<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 15, 1997
REGISTRATION NO. 333-37297
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 4
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
THE FAIRCHILD CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 34-0728587
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
WASHINGTON DULLES INTERNATIONAL AIRPORT
300 WEST SERVICE ROAD
P.O. BOX 10803
CHANTILLY, VIRGINIA 20153
(703) 478-5800
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
DONALD E. MILLER, ESQ.
SENIOR VICE PRESIDENT,
GENERAL COUNSEL AND SECRETARY
THE FAIRCHILD CORPORATION
WASHINGTON DULLES INTERNATIONAL AIRPORT
300 WEST SERVICE ROAD
P.O. BOX 10803
CHANTILLY, VIRGINIA 20153
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
----------------
COPIES TO:
JAMES J. CLARK, ESQ. MARK C. SMITH, ESQ.
CAHILL GORDON & REINDEL SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
80 PINE STREET 919 THIRD AVENUE
NEW YORK, NY 10005 NEW YORK, NY 10022-3903
(212) 701-3000 (212) 735-3000
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED DECEMBER 15, 1997
PROSPECTUS
, 1997
3,000,000 SHARES
THE FAIRCHILD CORPORATION
CLASS A COMMON STOCK
All of the 3,000,000 shares of Class A Common Stock (the "Class A Common
Stock"), $0.10 par value per share, of The Fairchild Corporation (the
"Company") offered hereby (the "Offering") will be sold by the Company.
The Class A Common Stock has one vote per share, while the Class B Common
Stock of the Company, par value $0.10 per share (the "Class B Common Stock"
and, together with the Class A Common Stock, the "Common Stock"), has ten votes
per share. Upon completion of the Offering, Jeffrey J. Steiner, the Chairman of
the Board, Chief Executive Officer and President of the Company, who holds
substantially all of the Class B Common Stock, will have approximately 67.6% of
the combined voting power of all outstanding shares of capital stock of the
Company (approximately 65.7% if the Underwriters' over-allotment option is
exercised in full). For information with respect to the voting rights and
certain other features of the Class A Common Stock compared to the Class B
Common Stock, see "Description of Capital Stock."
The Class A Common Stock is listed on the New York Stock Exchange and the
Pacific Stock Exchange, under the symbol "FA." On December 12, 1997, the last
reported sale price of the Class A Common Stock on the New York Stock Exchange
was $20 3/4 per share. See "Price Range of Class A Common Stock" and "Dividend
Policy."
SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR CERTAIN CONSIDERATIONS RELEVANT TO
AN INVESTMENT IN THE CLASS A COMMON STOCK OFFERED HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
- --------------------------------------------------------------------------------
<CAPTION>
PRICE UNDERWRITING PROCEEDS PROCEEDS TO
TO THE DISCOUNTS AND TO THE THE SELLING
PUBLIC COMMISSIONS (1) COMPANY (2) STOCKHOLDER
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share...................... $ $ $ $
Total (3)...................... $ $ $ $
- --------------------------------------------------------------------------------
</TABLE>
(1) The Company and a Selling Stockholder have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended (the "Securities Act"). See
"Underwriting."
(2) Before deducting expenses estimated at $ , payable by the Company.
(3) Jeffrey J. Steiner (together with certain entities controlled by Mr.
Steiner) (collectively, the "Selling Stockholder") has granted to the
Underwriters an option, exercisable within 30 days of the date hereof, to
purchase in the aggregate up to 450,000 additional shares of Class A Common
Stock solely to cover over-allotments, if any. If such option is exercised
in full, the total Price to the Public, Underwriting Discounts and
Commissions, and Proceeds to the Selling Stockholder will be $ , $ and
$ , respectively. See "Underwriting."
The shares of Class A Common Stock are being offered by the several
Underwriters when, as and if delivered to and accepted by the Underwriters
against payment therefor and subject to various prior conditions, including
their right to reject orders in whole or in part. It is expected that delivery
of the shares of Class A Common Stock will be made in New York, New York on or
about , 1997.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
BT ALEX. BROWN
SBC WARBURG DILLON READ INC.
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-3 under the Securities Act of
1933 (the "Securities Act") with respect to the Class A Common Stock offered
hereby. This Prospectus, which is part of the Registration Statement, does not
contain all the information set forth in the Registration Statement and the
exhibits and schedules thereto, certain items of which are omitted in
accordance with the rules and regulations of the Commission. The Company is
subject to the information requirements of the Securities Exchange Act of 1934
(the "Exchange Act") and, in accordance therewith, files reports and other
information with the Commission. For further information with respect to the
Company and the Common Stock offered hereby, reference is hereby made to the
Registration Statement and such exhibits and schedules filed as a part thereof
as well as such reports and other information filed by the Company, which may
be inspected and copied at prescribed rates at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the following regional offices of the
Commission: 7 World Trade Center, Suite 1300, New York, New York 10048, and
Northwest Atrium Center, 500 West Madison Street, 14th Floor, Chicago,
Illinois 60661. Copies of all or any portion of the Registration Statement may
be obtained from the Public Reference Section of the Commission, upon payment
of prescribed rates. The Commission also maintains a web site at
http://www.sec.gov which contains reports, proxy, and information statements
and other information regarding registrants that file electronically with the
Commission. The Company's Class A Common Stock is listed on the New York Stock
Exchange and the Pacific Exchange, and such reports, proxy statements, and
other information statements may be inspected and copied at the offices of the
New York Stock Exchange, 20 Broad Street, New York, New York 10005, and at the
offices of the Pacific Exchange, 301 Pine Street, San Francisco, California
94104. The Company's executive offices are located at Washington Dulles
International Airport, 300 West Service Road, Chantilly, Virginia 22021. Its
telephone number is (703) 478-5800.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The Company's Annual Report on Form 10-K for the fiscal year ended June 30,
1997, as amended on December 15, 1997, the Company's Quarterly Report on Form
10-Q for the quarter ended September 28, 1997, as amended on December 15,
1997, the Company's Current Report on Form 8-K dated December 8, 1997 and the
description of the Company's Common Stock contained in the Company's
registration statement on Form 8-A, dated October 5, 1987 in each case, if
applicable, as amended, and all documents subsequently filed by the Company
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent
to the date of this Prospectus and prior to the termination of the Offering
described herein shall be deemed to be incorporated in this Prospectus and to
be a part hereof from the date of the filing of such document. Any statement
contained herein or in a document incorporated or deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for all purposes
to the extent that a statement contained in this Prospectus or in any other
subsequently filed document which is also incorporated or deemed to be
incorporated by reference modifies or supersedes such statement. Any statement
so modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of the Registration Statement or this
Prospectus. The Company will provide without charge to each person to whom
this Prospectus is delivered, upon written or oral request of such person, a
copy (without exhibits unless such exhibits are specifically incorporated by
reference into such document) of any or all documents incorporated by
reference in this Prospectus. Requests for such copies should be directed to
Donald E. Miller, Esq., Senior Vice President and General Counsel, The
Fairchild Corporation, Washington Dulles International Airport, 300 West
Service Road, P.O. Box 10803, Chantilly, Virginia 20153, by mail, and if by
telephone (703) 478-5800.
----------------
CERTAIN PERSONS PARTICIPATING IN THE CLASS A COMMON STOCK OFFERING MAY
ENGAGE IN TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE
OF THE CLASS A COMMON STOCK. SPECIFICALLY, THE UNDERWRITERS MAY OVER-ALLOT IN
CONNECTION WITH THE CLASS A COMMON STOCK OFFERING AND MAY BID FOR AND PURCHASE
SHARES OF THE CLASS A COMMON STOCK IN THE OPEN MARKET. FOR A DESCRIPTION OF
THESE ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and Consolidated Financial
Statements (including the notes thereto) appearing elsewhere in, or
incorporated by reference into, this Prospectus. Except where the context
otherwise requires, as used herein, the "Company" refers to The Fairchild
Corporation and its subsidiaries, and "Fiscal" in connection with a year shall
mean the 12 months ended June 30 of such year. Except where otherwise
indicated, the information in this Prospectus assumes that the Underwriters'
over-allotment option is not exercised.
THE COMPANY
GENERAL
The Company is the largest aerospace fastener manufacturer and is one of the
largest independent aerospace parts distributors in the world. Through internal
growth and strategic acquisitions, the Company has become one of the leading
aircraft parts suppliers to aircraft manufacturers such as Boeing, Airbus,
Lockheed Martin, British Aerospace and Bombardier and to airlines such as Delta
Airlines and US Airways.
The Company's primary focus is on the aerospace industry and its business
consists primarily of two segments--aerospace fasteners and aerospace parts
distribution. The aerospace fasteners segment, which accounted for
approximately 51.4% of the Company's net sales in Fiscal 1997, pro forma for
the Disposition (as defined below), manufactures and markets fastening systems
used in the manufacturing and maintenance of commercial and military aircraft.
The aerospace distribution segment, which accounted for approximately 35.9% of
the Company's net sales in Fiscal 1997, pro forma for the Disposition, stocks
and distributes a wide variety of aircraft parts to commercial airlines and air
cargo carriers, original equipment manufacturers ("OEMs"), other distributors,
fixed-base operators, corporate aircraft operators and other aerospace and non-
aerospace companies. The Company's aerospace distribution business is conducted
through its 64% owned subsidiary, Banner Aerospace, Inc. ("Banner"). On
December 8, 1997, Banner and eight of its subsidiaries entered into an Asset
Purchase Agreement pursuant to which such subsidiaries have agreed to transfer
substantially all of their assets to AlliedSignal Inc. ("Allied") for
approximately $345 million of common stock of Allied (the "Disposition"). See
"Recent Developments."
The aerospace parts industry currently is enjoying positive trends driven by
favorable economic conditions, strong growth in new commercial aircraft orders,
an increase in miles flown by existing aircraft and the need to modify older
aircraft to comply with noise regulations. In the first half of 1997, Airbus,
Boeing and McDonnell Douglas deliveries totalled 277 aircraft, a 50% increase
over the comparable period in 1996. In addition, backlog for those three
manufacturers aggregated 2,391 aircraft at June 30, 1997. The Company believes
it is well positioned to take advantage of these favorable industry trends and
intends to leverage its worldwide brand name recognition and leading market
positions in order to increase revenues and operating profits.
The aerospace industry also continues to experience consolidation at both the
manufacturer and supplier level. The Company believes that, upon completion of
the Offering, it will be well positioned to pursue additional strategic
acquisitions and take further advantage of such industry trends. The Company
continually evaluates potential acquisitions and is currently in discussions
with several parties regarding potential acquisitions.
THE REFINANCING
The Company intends to effect a series of transactions designed to: (i)
reduce its total indebtedness and annual interest expense; (ii) increase the
number of publicly held shares of Class A Common Stock; and (iii) increase the
Company's operating and financial flexibility.
The Company intends to enter into a new credit facility (the "New Credit
Facility") that will provide for total lending commitments of up to $300
million. The New Credit Facility will be comprised of a revolving credit
facility and a term loan facility. The effectiveness of the New Credit Facility
is a condition to the closing of the Offering. See "Description of the New
Credit Facility."
3
<PAGE>
With the proceeds of the Offering, borrowings under the New Credit Facility
and the after tax proceeds the Company has already received from the STFI Sale
(as defined below) (collectively, the "Refinancing"), the Company will
refinance substantially all of its existing indebtedness (other than
indebtedness of Banner), consisting of the 11 7/8% Senior Debentures due 1999,
the 12% Intermediate Debentures due 2001, the 13 1/8% Subordinated Debentures
due 2006, the 13% Junior Subordinated Debentures due 2007 and its existing bank
indebtedness. The Refinancing will reduce the Company's total net indebtedness
by approximately $132 million and will reduce the Company's annual interest
expense, on a pro forma basis, by approximately $21 million. The completion of
the STFI Sale will reduce the Company's annual interest expense by
approximately $3 million. In addition, a portion of the proceeds from the
Disposition will be used to repay all of Banner's outstanding bank
indebtedness, which will further reduce the Company's annual interest expense
by an additional $14 million.
RECENT DEVELOPMENTS
On November 20, 1997, Shared Technologies Fairchild Inc. ("STFI"), a
corporation of which the Company owns approximately 42% of the outstanding
common stock, entered into a merger agreement with Intermedia Communications
Inc. ("Intermedia") pursuant to which holders of STFI common stock will receive
$15.00 per share in cash (the "STFI Sale"). In connection with the STFI Sale,
the Company has received approximately $85 million in cash (before tax) in
exchange for certain preferred stock of STFI and expects to receive an
additional $93 million in cash (before tax) in the first three months of 1998
in exchange for the 6,225,000 shares of common stock of STFI owned by the
Company. The Intermedia transaction replaces an earlier merger agreement with
the Tel-Save Holdings, Inc. under which the Company would have received
consideration primarily in common stock of Tel-Save Holdings, Inc. Consummation
of the STFI Sale is subject to certain conditions.
On December 8, 1997, Banner and eight of its subsidiaries entered into an
Asset Purchase Agreement in connection with the Disposition. The assets to be
transferred to Allied pursuant to the Asset Purchase Agreement consist
primarily of Banner's hardware group, which includes the distribution of
bearings, nuts, bolts, screws, rivets and other type of fasteners.
Approximately $170 million of the consideration received from the Disposition
will be used to repay outstanding term loans of Banner's subsidiaries and pay
related fees. Consummation of the Disposition is subject to certain conditions.
See "The Disposition." The Company is effecting the Disposition to concentrate
its efforts on the rotables and jet engine businesses and because the
Disposition presented a unique opportunity to realize a significant return on
the sale of the hardware group.
SOURCES AND USES
The sources and uses of the funds received from the Offering, borrowings
under the New Credit Facility, the after tax proceeds from the STFI Sale, and
the proceeds from the Disposition are as follows as of September 28, 1997:
<TABLE>
<CAPTION>
SOURCES
- ------- (IN THOUSANDS)
<S> <C>
New Credit Facility............................................ $225,000
Offering....................................................... 66,750
STFI Sale(a)................................................... 134,511
Proceeds from Disposition(b)................................... 345,000
--------
Total sources................................................ $771,261
========
USES
- ----
Repayment of Existing Fairchild Credit Facilities(c)........... $240,145
Redemption of 11 7/8% Senior Debentures due 1999(d)............ 63,000
Redemption of 12% Intermediate Debentures due 2001(d).......... 117,600
Redemption of 13 1/8% Senior Subordinated Debentures due
2006(d)....................................................... 35,856
Redemption of 13% Junior Subordinated Debentures due 2007(d)... 25,063
Accrued Interest............................................... 10,218
Estimated fees and expenses.................................... 13,838
Excess Cash and short-term investments......................... 265,541
--------
Total uses................................................... $771,261
========
</TABLE>
4
<PAGE>
- --------------------
(a) Of this amount, the Company has received approximately $85 million (before
tax) and expects to receive the balance in the first three months of 1998.
(b) The Company expects to receive the proceeds from the Disposition, in the
form of Allied common stock during the first three months of 1998. The
Company will provide for deferred taxes of approximately $42 million in
connection with the Disposition.
(c) Includes Banner indebtedness.
(d) Will be redeemed approximately 45 days after consummation of the Offering.
CONTEMPLATED SPIN-OFF
In order to focus its operations on the aerospace industry, the Company is
considering distributing (the "Spin-Off") to its stockholders all of the stock
of Fairchild Industrial Holdings Corp. ("FIHC"), which may own substantially
all of the Company's non-aerospace operations. Although the Company's ability
to effect a Spin-Off is uncertain, the Company may effect a Spin-Off as soon as
is reasonably practicable following receipt of a solvency opinion relating to
FIHC, and all necessary governmental and third party approvals. The solvency
opinion with respect to FIHC is required by the Company's lenders and board of
directors. In order to effect a Spin-Off, approval is required from the board
of directors of the Company, however, shareholder approval is not required. The
ability of the Company to consummate a Spin-Off is contingent, among other
things, on the ability of the Company to obtain consents and waivers under the
Company's existing indebtedness and the New Credit Facility. The Company is
presently in negotiations with its lenders regarding obtaining such consents
and waivers and at the present time the Company has not reached an agreement
with its lenders that will allow the Company to consummate a Spin-Off. There is
no assurance that the Company will be able to obtain the necessary consents and
waivers from its lenders and consequently there is no assurance that the
Company will be able to consummate a Spin-Off. In addition, the Company may
sell, restructure or otherwise change the assets and liabilities that may be in
FIHC at the time of a Spin-Off and may delay the timing of a Spin-Off to
minimize the tax consequences thereof to the Company and its stockholders or
for other reasons elect not to consummate a Spin-Off. See "Risk Factors--
Uncertainty and Tax and Other Consequences of a Spin-Off."
At the time of a Spin-Off, if consummated, the business and assets of FIHC
may consist of: (i) the Company's technology products segment, which consists
of Fairchild Technologies (a worldwide producer of equipment for recordable
compact disc and semiconductor manufacturers); (ii) the Company's 31.9%
ownership interest in Nacanco Paketleme (the largest producer of aluminum cans
in Turkey); and (iii) certain of the Company's real estate and miscellaneous
investments, including approximately 80 acres of land in Long Island, New York
currently under development.
5
<PAGE>
THE OFFERING
<TABLE>
<C> <S>
Class A Common Stock offered:
By the Company........................... 3,000,000 shares
----------------
Total................................ 3,000,000 shares
================
Common Stock outstanding after the Offering:
Class A Common Stock..................... 17,030,717 shares(a)
Class B Common Stock..................... 2,625,616 shares
-----------------
Total................................ 19,656,333 shares
=================
Voting Rights............................... The holders of Class A Common Stock are
entitled to one vote per share and the
holders of Class B Common Stock to ten
votes per share. Each share of Class B
Common Stock is convertible at any time
into one share of Class A Common Stock.
Through beneficial ownership of
substantially all outstanding shares of
Class B Common Stock, Jeffrey J. Steiner,
the Chairman of the Board, Chief Executive
Officer and President of the Company,
controls a majority of the combined voting
power of both classes of Common Stock,
which enables him to elect a majority of
the directors of the Company and to
determine the outcome of any other matter
submitted to stockholders for approval
(except for matters requiring approval of
holders of both classes voting separately).
Upon completion of the Offering, Mr.
Steiner will have 67.6% of the combined
voting power of all shares of capital stock
of the Company (approximately 65.7% if the
Underwriters over-allotment option is
exercised in full). See "Principal
Stockholders" and "Description of Capital
Stock."
Use of proceeds............................. Together with borrowings under the New
Credit Facility, the after tax proceeds of
the STFI Sale and the Disposition, the net
proceeds of the Offering will be used to
repay existing indebtedness of the Company.
The Company will not receive any of the
proceeds from the sale of the Class A
Common Stock by the Selling Stockholder.
NYSE Symbol................................. "FA"
</TABLE>
----------------
RISK FACTORS
An investment in the Class A Common Stock involves certain risks that a
prospective investor should carefully consider before investing in the Class A
Common Stock. See "Risk Factors."
- --------------------
(a) Excludes 2,720,250 shares of Class A Common Stock issuable upon exercise of
options and warrants outstanding as of September 28, 1997.
6
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
The following table sets forth summary financial data for the Company and
should be read in conjunction with the financial statements and related notes
appearing elsewhere in this Prospectus. The summary financial data as of and
for the five years ended June 30, 1997 have been derived from the Company's
Consolidated Financial Statements, which were audited by Arthur Andersen LLP,
the Company's independent accountants. The summary financial data as of and for
the three months ended September 28, 1997 and September 29, 1996 have been
derived from the Company's Consolidated Financial Statements and are unaudited.
The unaudited pro forma statement of operations data for the Fiscal year ended
June 30, 1997 and for the three months ended September 28, 1997 give effect to
the Refinancing, the completion of the STFI Sale, and the Disposition as if
they occurred on July 1, 1996 and July 1, 1997, respectively. The data
presented below should be read in conjunction with the Financial Statements and
related notes appearing elsewhere in this Prospectus. The unaudited pro forma
balance sheet data as of September 28, 1997 give effect to the Refinancing, the
completion of the STFI Sale and the Disposition as if they had occurred on such
date. The pro forma financial data is not intended to be indicative of either
future results of operations or results that might have been achieved had the
Refinancing, the completion of the STFI Sale and the Disposition actually
occurred on the dates specified.
<TABLE>
<CAPTION>
FISCAL THREE MONTHS ENDED
---------------------------------------------------- ---------------------------
SEPTEMBER 29, SEPTEMBER 28,
1993 1994 1995 1996 1997(1) 1996 1997
-------- -------- -------- ---------- ---------- ------------- -------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales............... $247,080 $203,456 $256,840 $ 409,520 $ 731,960 $ 146,090 $ 213,761
Gross profit............ 42,609 28,415 37,614 94,911 205,123 39,810 52,062
Operating income
(loss)................. (29,595) (46,845) (31,917) (9,115) 30,517 3,048 10,112
Net interest expense.... 67,162 66,670 64,371 56,586 47,798 12,480 12,590
Earnings (loss) from
continuing operations.. (62,413) 4,834 (57,763) (33,661) (1,818) (5,052) 433
Earnings (loss) per
share from continuing
operations:
Primary................ $ (3.87) $ 0.30 $ (3.59) $ (2.03) $ (0.10) $ (0.31) $ 0.02
Fully diluted.......... (3.87) 0.30 (3.59) (1.97) (0.10) (0.31) 0.02
PRO FORMA DATA (2):
Net sales .............. $ 523,147 $ 159,096
Gross profit............ 130,944 30,603
Operating income........ 7,898 4,063
Net interest expense.... 9,339 3,212
Earnings from continuing
operations............. 10,555 3,582
Earnings per share from
continuing operations:
Primary................ $ 0.52 $ 0.18
Fully diluted.......... 0.52 0.18
OTHER DATA:
EBITDA (3).............. $ 5,739 $ (7,471) $(11,038) $ 14,857 $ 56,452 $ 8,316 $ 16,969
EBITDA margin (4)....... 2.3% N.M. N.M. 3.6% 7.7% 5.7% 7.9%
Capital expenditures.... $ 5,802 $ 4,507 $ 5,911 $ 6,622 $ 22,116 $ 2,131 $ 10,206
Cash used for operating
activities............. (21,120) (33,271) (25,525) (48,737) (96,957) (45,889) (36,843)
Cash provided by (used
for) investing
activities............. (9,290) 166,068 (19,156) 57,540 79,975 170,378 (2,485)
Cash provided by (used
for) financing
activities............. 57,431 (101,390) 12,345 (39,375) (1,455) (43,634) 27,560
<CAPTION>
AT SEPTEMBER 28, 1997
---------------------------
ACTUAL PRO FORMA(2)
------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets............ $941,675 $866,621 $850,294 $1,009,938 $1,067,333 $1,083,116 $1,044,660
Long-term debt, less
current maturities..... 566,491 522,406 509,715 368,589 416,922 412,261 225,000
Stockholders' equity.... 53,754 69,494 40,180 231,168 229,625 231,206 426,450
</TABLE>
Footnotes on following page
7
<PAGE>
- --------------------
(1) The actual results for Fiscal 1997 include results of Simmonds, a European
manufacturer of aerospace fasteners, from its date of acquisition in
February 1997.
(2) See "Pro Forma Consolidated Financial Statements."
(3) Earnings before interest, taxes, depreciation and amortization ("EBITDA")
represents the sum of operating income before depreciation and amortization
and restructuring and unusual charges of $15,469, $25,553, and $2,319 in
Fiscal 1993, 1994, and 1996, respectively. EBITDA is not a measure of
financial performance under generally accepted accounting principles
("GAAP") , may not be comparable to other similarly titled measures of
other companies and should not be considered as an alternative either to
net income as an indicator of the Company's operating performance, or to
cash flows as a measure of the Company's liquidity. See the Company's
Consolidated Financial Statements and the related notes thereto appearing
elsewhere in this Prospectus.
(4) Represents EBITDA as a percentage of net sales.
8
<PAGE>
RISK FACTORS
Prospective purchasers of the Class A Common Stock should carefully consider
the following risk factors, as well as the other information contained in, and
incorporated by reference in, this Prospectus, before making an investment in
the Class A Common Stock. Information contained or incorporated by reference
in this Prospectus contains "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995, which can be identified
by the use of forward-looking terminology such as "believes," "expects,"
"may," "will," "should" or "anticipates" or the negative thereof or other
variations thereon or comparable terminology, or by discussions of strategy.
See, e.g., "Management's Discussion and Analysis of Financial Condition and
Results of Operations". No assurance can be given that the future results
covered by the forward-looking statements will be achieved. The following
matters constitute cautionary statements identifying important factors with
respect to such forward-looking statements, including certain risks and
uncertainties, that could cause actual results to vary materially from the
future results covered in such forward-looking statements. Other factors could
also cause actual results to vary materially from the future results covered
in such forward-looking statements.
AIRLINE INDUSTRY RISKS/CYCLICALITY
The Company's aerospace fasteners and aerospace distribution segments
operate in historically cyclical industries. These segments are sensitive to
general economic conditions and have been adversely affected by past
recessions. Performance of the aerospace fasteners and aerospace distribution
segments is also influenced by conditions generally affecting the aerospace
industry, which, from 1990 to 1994, had experienced reduced demand for
commercial aircraft, a decline in military spending and the postponement of
overhaul and maintenance on existing aircraft.
In past years, the aerospace industry has been adversely affected by a
number of factors, including increased fuel and labor costs and intense price
competition. Several passenger airline carriers encountered significant
financial difficulties, resulting in certain of such carriers ceasing to
conduct business or seeking protection from creditors under federal bankruptcy
laws. Certain passenger airline carriers have continued to operate under the
protection of federal bankruptcy laws and continue to purchase products from
aerospace hardware providers. In the event that any of the Company's aerospace
customers cease to conduct business or seek protection from creditors under
federal bankruptcy laws, it is likely the Company would be classified as a
general unsecured creditor of such customer and the Company would be forced to
incur losses from the write-off of accounts receivable. The loss of any of the
Company's significant customers could result in a decrease in the Company's
net sales and have a material adverse effect upon the Company's business.
Although no one customer accounted for more than 10% of the Company's net
sales in fiscal 1997 or for the three months ended September 28, 1997, the
vast majority of the Company's revenues come from customers providing parts or
services to Airbus and Boeing and, accordingly, the Company is dependent on
the business of those manufacturers. A number of the historical customers of
the Company's aerospace distribution business are smaller domestic and foreign
passenger airlines, freight and package carriers, charter airlines and
aircraft leasing companies, which may also suffer from the factors adversely
affecting the airline industry generally. As a result, certain of the
Company's customers may pose credit risks to the Company. The Company's
inability to collect receivables could adversely affect its results of
operations.
COMPETITION
The markets for the Company's products and services are extremely
competitive, and the Company faces competition from a number of sources in
most of its product lines. Some of the Company's competitors have financial
and other resources greater than those of the Company and are also well
established as suppliers to the markets that the Company serves. Quality,
performance, service and price are generally the prime competitive factors.
There can be no assurance that the Company's markets will not attract
additional competitors. See "Business--Competition."
9
<PAGE>
DUAL CLASSES OF COMMON STOCK; CONTROL BY PRINCIPAL STOCKHOLDER
The authorized Common Stock of the Company consists of 40,000,000 shares of
Class A Common Stock and 20,000,000 shares of Class B Common Stock, of which
14,030,717 shares of Class A Common Stock and 2,625,616 shares of Class B
Common Stock were outstanding as of September 28, 1997. Except for voting with
respect to additional issuances of Class B Common Stock and for class votes as
required by Delaware law, holders of both classes of Common Stock vote
together as a single class, with each share of Class A Common Stock having one
vote per share and each share of Class B Common Stock having ten votes per
share. Substantially all of the outstanding shares of the Class B Common Stock
are owned, directly or indirectly, by Jeffrey J. Steiner, the Company's
Chairman of the Board, Chief Executive Officer and President. Through his
ownership of 2,563,996 shares of the Class B Common Stock and 3,638,988 shares
of the Class A Common Stock, Mr. Steiner owns 72.7% of the combined voting
power of both classes of Common Stock 67.6% upon completion of this offering
and 65.7% if the Underwriters' over-allotment option is exercised in full),
which enables him to elect a majority of the directors of the Company and to
determine the outcome of any other matter submitted to stockholders for
approval (except for matters requiring approval of holders of both classes
voting separately). The voting rights of the Class B Common Stock may make the
Company less attractive as the potential target of a hostile tender offer or
other proposal to acquire or merge with the Company, even if such actions
would be in the best interests of the holders of Class A Common Stock. See
"Description of Capital Stock--General." The Class B Common Stock is
convertible into Class A Common Stock on a share-for-share basis and is
subject to certain restrictions on transferability. See "Description of
Capital Stock."
Articles have appeared in the French press reporting an inquiry by a French
magistrate into certain allegedly improper business transactions involving Elf
Aquitaine, its former chairman and various third parties, including Maurice
Bidermann. In connection with this inquiry, the magistrate has made inquiry
into allegedly improper transactions between Mr. Steiner and that petroleum
company. In response to the magistrate's request that Mr. Steiner appear in
France as a witness, Mr. Steiner submitted written statements concerning the
transactions and has offered to appear in person if certain arrangements were
made. According to the French press, the magistrate also requested permission
to commence an inquiry into transactions involving another French petroleum
company, but her request was not granted. If the magistrate were to renew her
request, and if it were granted, inquiry into transactions between such
company and Mr. Steiner could ensue. The Board of Directors of the Company has
formed a special committee of outside directors to advise it with respect to
these matters, and the special committee has retained counsel.
UNCERTAINTY AND TAX AND OTHER CONSEQUENCES OF A SPIN-OFF
The Company may effect a Spin-Off as soon as is reasonably practicable
following receipt of a solvency opinion relating to FIHC and all necessary
governmental and third party approvals. The ability of the Company to
consummate a Spin-Off is contingent, among other things, on the ability of the
Company to obtain consents and waivers under the Company's existing
indebtedness and the New Credit Facility. The Company is presently in
negotiations with its lenders regarding obtaining such consents and waivers
and at the present time the Company has not reached an agreement with its
lenders that will allow the Company to consummate a Spin-Off. There is no
assurance that the Company will be able to obtain the necessary consents and
waivers from its lenders and consequently there is no assurance that the
Company will be able to consummate a Spin-Off. In addition, the Company may
encounter unexpected delays in effecting a Spin-Off, and the Company can make
no assurance as to the timing thereof. In addition, prior to the consummation
of a Spin-Off, the Company may sell, restructure or otherwise change the
assets and liabilities that will be in FIHC, or for other reasons elect not to
consummate a Spin-Off. Consequently, there can be no assurance that a Spin-Off
will occur.
Should a Spin-Off, as presently contemplated, occur prior to June of 1999, a
Spin-Off will be a taxable transaction to shareholders of the Company and
could result in a material tax liability to the Company and its stockholders.
The amount of the tax to the Company and the shareholders is uncertain, and if
the tax is material to the Company, the Company may elect not to consummate a
Spin-Off. Because circumstances may change and because provisions of the
Internal Revenue Code of 1986, as amended, may be further amended from time to
time, the Company may, depending on various factors, restructure or delay the
timing of a Spin-Off to minimize the tax consequences thereof to the Company
and its stockholders.
10
<PAGE>
Pursuant to a Spin-Off, it is expected that FIHC will assume certain
liabilities (including contingent liabilities) of the Company and will
indemnify the Company for such liabilities. In the event that FIHC is unable
to satisfy the liabilities which it will assume in connection with a Spin-Off,
the Company may have to satisfy such liabilities. See "Business--Contemplated
Spin-Off."
GOVERNMENT REGULATION
The Federal Aviation Administration ("FAA") prescribes standards and
licensing requirements for aircraft components, and licenses component repair
stations worldwide. Comparable agencies also regulate these matters in other
countries. If the Company fails to obtain a required license for one of its
products or services or loses a license previously granted, the sale of the
subject product or service will be prohibited by law until such license is
obtained or requalified. The Company believes it is currently in material
compliance with FAA requirements as in existence on the date hereof. However,
there can be no assurance that changes in FAA regulations will not be adopted
and that such changes will not adversely affect the results of operations of
the Company.
The Fastener Quality Act of 1991 (the "Fastener Act") regulates the
manufacture and distribution of certain high grade industrial fasteners in the
United States and imposes testing, certification and record keeping
requirements on manufacturers and distributors of these fasteners. As a result
of the Fastener Act, the Company and other distributors of certain types of
fasteners are required to maintain records and product tracking systems. The
Company has implemented tracking and traceability systems that comply with the
regulations. Although compliance with the Fastener Act has not materially
increased expenses for the Company, there can be no assurance that future
regulations will not result in materially increased costs for the Company.
SHARES ELIGIBLE FOR FUTURE SALE
Immediately after completion of the Offering, the Company will have
19,656,333 shares of Common Stock outstanding, of which 12,031,716 shares will
be freely tradable without restrictions or further registration under the
Securities Act. Holders of the remaining shares, primarily Jeffrey J. Steiner,
the Chairman of the Board, Chief Executive Officer and President of the
Company, will be eligible to sell such shares pursuant to Rule 144 ("Rule
144") under the Securities Act at prescribed times and subject to the manner
of sale, volume, notice and information restrictions of Rule 144.
The Company and each of its executive officers and directors, including Mr.
Jeffrey J. Steiner, have each agreed, subject to certain exceptions, not to
sell or otherwise dispose of any shares of Common Stock or securities
convertible into or exchangeable for Common Stock, without the prior written
consent of Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"), for a
period of 90 days from the date of this Prospectus. The foregoing does not
prohibit the Company from issuing the shares subject to the Underwriters'
over-allotment option or issuing options pursuant to its stock option plans or
shares pursuant to outstanding options or warrants. See "Shares Eligible for
Future Sale." Sales of substantial numbers of shares of Class A Common Stock
in the public market could adversely affect the market price of the Class A
Common Stock.
11
<PAGE>
USE OF PROCEEDS
The net proceeds to be received by the Company from the Offering are
estimated to be approximately $62.4 million after deduction of estimated
offering expenses and the underwriting discounts. The net proceeds, together
with borrowings of approximately $225.0 million under the New Credit Facility,
and the after tax proceeds the Company has already received from the STFI
Sale, will be used to repay the following indebtedness of the Company: (i)
$63.0 million to redeem the 11 7/8% senior debentures due 1999; (ii) $117.6
million to redeem the 12% intermediate debentures due 2001; (iii) $35.9
million to redeem the 13 1/8% subordinated debentures due 2006; (iv) $25.1
million to redeem the 13% junior subordinated debentures due 2007; (v)
approximately $75.1 million of bank indebtedness, which indebtedness has an
interest rate of 9%; and (vi) accrued interest of $7.8 million. The Company
will not receive any of the proceeds from the sale of the Class A Common Stock
by the Selling Stockholder.
DIVIDEND POLICY
The Company has not paid a dividend since Fiscal 1992 on its Common Stock.
The payment of cash dividends in the future will depend on the Company's
earnings, financial condition and capital needs and on other factors deemed
relevant by the Board of Directors at that time. It is the current policy of
the Company's Board of Directors to retain earnings to finance the operations
and expansion of the Company's business.
PRICE RANGE OF CLASS A COMMON STOCK
The Class A Common Stock is quoted on the New York Stock Exchange ("NYSE")
under the symbol "FA." The following table shows, for the periods indicated,
the range of high and low reported sale prices per share for the Class A
Common Stock as quoted on the NYSE.
<TABLE>
<CAPTION>
HIGH LOW
---- -------
<S> <C> <C>
FISCAL 1996
Quarter ended:
October 1, 1995............................................ $ 6 $ 2 7/8
December 31, 1995.......................................... 8 3/4 4 3/4
March 31, 1996............................................. 9 7/8 8
June 30, 1996.............................................. 15 7/8 9 1/4
FISCAL 1997
Quarter ended:
September 29, 1996......................................... $ 17 $12 1/4
December 29, 1996.......................................... 17 3/4 14 3/8
March 30, 1997............................................. 15 3/8 12 7/8
June 30, 1997.............................................. 18 11 5/8
FISCAL 1998
Quarter ended:
September 28, 1997......................................... $28 11/16 $17
Through December 12, 1997.................................. 28 11/16 19 5/16
</TABLE>
On December 12, 1997, the last reported sale price of the Class A Common
Stock as quoted on the NYSE was $20 3/4. As of October 1, 1997, there were
approximately 1,370 holders of record of Class A Common Stock and
approximately 53 holders of record of Class B Common Stock.
12
<PAGE>
CAPITALIZATION
The following table sets forth the cash position and the capitalization of
the Company as of September 28, 1997, and on a pro forma basis to give effect
to the sale of 3,000,000 shares of Class A Common Stock by the Company,
additional borrowings of approximately $225.0 million under the New Credit
Facility, the after tax proceeds from the STFI Sale, the $345.0 million in
proceeds from the Disposition and the repayment of indebtedness with the
proceeds thereof. This table should be read in conjunction with the Company's
Consolidated Financial Statements, the Pro Forma Consolidated Financial
Statements and the related notes thereto and the other financial information
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SEPT. 28, AS PRO
1997 ADJUSTED(1) FORMA(2)
--------- ----------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Cash and short-term investments.............. $ 27,452 $ 70,671 $292,993
======== ======== ========
Short-term debt.............................. $ 4,060 $ 3,960 915
Existing Credit Facilities................... 237,000 162,000 --
New Credit Facility.......................... -- 225,000 225,000
11 7/8% Senior Debentures due 1999(3)........ 62,919 -- --
12% Intermediate Debentures due 2001(3)...... 115,590 -- --
13 1/8% Subordinated Debentures due 2006(3).. 35,218 -- --
13% Junior Subordinated Debentures due
2007(3)..................................... 24,844 -- --
Other debt................................... 12,411 12,411 12,411
-------- -------- --------
Total debt................................... $492,042 $403,371 $238,326
-------- -------- --------
Stockholders' equity:
Class A Common Stock, $0.10 par value;
40,000,000 shares authorized;
20,272,313 shares (actual); 23,272,313
shares (pro forma) issued; 14,030,717 shares
(actual); 17,030,717 shares (pro forma)
outstanding................................. 2,027 2,327 2,327
Class B Common Stock, $0.10 par value;
20,000,000 shares authorized;
2,625,616 shares (actual and pro forma)
issued and outstanding...................... 263 263 263
Paid in capital.............................. 71,105 134,218 134,218
Retained earnings............................ 210,441 203,297 342,272
Cumulative translation adjustment............ (865) (865) (865)
Net unrealized holding loss on available-for-
sale securities............................. (46) (46) (46)
Treasury stock............................... (51,719) (51,719) (51,719)
-------- -------- --------
Total stockholders' equity................... 231,206 287,475 426,450
-------- -------- --------
Total capitalization......................... $723,248 $732,324 $664,776
======== ======== ========
</TABLE>
- ---------------------
(1) Gives effect to the Refinancing and the use of proceeds thereof.
(2) Gives effect to the completion of the STFI Sale and the Disposition and
the use of proceeds thereof. On November 20, 1997, STFI, a corporation of
which the Company owns approximately 42% of the outstanding common stock
on a fully-diluted basis, entered into a merger agreement with Intermedia
pursuant to which each common shareholder of STFI shall receive $15.00 per
share in cash. The Company expects to realize an after tax gain of
approximately $95.8 million upon consummation of such transaction. On
December 8, 1997, Banner and eight of its subsidiaries entered into an
Asset Purchase Agreement pursuant to which such subsidiaries have agreed
to transfer substantially all of their assets to Allied for approximately
$345 million of common stock of Allied. The assets transferred to Allied
consists primarily of Banner's hardware group, which includes the
distribution of bearings, nuts, bolts, screws, rivets and other type of
fasteners.
(3) The Debentures are reflected on the Company's balance sheet net of the
remaining original issue discount and will be redeemed approximately 45
days after the consummation of the Offering.
13
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected financial data for the Company and
should be read in conjunction with the financial statements and related notes
appearing elsewhere in this Prospectus. The selected financial data as of and
for the five years ended June 30, 1997 have been derived from the Company's
Consolidated Financial Statements, which were audited by Arthur Andersen LLP,
the Company's independent accountants. The selected financial data as of and
for the three months ended September 28, 1997 and September 29, 1996 have been
derived from the Company's Consolidated Financial Statements and are
unaudited. The unaudited pro forma statement of operations data for the Fiscal
year ended June 30, 1997 and for the three months ended September 28, 1997
give effect to, the Refinancing, the completion of the STFI Sale, and the
Disposition, as if they occurred on July 1, 1996 and July 1, 1997,
respectively. The data presented below should be read in conjunction with the
financial statements and related notes appearing elsewhere in this Prospectus.
The unaudited pro forma balance sheet data as of September 28, 1997 give
effect to the Refinancing, the completion of the STFI Sale and the Disposition
as if they had occurred on such date. The pro forma financial data is not
intended to be indicative of either future results of operations or results
that might have been achieved had the Refinancing, the completion of the STFI
Sale and the Disposition actually occurred on the dates specified.
<TABLE>
<CAPTION>
FISCAL THREE MONTHS ENDED
----------------------------------------------------- ---------------------------
SEPTEMBER 29, SEPTEMBER 28,
1993 1994 1995 1996 1997(1) 1996 1997
-------- --------- -------- ---------- ---------- ------------- -------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales............... $247,080 $ 203,456 $256,840 $ 409,520 $ 731,960 $ 146,090 $ 213,761
Gross profit............ 42,609 28,415 37,614 94,911 205,123 39,810 52,062
Operating income
(loss)................. (29,595) (46,845) (31,917) (9,115) 30,517 3,048 10,112
Net interest expense.... 67,162 66,670 64,371 56,586 47,798 12,480 12,590
Earnings (loss) from
continuing operations.. (62,413) 4,834 (57,763) (33,661) (1,818) (5,052) 433
Earnings (loss) per
share from continuing
operations:
Primary................ $ (3.87) $ 0.30 $ (3.59) $ (2.03) $ (0.10) $ (0.31) $ 0.02
Fully diluted.......... (3.87) 0.30 (3.59) (1.97) (0.10) (0.31) 0.02
PRO FORMA DATA(2):
Net sales .............. $ 523,147 $ 159,096
Gross profit............ 130,944 30,603
Operating income ....... 7,898 4,063
Net interest expense.... 9,339 3,212
Earnings from continuing
operations............. 10,555 3,582
Earnings per share from
continuing operations:
Primary................ $ 0.52 $ 0.18
Fully Diluted.......... 0.52 0.18
OTHER DATA:
EBITDA (3).............. $ 5,739 $ (7,471) $(11,038) $ 14,857 $ 56,452 $ 8,316 $ 16,969
EBITDA margin (4)....... 2.3% N.M. N.M. 3.6% 7.7% 5.7% 7.9%
Capital expenditures.... $ 5,802 $ 4,507 $ 5,911 $ 6,622 $ 22,116 $ 2,131 $ 10,206
Cash used for operating
activities............. (21,120) (33,271) (25,525) (48,737) (96,957) (45,889) (36,843)
Cash provided by (used
for) investing
activities............. (9,290) 166,068 (19,156) 57,540 79,975 170,378 (2,485)
Cash provided by (used
for) financing
activities............. 57,431 (101,390) 12,345 (39,375) (1,455) (43,634) 27,560
<CAPTION>
AT SEPTEMBER 28, 1997
---------------------------
ACTUAL PRO FORMA(2)
------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets............ $941,675 $ 866,621 $850,294 $1,009,938 $1,067,333 $1,083,116 $1,044,660
Long-term debt, less
current maturities..... 566,491 522,406 509,715 368,589 416,922 412,261 225,000
Stockholders' equity.... 53,754 69,494 40,180 231,168 229,625 231,206 426,450
</TABLE>
- -------------------
(1) The actual results for Fiscal 1997 include results of Simmonds from its
date of acquisition in February 1997.
(2) See "Pro Forma Consolidated Financial Statements."
(3) EBITDA represents the sum of operating income before depreciation and
amortization and restructuring and unusual charges of $15,469, $25,553,
and $2,319 in Fiscal 1993, 1994, and 1996, respectively. EBITDA is not a
measure of financial performance under GAAP, may not be comparable to
other similarly titled measures of other companies and should not be
considered as an alternative either to net income as an indicator of the
Company's operating performance, or to cash flows as a measure of the
Company's liquidity. See the Company's Consolidated Financial Statements
and the related notes thereto appearing elsewhere in this Prospectus.
(4) Represents EBITDA as a percentage of net sales.
14
<PAGE>
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The unaudited pro forma consolidated statement of earnings for the year
ended June 30, 1997 and for the three months ended September 28, 1997 has been
prepared to give effect to the Offering, the New Credit Facility, the STFI
Sale and the Disposition (collectively, the "Transactions") as if they
occurred on July 1, 1996 and July 1, 1997, respectively. The unaudited pro
forma consolidated balance sheet as of September 28, 1997 has been prepared to
give effect to the Offering, the New Credit Facility, the STFI Sale and the
Disposition as if they had occurred on such date.
The unaudited pro forma consolidated financial data are not necessarily
indicative of the results that would have been obtained had the Transactions
been completed as of the dates presented or for any future period. The
unaudited pro forma consolidated financial data should be read in conjunction
with the Company's Consolidated Financial Statements and notes thereto
included elsewhere in this Prospectus.
15
<PAGE>
THE FAIRCHILD CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS
FOR THE YEAR ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
ADJUSTMENT FOR
OFFERING AND STFI PRO FORMA
HISTORICAL NEW CREDIT FACILITY SUBTOTAL SALE DISPOSITION(3) COMPANY
---------- ------------------- -------- ------ -------------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Sales................... $731,960 $ -- $731,960 $ -- $(208,813)(4) $523,147
Costs and expenses:
Cost of sales......... 526,837 -- 526,837 -- (134,634) 392,203
Selling, general &
administrative....... 161,967 -- 161,967 -- (51,271) 110,696
Research and
development.......... 7,807 -- 7,807 -- -- 7,807
Amortization of
goodwill............. 4,832 -- 4,832 -- (289) 4,543
-------- ------- -------- ------ --------- --------
701,443 -- 701,443 -- (186,194) 515,249
-------- ------- -------- ------ --------- --------
Operating income...... 30,517 -- 30,517 -- (22,619) 7,898
Net interest expense.... (47,798) 15,176(1) (32,622) 8,833(2) 14,450 (9,339)
Investment income, net.. 6,651 -- 6,651 -- 2,637 9,288
Equity in earnings of
affiliates............. 4,598 -- 4,598 -- -- 4,598
Minority interest....... (3,514) -- (3,514) -- 2,220 (1,294)
Non-recurring income.. 2,528 -- 2,528 -- -- 2,528
-------- ------- -------- ------ --------- --------
Earnings before taxes... (7,018) 15,176 8,158 8,833 (3,312) 13,679
Income tax provision
(benefit).............. (5,200) 5,311 111 3,092 (79) 3,124
-------- ------- -------- ------ --------- --------
Earnings from continuing
operations before
nonrecurring charges or
credits directly
attributable to the
transaction to give
effect to the proposed
disposition of
STFI(5)................ $ (1,818) $ 9,865 $ 8,047 $5,741 $ (3,233) $ 10,555
======== ======= ======== ====== ========= ========
Primary earnings per
share:
Continuing
operations........... $ (0.10) $ 0.40 $ 0.52
Weighted average shares
outstanding............ 17,230 3,000 20,230 20,230
</TABLE>
16
<PAGE>
THE FAIRCHILD CORPORATION
UNAUDITED CONSOLIDATED STATEMENT OF EARNINGS
FOR THE THREE MONTHS ENDED SEPTEMBER 28, 1997
<TABLE>
<CAPTION>
ADJUSTMENT FOR
OFFERING AND STFI PRO FORMA
HISTORICAL NEW CREDIT FACILITY SUBTOTAL SALE DISPOSITION(3) COMPANY
---------- ------------------- -------- ------ -------------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Sales................... $213,761 $ -- $213,761 $ -- $(54,665) $159,096
Costs and expenses:
Cost of sales......... 161,699 -- 161,699 -- (33,206) 128,493
Selling, general &
administrative....... 40,122 -- 40,122 -- (15,342) 24,780
Research and
development.......... 605 -- 605 -- -- 605
Amortization of
goodwill............. 1,223 -- 1,223 -- (68) 1,155
-------- ------ -------- ------ -------- --------
203,649 -- 203,649 -- (48,616) 155,033
-------- ------ -------- ------ -------- --------
Operating income...... 10,112 -- 10,112 -- (6,049) 4,063
Net interest expense.... (12,590) 3,457(1) (9,133) 2,176(2) 3,745 (3,212)
Investment income, net.. 1,897 -- 1,897 -- 604 2,501
Equity in earnings of
affiliates............. 1,692 -- 1,692 -- -- 1,692
Minority interest....... (788) -- (788) -- 352 (436)
-------- ------ -------- ------ -------- --------
Earnings before
taxes................ 323 3,457 3,780 2,176 (1,348) 4,608
Income tax provision
(benefit).............. (110) 1,210 1,100 761 (835) 1,026
-------- ------ -------- ------ -------- --------
Earnings from continuing
operations before
nonrecurring charges or
credits directly
attributable to the
transaction to give
effect to the proposed
disposition of STFI.... $ 433 $2,247 $ 2,680 $1,415 $ (513) $ 3,582
======== ====== ======== ====== ======== ========
Primary earnings per
share:
Continuing operations.. $ 0.02 $ 0.13 $ 0.18
Weighted average shares
outstanding............ 17,457 3,000 20,457 20,457
</TABLE>
17
<PAGE>
THE FAIRCHILD CORPORATION
UNAUDITED PRO FORMA BALANCE SHEET
AS OF SEPTEMBER 28, 1997
<TABLE>
<CAPTION>
ADJUSTMENT FOR
OFFERING
AND NEW STFI PRO FORMA
HISTORICAL CREDIT FACILITY SUBTOTAL SALE DISPOSITION(12) COMPANY
---------- --------------- ---------- -------- --------------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Cash.................... $ 9,049 $ -- $ 9,049 $ 93,033 (9) $ -- $ 102,082
Short-term investments.. 18,403 -- 18,403 -- 172,508(13) 190,911
Accounts receivable,
less allowance......... 172,239 -- 172,239 -- (48,184) 124,055
Inventory............... 359,667 -- 359,667 -- (176,790) 182,877
Prepaid and other
current assets......... 39,595 -- 39,595 -- (10,156) 29,439
---------- -------- ---------- -------- --------- ----------
Total current assets.. 598,953 -- 598,953 93,033 (62,622) 629,364
Net fixed assets........ 132,195 -- 132,195 -- (12,553) 119,642
Net assets held for
sale................... 26,262 -- 26,262 -- -- 26,262
Investment in
affiliates............. 55,337 -- 55,337 (32,037)(10) -- 23,300
Goodwill................ 154,233 -- 154,233 -- (19,089) 135,144
Deferred loan costs..... 11,489 (2,542)(5) 8,947 -- (2,000)(14) 6,947
Prepaid pension assets.. 59,512 -- 59,512 -- -- 59,512
Other assets............ 45,135 -- 45,135 -- (646) 44,489
---------- -------- ---------- -------- --------- ----------
Total Assets.......... $1,083,116 $ (2,542) $1,080,574 $ 60,996 $ (96,910) $1,044,660
========== ======== ========== ======== ========= ==========
Bank notes payable &
current maturities of
debt................... $ 79,781 $(63,100)(6) $ 16,681 $ (3,056)(11) $ (299) $ 13,326
Accounts payable........ 84,797 -- 84,797 -- (30,518) 54,279
Other accrued expenses.. 91,289 (11,618)(7) 79,671 -- 43,069(15) 122,740
---------- -------- ---------- -------- --------- ----------
Total current
liabilities.......... 255,867 (74,718) 181,149 (3,056) 12,252 190,345
Long-term debt, less
current maturities..... 412,261 15,907(6) 428,168 (38,422)(11) (164,746)(16) 225,000
Other long-term
liabilities............ 22,381 -- 22,381 -- (5,969) 16,412
Retiree health care
liabilities............ 43,284 -- 43,284 -- -- 43,284
Noncurrent income
taxes.................. 48,939 -- 48,939 -- -- 48,939
Minority interest in
subsidiaries........... 69,178 -- 69,178 -- 25,052(17) 94,230
---------- -------- ---------- -------- --------- ----------
Total liabilities..... 851,910 (58,811) 793,099 (41,478) (133,411) 618,210
---------- -------- ---------- -------- --------- ----------
Total stockholders'
equity............... 231,206 56,269(8) 287,475 102,474 (12) 36,501 426,450
---------- -------- ---------- -------- --------- ----------
Total liabilities &
stockholders'
equity............... $1,083,116 $ (2,542) $1,080,574 $ 60,996 $ (96,910) $1,044,660
========== ======== ========== ======== ========= ==========
</TABLE>
18
<PAGE>
NOTES TO THE UNAUDITED PRO FORMA FINANCIAL STATEMENTS
(1) Represents the decrease of interest expense by $35,971, and $8,656 for the
fiscal year ended June 30, 1997 and the three months ended September 28,
1997, respectively, due to the early extinguishment of the debentures and
bank debt. This is offset by the increased interest expense of $20,795,
and $5,199 for the fiscal year ended June 30, 1997 and the three months
ended September 28, 1997, respectively, relating to the New Credit
Facility (at assumed interest rates of 9%, which represents LIBOR plus
3%).
(2) Represents the decrease of net interest expense by $8,833, and $2,176 for
the fiscal year ended June 30, 1997 and the three months ended September
28, 1997, respectively, due to the early extinguishment of the debentures
and bank debt and additional interest income from the invested proceeds of
the STFI sale.
(3) Represents the elimination of the results of operations associated with
the Disposition of a portion of Banner's business (see note 4) and the
associated reduction in interest expense due to the repayment of bank debt
of Banner's subsidiaries. Investment income of $2,637 and $604 for the
fiscal year ended June 30, 1997 and the three months ended September 28,
1997, respectively, represents cash dividends paid on the remaining
holdings of Allied common stock. Dividends were calculated based on an
estimated ownership of approximately 4.6 million shares of Allied common
stock, representing less than 1% of Allied's outstanding common stock.
(4) Represents the reduction of Banner hardware group sales of $223,997 offset
by $15,184 of additional sales recorded by the Fairchild Fasteners Group
which represented intercompany sales to the Banner hardware group. These
sales no longer require elimination as the Banner hardware group is now
treated as a third party for pro forma purposes. The net result is a
decrease in sales of $208,813.
(5) The net decrease in deferred loan costs of $2,542 represents the write-off
of existing deferred loan costs of $8,042 related to retired debt, offset
by additional deferred loan costs of $5,500 related to costs for the New
Credit Facility.
(6) Represents the net decrease of current and long-term debt of $47,193 (net
of $63,100 decrease in current debt and $15,907 increase in long-term
debt) due to the Refinancing as follows:
<TABLE>
<S> <C>
Proceeds from New Credit Facility................. 266,478
Payments on subordinated notes and debentures..... (238,571)
Payments on existing bank debt.................... (75,100)
--------
Net decrease in short and long-term debt paid
from proceeds of the equity offering............. (47,193)
</TABLE>
(7) The reduction of other accrued expenses by $11,618 represents (i) the
payment of $7,771 of accrued interest on the retired debt and (ii) the
reduction of income taxes payable of $3,847 due to the tax benefit derived
from the write-off of deferred loan fees and original issue discounts on
the retired debt.
(8) The increase in stockholders' equity of $56,269 reflects the following:
<TABLE>
<S> <C>
Gross proceeds from the sale of 3,000,000 shares of
Class A common stock by the Company at $22.25 per
share............................................. $66,750
Issuance costs..................................... (3,338)
-------
Net proceeds from the Offering..................... 63,412
Extraordinary loss, net of tax, of write-off of de-
ferred
financing costs and original issue discount
costs............................................. (7,143)
-------
Net increase in stockholders' equity............... $56,269
=======
</TABLE>
(9) The increase in cash of $93,033 reflects the after tax proceeds of the
STFI sale of $134,511, net of paying down $41,478 in debt.
(10) Represents the carrying value of the STFI investment at September 28,
1997.
(11) Represents the payment of debt from the use of the after tax proceeds of
the STFI sale.
19
<PAGE>
(12) Represents the removal of the operating net assets associated with the
Disposition. The increase in stockholders' equity related primarily to
the gain from the STFI sale as follows:
<TABLE>
<S> <C>
Proceeds to be received from the STFI common stock............... $93,375
Proceeds received from the STFI preferred stock issuances........ 84,698
-------
Gross Proceeds................................................... 178,073
Less: Cash Expenses.............................................. (5,671)
-------
Net proceeds..................................................... 172,402
Less: Non cash expenses from warrant issuances................... (6,660)
-------
165,742
Book Basis of STFI investment.................................... 32,037
-------
Gain from disposal before taxes.................................. 133,705
Income tax provision............................................. 37,891
-------
Net gain from disposal........................................... $95,814
=======
Additional paid in capital from issuance of warrants............. 6,660
-------
Net increase in equity......................................... 102,474
=======
</TABLE>
(13) Represents a net increase of $172,508 in short-term investments. The
Company will receive AlliedSignal, Inc. stock of $345,000 in exchange for
the sale of a portion of the Company's aerospace distribution segment.
The offsetting decrease of $172,492 results from the repayment of Banner
long-term debt, associated interest and transaction fees.
(14) Represents the write-off of existing deferred financing fees of $2,000
related to the repayment of the debt of Banner's subsidiaries.
(15) Represents (i) an increase of accrued expenses of $41,826 for deferred
taxes associated with the Disposition; (ii) an increase of $10,000 in
accruals for transaction fees, indemnifications and other costs
associated with the transaction; (iii) a decrease of accrued interest of
$2,447 associated with the defeasance of the Banner bank debt (iv) a
decrease of $6,310 in accruals associated with the business being sold to
AlliedSignal.
(16) Represents the redemption of $164,746 of long-term debt.
(17) Represents the increase in the minority interest liability associated
with Banner's increased net worth associated with the Disposition.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company is the largest aerospace fastener manufacturer and is one of the
largest independent aerospace parts distributors in the world. Through
internal growth and strategic acquisitions, the Company has become one of the
leading aircraft parts suppliers to aircraft manufacturers such as Boeing,
Airbus, Lockheed Martin, British Aerospace and Bombardier and to airlines such
as Delta Airlines and US Airways.
The Company's primary business focus is on the aerospace industry and its
business consists primarily of two aerospace segments--aerospace fasteners and
aerospace parts distribution. The aerospace fasteners segment, which accounted
for approximately 51.4% of the Company's net sales in Fiscal 1997, pro forma
for the Disposition, manufactures and markets fastening systems used in the
manufacturing and maintenance of commercial and military aircraft. The
aerospace distribution segment, which accounted for approximately 35.9% of the
Company's net sales in Fiscal 1997, pro forma for the Disposition, stocks and
distributes a wide variety of aircraft parts to commercial airlines and air
cargo carriers, OEMs, other distributors, fixed-base operators, corporate
aircraft operators and other aerospace and non-aerospace companies. The
Company's aerospace distribution business is conducted through its 64% owned
subsidiary, Banner.
On November 20, 1997, STFI, a corporation of which the Company owns
approximately 42% of the outstanding common stock, entered into a merger
agreement with Intermedia pursuant to which holders of STFI common stock will
receive $15.00 per share in cash. In connection with the STFI Sale, the
Company has received approximately $85 million in cash (before tax) in
exchange for certain preferred stock of STFI and expects to receive an
additional $93 million in cash (before tax) in the first three months of 1998
in exchange for the 6,225,000 shares of common stock of STFI owned by the
Company. The Intermedia transaction replaces an earlier merger agreement with
the Tel-Save Holdings, Inc. under which the Company would have received
consideration primarily in common stock of Tel-Save Holdings, Inc.
Consummation of the STFI Sale is subject to certain conditions.
On December 8, 1997, Banner and eight of its subsidiaries entered into an
Asset Purchase Agreement pursuant to which such subsidiaries have agreed to
transfer substantially all of their assets to Allied for approximately $345
million of common stock of Allied. The assets sold to Allied consist primarily
of Banner's hardware group, which includes the distribution of bearings, nuts,
bolts, screws, rivets and other type of fasteners. Approximately $170 million
of the common stock received from Allied will be used to repay outstanding
term loans of Banner's subsidiaries and related fees. Consummation of the
Disposition is subject to certain conditions. See "The Disposition." The
Company is effecting the Disposition to concentrate its efforts on the
rotables and jet engine businesses and because the Disposition presented a
unique opportunity to realize a significant return on the sale of the hardware
group.
In the last two years, the Company's aerospace business segments have
experienced significant growth. Set forth below is certain financial
information regarding the Company's aerospace segments for the last eight
fiscal quarters.
<TABLE>
<CAPTION>
FOR THE TWELVE (12) MONTHS ENDED JUNE
30, 1996
-------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
SALES
Aerospace Fasteners............... $45,261 $48,063 $52,663 $51,112 $197,099
Aerospace Distribution (a)........ 31,039 35,538 43,220 44,033 153,830
------- ------- ------- ------- --------
Total........................... $76,300 $83,601 $95,883 $95,145 $350,929
======= ======= ======= ======= ========
OPERATING INCOME
Aerospace Fasteners............... $(2,324) $ (488) $ (50) $ 223 $ (2,639)
Aerospace Distribution (a)........ 1,292 1,131 1,646 1,362 5,431
------- ------- ------- ------- --------
Total........................... $(1,032) $ 643 $ 1,596 $ 1,585 $ 2,792
======= ======= ======= ======= ========
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
FOR THE TWELVE (12) MONTHS ENDED JUNE 30,
1997
-------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
SALES
Aerospace Fasteners................. $55,047 $ 56,494 $ 64,073 $ 93,412 $269,026
Aerospace Distribution.............. 36,034 47,973 48,833 54,928 187,768
------- -------- -------- -------- --------
Total............................. $91,081 $104,467 $112,906 $148,340 $456,794
======= ======== ======== ======== ========
OPERATING INCOME
Aerospace Fasteners................. $ 2,108 $ 2,156 $ 3,563 $ 9,563 $ 17,390
Aerospace Distribution.............. 1,643 2,143 1,361 3,125 8,272
------- -------- -------- -------- --------
Total............................. $ 3,751 $ 4,299 $ 4,924 $ 12,688 $ 25,662
======= ======== ======== ======== ========
</TABLE>
- ---------------------
(a) Aerospace Distribution sales and operating income assumes the Company
consolidated Banner's results for the first eight months of Fiscal 1996
and reflects the Disposition on a pro forma basis.
RESULTS OF OPERATIONS
The Company's Aerospace Fasteners and Aerospace Distribution segments
account for over 90% of the Company's consolidated sales. Effective February
25, 1996, the Company began to consolidate the operating results of the
Aerospace Distribution segment. The results of Fairchild Technologies,
together with the results of Camloc Gas Springs division ("Gas Springs") and
the Company's former subsidiary, Fairchild Scandinavian Bellyloading Company
("SBC"), are included in Corporate and Other. The Communications Services
segment is no longer presented as it became a discontinued operation effective
November 20, 1997 (see Note 24 of the consolidated year-end financial
statements). The following table illustrates the historical sales and
operating income of the Company's operations for the past three years ended
June 30, 1995, 1996 and 1997, and for the three months ended September 29,
1996 and September 28, 1997.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JUNE 30, FOR THE THREE MONTHS ENDED
------------------------------- ---------------------------
SEPTEMBER 29, SEPTEMBER 28,
1995 1996 1997 1996 1997
--------- --------- --------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
SALES BY SEGMENT:
Aerospace Fasteners... $ 215,364 $ 218,059 $ 269,026 $ 55,047 $ 76,847
Aerospace Distribution
(a).................. -- 129,973 411,765 84,107 122,914
Corporate and Other
(b).................. 41,476 67,330 66,382 9,654 18,847
Eliminations(c)....... -- (5,842) (15,213) (2,718) (4,847)
--------- --------- --------- -------- --------
Sales................... $ 256,840 $ 409,520 $ 731,960 $146,090 $213,761
========= ========= ========= ======== ========
OPERATING INCOME (LOSS)
BY SEGMENT:
Aerospace Fasteners
(d).................. $ (11,497) $ 135 $ 17,390 $ 2,108 $ 2,510
Aerospace Distribution
(a).................. -- 5,625 30,891 5,981 9,371
Corporate and Other
(b).................. (20,420) (14,875) (17,764) (5,041) (1,769)
--------- --------- --------- -------- --------
Operating income
(loss)................. $ (31,917) $ (9,115) $ 30,517 $ 3,048 $ 10,112
========= ========= ========= ======== ========
</TABLE>
- ---------------------
(a) Effective February 25, 1996, the Company became the majority shareholder
of Banner and, accordingly, began consolidating their results as of that
date.
(b) Includes sales from Fairchild Technologies of $38.0 million, $60.3
million, and $51.8 million in 1995, 1996 and 1997, respectively, and gross
margin from Fairchild Technologies of $11.1 million, $20.8 million, and
$23.8 million, respectively.
(c) Represents intersegment sales from the Aerospace Fasteners segment to the
Aerospace Distribution segment.
(d) Includes restructuring charges of $2.3 million in Fiscal 1996.
22
<PAGE>
The following unaudited pro forma table illustrates sales and operating
income of the Company's operations by segment, on a pro forma basis, as if the
Company had operated in a consistent manner for the past three years ended
June 30, 1995, 1996 and 1997, and for the three months ended September 29,
1996 and September 28, 1997. The pro forma results are based on the historical
financial statements of the Company and Banner as though the Disposition and
consolidation of Banner had been in effect since the beginning of each period.
The pro forma information is not necessarily indicative of the results of
operations that would actually have occurred if the transactions had been in
effect since the beginning of each period, nor is it necessarily indicative of
future results of the Company.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JUNE 30,
-------------------------------
1995 1996 1997
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
PRO FORMA SALES BY SEGMENT:
Aerospace Fasteners (a)..................... $ 190,287 $ 197,099 $ 269,026
Aerospace Distribution...................... 108,359 153,830 187,768
Corporate and Other......................... 41,476 67,330 66,382
Eliminations................................ -- -- (29)
--------- --------- ---------
$ 340,122 $ 418,259 $ 523,147
========= ========= =========
PRO FORMA OPERATING INCOME (LOSS) BY SEGMENT:
Aerospace Fasteners (a)..................... $ (15,736) $ (2,639) $ 17,390
Aerospace Distribution...................... (9,995) 5,431 8,272
Corporate and Other......................... (20,420) (14,876) (17,764)
--------- --------- ---------
Operating income (loss)....................... $ (46,151) $ (12,084) $ 7,898
========= ========= =========
</TABLE>
- ---------------------
(a) Fiscal 1997 results include sales of $27.2 million and operating income of
$1.2 million provided by the acquisition of Simmonds S.A. ("Simmonds"), a
European manufacturer of aerospace fasteners acquired in February 1997 for
approximately $62 million.
FIRST QUARTER OF FISCAL 1998 COMPARED TO FIRST QUARTER OF FISCAL 1997
CONSOLIDATED RESULTS
Net sales of $213.8 million in the first quarter of Fiscal 1998 improved
significantly by $67.7 million, or 46.3%, compared to sales of $146.1 million
in the first quarter of Fiscal 1997. Sales growth was stimulated by the
resurgent commercial aerospace industry, together with the effects that recent
acquisitions contributed in the current quarter.
Gross Margin as a percentage of sales was 24.4% and 27.3% in the first
quarter of Fiscal 1998 and 1997, respectively. The lower margin in the current
quarter is attributable to inefficiencies associated with increased production
rates requiring the addition of new employees and the payment of overtime to
existing employees within the Aerospace Fasteners segment, and a change in
product mix and increased price competition in the Aerospace Distribution
segment.
Selling, General & Administrative expense as a percentage of sales was 21.3%
and 24.5% in the first quarter of Fiscal 1998 and 1997, respectively. The
improvement in the current quarter was attributable primarily to
administrative efficiencies in correlation to the increase in sales.
Research and Development expense increased in the current quarter, compared
to the prior year quarter, as a result of product development within Fairchild
Technologies. Additional research and development expenses will be incurred in
the future.
Other income increased $5.1 million in the current quarter, compared to the
prior year quarter, due primarily to the sale of air rights over a portion of
the property the Company owns and is developing in Farmingdale, New York.
23
<PAGE>
Operating income of $10.1 million in the first quarter of Fiscal 1998
increased $7.1 million, or 232%, compared to operating income of $3.0 million
in the first quarter of Fiscal 1997. The increase in operating income was due
primarily to the improved results provided by the Company's aerospace
operations and the aforementioned increase in other income.
Investment income, net, increased $2.3 million in the first quarter of
Fiscal 1998, due primarily to recording unrealized gains on the fair market
adjustments of trading securities in the first quarter of Fiscal 1998 while
recording unrealized losses from trading securities in the first quarter of
Fiscal 1997.
Equity in earnings of affiliates decreased $0.2 million in the first quarter
of Fiscal 1998, compared to the first quarter of Fiscal 1997, due to slightly
lower earnings by Nacanco Paketleme, (the largest producer of aluminum cans in
Turkey) ("Nacanco").
Income Taxes included a $0.1 million tax benefit in the first quarter of
Fiscal 1998, on pre-tax earnings of $0.4 million. The tax benefit was due
primarily to losses generated by domestic operations.
Net earnings of $0.5 million in the three months ended September 28, 1997
improved by $5.1 million compared to the $4.6 million net loss recorded in the
three months ended September 29, 1996. This improvement is attributable to (i)
the $7.1 million increase in operating income, and (ii) the $2.3 million
increase in investment income, offset partially by a $3.6 million decrease in
income tax benefit.
SEGMENT RESULTS
AEROSPACE FASTENERS SEGMENT
Sales in the Aerospace Fasteners segment increased by $21.8 million to $76.8
million, up 39.6% the first quarter of Fiscal 1998, compared to the first
quarter of Fiscal 1997, reflecting significant growth in the commercial
aerospace industry combined with the effect of the Simmonds acquisition. New
orders have continued to exceed reported sales, resulting in a backlog of $201
million at September 28, 1997, up from $196 million at June 30, 1997.
Excluding current quarter sales of $14.6 million contributed by Simmonds,
sales increased 13.1% in Fiscal 1997, compared to the same quarter of the
prior year.
Operating income improved by $0.4 million, or 19.1%, during the first
quarter of Fiscal 1998, compared to the first quarter of Fiscal 1997. This
improvement was attributable to the results of Simmonds S.A. ("Simmonds"), a
European manufacturer of aerospace fasteners acquired in February 1997 for
approximately $62 million. Excluding current quarter results of Simmonds,
operating income would have decreased by $1.1 million in the first quarter of
Fiscal 1998, compared to the same quarter of the prior year, reflecting
inefficiencies associated with increased production rates which required the
addition of employees and substantial overtime work. The Company anticipates
that the productivity inefficiencies will gradually improve in the coming
months.
AEROSPACE DISTRIBUTION SEGMENT
Aerospace Distribution sales were up $38.8 million, or 46.1%, for the first
three months of Fiscal 1998, compared to the same period of the prior year.
The improvement in the current period is due to increased sales to commercial
airlines, original equipment manufacturers, and other distributors and
increased sales of turbine parts and engine management services. In addition,
incremental sales of $5.2 million by PB Herndon also contributed to the
increase.
Operating income was up $3.4 million, or 56.7%, for the first three months
of Fiscal 1998, compared to the same period of the prior year, due primarily
to the increase in sales and the related economies of scale. Lower gross
margins, as a percentage of sales, resulting from a change in product mix
together with increased price competition were offset by improved efficiencies
of selling, general and administrative expenses, as a percentage of sales.
This segment has benefited from the extended service lives of existing
aircraft, growth from acquisitions and internal growth, which has increased
its overall market share.
24
<PAGE>
CORPORATE AND OTHER
The Corporate and Other classification includes Fairchild Technologies, Gas
Springs Division and corporate activities. The results of SBC, which was sold
at Fiscal 1997 year-end, are included in the prior period results. The group
reported an increase in sales of $9.2 million, or 95.2%, in the first quarter
of Fiscal 1998, as compared to the same period in Fiscal 1997, due primarily
to an improvement in sales of Fairchild Technologies advanced semiconductor
manufacturing equipment line. The operating loss decreased by $3.3 million in
the first quarter of Fiscal 1998, compared to the first quarter of Fiscal
1997, as a result of an increase in other income, partially offset by
increased losses at Fairchild Technologies. The operating results classified
under Corporate and Other are affected by the operations of Fairchild
Technologies Division ("The Division"), which may fluctuate because of
industry cyclicality, the volume and timing of orders, the timing of new
product shipments, customer's capital spending, and pricing changes by The
Division and its competition.
FISCAL 1997, 1996 AND 1995
CONSOLIDATED RESULTS
Net sales of $731.9 million in Fiscal 1997 improved significantly by $322.4
million, or 78.7%, compared to sales of $409.5 million in Fiscal 1996. Sales
growth was stimulated by the resurgent commercial aerospace industry, together
with the effects of several strategic business combinations over the past 18
months. Net sales in Fiscal 1996 were up 59.3% from Fiscal 1995 reflecting
strong sales performances from the Aerospace Fasteners segment and Fairchild
Technologies ("FT"), included in the Corporate and Other business segment, and
the inclusion of four months of sales from the Aerospace Distribution segment.
On a pro forma basis, net sales increased 25.1% and 23.0% in Fiscal 1997 and
1996, respectively, as compared to the previous Fiscal periods.
Gross Margin as a percentage of sales was 28.0%, 23.2%, and 14.6% in Fiscal
1997, 1996, and 1995, respectively. The increase in the current year was
attributable to higher revenues combined with continued productivity
improvements achieved during Fiscal 1997. The increase in Fiscal 1996 compared
to Fiscal 1995 was due to consolidation of plants, elimination of product
lines, substantial downsizing and new productivity programs put in place.
Selling, General & Administrative expense as a percentage of sales was
21.8%, 23.9%, and 25.6% in Fiscal 1997, 1996, and 1995, respectively. The
decrease in the current year was attributable primarily to the decrease in
selling and marketing costs in correlation to the increase in sales.
Operating income of $30.5 million in Fiscal 1997 increased $39.6 million
compared to operating loss of $9.1 million in Fiscal 1996. The increase in
operating income was due primarily to the current year's growth in sales and
increased operational efficiencies. Operating income in Fiscal 1996 improved
by $22.8 million over Fiscal 1995, due primarily to improved cost efficiencies
applied in the Aerospace Fasteners segment and the sales increase from FT in
the Corporate and Other business segment. On a pro forma basis, operating
income increased $20.0 million in Fiscal 1997, as compared to Fiscal 1996, and
$34.1 million in Fiscal 1996, as compared to Fiscal 1995.
Net interest expense decreased 15.5% in Fiscal 1997 compared to Fiscal 1996,
and decreased 12.1% in Fiscal 1996 compared to Fiscal 1995. The decreases are
due to lower borrowings as a result of the sale of D-M-E Company ("DME") and
the March 13, 1996 Merger, both of which significantly reduced the Company's
total debt.
Investment income, net, was $6.7 million, $4.6 million and $5.7 million in
Fiscal 1997, 1996, and 1995, respectively. The 45.4% increase in Fiscal 1997
is due primarily to realized gains from the sale of investments in Fiscal
1997. The 19.8% decrease in Fiscal 1996 resulted from losses realized on the
write-off of two foreign investments.
Equity in earnings of affiliates decreased $0.2 million in Fiscal 1997,
compared to Fiscal 1996, and increased $3.2 million in Fiscal 1996, compared
to Fiscal 1995. The current year's decrease is attributable to lower earnings
of Nacanco. The prior year's increase was due primarily to higher earnings
from Nacanco, which improved the Company's equity in earnings by $2.6 million.
25
<PAGE>
Nonrecurring income in Fiscal 1997 includes the $2.5 million gain from the
sale of SBC.
Income Taxes included a $5.2 million tax benefit in Fiscal 1997 on a pre-tax
loss of $7.0 million from continuing operations. The tax benefit was due
primarily to reversing Federal income taxes previously provided due to a
change in the estimate of the required tax accruals. In Fiscal 1996, the tax
benefit from the loss from continuing operations, excluding the nontaxable
nonrecurring gain, was $26.3 million.
Earnings from discontinued operations, net, include the earnings, net of
tax, from STFI, DME and Fairchild Data Corporation, both former subsidiaries
of the Company, in Fiscal 1997, 1996 and 1995.
The $53.6 million gain on disposal of discontinued operations resulted
primarily from the sale of DME to Cincinnati Milacron Inc. in Fiscal 1996.
Fiscal 1996 also includes a $163.1 million nontaxable gain resulting from the
March 13, 1996 Merger.
Extraordinary items, net, resulted from premiums paid for, and redemption
costs and consent fees associated with, the retirement of the Senior Notes and
the write off of deferred loan fees, related primarily to 12 1/4% Senior
Subordinated Notes due 1996 and bank debt extinguished prior to maturity. This
totaled $10.4 million, net of a tax benefit, in Fiscal 1996.
Net earnings in Fiscal 1997, compared to Fiscal 1996, after excluding the
gain on sale of discontinued operations of $163.1 million from the March 13,
1996 Merger and the $53.6 million gain on sale of discontinued operations in
1996, improved $28.3 million, reflecting a $39.6 million improvement in
operating profit. The net earnings increased $223.5 million in Fiscal 1996,
compared to Fiscal 1995, due primarily to the $163.1 million nonrecurring pre-
tax gain recorded from the March 13, 1996 Merger, and the $53.6 million gain,
net of tax, from the sale of discontinued operations.
SEGMENT RESULTS
AEROSPACE FASTENERS SEGMENT
Sales in the Aerospace Fasteners segment increased by $51.0 million to
$269.0 million, up 23.4% in Fiscal 1997, compared to the Fiscal 1996 period,
reflecting significant growth in the commercial aerospace industry, combined
with the Simmonds acquisition. New orders have been strong in recent months
resulting in a backlog of $195.7 million at June 30, 1997, up from $109.9
million at June 30, 1996. Sales increased slightly in Fiscal 1996 compared to
Fiscal 1995. The Harco division was transferred to the Aerospace Distribution
segment on February 25, 1996. On a pro forma basis, excluding Harco's sales,
sales increased 36.5% in Fiscal 1997, compared to Fiscal 1996 and 3.6% in
Fiscal 1996, compared to Fiscal 1995.
Operating income improved from breakeven to $17.4 million during Fiscal
1997, compared to Fiscal 1996. This improvement was achieved as a result of
accelerated growth in the commercial aerospace industry, particularly in the
second half of the year. Certain efficiencies achieved during Fiscal 1997
continued to have positive effects on operating income. Operating income was
positive in the Aerospace Fasteners segment, which was an $11.6 million
improvement in the Fiscal 1996 period over the corresponding Fiscal 1995
period. During Fiscal 1996, operating losses decreased significantly in the
Aerospace Fasteners segment, due primarily to the cost of management changes
incurred in Fiscal 1995, consolidation of plants, eliminating unprofitable
product lines, pricing adjustments, substantial work force downsizing and new
productivity, quality and marketing programs. A restructuring charge of $2.3
million was recorded in Fiscal 1996, primarily for severance pay to employees
terminated as a result of further downsizing. On a pro forma basis, excluding
Harco, operating income increased $20.0 million in Fiscal 1997, as compared to
Fiscal 1996, and $13.1 million in Fiscal 1996, as compared to Fiscal 1995.
AEROSPACE DISTRIBUTION SEGMENT
Aerospace Distribution sales were up $281.8 million and operating income was
up $25.3 million, primarily the result of reporting twelve months in Fiscal
1997 versus four months in Fiscal 1996. On a twelve-month pro forma basis,
sales were up $33.9 million, or 22.1%, and operating income was up $2.8
million, or 52.3%. Sales
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increases in all three groups, hardware, rotables and engines, contributed to
these strong results. This segment has benefited from the extended service
lives of existing aircraft, growth from acquisitions and internal growth,
which has increased market share.
In Fiscal 1996, as a result of the transfer of Harco to Banner effective
February 25, 1996, the Company recorded four months of sales and operating
income of Banner, including Harco as part of the Aerospace Distribution
segment. This segment reported $130.0 million in sales and $5.6 million in
operating income for this four-month period ended June 30, 1996. In Fiscal
1996, the first eight months of Harco's sales and operating income were
included in the Aerospace Fasteners segment.
CORPORATE AND OTHER
The Corporate and Other segment includes Fairchild Technologies, Camloc Gas
Springs Division and Fairchild Scandinavian Bellyloading Co. AB (formerly the
Technology Products segment). Sales improved at SBC which, was sold effective
as of Fiscal 1997 year-end. Over the past three years, corporate
administrative expense as a percentage of sales has decreased from 5.1% in
1995 to 3.5% in 1996 to 2.2% in 1997.
BACKLOG OF ORDERS
Backlog is significant to all the Company's operations, due to long-term
production requirements of its customers. The Company's backlog of orders as
of June 30, 1997 in the Aerospace Fasteners segment, Aerospace Distribution
segment, and Fairchild Technologies amounted to $195.7 million, $90.9 million,
and $63.1 million, respectively, with a "Book-to-Bill" ratio of 1.3, 1.1, and
1.8, respectively. The Company anticipates that approximately 94.8% of the
aggregate backlog at June 30, 1997 will be delivered by June 30, 1998.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
At September 28, 1997, cash and cash equivalents decreased to $9.0 million
from $19.4 million at June 30, 1997, due to cash used for operations of $36.8
million and net capital expenditures of $10.2 million, offset partially by
cash of $27.4 million provided from the increased borrowings from revolving
debt and $10.2 million received from the sale of investments. The Company's
principal cash requirements include debt service, capital expenditures,
acquisitions, and payment of other liabilities. Other liabilities that require
the use of cash include post-employment benefits for retirees, environmental
investigation and remediation obligations, and litigation settlements and
related costs. The Company maintains credit agreements with a consortium of
banks, which provide revolving credit facilities to RHI and FHC, and a
separate revolving credit facility and term loans to Banner. At September 28,
1997, the Company had available credit lines of $86.9 million. The Company
anticipates that existing capital resources, cash generated from operations,
and cash from borrowings and asset sales will be adequate to maintain the
Company's current level of operations.
The Company intends to enter into a New Credit Facility that will provide
for total lending commitments of up to $300 million. The New Credit Facility
will be comprised of a revolving credit facility and a term loan facility. See
"Description of the New Credit Facility."
With the proceeds of the Offering, borrowings under the New Credit Facility
and the after tax proceeds the Company has already received from the STFI
Sale, the Company will refinance substantially all of its existing
indebtedness (other than indebtedness at Banner), consisting of the 11 7/8%
Senior Debentures due 1999, the 12% Intermediate Debentures due 2001, the 13
1/8% Subordinated Debentures due 2006, the 13% Junior Subordinated Debentures
due 2007 and its existing bank indebtedness. The Refinancing will reduce the
Company's total net indebtedness by approximately $132 million and will reduce
the Company's annual interest expense, on a pro forma basis, by approximately
$21 million. The completion of the STFI Sale will reduce the Company's annual
interest expense by approximately $3 million. In addition, a portion of the
proceeds from the Disposition will be used to repay all of Banner's
outstanding bank indebtedness, which will further reduce the Company's annual
interest expense by an additional $14 million.
On November 20, 1997, STFI, a corporation of which the Company owns
approximately 42% of the outstanding common stock, entered into a merger
agreement with Intermedia pursuant to which holders of STFI common stock will
receive $15.00 per share in cash. In connection with the STFI Sale the Company
has received
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approximately $85 million in cash (before tax) in exchange for certain
preferred stock of STFI and expects to receive an additional $93 million in
cash (before tax) during the first three months of 1998 in exchange for the
6,225,000 shares of common stock of STFI owned by the Company. The Intermedia
transaction replaces an earlier merger agreement with the Tel-Save Holdings,
Inc. under which the Company would have received consideration primarily in
common stock of Tel-Save Holdings, Inc.
On December 8, 1997, Banner and eight of its subsidiaries entered into an
Asset Purchase Agreement pursuant to which such subsidiaries have agreed to
transfer substantially all of their assets to AlliedSignal Inc. ("Allied") for
approximately $345 million of common stock of Allied. The assets to be
transferred to Allied pursuant to the Asset Purchase Agreement consist
primarily of Banner's hardware group, which includes the distribution of
bearings, nuts bolts, screws, rivets and other type of fasteners.
Approximately $170 million of the consideration received from the Disposition
will be used to repay outstanding term loans of Banner's subsidiaries and
related fees. Consummation of the Disposition is subject to certain
conditions. See "The Disposition." The Company is effecting the Disposition to
concentrate its efforts on the rotables and jet engine businesses and because
the Disposition presented a unique opportunity to realize a significant return
on the sale of the hardware group.
As a result of the Disposition, the Company expects that its stockholders'
equity will increase by approximately $36.5 million as a result of the
projected gain on sale of $103.4 million to be recorded at the closing of the
Disposition, net of an estimated tax provision of $41.8 million and minority
interest effect of $6.0 million. The operating income of the subsidiaries that
are selling substantially all of their assets included in the Disposition was
$22.6 million and $6.0 million for fiscal year 1997 and the three months ended
September 28, 1997. As a result of the Disposition, the Company will no longer
benefit from the operations of the disposed Banner subsidiaries; however, the
Company expects to benefit from lower interest expense resulting from the use
of a portion of the Disposition proceeds to repay indebtedness as well as from
the expected dividends to be paid on Allied common stock.
Net cash used for operating activities for the fiscal years ended June 30,
1997 and 1996 amounted to $97.0 million and $48.7 million, respectively. The
primary use of cash for operating activities in fiscal 1997 was an increase in
accounts receivables of $56.0 million and inventories of $46.4 million which
was mainly to support the Company's sales growth. The primary use of cash for
operating activities in fiscal 1996 was a decrease in accounts payables,
accrued liabilities and other long-term liabilities of $41.2 million.
Net cash provided by investing activities for the fiscal years ended June
30, 1997 and 1996 amounted to $80.0 million and $57.5 million, respectively.
The primary source of cash from investing activities in fiscal 1997 was the
sale of discontinued operations, including DME, of $173.7 million which was
slightly offset by the acquisition of subsidiaries in the amount of $55.9
million. The primary source of cash from investing activities in Fiscal 1996
was the sale of discontinued operations of $71.6 million.
Net cash used for financing activities for the Fiscal years ended June 30,
1997 and 1996 amounted to $1.5 million and $39.4 million, respectively. The
primary use of cash for financing activities in Fiscal 1997 was the repayment
of debt and the repurchase of debentures of $157.0 million offset by proceeds
from the issuance of additional debt of $154.4 million. The primary use of
cash for financing activities in Fiscal 1996 was the repayment of debt and the
repurchase of debentures of $197.8 million which was partially offset by
proceeds from the issuance of additional debt of $157.9 million.
The Company may effect a Spin-Off as soon as is reasonably practicable
following receipt of a solvency opinion relating to FIHC and all necessary
governmental and third party approvals. The solvency opinion with respect to
FIHC is required by the Company's lenders and board of directors. In order to
effect a Spin-Off, approval is required from the board of directors of the
Company, however, shareholder approval is not required. The ability of the
Company to consummate a Spin-Off is contingent, among other things, on the
ability of the Company to obtain consents and waivers under the Company's
existing indebtedness and the New Credit Facility. The Company is presently in
negotiations with its lenders regarding obtaining such consents and waivers
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and at the present time the Company has not reached an agreement with its
lenders that will allow the Company to consummate a Spin-Off. There is no
assurance that the Company will be able to obtain the necessary consents and
waivers from its lenders and consequently there is no assurance that the
Company will be able to consummate a Spin-Off. In addition, the Company may
encounter unexpected delays in effecting a Spin-Off, and the Company can make
no assurance as to the timing thereof. In addition, prior to the consummation
of a Spin-Off, the Company may sell, restructure or otherwise change the assets
and liabilities that will be in FIHC, or for other reasons elect not to
consummate a Spin-Off. Consequently, there can be no assurance that a Spin-Off
will occur.
In connection with the Spin-Off, it is anticipated that the Company and FIHC
will enter into an indemnification agreement pursuant to which FIHC will assume
and be solely responsible for all known and unknown past, present and future
claims and liabilities of any nature relating to the Pension Reversion Case (as
described under "Business--Legal Proceedings"); certain environmental
liabilities currently recorded as $8.3 million, but for which it is reasonably
possible the total expense could be $13.0 million; certain retiree medical cost
and liabilities related to discontinued operations for which the Company has
accrued approximately $31.3 million as of September 28, 1997 (see Note 11 to
the Company's Consolidated Financial Statements); and certain tax liabilities.
In addition, FIHC would also be responsible for all liabilities relating to the
Technologies business. Responsibility for such liabilities would require
significant commitments from FIHC.
Should a Spin-Off, as presently contemplated, occur prior to June of 1999, a
Spin-Off will be a taxable transaction to shareholders of the Company and could
result in a material tax liability to the Company and its stockholders. The
amount of the tax to the Company and the Shareholders is uncertain, and if the
tax is material to the Company, the Company may elect not to consummate a Spin-
Off. Because circumstances may change and because provisions of the Internal
Revenue Code of 1986, as amended, may be further amended from time to time, the
Company may, depending on various factors, restructure or delay the timing of a
Spin-Off to minimize the tax consequences thereof to the Company and its
stockholders.
With the year 2000 approaching, the Company is preparing all of its computer
systems to be Year 2000 compliant. Substantially all of the systems within the
Aerospace Fasteners segment are currently Year 2000 compliant. The Company
expects to replace and upgrade some systems, which are not Year 2000 compliant,
within the Aerospace Distribution segment and at Fairchild Technologies. The
Company expects that all of its systems will be Year 2000 compliant on a timely
basis. However, there can be no assurance that the systems of other companies,
on which the Company's systems rely, will also be timely converted. Management
is currently evaluating the cost of ensuring that all systems are Year 2000
compliant.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In October 1996, the American Institute of Certified Public Accountants
issued Statement of Position 96-1 ("SOP 96-1") "Environmental Remediation
Liabilities." SOP 96-1 provides authoritative guidance on specific accounting
issues related to the recognition, measurement, and display and disclosure of
environmental remediation liabilities. The Company is required to implement SOP
96-1 in Fiscal 1998. The Company's present policy is similar to the policy
prescribed by SOP 96-1, therefore, there will be no effect from implementation.
In February 1997, the Financial Accounting Standards Board ("FASB") issued
two pronouncements, Statement of Financial Accounting Standards No. 128 ("SFAS
128") "Earnings Per Share," and Statement of Financial Accounting Standards No.
129 ("SFAS 129") "Disclosure of Information about Capital Structure." SFAS 128
establishes accounting standards for computing and presenting earnings per
share ("EPS"). SFAS 128 is effective for periods ending after December 15,
1997, including interim periods, and requires restatement of all prior period
EPS data presented. Results from the calculation of simple and diluted earnings
per share, as prescribed by SFAS 128, would not be materially different from
the calculations for primary and fully diluted earnings per share for years
ending June 30, 1997 and June 30, 1996. SFAS 129 establishes standards for
disclosure of information about the Company's capital structure and becomes
effective for periods ending after December 15, 1997.
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In June 1997, FASB issued two pronouncements, Statement of Financial
Accounting Standards No. 130 ("SFAS 130") "Reporting Comprehensive Income," and
Statement of Financial Accounting Standards No. 131 ("SFAS 131") "Disclosures
about Segments of an Enterprise and Related Information." SFAS 130 establishes
standards for reporting and display of comprehensive income and its components
in the financial statements. SFAS 131 supersedes Statement of Financial
Accounting Standards No. 14 "Financial Reporting for Segments of a Business
Enterprise" and requires that a public company report certain information about
its operating segments in annual and interim financial reports. The Company
will adopt SFAS 130 and SFAS 131 in Fiscal 1998.
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BUSINESS
GENERAL
The Company is the largest aerospace fastener manufacturer and is one of the
largest independent aerospace parts distributors in the world. Through
internal growth and strategic acquisitions, the Company has become one of the
leading aircraft parts suppliers to aircraft manufacturers such as Boeing,
Airbus, Lockheed Martin, British Aerospace and Bombardier and to airlines such
as Delta Airlines and US Airways.
The Company's primary business focus is on the aerospace industry and its
business consists primarily of two segments--fasteners and aerospace parts
distribution. The aerospace fasteners segment, which accounted for
approximately 51.4% of the Company's net sales in Fiscal 1997, pro forma for
the Disposition, manufactures and markets fastening systems used in the
manufacturing and maintenance of commercial and military aircraft. The
aerospace distribution segment, which accounted for approximately 35.9% of the
Company's net sales in Fiscal 1997, pro forma for the Disposition, stocks and
distributes a wide variety of aircraft parts to commercial airlines and air
cargo carriers, OEMs, other distributors, fixed-base operators, corporate
aircraft operators and other aerospace and non-aerospace companies The
Company's aerospace distribution business is conducted through its 64% owned
subsidiary, Banner.
INDUSTRY OVERVIEW
The aerospace parts industry currently is enjoying favorable trends driven
by strong growth in new commercial aircraft orders, an increase in miles flown
by existing aircraft, the need to modify older aircraft to comply with noise
regulations and increased orders for wide bodied aircraft.
Demand for aerospace fasteners and other aerospace parts is closely related
to delivery and use rates for commercial and military aircraft. Delivery and
use rates are in turn directly related to the actual and projected volume of
passenger and freight traffic, average aircraft age, global fleet size and
government defense expenditures. According to the Boeing 1997 Current Market
Outlook (the "Boeing Market Outlook"), world air traffic grew 6.7% from 1995
to 1996, following a 6.6% increase from 1994 to 1995. Industry sources
forecast that world air traffic will grow by more than 5% per year for the
next ten years. Boeing also projects that during this period domestic and
international airlines will lease or purchase over 7,000 new aircraft, thereby
increasing the worldwide commercial fleet from approximately 11,500 aircraft
at the end of 1996 to approximately 17,000 aircraft (net of retirements) at
the end of 2006.
Boeing, Airbus and McDonnell Douglas delivered over 277 new aircraft in the
first six months of 1997 compared to 184 in the comparable period of the prior
year. Orders for new aircraft at these manufacturers remained stable, with 313
orders in the first six months of 1997 compared to 291 in the comparable
period of 1996. Cancellations, however, were greatly reduced--Boeing
experienced only five cancellations in the first six months of 1997 as
compared to 77 in the first six months of 1996. The Company believes that the
world's airlines must continue to add capacity and order new airplanes to be
able to meet the anticipated demand.
The Company believes that over the next five years airlines will be required
to replace a significant portion of their existing fleets as the large number
of airplanes delivered in the 1960s become increasingly uneconomical to
operate and the deadlines for compliance with the stringent noise regulations
adopted in the United States and Europe approach.
The Company's fastener business benefits from noise reduction modifications
because modifying an airplane to comply with the noise regulations and remain
serviceable requires a substantial number of fasteners. The Boeing Market
Outlook reports that 560 airplanes in the U.S. fleet had been modified to meet
the new noise standards and projects that 1,080 planes in the U.S. fleet will
be noise modified.
The Boeing Market Outlook projects that average airplane size should rise
worldwide over the next ten years. As airlines seek to serve a growing number
of air travelers with existing restrictions on arrival and
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departure slots, airport gates and ramp capacity, commercial aircraft OEMs are
experiencing increased orders for heavier, widebodied aircraft of intermediate
size. Widebodied aircraft generally require a greater number of fasteners than
smaller aircraft.
AEROSPACE FASTENERS
The Company, through its Aerospace Fasteners segment, is a leading worldwide
manufacturer and supplier of fastening systems used in the construction and
maintenance of commercial and military aircraft. The Aerospace Fasteners
segment accounted for 36.4% and 35.2% of total Company sales for the year
ended June 30, 1997 and for the three months ended September 28, 1997,
respectively.
PRODUCTS
In general, aerospace fasteners produced by the Company are used to join
materials in applications that are not of themselves critical to flight.
Products range from standard aerospace screws, to more complex systems that
fasten airframe structures, and sophisticated latching or quick disconnect
mechanisms that allow efficient access to internal parts which require regular
servicing or monitoring, The Aerospace Fasteners segment also manufactures and
supplies fastening systems used in non-aerospace industrial and electronic
niche applications. The Aerospace Fasteners segment produces and sells
products under various trade names and trademarks including Voi-Shan(R)
(fasteners for aerospace structures), Screwcorp(R) (standard externally
threaded products for aerospace applications), RAM(R) (custom designed
mechanisms for aerospace applications), Camloc(R) (components for the
industrial, electronic, automotive and aerospace markets), Tridair(R) and
Rosan(R) (fastening systems for highly-engineered aerospace, military and
industrial applications).
Principal product lines of the Aerospace Fasteners segment include:
Standard Aerospace Airframe Fasteners--These fasteners consist of standard
externally threaded fasteners used in non-critical airframe applications on a
wide variety of aircraft. These fasteners include Hi-Torque Speed Drive(R),
Tri-Wing(R), Torq-Set(R), Phillips(R) and Hex Heads(R).
Commercial Aerospace Structural and Engine Fasteners--These fasteners
consist of more highly engineered permanent or semi-permanent fasteners used
in non-critical but more sophisticated airframe and engine applications, which
could involve joining more than two materials. These fasteners are generally
engineered to specific customer requirements or manufactured to specific
customer specifications for special applications, often involving exacting
standards. These fasteners include Hi-Lok(R), Veri-Lite(R), Eddie-Bolt2(R) and
customer proprietary engine nuts.
Proprietary Products and Fastening Systems--These very highly engineered
proprietary fasteners are designed by the Company for specific customer
applications and include high performance structural latches and hold down
mechanisms. These fasteners are usually proprietary in nature and are
primarily used in either commercial aerospace or military applications. These
fasteners include Visu-Lok(R), Composi-Lok(R), Keen-serts(R), Mark IV(TM),
Flatbeam(TM) and Ringlock(TM).
Highly Engineered Fastening Systems for Industrial Applications--These
highly engineered fasteners are designed by the Company for specific niche
applications in the electronic, automotive and durable goods markets and are
sold under the Camloc(R) trade name.
SALES AND MARKETS
The products of the Aerospace Fasteners segment are sold primarily to
domestic and foreign OEMs, and to the maintenance and repair market through
distributors. Sixty-six percent of its sales are domestic. Major customers
include OEMs such as Boeing, McDonnell Douglas and Airbus and their
subcontractors, as well as major distributors such as Burbank Aircraft Supply,
Special-T and Wesco. In addition, OEMs have implemented
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programs to reduce inventories and pursue just-in-time relationships. This has
allowed parts distributors to significantly expand their business due to their
ability to better meet OEM objectives. In response, the Company, which
formerly supplied the OEMs directly, is expanding efforts to provide parts
through distributors, by establishing master distributorship agreements, with
Special-T, Wesco and others. No single customer accounts for more than 10% of
consolidated sales. The Company's backlog of orders in the Aerospace Fasteners
segment as of September 28, 1997 was $201 million. The Company anticipates
that approximately 95% of such backlog will be delivered by September 28,
1998.
Products are marketed by a direct sales force team which coordinates efforts
with an internal technical sales force team. The direct sales force team is
organized by customer and region. The internal sales force is organized by
facility and product range and is focused on servicing customers needs,
identifying new product applications, and obtaining the approval of new
products. All the Company's products are leveraged through centralized
advertising and promotional activities.
Revenues in the Aerospace Fasteners segment bear a strong relationship to
aircraft production. As OEMs searched for cost cutting opportunities during
the aerospace industry recession, parts manufacturers, including the Company,
accepted lower-priced and/or smaller orders to maintain market share, at lower
profit margins. However, during the last two years, this situation has
improved as build rates in the aerospace industry have increased and resulted
in capacity constraints. As lead times have increased, the Company has been
able to negotiate contracts with its major customers at more favorable pricing
as well as larger minimum lot sizes that are more economic to manufacture. In
addition, the Company has eliminated "make and hold" contracts under which
large volume buyers require current production of parts for long-term
unspecified dates of delivery. Overall, the Company believes existing backlog
will result in higher margins due to larger and more efficient lot sizes.
Fasteners also have applications in the automotive/industrial markets, where
numerous special fasteners are required (such as engine bolts, wheel bolts and
turbocharger tension bolts). The Company is actively targeting the automotive
market as a hedge against any potential downturn in the aerospace industry.
MANUFACTURING AND PRODUCTION
The Aerospace Fasteners segment has seven primary manufacturing facilities,
of which three are located in the United States and four are located in
Europe. Each facility has virtually complete production capability, and
subcontracts only those orders which exceed capacity. Each plant is designed
to produce a specified product or group of products, determined by production
process involved and certification requirements. The Company's largest
customers have recognized its quality and operational controls by conferring
ISO D1-9000A status at all of its U.S. facilities, and ISO D1-9000 status at
all of its European facilities. The Company is the first and only aerospace
fasteners manufacturing company with all facilities holding ISO-9000 approval.
The Company has a fully operational modern information system at all of its
U.S. facilities and will expand this information system to all its European
operations in Fiscal 1998. The new system performs detailed and timely cost
analysis of production by product and facility. Updated MIS systems also help
the Company to better service its customers. OEMs require each product to be
produced in an OEM-qualified/OEM-approved facility.
COMPETITION
Despite intense competition in the industry, the Company remains the
dominant manufacturer of aerospace fasteners. The worldwide aerospace fastener
market is estimated to be $1.3 billion (before distributor resales). The
Company holds approximately 20% of the market and competes with SPS
Technologies, Hi-Shear and Huck, which the Company believes hold approximately
13%, 11% and 10% of the market, respectively. In Europe, its largest
competitors are Blanc Aero and Southco Fasteners.
The Company competes primarily in the highly engineered "systems" segment,
where its broad product range allows it to more fully serve each OEM and
distributor. The Company's product array is diverse and offers
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customers a large selection to address various production needs. In addition,
roughly 45% of the Company's output is unique or is in a market where the
Company has a small number of competitors. The Company seeks to maintain its
technological edge and competitive advantage over its competitors, and has
historically demonstrated its innovative production methods and new products
to meet customer demands at fair price levels.
AEROSPACE DISTRIBUTION
The Company conducts its aerospace parts distribution through Banner. In
February 1996, the Company increased its ownership of Banner from 47.2% to
59.3%, and further increased such ownership interest to 64% in June 1997. The
Company, through its Aerospace Distribution segment, distributes a wide
variety of aircraft parts, which it carries in inventory. In addition to
selling products that it has purchased on the open market, the Company also
acts as a non-exclusive authorized distributor of several different aerospace
related product lines. No single distributor arrangement is material to the
Company's financial condition. The Aerospace Distribution segment accounted
for 35.9% of total Company sales in Fiscal 1997, pro forma for the
Disposition. On December 8, 1997, Banner and eight of its subsidiaries entered
into an Asset Purchase Agreement pursuant to which such subsidiaries have
agreed to transfer substantially all of their assets to Allied for
approximately $345 million of common stock of Allied. The assets transferred
to Allied consists primarily of Banner's hardware group, which includes the
distribution of bearings, nolts, bolts, screws, rivets and other types of
fasteners.
PRODUCTS
Following consummation of the Disposition, the products of the Aerospace
Distribution segment will be divided into two groups: rotables and engines.
Rotables include flight data recorders, radar and navigation systems,
instruments, landing gear and hydraulic and electrical components. Engines
include jet engines and engine parts for use on both narrow and wide body
aircraft and smaller engines for corporate and commuter aircraft. The
Aerospace Distribution segment provides a number of services such as immediate
shipment of parts in aircraft-on-ground situations. The Aerospace Distribution
segment also provides products to OEMs to airlines under inventory management
programs. The Aerospace Distribution segment also buys and sells commercial
aircraft from time to time.
Rotable parts are sometimes purchased as new parts, but are generally
purchased as used parts which are then overhauled for the Company by outside
contractors, including the original manufacturers and FAA-licensed facilities.
Rotables are sold in a variety of conditions such as new, overhauled,
serviceable and "as is." Rotables may also be exchanged instead of sold. An
exchange occurs when an overhauled aircraft part in inventory is exchanged for
a used part from the customer and the customer is charged an exchange fee plus
the actual cost to overhaul the part. Engines and engine components are sold
as is, overhauled or disassembled for resale as parts.
SALES AND MARKETS
Subsidiaries of the Aerospace Distribution segment sell their products in
the United States and abroad to most of the world's commercial airlines and to
air cargo carriers, as well as OEMs, other distributors, fixed base operators,
corporate aircraft operators and other aerospace and nonaerospace companies.
Approximately 76% of its sales, pro forma for the Disposition, are to domestic
purchasers, some of whom may represent offshore users.
The Aerospace Distribution segment markets its products and services through
direct sales forces, outside representatives and, for some product lines,
overseas sales offices. Sales in the aviation aftermarket depend on price,
service, quality and reputation. The Aerospace Distribution segment's business
does not experience significant seasonal fluctuations or depend on a single
customer. No single customer accounts for more than 10% of the Company's
consolidated revenue, pro forma for the Disposition. The Company's backlog of
orders in the Aerospace Distribution segment as of September 28, 1997 was $22
million, pro forma for the Disposition. The Company anticipates that
approximately 90% of such backlog will be delivered by September 28, 1998.
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COMPETITION
In the rotable group the major competitors are AAR Corp., Air Ground
Equipment Services ("AGES"), Aviation Sales Company, The Memphis Group and
other large and small companies in a very fragmented industry. The major
competitors for Banner's engine group are OEMs such as General Electric
Company and Pratt and Whitney, as well as the engine parts division of AAR
Corp., AGES, and many smaller companies.
TECHNOLOGIES
Acquired by the Company in June 1994, Fairchild Technologies
("Technologies") is a global organization that manufactures, markets and
services capital equipment for recordable compact disc ("CD-R") and advanced
semiconductor manufacturing. Technologies' products are used to produce CD-Rs,
CDs and CD-ROMs, as well as integrated circuits for the data processing,
communications, transportation, automotive and consumer electronic industries,
as well as for the military.
PRODUCTS
Technologies is a leader in microlithography manufacturing in Europe and has
four product lines, the first being equipment for wafer microlithography
processing. This includes the mainstay Series 6000 Flexible Wafer Process
Line, consisting of lithographic processing systems with flexible material
flow, modular design and high throughput, and the recently designed Falcon
Modular Microlithography System for 0.25 micron (65/256 Mbit DRAM) device
manufacturing. The Falcon system has a fully modular design and is expandable
to accommodate expected technological advancements and specific customer
configurations.
Technologies has combined new and proven technology and a number of leading
edge components and systems in compact disc processing to recently develop its
Compact Disc Recordable ("CD-R10X") manufacturing system. The CD-R10X system
is a state of the art design for producing cost effective recordable CDs by
combining a high quality injection molding machine with scanning, inspection,
and pneumatic handling systems.
A third line is modular process equipment for use by the fabricators of
liquid crystal displays. Technologies supplies advanced modular solutions with
high throughput, small footprint and minimum cost of ownership. Technologies
is also a leading manufacturer of photolithography processing equipment for
photomask and thinfilm products.
Technologies specializes in providing system solutions, and in coating,
developing, priming, etching, stripping, cleaning and thermal processing of
wafers, substrates and related semiconductor products.
SALES AND MARKETS
With a strong base of controls/clean room technology and software/services
engineering, Technologies is able to provide systems with multiple modular
designs for a variety of customer applications. Today, more than 1,000
Technologies wafer production systems are in operation worldwide.
Approximately 60% of the Company's Fiscal 1997 business was derived from wafer
related products and services. The remaining 40% was divided between LCD and
CD related systems, products, and services. Major customers in the wafer
product line include Motorola, Samsung, Siemens, GEC Plessey, Texas
Instruments, National Semiconductor, Macronix, and Erso. Other major customers
include Philips and Litton for the LCD product line, Sonopress (Bertelsmann),
and Krauss Maffei for the CD product line, and Hyundai, NEC and Canon for the
photomask product line. Approximately 76.3% of Technologies' sales were to
foreign customers.
MANUFACTURING AND PRODUCTION
Technologies has two manufacturing facilities consisting of Fairchild
Technologies GmbH, located in Vaihingen, Germany, and Fairchild Technologies
USA, Inc. located in Fremont, California.
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<PAGE>
COMPETITION
The wafer product line competes with Tokyo Electron, Dai Nippon Screen and
the Silicon Valley Group. Competitors in the CD product line consist of Robi
Systems, Leybold and Marubeni. Competition in the photomask product line is
provided by Mitsubishi Toyo, Tasmo and Solid State Equipment.
NACANCO PAKETLEME
Established in 1987, Nacanco is the largest manufacturer of aluminum cans
for soft drinks and beer in Turkey with an estimated 80% market share. Nacanco
generated EBITDA of approximately $39 million on annual sales of $107 million
for the fiscal year ended December 31, 1996. The Company owns 31.9% of the
common stock, with Pechiney International SA and its subsidiaries holding
substantially all of the balance. The Company received from Nacanco cash
dividends in excess of $3 million in each of the past two fiscal years.
REAL ESTATE
The Company has significant real estate holdings having a book value of
approximately $54.1 million as of June 30, 1997. The Company's real estate
holdings consist of (i) 80 acres on Long Island, New York which are currently
being developed into retail centers; (ii) various industrial buildings from
which the Company receives rental income; and (iii) property to be used as
landfills upon the receipt of necessary licenses and government approvals.
CONTEMPLATED SPIN-OFF
In order to focus its operations on the aerospace industry, the Company is
considering distributing to its stockholders all of the stock of FIHC, which
may own substantially all of the Company's non-aerospace operations. Although
the Company's ability to effect a Spin-Off is uncertain, the Company may
effect a Spin-Off as soon as is reasonably practicable following receipt of a
solvency opinion relating to FIHC and all necessary governmental and third
party approvals. The solvency opinion with respect to FIHC is required by the
Company's lenders and board of directors. In order to effect a Spin-Off,
approval is required from the board of directors of the Company, however,
shareholder approval is not required. The ability of the Company to consummate
a Spin-Off is contingent, among other things, on the ability of the Company to
obtain consents and waivers under the Company's existing indebtedness and the
New Credit Facility (as defined below). The Company is presently in
negotiations with its lenders regarding obtaining such consents and waivers
and at the present time the Company has not reached an agreement with its
lenders that will allow the Company to consummate a Spin-Off. There is no
assurance that the Company will be able to obtain the necessary consents and
waivers from its lenders and consequently there is no assurance that the
Company will be able to consummate a Spin-Off. In addition, the Company may
sell, restructure or otherwise change the assets and liabilities that may be
in FIHC at the time of a Spin-Off and may delay the timing of a Spin-Off to
minimize the tax consequences thereof to the Company and its stockholders or
for other reasons elect not to consummate a Spin-Off. See "Risk Factors--
Uncertainty and Tax and Other Consequences of a Spin-Off."
At the time of a Spin-Off, if consummated, the business and assets of FIHC
are expected to consist of: (i) the Company's technology products segment,
which consists of Fairchild Technologies (a worldwide producer of equipment
for recordable compact disc and semiconductor manufacturers); (ii) the
Company's 31.9% ownership interest in Nacanco Paketleme, (the largest producer
of aluminum cans in Turkey); and (iii) certain real estate and miscellaneous
investments, including approximately 80 acres of land in Long Island, New York
currently under development.
In connection with a Spin-Off, it is anticipated that the Company and FIHC
will enter into an indemnification agreement pursuant to which FIHC will
assume and be solely responsible for all known and unknown past, present and
future claims and liabilities of any nature relating to the Pension Reversion
Case (as described under "Business--Legal Proceedings"); certain environmental
liabilities currently recorded as $8.3 million, but for which it is reasonably
possible the total expense could be $13.0 million; certain retiree medical
cost and liabilities related to discontinued operations for which the Company
has accrued approximately $31.3 million as of September 28, 1997 (see Note 11
to the Company's Consolidated Financial Statements); and certain tax
liabilities. In addition, FIHC would also be responsible for all liabilities
relating to the Technologies business.
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<PAGE>
RESEARCH AND PATENTS
The Company's research and development activities have included: applied
research; development of new products; testing and evaluation of, and
improvements to, existing products; improvements in manufacturing techniques
and processes; development of product innovations designed to meet government
safety and environmental requirements; and development of technical services
for manufacturing and marketing. The Company's sponsored research and
development expenditures amounted to $7.8 million, $0.1 million and $1.0
million for the years ended June 30, 1997, 1996, and 1995, and $0.6 million
for the three months ended September 28, 1997, respectively, substantially all
of such expenditures being attributable to Fairchild Technologies. The Company
owns patents relating to the design and manufacture of certain of its products
and is a licensee of technology covered by the patents of other companies. The
Company does not believe that any of its business segments are dependent upon
any single patent.
PERSONNEL
As of June 30, 1997, pro forma for the Disposition, the Company had
approximately 3,400 employees. Approximately 5% of these employees were
covered by collective bargaining agreements. The Company believes that its
relations with its employees are satisfactory.
PROPERTIES
As of June 30, 1997, pro forma for the Disposition, the Company owned or
leased properties totalling approximately 1,631,000 square feet, approximately
1,046,000 square feet of which was owned and 585,000 square feet was leased.
The Aerospace Fasteners segment's properties consisted of approximately
1,020,000 square feet, with principal operating facilities concentrated in
Southern California, France and Germany. The Aerospace Distribution segment's
properties consisted of approximately 380,000 square feet, with principal
operating facilities of approximately 295,000 square feet located in Florida,
and Texas.
Corporate and other operating properties consisted of approximately 117,000
square feet, with principal operating facilities of approximately 82,000
square feet located in California and Germany. The Company owns its corporate
headquarters at Washington-Dulles International Airport.
The Company has several parcels of property which it is attempting to
market, lease and/or develop, including: (i) an eighty acre parcel located in
Farmingdale, New York; (ii) a six acre parcel in Temple City, California;
(iii) an eight acre parcel in Chatsworth, California; and (iv) several other
parcels of real estate, primarily located throughout the continental United
States.
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<PAGE>
The following table sets forth the location of the larger properties used in
the continuing operations of the Company, their square footage, the business
segment or groups they serve and their primary use. Each of the properties
owned or leased by the Company is, in management's opinion, generally well
maintained, suitable to support the Company's business and adequate for the
Company's present needs. All of the Company's occupied properties are
maintained and updated on a regular basis.
<TABLE>
<CAPTION>
OWNED OR SQUARE PRIMARY
LOCATION LEASED FOOTAGE BUSINESS SEGMENT/GROUP USE
-------- -------- ------- ---------------------- -------------
<S> <C> <C> <C> <C>
Saint Cosme, France... Owned 304,000 Aerospace Fasteners Manufacturing
Torrance, California.. Owned 284,000 Aerospace Fasteners Manufacturing
Carrollton, Texas..... Leased 173,000 Aerospace Distribution Distribution
City of Industry,
California........... Owned 140,000 Aerospace Fasteners Manufacturing
Chantilly, Virginia... Owned 125,000 Corporate Office
Lakeland, Florida..... Leased 65,000 Aerospace Distribution Distribution
Ft. Lauderdale,
Florida.............. Leased 57,000 Aerospace Distribution Distribution
Toulouse, France...... Owned 56,000 Aerospace Fasteners Manufacturing
Fremont, California... Leased 54,000 Technology Products Manufacturing
Santa Ana,
California........... Owned 50,000 Aerospace Fasteners Manufacturing
Vaihingen, Germany.... Leased 49,000 Technology Products Manufacturing
Kelkheim, Germany..... Leased 42,000 Aerospace Fasteners Manufacturing
Fremont, California... Leased 31,000 Technology Products Manufacturing
</TABLE>
ENVIRONMENTAL MATTERS
The Company's operations are subject to stringent Federal, state and local
environmental laws and regulations concerning, among other things, the
discharge of materials into the environment and the generation, handling,
storage, transportation and disposal of waste and hazardous materials. To
date, such laws and regulations have not had a material effect on the
financial condition, results of operations, or net cash flows of the Company,
although the Company has expended, and can be expected to expend in the
future, significant amounts for investigation of environmental conditions and
installation of environmental control facilities, remediation of environmental
conditions and other similar matters, particularly in the Aerospace Fasteners
segment.
In connection with its plans to dispose of certain real estate, the Company
must investigate environmental conditions and may be required to take certain
corrective action prior or pursuant to any such disposition. In addition,
management has identified several areas of potential contamination at or from
other facilities owned, or previously owned, by the Company, that may require
the Company either to take corrective action or to contribute to a clean-up.
The Company is also a defendant in certain lawsuits and proceedings seeking to
require the Company to pay for investigation or remediation of environmental
matters and has been alleged to be a potentially responsible party at various
"Superfund" sites. Management of the Company believes that it has recorded
adequate reserves in its financial statements to complete such investigation
and take any necessary corrective actions or make any necessary contributions.
No amounts have been recorded as due from third parties, including insurers,
or set off against, any liability of the Company, unless such parties are
contractually obligated to contribute and are not disputing such liability.
The Company expects that FIHC will assume substantially all of the Company's
environmental liabilities in connection with a Spin-Off. See "The Spin-Off."
See "Risk Factors--Uncertainty and Other Tax Consequences of The Spin-Off."
As of September 28, 1997, the consolidated total recorded liabilities of the
Company for environmental matters approximated $8.3 million, which represented
the estimated probable exposures for these matters. It is reasonably possible
that the Company's total exposure for these matters could be approximately
$13.0 million on an undiscounted basis.
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<PAGE>
LEGAL PROCEEDINGS
The Workers Compensation Bureau of the State of Ohio is seeking
reimbursement from the Company for up to $5.4 million for workers compensation
claims which were insured under a self-insured program of the Company. The
Company has contested a significant portion of this claim and believes that
the ultimate disposition of this claim will not be material.
The Corporate Administrative Contracting Officer (the "ACO"), based upon the
advice of the United States Defense Contract Audit Agency, has made a
determination that Fairchild Industries, Inc., a former subsidiary of the
Company ("FII"), did not comply with Federal Acquisition Regulations and Cost
Accounting Standards in accounting for (i) the 1985 reversion to FII of
certain assets of terminated defined benefit pension plans, and (ii) pension
costs upon the closing of segments of FII's business (collectively, the
"Pension Reversion Case"). The ACO has directed FII to prepare cost impact
proposals relating to such plan terminations and segment closings and,
following receipt of such cost impact proposals, may seek adjustments to
contract prices. The ACO alleges that substantial amounts will be due if such
adjustments are made. The Company believes it has properly accounted for the
asset reversions in accordance with applicable accounting standards. The
Company has held discussions with the government to attempt to resolve these
pension accounting issues. In connection with the Spin-Off, the Company
expects that FIHC will assume all of the Company's liabilities, if any,
associated with this matter. See "The Spin-Off." See "Risk Factors--
Uncertainty and Other Tax Consequences of Spin-Off."
The Company is involved in various other claims and lawsuits incidental to
its business, some of which involve substantial amounts. The Company, either
on its own or through its insurance carriers, is contesting these matters.
In the opinion of management, the ultimate resolution of the legal
proceedings, including those discussed above, will not have a material adverse
effect on the financial condition, or future results of operations or net cash
flows of the Company.
39
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth information with respect to the directors and
executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <C> <S>
Michael T. Alcox.......... 50 Vice President and Director
Melville R. Barlow........ 68 Director
Robert D. Busey........... 54 Vice President
Mortimer M. Caplin........ 81 Director
Colin M. Cohen............ 46 Senior Vice President, Chief Financial
Officer, Controller and Director
Philip David.............. 65 Director
John L. Flynn............. 51 Senior Vice President
Harold J. Harris.......... 68 Director
Harold R. Johnson......... 74 Senior Vice President
Robert H. Kelley.......... 50 Vice President
Jeffrey P. Kenyon......... 37 Vice President
Daniel Lebard............. 58 Director
Senior Vice President, General Counsel and
Donald E. Miller.......... 50 Secretary
David Wynne-Morgan........ 66 Senior Vice President
Jacques S. Moskovic....... 60 Senior Vice President and Director
Herbert S. Richey......... 75 Director
Moshe Sanbar.............. 71 Director
Karen L. Schneckenburger.. 48 Vice President
Robert A. Sharpe II....... 40 Director
Eric I. Steiner........... 36 Executive Vice President, Chief Operating
Officer and Director
Jeffrey J. Steiner........ 60 Chairman of the Board, Chief Executive
Officer and President
</TABLE>
Michael T. Alcox served as Senior Vice President and the Chief Financial
Officer of the Company from December 1987 through September 1996. He also
served as Treasurer of the Company from September 1990 until November 1991.
Mr. Alcox served as Vice President and Chief Financial Officer of RHI
Holdings, Inc. and as Vice President and Chief Financial Officer of Fairchild
Industries from 1990 through March 1996. Since September 30, 1996, Mr. Alcox
serves as a Vice President to the Company, not employed on a full time basis.
Mr. Alcox is a director of Banner. Mr. Alcox also owns and operates travel and
real estate businesses. He became a director of the Company in 1988.
Melville R. Barlow was a consultant to the Company from September 1995
through June 1996. From July 1991 through March 1994, he was President of
Pilkington Aerospace, Inc., a manufacturer of aircraft transparencies. From
June 1984 through March 1991, he was a Corporate Vice President of General
Dynamics and General Manager of General Dynamics Electronics Division, a
manufacturer of military aircraft automatic test equipment. He became a
director of the Company in 1996.
Robert D. Busey has served as Vice President of the Company since September
1992. Mr. Busey also served as Vice President of Fairchild Industries from
November 1993 through March 1996. Prior to September 1992, Mr. Busey was
Assistant Vice President of the Company and held other management positions
with Fairchild Industries.
Mortimer M. Caplin has been a senior member of the law firm of Caplin &
Drysdale since 1964. Mr. Caplin serves as a director of Presidential Realty
Corporation and Danaher Corporation. He became a director of the Company in
1990.
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<PAGE>
Colin M. Cohen was Managing Director of Citicorp Securities, Inc. until
September 1996. He served in such capacity for more than five years. Mr. Cohen
became a director of the Company in September 1996, and the Company's Senior
Vice President--Business Development and Finance, and Chief Financial Officer,
effective October 1, 1996. He became Controller of the Company effective March
31, 1997. Pursuant to his employment agreement with the Company, Mr. Cohen is
to be nominated for election as a director every fiscal year during his term
of employment.
Philip David was a consultant to the Company from January 1988 to June 1993.
He was also an employee of the Company from January 1988 to December 1989. He
was a Professor of Urban Development at Massachusetts Institute of Technology
until June 1988. Dr. David is also a director of IRI International, Inc. He
became a director of the Company in 1985.
John L. Flynn has served as Senior Vice President, Tax, of the Company since
September 1994 and Vice President, Tax, since August 1989. Mr. Flynn also
served as Vice President, Tax, of Fairchild Industries from November 1986
through March 1996.
Harold J. Harris is President of Wm. H. Harris, Inc. He is a director of
Capital Properties Incorporated of Rhode Island. He became a director of the
Company in 1985.
Harold R. Johnson, Brig. Gen., USAF (Ret.), has served as Senior Vice
President, Business Development, of the Company since November 1990. General
Johnson also served as Vice President of Fairchild Industries from February
1988 through March 1996.
Robert H. Kelley has served as Vice President, Employee Benefits, of the
Company since November 1993. He also served as Vice President of Fairchild
Industries from November 1993 through March 1996. Prior thereto, he held other
management positions with Fairchild Industries.
Jeffrey P. Kenyon has served as Vice President of the Company since November
1996. Prior to that, he served as Vice President of Citicorp Securities, Inc.,
for more than five years.
Daniel Lebard is the Chairman of the Board of Daniel Lebard Management
Development SA, a consulting firm in Paris, France, which sells management
services. He has served in such capacity for more than the last five years.
Since 1995, he also serves as Chief Executive Officer of Groupe Sofrecid SA
and Kvaerner-Clecim SA, engineering companies whose headquarters are in Paris.
He became a director of the Company in 1996.
Donald E. Miller has served as Senior Vice President and General Counsel of
the Company since January 1991 and Corporate Secretary since January 1995. Mr.
Miller also served as Vice President and General Counsel of Fairchild
Industries from November 1991 through March 1996. Prior to 1991, Mr. Miller
was a principal of the law firm of Temkin & Miller, Ltd. in Providence, Rhode
Island. Mr. Miller is a director of Shared Technologies Fairchild Inc. and
General Counsel of Banner.
David Wynne-Morgan has served as Senior Vice President of the Company, on a
part time basis, responsible for Corporate Communications since September 11,
1997. He is a founding partner of WMC Communications Ltd. where he continues
to serve. From 1991 to 1994, Mr. Wynne-Morgan served as President and Chief
Executive Officer of Hill Knowlton for Europe, the Middle East and Africa.
Jacques S. Moskovic has served as Senior Vice President of the Company since
October 1996. He has served as President and CEO of Fairchild Technologies
since September 1994, and as Chairman of Fairchild Technologies since August
1997. Prior to that, he served as Chairman and President of Compagnie Pour Le
Developpement Industriel, a French based company specializing in the
production, sales and service of equipment to the electronics industry, which
was acquired by the Company in 1995. Mr. Moskovic held such position for more
than five years. He became a director of the Company in 1997.
Herbert S. Richey served as President of Richey Coal Company, a coal
properties-brokerage and consulting company, until December 1993. He became a
director of the Company in 1977.
41
<PAGE>
Karen L. Schneckenburger has served as Vice President of the Company since
September 1992 and as Treasurer of the Company since November 1991. Ms.
Schneckenburger also served as Treasurer of Fairchild Industries from August
1989 through March 1996. Prior thereto, she served as Director of Finance of
Fairchild Industries from 1986 through 1989.
Moshe Sanbar has served as President of the Israel National Committee in Tel
Aviv and as a member of the executive board of the International Chamber of
Commerce in Paris since 1996. He served as a Senior Vice President and
Financial Advisor for the Eisenberg Group of Companies (an international
import-export firm) from 1996 to January 1997. From 1988 through 1995 he was
Chairman of the Board of Bank Leumi (Israel) and its group, worldwide. He
became a director of the Company in 1997.
Robert A. Sharpe II has served as Executive Vice President and Chief
Financial Officer of Fairchild Fasteners, a division of Fairchild Holding
Corp., since July 1996, and as consultant for Fairchild Fasteners from October
1995 through July 1996. He served as Vice President, Corporate Development, of
Smithfield Foods, Inc., a pork-products company, from July 1994 through July
1996. Prior to that time, Mr. Sharpe served as Senior Vice President of
NationsBank Corporation and held other management positions with NationsBank.
Mr. Sharpe is a director of Capital Associates, Inc. and Capital Associates
International, Inc. He became a director of the Company in 1995.
Dr. Eric I. Steiner has served as Executive Vice President and Chief
Operating Officer of the Company since November 1996, and as President and
Chief Executive Officer of Fairchild Fasteners, a division of Fairchild Holding
Corp., since August 1995. Prior thereto, he served as Senior Vice President,
Operations of the Company from May 1992 through November 1996, and as President
of Camloc/RAM Products, one of the Company's operating units, from September
1993 to February 1995. He served as Vice President, Business Planning, of the
Company from March 1991 until May 1992. He also served as Vice President of
Fairchild Industries from May 1992 through March 1996. He received an M.B.A.
from Insead in France in 1990. Prior thereto, he received an M.D. in 1988 from
Faculte de Medicine de Paris and was a medical doctor at Hospitaux De Paris in
France until November 1989. He has been a director of Banner since September
1992, and a Senior Vice President of Banner since May 1997. Dr. Steiner became
a director of the Company in 1988. He is the son of Jeffrey J. Steiner.
Jeffrey J. Steiner has served as the Chairman of the Board and the Chief
Executive Officer of the Company since December 1985, and as President of the
Company since July 1, 1991. He has served as the Chairman of the Board, Chief
Executive Officer and President of Banner since September 1993. He has served
as the Chairman, President and Chief Executive Officer of RHI Holdings since
1988. He served as the Vice Chairman of the Board of Rexnord Corporation from
July 1992 to December 1993, and as the Chairman, President and Chief Executive
Officer of Fairchild Industries from July 1991 through March 1996. Mr. Steiner
is and for the past five years has been President of Cedco Holdings Ltd., a
Bermuda corporation (a securities investor). He serves as a director of The
Franklin Corporation and The Copley Fund, and as director and Vice Chairman of
the Board of Shared Technologies Fairchild Inc. He became a director of the
Company in 1985. He is the father of Dr. Eric I. Steiner.
42
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding ownership of
the Class A Common Stock and Class B Common Stock as of October 31, 1997 by
(i) each person or entity who owns of record or beneficially five percent or
more of the Company's capital stock, (ii) each director and the five most
highly paid executive officers of the Company, and (iii) all directors and
executive officers of the Company as a group. To the knowledge of the Company,
each of such stockholders has sole voting and investment power as to the
shares shown unless otherwise noted. Unless otherwise noted, the address of
each holder of five percent or more of the Company's stock is the Company's
corporate address.
<TABLE>
<CAPTION>
CLASS A STOCK CLASS B STOCK CLASS A STOCK CLASS B STOCK
BENEFICIALLY OWNED BENEFICIALLY OWNED BENEFICIALLY OWNED BENEFICIALLY OWNED
BEFORE OFFERING BEFORE OFFERING AFTER THE OFFERING(22) AFTER THE OFFERING
------------------------- ---------------------- ------------------------------- ----------------------
PERCENT PERCENT PERCENT PERCENT
SHARES(1) OF CLASS SHARES(1) OF CLASS SHARES(1) OF CLASS SHARES(1) OF CLASS
--------- -------- --------- -------- ------------- ---------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Michael T. Alcox.... 29,175(2) * 600 * 29,175(2) * 600 *
Melville R. Barlow.. 7,500(2) * -- -- 7,500(2) * -- --
Mortimer M. Caplin.. 89,500(2) * -- -- 89,500(2) * -- --
Colin M. Cohen...... 38,042(2) * -- -- 38,042(2) * -- --
J.J. Cramer &
Co.(14)............ 1,795,800(3) 12.8% -- -- 1,795,800 10.5% -- --
Philip David........ 54,500(2) * -- -- 54,500(2) * -- --
Fairchild Master
Retirement
Trust(15).......... 1,125,375(4) 8.0% -- -- 1,125,375(4) 6.6% -- --
FMR Corp(16)........ 790,000(5) 5.6% -- -- 790,000(5) 4.6%
Harold J. Harris.... 130,700(2)(6) * -- -- 130,700(2)(6) * -- --
Samuel J.
Krasney(17)........ 700,000 5.0% -- -- 700,000 4.1% -- --
Daniel Lebard....... 7,500(2) * -- -- 7,500(2) * -- --
Donald E. Miller.... 80,400(2)(7) * -- -- 80,400(2)(7) * -- --
Jacques S.
Moskovic........... 28,350(2) * -- -- 28,350(2) * -- --
Paske Investments,
Ltd.(18)........... 6,402,684(4)(8) 37.8% 2,908,996(11) 97.0% 6,402,684(4)(8) 32.1% 2,908,996(11) 97.0%
Herbert S. Richey... 43,000(2) * -- -- 43,000(2) * -- --
Moshe Sanbar........ -- -- -- -- -- -- -- --
Robert A. Sharpe
II................. 18,200(2) * -- -- 18,200(2) * -- --
Eric I. Steiner..... 146,686(2)(9) 1.0% 15,000 * 146,686(2)(9) * 15,000 *
Jeffrey J.
Steiner(19)........ 6,741,834(10) 39.3% 2,938,996(12) 98.0% 6,741,834(10) 33.5% 2,938,996(12) 98.0%
Peregrine Direct
Investments
Limited(20)........ 250,000 1.7% -- -- 250,000 1.4% -- --
Bankers Trust New
York Corporation
(21)............... 250,000 1.7% -- -- 250,000 1.4% -- --
All directors and
executive officers
as a group (22
persons)........... 8,217,892(2)(13) 46.7% 2,954,596(13) 98.5% 8,217,892(2)(13) 39.9% 2,954,596(13) 98.5%
</TABLE>
- ---------------------
* Represents less than one percent.
(1) The Class A Stock column includes shares of Class B Stock, which are
immediately convertible into Class A Stock on a share-for-share basis.
Options that are exercisable immediately or within sixty days after
October 31, 1997 appear in the Class A Stock column. Certain warrants
that may be deemed to be owned by Mr. Jeffrey J. Steiner are exercisable
into shares of either Class A Stock or Class B Stock and appear in both
the Class A Common Stock and Class B Common Stock columns.
(2) Includes exercisable stock options to purchase Class A Common Stock, as
follows: M. Alcox, 19,175 shares; M. Barlow, 7,500 shares; M. Caplin,
10,750 shares; C. Cohen, 37,500 shares; P. David, 32,000 shares; H.
Harris, 39,500 shares; D. Lebard, 7,500 shares; D. Miller, 64,600 shares;
J. Moskovic, 28,350 shares; H. Richey, 37,000 shares; R. Sharpe, 18,000
shares; E. Steiner, 81,800 shares; J. Steiner, 163,850 shares; Directors
and Executive Officers as a group, 593,275 shares.
(3) Based on information as of December 5, 1997, contained in a Schedule 13D
dated December 5, 1997, filed with the SEC by J.J. Cramer & Co., Cramer
Capital Corporation, Cramer Partners, L.P., James J. Cramer and Karen L.
Cramer.
(4) Based on information provided by the stockholder.
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<PAGE>
(5) Based on information as of August 31, 1997, contained in a Schedule 13G
dated September 10, 1997, filed with the SEC by Fidelity Management &
Research Company, a wholly owned subsidiary of FMR Corp., and a
registered investment advisor ("FMR"). According to the Schedule 13G: (i)
FMR has sole dispositive power with respect to all 790,000 shares of such
Class A Common Stock, and sole voting power with respect to 383,000
shares of such Class A Common Stock; and (ii) various persons have the
right to receive or the power to direct the receipt of dividends from, or
the proceeds from the sale of, the Class A Common Stock. The Schedule 13G
indicates that the interest of one person, Fidelity Management Trust
Company, in such Class A Common Stock amounted to 423,000 shares or 3.02%
of the total outstanding Class A Common Stock.
(6) Includes 27,000 shares of Class A Common Stock, owned by the Wm. H.
Harris, Inc. Profit-Sharing Plan.
(7) Includes 300 shares of Class A Common Stock owned by Mr. Donald Miller as
custodian for his child; Mr. Miller disclaims any beneficial interest
therein.
(8) Paske Investments, Ltd. owns no shares of record. It is the beneficial
owner of shares of Class A Common Stock owned of record or beneficially
by its indirect wholly owned subsidiaries, as follows: (A) Stinbes
Limited (Address: c/o ATC Trustees (Cayman) Ltd., P.O. Box 30592 SMB,
Piccadilly Centre, 2nd Floor, Grand Cayman, Cayman Islands, B.W.I.),
3,256,296 shares (including (i) 347,300 shares of Class A Common Stock,
(ii) 2,533,996 shares of Class B Common Stock convertible on a one-to-one
basis to Class A Common Stock, and (iii) warrants to purchase 375,000
shares of Class A Common Stock or Class B Common Stock); and (B) Bestin
Ltd. (Address: c/o ATC Trustees (BVI) Ltd., Abbot Building, 2nd Floor,
P.O. Box 933, Road Town, Tortola, B.V.I.), 3,146,388 shares. Of the
foregoing shares, 1,000,000 shares of Class B Common Stock and 3,146,388
of Class A Common Stock have been pledged to NationsBank N.A., to secure
guarantees of loans to Mr. Jeffrey Steiner; and 100,000 shares of Class B
Common Stock have been pledged to Banque de Camondo (Suisse) S.A., to
secure a line of credit to Bestin Worldwide Limited. The warrants to
purchase 375,000 shares of Class A Common Stock or Class B Common Stock
may be exercised only within specified periods after the occurrence of
certain events, as provided in the warrant certificates. Paske
Investments, Ltd. is a wholly-owned subsidiary of The Friday Trust, a
trust organized under the laws of Jersey, Channel Islands, of which the
sole trustee is Lloyds Bank Trust Company (Channel Islands) Limited. The
Friday Trust is deemed the beneficial owner of the same shares of Class A
Common Stock deemed beneficially owned by Paske Investments, Ltd.
(9) Includes 5,000 shares of Class A Common Stock owned by Dr. Eric Steiner
as custodian for his children; Dr. Steiner disclaims any beneficial
interest therein.
(10) Mr. Jeffrey Steiner is the settlor and a beneficiary of The Friday Trust
(the sole stockholder of Paske Investments, Ltd.), and as such may be
deemed to beneficially own the same shares of Class A Common Stock deemed
beneficially owned by Paske Investments, Ltd., as discussed in footnote
(8) to this table. Class A Common Stock shown in the table as owned by
Mr. Jeffrey Steiner include: (i) 6,402,684 shares owned directly or
beneficially by Paske Investments and subsidiaries (see footnote (8));
(ii) 105,400 shares owned of record by Mr. Steiner; (iii) exercisable
stock options to purchase 163,850 shares of Class A Common Stock (see
footnote (2)); (iv) 37,500 shares of Class A Common Stock owned by Mr.
Steiner as custodian for his children; (v) 30,000 shares of Class B
Common Stock (convertible on a one-to-one basis to Class A Common Stock)
owned by Mr. Steiner as custodian for his children; and (vi) 2,400 shares
of Class A Common Stock owned by the Jeffrey Steiner Family Foundation.
Mr. Steiner disclaims beneficial ownership of shares owned by the Jeffrey
Steiner Family Foundation and shares owned by him as custodian for his
children.
(11) Paske Investments, Ltd. owns no shares of record. It is the beneficial
owner of shares of Class B Common Stock owned of record or beneficially
by its indirect wholly owned subsidiaries, as follows: Stinbes Limited
(Address: c/o ATC Trustees (Cayman) Ltd., P.O. Box 30592 SMB, Piccadilly
Centre, 2nd Floor, Grand Cayman, Cayman Islands, B.W.I.), 2,908,996
shares (including (i) 2,533,996 shares of Class B Common Stock, and (ii)
warrants to purchase 375,000 shares of Class A Common Stock or Class B
Common Stock). Paske Investments, Ltd. is a wholly-owned subsidiary of
The Friday Trust, a trust organized under the laws of Jersey, Channel
Islands, of which the sole trustee is Lloyds Bank Trust Company (Channel
Islands) Limited. The Friday Trust is deemed the beneficial owner of the
same shares of Class B Common Stock deemed beneficially owned by Paske
Investments, Ltd.
44
<PAGE>
(12) Mr. Jeffrey Steiner is the settlor and a beneficiary of The Friday Trust
(the sole stockholder of Paske Investments, Ltd.), and as such may be
deemed to beneficially own the same shares of Class B Common Stock deemed
beneficially owned by Paske Investments, Ltd., as disclosed in footnote
(11) to this table. Class B Common Stock shown in the table as owned by
Mr. Jeffrey Steiner include: (i) 2,908,996 shares, or warrants to
purchase shares, owned directly or beneficially by Paske Investments and
subsidiaries (see footnote 11); and (ii) 30,000 shares of Class B Common
Stock owned by Mr. Steiner as custodian for his children. Mr. Steiner
disclaims beneficial ownership of shares owned by him as custodian for
his children.
(13) Includes warrants as described in footnotes above.
(14) J.J. Cramer & Co.'s address is 100 Wall Street, New York, NY 10005.
(15) Fairchild Master Retirement Trust's address is 300 West Service Road,
P.O. Box 10803, Chantilly, VA 20153.
(16) FMR Corp's address is, Fidelity Management & Research Co., 82 Devonshire
Street, Boston, MA 02109.
(17) Samuel J. Krasney's address is 25700 Science Park Drive, Cleveland, OH
44122.
(18) Paske Investments, Ltd.'s address is The Friday Trust, Stinbes Limited,
Bestin Ltd., c/o Lloyds Bank International (Jersey) Ltd., P.O. Box 482,
Commercial House, Commercial Street, St. Helier, Jersey JE4 8W2, Channel
Islands, British Isles.
(19) Jeffrey J. Steiner's address is 110 East 59th Street, New York, NY 10022.
(20) Peregrine Direct Investments Limited's address is 23/F New World Tower,
16-18 Queens Road Central, Hong Kong, China. The shares reflected
represent shares issuable upon exercise of warrants with a $9.00 per
share exercise price.
(21) Bankers Trust New York Corporation address is One Bankers Trust Plaza,
130 Liberty Street, New York, NY 10006. The shares reflected represent
shares issuable upon exercise of warrants with a $9.00 per share exercise
price.
(22) Assumes no exercise of the Underwriters' over-allotment option. All of
the 450,000 shares subject to such option, will be sold, directly or
indirectly, by Jeffrey J. Steiner.
45
<PAGE>
THE DISPOSITION
On December 8, 1997, Banner and certain of its subsidiaries entered into an
Asset Purchase Agreement pursuant to which such subsidiaries have agreed to
transfer substantially all of their assets to Allied for approximately $345
million of common stock of Allied based on the average trading price of the
Allied common stock for twenty consecutive trading days immediately prior to
the closing of the transaction. The assets to be transferred to Allied consist
primarily of Banner's hardware group, which includes the distribution of
bearings, nuts, bolts, screws, rivets and other type of fasteners. The Company
plans to use $170 million of the common stock received from Allied to repay
outstanding term loans of Banner's subsidiaries and pay related fees and the
remainder of the $175 million of common stock of Allied will be pledged to
Banner's banks.
The Asset Purchase Agreement contains customary provisions for such
agreements including representations and warranties with respect to the
conduct of the business prior to closing and various closing conditions,
including the continued accuracy of the representations and warranties, the
receipt of all governmental consents and the expiration of the waiting period
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.
The Asset Purchase Agreement provides for certain purchase price adjustments
after the closing of the Disposition. Such adjustments, if any, will be made
following the receipt of an unaudited consolidated balance sheet of the
business acquired by Allied pursuant to the Asset Purchase Agreement, and may
include the surrender of shares of Allied common stock received by Banner or
the receipt by Banner of additional shares of Allied common stock.
The Asset Purchase Agreement has a non-competition provision pursuant to
which Banner and the subsidiaries party to the Asset Purchase Agreement have
agreed, subject to certain exceptions, not to compete for a period of three
years from the closing of such transaction with Allied in the business of
supplying to the aerospace industry aircraft hardware, chemicals or related
support services.
In connection with the Asset Purchase Agreement, Banner and Allied will
enter into an escrow agreement pursuant to which Banner will deposit $3.5
million in Allied common stock in connection with the purchase price
adjustment. In addition, in connection with the Disposition, Allied will enter
into a registration rights agreement with certain demand and piggyback
registration rights with respect to Allied common stock to be received by
Banner. In addition, each party has agreed to indemnify each other for any
losses suffered due to a breach of a representation, warranty or covenant.
46
<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
The authorized capital stock of the Company consists of 40,000,000 shares of
Class A Common Stock, par value $0.10 per share, 14,030,717 of which were
issued and outstanding as of September 28, 1997, 20,000,000 shares of Class B
Common Stock, par value $0.10 per share, 2,625,616 of which were issued and
outstanding as of September 28, 1997, and 10,000,000 shares of Preferred
Stock, par value $0.10 per share, none of which are issued and outstanding.
The Class A Common Stock and the Class B Common Stock are sometimes
collectively referred to herein as the "Common Stock."
PREFERRED STOCK
The Board of Directors of the Company is authorized, subject to the
limitations prescribed by law, to provide by resolutions for the issuance of
the Preferred Stock in one or more series, to establish the number of shares
to be included in each such series and to fix and state the voting powers, the
designations, preferences and relative, participating, optional or other
special rights, or qualifications, limitations or restrictions thereof,
applicable to the shares of each series. Satisfaction of any dividend
preferences of outstanding shares of Preferred Stock would reduce the amount
of funds available for the payment of dividends on shares of Common Stock.
Holders of shares of Preferred Stock may be entitled to receive a preference
payment in the event of any liquidation, dissolution or winding-up of the
Company before any payment is made to the holders of shares of Common Stock.
Under certain circumstances, the issuance of shares of Preferred Stock may
render more difficult or tend to discourage a merger, tender offer or proxy
contest, the assumption of control by a holder of a large block of the
Company's securities or the removal of incumbent management. The Board of
Directors of the Company, without stockholder approval, may issue shares of
Preferred Stock with voting and conversion rights which could adversely affect
the holders of shares of Common Stock. Upon consummation of the Offering,
there will be no shares of Preferred Stock outstanding, and the Company has no
present intention to issue any shares of Preferred Stock.
COMMON STOCK
The issued and outstanding shares of Common Stock are, and the shares of
Class A Common Stock being offered in this Offering will be upon payment
therefor, validly issued, fully paid and nonassessable. The powers,
preferences and rights of holders of Class A Common Stock and Class B Common
Stock, and the qualifications, limitations or restrictions thereof, are
substantially identical, except as otherwise required by law or expressly
provided in this section. Each holder of Class A Common Stock is entitled to
one (1) vote per share and each holder of Class B Common Stock is entitled to
ten (10) votes per share. Except as set forth below, all actions submitted to
a vote of stockholders shall be voted on by the holders of Class A Common
Stock and Class B Common Stock voting together as a single class. The holders
of Class A Common Stock and Class B Common Stock shall vote separately as
classes with respect to amendments to the Restated Certificate of
Incorporation that alter or change the powers, preferences or special rights
of their respective classes of stock so as to affect them adversely and with
respect to such other matters as may require class votes under Delaware Law.
Notwithstanding anything in the Restated Certificate of Incorporation to the
contrary, the affirmative vote of the holders of all outstanding shares of
capital stock of the Company entitled to vote, voting together as a single
class, shall be required to authorize additional shares of Class A Common
Stock or Class B Common Stock, or upon certain proposals to issue authorized
but unissued shares of Class B Common Stock. Class B Common Stock is
convertible into Class A Common Stock at any time at the option of the holder
or automatically if at any time the number of outstanding shares of Class B
Common Stock as reflected on the stock transfer books of the Company is less
than 300,000. If the Company at any time (a) declares a stock dividend upon
either class of its Common Stock payable in shares of that same class of
Common Stock, (b) makes any distribution upon either class of its Common Stock
payable in shares of that same class of Common Stock, (c) subdivides its
outstanding shares of either class of its Common Stock into a greater number
of shares, or (d) subdivides its outstanding shares of either class of its
Common Stock into a smaller number of shares, then and in any of such events
the
47
<PAGE>
Company shall make, declare or effect a similar but ratable stock dividend,
distribution or subdivision on the shares of the other class of its Common
Stock but payable in shares of such other class of Common Stock and only on a
share for share basis. Cash dividends are payable in such relative amounts as
the Board of Directors of the Company may determine; provided, however, that
in no event will cash dividends payable with respect to the Class B Common
Stock exceed one hundred percent (100%) of the cash dividends payable with
respect to the Class A Common Stock.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is ChaseMellon
Shareholder Services LLC.
48
<PAGE>
DESCRIPTION OF THE NEW CREDIT FACILITY
The Company intends to enter into the New Credit Facility to retire the
existing indebtedness of the Company and its subsidiaries and provide for the
working capital needs of the Company. The New Credit Facility will provide for
total lending commitments of up to $300 million. The New Credit Facility will
be comprised of (i) a $75 million Revolving Credit Facility ("Revolving Credit
Facility"), and (ii) a $225 million Term Loan Facility. Borrowings under the
New Credit Facility, together with the proceeds from the Offering, and the
after tax proceeds the Company has already received from the STFI Sale will be
used to repay the Company's long term indebtedness as described under "Use of
Proceeds." The proceeds of the loans made under the Revolving Credit Facility
may also be used to fund the Company's working capital needs, capital
expenditures and other general corporate purposes, including the issuance of
letters of credit. Effectiveness of the New Credit Facility is a condition to
the closing of the Offering.
Borrowings under the New Credit Facility will bear interest annually at the
Company's option at the rate of (i) LIBOR plus a spread or (ii) the Base Rate
(defined as, generally, the higher of the Federal Funds Rate, as published by
the Federal Reserve Bank of New York, plus 0.5%, or the Administrative Agent's
prime lending rate) plus a spread. In addition, the Company must pay a fee on
the face amount of each letter of credit outstanding at a rate of the LIBOR
margin.
It is expected that the obligations under the New Credit Facility will be
secured by a pledge of all of the capital stock and assets of the domestic
subsidiaries of the Company and by a pledge of 65% of the capital stock of the
Company's foreign subsidiaries.
The New Credit Facility will contain various covenants that limit, among
other things, subject to certain exceptions, indebtedness, liens, transactions
with affiliates, restricted payments and investments, mergers, consolidations
and dissolutions, sales of assets, dividends and distributions and certain
other business activities.
49
<PAGE>
UNDERWRITING
Subject to certain terms and conditions of an Underwriting Agreement dated
, 1997 (the "Underwriting Agreement"), the underwriters named below (the
"Underwriters"), who are represented by Donaldson, Lufkin & Jenrette
Securities Corporation ("DLJ"), BT Alex. Brown Incorporated and SBC Warburg
Dillon Read Inc. (the "Representatives"), have severally agreed to purchase
from the Company the respective number of shares of Class A Common Stock set
forth opposite their names below.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation................
BT Alex. Brown Incorporated........................................
SBC Warburg Dillon Read Inc........................................
---------
Total............................................................ 3,000,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to purchase and accept delivery of the shares of Class A Common
Stock offered hereby are subject to approval by their counsel of certain legal
matters and to certain other conditions. The Underwriters are obligated to
purchase and accept delivery of all shares of Common Stock offered hereby
(other than those covered by the over-allotment option described below) if any
are purchased.
The Underwriters initially propose to offer the shares of Class A Common
Stock in part directly to the public, initially at the price to the public set
forth on the cover page of this Prospectus and in part to certain dealers
(including the Underwriters) at such price, less a concession not in excess of
$ per share. The Underwriters may allow, and such dealers may re-allow, to
certain other dealers a concession not in excess of $ per share. After the
Offering, the public offering price and other selling terms may be changed by
the Representatives without notice.
The Selling Stockholder has granted to the Underwriters an option
exercisable within 30 days after the date of this Prospectus to purchase, from
time to time, up to an aggregate of 450,000 additional shares of Class A
Common Stock at the initial public offering price less underwriting discounts
and commissions. The Underwriters may exercise such option solely to cover
over-allotments, if any, made in connection with the Offering. To the extent
that such option is exercised, each Underwriter will become obligated, subject
to certain conditions, to purchase its pro rata portion of such additional
shares based on such Underwriter's percentage underwriting commitment in the
Offering as indicated in the preceding table.
The Company and the Selling Stockholder have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments that the Underwriters may be
required to make in respect thereof.
Each of the Company and its executive officers and directors have agreed,
subject to certain conditions, not to (i) offer, pledge, sell, contract to
sell, sell any option or contract to purchase, purchase any option or contract
to sell, grant any option, right or warrant to purchase or otherwise transfer
or dispose of, directly or indirectly,
50
<PAGE>
any shares of Common Stock or any securities convertible into or exercisable
or exchangeable for Common Stock or (ii) enter into any swap or other
arrangement that transfers all or a portion of the economic consequences
associated with the ownership of any Common Stock (regardless of whether any
of the transactions described in clause (i) or (ii) is to be settled by the
delivery of Common Stock, or such other securities, in cash or otherwise) for
a period of 90 days after the date of this Prospectus without the prior
written consent of DLJ. In addition, during such period, the Company has also
agreed not to file any registration statement with respect to, and each of its
executive officers and directors and have agreed not to make any demand for,
or exercise any right with respect to, the registration of any shares of
Common Stock or any securities convertible into or exercisable or exchangeable
for Common Stock without DLJ's prior written consent.
In connection with the Offering, the Underwriters may engage in transactions
that stabilize, maintain or otherwise affect the price of the Class A Common
Stock. Specifically, the Underwriters may overallot the Offering, creating a
syndicate short position. The Underwriters may bid for and purchase shares of
Class A Common Stock in the open market to cover syndicate short positions or
to stabilize the price of the Class A Common Stock. These activities may
stabilize or maintain the market price of the Class A Common Stock above
independent market levels. The Underwriters are not required to engage in
these activities and may end any of these activities at any time.
DLJ from time to time performs investment banking and other financial
services for the Company and its affiliates for which it receives advisory or
transaction fees of the nature and in amounts customary in the industry for
such services. Bankers Trust Company, an affiliate of BT Alex. Brown, is a
lender under the Company's existing credit facilities. A portion of the net
proceeds to be received by the Company from the Offering will be used to repay
indebtedness under the Company's existing credit facilities.
51
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Future sales of substantial amounts of Common Stock in the public market or
the perception that such sales could occur, could adversely affect market
prices prevailing from time to time. Sales of substantial amounts of Common
Stock in the public market could adversely affect the prevailing market price
and the ability of the Company to raise equity capital in the future.
Upon completion of this Offering, the Company will have outstanding
19,656,333 shares of Common Stock, assuming no exercise of the Underwriters'
over-allotment option and no exercise of outstanding options. Of these shares,
12,031,716 shares of Common Stock will be freely tradable without restriction
under the Securities Act, unless owned by "affiliates" of the Company, as that
term is defined in Rule 144. Substantially all the remaining 6,924,617 shares
of Common Stock outstanding upon completion of this Offering are Restricted
Shares. Restricted Shares may be sold in the public market only if registered
or if they qualify for an exemption from registration under Rule 144 or 144(k)
promulgated under the Securities Act, which are summarized below.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are required to be aggregated) who has beneficially owned shares
of Common Stock for at least one year that were acquired from the Company (or
any "affiliate" of the Company) is entitled to sell within any three month
period a number of shares that does not exceed the greater of one percent of
the then outstanding shares of Common Stock (216,563 shares immediately after
completion of this Offering assuming no exercise of the Underwriters' over-
allotment option) or the average weekly reported trading volume of the Common
Stock during the four calendar weeks preceding the date on which notice of
such sale is given, provided certain manner of sale and notice requirements as
to the availability of current public information are satisfied (which
requirements as to the availability of current public information is currently
satisfied). Affiliates of the Company must also comply with the restrictions
and requirements of Rule 144, other than the one-year holding period
requirement, in order to sell shares of Common Stock that are not "restricted
securities" (such as shares acquired by affiliates of the Company in the
Initial Public Offering, in open-market purchases, or in this Offering). Under
Rule 144(k), a person who is not deemed an "affiliate" of the Company at any
time during the three months preceding a sale by such person, and who has
beneficially owned such shares of Common Stock for at least two years, would
be entitled to sell such shares without regard to volume limitations, manner
of sale provisions, notification requirements or the availability of current
public information concerning the Company. As defined in Rule 144, an
"affiliate" of an issuer is a person that directly or indirectly through one
or more intermediaries controls, or is controlled by, or is under common
control with, such issuer.
The Company and its executive officers and directors, have agreed that,
subject to certain exceptions for a period of 90 days after the date of this
Prospectus, they will not offer, sell, contract to sell, pledge or otherwise
dispose of, directly or indirectly, or file with the Commission a registration
statement under the Securities Act relating to any additional shares of its
Common Stock, or securities convertible into or exchangeable or exercisable
for any shares of its Common Stock, or disclose the intention to make any such
offer, sale, pledge, disposal or filing, without the prior written consent of
DLJ.
LEGAL MATTERS
Certain legal matters with respect to the shares of Common Stock offered
hereby will be passed upon for the Company by Cahill Gordon & Reindel (a
partnership including a professional corporation), New York, New York, and for
the Underwriters by Skadden, Arps, Slate, Meagher & Flom LLP, New York, New
York.
EXPERTS
The consolidated financial statements of the Company at June 30, 1997 and
for each of the three years in the period ended June 30, 1997 included in this
prospectus and registration statement have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their report with respect
thereto, and are included herein in reliance upon the authority of said firm
as experts in giving said report.
52
<PAGE>
THE FAIRCHILD CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
CONSOLIDATED ANNUAL FINANCIAL STATEMENTS:
Report of Independent Public Accountants................................... F-1
Consolidated Balance Sheets................................................ F-4
Consolidated Statements of Earnings........................................ F-6
Consolidated Statements of Stockholders' Equity............................ F-7
Consolidated Statements of Cash Flows...................................... F-8
Notes to Consolidated Financial Statements................................. F-9
CONSOLIDATED INTERIM FINANCIAL STATEMENTS:
Consolidated Balance Sheets at June 30, 1997 and September 28, 1997........ F-36
Consolidated Statements of Earnings for the three months ended
September 29, 1996 and September 28, 1997................................. F-38
Consolidated Statements of Cash Flows for the three months ended
September 29, 1996 and September 28, 1997................................. F-39
Notes to Consolidated Interim Financial Statements......................... F-40
Schedule I................................................................. F-44
Schedule II................................................................ F-48
</TABLE>
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Fairchild Corporation:
We have audited the accompanying consolidated balance sheets of The
Fairchild Corporation (a Delaware corporation) and subsidiaries as of June 30,
1996 and 1997, and the related consolidated statements of earnings,
stockholders' equity and cash flows for the years ended June 30, 1995, 1996
and 1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of The Fairchild Corporation
and subsidiaries as of June 30, 1996 and 1997, and the results of their
operations and their cash flows for the years ended June 30, 1995, 1996 and
1997, in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Washington, D.C.
September 5, 1997
(except with respect to the matter discussed
in Note 24, as to which the date is December 8, 1997)
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Fairchild Corporation:
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements of The Fairchild Corporation and
subsidiaries included in this Form 10-K and have issued our report thereon
dated September 5, 1997. Our audits were made for the purpose of forming an
opinion on the basic financial statements taken as a whole. The schedules on
page F-44 through F-48 are the responsibility of the Company's management and
are presented for the purpose of complying with the Securities and Exchange
Commission's rules and are not part of the basic financial statements. These
schedules have been subjected to the auditing procedures applied in the audits
of the basic financial statements and, in our opinion, fairly state in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
Arthur Andersen LLP
Washington, D.C.
September 5, 1997
(except with the matter discussed in Note 24, as to which the date is December
8, 1997)
F-2
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
F-3
<PAGE>
THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1996 1997
ASSETS ---------- ----------
<S> <C> <C>
Current Assets:
Cash and cash equivalents............................... $ 39,649 $ 19,420
(of which $8,224 and $4,839 is restricted, respective-
ly)
Short-term investments.................................. 10,498 25,647
Accounts receivable-trade, less allowances of $6,327 and
$8,103................................................. 98,694 168,163
Notes receivable........................................ 170,384 --
Inventories:
Finished goods........................................ 236,263 297,223
Work-in-process....................................... 16,294 26,887
Raw materials......................................... 18,586 18,626
---------- ----------
271,143 342,736
Prepaid expenses and other current assets............... 19,275 33,631
---------- ----------
Total Current Assets.................................... 609,643 589,597
Property, plant and equipment, net...................... 87,956 128,712
Net assets held for sale................................ 45,405 26,147
Cost in excess of net assets acquired, (Goodwill) less
accumulated amortization of $31,912 and $36,672,
respectively........................................... 140,201 154,808
Investments and advances, affiliated companies.......... 53,471 55,678
Deferred loan costs..................................... 7,825 9,252
Prepaid pension assets.................................. 57,660 59,742
Long-term investments................................... 585 4,120
Notes receivable and other assets....................... 7,192 39,277
---------- ----------
Total Assets............................................ $1,009,938 $1,067,333
========== ==========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
F-4
<PAGE>
THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1996 1997
LIABILITIES AND STOCKHOLDERS' EQUITY ---------- ----------
<S> <C> <C>
Current Liabilities:
Bank notes payable and current maturities of long-term
debt.................................................. $ 84,892 $ 47,422
Accounts payable....................................... 65,478 84,953
Accrued salaries, wages and commissions................ 17,367 19,166
Accrued insurance...................................... 16,340 15,397
Accrued interest....................................... 10,748 16,011
Other.................................................. 37,302 54,625
Income taxes........................................... 24,635 5,881
---------- ----------
Total Current Liabilities.............................. 256,762 243,455
Long-term debt......................................... 368,589 416,922
Other long-term liabilities............................ 18,605 23,622
Retiree health care liabilities........................ 44,452 43,387
Noncurrent income taxes................................ 31,737 42,013
Minority interest in subsidiaries...................... 58,625 68,309
---------- ----------
Total Liabilities...................................... 778,770 837,708
Stockholders' Equity:
Class A common stock, 10 cents par value; authorized
40,000,000 shares, 20,233,879, (19,997,756 in 1996)
shares issued, and 13,992,283 (13,756,160 in 1996)
shares outstanding.................................... 2,000 2,023
Class B common stock, 10 cents par value; authorized
20,000,000 shares, 2,632,516 shares issued and
outstanding (2,633,704 in 1996)....................... 263 263
Paid-in capital........................................ 69,366 71,015
Retained earnings...................................... 208,618 209,949
Cumulative translation adjustment...................... 2,760 (1,860)
Net unrealized holding loss on available-for-sale secu-
rities................................................ (120) (46)
Treasury stock, at cost, 6,241,596 shares of Class A
common stock.......................................... (51,719) (51,719)
---------- ----------
Total Stockholders' Equity............................. 231,168 229,625
---------- ----------
Total Liabilities and Stockholders' Equity............. $1,009,938 $1,067,333
========== ==========
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
F-5
<PAGE>
THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JUNE 30,
-------------------------------
1995 1996 1997
<S> <C> <C> <C>
Revenue:
Net sales of products....................... $ 256,840 $ 409,520 $ 731,960
Other income (expense)...................... 1,169 635 (658)
--------- --------- ---------
258,009 410,155 731,302
Costs and expenses:
Cost of goods sold.......................... 219,226 314,609 526,837
Selling, general & administrative........... 65,830 98,075 161,309
Research and development.................... 974 94 7,807
Amortization of goodwill.................... 3,896 4,173 4,832
Restructuring............................... -- 2,319 --
--------- --------- ---------
289,926 419,270 700,785
Operating income (loss)...................... (31,917) (9,115) 30,517
Interest expense............................. 67,742 64,658 52,493
Interest income.............................. (3,371) (8,072) (4,695)
--------- --------- ---------
Net interest expense......................... 64,371 56,586 47,798
Investment income, net....................... 5,705 4,575 6,651
Equity in earnings of affiliates............. 1,607 4,821 4,598
Minority interest............................ (2,293) (1,952) (3,514)
Nonrecurring income (loss)................... -- (1,724) 2,528
--------- --------- ---------
Earnings (loss) from continuing operations
before taxes................................ (91,269) (59,981) (7,018)
Income tax benefit........................... 33,506 26,320 5,200
--------- --------- ---------
Earnings (loss) from continuing operations... (57,763) (33,661) (1,818)
Earnings from discontinued operations, net... 23,843 17,087 3,149
Gain (loss) on disposal of discontinued
operations, net............................. (259) 216,716 --
--------- --------- ---------
Earnings (loss) before extraordinary items... (34,179) 200,142 1,331
Extraordinary items, net..................... 355 (10,436) --
--------- --------- ---------
Net earnings (loss).......................... $ (33,824) $ 189,706 $ 1,331
========= ========= =========
Primary Earnings (Loss) Per Share:
Earnings (loss) from continuing operations.. $ (3.59) $ (2.03) $ (0.10)
Earnings from discontinued operations, net.. 1.48 1.03 0.18
Gain (loss) on disposal of discontinued
operations, net............................ (0.01) 13.06 --
--------- --------- ---------
Earnings (loss) before extraordinary items.. (2.12) 12.06 0.08
Extraordinary items, net.................... 0.02 (0.63) --
--------- --------- ---------
Net earnings (loss) per share............... $ (2.10) $ 11.43 $ 0.08
========= ========= =========
Fully Diluted Earnings (Loss) Per Share:
Earnings (loss) from continuing operations.. $ (3.59) $ (1.97) $ (0.10)
Earnings from discontinued operations, net.. 1.48 1.00 .18
Gain (loss) on disposal of discontinued
operations, net............................ (0.01) 12.67 --
--------- --------- ---------
Earnings (loss) before extraordinary items.. (2.12) 11.70 0.08
Extraordinary items, net.................... 0.02 (.61) --
--------- --------- ---------
Net earnings (loss) per share............... $ (2.10) $ 11.09 $ 0.08
========= ========= =========
Weighted Average Number of Shares used in
Computing Earnings Per Share:
Primary...................................... 16,103 16,600 17,230
Fully diluted................................ 16,103 17,100 17,321
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
F-6
<PAGE>
THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
CLASS A CLASS B CUMULATIVE
COMMON COMMON PAID-IN RETAINED TRANSLATION TREASURY
STOCK STOCK CAPITAL EARNINGS ADJUSTMENT STOCK OTHER TOTAL
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, July 1, 1994... $1,965 $ 270 $66,775 $ 52,736 $ 872 $(51,719) $(1,405) $ 69,494
Net loss................ -- -- -- (33,824) -- -- -- (33,824)
Cumulative translation
adjustment, net........ -- -- -- -- 2,989 -- -- 2,989
Gain on purchase of
preferred stock of
subsidiary............. -- -- 236 -- -- -- -- 236
Reduction of minimum
liability for
pensions............... -- -- -- -- -- -- 1,405 1,405
Net unrealized holding
loss on available-for-
sale securities........ -- -- -- -- -- -- (120) (120)
------ ----- ------- -------- ------- -------- ------- --------
Balance, June 30, 1995.. 1,965 270 67,011 18,912 3,861 (51,719) (120) 40,180
Net earnings............ -- -- -- 189,706 -- -- -- 189,706
Cumulative translation
adjustment, net........ -- -- -- -- (1,101) -- -- (1,101)
Fair market value of
stock warrants issued.. -- -- 1,148 -- -- -- -- 1,148
Proceeds received from
stock options
exercised.............. 28 -- 1,481 -- -- -- -- 1,509
Exchange of Class B for
Class A common stock... 7 (7) -- -- -- -- -- --
Gain realized on
retirement of preferred
stock of subsidiary.... -- -- (274) -- -- -- -- (274)
------ ----- ------- -------- ------- -------- ------- --------
Balance, June 30, 1996.. 2,000 263 69,366 208,618 2,760 (51,719) (120) 231,168
Net earnings............ -- -- -- 1,331 -- -- -- 1,331
Cumulative translation
adjustment, net........ -- -- -- -- (4,620) -- -- (4,620)
Fair market value of
stock warrants issued.. -- -- 546 -- -- -- -- 546
Proceeds received from
options exercised...... 23 -- 1,103 -- -- -- -- 1,126
Net unrealized holding
gain on available-for-
sale securities........ -- -- -- -- -- -- 74 74
------ ----- ------- -------- ------- -------- ------- --------
Balance, June 30, 1997
....................... $2,023 $ 263 $71,015 $209,949 $(1,860) $(51,719) $ (46) $229,625
====== ===== ======= ======== ======= ======== ======= ========
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
F-7
<PAGE>
THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JUNE 30,
------------------------------
1995 1996 1997
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss)........................... $(33,824) $ 189,706 $ 1,331
Adjustments to reconcile net earnings (loss)
to net cash used for operating activities:
Depreciation and amortization............... 20,879 21,653 25,935
Accretion of discount on long-term
liabilities................................ 4,773 4,686 4,963
Net gain on the merger of subsidiaries...... -- (162,703) --
Net gain on the sale of discontinued
operations................................. -- (53,942) --
Extraordinary items, net of cash payments... -- 4,501 --
Provision for restructuring (excluding cash
payments of $777 in 1996).................. -- 1,542 --
(Gain) loss on sale of property, plant and
equipment.................................. 655 (9) (72)
Undistributed earnings of affiliates........ (500) (3,829) (2,329)
Minority interest........................... 2,293 1,952 3,514
Change in trading securities................ 1,879 (5,346) (5,733)
Change in receivables....................... (3,623) (7,677) (55,965)
Change in inventories....................... (8,578) (10,747) (46,389)
Change in other current assets.............. (3,039) (1,468) (14,237)
Change in other non-current assets.......... 3,492 1,030 (17,859)
Change in accounts payable, accrued
liabilities, and other long-term
liabilities................................ (21,541) (41,255) 8,610
Non-cash charges and working capital changes
of discontinued operations................. 11,609 13,169 1,274
-------- --------- ---------
Net cash used for operating activities........ (25,525) (48,737) (96,957)
Cash flows from investing activities:
Proceeds received from (used for) investment
securities, net.............................. 12,281 265 (12,951)
Purchase of property, plant and equipment..... (5,911) (6,622) (22,116)
Proceeds from sale of property, plant and
equipment.................................... 151 122 213
Equity investments in affiliates.............. (1,051) (2,361) --
Minority interest in subsidiaries............. -- (2,817) (1,610)
Acquisition of subsidiaries, net of cash
acquired..................................... (607) -- (55,916)
Net proceeds from the sale of discontinued
operations................................... -- 71,559 173,719
Changes in net assets held for sale........... 1,441 5,894 385
Investing activities of discontinued
operations................................... (25,460) (8,500) (1,749)
-------- --------- ---------
Net cash (used for) provided by investing
activities................................... (19,156) 57,540 79,975
Cash flows from financing activities:
Proceeds from issuance of debt................ 71,712 157,877 154,394
Debt repayments and repurchase of debentures.. (57,417) (197,825) (156,975)
Issuance of Class A common stock.............. -- 1,509 1,126
Financing activities of discontinued
operations................................... (1,950) (936) --
-------- --------- ---------
Net cash provided by (used for) financing
activities................................... 12,345 (39,375) (1,455)
Effect of exchange rate changes on cash....... 1,150 (961) (1,792)
Net decrease in cash and cash equivalents..... (31,186) (31,533) (20,229)
Cash and cash equivalents, beginning of the
year......................................... 102,368 71,182 39,649
-------- --------- ---------
Cash and cash equivalents, end of the year.... $ 71,182 $ 39,649 $ 19,420
======== ========= =========
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
F-8
<PAGE>
THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Corporate Structure: The Fairchild Corporation (the "Company") was
incorporated in October 1969, under the laws of the State of Delaware. RHI
Holdings, Inc. ("RHI") is a direct subsidiary of the Company. RHI is the owner
of 100% of Fairchild Holding Corp. ("FHC") and the majority owner of Banner
Aerospace, Inc., ("Banner"). The Company's principal operations are conducted
through FHC and Banner. As of June 30, 1997, the Company held significant
equity interests in Shared Technologies Fairchild Inc. ("STFI") and Nacanco
Paketleme ("Nacanco"). The Company's investment in STFI resulted from a March
13, 1996 Merger of the Communications Services Segment of the Company with
Shared Technologies, Inc. (See Note 3). The proposed sale of STFI to
Intermedia Communications Inc., as discussed in Note 24, completes the
disposition of the Communications Services Segment. The Company's financial
statements have been restated to present the results of the Communications
Services Segment and STFI as discontinued operations (See Note 24).
Fiscal Year: The fiscal year ("Fiscal") of the Company ends June 30. All
references herein to "1995", "1996", and "1997" mean the fiscal years ended
June 30, 1995, 1996 and 1997, respectively.
Consolidation Policy: The accompanying consolidated financial statements are
prepared in accordance with generally accepted accounting principles and
include the accounts of the Company and all of its wholly-owned and majority-
owned subsidiaries. All significant intercompany accounts and transactions
have been eliminated in consolidation. Investments in companies in which
ownership interest range from 20 to 50 percent are accounted for using the
equity method (see Note 9).
Cash Equivalents/Statements of Cash Flows: For purposes of the Statements of
Cash Flows, the Company considers all highly liquid investments with original
maturity dates of three months or less as cash equivalents. Total net cash
disbursements (receipts) made by the Company for income taxes and interest
were as follows:
<TABLE>
<CAPTION>
1995 1996 1997
<S> <C> <C> <C>
Interest........................................... $66,262 $66,843 $48,684
Income Taxes....................................... (3,056) 9,279 (1,926)
</TABLE>
Restricted Cash: On June 30, 1996 and 1997, the Company had restricted cash
of $8,224 and $4,839, respectively, all of which is maintained as collateral
for certain debt facilities. Cash investments are in short-term certificates
of deposit.
Investments: Management determines the appropriate classification of its
investments at the time of acquisition and reevaluates such determination at
each balance sheet date. Trading securities are carried at fair value, with
unrealized holding gains and losses included in earnings. Available-for-sale
securities are carried at fair value, with unrealized holding gains and
losses, net of tax, reported as a separate component of stockholders' equity.
Investments in equity securities and limited partnerships that do not have
readily determinable fair values are stated at cost and are categorized as
other investments. Realized gains and losses are determined using the specific
identification method based on the trade date of a transaction. Interest on
corporate obligations, as well as dividends on preferred stock, are accrued at
the balance sheet date.
Inventories: Inventories are stated at the lower of cost or market. Cost is
determined using the last-in, first-out ("LIFO") method at principal domestic
aerospace manufacturing operations and using the first-in, first-out ("FIFO")
method elsewhere. If the FIFO inventory valuation method had been used
exclusively, inventories
F-9
<PAGE>
THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
would have been approximately $4,756 and $4,868 higher at June 30, 1996 and
1997, respectively. Inventories from continuing operations are valued as
follows:
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1996 1997
(IN THOUSANDS)
<S> <C> <C>
First-in, first-out (FIFO)................................ $239,800 $312,840
Last-in, first-out (LIFO)................................. 31,343 29,896
-------- --------
Total inventories......................................... $271,143 $342,736
======== ========
</TABLE>
Properties and Depreciation: The cost of property, plant and equipment is
depreciated over estimated useful lives of the related assets. The cost of
leasehold improvements is depreciated over the lesser of the length of the
related leases or the estimated useful lives of the assets. Depreciation is
computed using the straight-line method for financial reporting purposes and
using accelerated depreciation methods for Federal income tax purposes. No
interest costs were capitalized in any of the years presented. Property, plant
and equipment consisted of the following:
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1996 1997
<S> <C> <C>
Land.................................................... $ 10,408 $ 13,438
Buildings and improvements.............................. 40,853 56,124
Machinery and equipment................................. 94,406 158,944
Transportation vehicles................................. 767 899
Furniture and fixtures.................................. 18,466 26,815
Construction in progress................................ 2,329 6,524
-------- ---------
167,229 262,744
Less: Accumulated depreciation (79,273) (134,032)
-------- ---------
Net property, plant and equipment....................... $ 87,956 $ 128,712
======== =========
</TABLE>
Amortization of Goodwill: Goodwill, which represents the excess of the cost
of purchased businesses over the fair value of their net assets at dates of
acquisition, is being amortized on a straight-line basis over 40 years.
Deferred Loan Costs: Deferred loan costs associated with various debt issues
are being amortized over the terms of the related debt, based on the amount of
outstanding debt, using the effective interest method. Amortization expense
for these loan costs for 1995, 1996 and 1997 was $3,794, $3,827, and $2,847,
respectively.
Impairment of Long-Lived Assets: In Fiscal 1997, the Company adopted
Statement of Financial Accounting Standards No. 121 ("SFAS 121"), "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of". SFAS 121 establishes accounting standards for the impairment of
long-lived assets, certain identifiable intangibles, and goodwill related to
those assets to be held and used, and for long-lived assets and certain
identifiable intangibles to be disposed of. The Company reviews its long-lived
assets, including property, plant and equipment, identifiable intangibles and
goodwill, for impairment whenever events or changes in circumstances indicate
that the carrying amount of the assets may not be fully recoverable. To
determine recoverability of its long-lived assets the Company evaluates the
probability that future undiscounted net cash flows will be less than the
carrying amount of the assets. Impairment is measured based on the difference
between the carrying amount of the assets and fair value. The implementation
of SFAS 121 did not have a material effect on the Company's consolidated
results of operations.
Foreign Currency Translation: For foreign subsidiaries whose functional
currency is the local foreign currency, balance sheet accounts are translated
at exchange rates in effect at the end of the period and income
F-10
<PAGE>
THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
statement accounts are translated at average exchange rates for the period.
The resulting translation gains and losses are included as a separate
component of stockholders' equity. Foreign transaction gains and losses are
included in other income and were insignificant in Fiscal 1995, 1996 and 1997.
Research and Development: The Company capitalizes software development costs
upon the establishment of technological feasibility. The establishment of
technological feasibility and the ongoing assessment of recoverability require
considerable judgment by management with respect to certain external factors,
including anticipated future revenues, estimated economic life and changes in
software and hardware technologies. Software development costs are amortized
on a straight-line basis over the lesser of five years or the expected life of
the product. All other Company-sponsored research and development expenditures
are expensed as incurred. Capitalized software development costs were $3,651
at June 30, 1997.
Capitalization of interest and taxes: The Company capitalizes interest
expense and property taxes relating to property being developed.
Nonrecurring Income: Nonrecurring income in 1997 resulted from the $2,528
gain recorded from the sale of Fairchild Scandinavian Bellyloading Company
("SBC"), (See Note 2). Nonrecurring loss in 1996 resulted from expenses
incurred in 1996 in connection with other, alternative transactions considered
but not consummated.
Earnings Per Share: Primary and fully diluted earnings per share are
computed by dividing net income available to holders of the Company's common
stock, by the weighted average number of shares and share equivalents
outstanding during the period. To compute the incremental shares resulting
from stock options and warrants for primary earnings per share, the average
market price of the Company's stock during the period is used. To compute the
incremental shares resulting from stock options and warrants for fully diluted
earnings per share, the greater of the ending market price or the average
market price of the Company's stock is used. In computing primary and fully
diluted earnings per share for 1997 and in computing fully diluted earnings
per share for 1996, the conversion of options and warrants was assumed, as the
effect was dilutive. In computing primary earnings per share for Fiscal 1996,
only the dilutive effect from the conversion of options was assumed, as the
effect from the conversion of warrants alone was antidilutive. In computing
primary and fully diluted earnings per share for Fiscal 1995, the conversion
of options and warrants was not assumed, as the effect was antidilutive.
Stock-Based Compensation: In Fiscal 1997, the Company implemented Statement
of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-
Based Compensation". SFAS 123 establishes financial accounting standards for
stock-based employee compensation plans and for transactions in which an
entity issues equity instruments to acquire goods or services from non-
employees. As permitted by SFAS 123, the Company will continue to use the
intrinsic value based method of accounting prescribed by APB Opinion No. 25,
for its stock-based employee compensation plans. Fair market disclosures
required by SFAS 123 are included in Note 15.
Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Reclassifications: Certain amounts in prior years' financial statements have
been reclassified to conform to the 1997 presentation.
F-11
<PAGE>
THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Recently Issued Accounting Pronouncements: In October 1996, the American
Institute of Certified Public Accountants issued Statement of Position 96-1
("SOP 96-1") "Environmental Remediation Liabilities". SOP 96-1 provides
authoritative guidance on specific accounting issues related to the
recognition, measurement, and the display and disclosure of environmental
remediation liabilities. The Company is required to implement SOP 96-1 in
Fiscal 1998. The Company's present policy is similar to the policy prescribed
by SOP 96-1; therefore there will be no effect from implementation.
In February 1997, the Financial Accounting Standards Board ("FASB") issued
two pronouncements, Statement of Financial Accounting Standards No. 128 ("SFAS
128") "Earnings Per Share", and Statement of Financial Accounting Standards
No. 129 ("SFAS 129") "Disclosure of Information about Capital Structure". SFAS
128 establishes accounting standards for computing and presenting earnings per
share ("EPS"). SFAS 128 is effective for periods ending after December 15,
1997, including interim periods, and requires restatement of all prior period
EPS data presented. Results from the calculation of simple and diluted
earnings per share, as prescribed by SFAS 128, would not differ materially
from the calculations for primary and fully diluted earnings per share for the
years ending June 30, 1995, 1996 and 1997. SFAS 129 establishes standards for
disclosure of information about the Company's capital structure and becomes
effective for periods ending after December 15, 1997.
In June 1997, FASB issued two pronouncements, Statement of Financial
Accounting Standards No. 130 ("SFAS 130") "Reporting Comprehensive Income",
and Statement of Financial Accounting Standards No. 131 ("SFAS 131")
"Disclosures about Segments of an Enterprise and Related Information". SFAS
130 establishes standards for reporting and display of comprehensive income
and its components in the financial statements. SFAS 131 supersedes Statement
of Financial Accounting Standards No. 14 "Financial Reporting for Segments of
a Business Enterprise" and requires that a public company report certain
information about its operating segments in annual and interim financial
reports. The Company will adopt SFAS 130 and SFAS 131 in Fiscal 1998.
2. ACQUISITIONS
The Company's acquisitions described in this section have been accounted for
using the purchase method. The purchase prices assigned to the net assets
acquired were based on the fair value of such assets and liabilities at the
respective acquisition dates.
In January 1997, Banner, through its subsidiary, Dallas Aerospace, Inc.,
acquired PB Herndon Company ("PB Herndon") in a business combination accounted
for as a purchase. PB Herndon is a distributor of specialty fastener lines and
similar aerospace related components. The total cost of the acquisition was
$16,000, which exceeded the fair value of the net assets of PB Herndon by
approximately $3,451. The excess is being amortized using the straight-line
method over 40 years. The Company purchased PB Herndon with available cash.
In February 1997, the Company completed a transaction (the "Simmonds
Acquisition") pursuant to which the Company acquired common shares and
convertible debt representing an 84.2% interest, on a fully diluted basis, of
Simmonds S.A. ("Simmonds"). The Company initiated a tender offer to purchase
the remaining shares and convertible debt held by the public. By Fiscal year-
end, the Company had purchased, or placed sufficient cash in escrow to
purchase, all the remaining shares and convertible debt of Simmonds. The total
purchase price of Simmonds, including the assumption of debt, was
approximately $62,000, which the Company funded with available cash. The
Company recorded approximately $13,000 in goodwill as a result of this
acquisition. Simmonds is one of Europe's leading manufacturers and
distributors of aerospace and automotive fasteners.
In September 1994, the Company acquired all of the outstanding common stock
of Fairchild Scandinavian Bellyloading Company AB ("SBC") for the assumption
of a minimal amount of debt. SBC is a designer and
F-12
<PAGE>
THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
manufacturer of a patented cargo loading system, which is installed in the
cargo area of commercial aircraft. On June 30, 1997, the Company sold all the
patents of SBC to Teleflex Incorporated ("Teleflex") for $5,000, and
immediately thereafter sold all the stock of SBC to a wholly owned subsidiary
of Teleflex for $2,000. The Company may also receive an additional amount of
up to $7,000 based on future net sales of SBC's patented products and
services. In Fiscal 1997, the Company recorded a $2,528 nonrecurring gain as a
result of these transactions.
On November 28, 1994, the Company's former Communications Services segment
completed the acquisition of substantially all of the telecommunications
assets of JWP Telecom, Inc. ("JWP") for approximately $11,000, plus the
assumption of approximately $3,000 of liabilities. JWP is a telecommunications
system integrator, specializing in the distribution, installation and
maintenance of voice and data communications equipment.
Pro forma information is not required for these acquisitions.
3. MERGER AGREEMENT
The Company, RHI and Fairchild Industries, Inc. ("FII"), RHI's subsidiary,
entered into an Agreement and Plan of Merger dated as of November 9, 1995 (as
amended, the "Merger Agreement") with Shared Technologies Inc. ("STI"). On
March 13, 1996, in accordance with the Merger Agreement, STI succeeded to the
telecommunications systems and services business operated by the Company's
Fairchild Communications Services Company ("FCSC").
The transaction was effected by a Merger of FII with and into STI (the
"Merger") with the surviving company renamed Shared Technologies Fairchild
Inc. ("STFI"). Prior to the Merger, FII transferred all of its assets to, and
all of its liabilities were assumed by FHC, except for the assets and
liabilities of FCSC, and $223,500 of the FII's existing debt and preferred
stock. As a result of the Merger, the Company received shares of Common Stock
and Preferred Stock of STFI representing approximately a 41% ownership
interest in STFI.
The Merger was structured as a reorganization under section 386(a)(1)(A) of
the Internal Revenue Code of 1986, as amended. In 1996, the Company recorded a
$163,130 gain from this transaction. Subsequent to year-end the Company
entered into an agreement to sell its investment in STFI. See Note 24 for
further discussion.
4. MAJORITY INTEREST BUSINESS COMBINATION
Effective February 25, 1996, the Company completed a transfer of the
Company's Harco Division ("Harco") to Banner in exchange for 5,386,477 shares
of Banner common stock. The exchange increased the Company's ownership of
Banner common stock from approximately 47.2% to 59.3%, resulting in the
Company becoming the majority shareholder of Banner. Accordingly, the Company
has consolidated the results of Banner since February 25, 1996. The Company
recorded a $427 nonrecurring loss from outside expenses incurred for this
transaction in 1996. Banner is a leading international supplier to the
aerospace industry as a distributor, providing a wide range of aircraft parts
and related support services. Harco is a distributor of precision fasteners to
the aerospace industry.
In May 1997, Banner granted all of its stockholders certain rights to
purchase Series A Convertible Paid-in-Kind Preferred Stock. In June 1997,
Banner received net proceeds of $33,876 and issued 3,710,955 shares of
preferred stock. The Company purchased $28,390 of the preferred stock issued
by Banner, increasing its voting percentage to 64.0%.
In connection with the Company's December 23, 1993 sale of its interest in
Rexnord Corporation to BTR Dunlop Holdings, Inc. ("BTR"), the Company placed
shares of Banner, with a fair market value of $5,000, in
F-13
<PAGE>
THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
escrow to secure the Company's remaining indemnification of BTR against a
contingent liability. Once the contingent liability is resolved, the escrow
will be released.
5. DISCONTINUED OPERATIONS AND NET ASSETS HELD FOR SALE
On February 22, 1996, pursuant to an Asset Purchase Agreement dated January
26, 1996, the Company, through one of its subsidiaries, completed the sale of
certain assets, liabilities and the business of the D-M-E Company ("DME") to
Cincinnati Milacron Inc. ("CMI"), for a sales price of approximately $244,331,
as adjusted. The sales price consisted of $74,000 in cash, and two 8%
promissory notes in the aggregate principal amount of $170,331 (together, the
"8% CMI Notes"). On July 29, 1996, CMI paid in full the 8% CMI Notes.
As a result of the sale of DME in 1996, the Company recorded a gain on
disposal of discontinued operations of approximately $54,012, net of a $61,929
tax provision.
On January 27, 1996, FII completed the sale of Fairchild Data Corporation
("Data") to SSE Telecom, Inc. ("SSE") for book value of approximately $4,400
and 100,000 shares of SSE's common stock valued at $9.06 per share, or $906,
at January 26, 1996, and warrants to purchase an additional 50,000 shares of
SSE's common stock at $11.09 per share.
Accordingly, the results of DME and Data have been accounted for as
discontinued operations. The combined net sales of DME and Data totaled
$180,773 and $108,131 for 1995 and 1996, respectively. Net earnings from
discontinued operations was $13,994 net of $10,183 for taxes in 1995 and,
$9,186, net of $5,695 for taxes in 1996.
Net assets held for sale at June 30, 1997, includes two parcels of real
estate in California, and several other parcels of real estate located
primarily throughout the continental United States, which the Company plans to
sell, lease or develop, subject to the resolution of certain environmental
matters and market conditions. Also included in net assets held for sale are
limited partnership interests in (i) a real estate development joint venture,
and (ii) a landfill development partnership.
Net assets held for sale are stated at the lower of cost or at estimated net
realizable value, which reflect anticipated sales proceeds, and other carrying
costs to be incurred during the holding period. Interest is not allocated to
net assets held for sale.
See Note 24 for discontinuance of STFI.
6. PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)
The following unaudited pro forma information for the twelve months ended
June 30, 1995 and June 30, 1996, provides the results of the Company's
operations as though (i) the disposition of DME and Data, (ii) the Merger of
FCSC, and (iii) the transfer of Harco to Banner, resulting in the
consolidation of Banner, had been in effect since the beginning of each
period. The pro forma information is based on the historical financial
statements of the Company, DME, FCSC and Banner, giving effect to the
aforementioned transactions. In preparing the pro forma data, certain
assumptions and adjustments have been made which (i) reduce interest expense
for revised debt structures, (ii) increase interest income for notes
receivable, (iii) reduce minority interest from Series C Preferred Stock of
FII being redeemed, and (iv) adjust equity in earnings of affiliates to
include the estimated results of STFI.
The following unaudited pro forma financial information is not necessarily
indicative of the results of operations that actually would have occurred if
the transactions had been in effect since the beginning of each period, nor is
it necessarily indicative of future results of the Company.
F-14
<PAGE>
THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1995 1996
<S> <C> <C>
Sales.................................................... $481,991 $597,407
Loss from continuing operations.......................... (32,972) (15,766)
Primary loss from continuing operations per share........ (2.05) (.96)
Net loss................................................. (32,876) (15,766)
Primary net loss per share............................. (2.04) (.96)
</TABLE>
The pro forma financial information has not been adjusted for nonrecurring
income and gains from disposal of discontinued operations that have occurred
from these transactions.
7. EXTRAORDINARY ITEMS
During Fiscal 1996, the Company used the Merger transaction and cash
available to retire fully all of the FII's 12 1/4% senior notes ("Senior
Notes"), FII's 9 3/4% subordinated debentures due 1998, and bank loans under a
credit agreement of a former subsidiary of the Company, VSI Corporation. The
redemption of the Senior Notes at a premium, consent fees paid to holders of
the Senior Notes, the write-off of the original issue discount on FII 9 3/4%
subordinated debentures and the write off of the remaining deferred loan fees
associated with the issuance of the debt retired, resulted in an extraordinary
loss of $10,436, net of a tax benefit, in 1996.
During Fiscal 1995, the Company recognized extraordinary gains and losses
from the early extinguishment of debt resulting from repurchases of its
debentures on the open market or in negotiated transactions, and the write-
offs of certain deferred costs associated with the issuance of securities
repurchased. Early extinguishment of the Company's debt resulted in an
extraordinary gain of $355, net of a tax provision, in 1995.
8. INVESTMENTS
Short-term investments at June 30, 1997, consist primarily of common stock
investments in public corporations which are classified as trading securities.
All other short-term investments and all long-term investments do not have
readily determinable fair values and consist primarily of investments in
preferred and common stocks of private companies and limited partnerships. A
summary of investments held by the Company consists of the following:
<TABLE>
<CAPTION>
1996 1997
----------------- -----------------
AGGREGATE AGGREGATE
NAME OF ISSUER OR FAIR COST FAIR COST
TYPE OF EACH ISSUE VALUE BASIS VALUE BASIS
<S> <C> <C> <C> <C>
Short-term investments:
Trading securities:
Common stock............................. $10,362 $ 5,954 $16,094 $ 7,398
Other investments........................ 136 136 9,553 9,553
------- ------- ------- -------
$10,498 $ 6,090 $25,647 $16,951
======= ======= ======= =======
Other long-term investments:
Other investments........................ $ 585 $ 585 $ 4,120 $ 4,120
======= ======= ======= =======
Investment income is summarized as follows:
<CAPTION>
1995 1996 1997
<S> <C> <C> <C> <C>
Gross realized gain (loss) from sales.... $ 3,948 $(1,744) $ 1,673
Change in unrealized holding gain (loss)
from trading securities................. (36) 5,527 4,289
Gross realized loss from impairments..... (652) -- --
Dividend income.......................... 2,445 792 689
------- ------- -------
$ 5,705 $ 4,575 $ 6,651
======= ======= =======
</TABLE>
F-15
<PAGE>
THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
9. INVESTMENTS AND ADVANCES, AFFILIATED COMPANIES
The following table presents summarized historical financial information on
a combined 100% basis of the Company's principal investments, which are
accounted for using the equity method.
<TABLE>
<CAPTION>
1995 1996 1997
<S> <C> <C> <C>
Statement of Earnings:
Net sales......................................... $313,888 $295,805 $102,962
Gross profit...................................... 100,644 89,229 39,041
Earnings from continuing operations............... 9,623 18,289 14,812
Discontinued operations, net...................... -- -- --
Net earnings...................................... 9,623 18,289 14,812
Balance Sheet at June 30:
Current assets.................................... $ 53,843 $ 47,546
Non-current assets................................ 37,201 40,878
Total assets...................................... 91,044 88,424
Current liabilities............................... 27,392 26,218
Non-current liabilities........................... 1,194 740
</TABLE>
The Company owns approximately 31.9% of Nacanco common stock. The Company
recorded equity earnings of $2,859, $5,487, and $4,673 from this investment
for 1995, 1996 and 1997, respectively.
Effective February 25, 1996, the Company increased its percentage of
ownership of Banner common stock from 47.2% to approximately 59.3%. Since
February 25, 1996, the Company has consolidated Banner's results. Prior to
February 25, 1996, the Company accounted for its investment in Banner using
the equity method and held its investment in Banner as part of investments and
advances, affiliated companies. The Company recorded equity in earnings of
$138 and $363 from this investment for 1995 and 1996, respectively.
The Company is accounting for an investment in a public fund, which is
controlled by an affiliated investment group of the Company, at market value.
The amortized cost basis of the investment was $923 and had been written down
by $71, before tax, to market value. The Company recorded a gross unrealized
holding gain (loss) of $(120) and $114 from this investment in 1995 and 1997,
respectively.
The Company's share of equity in earnings of all unconsolidated affiliates
for 1995, 1996 and 1997 was $1,607, $4,821, and $4,598, respectively. The
carrying value of investments and advances, affiliated companies consists of
the following:
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1996 1997
<S> <C> <C>
Nacanco.................................................... $20,886 $20,504
STFI....................................................... 30,559 31,978
Others..................................................... 2,026 3,196
------- -------
$53,471 $55,678
======= =======
</TABLE>
On June 30, 1997, approximately $9,056 of the Company's $209,949
consolidated retained earnings was from undistributed earnings of 50 percent
or less currently owned affiliates accounted for by the equity method.
F-16
<PAGE>
THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
10. NOTES PAYABLE AND LONG-TERM DEBT
At June 30, 1996 and 1997, notes payable and long-term debt consisted of the
following:
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1996 1997
<S> <C> <C>
Bank credit agreements................................. $ 73,500 $ 100
Other short-term notes payable......................... 3,035 15,529
-------- --------
Short-term notes payable (weighted average interest
rates of 8.6% and 7.8% in 1996 and 1997,
respectively)......................................... $ 76,535 $ 15,629
======== ========
Bank credit agreements................................. $112,500 $177,250
11 7/8% RHI Senior debentures due 1999................. 85,769 85,852
12% Intermediate debentures due 2001................... 114,495 115,359
13 1/8% Subordinated debentures due 2006............... 35,061 35,188
13% Junior Subordinated debentures due 2007............ 24,800 24,834
10.65% Industrial revenue bonds........................ 1,500 1,500
Capital lease obligations, interest from 4.4% to
10.5%................................................. 65 1,897
Other notes payable, collateralized by property, plant
and equipment, interest from 4.3% to 10.0%............ 2,756 6,835
-------- --------
376,946 448,715
Less: Current maturities............................... (8,357) (31,793)
-------- --------
Net long-term debt..................................... $368,589 $416,922
======== ========
</TABLE>
Bank Credit Agreements: The Company maintains credit agreements (the "Credit
Agreements") with a consortium of banks, which provide revolving credit
facilities to RHI, FHC and Banner, and term loans to Banner (collectively the
"Credit Facilities").
On July 26, 1996, the Company amended and restated the terms and provisions
of FHC's credit agreement, in their entirety (the "FHC Credit Agreement"). The
FHC Credit Agreement extends to July 28, 2000, the maturity of FHC's revolving
credit facility (the "FHC Revolver"). The FHC Revolver has a borrowing limit
of $52,000, however, availability is determined monthly by calculation of a
borrowing base comprised of specified percentages of FHC's accounts
receivable, inventories and the appraised value of equipment and real
property. The FHC Revolver generally bears interest at a base rate of 1 1/2%
over the greater of (i) Citibank New York's base rate, or (ii) the Federal
Funds Rate plus 1 1/2% for domestic borrowings and at 2 1/2% over Citibank
London's base rate for foreign borrowings. FHC's Revolver is subject to a non-
use commitment fee of 1/2% on the average unused availability; and outstanding
letters of credit are subject to fees of 2 3/4% per annum. The FHC Credit
Agreement was further amended on February 21, 1997 to permit the Simmonds
Acquisition. Terms modified by the February 21, 1997 amendment included a
provision in which the borrowing rate on the FHC Revolver will increase by
1/4% on each of September 30, 1997 and December 31, 1997, in the event that
the FHC Credit Agreement is not restructured or refinanced by such date.
The FHC Credit Agreement requires FHC to comply with certain financial and
non-financial loan covenants, including maintaining a minimum net worth of
$150,000 and maintaining certain interest and fixed charge coverage ratios at
the end of each Fiscal Quarter. Additionally, the FHC Credit Agreement
restricts annual capital expenditures of FHC to $12,000. Substantially all of
FHC's assets are pledged as collateral under the FHC Credit Agreement. At June
30, 1997, FHC was in compliance with all the covenants under the FHC Credit
Agreement. FHC may transfer available cash as dividends to the Company.
However, the FHC Credit Agreement restricts the Company from paying any
dividends to stockholders.
F-17
<PAGE>
THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
On July 18, 1997, the FHC Credit Agreement was restructured to provide FHC
with a $150,000 senior secured credit facility (the "FHC Facility") consisting
of (i) up to $75,000 in revolving loans, with a letter of credit sub-facility
of $12,000, and (ii) a $75,000 term loan. Advances made under the FHC Facility
would generally bear interest at a rate of, at the Company's option, (i) 2%
over the Citibank N.A. base rate, or (ii) 3 1/4% over the Eurodollar Rate
("LIBOR"). The FHC Facility is subject to a non-use commitment fee of 1/2% of
the aggregate unused availability; and outstanding letters of credit are
subject to fees of 3 1/2% per annum. A borrowing base is calculated monthly to
determine the amounts available under the FHC Facility. The borrowing base is
determined monthly based upon specified percentages of (i) FHC's accounts
receivable, inventories, and the appraised value of equipment and real
property, and (ii) assets pledged by RHI to secure the facility. The FHC
Facility matures on July 28, 2000. The FHC Facility provides that on December
31, 1998, the Company must repay the term loan, in full, together with an
amount necessary to reduce the outstanding revolving loans to $52,000, if the
Company has not complied with certain financial covenant requirements as of
September 30, 1998.
The Credit Agreements provide RHI with a $4,250 revolving credit facility
(the "RHI Credit Agreement") which (i) generally bears a base interest rate of
1/2% over the prime rate, (ii) requires a commitment fee of 1/2%, and (iii)
matures on August 12, 1998. RHI's Credit Agreement requires RHI to comply with
specified covenants and maintain a consolidated net worth of $175,000.
Additionally, RHI's capital expenditures are restricted, except for certain
leasehold improvements, to $2,000 per annum plus the selling price of fixed
assets for such Fiscal Year. The Company was in compliance with all the
covenants under RHI's Credit Agreement at June 30, 1997. RHI may pay dividends
to the Company if the purpose of such dividends is to provide the Company with
funds necessary to meet its debt service requirements under specified notes
and debentures. However, all other dividends are subject to certain
limitations, which was $10,000 in Fiscal 1997.
Banner has a credit agreement (the "Banner Credit Agreement") which provides
Banner and its subsidiaries with funds for working capital and potential
acquisitions. The facilities under the Banner Credit Agreement consist of (i)
a $55,000 six-year term loan (the "Banner Term Loan"), (ii) a $30,000 seven-
year term loan (the "Tranche B Loan"), (iii) a $40,000 six-year term loan (the
"Tranche C Loan"), and (iv) a $71,500 revolving credit facility (the "Banner
Revolver"). The Banner Credit Agreement requires certain semiannual term loan
payments. The Banner Term Loan and the Banner Revolver bear interest at prime
plus 1 1/4% or LIBOR plus 2 1/2% and may increase by 1/4% or decrease by up to
1% based upon certain performance criteria. As a result of Banner's
performance level through March 31, 1997, borrowings under the Banner Term
Loan and the Banner Revolver bore an interest rate of prime plus 3/4% and
LIBOR plus 2% for the quarter ending June 30, 1997. The Tranche B Loan bears
interest at prime plus 1 3/4% or LIBOR plus 3%. The Tranche C Loan initially
bears interest at prime plus 1 1/2% or LIBOR plus 2 3/4% and may decrease by
1/4% based upon certain performance criteria. The Banner Credit Agreement
requires that loans made to Banner may not exceed a defined borrowing base,
which is based upon a percentage of eligible inventories and accounts
receivable. Banner's revolving credit facility is subject to a non-use fee of
55 basis points of the unused availability.
The Banner Credit Agreement requires quarterly compliance with various
financial and non-financial loan covenants, including maintenance of minimum
net worth, and minimum ratios of interest coverage, fixed charge coverage, and
debt to earnings before interest, taxes, depreciation and amortization. Banner
also has certain limitations on the incurrence of additional debt. As of June
30, 1997, Banner was in compliance with all covenants under the Banner Credit
Agreement. Substantially all of Banner's assets are pledged as collateral
under the Banner Credit Agreement. The Banner Credit Agreement substantially
limits the amount of dividends which can be paid to its shareholders,
including the Company. Banner's current policy is to retain earnings to
support the growth of its present operations and to reduce its outstanding
debt.
F-18
<PAGE>
THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
In September 1995, Banner entered into several interest rate hedge
agreements ("Hedge Agreements") to manage its exposure to increases in
interest rates on its variable rate debt. The Hedge Agreements provide
interest rate protection on $60,000 of debt through September 2000, by
providing an interest rate cap of 7% if the 90-day LIBOR rate exceeds 7%. If
the 90-day LIBOR rate drops below 5%, Banner will be required to pay interest
at a floor rate of approximately 6%.
In November 1996, Banner entered into an additional hedge agreement
("Additional Hedge Agreement") with one of its major lenders to provide
interest rate protection on $20,000 of debt for a period of three years.
Effectively, the Additional Hedge Agreement provides for a cap of 7 1/4% if
the 90-day LIBOR exceeds 7 1/4%. If the 90-day LIBOR drops below 5%, Banner
will be required to pay interest at a floor rate of approximately 6%. No cash
outlay was required to obtain the Additional Hedge Agreement as the cost of
the cap was offset by the sale of the floor.
The Company recognizes interest expense under the provisions of the Hedge
Agreements and the Additional Hedge Agreement based on the fixed rate. The
Company is exposed to credit loss in the event of non-performance by the
lenders; however, such non-performance is not anticipated.
The following table summarizes the Credit Facilities under the Credit
Agreements at June 30, 1997:
<TABLE>
<CAPTION>
REVOLVING TERM TOTAL
CREDIT LOAN AVAILABLE
FACILITIES FACILITIES FACILITIES
<S> <C> <C> <C>
RHI Holdings, Inc.
Revolving credit facility................. $ 100 $ -- $ 4,250
Fairchild Holding Corp.
Revolving credit facility................. 30,900 -- 52,000
Banner Aerospace, Inc.
Revolving credit facility................. 32,000 -- 71,500
Term Loan................................. -- 44,500 44,500
Tranche B Loan............................ -- 29,850 29,850
Tranche C Loan............................ -- 40,000 40,000
------- -------- --------
Total....................................... $63,000 $114,350 $242,100
======= ======== ========
</TABLE>
At June 30, 1997, the Company had outstanding letters of credit of $10,811,
which were supported by the Credit Agreement and other bank facilities on an
unsecured basis. At June 30, 1997, the Company had unused bank lines of credit
aggregating $53,939, at interest rates slightly higher than the prime rate.
The Company also has short-term lines of credit relating to foreign
operations, aggregating $9,350, against which the Company owed $5,967 at June
30, 1997.
F-19
<PAGE>
THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Summarized below are certain items and other information relating to the
debt outstanding at June 30, 1997:
<TABLE>
<CAPTION>
12% 13% 11 7/8%
13 1/8% INTERMEDIATE JUNIOR RHI SENIOR
SUBORDINATED SUBORDINATED SUBORDINATED SUBORDINATED
DEBENTURES DEBENTURES DEBENTURES DEBENTURES
<S> <C> <C> <C> <C>
Date Issued................ March 1986 Oct. 1986 March 1987 March 1987
Face Value................. $75,000 $160,000 $102,000 $126,000
Balance June 30, 1997...... $35,188 $115,359 $ 24,834 $ 85,852
Percent Issued at.......... 95.769 93.470 98.230 99.214
Bond Discount.............. $ 3,173 $ 10,448 $ 1,805 $ 990
Amortization 1995.......... $ 103 $ 687 $ 27 $ 94
1996................. $ 118 $ 761 $ 30 $ 82
1997................. $ 127 $ 864 $ 34 $ 82
Yield to Maturity.......... 13.80% 13.06% 13.27% 12.01%
Interest Payments.......... Semi-Annual Semi-Annual Semi-Annual Semi-Annual
Sinking Fund Start Date.... 3/15/97 10/15/97 3/1/98 3/1/97
Sinking Fund Installments.. $ 7,500 $ 32,000 $ 10,200 $ 31,500
Fiscal Year Maturity....... 2006 2002 2007 1999
Callable Option on......... 3/15/89 10/15/89 3/1/92 3/1/92
</TABLE>
Under the most restrictive covenants of the above indentures, the Company's
consolidated net worth, as defined, must not be less than $35,000. RHI's
consolidated net worth must not be less than $125,000. At June 30, 1997,
consolidated net worth was $229,625 at the Company and $438,830 at RHI. At the
present time, none of the Company's consolidated retained earnings are
available for capital distributions due to a cumulative earnings restriction.
The indentures also provide restrictions on the amount of additional
borrowings by the Company.
The annual maturity of long-term debt obligations (exclusive of capital
lease obligations) for each of the five years following June 30, 1997, are as
follows: $31,207 for 1998, $93,544 for 1999, $42,288 for 2000, $77,407 for
2001, and $77,772 for 2002.
11. PENSIONS AND POSTRETIREMENT BENEFITS
PENSIONS
The Company and its subsidiaries have defined benefit pension plans covering
most of its employees. Employees in foreign subsidiaries may participate in
local pension plans, which are in the aggregate insignificant. The Company's
funding policy is to make the minimum annual contribution required by
applicable regulations. The following table provides a summary of the
components of net periodic pension expense (income) for the plans:
<TABLE>
<CAPTION>
1995 1996 1997
<S> <C> <C> <C>
Service cost (current period attribution)....... $ 3,917 $ 3,513 $ 2,521
Interest cost of projected benefit obligation... 14,860 14,499 15,791
Actual return on plan assets.................... (14,526) (39,430) (31,400)
Amortization of prior service cost.............. 81 81 (180)
Net amortization and deferral................... (4,341) 21,495 11,157
-------- -------- --------
(9) 158 (2,111)
Net periodic pension expense (income) for other
plans including foreign plans.................. 78 (118) 142
-------- -------- --------
Net periodic pension expense (income)........... $ 69 $ 40 $ (1,969)
======== ======== ========
</TABLE>
F-20
<PAGE>
THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Assumptions used in accounting for the plans were:
<TABLE>
<CAPTION>
1995 1996 1997
<S> <C> <C> <C>
Discount rate.............................................. 8.5% 8.5% 7.75%
Expected rate of increase in salaries...................... 4.5% 4.5% 4.5%
Expected long-term rate of return on plan assets........... 9.0% 9.0% 9.0%
</TABLE>
In Fiscal 1996, the Company recognized one-time charges of $857 from the
divestiture of subsidiaries, which resulted in a recognition of prior service
costs, and $84 from the early retirement window program at the Company's
corporate office. The reduction in liabilities due from the cessation of
future salary increases is not immediately recognizable in income, but will be
used as an offset against existing unrecognized losses. The Company will have
a future savings benefit from a lower net periodic pension cost, due to the
amortization of a smaller unrecognized loss.
The following table sets forth the funded status and amounts recognized in
the Company's consolidated balance sheets at June 30, 1996, and 1997, for the
plans:
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1996 1997
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested................................................... $164,819 $183,646
Nonvested................................................ 6,169 7,461
-------- --------
Accumulated benefit obligation........................... 170,988 191,107
Effect of projected future compensation increases........ 905 683
-------- --------
Projected benefit obligation............................... 171,893 191,790
Plan assets at fair value.................................. 224,692 237,480
-------- --------
Plan assets in excess of projected benefit obligations..... 52,799 45,690
Unrecognized net loss...................................... 20,471 29,592
Unrecognized prior service cost............................ (354) (571)
Unrecognized net transition assets......................... (608) (315)
-------- --------
Prepaid pension cost prior to SFAS 109 implementation...... 72,308 74,396
Effect of SFAS 109 implementation.......................... (14,648) (14,654)
-------- --------
Prepaid pension cost....................................... $ 57,660 $ 59,742
======== ========
</TABLE>
Plan assets include Class A Common Stock of the Company valued at a fair
market value of $11,094 and $26,287 at June 30, 1996 and 1997, respectively.
Substantially all of the plan assets are invested in listed stocks and bonds.
F-21
<PAGE>
THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
POSTRETIREMENT HEALTH CARE BENEFITS
The Company provides health care benefits for most retired employees.
Postretirement health care expense from continuing operations totaled $701,
$779, and $642 for 1995, 1996 and 1997, respectively. The Company has accrued
approximately $36,995 and 34,965 as of June 30, 1996 and 1997, respectively,
for postretirement health care benefits related to discontinued operations.
This represents the cumulative discounted value of the long-term obligation
and includes interest expense of $3,872, $3,877, and $3,349 for the years
ended June 30, 1995, 1996 and 1997, respectively. The components of expense in
Fiscal 1995, 1996 and 1997 are as follows:
<TABLE>
<CAPTION>
1995 1996 1997
<S> <C> <C> <C>
Service cost of benefits earned...................... $ 321 $ 281 $ 140
Interest cost on liabilities......................... 4,385 4,377 3,940
Net amortization and deferral........................ (133) (2) (89)
------ ------ ------
Net periodic postretirement benefit cost............. $4,573 $4,656 $3,991
====== ====== ======
</TABLE>
A one-time credit of $3,938, resulting from the divestitures of
subsidiaries, was offset by $4,361 from DME's accumulated postretirement
benefit obligation for active employees, which was transferred to CMI as part
of the sale. The Company recognized the net effect of $423 as an expense in
1996.
The following table sets forth the funded status for the Company's
postretirement health care benefit plans at June 30,:
<TABLE>
<CAPTION>
1996 1997
<S> <C> <C>
Accumulated postretirement benefit obligations:
Retirees.................................................. $46,846 $48,145
Fully eligible active participants........................ 347 390
Other active participants................................. 1,887 2,335
------- -------
Accumulated postretirement benefit obligation............... 49,080 50,870
Unrecognized net loss....................................... 2,086 6,173
------- -------
Accrued postretirement benefit liability.................... $46,994 $44,697
======= =======
</TABLE>
The accumulated postretirement benefit obligation was determined using a
discount rate of 7.75%, and a health care cost trend rate of 7.0% for pre-age-
65 and post-age-65 employees, respectively, gradually decreasing to 5.5% in
the year 2003 and thereafter.
Increasing the assumed health care cost trend rates by 1% would increase the
accumulated postretirement benefit obligation as of June 30, 1997, by
approximately $1,871, and increase the net periodic postretirement benefit
cost by approximately $132 for Fiscal 1997.
F-22
<PAGE>
THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
12. INCOME TAXES
The provision (benefit) for income taxes from continuing operations is
summarized as follows:
<TABLE>
<CAPTION>
1995 1996 1997
<S> <C> <C> <C>
Current:
Federal...................................... $ (8,315) $(41,595) $ 6,143
State........................................ 424 1,203 1,197
Foreign...................................... 1,191 669 (45)
-------- -------- --------
(6,700) (39,723) 7,295
Deferred:
Federal...................................... (24,754) 17,060 (15,939)
State........................................ (2,052) (3,657) 3,444
-------- -------- --------
(26,806) 13,403 (12,495)
-------- -------- --------
Net tax benefit................................ $(33,506) $(26,320) $ (5,200)
======== ======== ========
</TABLE>
The income tax provision (benefit) for continuing operations differs from
that computed using the statutory Federal income tax rate of 35%, in Fiscal
1995, 1996 and 1997, for the following reasons:
<TABLE>
<CAPTION>
1995 1996 1997
<S> <C> <C> <C>
Computed statutory amount..................... $(31,944) $(20,993) $(2,456)
State income taxes, net of applicable federal
tax benefit.................................. (1,794) 782 778
Nondeductible acquisition valuation items..... 1,420 1,329 1,064
Tax on foreign earnings, net of tax credits... 2,965 1,711 (1,938)
Difference between book and tax basis of
assets acquired and liabilities assumed...... 1,366 1,040 (1,102)
Nontaxable gain related to the Merger......... -- -- --
Revision of estimate for tax accruals......... (5,000) (3,500) (5,335)
Other......................................... (519) (6,689) 3,789
-------- -------- -------
Net tax benefit............................... $(33,506) $(26,320) $(5,200)
======== ======== =======
</TABLE>
F-23
<PAGE>
THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table is a summary of the significant components of the
Company's deferred tax assets and liabilities, and deferred provision or
benefit for the following periods:
<TABLE>
<CAPTION>
1995 1996 1997
DEFERRED DEFERRED DEFERRED
(PROVISION) (PROVISION) JUNE 30, (PROVISION) JUNE 30,
BENEFIT BENEFIT 1996 BENEFIT 1997
<S> <C> <C> <C> <C> <C>
Deferred tax assets:
Accrued expenses...... $(2,218) $ (1,643) $ 5,936 $ 504 $ 6,440
Asset basis differ-
ences................ (7,292) 1,787 2,064 (1,492) 572
Inventory............. -- -- -- 2,198 2,198
Employee compensation
and benefits......... 106 (26) 5,408 (267) 5,141
Environmental re-
serves............... (1,202) (737) 4,512 (1,253) 3,259
Loss and credit
carryforward......... 17,991 (23,229) 8,796 (8,796) --
Postretirement bene-
fits................. 514 (1,273) 19,334 138 19,472
Other................. 1,530 2,186 5,519 2,079 7,598
------- -------- -------- ------- --------
9,429 (22,935) 51,569 (6,889) 44,680
Deferred tax liabili-
ties:
Asset basis differ-
ences................ 4,129 16,602 (22,565) (3,855) (26,420)
Inventory............. 3,176 4,684 (2,010) 2,010 --
Pensions.............. 1,074 1,516 (18,243) (1,038) (19,281)
Other................. 3,694 (17,525) (29,507) 22,267 (7,240)
------- -------- -------- ------- --------
12,073 5,277 (72,325) 19,384 (52,941)
------- -------- -------- ------- --------
Net deferred tax liabil-
ity.................... $21,502 $(17,658) $(20,756) $12,495 $ (8,261)
======= ======== ======== ======= ========
</TABLE>
The amounts included in the balance sheet are as follows:
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1996 1997
<S> <C> <C>
Prepaid expenses and other current assets:
Current deferred........................................ $ 8,012 $11,307
======= =======
Income taxes payable:
Current deferred........................................ $20,797 $(2,735)
Other current........................................... 3,838 8,616
------- -------
$24,635 $ 5,881
======= =======
Noncurrent income tax liabilities:
Noncurrent deferred..................................... $ 7,971 $22,303
Other noncurrent........................................ 23,766 19,710
------- -------
$31,737 $42,013
======= =======
</TABLE>
The 1995, 1996 and 1997 net tax benefits include the results of reversing
$5,000, $3,500 and $5,335, respectively, of federal income taxes previously
provided for due to a change in the estimate of required tax accruals.
Domestic income taxes, less available credits, are provided on the
unremitted income of foreign subsidiaries and affiliated companies, to the
extent that such earnings are intended to be repatriated. No domestic income
taxes or foreign withholding taxes are provided on the undistributed earnings
of foreign subsidiaries and
F-24
<PAGE>
THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
affiliates, which are considered permanently invested, or which would be
offset by allowable foreign tax credits. At June 30, 1997, the amount of
domestic taxes payable upon distribution of such earnings was not significant.
In the opinion of management, adequate provision has been made for all
income taxes and interest, and any liability that may arise for prior periods
will not have a material effect on the financial condition or results of
operations of the Company.
13. MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES
Included in the Company's $68,309 of minority interest at June 30, 1997, is
$67,649, representing approximately 40.7% of Banner's common stock effectively
outstanding on a consolidated basis.
14. EQUITY SECURITIES
The Company had 13,992,283 shares of Class A common stock and 2,632,516
shares of Class B common stock outstanding at June 30, 1997. Class A common
stock is traded on both the New York and Pacific Stock Exchanges. There is no
public market for the Class B common stock. Shares of Class A common stock are
entitled to one vote per share and cannot be exchanged for shares of Class B
common stock. Shares of Class B common stock are entitled to ten votes per
share and can be exchanged, at any time, for shares of Class A common stock on
a share-for-share basis. In Fiscal 1997, 234,935 shares of Class A common
stock were issued as a result of the exercise of stock options, and
shareholders converted 1,188 shares of Class B common stock into Class A
common stock.
RHI holds an investment of 4,319,423 shares of the Company's Class A common
stock. At June 30, 1997, RHI's market value was approximately $78,649. The
Company accounts for the Class A common stock held by RHI as Treasury Stock.
15. STOCK OPTIONS AND WARRANTS
STOCK OPTIONS
The Company's 1986 Non-Qualified and Incentive Stock Option Plan (the "1986
Plan"), authorizes the issuance of 4,320,000 shares of Class A Common Stock
upon the exercise of stock options issued under the 1986 Plan. The purpose of
the 1986 Plan is to encourage continued employment and ownership of Class A
Common Stock by officers and key employees of the Company and its
subsidiaries, and provide additional incentive to promote the success of the
Company. At the Company's 1996 annual meeting, the Company's stockholders
approved an extension of the expiration date of the 1986 Plan from April 9,
1996 to April 9, 2006. The 1986 Plan authorizes the granting of options at not
less than the market value of the common stock at the time of the grant. The
option price is payable in cash or, with the approval of the the Company's
Compensation and Stock Option Committee of the Board of Directors, in shares
of common stock, valued at fair market value at the time of exercise. The
options normally terminate five years from the date of grant, subject to
extension of up to 10 years or for a stipulated period of time after an
employee's death or termination of employment.
At the Company's 1996 annual meeting, the Company's stockholders approved
the 1996 Non-Employee Directors Stock Option Plan (the "1996 NED Plan"). The
ten-year 1996 NED Plan authorizes the issuance of 250,000 shares of Class A
Common Stock upon the exercise of stock options issued under the 1996 NED
Plan. The 1996 NED Plan authorizes the granting of options at the market value
of the common stock on the date of grant. An initial stock option grant for
30,000 shares of Class A Common Stock will be made to each person
F-25
<PAGE>
THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
who becomes a new non-employee Director, on such date, with the options to
vest 25% each year from the date of grant. On the date of each annual meeting,
each person elected as a non-employee Director at such meeting will be granted
an option for 1,000 shares of Class A Common Stock, which will vest
immediately. The exercise price is payable in cash or, with the approval of
the Stock Option Committee, in shares of Class A or Class B Common Stock,
valued at fair market value at the date of exercise. All options issued under
the 1996 NED Plan will terminate five years from the date of grant or a
stipulated period of time after a Non-Employee Director ceases to be a member
of the Board. The 1996 NED Plan is designed to maintain the Company's ability
to attract and retain highly qualified and competent persons to serve as
outside directors of the Company.
On November 17, 1994, the Company's stockholders approved the grant of stock
options of 190,000 shares to outside Directors of the Company to replace
expired stock options. These stock options expire five years from the date of
the grant.
Summaries of stock option transactions under the 1986 Plan, the 1996 NED
Plan, and prior plans are presented in the following tables:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE
SHARES PRICE
<S> <C> <C>
Outstanding at July 1, 1994.............................. 1,520,706 $5.57
Granted................................................ 356,600 3.78
Expired................................................ (116,875) 5.44
Forfeited.............................................. (60,650) 5.94
--------- -----
Outstanding at June 30, 1995............................. 1,699,781 5.14
Granted................................................ 540,078 4.33
Exercised.............................................. (286,869) 5.26
Expired................................................ (659,850) 6.06
Forfeited.............................................. (19,653) 4.30
--------- -----
Outstanding at June 30, 1996............................. 1,273,487 4.27
Granted................................................ 457,350 14.88
Exercised.............................................. (234,935) 4.79
Expired................................................ (1,050) 4.59
Forfeited.............................................. (9,412) 3.59
--------- -----
Outstanding at June 30, 1997............................. 1,485,440 $7.46
========= =====
Exercisable at June 30, 1995............................. 1,159,306 $5.68
Exercisable at June 30, 1996............................. 399,022 $4.59
Exercisable at June 30, 1997............................. 486,855 $4.95
</TABLE>
A summary of options outstanding at June 30, 1997 is presented as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------- -----------------------
WEIGHTED AVERAGE WEIGHTED
AVERAGE REMAINING AVERAGE
RANGE OF NUMBER EXERCISE CONTRACT NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING PRICE LIFE EXERCISABLE PRICE
<S> <C> <C> <C> <C> <C>
$ 3.50 -- 8.625 1,022,700 $ 4.10 2.6 years 452,509 $ 4.10
$13.625--16.25 462,740 $14.89 4.4 years 34,346 $16.19
- --------------- --------- ------ --------- ------- ------
$ 3.50 --16.25 1,485,440 $ 7.46 3.2 years 486,855 $ 4.95
=============== ========= ====== ========= ======= ======
</TABLE>
F-26
<PAGE>
THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The weighted average grant date fair value of options granted during 1996
and 1997 was $1.95 and $6.90, respectively. The fair value of each option
granted is estimated on the grant date using the Black-Scholes option pricing
model. The following significant assumptions were made in estimating fair
value:
<TABLE>
<CAPTION>
ASSUMPTION 1996 1997
<S> <C> <C>
Risk-free interest rate................................ 5.5%--6.6% 6.0%--6.7%
Expected life in years................................. 4.27 4.65
Expected volatility.................................... 46%--47% 43%--45%
Expected dividends..................................... none none
</TABLE>
The Company applies APB Opinion 25 in accounting for its stock option plans.
Accordingly, no compensation cost has been recognized for the stock option
plans in 1996 or 1997. If stock options granted in 1996 and 1997 were
accounted for based on their fair value as determined under SFAS 123, pro
forma earnings would be as follows:
<TABLE>
<CAPTION>
1996 1997
<S> <C> <C>
Net earnings:
As reported............................................... $189,706 $1,331
Pro forma................................................. 189,460 283
Primary earnings per share:
As reported............................................... $ 11.43 $ .08
Pro forma................................................. 11.41 .02
Fully diluted earnings per share:
As reported............................................... $ 11.09 $ .08
Pro forma................................................. 11.08 .02
</TABLE>
The pro forma effects of applying SFAS 123 are not representative of the
effects on reported net earnings for future years. SFAS 123 does not apply to
awards made prior to 1996, and additional awards in future years are expected.
STOCK WARRANTS
On April 25, 1997, the Company issued warrants to purchase 100,000 shares of
Class A Common Stock, at $12.25 per share, to Dunstan Ltd. as incentive
remuneration for the performance of certain investment banking services. The
warrants may be earned on a pro-rata basis over a six-month period ending
October 31, 1997. The warrants become exercisable on November 1, 1997 and
expire on November 8, 2000. The Company recorded a selling, general &
administrative expense of $191 in 1997, for stock warrants earned in 1997,
based on a grant-date fair value of $5.46.
Effective as of February 21, 1997, the Company approved the continuation of
an existing warrant to Stinbes Limited (an affiliate of Jeffrey Steiner) to
purchase 375,000 shares of the Company's Class A or Class B Common Stock at
$7.67 per share. The warrant was modified to extend the exercise period from
March 13, 1997, to March 13, 2002, and to increase the exercise price per
share by $.002 for each day subsequent to March 13, 1997, but fixed at $7.80
per share after June 30, 1997. In addition, the warrant was modified to
provide that the warrant may not be exercised except within the following
window periods: (i) within 365 days after the merger of STFI with AT&T
Corporation, MCI Communications, Worldcom Inc., Tel-Save Holdings, Inc., or
Teleport Communications Group, Inc.; (ii) within 365 days after a change of
control of the Company, as defined in the FHC Credit Agreement; or (iii)
within 365 days after a change of control of Banner, as defined in the Banner
Credit Agreement. In no event may the warrant be exercised after March 13,
2002.
F-27
<PAGE>
THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
On November 9, 1995, the Company issued warrants to purchase 500,000 shares
of Class A Common Stock, at $9.00 per share, to Peregrine Direct Investments
Limited ("Peregrine"), in exchange for a standby commitment it received on
November 8, 1995, from Peregrine. The Company elected not to exercise its
rights under the Peregrine commitment. The warrants are immediately
exercisable and will expire on November 8, 2000.
On February 21, 1996, the Company issued warrants to purchase 25,000 shares
of Class A Common Stock, at $9.00 per share, to a non-employee for services
provided in connection with the Company's various dealings with Peregrine. The
warrants issued are immediately exercisable and will expire on November 8,
2000.
The Company recorded nonrecurring expenses of $1,148 for the grant date fair
value of the stock warrants issued in 1996. The warrants issued in 1996 were
outstanding at June 30, 1997.
16. FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, ("SFAS 107")
"Disclosures about Fair Value of Financial Instruments", requires disclosures
of fair value information about financial instruments, whether or not
recognized in the balance sheet, for which it is practicable to estimate that
value. In cases where quoted market prices are not available, fair values are
based on estimates using present value or other valuation techniques. Those
techniques are significantly affected by the assumptions used, including
discount rate and estimates of future cash flows. In that regard, the derived
fair value estimates cannot be substantiated by comparison to independent
markets and, in many cases, could not be realized in immediate settlement of
the instrument. SFAS 107 excludes certain financial instruments and all non-
financial instruments from its disclosure requirements. Accordingly, the
aggregate fair value amounts presented do not represent the underlying value
of the Company.
The following methods and assumptions were used by the Company in estimating
its fair value disclosures for financial instruments:
The carrying amount reported in the balance sheet approximates the fair
value for cash and cash equivalents, short-term borrowings, current maturities
of long-term debt, and all other variable rate debt (including borrowings
under the Credit Agreements).
Fair values for equity securities, and long-term public debt issued by the
Company are based on quoted market prices, where available. For equity
securities not actively traded, fair values are estimated by using quoted
market prices of comparable instruments or, if there are no relevant
comparable instruments, on pricing models or formulas using current
assumptions. The fair value of limited partnerships, other investments, and
notes receivable are estimated by discounting expected future cash flows using
a current market rate applicable to the yield, considering the credit quality
and maturity of the investment.
The fair value for the Company's other fixed rate long-term debt is
estimated using discounted cash flow analyses, based on the Company's current
incremental borrowing rates for similar types of borrowing arrangements.
Fair values for the Company's off-balance-sheet instruments (letters of
credit, commitments to extend credit, and lease guaranties) are based on fees
currently charged to enter into similar agreements, taking into account the
remaining terms of the agreements and the counter parties' credit standing.
The fair value of the Company's off-balance-sheet instruments at June 30,
1997, was not material.
F-28
<PAGE>
THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The carrying amounts and fair values of the Company's financial instruments
at June 30, 1996 and 1997, are as follows:
<TABLE>
<CAPTION>
JUNE 30, 1996 JUNE 30, 1997
----------------- -----------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
<S> <C> <C> <C> <C>
Cash and cash equivalents.................. $ 39,649 $ 39,649 $ 19,420 $ 19,420
Investment securities:
Short-term equity securities............. 10,362 10,362 16,094 16,122
Short-term other investments............. 136 167 9,553 9,592
Long-term other investments.............. 585 1,451 4,120 4,617
Notes receivable:
Current.................................. 170,384 170,384 -- --
Long-term................................ 3,702 3,702 1,300 1,300
Short-term debt............................ 76,535 76,535 15,629 15,629
Long-term debt:
Bank credit agreement.................... 112,500 112,500 177,250 177,250
Senior notes and subordinated deben-
tures................................... 260,125 264,759 261,233 270,995
Industrial revenue bonds................. 1,500 1,500 1,500 1,500
Capitalized leases....................... 65 65 1,897 1,897
Other.................................... 2,756 2,756 6,835 6,835
</TABLE>
17. RESTRUCTURING CHARGES
In Fiscal 1996, the Company recorded restructuring charges in the Aerospace
Fasteners segment in the categories shown below. All costs classified as
restructuring were the direct result of formal plans to close plants, to
terminate employees, or to exit product lines. Substantially all of these
plans have been executed. Other than a reduction in the Company's existing
cost structure and manufacturing capacity, none of the restructuring charges
resulted in future increases in earnings or represented an accrual of future
costs. The costs included in restructuring were predominately nonrecurring in
nature and consisted of the following significant components:
<TABLE>
<S> <C>
Write down of inventory to net realizable value related to
discontinued product lines (a).................................... $ 156
Write down of fixed assets related to discontinued product lines... 270
Severance benefits for terminated employees (substantially all paid
within twelve months)............................................. 1,368
Plant closings facility costs (b).................................. 389
Contract termination claims........................................ 136
------
$2,319
======
</TABLE>
- ---------------------
(a) Write down was required because product line was discontinued.
(b) Includes lease settlements, write-off of leasehold improvements,
maintenance, restoration and clean up costs.
18. RELATED PARTY TRANSACTIONS
Corporate office administrative expense recorded by FHC and its predecessors
was billed to the Company on a monthly basis during 1995, 1996 and 1997. These
costs represent the cost of services incurred on behalf of affiliated
companies. Each of these affiliated companies has reimbursed FHC for such
services.
F-29
<PAGE>
THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The Company and its wholly-owned subsidiaries are all parties to a tax
sharing agreement whereby the Company files a consolidated federal income tax
return. Each subsidiary makes payments to the Company based on the amount of
federal income taxes, if any, the subsidiary would have paid if it had filed a
separate tax return.
Prior to the consolidation of Banner on February 25, 1996, the Aerospace
Fasteners segment had sales to Banner of $5,494 and $3,663 in Fiscal 1995, and
1996, respectively.
19. LEASES
The Company holds certain of its facilities and equipment under long-term
leases. The minimum rental commitments under non-cancelable operating leases
with lease-terms in excess of one year, for each of the five years following
June 30, 1997, are as follows: $5,182 for 1998, $4,127 for 1999, $2,937 for
2000, $2,271 for 2001, and $1,732 for 2002. Rental expense on operating leases
from continuing operations for Fiscal 1995, 1996 and 1997 was $6,695, $6,197,
and $4,928, respectively. Minimum commitments under capital leases for each of
the five years following June 30, 1997, was $651 for 1998, $693 for 1999, $262
for 2000, $210 for 2001, and $137 for 2002, respectively. At June 30, 1997,
the present value of capital lease obligations was $1,897. At June 30, 1997,
capital assets leased, included in property, plant, and equipment consisted
of:
<TABLE>
<S> <C>
Buildings and improvements....................................... $ 1,396
Machinery and equipment.......................................... 8,017
Furniture and fixtures........................................... 114
Less: Accumulated depreciation................................... (7,700)
-------
$ 1,827
=======
</TABLE>
20. CONTINGENCIES
CL MOTOR FREIGHT ("CL") LITIGATION
The Workers Compensation Bureau of the State of Ohio is seeking
reimbursement from the Company for up to $5,400 for CL workers compensation
claims which were insured under a self-insured program of CL. The Company has
contested a significant portion of this claim and believes that the ultimate
disposition of this claim will not be material.
GOVERNMENT CLAIMS
The Corporate Administrative Contracting Officer (the "ACO"), based upon the
advice of the United States Defense Contract Audit Agency, has made a
determination that FII did not comply with Federal Acquisition Regulations and
Cost Accounting Standards in accounting for (i) the 1985 reversion to FII of
certain assets of terminated defined benefit pension plans, and (ii) pension
costs upon the closing of segments of FII's business. The ACO has directed FII
to prepare cost impact proposals relating to such plan terminations and
segment closings and, following receipt of such cost impact proposals, may
seek adjustments to contract prices. The ACO alleges that substantial amounts
will be due if such adjustments are made, however an estimate of the possible
loss or range of loss from the ACO's assertion cannot be made. The Company
believes it has properly accounted for the asset reversions in accordance with
applicable accounting standards. The Company has held discussions with the
government to attempt to resolve these pension accounting issues.
ENVIRONMENTAL MATTERS
The Company's operations are subject to stringent Federal, state and local
environmental laws and regulations concerning, among other things, the
discharge of materials into the environment and the generation,
F-30
<PAGE>
THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
handling, storage, transportation and disposal of waste and hazardous
materials. To date, such laws and regulations have not had a material effect
on the financial condition, results of operations, or net cash flows of the
Company, although the Company has expended, and can be expected to expend in
the future, significant amounts for investigation of environmental conditions
and installation of environmental control facilities, remediation of
environmental conditions and other similar matters, particularly in the
Aerospace Fasteners segment.
In connection with its plans to dispose of certain real estate, the Company
must investigate environmental conditions and may be required to take certain
corrective action prior or pursuant to any such disposition. In addition,
management has identified several areas of potential contamination at or from
other facilities owned, or previously owned, by the Company, that may require
the Company either to take corrective action or to contribute to a clean-up.
The Company is also a defendant in certain lawsuits and proceedings seeking to
require the Company to pay for investigation or remediation of environmental
matters and has been alleged to be a potentially responsible party at various
"Superfund" sites. Management of the Company believes that it has recorded
adequate reserves in its financial statements to complete such investigation
and take any necessary corrective actions or make any necessary contributions.
No amounts have been recorded as due from third parties, including insurers,
or set off against, any liability of the Company, unless such parties are
contractually obligated to contribute and are not disputing such liability.
As of June 30, 1997, the consolidated total recorded liabilities of the
Company for environmental matters approximated $8,420, which represented the
estimated probable exposures for these matters. It is reasonably possible that
the Company's total exposure for these matters could be approximately $13,200
on an undiscounted basis.
OTHER MATTERS
The Company is involved in various other claims and lawsuits incidental to
its business, some of which involve substantial amounts. The Company, either
on its own or through its insurance carriers, is contesting these matters. In
the opinion of management, the ultimate resolution of the legal proceedings,
including those aforementioned, will not have a material adverse effect on the
financial condition, or future results of operations or net cash flows of the
Company.
F-31
<PAGE>
THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
21. BUSINESS SEGMENT INFORMATION
The Company reports in two principal business segments. The Aerospace
Fasteners segment includes the manufacture of high performance specialty
fasteners and fastening systems. The Aerospace Distribution segment
distributes a wide range of aircraft parts and related support services to the
aerospace industry. The results of Fairchild Technologies, which is primarily
engaged in the designing and manufacturing of capital equipment and systems
for recordable compact disc and advance semiconductor manufacturing, are
reported under Corporate and Other, along with results two smaller operations.
The Company's financial data by business segment is as follows:
<TABLE>
<CAPTION>
1995 1996 1997
<S> <C> <C> <C>
Sales:
Aerospace Fasteners......................... $215,364 $ 218,059 $ 269,026
Aerospace Distribution (a).................. -- 129,973 411,765
Corporate and Other......................... 41,476 67,330 66,382
Eliminations (b)............................ -- (5,842) (15,213)
-------- ---------- ----------
Total Sales................................... $256,840 $ 409,520 $ 731,960
======== ========== ==========
Operating Income (Loss):
Aerospace Fasteners (c)..................... $(11,497) $ 135 $ 17,390
Aerospace Distribution (a).................. -- 5,625 30,891
Corporate and Other......................... (20,420) (14,875) (17,764)
-------- ---------- ----------
Operating Income (Loss)....................... $(31,917) $ (9,115) $ 30,517
======== ========== ==========
Capital Expenditures:
Aerospace Fasteners......................... $ 4,974 $ 3,841 $ 8,964
Aerospace Distribution...................... -- 1,556 4,787
Corporate and Other......................... 937 1,225 8,365
-------- ---------- ----------
Total Capital Expenditures.................... $ 5,911 $ 6,622 $ 22,116
======== ========== ==========
Depreciation and Amortization:
Aerospace Fasteners......................... $ 15,619 $ 14,916 $ 16,112
Aerospace Distribution...................... -- 1,341 5,138
Corporate and Other......................... 5,260 5,396 4,685
-------- ---------- ----------
Total Depreciation and Amortization........... $ 20,879 $ 21,653 $ 25,935
======== ========== ==========
Identifiable Assets at June 30:
Aerospace Fasteners......................... $290,465 $ 252,200 $ 346,533
Aerospace Distribution...................... -- 329,477 428,436
Corporate and Other......................... 559,829 428,261 292,364
-------- ---------- ----------
Total Identifiable Assets..................... $850,294 $1,009,938 $1,067,333
======== ========== ==========
</TABLE>
- ---------------------
(a) Effective February 25, 1996, the Company became the majority shareholder
of Banner Aerospace, Inc. and, accordingly, began consolidating their
results.
(b) Represents intersegment sales from the Aerospace Fasteners segment to the
Aerospace Distribution segment.
(c) Includes restructuring charges of $2.3 million in Fiscal 1996.
F-32
<PAGE>
THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
22. FOREIGN OPERATIONS AND EXPORT SALES
The Company's operations are located primarily in the United States and
Europe. Inter-area sales are not significant to the total sales of any
geographic area. The Company's financial data by geographic area is as
follows:
<TABLE>
<CAPTION>
1995 1996 1997
<S> <C> <C> <C>
Sales by Geographic Area:
United States.............................. $175,101 $ 301,957 $ 595,334
Europe..................................... 80,945 107,186 136,626
Other...................................... 794 377 --
-------- ---------- ----------
Total Sales.................................. $256,840 $ 409,520 $ 731,960
======== ========== ==========
Operating Income by Geographic Area:
United States.............................. $(31,522) $ (14,903) $ 24,299
Europe..................................... (432) 5,936 6,218
Other...................................... 37 (148) --
-------- ---------- ----------
Total Operating Income....................... $(31,917) $ (9,115) $ 30,517
======== ========== ==========
Identifiable Assets by Geographic Area at
June 30:
United States.............................. $763,734 $ 932,311 $ 857,943
Europe..................................... 85,668 77,627 209,390
Other...................................... 892 -- --
-------- ---------- ----------
Total Identifiable Assets.................... $850,294 $1,009,938 $1,067,333
======== ========== ==========
Export sales are defined as sales to customers in foreign countries by the
Company's domestic operations. Export sales amounted to the following:
<CAPTION>
1995 1996 1997
<S> <C> <C> <C>
Export Sales
Europe..................................... $ 13,329 $ 27,330 $ 48,490
Asia (excluding Japan)..................... 1,526 8,920 29,145
Japan...................................... 4,140 11,958 19,819
Canada..................................... 2,810 8,878 17,955
Other...................................... 911 8,565 15,907
-------- ---------- ----------
Total Export Sales........................... $ 22,716 $ 65,651 $ 131,316
======== ========== ==========
</TABLE>
F-33
<PAGE>
THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
23. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table of quarterly financial data has been prepared from the
financial records of the Company without audit, and reflects all adjustments
which are, in the opinion of management, necessary for a fair presentation of
the results of operations for the interim periods presented:
<TABLE>
<CAPTION>
FISCAL 1996 QUARTERS ENDED OCT. 1 DEC. 31 MARCH 31 JUNE 30
<S> <C> <C> <C> <C>
Net sales................................. $74,929 $71,419 $109,189 $153,983
Gross profit.............................. 15,502 15,134 23,856 40,418
Earnings (loss) from continuing opera-
tions.................................... (13,219) (12,818) 151,222 577
per share............................... (.82) (.80) 9.04 .03
Earnings from discontinued operations,
net...................................... 3,870 3,420 1,769 127
per share............................... .24 .21 .11 .01
Gain (loss) from disposal of discontinued
operations, net.......................... (20) (7) 61,286 (7,673)
per share............................... -- -- 3.66 (.45)
Extraordinary items, net.................. -- -- (10,436) --
per share............................... -- -- (.62) --
Net earnings (loss)....................... (9,369) (9,405) 203,841 (6,969)
per share............................... (.58) (.58) 12.19 (.41)
Market price range of Class A Stock
High.................................... 6 8 3/4 9 7/8 15 7/8
Low..................................... 2 7/8 4 3/4 8 9 1/4
Close................................... 5 1/8 8 1/2 9 3/8 14 5/8
</TABLE>
<TABLE>
<CAPTION>
FISCAL 1997 QUARTERS ENDED SEPT. 29 DEC. 29 MAR. 30 JUNE 30
<S> <C> <C> <C> <C>
Net sales................................. $146,090 $159,912 $190,782 $235,176
Gross profit.............................. 39,810 38,775 52,788 73,750
Earnings (loss) from continuing opera-
tions.................................... (5,052) (3,638) 435 7,227
per share............................... (.31) (.22) .03 .42
Earnings from discontinued operations,
net...................................... 434 661 395 1,659
per share............................... .03 .04 .02 .10
Net earnings (loss)....................... (5,052) (3,638) 435 7,227
per share............................... (.31) (.22) .03 .42
Market price of Class A Stock:
High.................................... 17 17 3/4 15 3/8 18
Low..................................... 12 1/4 14 3/8 12 7/8 11 5/8
Close................................... 16 14 5/8 13 3/8 18
</TABLE>
Included in earnings (loss) from continuing operations are (i) a $2,528
nonrecurring gain from the sale of SBC in the fourth quarter of Fiscal 1997,
(ii) charges to reflect the cost of restructuring the Company's Aerospace
Fasteners segment, of $285, $959 and $1,075 in the second, third and fourth
quarters of Fiscal 1996, respectively, and (iii) nonrecurring income of
$161,406 resulting primarily from the gain on the merger of FCSC into STI in
the third quarter of Fiscal 1996. Earnings from discontinued operations, net,
includes the results of DME and Data in each Fiscal 1996 quarter as well as
the disposition of the Company's investment in STFI in each Fiscal 1996 and
1997 quarter. Extraordinary items relate to the early extinguishment of debt
by the Company. (See Note 7).
F-34
<PAGE>
THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
24. SUBSEQUENT EVENTS
On November 20, 1997, Shared Technologies Fairchild Inc. ("STFI"), a
corporation of which the Company owns approximately 42% of the outstanding
common stock, entered into a merger agreement with Intermedia Communications
Inc. ("Intermedia") pursuant to which holders of STFI common stock will
receive $15.00 per share in cash, (the "STFI Sale"). In connection with the
STFI Sale, the Company has received approximately $85 million in cash (before
tax) in exchange for certain preferred stock of STFI and expects to receive an
additional $93 million in cash (before tax) in the first three months of 1998
in exchange for the 6,225,000 shares of common stock of STFI owned by the
Company. The Intermedia transaction replaces an earlier merger agreement with
the Tel-Save Holdings, Inc. under which the Company would have received
consideration primarily in common stock of Tel-Save Holdings, Inc.
The results of STFI have been accounted for as discontinued operations. The
net sales of STFI totaled $108,710, $91,290, and $0 in 1995, 1996, and 1997,
respectively. Net earnings from discontinued operations was $9,849, $7,901,
and $3,149 in 1995, 1996, and 1997, respectively. The gain on disposal of
discontinued operations in 1996 includes a $163,130 nontaxable gain resulting
from the Merger (See Note 3).
On December 8, 1997, Banner and eight of its subsidiaries entered into an
Asset Purchase Agreement pursuant to which such subsidiaries have agreed to
transfer substantially all of their assets to AlliedSignal Inc. ("Allied") for
approximately $345 million of common stock of Allied (the "Disposition"). The
assets transferred to Allied consists primarily of Banner's hardware group,
which includes the distribution of bearings, nuts, bolts, screws, rivets and
other type of fasteners. Approximately $170 million of the common stock
received from Allied will be used to repay outstanding term loans of Banner's
subsidiaries and related fees.
F-35
<PAGE>
THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 1997 AND SEPTEMBER 28, 1997 (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 28,
ASSETS 1997(*) 1997
<S> <C> <C>
Current Assets:
Cash and cash equivalents, $4,839 and $4,725
restricted........................................... $ 19,420 $ 9,049
Short-term investments................................ 25,647 18,403
Accounts receivable-trade, less allowances of $8,103
and $9,157........................................... 168,163 172,239
Inventories:
Finished goods...................................... 297,223 305,048
Work-in-progress.................................... 26,887 29,812
Raw materials....................................... 18,626 24,807
---------- ----------
342,736 359,667
Prepaid expenses and other current assets............. 33,631 39,595
---------- ----------
Total Current Assets.................................. 589,597 598,953
Property, plant and equipment, net of accumulated
depreciation of $134,032
and $127,538......................................... 128,712 132,195
Net assets held for sale.............................. 26,147 26,262
Cost in excess of net assets acquired, (Goodwill) less
accumulated amortization
of $36,672 and $37,895............................... 154,808 154,233
Investments and advances, affiliated companies........ 55,678 55,337
Prepaid pension assets................................ 59,742 59,512
Deferred loan costs................................... 9,252 11,489
Other assets.......................................... 43,397 45,135
---------- ----------
Total Assets.......................................... $1,067,333 $1,083,116
========== ==========
</TABLE>
- ------------------
* Condensed from audited financial statements
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
F-36
<PAGE>
THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 1997 AND SEPTEMBER 28, 1997 (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 28,
LIABILITIES AND STOCKHOLDERS' EQUITY 1997(*) 1997
<S> <C> <C>
Current Liabilities:
Bank notes payable and current maturities of long-term
debt................................................. $ 47,422 $ 79,781
Accounts payable...................................... 84,953 84,797
Other accrued liabilities............................. 105,199 91,289
Income taxes.......................................... 5,881 --
---------- ----------
Total Current Liabilities............................. 243,455 255,867
---------- ----------
Long-Term Liabilities:
Long-term debt, less current maturities............... 416,922 412,261
Other long-term liabilities........................... 23,622 22,381
Retiree health care liabilities....................... 43,387 43,284
Noncurrent income taxes............................... 42,013 48,939
Minority interest in subsidiaries..................... 68,309 69,178
---------- ----------
Total Liabilities..................................... 837,708 851,910
---------- ----------
Stockholders' Equity:
Class A common stock, $0.10 par value; authorized
40,000
shares, 20,272 shares issued (20,234 in June) and
14,031
shares outstanding (13,992 in June).................. 2,023 2,027
Class B common stock, $0.10 par value; authorized
20,000
shares, 2,626 shares issued and outstanding (2,633 in
June)................................................ 263 263
Paid-in capital....................................... 71,015 71,105
Retained earnings..................................... 209,949 210,441
Cumulative translation adjustment..................... (1,860) (865)
Net unrealized holding loss on available-for-sale
securities........................................... (46) (46)
Treasury Stock, at cost, 6,242 shares of Class A
common stock......................................... (51,719) (51,719)
---------- ----------
Total Stockholders' Equity............................ 229,625 231,206
---------- ----------
Total Liabilities and Stockholders' Equity............ $1,067,333 $1,083,116
========== ==========
</TABLE>
- ------------------
*Condensed from audited financial statements
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
F-37
<PAGE>
THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED STATEMENTS OF EARNINGS (UNAUDITED)
FOR THE THREE (3) MONTHS ENDED SEPTEMBER 29, 1996 AND SEPTEMBER 28, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------
SEPTEMBER 29, SEPTEMBER 28,
1996 1997
<S> <C> <C> <C>
Revenue:
Net sales.................................... $146,090 $213,761
Other income, net............................ 223 5,357
-------- --------
146,313 219,118
Costs and expenses:
Cost of goods sold........................... 106,280 161,699
Selling, general & administrative............ 35,846 45,479
Research and development..................... 23 605
Amortization of goodwill..................... 1,116 1,223
-------- --------
143,265 209,006
Operating income.............................. 3,048 10,112
Interest expense.............................. 14,672 12,988
Interest income............................... (2,192) (398)
-------- --------
Net interest expense.......................... 12,480 12,590
Investment income (loss), net................. (375) 1,897
Equity in earnings of affiliates.............. 1,877 1,692
Minority interest............................. (785) (788)
-------- --------
Earnings (loss) from continuing operations be-
fore taxes................................... (8,715) 323
Income tax benefit............................ 3,663 110
-------- --------
Earnings (loss) from continuing operations be-
fore discontinued operations................. (5,052) 433
Earnings from discontinued operations......... 434 59
-------- --------
Net earnings (loss)........................... $ (4,618) $ 492
======== ========
Primary earnings (loss) per share............. $ (.28) $ .03
Fully diluted earnings (loss) per share....... (.28) .03
Weighted average number of shares used in com-
puting earnings per share:
Primary..................................... 16,425 17,457
Fully diluted............................... 16,425 17,588
</TABLE>
The accompanying notes to summarized financial information are an integral part
of these statements.
F-38
<PAGE>
THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE THREE (3) MONTHS ENDED SEPTEMBER 29, 1996 AND SEPTEMBER 28, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------
SEPTEMBER 29, SEPTEMBER 28,
1996 1997
<S> <C> <C>
Cash flows provided by (used for) Operations:
Operations:
Net earnings (loss).............................. $ (4,618) $ 492
Depreciation and amortization.................... 5,268 6,857
Accretion of discount on long-term liabilities... 1,100 34
Distributed earnings of affiliates, net.......... 1,499 715
Minority interest................................ 785 788
Changes in assets and liabilities................ (49,923) (45,729)
-------- --------
Net cash used for operations..................... (45,889) (36,843)
Investments:
Net proceeds from the sale of discontinued opera-
tions........................................... 173,719 --
Purchase of property, plant and equipment........ (2,131) (10,206)
Net proceeds received from investments........... 15 7,815
Changes in net assets held for sale.............. (1,230) (139)
Other, net....................................... 5 45
-------- --------
Net cash provided by (used for) investments...... 170,378 (2,485)
Financing:
Proceeds from issuance of debt................... 33,627 95,109
Debt repayments and repurchase of debentures,
net............................................. (77,783) (67,698)
Issuance of Class A common stock................. 522 149
-------- --------
Net cash provided by (used for) financing........ (43,634) 27,560
Effects of exchange rate changes on cash........... 594 1,397
Net increase (decrease) in cash and cash equiva-
lents............................................. 81,449 (10,371)
Cash and cash equivalents, beginning of period..... 39,649 19,420
-------- --------
Cash and cash equivalents, end of period........... $121,098 $ 9,049
======== ========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
F-39
<PAGE>
THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
1. FINANCIAL STATMENTS
The consolidated balance sheet as of September 28, 1997 and the consolidated
statements of earnings and cash flows for the three months ended September 29,
1996 and September 28, 1997 have been prepared by the Company, without audit.
In the opinion of management, all adjustments (consisting of normal recurring
adjustments) necessary to present fairly the financial position, results of
operations and cash flows at September 28, 1997, and for all periods
presented, have been made. The balance sheet at June 30, 1997 was condensed
from the audited financial statements as of that date.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. These consolidated financial
statements should be read in conjunction with the financial statements and
notes thereto included in the Company's June 30, 1997 Form 10-K and Banner
Aerospace, Inc.'s March 31, 1997 Form 10-K. The results of operations for the
period ended September 28, 1997 are not necessarily indicative of the
operating results for the full year. Certain amounts in prior years' quarterly
financial statements have been reclassified to conform to the current
presentation.
2. BUSINESS COMBINATIONS
The Company's acquisitions described in this section have been accounted for
using the purchase method. The respective purchase price assigned to the net
assets acquired were based on the fair value of such assets and liabilities at
the respective acquisition dates.
In February 1997, the Company completed a transaction (the "Simmonds
Acquisition") pursuant to which the Company acquired common shares and
convertible debt representing an 84.2% interest, on a fully diluted basis, of
Simmonds S.A. ("Simmonds"). The Company initiated a tender offer to purchase
the remaining shares and convertible debt held by the public. By June 30,
1997, the Company had purchased, or placed sufficient cash in escrow to
purchase, all the remaining shares and convertible debt of Simmonds. The total
purchase price of Simmonds, including the assumption of debt, was
approximately $62,000, which the Company funded with available cash. The
Company recorded approximately $13,750 in goodwill as a result of this
acquisition, which will be amortized using the straight-line method over 40
years. Simmonds is one of Europe's leading manufacturers and distributors of
aerospace and automotive fasteners.
In January 1997, Banner Aerospace, Inc. ("Banner"), a majority-owned
subsidiary of the Company, acquired PB Herndon Company ("PB Herndon") in a
business combination accounted for as a purchase. The total cost of the
acquisition was $16,000, including the assumption of $1,300 in debt, which
exceeded the fair value of the net assets of PB Herndon by approximately
$3,500, which is being amortized using the straight-line method over 40 years.
The Company purchased PB Herndon with available cash. PB Herndon is a
distributor of specialty fastener lines and similar aerospace related
components.
On June 30, 1997, the Company sold all the patents of Fairchild Scandinavian
Bellyloading Company ("SBC") to Teleflex Incorporated ("Teleflex") for $5,000,
and immediately thereafter sold all the stock of SBC to a wholly owned
subsidiary of Teleflex for $2,000. The Company may also receive additional
proceeds of up to $7,000 based on future net sales of SBC's patented products
and services.
3. RESTRICTED CASH
The Company had approximately $4,839 and $4,725 of restricted cash on June
30, 1997 and September 28, 1997, respectively, all of which is maintained as
collateral for certain debt facilities.
F-40
<PAGE>
THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
4. SUMMARIZED STATEMENT OF EARNINGS INFORMATION
The following table presents summarized historical financial information, on
a combined 100% basis, of the Company's principal investments, which are
accounted for using the equity method.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------
SEPTEMBER 29, SEPTEMBER 28,
1996 1997
<S> <C> <C>
Net sales........................................ $80,037 $82,025
Gross profit..................................... 34,997 35,686
Earnings from continuing operations.............. 4,052 2,501
Net earnings..................................... 4,052 2,501
</TABLE>
The Company owns approximately 31.9% of Nacanco Paketleme common stock. The
Company recorded equity earnings of $1,877 and $1,692 from this investment for
the three months ended September 29, 1996 and September 28, 1997,
respectively.
On September 28, 1997, the Company's investments in Shared Technologies
Fairchild Inc. ("STFI") consisted of (i) $22,703 carrying value for $25,000
face value of 6% cumulative Convertible Preferred Stock, (ii) $11,666 carrying
value for $20,000 face value of Special Preferred Stock, and (iii) $(2,332)
carrying value for 6,225,000 shares of common stock. At the close of trading
on September 26, 1997, STFI's common stock was quoted at $11.56 per share.
Based on this price, the Company's investment in STFI common stock had an
approximate market value of $71,977. The Company recorded equity earnings of
$434 and $59 from these investments during the three months ended September
29, 1996 and September 28, 1997, respectively.
On November 20, 1997, Shared Technologies Fairchild Inc. ("STFI"), a
corporation of which the Company owns approximately 42% of the outstanding
common stock, entered into a merger agreement with Intermedia Communications
Inc. ("Intermedia") pursuant to which holders of STFI common stock will
receive $15.00 per share in cash, (the "STFI Sale"). In connection with the
STFI Sale, the Company has received approximately $85 million in cash (before
tax) in exchange for certain preferred stock of STFI and expects to receive an
additional $93 million in cash (before tax) in the first three months of 1998
in exchange for the 6,225,000 shares of common stock of STFI owned by the
Company. The Intermedia transaction replaces an earlier merger agreement with
the Tel-Save Holdings, Inc. under which the Company would have received
consideration primarily in common stock of Tel-Save Holdings, Inc.
On December 8, 1997, Banner and eight of its subsidiaries entered into an
Asset Purchase Agreement pursuant to which such subsidiaries have agreed to
transfer substantially all of their assets to AlliedSignal Inc. ("Allied") for
approximately $345 million of common stock of Allied (the "Disposition"). The
assets transferred to Allied consists primarily of Banner's hardware group,
which includes the distribution of bearings, nuts, bolts, screws, rivets and
other type of fasteners. Approximately $170 million of the common stock
received from Allied will be used to repay outstanding term loans of Banner's
subsidiaries and pay related fees.
5. CREDIT AGREEMENTS
On July 18, 1997, the FHC Credit Agreement was restructured to provide FHC
with a $150,000 senior secured credit facility (the "FHC Facility") consisting
of (i) a $75,000 revolver loan, with a letter of credit sub-facility of
$12,000, and (ii) a $75,000 term loan. Advances made under the FHC Facility
would generally bear interest at a rate of, at the Company's option, (i) 2%
over the Citibank N.A. base rate, or (ii) 3 1/4% over the Eurodollar Rate
("LIBOR"). The FHC Facility is subject to a non-use commitment fee of 1/2% of
the aggregate
F-41
<PAGE>
THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
unused availability; and outstanding letters of credit are subject to fees of
3 1/2% per annum. A borrowing base is calculated monthly to determine the
amounts available under the FHC Facility. The borrowing base is determined
monthly based upon specified percentages of (i) FHC's accounts receivable,
inventories, and the appraised value of equipment and real property, and (ii)
assets pledged by RHI to secure the facility. The FHC Facility matures on July
28, 2000. The FHC Facility provides that on December 31, 1998, the Company
must repay the term loan, in full, together with an amount necessary to reduce
the outstanding revolving loans to $52,000, if the Company has not complied
with certain financial covenant requirements as of September 30, 1998. The
Company was in compliance with all of its credit agreements on September 28,
1997.
In August 1997, the Company entered into a delayed-start swap interest rate
lock hedge agreement (the "FHC Hedge Agreement") to reduce its exposure to
increases in interest rates on variable rate debt. Beginning on December 15,
1997, the FHC Hedge Agreement will provide interest rate protection on
$100,000 of variable rate debt for ten years, with interest being calculated
based on a fixed LIBOR rate of 6.696%.
6. MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES
On September 28, 1997, the Company had $69,178 of minority interest, of
which $68,856 represents approximately 40.7% of Banner's common stock
outstanding on a consolidated basis.
7. EQUITY SECURITIES
The Company had 14,030,717 shares of Class A common stock and 2,625,616
shares of Class B common stock outstanding at September 28, 1997. Class A
common stock is traded on both the New York and Pacific Stock Exchanges. There
is no public market for the Class B common stock. Shares of Class A common
stock are entitled to one vote per share and cannot be exchanged for shares of
Class B common stock. Shares of Class B common stock are entitled to ten votes
per share and can be exchanged, at any time, for shares of Class A common
stock on a share-for-share basis. For the three months ended September 28,
1997, 31,534 shares of Class A Common Stock were issued as a result of the
exercise of stock options, and shareholders converted 6,900 shares of Class B
common stock into Class A common stock.
8. EARNINGS PER SHARE
Primary and fully diluted earnings per share are computed by dividing net
income by the weighted average number of shares and share equivalents
outstanding during the period. To compute the incremental shares resulting
from stock options and warrants for primary earnings per share, the average
market price of the Company's stock during the period is used. In computing
primary and fully diluted earnings per share for the three months ended
September 28, 1997, the conversion of options and warrants was assumed, as the
effect was dilutive. To compute the incremental shares resulting from stock
options and warrants for fully diluted earnings per share, the greater of the
ending market price or the average market price of the Company's stock is
used. In computing primary and fully diluted earnings per share for the three
months ended September 29, 1996, the conversion of options and warrants was
not assumed, as the effect was antidilutive.
9. CONTINGENCIES
Government Claims
The Corporate Administrative Contracting Officer (the "ACO"), based upon the
advice of the United States Defense Contract Audit Agency, has made a
determination that Fairchild Industries, Inc. ("FII"), a former subsidiary of
the company, did not comply with Federal Acquisition Regulations and Cost
Accounting Standards
F-42
<PAGE>
THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
in accounting for (i) the 1985 reversion to FII of certain assets of
terminated defined benefit pension plans, and (ii) pension costs upon the
closing of segments of FII's business. The ACO has directed FII to prepare
cost impact proposals relating to such plan terminations and segment closings
and, following receipt of such cost impact proposals, may seek adjustments to
contract prices. The ACO alleges that substantial amounts will be due if such
adjustments are made. The Company believes it has properly accounted for the
asset reversions in accordance with applicable accounting standards. The
Company has held discussions with the government to attempt to resolve these
pension accounting issues.
Environmental Matters
The Company's operations are subject to stringent Government imposed
environmental laws and regulations concerning, among other things, the
discharge of materials into the environment and the generation, handling,
storage, transportation and disposal of waste and hazardous materials. To
date, such laws and regulations have not had a material effect on the
financial condition, results of operations, or net cash flows of the Company,
although the Company has expended, and can be expected to expend in the
future, significant amounts for investigation of environmental conditions and
installation of environmental control facilities, remediation of environmental
conditions and other similar matters, particularly in the Aerospace Fasteners
segment.
In connection with its plans to dispose of certain real estate, the Company
must investigate environmental conditions and may be required to take certain
corrective action prior or pursuant to any such disposition. In addition,
management has identified several areas of potential contamination at or from
other facilities owned, or previously owned, by the Company, that may require
the Company either to take corrective action or to contribute to a clean-up.
The Company is also a defendant in certain lawsuits and proceedings seeking to
require the Company to pay for investigation or remediation of environmental
matters and has been alleged to be a potentially responsible party at various
"Superfund" sites. Management of the Company believes that it has recorded
adequate reserves in its financial statements to complete such investigation
and take any necessary corrective actions or make any necessary contributions.
No amounts have been recorded as due from third parties, including insurers,
or set off against, any liability of the Company, unless such parties are
contractually obligated to contribute and are not disputing such liability.
As of September 28, 1997, the consolidated total recorded liabilities of the
Company for environmental matters approximated $8,300, which represented the
estimated probable exposures for these matters. It is reasonably possible that
the Company's total exposure for these matters could be approximately $13,000
on an undiscounted cash flow basis.
Other Matters
The Company is involved in various other claims and lawsuits incidental to
its business, some of which involve substantial amounts. The Company, either
on its own or through its insurance carriers, is contesting these matters. In
the opinion of management, the ultimate resolution of the legal proceedings,
including those aforementioned, will not have a material adverse effect on the
financial condition, or future results of operations or net cash flows of the
Company.
F-43
<PAGE>
SCHEDULE I
THE FAIRCHILD CORPORATION
CONDENSED FINANCIAL STATEMENTS OF THE PARENT COMPANY
BALANCE SHEETS (NOT CONSOLIDATED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1996 1997
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................. $ 1,887 $ 234
Accounts receivable........................................ 179 384
Prepaid expenses and other current assets.................. 192 250
-------- --------
Total current assets........................................ 2,258 868
Property, plant and equipment, less accumulated
depreciation............................................... 628 486
Investments in subsidiaries................................. 391,958 390,355
Investments and advances, affiliated companies.............. 3,047 1,435
Goodwill.................................................... 4,263 4,133
Noncurrent tax assets....................................... 14,548 29,624
Other assets................................................ 3,510 2,403
-------- --------
Total assets................................................ $420,212 $429,304
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses...................... $ 7,735 $ 8,315
-------- --------
Total current liabilities................................... 7,735 8,315
Long-term debt.............................................. 180,141 190,567
Other long-term liabilities................................. 1,168 797
-------- --------
Total liabilities........................................... 189,044 199,679
Stockholders' equity:
Class A common stock........................................ 2,000 2,023
Class B common stock........................................ 263 263
Retained earnings and other equity.......................... 228,905 227,339
-------- --------
Total stockholders' equity.................................. 231,168 229,625
-------- --------
Total liabilities and stockholders' equity.................. $420,212 $429,304
======== ========
</TABLE>
The accompanying Notes are an integral part of these Condensed Financial
Statements.
F-44
<PAGE>
SCHEDULE I
THE FAIRCHILD CORPORATION
CONDENSED FINANCIAL STATEMENTS OF THE PARENT COMPANY
STATEMENT OF EARNINGS (NOT CONSOLIDATED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JUNE 30,
-------------------------------
1995 1996 1997
<S> <C> <C> <C>
Costs and Expenses:
Selling, general & administrative........... $ 3,920 $ 5,148 $ 3,925
Amortization of goodwill.................... 130 130 130
--------- --------- ---------
4,050 5,278 4,055
Operating income............................. (4,050) (5,278) (4,055)
Net interest expense......................... 29,027 28,387 25,252
Investment income, net....................... 434 1 16
Equity in earnings of affiliates............. (409) 269 480
Nonrecurring expense......................... -- (1,064) --
--------- --------- ---------
Loss from continuing operations before
taxes....................................... (33,920) (34,459) (28,811)
Income tax provision (benefit)............... (18,838) (12,509) (15,076)
--------- --------- ---------
Loss from continuing operations before equity
in earnings of subsidiaries................. (15,082) (21,950) (13,735)
Equity in earnings of subsidiaries........... (42,940) 204,915 11,917
Earnings from discontinued operations, net... 3,149 17,087 23,843
Extraordinary items, net..................... -- (10,346) 355
--------- --------- ---------
Net earnings (loss).......................... $ (33,824) $ 189,706 $ 1,331
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
F-45
<PAGE>
SCHEDULE I
THE FAIRCHILD CORPORATION
CONDENSED FINANCIAL STATEMENTS OF THE PARENT COMPANY
STATEMENT OF CASH FLOWS (NOT CONSOLIDATED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JUNE 30,
------------------------------
1995 1996 1997
<S> <C> <C> <C>
Cash provided by (used for) operations.......... $(9,607) $ 36,916 $(14,271)
Investing activities:
Equity investments in affiliates............... 1,356 (21) 2,092
-------- --------- ---------
1,356 (21) 2,092
Financing activities:
Proceeds from issuance of intercompany debt.... 7,400 -- 9,400
Debt repayments................................ -- (42,265) --
Issuance of common stock....................... -- 1,509 1,126
-------- --------- ---------
7,400 (40,756) 10,526
-------- --------- ---------
Net decrease in cash............................ $ (851) $ (3,861) $ (1,653)
======== ========= =========
</TABLE>
The accompanying Notes are an integral part of these Condensed Financial
Statements.
F-46
<PAGE>
SCHEDULE I
THE FAIRCHILD CORPORATION
CONDENSED FINANCIAL STATEMENTS OF THE PARENT COMPANY
NOTES TO FINANCIAL STATEMENTS (NOT CONSOLIDATED)
(IN THOUSANDS)
1. BASIS OF PRESENTATION
In accordance with the requirements of Regulation S-X of the Securities and
Exchange Commission, the financial statements of the Company are condensed and
omit many disclosures presented in the consolidated financial statements and
the notes thereto.
2. LONG-TERM DEBT
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1996 1997
<S> <C> <C>
12% Inter. Debentures Due 2001............................... 120,280 125,544
13 1/8% Sub. Debentures Due 2006............................. 35,061 35,189
13% Jr. Sub. Debenture Due 2007.............................. 24,800 29,834
-------- --------
$180,141 $190,567
======== ========
</TABLE>
Maturities of long-term debt for the next five years are as follows: no
maturities in 1998, $30,335 in 1999, $31,520 in 2000, $31,713 in 2001, and
$37,320 in 2002.
3. DIVIDENDS FROM SUBSIDIARIES
Cash dividends paid to The Fairchild Corporation by its consolidated
subsidiaries were $10,000, $42,100, and $10,000 in Fiscal 1997, 1996, and
1995, respectively.
4. CONTINGENCIES
The Company is involved in various other claims and lawsuits incidental to
its business, some of which involve substantial amounts. The Company, either
on its own or through its insurance carriers, is contesting these matters. In
the opinion of management, the ultimate resolution of the legal proceedings
will not have a material adverse effect on the financial condition, or future
results of operations or net cash flows for the Company.
F-47
<PAGE>
THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
Changes in the allowance for doubtful accounts are as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
JUNE 30,
-----------------------
1997 1996 1995
------ ------- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Beginning balance...................................... $6,327 $ 3,971 $2,284
Charged to cost and expenses........................... 1,999 2,099 1,868
Charges to other accounts (a).......................... 491 1,970 (86)
Amounts written off.................................... (714) (1,713) (95)
------ ------- ------
Ending balance......................................... $8,103 $ 6,327 $3,971
====== ======= ======
</TABLE>
- ---------------------
(a) Recoveries of amounts written off in prior periods, foreign currency
translation and the change in related noncurrent taxes.
F-48
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY IN-
FORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFER CONTAINED HEREIN AND, IF GIVEN OR MADE, SUCH OTHER
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHO-
RIZED BY THE COMPANY, THE SELLING STOCKHOLDER, ANY UNDERWRITER OR ANY OTHER
PERSON. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY, ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES TO
WHICH IT RELATES, OR AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY, TO
ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHO-
RIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALI-
FIED TO DO SO, OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SO-
LICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUN-
DER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN
NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE IN-
FORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Available Information.................................................... 2
Incorporation of Certain Information by Reference........................ 2
Prospectus Summary....................................................... 3
The Company.............................................................. 3
Risk Factors............................................................. 9
Use of Proceeds.......................................................... 12
Dividend Policy.......................................................... 12
Price Range of Class A Common Stock...................................... 12
Capitalization........................................................... 13
Selected Consolidated Financial Data..................................... 14
Pro Forma Consolidated Financial Statements.............................. 15
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 21
Business................................................................. 31
Management............................................................... 40
Principal Stockholders................................................... 43
The Disposition.......................................................... 46
Description of Capital Stock............................................. 47
Description of the New Credit Facility................................... 49
Underwriting............................................................. 50
Shares Eligible for Future Sale.......................................... 52
Legal Matters............................................................ 52
Experts.................................................................. 52
Index to Financial Statements............................................ F-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
3,000,000 SHARES
THE FAIRCHILD CORPORATION
CLASS A COMMON STOCK
----------------
PROSPECTUS
----------------
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
BT ALEX. BROWN
SBC WARBURG DILLON READ INC.
, 1997
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, incurred in connection with the sale
of Common Stock being registered (all amounts are estimated except the SEC
registration fee, the NASD filing fee, the New York Stock Exchange listing fee
and the Pacific Exchange listing fee). The Company will bear all expenses
incurred in connection with the sale of the Common Stock being registered
hereby.
<TABLE>
<S> <C>
SEC Registration Fee............................................. $ 53,360
NASD Filing Fee.................................................. 18,109
New York Stock Exchange Listing Fee.............................. 17,500
Pacific Exchange Listing Fee..................................... 7,500
Printing......................................................... 300,000
Legal Fees and Expenses.......................................... 425,000
Accounting Fees and Expenses..................................... 150,000
Stock Certificates and Transfer Agent Fees....................... 5,000
Miscellaneous.................................................... 23,531
----------
Total.......................................................... $1,000,000
==========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law (the "DGCL") makes
provision for the indemnification of officers and directors of corporations in
terms sufficiently broad to indemnify the officers and directors of the
registrant under certain circumstances for liabilities (including
reimbursement of expenses incurred) arising under the Securities Act of 1933,
as amended (the "Act").
The registrant's Bylaws (the "Bylaws") provide that the registrant may
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action by or
in the right of the registrant), by reason of the fact that he is or was a
director, officer, employee or agent of the registrant or is or was serving at
the request of the registrant as a director, officer, employee or agent of
another corporation or enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding.
ITEM 16. EXHIBITS.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
<C> <S>
1.1 Form of Underwriting Agreement.
3.1 Registrant's Restated Certificate of Incorporation (incorporated
by reference to Exhibit "C" of Registrant's Proxy Statement dated
October 27, 1989).
3.2 Registrant's Amended and Restated By-Laws (incorporated by
reference to the Registrant's Annual Report on Form 10-K for the
fiscal year ended June 30, 1996).
4.1 Specimen of Class A Common Stock certificate (incorporated by
reference to Registration Statement No. 33-15359 on Form S-2).
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
<C> <S>
4.2 Specimen of Class B Common Stock certificate (incorporated by
reference to Registrant's Annual Report on Form 10-K for the
fiscal year ended June 30, 1989 (the "1989 10-K")).
4.3 Form of Indenture between Registrant and J. Henry Schroder Bank &
Trust Company, pursuant to which Registrant's 13 1/8% Subordinated
Debentures due 2006 (the "Senior Debentures") were issued (the
"Debenture Indenture"), and specimen of Senior Debenture
(incorporated by reference to Registration Statement No. 33-3521
on Form S-2).
4.4 First Supplemental Indenture dated as of November 26, 1986, to the
Debenture Indenture (incorporated by reference to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended December 31,
1986 (the "December 1986 10-Q")).
4.5 Form of Indenture between Registrant and Manufacturers Hanover
Trust Company pursuant to which Registrant's 12 1/4% Senior
Subordinated Notes due 1996 (the "Senior Notes") were issued (the
"Note Indenture"), and specimen of Senior Note (incorporated by
reference to Registration Statement No. 33-03521 on Form S-2).
4.6 First Supplemental Indenture dated as of November 26, 1986, to the
Note Indenture (incorporated by reference to the December 1986 10-
Q).
4.7 Indenture between Registrant and Connecticut National Bank (as
successor to National Westminster Bank) dated as of October 15,
1986, pursuant to which Registrant's Intermediate Subordinated
Debentures due 2001 (the "Intermediate Debentures") were issued,
and specimen of Intermediate Debenture (incorporated by reference
to Registrant's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1986 (the "September 1986 10-Q")).
4.8 Indenture between Rexnord Acquisition Corp. ("RAC") and Bank of
New York (as successor to Irving Trust Company) dated as of March
2, 1987, pursuant to which RAC's Senior Subordinated Debentures
due 1999 (the "Rexnord Senior Debentures") were issued (the
"Rexnord Senior Indenture"), and specimen of Rexnord Senior
Debenture incorporated by reference to Registrant's Annual Report
on Form 10-K for fiscal year ended June 30, 1987 (the "1987 10-
K").
4.9 First Supplemental Indenture between Rexnord Inc. ("Rexnord") (as
successor to RAC) and Irving Trust Company dated as of July 1,
1987, to the Rexnord Senior Indenture (incorporated by reference
to Registration Statement No. 33-15359 on Form S-2).
4.10 Second Supplemental Indenture between Rexnord Holdings Inc., now
known as RHI Holdings, Inc. ("RHI") (as successor to Rexnord) and
Irving Trust Company dated as of August 16, 1988, to the Rexnord
Senior Indenture (incorporated by reference to Registrant's Annual
Report on Form 10-K for the fiscal year ended June 30, 1988 (the
"1988 10-K")).
4.11 Indenture between Registrant and Norwest Bank Minneapolis, N.A.
dated as of March 2, 1987, pursuant to which Registrant's Junior
Subordinated Debentures due 2007 (the "Junior Debentures") were
issued, and specimen of Junior Debenture (incorporated by
reference to Final Amendment to Tender Offer Statement on Schedule
14D-1 of Banner Acquisition Corp. ("BAC") dated March 9, 1987).
4.12 First Supplemental Indenture between Registrant and Norwest Bank,
Minnesota Bank, N.A., dated as of February 28, 1991, to Indenture
dated as of March 2, 1987, relating to the Junior Debentures
(incorporated by reference to the 1991 10-K).
4.13 Securities Purchase Agreement dated as of October 15, 1986, by and
among Registrant and each of the Purchasers of the Intermediate
Debentures (incorporated by reference to the September 1986 10-Q).
4.14 Securities Purchase Agreement dated as of March 2, 1987, by and
among Registrant, RAC and each of the Purchasers of the Junior
Debentures, the Rexnord Senior Debentures and other securities
(incorporated by reference to the 1987 10-K).
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
<C> <S>
4.15 Registration Rights Agreement dated as of October 15, 1986, by and
among Registrant and each of the purchasers of the Intermediate
Debentures (incorporated by reference to the September 1986 10-Q).
4.16 Registration Rights Agreement dated as of March 2, 1987, by and
among Registrant, RAC and each of the purchasers of the Junior
Debentures, the Rexnord Senior Debentures and other securities
(incorporated by reference to Registrant's Report on Form 8-K
dated March 17, 1987).
Opinion of Cahill Gordon & Reindel as to the legality of the
5.1 Common Stock.
10.1* Asset Purchase Agreement by and among Banner Aerospace, Inc., PB
Herndon Aerospace, Inc., Banner Aerospace Services, Inc. and
Allied Signal Inc. and AS BAR Herndon LLC dated as of December 8,
1997.
10.2* Asset Purchase Agreement by and among Banner Aerospace, Inc., the
Sellers listed on Annex A, AlliedSignal Inc. and AS BAR LLC dated
as of December 8, 1997.
23.1 Consent of Arthur Andersen LLP, independent public accountants.
23.2 Consent of Cahill Gordon & Reindel (included in Exhibit 5.1).
Powers of Attorney (set forth on the signature page of the
24.1 Registration Statement).
99 Financial statements, related notes thereto and Auditors' Report
of RHI Holdings, Inc. for the fiscal year ended June 30, 1997
(incorporated by reference from RHI Holdings, Inc. Form 10-K for
the fiscal year ended June 30, 1997).
</TABLE>
- ---------------------
* Previously filed.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer, or controlling person of the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by
the final adjudication of such issue. The undersigned Registrant hereby
undertakes to provide to the Underwriters at the closing specified in the
Underwriting Agreement certificates in such denominations and registered in
such names as required by the Underwriters to permit prompt delivery to each
purchaser. The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(3) For the purposes of determining any liability under the Securities
Act of 1933, each filing of the registrant's annual report pursuant to
section 13(a) or section 15(d) of the securities Exchange Act of 1934 (and,
where applicable, each filing of an employee benefit plan's annual report
pursuant to section 15(d) of
II-3
<PAGE>
the Securities Exchange Act of 1934) that is incorporated by reference in
the registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial bona fide
offering thereof.
(4) To deliver or cause to be delivered with the prospectus, to each
person to whom the prospectus is sent or given, the latest annual report to
security holders that is incorporated by reference in the prospectus and
furnished pursuant to and meeting the requirements of Rule 14a-3 or Rule
14c-3 under the Securities Exchange Act of 1934; and, where interim
financial information required to be presented by Article 3 of Regulation
S-X are not set forth in the prospectus, to deliver, or cause to be
delivered to each person to whom the prospectus is sent or given, the
latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in The City of New York,
State of New York on December 15, 1997.
/s/ Donald E. Miller
By: _________________________________
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacity indicated on December 15, 1997.
SIGNATURE TITLE
/s/ Jeffrey J. Steiner* Chairman of the Board, Chief
- ------------------------------------- Executive Officer and President
JEFFREY J. STEINER (Principal Chief Executive
Officer)
/s/ Michael T. Alcox* Director
- -------------------------------------
MICHAEL T. ALCOX
/s/ Melville R. Barlow* Director
- -------------------------------------
MELVILLE R. BARLOW
/s/ Mortimer M. Caplin* Director
- -------------------------------------
MORTIMER M. CAPLIN
/s/ Colin M. Cohen* Senior Vice President, Chief
- ------------------------------------- Financial Officer, Controller and
COLIN M. COHEN Director (Principal Accounting
Officer) (Principal Financial
Officer)
/s/ Philip David* Director
- -------------------------------------
PHILIP DAVID
/s/ Harold J. Harris* Director
- -------------------------------------
HAROLD J. HARRIS
II-5
<PAGE>
SIGNATURE TITLE
/s/ Samuel J. Krasney* Vice Chairman and Director
- -------------------------------------
SAMUEL J. KRASNEY
/s/ Daniel Lebard* Director
- -------------------------------------
DANIEL LEBARD
/s/ Jacques S. Moskovic* Director
- -------------------------------------
JACQUES S. MOSKOVIC
/s/ Herbert S. Richey* Director
- -------------------------------------
HERBERT S. RICHEY
/s/ Moshe Sanbar* Director
- -------------------------------------
MOSHE SANBAR
/s/ Robert A. Sharpe, II* Director
- -------------------------------------
ROBERT A. SHARPE, II
/s/ Eric I. Steiner* Director
- -------------------------------------
ERIC I. STEINER
/s/ Donald E. Miller Attorney-in-Fact
- -------------------------------------
- ----------------
* By Attorney-in-Fact
II-6
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBIT NO. DESCRIPTION PAGE NUMBER
<C> <S> <C>
1.1 Form of Underwriting Agreement.
3.1 Registrant's Restated Certificate of Incorporation
(incorporated by reference to Exhibit "C" of
Registrant's Proxy Statement dated October 27,
1989).
3.2 Registrant's Amended and Restated By-Laws
(incorporated by reference to the Registrant's
Annual Report on Form 10-K for the fiscal year
ended June 30, 1996).
4.1 Specimen of Class A Common Stock certificate
(incorporated by reference to Registration
Statement No. 33-15359 on Form S-2).
4.2 Specimen of Class B Common Stock certificate
(incorporated by reference to Registrant's Annual
Report on Form 10-K for the fiscal year ended June
30, 1989 (the "1989 10-K")).
4.3 Form of Indenture between Registrant and J. Henry
Schroder Bank & Trust Company, pursuant to which
Registrant's 13 1/8% Subordinated Debentures due
2006 (the "Senior Debentures") were issued (the
"Debenture Indenture"), and specimen of Senior
Debenture (incorporated by reference to
Registration Statement No. 33-3521 on Form S-2).
4.4 First Supplemental Indenture dated as of November
26, 1986, to the Debenture Indenture (incorporated
by reference to the Registrant's Quarterly Report
on Form 10-Q for the quarter ended December 31,
1986 (the "December 1986 10-Q")).
4.5 Form of Indenture between Registrant and
Manufacturers Hanover Trust Company pursuant to
which Registrant's 12 1/4% Senior Subordinated
Notes due 1996 (the "Senior Notes") were issued
(the "Note Indenture"), and specimen of Senior Note
(incorporated by reference to Registration
Statement No. 33-03521 on Form S-2).
4.6 First Supplemental Indenture dated as of November
26, 1986, to the Note Indenture (incorporated by
reference to the December 1986 10-Q).
4.7 Indenture between Registrant and Connecticut
National Bank (as successor to National Westminster
Bank) dated as of October 15, 1986, pursuant to
which Registrant's Intermediate Subordinated
Debentures due 2001 (the "Intermediate Debentures")
were issued, and specimen of Intermediate Debenture
(incorporated by reference to Registrant's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1986 (the "September 1986 10-Q")).
4.8 Indenture between Rexnord Acquisition Corp. ("RAC")
and Bank of New York (as successor to Irving Trust
Company) dated as of March 2, 1987, pursuant to
which RAC's Senior Subordinated Debentures due 1999
(the "Rexnord Senior Debentures") were issued (the
"Rexnord Senior Indenture"), and specimen of
Rexnord Senior Debenture incorporated by reference
to Registrant's Annual Report on Form 10-K for
fiscal year ended June 30, 1987 (the "1987 10-K").
4.9 First Supplemental Indenture between Rexnord Inc.
("Rexnord") (as successor to RAC) and Irving Trust
Company dated as of July 1, 1987, to the Rexnord
Senior Indenture (incorporated by reference to
Registration Statement No. 33-15359 on Form S-2).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBIT NO. DESCRIPTION PAGE NUMBER
<C> <S> <C>
4.10 Second Supplemental Indenture between Rexnord
Holdings Inc., now known as RHI Holdings, Inc.
("RHI") (as successor to Rexnord) and Irving Trust
Company dated as of August 16, 1988, to the Rexnord
Senior Indenture (incorporated by reference to
Registrant's Annual Report on Form 10-K for the
fiscal year ended June 30, 1988 (the "1988 10-K")).
4.11 Indenture between Registrant and Norwest Bank
Minneapolis, N.A. dated as of March 2, 1987,
pursuant to which Registrant's Junior Subordinated
Debentures due 2007 (the "Junior Debentures") were
issued, and specimen of Junior Debenture
(incorporated by reference to Final Amendment to
Tender Offer Statement on Schedule 14D-1 of Banner
Acquisition Corp. ("BAC") dated March 9, 1987).
4.12 First Supplemental Indenture between Registrant and
Norwest Bank, Minnesota Bank, N.A., dated as of
February 28, 1991, to Indenture dated as of March
2, 1987, relating to the Junior Debentures
(incorporated by reference to the 1991 10-K).
4.13 Securities Purchase Agreement dated as of October
15, 1986, by and among Registrant and each of the
Purchasers of the Intermediate Debentures
(incorporated by reference to the September 1986
10-Q).
4.14 Securities Purchase Agreement dated as of March 2,
1987, by and among Registrant, RAC and each of the
Purchasers of the Junior Debentures, the Rexnord
Senior Debentures and other securities
(incorporated by reference to the 1987 10-K).
4.15 Registration Rights Agreement dated as of October
15, 1986, by and among Registrant and each of the
purchasers of the Intermediate Debentures
(incorporated by reference to the September 1986
10-Q).
4.16 Registration Rights Agreement dated as of March 2,
1987, by and among Registrant, RAC and each of the
purchasers of the Junior Debentures, the Rexnord
Senior Debentures and other securities
(incorporated by reference to Registrant's Report
on Form 8-K dated March 17, 1987).
Opinion of Cahill Gordon & Reindel as to the
5.1 legality of the Common Stock.
10.1* Asset Purchase Agreement by and among Banner
Aerospace, Inc., PB Herndon Aerospace, Services,
Inc., Banner Aerospace Services, Inc. and Allied
Signal Inc. and AS Bar Herndon LLC dated as of
December 8, 1997.
10.2* Asset Purchase Agreement by and among Banner
Aerospace, Inc., the sellers listed on Annex A,
Allied Signal Inc. and AS BAR LLC dated as of
December 8, 1997.
Consent of Arthur Andersen LLP, independent public
23.1 accountants.
Consent of Cahill Gordon & Reindel (included in
23.2 Exhibit 5.1).
Powers of Attorney (set forth on the signature page
24.1 of the Registration Statement).
99 Financial statements, related notes thereto and
Auditors' Report of RHI Holdings, Inc. for the
fiscal year ended June 30, 1997 (incorporated by
reference from RHI Holdings, Inc. Form 10-K for the
fiscal year ended June 30, 1997).
</TABLE>
- ---------------------
* Previously filed
<PAGE>
EXHIBIT 1.1
3,000,000 Shares
The Fairchild Corporation
Common Stock
UNDERWRITING AGREEMENT
----------------------
, 1997
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
BT ALEX. BROWN INCORPORATED
SBC WARBURG DILLON READ INC.
As representatives of the several Underwriters
named in Schedule I hereto
c/o Donaldson, Lufkin & Jenrette
Securities Corporation
277 Park Avenue
New York, New York 10172
Ladies and Gentlemen:
The Fairchild Corporation, a Delaware corporation (the "COMPANY"),
proposes to issue and sell to the several underwriters named in Schedule I
hereto (the "UNDERWRITERS") to the several Underwriters, an aggregate of
3,000,000 shares of the Class A Common Stock, $0.10 par value per share of the
Company (the "FIRM SHARES"). The Selling Stockholder named on Schedule II
hereto proposes to issue and sell to the several Underwriters not more than an
additional 450,000 shares of the Company's Class A Common Stock, $0.10 par value
per share (the "ADDITIONAL SHARES") if requested by the Underwriters as provided
in Section 2 hereof. The Firm Shares and the Additional Shares are hereinafter
referred to collectively as the "SHARES." The shares of common stock of the
Company to be outstanding after giving effect to the sales contemplated hereby
are hereinafter referred to as the "COMMON STOCK." The Company and the Selling
Stockholder are hereinafter sometimes referred to collectively as the "SELLERS."
<PAGE>
SECTION 1. Registration Statement and Prospectus. The Company has
prepared and filed with the Securities and Exchange Commission (the
"COMMISSION") in accordance with the provisions of the Securities Act of 1933,
as amended, and the rules and regulations of the Commission thereunder
(collectively, the "ACT"), a registration statement on Form S-3, including a
prospectus, relating to the Shares. The registration statement, as amended at
the time it became effective, including the information (if any) deemed to be
part of the registration statement at the time of effectiveness pursuant to Rule
A under the Act, is hereinafter referred to as the "REGISTRATION STATEMENT;" and
the prospectus in the form first used to confirm sales of Shares is hereinafter
referred to as the "PROSPECTUS" (including, in the case of all references to the
Registration Statement in the Prospectus, documents incorporated therein by
reference). If the Company has filed or is required pursuant to the terms
hereof to file a registration statement pursuant to Rule 462(b) under the Act
registering additional shares of Common Stock (a "RULE 462(B) REGISTRATION
STATEMENT"), then, unless otherwise specified, any reference herein to the term
"Registration Statement" shall be deemed to include such Rule 462(b)
Registration Statement. The terms "SUPPLEMENT" and "AMENDMENT" or "AMEND" as
used in this Agreement with respect to the Registration Statement or the
Prospectus shall include all documents subsequently filed by the Company with
the Commission pursuant to the Securities Exchange Act of 1934, as amended, and
the rules and regulations of the Commission thereunder (collectively, the
"EXCHANGE ACT") that are deemed to be incorporated by reference in the
Prospectus.
SECTION 2. Agreements to Sell and Purchase and Lock-Up Agreements. On
the basis of the representations and warranties contained in this Agreement, and
subject to its terms and conditions, (i) the Company agrees to issue and sell
3,000,000 Firm Shares and (ii) each Underwriter agrees, severally and not
jointly, to purchase from each Seller at a price per Share of $______ (the
"PURCHASE PRICE") the number of Firm Shares (subject to such adjustments to
eliminate fractional shares as you may determine) that bears the same proportion
to the total number of Firm Shares to be sold by the Company as the number of
Firm Shares set forth opposite the name of such Underwriter in Schedules I
hereto bears to the total number of Firm Shares.
On the basis of the representations and warranties contained in this
Agreement, and subject to
2
<PAGE>
its terms and conditions, the Selling Stockholder agrees to issue and sell the
Additional Shares and the Underwriters shall have the right to purchase,
severally and not jointly, up to 450,000 Additional Shares from the Selling
Stockholder at the Purchase Price. Additional Shares may be purchased solely
for the purpose of covering over-allotments made in connection with the offering
of the Firm Shares. The Underwriters may exercise their right to purchase
Additional Shares in whole or in part from time to time by giving written notice
thereof to the Selling Stockholder within 30 days after the date of this
Agreement. You shall give any such notice on behalf of the Underwriters and
such notice shall specify the aggregate number of Additional Shares to be
purchased pursuant to such exercise and the date for payment and delivery
thereof, which date shall be a business day (i) no earlier than two business
days after such notice has been given (and, in any event, no earlier than the
Closing Date (as hereinafter defined)) and (ii) no later than ten business days
after such notice has been given.
Each Seller hereby agrees not to (i) offer, pledge, sell, contract to
sell, sell any option or contract to purchase, purchase any option or contract
to sell, grant any option, right or warrant to purchase, or otherwise transfer
or dispose of, directly or indirectly, any shares of Common Stock or any
securities convertible into or exercisable or exchangeable for Common Stock or
(ii) enter into any swap or other arrangement that transfers all or a portion of
the economic consequences associated with the ownership of any Common Stock
(regardless of whether any of the transactions described in clause (i) or (ii)
is to be settled by the delivery of Common Stock, or such other securities, in
cash or otherwise), except to the Underwriters pursuant to this Agreement, for a
period of 90 days after the date of the Prospectus without the prior written
consent of Donaldson, Lufkin & Jenrette Securities Corporation. Notwithstanding
the foregoing, during such period (i) the Company may grant stock options
pursuant to the Company's existing stock option plan and (ii) the Company may
issue shares of Common Stock upon the exercise of an option or warrant or the
conversion of a security outstanding on the date hereof. The Company also
agrees not to file any registration statement with respect to any shares of
Common Stock or any securities convertible into or exercisable or exchangeable
for Common Stock for a period of 90 days after the date of the Prospectus
without the prior written consent of Donaldson, Lufkin & Jenrette Securities
Corporation.
3
<PAGE>
In addition, each Selling Stockholder agrees that, for a period of 90 days after
the date of the Prospectus without the prior written consent of Donaldson,
Lufkin & Jenrette Securities Corporation, it will not make any demand for, or
exercise any right with respect to, the registration of any shares of Common
Stock or any securities convertible into or exercisable or exchangeable for
Common Stock. The Company shall, prior to or concurrently with the execution of
this Agreement, deliver an agreement executed by (i) each Selling Stockholder
and (ii) each of the directors and officers of the Company who is not a Selling
Stockholder to the effect that such person will not, during the period
commencing on the date such person signs such agreement and ending 90 days after
the date of the Prospectus, without the prior written consent of Donaldson,
Lufkin & Jenrette Corporation, (A) engage in any of the transactions described
in the first sentence of this paragraph or (B) make any demand for, or exercise
any right with respect to, the registration of any shares of Common Stock or any
securities convertible into or exercisable or exchangeable for Common Stock.
SECTION 3. Terms of Public Offering. The Sellers are advised by you
that the Underwriters propose (i) to make a public offering of their respective
portions of the Shares as soon after the execution and delivery of this
Agreement as in your judgment is advisable and (ii) initially to offer the
Shares upon the terms set forth in the Prospectus.
SECTION 4. Delivery and Payment. Delivery to the Underwriters of and
payment for the Firm Shares shall be made at 9:00 A.M., New York City time, on
_______ , 1997 (the "CLOSING DATE") at such place as you shall designate. The
Closing Date and the location of delivery of and payment for the Firm Shares may
be varied by agreement between you and the Company.
Delivery to the Underwriters of and payment for any Additional Shares to
be purchased by the Underwriters shall be made at such place as you shall
designate at 9:00 A.M., New York City time, on the date specified in the
applicable exercise notice given by you pursuant to Section 2 (an "OPTION
CLOSING DATE"). Any such Option Closing Date and the location of delivery of
and payment for such Additional Shares may be varied by agreement between you
and the Selling Stockholder.
Certificates for the Shares shall be registered in such names and issued
in such
4
<PAGE>
denominations as you shall request in writing not later than two full business
days prior to the Closing Date or an Option Closing Date, as the case may be.
Such certificates shall be made available to you for inspection not later than
9:30 A.M., New York City time, on the business day prior to the Closing Date or
the applicable Option Closing Date, as the case may be. Certificates in
definitive form evidencing the Shares shall be delivered to you on the Closing
Date or the applicable Option Closing Date, as the case may be, with any
transfer taxes thereon duly paid by the respective Sellers, for the respective
accounts of the several Underwriters, against payment to the Sellers of the
Purchase Price therefor by wire transfer of Federal or other funds immediately
available in New York City.
SECTION 5. Agreements of the Company. The Company agrees with you:
(a) To advise you promptly and, if requested by you, to confirm such
advice in writing, (i) of any request by the Commission for amendments to the
Registration Statement or amendments or supplements to the Prospectus or for
additional information, (ii) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or of the suspension
of qualification of the Shares for offering or sale in any jurisdiction, or the
initiation of any proceeding for such purposes, (iii) when any amendment to the
Registration Statement becomes effective, (iv) if the Company is required to
file a Rule 462(b) Registration Statement after the effectiveness of this
Agreement, when the Rule 462(b) Registration Statement has become effective and
(v) of the happening of any event during the period referred to in Section 5(d)
below which makes any statement of a material fact made in the Registration
Statement or the Prospectus untrue or which requires any additions to or changes
in the Registration Statement or the Prospectus in order to make the statements
therein not misleading. If at any time the Commission shall issue any stop
order suspending the effectiveness of the Registration Statement, the Company
will use its best efforts to obtain the withdrawal or lifting of such order at
the earliest possible time.
(b) To furnish you four (4) signed copies of the Registration Statement
as first filed with the Commission and of each amendment to it, including all
exhibits and documents incorporated therein by reference, and to furnish to you
and each Underwriter designated by you such number of conformed copies of the
Registration Statement as so filed and of each
5
<PAGE>
amendment to it, without exhibits but including documents incorporated therein
by reference, as you may reasonably request.
(c) To prepare the Prospectus, the form and substance of which shall be
satisfactory to you, and to file the Prospectus in such form with the Commission
within the applicable period specified in Rule 424(b) under the Act; during the
period specified in Section 5(d) below, not to file any further amendment to the
Registration Statement and not to make any amendment or supplement to the
Prospectus of which you shall not previously have been advised or to which you
shall reasonably object after being so advised; and, during such period, to
prepare and file with the Commission, promptly upon your reasonable request, any
amendment to the Registration Statement or amendment or supplement to the
Prospectus which may be necessary or advisable in connection with the
distribution of the Shares by you, and to use its best efforts to cause any such
amendment to the Registration Statement to become promptly effective.
(d) Prior to 10:00 A.M., New York City time, on the first business day
after the date of this Agreement and from time to time thereafter for such
period as in the opinion of counsel for the Underwriters a prospectus is
required by law to be delivered in connection with sales by an Underwriter or a
dealer, to furnish in New York City to each Underwriter and any dealer as many
copies of the Prospectus (and of any amendment or supplement to the Prospectus)
and any documents incorporated therein by reference as such Underwriter or
dealer may reasonably request.
(e) If during the period specified in Section 5(d), any event shall occur
or condition shall exist as a result of which, in the opinion of counsel for the
Underwriters, it becomes necessary to amend or supplement the Prospectus in
order to make the statements therein, in the light of the circumstances when the
Prospectus is delivered to a purchaser, not misleading, or if, in the opinion of
counsel for the Underwriters, it is necessary to amend or supplement the
Prospectus to comply with applicable law, forthwith to prepare and file with the
Commission an appropriate amendment or supplement to the Prospectus so that the
statements in the Prospectus, as so amended or supplemented, will not in the
light of the circumstances when it is so delivered, be misleading, or so that
the Prospectus will comply with applicable law, and to furnish to each
Underwriter and to any
6
<PAGE>
dealer as many copies thereof as such Underwriter or dealer may reasonably
request.
(f) Prior to any public offering of the Shares, to cooperate with you and
counsel for the Underwriters in connection with the registration or
qualification of the Shares for offer and sale by the several Underwriters and
by dealers under the state securities or Blue Sky laws of such jurisdictions as
you may request, to continue such registration or qualification in effect so
long as required for distribution of the Shares and to file such consents to
service of process or other documents as may be necessary in order to effect
such registration or qualification; provided, however, that the Company shall
not be required in connection therewith to qualify as a foreign corporation in
any jurisdiction in which it is not now so qualified or to take any action that
would subject it to general consent to service of process or taxation other than
as to matters and transactions relating to the Prospectus, the Registration
Statement, any preliminary prospectus or the offering or sale of the Shares, in
any jurisdiction in which it is not now so subject.
(g) To mail and make generally available to its stockholders as soon as
practicable an earnings statement covering the twelve-month period ending
December 31, 1998 that shall satisfy the provisions of Section 11(a) of the Act,
and to advise you in writing when such statement has been so made available.
(h) During the period of two years after the date of this Agreement, to
furnish to you as soon as available copies of all reports or other
communications furnished to the record holders of Common Stock or furnished to
or filed with the Commission or any national securities exchange on which any
class of securities of the Company is listed and such other publicly available
information concerning the Company and its subsidiaries as you may reasonably
request.
(i) Whether or not the transactions contemplated in this Agreement are
consummated or this Agreement is terminated, to pay or cause to be paid all
expenses incident to the performance of the Company's obligations under this
Agreement, including: (i) the fees, disbursements and expenses of the Company's
counsel, the Company's accountants and in connection with the registration and
delivery of the Shares under the Act and all other fees and expenses in
connection with the preparation, printing, filing and distribution of the
Registration Statement (including financial
7
<PAGE>
statements and exhibits), any preliminary prospectus, the Prospectus and all
amendments and supplements to any of the foregoing, including the mailing and
delivering of copies thereof to the Underwriters and dealers in the quantities
specified herein, (ii) all costs and expenses related to the transfer and
delivery of the Shares to the Underwriters, including any transfer or other
taxes payable thereon, (iii) all costs of printing or producing this Agreement
and any other agreements or documents in connection with the offering, purchase,
sale or delivery of the Shares, (iv) all expenses in connection with the
registration or qualification of the Shares for offer and sale under the
securities or Blue Sky laws of the several states and all costs of printing or
producing any Preliminary and Supplemental Blue Sky Memoranda in connection
therewith (including the filing fees and fees and disbursements of counsel for
the Underwriters in connection with such registration or qualification and
memoranda relating thereto), (v) the filing fees and disbursements of counsel
for the Underwriters in connection with the review and clearance of the offering
of the Shares by the National Association of Securities Dealers, Inc., (vi) all
costs and expenses incident to the listing of the Shares on the NYSE and the
Pacific Stock Exchange, (vii) the cost of printing certificates representing the
Shares, (viii) the costs and charges of any transfer agent, registrar and/or
depositary, and (ix) all other costs and expenses incident to the performance of
the obligations of the Company hereunder for which provision is not otherwise
made in this Section. The provisions of this Section shall not supersede or
otherwise affect any agreement that the Company and the Selling Stockholder may
otherwise have for allocation of such expenses among themselves.
(j) To use its best efforts to list, subject to notice of issuance, the
Shares on the NYSE and the Pacific Stock Exchange and to maintain the listing of
the Shares on the NYSE and the Pacific Stock Exchange for a period of three
years after the date of this Agreement.
(k) To use its best efforts to do and perform all things required or
necessary to be done and performed under this Agreement by the Company prior to
the Closing Date or any Option Closing Date, as the case may be, and to satisfy
all conditions precedent to the delivery of the Shares.
(l) If the Registration Statement at the time of the effectiveness of
this Agreement does not
8
<PAGE>
cover all of the Shares, to file a Rule 462(b) Registration Statement with the
Commission registering the Shares not so covered in compliance with Rule 462(b)
by 10:00 P.M., New York City time, on the date of this Agreement and to pay to
the Commission the filing fee for such Rule 462(b) Registration Statement at the
time of the filing thereof or to give irrevocable instructions for the payment
of such fee pursuant to Rule 111(b) under the Act.
SECTION 6. Representations and Warranties of the Company. The Company
represents and warrants to each Underwriter that:
(a) The Registration Statement has become effective (other than any Rule
462(b) Registration Statement to be filed by the Company after the effectiveness
of this Agreement); any Rule 462(b) Registration Statement filed after the
effectiveness of this Agreement will become effective no later than 10:00 P.M.,
New York City time, on the date of this Agreement; and no stop order suspending
the effectiveness of the Registration Statement is in effect, and no proceedings
for such purpose are pending before or threatened by the Commission.
(b)(i) Each document, if any, filed or to be filed pursuant to the
Exchange Act and incorporated by reference in the Prospectus complied or will
comply when so filed in all material respects with the Exchange Act, (ii) the
Registration Statement (other than any Rule 462(b) Registration Statement to be
filed by the Company after the effectiveness of this Agreement), when it became
effective, did not contain and, as amended, if applicable, will 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 not misleading,
(iii) the Registration Statement (other than any Rule 462(b) Registration
Statement to be filed by the Company after the effectiveness of this Agreement)
and the Prospectus comply and, as amended or supplemented, if applicable, will
comply in all material respects with the Act, (iv) if the Company is required to
file a Rule 462(b) Registration Statement after the effectiveness of this
Agreement, such Rule 462(b) Registration Statement and any amendments thereto,
when they become effective (A) will 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 not misleading and (B) will comply in
all material respects with the Act and (v) the Prospectus does not contain
9
<PAGE>
and, as amended or supplemented, if applicable, will not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements therein, in the light of the circumstances under which they were
made, not misleading, except that the representations and warranties set forth
in this paragraph do not apply to statements or omissions in the Registration
Statement or the Prospectus based upon information relating to any Underwriter
furnished to the Company in writing by such Underwriter through you expressly
for use therein.
(c) Each preliminary prospectus filed as part of the registration
statement as originally filed or as part of any amendment thereto, or filed
pursuant to Rule 424 under the Act, complied when so filed in all material
respects with the Act, and did not contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein, in the light of the circumstances under which
they were made, not misleading, except that the representations and warranties
set forth in this paragraph do not apply to statements or omissions in any
preliminary prospectus based upon information relating to any Underwriter
furnished to the Company in writing by such Underwriter through you expressly
for use therein.
(d) The Company and each of the subsidiaries set forth on Annex I hereto
(the "material subsidiaries") has been duly incorporated, is validly existing as
a corporation in good standing under the laws of its jurisdiction of
incorporation and has the corporate power and authority to carry on its business
as described in the Prospectus and to own, lease and operate its properties, and
each is duly qualified and is in good standing as a foreign corporation
authorized to do business in each jurisdiction in which the nature of its
business or its ownership or leasing of property requires such qualification,
except where the failure to be so qualified would not have a material adverse
effect on the business, prospects, financial condition or results of operations
of the Company and its subsidiaries, taken as a whole.
(e) There are no outstanding subscriptions, rights, warrants, options,
calls, convertible securities, commitments of sale or liens granted or issued by
the Company or any of its subsidiaries relating to or entitling any person to
purchase or otherwise to acquire any shares of the capital stock of the Company
or any of its subsidiaries, except as otherwise disclosed in the Registration
Statement.
10
<PAGE>
(f) All the outstanding shares of capital stock of the Company (including
the Shares to be sold by the Selling Stockholder) have been duly authorized and
validly issued and are fully paid, non-assessable and not subject to any
preemptive or similar rights; and the Shares to be issued and sold by the
Company have been duly authorized and, when issued and delivered to the
Underwriters against payment therefor as provided by this Agreement, will be
validly issued, fully paid and non-assessable, and the issuance of such Shares
will not be subject to any preemptive or similar rights.
(g) All of the outstanding shares of capital stock of each of the
Company's subsidiaries have been duly authorized and validly issued and are
fully paid and non-assessable, and are owned by the Company, directly or
indirectly through one or more subsidiaries, free and clear of any security
interest, claim, lien, encumbrance or adverse interest of any nature.
(h) The authorized capital stock of the Company conforms as to legal
matters to the description thereof contained in the Prospectus.
(i) Neither the Company nor any of its material subsidiaries is (a) in
violation of its respective charter or by-laws or (b) in default in the
performance of any obligation, agreement, covenant or condition contained in any
indenture, loan agreement, mortgage, lease or other agreement or instrument that
is material to the Company and its subsidiaries, taken as a whole, to which the
Company or any of its subsidiaries is a party or by which the Company or any of
its subsidiaries or their respective property is bound except for such defaults
in clause (b) which, singly or in the aggregate, would not have a material
adverse effect on the business, prospects, financial condition or results of
operations of the Company and its subsidiaries, taken as a whole.
(j) The execution, delivery and performance of this Agreement by the
Company, the compliance by the Company with all the provisions hereof and the
consummation of the transactions contemplated hereby will not (i) require any
consent, approval, authorization or other order of, or qualification with, any
court or governmental body or agency (except such as may be required under the
securities or Blue Sky laws of the various states), (ii) conflict with or
constitute a breach of any of the terms or provisions of, or a default under (a)
the charter or by-laws of
11
<PAGE>
the Company or any of its subsidiaries, or (b) any indenture, loan agreement,
mortgage, lease or other agreement or instrument that is material to the Company
and its subsidiaries, taken as a whole, to which the Company or any of its
subsidiaries is a party or by which the Company or any of its subsidiaries or
their respective property is bound, (iii) violate or conflict with any
applicable law or any rule, regulation, judgment, order or decree of any court
or any governmental body or agency having jurisdiction over the Company, any of
its subsidiaries or their respective property or (iv) result in the suspension,
termination or revocation of any Authorization (as defined below) of the Company
or any of its subsidiaries or any other impairment of the rights of the holder
of any such Authorization except for such actions in clauses (i), (ii)(b), (iii)
or (iv) above which singly or in the aggregate, would not have a material
adverse effect on the business, prospects, financial condition or results of
operations of the Company and its subsidiaries, taken as a whole.
(k) There are no legal or governmental proceedings pending or threatened
to which the Company or any of its subsidiaries is or could be a party or to
which any of their respective property is or could be subject that are required
to be described in the Registration Statement or the Prospectus and are not so
described; nor are there any statutes, regulations, contracts or other documents
that are required to be described in the Registration Statement or the
Prospectus or to be filed as exhibits to the Registration Statement that are not
so described or filed as required.
(l) Neither the Company nor any of its subsidiaries has violated any
foreign, federal, state or local law or regulation relating to the protection of
human health and safety, the environment or hazardous or toxic substances or
wastes, pollutants or contaminants ("ENVIRONMENTAL LAWS") or any provisions of
the Employee Retirement Income Security Act of 1974, as amended, or the rules
and regulations promulgated thereunder, except for such violations which, singly
or in the aggregate, would not have a material adverse effect on the business,
prospects, financial condition or results of operation of the Company and its
subsidiaries, taken as a whole.
(m) Each of the Company and its subsidiaries has such permits, licenses,
consents, exemptions, franchises, authorizations and other approvals (each, an
"AUTHORIZATION") of, and has made all filings with
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and notices to, all governmental or regulatory authorities and self-regulatory
organizations and all courts and other tribunals, including, without limitation,
under any applicable Environmental Laws, as are necessary to own, lease, license
and operate its respective properties and to conduct its business, except where
the failure to have any such Authorization or to make any such filing or notice
would not, singly or in the aggregate, have a material adverse effect on the
business, prospects, financial condition or results of operations of the Company
and its subsidiaries, taken as a whole. Each such Authorization is valid and in
full force and effect and each of the Company and its subsidiaries is in
compliance with all the terms and conditions thereof and with the rules and
regulations of the authorities and governing bodies having jurisdiction with
respect thereto; and no event has occurred (including, without limitation, the
receipt of any notice from any authority or governing body) which allows or,
after notice or lapse of time or both, would allow, revocation, suspension or
termination of any such Authorization or results or, after notice or lapse of
time or both, would result in any other impairment of the rights of the holder
of any such Authorization; and such Authorizations contain no restrictions that
are burdensome to the Company or any of its subsidiaries; except where such
failure to be valid and in full force and effect or to be in compliance, the
occurrence of any such event or the presence of any such restriction would not,
singly or in the aggregate, have a material adverse effect on the business,
prospects, financial condition or results of operations of the Company and its
subsidiaries, taken as a whole.
(n) There are no costs or liabilities associated with Environmental Laws
(including, without limitation, any capital or operating expenditures required
for clean-up, closure of properties or compliance with Environmental Laws or any
Authorization, any related constraints on operating activities and any potential
liabilities to third parties) which would, singly or in the aggregate, have a
material adverse effect on the business, prospects, financial condition or
results of operations of the Company and its subsidiaries, taken as a whole.
(o) This Agreement has been duly authorized, executed and delivered by
the Company.
(p) Arthur Andersen LLP are independent public accountants with respect
to the Company and its subsidiaries as required by the Act.
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(q) The consolidated financial statements included in the Registration
Statement and the Prospectus (and any amendment or supplement thereto), together
with related schedules and notes, present fairly the consolidated financial
position, results of operations and changes in financial position of the Company
and its subsidiaries on the basis stated therein at the respective dates or for
the respective periods to which they apply; such statements and related
schedules and notes have been prepared in accordance with generally accepted
accounting principles consistently applied throughout the periods involved,
except as disclosed therein; the supporting schedules, if any, included in the
Registration Statement present fairly in accordance with generally accepted
accounting principles the information required to be stated therein; and the
other financial and statistical information and data set forth in the
Registration Statement and the Prospectus (and any amendment or supplement
thereto) are, in all material respects, accurately presented and prepared on a
basis consistent with such financial statements and the books and records of the
Company.
(r) The Company is not and, after giving effect to the offering and sale
of the Shares and the application of the proceeds thereof as described in the
Prospectus, will not be, an "investment company" as such term is defined in the
Investment Company Act of 1940, as amended.
(s) Other than registration rights granted under the following
agreements, for which written waivers have been obtained: (i) Registration
Rights Agreement, dated , between the Company and Stinbes Ltd., (ii)
Registration Rights Agreement, dated , between the Company and Dunston Ltd.,
(iii) Registration Rights Agreement, dated , between the Company and
Nicholas Schlunberger, (iv) Registration Rights Agreement, dated , between
the Company and Bankers Trust New York Corporation and (v) Registration Rights
Agreement, dated , between the Company and Peregrine Direct Investments
Limited, there are no contracts, agreements or understandings between the
Company and any person granting such person the right to require the Company to
file a registration statement under the Act with respect to any securities of
the Company or to require the Company to include such securities with the Shares
registered pursuant to the Registration Statement.
(t) Since the respective dates as of which information is given in the
Prospectus other than as
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set forth in the Prospectus (exclusive of any amendments or supplements thereto
subsequent to the date of this Agreement), (i) there has not occurred any
material adverse change or any development involving a prospective material
adverse change in the condition, financial or otherwise, or the earnings,
business, management or operations of the Company and its subsidiaries, taken as
a whole, (ii) there has not been any material adverse change or any development
involving a prospective material adverse change in the capital stock or in the
long-term debt of the Company or any of its subsidiaries and (iii) neither the
Company nor any of its subsidiaries has incurred any material liability or
obligation, direct or contingent.
(u) Each certificate signed by any officer of the Company and delivered
to the Underwriters or counsel for the Underwriters shall be deemed to be a
representation and warranty by the Company to the Underwriters as to the matters
covered thereby.
(v) The Company and its subsidiaries have good and marketable title in
fee simple to all real property and good and marketable title to all personal
property owned by them which is material to the business of the Company and its
subsidiaries, in each case free and clear of all liens, encumbrances and defects
except such as are described in the Prospectus or such as do not materially
affect the value of such property and do not interfere with the use made and
proposed to be made of such property by the Company and its subsidiaries; and
any real property and buildings held under lease by the Company and its
subsidiaries are held by them under valid, subsisting and enforceable leases
with such exceptions as are not material and do not interfere with the use made
and proposed to be made of such property and buildings by the Company and its
subsidiaries, in each case except as described in the Prospectus.
(w) No relationship, direct or indirect, exists between or among the
Company or any of its subsidiaries on the one hand, and the directors, officers,
stockholders, customers or suppliers of the Company or any of its subsidiaries
on the other hand, which is required by the Act to be described in the
Registration Statement or the Prospectus which is not so described.
(x) There is no (i) significant unfair labor practice complaint,
grievance or arbitration proceeding pending or threatened against the Company or
any of its subsidiaries before the National Labor Relations Board
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or any state or local labor relations board, (ii) strike, labor dispute,
slowdown or stoppage pending or threatened against the Company or any of its
subsidiaries or (iii) union representation question existing with respect to the
employees of the Company and its subsidiaries, except for such actions specified
in clause (i), (ii) or (iii) above, which, singly or in the aggregate, would not
have a material adverse effect on the business, prospects, financial condition
or results of operations of the Company and its subsidiaries, taken as a whole.
(y) The pro forma financial statements of the Company and its
subsidiaries and the related notes thereto set forth in the Registration
Statement and the Prospectus (and any supplement or amendment thereto) have been
prepared on a basis consistent with the historical financial statements of the
Company and its subsidiaries, give effect to the assumptions used in the
preparation thereof on a reasonable basis and in good faith and present fairly
the historical and proposed transactions contemplated by the Registration
Statement and the Prospectus. Such pro forma financial statements have been
prepared in accordance with the applicable requirements of Rule 11-02 of
Regulation S-X promulgated by the Commission. The other pro forma financial and
statistical information and data set forth in the Registration Statement and the
Prospectus (and any supplement or amendment thereto) are, in all material
respects, accurately presented and prepared on a basis consistent with the pro
forma financial statements.
(z) The Company and each of its subsidiaries maintains a system of
internal accounting controls sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or specific
authorizations; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain asset accountability; (iii) access to
assets is permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
SECTION 7. Representations and Warranties of the Selling Stockholder.
The Selling Stockholder represents and warrants to each Underwriter that:
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<PAGE>
(a) The Selling Stockholder is the lawful owner of the Additional Shares
to be sold by such Selling Stockholder pursuant to this Agreement and has, and
on the Closing Date will have, good and clear title to the Additional Shares,
free of all restrictions on transfer, liens, encumbrances, security interests,
equities and claims whatsoever.
(b) The Additional Shares to be sold by the Selling Stockholder have been
duly authorized and are validly issued, fully paid and non-assessable.
(c) The Selling Stockholder has, and on the Closing Date will have, full
legal right, power and authority, and all authorization and approval required by
law, to enter into this Agreement and to sell, assign, transfer and deliver the
Additional Shares to be sold by the Selling Stockholder in the manner provided
herein and therein.
(d) This Agreement has been duly authorized, executed and delivered by or
on behalf of the Selling Stockholder.
(e) Intentionally omitted.
(f) Intentionally omitted.
(g) Upon delivery of and payment for the Additional Shares to be sold by
the Selling Stockholder pursuant to this Agreement, good and clear title to such
Additional Shares will pass to the Underwriters, free of all restrictions on
transfer, liens, encumbrances, security interests, equities and claims
whatsoever.
(h) The execution, delivery and performance of this Agreement by the
Selling Stockholder, the compliance by the Selling Stockholder with all the
provisions hereof and the consummation of the transactions contemplated hereby
will not (i) require any consent, approval, authorization or other order of, or
qualification with, any court or governmental body or agency (except such as
may be required under the securities or Blue Sky laws of the various states),
(ii) conflict with or constitute a breach of any of the terms or provisions of,
or a default under any indenture, loan agreement, mortgage, lease or other
agreement or instrument to which the Selling Stockholder is a party or by which
the Selling Stockholder or any property of the Selling Stockholder is bound or
(iii) violate or conflict with any applicable law or any rule, regulation,
judgment, order
17
<PAGE>
or decree of any court or any governmental body or agency having jurisdiction
over the Selling Stockholder or any property of the Selling Stockholder.
(i) The information in the Registration Statement under the caption
"Principal and Selling Stockholders" which specifically relates to the Selling
Stockholder does not, and will not on the Closing Date, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(j) At any time during the period described in Section 5(d), if there is
any change in the information referred to in Section 7(i), the Selling
Stockholder will immediately notify you of such change.
(k) Each certificate signed by or on behalf of the Selling Stockholder
and delivered to the Underwriters or counsel for the Underwriters shall be
deemed to be a representation and warranty by the Selling Stockholder to the
Underwriters as to the matters covered thereby.
SECTION 8. Indemnification. (a) The Sellers, jointly and severally,
agree to indemnify and hold harmless each Underwriter, its directors, its
officers and each person, if any, who controls any Underwriter within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act, from and
against any and all losses, claims, damages, liabilities and judgments
(including, without limitation, any legal or other expenses incurred in
connection with investigating or defending any matter, including any action,
that could give rise to any such losses, claims, damages, liabilities or
judgments) caused by any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement (or any amendment
thereto), the Prospectus (or any amendment or supplement thereto) or any
preliminary prospectus, or caused by any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, except insofar as such losses, claims,
damages, liabilities or judgments are caused by any such untrue statement or
omission or alleged untrue statement or omission based upon information relating
to any Underwriter furnished in writing to the Company by such Underwriter
expressly for use therein or; provided, however, that the foregoing indemnity
agreement with respect to any preliminary prospectus
18
<PAGE>
shall not inure to the benefit of any Underwriter who failed to deliver a
Prospectus (as then amended or supplemented, provided by the Company to the
several Underwriters in the requisite quantity and on a timely basis to permit
proper delivery on or prior to the Closing Date) to the person asserting any
losses, claims, damages, liabilities and judgments caused by any untrue
statement or alleged untrue statement of a material fact contained in any
preliminary prospectus, or caused by any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, if such material misstatement or omission or
alleged material mistatement or omission was cured in such Prospectus and such
Prospectus was required by law to be delivered at or prior to the written
confirmation of sale to such person. Notwithstanding the foregoing, the
aggregate liability of the Selling Stockholder pursuant to this Section 8(a)
shall be limited to an amount equal to the total proceeds (before deducting
expenses) received by the Selling Stockholder from the Underwriters for the sale
of the Additional Shares sold by the Selling Stockholder hereunder.
(b) Each Underwriter agrees, severally and not jointly, to indemnify and
hold harmless the Company, its directors, its officers who sign the Registration
Statement, each person, if any, who controls the Company within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act, the Selling Stockholder
and each person, if any, who controls the Selling Stockholder within the meaning
of Section 15 of the Act or Section 20 of the Exchange Act to the same extent as
the foregoing indemnity from the Sellers to such Underwriter but only with
reference to information relating to such Underwriter furnished in writing to
the Company by such Underwriter expressly for use in the Registration Statement
(or any amendment thereto), the Prospectus (or any amendment or supplement
thereto) or any preliminary prospectus.
(c) In case any action shall be commenced involving any person in respect
of which indemnity may be sought pursuant to Section 8(a) or 8(b) (the
"INDEMNIFIED PARTY"), the indemnified party shall promptly notify the person
against whom such indemnity may be sought (the "INDEMNIFYING PARTY") in writing
and the indemnifying party shall assume the defense of such action, including
the employment of counsel reasonably satisfactory to the indemnified party and
the payment of all fees and expenses of such counsel, as incurred (except that
in the case of any action in respect of
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<PAGE>
which indemnity may be sought pursuant to both Sections 8(a) and 8(b), the
Underwriter shall not be required to assume the defense of such action pursuant
to this Section 8(c), but may employ separate counsel and participate in the
defense thereof, but the fees and expenses of such counsel, except as provided
below, shall be at the expense of such Underwriter). Any indemnified party
shall have the right to employ separate counsel in any such action and
participate in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of the indemnified party unless (i) the employment of
such counsel shall have been specifically authorized in writing by the
indemnifying party, (ii) the indemnifying party shall have failed to assume the
defense of such action or employ counsel reasonably satisfactory to the
indemnified party or (iii) the named parties to any such action (including any
impleaded parties) include both the indemnified party and the indemnifying
party, and the indemnified party shall have been advised by such counsel that
there may be one or more legal defenses available to it which are different from
or additional to those available to the indemnifying party (in which case the
indemnifying party shall not have the right to assume the defense of such action
on behalf of the indemnified party). In any such case, the indemnifying party
shall not, in connection with any one action or separate but substantially
similar or related actions in the same jurisdiction arising out of the same
general allegations or circumstances, be liable for (i) the fees and expenses of
more than one separate firm of attorneys (in addition to any local counsel) for
all Underwriters, their officers and directors and all persons, if any, who
control any Underwriter within the meaning of either Section 15 of the Act or
Section 20 of the Exchange Act, (ii) the fees and expenses of more than one
separate firm of attorneys (in addition to any local counsel) for the Company,
its directors, its officers who sign the Registration Statement and all persons,
if any, who control the Company within the meaning of either such Section and
(iii) the fees and expenses of more than one separate firm of attorneys (in
addition to any local counsel) for the Selling Stockholder and all persons, if
any, who control the Selling Stockholder within the meaning of either such
Section, and all such fees and expenses shall be reimbursed as they are
incurred. In the case of any such separate firm for the Underwriters, their
officers and directors and such control persons of any Underwriters, such firm
shall be designated in writing by Donaldson, Lufkin & Jenrette Securities
Corporation. In the case of any such separate firm for the Company and such
directors,
20
<PAGE>
officers and control persons of the Company, such firm shall be designated in
writing by the Company. In the case of any such separate firm for the Selling
Stockholder and such control persons of the Selling Stockholder, such firm shall
be designated in writing by the Attorneys. The indemnifying party shall
indemnify and hold harmless the indemnified party from and against any and all
losses, claims, damages, liabilities and judgments by reason of any settlement
of any action (i) effected with its written consent or (ii) effected without its
written consent if the settlement is entered into more than twenty business days
after the indemnifying party shall have received a request from the indemnified
party for reimbursement for the fees and expenses of counsel (in any case where
such fees and expenses are at the expense of the indemnifying party) and, prior
to the date of such settlement, the indemnifying party shall have failed to
comply with such reimbursement request. No indemnifying party shall, without
the prior written consent of the indemnified party, effect any settlement or
compromise of, or consent to the entry of judgment with respect to, any pending
or threatened action in respect of which the indemnified party is or could have
been a party and indemnity or contribution may be or could have been sought
hereunder by the indemnified party, unless such settlement, compromise or
judgment (i) includes an unconditional release of the indemnified party from
all liability on claims that are or could have been the subject matter of such
action and (ii) does not include a statement as to or an admission of fault,
culpability or a failure to act, by or on behalf of the indemnified party.
(d) To the extent the indemnification provided for in this Section 8 is
unavailable to an indemnified party or insufficient in respect of any losses,
claims, damages, liabilities or judgments referred to therein, then each
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, liabilities and judgments (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Sellers on the one hand and the Underwriters on the other hand from the offering
of the Shares or (ii) if the allocation provided by clause 8(d)(i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause 8(d)(i) above but also the
relative fault of the Sellers on the one hand and the Underwriters on the other
hand in connection with the statements or omissions which
21
<PAGE>
resulted in such losses, claims, damages, liabilities or judgments, as well as
any other relevant equitable considerations. The relative benefits received by
the Sellers on the one hand and the Underwriters on the other hand shall be
deemed to be in the same proportion as the total net proceeds from the offering
(before deducting expenses) received by the Sellers, and the total underwriting
discounts and commissions received by the Underwriters, bear to the total price
to the public of the Shares, in each case as set forth in the table on the cover
page of the Prospectus. The relative fault of the Sellers on the one hand and
the Underwriters on the other hand shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by the Company or the Selling Stockholder on the one hand
or the Underwriters on the other hand and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Sellers and the Underwriters agree that it would not
be just and equitable if contribution pursuant to this Section 8(d) were
determined by pro rata allocation (even if the Underwriters were treated as one
entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to in the immediately
preceding paragraph. The amount paid or payable by an indemnified party as a
result of the losses, claims, damages, liabilities or judgments referred to in
the immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses incurred by such
indemnified party in connection with investigating or defending any matter,
including any action, that could have given rise to such losses, claims,
damages, liabilities or judgments. Notwithstanding the provisions of this
Section 8, no Underwriter shall be required to contribute any amount in excess
of the amount by which the total price at which the Shares underwritten by it
and distributed to the public were offered to the public exceeds the amount of
any damages which such Underwriter has otherwise been required to pay by reason
of such untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters' obligations to
contribute pursuant to this Section 8(d) are several in proportion to the
respective number of
22
<PAGE>
Shares purchased by each of the Underwriters hereunder and not joint.
(e) The remedies provided for in this Section 8 are not exclusive and
shall not limit any rights or remedies which may otherwise be available to any
indemnified party at law or in equity.
(f) The Selling Stockholder hereby designates The Fairchild Corporation,
Washington Dulles International Airport, 300 West Service Road, P.O. Box 10803,
Chantilly, Virginia 20153, as its authorized agent, upon which process may be
served in any action which may be instituted in any state or federal court in
the State of New York by any Underwriter, any director or officer of any
Underwriter or any person controlling any Underwriter asserting a claim for
indemnification or contribution under or pursuant to this Section 8, and the
Selling Stockholder will accept the jurisdiction of such court in such action,
and waives, to the fullest extent permitted by applicable law, any defense based
upon lack of personal jurisdiction or venue. A copy of any such process shall
be sent or given to the Selling Stockholder, at the address for notices
specified in Section 12 hereof.
SECTION 9. Conditions of Underwriters' Obligations. The several
obligations of the Underwriters to purchase the Firm Shares under this Agreement
are subject to the satisfaction of each of the following conditions:
(a) All the representations and warranties of the Company contained in
this Agreement shall be true and correct on the Closing Date with the same force
and effect as if made on and as of the Closing Date.
(b) If the Company is required to file a Rule 462(b) Registration
Statement after the effectiveness of this Agreement, such Rule 462(b)
Registration Statement shall have become effective by 10:00 P.M., New York City
time, on the date of this Agreement; and no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been commenced or shall be pending
before or contemplated by the Commission.
(c) You shall have received on the Closing Date a certificate dated the
Closing Date, signed by Colin M. Cohen and Donald E. Miller, in their capacities
as the Chief Financial Officer and General
23
<PAGE>
Counsel of the Company, confirming the matters set forth in Sections 6(t), 9(a)
and 9(b) and that the Company has complied with all of the agreements and
satisfied all of the conditions herein contained and required to be complied
with or satisfied by the Company on or prior to the Closing Date.
(d) Since the respective dates as of which information is given in the
Prospectus other than as set forth in the Prospectus (exclusive of any
amendments or supplements thereto subsequent to the date of this Agreement), (i)
there shall not have occurred any change or any development involving a
prospective change in the condition, financial or otherwise, or the earnings,
business, management or operations of the Company and its subsidiaries, taken as
a whole, (ii) there shall not have been any change or any development involving
a prospective change in the capital stock or in the long-term debt of the
Company or any of its subsidiaries and (iii) neither the Company nor any of its
subsidiaries shall have incurred any liability or obligation, direct or
contingent, the effect of which, in any such case described in clause 9(d)(i),
9(d)(ii) or 9(d)(iii), in your judgment, is material and adverse and, in your
judgment, makes it impracticable to market the Shares on the terms and in the
manner contemplated in the Prospectus.
(e) You shall have received on the Closing Date an opinion (satisfactory
to you and counsel for the Underwriters), dated the Closing Date, of Cahill
Gordon & Reindel, counsel for the Company, to the effect that:
(i) the Company has been duly incorporated, is validly existing as a
corporation in good standing under the laws of its jurisdiction of
incorporation and has the corporate power and authority to carry on its
business as described in the Prospectus and to own, lease and operate its
properties;
(ii) (x) the Shares to be issued and sold by the Company hereunder have
been duly authorized and, when issued and delivered to the Underwriters
against payment therefor as provided by this Agreement, will be validly
issued, fully paid and non-assessable, and (y) the issuance of such Shares
will not be subject to any preemptive or similar rights;
24
<PAGE>
(iii) this Agreement has been duly authorized, executed and delivered by
the Company ;
(iv) the authorized capital stock of the Company conforms in all
material respects as to legal matters to the description thereof contained
in the Prospectus;
(v) the Registration Statement has become effective under the Act, no
stop order suspending its effectiveness has been issued and no proceedings
for that purpose are, to the best of such counsel's knowledge after due
inquiry, pending before or contemplated by the Commission;
(vi) the statements under the captions "Description of Capital Stock,"
"Description of New Credit Facility," "Underwriting" and "Shares Eligible
for Future Sale" in the Prospectus and Item 15 of Part II of the
Registration Statement, insofar as such statements constitute a summary of
the legal matters, documents or proceedings referred to therein, are
accurate in all material respects;
(vii) the Company is not and, after giving effect to the offering and
sale of the Shares and the application of the proceeds thereof as described
in the Prospectus, will not be, an "investment company" as such term is
defined in the Investment Company Act of 1940, as amended;
(viii) (A) the Registration Statement and the Prospectus and any
supplement or amendment thereto (except for the financial statements and
other financial and statistical data included therein as to which no
opinion need be expressed) comply as to form with the Act, (B) we have
participated in conferences with officers and other representatives of the
Company, your representatives, representatives of the independent
accountants for the Company and counsel for the Company at which the
contents of the Registration Statement and the Prospectus and related
matters were discussed and, although we are not passing upon and do not
assume any responsibility for the accuracy, completeness or fairness of the
statements contained in the Registration Statement or the Prospectus
(except to the extent stated in subsections 9(f)(iv) and 9(f)(vi) above),
on the basis of the foregoing (relying as to materiality to the extent
deemed appropriate upon the opinions of officers
25
<PAGE>
and other representatives of the Company), no facts have come to our
attention which lead us to believe either that the Registration Statement,
at the time it became effective, contained an untrue statement of a
material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not misleading or that
the Prospectus, as of its date or as of the date hereof, contained or
contains an untrue statement or a material facto or omitted or omits to
state a material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading
(it being understood that we have not been requested to and do not make any
comment with respect to the financial statements and schedules and other
financial and statistical data included in the Registration Statement or
the Prospectus).
The opinion of Cahill Gordon & Reindel described in Section 9(f) above shall
be rendered to you at the request of the Company and shall so state therein.
(f) You shall have received on the Closing Date an opinion (satisfactory
to you and counsel for the Underwriters), dated the Closing Date, of Donald E
Miller, general counsel for the Company, to the effect that:
(i) each of the material subsidiaries of the Company has been duly
incorporated, is validly existing as a corporation in good standing under
the laws of its jurisdiction of incorporation and has the corporate power
and authority to carry on its business as described in the Prospectus and
to own, lease and operate its properties;
(ii) each of the Company and its material subsidiaries is duly qualified
and is in good standing as a foreign corporation authorized to do business
in each jurisdiction in which the nature of its business or its ownership
or leasing of property requires such qualification, except where the
failure to be so qualified would not have a material adverse effect on the
business, prospects, financial condition or results of operations of the
Company and its subsidiaries, taken as a whole;
(iii) all of the outstanding shares of capital stock of each of the
Company's subsidiaries are owned by the Company, directly or indirectly
through one or more subsidiaries, free
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and clear of any security interest, claim, lien, encumbrance or adverse
interest of any nature;
(iv) neither the Company nor any of its material subsidiaries is in
violation of its respective charter or by-laws and, to the best of such
counsel's knowledge after due inquiry, neither the Company nor any of its
material subsidiaries is in default in the performance of any obligation,
agreement, covenant or condition contained in any indenture, loan
agreement, mortgage, lease or other agreement or instrument that is
material to the Company and its material subsidiaries, taken as a whole, to
which the Company or any of its material subsidiaries is a party or by
which the Company or any of its material subsidiaries or their respective
property is bound;
(v) the execution, delivery and performance of this Agreement by the
Company, the compliance by the Company with all the provisions hereof and
the consummation of the transactions contemplated hereby will not (A)
require any consent, approval, authorization or other order of, or
qualification with, any court or governmental body or agency (except such
as may be required under the securities or Blue Sky laws of the various
states), (B) conflict with or constitute a breach of any of the terms or
provisions of, or a default under, the charter or by-laws of the Company or
any of its material subsidiaries or any indenture, loan agreement,
mortgage, lease or other agreement or instrument that is material to the
Company and its material subsidiaries, taken as a whole, to which the
Company or any of its material subsidiaries is a party or by which the
Company or any of its material subsidiaries or their respective property is
bound, (C) violate or conflict with any applicable law or any rule,
regulation, judgment, order or decree of any court or any governmental body
or agency having jurisdiction over the Company, any of its material
subsidiaries or their respective property or (D) result in the suspension,
termination or revocation of any Authorization of the Company or any of its
material subsidiaries or any other impairment of the rights of the holder
of any such Authorization;
(vi) after due inquiry, such counsel does not know of any legal or
governmental proceedings pending or threatened to which the Company or any
27
<PAGE>
of its subsidiaries is or could be a party or to which any of their
respective property is or could be subject that are required to be
described in the Registration Statement or the Prospectus and are not so
described, or of any statutes, regulations, contracts or other documents
that are required to be described in the Registration Statement or the
Prospectus or to be filed as exhibits to the Registration Statement that
are not so described or filed as required;
(vii) to the best of such counsel's knowledge after due inquiry, there
are no contracts, agreements or understandings between the Company and any
person granting such person the right to require the Company to file a
registration statement under the Act with respect to any securities of the
Company or to require the Company to include such securities with the
Shares registered pursuant to the Registration Statement;
(viii) each document, if any, filed pursuant to the Exchange Act and
incorporated by reference in the Prospectus (except for financial
statements and other financial data included therein as to which no opinion
need be expressed) complied when so filed as to form with the Exchange Act.
(ix) since the respective dates as of which information is given in the
Prospectus other than as set forth in the Prospectus (exclusive of any
amendments or supplements thereto subsequent to the date of this
Agreement), (i) there has not occurred any material adverse change or any
development involving a prospective material adverse change in the
condition, financial or otherwise, or the earnings, business, management or
operations of the Company and its subsidiaries, taken as a whole, (ii)
there has not been any material adverse change or any development involving
a prospective material adverse change in the capital stock or in the long-
term debt of the Company or any of its subsidiaries and (iii) neither the
Company nor any of its subsidiaries has incurred any material liability or
obligation, direct or contingent;
The opinion of Donald E. Miller, Esq. described in Section 9(g) above shall be
rendered to you at the request of the Company and shall so state therein.
(g) You shall have received on the Closing Date an opinion, dated the
Closing Date, of Skadden,
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<PAGE>
Arps, Slate, Meagher & Flom LLP, counsel for the Underwriters, as to the matters
referred to in Sections 9(f)(ii), 9(f)(iii), 9(f)(vi) (but only with respect to
the statements under the caption "Description of Capital Stock") and 9(f)(viii).
In giving such opinions with respect to the mat ters covered by Section
9(f)(viii), Cahill Gordon & Reindel may state that their opinion and belief are
based upon their participation in the preparation of the Registration Statement
and Prospectus and any amendments or supplements thereto and documents incor
porated therein by reference and review and discussion of the contents thereof,
but is without independent check or verification except as specified. In giving
such opinions with respect to the matters covered by section 9(f)(viii) above,
Skadden, Arps, Slate, Meagher & Flom LLP may state that their opinion and belief
are based upon their participation in the preparation of the Registration
Statement and Prospectus and any amendments or supplements thereto (other than
the documents incorporated therein by reference) and review and discussion of
the contents thereof (including the documents incorporated therein by
reference), but are without independent check or verification except as
specified.
(h) You shall have received, on each of the date hereof and the Closing
Date, a letter dated the date hereof or the Closing Date, as the case may be, in
form and substance satisfactory to you, from Arthur Andersen LLP, independent
public accountants, containing the information and statements of the type
ordinarily included in accountants' "comfort letters" to Underwriters with
respect to the financial statements and certain financial information contained
in or incorporated by reference into the Registration Statement and the
Prospectus.
(i) The Company shall have delivered to you the agreements specified in
Section 2 hereof other than the agreements of the Selling Stockholder which
agreements shall be in full force and effect on the Closing Date.
(j) The Shares shall have been duly listed, subject to notice of
issuance, on the NYSE.
(k) The Company and the Selling Stockholder shall not have failed on or
prior to the Closing Date to perform or comply with any of the agreements herein
contained and required to be performed or complied with
29
<PAGE>
by the Company or the Selling Stockholder, as the case may be, on or prior to
the Closing Date.
(l) You shall have received on the Closing Date, a certificate of each
Selling Stockholder who is not a U.S. Person (as defined under applicable U.S.
federal tax legislation) to the effect that such Selling Stockholder is not a
U.S. Person, which certificate may be in the form of a properly completed and
executed United States Treasury Department Form W-8 (or other applicable form or
statement specified by Treasury Department regulations in lieu thereof).
SECTION 10. Conditions of Underwriters' Obligations with Respect to the
Additional Shares. The several obligations of the Underwriters to purchase any
Additional Shares hereunder (i) are subject to the delivery to you on the
applicable Option Closing Date of such documents as you may reasonably request
with respect to the good standing of the Company, the due authorization and
issuance of such Additional Shares and other matters related to the issuance of
such Additional Shares and (ii) are subject to the satisfaction of each of the
following conditions:
(a) All the representations and warranties of the Selling Stockholder
contained in this Agreement shall be true and correct on the Closing Date with
the same force and effect as if made on and as of the Closing Date and you shall
have received on the Closing Date a certificate dated the Closing Date from the
Selling Stockholder to such effect and to the effect that the Selling
Stockholder has complied with all of the agreements and satisfied all of the
conditions herein contained and required to be complied with or satisfied by the
Selling Stockholder on or prior to the Closing Date.
(b) You shall have received on the Option Closing Date an opinion
(satisfactory to you and counsel for the Underwriters), dated the Closing Date,
of Cahill Gordon & Reindel, counsel to the Selling Stockholder, to the effect
that:
(i) assuming that the Shares have been validly issued by the Company and
are fully paid and non-assessable, and based solely upon a review of (a)
the stock records of the Company, (b) the certificate or certificates
representing the Shares to be sold at; and
(ii) upon delivery of and payment for the Shares to be sold by each
Selling Stockholder
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<PAGE>
pursuant to this Agreement, good and clear title to such Shares will pass
to the Underwriters, free of all restrictions on transfer, liens,
encumbrances, security interests, equities and claims whatsoever.
The opinion of Cahill Gordon & Reindel described in Section 10(a) above shall be
rendered to you at the request of the Company and the Selling Stockholder and
shall so state therein.
SECTION 11. Effectiveness of Agreement and Termination. This Agreement
shall become effective upon the execution and delivery of this Agreement by the
parties hereto.
This Agreement may be terminated at any time on or prior to the Closing
Date by you by written notice to the Sellers if any of the following has
occurred: (i) any outbreak or escalation of hostilities or other national or
international calamity or crisis or change in economic conditions or in the
financial markets of the United States or elsewhere that, in your judgment, is
material and adverse and, in your judgment, makes it impracticable to market the
Shares on the terms and in the manner contemplated in the Prospectus, (ii) the
suspension or material limitation of trading in securities or other instruments
on the New York Stock Exchange, the American Stock Exchange, the Chicago Board
of Options Exchange, the Chicago Mercantile Exchange, the Chicago Board of Trade
or the Nasdaq National Market or limitation on prices for securities or other
instruments on any such exchange or the Nasdaq National Market, (iii) the
suspension of trading of any securities of the Company on any exchange or in the
over-the-counter market, (iv) the enactment, publication, decree or other
promulgation of any federal or state statute, regulation, rule or order of any
court or other governmental authority which in your opinion materially and
adversely affects, or will materially and adversely affect, the business,
prospects, financial condition or results of operations of the Company and its
subsidiaries, taken as a whole, (v) the declaration of a banking moratorium by
either federal or New York State authorities or (vi) the taking of any action by
any federal, state or local government or agency in respect of its monetary or
fiscal affairs which in your opinion has a material adverse effect on the
financial markets in the United States.
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<PAGE>
If on the Closing Date or on an Option Closing Date, as the case may be,
any one or more of the Underwriters shall fail or refuse to purchase the Firm
Shares or Additional Shares, as the case may be, which it has or they have
agreed to purchase hereunder on such date and the aggregate number of Firm
Shares or Additional Shares, as the case may be, which such defaulting
Underwriter or Underwriters agreed but failed or refused to purchase is not more
than one-tenth of the total number of Firm Shares or Additional Shares, as the
case may be, to be purchased on such date by all Underwriters, each non-
defaulting Underwriter shall be obligated severally, in the proportion which the
number of Firm Shares set forth opposite its name in Schedule I bears to the
total number of Firm Shares which all the non-defaulting Underwriters have
agreed to purchase, or in such other proportion as you may specify, to purchase
the Firm Shares or Additional Shares, as the case may be, which such defaulting
Underwriter or Underwriters agreed but failed or refused to purchase on such
date; provided that in no event shall the number of Firm Shares or Additional
Shares, as the case may be, which any Underwriter has agreed to purchase
pursuant to Section 2 hereof be increased pursuant to this Section 10 by an
amount in excess of one-ninth of such number of Firm Shares or Additional
Shares, as the case may be, without the written consent of such Underwriter. If
on the Closing Date any Underwriter or Underwriters shall fail or refuse to
purchase Firm Shares and the aggregate number of Firm Shares with respect to
which such default occurs is more than one-tenth of the aggregate number of Firm
Shares to be purchased by all Underwriters and arrangements satisfactory to
you, the Company and the Selling Stockholder for purchase of such Firm Shares
are not made within 48 hours after such default, this Agreement will terminate
without liability on the part of any non-defaulting Underwriter, the Company or
the Selling Stockholder. In any such case which does not result in termination
of this Agreement, either you or the Sellers shall have the right to postpone
the Closing Date, but in no event for longer than seven days, in order that the
required changes, if any, in the Registration Statement and the Prospectus or
any other documents or arrangements may be effected. If, on an Option Closing
Date, any Underwriter or Underwriters shall fail or refuse to purchase
Additional Shares and the aggregate number of Additional Shares with respect to
which such default occurs is more than one-tenth of the aggregate number of
Additional Shares to be purchased on such date, the non-defaulting Underwriters
shall have the option to (i) terminate their obligation hereunder to purchase
32
<PAGE>
such Additional Shares or (ii) purchase not less than the number of Additional
Shares that such non-defaulting Underwriters would have been obligated to
purchase on such date in the absence of such default. Any action taken under
this paragraph shall not relieve any defaulting Underwriter from liability in
respect of any default of any such Underwriter under this Agreement.
SECTION 12. Agreements of the Selling Stockholder. The Selling
Stockholder agrees with you and the Company:
(a) To pay or to cause to be paid all transfer taxes payable in
connection with the transfer of the Shares to be sold by the Selling Stockholder
to the Underwriters.
(b) To do and perform all things to be done and performed by the Selling
Stockholder under this Agreement prior to the Closing Date and to satisfy all
conditions precedent to the delivery of the Shares to be sold by the Selling
Stockholder pursuant to this Agreement.
SECTION 13. Miscellaneous. Notices given pursuant to any provision of
this Agreement shall be addressed as follows: (i) if to the Company, to The
Fairchild Corporation, Washington Dulles International Airport, 300 West Service
Road, P.O. 10803, Chantilly, Virginia 20153 with a copy to James J. Clark at
Cahill Gordon & Reindel, 80 Pine Street, New York, New York 10005, (ii) if to
the Selling Stockholder, to such Selling Stockholder at The Fairchild
Corporation, Washington Dulles International Airport, 300 West Service Road,
P.O. 10803, Chantilly, Virginia 20153 with a copy to James J. Clark at Cahill
Gordon & Reindel, 80 Pine Street, New York, New York 10005, , and (iii) if to
any Underwriter or to you, to you c/o Donaldson, Lufkin & Jenrette Securities
Corporation, 277 Park Avenue, New York, New York 10172, Attention: Syndicate
Department, or in any case to such other address as the person to be notified
may have requested in writing.
The respective indemnities, contribution agreements, representations,
warranties and other statements of the Company, the Selling Stockholder and the
several Underwriters set forth in or made pursuant to this Agreement shall
remain operative and in full force and effect, and will survive delivery of and
payment for the Shares, regardless of (i) any investigation, or statement as to
the results thereof,
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<PAGE>
made by or on behalf of any Underwriter, the officers or directors of any
Underwriter, any person controlling any Underwriter, the Company, the officers
or directors of the Company, any person controlling the Company, the Selling
Stockholder or any person controlling the Selling Stockholder, (ii) acceptance
of the Shares and payment for them hereunder and (iii) termination of this
Agreement.
If for any reason the Shares are not delivered by or on behalf of any
Seller as provided herein (other than as a result of any termination of this
Agreement pursuant to Section 11), the Sellers agree, jointly and severally, to
reimburse the several Underwriters for all out-of-pocket expenses (including the
fees and disbursements of counsel) incurred by them. Notwithstanding any
termination of this Agreement, the Company shall be liable for all expenses
which it has agreed to pay pursuant to Section 5(i) hereof. The Sellers also
agree, jointly and severally, to reimburse the several Underwriters, their
directors and officers and any persons controlling any of the Underwriters for
any and all fees and expenses (including, without limitation, the fees
disbursements of counsel) incurred by them in connection with enforcing their
rights hereunder (including, without limitation, pursuant to Section 8 hereof).
Except as otherwise provided, this Agreement has been and is made solely
for the benefit of and shall be binding upon the Company, the Selling
Stockholder, the Underwriters, the Underwriters' directors and officers, any
controlling persons referred to herein, the Company's directors and the
Company's officers who sign the Registration Statement and their respective
successors and assigns, all as and to the extent provided in this Agreement, and
no other person shall acquire or have any right under or by virtue of this
Agreement. The term "successors and assigns" shall not include a purchaser of
any of the Shares from any of the several Underwriters merely because of such
purchase.
This Agreement shall be governed and construed in accordance with the
laws of the State of New York.
This Agreement may be signed in various counterparts which together shall
constitute one and the same instrument.
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<PAGE>
Please confirm that the foregoing correctly sets forth the agreement
among the Company, the Selling Stockholder and the several Underwriters.
Very truly yours,
THE FAIRCHILD CORPORATION
By: ______________________
Name:
Title:
_________________________
JEFFREY J. STEINER
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
BT ALEX. BROWN INCORPORATED
SBC WARBURG DILLON READ, INC.
Acting severally on behalf of
themselves and the several
Underwriters named in
Schedule I hereto
By DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By ___________________________
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SCHEDULE I
----------
Number of Firm
Shares
Underwriters to be Purchased
- ------------ ---------------
Donaldson, Lufkin & Jenrette
Securities Corporation
BT Alex. Brown Incorporated
SBC Warburg Dillon Read Inc.
---------------
Total
<PAGE>
SCHEDULE II
-----------
SELLING STOCKHOLDER
Name
====
Jeffrey J. Steiner
<PAGE>
ANNEX I: MATERIAL SUBSIDIARIES
RHI Holdings, Inc.
Banner Aerospace, Inc.
Fairchild Holding Corp.
Mairoll, Inc.
Fairchild Technologies, Inc.
<PAGE>
EXHIBIT 5.1
LETTERHEAD OF CAHILL GORDON & REINDEL
-------------------------------------
December 15, 1997
212-701-3000
Re: The Fairchild Corporation
Registration Statement on Form S-3 (No. 333-37297)
--------------------------------------------------
Dear Ladies and Gentlemen:
As counsel for The Fairchild Corporation (the "Company"), we are
representing the Company in connection with the registration statement on Form
S-3 (the "Registration Statement") filed with the Securities and Exchange
Commission on October 6, 1997, as amended, relating to the registration under
the Securities Act of 1933, as amended, of 3,700,000 shares of the Company's
Class A common stock, par value $.10 per share, (the "Common Stock").
We advise you that in our opinion the Common Stock to be sold by the
Company, when issued in the manner and for the consideration contemplated by the
Registration Statement, will be validly issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion as an Exhibit to the
Registration Statement and to the reference to our firm under the caption
"Legal Matters" in the Registration Statement and related Prospectus. Our
consent to such reference does not constitute a consent under Section 7 of the
Act, as in consenting to such reference we have not certified any part of the
Registration Statement and do not otherwise come within the categories or
persons whose consent is required under said Section 7 or under the rules and
regulations of the Securities and Exchange Commission thereunder.
Very truly yours,
Cahill Gordon & Reindel
<PAGE>
EXHIBIT 23.1
CONSENT OF ARTHUR ANDERSEN LLP
As independent public accountants, we hereby consent to the use of our
report (and to all references to our firm) included in or made a part of this
registration statement.
/s/ Arthur Andersen LLP
-------------------------------------
ARTHUR ANDERSEN LLP
December 12, 1997
