such Licenses. Except as disclosed in Section 2.20 of the Disclosure
Schedule:
(i) each Company owns or validly holds all Licenses that are
material, individually or in the aggregate, to its business or operations;
(ii) each License listed in Section 2.20 of the Disclosure Schedule
is valid, binding and in full force and effect; and
(iii) neither Company is, nor has it received any written notice from
the licensor that it is, in default (or with the giving of notice or lapse
of time or both, would be in default) under any such License.
2.21 Insurance. Section 2.21 of the Disclosure Schedule contains a true
and complete list (including the names and addresses of the insurers, the names
of the Persons to whom such Policies have been issued, the expiration dates
thereof, the annual premiums and payment terms thereof, whether it is a "claims
made" or an "occurrence" policy and a brief description of the interests insured
thereby) of all liability, property, workers' compensation, directors' and
officers' liability and other insurance policies currently in effect that insure
the business, operations or employees of each Company or affect or relate to the
ownership, use or operation of any of the Assets and Properties of either
Company and that (i) have been issued to either Company or (ii) have been issued
to any Person (other than such Company) for the benefit of such Company. The
insurance coverage provided by any of the policies described in clause (i) above
will not terminate or lapse by reason of the transactions contemplated by this
Agreement. Each policy listed in Section 2.21 of the Disclosure Schedule is
valid and binding and in full force and effect, no premiums due thereunder have
not been paid or reserved against and neither the Companies nor the Person to
whom such policy has been issued has received from the insurer any written
notice of cancellation or termination in respect of any such policy or is in
default thereunder. Neither the Companies nor the Person to whom such policy has
been issued has received written notice that any insurer under any policy
referred to in this Section is denying liability with respect to a claim
thereunder or defending under a reservation of rights clause.
2.22 Affiliate Transactions. Except as disclosed in Section 2.19(a)(vii)
or Section 2.22(a) of the Disclosure Schedule, (i) there are no intercompany
Liabilities between each of the Companies, on the one hand, and Seller, any
officer, director or Affiliate (other than such
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Company) of Seller, on the other, (ii) neither Seller nor any such officer,
director or Affiliate provides or causes to be provided any assets, services or
facilities to either Company, (iii) neither Company has provided or caused to be
provided any assets, services or facilities to Seller or any such officer,
director or Affiliate and (iv) neither Company beneficially owns, directly or
indirectly, any Investment Assets issued by Seller or any such officer, director
or Affiliate. Except as disclosed in Section 2.22(b) of the Disclosure Schedule,
each of the Liabilities and transactions listed in Section 2.22(a) of the
Disclosure Schedule was incurred or engaged in, as the case may be, on an
arm's-length basis. Except as disclosed in Section 2.22(c) of the Disclosure
Schedule, since the Audited Financial Statement Date, all settlements of
intercompany Liabilities between each of the Companies, on the one hand, and
Seller or any such officer, director or Affiliate, on the other, have been made,
and all allocations of intercompany expenses have been applied, in the ordinary
course of business consistent with past practice.
2.23 Employees; Labor Relations. (a) Section 2.23 of the Disclosure
Schedule contains a list of the name of each officer and employee of each
Company at the date hereof, together with each such person's position or
function, annual base salary or wages and any incentive or bonus arrangement
with respect to such person in effect on such date. Seller has not received any
information that would lead it to believe that a material number of such persons
will or may cease to be employees of either Company because of the consummation
of the transactions contemplated by this Agreement.
(b) Except as disclosed in Section 2.23 of the Disclosure Schedule, (i) no
employee of either Company is presently a member of a collective bargaining unit
and, to the Knowledge of Seller, there are no threatened or contemplated
attempts to organize for collective bargaining purposes any of the employees of
such Company, and (ii) no unfair labor practice complaint or sex, age, race or
other discrimination claim has been brought during the last two (2) years
against either Company before the National Labor Relations Board, the Equal
Employment Opportunity Commission or any other Governmental or Regulatory
Authority. Since June 30, 1994, there has been no work stoppage, strike or other
concerted action by employees of either Company. During that period, each
Company has complied in all material respects with all applicable Laws relating
to the employment of labor, including, without limitation those relating to
wages, hours and collective bargaining.
(c) To the extent required by any Laws or Orders, Seller and/or each
Company have provided timely notices or reports to employees of such Company or
their representatives and Governmental or Regulatory Authorities regarding the
terms of this Agreement.
2.24 Environmental Matters. Each Company has obtained all Licenses which
are required under applicable Environmental Laws in connection with the conduct
of the business or operations of such Company. Each of such Licenses is in full
force and effect and each Company is in compliance in all material respects with
the terms and conditions of all such Licenses and with any applicable
Environmental Law. In addition, except as set forth in Section 2.24 of the
Disclosure Schedule (with paragraph references corresponding to those set forth
below):
(a) No Order has been issued, no Environmental Claim has been filed, no
penalty has been assessed and no investigation or review is pending or, to the
Knowledge of Seller, threatened by any Governmental or Regulatory Authority with
respect to any alleged failure by either Company to have any License required
under applicable Environmental Laws in connection with the conduct of the
business or operations of such Company or with respect to any generation,
treatment, storage, recycling, transportation, discharge, disposal or Release of
any Hazardous Material generated by such Company, and to the Knowledge of
Seller, there are no facts or circumstances in existence which could reasonably
be expected to form the basis for any such Order, Environmental Claim, penalty
or investigation.
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(b) Neither Company owns, operates or leases a treatment, storage or
disposal facility requiring a permit under the Resource Conservation and
Recovery Act, as amended, or under any other comparable state, local or foreign
Law; and, without limiting the foregoing, (i) no polychlorinated biphenyl is or
has been present, (ii) no asbestos or asbestos-containing material is or has
been present, (iii) there are no underground storage tanks or surface
impoundments for Hazardous Materials, active or abandoned, and (iv) no Hazardous
Material has been Released in a quantity reportable under, or in violation of,
any Environmental Law or otherwise Released, in the cases of clauses (i) through
(iv), at, on or under any site or facility now or previously owned, operated or
leased by either Company.
(c) Neither Company has transported nor has it arranged for the
transportation of any Hazardous Material to any location that is (i) listed on
the NPL under CERCLA or any similar foreign list, (ii) listed for possible
inclusion on the NPL by the Environmental Protection Agency in CERCLIS or on any
similar state, local or foreign list or (iii) the subject of enforcement actions
by federal, state, local or foreign Governmental or Regulatory Authorities that
may lead to Environmental Claims against such Company.
(d) No Hazardous Material generated by either Company has been recycled,
treated, stored, disposed of or Released by such Company at any location.
(e) No oral or written notification of a Release of a Hazardous Material
has been filed by or on behalf of either Company and no site or facility now or
previously owned, operated or leased by either Company is listed or proposed for
listing on the NPL, CERCLIS or any similar state, local or foreign list of sites
requiring investigation or clean-up.
(f) No Liens have arisen under or pursuant to any Environmental Law on any
site or facility owned, operated or leased by either Company, and no federal,
state, local or foreign Governmental or Regulatory Authority action has been
taken or, to the Knowledge of Seller, is in process that could subject any such
site or facility to such Liens, and neither Company would be required to place
any notice or restriction relating to the presence of Hazardous Materials at any
site or facility owned by it in any deed to the real property on which such site
or facility is located.
(g) There have been no environmental investigations, studies, audits,
tests, reviews or other analyses conducted by, or that are in the possession of,
either Company in relation to any site or facility now or previously owned,
operated or leased by such Company which have not been delivered to Purchaser
prior to the execution of this Agreement.
2.25 Substantial Customers and Suppliers. (a) Section 2.25(a) of the
Disclosure Schedule lists the ten (10) largest customers of FSBC, on the basis
of revenues for goods sold or services provided for the most recently-completed
fiscal year and, to the Knowledge of Seller, for the fiscal year thereafter.
Section 2.25(a) of the Disclosure Schedule lists the five (5) largest suppliers
of FSBC, on the basis of cost of goods or services purchased for the most
recently-completed fiscal year and, to the Knowledge of Seller, for the fiscal
year thereafter.
(b) Except as disclosed in Section 2.25(b) of the Disclosure Schedule, no
such customer or supplier has ceased or materially reduced its purchases from,
use of the services of, or sales or provision of services to FSBC since the
Audited Financial Statement Date, or to the Knowledge of Seller, has threatened
to cease or materially reduce such purchases, use, sales or provision of
services after the date hereof. Except as disclosed in Section 2.25(b) of the
Disclosure Schedule, to the Knowledge of Seller, no such customer or supplier is
threatened with bankruptcy or insolvency.
2.26 Bank and Brokerage Accounts; Investment Assets. Section 2.26 of the
Disclosure Schedule sets forth (a) a true and complete list of the names and
locations of all banks, trust companies, securities brokers and other financial
institutions at which each Company has an account or safe deposit box or
maintains a banking, custodial, trading or other similar
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relationship; (b) a true and complete list and description of each such account,
box and relationship, indicating in each case the account number and the names
of the respective officers, employees, agents or other similar representatives
of such Company having signatory power with respect thereto; and (c) a list of
each Investment Asset, the name of the record and beneficial owner thereof, the
location of the certificates, if any, therefor, the maturity date, if any, and
any stock or bond powers or other authority for transfer granted with respect
thereto.
2.27 No Powers of Attorney. Except as set forth in Section 2.27 of the
Disclosure Schedule, neither Company has any powers of attorney or comparable
delegations of authority outstanding.
2.28 Accounts Receivable. Except as set forth in Section 2.28 of the
Disclosure Schedule, the accounts and notes receivable of each Company reflected
on the balance sheet included in the Audited Financial Statements, and all
accounts and notes receivable arising subsequent to the Audited Financial
Statement Date, (i) arose from bona fide sales transactions in the ordinary
course of business and are payable on ordinary trade terms, (ii) are legal,
valid and binding obligations of the respective debtors enforceable in
accordance with their terms, (iii) are not subject to any valid set-off or
counterclaim, (iv) do not represent obligations for goods sold on consignment,
on approval or on a sale-or-return basis or subject to any other repurchase or
return arrangement, (v) are collectible in the ordinary course of business
consistent with past practice in the aggregate recorded amounts thereof, net of
any applicable reserve reflected in the balance sheet included in the Audited
Financial Statements, and (vi) are not the subject of any Actions or Proceedings
brought by or on behalf of such Company. Section 2.28 of the Disclosure Schedule
sets forth a description of any security arrangements and collateral securing
the repayment or other satisfaction of receivables of each Company. All steps
necessary to render all such security arrangements legal, valid, binding and
enforceable, and to give and maintain for such Company, a perfected security
interest in the related collateral, have been taken.
2.29 Inventory. (a) All inventory of each Company reflected on the
balance sheet included in the Audited Financial Statements consisted, and all
such inventory acquired since the Audited Financial Statement Date consists, of
a quality and quantity usable and salable in the ordinary course of business
consistent with past practice, subject to normal and customary allowances in the
industry for spoilage, damage and outdated items.
(b) All items included in the inventory of each Company are the property
of such Company, free and clear of any Lien other than Permitted Liens, have not
been pledged as collateral, are not held by such Company on consignment from
others and conform in all material respects to all standards applicable to such
inventory or its use or sale imposed by Governmental or Regulatory Authorities.
2.30 Brokers. All negotiations relative to this Agreement and the
transactions contemplated hereby have been carried out by Seller directly with
Purchaser without the intervention of any Person on behalf of Seller in such
manner as to give rise to any valid claim by any Person against Purchaser or
either Company for a finder's fee, brokerage commission or similar payment.
2.31 Disclosure. All material facts relating to the Business or Condition
of the Companies have been disclosed to Purchaser in or in connection with this
Agreement. No representation or warranty contained in this Agreement, and no
statement contained in the Disclosure Schedule or in any certificate, list or
other writing furnished to Purchaser pursuant to any provision of this Agreement
(including without limitation the Financial Statements and), contains any untrue
statement of a material fact or omits to state a material fact necessary in
order to make the statements herein or therein, in the light of the
circumstances under which they were made, not misleading.
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2.32 Purchase for Investment. The Banner Shares will be acquired by
Seller or its designee for its own account for the purpose of investment, it
being understood that the right to dispose of such Banner Shares shall be
entirely within the discretion of Seller or its designee. Seller shall, and
shall cause its designee to, refrain from transferring or otherwise disposing of
any of the Banner Shares, or any interest therein, in such manner as to cause
Purchaser to be in violation of the registration requirements of the Securities
Act of 1933, as amended, or applicable state securities or blue sky laws.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents and warrants to Seller as follows:
3.01 Organization. Purchaser is a corporation duly organized, validly
existing and in good standing under the Laws of the State of Delaware. Purchaser
has full corporate power and authority to execute and deliver this Agreement and
the Operative Agreements to which it is a party, to perform its obligations
hereunder and thereunder and to consummate the transactions contemplated hereby
and thereby including without limitation to issue and transfer (pursuant to this
Agreement) the Purchaser Shares.
3.02 Capitalization. As of November 30, 1996, the authorized capital
stock of Purchaser consists of 30,000,000 shares of common stock, of which
23,409,610 shares are outstanding (not including 2,193,867 shares of common
stock reserved for issuance pursuant to stock options). All of the foregoing
shares and stock options have been duly authorized by all necessary corporate
action and all outstanding shares are validly issued, fully paid and
nonassessable. Except as set forth in Purchaser's SEC Documents, no
subscriptions, options, calls or rights of any kind to purchase or otherwise
acquire, and no securities convertible into or exchangeable for, capital stock
of Purchaser are outstanding.
3.03 Authority. The execution and delivery by Purchaser of this Agreement
and the Operative Agreements to which it is a party, and the performance by
Purchaser of its obligations hereunder and thereunder, have been duly and
validly authorized by the Board of Directors of Purchaser and, other than the
consent of the stockholders of Purchaser referred to in Section 6.01, no other
corporate action on the part of Purchaser or its stockholders being necessary
under applicable law. This Agreement has been duly and validly executed and
delivered by Purchaser and constitutes, and upon the execution and delivery by
Purchaser of the Operative Agreements to which it is a party, such Operative
Agreements will constitute, legal, valid and binding obligations of Purchaser
enforceable against Purchaser in accordance with their terms.
3.04 No Conflicts. The execution and delivery by Purchaser of this
Agreement do not, and the execution and delivery by Purchaser of the Operative
Agreements to which it is a party, the performance by Purchaser of its
obligations under this Agreement and such Operative Agreements and the
consummation of the transactions contemplated hereby and thereby will not:
(a) conflict with or result in a violation or breach of any of the terms,
conditions or provisions of the certificate of incorporation or by-laws of
Purchaser;
(b) subject to obtaining the consents, approvals and actions, making the
filings and giving the notices disclosed in Schedule 3.05 hereto, conflict with
or result in a violation or breach of any term or provision of any Law or Order
applicable to Purchaser or any of its Assets and Properties; or
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(c) except as disclosed in Schedule 3.04 hereto, (i) conflict with or
result in a violation or breach of, (ii) constitute (with or without notice or
lapse of time or both) a default under, (iii) require Purchaser to obtain any
consent, approval or action of, make any filing with or give any notice to any
Person as a result or under the terms of, or (iv) result in the creation or
imposition of any Lien upon Purchaser or any of its Assets or Properties under,
any Contract or License to which Purchaser is a party or by which any of its
Assets and Properties is bound.
3.05 Governmental Approvals and Filings. Except as disclosed in Schedule
3.05 hereto, no consent, approval or action of, filing with or notice to any
Governmental or Regulatory Authority on the part of Purchaser is required in
connection with the execution, delivery and performance of this Agreement or the
Operative Agreements to which it is a party or the consummation of the
transactions contemplated hereby or thereby.
3.06 Legal Proceedings. There are no Actions or Proceedings pending or,
to the knowledge of Purchaser, threatened against, relating to or affecting
Purchaser or any of its Assets and Properties which could reasonably be expected
to result in the issuance of an Order restraining, enjoining or otherwise
prohibiting or making illegal the consummation of any of the transactions
contemplated by this Agreement or any of the Operative Agreements.
3.07 Banner Shares Authorized. At or before the Closing Date, the Banner
Shares to be issued to Seller or its designees, as the case may be, will have
been duly authorized by the Board of Directors of Purchaser and, when so issued,
will have been validly issued and will be fully paid, non-assessable and free of
preemptive rights and rights of refusal.
3.08 Purchaser SEC Documents. As of their respective dates, Purchaser's
SEC Documents complied in all material respects with the requirements of the
Securities Act or the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), as the case may be, and the rules and regulations of the SEC thereunder
applicable to such SEC Documents. As of their respective dates, the SEC
Documents did not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The audited consolidated financial statements and unaudited
interim financial statements of Purchaser included in such SEC Documents have
been prepared in accordance with GAAP applied on a consistent basis (except as
may be indicated therein or in the notes thereto and except with respect to
unaudited statements as permitted by Form 10-Q of the SEC) and fairly present
the financial position of Purchaser and its subsidiaries as at the dates thereof
and the results of their operations and changes in financial position for the
periods then ended, subject, in the case of the unaudited interim financial
statements, to normal year-end and audit adjustments and any other adjustments
described therein.
3.09 No Share Restrictions. The Banner Shares to be issued to Seller or
its designees shall not be bound, limited or affected by any agreement,
arrangement or proxy, or be restricted as to voting, sale, purchase, transfer or
issue, except as restricted by the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
3.10 No Undisclosed Liabilities. To the knowledge of Purchaser, Purchaser
does not have any Liabilities except (i) Liabilities that are fully reflected in
Purchaser's SEC Documents, (ii) Liabilities not required to be reflected in
Purchaser's SEC Documents or reserved against in the financial statements
incorporated within Purchaser's SEC Documents, and (iii) Liabilities incurred in
the ordinary course of business and consistent with past practice since the
dates of the respective SEC Documents.
3.11 Absence of Material Changes. Except as and to the extent set forth
in Purchaser's SEC Documents, since the date of the respective SEC Documents,
Purchaser has not suffered any change which has had a material adverse effect on
its financial condition, assets, liabilities, reserves, business or operations
taken as a whole (a "Purchaser Material Adverse Effect") or
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any development which, individually or together with other such events, would
reasonably be expected to result in a Purchaser Material Adverse Effect.
3.12 Compliance With Law. Purchaser is in material compliance with all
laws, regulations and orders applicable to it and its Assets and Properties.
Except as set forth in Purchaser's SEC Documents, Purchaser has not received any
notification that it is in violation of any such laws, regulations or orders and
no such violation exists.
3.13 Disclosure. No representations or warranties by Purchaser in this
Agreement contain any untrue statement of material fact or, when all such
representations, warranties and statements are taken as a whole, omits or will
omit to state any material fact necessary in order to make the statements herein
or therein, in light of the circumstances under which they were made, not
misleading. Purchaser acknowledges that its general counsel is a director of
FSBC.
3.14 Purchase for Investment. The Shares will be acquired by Purchaser
(or, if applicable, its assignee pursuant to Section 14.09(b)(i)) for its own
account for the purpose of investment, it being understood that the right to
dispose of such Shares shall be entirely within the discretion of Purchaser (or
such assignee, as the case may be). Purchaser (or such assignee, as the case may
be) will refrain from transferring or otherwise disposing of any of the Shares,
or any interest therein, in such manner as to cause Seller to be in violation of
the registration requirements of the Securities Act of 1933, as amended, or
applicable state securities or blue sky laws.
3.15 Brokers. All negotiations relative to this Agreement and the
transactions contemplated hereby have been carried out by Purchaser directly
with Seller without the intervention of any Person on behalf of Purchaser in
such manner as to give rise to any valid claim by any Person against Seller for
a finder's fee, brokerage commission or similar payment.
ARTICLE IV
COVENANTS OF SELLER
Seller covenants and agrees with Purchaser that, at all times from and
after the date hereof until the Closing and, with respect to any covenant or
agreement by its terms to be performed in whole or in part after the Closing,
for the period specified therein or, if no period is specified therein,
indefinitely, Seller will comply with all covenants and provisions of this
Article IV, except to the extent Purchaser may otherwise consent in writing.
4.01 Regulatory and Other Approvals. Seller will, and will cause each
Company to, as promptly as practicable (a) take all commercially reasonable
steps necessary or desirable to obtain all consents, approvals or actions of,
make all filings with and give all notices to Governmental or Regulatory
Authorities or any other Person required of Seller or either Company to
consummate the transactions contemplated hereby and by the Operative Agreements,
including without limitation those described in Sections 2.06 and 2.07 of the
Disclosure Schedule, (b) provide such other information and communications to
such Governmental or Regulatory Authorities or other Persons as Purchaser or
such Governmental or Regulatory Authorities or other Persons may reasonably
request in connection therewith and (c) cooperate with Purchaser in connection
with the performance of its obligations under Sections 5.01 and 5.02. Seller
will provide prompt notification to Purchaser when any such consent, approval,
action, filing or notice referred to in clause (a) above is obtained, taken,
made or given, as applicable, and will advise Purchaser of any communications
(and, unless precluded by Law, provide copies of any such communications that
are in writing) with any Governmental or Regulatory Authority or other Person
regarding any of the transactions contemplated by this Agreement or any of the
Operative Agreements.
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4.02 Investigation by Purchaser. Seller will, and will cause each Company
to, (a) provide Purchaser and its officers, directors, employees, agents,
counsel, accountants, financial advisors, consultants and other representatives
(together "Representatives") with full access, upon reasonable prior notice and
during normal business hours, to all officers, employees, agents and accountants
of such Company and its Assets and Properties and Books and Records, and (b)
furnish Purchaser and such other Persons with all such information and data
(including without limitation copies of Contracts, Benefit Plans and other Books
and Records) concerning the business and operations of such Company as Purchaser
or any of such other Persons reasonably may request in connection with such
investigation.
4.03 Conduct of Business. Seller will cause each Company to conduct
business only in the ordinary course consistent with past practice. Without
limiting the generality of the foregoing, Seller will in the ordinary course of
business and in accordance with past practice:
(a) cause each Company to use commercially reasonable efforts to (i)
preserve intact the present business organization and reputation of such
Company, (ii) keep available (subject to dismissals and retirements in the
ordinary course of business consistent with past practice) the services of the
present officers, employees and consultants of such Company, (iii) maintain the
Assets and Properties of such Company in good working order and condition,
ordinary wear and tear excepted, (iv) maintain the good will of customers,
suppliers, lenders and other Persons to whom such Company sells goods or
provides services or with whom such Company otherwise has significant business
relationships and (v) continue all current sales, marketing and promotional
activities relating to the business and operations of such Company;
(b) except to the extent required by applicable Law, (i) cause the Books
and Records to be maintained in the usual, regular and ordinary manner, (ii) not
permit any material change in (A) any pricing, investment, accounting, financial
reporting, inventory, credit, allowance or Tax practice or policy of either
Company, or (B) any method of calculating any bad debt, contingency or other
reserve of either Company for accounting, financial reporting or Tax purposes
and (iii) not permit any change in the fiscal year of either Company;
(c) (i) use, and will cause each Company to use, commercially reasonable
efforts to maintain in full force and effect until the Closing substantially the
same levels of coverage as the insurance afforded under the Contracts listed in
Section 2.21 of the Disclosure Schedule, (ii) to the extent requested by
Purchaser prior to the Closing Date, use all commercially reasonable efforts to
cause such insurance coverage held by any Person (other than the Companies) for
the benefit of such Company to continue to be provided at the expense of such
Company for at least ninety (90) days after the Closing on substantially the
same terms and conditions as provided on the date of this Agreement and (iii)
cause any and all benefits under such Contracts paid or payable (whether before
or after the date of this Agreement) with respect to the business, operations,
employees or Assets and Properties of each Company to be paid to such Company;
and
(d) cause each Company to comply, in all material respects, with all Laws
and Orders applicable to the business and operations of such Company, and
promptly following receipt thereof to give Purchaser copies of any notice
received from any Governmental or Regulatory Authority or other Person alleging
any violation of any such Law or Order.
4.04 Financial Statements and Reports; Filings.
(a) As promptly as practicable, Seller will deliver to Purchaser true and
complete copies of such other financial statements, reports and analyses as may
be prepared or received by Seller or either Company relating to the business or
operations of either Company or as Purchaser may otherwise reasonably request.
(b) As promptly as practicable, Seller will deliver copies of all License
applications and other filings made by either Company after the date hereof and
before the Closing Date with any
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Governmental or Regulatory Authority (other than routine, recurring filings made
in the ordinary course of business consistent with past practice).
4.05 Employee Matters. Except as may be required by Law, Seller will
refrain, and will cause each Company to refrain, from directly or indirectly:
(a) making any representation or promise, oral or written, to any officer,
employee or consultant of such Company concerning any Benefit Plan, except for
statements as to the rights or accrued benefits of any officer, employee or
consultant under the terms of any Benefit Plan;
(b) making any increase in the salary, wages or other compensation of any
officer, employee or consultant of each Company which such increase constitutes
an amount greater than (A) 5% of such officer's, employee's or consultant's
salary, wages or compensation or (B) $5,000;
(c) adopting, entering into or becoming bound by any Benefit Plan,
employment-related Contract or collective bargaining agreement, or amending,
modifying or terminating (partially or completely) any Benefit Plan,
employment-related Contract or collective bargaining agreement, except to the
extent required by applicable Law and, in the event compliance with legal
requirements presents options, only to the extent that the option which such
Company reasonably believes to be the least costly is chosen;
(d) establishing or modifying any (i) targets, goals, pools or similar
provisions in respect of any fiscal year under any Benefit Plan,
employment-related Contract or other employee compensation arrangement or (ii)
salary ranges, increase guidelines or similar provisions in respect of any
Benefit Plan, employment-related Contract or other employee compensation
arrangement; or
(e) terminating, other than for cause as established under ordinary prior
conduct of such Company, any employees or inducing any employees to terminate
their employment with such Company, transferring such employees out of such
Company, or otherwise making such employees unavailable to Purchaser and such
Company from and after the Closing Date.
Seller will cause each Company to administer each Benefit Plan, or cause
the same to be so administered, in all material respects in accordance with the
applicable provisions of the Code, ERISA and all other applicable Laws. Seller
will promptly notify Purchaser in writing of each receipt by Seller, each
Company (and furnish Purchaser with copies) of any notice of investigation or
administrative proceeding by the IRS, Department of Labor, PBGC or other Person
involving any Benefit Plan.
4.06 Certain Restrictions. Without the prior written consent of
Purchaser, Seller will cause each Company to refrain from:
(a) amending its certificate of incorporation or by-laws (or other
comparable corporate charter documents) or taking any action with respect to any
such amendment or any recapitalization, reorganization, liquidation or
dissolution of any such corporation;
(b) authorizing, issuing, selling or otherwise disposing of any shares of
capital stock of or any Option with respect to such Company, or modifying or
amending any right of any holder of outstanding shares of capital stock of or
Option with respect to such Company;
(c) declaring, setting aside or paying any dividend or other distribution
in respect of the capital stock of such Company, or directly or indirectly
redeeming, purchasing or otherwise acquiring any capital stock of or any Option
with respect to such Company;
(d) acquiring or disposing of, or incurring any Lien (other than a
Permitted Lien) on, any Assets and Properties, other than in the ordinary course
of business consistent with past practice;
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(e) (i) entering into, amending, modifying, terminating (partially or
completely), granting any waiver under or giving any consent with respect to (A)
any Contract that would, if in existence on the date of this Agreement, be
required to be disclosed in the Disclosure Schedule pursuant to Section 2.19(a)
or (B) any material License or (ii) granting any irrevocable powers of attorney;
(f) violating, breaching or defaulting under in any material respect, or
taking or failing to take any action that (with or without notice or lapse of
time or both) would constitute a material violation or breach of, or default
under, any term or provision of any License held or used by such Company or any
Contract to which such Company is a party or by which any of its Assets and
Properties is bound;
(g) (i) incurring Indebtedness in an aggregate principal amount exceeding
$25,000 (net of any amounts of Indebtedness discharged during such period),
except for goods or services purchased in the ordinary course of business or
(ii) voluntarily purchasing, canceling, prepaying or otherwise providing for a
complete or partial discharge in advance of a scheduled payment date with
respect to, or waiving any right of such Company under, any Indebtedness of or
owing to such Company;
(h) engaging with any Person in any merger or other business combination;
(i) making capital expenditures or commitments for additions to property,
plant or equipment constituting capital assets in an aggregate amount exceeding
$25,000;
(j) making any change in the lines of business in which they participate
or are engaged;
(k) writing off or writing down any of their Assets and Properties outside
the ordinary course of business consistent with past practice; or
(l) entering into any Contract to do or engage in any of the foregoing.
4.07 Affiliate Transactions. Except for the intercompany debt between
Seller and FSBC (the "Intercompany Debt") and the Helmner Agreements,
immediately prior to the Closing, all Indebtedness and other amounts owing under
Contracts between Seller, any officer, director or Affiliate (other than the
Companies) of Seller, on the one hand, and either Company, on the other, will be
paid in full, and Seller will terminate and will cause any such officer,
director or Affiliate to terminate each Contract with such Company. Immediately
prior to the Closing, the Intercompany Debt will be converted into a capital
contribution into FSBC and Seller shall have no claims against FSBC or Purchaser
for the Intercompany Debt. Prior to the Closing, neither Company will enter into
any Contract or amend or modify any existing Contract, and will not engage in
any transaction outside the ordinary course of business consistent with past
practice or not on an arm's-length basis (other than pursuant to Contracts
disclosed pursuant to Section 2.19(a)(vii) of the Disclosure Schedule), with
Seller or any such officer, director or Affiliate.
4.08 Books and Records. On the Closing Date, Seller will deliver or make
available to Purchaser at the offices of each Company all of the Books and
Records, and if at any time after the Closing Seller discovers in its possession
or under its control any other Books and Records, it will forthwith deliver such
Books and Records to Purchaser.
4.09 Fulfillment of Conditions. Seller will execute and deliver at the
Closing each Operative Agreement that Seller is required hereby to execute and
deliver as a condition to the Closing, will take all commercially reasonable
steps necessary or desirable and proceed diligently and in good faith to satisfy
each other condition to the obligations of Purchaser contained in this Agreement
and will not, and will not permit either Company to, take or fail to take any
action that could reasonably be expected to result in the nonfulfillment of any
such condition.
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4.10 No Solicitations. Prior to the Closing Date, Seller agrees (a) that
neither it nor any of its Affiliates shall, directly or indirectly, initiate or
solicit any inquiry, proposal or offer with respect to a merger, consolidation
or other business combination including either of the Bellyloading Companies or
any acquisition or similar transaction involving the purchase of (i) all or any
significant portion of the assets of the Bellyloading Companies taken as a
whole, or (ii) all of the outstanding shares of the Bellyloading Companies (an
"Alternative Proposal"), or otherwise facilitate any effort or attempt to make
or implement an Alternative Proposal; and (b) that it will notify Purchaser
immediately if any such inquiries, proposals or offers are received by, any such
information is requested from, or any such negotiations or discussions are
sought to be initiated or continued with, it or any of such persons or groups;
provided, however, that nothing contained in this Section 4.10 shall prohibit
the Board of Directors of Seller from entering into discussions or negotiations
with any person or group that makes an unsolicited bona fide Alternative
Proposal, if, and only to the extent that, (A) the Board of Directors of Seller
determines in good faith that such action is required for the Board of Directors
to comply with its fiduciary duties to its stockholder imposed by law, (B) such
Alternative Proposal is more favorable to Seller's stockholder than the
transactions contemplated by this Agreement, and (C) Seller keeps Purchaser
informed of the status and all material information with respect to any such
discussions or negotiations. Nothing in this Section 4.10 shall (x) permit
Seller to terminate this Agreement (except as specifically provided in Article
XII), (y) permit Seller to enter into any agreement with respect to an
Alternative Proposal for so long as this Agreement remains in effect (it being
agreed that for so long as this Agreement remains in effect, Seller shall not
enter into any agreement with any person or group that provides for, or in any
way facilitates, an Alternative Proposal), or (z) affect any other obligation of
Seller under this Agreement.
ARTICLE V
COVENANTS OF PURCHASER
Purchaser covenants and agrees with Seller that, at all times from and
after the date hereof until the Closing, Purchaser will comply with all
covenants and provisions of this Article V, except to the extent Seller may
otherwise consent in writing.
5.01 Regulatory and Other Approvals. Purchaser will as promptly as
practicable (a) take all commercially reasonable steps necessary or desirable to
obtain all consents, approvals or actions of, make all filings with and give all
notices to Governmental or Regulatory Authorities or any other Person required
of Purchaser to consummate the transactions contemplated hereby and by the
Operative Agreements, including without limitation the consent of the
stockholders of Purchaser to the issuance of the Banner Shares as required by
Rule 312.03 of The New York Stock Exchange and the other transactions
contemplated hereby and those additional consents described in Schedules 3.04
and 3.05 hereto, (b) provide such other information and communications to such
Governmental or Regulatory Authorities or other Persons as Seller or such
Governmental or Regulatory Authorities or other Persons may reasonably request
in connection therewith and (c) cooperate with Seller and each Company in
connection with the performance of their obligations under Sections 4.01.
Purchaser will provide prompt notification to Seller when any such consent,
approval, action, filing or notice referred to in clause (a) above is obtained,
taken, made or given, as applicable, and will advise Seller of any
communications (and, unless precluded by Law, provide copies of any such
communications that are in writing) with any Governmental or Regulatory
Authority or other Person regarding any of the transactions contemplated by this
Agreement or any of the Operative Agreements.
5.02 Fulfillment of Conditions. Purchaser will execute and deliver at the
Closing each Operative Agreement that Purchaser is hereby required to execute
and deliver as a condition to
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the Closing, will take all commercially reasonable steps necessary or desirable
and proceed diligently and in good faith to satisfy each other condition to the
obligations of Seller contained in this Agreement and will not take or fail to
take any action that could reasonably be expected to result in the
nonfulfillment of any such condition.
ARTICLE VI
CONDITIONS TO OBLIGATIONS OF PURCHASER
The obligations of Purchaser hereunder to purchase the Shares are subject
to the fulfillment, at or before the Closing, of each of the following
conditions (all or any of which may be waived in whole or in part by Purchaser
in its sole discretion):
6.01 Representations and Warranties. Each of the representations and
warranties made by Seller in this Agreement (other than those made as of a
specified date earlier than the Closing Date) shall be true and correct in all
material respects on and as of the Closing Date as though such representation or
warranty was made on and as of the Closing Date, and any representation or
warranty made as of a specified date earlier than the Closing Date shall have
been true and correct in all respects on and as of such earlier date (except if
any breaches of such representations and warranties have not, in the aggregate,
resulted in, and would not reasonably be expected to result in, a material
adverse effect on either Company).
6.02 Performance. Seller shall have performed and complied with, in all
material respects, each agreement, covenant and obligation required by this
Agreement to be so performed or complied with by Seller at or before the
Closing.
6.03 Officers' Certificates. Seller shall have delivered to Purchaser a
certificate, dated the Closing Date and executed in the name and on behalf of
Seller by the Chairman of the Board, the President or any Vice President of
Seller, substantially in the form and to the effect of Exhibit B hereto, and a
certificate, dated the Closing Date and executed by the Secretary or any
Assistant Secretary of Seller, substantially in the form and to the effect of
Exhibit C hereto.
6.04 Orders and Laws. There shall not be in effect on the Closing Date
any Order or Law restraining, enjoining or otherwise prohibiting or making
illegal the consummation of any of the transactions contemplated by this
Agreement or any of the Operative Agreements or which could reasonably be
expected to otherwise result in a material diminution of the benefits of the
transactions contemplated by this Agreement or any of the Operative Agreements
to Purchaser, and there shall not be pending or threatened on the Closing Date
any Action or Proceeding in, before or by any Governmental or Regulatory
Authority which could reasonably be expected to result in the issuance of any
such Order or the enactment, promulgation or deemed applicability to Purchaser,
either Company or the transactions contemplated by this Agreement or any of the
Operative Agreements of any such Law.
6.05 Regulatory Consents and Approvals. All consents, approvals and
actions of, filings with and notices to any Governmental or Regulatory Authority
necessary to permit Purchaser and Seller to perform their obligations under this
Agreement and the Operative Agreements and to consummate the transactions
contemplated hereby and thereby (a) shall have been duly obtained, made or
given, (b) shall be in form and substance reasonably satisfactory to Purchaser,
(c) shall not be subject to the satisfaction of any condition that has not been
satisfied or waived and (d) shall be in full force and effect, and all
terminations or expirations of waiting periods imposed by any Governmental or
Regulatory Authority necessary for the consummation of the transactions
contemplated by this Agreement and the Operative Agreements.
6.06 Third Party Consents. The consent of the stockholders of Purchaser
to the issuance of Banner Shares and the other transactions contemplated hereby
required by Rule 312.03 of
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The New York Stock Exchange shall have been obtained. In addition to such
consent of the stockholders of Purchaser, the consents (or in lieu thereof
waivers) listed in Section 6.06 of the Disclosure Schedule, and all other
consents (or in lieu thereof waivers) to the performance by Purchaser and Seller
of their obligations under this Agreement and the Operative Agreements or to the
consummation of the transactions contemplated hereby and thereby as are required
under any material Contract to which Purchaser, Seller or either Company is a
party or by which any of their respective Assets and Properties are bound (a)
shall have been obtained, (b) shall be in form and substance reasonably
satisfactory to Purchaser, (c) shall not be subject to the satisfaction of any
condition that has not been satisfied or waived and (d) shall be in full force
and effect, except where the failure to obtain any such consent (or in lieu
thereof waiver) could not reasonably be expected, individually or in the
aggregate with other such failures, to materially adversely affect Purchaser or
the Business or Condition of the Companies or otherwise result in a material
diminution of the benefits of the transactions contemplated by this Agreement
and the Operative Agreements to Purchaser.
6.07 Resignations of Directors and Officers. Such members of the board of
directors and such officers of each Company as are designated in a written
notice delivered at least two (2) Business Days prior to the Closing Date by
Purchaser to Seller shall have tendered, effective at the Closing, their
resignations as such directors and officers.
6.08 Escrow Agreement. Seller, Purchaser and the Escrow Agent shall have
executed and delivered the Escrow Agreement.
6.09 Proceedings. All proceedings to be taken on the part of Seller in
connection with the transactions contemplated by this Agreement and all
documents incident thereto shall be reasonably satisfactory in form and
substance to Purchaser, and Purchaser shall have received copies of all such
documents and other evidences as Purchaser may reasonably request in order to
establish the consummation of such transactions and the taking of all
proceedings in connection therewith.
6.10 Fairness Opinion. Purchaser shall have received the written opinion
of Houlihan, Lokey, Howard & Zukin, Inc., the financial adviser to Purchaser,
dated the Closing Date, to the effect that the transactions contemplated by this
Agreement, taken as a whole, are fair to the holders of Purchaser's common stock
(other than Seller) from a financial point of view.
6.11 1997 EBT Loss. Prior to the Closing, Seller shall have paid to the
Companies, as a contribution to capital, an amount equal to the EBT Loss, if
any, incurred by the Companies from June 30, 1996 to the Closing Date. Neither
the Seller nor the Companies shall make a cash payment, nor be obligated to make
a cash payment after the Closing if it is determined that the amount contributed
by the Seller to the Companies prior to the Closing does not equal the EBT Loss,
if any, incurred by the Companies as of March 31, 1997, as finally determined.
ARTICLE VII
CONDITIONS TO OBLIGATIONS OF SELLER
The obligations of Seller hereunder to sell the Shares are subject to the
fulfillment, at or before the Closing, of each of the following conditions (all
or any of which may be waived in whole or in part by Seller in its sole
discretion):
7.01 Representations and Warranties. Each of the representations and
warranties made by Purchaser in this Agreement shall be true and correct in all
material respects on and as of the Closing Date as though such representation or
warranty was made on and as of the Closing Date (except if any breaches of such
representations and warranties have not, in the aggregate, resulted in, and
would not reasonably be expected to result in, a Purchaser Material Adverse
Effect).
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7.02 Performance. Purchaser shall have performed and complied with, in
all material respects, each agreement, covenant and obligation required by this
Agreement to be so performed or complied with by Purchaser at or before the
Closing.
7.03 Officers' Certificates. Purchaser shall have delivered to Seller a
certificate, dated the Closing Date and executed in the name and on behalf of
Purchaser by the Chairman of the Board, the President, any Vice President or
Treasurer of Purchaser, substantially in the form and to the effect of Exhibit D
hereto, and a certificate, dated the Closing Date and executed by the Secretary
or any Assistant Secretary of Purchaser, substantially in the form and to the
effect of Exhibit E hereto.
7.04 Orders and Laws. There shall not be in effect on the Closing Date any
Order or Law that became effective after the date of this Agreement restraining,
enjoining or otherwise prohibiting or making illegal the consummation of any of
the transactions contemplated by this Agreement or any of the Operative
Agreements.
7.05 Regulatory Consents and Approvals. All consents, approvals and
actions of, filings with and notices to any Governmental or Regulatory Authority
necessary to permit Seller and Purchaser to perform their obligations under this
Agreement and the Operative Agreements and to consummate the transactions
contemplated hereby and thereby (a) shall have been duly obtained, made or
given, (b) shall not be subject to the satisfaction of any condition that has
not been satisfied or waived and (c) shall be in full force and effect, and all
terminations or expirations of waiting periods imposed by any Governmental or
Regulatory Authority necessary for the consummation of the transactions
contemplated by this Agreement and the Operative Agreements shall have occurred.
7.06 Third Party Consents. All consents (or in lieu thereof waivers) to
the performance by Seller of its obligations hereunder and to the consummation
of the transactions contemplated hereby as are required under the material
Contracts listed in Section 7.06 of the Disclosure Schedule (a) shall have been
obtained, (b) shall not be subject to the satisfaction of any condition that has
not been satisfied or waived and (c) shall be in full force and effect.
7.07 Escrow Agreement. Seller, Purchaser and the Escrow Agent shall have
executed and delivered the Escrow Agreement.
7.08 Proceedings. All proceedings to be taken on the part of Purchaser in
connection with the transactions contemplated by this Agreement and all
documents incident thereto shall be reasonably satisfactory in form and
substance to Seller, and Seller shall have received copies of all such documents
and other evidences as Seller may reasonably request in order to establish the
consummation of such transactions and the taking of all proceedings in
connection therewith.
7.09 Registration Rights Agreement. Purchaser shall have executed and
delivered to Seller an amendment, substantially in the form of Exhibit F hereto,
to the Registration Rights Agreement, dated as of August 2, 1990, as amended,
between Purchaser and Banner Aerospace Holding Company II, Inc.
ARTICLE VIII
TAX MATTERS AND POST-CLOSING TAXES
As FSBC is a Swedish corporation, Purchaser and Seller intend that the
following tax language (i) incorporates all Swedish tax authority that parallels
the U.S. federal income tax law and (ii) has the full force and effect under
such Swedish tax authority.
8.01 Transfer Taxes. Seller and Purchaser shall each pay half of all
sales, use, transfer, real property transfer, recording, gains, stock transfer
and other similar Taxes and fees
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("Transfer Taxes") arising out of or in connection with the transactions
effected pursuant to this Agreement. Seller shall file all necessary
documentation and Returns with respect to such Transfer Taxes.
8.02 Tax Periods Ending on or Before the Closing Date. Seller shall
prepare or cause to be prepared and file or cause to be filed all Tax Returns
for the Companies for all periods ending on or prior to the Closing Date, which
are filed after that Date. Seller shall permit Purchaser to review and comment
on each Tax Return described in the preceding sentence prior to filing.
Purchaser shall provide Seller (at Seller's sole cost and expense) with all
assistance reasonably requested by Seller to prepare or cause to be prepared or
to file or cause to be filed such Tax Returns. Seller shall indemnify Purchaser
and its Affiliates for Taxes of the Companies with respect to such periods to
the extent such Taxes are not reflected in the reserve for Tax liability (other
than any reserve for deferred Taxes established to reflect timing differences
between book and Tax income) shown on the Financial Statements.
8.03 Taxes for Stub Period. Seller and Purchaser will, to the extent
permitted by applicable law, elect with the relevant state and local taxing
authorities to close the taxable period of the Companies on the Closing Date. In
any case where applicable law does not permit the Companies to close its taxable
year on the Closing Date, Purchaser will cause to be prepared and duly filed all
Tax Returns relating to Taxes of the Companies for any taxable period which
includes and ends after the Closing Date (the "Stub Period"), provided, however,
that Seller shall provide Purchaser (at no cost to Purchaser or either Company)
with all assistance requested by Purchaser or either Company that Purchaser or
such Company reasonably deems necessary to prepare or cause to be prepared or to
file or cause to be filed all Tax Returns.
8.04 Consistent Tax Treatment. Seller and Purchaser agree to report the
transfer of the Shares to Purchaser in exchange solely for the Banner Shares on
their Federal and state income tax returns as a reorganization under
sec.368(a)(1)(B) of the Code.
8.05 sec.338. Purchaser is responsible for, and shall not be indemnified
for, any taxes arising out of an affirmative election, but not a deemed
election, under of the Code, and Purchaser shall not make any affirmative
election under sec.338 of the Code regarding the transactions contemplated by
the Stock Exchange Agreement. In the event of a deemed election under Code
sec.338, any reduction in tax payable by Purchaser as a result of such deemed
election shall result in payment by Purchaser to Seller of an amount equal to
the reduction in actual tax otherwise payable by Purchaser. Said payment shall
be made at the time the Tax Return reflecting such reduction in tax is filed by
Purchaser.
8.06 Books and Records. Purchaser shall retain the books and records
necessary for preparing the Companies' tax returns for a period of six years
following the Closing Date and shall not dispose of such books and records
thereafter until after giving 30 days' notice to Seller. Purchaser shall provide
Seller with copies of such books and records as Seller may reasonably request.
Purchaser and Seller shall cooperate in the preparation of Tax Returns and the
conduct of audits and examinations, which cooperation shall include making
relevant books and records reasonably available and providing reasonable access
to necessary personnel.
ARTICLE IX
EMPLOYEE BENEFITS MATTERS
9.01 Employment and Benefits. Effective as of the Closing, Purchaser shall
have sole discretion regarding the hiring and retention of employees of each
Company, including, without limitation, sole discretion regarding whether to
hire as employees any individual who is or was employed by such Company at any
time prior to the Closing (each such individual, an "Employee"). In addition,
Purchaser shall have (i) sole discretion regarding the terms and conditions of
employment, including without limitation compensation and employee benefits, to
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be provided to the employees of each Company from and after the Closing and (ii)
sole responsibility, effective as of the Closing, for (A) compensation and
employee benefits for all Employees and (B) any benefits or payments due to
Employees under any Benefit Plan or severance, termination or change of control
agreement by reason of any Employee's termination from employment ("Severance
Costs") following the Closing Date.
9.02 No Assumption or Continuity of Liabilities. Notwithstanding anything
to the contrary in subclause (ii)(B) of Section 9.01 above, Seller and its
Affiliates (other than the Companies) shall have sole responsibility for any
Severance Costs arising out of (i) any Employee's termination from employment on
or prior to the Closing Date or (ii) the execution or delivery of this Agreement
or the transactions contemplated hereby. Additionally, Purchaser shall not
assume, and Seller and its Affiliates (other than the Companies) shall be solely
responsible for, any and all Liabilities to Employees arising out of the
employment of the Employees by Seller, each Company and any of their Affiliates
on or prior to the Closing Date (other than accrued vacation or sick pay set
forth on the Audited Balance Sheet which shall be assumed by Purchaser)
including, without limitation, any and all Liabilities that have accrued or
arisen under or in connection with any Benefit Plan. Without limiting the
foregoing sentence, Seller shall be solely responsible for (i) any accrued
benefits of Employees under any Benefit Plans that are Qualified Plans or any
other Pension Benefit Plans, (ii) any benefits or payments due to Employees
under any Benefit Plan or severance, termination or change of control agreement
by reason of any Employee's termination from employment on or prior to the
Closing Date, the execution or delivery of this Agreement or the transactions
contemplated under this Agreement, (iii) any Liability under the Worker
Adjustment and Retraining Notification Act, as amended, arising out of events
occurring on or prior to the Closing Date, (iv) any Liability with respect to
health care continuation coverage under the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended, arising out of the cessation of coverage
of any Employee under any Benefit Plan that is a medical or dental plan, (v) any
Liability with respect to retiree medical, dental or life insurance coverage
provided under any Benefit Plan, (vi) all expenses and benefits for claims under
any medical or dental Benefit Plans for any Employee or any covered dependents
of the same in respect of medical treatment or services rendered or expenses
incurred prior to the Closing Date and (vii) all expenses and benefits for
claims under any life insurance or disability Benefit Plans but only with
respect to events which give rise to any such claims that occur prior to the
Closing Date.
ARTICLE X
SURVIVAL OF REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS
10.01 Survival of Representations, Warranties, Covenants and
Agreements. Notwithstanding any right of Purchaser (whether or not exercised)
to investigate the affairs of each Company or any right of any party (whether or
not exercised) to investigate the accuracy of the representations and warranties
of the other party contained in this Agreement, Seller and Purchaser have the
right to rely fully upon the representations, warranties, covenants and
agreements of the other contained in this Agreement. The representations,
warranties, covenants and agreements of Seller and Purchaser contained in this
Agreement will survive the Closing (a) indefinitely with respect to (i) the
representations and warranties contained in Sections 2.02, 2.04, 2.05, 2.30,
3.03 and 3.15 and (ii) the covenants and agreements contained in Sections 1.03,
14.03 and 14.05; (b) until sixty (60) days after the expiration of all
applicable statutes of limitation (including all periods of extension, whether
automatic or permissive) with respect to matters covered by Section 2.12 and
Article VIII and (insofar as they relate to ERISA or the Code) Section 2.15 and
Article IX; (c) until not later than the third anniversary of the Closing Date
in the case of all other representations and warranties and any covenant or
agreement to be performed in whole or in part on or prior to the Closing or (d)
with respect to each other covenant or agreement contained in this Agreement,
until sixty (60) days following
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the last date on which such covenant or agreement is to be performed; provided
that any representation, warranty, covenant or agreement that would otherwise
terminate in accordance with clause (b), (c) or (d) above will continue to
survive if a Claim Notice or Indemnity Notice (as applicable) shall have been
timely given under Article XI on or prior to such termination date, until the
related claim for indemnification has been satisfied or otherwise resolved as
provided in Article XI.
ARTICLE XI
INDEMNIFICATION
As FSBC is a Swedish corporation, Purchaser and Seller intend that the
following tax language (i) incorporates all Swedish tax authority that parallels
the U.S. federal income tax law and (ii) has the full force and effect under
such Swedish tax authority.
11.01 Tax Indemnification; Post-Closing Adjustments; Notification; Control;
Refunds.
(a) After the Closing Date, Seller will indemnify and hold harmless the
Purchaser Indemnified Parties from and against any and all claims, actions,
causes of action, liabilities, losses, damages, and reasonable out-of-pocket
expenses and costs resulting from, arising out of or relating to Taxes for all
taxable periods or portions thereof ending on or before the Closing Date, and as
provided in subsection (b) below, for the Stub Period, including, without
limitation, any Tax liability (other than a Transfer Tax liability) incurred in
connection with the transactions to be executed pursuant to this Agreement,
including the sale of the Shares.
(b) The liability for Taxes for the Stub Period for which Seller will
indemnify and hold harmless the Purchaser Indemnified Parties pursuant to
Section 11.01(a) shall be determined as the Tax Liability that would have
resulted had the last day of the period been the Closing Date, and had the books
of the Companies been closed on that date, and using the actual tax rate imposed
on a particular category of income under the applicable taxing jurisdiction.
(c) Taxes other than income Taxes (but not Transfer Taxes) for which the
last day of the taxable period is not the Closing Date, will be allocated pro
rata per day.
(d) Any amount payable by Seller as computed by the Purchaser Indemnified
Parties under this Section 11.01 will be remitted to Purchaser at least three
(3) Business Days prior to the due date of the respective Tax Returns (with
interest being imposed at the underpayment rate, as that term is defined in Code
sec.6621, for any late payment). Any amount payable by Purchaser as computed by
Seller under this Section 11.01 will be remitted to Seller at least three (3)
Business Days prior to the due date of the respective Tax Returns (with interest
imposed at the underpayment rate, as that term is defined in Code sec.6621, for
any late payment).
(e) Seller shall have the right to control any audit or examination
relating to Taxes by any taxing authority, initiate any claim for refund, file
any amended return, contest, resolve and defend against any assessment, notice
of deficiency or other adjustment or proposed adjustment relating or with
respect to any Taxes of the Companies for all taxable periods or portions
thereof prior to or including the Closing Date.
(f) Any reduction in tax payable by Purchaser for a Post-Closing Period as
a result of utilization of net operating loss carryforwards or tax credit
carryforwards of each Company originating in a Pre-Closing Period shall not
result in payment by Purchaser to Seller of the reduction in actual tax
otherwise payable by Purchaser to the extent such net operating loss
carryforwards or tax credit carryforwards had not been reflected in the Audited
Balance Sheet.
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(g) In the event there is an adjustment to Seller's tax liability that:
(i) results in an increase in the liability of the Fairchild tax
consolidated group or the use of loss carrybacks and carryforwards, credits
and deductions of any member of the Fairchild tax consolidated group,
(ii) is solely attributable to the failure of the transfer of the
Shares to Purchaser in exchange solely for Banner Shares to qualify as a
tax-free reorganization under sec. 368(a)(1)(B) of the Code, which failure
occurred solely by virtue of the Banner Shares being paid in installments,
as provided in Section 1.01 of the Agreement and
(iii) is subject to a Final Determination, then Purchaser shall issue
shares of Banner Common Stock ("Banner Indemnification Shares") to
Fairchild equal in value to fifty percent of the federal and state income
tax liability incurred by the Fairchild tax consolidated group as a result
of the above Final Determination. The Banner Indemnification Shares shall
be delivered to Fairchild free and clear of all Liens by delivery of a
certificate or certificates in genuine and unaltered form, with the
requisite stock transfer stamps, if any, attached. The value of the Banner
Indemnification Shares will be based on the average of the closing sales
prices of Banner Common Stock as reported on the NYSE Composite Tape on
each of the fifteen (15) consecutive trading days next preceding the fifth
trading day prior to the issuance date.
11.02 Other Indemnification.
(a) Subject to paragraph (c) of this Section and the other Sections of this
Article XI, Seller shall indemnify the Purchaser Indemnified Parties in respect
of, and hold each of them harmless from and against, any and all Losses
(excluding consequential damages) suffered, incurred or sustained by any of them
or to which any of them becomes subject, resulting from, arising out of or
relating to any of the matters disclosed in Section 2.11 or 2.13 of the
Disclosure Schedule or any breach of representation or warranty or
nonfulfillment of or failure to perform any covenant or agreement on the part of
Seller contained in this Agreement. Notwithstanding the foregoing, Seller shall
only be required to indemnify Purchaser Indemnified Parties for Losses relating
to any matters disclosed in Section 2.11 of the Disclosure Schedule which have
accrued prior to or as of the Closing Date.
(b) Subject to paragraph (c) of this Section and the other Sections of this
Article XI, Purchaser shall indemnify the Seller Indemnified Parties in respect
of, and hold each of them harmless from and against, any and all Losses
(excluding consequential damages) suffered, incurred or sustained by any of them
or to which any of them becomes subject, resulting from, arising out of or
relating to any breach of representation or warranty or nonfulfillment of or
failure to perform any covenant or agreement on the part of Purchaser contained
in this Agreement.
(c) No amounts of indemnity shall be payable in the case of a claim in
respect of a Loss arising under paragraph (a) or paragraph (b) of this Section
11.02 (A) unless and until the Indemnified Parties thereunder have suffered,
incurred, sustained or become subject to Losses referred to in paragraph (a) or
paragraph (b), as the case may be, of this Section 11.02 in excess of $75,000 in
the aggregate; in which event such Indemnified Parties shall be entitled to
claim indemnity for the full amount of such Losses; and (B) unless upon payment
thereof the Indemnified Parties thereunder have received payments in respect of
claims made under paragraph (a) or paragraph (b), as the case may be, of this
Section 11.02 of $5,000,000 or less in the aggregate; provided that this
paragraph (c) shall not apply to any of the matters disclosed in Section 2.11 or
2.13 of the Disclosure Schedule or a breach of a representation or warranty
contained in Section 2.02, 2.04, 2.06, 3.03 or 3.04 or to a breach of a covenant
contained in Section 1.03, 14.03 or 14.05. No amounts of indemnity shall be
payable in the case of a claim in respect of a Loss arising under paragraphs (a)
or (b) of this Section 11.02 after
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the 1998 Return Closing Date or the 1999 Return Closing Date, as the case may
be, if Purchaser has elected to exercise its Rescission Right. Notwithstanding
the foregoing, a claim in respect of a Loss arising under paragraph (a) of this
Section 11.02 relating to a breach of the representation and warranty contained
in Section 2.04 shall not be payable until after the 1999 Return Closing Date
and only if Purchaser has elected not to exercise its Rescission Right.
11.03 Method of Asserting Claims. All claims for indemnification by any
Indemnified Party under Section 11.02 will be asserted and resolved as follows:
(a) In the event any claim or demand in respect of which an Indemnified
Party might seek indemnity under Section 11.02 is asserted against or sought to
be collected from such Indemnified Party by a Person other than Fairchild or any
Affiliate of Seller or of Purchaser (a "Third Party Claim"), the Indemnified
Party shall deliver a Claim Notice with reasonable promptness to the
Indemnifying Party. If the Indemnified Party fails to provide the Claim Notice
with reasonable promptness after the Indemnified Party receives notice of such
Third Party Claim, the Indemnifying Party will not be obligated to indemnify the
Indemnified Party with respect to such Third Party Claim to the extent that the
Indemnifying Party's ability to defend has been irreparably prejudiced by such
failure of the Indemnified Party. The Indemnifying Party will notify the
Indemnified Party as soon as practicable within the Dispute Period whether the
Indemnifying Party disputes its liability to the Indemnified Party under Section
11.02 and whether the Indemnifying Party desires, at its sole cost and expense,
to defend the Indemnified Party against such Third Party Claim.
(i) If the Indemnifying Party notifies the Indemnified Party within
the Dispute Period that the Indemnifying Party desires to defend the
Indemnified Party with respect to the Third Party Claim pursuant to this
Section 11.03(a), then the Indemnifying Party will have the right to
defend, with counsel reasonably satisfactory to the Indemnified Party, at
the sole cost and expense of the Indemnifying Party, such Third Party Claim
by all appropriate proceedings, which proceedings will be vigorously and
diligently prosecuted by the Indemnifying Party to a final conclusion or
will be settled at the discretion of the Indemnifying Party (but only with
the consent of the Indemnified Party, which consent will not be
unreasonably withheld, in the case of any settlement that provides for any
relief other than the payment of monetary damages as to which the
Indemnified Party will be indemnified in full). The Indemnifying Party will
be deemed to have waived its right to dispute its liability to the
Indemnified Party under Section 11.02 with respect to any Third Party Claim
as to which it elects to control the defense. The Indemnifying Party will
have full control of such defense and proceedings, including (except as
provided in the immediately preceding sentence) any settlement thereof;
provided, however, that the Indemnified Party may, at the sole cost and
expense of the Indemnified Party, at any time prior to the Indemnifying
Party's delivery of the notice referred to in the first sentence of this
clause (i), file any motion, answer or other pleadings or take any other
action that the Indemnified Party reasonably believes to be necessary or
appropriate to protect its interests; and provided further, that if
requested by the Indemnifying Party, the Indemnified Party will, at the
sole cost and expense of the Indemnifying Party, provide reasonable
cooperation to the Indemnifying Party in contesting any Third Party Claim
that the Indemnifying Party elects to contest. The Indemnified Party may
retain separate counsel to represent it in, but not control, any defense or
settlement of any Third Party Claim controlled by the Indemnifying Party
pursuant to this clause (i), and the Indemnified Party will bear its own
costs and expenses with respect to such separate counsel, except as
provided in the preceding sentence and except that the Indemnifying Party
will pay the costs and expenses of such separate counsel if (x) in the
Indemnified Party's good faith judgment, it is advisable, based on advice
of counsel, for the Indemnified Party to be represented by separate counsel
because a conflict or potential conflict exists between the Indemnifying
Party and the Indemnified Party which makes representation of both parties
inappropriate under applica-
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ble standards of professional conduct or (y) the named parties to such
Third Party Claim include both the Indemnifying Party and the Indemnified
Party and the Indemnified Party determines in good faith, based on advice
of counsel, that defenses are available to it that are unavailable to the
Indemnifying Party. Notwithstanding the foregoing, the Indemnified Party
may retain or take over the control of the defense or settlement of any
Third Party Claim the defense of which the Indemnifying Party has elected
to control if the Indemnified Party irrevocably waives its right to
indemnity under Section 11.02 with respect to such Third Party Claim.
(ii) If the Indemnifying Party fails to notify the Indemnified Party
within the Dispute Period that the Indemnifying Party desires to defend the
Third Party Claim pursuant to Section 11.03(a), or if the Indemnifying
Party gives such notice but fails to prosecute vigorously and diligently or
settle the Third Party Claim, then the Indemnified Party will have the
right to defend, at the sole cost and expense of the Indemnifying Party,
the Third Party Claim by all appropriate proceedings, which proceedings
will be prosecuted by the Indemnified Party in good faith or will be
settled at the discretion of the Indemnified Party (with the consent of the
Indemnifying Party, which consent will not be unreasonably withheld). The
Indemnified Party will have full control of such defense and proceedings,
including (except as provided in the immediately preceding sentence) any
settlement thereof; provided, however, that if requested by the Indemnified
Party, the Indemnifying Party will, at the sole cost and expense of the
Indemnifying Party, provide reasonable cooperation to the Indemnified Party
and its counsel in contesting any Third Party Claim which the Indemnified
Party is contesting. Notwithstanding the foregoing provisions of this
clause (ii), if the Indemnifying Party has notified the Indemnified Party
within the Dispute Period that the Indemnifying Party disputes its
liability hereunder to the Indemnified Party with respect to such Third
Party Claim and if such dispute is resolved in favor of the Indemnifying
Party in the manner provided in clause (iii) below, the Indemnifying Party
will not be required to bear the costs and expenses of the Indemnified
Party's defense pursuant to this clause (ii) or of the Indemnifying Party's
participation therein at the Indemnified Party's request, and the
Indemnified Party will reimburse the Indemnifying Party in full for all
reasonable costs and expenses incurred by the Indemnifying Party in
connection with such litigation.
(iii) If the Indemnifying Party notifies the Indemnified Party that
it does not dispute its liability to the Indemnified Party with respect to
the Third Party Claim under Section 11.02 or fails to notify the
Indemnified Party within the Dispute Period whether the Indemnifying Party
disputes its liability to the Indemnified Party with respect to such Third
Party Claim, the Loss arising from such Third Party Claim will be
conclusively deemed a liability of the Indemnifying Party under Section
11.02 and the Indemnifying Party shall pay the amount of such Loss to the
Indemnified Party on demand following its final determination. If the
Indemnifying Party has timely disputed its liability with respect to such
claim, the Indemnifying Party and the Indemnified Party will proceed in
good faith to negotiate a resolution of such dispute, and if not resolved
through negotiations within the Resolution Period, such dispute shall be
resolved by litigation in a court of competent jurisdiction.
(b) In the event any Indemnified Party should have a claim under Section
11.02 against any Indemnifying Party that does not involve a Third Party Claim,
the Indemnified Party shall deliver an Indemnity Notice with reasonable
promptness to the Indemnifying Party. The failure by any Indemnified Party to
give the Indemnity Notice shall not impair such party's rights hereunder except
to the extent that an Indemnifying Party demonstrates that it has been
irreparably prejudiced thereby. If the Indemnifying Party notifies the
Indemnified Party that it does not dispute the claim described in such Indemnity
Notice or fails to notify the Indemnified Party within the Dispute Period
whether the Indemnifying Party disputes the claim described in
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such Indemnity Notice, the Loss arising from the claim specified in such
Indemnity Notice will be conclusively deemed a liability of the Indemnifying
Party under Section 11.02 and the Indemnifying Party shall pay the amount of
such Loss to the Indemnified Party on demand following its final determination.
If the Indemnifying Party has timely disputed its liability with respect to such
claim, the Indemnifying Party and the Indemnified Party will proceed in good
faith to negotiate a resolution of such dispute, and if not resolved through
negotiations within the Resolution Period, such dispute shall be resolved by
litigation in a court of competent jurisdiction.
ARTICLE XII
TERMINATION
12.01 Termination. This Agreement may be terminated, and the transactions
contemplated hereby may be abandoned:
(a) at any time before the Closing, by mutual written agreement of Seller
and Purchaser;
(b) at any time before the Closing, by Seller or Purchaser, (i) in the
event of a material breach hereof by the non-terminating party if such
non-terminating party fails to cure such breach within ten (10) Business Days
following notification thereof by the terminating party or (ii) upon
notification of the non-terminating party by the terminating party that the
satisfaction of any condition to the terminating party's obligations under this
Agreement becomes impossible or impracticable with the use of commercially
reasonable efforts (including the failure of the stockholders of Purchaser to
consent to the issuance of the Banner Shares and the other transactions
contemplated hereby) if the failure of such condition to be satisfied is not
caused by a breach hereof by the terminating party; or
(c) at any time after December 31, 1997 by Seller or Purchaser upon
notification of the non-terminating party by the terminating party if the
Closing shall not have occurred on or before such date and such failure to
consummate is not caused by a breach of this Agreement by the terminating party.
(d) by Seller if the Board of Directors of Seller determines in good faith
that termination of the Agreement is required for the Board of Directors to
comply with its fiduciary duties to its stockholder imposed by law by reason of
an unsolicited bona fide Alternative Proposal meeting the requirements of
clauses (A) and (B) of Section 4.10 having been made; provided that Seller shall
have complied with the provisions of clause (C) of Section 4.10 and shall notify
Purchaser promptly of its intention to terminate this Agreement or enter into a
definitive agreement with respect to such Alternative Proposal; and provided
further that Seller's ability to terminate this Agreement pursuant to this
paragraph (d) is conditioned upon the prior payment by Seller to Purchaser of
any amounts owed by it pursuant to Section 12.02(b).
12.02 Effect of Termination. (a) If this Agreement is validly terminated
pursuant to Section 12.01, this Agreement will forthwith become null and void,
and there will be no liability or obligation on the part of Seller or Purchaser
(or any of their respective officers, directors, employees, agents or other
representatives or Affiliates), except as provided in the next succeeding
sentence and except that the provisions with respect to expenses in Section
14.03 and confidentiality in Section 14.05 and the provisions of this Section
12.02 will continue to apply following any such termination. Notwithstanding any
other provision in this Agreement to the contrary, upon termination of this
Agreement pursuant to Section 12.01(b) or (c), Seller will remain liable to
Purchaser for any willful breach of this Agreement by Seller existing at the
time of such termination, and Purchaser will remain liable to Seller for any
willful breach of this Agreement by Purchaser existing at the time of such
termination, and Seller or Purchaser may seek such remedies, including damages
and fees of attorneys, against the other with respect to
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any such breach as are provided in this Agreement or as are otherwise available
at Law or in equity.
(b) In the event that any person or group shall have made an Alternative
Proposal and thereafter this Agreement is terminated by Seller pursuant to
Section 12.01(d) then Seller shall pay to Purchaser, by wire transfer of same
day funds, on the date of termination, (x) a reasonable termination fee and (y)
an amount equal to all documented out-of-pocket expenses and fees incurred by
Purchaser in connection with this Agreement and the transactions contemplated
hereby (including, without limitation, fees and expenses payable to investment
banking firms and other financial institutions and persons and their respective
agents and counsel for acting as Purchaser's financial advisor with respect to
the transactions contemplated by this Agreement).
ARTICLE XIII
DEFINITIONS
13.01 Definitions. (a) Defined Terms. As used in this Agreement, the
following defined terms have the meanings indicated below:
"1998 EBT" means the Companies EBT for the twelve months ended March 31,
1998.
"1998 EBT Threshold" means the product of (i) $750,000, times (ii) the
quotient obtained by dividing (x) the 1998 EBT adjusted to eliminate any effect
of hedge positions related to sales to Delta Air Lines and (y) the 1998 EBT
adjusted on the basis that all sales to Delta Air Lines were reported using a
Swedish krona rate of 6.8 kronas to 1 U.S. dollar during the applicable period.
"1998 Income Statement" has the meaning ascribed to it in Section
1.01(d)(i).
"1998 Return Closing Date" has the meaning ascribed to it in Section
1.01(d)(i).
"1999 Income Statement" has the meaning ascribed to it in Section 1.01(c).
"1999 Return Closing Date" has the meaning ascribed to it in Section
1.01(d)(ii).
"Actions or Proceedings" means any action, suit, proceeding, arbitration or
Governmental or Regulatory Authority investigation or audit.
"Affiliate" means any Person that directly, or indirectly through one of
more intermediaries, controls or is controlled by or is under common control
with the Person specified. For purposes of this definition, control of a Person
means the power, direct or indirect, to direct or cause the direction of the
management and policies of such Person whether by Contract or otherwise and, in
any event and without limitation of the previous sentence, any Person owning ten
percent (10%) or more of the voting securities of another Person shall be deemed
to control that Person.
"Agreement" means this Stock Exchange Agreement and the Exhibits, the
Disclosure Schedule and the Schedules hereto and the certificates delivered in
accordance with Sections 6.03 and 7.03, as the same shall be amended from time
to time.
"Alternative Proposal" has the meaning ascribed to it in Section 4.10.
"Alternative Proposal Closing Date" has the meaning ascribed to it in
Section 1.01(e).
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"Assets and Properties" of any Person means all assets and properties of
every kind, nature, character and description (whether real, personal or mixed,
whether tangible or intangible, whether absolute, accrued, contingent, fixed or
otherwise and wherever situated), including the goodwill related thereto,
operated, owned or leased by such Person, including without limitation cash,
cash equivalents, Investment Assets, accounts and notes receivable, chattel
paper, documents, instruments, general intangibles, real estate, equipment,
inventory, goods and Intellectual Property.
"Audited Balance Sheet" means the balance sheet of the Companies for the
fiscal year ended June 30, 1996 delivered to Purchaser pursuant to Section 2.09.
"Audited Financial Statement Date" means June 30, 1996.
"Audited Financial Statements" means the Financial Statements of the
Companies delivered to Purchaser pursuant to Section 2.09.
"Average EBT" means the quotient obtained by dividing (a) the sum of (x)
the Companies' EBT for the twelve months ended March 31, 1998 plus (y) the
Companies' EBT for the twelve months ended March 31, 1999, by (b) two.
"Average EBT Threshold" means the product of (i) $500,000 times (ii) the
quotient obtained by dividing (x) the Average EBT adjusted to eliminate any
effect of hedge positions related to sales to Delta Air Lines and (y) the
Average EBT adjusted on the basis that all sales to Delta Air Lines were
reported using a Swedish krona rate of 6.8 kronas to 1 U.S. dollar during the
applicable period.
"Average Purchaser Price" means the average of the closing sales prices of
the common stock of Purchaser as reported on the NYSE Composite Tape on each of
the fifteen (15) consecutive trading days next preceding the fifth trading day
prior to the Closing Date.
"Banner Common Stock" has the meaning ascribed to it in Section 1.01(a).
"Banner Shares" has the meaning ascribed to it in Section 1.01(a).
"Benefit Plan" means any Plan (i) that, as of the date hereof or as of the
Closing Date, is established or maintained by either or the Companies, (ii) to
which either of the Companies contributes or has an obligation to contribute, or
(iii) under which any employee, former employee, director or former director of
either of the Companies or any beneficiary thereof is covered, is eligible for
coverage or has benefit rights by reason of service with either of the
Companies, or (iv) that is or was a Defined Benefit Plan during the six-year
period preceding the date hereof, and at any time during such period has been
maintained or contributed to by Seller, the Companies or any ERISA Affiliate.
"Books and Records" means all of the Companies' files, documents,
instruments, papers, books and records, including without limitation financial
statements, Tax Returns and related work papers and letters from accountants,
budgets, pricing guidelines, ledgers, journals, deeds, title policies, minute
books, stock certificates and books, stock transfer ledgers, Contracts,
Licenses, customer lists, computer files and programs, retrieval programs,
operating data and plans and environmental studies and plans.
"Business Combination" means with respect to any Person, any merger,
consolidation or combination to which such Person is a party, any sale,
dividend, split or other disposition of capital stock or other equity interests
of such Person or any sale, dividend or other disposition of all or
substantially all of the Assets and Properties of such Person.
"Business Day" means a day other than Saturday, Sunday or any day on which
banks located in the State of New York are authorized or obligated to close.
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"Business or Condition of the Companies" means the business, condition
(financial or otherwise), results of operations, Assets and Properties and
prospects of the Companies.
"CERCLA" means the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended, and the rules and regulations promulgated
thereunder.
"CERCLIS" means the Comprehensive Environmental Response and Liability
Information System, as provided for by 40 C.F.R. sec.300.5.
"Claim Notice" means written notification pursuant to Section 11.03(a) of a
Third Party Claim as to which indemnity under Section 11.02 is sought by an
Indemnified Party, enclosing a copy of all papers served, if any, and specifying
the nature of and basis for such Third Party Claim and for the Indemnified
Party's claim against the Indemnifying Party under Section 11.02, together with
the amount or, if not then reasonably determinable, the estimated amount,
determined in good faith, of the Loss arising from such Third Party Claim.
"Closing" means the closing of the transactions contemplated by Section
1.01.
"Closing Date" means (a) the third Business Day after the day on which the
last of the consents, approvals, actions, filings, notices or waiting periods
described in or related to the filings described in Sections 6.04 through 6.06
and Sections 7.04 through 7.06 has been obtained, made or given or has expired,
as applicable, or (b) such other date as Purchaser and Seller mutually agree
upon in writing.
"Code" means the Internal Revenue Code of 1986, as amended, and the rules
and regulations promulgated thereunder.
"Companies" has the meaning ascribed to it in the forepart of this
Agreement.
"Contract" means any agreement, lease, license, evidence of Indebtedness,
mortgage, indenture, security agreement or other contract (whether written or
oral).
"Defined Benefit Plan" means each Plan which is subject to Part 3 of
Subtitle B of Title I of ERISA, Section 412 of the Code or Title IV of ERISA.
"Disclosure Schedule" means the record delivered to Purchaser by Seller
herewith and dated as of the date hereof, containing all lists, descriptions,
exceptions and other information and materials as are required to be included
therein by Seller pursuant to this Agreement.
"Dispute Period" means the period ending thirty (30) days following receipt
by an Indemnifying Party of either a Claim Notice or an Indemnity Notice.
"EBT" means the "Pre-Tax Income (Loss)" of the Companies as set forth in
the Companies' financial statements.
"EBT Loss" means a negative "Pre-Tax Income (Loss)" of the Companies' as
set forth in the Companies' financial statements.
"Employee" has the meaning ascribed to it in Section 9.01.
"Environmental Claim" means any written or oral notice, claim, demand or
other communication (collectively, a "claim") alleging or asserting liability
for damages, contribution, indemnification, cost recovery, compensation,
injunctive relief, fines or penalties arising out of, based on or resulting from
(a) a Release or threatened Release, of any Hazardous Material at any location
or (b) circumstances forming the basis of any violation, or alleged violation,
of any Environmental Law.
"Environmental Law" means, collectively, the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended by the Superfund
Amendments and Reauthorization Act of 1986, 42 U.S.C. 9601 et seq.; the Toxic
Substances Control Act, 15 U.S.C. 2601 et seq.; the Hazardous Materials
Transportation Act, 49 U.S.C. 1802 et seq.; the
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Solid Waste Disposal Act, also known as the Resource Conservation and Recovery
Act, 42 U.S.C. 6901 et seq.; Emergency Planning and Community Right-to-Know Act,
42 U.S.C. 11001 et seq.; the Clean Water Act, also known as the Federal Water
Pollution Control Act, 33 U.S.C. 1251 et seq.; the Safe Drinking Water Act, 42
U.S.C. 300(f) et seq.; the Clean Air Act, 42 U.S.C. 7401 et seq.; and all
analogous state, local and foreign counterparts.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and the rules and regulations promulgated thereunder.
"ERISA Affiliate" means any Person who is in the same controlled group of
corporations or who is under common control or, solely for purposes of liability
under Section 412 of the Code or Section 302 of ERISA, who is otherwise treated
as a single employer (all as determined under Section 414 of the Code), with
either of the Companies or, before the Closing, with Seller.
"Escrow Agent" has the meaning ascribed to it in Section 1.02.
"Escrow Agreement" has the meaning ascribed to it in Section 1.02.
"Exchange Act" has the meaning ascribed to it in Section 3.08.
"Fairchild" means The Fairchild Corporation, a Delaware corporation and the
parent of Seller.
"Federal Tax" means any Tax imposed under Subtitle A of the Code.
"Final Determination" means with respect to Federal Taxes, a
"determination" as defined in Section 1313(a) of the Code or execution of an
Internal Revenue Service Form 870AD and, with respect to Taxes other than
Federal Taxes, any final determination of liability in respect of a Tax that,
under applicable law, is not subject to further appeal, review or modification
through proceedings or otherwise (including the expiration of a statute of
limitations or a period for the filing of claims for refunds, amended returns or
appeals from adverse determinations).
"Financial Statements" means the financial statements of the Companies
delivered to Purchaser pursuant to Section 2.09.
"First Installment Shares" has the meaning ascribed to in Section 1.01(b).
"First Installment Shares Value" means the product of the number of First
Installment Shares times the Average Purchaser Price.
"FSBC" has the meaning ascribed to it in the forepart of this Agreement.
"FSBC Capital Stock" means the capital stock of FSBC.
"FSBC Shares" has the meaning ascribed to it in the forepart of this
Agreement.
"GAAP" means generally accepted accounting principles, consistently applied
throughout the specified period and in the immediately prior comparable period.
"Governmental or Regulatory Authority" means any court, tribunal,
arbitrator, authority, agency, commission, official or other instrumentality of
the United States, any foreign country, any domestic or foreign state, county,
city or other political subdivision, and any entity established by legislation
having the power to issue orders lawfully binding any party to this Agreement.
"Hazardous Material" means (A) any petroleum or petroleum products, and
petroleum wastes; radioactive materials; asbestos, urea formaldehyde foam
insulation; and polychlorinated biphenyls ("PCBs"); (B) any materials, wastes or
substances which are now or hereafter become defined as or included in the
definition of "hazardous substances," "hazardous
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wastes," "hazardous materials," "extremely hazardous wastes," "restricted
hazardous wastes," "toxic substances," or "toxic pollutants."
"Helmner Agreements" means the following agreements: (i) the Employment
Agreement, dated September 9, 1994, by and between FSBC and Anders Helmner; (ii)
the Profit Sharing Agreement, dated September 9, 1994, by and between FSBC and
Lena Patent AB; and (iii) the Agreement Regarding Patents, dated September 9,
1994, by and among FSBC, Lena Patent AB and Anders Helmner.
"Income Statements" has the meaning ascribed to it in Section 1.01(c).
"Indebtedness" of any Person means all obligations of such Person (i) for
borrowed money, (ii) evidenced by notes, bonds, debentures or similar
instruments, (iii) for the deferred purchase price of goods or services (other
than trade payables or accruals incurred in the ordinary course of business),
(iv) under capital leases and (v) in the nature of guarantees of the obligations
described in clauses (i) through (iv) above of any other Person.
"Indemnified Party" means any Person claiming indemnification under any
provision of Article XI.
"Indemnifying Party" means any Person against whom a claim for
indemnification is being asserted under any provision of Article XI.
"Indemnity Notice" means written notification pursuant to Section 11.03(b)
of a claim for indemnity under Article XI by an Indemnified Party, specifying
the nature of and basis for such claim, together with the amount or, if not then
reasonably determinable, the estimated amount, determined in good faith, of the
Loss arising from such claim.
"Independent Accountant" has the meaning ascribed to it in Section 1.01(c).
"Independent Investment Banking Firm" has the meaning ascribed to it in
Section 1.01(e).
"Intellectual Property" means all patents and patent rights, trademarks and
trademark rights, trade names and trade name rights, service marks and service
mark rights, service names and service name rights, brand names, inventions,
processes, formulae, copyrights and copyright rights, trade dress, business and
product names, logos, slogans, trade secrets, industrial models, processes,
designs, methodologies, computer programs (including all source codes) and
related documentation, technical information, manufacturing, engineering and
technical drawings, know-how and all pending applications for and registrations
of patents, trademarks, service marks and copyrights.
"Investment Assets" means all debentures, notes and other evidences of
Indebtedness, stocks, securities (including rights to purchase and securities
convertible into or exchangeable for other securities), interests in joint
ventures and general and limited partnerships, mortgage loans and other
investment or portfolio assets owned of record or beneficially by either of the
Companies and issued by any Person other than the Companies.
"IRS" means the United States Internal Revenue Service.
"Knowledge of Seller" or "Known to Seller" means the actual knowledge of
any officer or director of Seller or either Company including, without
limitation, the actual knowledge of Michael Alcox, Anders Helmner, Tom Flaherty
and Bob Busey.
"Laws" means all laws, statutes, rules, regulations, ordinances and other
decisions, opinions and pronouncements having the effect of law of the United
States, any foreign country or any domestic or foreign state, county, city or
other political subdivision or of any Governmental or Regulatory Authority.
"Liabilities" means all Indebtedness, obligations and other liabilities of
a Person (whether absolute, accrued, contingent, fixed or otherwise, or whether
due or to become due).
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"Licenses" means all licenses, permits, certificates of authority,
authorizations, approvals, franchises and similar consents granted or issued by
any Governmental or Regulatory Authority and any notices, filings, requests or
registrations required to be submitted to any Governmental or Regulatory
Authority.
"Liens" means any mortgage, pledge, assessment, security interest, lease,
lien, adverse claim, levy, charge or other encumbrance of any kind, or any
conditional sale Contract, title retention Contract or other Contract to give
any of the foregoing.
"Loss" means any and all damages, fines, fees, penalties, deficiencies,
losses and expenses (including without limitation interest, court costs, fees of
attorneys, accountants and other experts or other expenses of litigation or
other proceedings or of any claim, default or assessment).
"Net Operating Assets" means (a) the sum of (x) any Indebtedness between
either of the Companies and Fairchild or any Affiliate of Fairchild (including
the Purchaser and Purchaser's Affiliates), and (y) the Companies' net worth as
defined in GAAP, minus (b) the Companies' goodwill.
"Negotiated Average EBT " has the meaning ascribed to it in Section
1.01(e).
"NPL" means the National Priorities List under CERCLA.
"Operative Agreements" means any support or other agreements to be entered
into in connection with the transaction.
"Option" with respect to any Person means any security, right,
subscription, warrant, option, "phantom" stock right or other Contract that
gives the right to (i) purchase or otherwise receive or be issued any shares of
capital stock of such Person or any security of any kind convertible into or
exchangeable or exercisable for any shares of capital stock of such Person or
(ii) receive or exercise any benefits or rights similar to any rights enjoyed by
or accruing to the holder of shares of capital stock of such Person, including
any rights to participate in the equity or income of such Person or to
participate in or direct the election of any directors or officers of such
Person or the manner in which any shares of capital stock of such Person are
voted.
"Order" means any writ, judgment, decree, injunction or similar order
lodged with or issued by any Governmental or Regulatory Authority (in each such
case whether proposed, preliminary or final).
"PBGC" means the Pension Benefit Guaranty Corporation established under
ERISA.
"Pension Benefit Plan" means each Benefit Plan which is a pension benefit
plan within the meaning of Section 3(2) of ERISA.
"Permitted Lien" means (i) any Lien for current Taxes not yet due or
delinquent or Taxes being contested in good faith by appropriate proceedings for
which adequate reserves have been established in accordance with GAAP, (ii) any
Lien arising in the ordinary course of business for sums not now due or sums
being contested in good faith by appropriate proceedings, (iii) any Lien
described in Section 13.01 of the Disclosure Schedule and (iv) covenants,
conditions and restrictions of record arising in the ordinary course of business
consistent with past practice, which covenants, conditions and restrictions are
not violated by existing uses or improvements, do not materially interfere with
the use of the property in the conduct of either Company's business, do not
affect the merchantability of title or contain any provision for reversion or
forfeiture and do not, individually or in the aggregate with other such Liens,
materially impair the value of the property subject to such Lien.
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"Person" means any natural person, corporation, general partnership,
limited partnership, proprietorship, other business organization, trust, union,
association or Governmental or Regulatory Authority.
"Plan" means any bonus, incentive compensation, deferred compensation,
pension, profit sharing, retirement, stock purchase, stock option, stock
ownership, stock appreciation rights, phantom stock, leave of absence, layoff,
vacation, day or dependent care, legal services, cafeteria, life, health,
accident, disability, workmen's compensation or other insurance, severance,
separation, change of control or other employee benefit plan, practice, policy
or arrangement of any kind, whether written or oral, including, but not limited
to, any "employee benefit plan" within the meaning of Section 3(3) of ERISA.
"Post-Closing Period" has the meaning ascribed to it in Section 11.01(f).
"Pre-Closing Period" has the meaning ascribed to it in Section 11.01(f).
"Process Agent" has the meaning ascribed to it in Section 14.11.
"Purchaser" has the meaning ascribed to it in the forepart of this
Agreement.
"Purchaser Indemnified Parties" means Purchaser and its officers,
directors, employees, agents and Affiliates.
"Purchaser Material Adverse Effect" has the meaning ascribed to it in
Section 3.11.
"Qualified Plan" means each Benefit Plan which is intended to qualify under
Section 401 of the Code.
"Real Property Leases" has the meaning ascribed to it in Section 2.16(a).
"Rescission Right" means Purchaser's right to cause Seller to take back all
of the Shares in exchange for the First Installment Shares. If Purchaser elects
to exercise its Rescission Right then the parties agree as follows: (i) if there
has been a decrease in the Companies Net Operating Assets since March 31, 1997,
then the Purchaser shall pay Seller an amount in cash equal to such Net
Operating Assets decrease; (ii) if there has been an increase in the Companies
Net Operating Assets since March 31, 1997, then the Seller shall pay the
Purchaser an amount in cash equal to such Net Operating Assets increase; and
(iii) the Seller shall pay the Purchaser 50% of the Companies EBT Losses, if
any. Notwithstanding the foregoing, the amounts owed pursuant to the previous
sentence can be netted against the other party's obligations.
"Release" means any the presence, release, spill, emission, leaking,
pumping, injection, deposit, disposal, discharge, dispersal, leaching or
migration into the indoor or outdoor environment, including, without limitation,
subsurface strata and ground water.
"Representatives" has the meaning ascribed to it in Section 4.02.
"Resolution Period" means the period ending thirty (30) days following
receipt by an Indemnified Party of a written notice from an Indemnifying Party
stating that it disputes all or any portion of a claim set forth in a Claim
Notice or an Indemnity Notice.
"SBIC" has the meaning ascribed to it in the forepart of this Agreement.
"SBIC Common Shares" means the common stock, no par value, of SBIC.
"SBIC Shares" has the meaning ascribed to it in the forepart of this
Agreement.
"SEC Documents" means each form, report, schedule, registration statement,
definitive proxy statement and other document (together with all amendments
thereof and supplements thereto) filed with the Securities and Exchange
Commission.
"Second Installment Shares" has the meaning ascribed to in Section 1.01(c).
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"Seller" has the meaning ascribed to it in the forepart of this Agreement.
"Seller Indemnified Parties" means Seller and its officers, directors,
employees, agents and Affiliates.
"Severance Costs" has the meaning ascribed to it in Section 9.01.
"Shares" has the meaning ascribed to it in the forepart of this Agreement.
"Stub Period" has the meaning ascribed to it in Section 8.03.
"Subject Defined Benefit Plan" means each Defined Benefit Plan that is a
Benefit Plan.
"Tangible Personal Property" has the meaning ascribed to it in Section
2.17.
"Tax Returns" means a report, return or other information required to be
supplied to a governmental entity with respect to Taxes including, where
permitted or required, combined or consolidated returns for any group of
entities that includes the Companies.
"Taxes" means any federal, state, county, local or foreign taxes, charges,
fees, levies, other assessments, or withholding taxes or charges imposed by any
governmental entity, and includes any interest and penalties (civil or criminal)
on or additions to any such taxes and any expenses incurred in connection with
the determination, settlement or litigation of any Tax liability.
"Third Party Claim" has the meaning ascribed to it in Section 11.03(a).
"Transfer Taxes" has the meaning ascribed to it in Section 8.01.
(b) Construction of Certain Terms and Phrases. Unless the context of this
Agreement otherwise requires, (i) words of any gender include each other gender;
(ii) words using the singular or plural number also include the plural or
singular number, respectively; (iii) the terms "hereof," "herein," "hereby" and
derivative or similar words refer to this entire Agreement; (iv) the terms
"Article" or "Section" refer to the specified Article or Section of this
Agreement; and (v) the phrases "ordinary course of business" and "ordinary
course of business consistent with past practice" refer to the business and
practice of each Company. Whenever this Agreement refers to a number of days,
such number shall refer to calendar days unless Business Days are specified. All
accounting terms used herein and not expressly defined herein shall have the
meanings given to them under GAAP.
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ARTICLE XIV
MISCELLANEOUS
14.01 Notices. All notices, requests and other communications hereunder
must be in writing and will be deemed to have been duly given only if delivered
personally or by facsimile transmission or mailed (first class postage prepaid)
to the parties at the following addresses or facsimile numbers:
If to Purchaser, to:
Banner Aerospace, Inc.
P.O. Box 20260
300 West Service Road
Washington, D.C. 20041
Facsimile No.: (703) 478-5795
Attn: Warren Persavich
with a copy to:
Milbank, Tweed, Hadley & McCloy
One Chase Manhattan Plaza
New York, New York 10005
Facsimile No.: (212) 530-5219
Attn: Stephen J. Blauner, Esq.
If to Seller, to:
RHI Holdings, Inc.
c/o The Fairchild Corporation
300 West Service Road
Chantilly, Virginia 20153
Facsimile No.: (703) 478-5775
Attn: Donald E. Miller, Esq.
All such notices, requests and other communications will (i) if delivered
personally to the address as provided in this Section, be deemed given upon
delivery, (ii) if delivered by facsimile transmission to the facsimile number as
provided in this Section, be deemed given upon receipt, and (iii) if delivered
by mail in the manner described above to the address as provided in this
Section, be deemed given upon receipt (in each case regardless of whether such
notice, request or other communication is received by any other Person to whom a
copy of such notice, request or other communication is to be delivered pursuant
to this Section). Any party from time to time may change its address, facsimile
number or other information for the purpose of notices to that party by giving
notice specifying such change to the other party hereto.
14.02 Entire Agreement. This Agreement and the Operative Agreements
supersedes all prior discussions, representations and warranties and agreements
between the parties with respect to the subject matter hereof and thereof, and
contains the sole and entire agreement between the parties hereto with respect
to the subject matter hereof and thereof.
14.03 Expenses. Except as otherwise expressly provided in this Agreement
(including without limitation as provided in the proviso below and in Section
12.02), whether or not the transactions contemplated hereby are consummated,
each party will pay its own costs and expenses, and Seller shall pay the costs
and expenses of each Company, incurred in connection with the negotiation,
execution and closing of this Agreement and the Operative Agreements and the
transactions contemplated hereby and thereby.
14.04 Public Announcements. At all times at or before the Closing, Seller
and Purchaser will not issue or make any reports, statements or releases to the
public or generally to the
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employees, customers, suppliers or other Persons to whom either Company sells
goods or provides services or with whom either Company otherwise has significant
business relationships with respect to this Agreement or the transactions
contemplated hereby without the consent of the other, which consent shall not be
unreasonably withheld. If either party is unable to obtain the approval of its
public report, statement or release from the other party and such report,
statement or release is, in the opinion of legal counsel to such party, required
by Law in order to discharge such party's disclosure obligations, then such
party may make or issue the legally required report, statement or release and
promptly furnish the other party with a copy thereof. Seller and Purchaser will
also obtain the other party's prior approval of any press release to be issued
immediately following the Closing announcing the consummation of the
transactions contemplated by this Agreement.
14.05 Confidentiality. Each party hereto will hold, and will use its best
efforts to cause its Affiliates, and their respective Representatives to hold,
in strict confidence from any Person (other than any such Affiliate or
Representative), unless (i) compelled to disclose by judicial or administrative
process (including without limitation in connection with obtaining the necessary
approvals of this Agreement and the transactions contemplated hereby of
Governmental or Regulatory Authorities) or by other requirements of Law or (ii)
disclosed in an Action or Proceeding brought by a party hereto in pursuit of its
rights or in the exercise of its remedies hereunder, all documents and
information concerning the other party or any of its Affiliates furnished to it
by the other party or such other party's Representatives in connection with this
Agreement or the transactions contemplated hereby, except to the extent that
such documents or information can be shown to have been (a) previously known by
the party receiving such documents or information, (b) in the public domain
(either prior to or after the furnishing of such documents or information
hereunder) through no fault of such receiving party or (c) later acquired by the
receiving party from another source if the receiving party is not aware that
such source is under an obligation to another party hereto to keep such
documents and information confidential; provided that following the Closing the
foregoing restrictions will not apply to Purchaser's use of documents and
information concerning either Company's business furnished by Seller hereunder.
In the event the transactions contemplated hereby are not consummated, upon the
request of the other party, each party hereto will, and will cause its
Affiliates and their respective Representatives to, promptly redeliver or cause
to be redelivered all copies of documents and information furnished by the other
party in connection with this Agreement or the transactions contemplated hereby
and destroy or cause to be destroyed all notes, memoranda, summaries, analyses,
compilations and other writings related thereto or based thereon prepared by the
party furnished such documents and information or its Representatives.
14.06 Waiver. Any term or condition of this Agreement may be waived at
any time by the party that is entitled to the benefit thereof, but no such
waiver shall be effective unless set forth in a written instrument duly executed
by or on behalf of the party waiving such term or condition. No waiver by any
party of any term or condition of this Agreement, in any one or more instances,
shall be deemed to be or construed as a waiver of the same or any other term or
condition of this Agreement on any future occasion. All remedies, either under
this Agreement or by Law or otherwise afforded, will be cumulative and not
alternative.
14.07 Amendment. This Agreement may be amended, supplemented or modified
only by a written instrument duly executed by or on behalf of each party hereto.
14.08 No Third Party Beneficiary. The terms and provisions of this
Agreement are intended solely for the benefit of each party hereto and their
respective successors or permitted assigns, and it is not the intention of the
parties to confer third-party beneficiary rights upon any other Person other
than any Person entitled to indemnity under Article XI.
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14.09 No Assignment; Binding Effect. Neither this Agreement nor any
right, interest or obligation hereunder may be assigned by any party hereto
without the prior written consent of the other party hereto and any attempt to
do so will be void, except (a) for assignments and transfers by operation of Law
and (b) that Purchaser may assign any or all of its rights, interests and
obligations hereunder (including without limitation its rights under Article XI)
to a wholly-owned subsidiary, provided that any such subsidiary agrees in
writing to be bound by all of the terms, conditions and provisions contained
herein, but no such assignment shall relieve Purchaser of its obligations
hereunder. Subject to the preceding sentence, this Agreement is binding upon,
inures to the benefit of and is enforceable by the parties hereto and their
respective successors and assigns.
14.10 Headings. The headings used in this Agreement have been inserted
for convenience of reference only and do not define or limit the provisions
hereof.
14.11 Submission to Jurisdiction; Waivers. Each of Purchaser and Seller
irrevocably agrees that any Action or Proceeding with respect to this Agreement
or for recognition and enforcement of any judgment in respect thereof brought by
the other party hereto or its successors or assigns, may be brought and
determined in the Supreme Court of the State of New York in New York County or
in the United States District Court for the Southern District of New York, and
each of Purchaser and Seller hereby irrevocably submits with regard to any such
Action or Proceeding for itself and in respect to its Assets and Properties,
generally and unconditionally, to the nonexclusive jurisdiction of the aforesaid
courts provided, however, that such consent to jurisdiction is solely for the
purpose referred to in this Section and shall not be deemed to be a general
submission to the jurisdiction of said courts or in the State of New York other
than for such purpose. Each of Purchaser and Seller hereby irrevocably waives,
and agrees not to assert, by way of motion, as a defense, counterclaim or
otherwise in any Action or Proceeding with respect to this Agreement, any claim
that it is not personally subject to the jurisdiction of the above-named courts
for any reason other than the failure to serve process in accordance with this
Section 14.11, that it or its Assets and Properties are exempt or immune from
jurisdiction of any such court or from any legal process commenced in such
courts, and to the fullest extent permitted by applicable Law, that the Action
or Proceeding in any such court is brought in an inconvenient forum, that the
venue of such Action or Proceeding is improper, or that this Agreement, or the
subject matter hereof, may not be enforced in or by such courts and further
irrevocably waives, to the fullest extent permitted by applicable Law, the
benefit of any defense that would hinder, fetter or delay the levy, execution or
collection of any amount to which the party is entitled pursuant to the final
judgment of any court having jurisdiction. Each of Purchaser and Seller hereby
irrevocably designates CT Corporation System (in such capacity, the "Process
Agent"), with an office at 1633 Broadway, New York, New York 10019, as their
respective designee, appointee and agent to receive, for and on their behalf
service of process in such jurisdiction in any Action or Proceeding with respect
to this Agreement, but for no other purpose, and such service shall be deemed
complete upon delivery thereof to the Process Agent. Each of Purchaser and
Seller further irrevocably consents to the service of process out of any of the
aforementioned courts in any such Action or Proceeding by the mailing of copies
thereof by registered mail, postage prepaid, to such party at its address set
forth in this Agreement, such service of process to be effective upon
acknowledgement of receipt of such registered mail. Nothing herein shall affect
the right of either party to serve process in any other manner permitted by Law
or to commence any Action or Proceeding or otherwise proceed against the other
party in any other jurisdiction in which the other party may be subject to suit.
14.12 Invalid Provisions. If any provision of this Agreement is held to
be illegal, invalid or unenforceable under any present or future Law, and if the
rights or obligations of any party hereto under this Agreement will not be
materially and adversely affected thereby, (a) such provision will be fully
severable, (b) this Agreement will be construed and enforced as if such illegal,
invalid or unenforceable provision had never comprised a part hereof, and (c)
the
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remaining provisions of this Agreement will remain in full force and effect and
will not be affected by the illegal, invalid or unenforceable provision or by
its severance herefrom.
14.13 Governing Law. This Agreement shall be governed by and construed in
accordance with the Laws of the State of New York applicable to a Contract
executed and performed in such State, without giving effect to the conflicts of
laws principles thereof.
14.14 Counterparts. This Agreement may be executed in any number of
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the duly authorized officer of each party hereto as of the date first above
written.
BANNER AEROSPACE, INC.
By: /s/ GENE JURIS
------------------------------------
Name: Gene Juris
Title: Vice President--Finance and
Secretary
RHI HOLDINGS, INC.
By: /s/ COLIN COHEN
------------------------------------
Name: Colin Cohen
Title: Vice President and
Chief Financial Officer
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<PAGE> 123
ANNEX B
[HOULIHAN, LOKEY, HOWARD, & ZUKIN LETTERHEAD]
May 13, 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 considering
acquiring the Fairchild Scandinavian Bellyloading Company AB ("FSBC") and
Scandinavian Bellyloading International, Inc. ("SBIC", and together with FSBC,
the "Bellyloading Companies") from RHI Holdings, Inc. ("RHI"), a wholly owned
subsidiary of The Fairchild Corporation ("Fairchild"). Pursuant to the terms of
the Stock Exchange Agreement, the Company has agreed, subject to the terms and
conditions set forth therein, to issue to RHI or its designee at the first
closing of the transactions contemplated by the Stock Exchange Agreement (the
"First Closing") 230,000 shares (the "First Installment Shares") of the
Company's common stock, par value $1.00 ("Company Common"), in exchange for all
of the shares of the Bellyloading Companies. The First Installment Shares shall
be held in escrow pending a second closing. A second installment of shares of
Company Common will be issued to RHI or its designee at a second closing (the
"Second Closing") following the calculation of the Bellyloading Companies'
earnings before taxes ("EBT") for the twelve months ended March 31, 1999 (the
"Second Installment Shares"). The First Installment Shares will be released from
escrow at the Second Closing. The Second Installment Shares shall be a number of
shares of Company Common which aggregate in value an amount equal to (x) five
times the average EBT for the fiscal years ended March 31, 1998 and 1999 (the
"Average EBT"), minus (y) the First Installment Shares. For this purpose the
Company Common shall have a per share value equal to the average of the closing
sales prices of Company Common on the fifteen consecutive trading days next
preceding the fifth trading day prior to the First Closing (the "Average Banner
Price"). The sum of the First Installment Shares and the Second Installment
Shares to be delivered at the Second Closing will in no event exceed 1.5 million
shares of Company Common. The Company can rescind the transaction and cause RHI
to take back all of the shares of capital stock of each of the Bellyloading
Companies (the "Rescission Right") if the Average EBT is less than $500,000
(adjusted for certain fluctuations in the Swedish krona) or if the EBT for the
twelve months ended March 31, 1998 is less than $750,000 (adjusted for certain
fluctuations in the Swedish krona). If the Company elects to exercise its
Rescission Right, then the First Installment Shares
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<PAGE> 124
will be released from escrow and returned to the Company for cancellation and
the Second Installment Shares will not be issued. In addition, if the Company
elects to exercise its Rescission Right: (i) if there has been a decrease in the
Bellyloading Companies' net operating assets since March 31, 1997 ("NOA
Decrease"), the Company will pay RHI an amount in cash equal to such NOA
Decrease; (ii) if there has been an increase in the Bellyloading Companies' net
operating assets since March 31, 1997 ("NOA Increase"), RHI will pay the Company
an amount in cash equal to such NOA Increase; and (iii) RHI will pay the Company
an amount in cash equal to 50% of the Bellyloading Companies' EBT losses, if
any. "Net Operating Assets" is defined in the Stock Exchange Agreement as (a)
the sum of (x) any indebtedness between either of the Bellyloading Companies and
Fairchild or any affiliate of Fairchild (including the Company and the Company's
affiliates), and (y) the Bellyloading Companies' net worth as defined in
generally accepted accounting principles, minus (b) the Bellyloading Companies'
goodwill. Such transaction and other related transactions disclosed to Houlihan
Lokey are referred to collectively herein as the "Transaction." Fairchild,
through RHI, currently owns approximately 59.3% of the outstanding shares of
Company Common. It is our understanding that the Company's Board of Directors
has formed a special 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 and
RHI, from a financial point of view. The Opinion does not address the Company's
underlying business decision to effect 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 summary term sheet for the Transaction and the
corresponding Stock Exchange Agreement dated May 12, 1997;
2. reviewed the Company's Proxy Statement filed in connection with
the Transaction, dated May 13, 1997;
3. met with members of the senior management of the Company and of
the Bellyloading Companies to discuss the operations, financial
condition, future prospects and projected operations and
performance of the companies;
4. visited FSBC's facilities in Lund, Sweden;
5. reviewed and met with the Company and management of the
Bellyloading Companies to discuss the Acquisition Analysis of the
Bellyloading Companies prepared by certain members of the senior
management of the Company in conjunction with management of the
Bellyloading Companies;
6. reviewed the Bellyloading Companies' unaudited historical
financial information for the fiscal year ended June 30, 1996 and
the six months ended December 29, 1996;
7. reviewed the Bellyloading Companies' preliminary financial
projections for the fiscal years ending June 30, 1997 through June
30, 1999, which were prepared by certain members of the Company's
senior management in conjunction with management of the
Bellyloading Companies;
8. reviewed internal financial projections through March 31, 2000 of
the Company both on a stand-alone basis and on a combined company
basis (dated respectively, November 14, 1996 and November 15,
1996);
9. reviewed the Company's annual reports to shareholders and Form
10-Ks for the fiscal years ended March 31, 1991 to March 31, 1996
and Form 10-Qs for the periods
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ended June 30, 1996, September 30, 1996 and December 31, 1996
(including financial statements contained therein);
10. reviewed the historical market prices and trading volume for the
Company's publicly traded securities;
11. reviewed publicly available financial data for certain companies
that we deem comparable to Banner and the Bellyloading Companies;
and
12. 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 the Bellyloading Companies, and that
there has been no material change in the assets, financial condition, business
or prospects of the Company or either Bellyloading 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
the Bellyloading Companies 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 or either of the Bellyloading Companies.
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
and RHI, from a financial point of view.
HOULIHAN, LOKEY, HOWARD & ZUKIN, INC.
/s/ HOULIHAN, LOKEY, HOWARD & ZUKIN, INC.
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ANNEX C
CHARTER AMENDMENTS
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, option 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 such
resolution or resolutions and the number of shares of Preferred Stock or
any series thereof."
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ANNEX D
FORM OF 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, option 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 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.
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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 June, 1997.
--------------------------------------
Name:
Title:
Attest:
- ------------------------------------
Name:
Title:
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<PAGE> 129
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 terms "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 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.
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
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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.
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
funds legally available therefor. 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 and
(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 , 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
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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.
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.
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
nonassessable 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
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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 The Fairchild Corporation), 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,
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
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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) hereof, 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 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
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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 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 debt 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 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.
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(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 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 issue fully paid and
nonassessable 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
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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, option 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, option or other special rights of the Series A 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.
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