<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 9, 1997
REGISTRATION NO. 333-37297
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 3
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 9, 1997
PROSPECTUS
, 1997
3,700,000 SHARES
THE FAIRCHILD CORPORATION
CLASS A COMMON STOCK
Of the 3,700,000 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"), 3,000,000 shares will be sold by the Company and
700,000 shares will be sold by certain Selling Stockholders. The Company will
not receive any of the proceeds from the sale of shares by the Selling
Stockholders. See "Principal and Selling Stockholders."
The Class A Common Stock has one vote per share, while the Class B Common
Stock of the Company, par value $0.10 per share (the "Class B Common Stock"
and, together with the Class A Common Stock, the "Common Stock"), has ten votes
per share. Upon completion of the Offering, Jeffrey J. Steiner, the Chairman of
the Board, Chief Executive Officer and President of the Company, who holds
substantially all of the Class B Common Stock, will have approximately 66.5% 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 8, 1997, the last
reported sale price of the Class A Common Stock on the New York Stock Exchange
was $21 13/16 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) STOCKHOLDERS
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share..................... $ $ $ $
Total (3)..................... $ $ $ $
- --------------------------------------------------------------------------------
</TABLE>
(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended (the "Securities Act"). See
"Underwriting."
(2) Before deducting expenses estimated at $ , payable by the Company.
(3) The Selling Stockholders have granted to the Underwriters an option,
exercisable within 30 days of the date hereof, to purchase in the aggregate
up to 547,000 additional shares of Class A Common Stock solely to cover
over-allotments, if any. If such option is exercised in full, the total
Price to the Public, Underwriting Discounts and Commissions, and Proceeds
to the Selling Stockholders will be $ , $ and $ , respectively. See
"Underwriting."
The shares of Class A Common Stock are being offered by the several
Underwriters when, as and if delivered to and accepted by the Underwriters
against payment therefor and subject to various prior conditions, including
their right to reject orders in whole or in part. It is expected that delivery
of the shares of Class A Common Stock will be made in New York, New York on or
about , 1997.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
BT ALEX. BROWN
SBC WARBURG DILLON READ INC.
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-3 under the Securities Act of
1933 (the "Securities Act") with respect to the Class A Common Stock offered
hereby. This Prospectus, which is part of the Registration Statement, does not
contain all the information set forth in the Registration Statement and the
exhibits and schedules thereto, certain items of which are omitted in
accordance with the rules and regulations of the Commission. The Company is
subject to the information requirements of the Securities Exchange Act of 1934
(the "Exchange Act") and, in accordance therewith, files reports and other
information with the Commission. For further information with respect to the
Company and the Common Stock offered hereby, reference is hereby made to the
Registration Statement and such exhibits and schedules filed as a part thereof
as well as such reports and other information filed by the Company, which may
be inspected and copied at prescribed rates at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the following regional offices of the
Commission: 7 World Trade Center, Suite 1300, New York, New York 10048, and
Northwest Atrium Center, 500 West Madison Street, 14th Floor, Chicago,
Illinois 60661. Copies of all or any portion of the Registration Statement may
be obtained from the Public Reference Section of the Commission, upon payment
of prescribed rates. The Commission also maintains a web site at
http://www.sec.gov which contains reports, proxy, and information statements
and other information regarding registrants that file electronically with the
Commission. The Company's Class A Common Stock is listed on the New York Stock
Exchange and the Pacific 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, the Company's Quarterly Report on Form 10-Q for the quarter ended
September 28, 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 Allied Signal 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 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
By the Selling Stockholders.............. 700,000 shares
----------------
Total................................ 3,700,000 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 66.5% 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 and
Selling 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 Stockholders.
NYSE Symbol................................. "FA"
</TABLE>
----------------
RISK FACTORS
An investment in the Class A Common Stock involves certain risks that a
prospective investor should carefully consider before investing in the Class A
Common Stock. See "Risk Factors."
- --------------------
(a) Excludes 2,720,250 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 (66.5% 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 12,731,716 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, and the Selling Stockholders have each agreed, subject to
certain exceptions, not to sell or otherwise dispose of any shares of Common
Stock or securities convertible into or exchangeable for Common Stock, without
the prior written consent of Donaldson, Lufkin & Jenrette Securities
Corporation ("DLJ"), for a period of 90 days from the date of this Prospectus.
The foregoing does not prohibit the Company from issuing the shares subject to
the Underwriters' over-allotment option or issuing options pursuant to its
stock option plans or shares pursuant to outstanding options or warrants. See
"Shares Eligible for Future Sale." Sales of substantial numbers of shares of
Class A Common Stock in the public market could adversely affect the market
price of the Class A Common Stock.
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 Stockholders.
DIVIDEND POLICY
The Company has not paid a dividend since Fiscal 1992 on its Common Stock.
The payment of cash dividends in the future will depend on the Company's
earnings, financial condition and capital needs and on other factors deemed
relevant by the Board of Directors at that time. It is the current policy of
the Company's Board of Directors to retain earnings to finance the operations
and expansion of the Company's business.
PRICE RANGE OF CLASS A COMMON STOCK
The Class A Common Stock is quoted on the New York Stock Exchange ("NYSE")
under the symbol "FA." The following table shows, for the periods indicated,
the range of high and low reported sale prices per share for the Class A
Common Stock as quoted on the NYSE.
<TABLE>
<CAPTION>
HIGH LOW
---- -------
<S> <C> <C>
FISCAL 1996
Quarter ended:
October 1, 1995............................................ $ 6 $ 2 7/8
December 31, 1995.......................................... 8 3/4 4 3/4
March 31, 1996............................................. 9 7/8 8
June 30, 1996.............................................. 15 7/8 9 1/4
FISCAL 1997
Quarter ended:
September 29, 1996......................................... $ 17 $12 1/4
December 29, 1996.......................................... 17 3/4 14 3/8
March 30, 1997............................................. 15 3/8 12 7/8
June 30, 1997.............................................. 18 11 5/8
FISCAL 1998
Quarter ended:
September 28, 1997......................................... $28 11/16 $17
Through December 8, 1997................................... 28 11/16 20 7/8
</TABLE>
On December 8, 1997, the last reported sale price of the Class A Common
Stock as quoted on the NYSE was $21 13/16. 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 holdings of Allied
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 deferred
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.
23
<PAGE>
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.
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
24
<PAGE>
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.
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.
25
<PAGE>
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.
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.
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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 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.
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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) 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.
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 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.
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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.
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.
34
<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.
35
<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.
36
<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.
37
<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.
38
<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
Samuel J. Krasney......... 72 Director
Daniel Lebard............. 58 Director
Senior Vice President, General Counsel and
Donald E. Miller.......... 50 Secretary
David Wynne-Morgan........ 66 Senior Vice President
Jacques S. Moskovic....... 60 Senior Vice President and Director
Herbert S. Richey......... 75 Director
Moshe Sanbar.............. 71 Director
Karen L. Schneckenburger.. 48 Vice President
Robert A. Sharpe II....... 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.
39
<PAGE>
Colin M. Cohen was Managing Director of Citicorp Securities, Inc. until
September 1996. He served in such capacity for more than five years. Mr. Cohen
became a director of the Company in September 1996, and the Company's Senior
Vice President--Business Development and Finance, and Chief Financial Officer,
effective October 1, 1996. He became Controller of the Company effective March
31, 1997. Pursuant to his employment agreement with the Company, Mr. Cohen is
to be nominated for election as a director every fiscal year during his term
of employment.
Philip David was a consultant to the Company from January 1988 to June 1993.
He was also an employee of the Company from January 1988 to December 1989. He
was a Professor of Urban Development at Massachusetts Institute of Technology
until June 1988. Dr. David is also a director of IRI International, Inc. He
became a director of the Company in 1985.
John L. Flynn has served as Senior Vice President, Tax, of the Company since
September 1994 and Vice President, Tax, since August 1989. Mr. Flynn also
served as Vice President, Tax, of Fairchild Industries from November 1986
through March 1996.
Harold J. Harris is President of Wm. H. Harris, Inc. He is a director of
Capital Properties Incorporated of Rhode Island. He became a director of the
Company in 1985.
Harold R. Johnson, Brig. Gen., USAF (Ret.), has served as Senior Vice
President, Business Development, of the Company since November 1990. General
Johnson also served as Vice President of Fairchild Industries from February
1988 through March 1996.
Robert H. Kelley has served as Vice President, Employee Benefits, of the
Company since November 1993. He also served as Vice President of Fairchild
Industries from November 1993 through March 1996. Prior thereto, he held other
management positions with Fairchild Industries.
Jeffrey P. Kenyon has served as Vice President of the Company since November
1996. Prior to that, he served as Vice President of Citicorp Securities, Inc.,
for more than five years.
Samual J. Krasney retired in 1993 as the Chairman of the Board, Chief
Executive Officer and President of Banner, positions he had held since June
1990. He continues to serve as a director of Banner and also serves as the
Vice Chairman of the Board of the Company. He served as the Chief Operating
Officer of the Company from December 1985 until December 1989. Mr. Krasney has
served as the managing partner of ABBA Capital Enterprises since October 1985.
Mr. Krasney is a director of FabriCenters of America, Inc. and Waxman
Industries, Inc. He became a director of the Company in 1968. Due to health
reasons, Mr. Krasney does not intend to stand for election as a director of
the Company at the November, 1997 annual meeting of stockholders.
Daniel Lebard is the Chairman of the Board of Daniel Lebard Management
Development SA, a consulting firm in Paris, France, which sells management
services. He has served in such capacity for more than the last five years.
Since 1995, he also serves as Chief Executive Officer of Groupe Sofrecid SA
and Kvaerner-Clecim SA, engineering companies whose headquarters are in Paris.
He became a director of the Company in 1996.
Donald E. Miller has served as Senior Vice President and General Counsel of
the Company since January 1991 and Corporate Secretary since January 1995. Mr.
Miller also served as Vice President and General Counsel of Fairchild
Industries from November 1991 through March 1996. Prior to 1991, Mr. Miller
was a principal of the law firm of Temkin & Miller, Ltd. in Providence, Rhode
Island. Mr. Miller is a director of Shared Technologies Fairchild Inc. and
General Counsel of Banner.
David Wynne-Morgan has served as Senior Vice President of the Company, 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.
40
<PAGE>
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.
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.
41
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding ownership of
the Class A Common Stock and Class B Common Stock as of 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, (iii) all directors and
executive officers of the Company as a group, and (iv) each stockholder
selling shares of Common Stock in the Offering (collectively, the "Selling
Stockholders"). To the knowledge of the Company, each of such stockholders has
sole voting and investment power as to the shares shown unless otherwise
noted. Unless otherwise noted, the address of each holder of five percent or
more of the Company's stock is the Company's corporate address.
<TABLE>
<CAPTION>
CLASS A STOCK CLASS B STOCK CLASS A STOCK CLASS B STOCK
BENEFICIALLY OWNED BENEFICIALLY OWNED BENEFICIALLY OWNED BENEFICIALLY OWNED
BEFORE OFFERING BEFORE OFFERING AFTER THE OFFERING(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) * -- -- 102,900(2)(6) * -- --
Samuel J.
Krasney(17)........ 700,000 5.0% -- -- 527,800 3.1% -- --
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% 6,102,684(4)(8) 30.6% 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% 6,241,834(10) 31.0% 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% 7,517,892(2)(13) 36.5% 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.
42
<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.
43
<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. Of the
547,000 shares subject to such option, 250,000 shares will be provided by
Bankers Trust New York Corporation, 250,000 shares will be provided by
Peregrine Direct Investments Limited, 27,800 shares will be provided by
Samuel J. Krasney and 19,200 shares will be provided by Harold J. Harris.
Of the 700,000 shares to be sold by the selling stockholders, 500,000
shares will be sold by Jeffrey J. Steiner (including the sale of 300,000
shares by Paske Investments, Ltd.), 172,200 shares will be sold by Samuel
J. Krasney and 27,800 shares will be sold by Harold J. Harris.
44
<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.
45
<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
46
<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.
47
<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.
48
<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 and the Selling Stockholders 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............................................................ 3,700,000
=========
</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 Stockholders have 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 547,000 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 Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments that the Underwriters may be
required to make in respect thereof.
Each of the Company, its executive officers and directors and certain
stockholders of the Company (including the Selling Stockholders) has 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,
49
<PAGE>
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) 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, directors and certain stockholders of the Company
(including the Selling Stockholders) has 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.
50
<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,
12,731,716 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, its executive officers and directors, the Selling Stockholders
and certain other holders of Common Stock of the Company have agreed that,
subject to certain exceptions for a period of 90 days after the date of this
Prospectus, they will not offer, sell, contract to sell, pledge or otherwise
dispose of, directly or indirectly, or file with 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.
51
<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)
--------- --------- ---------
Loss from continuing operations before
nonrecurring income and taxes............... (91,269) (58,257) (9,546)
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"). Nonrecurring income for 1996 was $161,406 and includes
a $163,130 nontaxable gain resulting from the merger of Fairchild
Communications Services Company into Shared Technologies Inc. (See Note 3).
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.
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).
Earnings Per Share: Primary and fully diluted earnings per share are
computed by dividing net income available to holders of the Company's common
stock, by the weighted average number of shares and share equivalents
outstanding during the period. To compute the incremental shares resulting
from stock options and warrants for primary earnings per share, the average
market price of the Company's stock during the period is used. To compute the
incremental shares resulting from stock options and warrants for fully diluted
earnings per share, the greater of the ending market price or the average
market price of the Company's stock is used. In computing primary and fully
diluted earnings per share for 1997 and in computing fully diluted earnings
per share for 1996, the conversion of options and warrants was assumed, as the
effect was dilutive. In computing primary earnings per share for Fiscal 1996,
only the dilutive effect from the conversion of options was assumed, as the
effect from the conversion of warrants alone was antidilutive. In computing
primary and fully diluted earnings per share for Fiscal 1995, the conversion
of options and warrants was not assumed, as the effect was antidilutive.
Stock-Based Compensation: In Fiscal 1997, the Company implemented Statement
of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-
Based Compensation". SFAS 123 establishes financial accounting standards for
stock-based employee compensation plans and for transactions in which an
entity issues equity instruments to acquire goods or services from non-
employees. As permitted by SFAS 123, the Company will continue to use the
intrinsic value based method of accounting prescribed by APB Opinion No. 25,
for its stock-based employee compensation plans. Fair market disclosures
required by SFAS 123 are included in Note 15.
Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Reclassifications: Certain amounts in prior years' financial statements have
been reclassified to conform to the 1997 presentation.
Recently Issued Accounting Pronouncements: In October 1996, the American
Institute of Certified Public Accountants issued Statement of Position 96-1
("SOP 96-1") "Environmental Remediation Liabilities". SOP 96-1 provides
authoritative guidance on specific accounting issues related to the
recognition, measurement, and
F-11
<PAGE>
THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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 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
F-12
<PAGE>
THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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 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.
F-13
<PAGE>
THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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>
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.
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>
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, ANY SELLING STOCKHOLDER, ANY UNDERWRITER OR ANY OTHER
PERSON. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY, ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES TO
WHICH IT RELATES, OR AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY, TO
ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHO-
RIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALI-
FIED TO DO SO, OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SO-
LICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUN-
DER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN
NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE IN-
FORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Available Information.................................................... 2
Incorporation of Certain Information by Reference........................ 2
Prospectus Summary....................................................... 3
The Company.............................................................. 3
Risk Factors............................................................. 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................................................................. 30
Management............................................................... 39
Principal and Selling Stockholders....................................... 42
The Disposition.......................................................... 45
Description of Capital Stock............................................. 46
Description of the New Credit Facility................................... 48
Underwriting............................................................. 49
Shares Eligible for Future Sale.......................................... 51
Legal Matters............................................................ 51
Experts.................................................................. 51
Index to Financial Statements............................................ F-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
3,700,000 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 and the New York Stock Exchange listing
fee). The Company will bear all expenses incurred in connection with the sale
of the Common Stock being registered hereby.
<TABLE>
<S> <C>
SEC Registration Fee................................................ $53,360
NASD Filing Fee..................................................... 18,109
New York Stock Exchange Listing Fee................................. 17,500
Pacific Exchange Listing Fee........................................ 7,500
Printing............................................................ *
Legal Fees and Expenses............................................. *
Accounting Fees and Expenses........................................ *
Stock Certificates and Transfer Agent Fees.......................... *
Miscellaneous....................................................... *
-------
Total............................................................. $ *
=======
</TABLE>
- ---------------------
* To be completed by amendment.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law (the "DGCL") makes
provision for the indemnification of officers and directors of corporations in
terms sufficiently broad to indemnify the officers and directors of the
registrant under certain circumstances for liabilities (including
reimbursement of expenses incurred) arising under the Securities Act of 1933,
as amended (the "Act").
The registrant's Bylaws (the "Bylaws") provide that the registrant may
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action by or
in the right of the registrant), by reason of the fact that he is or was a
director, officer, employee or agent of the registrant or is or was serving at
the request of the registrant as a director, officer, employee or agent of
another corporation or enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding.
ITEM 16. EXHIBITS.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
<C> <S>
*1.1 Form of Underwriting Agreement.
3.1 Registrant's Restated Certificate of Incorporation (incorporated
by reference to Exhibit "C" of Registrant's Proxy Statement dated
October 27, 1989).
3.2 Registrant's Amended and Restated By-Laws (incorporated by
reference to the Registrant's Annual Report on Form 10-K for the
fiscal year ended June 30, 1996).
4.1 Specimen of Class A Common Stock certificate (incorporated by
reference to Registration Statement No. 33-15359 on Form S-2).
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
<C> <S>
4.2 Specimen of Class B Common Stock certificate (incorporated by
reference to Registrant's Annual Report on Form 10-K for the
fiscal year ended June 30, 1989 (the "1989 10-K")).
4.3 Form of Indenture between Registrant and J. Henry Schroder Bank &
Trust Company, pursuant to which Registrant's 13 1/8% Subordinated
Debentures due 2006 (the "Senior Debentures") were issued (the
"Debenture Indenture"), and specimen of Senior Debenture
(incorporated by reference to Registration Statement No. 33-3521
on Form S-2).
4.4 First Supplemental Indenture dated as of November 26, 1986, to the
Debenture Indenture (incorporated by reference to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended December 31,
1986 (the "December 1986 10-Q")).
4.5 Form of Indenture between Registrant and Manufacturers Hanover
Trust Company pursuant to which Registrant's 12 1/4% Senior
Subordinated Notes due 1996 (the "Senior Notes") were issued (the
"Note Indenture"), and specimen of Senior Note (incorporated by
reference to Registration Statement No. 33-03521 on Form S-2).
4.6 First Supplemental Indenture dated as of November 26, 1986, to the
Note Indenture (incorporated by reference to the December 1986 10-
Q).
4.7 Indenture between Registrant and Connecticut National Bank (as
successor to National Westminster Bank) dated as of October 15,
1986, pursuant to which Registrant's Intermediate Subordinated
Debentures due 2001 (the "Intermediate Debentures") were issued,
and specimen of Intermediate Debenture (incorporated by reference
to Registrant's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1986 (the "September 1986 10-Q")).
4.8 Indenture between Rexnord Acquisition Corp. ("RAC") and Bank of
New York (as successor to Irving Trust Company) dated as of March
2, 1987, pursuant to which RAC's Senior Subordinated Debentures
due 1999 (the "Rexnord Senior Debentures") were issued (the
"Rexnord Senior Indenture"), and specimen of Rexnord Senior
Debenture incorporated by reference to Registrant's Annual Report
on Form 10-K for fiscal year ended June 30, 1987 (the "1987 10-
K").
4.9 First Supplemental Indenture between Rexnord Inc. ("Rexnord") (as
successor to RAC) and Irving Trust Company dated as of July 1,
1987, to the Rexnord Senior Indenture (incorporated by reference
to Registration Statement No. 33-15359 on Form S-2).
4.10 Second Supplemental Indenture between Rexnord Holdings Inc., now
known as RHI Holdings, Inc. ("RHI") (as successor to Rexnord) and
Irving Trust Company dated as of August 16, 1988, to the Rexnord
Senior Indenture (incorporated by reference to Registrant's Annual
Report on Form 10-K for the fiscal year ended June 30, 1988 (the
"1988 10-K")).
4.11 Indenture between Registrant and Norwest Bank Minneapolis, N.A.
dated as of March 2, 1987, pursuant to which Registrant's Junior
Subordinated Debentures due 2007 (the "Junior Debentures") were
issued, and specimen of Junior Debenture (incorporated by
reference to Final Amendment to Tender Offer Statement on Schedule
14D-1 of Banner Acquisition Corp. ("BAC") dated March 9, 1987).
4.12 First Supplemental Indenture between Registrant and Norwest Bank,
Minnesota Bank, N.A., dated as of February 28, 1991, to Indenture
dated as of March 2, 1987, relating to the Junior Debentures
(incorporated by reference to the 1991 10-K).
4.13 Securities Purchase Agreement dated as of October 15, 1986, by and
among Registrant and each of the Purchasers of the Intermediate
Debentures (incorporated by reference to the September 1986 10-Q).
4.14 Securities Purchase Agreement dated as of March 2, 1987, by and
among Registrant, RAC and each of the Purchasers of the Junior
Debentures, the Rexnord Senior Debentures and other securities
(incorporated by reference to the 1987 10-K).
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
<C> <S>
4.15 Registration Rights Agreement dated as of October 15, 1986, by and
among Registrant and each of the purchasers of the Intermediate
Debentures (incorporated by reference to the September 1986 10-Q).
4.16 Registration Rights Agreement dated as of March 2, 1987, by and
among Registrant, RAC and each of the purchasers of the Junior
Debentures, the Rexnord Senior Debentures and other securities
(incorporated by reference to Registrant's Report on Form 8-K
dated March 17, 1987).
*5.1 Opinion of Cahill Gordon & Reindel as to the legality of the
Common Stock.
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).
24.1 Powers of Attorney (set forth on the signature page 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>
- ---------------------
* To be filed by amendment.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer, or controlling person of the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by
the final adjudication of such issue. The undersigned Registrant hereby
undertakes to provide to the Underwriters at the closing specified in the
Underwriting Agreement certificates in such denominations and registered in
such names as required by the Underwriters to permit prompt delivery to each
purchaser. The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(3) For the purposes of determining any liability under the Securities
Act of 1933, each filing of the registrant's annual report pursuant to
section 13(a) or section 15(d) of the securities Exchange Act of 1934 (and,
where applicable, each filing of an employee benefit plan's annual report
pursuant to section 15(d) of
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 9, 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 9, 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).
*5.1 Opinion of Cahill Gordon & Reindel as to the
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.
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
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>
- ---------------------
* To be filed by amendment.
<PAGE>
EXHIBIT 10.1
_______________________________________________
ASSET PURCHASE AGREEMENT
by and among
Banner Aerospace, Inc.,
PB Herndon Aerospace, Inc.,
Banner Aerospace Services, Inc.
and
AlliedSignal Inc.
and
AS BAR PBH LLC
dated as of December 8, 1997
_______________________________________________
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I
The Transaction
1.1 Purchase and Sale.................................................. 1
1.2 Acquisition of Assets.............................................. 1
1.3 Assumption of Assumed Liabilities.................................. 5
1.4 Initial Purchase Price............................................. 8
1.5 Escrow of Shares................................................... 8
1.6 Closing............................................................ 9
1.7 Deliveries and Proceedings at the Closing.......................... 9
1.8 Stock Legend....................................................... 10
ARTICLE II
Representations And Warranties Of Parent And Sellers
2.1 Qualification...................................................... 11
2.2 Ownership of the Sellers........................................... 11
2.3 Authorization and Enforceability................................... 12
2.4 No Violation of Laws or Agreements................................. 12
2.5 Consents........................................................... 12
2.6 Financial Statements............................................... 13
2.7 No Changes......................................................... 13
2.8 Contracts.......................................................... 14
2.9 Permits and Compliance With Laws Generally......................... 16
2.10 Environmental Matters.............................................. 17
2.11 Transactions with Affiliates....................................... 18
2.12 Title.............................................................. 18
2.13 Acquired Real Property............................................. 18
2.14 Taxes.............................................................. 20
2.15 Intellectual Property and Technology............................... 21
2.16 Brokerage.......................................................... 22
2.17 Product Warranties and Guarantees.................................. 22
2.18 Products Liability................................................. 22
-i-
<PAGE>
TABLE OF CONTENTS
(continued)
Page
----
2.19 Labor Matters...................................................... 22
2.20 Employee Benefits.................................................. 23
2.21 No Pending Litigation or Proceedings............................... 25
2.22 Insurance.......................................................... 25
2.23 Customers; Suppliers............................................... 26
2.24 Condition of Assets................................................ 26
2.25 All Assets......................................................... 26
2.26 [Intentionally omitted.]........................................... 26
2.27 Securities Matters................................................. 26
2.28 SEC Filings........................................................ 27
2.29 [Intentionally omitted.]........................................... 27
2.30 Business Conduct................................................... 27
ARTICLE III
Representations And Warranties Of AlliedSignal and Buyer
3.1 Organization and Good Standing..................................... 27
3.2 Authorization and Enforceability................................... 28
3.3 No Violation of Laws or Agreements................................. 28
3.4 Consents........................................................... 28
3.5 AlliedSignal Common Stock.......................................... 28
3.6 SEC Filings........................................................ 29
3.7 Financial Statements............................................... 29
3.8 Brokerage.......................................................... 29
ARTICLE IV
Additional Covenants
4.1 Conduct of Business................................................ 29
4.2 Mutual Covenants................................................... 32
4.3 Filings and Authorizations......................................... 32
4.4 Public Announcement................................................ 33
4.5 Investigation...................................................... 33
4.6 Taxes.............................................................. 34
4.7 Certain Deliveries................................................. 36
-ii-
<PAGE>
TABLE OF CONTENTS
(continued)
Page
----
4.8 Consents........................................................... 36
4.9 Releases........................................................... 36
4.10 Real Property...................................................... 36
4.11 Environmental...................................................... 37
4.12 Ancillary Agreements............................................... 37
4.13 Reasonable Best Efforts............................................ 37
4.14 Negotiations....................................................... 37
4.15 U.S. Government Contracts.......................................... 37
4.16 NYSE Listing....................................................... 38
4.17 [Intentionally omitted.]........................................... 38
4.18 Seller Debt........................................................ 38
4.19 [Intentionally omitted.]........................................... 38
4.20 Product Liability Insurance........................................ 38
4.21 United Kingdom Assets.............................................. 38
ARTICLE V
Conditions Precedent
5.1 Conditions Precedent to Obligations of AlliedSignal and Buyer...... 38
5.2 Conditions Precedent to Obligations of Parent and Sellers.......... 40
ARTICLE VI
Certain Additional Covenants
6.1 Expenses........................................................... 42
6.2 Maintenance of Books and Records................................... 42
6.3 [Intentionally omitted.]........................................... 42
6.4 Non-Competition/Non-Solicitation................................... 42
6.5 Confidential Information........................................... 44
ARTICLE VII
Survival
7.1 Survival........................................................... 44
-iii-
<PAGE>
TABLE OF CONTENTS
(continued)
Page
----
ARTICLE VIII
Employees And Employee Benefits
8.1 Scope of Article................................................... 45
8.2 U.S. Employees..................................................... 45
ARTICLE IX
Termination; Miscellaneous
9.1 Termination........................................................ 47
9.2 Further Assurances................................................. 48
9.3 Entire Agreement; Amendments; Waivers.............................. 48
9.4 Benefit; Assignment................................................ 48
9.5 No Presumption..................................................... 48
9.6 Notices............................................................ 49
9.7 Terms Generally.................................................... 49
9.8 Counterparts; Headings............................................. 50
9.9 Severability....................................................... 50
9.10 No Reliance........................................................ 50
9.11 Governing Law...................................................... 50
9.12 Submission to Jurisdiction; Waivers................................ 50
9.13 Bulk Transfer...................................................... 50
9.14 Use of Names....................................................... 51
9.15 Relationship with Aerospace Agreement.............................. 51
9.16 Schedules.......................................................... 51
-iv-
<PAGE>
ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT, dated as of December 8, 1997, by and among
Banner Aerospace, Inc., a Delaware corporation ("Parent"), PB Herndon Aerospace,
------
Inc., a Missouri corporation ("Herndon"), Banner Aerospace Services, Inc., an
Ohio corporation ("BAS") (Herndon and BAS each individually, a "Seller" and,
------
collectively, "Sellers"), AlliedSignal Inc., a Delaware corporation
-------
("AlliedSignal") and AS BAR PBH LLC, a Delaware limited liability company
- --------------
("Buyer").
- -------
Herndon is engaged in, among other things, the business of supplying
to the aerospace industry (i) aircraft hardware (including bearings, nuts,
bolts, screws, rivets and other types of fasteners) and (ii) related support
services (including Inventory management services) and the BTG of BAS is engaged
in, among other things, the business of management information systems
(collectively, the "Business").
Buyer desires to purchase, and AlliedSignal desires to cause the
purchase of, substantially all of the Assets of Herndon and all of the Assets of
the BTG of BAS described on Schedule 2.6(a) (the "BTG Assets") relating to the
Business, and Sellers desire to sell and transfer, and Parent desires to cause
the sale and transfer of, such Assets to Buyer, all on the terms and subject to
the conditions set forth in this Agreement.
Except as otherwise expressly provided herein, capitalized terms used
herein without definition shall have the meanings assigned to them in Annex A
-------
hereto, which is hereby incorporated into this Agreement as if set forth in full
herein.
NOW, THEREFORE, in consideration of the mutual representations,
warranties, covenants and agreements contained herein and intending to be
legally bound hereby, the parties hereto agree as follows:
ARTICLE I
THE TRANSACTION
1.1 Purchase and Sale. Upon the terms and subject to the
-----------------
conditions set forth in this Agreement, at the Closing, (i) Sellers shall, and
Parent shall cause Sellers to, sell, transfer, convey, assign and deliver to
Buyer, and Buyer shall purchase, acquire and accept from the Sellers, all of
Sellers' right, title and interest in and to the Purchased Assets, and (ii)
Buyer shall pay to Sellers the Initial Purchase Price and Buyer shall assume,
and agree to thereafter pay, perform and discharge when due, the Assumed
Liabilities.
1.2 Acquisition of Assets.
-----------------------
(a) Subject to Section 1.2(b), "Purchased Assets" means all of the
----------------
Assets of Sellers owned, used or held for use in connection with, or that are
otherwise related to or required for the conduct of, the Business, including,
without limitation, all of the Assets set forth below:
<PAGE>
2
(i) all Owned Real Property;
(ii) all Equipment;
(iii) all Inventory;
(iv) all Accounts Receivable;
(v) all credits, prepaid expenses, deferred charges, advance
payments, security deposits and deposits owned, used or held for use by
either Seller with respect to the Business ("Prepaid Expenses") to the
extent that such items will accrue to the benefit of Buyer immediately
following the Closing;
(vi) all Intellectual Property;
(vii) all Technology;
(viii) all Contracts;
(ix) all Permits;
(x) all books, records, ledgers, files, documents (including
originally executed copies of written Contracts, customer and supplier
lists (past, present or future), correspondence, memoranda, forms, lists,
plats, architectural plans, drawings and specifications, copies of
documents evidencing Intellectual Property or Technology, new product
development materials, creative materials, advertising and promotional
materials, studies, reports, sales and purchase correspondence, books of
account and records relating to the employees of the Business, photographs,
records of plant operations and materials used, quality control records and
procedures, equipment maintenance records, manuals and warranty
information, research and development files, data and laboratory books,
inspection processes, in each case, whether in hard copy or magnetic
format, in each instance, to the extent used or held for use with respect
to the Business or the employees of the Business;
(xi) all rights or choses in action arising out of occurrences
before or after the Closing Date and related to any portion of the
Business, including third party warranties and guarantees and all related
claims, credits, rights of recovery and set-off and other similar
contractual rights, as to third parties held by or in favor of Sellers and
arising out of, resulting from or relating to the Business or the Purchased
Assets (collectively, "Third Party Rights");
------------------
(xii) all rights to insurance and condemnation proceeds relating
to the damage, destruction, taking or other impairment of the Purchased
Assets which damage, destruction, taking or other impairment occurs on or
prior to the Closing Date, except to the extent Buyer receives a credit
against the Initial Purchase Price pursuant to Section 1.2(d)(i)(y) or
1.2(d)(ii)(y);
<PAGE>
3
(xiii) all Assets that (A) are reflected on the Balance Sheet
(other than Assets reflected on the Balance Sheet that are disposed of
prior to the Closing Date in accordance with this Agreement) or (B) have
been or are acquired by the Sellers after the date of the Balance Sheet and
would be reflected on a balance sheet for the Business prepared on a basis
consistent with that on which the Balance Sheet was prepared (other than
any such Assets that are disposed of prior to the Closing Date in
accordance with this Agreement); and
(xiv) the Business and the goodwill thereof.
(b) Notwithstanding anything to the contrary contained herein,
Purchased Assets shall not include any Excluded Assets. "Excluded Assets"
---------------
means:
(i) cash and cash equivalents on hand or in bank accounts;
(ii) all accounts owing between and among each Seller and its
Affiliates (including the Sellers under the Aerospace Agreement) other than
trade receivables;
(iii) except as otherwise set forth herein, Assets attributable
or related to any Plan;
(iv) all rights of Parent and each Seller under this Agreement;
(v) all stock and minute books and similar records of the
Sellers;
(vi) all Third Party Rights arising out of Non-Assumed
Liabilities or Excluded Assets;
(vii) all Prepaid Expenses to the extent that such items will
not accrue to the benefit of Buyer immediately following the Closing;
(viii) all Contracts pursuant to which any business included in
the Business or either Seller was purchased (other than the DA Agreement);
(ix) all Plans of Sellers (including, without limitation, those
referenced on Schedule 2.20(a)(ii));
(x) all Contracts referenced on Schedule 2.8(a)(i) other than
(i) the purchase orders described thereon and (ii) distribution agreements
with Fairchild Fasteners that are terminable by the Sellers on not more
than 60 days notice without any penalty;
(xi) the Note for $226,000 payable to Herndon listed on Schedule
2.11(b); and
<PAGE>
4
(xii) all rights of any Seller under the Second Amended and
Restated Credit Agreement dated as of December 12, 1996, among Parent,
Burbank Aircraft Supply, Inc. and other Subsidiaries of Parent, Citicorp
USA, Inc. (as Administrative Agent and Arranger), NationsBank, N.A. (as Co-
Arranger) and the Institution as Lenders and Issuing Banks thereunder.
(c) Nonassignable Rights. Anything in this Agreement to the contrary
--------------------
notwithstanding, but subject to AlliedSignal's and Buyer's rights under Section
7.2 of the Aerospace Agreement, this Agreement shall not constitute an agreement
to assign any of the Contracts, Intellectual Property, Technology or Permits or
any claim or right or any benefit arising thereunder or resulting therefrom if
an attempted assignment thereof, without the consent of a third Person thereto,
would constitute a breach or other contravention thereof or in any way adversely
affect the rights of Buyer thereunder. (Any Asset that, but for this Section
1.2(c) would be sold and assigned at the Closing shall remain a "Purchased
Asset" for purposes of this Agreement.) Parent and Sellers will use all
reasonable best efforts to obtain the consent of the other parties to any such
Contract or Permit for the assignment thereof to Buyer and Buyer shall
reasonably cooperate with such efforts. If such consent is not obtained prior
to the Closing, or if an attempted assignment thereof would be ineffective or
would adversely affect the rights of Parent and Sellers thereunder so that Buyer
would not in fact receive all such rights, subject to Section 5.1(d), the
Closing shall nevertheless take place and, thereafter, Parent, Sellers and Buyer
will cooperate in a mutually agreeable arrangement under which Buyer would
obtain the benefits and assume the obligations thereunder (but only to the
extent such obligations would have constituted Assumed Liabilities if such
assignment occurred on the Closing Date) from and after the Closing Date in
accordance with this Agreement, including subcontracting, sublicensing or
subleasing to Buyer, or under which Parent and each Seller would enforce for the
benefit of Buyer, with Buyer assuming each Seller's obligations to the same
extent as if it would have constituted an Assumed Liability and any and all
rights of Parent or any Seller against a third Person thereto. Parent and each
Seller will pay promptly to Buyer when received all monies received by Parent or
any Seller after the Closing Date under any of the Contracts or any claim or
right or any benefit arising thereunder to the extent that Buyer would be
entitled thereto pursuant hereto. The provisions of this Section 1.2 shall in
no way limit the Closing condition set forth in Section 5.1(d).
(d) Damage; Condemnation.
--------------------
(i) If, prior to the Closing, any Acquired Real Property is
damaged by fire, vandalism, acts of God, or other casualty or cause (and
such damage is not repaired by the Closing), Buyer shall have the option of
(x) accepting such property as it is together with the insurance proceeds,
if any, and the right to receive the same, in which case no adjustment
shall be made in respect of the decreased value of such Asset pursuant to
Section 1.4(b), or (y) excluding such Acquired Real Property from the
Purchased Assets and receiving a credit against the Initial Purchase Price
equal to the fair market value thereof, in which case no adjustment shall
be made in respect of the decreased value of such Asset pursuant to Section
1.4(b) other than such credit against the Initial Purchase Price. If Buyer
elects option (x) above, Parent hereby agrees to cooperate with
<PAGE>
5
Buyer in any loss adjustment negotiations, legal actions and agreements
with the insurance company, and to assign (pursuant to a writing in form
satisfactory to Buyer,) to Buyer at Closing its rights to such insurance
proceeds (and pay over to Buyer any such proceeds already received), and
Parent will not settle any insurance claims or legal actions relating
thereto without Buyer's prior written consent.
(ii) If, prior to the Closing, all or any portion of any Acquired
Real Property is taken by eminent domain, Buyer shall have the option of
(x) proceeding with the Closing and accepting the property as affected by
such taking, together with all compensation and damages awarded, if any,
and the right to receive the same, in which case, no adjustment shall be
made in respect of the decreased value of such Asset pursuant to Section
1.4(b), or (y) excluding such Acquired Real Property from the Purchased
Assets and receiving credit against the Initial Purchase Price equal to the
fair market value thereof, in which case no adjustment shall be made in
respect of the decreased value of such Asset pursuant to Section 1.4(b)
other than such credit against the Initial Purchase Price. If Buyer elects
option (x) above, Parent hereby agrees to assign to Buyer at Closing its
rights to such compensation and damages (and pay over to Buyer any such
compensation and damages already received), and will not settle any
proceedings relating to such taking without Buyer's prior written consent.
(iii) Parent shall promptly notify AlliedSignal of any material
casualty or any actual or threatened condemnation affecting all or any
portion of any Acquired Real Property. Any such notice relating to
casualty shall be accompanied by Parent's selection of an architect or
engineer to determine the cost of repair and/or replacement.
(iv) Nothing in this Section 1.2(d) limits the condition to
Closing set forth in Section 5.1(a).
1.3 Assumption of Assumed Liabilities.
---------------------------------
(a) "Assumed Liabilities" shall mean (i) all Liabilities of the
-------------------
Business (including bank overdrafts, if any) to the extent included on the
Closing Date Balance Sheet, (ii) Liabilities under the Contracts, Permits,
Intellectual Property or Technology to the extent (but not only to the extent)
arising from, and accruing with respect to, the operation of the Business after
the Closing, (iii) Liabilities relating to the employees of the Business
expressly assumed pursuant to Article VIII and (iv) Liabilities under the DA
Agreement.
(b) Notwithstanding anything to the contrary contained herein, neither
Buyer nor AlliedSignal shall assume or be bound by, or be obligated or
responsible for, any Non-Assumed Liabilities. "Non-Assumed Liabilities" shall
-----------------------
mean (x) all Liabilities of Sellers relating to the Purchased Assets or the
Business and any claims in respect thereof, other than the Assumed Liabilities,
and (y) any Liabilities or claims which may be asserted against or imposed upon
Buyer by reason of its being a successor or transferee of Sellers or as an
acquiror of the Purchased Assets or the Business or otherwise as a matter of
law. Without limitation of the foregoing, all of the following shall be Non-
Assumed Liabilities for the purposes of this Agreement:
<PAGE>
6
(i) any product Liability, or Liability relating to any toxic
tort or similar claim for injury to person or property, regardless of when
made or asserted that arises out of or is based upon any express or implied
representation, warranty, agreement or guarantee made by either Seller or
any of its Affiliates, or alleged to have been made by any of such Persons,
or that it is imposed or asserted to be imposed by operation of law, in
connection with any service performed or product manufactured, distributed
or sold by or on behalf of either Seller or any of its Affiliates or which
arises out of any condition existing as of the Closing, including any claim
relating to any product delivered, manufactured or distributed by either
Seller or any of its Affiliates and any claim seeking recovery for
consequential damages, lost revenue or income;
(ii) except for Assumed Tax Liabilities, any Liability of Parent,
DA or either Seller (including under any Contract) for Taxes, including
without limitation, any (1) Tax payable (A) with respect to the Business,
Assets or operations of Parent or Sellers, (B) by any member of any
consolidated, affiliated or unitary group of which Parent or either Seller
is a member, or (C) by any other person for whose Tax Parent or either
Seller may be liable under Contract or otherwise, and (2) Tax incident to
or arising as a consequence of the negotiation or consummation by Parent or
any Seller or any member of any affiliate group of which Parent or Sellers
is a member of this Agreement and the transactions contemplated hereby;
(iii) except as expressly provided in clause (iii) of the
definition of Assumed Liabilities, any Liability with respect to
compensation or employee benefits of any nature owed to any employees,
agents or independent contractors of either Seller or any of its
Affiliates, whether or not employed by Buyer after the Closing, or any of
their beneficiaries, heirs or assigns, that arises out of or relates to
events or conditions to the extent occurring before the Closing, including,
but not limited to, Liabilities for supplemental unemployment benefits,
vacation pay, sick pay, severance benefits, Liabilities under any Plan
whether arising prior to, on or after the Closing Date, Liabilities to
provide any retiree benefits to former hourly and/or salaried employees of
the Business or any retiree benefits to be provided to current hourly
and/or salaried employees of the Business, and any other benefits,
withholding tax Liabilities, workers compensation or unemployment
compensation premiums, hospitalization or medical claims, occupational
injury, disease or disability claims or claims for discrimination, unfair
labor practices, violations of the collective bargaining agreements or
wrongful discharge;
(iv) Liabilities relating to the operation of the Business prior
to the Closing arising by operation of law under any common law or
statutory doctrine (including successor Liability or de facto merger);
(v) any Liability with respect to or arising out of any Contract
(A) that is not capable of being assigned to Buyer at the Closing (except
to the extent provided in Section 1.2(c)) (B) to the extent arising out of
any breach or default thereof by Parent or either Seller on or prior to the
Closing Date (including any event occurring on or prior to
<PAGE>
7
the Closing Date that, with the passing of time or the giving of notice, or
both, would become a breach or default) under any Contract, or (C) required
by the terms thereof to be discharged on or prior to the Closing Date;
(vi) any Liability of Parent or any of the Sellers or any of
their predecessors (including under any Contract) with respect to any
claim, action, suit or proceeding made or threatened (whether prior to, at
or after the Closing Date) which asserts Losses arising from (x) the
presence, at any time prior to the Closing Date, of asbestos at the
Acquired Real Property, any other real property owned or leased at any time
by Parent, Sellers or any of their past, present or future Subsidiaries or
any other third-party location or (y) the presence of asbestos in any
product at any time prior to the Closing Date manufactured, used, sold or
serviced by Parent, Sellers or any of their past, present or future
Subsidiaries, or which otherwise asserts any asbestos-related personal
injury or property damage.
(vii) any Liability to the extent the existence of such
Liability constitutes a breach of any representation or warranty of Parent
or any Seller contained in or made pursuant to this Agreement;
(viii) any Environmental Liability, including, without
limitation, any Environmental Claim that relates to or arises in connection
with the Business, the Purchased Assets, or any other Assets (including,
but not limited to facilities used for the off-site disposal of waste)
formerly owned, leased, operated or used by any of the Sellers or any
predecessors-in-interest to any of the Sellers, if the Environmental Claim
is based on any act or omission of the Business or any of the Sellers on or
prior to the Closing Date;
(ix) any Liability in respect of the Excluded Assets;
(x) any Debt or other amounts (except to the extent reflected on
the Closing Date Balance Sheet) owing by the Sellers to Parent or any of
Parent's Affiliates (other than the Sellers) including, without limitation,
any negative balances in intercompany accounts, but excluding any trade
payables incurred in the ordinary course of business consistent with past
practice;
(xi) any Liability that arises out of or relates to the
employment or termination of employment of any employees, agents or
independent contractors by Parent, Sellers or any of their Affiliates,
except any such Liability caused by Buyer's failure to perform its
obligations under Article VIII;
(xii) any Liability to past, present or future stockholders of
Parent or Sellers;
(xiii) any Liability that arises out of or relates to any claim,
action, suit, proceeding or investigation, whether civil or criminal,
pending or threatened as of the
<PAGE>
8
Closing Date, relating to the conduct or activities of the Business, or the
ownership, use or possession of the Acquired Assets, on or prior to the
Closing Date;
(xiv) any Liability relating to any broker's or finder's fee or
commission incurred by Parent, either Seller or any of their Affiliates as
a result of the transactions contemplated hereunder;
(xv) any Liability arising under, resulting from or relating to
the matters referred to on Schedule 2.20(a)(iii), including, without
limitation, the Plans described thereon;
(xvi) any Liability arising under, resulting from, or relating
to matters set forth on Schedule 2.8(a)(i) (other than with respect to the
purchase orders described thereon and distributorship agreements with
Fairchild Fasteners that are terminable on not more than 60 days notice
without any penalty) including, without limitation, the agreement with
Shared Technologies Fairchild, Inc. and the tax sharing agreement described
thereon, except to the extent reflected on the Closing Date Balance Sheet;
and
(xvii) except for the Assumed Liabilities, any Liability arising
out of or relating to the conduct or activities of the Business (including
any predecessor operations) or the ownership, use or possession of the
Purchased Assets on or prior to the Closing Date, any Liabilities or claims
arising out of or relating to events, circumstances or conditions occurring
on or before the Closing Date, and any Liability associated with any other
business of Parent, Sellers and their Affiliates.
Parent and each Seller hereby irrevocably waives and releases, and has caused
the Parent Subsidiaries to waive and release, AlliedSignal and Buyer from all
Non-Assumed Liabilities, including any Liabilities created or which arise by
statute or common law.
1.4 Initial Purchase Price. The initial purchase price for the
------------------------
Purchased Assets to be paid at the Closing (the "Initial Purchase Price") shall
----------------------
consist of a number of shares of AlliedSignal Common Stock (the "Closing Date
------------
Shares") equal to the number (rounded to the nearest whole share) (the
- ------
"Estimated Share Number") obtained by dividing (A) an amount equal to Twenty Two
- -----------------------
Million Seven Hundred Seventy-Four Thousand Dollars ($22,774,000) plus (x) the
----
Herndon Adjustment Amount if the Herndon Adjustment Amount is a positive number
and minus (y) the Herndon Adjustment Amount if the Herndon Adjustment Amount is
-----
a negative number, by (B) the Average Trading Price as of the Closing Date, to
be issued by Buyer to Sellers in the proportions set forth on Annex 1.4 hereto.
------
The Initial Purchase Price shall be adjusted as provided in Section 1.6(f) and
Section 9.15 of the Aerospace Agreement.
1.5 Escrow of Shares. At the Closing, AlliedSignal shall issue and
----------------
deliver to the Escrow Agent (i) the Purchase Price Escrow Shares, to be held in
an escrow account pursuant to the terms of the Escrow Agreement until released
from escrow pursuant to the terms of Section 1.6(f) of the Aerospace Agreement,
and (ii) the Indemnification Escrow Shares, to be held in an escrow account
pursuant to the terms of the Escrow Agreement until released as set forth in
Section 1.5(b) or (d) of the Aerospace Agreement.
<PAGE>
9
1.6 Closing.
-------
(a) Closing Date. The closing of the transactions contemplated under
------------
this Agreement (the "Closing") shall take place at 10:00 a.m. Eastern Time at
-------
the offices of Hughes Hubbard & Reed LLP, One Battery Park Plaza, New York, New
York, on the fifth Business Day after all conditions to the obligations of the
parties under Article V and under Article V of the Aerospace Agreement shall
have been satisfied or waived (other than those requiring a delivery of a
certificate or other document, or the taking of other action, at the Closing and
the conditions set forth in Sections 5.1(g) and 5.2 (g) and in Sections 5.1(j)
and 5.2(g) of the Aerospace Agreement), or at such other place and on such other
date as the parties may mutually agree in writing (such date on which the
Closing occurs hereinafter is referred to as the "Closing Date"). Each of the
------------
parties acknowledges that, with respect to the Closing Date, time is of the
essence.
(b) Effectiveness. The consummation of the transactions contemplated
-------------
by this Agreement and the Closing shall be deemed to take place at 11:59 p.m.,
Eastern Time, on the Closing Date and no transaction shall be deemed to have
been completed and no document or certificate shall be deemed to have been
delivered until all transactions are completed and all documents are delivered.
1.7 Deliveries and Proceedings at the Closing. Subject to the
-------------------------------------------
terms and conditions of this Agreement, at the Closing:
(a) Deliveries to AlliedSignal and Buyer. Parent and Sellers shall
------------------------------------
deliver to AlliedSignal and Buyer:
(i) bills of sale and instruments of assignment, in forms
reasonably satisfactory to Buyer, to evidence the transfer to Buyer of the
Purchased Assets (other than the Owned Real Property) in accordance
herewith, duly executed by Sellers;
(ii) any consents to transfer of all transferable or assignable
Contracts and Permits obtained by Parent and the Sellers as of Closing and
all consents referred to in Section 5.1(d);
(iii) title certificates to any motor vehicles included in the
Purchased Assets, duly executed by each Seller with any interest therein
(together with any other transfer forms necessary to transfer title to such
vehicles);
(iv) one or more deeds of conveyance to Buyer of the Owned Real
Property, in forms reasonably satisfactory to Buyer, sufficient to transfer
to Buyer good and marketable, and insurable, fee simple title to the Owned
Real Property included in the Purchased Assets in accordance herewith, duly
executed and acknowledged by each Seller with any interest therein and in
recordable form;
(v) one or more title insurance policies, in form, substance and
amount, and issued by title insurance Sellers reasonably acceptable to
Buyer, and containing such endorsements and affirmative coverage as Buyer
shall reasonably
<PAGE>
10
request, insuring Buyer's fee simple title to the Owned Real Property
subject only to the Permitted Liens, the cost of which shall be paid 50% by
Parent and Sellers and 50% by AlliedSignal and Buyer;
(vi) U.C.C. termination statements in recordable form and other
appropriate releases, in form and substance reasonably satisfactory to
Buyer, with respect to all recorded Liens in the Purchased Assets;
(vii) the Foreign Investment in Real Property Tax Act
Certification and Affidavit for each parcel of Owned Real Property, in form
reasonably satisfactory to Buyer, duly executed by each Seller transferring
Owned Real Property (the "FIRPTA Affidavit");
----------------
(viii) the certificates and other documents required to be
delivered by Parent and Sellers pursuant to Section 5.1 and certified
resolutions evidencing the authority of Parent and Sellers as set forth in
Section 2.3;
(ix) all such other documents and instruments of conveyance as
shall, in the reasonable opinion of Buyer, be necessary to transfer to
Buyer the Purchased Assets in accordance herewith and, where necessary or
desirable, in recordable form.
(b) Deliveries to Parent and Sellers. AlliedSignal and Buyer will
--------------------------------
deliver to Parent and Sellers, as applicable:
(i) the Closing Date Shares, issued and delivered to Sellers in
the proportions set forth in Annex 1.4 hereto;
(ii) an assumption agreement, in form reasonably satisfactory to
Parent, to evidence the assumption by Buyer of the Assumed Liabilities in
accordance with Section 1.3, duly executed by Buyer;
(iii) the certificates and other documents required to be
delivered by AlliedSignal and Buyer pursuant to Section 5.2 and certified
resolutions evidencing the authority of AlliedSignal and Buyer as set forth
in Section 3.2; and
(iv) all such other documents and instruments of assumption as
shall, in the reasonable opinion of Parent, be necessary for Buyer to
assume the Assumed Liabilities in accordance herewith.
1.8 Stock Legend. Each certificate representing the shares of
------------
AlliedSignal Common Stock issued to Sellers at the Closing shall be endorsed
with a legend in substantially the following form:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY
<PAGE>
11
NOT BE SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS
AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT COVERING SUCH
SECURITIES, THE TRANSFER IS MADE IN COMPLIANCE WITH RULE 144
PROMULGATED UNDER SUCH ACT OR THE CORPORATION RECEIVES AN OPINION
OF COUNSEL FOR THE HOLDERS OF THESE SECURITIES REASONABLY
SATISFACTORY TO THE CORPORATION STATING THAT SUCH SALE, TRANSFER,
ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND
PROSPECTUS DELIVERY REQUIREMENT OF SUCH ACT.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF PARENT AND SELLERS
Parent and each Seller hereby jointly and severally represent and
warrant to AlliedSignal and Buyer as follows:
2.1 Qualification. Parent is a corporation duly organized, validly
-------------
existing and in good standing under the laws of the State of Delaware. Each
Seller is a corporation duly organized, validly existing and in good standing
under the laws of the jurisdiction set forth next to such Seller's name on Annex
-----
B, and has all requisite corporate power and authority to own and lease its
- -
Assets and to conduct its Business as presently being conducted. Each Seller is
qualified to do business and is in good standing as a foreign corporation in all
jurisdictions wherein the nature of its Business or such Seller's ownership or
use of its Assets make such qualification necessary, except such failures to be
qualified or to be in good standing, if any, which when taken together with all
such other failures of such Seller would not have a Material Adverse Effect on
such Seller. Neither of the Sellers is currently insolvent, has suspended
payments, is subject to any judicial receivership or liquidation proceedings or
is in bankruptcy, nor has any such similar proceedings been commenced with
respect to either of them.
2.2 Ownership of the Sellers.
------------------------
(a) All of the outstanding shares of capital stock of (or other
ownership interests in) Herndon are owned of record and beneficially solely by
DA and all of the outstanding shares of capital stock of (or other ownership
interests in) BAS are owned of record and beneficially solely by Parent, in each
case, free and clear of any Liens. There are no options, warrants, calls,
rights or agreements to which Parent, DA or either Seller is a party obligating
any of them to issue, deliver or sell, or cause to be issued, delivered or sold,
additional shares of capital stock of (or other ownership interests in) either
Seller or obligating Parent, DA or either Seller to grant, extend or enter into
any such option, warrant, call, right or agreement.
<PAGE>
12
(b) Except as set forth on Schedule 2.2, neither of the Sellers owns
any shares of capital stock of (or other ownership interests in) any other
Person, including any joint venture.
2.3 Authorization and Enforceability. With respect to each of
--------------------------------
Parent and the Sellers: (a) such entity has full corporate power and authority
to execute, deliver and perform this Agreement and all other agreements,
instruments and documents to be executed in connection herewith (such other
agreements and instruments being hereinafter referred to collectively as the
"Transaction Documents") to which such entity is a party, (b) the execution,
- ----------------------
delivery and performance by such entity of this Agreement and the Transaction
Documents to which such entity is a party have been duly authorized by all
necessary corporate action on the part of such entity and no approval by the
holders of any security issued by Parent is required in connection therewith,
(c) this Agreement has been duly executed and delivered by such entity, and, as
of the Closing Date, the other Transaction Documents to which any such entity is
a party will be duly executed and delivered by such entity, (d) this Agreement
is a legal, valid and binding obligation of such entity, enforceable against
such entity in accordance with its terms, and (e) as of the Closing Date, each
of the other Transaction Documents to which such entity is a party will
constitute the legal, valid and binding obligations of such entity, enforceable
against such entity in accordance with its terms.
2.4 No Violation of Laws or Agreements. The execution, delivery,
----------------------------------
and performance by Parent and each Seller of this Agreement and the Transaction
Documents to which such entities (as applicable) are parties do not, and the
consummation by Parent and each Seller (as applicable) of the transactions
contemplated hereby and thereby, will not, (a) contravene any provision of the
charter, bylaws or any other organizational documents of Parent or either
Seller, or (b) except as set forth on Schedule 2.4 and subject, in the case of
------------
clause (i) below, to such exceptions as would not in the aggregate have a
Material Adverse Effect, violate, conflict with, result in a breach of, or
constitute a default (or an event which would, with the passage of time or the
giving of notice or both, constitute a default) under, or result in or permit
the termination, modification, acceleration, or cancellation of, or result in
the creation or imposition of any Lien of any nature whatsoever upon any of the
Purchased Assets or give to others any interests or rights therein under, (i)
any personal property lease with payments in excess of $50,000 per year, lease
of Real Property, indenture, mortgage, loan or credit agreement, license,
instrument, contract, plan, permit or other agreement or commitment, oral or
written, to which Parent or either Seller is a party, other than such agreements
or commitments involving any customer or supplier of the Business (including any
supplier of Intellectual Property), or by which the Business or any of the
Purchased Assets may be bound or affected (including without limitation any
agreement or instrument pertaining to Debt), or (ii) any judgment, injunction,
writ, award, decree, restriction, ruling, or order of any arbitrator or
Governmental Entity or any applicable Law to which Parent, either Seller or the
Purchased Assets is subject.
2.5 Consents. Except (i) as set forth on Schedule 2.5 or (ii) for
-------- ------------
agreements or commitments involving any customer or supplier of the Business
(including any supplier of Intellectual Property), no consent, approval or
authorization of, or registration or filing with, any Person (governmental or
private) is required in connection with the execution, delivery and
<PAGE>
13
performance by Parent or either Seller of this Agreement, the other Transaction
Documents to which Parent or either Seller is a party, or the consummation by
Parent and each Seller (as applicable) of the transactions contemplated hereby
or thereby, including without limitation in connection with the assignment of
the Contracts and Permits contemplated hereby, except as required by the HSR Act
and except for any required consent, approval or authorization of, or
registration or filing with a foreign governmental authority.
2.6 Financial Statements.
--------------------
(a) Schedule 2.6(a) sets forth (i) an unaudited combined pro forma
---------------
balance sheet of the Combined Business as of September 30, 1997 (the "Balance
-------
Sheet") and related unaudited combined pro forma statement of income of the
- -----
Combined Business for the six months ended September 30, 1997 (together with the
Balance Sheet, the "Financial Statements"). The Excluded Assets, the Aerospace
--------------------
Excluded Assets, the Non-Assumed Liabilities and the Aerospace Non-Assumed
Liabilities are excluded from the Balance Sheet. The Financial Statements are
in accordance with the books and records of the Sellers and the Sellers under
the Aerospace Agreement and except for the Excluded Assets, the Aerospace
Excluded Assets, the Non-Assumed Liabilities, the Aerospace Non-Assumed
Liabilities and as set forth in Schedule 2.6(a) fairly present the financial
position and results of operations of the Combined Business on a stand-alone
basis as of the date and for the period indicated, in conformity with GAAP
throughout the period specified and in accordance with the procedures and
criteria set forth on Schedule 1.6(a), except as expressly set forth therein and
---------------
except that the Financial Statements may omit notes and are subject to normal
year-end adjustments which are not, in the aggregate, material. Except as
described on Schedule 2.6(a), all fees, charges, costs and expenses associated
with the ownership, leasing, operation, maintenance and management of the
Combined Business and the Assets owned, used or held for use by the Combined
Business have been fully and properly reflected and charged on the Financial
Statements in accordance with GAAP (to the extent such items are required to be
so reflected and charged in accordance with GAAP). All Purchased Assets,
Assumed Liabilities, Aerospace Acquired Assets and Aerospace Assumed Liabilities
are disclosed on or reflected in the Balance Sheet except (i) as disclosed on
Schedule 2.6(a), and (ii) as disposed of or transferred between September 30,
1997 and the Closing Date in the ordinary course of business consistent with
past practice and in accordance with this Agreement.
(b) The future tax benefits set forth in the Balance Sheet as of the
date hereof represent future tax benefits as of March 31, 1997. No later than
30 days after the date hereof, Parent shall deliver written notice to
AlliedSignal of the amount of future tax benefits as of September 30, 1997, and
the Balance Sheet shall be adjusted accordingly.
2.7 No Changes. Since September 30, 1997, the Sellers have
------------
conducted the Business only in the ordinary course of business consistent with
past practice and, except as set forth on Schedule 2.7, there has not been:
------------
(a) any Material Adverse Effect;
<PAGE>
14
(b) any change in the salaries or other compensation payable or
to become payable to, or any advance (excluding advances for ordinary
business expenses) or loan to, any employee of the Business, or material
change or material addition to, or material modification of, other benefits
(including any bonus, profit-sharing, pension or other plan in which any of
the employees of the Business participate) to which any of the employees of
the Business may be entitled, other than in the ordinary course of the
Business consistent with past practice;
(c) any material change or modification in any manner of the
Sellers' existing Inventory management and collection and payment policies,
procedures and practices with respect to Inventory and accounts receivable
and accounts payable, respectively, of the Business, acceleration of
payment of payables or failure to pay or delay in payment of payables and
any change in the Sellers' existing policies, procedures and practices,
with respect to the provision of discounts, rebates or allowances insofar
as they relate to the Business;
(d) any cancellation or waiver by either Seller of any right
material to the Business or any cancellation or waiver of any material
Debts of or claims of the Business against Parent or any other Affiliate of
any Seller or any disposition of or failure to keep in effect any rights
in, to or for the use of any Permit material to the Business;
(e) any damage, destruction or loss, or eminent domain or other
condemnation proceeding affecting the Business which individually or in the
aggregate has had a Material Adverse Effect, whether or not covered by
insurance;
(f) any change by either Seller in its method of accounting or
keeping its books of account or accounting practices with respect to the
Business except as required by GAAP;
(g) any acquisition, sale, transfer or other disposition of any
material Assets of the Business other than the disposition of (i) Inventory
in the ordinary course of the Business consistent with past practice or
(ii) Assets not used or useful in the Business;
(h) any commencement or termination of any line of business;
(i) any action that would be prohibited to be taken after the
date of this Agreement under Section 4.1(c); or
(j) any agreement in writing or otherwise to take any of the
foregoing actions.
2.8 Contracts.
---------
(a) As of the date of this Agreement, Schedule 2.8(a) contains a true,
---------------
correct and complete list of (i) all Contracts (other than any guarantee of
either Seller that does not directly or indirectly support or benefit the
Business) to which Parent or any of its Affiliates
<PAGE>
15
(other than the Sellers) is a party or which benefit Parent or any of its
Affiliates (other than the Sellers); (ii) all Contracts under which either
Seller is a licensee or licensor of Intellectual Property or Technology which
are material to the Business; (iii) all Contracts under which either Seller is a
lessee or lessor of (or has an obligation to lease) Real Property; (iv) all
Contracts providing for the formation or operation of a partnership or other
joint venture; (v) all material Contracts which afford customers any right to
return Inventories at the option of the customer; (vi) all Government Contracts
with a backlog in excess of $100,000; (vii) all Contracts requiring forward
stocking locations; and (viii) except for agreements or commitments involving
any customer or supplier of the Business (including any supplier of Intellectual
Property), all other Contracts (other than with respect to which the Business'
total annual Liability or expense is less than $1,000,000 per such non-listed
Contract). Parent and Sellers have made available to AlliedSignal a correct and
complete copy of each written agreement.
(b) Except as set forth on Part A of Schedule 2.8(b), with respect to
---------------
each Contract described in Schedule 2.8(a), neither Seller nor, to the best of
Parent's and each Seller's knowledge, any other party thereto, is in material
breach or default and no event has occurred which with notice or lapse of time
would constitute a material breach or default, or permit termination,
modification, or acceleration, under such Contract. Except as set forth on Part
B of Schedule 2.8(b), there are no disputes pending or, to the best of Parent's
and each Seller's knowledge, threatened, under or in respect of any of the
Contracts described in Schedule 2.8(a) and no counterparty to any such Contract
has given notice to either Seller or any Affiliate thereof with respect to any
material breach or default hereunder. Each of the Contracts described in
Schedule 2.8(a) is in full force and effect and constitutes the legal and
binding obligation of, and is legally enforceable against, such Seller as the
Contracts relate, and, to the best of Parent's and each Seller's knowledge, any
other party thereto, in accordance with its terms.
(c) Except as identified with an asterisk on Schedule 2.8(a), each of
---------------
the Contracts listed thereon is fully assignable to Buyer without the consent,
approval or waiver of any other Person. None of such Contracts contains any
provision which, after the Closing, will restrict Buyer from conducting any
portion of the Business in any jurisdiction, except such Contracts which may be
terminated by Buyer without penalty or Liability on no more than 30 days'
notice. With respect to those Contracts that were assigned, novated or
subleased to either Seller by a third party, all necessary consents to such
assignments, novations or subleases have been obtained.
(d) Subject to such exceptions as would not in the aggregate have a
Material Adverse Effect, with respect to each and every Government Contract that
has a backlog in excess of $100,000 or binding or non-binding bid for such a
Government Contract ("Bid") to which either Seller is a party: (i) such Seller
has fully complied with all material terms and conditions of such Government
Contract or Bid, including all clauses, provisions and requirements incorporated
expressly, by reference or by operation of law therein; (ii) such Seller has
fully complied with all requirements of Law applicable to such Government
Contract or Bid and no Government Contract is subject to any adjustment in price
as a result of a claim by the U.S. Government or U.S. Government prime
contractor or subcontractor on the basis of (w) defective pricing pursuant to
FAR 52.215-22, FAR 52.215-23, FAR 52.215-24, FAR 52.215-25, (x) CAS
<PAGE>
16
violations pursuant to FAR 52.230-2, (y) any submission for progress payments of
invoices or (z) any claims arising out of or related to the Government Contracts
occurring on or before the Closing Date; (iii) all representations and
certifications executed, acknowledged or set forth in or pertaining to such
Government Contract or bid for a Government Contract were current, accurate and
complete as of their effective date, and such Seller has fully complied with all
such representations and certifications; (iv) neither the U.S. Government nor
any prime contractor, subcontractor or other Person has notified such Seller,
either orally or in writing, that such Seller has breached or violated any Law,
certification, representation, clause, provision or requirement, (v) no
termination for convenience, termination for default, cure notice or show cause
notice has been issued; (vi) no cost incurred by such Seller has been questioned
or disallowed; and (vii) no money due to such Seller has been (or has attempted
to be) withheld or set off.
2.9 Permits and Compliance With Laws Generally__.
--------------------------------------------
(a) Subject to such exceptions as would not in the aggregate have a
Material Adverse Effect, (i) except as set forth on Part A of Schedule 2.9(a),
---------------
the Sellers possess and are in compliance with all Permits required to operate
the Business as presently operated and to own, lease or otherwise hold the
Purchased Assets under all applicable Laws and (ii) except as set forth on Part
B of Schedule 2.9(a), to the best of Parent's and each Seller's knowledge, the
Business is conducted by the Sellers in compliance with, and the use,
construction and operation of all Real Property constituting any part of the
Purchased Assets conforms to, all applicable Laws (including the Occupational
Safety and Health Act and the rules and regulations thereunder ("OSHA") and
----
other similar Laws, and zoning, building and other similar Laws) and all
restrictions and conditions affecting title. All material Permits of the
Sellers are in full force and effect. There are no proceedings pending or, to
the best of Parent's and each Seller's knowledge, threatened that seek the
revocation, cancellation, suspension or any adverse modification of any material
Permits presently possessed by the Sellers. Parent and Sellers are aware of no
facts, conditions or circumstances reasonably likely to result in the
revocation, cancellation, suspension, or adverse modification of any material
Permit. Except as set forth on Part C of Schedule 2.9(a), all material Permits
of the Sellers are assignable to and at the Closing will be assigned to Buyer
and no approvals or consents are required for such assignment (or continued
possession) and the sale of the Business or Purchased Assets hereunder will not
result in a default under or termination of any such material Permit.
(b) Except as set forth on Schedule 2.9(b), no outstanding notice,
---------------
citation, summons or order has been issued, no outstanding complaint has been
filed, no outstanding penalty has been assessed and no investigation or review
is pending or, to the best of Parent's and each Seller's knowledge, threatened,
by any Governmental Entity or other Person with respect to any alleged (i)
violation by either Seller relating to the Business or the Purchased Assets of
any Law or (ii) failure by either Seller to have any Permit required in
connection with the conduct of the Business or otherwise applicable to the
Business (including the Purchased Assets) except in such cases as would not in
the aggregate have a Material Adverse Effect.
<PAGE>
17
2.10 Environmental Matters. As of the Closing Date, except as set
-----------------------
forth on Schedule 2.10,
-------------
(a) There are no reports in Parent's, the Sellers' or any of their
respective Affiliates' possession or control of environmental site assessments
or audits of the Business, the Purchased Assets or any other Assets (including
but not limited to facilities used for the off-site disposal of waste) formerly
owned, leased, operated or used by the Sellers, or any predecessor-in-interest
to the Sellers.
(b) The Sellers possess and are in compliance with all Environmental
Permits required to operate the Business as presently operated and to own, lease
or otherwise hold the Purchased Assets under all Environmental Laws. The
operations of the Business and Purchased Assets (including the use, construction
and operation of all Real Property constituting any part of the Purchased
Assets) are in compliance with all Environmental Laws and are conducted in a
manner that does not pose a risk to the safety or health of workers or other
individuals or to the environment. All Environmental Permits of the Sellers
relating to the operation of the Business are in full force and effect. There
are no proceedings pending or, to the best of Parent's and each Seller's
knowledge, threatened that seek the revocation, cancellation, suspension or any
adverse modification of any such Environmental Permits presently possessed by
the Sellers. Parent and Sellers are aware of no facts, conditions or
circumstances reasonably likely to result in the revocation, cancellation,
suspension or adverse modification of any Environmental Permits.
(c) There are no environmental conditions with respect to the
Business, Purchased Assets or any other Assets (including but not limited to
facilities used for the off-site disposal of waste) formerly owned, leased,
operated or used by either of the Sellers, or any predecessor-in-interest to
either of the Sellers that (i) pose a risk to human health or the environment,
or (ii) are otherwise required to be remediated under applicable Environmental
Laws due to evidence of soil or groundwater contamination on, under or migrating
onto or from the Business, Purchased Assets or any such other Assets.
(d) There are no Environmental Claims currently pending nor has
Parent, either of the Sellers or any of their respective Affiliates received any
notice of an Environmental Claim with respect to the Business, the Purchased
Assets, or any other Assets (including, but not limited to, facilities used for
the off-site disposal of waste) formerly owned, leased, operated or used by the
Sellers or any predecessors-in-interest to the Sellers that a Hazardous Material
has been (i) disposed, released, or discharged or (ii) produced, stored,
handled, used or emitted onto, under, or from the Business, Purchased Assets or
any such other Assets.
(e) Neither the Business nor the Purchased Assets are subject to the
requirements of any Laws that condition, restrict, prohibit or require
notification or disclosure upon the transfer, sale, lease or closure of certain
property for environmental reasons.
(f) No outstanding notice, citation, summons or order has been issued,
no outstanding complaint has been filed, no outstanding penalty has been
assessed and no investigation or review is pending or, to the best of Parent's
and each Seller's knowledge, threatened, by any Governmental Entity or other
Person with respect to any alleged (i) violation
<PAGE>
18
by either of the Sellers or any of its Affiliates relating to the Business or
the Purchased Assets of any Environmental Law or (ii) failure by either of the
Sellers or any of its Affiliates to have any Environmental Permit required in
connection with the conduct of the Business or otherwise applicable to the
Business (including the Purchased Assets).
2.11 Transactions with Affiliates.
----------------------------
(a) Set forth on Schedule 2.11(a) is a true, correct and complete list
----------------
and description of (a) all services and other support provided to the Business
by Parent and its Affiliates (other than the Sellers) since April 1, 1996, (b)
all other overhead charges allocated to the Sellers since April 1, 1996, and (c)
all other transactions between one or more Sellers, on the one hand, and Parent
or any of its Affiliates (other than the Sellers), on the other hand, since
April 1, 1996 (other than payment of compensation or other benefits to
employees).
(b) To the best of Parent's and each Seller's knowledge, except as set
forth on Schedule 2.11(b), (i) as of the Closing, no employee, officer or
----------------
director (or any member of his or her immediate family) of Parent or of either
Seller or any of their Affiliates will be indebted to either Seller, nor is
either Seller indebted (or committed to make loans or extend or guarantee
credit) to any of such individuals, (ii) no such individual, except Eric Steiner
and Jeffrey Steiner and any such individual whose position is with Fairchild or
any of its Affiliates (other than Parent or either of the Sellers) has any
direct or indirect ownership interest in any Person with which either Seller has
a business relationship, or any Person that competes with either Seller and
(iii) no member of the immediate family of any officer or director of either
Seller is an interested party with respect to any Contract.
2.12 Title. The Sellers have, and at the Closing will transfer to
-------
the Buyer, good and marketable title to all personal property owned by them
respectively, good and marketable title to all Owned Real Property, valid and
enforceable leasehold interests in Leased Real Property and personal property
leased by them, and good and valid title to or rights to use, all intangible
properties and rights used by them, in each case free and clear of all Liens,
except Permitted Liens.
2.13 Acquired Real Property.
----------------------
(a) Part A of Schedule 2.13(a) sets forth a true, correct and complete
----------------
list and legal descriptions of all Real Property owned (beneficially or of
record) by either of the Sellers in the conduct of the Business, and Part B of
Schedule 2.13(a) sets forth a true, correct and complete list of all Real
Property leased by either of the Sellers in the conduct of the Business, and in
each case identifies the street address thereof.
(b) Except in such cases as would not in the aggregate have a Material
Adverse Effect, all structures and other improvements on such properties are
within the lot lines and do not encroach on the properties of any other Person
(and improvements on adjacent Real Property do not encroach on any of the Real
Property constituting any part of the Purchased Assets), and the use,
construction and operation of all Real Property constituting any part of the
Purchased Assets or otherwise owned or leased by the Sellers in the conduct of
the Business
<PAGE>
19
conform to all applicable building, zoning, safety, environmental and other
Laws, permits, licenses and certificates and all restrictions and conditions
affecting title.
(c) Other than as set forth on of Schedule 2.13(c), there are no
----------------
leases, subleases, options or other agreements, written or oral, granting to any
Person (other than the Sellers) the right to purchase, use or occupy the
Acquired Real Property or any portion thereof. None of Parent, the Sellers and
any of their respective Affiliates has received any written or oral notice or
order by any Governmental Entity, any insurance company which has issued a
policy with respect to any of such properties or any board of fire underwriters
or other body exercising similar functions which (i) relates to violations of
building, safety, fire or other ordinances or regulations, (ii) claims any
defect or deficiency with respect to any of such properties or (iii) requests
the performance of any repairs, alterations or other work to or in any of such
properties or in the streets bounding the same, except such as would not
individually or in the aggregate have a Material Adverse Effect. Parent and
Sellers have made available to Buyer true, correct and complete copies of all
leases and financing documents affecting all or any portion of the Acquired Real
Property.
(d) None of Parent, the Sellers and any of their respective Affiliates
has received any written or oral notice for assessments for public improvements
against the Acquired Real Property which remains unpaid, and, to the best of
Parent's and each Seller's knowledge, no such assessment has been proposed.
Except as set forth on Schedule 2.13(d), there is no pending condemnation,
----------------
expropriation, eminent domain or similar proceeding affecting all or any portion
of any of the Acquired Real Property and, to the best of Parent's and each
Seller's knowledge, no such proceeding is threatened.
(e) Except as set forth on Schedule 2.13(e), no Person other than a
----------------
Seller is in possession of (or has any right, absolute or contingent, to possess
which is superior to such Seller's right to possess) all or any portion of the
Acquired Real Property.
(f) Except as set forth on Schedule 2.13(f), all Acquired Real
----------------
Property has direct and unrestricted access over currently utilized facilities
and land to such public roads, owned roads and driveways presently in use, and
such utilities and other services, as are necessary for the uses thereof and the
conduct of the Business, and neither Seller nor any other Person has applied for
any change in the zoning or land use classification of any such Real Property.
(g) Except as set forth on Part A of Schedule 2.13(g), the Acquired
----------------
Real Property has adequate arrangements for supplies of water, electricity, gas
and/or oil for all operations at the 1996 or current operating levels, whichever
is greater. Except as set forth on Part B of Schedule 2.13(g), there are no
actions or proceedings pending or, to the best of Parent's and each Seller's
knowledge, threatened that would adversely affect the supply of water,
electricity, gas and/or oil to the Acquired Real Property except for those which
individually and in the aggregate would not have a Material Adverse Effect.
<PAGE>
20
2.14 Taxes.
-----
(a) Parent and each Seller has (i) timely filed all returns and
reports for Taxes, including information returns, that are required to have been
filed in connection with, relating to, or arising out of the Business or the
Purchased Assets, (ii) paid to the appropriate Tax Authority all Taxes that are
shown to have come due pursuant to such returns or reports and (iii) paid to the
appropriate Tax Authority all other Taxes not required to be reported on returns
in connection with, relating to, or arising out of, or imposed on the property
of the Business for which a notice of assessment or demand for payment has been
received or which have otherwise become due except for Taxes being properly
contested in good faith.
(b) All such returns or reports were complete and accurate in all
material respects at the time of filing and such returns which have not been
audited do not contain a disclosure statement under Code Section 6662 (or any
predecessor provision or comparable provision of any Law).
(c) There are no unpaid Taxes with respect to any period ending on or
before the Closing Date which are or could give rise to a lien on the Purchased
Assets or the Business, except for current Taxes not yet due and payable.
(d) Except as set forth on Schedule 2.14(d), (i) there are no pending
----------------
audits or, to the best of Parent's and each Seller's knowledge, threatened
audits or assessments relating to Taxes with respect to the Business or the
Purchased Assets and (ii) there is no unassessed Tax deficiency proposed or to
the best of Parent and each Seller's knowledge threatened against Parent or any
Seller relating to or affecting the Purchased Assets or the Business, nor is any
action or proceeding pending, or to the best of Parent's and each Seller's
knowledge, threatened by any Governmental Entity for assessment, reassessment or
collection of Taxes.
(e) Except as set forth on Schedule 2.14(e), none of the Purchased
----------------
Assets (i) is property that is required to be treated as owned by another Person
pursuant to the "safe harbor lease" provisions of former Section 168(f)(8) of
the Code, (ii) is "tax-exempt use property" within the meaning of Code Section
168(h) or (iii) directly or indirectly secures any Debt the interest on which is
tax-exempt under Code Section 103(a).
(f) Except as set forth on Schedule 2.14(f), neither Seller has agreed
----------------
to make, or is required to make, any adjustment under Code Section 263A or
481(a) or any comparable provision of state or foreign Tax Laws by reason of a
change in accounting method or otherwise and neither Seller has changed a method
of accounting or Inventory method, made or changed a tax election, or otherwise
taken any action which is not in accordance with past practice that could
accelerate a tax deduction from a period after the Closing Date to a period
before the Closing Date or defer income from a period before the Closing Date to
a period after the Closing Date.
(g) Except as set forth on Schedule 2.14(g), neither Seller is a party
----------------
to any agreement, contract, arrangement or plan that has resulted or would or
could result, separately or
<PAGE>
21
in the aggregate, in connection with this Agreement or any change of control of
the Seller, in the payment of any "excess parachute payment" within the meaning
of Code Section 280G.
(h) The amount of the reserves for value-added Taxes, real property
Taxes, property Taxes and payroll Taxes reflected on the Closing Date Balance
Sheet will be adequate to pay all Assumed Tax Liabilities.
2.15 Intellectual Property and Technology.
------------------------------------
(a) Schedule 2.15(a) contains a true, correct and complete list of all
----------------
patents, trademarks, trade names, service marks and applications for the
foregoing owned, used or held for use by either Seller with respect to the
Business, except for matters listed on Schedule 2.15(b).
----------------
(b) Schedule 2.15(b) contains a true, correct and complete list of all
----------------
Intellectual Property which has been registered in, filed in or issued by the
PTO, the United States Copyright Office, any state trademark offices and the
patent, trademark, copyright and other corresponding offices of foreign
jurisdictions. All such registrations have been duly filed, registered and
issued and are in full force and effect.
(c) Except as set forth on Schedule 2.15(c), Section 8 and 15
----------------
declarations and applications for renewal with respect to all U.S. registered
trademarks and service marks listed in Schedule 2.15(b) were timely filed in and
accepted by the PTO. No trademarks or service marks listed in Schedule 2.15(b)
have been abandoned.
(d) Schedule 2.15(d) sets forth all licenses or other agreements from
----------------
or with third Persons under which either Seller uses or exercises any rights
with respect to any of the Intellectual Property or Technology other than such
licenses or other agreements that involve payments of no more than $25,000 per
year ("Small Licenses"). At the Closing, Sellers will transfer to Buyer all
--------------
Intellectual Property and Technology without payment of royalties, free and
clear of any Liens.
(e) Except (i) as set forth on Schedule 2.15(e) or (ii) with respect
----------------
to Small Licenses, the Sellers (as applicable) are the sole and exclusive owners
of the Intellectual Property and Technology, free and clear of any Liens.
(f) Except as set forth on Schedule 2.15(f), neither Seller has
----------------
received (and Parent and Sellers have no knowledge of) any written notice from
any other Person pertaining to or challenging the right of either Seller (or any
other Person) to use any of the Intellectual Property or any Technology, and
there is no interference, opposition, cancellation, reexamination or other
contest proceeding, administrative or judicial, pending or threatened with
respect to any Intellectual Property or Technology.
(g) Except as set forth on Schedule 2.15(g), no licenses have been
----------------
granted by either Seller and neither Seller has any obligation to grant licenses
with respect to any Intellectual Property or Technology. No written claims have
been made by either Seller of any
<PAGE>
22
violation or infringement by others of rights with respect to any Intellectual
Property or Technology, and neither Parent nor Sellers know of any basis for the
making of any such claim. Except in such cases as would not in the aggregate
have a Material Adverse Effect, the use by each Seller of the Intellectual
Property and Technology (past and present) has not violated or infringed any
rights of other Persons, or constituted a breach of any Contract (or other
agreement or commitment).
(h) The Intellectual Property and Technology includes all such rights
necessary to conduct the Business as now conducted and, except (i) as set forth
on Schedule 2.15(d) or (ii) with respect to Small Licenses, such rights will not
----------------
be adversely affected by the execution and delivery of this Agreement or the
consummation of the transactions contemplated hereby.
(i) There are no licenses or service, maintenance or other agreements
or obligations of any nature whatsoever regarding the Intellectual Property or
Technology between or among a Seller, on the one hand, and any Affiliate(s) of
such Seller, on the other hand. All statements and representations made by each
Seller or any of its Affiliates in any pending patent, copyright and trademark
applications with respect to the Intellectual Property were true in all material
respects as of the time they were made.
2.16 Brokerage. Neither Parent nor either Seller nor any of their
-----------
respective Affiliates has made any agreement or taken any other action which
might cause AlliedSignal or Buyer to become liable for a broker's or finder's
fee or commission as a result of the transactions contemplated hereunder.
2.17 Product Warranties and Guarantees. Parent and each Seller has
-----------------------------------
provided Buyer with true and correct copies of all written product and service
warranties and guarantees in connection with Contracts listed on Schedule
2.8(a).
2.18 Products Liability. There are no Liabilities of either
--------------------
Seller, fixed or contingent, asserted or, to the best of Parent's and each
Seller's knowledge, unasserted, (a) with respect to any product Liability or any
similar claim that relates to any product sold by either of the Sellers to
others prior to the Closing, or (b) with respect to any claim for the breach of
any express or implied product warranty or any other similar claim with respect
to any product sold by either of the Sellers to others prior to the Closing,
other than standard warranty obligations (to replace, repair or refund) made by
a Seller in the ordinary course of the conduct of the Business to buyers of the
respective products, and except in the case of the preceding clauses (a) and (b)
where such Liabilities would not exceed $500,000 in the aggregate for the
Combined Business.
2.19 Labor Matters.
-------------
(a) To the best of Parent's and each Seller's knowledge, there have
been no union organizing efforts with respect to either Seller conducted within
the last three years and there are none now being conducted with respect to
either Seller. The Sellers have not at any time during the three years prior to
the date of this Agreement had, nor, to the best of Parent's and each Seller's
knowledge, is there now threatened, a strike, work stoppage, work slowdown or
<PAGE>
23
other material labor dispute with respect to or affecting the Business. Except
as set forth on Schedule 2.19, (i) no employee of either Seller is represented
-------------
by any union or other labor organization; (ii) there is no charge or complaint,
including any unfair labor practice charge or any claim of discrimination, which
is pending with any Governmental Entity or, to the best of Parent's and each
Seller's knowledge, threatened against either Seller relating to any of its
employees; and (iii) there is no commitment or agreement to increase wages or
modify the terms and conditions of employment of employees of either Seller
other than ordinary course of the Business consistent with past practice. Parent
and Sellers have provided Buyer with copies of any collective bargaining
agreement or other agreement with any union or other labor organization
representing employees of either Seller.
(b) Within six months prior to the date hereof, (i) neither Seller has
effectuated (x) a "plant closing" (as defined in the WARN Act) affecting any
site of employment or one or more facilities or operating units within any site
of employment or facility of the Business or (y) a "mass layoff" (as defined in
the WARN Act) affecting any site of employment or one or more facilities or
operating units within any site of employment or facility of the Business, (ii)
neither Seller has been affected by any transaction or engaged in layoffs or
employment terminations with respect to the Business sufficient in number to
trigger application of any similar foreign, state or local law, and (iii)
neither of the Sellers' employees has suffered an "employment loss" (as defined
in the WARN Act).
2.20 Employee Benefits.
-----------------
(a) Set forth on Schedule 2.20(a) is a true, correct and complete list
----------------
of the following:
(i) Separately by location, the names, job titles and current
salary or wage rates of all employees of each Seller and their hourly or
yearly salary, together with a summary of all bonus, incentive compensation
or other additional compensation or similar benefits paid to such persons
for the 1997 fiscal year and estimated for the 1998 fiscal year;
(ii) Separately by location, the names, job titles and current
salary or wage rates of all independent contractors, including any
consultants, and leased employees who perform services for a Seller; and
(iii) All of (x) the employee benefit plans, arrangements or
policies (whether or not written, whether U.S. or foreign, and whether or
not subject to ERISA), including, without limitation, any stock option,
stock purchase, stock award, retirement, pension, deferred compensation,
profit sharing, savings, incentive, bonus, health, dental, hearing, vision,
drug, life insurance, cafeteria, flexible spending, dependent care, fringe
benefit, vacation pay, holiday pay, disability, sick pay, workers
compensation, unemployment, severance pay, employee loan, educational
assistance plan, policy or arrangement, and (y) any employment,
indemnification, consulting or severance agreement, under which any
employee or former employee of a Seller has any present or future right to
benefits or under which a Seller has any present or future Liability
<PAGE>
24
(collectively, the "Plans"). Schedule 2.20(a) indicates which Plans are
----- ----------------
maintained for employees employed in the United States (collectively, "U.S.
----
Plans") and which Plans are maintained for employees employed outside of
-----
the United States (collectively, "Foreign Plans").
-------------
(b) Parent or Sellers have made available to Buyer a complete and
correct copy of each Plan document or a written description of any unwritten
plan; the most recent summary plan description or similar booklet for any Plan;
and any employee handbook applicable to employees of a Seller.
(c) Except (i) as set forth on Schedule 2.20(c) or (ii) in such cases
----------------
as would not in the aggregate have a Material Adverse Effect:
(i) Neither Parent nor either Seller nor any of their Affiliates
has communicated to present or former employees of a Seller, or formally
adopted or authorized, any additional Plan or any change in or termination
of any existing Plan.
(ii) Each Plan has been operated and administered in accordance
with its terms, the terms of any applicable collective bargaining
agreement, and all applicable Laws.
(iii) Each U.S. Plan which is a "group health plan" subject to
the continuation coverage requirements of Section 4980B of the Code and
Part 6 of Title I of ERISA ("COBRA") which is maintained by a Seller or any
-----
of its Affiliates has been operated and administered, in all material
respects, in accordance with such requirements.
(d) Schedule 2.20(d) identifies each U.S. Plan which provides health,
----------------
life insurance or other welfare benefits to retired or other terminated
employees of a Seller other than continuation coverage required by COBRA and the
Sellers have the ability to amend or terminate any such Plan.
(e) Except in such cases as would not in the aggregate have a Material
Adverse Effect, with respect to any Plan, no actions, suits, claims or
proceedings (other than routine claims for benefits) are pending or, to the best
of Parent's and each Seller's knowledge, threatened, and no facts or
circumstances exist which could be reasonably expected to give rise to any such
actions, suits, claims or proceedings.
(f) Except in such cases as would not in the aggregate have a Material
Adverse Effect, no Plan is currently under governmental investigation or audit,
and to the best of Parent's and each Seller's knowledge, no such investigation
or audit is contemplated or under consideration.
(g) Except in such cases as would not in the aggregate have a Material
Adverse Effect, no event has occurred and no condition exists that could be
reasonably expected to subject AlliedSignal or Buyer, directly or indirectly, to
any tax, fine, penalty or other Liability arising under, or with respect to, any
employee benefit plan currently or previously maintained
<PAGE>
25
by either Seller or any Person that is or was a member of a controlled group
with, under common control with, or otherwise required to be aggregated with,
either Seller under Section 414(b), (c), (m) or (o) of the Code.
(h) No lien has arisen or is expected to arise under the Code or ERISA
on the Purchased Assets.
(i) No U.S. Plan is a "multiemployer plan" within the meaning of
Section 3(37)(A) of ERISA, and neither Seller has any outstanding Liability with
respect to any such plan (contingent or otherwise).
(j) Except (i) as set forth on Schedule 2.20(j) or (ii) in such cases
----------------
as would not in the aggregate have a Material Adverse Effect, neither the
execution of this Agreement nor the consummation of the transactions
contemplated by this Agreement, will (x) increase the amounts of benefits
otherwise payable under any Plan, (y) result in the acceleration of the time of
payment, exercisability, funding or vesting of any such benefits, or (z) result
in any payment (whether severance pay or otherwise) becoming due to, or with
respect to, any employee or director of a Seller.
(k) No employee of any Seller is employed outside of the United States
and Sellers have no Foreign Plans.
2.21 No Pending Litigation or Proceedings. Except as set forth on
--------------------------------------
Part A of Schedule 2.21, there are no actions, suits, investigations or
-------------
proceedings pending against or affecting, or, to the best of Parent's and each
Seller's knowledge, threatened against, Parent, either Seller, the Business or
any of the Purchased Assets before any arbitrator or Governmental Entity
(including the United States Environmental Protection Agency, the United States
Equal Employment Opportunity Commission or any similar Governmental Entity) that
would materially and adversely affect their ability to perform their obligations
under this Agreement. Except as set forth on Part B of Schedule 2.21, there are
no outstanding judgments, decrees, writs, injunctions or orders of any
arbitrator or Governmental Entity against Parent or either Seller which relate
to or arise out of the conduct of the Business or the ownership, condition or
operation of the Business or the Purchased Assets except in such cases as would
not in the aggregate have a Material Adverse Effect.
2.22 Insurance. Schedule 2.22 lists each Seller's policies and
--------- -------------
contracts in effect as of the date hereof for insurance covering the Purchased
Assets or Assumed Liabilities and the operation of the facilities constituting
the Business owned or held by the Sellers, together with the risks insured
against, coverage limits and deductible amounts. Sellers have made available to
Buyer complete and correct copies of all such policies together with all riders
and amendments thereto. Such policies are in full force and effect and all
premiums due thereon have been paid. Each of the Sellers has complied in all
material respects with the terms and conditions of such policies. The Sellers
have made available to Buyer all books and records relating to workers
compensation claims and all claims made by the Sellers under any policy of
insurance during the five years prior to the date hereof with respect to the
Business other than employee claims under health or medical insurance policies
or coverage.
<PAGE>
26
2.23 Customers; Suppliers. As of the date of this Agreement, Part
----------------------
A of Schedule 2.23 contains a true, correct and complete list of (i) all
-------------
Contracts to which any Major Customer is a party and (ii) all Major Suppliers,
together with an estimate of all purchases from each Major Supplier for the last
12 months. Except as identified with an asterisk on Part A of Schedule 2.23,
each of the Contracts listed thereon is fully assignable to Buyer without the
consent, approval or waiver of any other Person. Except as set forth on Part B
of Schedule 2.23, as of the date of this Agreement, neither Parent nor either
Seller has received written notice within the preceding 12 months of any
development (a) which could reasonably be expected to result in a Material
Adverse Effect or (b) which indicates that a Major Customer will not purchase
products of the Combined Business from Buyer during the 1998 fiscal year in
amounts substantially equivalent (on a pro rata basis) to such purchases from
--- ----
such Seller in the 1997 fiscal year. Except as set forth on Part C of Schedule
2.23, as of the date hereof, no supplier of the Business (including any supplier
of Intellectual Property) has threatened to refuse to sell its products or
services to the Business except in such cases as would not in the aggregate have
a Material Adverse Effect.
2.24 Condition of Assets. Except as set forth on Schedule 2.24,
------------------- -------------
the buildings, machinery, equipment, tools, furniture, improvements, sewers,
pipes, transportation equipment and other fixed tangible Assets of the Business
(a) included in the Purchased Assets or (b) subject to any Contract included in
the Purchased Assets are in sufficiently good operating condition and repair to
conduct the Business as presently conducted, reasonable wear and tear excepted.
2.25 All Assets. Except as set forth on Schedule 2.25 and for the
------------ -------------
Excluded Assets, the Purchased Assets (including any Assets, properties and
rights subject to any Contract included in the Purchased Assets) constitute all
the assets, properties and rights owned, used, or held for use in connection
with, or that are otherwise related to or required for the conduct of, the
Business as currently conducted by the Sellers on the date of this Agreement.
Except as set forth on Schedule 2.25, none of the Purchased Assets are owned, in
whole or in part, by any Person other than the Sellers.
2.26 [Intentionally omitted.].
2.27 Securities Matters. Except as set forth on Schedule 2.27,
------------------ -------------
Sellers are acquiring the AlliedSignal Common Stock for their own account and
without a present view to any distribution thereof or any present intention of
distributing or selling the AlliedSignal Common Stock in violation of the
federal securities laws. Each Seller is an "accredited investor" as such term
is defined in Regulation D promulgated under the Securities Act. In evaluating
the suitability of an investment in the AlliedSignal Common Stock, each Seller
has relied solely upon the representations, warranties, covenants and agreements
made by AlliedSignal herein and has not relied upon any other representations or
other information (whether oral or written and including any estimates,
projections or supplemental data) made or supplied by or on behalf of
AlliedSignal or any Affiliate, employee, agent or other representative of
AlliedSignal. Each Seller understands and agrees that it may not sell or
dispose of any of the AlliedSignal Common
<PAGE>
27
Stock other than pursuant to a registered offering or in a transaction exempt
from the registration requirements of the Securities Act.
2.28 SEC Filings. Parent has heretofore delivered to Buyer, and
-----------
Buyer acknowledges receipt of, the following documents (the "Parent Reports"):
--------------
(a) Parent's Annual Report on Form 10-K for the fiscal year ended March 31,
1997, (b) Parent's Quarterly Reports on Form 10-Q for the fiscal quarters ended
June 30, and September 30, 1997, (c) Parent's proxy statement relating to its
1997 Annual Meeting of Stockholders, (d) Parent's Annual Report to Stockholders
for 1997, and (e) any other report filed during 1997, and prior to the date of
this Agreement, with the Securities and Exchange Commission under the Securities
Act or the Exchange Act. Each Parent Report, as of its filing date, insofar as
it relates to the Business, did not contain any untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements therein, in light of circumstances under which they were made, not
misleading.
2.29 [Intentionally omitted.].
2.30 Business Conduct. Except as discussed between Parent and
----------------
Buyer on December 7, 1997, to the best of Parent's and each Seller's knowledge,
during the past three years neither Seller, nor any director, officer, employee
or third party acting on behalf thereof, has, in violation of any Law: (i) made
any bribes, kickbacks or other payments, directly or indirectly, to any Person
or any representative thereof, to obtain favorable treatment in securing
business or otherwise to obtain special concessions for either Seller; (ii) made
any bribes, kickbacks or other payments, directly or indirectly, to or for the
benefit of any Governmental Entity or any official, employee or agent thereof,
for the purpose of affecting his or her action or the action of the Governmental
Entity that he or she represents to obtain favorable treatment in securing
business or to obtain special concessions for the Seller; (iii) made any
unlawful political contributions on behalf of either Seller; or (iv) otherwise
used corporate funds of either Seller for any illegal purpose, including without
limitation, any violation of the Foreign Corrupt Practices Act.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF ALLIEDSIGNAL AND BUYER
AlliedSignal and Buyer hereby jointly and severally represent and
warrant to Parent and Sellers as follows:
3.1 Organization and Good Standing. (a) AlliedSignal is a
------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware.
(b) Buyer is a limited liability company duly organized, validly
existing and in good standing under the laws of the State of Delaware.
AlliedSignal is the sole member of Buyer. AlliedSignal owns all of the
outstanding equity and profit interests in Buyer, free and clear of all Liens.
Buyer is disregarded as an entity separate from AlliedSignal for federal tax
purposes.
<PAGE>
28
3.2 Authorization and Enforceability. With respect to each of
--------------------------------
AlliedSignal and Buyer: (a) such entity has full power and authority to
execute, deliver and perform this Agreement and the Transaction Documents to
which such entity is a party, (b) the execution, delivery and performance by
such entity of this Agreement and the Transaction Documents to which such entity
is a party have been duly authorized by all necessary action on the part of such
entity, (c) this Agreement has been duly executed and delivered by such entity,
and, as of the Closing Date, the other Transaction Documents to which either
entity is a party will be duly executed and delivered by such entity, (d) this
Agreement is a legal, valid and binding obligation of such entity, enforceable
against such entity in accordance with its terms, and (e) as of the Closing
Date, each of the other Transaction Documents to which such entity is a party
will constitute the legal, valid and binding obligations of such entity,
enforceable against such entity in accordance with its terms.
3.3 No Violation of Laws or Agreements. The execution, delivery,
------------------------------------
and performance by AlliedSignal and Buyer of this Agreement and the Transaction
Documents to which such entities (as applicable) are parties do not, and the
consummation by AlliedSignal and Buyer (as applicable) of the transactions
contemplated hereby and thereby, will not, (a) contravene any provision of the
Certificate of Incorporation or Bylaws of AlliedSignal nor the Certificate of
Formation or Limited Liability Company Agreement of Buyer, or (b) except as set
forth on Schedule 3.3, violate, conflict with, result in a breach of, or
------------
constitute a default (or an event which would, with the passage of time or the
giving of notice or both, constitute a default) under, or result in or permit
the termination, modification, acceleration, or cancellation of, (i) any
indenture, mortgage, loan or credit agreement, license, instrument, lease,
contract, plan, permit or other agreement or commitment, oral or written, to
which either AlliedSignal or Buyer is a party, or by which any of either
entity's Assets may be bound or affected, or (ii) any judgment, injunction,
writ, award, decree, restriction, ruling, or order of any arbitrator or
Governmental Entity or any applicable Law to which AlliedSignal or Buyer is
subject.
3.4 Consents. No consent, approval or authorization of, or
--------
registration or filing with, any Person (governmental or private) is required in
connection with the execution, delivery and performance by AlliedSignal or Buyer
of this Agreement, the other Transaction Documents to which AlliedSignal or
Buyer is a party, or the consummation by AlliedSignal or Buyer of the
transactions contemplated hereby or thereby except (a) as required by the HSR
Act, (b) as required by the NYSE to list AlliedSignal Common Stock and (c) any
required consent, approval or authorization of, or registration or filing with,
any foreign governmental authority.
3.5 AlliedSignal Common Stock. As of the date hereof,
-------------------------
1,000,000,000 shares of AlliedSignal Common Stock are authorized for issuance.
As of November 30, 1997, 562,554,971 shares of AlliedSignal Common Stock were
issued and outstanding and 153,902,513 shares of AlliedSignal Common Stock were
held in the treasury of AlliedSignal or owned by any Subsidiary of AlliedSignal.
AlliedSignal has a sufficient number of unreserved shares of AlliedSignal Common
Stock to perform the transactions contemplated hereby. All shares of
AlliedSignal Common Stock to be issued at the Closing, when so issued, will be
duly authorized, validly issued, fully paid and non-assessable, free of
preemptive rights and all Liens and will be issued in compliance with all
applicable Laws. Parent acknowledges that
<PAGE>
29
AlliedSignal has disclosed to Parent that AlliedSignal will be making open
market and/or block purchases of AlliedSignal Common Stock during the period
between the date hereof and the Closing Date. All such purchases shall comply
with Rule 10b-18 under the Exchange Act.
3.6 SEC Filings. AlliedSignal has heretofore delivered to Parent,
-----------
and Parent acknowledges receipt of, the following documents (the "AlliedSignal
------------
Reports"): (a) AlliedSignal's Annual Report on Form 10-K for the fiscal year
- -------
ended December 31, 1996, (b) AlliedSignal's Quarterly Reports on Form 10-Q for
the fiscal quarters ended March 31, 1997, June 30, 1997 and September 30, 1997,
(c) AlliedSignal's proxy statement relating to its 1997 Annual Meeting of
Stockholders, (d) AlliedSignal's Annual Report to Stockholders for 1996, and (e)
any other report filed during 1997, and prior to the date of this Agreement,
with the Securities and Exchange Commission under the Securities Act or the
Exchange Act. As of their respective dates, each of the AlliedSignal Reports
complied in all material respects with the requirements of the Securities Act or
the Exchange Act, as the case may be, and none 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, in the light of the
circumstances under which they were made, not misleading. Since January 1,
1996, AlliedSignal has timely filed all reports, registration statements and
made all filings required to be filed with the SEC under the rules and
regulations of the SEC.
3.7 Financial Statements. The audited consolidated financial
--------------------
statements and unaudited consolidated interim financial statements of
AlliedSignal and its consolidated Subsidiaries included in or incorporated by
reference into the AlliedSignal Reports (including any related notes and
schedules) have been prepared in accordance with GAAP (except as may be
indicated in the notes thereto or as permitted by the Securities Act or the
Exchange Act in the case of unaudited financial statements included in or
incorporated by reference into the AlliedSignal Reports) and fairly present the
consolidated financial position of AlliedSignal and its consolidated
Subsidiaries as of the dates thereof and the consolidated results of their
operations for the periods then ended, subject, in the case of the unaudited
consolidated interim financial statements, to normal year-end adjustments and
any other adjustments described therein.
3.8 Brokerage. Neither AlliedSignal, Buyer nor any of their
---------
respective Affiliates has made any agreement or taken any other action which
might cause Parent or either Seller to become liable for a broker's or finder's
fee or commission as a result of the transactions contemplated hereunder.
ARTICLE IV
ADDITIONAL COVENANTS
4.1 Conduct of Business. Except (i) as otherwise specifically
-------------------
permitted by this Agreement or (ii) with the prior written consent of Buyer,
from and after the date of this Agreement and until the Closing Date, Parent and
Sellers agree that:
(a) Sellers shall:
<PAGE>
30
(i) conduct the Business as presently conducted and only in
the ordinary course of business consistent with past practice; and
(ii) use their reasonable best efforts to preserve the
business organization of the Business substantially intact, to keep
available to Buyer the services of their respective employees, and to
preserve for Buyer the goodwill of the suppliers, distributors,
customers and others having business relationships with the Business.
(b) Parent and Sellers shall promptly inform AlliedSignal in
writing of any specific event or circumstance (including, without
limitation, any consecutive two week period in which any Major Customer
fails to place orders with the Seller or Sellers with which it transacts
business) of which any of them is aware, or of which any of them receives
written or oral notice, that (i) has or is likely to have, individually or
in the aggregate, taken together with other events or circumstances, a
Material Adverse Effect, (ii) indicates that any Major Customer is
terminating or intends to terminate any Contract (excluding termination
upon expiration of the term of any Contract so long as such customer
continues to purchase goods from the Combined Business) and/or indicates
that any such customer intends to reduce its purchases from either Seller
or (iii) indicates that any Major Supplier is terminating or intends to
terminate any Contract (excluding termination upon expiration of the term
of any Contract so long as such supplier continues to sell goods to the
Combined Business) and/or indicates that any such Major Supplier intends to
reduce its sales to either Seller, provided that any such oral notice
reportable under this Section 4.1(b) shall be directed to a responsible
Person at Parent or either Seller; and
(c) Sellers shall not:
(i) change or modify in any material respect existing
Inventory management or credit and collection policies, procedures and
practices with respect to accounts receivable in any case relating to
the Business;
(ii) enter into any Contracts, waive any rights or enter
into any other transactions which individually or in the aggregate
would have a Material Adverse Effect;
(iii) mortgage, pledge or subject to any Lien (other than
Permitted Liens) any of the Purchased Assets;
(iv) change any compensation or benefits or grant any
material new compensation or benefits payable to or in respect of any
employee of the Business (except, for regularly scheduled merit
increases in the ordinary course of business consistent with past
practice);
<PAGE>
31
(v) sell, lease or otherwise transfer any Assets, except
Inventory in the ordinary course of the Business, necessary, or
otherwise material to the conduct of, the Business which would
constitute Purchased Assets;
(vi) change either Seller's method of accounting or keeping
its books of account or accounting practices with respect to the
Business, except as required by GAAP;
(vii) take or omit to take any action which if taken or
omitted prior to the date hereof would constitute or result in a
breach of any representations or warranties of Parent or Sellers set
forth herein;
(viii) enter into any Contract (except sales contracts with
customers in the ordinary course of the Business and except for such
Contracts which may be terminated by Buyer without penalty or
Liability on no more than 30 days' notice) that would create a
Liability for the Business in excess of $200,000 per year without
obtaining AlliedSignal's prior written consent, such consent not to be
unreasonably withheld;
(ix) create, incur or assume any Debt not currently
outstanding, other than current Liabilities incurred in the ordinary
course of business;
(x) amend their charters, bylaws or other organizational
documents;
(xi) authorize, issue, sell or otherwise dispose of any
capital stock of either Seller or amend the terms thereof;
(xii) declare, set aside or pay any dividend or other
distribution (whether in cash, stock or property or any combination
thereof) in respect of the capital stock of either of the Sellers, or
redeem or otherwise acquire any of the capital stock of either of the
Sellers;
(xiii) make any loans, advances or capital contributions
to, or investments in, any Person;
(xiv) acquire, sell, lease or dispose of any Assets used or
held for use in the Business, other than (x) sales of Inventory in the
ordinary and usual course of business consistent with past practice or
(y) purchases of goods for use in the Business in the ordinary and
usual course of business consistent with past practice;
(xv) with respect to the Business, pay, discharge or satisfy
any claims, Liabilities (absolute, accrued, asserted or unasserted,
contingent or otherwise), other than the payment, discharge or
satisfaction in the ordinary course of business of Liabilities
reflected or reserved against in, or contemplated
<PAGE>
32
by, the Balance Sheet or incurred in the ordinary course of business
consistent with past practice;
(xvi) disclose to any third party or enter into any
Technology license or agreement to disclose to any third party any
Intellectual Property, except in the ordinary and usual course of
business and pursuant to written confidentiality agreements;
(xvii) enter into any labor agreement;
(xviii) sell or dispose of any significant amount of old or
obsolete Inventory; or
(xix) make capital expenditures in excess of $50,000
individually or $250,000 in the aggregate for the Combined Business;
(xx) agree in writing or otherwise to take any of the
foregoing actions.
4.2 Mutual Covenants. The parties hereto mutually covenant from
----------------
the date of this Agreement to the Closing Date (and subject to the other terms
of this Agreement):
(a) to cooperate with each other in determining whether filings
are required to be made or consents required to be obtained in any
jurisdiction in connection with the consummation of the transactions
contemplated by this Agreement and in making or causing to be made any such
filings promptly and in seeking to obtain timely any such consents (each
party hereto shall furnish to the other and to the other's counsel all such
information as may be reasonably required in order to effectuate the
foregoing action); and
(b) to advise the other parties promptly if such party determines
that any condition precedent to its obligations hereunder will not be
satisfied in a timely manner.
4.3 Filings and Authorizations. The parties hereto will, as
--------------------------
promptly as practicable, and in the case of filings under the HSR Act no later
than five Business Days after the date of this Agreement, make or cause to be
made all such filings and submissions under Laws applicable to them or their
Affiliates as may be required to consummate the terms of this Agreement,
including all notifications and information to be filed or supplied pursuant to
the HSR Act. The parties hereto shall also provide as promptly as possible full
responses to any requests for additional information made of them under the HSR
Act. Any such filings, including any supplemental information and requests for
additional information under the HSR Act, will be in substantial compliance with
the requirements of the applicable Law. Each of AlliedSignal and Buyer, on the
one hand, and Parent and Sellers, on the other hand, shall furnish to the other
such necessary information and reasonable assistance as the other may request in
connection with its preparation of any filing or submission which is necessary
under the HSR
<PAGE>
33
Act. Parent, Sellers, AlliedSignal and Buyer shall keep each other apprised of
the status of any communications with, and inquiries or requests for additional
information from, any Governmental Entity, including the FTC and the Antitrust
Division, and shall comply promptly with any such inquiry or request. Each of
Parent and AlliedSignal shall use its reasonable efforts to obtain any clearance
required under the HSR Act for the purchase and sale of the Purchased Assets in
accordance with the terms and conditions hereof. Nothing contained in this
Agreement, including under this Section 4.3 and Sections 4.8 and 4.13, will
require or obligate (a) Parent, the Sellers, AlliedSignal, Buyer or their
respective Affiliates to initiate, pursue or defend any litigation to which any
Governmental Entity (including the Antitrust Division and the FTC) is a party or
(b) AlliedSignal, Buyer or their respective Affiliates (i) to agree or otherwise
become subject to any limitations on (x) the right of AlliedSignal, Buyer or
their respective Affiliates effectively to control or operate the Business, (y)
the right of AlliedSignal, Buyer or their respective Affiliates to acquire or
hold the Business, or (z) the right of AlliedSignal or Buyer to exercise full
rights of ownership of the Business or all or any portion of the Purchased
Assets, or (ii) to agree or otherwise be required to sell or otherwise dispose
of, hold separate (through the establishment of a trust or otherwise), or divest
itself of all or any portion of the business, Assets or operations of
AlliedSignal, Buyer, any Affiliate of AlliedSignal or Buyer or the Business. The
parties agree that no representation, warranty or covenant of Parent, Sellers,
AlliedSignal or Buyer contained in this Agreement shall be breached or deemed
breached as a result of the failure by any party hereto or any of its Affiliates
to take any of the actions specified in the preceding sentence.
4.4 Public Announcement. No party hereto shall make or issue, or
-------------------
cause to be made or issued, any public announcement or written statement
concerning this Agreement or the transactions contemplated hereby without the
prior written consent of the other party hereto (which will not be unreasonably
withheld or delayed), unless counsel to such party advises that such
announcement or statement is required by law or the rules of any securities
exchange on which securities of any Affiliate of Parent are traded (in which
case the parties hereto shall make reasonable efforts to consult with each other
prior to such required announcement).
4.5 Investigation. Sellers shall give AlliedSignal and its
-------------
representatives (including AlliedSignal's accountants, consultants, counsel and
employees), upon reasonable notice and during normal business hours, reasonable
access to the properties (including any Equipment and any Acquired Real
Property), Contracts, employees, books, records and affairs of the Sellers to
the extent relating to the Business and the Purchased Assets (provided that such
access does not unreasonably disrupt the conduct of the Business), and shall
cause their respective officers, employees, agents and representatives to
furnish to AlliedSignal all documents, records and information (and copies
thereof), to the extent relating to the Business and the Purchased Assets, as
AlliedSignal may reasonably request. Parent and Sellers may reasonably limit
the number of representatives of AlliedSignal provided access hereby. No
investigation or receipt of information by AlliedSignal pursuant to, or in
connection with, this Agreement, shall diminish or obviate any of the
representations, warranties, covenants or agreements of Parent or Sellers under
this Agreement or the conditions to the obligations of Buyer under this
Agreement. All information provided to AlliedSignal or Buyer under this
Agreement shall be held subject to the terms and conditions of the
Confidentiality Agreement.
<PAGE>
34
4.6 Taxes.
-----
(a) Parent and each Seller shall jointly and severally be responsible
for and shall pay any and all Taxes arising or resulting from the conduct of the
Business or the ownership of the Purchased Assets on or prior to the Closing
Date, which Liability shall be a Non-Assumed Liability (including, without
limitation, the sale of the Business and the Purchased Assets on the Closing
Date pursuant to this Agreement).
(b) Buyer shall be responsible for and shall pay any and all Taxes
arising or resulting from the conduct of the Business or the ownership of the
Purchased Assets after the Closing Date (excluding without limitation, the sale
of the Business and the Purchased Assets or the Closing Date pursuant to this
Agreement), which Liability shall be an Assumed Liability.
(c) Each Seller hereby acknowledges that for FICA and FUTA purposes,
Buyer qualifies as a successor employer with respect to the retained employees.
In connection with the foregoing, the parties agree to follow the "Alternative
Procedures" set forth in Section 5 of the Revenue Procedure 96-60, 1996-
2C.B.399. Each affected Seller and Buyer understands that Buyer shall assume
the affected Seller's entire obligation to furnish a Form W-2, Wage and Tax
Statement to the employees of the Business for calendar year ending December 31,
1998.
(d) In addition to all personnel files and records relating to
employees of the Business that each Seller shall deliver to the Buyer when their
employment commences with Buyer as otherwise required by this Agreement, each
Seller shall timely provide Buyer with any and all other information it needs to
properly comply with the requirements of the final sentence of Section 4.6(c).
(e) Each Seller acknowledges that for state unemployment Tax purposes,
each Seller will permit Buyer to apply for a transfer of such Seller's rating
account with respect to its Business. Each Seller shall deliver to Buyer within
a reasonable time after request therefor, with respect to its Business, copies
of such Seller's (i) Form 940, Employer's Annual Federal Unemployment Tax
Returns for 1995 and 1996, (ii) state unemployment tax rate notices for 1995 and
1996, and (iii) benefit change statements that itemize claims charged against
the state account of such Seller in each state in which the Business is operated
for the four most recent calendar quarters.
(f) Parent, Sellers and Buyer shall each, and Parent shall cause DA to
(i) provide the other with such assistance as may reasonably be requested by any
of them in connection with the preparation of any Tax return, any audit or other
examination by any Taxing Authority or any judicial or administrative proceeding
with respect to Taxes, (ii) retain and provide to the other any records or other
information which may be relevant to such return, audit examination or
proceeding, and (iii) provide to the other any final determination of any such
audit or examination, proceeding or determination that affects any amount
required to be shown on any Tax return of the other for any period (which shall
be maintained confidentially). Without limiting the generality of the
foregoing, Buyer, Sellers and Parent shall, and Parent shall cause DA to,
retain, until the applicable statutes of limitations (including all extensions)
have expired, copies of all Tax returns, supporting workpapers, and other books
and records or
<PAGE>
35
information which may be relevant to such returns for all Tax periods or
portions thereof ending before or including the Closing Date, and shall not
destroy or dispose of such records or information without first providing the
other party with a reasonable opportunity to review and copy the same.
(g) Parent agrees that neither Seller will be liquidated and that
Sellers in the aggregate will retain assets of at least $1,000,000. Buyer,
Parent and each Seller intend that Buyer's acquisition of the Business and
Purchased Assets from the Sellers pursuant to this Agreement shall be a taxable
transaction and, assuming compliance by Parent with the covenant set forth in
the immediately preceding sentence, each of the parties agrees to treat such
acquisition in such manner for all tax purposes, including, without limitation,
for all purposes on any federal or state income or franchise tax return filed by
any party after the Closing Date. Parent, Sellers and Buyer mutually agree to
the allocation of the Initial Purchase Price among such Purchased Assets, in
accordance with Code Section 1060. In the event of an adjustment to the Initial
Purchase Price as provided in Section 1.6(f) and Section 9.15 of the Aerospace
Agreement, any such adjustment due to a change in a particular class of
Purchased Assets shall be allocated on a dollar for dollar basis to the
applicable class. The parties shall mutually agree to the allocation of the
adjustment within thirty (30) days after the determination of such adjusted
Initial Purchase Price. Each of the parties agrees to report this transaction
for tax purposes in accordance with such allocation of the Initial Purchase
Price or the adjusted Initial Purchase Price, including, without limitation, for
all purposes on any federal or state income or franchise tax return filed by any
party after the Closing Date.
(h) Neither Parent nor either Seller shall, and Parent shall cause DA
not to, make a new or change any existing Tax election, change a method of
accounting or Inventory method, file any amended Tax return, enter into any
closing agreement, settle any Tax claim or assessment, or take or omit to take
any other action not consistent with past practice, if any such action or
omission would have the effect of increasing the Tax Liability of AlliedSignal
or Buyer with respect to the Business and Purchased Assets for any period after
the Closing Date.
(i) AlliedSignal and Buyer, on the one hand, and Parent and Sellers,
on the other hand, shall equally bear all Transfer Taxes. Parent, Sellers and
Buyer shall, and Parent shall cause DA to, cooperate in timely making and filing
all Tax Returns as may be required to comply with the provisions of any Transfer
Tax laws. To the extent legally able to do so, Buyer shall deliver to Parent
and Sellers exemption certificates satisfactory in form and substance to Parent
and Sellers with respect to Transfer Taxes if such delivery would reduce the
amount of Transfer Taxes that would otherwise be imposed.
(j) [Intentionally omitted.]
(k) [Intentionally omitted.]
(l) [Intentionally omitted.]
<PAGE>
36
4.7 Certain Deliveries.
------------------
(a) Within thirty (30) days after the end of each month ending after
the date of this Agreement and prior to the Closing Date, Parent and Sellers
shall prepare and furnish to or cause to be furnished to AlliedSignal a copy of
the monthly financial reports for the Combined Business prepared after September
30, 1997 (including unaudited balance sheet and income statements) for each such
month and the fiscal year to the end of such month). All of the foregoing
financial statements shall comply with the requirements concerning unaudited
financial statements set forth in Section 2.6. In addition, Parent and Sellers
shall furnish AlliedSignal, upon request, with copies of regular management
reports, if any, concerning the operation of the Business within ten (10) days
after such reports are prepared.
(b) Each Seller shall provide AlliedSignal, within five days of the
execution or the date of receipt thereof, a copy of each Contract entered into
by either Seller after the date hereof and prior to the Closing Date which, if
entered into prior to the date hereof would have been required to be disclosed
on Part A of Schedule 2.8(a).
(c) Within five days after the date of filing thereof, AlliedSignal or
Parent, as the case may be, shall furnish to the other a copy of each report
filed by AlliedSignal or Parent, as the case may be, after the date of this
Agreement and prior to the Closing Date under the Securities Act or the Exchange
Act.
4.8 Consents. Prior to the Closing, Parent and Sellers shall give
----------
any notices and obtain all waivers, licenses, agreements, permits, consents,
approvals or authorizations of any Governmental Authority that are required to
be obtained by either Seller pursuant to any Contract or Permit or otherwise in
order to consummate the transactions contemplated hereunder, and all of such
shall be in a written form agreeable to AlliedSignal and in full force and
effect and without conditions or limitations that restrict the ability of the
parties hereto to carry out the transactions contemplated hereby.
4.9 Releases. At the Closing, all intercompany Debt (other than
----------
receivables and payables arising from ordinary course commercial transactions)
between the Sellers, on the one hand, and the Parent and its Subsidiaries other
than the Sellers, on the other hand, shall be canceled and all such amounts
shall be deemed to be capital contributions to the entity owing such Debt.
4.10 Real Property. Within thirty (30) days after the date hereof,
---------------
Parent and Sellers shall deliver or cause to be delivered to Buyer current, as-
built ALTA surveys of the Owned Real Property (the cost of which shall be borne
50% by Parent and 50% by Buyer); such surveys to be dated within thirty (30)
days of the date hereof and to be reasonably acceptable to Buyer. Such surveys
shall be performed by licensed surveyors designated by Buyer and shall be
certified to Buyer, Buyer's title insurance companies and others as Buyer shall
request. The surveys shall be in form sufficient to cause Buyer's title
insurance companies to insure such surveys, and shall be an ALTA/ACSM Land Title
Survey, prepared in accordance with the "Minimum Standard Detail Requirements
for ALTA/ACSM Land Title Surveys as adopted by American Land Title Association
and American Congress on Surveying & Mapping", and shall
<PAGE>
37
meet the currently effective Accuracy Standards for an Urban Survey adopted by
said organizations and shall include such optional survey responsibilities and
specifications as Buyer reasonably shall select.
4.11 Environmental. At or prior to Closing, Parent and Sellers
-------------
shall deliver or cause to be delivered all such necessary applications,
approvals or consents required to transfer all Permits required for the
continued operation of the Business and the Purchased Assets after the Closing
Date in compliance with Environmental Laws. Within thirty (30) days after
execution of this Agreement, Sellers shall identify to Buyer any of the
Purchased Assets that are subject to the requirements of any Laws that
condition, restrict, prohibit or require notification or disclosure for
environmental reasons upon the transfer, sale, lease or closure of certain
property; and Sellers shall deliver on or prior to the Closing Date, all
necessary applications, approvals, or consents required by such Laws.
4.12 Ancillary Agreements. At or prior to the Closing, the
--------------------
applicable parties shall enter into each of the Ancillary Agreements.
4.13 Reasonable Best Efforts. Without limiting the specific
-----------------------
obligations of any party hereto under any covenant or agreement hereunder, each
party hereto shall use reasonable best efforts to take all action and do all
things necessary in order to promptly consummate the transactions contemplated
hereby, including, without limitation, satisfaction, but not waiver, of the
Closing conditions set forth in Article V.
4.14 Negotiations. From the date hereof until the termination of
------------
this Agreement in accordance with its terms, Parent and Sellers, on behalf of
themselves and their Affiliates, agree that, except as permitted under the
Aerospace Agreement, Parent, Sellers and their Affiliates will deal exclusively
and in good faith with AlliedSignal and Buyer with respect to any transaction
involving the sale, transfer or other disposition of the Purchased Assets or the
Business; and neither Parent, Sellers, their Affiliates nor any of their
officers, directors, employees, lenders, investment banking firms, advisors or
other agents, or any Person acting on their behalf, will solicit any inquiries
or proposals by, or engage in any discussions or negotiations with, or furnish
any nonpublic information to or enter into any agreement with, any Person other
than AlliedSignal or Buyer concerning the sale or other disposition of the
Purchased Assets or the Business or the merger, consolidation, sale of
securities or other transaction involving Parent or either of the Sellers, if
such merger, consolidation, sale or other transaction would be inconsistent, in
any respect, with the transactions contemplated by this Agreement, and will
promptly notify AlliedSignal of the substance of any inquiry or proposal
concerning any such transaction that may be received by Parent, Sellers or their
Affiliates.
4.15 U.S. Government Contracts. As soon as practicable following
-------------------------
the date of this Agreement and only after Buyer's written request, with respect
to each Government Contract, AlliedSignal and Buyer shall assist Parent and
Sellers to either obtain written confirmation reasonably satisfactory in form
and substance to Buyer that novation of such Government Contract is not
required, or, if not received prior to the Closing Date, submit to the cognizant
responsible contracting officer, as soon as practicable after the Closing Date
(i) a
<PAGE>
38
written request that the U.S. Government enter into a novation agreement
contemplated by FAR 42.1204 (a "Novation Agreement") with Buyer with respect to
------------------
each Government Contract and (ii) a Novation Agreement executed by the Seller
party thereto for each Government Contract. Parent, Sellers, AlliedSignal and
Buyer shall coordinate their efforts to facilitate the actions required by this
Section 4.15 and Parent agrees to take all necessary action to assist Sellers
prior to and after the Closing in connection therewith, including without
limitation, upon Buyer's written request, obtaining such consents after the
Closing, informing the appropriate governmental personnel of the pending
transaction and of the planned novation.
4.16 NYSE Listing. AlliedSignal shall take all reasonable action
------------
required to obtain from the NYSE, prior to the Closing Date to have duly
approved for listing, subject to official notice of issuance, the shares of
AlliedSignal Common Stock to be issued hereunder at the Closing.
4.17 [Intentionally omitted.]
4.18 Seller Debt. Prior to the Closing, Parent shall cause all
-----------
remaining payments on all capitalized leases to be paid and use its reasonable
best efforts to cause all cash accounts of the Sellers to be reduced to zero
with no negative or positive balances. Buyer acknowledges that the funding of
negative balances will increase Closing Date Net Worth.
4.19 [Intentionally omitted.]
4.20 Product Liability Insurance. At Parent's request,
---------------------------
AlliedSignal shall use reasonable commercial efforts to procure, to the extent
available, at Parent's expense, product liability insurance covering products
manufactured or distributed by the Sellers prior to the Closing Date. Upon
receipt of any premium notice relating to such insurance, AlliedSignal shall
notify Parent and Parent shall promptly pay to AlliedSignal the amount of the
premium due. Parent acknowledges and agrees that AlliedSignal is free to
ascribe any adverse claim experience, to the extent reasonably identifiable to
products manufactured or distributed by the Sellers prior to the Closing Date,
to such policy, so that (to such extent) such adverse claim experience does not
adversely affect other product liability premiums being paid by AlliedSignal.
4.21 United Kingdom Assets. Parent shall cause the transfer to
---------------------
Buyer or its designee of the Assets located in the United Kingdom related to the
Combined Business.
ARTICLE V
CONDITIONS PRECEDENT
5.1 Conditions Precedent to Obligations of AlliedSignal and Buyer.
-------------------------------------------------------------
The obligations of Buyer to purchase (and of AlliedSignal to cause Buyer to
purchase) the Purchased Assets and assume (and of AlliedSignal to cause Buyer to
assume) the Assumed Liabilities and to consummate the other transactions
contemplated hereby are subject to the satisfaction, on or prior to the Closing
Date, of each of the following conditions (any one or more of which may be
waived in writing in whole or in part by Buyer in its sole discretion):
<PAGE>
39
(a) Representations, Warranties and Covenants. Each of the
-----------------------------------------
representations and warranties of Parent and Sellers contained in this Agreement
or in any Transaction Document delivered in connection herewith shall be true
and correct in all material respects on and as of the date of this Agreement and
at and as of the Closing with the same effect as though such representations and
warranties had been made at and as of the Closing, except for representations
and warranties that speak as of a specific date or time other than the Closing
(which need only be true and correct in all material respects as of such date or
time); provided, however, that if any such representation or warranty is already
-------- -------
qualified by materiality, for purposes of determining whether this condition has
been satisfied, such representation or warranty as so qualified shall be true
and correct in all respects. Parent and Sellers shall have performed and
complied in all material respects with each covenant and agreement required by
this Agreement to be performed or complied with by them at or prior to the
Closing. Parent and each Seller shall furnish AlliedSignal and Buyer with a
certificate of such company dated the Closing Date and signed by a senior
executive officer of Parent or such Seller, as the case may be, to the effect
that the conditions set forth in this Section 5.1(a) have been satisfied.
(b) HSR Act. The applicable waiting period under the HSR Act
-------
(including any extensions thereof) with respect to the transactions contemplated
hereby shall have expired or been terminated.
(c) Stock Exchange Listing. The NYSE shall have duly approved for
----------------------
listing, subject to official notice of issuance, the shares of AlliedSignal
Common Stock to be issued hereunder at the Closing.
(d) Required Consents. Parent and the Sellers shall have obtained all
-----------------
statutory and regulatory consents and approvals which are required under any
applicable Laws in order to consummate the transactions contemplated hereby and
to permit Buyer to conduct the Business as conducted as of the date of this
Agreement and all other necessary consents and approvals of third parties (other
than any customer or supplier of the Business) to the transactions contemplated
hereby, other than those the failure of which to obtain, individually and in the
aggregate, would not have a Material Adverse Effect.
(e) Injunction; Litigation; Legislation. (i) Parent, the Sellers,
-----------------------------------
AlliedSignal and Buyer shall not be subject to any order or injunction by any
Governmental Entity restraining or prohibiting the consummation of the
transactions contemplated hereby, (ii) no action or proceeding shall have been
instituted before any Governmental Entity to restrain or prohibit, or to obtain
substantial damages in respect of, the consummation of the transactions
contemplated hereby, (iii) none of the parties hereto shall have received
written notice from any Governmental Entity of (x) its intention to institute
any action or proceeding to restrain, enjoin or nullify this Agreement or the
transactions contemplated hereby, or to commence any investigation (other than a
routine letter of inquiry, including a routine civil investigative demand) into
the consummation of the transactions contemplated hereby or (y) the actual
commencement of such investigation, (iv) there shall not be any pending or
threatened litigation, suit, action or proceeding by any party which would
reasonably be expected to limit or materially adversely affect Buyer's ownership
of the Purchased Assets or the Buyer under the Aerospace Agreement's
<PAGE>
40
ownership of the Aerospace Purchased Assets and (v) no Law shall have been
promulgated or enacted by any Governmental Entity, which would prevent or make
illegal the consummation of the transactions contemplated hereby.
(f) Documents. Parent and the Sellers shall have delivered to Buyer
---------
at the Closing such other documents and instruments as shall be reasonably
necessary to transfer to Buyer the Purchased Assets as contemplated by this
Agreement. Parent and Sellers shall have delivered all the certificates,
instruments, contracts and other documents specified to be delivered by each of
them hereunder.
(g) Aerospace Closing. (i) All conditions to the Closing (as defined
-----------------
in the Aerospace Agreement) shall have been satisfied or waived and (ii) the
Closing (as defined in the Aerospace Agreement) shall be consummated
simultaneously with the consummation of the Closing hereunder.
(h) Escrow Agreement. Parent and the Escrow Agent shall have executed
----------------
and delivered to AlliedSignal the Escrow Agreement.
5.2 Conditions Precedent to Obligations of Parent and Sellers. The
---------------------------------------------------------
obligations of Sellers to sell, and Parent to cause to be sold, the Purchased
Assets and to consummate the other transactions contemplated hereby are subject
to the satisfaction, on or prior to the Closing Date, of each of the following
conditions (any one or more of which may be waived in writing in whole or in
part by Parent (acting on its own behalf and on behalf of Sellers) in its sole
discretion):
(a) Representations, Warranties and Covenants. Each of the
-----------------------------------------
representations and warranties of AlliedSignal and Buyer contained in this
Agreement and in any Transaction Document delivered in connection herewith shall
be true and correct in all material respects on and as of the date of this
Agreement and at and as of the Closing with the same effect as though such
representations and warranties had been made at and as of the Closing, except
for representations and warranties that speak as of a specific date or time
other than the Closing (which need only be true and correct in all material
respects as of such date or time); provided, however, that if any such
-------- -------
representation or warranty is already qualified by materiality, for purposes of
determining whether this condition has been satisfied, such representation or
warranty as so qualified shall be true and correct in all respects.
AlliedSignal and Buyer shall have performed or complied in all material respects
with each covenant and agreement required by this Agreement to be performed or
complied with by it at or prior to the Closing. AlliedSignal or Buyer, as the
case may be, shall furnish Sellers with a certificate dated the Closing Date and
signed by a senior executive officer of Buyer to the effect that the conditions
set forth in this Section 5.2(a) have been satisfied.
(b) HSR Act. The applicable waiting period under the HSR Act
-------
(including any extensions thereof) with respect to the transactions contemplated
hereby shall have expired or been terminated.
<PAGE>
41
(c) Stock Exchange Listing. The NYSE shall have duly approved for
----------------------
listing, subject to official notice of issuance, the shares of AlliedSignal
Common Stock to be issued hereunder at the Closing.
(d) Injunction; Litigation; Legislation. (i) Parent, the Sellers,
-----------------------------------
AlliedSignal and Buyer shall not be subject to any order or injunction by any
Governmental Entity restraining or prohibiting the consummation of the
transactions contemplated hereby, (ii) no action or proceeding shall have been
instituted before any Governmental Entity to restrain or prohibit, or to obtain
substantial damages in respect of, the consummation of the transactions
contemplated hereby, (iii) none of the parties hereto shall have received
written notice from any Governmental Entity of (x) its intention to institute
any action or proceeding to restrain, enjoin or nullify this Agreement or the
transactions contemplated hereby, or to commence any investigation (other than a
routine letter of inquiry, including a routine civil investigative demand) into
the consummation of the transactions contemplated hereby or (y) the actual
commencement of such investigation and (iv) no Law shall have been promulgated
or enacted by any Governmental Entity, which would prevent or make illegal the
consummation of the transactions contemplated hereby.
(f) Documents. AlliedSignal and Buyer shall have delivered to Sellers
---------
at the Closing such other documents and instruments as shall be reasonably
necessary for the assumption by Buyer of the Assumed Liabilities as contemplated
by this Agreement. AlliedSignal and Buyer shall have delivered all the
certificates, instruments, contracts and other documents specified to be
delivered by it hereunder.
(g) Aerospace Closing. (i) All conditions to the Closing (as defined
-----------------
in the Aerospace Agreement) shall have been satisfied or waived and (ii) the
Closing (as defined in the Aerospace Agreement) shall be consummated
simultaneously with the consummation of the Closing hereunder.
(h) Registration Rights Agreement. AlliedSignal shall have executed
-----------------------------
and delivered to Parent a registration rights agreement substantially in the
form of Exhibit 1.9(b)(vi) of the Aerospace Agreement with such changes as may
------------------
reasonably be requested by Citicorp USA, Inc. provided that such changes shall
not provide for (i) more than a single demand registration right, (ii) a period
of longer than 180 days during which the Registration Statement must be kept in
effect or (iii) the payment of expenses by a party other than Citicorp USA, Inc.
or Parent.
(i) Escrow Agreement. AlliedSignal and the Escrow Agent shall have
----------------
executed and delivered to Parent the Escrow Agreement.
<PAGE>
42
ARTICLE VI
CERTAIN ADDITIONAL COVENANTS
6.1 Expenses. Except as otherwise expressly provided in this
--------
Agreement, each of the parties hereto shall each bear its respective accounting,
legal and other expenses incurred in connection with the transactions
contemplated by this Agreement.
6.2 Maintenance of Books and Records. Parent, Sellers and Buyer
--------------------------------
shall cooperate fully with each other after the Closing so that (subject to any
limitations that are reasonably required to preserve any applicable attorney-
client privilege) each party hereto has access to the business records,
contracts and other information existing at the Closing Date and relating in any
manner to the Purchased Assets, the Assumed Liabilities or the conduct of the
Business (whether in the possession of Parent, Sellers or Buyer). No files,
books or records existing at the Closing Date and relating in any manner to the
Purchased Assets or the conduct of the Business prior to the Closing Date shall
be destroyed by any party hereto for a period of six years after the Closing
Date without giving the other party at least 30 days' prior written notice,
during which time such other party shall have the right (subject to the
provisions hereof) to examine and to remove any such files, books and records
prior to their destruction. The access to files, books and records contemplated
by this Section 6.2 shall be during normal business hours and upon not less than
two business days' prior written request, shall be subject to such reasonable
limitations as the party having custody or control thereof may impose to
preserve the confidentiality of information contained therein, and shall not
extend to material subject to a claim of privilege unless expressly waived by
the party entitled to claim the same.
6.3 [Intentionally omitted.]
6.4 Non-Competition/Non-Solicitation.
--------------------------------
(a) Parent and each Seller covenants and agrees that, if the Closing
is consummated, for a period of three years after the Closing Date, it will not,
and will cause Parent Subsidiaries not to, engage in the business of supplying
to the aerospace industry aircraft hardware, chemicals or related support
services (or any portion thereof) anywhere in the world (the "Competitive
Activities"), except for (i) the sale of any Inventory of such hardware or
chemicals owned by such Person or consigned to such Person as of the date
hereof, the value of which Inventory is estimated to be approximately $5,000,000
or (ii) the sale of any Inventory of such hardware or chemicals hereafter
acquired by such Person as part of a bulk purchase or hereafter consigned to
such person as part of a bulk consignment, but only after such Person has
offered to sell such hardware or chemicals to Buyer at commercially reasonable
prices for such quantities as would be charged to distributors of such products;
provided, however, that nothing herein shall be construed to prevent Parent,
- -------- -------
Sellers, and/or any of their respective Affiliates from owning, in the
aggregate, up to 10% of the stock or equity interest in any Person that engages
in such business or any portion thereof. It is the desire and intent of the
parties hereto that the provisions of this Section 6.4 shall be enforced to the
fullest extent permitted under the laws and public policies of each jurisdiction
in which enforcement is sought. If any court determines that any provision of
this Section 6.4 is unenforceable, such court shall have the power to reduce the
<PAGE>
43
duration or scope of such provision, as the case may be, or terminate such
provision and, in reduced form, such provision shall be enforceable; it is the
intention of the parties that the foregoing restrictions shall not be
terminated, unless so terminated by a court, but shall be deemed amended to the
extent required to render them valid and enforceable, such amendment to only
apply with respect to the operation of this Section 6.4 in the jurisdiction of
the court that has made the adjudication. Notwithstanding the foregoing, nothing
in this Section 6.4(a) shall prohibit Parent, any Seller or any of their
respective Affiliates from acquiring any Person or business that engages in
Competitive Activities provided that (x) such activities do not constitute the
principal activities of the Person or business to be acquired (based on the
sales of such business during the preceding four (4) full calendar quarters) and
(y) if Competitive Activities constitute in excess of fifteen percent (15%) of
the revenues of the Person or business acquired, Sellers use their reasonable
efforts to divest that portion of such Person or business that engages in
Competitive Activities within twelve (12) months after the acquisition thereof.
(b) Each of Parent and each Seller covenants and agrees that, if the
Closing is consummated, for a period of one year after the Closing Date, it will
not, and will cause Parent Subsidiaries not to, directly or indirectly, solicit
for employment, either as an employee or a consultant, any employee or
independent contractor of AlliedSignal, Buyer or any of their respective
Affiliates who is engaged in the Business and was an employee or independent
contractor of either Seller engaged in the Business as of the Closing Date to
become an employee or consultant or otherwise provide services to Parent, such
Seller or any Parent Subsidiary, except for persons whose employment is
solicited or procured through general media advertisements.
(c) The parties acknowledge and agree that the restrictions contained
in Sections 6.4(a) and 6.4(b) are a reasonable and necessary protection of the
immediate interests of AlliedSignal and Buyer, and any violation of these
restrictions would cause substantial injury to AlliedSignal or Buyer, as the
case may be and that AlliedSignal and Buyer would not have entered into this
Agreement without receiving the additional consideration offered by Parent and
each Seller in binding itself to these restrictions. In the event of a breach
or a threatened breach by Parent, any Seller or any Parent Subsidiary of these
restrictions, AlliedSignal and Buyer shall be entitled to apply to any court of
competent jurisdiction for an injunction restraining such Person from such
breach or threatened breach (without the necessity of proving the inadequacy of
money damages as a remedy); provided, however, that the right to apply for
-------- -------
injunctive relief shall not be construed as prohibiting AlliedSignal or Buyer,
as the case may be, from pursuing any other available remedies for such breach
or threatened breach.
(d) Each of AlliedSignal and Buyer covenant and agree that, if the
Closing is consummated, for a period of one year after the Closing Date, and if
not consummated for a period of one year from the date of termination of this
Agreement, it will not, and will cause its Affiliates not to, directly or
indirectly, solicit for employment, either as an employee or a consultant, any
employee or independent contractor of Parent or any Parent Subsidiary (other
than any employee or independent contractor of any of the Sellers) to become an
employee or consultant or otherwise provide services to AlliedSignal, Buyer or
any of their respective
<PAGE>
44
Affiliates, except for persons whose employment is solicited or procured through
general media advertisements.
(e) The parties acknowledge and agree that the restrictions contained
in Section 6.4(d) are a reasonable and necessary protection of the immediate
interests of Parent and Sellers, and any violation of these restrictions would
cause substantial injury to Parent or Sellers, as the case may be, and that
Parent and Sellers would not have entered into this Agreement without receiving
the additional consideration offered by AlliedSignal and Buyer in binding itself
to these restrictions. In the event of a breach or a threatened breach by
AlliedSignal, Buyer or any of their respective Affiliates of these restrictions,
Parent and any such Seller shall be entitled to apply to any court of competent
jurisdiction for an injunction restraining such Person from such breach or
threatened breach (without the necessity of proving inadequacy of money damages
as a remedy); provided, however, that the right to apply for injunctive relief
-------- -------
shall not be construed as prohibiting Parent or such Seller from pursuing any
other available remedies for such breach or threatened breach.
6.5 Confidential Information. Parent and Sellers shall, and shall
------------------------
cause Parent Subsidiaries to, maintain the confidentiality of, and shall not
use, and shall cause Parent Subsidiaries not to use, for the benefit of itself
or others, any confidential information concerning the Business or the Purchased
Assets, including any information with respect to the Intellectual Property or
Technology (the "Confidential Information"); provided, however, that this
------------------------ -------- -------
Section 6.5 shall not restrict (a) any disclosure by any such Person of any
Confidential Information required by applicable Law, securities exchange or any
court of competent jurisdiction; provided, that AlliedSignal and Buyer are given
--------
notice and an adequate opportunity to contest such disclosure, (b) any
disclosure on a confidential basis to any such Person's attorneys, accountants,
lenders and investment bankers and (c) any disclosure of information (i) which
is available publicly as of the date of this Agreement, (ii) which, after the
date of this Agreement, becomes available publicly through no fault of the
disclosing party or any of its Affiliates or (iii) which is received by such
Person from a third party not, to the best of such Person's knowledge, subject
to any obligation of confidentiality with respect thereto.
ARTICLE VII
SURVIVAL
7.1 Survival. All representations, warranties, covenants and
--------
agreements contained in this Agreement or the Transaction Documents shall
survive (and not be affected in any respect by) the Closing, any investigation
conducted by any party hereto and any information which any party may receive.
Notwithstanding the foregoing, the representations and warranties contained in
or made pursuant to this Agreement and the related indemnity obligations set
forth in Sections 7.2(a)(i) and 7.3(a)(i) of the Aerospace Agreement shall
terminate on, and no claim or action with respect thereto may be brought after,
the date three years after the Closing Date, except that (a) the representations
and warranties contained in Sections 2.3 and 2.12 and the related indemnity
obligations contained in Section 7.2 of the Aerospace Agreement shall survive
indefinitely and (b) the representations and warranties contained in Sections
2.10, 2.14 and 2.20
<PAGE>
45
and the related indemnity obligations contained in Section 7.2 of the Aerospace
Agreement shall survive until 30 days after the expiration of the applicable
statute of limitations (or extensions or waivers thereof). The representations
and warranties which terminate on the date three years after the Closing Date
and the representations and warranties referred to in the foregoing clause (b),
and the Liability of any party hereto with respect thereto pursuant to Article
VII of the Aerospace Agreement, shall not terminate with respect to any claim,
whether or not fixed as to Liability or liquidated as to amount, with respect to
which the Indemnifying Party has been given written notice prior to the date
three years after the Closing Date or such 30th day after the expiration of the
applicable statute of limitations (or extensions or waivers thereof), as the
case may be. Sellers hereby confirm their joint and several obligations under
Section 7.2 of the Aerospace Agreement.
ARTICLE VIII
EMPLOYEES AND EMPLOYEE BENEFITS
8.1 Scope of Article. This Article VIII contains the covenants and
----------------
agreements of the parties with respect to (a) the status of employment of the
employees of Sellers employed in the Business ("Employees") upon the sale of the
---------
Business to Buyer, and (b) the employee benefits and employee benefit plans
provided or covering such Employees and former employees of Sellers who
terminated employment with the Sellers while employed in the Business or who
retired from the Business ("Former Employees"). Nothing herein expressed or
----------------
implied confers upon any Employee or Former Employee of Sellers any rights or
remedies of any nature or kind whatsoever.
8.2 U.S. Employees. This Section 8.2 applies only to Employees and
--------------
Former Employees employed or previously employed by Sellers in the United
States.
(a) Employment. Buyer shall offer employment effective as of the
----------
Closing Date to each Employee of a Seller who is employed in the United States
(a "U.S. Employee") and is actively at work immediately prior to the Closing
-------------
Date or is not actively at work immediately prior to the Closing Date due solely
to vacation, holiday or jury duty. Such initial offer of employment shall be
for a position and for base salary or wages which are comparable to that which
such Employee had with Sellers immediately prior to the Closing and shall
include employee benefits which are comparable in the aggregate to that which
such Employee had with Sellers immediately prior to the Closing; provided,
--------
however, that no such employment shall be offered to Tucker E. Nason, Frank
- -------
Saltzman and James Fairchild. Buyer shall offer employment to each other U.S.
Employee who is not actively at work immediately prior to the Closing Date
(including, but not limited to, any such employee who is not actively at work
due to medical leave, sick leave, short-term disability, long-term disability,
layoff or leave of absence) (an "Inactive Employee") who is willing and able to
-----------------
return to work within 90 days after the Closing Date or such later date as may
be required by law, with such employment with Buyer to commence on the date the
Inactive Employee first commences active employment with Buyer. Sellers shall
be responsible for any obligation to provide employee benefits to an Inactive
Employee prior to such employee's date of hire by Buyer. U.S. Employees who
accept Buyer's
<PAGE>
46
offer of employment and become employees of Buyer shall be referred to herein as
"U.S. Transferred Employees." Notwithstanding the foregoing, nothing herein
--------------------------
shall be construed to limit Buyer's ability thereafter to terminate the
employment of any Employee or to amend or terminate any employee benefit plan or
to otherwise change the terms and conditions of employment of any Employee.
(b) Past Service Credit. Buyer shall credit the service of all U.S.
-------------------
Transferred Employees with Sellers and their Affiliates prior to the Closing
Date for purposes of eligibility and vesting under all employee benefit plans
provided by Buyer for U.S. Transferred Employees (but not for purposes of
benefit accrual). Buyer shall also: (i) cause to be waived any pre-existing
condition limitation under any Buyer medical plans applicable to U.S.
Transferred Employees or their dependents (except to the extent that any such
pre-existing condition limitation would not have been waived under Sellers'
medical plans), and (ii) recognize (or cause to be recognized) the dollar amount
of all covered expenses incurred by U.S. Transferred Employees and their
dependents under Sellers' applicable medical plans during the calendar year in
which the Closing Date occurs for purposes of satisfying such calendar year's
deductibles and co-payment limitations under any applicable Buyer medical plans;
provided, that the U.S. Transferred Employee enrolls in the applicable Buyer
- --------
medical plan at such time and in such manner as is reasonably specified by
Buyer.
(c) Severance; WARN Act. Sellers shall pay and be solely liable for,
-------------------
and shall indemnify and hold AlliedSignal and Buyer harmless against, any
obligation, cost or expense for (i) severance pay, termination indemnity pay,
salary continuation, special bonuses or like compensation under Sellers' plans,
policies or arrangements and (ii) liability under the WARN Act, or any similar
state or local law, arising from, relating to or claimed by reason of the
Closing or the transactions contemplated by this Agreement or which result from
or relate to actions taken by Sellers on or before the Closing Date.
(d) Vacation. Buyer shall adopt and assume Sellers' liability for
--------
accrued, unused vacation entitlement of U.S. Transferred Employees as of the
Closing to the extent listed on the Balance Sheet.
(e) Workers Compensation. Sellers shall be responsible for all
--------------------
workers compensation claims filed by or on behalf of a U.S. Transferred Employee
to the extent attributable to events, occurrences or exposures prior to the
Closing. Buyer shall be responsible for all workers compensation claims filed
by or on behalf of a U.S. Transferred Employee to the extent attributable to
events, occurrences or exposures following the Closing.
(f) Employment and Plan Liabilities. It is understood and agreed that
-------------------------------
neither AlliedSignal nor Buyer is assuming any obligations or liabilities
arising under any Plan (except to the extent provided in Section 8.2(d) above
8.2(g) below) or as a result of any Employee's or Former Employee's employment
with, or termination of employment, from Sellers, and Sellers shall remain
responsible for any such obligations and liabilities.
(g) Employment Agreements. Buyer shall reimburse Sellers any
---------------------
Liabilities incurred after the Closing Date under the employee agreements listed
under "Employee
<PAGE>
47
Agreement" on Schedule 2.20(a), other than the agreement relating to the
employment of Tucker E. Nason.
(h) Post-Closing Liability. AlliedSignal and Buyer shall pay and be
----------------------
solely liable for, and shall indemnify and hold Parent and Sellers harmless
against, any obligation, cost or expense for severance pay, termination pay,
salary continuation, special bonuses or like compensation under any Buyer plan,
policy or arrangement which result from, or relate to, actions taken by
AlliedSignal or Buyer or any Affiliate thereof after the Closing Date.
(i) Cooperation. The parties agree to furnish each other with such
-----------
information concerning employees and employee benefit plans, and to take all
such other action, as is necessary or appropriate to effect the transactions
contemplated by this Article VIII.
ARTICLE IX
TERMINATION; MISCELLANEOUS
9.1 Termination.
-----------
(a) This Agreement may be terminated and the transactions contemplated
hereby may be abandoned at any time prior to the Closing Date, as follows:
(i) by the mutual written agreement of Buyer and Parent;
(ii) by Buyer or Parent if the Closing has not occurred on or before
September 30, 1998; provided, however, that the right to terminate this
-------- -------
Agreement pursuant to this Section 9.1(a)(ii) shall be suspended as to any
party whose failure to fulfill any material obligation under this Agreement
shall have been the cause of, or shall have resulted in, the failure of the
Closing to occur prior to such date until the fifth Business Day after such
failure has been cured; or
(iii) by Buyer or Parent in the event of the issuance by any
Governmental Entity of a final, nonappealable order or injunction
restraining or prohibiting the consummation of the transactions
contemplated hereby.
(b) This Agreement shall terminate automatically upon any termination
of the Aerospace Agreement.
(c) Except for the obligations contained in Section 6.1, the last
sentence of Section 4.5 and this Article IX (other than Sections 9.2, 9.13 and
9.14) and the representations and warranties contained in Sections 2.16 and 3.8
(and the related indemnity obligations under Sections 7.2(a)(i) and 7.3(a)(i) of
the Aerospace Agreement, respectively), all of which shall survive any
termination of this Agreement, upon the termination of this Agreement pursuant
to Sections 9.1(a) or (b), this Agreement shall forthwith become null and void,
and no party hereto or any of its officers, directors, employees, agents,
consultants, stockholders or principals shall have any rights or Liabilities
hereunder or with respect hereto, including without limitation for
<PAGE>
48
any breach of warranty or representation; provided, however, that nothing
-------- -------
contained herein shall relieve any party hereto from Liability for any willful
failure to comply with any covenant or agreement contained herein.
9.2 Further Assurances. From time to time after the Closing,
------------------
AlliedSignal, Buyer, Parent and Sellers shall execute and deliver or cause to be
executed and delivered such further documents, certificates, instruments of
conveyance, assignment and transfer and take such further action as
AlliedSignal, Buyer, Parent or Sellers may reasonably request in order to more
effectively to sell, assign, convey, transfer, reduce to possession and record
title to any of the Purchased Assets to Buyer or to better enable Buyer to
complete, perform and discharge any of the Assumed Liabilities. AlliedSignal,
Buyer, Parent and Sellers agree to cooperate with each other in all reasonable
respects to assure to Buyer the continued title to and possession of the
Purchased Assets in the condition and manner contemplated by this Agreement.
Each party hereto shall cooperate and deliver such instruments and take such
action as may be reasonably requested by any other party hereto in order to
carry out the provisions and purposes of this Agreement and the transactions
contemplated hereby. AlliedSignal, Buyer, Parent and Sellers shall cooperate and
shall cause their respective Affiliates, officers, employees, agents and
representatives to cooperate to ensure the orderly transition of the Business
from Sellers to Buyer and to minimize the disruption to the Business resulting
from the transactions contemplated hereby .
9.3 Entire Agreement; Amendments; Waivers. This Agreement, the
-------------------------------------
Confidentiality Agreement, and the documents referred to herein and to be
delivered pursuant hereto constitute the entire agreement between the parties
hereto pertaining to the subject matter hereof, and supersede all prior and
contemporaneous agreements, understandings, negotiations and discussions of the
parties, whether oral or written. No amendment, supplement, modification, waiver
or termination of this Agreement shall be binding unless executed in writing by
the party to be bound thereby. No waiver of any of the provisions of this
Agreement shall be deemed or shall constitute a waiver of any other provision or
breach of this Agreement, whether or not similar, unless otherwise expressly
provided.
9.4 Benefit; Assignment. This Agreement shall be binding upon and
-------------------
inure to the benefit of and shall be enforceable by the parties hereto and their
respective successors and permitted assigns. This Agreement shall not be
assigned by any party hereto without the prior written consent of the other
party hereto; provided, however, that AlliedSignal or Buyer may assign any or
all of their respective rights hereunder to one or more Affiliates of
AlliedSignal or Buyer, as the case may be, without the consent of Parent or
Sellers provided that AlliedSignal or Buyer, as the case may be, shall continue
to be obligated to perform all of its obligations hereunder.
9.5 No Presumption. AlliedSignal, Buyer, Parent and Sellers have
--------------
participated jointly in the negotiation and drafting of this Agreement. In the
event any ambiguity or question of intent or interpretation arises, this
Agreement shall be construed as if drafted jointly by AlliedSignal, Buyer,
Parent and Sellers, and no presumption or burden of proof shall
<PAGE>
49
arise favoring or disfavoring any party by virtue of the authorship of any of
the provisions of this Agreement.
9.6 Notices. Notices and other communications provided for herein
-------
shall be in writing and shall be deemed given only if delivered to the party
personally or sent to the party by telecopy, by registered or certified mail
(return receipt requested) with postage and registration or certification fees
thereon prepaid, or by any nationally recognized overnight courier, addressed to
the party at its address set forth below:
If to Parent or Sellers: Banner Aerospace
P.O. Box 20260
Washington, DC 20041
Attention: Chief Financial Officer
Telecopy No.: 703-478-5795
with copy to: Donald E. Miller
10704 Riverwood Drive
Potomac, MD 20854
If to AlliedSignal or Buyer: AlliedSignal Inc.
P.O. Box 2245
101 Columbia Road
Morristown, NJ 07962-2245
Attention: General Counsel
Telecopy No.: 973-455-4413
or to such other address as a party may from time to time designate in writing
in accordance with this section. All notices and other communications given to
any party hereto in accordance with the provisions of this Agreement shall be
deemed to have been given on the date of receipt.
9.7 Terms Generally.
---------------
(a)(i) Words in the singular shall be held to include the plural and
vice versa and words of one gender shall be held to include the other genders as
the context requires, (ii) the terms "hereof," "herein," and "herewith" and
words of similar import shall, unless otherwise stated, be construed to refer to
this Agreement as a whole (including all of the Annexes, Schedules and Exhibits
hereto) and not to any particular provision of this Agreement, and Article,
Section, paragraph, Exhibit and Schedule references are to the Articles,
Sections, paragraphs, Exhibits and Schedules to this Agreement unless otherwise
specified, (iii) the word "including" and words of similar import when used in
this Agreement shall mean "including, without limitation," unless otherwise
specified, (iv) the word "or" shall not be exclusive, and (v) provisions shall
apply, when appropriate, to successive events and transactions.
<PAGE>
50
(b) Each reference in this Agreement (or in any other document or
instrument furnished to AlliedSignal or Buyer by Parent or any Seller pursuant
to this Agreement) to "the best of Parent's and each Seller's knowledge", or
words of similar import referring to Parent and Sellers (including Parent and
Sellers not being aware of a particular event or other matter), means
the actual knowledge, after due inquiry, of each executive officer of Parent and
each of the Sellers.
9.8 Counterparts; Headings. This Agreement may be executed in
----------------------
several counterparts, each of which shall be deemed an original, but such
counterparts shall together constitute but one and the same Agreement. The
Article and Section headings in this Agreement are inserted for convenience of
reference only and shall not constitute a part hereof.
9.9 Severability. If any provision, clause or part of this
------------
Agreement or the application thereof under certain circumstances is held invalid
or unenforceable, the remainder of this Agreement, or the application of such
provision, clause or part under other circumstances, shall not be affected
thereby.
9.10 No Reliance. Except for any assignees permitted by Section
-----------
9.4 of this Agreement and the indemnified persons pursuant to Sections 7.2 and
7.3 of the Aerospace Agreement: (i) no third party is entitled to rely on any of
the representations, warranties or agreements of the parties hereto contained in
this Agreement; and (ii) the parties hereto assume no Liability to any third
party because of any reliance on the representations, warranties or agreements
of such parties contained in this Agreement.
9.11 Governing Law. This Agreement shall be construed and
-------------
interpreted according to the laws of the State of New York, without regard to
the conflict of law principles thereof.
9.12 Submission to Jurisdiction; Waivers. The parties hereto
-----------------------------------
hereby irrevocably and unconditionally agree that:
(a) All actions and proceedings arising out of or relating to this
Agreement shall be heard and determined in a New York state or federal court
sitting in the City of New York, and the parties hereto hereby irrevocably
submit to the exclusive jurisdiction of such courts in any such action or
proceedings and irrevocably waive the defense of an inconvenient forum to the
maintenance of any such action or proceeding.
(b) Service of process in any such action or proceeding may be
effected by mailing a copy thereof by registered or certified mail (or any
substantially similar form of mail), postage prepaid, to such party at its
address as provided in Section 9.6.
9.13 Bulk Transfer. The parties hereto hereby waive compliance
-------------
with the provisions of any applicable bulk sales law of any jurisdiction in
connection with the transactions contemplated hereby and no representation,
warranty or covenant contained in this Agreement shall be deemed to have been
breached as a result of such non-compliance. Parent and Sellers hereby agree,
jointly and severally, to indemnify, defend and hold AlliedSignal and Buyer
<PAGE>
51
harmless from and against any and all Losses arising out of or relating to
claims which may be asserted by third Persons, including Governmental Entities,
against the Purchased Assets or any Buyer Indemnified Parties (as defined in the
Aerospace Agreement) as a result of non-compliance with any applicable bulk
sales law. Nothing in this Agreement shall be construed as an admission by any
party as to the applicability of any bulk sales laws.
9.14 Use of Names. During the first 180 days after the Closing
------------
Date, Buyer shall have the right to use all of the logos, trademarks and trade
identification of Parent as are located at the Acquired Real Property or on the
Purchased Assets (collectively, the "Trademarks"). Buyer's use of the
----------
Trademarks shall be in accordance with such reasonable quality control standards
as shall be promulgated by Parent and provided to Buyer. If Parent shall notify
Buyer in writing of Buyer's material failure to comply with such reasonable
quality control standards and Buyer continues to not comply with such reasonable
quality control standards for more than 20 days after receipt of such notice,
Parent shall have the right to terminate Buyer's right under this Section 9.14
to use the Trademarks.
9.15 Relationship with Aerospace Agreement. The parties
-------------------------------------
acknowledge and agree that it is the intent of the parties that, notwithstanding
any other provision of this Agreement or the Aerospace Agreement, the
representations, warranties and covenants contained in this Agreement and in the
Aerospace Agreement that (i) have substantially the same language (without
regard to the identity of the parties making such representation and warranty or
covenant) and (ii) contain either the language "in the aggregate" or a similar
combining concept or a reference to a Material Adverse Effect (a "Collective
Representation" or a "Collective Covenant", as the case may be) shall be deemed
to be a single representation and warranty to be a single covenant, as the case
may be, for purposes of determining whether such representation and warranty has
been breached or such covenant has been complied with and all relevant facts
relating to such Collective Representation or Collective Covenant in both
agreements shall be considered. As examples, if there should be an issue
regarding whether a Collective Representation contained in this Agreement has
been breached, the parties would consider inaccuracies in such Collective
Representation as well as inaccuracies in the corresponding Collective
Representation in the Aerospace Agreement in determining whether a breach of
such Collective Representation had occurred and in determining the materiality
of any breach of a Collective Representation relating to the Business, reference
shall be made to the Combined Business.
9.16 Schedules. All references herein to any Schedule shall refer
---------
to the Schedule of the same title attached to the Aerospace Agreement, and such
Schedule shall be considered a part of this Agreement as though attached hereto.
<PAGE>
52
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
ALLIEDSIGNAL INC. BANNER AEROSPACE, INC.
By:______________________________ By:___________________________
Name: Joe Leonard Name: Warren D. Persavich
Title: Senior Vice President Title: Senior Vice President
AS BAR PBH LLC PB HERNDON AEROSPACE, INC.
By: ALLIEDSIGNAL INC. By:___________________________
Name: Warren D. Persavich
Title: Vice President
By:______________________________
Name: Joe Leonard
Title: Senior Vice President
BANNER AEROSPACE SERVICES, INC.
By:___________________________
Name: Warren D. Persavich
Title: Vice President
<PAGE>
ANNEX A
DEFINITIONS
The following terms shall have the respective meanings ascribed to
them in this Annex A. References to Sections constitute references to Sections
of the Agreement.
"Accounts Receivable" means all billed and unbilled accounts receivable and
-------------------
all trade notes receivable relating to the Combined Business whether recorded or
unrecorded, including, without limitation, all trade receivable from other
divisions or Affiliates of Parent and the Sellers.
"Acquired Real Property" means, collectively, the Leased Real Property and
----------------------
Owned Real Property.
"Affiliate" of any Person means any Person directly or indirectly
---------
controlling, controlled by or under common control with such Person.
"Aerospace Agreement" means the Asset Purchase Agreement, dated as of the
-------------------
date of this Agreement, by and among Parent, Sellers listed in Annex A thereto,
AlliedSignal and Buyer, together with the Annexes, Schedules and Exhibits
attached thereto, as the same may be amended from time to time in accordance
with the terms thereof.
"Aerospace Acquired Assets" means the Acquired Assets as defined in the
-------------------------
Aerospace Agreement.
"Aerospace Assumed Liabilities" means the Assumed Liabilities as defined in
-----------------------------
the Aerospace Agreement.
"Aerospace Excluded Assets" means the Excluded Assets as defined in the
-------------------------
Aerospace Agreement.
"Aerospace Non-Assumed Liabilities" means the Non-Assumed Liabilities as
---------------------------------
defined in the Aerospace Agreement.
"Aerospace Purchased Assets" means the Purchased Assets as defined in the
--------------------------
Aerospace Agreement.
"Agreement" means the Asset Purchase Agreement, dated as of December __,
---------
1997, by and among Parent, BAS, Herndon, AlliedSignal and Buyer, together with
the Annexes, Schedules and Exhibits attached thereto, as the same may be amended
from time to time in accordance with the terms thereof.
"AlliedSignal" had the meaning set forth in the Preamble of the Agreement.
------------
<PAGE>
2
"AlliedSignal Common Stock" means the common stock, par value $1 per share,
-------------------------
of AlliedSignal.
"AlliedSignal Reports" has the meaning set forth in Section 3.6.
--------------------
"Antitrust Division" means the Antitrust Division of the United States
------------------
Department of Justice.
"Assets" means businesses, properties, assets, goodwill, rights, interests
------
and privileges of every kind, nature or description, wherever located, whether
real, personal or mixed, tangible or intangible, and without regard to whether
they have value for accounting purposes or are carried on or reflected in
relevant books and records or financial statements.
"Assumed Liabilities" has the meaning set forth in Section 1.3(a).
-------------------
"Assumed Tax Liabilities" means Tax liabilities for value-added Taxes, real
-----------------------
property Taxes, personal and intangible property Taxes and payroll Taxes, in
each case only to the extent included on the Closing Balance Sheet.
"Average Trading Price" means, as of a specified date, the average of the
---------------------
daily high and low closing prices of AlliedSignal Common Stock as reported on
the NYSE Composite Tape on each of the twenty (20) consecutive trading days
immediately preceding (and not including) such date.
"BAS" has the meaning set forth in the Preamble to the Agreement.
---
"Balance Sheet" has the meaning set forth in Section 2.6.
-------------
"Bid" has the meaning set forth in Section 2.8(d).
---
"BTG" means the Banner Technology Group.
---
"BTG Assets" has the meaning set forth in the Preamble to the Agreement.
----------
"Business" has the meaning set forth in the Recitals of the Agreement.
--------
"Business Day" or "business day" means any day other than a Saturday,
------------ ------------
Sunday, or a day on which banking institutions in the City of New York are
authorized or obligated by law or executive order to close.
"Buyer" has the meaning set forth in the Preamble of the Agreement.
-----
"Closing" has the meaning set forth in Section 1.6(a).
-------
"Closing Date" has the meaning set forth in Section 1.6(a).
------------
<PAGE>
3
"Closing Date Balance Sheet" means the Closing Date Balance Sheet as
--------------------------
defined in the Aerospace Agreement.
"Closing Date Net Worth" means the Closing Date Net Worth as defined in the
----------------------
Aerospace Agreement.
"Closing Date Shares" has the meaning set forth in Section 1.4.
-------------------
"COBRA" has the meaning set forth in Section 2.20(c)(iii).
-----
"Code" means the Internal Revenue Code of 1986, as amended.
----
"Combined Purchased Assets" means, collectively, the Purchased Assets and
-------------------------
the Purchased Assets as defined in the Aerospace Agreement.
"Combined Business" means the Business and Business as defined in the
-----------------
Aerospace Agreement.
"Competitive Activities" has the meaning set forth in Section 6.4(a).
----------------------
"Confidentiality Agreement" means that certain confidentiality agreement
-------------------------
dated June 27, 1997 between AlliedSignal and Parent.
"Confidential Information" has the meaning set forth in Section 6.5.
------------------------
"Contracts" means (a) all written and oral contracts, licenses,
---------
commitments, agreements and instruments, including all customer contracts,
operating contracts and distribution contracts relating to the Business, (b) all
sales and purchase orders and supply agreements and other agreements relating to
the Business, (c) all leases of Equipment and Real Property relating to the
Business and (d) all other contracts, licenses, agreements and instruments
relating to the Business; provided, however, that the term "Contract" shall not
-------- ------- --------
include any collective bargaining agreement or any employment agreement or other
Plan.
"DA" means Dallas Aerospace, Inc., a Texas corporation and a wholly-owned
--
Subsidiary of Parent.
"DA Agreement" shall mean the rights and obligations arising under the
------------
contingent payment provisions set forth in the Agreement dated January 16, 1997
relating to the acquisition of Herndon.
"Debt" means, with respect to any Person, the following Liabilities,
----
whether incurred by such Person, directly or indirectly, without duplication:
(i) its Liabilities for borrowed money;
(ii) its Liabilities for the deferred purchase price of property
acquired by it (excluding accounts payable arising in the ordinary course
of business but
<PAGE>
4
including, without limitation, all liabilities created or arising under
any conditional sale or other title retention agreement with respect to any
such property);
(iii) the amount of the obligation of such Person as the lessee under
any Capital Lease that would, in accordance with GAAP, appear as a
Liability on a balance sheet of such Person ("Capital Lease" meaning, at
any time, a lease with respect to which such Person, as lessee, is required
concurrently to recognize the acquisition of an asset and the incurrence of
a Liability in accordance with GAAP);
(iv) amounts secured by any Lien with respect to any property owned by
such Person (whether or not it has assumed or otherwise become liable for
such amounts);
(v) all of its Liabilities in respect of letters of credit or
instruments serving a similar function issued or accepted for its account
by banks and other financial institutions (whether or not representing
obligations for borrowed money);
(vi) any Guarantee of such Person with respect to Liabilities of any
Person of the character described in any of the clauses described in (i)
through (vi) above ("Guarantee" meaning, with respect to any Person, any
obligation (except the endorsement in the ordinary course of business of
negotiable instruments for deposit or collection) of such Person
guaranteeing or in effect guaranteeing any indebtedness, dividend or other
Debt or obligation of any other Person in any manner, whether directly or
indirectly, including (without limitation) obligations incurred through an
agreement, contingent or otherwise, by such Person);
(vii) all Liabilities of any Subsidiary of such Person of the
character described in clauses (i) through (vii) above; and
(viii) all Liabilities of the character described in clauses (i)
through (vii) above with respect to which, and to the extent that, such
Person remains legally liable, notwithstanding that such Liability or
obligation is deemed extinguished under GAAP.
"Employees" has the meaning set forth in Section 8.1.
---------
"Environmental Claim" shall mean any third party or governmental written
-------------------
claim, notice, request for information, demand, investigation, lawsuit,
proceeding, judgment, award, penalty, order or other action that could expose
Parent, the Sellers, AlliedSignal or Buyer to Losses under any Environmental Law
or to Losses for personal injuries (including death) or property damage relating
to or arising from the presence of, or exposure to, Hazardous Materials.
<PAGE>
5
"Environmental Law" means all applicable Laws relating to the protection of
-----------------
the environment (including, but not limited to, natural resources) and human
health and safety, including, without limitation (a) all requirements pertaining
to reporting, licensing, permitting, investigation and remediation of emissions,
discharges, releases or threatened releases of Hazardous Materials or other
environmental conditions into the air, surface water, groundwater or land or
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Materials, and (b) all requirements
pertaining to the protection of the health and safety of employees and other
workers, and the protection of or compensation to individuals from or related to
exposures to Hazardous Materials.
"Environmental Liability" means any Liability (existing at, or arising
-----------------------
after, the Closing) under Environmental Law, or any remedial action (at or after
the Closing), in connection with the Purchased Assets or the Business to the
extent arising from any condition (including any Hazardous Materials condition)
existing, or any act or omission the Sellers or any of their predecessors or any
of their past, present or future Subsidiaries, at or prior to the Closing Date,
including claims, demands, assessments, judgments, orders, causes of action
(including toxic tort suits), notices of actual or alleged violations or
Liability (including such notices regarding the disposal or release of Hazardous
Materials on the Acquired Real Property or elsewhere), proceedings and any
associated Losses.
"Environmental Permit" means any Permit issued under any Environmental Law
--------------------
or issued by any Governmental Entity responsible for environmental matters.
"Equipment" means all tangible assets and properties, except Real Property,
---------
owned, used or held for use by either Seller, including cars, trucks and other
transportation equipment, machinery and equipment, tools, spare parts,
furniture, office equipment, furnishings and fixtures and machinery and
equipment under order or construction.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
-----
amended.
"Escrow Agent" means the escrow agent under the Escrow Agreement.
------------
"Escrow Agreement" means the Escrow Agreement as defined in the Aerospace
----------------
Agreement.
"Estimated Share Number" has the meaning set forth in Section 1.4.
----------------------
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
------------
"Excluded Assets" has the meaning set forth in Section 1.2(b).
---------------
"Fairchild" means The Fairchild Corporation, a Delaware corporation.
---------
"FAA" means the Federal Aviation Administration.
---
"Financial Statements" has the meaning set forth in Section 2.6.
--------------------
<PAGE>
6
"FIRPTA Affidavit" has the meaning set forth in Section 1.7(a)(vii).
----------------
"Former Employees" has the meaning set forth in Section 8.1.
----------------
"FTC" means the United States Federal Trade Commission.
---
"GAAP" means United States generally accepted accounting principles,
----
consistently applied.
"Government Contract" shall mean any written prime contract, subcontract,
-------------------
grant or cooperative agreement with (i) the US Government, (ii) any prime
contractor of the US Government or (iii) any subcontractor with respect to any
contract described in clauses (i) or (ii) above.
"Governmental Entity" means (a) any multinational, federal, provincial,
-------------------
state, municipal, local or other governmental or public department, court,
commission, board, bureau, agency, legislative or quasi-legislative body or
instrumentality, domestic or foreign; (b) any subdivision, agent, commission,
board, or department, authority, or similar body or instrumentality of any of
the foregoing; or (c) any quasi-governmental or private body exercising any
regulatory, expropriation or taxing governmental authority under or for the
account of any of the foregoing.
"Hazardous Material" means any substance, material or waste (a) the
------------------
presence of which requires investigation or remediation under any Environmental
Law, (b) which is regulated by an applicable Governmental Entity, which
substance, material or waste includes, without limitation, petroleum and its by-
products, friable asbestos, and any material or substance which is defined as a
"hazardous waste," "hazardous substance," "hazardous material," "restricted
hazardous waste," "industrial waste," "solid waste," "contaminant," "pollutant,"
"toxic waste" or "toxic substance" under any provision of Environmental Law, (c)
which is toxic, explosive, corrosive, flammable, infectious, radioactive,
carcinogenic, mutagenic or otherwise hazardous, or (d) the presence of which
causes or threatens to cause a nuisance or trespass to any property or poses or
threatens to pose a hazard to the health or safety of individuals on or about
any such property.
"Herndon" has the meaning set forth in the Preamble to this Agreement.
-------
"Herndon Adjustment Amount" means the amount determined in accordance with
-------------------------
Section 1.4(b) of the Aerospace Agreement as allocated to the Initial Purchase
Price pursuant to Section 9.15 of the Aerospace Agreement.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
-------
as amended.
"Inactive Employee" has the meaning set forth in Section 8.2(a).
-----------------
"Indemnification Escrow Shares" means (i) as of the Closing Date, a number
-----------------------------
of shares of AlliedSignal Common Stock equal to five percent (5%) of the
Estimated Share Number and (ii) thereafter, the initial number of
Indemnification Escrow Shares less any Indemnification Escrow
<PAGE>
7
Shares from time to time released from escrow pursuant to Section 1.5(b) or (d)
of the Aerospace Agreement.
"Indemnifying Party" means the Indemnifying Party as defined in the
------------------
Aerospace Agreement.
"Initial Purchase Price" has the meaning set forth in Section 1.4.
----------------------
"Intellectual Property" means all foreign and domestic patents (including
---------------------
all reissues, divisions, continuations and extensions thereof), patent rights,
service marks, trademarks and tradenames, trade dress, all product names, all
assumed or fictitious names and the logos associated therewith, copyrights,
applications for the foregoing, licenses and other contractual rights with
respect to the foregoing and other such property and intangible rights owned,
used or held for use by either Seller, including financial and marketing
business data, pricing and cost information, business and marketing plans and
customer and suppliers lists, together with the goodwill of the Business in
connection with which such trademarks, tradenames, product names and service
marks are used.
"Inventory" means all inventory of the Combined Business, including
---------
finished goods, work-in-progress, raw materials, operating chemical and
catalysts, parts, accessories, packaging, manufacturing, administrative and
other supplies on hand, goods held for sale or lease or to be furnished under
Assumed Contracts, and other inventory owned, used or held for use by either
Seller.
"IRS" means the United States Internal Revenue Service.
---
"Laws" means all laws, constitutions, statutes, codes, ordinances, decrees,
----
rules, regulations, municipal by-laws, judicial or arbitral or administrative or
ministerial or departmental or regulatory judgments, orders, decisions, rulings
or awards, consent orders, consent decrees, policies, voluntary restraints,
guidelines, or any provisions or interpretations of the foregoing, including
general principles of common and civil law and equity, binding on or affecting
the Person referred to in the context in which such word is used.
"Leased Real Property" means all leased Real Property relating to the
--------------------
Business including, without limitation, all Real Property listed on Part B of
Schedule 2.13(a).
"Liabilities" means, as to any Person, all debts, liabilities, obligations
-----------
and responsibilities of any kind or nature whatsoever of such Person, whether
direct or indirect, fixed or contingent, known or unknown, accrued, vested or
otherwise, whether in contract, tort, strict Liability or otherwise, and whether
or not actually reflected, or required by GAAP to be reflected, in such Person's
balance sheets or other books and records.
"Lien" means any lien, charge, claim, pledge, security interest,
----
conditional sale agreement or other title retention agreement, lease, mortgage,
security agreement, right of first refusal, option, restriction, tenancy,
license, covenant, right of way, easement or other
<PAGE>
8
encumbrance (including the filing of, or agreement to give, any financing
statement under the Uniform Commercial Code or statute or law of any
jurisdiction).
"Major Customer" means any customer of the Combined Business that accounted
--------------
for $500,000 or more in revenues of the Combined Business in the 1997 fiscal
year or could reasonably be expected to account for more than $500,000 or more
in revenues of the Combined Business in the 1998 fiscal year.
"Major Supplier" means any supplier of the Combined Business (including any
--------------
supplier of Intellectual Property) that accounted for $1,000,000 or more in
sales to the Combined Business in the 1997 fiscal year or could reasonably be
expected to account for more than $1,000,000 or more in sales to the Combined
Business in the 1998 fiscal year.
"Material Adverse Effect" means (i) a material adverse effect upon, or
-----------------------
material adverse change in, the operations, Assets, Liabilities, condition
(financial or otherwise), or results of operations of the Combined Business,
taken as a whole (ii) any event, condition, circumstance or change that is
reasonably likely to have a Material Adverse Effect referred to in preceding
clause (i), or (iii) a significant risk that Buyer and the Buyer under the
Aerospace Agreement, in any material respect, will not be able after the Closing
to operate the Combined Business substantially as operated by, or to own,
possess and use the Purchased Assets and the Aerospace Acquired Assets
substantially as owned, possessed and used by, the Sellers and the Sellers under
the Aerospace Agreement, taken as a whole, as of the date hereof; provided,
--------
however, that the loss of business from customers and suppliers of the Combined
- -------
Business (including through termination of contracts or reduction of purchases)
shall not be deemed a Material Adverse Effect unless the condition in Section
5.1(e) of the Aerospace Agreement has not been satisfied.
"Non-Assumed Liabilities" has the meaning set forth in Section 1.3(b).
-----------------------
"Novation Agreement" has the meaning set forth in Section 4.15.
------------------
"NYSE" means the New York Stock Exchange, Inc.
----
"OSHA" has the meaning set forth in Section 2.9(a) hereof.
----
"Owned Real Property" means all Real Property owned by Sellers, including,
-------------------
without limitation, all Real Property listed on Part A of Schedule 2.13(a).
"Parent" has the meaning set forth in the Preamble of the Agreement.
------
"Parent Subsidiaries" means the direct or indirect Subsidiaries of Parent
-------------------
or any other corporation or entity in which Parent owns a majority of the
capital stock or other equity interest.
"Parent Reports" has the meaning set forth in Section 2.28.
--------------
"PBGC" means the Pension Benefit Guaranty Corporation.
----
<PAGE>
9
"Permits" means all franchises, approvals, permits, authorizations,
-------
licenses, orders, registrations, certificates, variances, exemptions and other
similar permits or rights obtained from any Governmental Entity relating to the
conduct of the Business or the Acquired Real Properties and all pending
applications therefor.
"Permitted Liens" means (a) Liens securing Taxes, assessments, governmental
---------------
charges or levies, all of which are not yet due and payable, (b) Liens (other
than any Lien imposed by ERISA) incurred or deposits made in the ordinary course
of the Business and on a basis consistent with past practice in connection with
worker's compensation, unemployment insurance or other types of social security,
(c) mechanics, materialman's, carrier's, warehousemen's, landlords and other
similar Liens under state or common law or (d) such other Liens which,
individually and in the aggregate, do not and would not detract from the value
of or impair the use of any Purchased Asset; it being understood that to the
extent a Permitted Lien relates to or arises from a Non-Assumed Liability, the
applicable Seller shall still be liable for such Non-Assumed Liability to the
extent set forth herein.
"Person" means an individual, a corporation, a partnership, a limited
------
liability company, an association, a firm, a Governmental Entity, a trust or
other entity or organization.
"Plans" has the meaning set forth in Section 2.20(a)(iii).
-----
"PTO" means the United States Patent and Trademark Office.
---
"Purchase Price Escrow Shares" means a number of shares of AlliedSignal
----------------------------
Common Stock equal to one percent (1%) of the Estimated Share Number.
"Purchased Assets" has the meaning set forth in Section 1.2(a).
----------------
"Real Property" means all real property, together with all fixtures,
-------------
fittings, buildings, structures and other improvements erected thereon, and
easements, rights of way, water lines, rights of use, licenses, hereditaments,
tenements, privileges and other appurtenances thereto (such as appurtenant
rights in and to public streets).
"SEC" means the Securities and Exchange Commission.
---
"Securities Act" means the Securities Act of 1933, as amended.
--------------
"Seller" and "Sellers" have the respective meanings set forth in the
------ -------
Preamble of the Agreement.
"Small Licenses" has the meaning set forth in Section 2.15(d).
--------------
"Subsidiary" of any Person means any corporation, partnership, joint
----------
venture, limited liability company, trust or other entity with respect to which
such Person directly or indirectly owns or controls more than 50% of (i) the
issued and outstanding capital stock having ordinary voting power to elect a
majority of the board of directors or other governing body of such corporation
(irrespective of whether at the time capital stock of any other class or classes
of such
<PAGE>
10
corporation shall or might have voting power upon the occurrence of any
contingency), (ii) the interest in the capital or profits of such partnership,
joint venture or limited liability company or (iii) the beneficial interest in
such trust.
"Tax" means any tax imposed under Subtitle A of the Code and any net
---
income, alternative or add-on minimum tax, gross income, gross receipts, sales,
use, ad valorem, value added, transfer, franchise, profits, license, lease,
service, service use, withholding on amounts paid to or by either Seller,
payroll, employment, excise, severance, stamp, capital stock, occupation,
property, environmental or windfall profits tax, premium, custom duty or other
tax, governmental fee or other like assessment or charge of any kind whatsoever,
together with any interest, penalty, addition to tax or additional amount
imposed by any Governmental Entity responsible for the imposition of any such
tax (domestic or foreign) (a "Tax Authority").
-------------
"Tax Authority" has the meaning set forth in the definition of "Tax".
------------- ---
"Technology" means all formulae, processes, procedures, designs, ideas,
----------
research records, inventions (whether or not patentable), records of inventions,
test information, technical information, engineering data, marketing know-how,
proprietary information, manufacturing information, know-how, and trade secrets
(and all related manuals, books, files, journals, models, instructions,
patterns, drawings, blueprints, plans, designs specifications, equipment lists,
parts lists, descriptions, data, art work, software, computer programs and
source code data related thereto including all current and historical data
bases) owned, used or held for use by either Seller ( it being understood that,
to the extent any such technology is licensed to a Seller, "Technology" shall
----------
mean any and all rights of such Seller under such license).
"Third Party Rights" has the meaning set forth in Section 1.2(a)(xi).
------------------
"Trademarks" has the meaning set forth in Section 9.14.
----------
"Transaction Documents" has the meaning set forth in Section 2.3.
---------------------
"Transfer Taxes" means all state, local and foreign sales, use, transfer,
--------------
real property transfer, documentary stamp, recording and other similar taxes
arising from and with respect to the sale and purchase of the Purchased Assets.
"U.S. Employee" has the meaning set forth in Section 8.2(a).
-------------
"US Government" shall mean the United States Government and any agencies,
-------------
instrumentalities and departments thereof.
"U.S. Transferred Employees" has the meaning set forth in Section 8.2(a).
--------------------------
"WARN Act" means the Worker Adjustment and Retraining Notification Act, as
--------
codified at 29 U.S.C. (S)(S) 2101 - 2109, as amended.
<PAGE>
ANNEX B
JURISDICTIONS OF ORGANIZATION
Name of Entity Jurisdiction of Organization
- -------------- ----------------------------
PB Herndon Aerospace, Inc. Missouri
Banner Aerospace Services, Inc. Ohio
<PAGE>
EXHIBIT 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
_______________________________________________
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I
The Transaction
1.1 Purchase and Transfer............................................... 1
1.2 Acquisition of Assets............................................... 2
1.3 Assumption of Assumed Liabilities................................... 5
1.4 Initial Purchase Price.............................................. 9
1.5 Escrow of Shares.................................................... 9
1.6 Purchase Price Adjustment........................................... 10
1.7 Accounts Receivable................................................. 13
1.8 Closing............................................................. 14
1.9 Deliveries and Proceedings at the Closing........................... 15
1.10 Stock Legend........................................................ 17
1.11 Prorations.......................................................... 17
ARTICLE II
Representations And Warranties Of Parent And Sellers
2.1 Qualification....................................................... 18
2.2 Ownership of the Companies.......................................... 18
2.3 Authorization and Enforceability.................................... 19
2.4 No Violation of Laws or Agreements.................................. 19
2.5 Consents............................................................ 20
2.6 Financial Statements................................................ 20
2.7 No Changes.......................................................... 21
2.8 Contracts........................................................... 22
2.9 Permits and Compliance With Laws Generally.......................... 23
2.10 Environmental Matters............................................... 24
2.11 Transactions with Affiliates........................................ 25
2.12 Title............................................................... 25
2.13 Acquired Real Property.............................................. 26
2.14 Taxes............................................................... 27
2.15 Intellectual Property and Technology................................ 28
2.16 Brokerage........................................................... 29
-i-
<PAGE>
TABLE OF CONTENTS
(continued)
Page
----
2.17 Product Warranties and Guarantees................................... 29
2.18 Products Liability.................................................. 30
2.19 Labor Matters....................................................... 30
2.20 Employee Benefits................................................... 30
2.21 No Pending Litigation or Proceedings................................ 33
2.22 Insurance........................................................... 33
2.23 Customers; Suppliers................................................ 33
2.24 Condition of Assets................................................. 34
2.25 All Assets.......................................................... 34
2.26 Undisclosed Liabilities............................................. 34
2.27 Securities Matters.................................................. 34
2.28 SEC Filings......................................................... 35
2.29 Bank Accounts....................................................... 35
2.30 Business Conduct.................................................... 35
ARTICLE III
Representations And Warranties Of AlliedSignal and Buyer
3.1 Organization and Good Standing...................................... 35
3.2 Authorization and Enforceability.................................... 36
3.3 No Violation of Laws or Agreements.................................. 36
3.4 Consents............................................................ 36
3.5 AlliedSignal Common Stock........................................... 36
3.6 SEC Filings......................................................... 37
3.7 Financial Statements................................................ 37
3.8 Brokerage........................................................... 37
ARTICLE IV
Additional Covenants
4.1 Conduct of Business................................................. 37
4.2 Mutual Covenants.................................................... 40
4.3 Filings and Authorizations.......................................... 40
4.4 Public Announcement................................................. 41
4.5 Investigation....................................................... 41
4.6 Taxes............................................................... 42
4.7 Certain Deliveries.................................................. 44
4.8 Consents............................................................ 44
-ii-
<PAGE>
TABLE OF CONTENTS
(continued)
Page
----
4.9 Releases............................................................ 44
4.10 Real Property....................................................... 44
4.11 Environmental....................................................... 45
4.12 Ancillary Agreements................................................ 45
4.13 Reasonable Best Efforts............................................. 45
4.14 Negotiations........................................................ 45
4.15 U.S. Government Contracts........................................... 46
4.16 NYSE Listing........................................................ 47
4.17 Continued Existence................................................. 47
4.18 Company Debt........................................................ 47
4.19 Side Letters........................................................ 47
4.20 Product Liability Insurance......................................... 47
4.21 Harco Northern Ireland, Ltd......................................... 48
ARTICLE V
Conditions Precedent
5.1 Conditions Precedent to Obligations of Allied Signal and Buyer...... 48
5.2 Conditions Precedent to Obligations of Parent and Sellers........... 50
ARTICLE VI
Certain Additional Covenants
6.1 Expenses............................................................ 51
6.2 Maintenance of Books and Records.................................... 52
6.3 Financial Statements................................................ 52
6.4 Non-Competition/Non-Solicitation.................................... 52
6.5 Confidential Information............................................ 54
ARTICLE VII
Survival; Indemnification
7.1 Survival............................................................ 54
7.2 Indemnification by Parent, Sellers and Herndon Sellers.............. 55
7.3 Indemnification by AlliedSignal and Buyer........................... 56
7.4 Notification of Claims.............................................. 57
-iii-
<PAGE>
TABLE OF CONTENTS
(continued)
Page
----
ARTICLE VIII
Employees And Employee Benefits
8.1 Scope of Article.................................................... 59
8.2 U.S. Employees...................................................... 59
8.3 Foreign Employees................................................... 61
ARTICLE IX
Termination; Miscellaneous
9.1 Termination......................................................... 62
9.2 Further Assurances.................................................. 63
9.3 Entire Agreement; Amendments; Waivers............................... 63
9.4 Benefit; Assignment................................................. 63
9.5 No Presumption...................................................... 63
9.6 Notices............................................................. 64
9.7 Terms Generally..................................................... 64
9.8 Counterparts; Headings.............................................. 65
9.9 Severability........................................................ 65
9.10 No Reliance......................................................... 65
9.11 Governing Law....................................................... 65
9.12 Submission to Jurisdiction; Waivers................................. 65
9.13 Bulk Transfer....................................................... 65
9.14 Use of Names........................................................ 66
9.15 Herndon Price Allocation............................................ 66
9.16 Relationship with Herndon Agreement................................. 66
-iv-
<PAGE>
ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT, dated as of December 8, 1997, by and among
Banner Aerospace, Inc., a Delaware corporation ("Parent"), the seven companies
------
listed on Annex A hereto (individually, a "Seller" and, collectively,
------- ------
"Sellers"), AlliedSignal Inc., a Delaware corporation ("AlliedSignal") and AS
-------
BAR LLC, a Delaware limited liability company ("Buyer"). Sellers and the
-----
Subsidiaries of Sellers listed on Annex B hereto (the "Seller Subsidiaries") are
------- -------------------
referred to herein collectively as the "Companies".
---------
The Companies are engaged in, among other things, the businesses of
supplying to the aerospace industry (i) aircraft hardware (including bearings,
nuts, bolts, screws, rivets and other types of fasteners), (ii) chemical
products (including adhesives, sealants, lubricants, cleaners and paint) and
(iii) related support services (including Inventory management services). The
term "Business", as used herein, shall mean the compilation of all the
--------
businesses of all of the Companies, except that when this Agreement refers to a
single Company and the Business, it refers to that portion of the Business which
is conducted by that particular Company.
Buyer desires to purchase, and AlliedSignal desires to cause the
purchase of, substantially all of the Assets of Sellers (including all of the
Subsidiary Shares (as hereinafter defined)), and Sellers desire to transfer, and
Parent desires to cause the transfer of, such Assets to Buyer, all on the terms
and subject to the conditions set forth in this Agreement.
Capitalized terms used herein without definition shall have the
meanings assigned to them in Annex C hereto, which is hereby incorporated into
-------
this Agreement as if set forth in full herein.
NOW, THEREFORE, in consideration of the mutual representations,
warranties, covenants and agreements contained herein and intending to be
legally bound hereby, the parties hereto agree as follows:
ARTICLE I
THE TRANSACTION
1.1 Purchase and Transfer. Upon the terms and subject to the
---------------------
conditions set forth in this Agreement, at the Closing, (i) Sellers shall, and
Parent shall cause Sellers to, transfer, convey, assign and deliver to Buyer,
and Buyer shall purchase, acquire and accept from the Sellers, all of Sellers'
right, title and interest in and to the Purchased Assets, and (ii) Buyer shall
pay to Sellers the Initial Purchase Price and shall assume, and agree to
thereafter pay, perform and discharge when due, the Assumed Liabilities.
<PAGE>
2
1.2 Acquisition of Assets.
---------------------
(a) Subject to Section 1.2(b), "Purchased Assets" means all of the
----------------
Assets of Sellers owned, used or held for use in connection with, or that are
otherwise related to or required for the conduct of, the Business including,
without limitation, all of the Assets set forth below:
(i) all Subsidiary Shares;
(ii) all Owned Real Property;
(iii) all Equipment;
(iv) all Inventory;
(v) all Accounts Receivable;
(vi) all credits, prepaid expenses, deferred charges, advance
payments, security deposits and deposits owned, used or held for use by any
Company with respect to the Business ("Prepaid Expenses") to the extent
that such items will accrue to the benefit of Buyer immediately following
the Closing;
(vii) all Intellectual Property;
(viii) all Technology;
(ix) all Contracts;
(x) all Permits;
(xi) all books, records, ledgers, files, documents (including
originally executed copies of written Contracts, customer and supplier
lists (past, present or future), correspondence, memoranda, forms, lists,
plats, architectural plans, drawings and specifications, copies of
documents evidencing Intellectual Property or Technology, new product
development materials, creative materials, advertising and promotional
materials, studies, reports, sales and purchase correspondence, books of
account and records relating to the employees of the Business, photographs,
records of plant operations and materials used, quality control records and
procedures, equipment maintenance records, manuals and warranty
information, research and development files, data and laboratory books,
inspection processes, in each case, whether in hard copy or magnetic
format, in each instance, to the extent used or held for use with respect
to the Business or the employees of the Business;
(xii) all rights or choses in action arising out of occurrences
before or after the Closing Date and related to any portion of the
Business, including third party warranties and guarantees and all related
claims, credits, rights of recovery and set-off and other similar
contractual rights, as to third parties held by or in favor of Sellers and
arising out of, resulting from or relating to the Business or the Acquired
Assets, other
<PAGE>
3
than as a result of the allegations of James Fairchild of wrongful
termination by Burbank Aircraft Supply, Inc. (collectively, "Third
-----
Party Rights");
------------
(xiii) all rights to insurance and condemnation proceeds
relating to the damage, destruction, taking or other impairment of the
Acquired Assets which damage, destruction, taking or other impairment
occurs on or prior to the Closing Date, except to the extent Buyer receives
a credit against the Initial Purchase Price pursuant to Section
1.2(d)(i)(y) or 1.2(d)(ii)(y);
(xiv) all Assets (other than Subsidiary Assets) that (A) are
reflected on the Balance Sheet (other than Assets reflected on the Balance
Sheet that are disposed of prior to the Closing Date in accordance with
this Agreement) or (B) have been or are acquired by the Companies after the
date of the Balance Sheet and would be reflected on a balance sheet for the
Business prepared on a basis consistent with that on which the Balance
Sheet was prepared (other than any such Assets that are disposed of prior
to the Closing Date in accordance with this Agreement); and
(xv) the Business and the goodwill thereof.
(b) Notwithstanding anything to the contrary contained herein,
Purchased Assets shall not include any Excluded Assets. "Excluded Assets"
---------------
means:
(i) cash and cash equivalents on hand or in bank accounts;
(ii) all accounts owing between and among each Company and its
Affiliates, other than trade receivables;
(iii) except as otherwise set forth herein, Assets attributable
or related to any Plan;
(iv) all rights of Parent and each Seller under this
Agreement;
(v) all stock and minute books and similar records of the
Sellers;
(vi) all Third Party Rights arising out of Non-Assumed
Liabilities or Excluded Assets;
(vii) all shares of capital stock of (or other ownership
interests in) Burbank Aircraft International, Inc., Banner Aero (Australia)
Pty, Ltd. and TriFast S.a.r.l;
(viii) all Prepaid Expenses to the extent that such items will
not accrue to the benefit of Buyer immediately following the Closing;
(ix) all Plans of Sellers (including, without limitation, the
deferred compensation agreement with Charles Lovin (the "Lovin Agreement"),
---------------
the two non-competition agreements with Lee Brenner (the "Brenner
Agreements") and those referenced on Schedule 2.20(a)(iii));
<PAGE>
4
(x) all Contracts referenced on Schedule 2.8(a)(i) other than
(i) the purchase orders described thereon and (ii) distributorship
agreements with Fairchild Fasteners that are terminable by the Companies on
not more than 60 days notice without any penalty;
(xi) all Contracts pursuant to which any business included in
the Business or any Company was purchased; and
(xii) all rights of any Seller under the Second Amended and
Restated Credit Agreement, dated as of December 12, 1996, among Parent,
Burbank Aircraft Supply, Inc. and other Subsidiaries of Parent, Citicorp
USA, Inc. (as Administrative Agent and Arranger), NationsBank, N.A. (as Co-
Arranger) and the Institutions as Lenders and Issuing Banks thereunder.
(c) Nonassignable Rights. Anything in this Agreement to the contrary
--------------------
notwithstanding, but subject to AS's and Buyer's rights under Section 7.2, this
Agreement shall not constitute an agreement to assign any of the Contracts,
Intellectual Property, Technology or Permits or any claim or right or any
benefit arising thereunder or resulting therefrom if an attempted assignment
thereof, without the consent of a third Person thereto, would constitute a
breach or other contravention thereof or in any way adversely affect the rights
of Buyer thereunder. (Any Asset that, but for this Section 1.2(c) would be sold
and assigned at the Closing shall remain a "Purchased Asset" for purposes of
this Agreement.) Parent and Sellers will use all reasonable best efforts to
obtain the consent of the other parties to any such Contract or Permit for the
assignment thereof to Buyer and Buyer shall reasonably cooperate with such
efforts. If such consent is not obtained prior to the Closing, or if an
attempted assignment thereof would be ineffective or would adversely affect the
rights of Parent and Sellers thereunder so that Buyer would not in fact receive
all such rights, subject to Section 5.1(d), the Closing shall nevertheless take
place and, thereafter, Parent, Sellers and Buyer will cooperate in a mutually
agreeable arrangement under which Buyer would obtain the benefits and assume the
obligations thereunder (but only to the extent such obligations would have
constituted Assumed Liabilities if such assignment occurred on the Closing Date)
from and after the Closing Date in accordance with this Agreement, including
subcontracting, sublicensing or subleasing to Buyer, or under which Parent and
each Seller would enforce for the benefit of Buyer, with Buyer assuming each
Seller's obligations to the same extent as if it would have constituted an
Assumed Liability and any and all rights of Parent or any Seller against a third
Person thereto. Parent and each Seller will pay promptly to Buyer when received
all monies received by Parent or any Seller after the Closing Date under any of
the Contracts or any claim or right or any benefit arising thereunder to the
extent that Buyer would be entitled thereto pursuant hereto. The provisions of
this Section 1.2 shall in no way limit the Closing condition set forth in
Section 5.1(d).
(d) Damage; Condemnation.
--------------------
(i) If, prior to the Closing, any Acquired Real Property is
damaged by fire, vandalism, acts of God, or other casualty or cause (and
such damage is not repaired by the Closing), Buyer shall have the option of
(x) accepting such property as it is
<PAGE>
5
together with the insurance proceeds, if any, and the right to receive the
same, in which case no adjustment shall be made in respect of the decreased
value of such Asset pursuant to Section 1.4(b), or (y) excluding such
Acquired Real Property from the Acquired Assets and receiving a credit
against the Initial Purchase Price equal to the fair market value thereof,
in which case no adjustment shall be made in respect of the decreased value
of such Asset pursuant to Section 1.4(b) other than such credit against the
Initial Purchase Price. If Buyer elects option (x) above, Parent hereby
agrees to cooperate with Buyer in any loss adjustment negotiations, legal
actions and agreements with the insurance company, and to assign (pursuant
to a writing in form satisfactory to Buyer,) to Buyer at Closing its rights
to such insurance proceeds (and pay over to Buyer any such proceeds already
received), and Parent will not settle any insurance claims or legal actions
relating thereto without Buyer's prior written consent.
(ii) If, prior to the Closing, all or any portion of any
Acquired Real Property is taken by eminent domain, Buyer shall have the
option of (x) proceeding with the Closing and accepting the property as
affected by such taking, together with all compensation and damages
awarded, if any, and the right to receive the same, in which case, no
adjustment shall be made in respect of the decreased value of such Asset
pursuant to Section 1.4(b), or (y) excluding such Acquired Real Property
from the Acquired Assets and receiving credit against the Initial Purchase
Price equal to the fair market value thereof, in which case no adjustment
shall be made in respect of the decreased value of such Asset pursuant to
Section 1.4(b) other than such credit against the Initial Purchase Price.
If Buyer elects option (x) above, Parent hereby agrees to assign to Buyer
at Closing its rights to such compensation and damages (and pay over to
Buyer any such compensation and damages already received), and will not
settle any proceedings relating to such taking without Buyer's prior
written consent.
(iii) Parent shall promptly notify AlliedSignal of any material
casualty or any actual or threatened condemnation affecting all or any
portion of any Acquired Real Property. Any such notice relating to
casualty shall be accompanied by Parent's selection of an architect or
engineer to determine the cost of repair and/or replacement.
(iv) Nothing in this Section 1.2(d) limits the condition to
Closing set forth in Section 5.1(a).
1.3 Assumption of Assumed Liabilities.
---------------------------------
(a) "Assumed Liabilities" shall mean (i) all Liabilities of the
-------------------
Business (including bank overdrafts, if any) to the extent included on the
Closing Date Balance Sheet, (ii) Liabilities under the Contracts, Permits,
Intellectual Property or Technology to the extent (but not only to the extent)
arising from, and accruing with respect to, the operation of the Business after
the Closing, and (iii) Liabilities relating to the employees of the Business
expressly assumed pursuant to Article VIII.
(b) Notwithstanding anything to the contrary contained herein, neither
Buyer nor AlliedSignal shall assume or be bound by, or be obligated or
responsible for, any Non-
<PAGE>
6
Assumed Liabilities. "Non-Assumed Liabilities" shall mean (x) all Liabilities of
-----------------------
Sellers relating to the Purchased Assets or the Business and any claims in
respect thereof, other than the Assumed Liabilities, and (y) any Liabilities or
claims which may be asserted against or imposed upon Buyer by reason of its
being a successor or transferee of Sellers or as an acquiror of the Purchased
Assets or the Business or otherwise as a matter of law. Without limitation of
the foregoing, all of the following shall be Non-Assumed Liabilities for the
purposes of this Agreement:
(i) any product Liability, or Liability relating to any toxic
tort or similar claim for injury to person or property, regardless of when
made or asserted that arises out of or is based upon any express or implied
representation, warranty, agreement or guarantee made by any Company or any
of its Affiliates, or alleged to have been made by any of such Persons, or
that it is imposed or asserted to be imposed by operation of law, in
connection with any service performed or product manufactured, distributed
or sold by or on behalf of any Company or any of its Affiliates (in the
case of the Seller Subsidiaries prior to the Closing) or which arises out
of any condition existing as of the Closing, including any claim relating
to any product delivered, manufactured or distributed by any Company or any
of its Affiliates (in the case of the Seller Subsidiaries prior to the
Closing) and any claim seeking recovery for consequential damages, lost
revenue or income;
(ii) except for Assumed Tax Liabilities, any Liability of
Parent or any Company (including under any Contract) for Taxes, including
without limitation, any (1) Tax payable (A) with respect to the Business,
Assets or operations of Parent or Sellers, (B) by any member of any
consolidated, affiliated or unitary group of which Parent or any Company is
a member, or (C) by any other person for whose Tax Parent or any Company
may be liable under Contract or otherwise, and (2) Tax incident to or
arising as a consequence of the negotiation or consummation by Parent or
any Seller or any member of any affiliate group of which Parent or Sellers
is a member of this Agreement and the transactions contemplated hereby;
(iii) except as expressly provided in clause (iii) of the
definition of Assumed Liabilities, any Liability with respect to
compensation or employee benefits of any nature owed to any employees,
agents or independent contractors of any Company or any of its Affiliates,
whether or not employed by Buyer after the Closing, or any of their
beneficiaries, heirs or assigns, that arises out of or relates to events or
conditions to the extent occurring before the Closing, including, but not
limited to, Liabilities for supplemental unemployment benefits, vacation
pay, sick pay, severance benefits, Liabilities under any Plan whether
arising prior to, on or after the Closing Date, Liabilities to provide any
retiree benefits to former hourly and/or salaried employees of the Business
or any retiree benefits to be provided to current hourly and/or salaried
employees of the Business, and any other benefits, withholding tax
Liabilities, workers compensation or unemployment compensation premiums,
hospitalization or medical claims, occupational injury, disease or
disability claims or claims for discrimination,
<PAGE>
7
unfair labor practices, violations of the collective bargaining agreements
or wrongful discharge;
(iv) Liabilities relating to the operation of the Business
prior to the Closing arising by operation of law under any common law or
statutory doctrine (including successor Liability or de facto merger);
(v) any Liability with respect to or arising out of any
Contract (A) that is not capable of being assigned to Buyer at the Closing
(except to the extent provided in Section 1.2(c)) (B) to the extent arising
out of any breach or default thereof by Parent or any Company on or prior
to the Closing Date (including any event occurring on or prior to the
Closing Date that, with the passing of time or the giving of notice, or
both, would become a breach or default) under any Contract, or (C) required
by the terms thereof to be discharged on or prior to the Closing Date;
(vi) any Liability of Parent or any of the Companies or any of
their predecessors (including under any Contract) with respect to any
claim, action, suit or proceeding made or threatened (whether prior to, at
or after the Closing Date) which asserts Losses arising from (x) the
presence, at any time prior to the Closing Date, of asbestos at the
Acquired Real Property, any other real property owned or leased at any time
by Parent, Sellers or any of their past, present or future Subsidiaries or
any other third-party location or (y) the presence of asbestos in any
product at any time prior to the Closing Date manufactured, used, sold or
serviced by Parent, Sellers or any of their past, present or future
Subsidiaries, or which otherwise asserts any asbestos-related personal
injury or property damage.
(vii) any Liability to the extent the existence of such
Liability constitutes a breach of any representation or warranty of Parent
or any Seller contained in or made pursuant to this Agreement;
(viii) any Environmental Liability, including, without
limitation, any Environmental Claim that relates to or arises in connection
with the Business, the Acquired Assets, or any other Assets (including, but
not limited to facilities used for the off-site disposal of waste) formerly
owned, leased, operated or used by any of the Companies or any
predecessors-in-interest to any of the Companies, if the Environmental
Claim is based on any act or omission of the Business or any of the
Companies on or prior to the Closing Date;
(ix) any Liability in respect of the Excluded Assets;
(x) any Debt or other amounts (except to the extent reflected
on the Closing Date Balance Sheet) owing by the Companies to Parent or any
of Parent's Affiliates (other than the Companies) including, without
limitation, any negative balances in intercompany accounts, but excluding
any trade payables incurred in the ordinary course of business consistent
with past practice;
<PAGE>
8
(xi) any Liability that arises out of or relates to the
employment or termination of employment of any employees, agents or
independent contractors by Parent, Sellers or any of their Affiliates,
except any such Liability caused by Buyer's failure to perform its
obligations under Article VIII;
(xii) any Liability to past, present or future stockholders of
Parent or Sellers;
(xiii) any Liability arising out of the Lovin Agreement or the
Brenner Agreements;
(xiv) any Liability that arises out of or relates to any claim,
action, suit, proceeding or investigation, whether civil or criminal,
pending or threatened as of the Closing Date, relating to the conduct or
activities of the Business, or the ownership, use or possession of the
Acquired Assets, on or prior to the Closing Date;
(xv) any Liability relating to any broker's or finder's fee or
commission incurred by Parent, any of the Companies or any of their
Affiliates as a result of the transactions contemplated hereunder;
(xvi) any Liability arising under, resulting from or relating
to the matters referred to on Schedule 2.20(a)(iii), including, without
limitation, the Plans described thereon;
(xvii) any Liability arising under, resulting from, or relating
to matters set forth on Schedule 2.8(a)(i) (other than with respect to the
purchase orders described thereon and distributorship agreements with
Fairchild Fasteners that are terminable by the Companies on not more than
60 days notice without any penalty) including, without limitation, the
agreement with Shared Technologies Fairchild, Inc. and the tax sharing
agreement described thereon, except to the extent reflected on the Closing
Date Balance Sheet; and
(xviii) except for the Assumed Liabilities, any Liability
arising out of or relating to the conduct or activities of the Business
(including any predecessor operations) or the ownership, use or possession
of the Acquired Assets on or prior to the Closing Date, any Liabilities or
claims arising out of or relating to events, circumstances or conditions
occurring on or before the Closing Date, and any Liability associated with
any other business of Parent, Sellers and their Affiliates.
Parent and each Seller hereby irrevocably waives and releases, and has caused
the Parent Subsidiaries to waive and release, AlliedSignal and Buyer from all
Non-Assumed Liabilities, including any Liabilities created or which arise by
statute or common law.
<PAGE>
9
1.4 Initial Purchase Price.
----------------------
(a) No later than the third Business Day prior to the Closing Date,
Parent shall deliver to AlliedSignal a written notice setting forth Parent's
good faith estimate of the Closing Date Net Worth (without giving effect to the
proviso in the second sentence of Section 1.6(a)) (the "Estimated Closing Date
----------------------
Net Worth") and the basis for the calculation thereof.
- ---------
(b) The initial purchase price for the Purchased Assets to be paid at
the Closing (the "Initial Purchase Price") shall consist of a number of shares
----------------------
of AlliedSignal Common Stock (the "Closing Date Shares") equal to (1) the number
-------------------
(rounded to the nearest whole share) (the "Estimated Share Number") obtained by
----------------------
dividing (A) an amount equal to Three Hundred Twenty-Two Million Dollars
($322,000,000) plus (x) the Adjustment Amount if Estimated Closing Date Net
Worth exceeds Target Net Worth and minus (y) the Adjustment Amount if Estimated
-----
Closing Date Net Worth is less than Target Net Worth, by (B) the Average Trading
Price as of the Closing Date, minus (2) the sum of the Purchase Price Escrow
-----
Shares and the Indemnification Escrow Shares, to be delivered by Buyer to
Sellers in the proportions set forth on Annex 1.6(f) hereto.
------------
1.5 Escrow of Shares.
----------------
(a) At the Closing, Buyer shall deliver to the Escrow Agent (i) the
Purchase Price Escrow Shares, to be held in an escrow account pursuant to the
terms of the Escrow Agreement until released from escrow pursuant to the terms
of Section 1.6(f), and (ii) the Indemnification Escrow Shares, to be held in an
escrow account pursuant to the terms of the Escrow Agreement until released as
set forth in Section 1.5(b) or (d).
(b) At any time on or after the Closing Date, Parent shall have the
right, upon not less than 10 Business Days' written notice to Buyer and the
Escrow Agent, to deliver Escrow Cash to the Escrow Agent to be held pursuant to
the terms of the Escrow Agreement in lieu of the Indemnification Escrow Shares.
Upon delivery by Parent of Escrow Cash to the Escrow Agent, the Escrow Agent
shall release to Parent the number of Indemnification Escrow Shares (rounded to
the nearest whole share) obtained by dividing (i) the face amount of the Escrow
Cash by (ii) the Average Trading Price as of the date the shares are released.
Any notice delivered pursuant to this Section 1.5(b) shall set forth either the
face amount of the Escrow Cash to be delivered by Parent or the number of
Indemnification Escrow Shares to be released by the Escrow Agent.
(c) If, on or prior to the first anniversary of the Closing Date (the
"Escrow Release Date"), a Buyer Indemnified Party has given notice of a claim
-------------------
for indemnification for Losses in accordance with Section 7.4 (all such claims,
the "Buyer Escrow Claims"), Buyer shall give written notice thereof to Parent on
-------------------
or prior to such date setting forth Buyer's good faith estimate of the aggregate
amount of such Losses in reasonable detail for which Buyer has not been
reimbursed (the "Buyer Escrow Claim Loss Estimate"); provided, however, Buyer's
-------------------------------- -------- -------
failure to deliver a notice pursuant to this Section 1.5(c) shall not relieve
any party from any liability that it may have to such Buyer Indemnified Party in
respect of any matter under Section 7.2(a);
<PAGE>
10
(d) The Indemnification Escrow Shares shall be released from escrow
as follows:
(i) On the Escrow Release Date a number of shares of
AlliedSignal Common Stock (rounded to the nearest whole share) equal to (1)
the number of Indemnification Escrow Shares minus (2) a number (which shall
-----
not be less than zero) equal to the quotient of (A) an amount equal to
(x) the Buyer Escrow Claim Loss Estimate for which AlliedSignal or Buyer
has not been reimbursed minus (y) the amount of the Basket (to the extent
-----
not previously applied), divided by (B) the Average Trading Price as of
----------
the Escrow Release Date, shall be released from escrow and
delivered to Parent;
(ii) Upon resolution of a Buyer Escrow Claim following the
Escrow Release Date, to the extent it is determined pursuant to Article VII
that such Losses are payable by Parent or Sellers to a Buyer Indemnified
Party with respect to such claim, a number of shares of AlliedSignal Common
Stock (rounded to the nearest whole share) equal to the lesser of (1) the
quotient of (x) the amount of Losses for which Parent and Sellers must
indemnify Buyer Indemnified Parties in respect of such claim, divided by
----------
(y) the Average Trading Price as of the date of the release of such shares,
and (2) the number of Indemnification Escrow Shares that remain in escrow,
shall be released to Buyer; and
(iii) Upon resolution of all Buyer Escrow Claims and release to
Buyer of all Indemnification Escrow Shares to which it is entitled pursuant
to clause (ii) above, all remaining Indemnification Escrow Shares shall be
released to Parent.
(e) Notwithstanding anything to the contrary contained herein, any
party entitled to have Indemnification Escrow Shares released and delivered to
it in accordance with Section 1.5(d) may elect, by written notice to the Escrow
Agent not less than two Business Days prior to the release, to receive the value
(or any portion thereof) of the Indemnification Escrow Shares to which the party
is entitled (based on the Average Trading Price as of the date the collateral is
to be released) in Escrow Cash to the extent Escrow Cash is being held as
collateral pursuant to the Escrow Agreement.
1.6 Purchase Price Adjustment.
-------------------------
(a) Within sixty (60) days after the Closing Date, Buyer shall
prepare and deliver to Parent a proposed Closing Date Balance Sheet conforming
to the requirements set forth in this Section 1.6 (the "Proposed Closing Date
-------------------------
Balance Sheet"). The Proposed Closing Date Balance Sheet shall be a pro forma
- -------------
unaudited consolidated balance sheet of the Combined Business as of
the Closing Date reflecting only Acquired Assets, Assumed Liabilities, Herndon
Purchased Assets and Herndon Assumed Liabilities, prepared in accordance with
GAAP on a basis consistent with the Balance Sheet (including, without
limitation, accounting for Inventory in accordance with the procedures and
criteria set forth on Schedule 1.6(a)) and presenting fairly the
--------
financial condition of the Combined Business as of the Closing Date; provided,
--------
however, that the Proposed Closing Date Balancee Sheet shall not include (i) as
- -------
an asset any future tax benefits
<PAGE>
11
that relate to the allowance for doubtful accounts or (ii) as a Liability any
allowance for doubtful accounts (which is $2,263,000 on Schedule 2.6). During
the period following the Closing Date and prior to the delivery of the Closing
Date Balance Sheet, Parent shall make available to Buyer the appropriate
personnel and the books and records of the Companies to assist in the
preparation of the Closing Date Balance Sheet. The Proposed Closing Date Balance
Sheet shall include appropriate adjustments as if it were prepared for a fiscal
year-end and will set forth and designate the net worth, on a combined basis, of
the Combined Business as of the Closing Date ("Closing Date Net Worth").
----------------------
(b) In connection with the preparation of the Proposed Closing Date
Balance Sheet, Sellers, the Herndon Sellers, Parent and Buyer shall, at Buyer's
option upon notice to Parent as provided in Schedule 1.6(b), cooperate with each
other in the taking of a physical count of the Inventory in accordance with the
procedures set forth in Schedule 1.6(b). Parent and Sellers shall be entitled
to have a representative present to observe the taking of the physical count of
the inventory described in this Section 1.6(b).
(c) Following the Closing, Buyer shall provide to Parent and Sellers,
and their respective employees, agents and advisers, upon not less than two
business days prior written request, reasonable access during regular business
hours to the financial books and records, personnel and facilities relating to
the Combined Business necessary for the review and analysis of the Proposed
Closing Date Balance Sheet. If Parent fails to give written notice of its
disagreement with any item on such Proposed Closing Date Balance Sheet within
sixty (60) days after receipt of such Proposed Closing Date Balance Sheet (the
"Review Period"), such Proposed Closing Date Balance Sheet shall be deemed
- --------------
accepted and shall become the Closing Date Balance Sheet and be final and
binding upon the parties hereto. If, before the expiration of the Review
Period, Parent provides Buyer with a written notice setting forth in reasonable
detail its disagreement with one or more items on the Proposed Closing Date
Balance Sheet (a "Dispute Notice"), Buyer and Parent shall negotiate in good
--------------
faith to resolve all matters set forth in the Dispute Notice ("Disputes") during
--------
the sixty (60) day period following receipt of the Dispute Notice by Parent (the
"Resolution Period"). Items on the Proposed Closing Date Balance Sheet shall be
-----------------
deemed final to the extent they are not referenced in the Dispute Notice. To
the extent Disputes are resolved to the mutual satisfaction of Buyer and Parent
during the Resolution Period, such resolutions shall be reflected on the
Proposed Closing Date Balance Sheet and deemed final, and if all Disputes are so
resolved, the Proposed Closing Date Balance Sheet, as modified to reflect the
resolution of such Disputes shall be deemed final and become the Closing Date
Balance Sheet.
(d) If all Disputes cannot be resolved within the Resolution Period,
then within fifteen (15) days of the end of the Resolution Period, Parent and
Buyer (i) shall set forth in writing their respective positions on the Disputes
still at issue and (ii) shall submit the unresolved Disputes to a Big Six
accounting firm (other than the principal outside accountants for either Parent
or Buyer or any of their Affiliates) mutually acceptable to Parent and Buyer
(the "Firm").
----
(e) The Firm shall make a determination with respect to the Disputes
so submitted as well as such modifications, if any, to be made to the Proposed
Closing Date
<PAGE>
12
Balance Sheet in accordance with such determination within thirty (30) days
after the engagement of the Firm and the Proposed Closing Date Balance Sheet as
so modified shall be deemed final and shall become the Closing Date Balance
Sheet; provided, however, that in no event shall the Firm determine, with
-------- -------
respect to any Dispute submitted to it, an amount that is outside of the range
of the amounts submitted by Parent and Buyer nor shall it address or consider
any issue other than the issues involved in the Disputes. Such determinations by
the Firm shall be conclusive and binding upon, and shall not be appealable by
the parties hereto. The fees and expenses of the Firm shall be shared equally by
Parent and Buyer.
(f) Promptly, and in any event within five Business Days, after the
Closing Date Balance Sheet becomes final and binding on the parties hereto:
(i) If Closing Date Net Worth is equal to the Estimated
Closing Date Net Worth, Buyer shall take all steps reasonably practical
(including, without limitation, giving notice to the Escrow Agent), to
cause the release and delivery to Sellers, in the proportions set forth on
Annex A to the Escrow Agreement, of all the Purchase Price Escrow Shares.
(ii) If Closing Date Net Worth is more than Estimated Closing
Date Net Worth, (A) Buyer shall take all steps reasonably practical
(including, without limitation, giving notice to the Escrow Agent), to
cause the release and delivery to Sellers, in the proportions set forth on
Annex A to the Escrow Agreement, of all the Purchase Price Escrow Shares
and (B) AlliedSignal shall issue and Buyer shall deliver to Sellers, in
the proportions set forth on Annex A to the Escrow Agreement, an additional
number of shares of AlliedSignal Common Stock having a value (based on the
Average Trading Price as of the Closing Date) (rounded to the nearest whole
share) equal to the excess of Closing Date Net Worth over Estimated Closing
Date Net Worth.
(iii) If Estimated Closing Date Net Worth is more than Closing
Date Net Worth, (A) a number of Purchase Price Escrow Shares having a value
(based on the Average Trading Price) (rounded to the nearest whole share)
equal to the excess of Estimated Closing Date Net Worth over Closing Date
Net Worth (the "Shortfall Amount") shall be released from escrow and
----------------
returned to AlliedSignal, and Buyer shall take all steps reasonably
practical (including, without limitation, giving notice to the Escrow
Agent), to cause the release and delivery to the Sellers, in the
proportions set forth on Annex A to the Escrow Agreement, of the balance,
if any, of the Purchase Price Escrow Shares and (B) if the value (based on
the Average Trading Price as of the Closing Date) of all of the Purchase
Price Escrow Shares is less than the Shortfall Amount, (x) all of the
Purchase Price Escrow Shares shall be released from escrow and returned to
AlliedSignal and (y) Parent shall indemnify AlliedSignal for, and shall
promptly pay to AlliedSignal in cash, an amount equal to the excess of the
Shortfall Amount over the value (based on the Average Trading Price as of
the Closing Date) of the Purchase Price Escrow Shares. Such payment shall
be made by wire transfer of immediately available funds to a bank account
designated by AlliedSignal to Parent within five Business Days
<PAGE>
13
after the Closing Date Balance Sheet has become final and binding upon the
parties hereto.
1.7 Accounts Receivable.
-------------------
(a) After the Closing, Buyer shall have full right and authority to
collect for its own account all Accounts Receivable reflected on in the Closing
Date Balance Sheet without any allowance for doubtful accounts ("Closing
-------
Accounts Receivable"). Each Seller and each Herndon Seller shall immediately
- -------------------
pay to Buyer any amount received by such Seller after the Closing attributable
to payment of any Closing Accounts Receivable, except with respect to Assigned
Receivables after assignment thereof to Parent as provided below. In the event
that as of the date that is 180 days after the Closing Date (the "Adjustment
----------
Date") Buyer shall not have been paid in full in respect of Closing Accounts
- ----
Receivable an amount equal to the Closing Accounts Receivable, Buyer shall give
Parent written notice (the "Receivables Notice") specifying the sum of (i) the
------------------
aggregate amount of Closing Accounts Receivable collected by Buyer during the
period from the Closing Date through the Adjustment Date and (ii) the aggregate
amount of Inventory (valued at original cost) that (x) is the subject of a
Closing Accounts Receivable, (y) has been returned to Buyer during the period
from the Closing Date through the Adjustment Date and (z) is not Defective
Inventory (the "Collected Amount"). If the face amount of the Closing Accounts
----------------
Receivable exceeds the Collected Amount, (i) such excess (the "Receivables
Deficiency"), plus interest accrued on the amount thereof from and including the
Closing Date to but excluding the date of payment at a rate per annum equal to
the Prime Rate in effect from time to time, shall be paid by Parent to Buyer
within five Business Days after the date that the Receivables Notice is given in
immediately available funds and (ii) upon receipt of such payment, Buyer shall
assign to Parent any Closing Accounts Receivable that were not collected during
the period from the Closing Date through the Adjustment Date (the
"Assigned Receivables"). Upon an assignment to Parent of Assigned Receivables
- --------- -----------
pursuant to this Section, Buyer shall have no further responsibility with
respect to any such Assigned Receivables and shall not be entitled to receive
any portion of any amounts collected by Parent with respect thereto, and Parent
shall be entitled to undertake any and all collection efforts with respect to
any such Assigned Receivables. Buyer shall promptly pay to Seller any amount
received by Buyer after the Adjustment Date attributable to payment of any
Assigned Receivables. In calculating the amount, if any, which Parent must pay
to Buyer pursuant to this Section 1.7, payments received by Buyer on account of
receivables from a particular customer shall be credited first to the oldest
account receivable of that customer until all accounts receivable with respect
to that customer are paid in full; provided, however, that no such payment shall
-------- -------
be so credited to any pre-Closing account receivable with respect to a Disputed
Account Receivable of such customer (as defined below) unless such customer
shall have specifically advised Buyer to credit such payment to such Closing
Account Receivable. For purposes of this Agreement, "Disputed Account
----------------
Receivable" means any Closing Account Receivable owed:
- ----------
(i) by a customer who is bankrupt;
(ii) by a customer who has asserted in writing a bona fide
claim that the products or services sold and which are the subject matter
of the Closing Account
<PAGE>
14
Receivable were defective or that the cost of the products or services
received from Seller were less than the amount invoiced;
(iii) by a customer who, in the reasonable opinion of Buyer,
has a bona fide claim that an error has been made on the invoice to such
customer; or
(iv) by a customer who has asserted that the invoice and
shipping documentation did not comply with the customer's requirement
In connection with such acquisition of Closing Accounts Receivable by
Parent, Buyer agrees to execute assignments, in form and substance reasonably
satisfactory to Buyer, as are reasonably requested by Parent in order to
effectively transfer to Parent such Closing Accounts Receivable.
(b) From and after the Closing, Buyer shall use reasonable efforts to
collect all of the Closing Accounts Receivable at their full face value and
shall be prompt, and shall exercise reasonable diligence, in such efforts, but
in no event shall Buyer be required to resort to litigation to try to collect
any such Closing Accounts Receivable. Parent and each Seller shall provide
reasonable assistance to Buyer with respect to the collection of the Closing
Accounts Receivable. Buyer shall provide to Parent and each Seller reasonable
access during regular business hours to all books and records relating to the
Closing Accounts Receivable and any payments made with respect thereto. Prior
to the Adjustment Date, neither Parent nor any Seller shall contact directly or
indirectly any customer from which a Closing Accounts Receivable is due with
respect to any matters contemplated by this Agreement, including any outstanding
Closing Account Receivable, without Buyer's prior consent in each case.
(c) Commencing 60 days after the Closing Date, and continuing not
less frequently than monthly during the 120 days thereafter, Buyer shall deliver
written reports to Parent setting forth in reasonable detail the status of the
collection of the Closing Accounts Receivable, on a customer by customer basis,
the collection efforts made by Buyer relating thereto and the status of the
payment of any other receivables from such customers to Buyer. Buyer shall in
all respects, including its collection efforts, treat the Closing Accounts
Receivable in the same manner as it treats its other accounts receivable.
1.8 Closing.
-------
(a) Closing Date. The closing of the transactions contemplated under
------------
this Agreement (the "Closing") shall take place at 10:00 a.m. Eastern Time at
-------
the offices of Hughes Hubbard & Reed LLP, One Battery Park Plaza, New York, New
York, on the fifth Business Day after all conditions to the obligations of the
parties under Article V and under Article V of the Herndon Agreement shall have
been satisfied or waived (other than those requiring a delivery of a certificate
or other document, or the taking of other action, at the Closing and the
conditions set forth in Sections 5.1(j) and 5.2(g) and in Sections 5.1(g) and
5.2(g) of the Herndon Agreement), or at such other place and on such other date
as the parties may mutually agree in writing (such date on which the Closing
occurs hereinafter is referred to as the "Closing Date"). Each of the parties
------------
acknowledges that, with respect to the Closing Date, time is of the essence.
<PAGE>
15
(b) Effectiveness. The consummation of the transactions contemplated
-------------
by this Agreement and the Closing shall be deemed to take place at 11:59 p.m.,
Eastern Time, on the Closing Date and no transaction shall be deemed to have
been completed and no document or certificate shall be deemed to have been
delivered until all transactions are completed and all documents are delivered.
1.9 Deliveries and Proceedings at the Closing. Subject to the
-----------------------------------------
terms and conditions of this Agreement, at the Closing:
(a) Deliveries to AlliedSignal and Buyer. Parent and Sellers shall
------------------------------------
deliver to AlliedSignal and Buyer:
(i) bills of sale and instruments of assignment, in forms
reasonably satisfactory to Buyer, to evidence the transfer to Buyer of the
Purchased Assets (other than the Owned Real Property) in accordance
herewith, duly executed by Sellers;
(ii) certificates (or other appropriate evidence of transfer)
representing all of the Subsidiary Shares accompanied, except with respect
to the certificates representing shares of Banner Aircraft International,
GmbH and Harco Northern Ireland, Ltd., by stock powers duly executed in
blank with all necessary stock transfer and other documentary stamps
attached;
(iii) any consents to transfer of all transferable or
assignable Contracts and Permits obtained by Parent and the Companies as of
Closing and all consents referred to in Section 5.1(d);
(iv) title certificates to any motor vehicles included in the
Purchased Assets, duly executed by each Seller with any interest therein
(together with any other transfer forms necessary to transfer title to such
vehicles);
(v) one or more deeds of conveyance to Buyer of the Owned
Real Property, in forms customarily delivered for similar Real Property
conveyances and reasonably satisfactory to Buyer, sufficient to transfer to
Buyer good and marketable, and insurable, fee simple title to the Owned
Real Property included in the Purchased Assets in accordance herewith, duly
executed and acknowledged by each Seller with any interest therein and in
recordable form;
(vi) one or more title insurance policies, in form, substance
and amount, and issued by title insurance companies reasonably acceptable
to Buyer, and containing such endorsements and affirmative coverage as
Buyer shall reasonably request (including, with respect to Owned Real
Property that is a Purchased Asset, nonimputation endorsements), insuring
Buyer's fee simple title to the Owned Real Property subject only to the
Permitted Liens, the cost of which shall be paid 50% by Parent and Sellers
and 50% by AlliedSignal and Buyer;
<PAGE>
16
(vii) U.C.C. termination statements in recordable form and
other appropriate releases, in form and substance reasonably satisfactory
to Buyer, with respect to all recorded Liens in the Purchased Assets;
(viii) the Foreign Investment in Real Property Tax Act
Certification and Affidavit for each parcel of Owned Real Property, in form
reasonably satisfactory to Buyer, duly executed by each Seller transferring
Owned Real Property (the "FIRPTA Affidavit");
----------------
(ix) the certificates and other documents required to be
delivered by Parent and Sellers pursuant to Section 5.1 hereof and
certified resolutions evidencing the authority of Parent and Sellers as set
forth in Section 2.3 hereof;
(x) the Release contemplated by Section 4.9;
(xi) an opinion of Potter Andersen & Corroon, Delaware
counsel, substantially in the form of Exhibit 1.9(a)(xi), to the effect
------------------
that no approval of the holders of Parent Common Stock is
required in connection with the execution, delivery and performance of this
Agreement by Parent and Sellers;
(xii) the Escrow Agreement, duly executed by Parent;
(xiii) the letters of Jeffrey Steiner and Fairchild, dated as of
the Closing Date, substantially in the form of Exhibit 1.9(a)(xiii)(A-C)
-------------------------
(the "Side Letters"); and
------------
(xiv) all such other documents and instruments as shall, in the
reasonable opinion of Buyer or its title insurance company (including
affidavits and indemnities in connection with nonimputation endorsements),
be necessary in connection with the transfer to Buyer of the Purchased
Assets in accordance herewith and, where necessary or desirable, in
recordable form.
(b) Deliveries to Parent and Sellers. AlliedSignal and Buyer will
--------------------------------
deliver to Parent and Sellers, as applicable:
(i) the Closing Date Shares, issued by AlliedSignal and
delivered by Buyer to Sellers in the proportions set forth in Annex 1.6(f)
hereto;
(ii) an assumption agreement, in form reasonably satisfactory
to Parent, to evidence the assumption by Buyer of the Assumed Liabilities
in accordance with Section 1.3, duly executed by Buyer;
(iii) the certificates and other documents required to be
delivered by AlliedSignal and Buyer pursuant to Section 5.2 hereof and
certified resolutions evidencing the authority of AlliedSignal and Buyer as
set forth in Section 3.2 hereof;
(iv) the Escrow Agreement duly executed by Buyer;
<PAGE>
17
(v) all such other documents and instruments of assumption as
shall, in the reasonable opinion of Parent, be necessary for Buyer to
assume the Assumed Liabilities in accordance herewith; and
(vi) the Registration Rights Agreement, in the form attached
as Exhibit 1.9(b)(vi), duly executed by AlliedSignal.
------- ----------
(c) Escrow Agreement. Parent and Buyer shall use their reasonable
----------------
best efforts to cause the Escrow Agent to execute and deliver an escrow
agreement substantially in the form of Exhibit 1.9(c) at the Closing (the
--------------
"Escrow Agreement").
- -----------------
1.10 Stock Legend.
------------
(a) Each certificate representing the shares of AlliedSignal Common
Stock issued to Sellers at the Closing shall be endorsed with a legend in
substantially the following form:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY
NOT BE SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS
AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT COVERING SUCH
SECURITIES, THE TRANSFER IS MADE IN COMPLIANCE WITH RULE 144
PROMULGATED UNDER SUCH ACT OR THE CORPORATION RECEIVES AN OPINION
OF COUNSEL FOR THE HOLDERS OF THESE SECURITIES REASONABLY
SATISFACTORY TO THE CORPORATION STATING THAT SUCH SALE, TRANSFER,
ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND
PROSPECTUS DELIVERY REQUIREMENT OF SUCH ACT.
1.11 Prorations. The parties hereto agree that the following
----------
expenses shall be calculated and pro rated as of the Closing Date, with Parent
and Sellers jointly responsible for such expenses for the period up to the
Closing Date (it being understood that any such expense not paid prior to the
Closing shall be reflected as a liability on the Closing Date Balance Sheet),
and Buyer to be responsible for the period on and after the Closing Date:
(a) personal property, real property and payroll taxes (on
the basis on which the same were assessed and paid), in each case to the
extent relating to the Combined Business and except as otherwise provided
in Section 4.6(i);
(b) electric, fuel, gas, telephone, sewer and utility
charges, in each case to the extent relating to the Combined Business;
<PAGE>
18
(c) rentals and other charges under Combined Contracts to be
assumed by Buyer pursuant hereto; and
(d) charges under maintenance and service contracts and other
Combined Contracts, and fees under Permits to be transferred to Buyer as
part of the Purchased Assets or the Herndon Purchased Assets.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF PARENT AND SELLERS
Parent and each Seller hereby jointly and severally represent and
warrant to AlliedSignal and Buyer as follows:
2.1 Qualification. Parent is a corporation duly organized, validly
-------------
existing and in good standing under the laws of the State of Delaware. Each
Company is a legal entity of the type described on Annex A or Annex B, as the
case may be, duly organized, validly existing and in good standing under the
laws of the jurisdiction set forth next to such Company's name on such Annex,
and has all requisite corporate power and authority to own and lease its Assets
and to conduct its Business as presently being conducted. Each Company is
qualified to do business and is in good standing as a foreign corporation in all
jurisdictions wherein the nature of its Business or such Company's ownership or
use of its Assets make such qualification necessary, except such failures to be
qualified or to be in good standing, if any, which when taken together with all
such other failures of such Company would not have a Material Adverse Effect on
such Company. None of the Companies is currently insolvent, has suspended
payments, is subject to any judicial receivership or liquidation proceedings or
is in bankruptcy, nor has any such similar proceedings been commenced with
respect to any of them.
2.2 Ownership of the Companies.
--------------------------
(a) Except as set forth on Schedule 2.2, all of the outstanding
------------
shares of capital stock of (or other ownership interests in) each of the Sellers
are owned of record and beneficially solely by Parent free and clear of any
Liens. The ownership of the Subsidiary Shares is described on Schedule 2.2. All
of the Subsidiary Shares are (i) duly authorized, validly issued, fully paid and
nonassessable and free of preemptive rights and were issued in compliance with
all applicable Laws and (ii) except for nominal or qualifying shares identified
on Schedule 2.2, owned of record and beneficially solely by one or more Sellers
and/or other Seller Subsidiaries, free and clear of any Liens. There are no
options, warrants, calls, rights or agreements to which Parent or any of the
Companies is a party obligating any of them to issue, deliver or sell, or cause
to be issued, delivered or sold, additional shares of capital stock of (or other
ownership interests in) any of the Companies or obligating Parent or any of the
Companies to grant, extend or enter into any such option, warrant, call, right
or agreement. There are no agreements, voting trusts or proxies with respect to
the voting of the Subsidiary Shares. The transfer of the nominal or qualifying
shares of the Seller Subsidiaries not owned by any of the Companies to Persons
designated by Buyer (i) shall be accomplished at or prior to the Closing and
(ii) shall not require
<PAGE>
19
any payment by AlliedSignal or Buyer to any Person or result in the creation of
any Liability of AlliedSignal or Buyer to any Person.
(b) Except for the Subsidiary Shares and except as set forth on
Schedule 2.2, none of the Companies owns any shares of capital stock of (or
other ownership interests in) any other Person, including any joint venture.
2.3 Authorization and Enforceability. With respect to each of
--------------------------------
Parent and the Sellers: (a) such entity has full corporate power and authority
to execute, deliver and perform this Agreement and all other agreements,
instruments and documents to be executed in connection herewith (such other
agreements and instruments being hereinafter referred to collectively as the
"Transaction Documents") to which such entity is a party, (b) the execution,
- ----------------------
delivery and performance by such entity of this Agreement and the Transaction
Documents to which such entity is a party have been duly authorized by all
necessary corporate action on the part of such entity and no approval by the
holders of any security issued by Parent is required in connection therewith,
(c) this Agreement has been duly executed and delivered by such entity, and, as
of the Closing Date, the other Transaction Documents to which any such entity is
a party will be duly executed and delivered by such entity, (d) this Agreement
is a legal, valid and binding obligation of such entity, enforceable against
such entity in accordance with its terms, and (e) as of the Closing Date, each
of the other Transaction Documents to which such entity is a party will
constitute the legal, valid and binding obligations of such entity, enforceable
against such entity in accordance with its terms.
2.4 No Violation of Laws or Agreements. The execution, delivery,
----------------------------------
and performance by Parent and each Seller of this Agreement and the Transaction
Documents to which such entities (as applicable) are parties do not, and the
consummation by Parent and each Seller (as applicable) of the transactions
contemplated hereby and thereby, will not, (a) contravene any provision of the
charter, bylaws or any other organizational documents of Parent or any Company,
or (b) except as set forth on Schedule 2.4 and subject, in the case of clause
------------
(i) below, to such exceptions as would not in the aggregate have a Material
Adverse Effect, violate, conflict with, result in a breach of, or constitute a
default (or an event which would, with the passage of time or the giving of
notice or both, constitute a default) under, or result in or permit the
termination, modification, acceleration, or cancellation of, or result in the
creation or imposition of any Lien of any nature whatsoever upon any of the
Acquired Assets or give to others any interests or rights therein under, (i) any
personal property lease with payments in excess of $50,000 per year, lease of
Real Property, indenture, mortgage, loan or credit agreement, license,
instrument, contract, plan, permit or other agreement or commitment, oral or
written, to which Parent or any Company is a party, other than such agreements
or commitments involving any customer or supplier of the Business (including any
supplier of Intellectual Property), or by which the Business or any of the
Acquired Assets may be bound or affected (including without limitation any
agreement or instrument pertaining to Debt), or (ii) any judgment, injunction,
writ, award, decree, restriction, ruling, or order of any arbitrator or
Governmental Entity or any applicable Law to which Parent, any Company or the
Acquired Assets is subject.
<PAGE>
20
2.5 Consents. Except (i) as set forth on Schedule 2.5 or (ii) for
-------- ------------
agreements or commitments involving any customer or supplier of the Business
(including any supplier of Intellectual Property), no consent, approval or
authorization of, or registration or filing with, any Person (governmental or
private) is required in connection with the execution, delivery and performance
by Parent or any Seller of this Agreement, the other Transaction Documents to
which Parent or any Seller is a party, or the consummation by Parent and each
Seller (as applicable) of the transactions contemplated hereby or thereby,
including without limitation in connection with the assignment of the Contracts
and Permits contemplated hereby, except as required by the HSR Act and except
for any required, consent, approval or authorization of, or registration or
filing with, any foreign governmental authority.
2.6 Financial Statements.
--------------------
(a) Schedule 2.6(a) sets forth (i) an unaudited combined pro forma
------------
balance sheet of the Combined Business as of September 30, 1997 (the "Balance
-------
Sheet") and related unaudited combined pro forma statement of income of the
- -----
Combined Business for the six months ended September 30, 1997 (together with the
Balance Sheet, the "Financial Statements"). The Excluded Assets, the Herndon
--------------------
Excluded Assets, the Non-Assumed Liabilities, and the Herndon Non-Assumed
Liabilities are excluded from the Balance Sheet. The Financial Statements are
in accordance with the books and records of the Companies and the Herndon
Sellers and except for the Excluded Assets, the Herndon Excluded Assets, the
Non-Assumed Liabilities, the Herndon Non-Assumed Liabilities, and as set forth
in Schedule 2.6(a), fairly present the financial position and results of
operations of the Combined Business on a stand-alone basis as of the date and
for the period indicated, in conformity with GAAP throughout the period
specified and in accordance with the procedures and criteria set forth on
Schedule 1.6(a), except as expressly set forth therein and except that the
- ---------------
Financial Statements may omit notes and are subject to normal year-end
adjustments which are not, in the aggregate, material. Except as described on
Schedule 2.6(a), all fees, charges, costs and expenses associated with the
ownership, leasing, operation, maintenance and management of the Combined
Business and the Assets owned, used or held for use by the Combined Business
have been fully and properly reflected and charged on the Financial Statements
in accordance with GAAP (to the extent such items are required to be so
reflected and charged in accordance with GAAP). All Acquired Assets, Assumed
Liabilities, Herndon Purchased Assets and Herndon Assumed Liabilities are
disclosed on or reflected in the Balance Sheet except (i) as disclosed on
Schedule 2.6(a), and (ii) as disposed of or transferred between September 30,
1997 and the Closing Date in the ordinary course of business consistent with
past practice and in accordance with this Agreement.
(b) The future tax benefits set forth in the Balance Sheet as of the
date hereof ("Preliminary Future Tax Benefits") represent future tax benefits as
of March 31, 1997. No later than 30 days after the date hereof, Parent shall
deliver written notice to AlliedSignal of the amount of future tax benefits as
of September 30, 1997 ("Final Future Tax Benefits"), and the Balance Sheet shall
be adjusted accordingly.
<PAGE>
21
2.7 No Changes. Since September 30, 1997, the Companies have
----------
conducted the Business only in the ordinary course of business consistent with
past practice and, except as set forth on Schedule 2.7, there has not been:
------------
(a) any Material Adverse Effect;
(b) any change in the salaries or other compensation payable
or to become payable to, or any advance (excluding advances for ordinary
business expenses) or loan to, any employee of the Business, or material
change or material addition to, or material modification of, other benefits
(including any bonus, profit-sharing, pension or other plan in which any of
the employees of the Business participate) to which any of the employees of
the Business may be entitled, other than in the ordinary course of the
Business consistent with past practice;
(c) any material change or modification in any manner of the
Companies' existing Inventory management and collection and payment
policies, procedures and practices with respect to Inventory and accounts
receivable and accounts payable, respectively, of the Business,
acceleration of payment of payables or failure to pay or delay in payment
of payables and any change in the Companies' existing policies, procedures
and practices, with respect to the provision of discounts, rebates or
allowances insofar as they relate to the Business;
(d) any cancellation or waiver by any Company of any right
material to the Business or any cancellation or waiver of any material
Debts of or claims of the Business against Parent or any other Affiliate of
any Company or any disposition of or failure to keep in effect any rights
in, to or for the use of any Permit material to the Business;
(e) any damage, destruction or loss, or eminent domain or
other condemnation proceeding affecting the distribution center located in
Salt Lake City, Utah, or the Business which individually or in the
aggregate has had a Material Adverse Effect, whether or not covered by
insurance;
(f) any change by any Company in its method of accounting or
keeping its books of account or accounting practices with respect to the
Business except as required by GAAP;
(g) any acquisition, sale, transfer or other disposition of
any material Assets of the Business other than the disposition of (i)
Inventory in the ordinary course of the Business consistent with past
practice or (ii) Assets not used or useful in the Business;
(h) any commencement or termination of any line of business;
(i) any action that would be prohibited to be taken after the
date of this Agreement under Section 4.1(c); or
<PAGE>
22
(j) any agreement in writing or otherwise to take any of the
foregoing actions.
2.8 Contracts.
---------
(a) As of the date of this Agreement, Schedule 2.8(a) contains a
---------------
true, correct and complete list of (i) all Contracts (other than any guarantee
of any Seller that does not directly or indirectly support or benefit the
Business) to which Parent or any of its Affiliates (other than the Companies) is
a party or which benefit Parent or any of its Affiliates (other than the
Companies); (ii) all Contracts under which any Company is a licensee or licensor
of Intellectual Property or Technology which are material to the Business; (iii)
all Contracts under which any Company is a lessee or lessor of (or has an
obligation to lease) Real Property; (iv) all Contracts providing for the
formation or operation of a partnership or other joint venture; (v) all material
Contracts which afford customers any right to return Inventories at the option
of the customer; (vi) all Government Contracts with a backlog in excess of
$100,000; (vii) all Contracts requiring forward stocking locations; and (viii)
except for agreements or commitments involving any customer or supplier of the
Business (including any supplier of Intellectual Property), all other Contracts
(other than with respect to which the Business' total annual Liability or
expense is less than $1,000,000 per such non-listed Contract). Parent and
Sellers have made available to AlliedSignal a correct and complete copy of each
written agreement.
(b) Except as set forth on Part A of Schedule 2.8(b), with respect to
---------------
each Contract described in Schedule 2.8(a), neither any Company nor, to the best
of Parent's and each Seller's knowledge, any other party thereto, is in material
breach or default and no event has occurred which with notice or lapse of time
would constitute a material breach or default, or permit termination,
modification, or acceleration, under such Contract. Except as set forth on Part
B of Schedule 2.8(b), there are no disputes pending or, to the best of Parent's
and each Seller's knowledge, threatened, under or in respect of any of the
Contracts described in Schedule 2.8(a) and no counterparty to any such Contract
has given notice to any Company or Affiliate thereof with respect to any
material breach or default hereunder. Each of the Contracts described in
Schedule 2.8(a) is in full force and effect and constitutes the legal and
binding obligation of, and is legally enforceable against, such Company as the
Contracts relate, and, to the best of Parent's and each Seller's knowledge, any
other party thereto, in accordance with its terms.
(c) Except as identified with an asterisk on Schedule 2.8(a), each of
---------------
the Contracts listed thereon is fully assignable to Buyer (or, in the case of
Contracts of the Seller Subsidiaries, will remain in full force and effect upon
the sale of the Subsidiary Shares to Buyer) without the consent, approval or
waiver of any other Person. None of such Contracts contains any provision
which, after the Closing, will restrict Buyer or any of the Seller Subsidiaries
from conducting any portion of the Business in any jurisdiction, except such
Contracts which may be terminated by Buyer or the applicable Seller Subsidiary
without penalty or Liability on no more than 30 days' notice. With respect to
those Contracts that were assigned, novated or subleased to any Company by a
third party, all necessary consents to such assignments, novations or subleases
have been obtained.
<PAGE>
23
(d) Subject to such exceptions as would not in the aggregate have a
Material Adverse Effect, with respect to each and every Government Contract that
has a backlog in excess of $100,000 or binding or non-binding bid for such a
Government Contract ("Bid") to which any Company is a party: (i) such Company
has fully complied with all material terms and conditions of such Government
Contract or Bid, including all clauses, provisions and requirements incorporated
expressly, by reference or by operation of law therein; (ii) such Company has
fully complied with all requirements of Law applicable to such Government
Contract or Bid and no Government Contract is subject to any adjustment in price
as a result of a claim by the U.S. Government or U.S. Government prime
contractor or subcontractor on the basis of (w) defective pricing pursuant to
FAR 52.215-22, FAR 52.215-23, FAR 52.215-24, FAR 52.215-25, (x) CAS violations
pursuant to FAR 52.230-2, (y) any submission for progress payments of invoices
or (z) any claims arising out of or related to the Government Contracts
occurring on or before the Closing Date; (iii) all representations and
certifications executed, acknowledged or set forth in or pertaining to such
Government Contract or bid for a Government Contract were current, accurate and
complete as of their effective date, and such Company has fully complied with
all such representations and certifications; (iv) neither the U.S. Government
nor any prime contractor, subcontractor or other Person has notified such
Company, either orally or in writing, that such Company has breached or violated
any Law, certification, representation, clause, provision or requirement, (v) no
termination for convenience, termination for default, cure notice or show cause
notice has been issued; (vi) no cost incurred by such Company has been
questioned or disallowed; and (vii) no money due to such Company has been (or
has attempted to be) withheld or set off.
2.9 Permits and Compliance With Laws Generally.
------------------------------------------
(a) Subject to such exceptions as would not in the aggregate have a
Material Adverse Effect, (i) except as set forth on Part A of Schedule 2.9(a),
---------------
the Companies possess and are in compliance with all Permits required to operate
the Business as presently operated and to own, lease or otherwise hold the
Acquired Assets under all applicable Laws and (ii) except as set forth on Part B
of Schedule 2.9(a), to the best of Parent's and each Seller's knowledge, the
Business is conducted by the Companies in compliance with, and the use,
construction and operation of all Real Property constituting any part of the
Acquired Assets conforms to, all applicable Laws (including the Occupational
Safety and Health Act and the rules and regulations thereunder ("OSHA") and
----
other similar Laws, and zoning, building and other similar Laws) and all
restrictions and conditions affecting title. All material Permits of the
Companies are in full force and effect. There are no proceedings pending or, to
the best of Parent's and each Seller's knowledge, threatened that seek the
revocation, cancellation, suspension or any adverse modification of any material
Permits presently possessed by the Companies. Parent and Sellers are aware of
no facts, conditions or circumstances reasonably likely to result in the
revocation, cancellation, suspension, or adverse modification of any material
Permit. Except as set forth on Part C of Schedule 2.9(a), all material Permits
of the Companies are assignable to and at the Closing will be assigned to Buyer
(or, in the case of Permits of the Seller Subsidiaries, will continue to be
possessed by the Seller Subsidiaries upon the sale of the Subsidiary Shares to
Buyer) and no approvals or consents are required for such assignment (or
continued possession)
<PAGE>
24
and the sale of the Business or Acquired Assets hereunder will not result in a
default under or termination of any such material Permit.
(b) Except as set forth on Schedule 2.9(b), no outstanding notice,
---------------
citation, summons or order has been issued, no outstanding complaint has been
filed, no outstanding penalty has been assessed and no investigation or review
is pending or, to the best of Parent's and each Seller's knowledge, threatened,
by any Governmental Entity or other Person with respect to any alleged (i)
violation by any Company relating to the Business or the Acquired Assets of any
Law or (ii) failure by any Company to have any Permit required in connection
with the conduct of the Business or otherwise applicable to the Business
(including the Acquired Assets) except in such cases as would not in the
aggregate have a Material Adverse Effect.
2.10 Environmental Matters. As of the Closing Date, except as set
---------------------
forth on Schedule 2.10,
-------------
(a) There are no reports in Parent's, the Companies' or any of their
respective Affiliates' possession or control of environmental site assessments
or audits of the Business, the Acquired Assets or any other Assets (including
but not limited to facilities used for the off-site disposal of waste) formerly
owned, leased, operated or used by the Companies, or any predecessor-in-interest
to the Companies.
(b) The Companies possess and are in compliance with all
Environmental Permits required to operate the Business as presently operated and
to own, lease or otherwise hold the Acquired Assets under all Environmental
Laws. The operations of the Business and Acquired Assets (including the use,
construction and operation of all Real Property constituting any part of the
Acquired Assets) are in compliance with all Environmental Laws and are conducted
in a manner that does not pose a risk to the safety or health of workers or
other individuals or to the environment. All Environmental Permits of the
Companies relating to the operation of the Business are in full force and
effect. There are no proceedings pending or, to the best of Parent's and each
Seller's knowledge, threatened that seek the revocation, cancellation,
suspension or any adverse modification of any such Environmental Permits
presently possessed by the Companies. Parent and Sellers are aware of no facts,
conditions or circumstances reasonably likely to result in the revocation,
cancellation, suspension or adverse modification of any Environmental Permits.
(c) There are no environmental conditions with respect to the
Business, Acquired Assets or any other Assets (including but not limited to
facilities used for the off-site disposal of waste) formerly owned, leased,
operated or used by any of the Companies, or any predecessor-in-interest to any
of the Companies that (i) pose a risk to human health or the environment, or
(ii) are otherwise required to be remediated under applicable Environmental Laws
due to evidence of soil or groundwater contamination on, under or migrating onto
or from the Business, Acquired Assets or any such other Assets.
(d) There are no Environmental Claims currently pending nor has
Parent, any of the Companies or any of their respective Affiliates received any
notice of an Environmental Claim with respect to the Business, the Acquired
Assets, or any other Assets (including, but not
<PAGE>
25
limited to, facilities used for the off-site disposal of waste) formerly owned,
leased, operated or used by the Companies or any predecessors-in-interest to the
Companies that a Hazardous Material has been (i) disposed, released, or
discharged or (ii) produced, stored, handled, used or emitted onto, under, or
from the Business, Acquired Assets or any such other Assets.
(e) Neither the Business nor the Acquired Assets are subject to the
requirements of any Laws that condition, restrict, prohibit or require
notification or disclosure upon the transfer, sale, lease or closure of certain
property for environmental reasons.
(f) No outstanding notice, citation, summons or order has been
issued, no outstanding complaint has been filed, no outstanding penalty has been
assessed and no investigation or review is pending or, to the best of Parent's
and each Seller's knowledge, threatened, by any Governmental Entity or other
Person with respect to any alleged (i) violation by any Company or any of its
Affiliates relating to the Business or the Acquired Assets of any Environmental
Law or (ii) failure by any Company or any of its Affiliates to have any
Environmental Permit required in connection with the conduct of the Business or
otherwise applicable to the Business (including the Acquired Assets).
2.11 Transactions with Affiliates.
----------------------------
(a) Set forth on Schedule 2.11(a) is a true, correct and complete
----------------
list and description of (a) all services and other support provided to the
Business by Parent and its Affiliates (other than the Companies) since April 1,
1996, (b) all other overhead charges allocated to the Companies since April 1,
1996, and (c) all other transactions between one or more Companies, on the one
hand, and Parent or any of its Affiliates (other than the Companies), on the
other hand, since April 1, 1996 (other than payment of compensation or other
benefits to employees).
(b) To the best of Parent's and each Seller's knowledge, except as
set forth on Schedule 2.11(b), (i) as of the Closing, no employee, officer or
----------------
director (or any member of his or her immediate family) of Parent or of any
Company or any of their Affiliates will be indebted to any Company, nor is any
Company indebted (or committed to make loans or extend or guarantee credit) to
any of such individuals, (ii) no such individual, except Eric Steiner and
Jeffrey Steiner and any such individual whose position is with Fairchild or any
of its Affiliates (other than Parent or any of the Companies) has any direct or
indirect ownership interest in any Person with which any Company has a business
relationship, or any Person that competes with any Company and (iii) no member
of the immediate family of any officer or director of any Company is an
interested party with respect to any Contract.
2.12 Title. The Sellers have, and at the Closing will transfer to
-----
the Buyer, good and marketable title to all personal property owned by them
respectively, good and marketable title to all Owned Real Property, valid and
enforceable leasehold interests in Leased Real Property and personal property
leased by them, and good and valid title to or rights to use, all intangible
properties and rights used by them, in each case free and clear of all Liens,
except Permitted Liens. The Seller Subsidiaries have good and marketable title
to all Subsidiary Assets free and clear of all Liens, except Permitted Liens.
<PAGE>
26
2.13 Acquired Real Property.
-----------------------
(a) Part A of Schedule 2.13(a) sets forth a true, correct and
----------------
complete list and legal descriptions of all Real Property owned (beneficially or
of record) by any of the Companies in the conduct of the Business, and Part B of
Schedule 2.13(a) sets forth a true, correct and complete list of all Real
Property leased by any of the Companies in the conduct of the Business, and in
each case identifies the street address thereof.
(b) Except in such cases as would not in the aggregate have a
Material Adverse Effect, all structures and other improvements on such
properties are within the lot lines and do not encroach on the properties of any
other Person (and improvements on adjacent Real Property do not encroach on any
of the Real Property constituting any part of the Acquired Assets), and the use,
construction and operation of all Real Property constituting any part of the
Acquired Assets or otherwise owned or leased by the Companies in the conduct of
the Business conform to all applicable building, zoning, safety, environmental
and other Laws, permits, licenses and certificates and all restrictions and
conditions affecting title.
(c) Other than as set forth on of Schedule 2.13(c), there are no
----------------
leases, subleases, options or other agreements, written or oral, granting to any
Person (other than the Companies) the right to purchase, use or occupy the
Acquired Real Property or any portion thereof. None of Parent, the Companies
and any of their respective Affiliates has received any written or oral notice
or order by any Governmental Entity, any insurance company which has issued a
policy with respect to any of such properties or any board of fire underwriters
or other body exercising similar functions which (i) relates to violations of
building, safety, fire or other ordinances or regulations, (ii) claims any
defect or deficiency with respect to any of such properties or (iii) requests
the performance of any repairs, alterations or other work to or in any of such
properties or in the streets bounding the same, except such as would not
individually or in the aggregate have a Material Adverse Effect. Parent and
Sellers have made available to Buyer true, correct and complete copies of all
leases and financing documents affecting all or any portion of the Acquired Real
Property.
(d) None of Parent, the Companies and any of their respective
Affiliates has received any written or oral notice for assessments for public
improvements against the Acquired Real Property which remains unpaid, and, to
the best of Parent's and each Seller's knowledge, no such assessment has been
proposed. Except as set forth on Schedule 2.13(d), there is no pending
----------------
condemnation, expropriation, eminent domain or similar proceeding affecting all
or any portion of any of the Acquired Real Property and, to the best of Parent's
and each Seller's knowledge, no such proceeding is threatened.
(e) Except as set forth on Schedule 2.13(e), no Person other than the
----------------
Companies is in possession of (or has any right, absolute or contingent, to
possess which is superior to any Company's right to possess) all or any portion
of the Acquired Real Property.
(f) Except as set forth on Schedule 2.13(f), all Acquired Real
----------------
Property has direct and unrestricted access over currently utilized facilities
and land to such public roads, owned roads and driveways presently in use, and
such utilities and other services, as are
<PAGE>
27
necessary for the uses thereof and the conduct of the Business, and neither any
Company nor any other Person has applied for any change in the zoning or land
use classification of any such Real Property.
(g) Except as set forth on Part A of Schedule 2.13(g), the Acquired
----------------
Real Property has adequate arrangements for supplies of water, electricity, gas
and/or oil for all operations at the 1996 or current operating levels, whichever
is greater. Except as set forth on Part B of Schedule 2.13(g), there are no
actions or proceedings pending or, to the best of Parent's and each Seller's
knowledge, threatened that would adversely affect the supply of water,
electricity, gas and/or oil to the Acquired Real Property except for those which
individually and in the aggregate would not have a Material Adverse Effect.
2.14 Taxes.
-----
(a) Parent and each Company has (i) timely filed all returns and
reports for Taxes, including information returns, that are required to have been
filed in connection with, relating to, or arising out of the Business or the
Acquired Assets, (ii) paid to the appropriate Tax Authority all Taxes that are
shown to have come due pursuant to such returns or reports and (iii) paid to the
appropriate Tax Authority all other Taxes not required to be reported on returns
in connection with, relating to, or arising out of, or imposed on the property
of the Business for which a notice of assessment or demand for payment has been
received or which have otherwise become due except for Taxes being properly
contested in good faith.
(b) All such returns or reports were complete and accurate in all
material respects at the time of filing and such returns which have not been
audited do not contain a disclosure statement under Code Section 6662 (or any
predecessor provision or comparable provision of any Law).
(c) There are no unpaid Taxes with respect to any period ending on or
before the Closing Date which are or could give rise to a lien on the Acquired
Assets or the Business, except for current Taxes not yet due and payable.
(d) Except as set forth on Schedule 2.14(d), (i) there are no pending
----------------
audits or, to the best of Parent's and each Seller's knowledge, threatened
audits or assessments relating to Taxes with respect to the Business or the
Acquired Assets and (ii) there is no unassessed Tax deficiency proposed or to
the best of Parent and each Seller's knowledge threatened against Parent or any
Company relating to or affecting the Acquired Assets or the Business, nor is any
action or proceeding pending, or to the best of Parent's and each Seller's
knowledge, threatened by any Governmental Entity for assessment, reassessment or
collection of Taxes.
(e) Except as set forth on Schedule 2.14(e), none of the Acquired
----------------
Assets (i) is property that is required to be treated as owned by another Person
pursuant to the "safe harbor lease" provisions of former Section 168(f)(8) of
the Code, (ii) is "tax-exempt use property" within the meaning of Code Section
168(h) or (iii) directly or indirectly secures any Debt the interest on which is
tax-exempt under Code Section 103(a).
<PAGE>
28
(f) Except as set forth on Schedule 2.14(f), no Company has agreed to
----------------
make, or is required to make, any adjustment under Code Section 263A or 481(a)
or any comparable provision of state or foreign Tax Laws by reason of a change
in accounting method or otherwise and no Company has changed a method of
accounting or Inventory method, made or changed a tax election, or otherwise
taken any action which is not in accordance with past practice that could
accelerate a tax deduction from a period after the Closing Date to a period
before the Closing Date or defer income from a period before the Closing Date to
a period after the Closing Date.
(g) Except as set forth on Schedule 2.14(g), no Company is a party to
----------------
any agreement, contract, arrangement or plan that has resulted or would or could
result, separately or in the aggregate, in connection with this Agreement or any
change of control of the Company, in the payment of any "excess parachute
payment" within the meaning of Code Section 280G.
(h) The aggregate adjusted tax basis in the Inventory, the accounts
receivable and the property, plant and equipment that constitute the Purchased
Assets for federal Tax purposes as of March 31, 1997, was at least $150,000,000,
$29,000,000 and $8,000,000, respectively.
(i) The amount of the reserves for value-added Taxes, real property
Taxes, property Taxes and payroll Taxes reflected on the Closing Date Balance
Sheet will be adequate to pay all Assumed Tax Liabilities.
2.15 Intellectual Property and Technology.
------------------------------------
(a) Schedule 2.15(a) contains a true, correct and complete list of
----------------
all patents, trademarks, trade names, service marks and applications for the
foregoing owned, used or held for use by any Company with respect to the
Business, except for matters listed on Schedule 2.15(b).
----------------
(b) Schedule 2.15(b) contains a true, correct and complete list of
----------------
all Intellectual Property which has been registered in, filed in or issued by
the PTO, the United States Copyright Office, any state trademark offices and the
patent, trademark, copyright and other corresponding offices of foreign
jurisdictions. All such registrations have been duly filed, registered and
issued and are in full force and effect.
(c) Except as set forth on Schedule 2.15(c), Section 8 and 15
----------------
declarations and applications for renewal with respect to all U.S. registered
trademarks and service marks listed in Schedule 2.15(b) were timely filed in and
accepted by the PTO. No trademarks or service marks listed in Schedule 2.15(b)
have been abandoned.
(d) Schedule 2.15(d) sets forth all licenses or other agreements from
----------------
or with third Persons under which any Company uses or exercises any rights with
respect to any of the Intellectual Property or Technology, other than such
licenses and other agreements that involve payments of no more than $25,000 per
year ("Small Licenses"). At the Closing, Sellers will
--------------
<PAGE>
29
transfer to Buyer all Intellectual Property and Technology without payment of
royalties, free and clear of any Liens.
(e) Except (i) as set forth on Schedule 2.15(e) or (ii) with respect
----------------
to Small Licenses, the Companies (as applicable) are the sole and exclusive
owners of the Intellectual Property and Technology, free and clear of any Liens.
(f) Except as set forth on Schedule 2.15(f), no Company has received
----------------
(and Parent and Sellers have no knowledge of) any written notice from any other
Person pertaining to or challenging the right of any Company (or any other
Person) to use any of the Intellectual Property or any Technology, and there is
no interference, opposition, cancellation, reexamination or other contest
proceeding, administrative or judicial, pending or threatened with respect to
any Intellectual Property or Technology.
(g) Except as set forth on Schedule 2.15(g), no licenses have been
----------------
granted by any Company and no Company has any obligation to grant licenses with
respect to any Intellectual Property or Technology. No written claims have been
made by any Company of any violation or infringement by others of rights with
respect to any Intellectual Property or Technology, and neither Parent nor
Sellers know of any basis for the making of any such claim. Except in such
cases as would not in the aggregate have a Material Adverse Effect, the use by
each Company of the Intellectual Property and Technology (past and present) has
not violated or infringed any rights of other Persons, or constituted a breach
of any Contract (or other agreement or commitment).
(h) The Intellectual Property and Technology includes all such rights
necessary to conduct the Business as now conducted and, except (i) as set forth
on Schedule 2.15(d) or (ii) with respect to Small Licenses, such rights will not
----------------
be adversely affected by the execution and delivery of this Agreement or the
consummation of the transactions contemplated hereby.
(i) There are no licenses or service, maintenance or other agreements
or obligations of any nature whatsoever regarding the Intellectual Property or
Technology between or among any such Company, on the one hand, and any
Affiliate(s) of such Company, on the other hand. All statements and
representations made by each Company or any of its Affiliates in any pending
patent, copyright and trademark applications with respect to the Intellectual
Property were true in all material respects as of the time they were made.
2.16 Brokerage. Neither Parent nor any Company nor any of their
---------
respective Affiliates has made any agreement or taken any other action which
might cause AlliedSignal or Buyer to become liable for a broker's or finder's
fee or commission as a result of the transactions contemplated hereunder.
2.17 Product Warranties and Guarantees. Parent and each Company
---------------------------------
has provided Buyer with true and correct copies of all written product and
service warranties and guarantees in connection with Contracts listed on
Schedule 2.8(a).
<PAGE>
30
2.18 Products Liability. There are no Liabilities of any Company,
------------------
fixed or contingent, asserted or, to the best of Parent's and each Seller's
knowledge, unasserted, (a) with respect to any product Liability or any similar
claim that relates to any product sold by any of the Companies to others prior
to the Closing, or (b) with respect to any claim for the breach of any express
or implied product warranty or any other similar claim with respect to any
product sold by any of the Companies to others prior to the Closing, other than
standard warranty obligations (to replace, repair or refund) made by any Company
in the ordinary course of the conduct of the Business to buyers of the
respective products, and except in the case of the preceding clauses (a) and (b)
where such Liabilities would not exceed $500,000 in the aggregate for the
Combined Business.
2.19 Labor Matters.
-------------
(a) To the best of Parent's and each Seller's knowledge, there have
been no union organizing efforts with respect to any Company conducted within
the last three years and there are none now being conducted with respect to any
Company. The Companies have not at any time during the three years prior to the
date of this Agreement had, nor, to the best of Parent's and each Seller's
knowledge, is there now threatened, a strike, work stoppage, work slowdown or
other material labor dispute with respect to or affecting the Business. Except
as set forth on Schedule 2.19, (i) no employee of any Company is represented by
-------------
any union or other labor organization; (ii) there is no charge or complaint,
including any unfair labor practice charge or any claim of discrimination, which
is pending with any Governmental Entity or, to the best of Parent's and each
Seller's knowledge, threatened against any Company relating to any of its
employees; and (iii) there is no commitment or agreement to increase wages or
modify the terms and conditions of employment of employees of any Company other
than ordinary course of the Business consistent with past practice. Parent and
Sellers have provided Buyer with copies of any collective bargaining agreement
or other agreement with any union or other labor organization representing
employees of any Company.
(b) Within six months prior to the date hereof, (i) no Company has
effectuated (x) a "plant closing" (as defined in the WARN Act) affecting any
site of employment or one or more facilities or operating units within any site
of employment or facility of the Business or (y) a "mass layoff" (as defined in
the WARN Act) affecting any site of employment or one or more facilities or
operating units within any site of employment or facility of the Business, (ii)
no Company has been affected by any transaction or engaged in layoffs or
employment terminations with respect to the Business sufficient in number to
trigger application of any similar foreign, state or local law, and (iii) none
of the Companies' employees has suffered an "employment loss" (as defined in the
WARN Act).
2.20 Employee Benefits.
-----------------
(a) Set forth on Schedule 2.20(a) is a true, correct and complete
----------------
list of the following:
(i) Separately by location, the names, job titles and current
salary or wage rates of all employees of each Company and their hourly or
yearly salary, together
<PAGE>
31
with a summary of all bonus, incentive compensation or other additional
compensation or similar benefits paid to such persons for the 1997 fiscal
year and estimated for the 1998 fiscal year;
(ii) Separately by location, the names, job titles and current
salary or wage rates of all independent contractors, including any
consultants, and leased employees who perform services for a Company; and
(iii) All of (x) the employee benefit plans, arrangements or
policies (whether or not written, whether U.S. or foreign, and whether or
not subject to ERISA), including, without limitation, any stock option,
stock purchase, stock award, retirement, pension, deferred compensation,
profit sharing, savings, incentive, bonus, health, dental, hearing, vision,
drug, life insurance, cafeteria, flexible spending, dependent care, fringe
benefit, vacation pay, holiday pay, disability, sick pay, workers
compensation, unemployment, severance pay, employee loan, educational
assistance plan, policy or arrangement, and (y) any employment,
indemnification, consulting or severance agreement, under which any
employee or former employee of a Company has any present or future right to
benefits or under which a Company has any present or future Liability
(collectively, the "Plans"). Schedule 2.20(a) indicates which Plans are
----- ----------------
maintained for employees employed in the United States (collectively, "U.S.
----
Plans"); which Plans are maintained for employees employed outside of the
-----
United States (collectively, "Foreign Plans"); and which Plans cover only
-------------
employees of one or more Seller Subsidiaries (collectively, "Free-Standing
-------------
Plans").
-----
(b) Parent or Sellers have made available to Buyer a complete and
correct copy of each Plan document or a written description of any unwritten
plan; the most recent summary plan description or similar booklet for any Plan;
any employee handbook applicable to employees of a Company; and with respect to
any Free-Standing Plan, any related trust agreement or insurance contract, the
most recent actuarial valuation report, and the most recent financial
statements.
(c) Except (i) as set forth on Schedule 2.20(c) or (ii) in such cases
----------------
as would not in the aggregate have a Material Adverse Effect:
(i) Neither Parent nor any Company nor any of their
Affiliates has communicated to present or former employees of a Company, or
formally adopted or authorized, any additional Plan or any change in or
termination of any existing Plan.
(ii) Each Plan has been operated and administered in
accordance with its terms, the terms of any applicable collective
bargaining agreement, and all applicable Laws.
(iii) Each U.S. Plan which is a "group health plan" subject to
the continuation coverage requirements of Section 4980B of the Code and
Part 6 of Title I of ERISA ("COBRA") which is maintained by a Company or
-----
any of its Affiliates has been operated and administered, in all material
respects, in accordance with such requirements.
<PAGE>
32
(d) Schedule 2.20(d) identifies each U.S. Plan which provides health,
----------------
life insurance or other welfare benefits to retired or other terminated
employees of a Company other than continuation coverage required by COBRA and
the Companies have the ability to amend or terminate any such Plan.
(e) Except in such cases as would not in the aggregate have a
Material Adverse Effect, with respect to any Plan, no actions, suits, claims or
proceedings (other than routine claims for benefits) are pending or, to the best
of Parent's and each Seller's knowledge, threatened, and no facts or
circumstances exist which could be reasonably expected to give rise to any such
actions, suits, claims or proceedings.
(f) Except in such cases as would not in the aggregate have a
Material Adverse Effect, no Plan is currently under governmental investigation
or audit, and to the best of Parent's and each Seller's knowledge, no such
investigation or audit is contemplated or under consideration.
(g) Except (i) for benefits payable under the terms of any Free-
Standing Plan or (ii) in such cases as would not in the aggregate have a
Material Adverse Effect, no event has occurred and no condition exists that
could be reasonably expected to subject AlliedSignal, Buyer or any Seller
Subsidiary, directly or indirectly, to any tax, fine, penalty or other Liability
arising under, or with respect to, any employee benefit plan currently or
previously maintained by any Company or any Person that is or was a member of a
controlled group with, under common control with, or otherwise required to be
aggregated with, any Company under Section 414(b), (c), (m) or (o) of the Code.
(h) No lien has arisen or is expected to arise under the Code or
ERISA on the Purchased Assets.
(i) No U.S. Plan is a "multiemployer plan" within the meaning of
Section 3(37)(A) of ERISA, and no Company has any outstanding Liability with
respect to any such plan (contingent or otherwise).
(j) Except (i) as set forth on Schedule 2.20(j) or (ii) in such cases
----------------
as would not in the aggregate have a Material Adverse Effect, neither the
execution of this Agreement nor the consummation of the transactions
contemplated by this Agreement, will (x) increase the amounts of benefits
otherwise payable under any Plan, (y) result in the acceleration of the time of
payment, exercisability, funding or vesting of any such benefits, or (z) result
in any payment (whether severance pay or otherwise) becoming due to, or with
respect to, any employee or director of a Company.
(k) Except in such cases as would not in the aggregate have a
Material Adverse Effect, with respect to each Foreign Plan:
(i) All contributions and premium payments required to have
been made under or with respect to each Foreign Plan have been timely paid;
and
<PAGE>
33
(ii) Each Foreign Plan is either fully funded (or fully insured)
based upon generally accepted local actuarial and accounting practice and
procedure.
(l) No employee benefits are provided to any employee of a Company
who is employed outside of the United States except to the extent required by
law.
(m) Each Foreign Plan has been operated, in all material respects, in
compliance with all applicable Laws with such exceptions as would not
individually or in the aggregate result in a Material Adverse Effect.
(n) Each Foreign Plan is a Free-Standing Plan.
2.21 No Pending Litigation or Proceedings. Except as set forth on
------------------------------------
Part A of Schedule 2.21, there are no actions, suits, investigations or
-------------
proceedings pending against or affecting, or, to the best of Parent's and each
Seller's knowledge, threatened against, Parent, any Company, the Business or any
of the Acquired Assets before any arbitrator or Governmental Entity (including
the United States Environmental Protection Agency, the United States Equal
Employment Opportunity Commission or any similar Governmental Entity) that would
materially and adversely affect their ability to perform their obligations under
this Agreement. Except as set forth on Part B of Schedule 2.21, there are no
outstanding judgments, decrees, writs, injunctions or orders of any arbitrator
or Governmental Entity against Parent or any Company which relate to or arise
out of the conduct of the Business or the ownership, condition or operation of
the Business or the Acquired Assets except in such cases as would not in the
aggregate have a Material Adverse Effect.
2.22 Insurance. Schedule 2.22 lists each Company's policies and
--------- -------------
contracts in effect as of the date hereof for insurance covering the Acquired
Assets or Assumed Liabilities and the operation of the facilities constituting
the Business owned or held by the Companies, together with the risks insured
against, coverage limits and deductible amounts. Sellers have made available to
Buyer complete and correct copies of all such policies together with all riders
and amendments thereto. Such policies are in full force and effect and all
premiums due thereon have been paid. Each of the Companies has complied in all
material respects with the terms and conditions of such policies. The Companies
have made available to Buyer all books and records relating to workers
compensation claims and all claims made by the Companies under any policy of
insurance during the five years prior to the date hereof with respect to the
Business other than employee claims under health or medical insurance policies
or coverage.
2.23 Customers; Suppliers. As of the date of this Agreement, Part
--------------------
A of Schedule 2.23 contains a true, correct and complete list of (i) all
-------------
Contracts to which any Major Customer is a party and (ii) all Major Suppliers,
together with an estimate of all purchases from each Major Supplier for the last
12 months. Except as identified with an asterisk on Part A of Schedule 2.23,
each of the Contracts listed thereon is fully assignable to Buyer (or, in the
case of Contracts of the Seller Subsidiaries, will remain in full force and
effect upon the sale of the Subsidiary Shares to Buyer) without the consent,
approval or waiver of any other Person. Except as set forth on Part B of
Schedule 2.23, as of the date of this Agreement, neither Parent nor any Company
has received written notice within the preceding 12 months of any development
<PAGE>
34
(a) which could reasonably be expected to result in a Material Adverse Effect or
(b) which indicates that a Major Customer will not purchase products of the
Combined Business from Buyer during the 1998 fiscal year in amounts
substantially equivalent (on a pro rata basis) to such purchases from such
Company in the 1997 fiscal year. Except as set forth on Part C of Schedule 2.23,
as of the date hereof, no supplier of the Business (including any supplier of
Intellectual Property) has threatened to refuse to sell its products or services
to the Business except in such cases as would not in the aggregate have a
Material Adverse Effect.
2.24 Condition of Assets. Except as set forth on Schedule 2.24,
------------------- -------------
the buildings, machinery, equipment, tools, furniture, improvements, sewers,
pipes, transportation equipment and other fixed tangible Assets of the Business
(a) included in the Acquired Assets or (b) subject to any Contract included in
the Acquired Assets are in sufficiently good operating condition and repair to
conduct the Business as presently conducted, reasonable wear and tear excepted.
2.25 All Assets. Except as set forth on Schedule 2.25 and for the
---------- -------------
Excluded Assets, the Acquired Assets (including any Assets, properties and
rights subject to any Contract included in the Acquired Assets) constitute all
the assets, properties and rights owned, used, or held for use in connection
with, or that are otherwise related to or required for the conduct of, the
Business as currently conducted by the Companies on the date of this Agreement.
Except as set forth on Schedule 2.25, none of the Acquired Assets are owned, in
whole or in part, by any Person other than the Companies.
2.26 Undisclosed Liabilities. None of the Seller Subsidiaries has
-----------------------
any Liability of any nature, mixed, contingent or otherwise, liquidated or
unliquidated and whether due or to become due, except for Non-Assumed
Liabilities and except for (i) Liabilities reflected on the Balance Sheet, other
than those discharged since September 30, 1997, (ii) Liabilities under
Contracts, (iii) Liabilities disclosed on Schedule 2.26 and (iv) Liabilities
-------------
incurred in the ordinary course of business since the date of the Balance Sheet,
none of which would constitute a violation of any covenant herein or give rise
to the failure of any condition herein. None of the Seller Subsidiaries has any
Liability of any nature, mixed, contingent or otherwise, liquidated or
unliquidated and whether due or to become due, which does not relate to the
Business.
2.27 Securities Matters. Except as set forth on Schedule 2.27,
------------------ -------------
Sellers are acquiring the AlliedSignal Common Stock for their own account and
without a present view to any distribution thereof or any present intention of
distributing or selling the AlliedSignal Common Stock in violation of the
federal securities laws. Each Seller is an "accredited investor" as such term is
defined in Regulation D promulgated under the Securities Act. In evaluating the
suitability of an investment in the AlliedSignal Common Stock, each Seller has
relied solely upon the representations, warranties, covenants and agreements
made by AlliedSignal herein and has not relied upon any other representations or
other information (whether oral or written and including any estimates,
projections or supplemental data) made or supplied by or on behalf of
AlliedSignal or any Affiliate, employee, agent or other representative of
AlliedSignal. Each Seller understands and agrees that it may not sell or dispose
of any of the AlliedSignal Common Stock other than pursuant to a registered
offering or in a transaction exempt from the registration requirements of the
Securities Act.
<PAGE>
35
2.28 SEC Filings. Parent has heretofore delivered to Buyer and
-----------
Buyer acknowledges receipt of the following documents (the "Parent Reports"):
--------------
(a) Parent's Annual Report on Form 10-K for the fiscal year ended March 31,
1997, (b) Parent's Quarterly Reports on Form 10-Q for the fiscal quarters ended
June 30, and September 30, 1997, (c) Parent's proxy statement relating to its
1997 Annual Meeting of Stockholders, (d) Parent's Annual Report to Stockholders
for 1997, and (e) any other report filed during 1997, and prior to the date of
this Agreement, with the Securities and Exchange Commission under the Securities
Act or the Exchange Act. Each Parent Report, as of its filing date, insofar as
it relates to the Business, did not contain any untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements therein, in light of circumstances under which they were made, not
misleading.
2.29 Bank Accounts. Schedule 2.29 contains a true, correct and
------------- -------------
complete list of all bank accounts used or held for use by the Seller
Subsidiaries and the authorized signatures associated therewith.
2.30 Business Conduct. Except as discussed between Parent and
----------------
Buyer on December 7, 1997, to the best of Parent's and each Seller's knowledge,
during the past three years neither any Company, nor any director, officer,
employee or third party acting on behalf thereof, has, in violation of any Law:
(i) made any bribes, kickbacks or other payments, directly or indirectly, to any
Person or any representative thereof, to obtain favorable treatment in securing
business or otherwise to obtain special concessions for any Company; (ii) made
any bribes, kickbacks or other payments, directly or indirectly, to or for the
benefit of any Governmental Entity or any official, employee or agent thereof,
for the purpose of affecting his or her action or the action of the Governmental
Entity that he or she represents to obtain favorable treatment in securing
business or to obtain special concessions for the Company or any Subsidiary;
(iii) made any unlawful political contributions on behalf of any Company; or
(iv) otherwise used corporate funds of any Company for any illegal purpose,
including without limitation, any violation of the Foreign Corrupt Practices
Act.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF ALLIEDSIGNAL AND BUYER
AlliedSignal and Buyer hereby jointly and severally represent and
warrant to Parent and Sellers as follows:
3.1 Organization and Good Standing. (a) AlliedSignal is a
------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware.
(b) Buyer is a limited liability company duly organized, validly
existing and in good standing under the laws of the State of Delaware.
AlliedSignal is the sole member of Buyer. AlliedSignal owns all of the
outstanding equity and profit interests in Buyer, free and clear of all Liens.
Buyer is disregarded as an entity separate from AlliedSignal for federal tax
purposes.
<PAGE>
36
3.2 Authorization and Enforceability. With respect to each of
--------------------------------
AlliedSignal and Buyer: (a) such entity has full power and authority to
execute, deliver and perform this Agreement and Transaction Documents to which
such entity is a party, (b) the execution, delivery and performance by such
entity of this Agreement and the Transaction Documents to which such entity is a
party have been duly authorized by all necessary action on the part of such
entity, (c) this Agreement has been duly executed and delivered by such entity,
and, as of the Closing Date, the other Transaction Documents to which either
entity is a party will be duly executed and delivered by such entity, (d) this
Agreement is a legal, valid and binding obligation of such entity, enforceable
against such entity in accordance with its terms, and (e) as of the Closing
Date, each of the other Transaction Documents to which such entity is a party
will constitute the legal, valid and binding obligations of such entity,
enforceable against such entity in accordance with its terms.
3.3 No Violation of Laws or Agreements. The execution, delivery,
----------------------------------
and performance by AlliedSignal and Buyer of this Agreement and the Transaction
Documents to which such entities (as applicable) are parties do not, and the
consummation by AlliedSignal and Buyer (as applicable) of the transactions
contemplated hereby and thereby, will not, (a) contravene any provision of the
Certificate of Incorporation or Bylaws of AlliedSignal nor the Certificate of
Formation or Limited Liability Company Agreement of Buyer, or (b) violate,
conflict with, result in a breach of, or constitute a default (or an event which
would, with the passage of time or the giving of notice or both, constitute a
default) under, or result in or permit the termination, modification,
acceleration, or cancellation of, (i) any indenture, mortgage, loan or credit
agreement, license, instrument, lease, contract, plan, permit or other agreement
or commitment, oral or written, to which either AlliedSignal or Buyer is a
party, or by which any of either entity's Assets may be bound or affected, or
(ii) any judgment, injunction, writ, award, decree, restriction, ruling, or
order of any arbitrator or Governmental Entity or any applicable Law to which
AlliedSignal or Buyer is subject.
3.4 Consents. No consent, approval or authorization of, or
--------
registration or filing with, any Person (governmental or private) is required in
connection with the execution, delivery and performance by AlliedSignal or Buyer
of this Agreement, the other Transaction Documents to which AlliedSignal or
Buyer is a party, or the consummation by AlliedSignal or Buyer of the
transactions contemplated hereby or thereby except (a) as required by the HSR
Act, (b) as required by the NYSE to list AlliedSignal Common Stock and (c) any
required consent, approval of, or authorization of, or registration or filing
with, any foreign governmental authority.
3.5 AlliedSignal Common Stock. As of the date hereof,
-------------------------
1,000,000,000 shares of AlliedSignal Common Stock are authorized for issuance.
As of November 30, 1997, 562,554,971 shares of AlliedSignal Common Stock were
issued and outstanding and 153,902,513 shares of AlliedSignal Common Stock were
held in the treasury of AlliedSignal or owned by any Subsidiary of AlliedSignal.
AlliedSignal has a sufficient number of unreserved shares of AlliedSignal Common
Stock to perform the transactions contemplated hereby. All shares of
AlliedSignal Common Stock to be issued at the Closing, when so issued, will be
duly authorized, validly issued, fully paid and non-assessable, free of
preemptive rights and all Liens
<PAGE>
37
and will be issued in compliance with all applicable Laws. Parent acknowledges
that AlliedSignal has disclosed to Parent that AlliedSignal will be making open
market and/or block purchases of AlliedSignal Common Stock during the period
between the date hereof and the Closing Date. All such purchases shall comply
with Rule 10b-18 under Exchange Act.
3.6 SEC Filings. AlliedSignal has heretofore delivered to Parent,
-----------
and Parent acknowledges receipt of, the following documents (the "AlliedSignal
------------
Reports"): (a) AS's Annual Report on Form 10-K for the fiscal year ended
- -------
December 31, 1996, (b) AS's Quarterly Reports on Form 10-Q for the fiscal
quarters ended March 31, 1997, June 30, 1997 and September 30, 1997, (c) AS's
proxy statement relating to its 1997 Annual Meeting of Stockholders, (d) AS's
Annual Report to Stockholders for 1996, and (e) any other report filed during
1997, and prior to the date of this Agreement, with the Securities and Exchange
Commission under the Securities Act or the Exchange Act. As of their respective
dates, each of the AlliedSignal Reports complied in all material respects with
the requirements of the Securities Act or the Exchange Act, as the case may be,
and none 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, in the light of the circumstances under which they were made, not
misleading. Since January 1, 1996, AlliedSignal has timely filed all reports,
registration statements and made all filings required to be filed with the SEC
under the rules and regulations of the SEC.
3.7 Financial Statements. The audited consolidated financial
--------------------
statements and unaudited consolidated interim financial statements of
AlliedSignal and its consolidated Subsidiaries included in or incorporated by
reference into the AlliedSignal Reports (including any related notes and
schedules) have been prepared in accordance with GAAP (except as may be
indicated in the notes thereto or as permitted by the Securities Act or the
Exchange Act in the case of unaudited financial statements included in or
incorporated by reference into the AlliedSignal Reports) and fairly present the
consolidated financial position of AlliedSignal and its consolidated
Subsidiaries as of the dates thereof and the consolidated results of their
operations for the periods then ended, subject, in the case of the unaudited
consolidated interim financial statements, to normal year-end adjustments and
any other adjustments described therein.
3.8 Brokerage. Neither AlliedSignal, Buyer nor any of their
---------
respective Affiliates has made any agreement or taken any other action which
might cause Parent or any Seller to become liable for a broker's or finder's fee
or commission as a result of the transactions contemplated hereunder.
ARTICLE IV
ADDITIONAL COVENANTS
4.1 Conduct of Business. Except (i) as otherwise specifically
-------------------
permitted by this Agreement or (ii) with the prior written consent of Buyer,
from and after the date of this Agreement and until the Closing Date, Parent and
Sellers agree that:
<PAGE>
38
(a) Sellers shall, and Parent and Sellers shall cause the
Seller Subsidiaries to:
(i) conduct the Business as presently conducted and only
in the ordinary course of business consistent with past practice; and
(ii) use their reasonable best efforts to preserve the
business organization of the Business substantially intact, to keep
available to Buyer the services of their respective employees, and to
preserve for Buyer the goodwill of the suppliers, distributors,
customers and others having business relationships with the Business.
(b) Parent and Sellers shall promptly inform AlliedSignal in
writing of any specific event or circumstance (including, without
limitation, any consecutive two week period in which any Major Customer
fails to place orders with the Company or Companies with which it transacts
business) of which any of them (or any Seller Subsidiary) is aware, or of
which any of them (or any Seller Subsidiary) receives written or oral
notice, that (i) has or is likely to have, individually or in the
aggregate, taken together with other events or circumstances, a Material
Adverse Effect, (ii) indicates that any Major Customer is terminating or
intends to terminate any Contract (excluding termination upon expiration of
the term of any Contract so long as such customer continues to purchase
goods from the Combined Business) and/or indicates that any such customer
intends to reduce its purchases from any Company or (iii) indicates that
any Major Supplier is terminating or intends to terminate any Contract
(excluding termination upon expiration of the term of any Contract so long
as such supplier continues to sell goods to the Combined Business) and/or
indicates that any such Major Supplier intends to reduce its sales to any
Company, provided that any such oral notice reportable under this Section
4.1(b) shall be directed to a responsible management Person at Parent or
any Company; and
(c) Sellers shall not, and Parent and Sellers shall cause the
Seller Subsidiaries not to:
(i) change or modify in any material respect existing
Inventory management or credit and collection policies, procedures and
practices with respect to accounts receivable in any case relating to
the Business;
(ii) enter into any Contracts, waive any rights or enter
into any other transactions which individually or in the aggregate
would have a Material Adverse Effect;
(iii) mortgage, pledge or subject to any Lien (other
than Permitted Liens) any of the Acquired Assets;
(iv) change any compensation or benefits or grant any
material new compensation or benefits payable to or in respect of any
employee of the
<PAGE>
39
Business (except, for regularly scheduled merit increases in the
ordinary course of business consistent with past practice);
(v) sell, lease or otherwise transfer any Assets, except
Inventory in the ordinary course of the Business, necessary, or
otherwise material to the conduct of, the Business which would
constitute Acquired Assets;
(vi) change any Company's method of accounting or keeping
its books of account or accounting practices with respect to the
Business, except as required by GAAP;
(vii) take or omit to take any action which if taken or
omitted prior to the date hereof would constitute or result in a
breach of any representations or warranties of Parent or Sellers set
forth herein;
(viii) enter into any Contract (except sales contracts
with customers in the ordinary course of the Business and except for
such Contracts which may be terminated by Buyer or the applicable
Seller Subsidiary without penalty or Liability on no more than 30
days' notice) that would create a Liability for the Business in excess
of $200,000 per year without obtaining AS's prior written consent,
such consent not to be unreasonably withheld;
(ix) create, incur or assume any Debt not currently
outstanding, other than current Liabilities incurred in the ordinary
course of business;
(x) amend their charters, bylaws or other organizational
documents;
(xi) authorize, issue, sell or otherwise dispose of any
capital stock of any Company or amend the terms thereof;
(xii) split, combine or reclassify any shares of capital
stock of any of the Seller Subsidiaries, declare, set aside or pay any
dividend or other distribution (whether in cash, stock or property or
any combination thereof) in respect of the capital stock of any of the
Companies, or redeem or otherwise acquire any of the capital stock of
any of the Companies;
(xiii) make any loans, advances or capital contributions
to, or investments in, any Person;
(xiv) acquire, sell, lease or dispose of any Assets
used or held for use in the Business, other than (x) sales of
Inventory in the ordinary and usual course of business consistent with
past practice or (y) purchases of goods for use in the Business in the
ordinary and usual course of business consistent with past practice;
<PAGE>
40
(xv) with respect to the Business, pay, discharge or
satisfy any claims, Liabilities (absolute, accrued, asserted or
unasserted, contingent or otherwise), other than the payment,
discharge or satisfaction in the ordinary course of business of
Liabilities reflected or reserved against in, or contemplated by, the
Balance Sheet or incurred in the ordinary course of business
consistent with past practice;
(xvi) disclose to any third party or enter into any
Technology license or agreement to disclose to any third party any
Intellectual Property, except in the ordinary and usual course of
business and pursuant to written confidentiality agreements;
(xvii) enter into any labor agreement;
(xviii) sell or dispose of any significant amount of old
or obsolete Inventory; or
(xix) make capital expenditures in excess of $50,000
individually or $250,000 in the aggregate for the Combined Business;
(xx) agree in writing or otherwise to take any of the
foregoing actions.
4.2 Mutual Covenants. The parties hereto mutually covenant from
----------------
the date of this Agreement to the Closing Date (and subject to the other terms
of this Agreement):
(a) to cooperate with each other in determining whether
filings are required to be made or consents required to be obtained in any
jurisdiction in connection with the consummation of the transactions
contemplated by this Agreement and in making or causing to be made any such
filings promptly and in seeking to obtain timely any such consents (each
party hereto shall furnish to the other and to the other's counsel all such
information as may be reasonably required in order to effectuate the
foregoing action); and
(b) to advise the other parties promptly if such party
determines that any condition precedent to its obligations hereunder will
not be satisfied in a timely manner.
4.3 Filings and Authorizations. The parties hereto will, as
--------------------------
promptly as practicable, and in the case of filings under the HSR Act no later
than five Business Days after the date of this Agreement, make or cause to be
made all such filings and submissions under Laws applicable to them or their
Affiliates as may be required to consummate the terms of this Agreement,
including all notifications and information to be filed or supplied pursuant to
the HSR Act. The parties hereto shall also provide as promptly as possible full
responses to any requests for additional information made of them under the HSR
Act. Any such filings, including any supplemental information and requests for
additional information under the HSR
<PAGE>
41
Act, will be in substantial compliance with the requirements of the applicable
Law. Each of AlliedSignal and Buyer, on the one hand, and Parent and Sellers, on
the other hand, shall furnish to the other such necessary information and
reasonable assistance as the other may request in connection with its
preparation of any filing or submission which is necessary under the HSR Act.
Parent, Sellers, AlliedSignal and Buyer shall keep each other apprised of the
status of any communications with, and inquiries or requests for additional
information from, any Governmental Entity, including the FTC and the Antitrust
Division, and shall comply promptly with any such inquiry or request. Each of
Parent and AlliedSignal shall use its reasonable efforts to obtain any clearance
required under the HSR Act for the purchase and sale of the Purchased Assets in
accordance with the terms and conditions hereof. Nothing contained in this
Agreement, including under this Section 4.3 and Sections 4.8 and 4.13, will
require or obligate (a) Parent, the Companies, AlliedSignal, Buyer or their
respective Affiliates to initiate, pursue or defend any litigation to which any
Governmental Entity (including the Antitrust Division and the FTC) is a party or
(b) AlliedSignal, Buyer or their respective Affiliates (i) to agree or otherwise
become subject to any limitations on (x) the right of AlliedSignal, Buyer or
their respective Affiliates effectively to control or operate the Business, (y)
the right of AlliedSignal, Buyer or their respective Affiliates to acquire or
hold the Business, or (z) the right of AlliedSignal or Buyer to exercise full
rights of ownership of the Business or all or any portion of the Acquired
Assets, or (ii) to agree or otherwise be required to sell or otherwise dispose
of, hold separate (through the establishment of a trust or otherwise), or divest
itself of all or any portion of the business, Assets or operations of
AlliedSignal, Buyer, any Affiliate of AlliedSignal or Buyer or the Business. The
parties agree that no representation, warranty or covenant of Parent, Sellers,
AlliedSignal or Buyer contained in this Agreement shall be breached or deemed
breached as a result of the failure by any party hereto or any of its Affiliates
to take any of the actions specified in the preceding sentence.
4.4 Public Announcement. No party hereto shall make or issue, or
-------------------
cause to be made or issued, any public announcement or written statement
concerning this Agreement or the transactions contemplated hereby without the
prior written consent of the other party hereto (which will not be unreasonably
withheld or delayed), unless counsel to such party advises that such
announcement or statement is required by law or the rules of any securities
exchange on which securities of any Affiliate of Parent are traded (in which
case the parties hereto shall make reasonable efforts to consult with each other
prior to such required announcement).
4.5 Investigation. Sellers shall, and Parent and Sellers shall
-------------
cause the Seller Subsidiaries to, give AlliedSignal and its representatives
(including AS's accountants, consultants, counsel and employees), upon
reasonable notice and during normal business hours, reasonable access to the
properties (including any Equipment and any Acquired Real Property), Contracts,
employees, books, records and affairs of the Companies to the extent relating to
the Business and the Acquired Assets (provided that such access does not
unreasonably disrupt the conduct of the Business), and shall cause their
respective officers, employees, agents and representatives to furnish to
AlliedSignal all documents, records and information (and copies thereof), to the
extent relating to the Business and the Acquired Assets, as AlliedSignal may
reasonably request. Parent and Sellers may reasonably limit the number of
representatives of AlliedSignal provided access hereby. No investigation or
receipt of information by AlliedSignal
<PAGE>
42
pursuant to, or in connection with, this Agreement, shall diminish or obviate
any of the representations, warranties, covenants or agreements of Parent or
Sellers under this Agreement or the conditions to the obligations of Buyer under
this Agreement. All information provided to AlliedSignal or Buyer under this
Agreement shall be held subject to the terms and conditions of the
Confidentiality Agreement.
4.6 Taxes.
-----
(a) Parent and each Seller shall jointly and severally be responsible
for and shall pay any and all Taxes arising or resulting from the conduct of the
Business or the ownership of the Acquired Assets on or prior to the Closing
Date, which Liability shall be a Non-Assumed Liability (including, without
limitation, the sale of the Business and the Purchased Assets on the Closing
Date pursuant to this Agreement).
(b) Buyer shall be responsible for and shall pay any and all Taxes
arising or resulting from the conduct of the Business or the ownership of the
Acquired Assets after the Closing Date (excluding without limitation, the sale
of the Business and the Purchased Assets or the Closing Date pursuant to this
Agreement), which Liability shall be an Assumed Liability.
(c) Each Seller hereby acknowledges that for FICA and FUTA purposes,
Buyer qualifies as a successor employer with respect to the retained employees.
In connection with the foregoing, the parties agree to follow the "Alternative
Procedures" set forth in Section 5 of the Revenue Procedure 96-60, 1996-
2C.B.399. Each affected Seller and Buyer understands that Buyer shall assume
the affected Seller's entire obligation to furnish a Form W-2, Wage and Tax
Statement to the employees of the Business for calendar year ending December 31,
1998.
(d) In addition to all personnel files and records relating to
employees of the Business that each Seller shall deliver to the Buyer when their
employment commences with Buyer as otherwise required by this Agreement, each
Seller shall timely provide Buyer with any and all other information it needs to
properly comply with the requirements of the final sentence of Section 4.6(c).
(e) Each Seller acknowledges that for state unemployment Tax
purposes, each Seller will permit Buyer to apply for a transfer of such Seller's
rating account with respect to its Business. Each Seller shall deliver to Buyer
within a reasonable time after request therefor, with respect to its Business,
copies of such Seller's (i) Form 940, Employer's Annual Federal Unemployment Tax
Returns for 1995 and 1996, (ii) state unemployment tax rate notices for 1995 and
1996, and (iii) benefit change statements that itemize claims charged against
the state account of such Seller in each state in which the Business is operated
for the four most recent calendar quarters.
(f) Parent, Sellers and Buyer shall (i) each provide the other with
such assistance as may reasonably be requested by any of them in connection with
the preparation of any Tax return, any audit or other examination by any Taxing
Authority or any judicial or administrative proceeding with respect to Taxes,
(ii) each retain and provide to the other any records or other information which
may be relevant to such return, audit examination or
<PAGE>
43
proceeding, and (iii) each provide to the other any final determination of any
such audit or examination, proceeding or determination that affects any amount
required to be shown on any Tax return of the other for any period (which shall
be maintained confidentially). Without limiting the generality of the foregoing,
Buyer, Sellers and Parent shall retain, until the applicable statutes of
limitations (including all extensions) have expired, copies of all Tax returns,
supporting workpapers, and other books and records or information which may be
relevant to such returns for all Tax periods or portions thereof ending before
or including the Closing Date, and shall not destroy or dispose of such records
or information without first providing the other party with a reasonable
opportunity to review and copy the same.
(g) AlliedSignal, Buyer, Parent and Sellers intend that Buyer's
acquisition of the Business and Purchased Assets from each Seller pursuant to
this Agreement shall qualify as and constitute a reorganization under Code
Section 368 (a)(1)(C) and each of the parties agrees to treat such acquisitions
in such manner for all tax purposes, including, without limitation, for all
purposes on any federal or state income or franchise tax return filed by any
party after the Closing Date.
(h) Neither Parent nor any Company shall make a new or change any
existing Tax election, change a method of accounting or Inventory method, file
any amended Tax return, enter into any closing agreement, settle any Tax claim
or assessment, or take or omit to take any other action not consistent with past
practice, if any such action or omission would have the effect of increasing the
Tax Liability of AlliedSignal or Buyer with respect to the Business and Acquired
Assets for any period after the Closing Date.
(i) AlliedSignal and Buyer, on the one hand, and Parent and Sellers,
on the other hand, shall equally bear all Transfer Taxes. Parent, Sellers and
Buyer shall cooperate in timely making and filing all Tax Returns as may be
required to comply with the provisions of any Transfer Tax laws. To the extent
legally able to do so, Buyer shall deliver to Parent and Sellers exemption
certificates satisfactory in form and substance to Parent and Sellers with
respect to Transfer Taxes if such delivery would reduce the amount of Transfer
Taxes that would otherwise be imposed.
(j) AlliedSignal, Buyer, Parent and each Seller acknowledge that no
affirmative election under Code Section 338 can be made with respect to any
Subsidiary Shares.
(k) No later than 10 days prior to the due date for filing, Buyer
shall provide to Parent copies of Tax Returns for taxable periods that include
but do not end on the Closing Date to be filed by any Seller Subsidiary and
shall provide Parent the opportunity to comment on such Tax Returns.
(l) Buyer shall cause Harco Aerospace Fasteners Ltd. and Burbank
Aircraft International, GmbH not to make any distribution of property during the
period beginning on the Closing Date and ending March 31, 1998 that would result
in a diminution of the earnings and profits of such entity for Federal income
tax purposes.
<PAGE>
44
4.7 Certain Deliveries.
------------------
(a) Within thirty (30) days after the end of each month ending after
the date of this Agreement and prior to the Closing Date, Parent and Sellers
shall prepare and furnish to or cause to be furnished to AlliedSignal a copy of
the monthly financial reports for the Combined Business after September 30, 1997
(including unaudited balance sheet and income statements) for each such month
and the fiscal year to the end of such month). All of the foregoing financial
statements shall comply with the requirements concerning unaudited financial
statements set forth in Section 2.6. In addition, Parent and Sellers shall
furnish AlliedSignal, upon request, with copies of regular management reports,
if any, concerning the operation of the Business within ten (10) days after such
reports are prepared.
(b) Each Seller shall, and Parent and Sellers shall cause the Seller
Subsidiaries to, provide AlliedSignal, within five days of the execution or the
date of receipt thereof, a copy of each Contract entered into by any Company
after the date hereof and prior to the Closing Date which, if entered into prior
to the date hereof would have been required to be disclosed on Part A of
Schedule 2.8(a).
(c) Within five days after the date of filing thereof, AlliedSignal
or Parent, as the case may be, shall furnish to the other a copy of each report
filed by AlliedSignal or Parent, as the case may be, after the date of this
Agreement and prior to the Closing Date under the Securities Act or the Exchange
Act.
4.8 Consents. Prior to the Closing, Parent and Sellers shall give
--------
any notices and obtain all waivers, licenses, agreements, permits, consents,
approvals or authorizations of any Governmental Authority that are required to
be obtained by any Company pursuant to any Contract or Permit or otherwise in
order to consummate the transactions contemplated hereunder, and all of such
shall be in a written form agreeable to AlliedSignal and in full force and
effect and without conditions or limitations that restrict the ability of the
parties hereto to carry out the transactions contemplated hereby. Concurrently
with or immediately prior to the Closing, Parent and Sellers shall cause the
Seller Subsidiaries to be released from any guarantees made by any Seller
Subsidiary of any indebtedness or other Liabilities of Parents, Sellers or any
of their Affiliates.
4.9 Releases. At the Closing, all intercompany Debt (other than
--------
receivables and payables arising from ordinary course commercial transactions)
between the Companies, on the one hand, and the Parent and its Subsidiaries
other than the Companies, on the other hand, shall be canceled and all such
amounts shall be deemed to be capital contributions to the entity owing such
Debt. Parent, Sellers and their Affiliates shall release any and all claims,
causes of action, demands of any kind, Liabilities, Debts, damages, suits, or
offsets, whether known or unknown, suspected or unsuspected, that any of them
have or may have against any Seller Subsidiary (other than receivables and
payables arising from ordinary course commercial transactions).
4.10 Real Property. Within thirty (30) days after the date hereof,
-------------
Parent and Sellers shall deliver or cause to be delivered to Buyer current, as-
built ALTA surveys of the
<PAGE>
45
Owned Real Property (the cost of which shall be borne 50% by Parent and 50% by
Buyer); such surveys to be dated within thirty (30) days of the date hereof and
to be reasonably acceptable to Buyer. Such surveys shall be performed by
licensed surveyors designated by Buyer and shall be certified to Buyer, Buyer's
title insurance companies and others as Buyer shall request. The surveys shall
be in form sufficient to cause Buyer's title insurance companies to insure such
surveys, and shall be an ALTA/ACSM Land Title Survey, prepared in accordance
with the "Minimum Standard Detail Requirements for ALTA/ACSM Land Title Surveys
as adopted by American Land Title Association and American Congress on Surveying
& Mapping", and shall meet the currently effective Accuracy Standards for an
Urban Survey adopted by said organizations and shall include such optional
survey responsibilities and specifications as Buyer reasonably shall select.
4.11 Environmental. At or prior to Closing, Parent and Sellers
-------------
shall deliver or cause to be delivered all such necessary applications,
approvals or consents required to transfer (or, in the case of the Seller
Subsidiaries, required to permit the Seller Subsidiaries to continue to hold)
all Permits required for the continued operation of the Business and the
Acquired Assets after the Closing Date in compliance with Environmental Laws.
Within thirty (30) days after execution of this Agreement, Sellers shall
identify to Buyer any of the Acquired Assets that are subject to the
requirements of any Laws that condition, restrict, prohibit or require
notification or disclosure for environmental reasons upon the transfer, sale,
lease or closure of certain property; and Sellers shall deliver on or prior to
the Closing Date, all necessary applications, approvals, or consents required by
such Laws.
4.12 Ancillary Agreements. At or prior to the Closing, the
--------------------
applicable parties shall enter into each of the Ancillary Agreements.
4.13 Reasonable Best Efforts. Without limiting the specific
-----------------------
obligations of any party hereto under any covenant or agreement hereunder, each
party hereto shall use reasonable best efforts to take all action and do all
things necessary in order to promptly consummate the transactions contemplated
hereby, including, without limitation, satisfaction, but not waiver, of the
Closing conditions set forth in Article V.
4.14 Negotiations. From the date hereof until the termination of
------------
this Agreement in accordance with its terms, Parent and Sellers, on behalf of
themselves and their Affiliates, agree that Parent, Sellers and their Affiliates
will deal exclusively and in good faith with AlliedSignal and Buyer with respect
to any transaction involving the sale, transfer or other disposition of the
Acquired Assets or the Business; and neither Parent, Sellers, their Affiliates
nor any of their officers, directors, employees, lenders, investment banking
firms, advisors or other agents, or any Person acting on their behalf, will
solicit any inquiries or proposals by, or engage in any discussions or
negotiations with, or furnish any nonpublic information to or enter into any
agreement with, any Person other than AlliedSignal or Buyer concerning the sale
or other disposition of the Acquired Assets or the Business or the merger,
consolidation, sale of securities or other transaction involving Parent or any
of the Companies, if such merger, consolidation, sale or other transaction would
be inconsistent, in any respect, with the transactions contemplated by this
Agreement, and will promptly notify AlliedSignal of the
<PAGE>
46
substance of any inquiry or proposal concerning any such transaction that may be
received by Parent, Sellers or their Affiliates; provided, however, that
-------- -------
notwithstanding any other provision hereof, Parent may (i) engage in
discussions or negotiations with a third party who (without any solicitation,
initiation, encouragement, discussion or negotiation, directly or indirectly, by
or with Parent or Sellers after the date hereof) seeks to initiate such
discussions or negotiations and may furnish such third party information
concerning the Combined Business, the Acquired Assets and the Herndon Purchased
Assets if, and only to the extent that, (A)(x) the third party has first made an
Acquisition Proposal that is financially superior to the transactions
contemplated by this Agreement and has demonstrated that the funds necessary for
the Acquisition Proposal are reasonably likely to be available (as determined in
good faith in each case by Parent's Board of Directors after consultation with
its financial advisors) and (y) Parent's Board of Directors shall conclude in
good faith, after considering applicable provisions of state law, on the basis
of advice of outside counsel, that such action is necessary for the Board of
Directors to act in a manner consistent with its fiduciary duties under
applicable law and (B) prior to furnishing such information to or entering into
discussions or negotiations with such Person, Parent (x) provides prompt notice
to AlliedSignal to the effect that it is furnishing information to or entering
into discussions or negotiations with such Person and (y) receives from such
Person an executed confidentiality agreement in reasonably customary form and
(ii) provided Parent terminates this Agreement pursuant to Section 9.1(a)(iv),
accept an Acquisition Proposal from a third party. Parent shall notify
AlliedSignal in writing of any such inquiries, offers or proposals (including,
without limitation, the terms and conditions of any such proposal and the
identity of the Person making it), within 24 hours of the receipt thereof, shall
keep AlliedSignal informed of the status and details of any such inquiry, offer
or proposal, and shall give AlliedSignal five days' advance notice of any
agreement to be entered into with, or any information to be supplied to, any
Person making such inquiry, offer or proposal. As used herein, "Acquisition
-----------
Proposal" shall mean a proposal or offer (other than by AlliedSignal) for a
- ---------
purchase of Assets, merger or other business combination involving Sellers and
the Herndon Sellers, or any proposal to acquire in any manner a substantial
equity interest in, or all or substantially all of the Assets of, Sellers and
the Herndon Sellers or otherwise relating to the Combined Business.
4.15 U.S. Government Contracts. As soon as practicable following
-------------------------
the date of this Agreement and only after Buyer's written request, with respect
to each Government Contract, AlliedSignal and Buyer shall assist Parent and
Sellers to either obtain written confirmation reasonably satisfactory in form
and substance to Buyer that novation of such Government Contract is not
required, or, if not received prior to the Closing Date, submit to the cognizant
responsible contracting officer, as soon as practicable after the Closing Date
(i) a written request that the U.S. Government enter into a novation agreement
contemplated by FAR 42.1204 (a "Novation Agreement") with Buyer with respect to
------------------
each Government Contract and (ii) a Novation Agreement executed by the Company
or any Subsidiary party thereto for each Government Contract. Parent, Sellers,
AlliedSignal and Buyer shall coordinate their efforts to facilitate the actions
required by this Section 4.15 and Parent agrees to take all necessary action to
assist Sellers prior to and after the Closing in connection therewith, including
without limitation, upon Buyer's written request, obtaining such consents after
the Closing, informing the appropriate governmental personnel of the pending
transaction and of the planned novation.
<PAGE>
47
4.16 NYSE Listing. AlliedSignal shall take all reasonable action
------------
required to obtain from the NYSE, prior to the Closing Date to have duly
approved for listing, subject to official notice of issuance, the shares of
AlliedSignal Common Stock to be issued hereunder at the Closing.
4.17 Continued Existence. Unless Parent makes other provisions for
-------------------
its obligations under Article VII that are reasonably satisfactory to
AlliedSignal, (A) for a period of three years after the Closing Date, Parent
shall (i) maintain its corporate existence, (ii) not authorize or take any other
action to implement a dissolution of Parent, and (iii) maintain a minimum net
worth of Fifty Million Dollars ($50,000,000) and (B) following such three year
period, for so long as any claim by a Buyer Indemnified Party for
indemnification pursuant to Article VII remains unresolved, Parent shall (i)
maintain its corporate existence, (ii) not authorize or take any other action to
implement a dissolution of Parent, and (iii) maintain a minimum net worth equal
to the lesser of (x) Fifty Million Dollars ($50,000,000) or (y) the amount of
such unresolved claims then outstanding; provided, however, that nothing in this
-------- -------
Section 4.17 shall (i) prevent Parent from engaging in a merger, sale of
substantially all its assets or other business combination after the Closing
Date if (x) prior to the consummation of such transaction, the successor in
interest to Parent (or the purchaser of such assets, as the case may be) in such
transaction agrees in writing (for the benefit of the Buyer Indemnified Parties)
to assume and become fully responsible for, pursuant to an agreement reasonably
satisfactory in form and substance to AlliedSignal, all of Parent's obligations
under this Agreement (including, without limitation, Parent's obligations under
Article VII) and (y) immediately after consummation of such transaction, such
successor in interest (or purchaser, as the case may be) has a net worth of not
less than the net worth then required to be maintained by Parent pursuant to
this Section 4.17 or (ii) limit the rights of the parties under Section 4.14.
4.18 Company Debt. Prior to the Closing, Parent shall (i) cause
------------
the Debt which is secured by a mortgage on the distribution center located in
Salt Lake City, Utah, to be repaid, (ii) cause all remaining payments on all
capitalized leases of the Companies to be paid and (iii) use its reasonable best
efforts to cause all cash accounts of the Companies to be reduced to zero with
no negative or positive balances. Buyer acknowledges that the funding of
negative balances will increase Closing Date Net Worth.
4.19 Side Letters. At or prior to the Closing, Parent shall
------------
deliver or cause to be delivered, to AlliedSignal, the Side Letters.
4.20 Product Liability Insurance. At Parent's request,
---------------------------
AlliedSignal shall use reasonable commercial efforts to procure, to the extent
available, at Parent's expense, product liability insurance covering products
manufactured or distributed by the Companies prior to the Closing Date. Upon
receipt of any premium notice relating to such insurance, AlliedSignal shall
notify Parent and Parent shall promptly pay to AlliedSignal the amount of the
premium due. Parent acknowledges and agrees that AlliedSignal is free to ascribe
any adverse claim experience, to the extent reasonably identifiable to products
manufactured or distributed by the Companies prior to the Closing Date, to such
policy, so that (to such extent) such adverse claim experience does not
adversely affect other product liability premiums being paid by AlliedSignal.
<PAGE>
48
4.21 Harco Northern Ireland, Ltd. At or prior to the Closing,
---------------------------
Parent will cause Eric Steiner to convey to Buyer or Buyer's designee the share
of capital stock of (or other equity interest in) Harco Northern Ireland, Ltd.
owned by him, free and clear of all Liens.
ARTICLE V
CONDITIONS PRECEDENT
5.1 Conditions Precedent to Obligations of AlliedSignal and Buyer.
-------------------------------------------------------------
The obligations of Buyer to purchase (and of AlliedSignal to cause Buyer to
purchase) the Purchased Assets and assume (and of AlliedSignal to cause Buyer to
assume) the Assumed Liabilities and to consummate the other transactions
contemplated hereby are subject to the satisfaction, on or prior to the Closing
Date, of each of the following conditions (any one or more of which may be
waived in writing in whole or in part by Buyer in its sole discretion):
(a) Representations, Warranties and Covenants. Each of the
-----------------------------------------
representations and warranties of Parent and Sellers contained in this Agreement
or in any Transaction Document delivered in connection herewith shall be true
and correct in all material respects on and as of the date of this Agreement and
at and as of the Closing with the same effect as though such representations and
warranties had been made at and as of the Closing, except for representations
and warranties that speak as of a specific date or time other than the Closing
(which need only be true and correct in all material respects as of such date or
time); provided, however, that if any such representation or warranty is already
-------- -------
qualified by materiality, for purposes of determining whether this condition has
been satisfied, such representation or warranty as so qualified shall be true
and correct in all respects. Parent and Sellers shall have performed and
complied in all material respects with each covenant and agreement required by
this Agreement to be performed or complied with by them at or prior to the
Closing. Parent and each Seller shall furnish AlliedSignal and Buyer with a
certificate of such company dated the Closing Date and signed by a senior
executive officer of Parent or such Seller, as the case may be, to the effect
that the conditions set forth in this Section 5.1(a) have been satisfied.
(b) HSR Act. The applicable waiting period under the HSR Act
-------
(including any extensions thereof) with respect to the transactions contemplated
hereby shall have expired or been terminated.
(c) Stock Exchange Listing. The NYSE shall have duly approved for
----------------------
listing, subject to official notice of issuance, the shares of AlliedSignal
Common Stock to be issued hereunder at the Closing.
(d) Required Consents. Parent and the Companies shall have obtained
-----------------
all statutory and regulatory consents and approvals which are required under any
applicable Laws in order to consummate the transactions contemplated hereby and
to permit Buyer to conduct the Business as conducted as of the date of this
Agreement and all other necessary consents and approvals of third parties (other
than any customer or supplier of the Business) to the transactions contemplated
hereby, other than those the failure of which to obtain, individually and in the
aggregate, would not have a Material Adverse Effect.
<PAGE>
49
(e) Customer/Supplier Concurrence. During the period from November 1,
-----------------------------
1997 through the date immediately preceding the Closing Date, Parent, Sellers,
Herndon Sellers, AlliedSignal and/or Buyer shall not have received written
notice from (i) customers indicating that such customers are terminating or
intend to terminate Combined Contracts (excluding termination upon expiration of
the term of any Combined Contract so long as such customer continues to purchase
goods from the Combined Business) and/or indicating that any such customer
intends to reduce its purchases from any Company or any Herndon Seller, which
terminations and/or reductions in the aggregate would reasonably be expected to
result in the revenues of the Combined Business for the 12 months immediately
following the Closing Date being $40 million or more less than the revenues of
the Combined Business for the 12 months immediately preceding the Closing Date
or (ii) suppliers (including suppliers of Intellectual Property) indicating that
such suppliers are terminating or intend to terminate Combined Contracts
(excluding termination upon expiration of the term of any Combined Contract so
long as such supplier continues to provide goods or Intellectual Property to the
Combined Business) and/or indicating that any such supplier intends to reduce
its sales to any Company or any Herndon Seller, which terminations and/or
reductions in the aggregate would reasonably be expected to result in supplier
sales to the Combined Business for the 12 months immediately following the
Closing Date being $10 million or more less than supplier sales to the Combined
Business for the 12 months immediately preceding the Closing Date.
(f) Injunction; Litigation; Legislation. (i) Parent, the Companies,
-----------------------------------
AlliedSignal and Buyer shall not be subject to any order or injunction by any
Governmental Entity restraining or prohibiting the consummation of the
transactions contemplated hereby, (ii) no action or proceeding shall have been
instituted before any Governmental Entity to restrain or prohibit, or to obtain
substantial damages in respect of, the consummation of the transactions
contemplated hereby, (iii) none of the parties hereto or any Seller Subsidiary
shall have received written notice from any Governmental Entity of (x) its
intention to institute any action or proceeding to restrain, enjoin or nullify
this Agreement or the transactions contemplated hereby, or to commence any
investigation (other than a routine letter of inquiry, including a routine civil
investigative demand) into the consummation of the transactions contemplated
hereby or (y) the actual commencement of such investigation, (iv) there shall
not be any pending or threatened litigation, suit, action or proceeding by any
party which would reasonably be expected to limit or materially adversely affect
Buyer's ownership of the Acquired Assets or the Buyer under the Herndon
Agreement's ownership of and the Herndon Purchased Assets, and (v) no Law shall
have been promulgated or enacted by any Governmental Entity, which would prevent
or make illegal the consummation of the transactions contemplated hereby.
(g) Transition Services Agreement. Parent, Sellers and Buyer shall
-----------------------------
have entered into a mutually satisfactory transition services agreement provided
that charges for services rendered shall be customary and reasonable.
(h) Side Letters. Fairchild and Jeffrey Steiner, as appropriate,
------------
shall have executed and delivered to AlliedSignal the three Side Letters
substantially in the form of Exhibits 1.9(xiii)(A-C).
-----------------------
<PAGE>
50
(i) Documents. Parent and the Companies shall have delivered to Buyer
---------
at the Closing such other documents and instruments as shall be reasonably
necessary to transfer to Buyer the Purchased Assets as contemplated by this
Agreement. Parent and Sellers shall have delivered all the certificates,
instruments, contracts and other documents specified to be delivered by each of
them hereunder.
(j) Herndon Closing. (i) All conditions to the Closing (as defined in
---------------
the Herndon Agreement) shall have been satisfied or waived and (ii) the Closing
(as defined in the Herndon Agreement) shall be consummated simultaneously with
the consummation of the Closing hereunder.
(k) Harco Northern Ireland, Ltd. Eric Steiner shall have conveyed to
---------------------------
Buyer or Buyer's designees the share of capital stock of (or other equity
interest in) Harco Northern Ireland, Ltd. owned by him, free and clear of all
Liens.
(l) Escrow Agreement. Parent and the Escrow Agent shall have executed
----------------
and delivered to AlliedSignal the Escrow Agreement.
5.2 Conditions Precedent to Obligations of Parent and Sellers. The
---------------------------------------------------------
obligations of Sellers to sell, and Parent to cause to be sold, the Purchased
Assets and to consummate the other transactions contemplated hereby are subject
to the satisfaction, on or prior to the Closing Date, of each of the following
conditions (any one or more of which may be waived in writing in whole or in
part by Parent (acting on its own behalf and on behalf of Sellers) in its sole
discretion):
(a) Representations, Warranties and Covenants. Each of the
-----------------------------------------
representations and warranties of AlliedSignal and Buyer contained in this
Agreement and in any Transaction Document delivered in connection herewith shall
be true and correct in all material respects on and as of the date of this
Agreement and at and as of the Closing with the same effect as though such
representations and warranties had been made at and as of the Closing, except
for representations and warranties that speak as of a specific date or time
other than the Closing (which need only be true and correct in all material
respects as of such date or time); provided, however, that if any such
-------- -------
representation or warranty is already qualified by materiality, for purposes of
determining whether this condition has been satisfied, such representation or
warranty as so qualified shall be true and correct in all respects.
AlliedSignal and Buyer shall have performed or complied in all material respects
with each covenant and agreement required by this Agreement to be performed or
complied with by it at or prior to the Closing. AlliedSignal or Buyer, as the
case may be, shall furnish Sellers with a certificate of such company dated the
Closing Date and signed by a senior executive officer of Buyer to the effect
that the conditions set forth in this Section 5.2(a) have been satisfied.
(b) HSR Act. The applicable waiting period under the HSR Act
-------
(including any extensions thereof) with respect to the transactions contemplated
hereby shall have expired or been terminated.
<PAGE>
51
(c) Stock Exchange Listing. The NYSE shall have duly approved for
----------------------
listing, subject to official notice of issuance, the shares of AlliedSignal
Common Stock to be issued hereunder at the Closing.
(d) Injunction; Litigation; Legislation. (i) Parent, the Companies,
-----------------------------------
AlliedSignal and Buyer shall not be subject to any order or injunction by any
Governmental Entity restraining or prohibiting the consummation of the
transactions contemplated hereby, (ii) no action or proceeding shall have been
instituted before any Governmental Entity to restrain or prohibit, or to obtain
substantial damages in respect of, the consummation of the transactions
contemplated hereby, (iii) none of the parties hereto or any Seller Subsidiary
shall have received written notice from any Governmental Entity of (x) its
intention to institute any action or proceeding to restrain, enjoin or nullify
this Agreement or the transactions contemplated hereby, or to commence any
investigation (other than a routine letter of inquiry, including a routine civil
investigative demand) into the consummation of the transactions contemplated
hereby or (y) the actual commencement of such investigation and (iv) no Law
shall have been promulgated or enacted by any Governmental Entity, which would
prevent or make illegal the consummation of the transactions contemplated
hereby.
(e) Registration Rights Agreement. AlliedSignal shall have executed
-----------------------------
and delivered to Parent a registration rights agreement substantially in the
form of Exhibit 1.9(b)(vi) with such changes as may reasonably be requested by
------------------
Citicorp USA, Inc. provided that such changes shall not provide for (i) more
than a single demand registration right, (ii) a period of longer than 180 days
during which the Registration Statement must be kept in effect or (iii) the
payment of expenses by a party other than Citicorp USA, Inc. or Parent.
(f) Documents. AlliedSignal and Buyer shall have delivered to Sellers
---------
at the Closing such other documents and instruments as shall be reasonably
necessary for the assumption by Buyer of the Assumed Liabilities as contemplated
by this Agreement. AlliedSignal and Buyer shall have delivered all the
certificates, instruments, contracts and other documents specified to be
delivered by it hereunder.
(g) Herndon Closing. (i) All conditions to the Closing (as defined in
---------------
the Herndon Agreement) shall have been satisfied or waived and (ii) the Closing
(as defined in the Herndon Agreement) shall be consummated simultaneously with
the consummation of the Closing hereunder.
(h) Escrow Agreement. AlliedSignal and the Escrow Agent shall have
----------------
executed and delivered to Parent the Escrow Agreement.
ARTICLE VI
CERTAIN ADDITIONAL COVENANTS
6.1 Expenses. Except as otherwise expressly provided in this
--------
Agreement, each of the parties hereto shall each bear its respective accounting,
legal and other expenses incurred in connection with the transactions
contemplated by this Agreement.
<PAGE>
52
6.2 Maintenance of Books and Records. Parent, Sellers and Buyer
--------------------------------
shall cooperate fully with each other after the Closing so that (subject to any
limitations that are reasonably required to preserve any applicable attorney-
client privilege) each party hereto has access to the business records,
contracts and other information existing at the Closing Date and relating in any
manner to the Acquired Assets, the Assumed Liabilities or the conduct of the
Business (whether in the possession of Parent, Sellers or Buyer). No files,
books or records existing at the Closing Date and relating in any manner to the
Acquired Assets or the conduct of the Business prior to the Closing Date shall
be destroyed by any party hereto for a period of six years after the Closing
Date without giving the other party at least 30 days' prior written notice,
during which time such other party shall have the right (subject to the
provisions hereof) to examine and to remove any such files, books and records
prior to their destruction. The access to files, books and records contemplated
by this Section 6.2 shall be during normal business hours and upon not less than
two business days' prior written request, shall be subject to such reasonable
limitations as the party having custody or control thereof may impose to
preserve the confidentiality of information contained therein, and shall not
extend to material subject to a claim of privilege unless expressly waived by
the party entitled to claim the same.
6.3 Financial Statements. Upon the request of AlliedSignal, Parent
--------------------
and Sellers shall, as promptly as practicable (but in no event later than 30
days after such request), provide AlliedSignal with such financial statements
relating to the Combined Business as may be required under Rule 3-05, Article 11
of Regulation S-X or other rule or regulation promulgated under the Securities
Act or the Exchange Act in connection with the preparation and filing of any
registration statement or periodic report of AlliedSignal pursuant to such laws,
including unqualified opinions thereon of independent public accountants and
consents therefor as required by such laws and the rules and regulations
thereunder.
6.4 Non-Competition/Non-Solicitation.
--------------------------------
(a) Parent and each Seller covenants and agrees that, if the Closing
is consummated, for a period of three years after the Closing Date, it will not,
and will cause Parent Subsidiaries not to, engage in the business of supplying
to the aerospace industry aircraft hardware, chemicals or related support
services (or any portion thereof) anywhere in the world (the "Competitive
Activities"), except for (i) the sale of any Inventory of such hardware or
chemicals owned by such Person or consigned to such Person as of the date
hereof, the value of which Inventory is estimated to be approximately $5,000,000
or (ii) the sale of any Inventory of such hardware or chemicals hereafter
acquired by such Person as part of a bulk purchase or hereafter consigned to
such person as part of a bulk consignment, but only after such Person has
offered to sell such hardware or chemicals to Buyer at commercially reasonable
prices for such quantities as would be charged to distributors of such products;
provided, however, that nothing herein shall be construed to prevent Parent,
- -------- -------
Sellers and/or any of their respective Affiliates from owning, in the aggregate,
up to 10% of the stock or equity interest in any Person that engages in such
business or any portion thereof. It is the desire and intent of the parties
hereto that the provisions of this Section 6.4 shall be enforced to the fullest
extent permitted under the laws and public policies of each jurisdiction in
which enforcement is sought. If any court determines that any provision of this
Section 6.4 is unenforceable, such court shall have the power to reduce the
<PAGE>
53
duration or scope of such provision, as the case may be, or terminate such
provision and, in reduced form, such provision shall be enforceable; it is the
intention of the parties that the foregoing restrictions shall not be
terminated, unless so terminated by a court, but shall be deemed amended to the
extent required to render them valid and enforceable, such amendment to only
apply with respect to the operation of this Section 6.4 in the jurisdiction of
the court that has made the adjudication. Notwithstanding the foregoing,
nothing in this Section 6.4(a) shall prohibit Parent, any Seller or any of their
respective Affiliates from acquiring any Person or business that engages in
Competitive Activities provided that (x) such activities do not constitute the
principal activities of the Person or business to be acquired (based on the
sales of such business during the preceding four (4) full calendar quarters) and
(y) if Competitive Activities constitute in excess of fifteen percent (15%) of
the revenues of the Person or business acquired, Sellers use their reasonable
efforts to divest that portion of such Person or business that engages in
Competitive Activities within twelve (12) months after the acquisition thereof.
(b) Each of Parent and each Seller covenants and agrees that, if the
Closing is consummated, for a period of one year after the Closing Date, it will
not, and will cause Parent Subsidiaries not to, directly or indirectly, solicit
for employment, either as an employee or a consultant, any employee or
independent contractor of AlliedSignal, Buyer or any of their respective
Affiliates who is engaged in the Business and was an employee or independent
contractor of any Company engaged in the Business as of the Closing Date to
become an employee or consultant or otherwise provide services to Parent, such
Seller or any Parent Subsidiary, except for persons whose employment is
solicited or procured through general media advertisements.
(c) The parties acknowledge and agree that the restrictions contained
in Sections 6.4(a) and 6.4(b) are a reasonable and necessary protection of the
immediate interests of AlliedSignal and Buyer, and any violation of these
restrictions would cause substantial injury to AlliedSignal or Buyer, as the
case may be and that AlliedSignal and Buyer would not have entered into this
Agreement without receiving the additional consideration offered by Parent and
each Seller in binding itself to these restrictions. In the event of a breach
or a threatened breach by Parent, any Seller or any Parent Subsidiary of these
restrictions, AlliedSignal and Buyer shall be entitled to apply to any court of
competent jurisdiction for an injunction restraining such Person from such
breach or threatened breach (without the necessity of proving the inadequacy of
money damages as a remedy); provided, however, that the right to apply for
-------- -------
injunctive relief shall not be construed as prohibiting AlliedSignal or Buyer,
as the case may be, from pursuing any other available remedies for such breach
or threatened breach.
(d) Each of AlliedSignal and Buyer covenant and agree that, if the
Closing is consummated, for a period of one year after the Closing Date, and if
not consummated for a period of one year from the date of termination of this
Agreement, it will not, and will cause its Affiliates not to, directly or
indirectly, solicit for employment, either as an employee or a consultant, any
employee or independent contractor of Parent or any Parent Subsidiary (other
than any employee or independent contractor of any of the Companies) to become
an employee or consultant or otherwise provide services to AlliedSignal, Buyer
or any of their respective
<PAGE>
54
Affiliates, except for persons whose employment is solicited or procured through
general media advertisements.
(e) The parties acknowledge and agree that the restrictions contained
in Section 6.4(d) are a reasonable and necessary protection of the immediate
interests of Parent and Sellers, and any violation of these restrictions would
cause substantial injury to Parent or Sellers, as the case may be, and that
Parent and Sellers would not have entered into this Agreement without receiving
the additional consideration offered by AlliedSignal and Buyer in binding itself
to these restrictions. In the event of a breach or a threatened breach by
AlliedSignal, Buyer or any of their respective Affiliates of these restrictions,
Parent and any such Seller shall be entitled to apply to any court of competent
jurisdiction for an injunction restraining such Person from such breach or
threatened breach (without the necessity of proving inadequacy of money damages
as a remedy); provided, however, that the right to apply for injunctive relief
-------- -------
shall not be construed as prohibiting Parent or such Seller from pursuing any
other available remedies for such breach or threatened breach.
6.5 Confidential Information. Parent and Sellers shall, and shall
------------------------
cause Parent Subsidiaries to, maintain the confidentiality of, and shall not
use, and shall cause Parent Subsidiaries not to use, for the benefit of itself
or others, any confidential information concerning the Business or the Acquired
Assets, including any information with respect to the Intellectual Property or
Technology (the "Confidential Information"); provided, however, that this
------------------------ -------- -------
Section 6.5 shall not restrict (a) any disclosure by any such Person of any
Confidential Information required by applicable Law, securities exchange or any
court of competent jurisdiction; provided, that AlliedSignal and Buyer are given
--------
notice and an adequate opportunity to contest such disclosure, (b) any
disclosure on a confidential basis to any such Person's attorneys, accountants,
lenders and investment bankers and (c) any disclosure of information (i) which
is available publicly as of the date of this Agreement, (ii) which, after the
date of this Agreement, becomes available publicly through no fault of the
disclosing party or any of its Affiliates or (iii) which is received by such
Person from a third party not, to the best of such Person's knowledge, subject
to any obligation of confidentiality with respect thereto.
ARTICLE VII
SURVIVAL; INDEMNIFICATION
7.1 Survival. All representations, warranties, covenants and
--------
agreements contained in this Agreement or the Transaction Documents shall
survive (and not be affected in any respect by) the Closing, any investigation
conducted by any party hereto and any information which any party may receive.
Notwithstanding the foregoing, the representations and warranties contained in
or made pursuant to this Agreement and the related indemnity obligations set
forth in Sections 7.2(a)(i) and 7.3(a)(i) shall terminate on, and no claim or
action with respect thereto may be brought after, the date three years after the
Closing Date, except that (a) the representations and warranties contained in
Sections 2.3 and 2.12 and the related indemnity obligations
<PAGE>
55
contained in Section 7.2 shall survive indefinitely and (b) the representations
and warranties contained in Sections 2.10, 2.14 and 2.20 and the related
indemnity obligations contained in Section 7.2 shall survive until 30 days after
the expiration of the applicable statute of limitations (or extensions or
waivers thereof). The representations and warranties which terminate on the date
three years after the Closing Date and the representations and warranties
referred to in the foregoing clause (b), and the Liability of any party hereto
with respect thereto pursuant to this Article VII, shall not terminate with
respect to any claim, whether or not fixed as to Liability or liquidated as to
amount, with respect to which the Indemnifying Party has been given written
notice prior to the date three years after the Closing Date or such 30th day
after the expiration of the applicable statute of limitations (or extensions or
waivers thereof), as the case may be.
7.2 Indemnification by Parent, Sellers and Herndon Sellers.
------------------------------------------------------
(a) Subject to Section 7.1 Parent, Sellers and Herndon Sellers shall
jointly and severally indemnify and hold AlliedSignal, Buyer, Buyer as defined
in the Herndon Agreement, and their respective employees, officers, directors,
agents and Affiliates (collectively, the "Buyer Indemnified Parties") harmless
-------------------------
from and against, and agree promptly to defend any Buyer Indemnified Party from
and reimburse any Buyer Indemnified Party for, any and all Losses which any
Buyer Indemnified Party may at any time suffer or incur, or become subject to,
as a result of or in connection with:
(i) any breach or inaccuracy as of the date of this Agreement,
the date of the Herndon Agreement or the Closing Date of any of the
representations and warranties made (w) by Parent or Sellers in or pursuant
to this Agreement, (x) in any Transaction Document delivered by Parent or
any Seller at the Closing in accordance herewith, (y) made by Parent or the
Herndon Sellers in or pursuant to the Herndon Agreement or (z) in any
Transaction Document delivered by Parent or any Herndon Seller at the
Closing under the Herndon Agreement in accordance with the Herndon
Agreement (it being understood and agreed that, notwithstanding anything to
the contrary contained in this Agreement or the Herndon Agreement, to
determine if there had been an inaccuracy or breach of a representation or
warranty of Parent, any Seller or any Herndon Seller and the Losses arising
from such inaccuracy or breach, such representation and warranty shall be
read as if it were not qualified by materiality, including, without
limitation, qualifications indicating accuracy in all material respects, or
accuracy except to the extent the inaccuracy would not have a Material
Adverse Effect);
(ii) any failure by Parent, any Seller or any Herndon Seller to
carry out, perform, satisfy and discharge any of their respective
covenants, agreements, undertakings or Liabilities under (w) this
Agreement, (x) any of the Transaction Documents delivered by Parent or any
Seller pursuant to this Agreement, (y) the Herndon Agreement or (z) any of
the Transaction Documents delivered by Parent or any Herndon Seller
pursuant to the Herndon Agreement;
(iii) the Non-Assumed Liabilities and the Herndon Non-Assumed
Liabilities; and
<PAGE>
56
(iv) the ownership, use and possession of the Excluded Assets or
the Herndon Excluded Assets prior to, on or after the Closing Date.
(b) Notwithstanding any other provision herein to the contrary, (i)
neither Parent, Sellers nor the Herndon Sellers shall be required to indemnify
and hold harmless any Buyer Indemnified Party pursuant to Section 7.2(a)(i)
unless the applicable Buyer Indemnified Party has asserted a claim with respect
to such matters within the applicable survival period set forth in Section 7.1
hereof, (ii) neither Parent, Sellers nor the Herndon Sellers shall have any
Liability pursuant to Section 7.2(a)(i) until the cumulative aggregate amount of
all Losses which are otherwise recoverable thereunder by Buyer Indemnified
Parties exceed an amount equal to Six Million Nine Hundred Thousand Dollars
($6,900,000) (the "Basket"), and then only for the amount by which such Losses
------
exceed the Basket, (iii) the cumulative indemnification obligation of Parent,
Sellers and the Herndon Sellers under Section 7.2(a)(i), except as it applies to
a breach of the representations and warranties contained in Section 2.3, shall
in no event exceed 50% of the Cash Equivalent Purchase Price, (iv) the
cumulative indemnification obligation of Parent and Sellers under Section
7.2(a)(i) with respect to a breach of the representations and warranties
contained in Section 2.3 shall in no event exceed the Cash Equivalent Purchase
Price, (v) the amount of any Loss for which indemnification is provided under
this Section 7.2 shall be net of any amount actually recovered by AlliedSignal
or Buyer under insurance policies with respect to such Losses, and (vi) neither
Parent, Sellers, nor the Herndon Sellers shall have any Liability for
consequential damages, except that the provisions of this clause (vi) shall not
------
apply to the breach of the representations and warranties contained in Section
2.3 or the breach of any covenant contained in Section 4.19. Notwithstanding
anything in this Agreement to the contrary, neither Parent, Sellers, nor the
Herndon Sellers shall have any obligation to indemnify any Buyer Indemnified
Party for any Special Claims (as defined in Section 7.4(b)) that are less than
$20,000 per claim (a "Small Claim") and Losses in respect of Small Claims shall
be disregarded for purposes of determining whether Losses pursuant to Sections
7.2(a)(i) and 7.2(a)(iv) exceed the Basket.
7.3 Indemnification by AlliedSignal and Buyer.
-----------------------------------------
(a) Subject to Section 7.1 AlliedSignal and Buyer shall jointly and
severally indemnify and hold Parent, Sellers, the Herndon Sellers and their
respective employees, officers, directors, agents and Affiliates (collectively,
the "Seller Indemnified Parties") harmless from and against, and agree promptly
--------------------------
to defend any Seller Indemnified Party from and reimburse any Seller Indemnified
Party for, any and all Losses which any Seller Indemnified Party may at any time
suffer or incur, or become subject to, as a result of or in connection with:
(i) any breach or inaccuracy as of the date of this Agreement, or
the Herndon Agreement or the Closing Date of any of the representations and
warranties made (w) by AlliedSignal or Buyer in or pursuant to this
Agreement, (x) in any Transaction Document delivered by AlliedSignal or
Buyer at the Closing in accordance herewith, (y) made by AlliedSignal or
the Buyer under the Herndon Agreement in or pursuant to the Herndon
Agreement or (z) in any Transaction Document delivered by AlliedSignal or
the Buyer under the Herndon Agreement at the Closing under the
<PAGE>
57
Herndon Agreement in accordance with the Herndon Agreement (it being
understood and agreed that, notwithstanding anything to the contrary
contained in this Agreement or the Herndon Agreement, to determine if there
had been an inaccuracy or breach of a representation or warranty of
AlliedSignal, Buyer or the Buyer under the Herndon Agreement and the Losses
arising from such inaccuracy or breach, such representation and warranty
shall be read as if it were not qualified by materiality, including,
without limitation, qualifications indicating accuracy in all material
respects, or accuracy except to the extent the inaccuracy will not have a
material adverse effect on the ability of AlliedSignal or Buyer to perform
its obligations under this Agreement and the other Transaction Documents to
which it is a party);
(ii) any failure by AlliedSignal, Buyer or the Buyer under the
Herndon Agreement to carry out, perform, satisfy and discharge any of their
respective covenants, agreements, undertakings, Liabilities under (w) this
Agreement, (x) any of the Transaction Documents delivered by AlliedSignal
or Buyer, as the case may be, pursuant to this Agreement, (y) the Herndon
Agreement or (z) any of the Transaction Documents delivered by AlliedSignal
or the Buyer under the Herndon Agreement, as the case may be, pursuant to
the Herndon Agreement;
(iii) the Assumed Liabilities and the Herndon Assumed
Liabilities; and
(iv) the operation of the Combined Business after the Closing.
(b) Notwithstanding any other provision herein to the contrary, (i)
neither AlliedSignal nor Buyer shall be required to indemnify and hold harmless
any Seller Indemnified Party pursuant to Section 7.3(a)(i) unless the applicable
Seller Indemnified Party has asserted a claim with respect to such matters
within the applicable survival period set forth in Section 7.1 hereof, (ii) the
cumulative indemnification obligation of AlliedSignal and Buyer under Section
7.3(a)(i) shall in no event exceed 50% of the Cash Equivalent Purchase Price,
and (iii) neither AlliedSignal nor Buyer shall have any Liability for
consequential damages.
7.4 Notification of Claims.
----------------------
(a) If any Buyer Indemnified Party, on the one hand, or Seller
Indemnified Party, on the other hand (an "Indemnified Party"), has a claim or
-----------------
potential claim or receives notice of any claim, potential claim or the
commencement of any action or proceeding which could give rise to an obligation
on the part of Parent or Sellers, on the one hand, or AlliedSignal or Buyer, on
the other hand, to provide indemnification (the "Indemnifying Party") pursuant
------------------
to Section 7.2 or 7.3, respectively, the Indemnified Party shall promptly give
the Indemnifying Party notice setting forth in reasonable detail the facts
giving rise to the claim to the extent known (an "Indemnification Claim");
---------------------
provided, however, that the failure to give such prompt notice shall
- -------- -------
not prevent any Indemnified Party from being indemnified hereunder for any
Losses, except to the extent that the failure to so promptly notify the
Indemnifying Party actually damages the Indemnifying Party or except to the
extent such notice is not received during the applicable survival period set
forth in Section 7.1.
<PAGE>
58
(b) In the event of a claim, a potential claim or the commencement of
any action or proceeding by a third party which could give rise to an obligation
to provide indemnification pursuant to Section 7.2 or 7.3, the Indemnified Party
shall give the Indemnifying Party prompt written notice thereof setting forth in
reasonable detail the facts giving rise to the claim to the extent known (the
"Third Party Indemnification Claim"); provided, however, that the failure of the
- ---------------------------------- -------- -------
Indemnified Party to so promptly notify the Indemnifying Party shall not prevent
any Indemnified Party from being indemnified for any Losses, except to the
extent that the failure to so promptly notify actually damages the Indemnifying
Party or except to the extent such notice is not received during the applicable
survival period set forth in Section 7.1. If the Indemnifying Party confirms in
writing (the "Confirmation of Indemnification") to the Indemnified Party within
-------------------------------
fifteen (15) days after receipt of the Third Party Indemnification Claim the
Indemnifying Party's responsibility to indemnify and hold harmless the
Indemnified Party therefor in accordance herewith and within such fifteen (15)
day period demonstrates to the Indemnified Party's reasonable satisfaction that
as of such time (i) in the event the Indemnifying Party is Parent and Sellers,
Parent is in compliance with the covenants set forth in Section 4.17 and the
face value of the Third Party Indemnification Claim, when aggregated with the
face value of all other outstanding claims of Buyer Indemnified Parties, does
not exceed the net worth of Parent, or (ii) in the event the Indemnifying Party
is AlliedSignal and Buyer, AlliedSignal and Buyer have sufficient financial
resources in order to indemnify for the full amount of any potential Liability
in connection with such claim, the Indemnifying Party may elect to compromise or
defend, at such Indemnifying Party's own expense and by such Indemnifying
Party's own counsel, which counsel shall be reasonably satisfactory to the
Indemnified Party, any such matter involving the asserted Liability of the
Indemnified Party. If the Indemnifying Party elects to compromise or defend any
such asserted Liability, it shall within fifteen (15) days (or sooner, if the
nature of the asserted Liability so requires) notify the Indemnified Party of
its intent to do so, and the Indemnified Party shall cooperate, at the expense
of the Indemnifying Party, in the compromise of, or defense against, any such
asserted Liability; provided that (i) the Indemnified Party may, if it so
-------------
desires, employ counsel at its own expense to assist in the handling of any such
third party claim, (ii) the Indemnifying Party shall keep the Indemnified Party
advised of all material events with respect to any such third party claim, (iii)
the Indemnifying Party shall obtain the prior written approval of the
Indemnified Party (which approval may not be unreasonably withheld) before
ceasing to defend against such third party claim or entering into any
settlement, adjustment or compromise of such third party claim involving
injunctive or similar equitable relief being asserted against any Indemnified
Party or any Affiliate thereof and (iv) no Indemnifying Party shall, without the
prior written consent of each Indemnified Party, settle or compromise or consent
to the entry of any judgment in any pending or threatened demand, claim, action
or cause of action, suit or proceeding in respect of which indemnification may
be sought hereunder (whether or not any such Indemnified Party is a party to
such demand, claim, action or cause of action, suit or proceeding), unless such
settlement, compromise or consent includes an unconditional release of all such
Indemnified Parties from all Liability arising out of such claim, action, suit
or proceeding. With respect to claims for indemnification arising out of or
relating to trade disputes, warranty claims, ordinary course returns and
allowances disputes and similar contractual disputes (including late deliveries
or delivery of non-conforming goods) ("Special Claims"), (i) if the Special
Claim or Claims related to a single third party aggregates less than $1,000,000
on the face of such Special Claim
<PAGE>
59
or Claims, AlliedSignal and Buyer shall control the defense and settlement of
such claims with such third party, and (ii) if the Special Claim or Claims
related to a single third party aggregates more than $1,000,000 on the face of
such Special Claim or Claims, Parent and Sellers shall control the defense of
such claims, provided that Parent shall have delivered a Confirmation of
Indemnification and demonstrated that Parent has sufficient financial resources
in accordance with clause (i) of the second sentence of this Section 7.4(b).
Notwithstanding anything contained herein to the contrary, the Indemnifying
Party shall not be entitled to have sole control over the defense, settlement,
adjustment or compromise of any third party non-monetary claim that seeks an
order, injunction or other equitable relief against any Indemnified Party or any
Affiliate thereof, which, if successful, could materially interfere with the
business, Assets, Liabilities, financial condition or results of operations of
the Indemnified Party or any of its Affiliates. If the Indemnifying Party elects
not to compromise or defend against the asserted Liability, or fails to notify
the Indemnified Party of its election as herein provided, the Indemnified Party
may, at the Indemnifying Party's expense, pay, compromise or defend against such
asserted Liability.
ARTICLE VIII
EMPLOYEES AND EMPLOYEE BENEFITS
8.1 Scope of Article. This Article VIII contains the covenants and
----------------
agreements of the parties with respect to (a) the status of employment of the
employees of Sellers and the Seller Subsidiaries employed in the Business
("Employees") upon the sale of the Business to Buyer, and (b) the employee
- -----------
benefits and employee benefit plans provided or covering such Employees and
former employees of Sellers and the Seller Subsidiaries who terminated
employment with the Sellers or the Seller Subsidiaries while employed in the
Business or who retired from the Business ("Former Employees"). Nothing herein
----------------
expressed or implied confers upon any Employee or Former Employee of Sellers or
the Seller Subsidiaries any rights or remedies of any nature or kind whatsoever.
8.2 U.S. Employees. This Section 8.2 applies only to Employees and
--------------
Former Employees employed or previously employed by Sellers in the United
States.
(a) Employment. Buyer shall offer employment effective as of the
----------
Closing Date to each Employee of a Seller who is employed in the United States
(a "U.S. Employee") and is actively at work immediately prior to the Closing
-------------
Date or is not actively at work immediately prior to the Closing Date due solely
to vacation, holiday or jury duty. Such initial offer of employment shall be
for a position and for base salary or wages which are comparable to that which
Employee had with Sellers immediately prior to the Closing and shall include
employee benefits which are comparable in the aggregate to that which such
Employees had with Sellers immediately prior to the Closing; provided, however,
that no such employment shall be offered to Tucker E. Nason, Frank Saltzman
and James Fairchild. Buyer shall offer employment to each other U.S.
Employee who is not actively at work immediately prior to the Closing
Date (including, but not limited to, any such employee who is not actively at
work due to medical leave, sick leave, short-term disability, long-term
disability, layoff or leave of absence) (an "Inactive Employee") who is willing
-----------------
and able to return to work within 90 days after the Closing
<PAGE>
60
Date or such later date as may be required by law, with such employment with
Buyer to commence on the date the Inactive Employee first commences active
employment with Buyer. Sellers shall be responsible for any obligation to
provide employee benefits to an Inactive Employee prior to such employee's date
of hire by Buyer. U.S. Employees who accept Buyer's offer of employment and
become employees of Buyer shall be referred to herein as "U.S. Transferred
----------------
Employees." Notwithstanding the foregoing, nothing herein shall be construed to
- ---------
limit Buyer's ability to thereafter terminate the employment of any Employee or
to amend or terminate any employee benefit plan or to otherwise change the terms
and conditions of employment of any Employee.
(b) Past Service Credit. Buyer shall credit the service of all U.S.
-------------------
Transferred Employees with Sellers and their Affiliates prior to the Closing
Date for purposes of eligibility and vesting under all employee benefit plans
provided by Buyer for U.S. Transferred Employees (but not for purposes of
benefit accrual). Buyer shall also: (i) cause to be waived any pre-existing
condition limitation under any Buyer medical plans applicable to U.S.
Transferred Employees or their dependents (except to the extent that any such
pre-existing condition limitation would not have been waived under Sellers'
medical plans), and (ii) recognize (or cause to be recognized) the dollar amount
of all covered expenses incurred by U.S. Transferred Employees and their
dependents under Sellers' applicable medical plans during the calendar year in
which the Closing Date occurs for purposes of satisfying such calendar year's
deductibles and co-payment limitations under any applicable Buyer medical plans;
provided, that the U.S. Transferred Employee enrolls in the applicable Buyer
- --------
medical plan at such time and in such manner as is reasonably specified by
Buyer.
(c) Severance; WARN Act. Sellers shall pay and be solely liable for,
-------------------
and shall indemnify and hold AlliedSignal and Buyer harmless against, any
obligation, cost or expense for (i) severance pay, termination indemnity pay,
salary continuation, special bonuses or like compensation under Sellers' plans,
policies or arrangements and (ii) liability under the WARN Act, or any similar
state or local law, arising from, relating to or claimed by reason of the
Closing or the transactions contemplated by this Agreement or which result from
or relate to actions taken by Sellers on or before the Closing Date.
(d) Vacation. Buyer shall adopt and assume Sellers' liability for
--------
accrued, unused vacation entitlement of U.S. Transferred Employees as of the
Closing to the extent listed on the Balance Sheet.
(e) Workers Compensation. Sellers shall be responsible for all
--------------------
workers compensation claims filed by or on behalf of a U.S. Transferred Employee
to the extent attributable to events, occurrences or exposures prior to the
Closing. Buyer shall be responsible for all workers compensation claims filed
by or on behalf of a U.S. Transferred Employee to the extent attributable to
events, occurrences or exposures following the Closing.
(f) Employment and Plan Liabilities. It is understood and agreed that
-------------------------------
neither AlliedSignal nor Buyer is assuming any obligations or liabilities
arising under any Plan (except to the extent provided in Sections 8.2(d) above
and 8.2(g) below) or as a result of any
<PAGE>
61
Employee's or Former Employee's employment with, or termination of employment,
from Sellers, and Sellers shall remain responsible for any such obligations and
liabilities.
(g) Employment Agreements. Buyer shall reimburse Sellers for any
---------------------
Liabilities incurred after the Closing Date under the employee agreements listed
under "Employee Agreement" on Schedule 2.20(a), other than the agreement
relating to the employment of Tucker E. Nason.
(h) Post-Closing Liability. AlliedSignal and Buyer shall pay and be
----------------------
solely liable for, and shall indemnify and hold Parent and Sellers harmless
against, any obligation, cost or expense for severance pay, termination pay,
salary continuation, special bonuses or like compensation under any Buyer plan,
policy or arrangement which result from, or relate to, actions taken by
AlliedSignal or Buyer or any Affiliate thereof after the Closing Date.
(i) Cooperation. The parties agree to furnish each other with such
-----------
information concerning employees and employee benefit plans, and to take all
such other action, as is necessary or appropriate to effect the transactions
contemplated by this Article VIII.
8.3 Foreign Employees. This Section 8.3 applies only to Employees
-----------------
and Former Employees employed or previously employed by Sellers or the Seller
Subsidiaries outside of the United States.
(a) Employment. Buyer shall continue the employment without changes
----------
in terms immediately after the Closing of each Employee of a Seller Subsidiary
who is employed outside of the United States (a "Foreign Employee"). Nothing
herein shall be construed to limit Buyer's ability to terminate the employment
of any Foreign Employee or to amend or terminate any employee benefit plan
applicable to Foreign Employees or to otherwise change the terms and conditions
of employment.
(b) Severance. Sellers shall pay and be solely liable for, and shall
---------
indemnify and hold AlliedSignal and Buyer harmless against, any obligation, cost
or expense for severance pay, termination indemnity pay, salary continuation,
special bonuses or like compensation under (i) any Seller or Seller Subsidiary
plan, policy or arrangement or (ii) any applicable Laws, which result from or
relate to actions taken by any Seller or Seller Subsidiary on or before the
Closing Date (other than the consummation of the Closing, which shall be the
responsibility of Buyer and Allied Signal).
(c) Cooperation. The parties agree to furnish each other with such
-----------
information concerning employees and employee benefit plans, and to take all
such other action, as is necessary or appropriate to effect the transactions
contemplated by this Article VIII.
<PAGE>
62
ARTICLE IX
TERMINATION; MISCELLANEOUS
9.1 Termination.
-----------
(a) This Agreement may be terminated and the transactions contemplated
hereby may be abandoned at any time prior to the Closing Date, as follows:
(i) by the mutual written agreement of Buyer and Parent;
(ii) by Buyer or Parent if the Closing has not occurred on or
before September 30, 1998; provided, however, that the right to terminate
-------- -------
this Agreement pursuant to this Section 9.1(a)(ii) shall be suspended as to
any party whose failure to fulfill any material obligation under this
Agreement shall have been the cause of, or shall have resulted in, the
failure of the Closing to occur prior to such date until the fifth Business
Day after such failure has been cured;
(iii) by Buyer or Parent in the event of the issuance by any
Governmental Entity of a final, nonappealable order or injunction
restraining or prohibiting the consummation of the transactions
contemplated hereby; or
(iv) by Parent, upon five days' prior notice to AlliedSignal, if,
as a result of an Acquisition Proposal received by Parent from a person
other than a party to this Agreement or any of its Affiliates, the Board of
Directors of Parent determines in good faith that their fiduciary
obligations under applicable law require that such Acquisition Proposal be
accepted; provided, however, that (x) the Board of Directors of Parent
-------- -------
shall have concluded in good faith, after considering applicable provisions
of state law and after giving effect to all concessions which may be
offered by AlliedSignal pursuant to clause (y) below, on the basis of
advice of outside counsel, that such action is necessary for the Board of
Directors to act in a manner consistent with its fiduciary duties under
applicable law and (y) prior to any such termination, Parent shall, and
shall cause its respective financial and legal advisors to, negotiate with
AlliedSignal to make such adjustments in the terms and conditions of this
Agreement as would enable AlliedSignal to proceed with the transactions
contemplated hereby; provided further, however, that no termination shall
---------------- -------
be effective pursuant to this clause (iv) unless concurrently with such
termination a termination fee of Thirty-Four Million Five Hundred Thousand
Dollars ($34,500,000) is paid in cash by Parent to AlliedSignal.
(b) Except for the obligations contained in Section 6.1, the last
sentence of Section 4.5 and this Article IX (other than Sections 9.2, 9.13 and
9.14) and the representations and warranties contained in Sections 2.16 and 3.8
(and the related indemnity obligations under Sections 7.2(a)(i) and 7.3(a)(i),
respectively), all of which shall survive any termination of this Agreement,
upon the termination of this Agreement pursuant to Section 9.1(a), this
Agreement shall forthwith become null and void, and no party hereto or any of
its officers, directors, employees, agents, consultants, stockholders or
principals shall have any rights or Liabilities
<PAGE>
63
hereunder or with respect hereto, including without limitation for any breach of
warranty or representation; provided, however, that nothing contained herein
-------- -------
shall relieve any party hereto from Liability for any willful failure to comply
with any covenant or agreement contained herein.
9.2 Further Assurances. From time to time after the Closing,
------------------
AlliedSignal, Buyer, Parent and Sellers shall execute and deliver or cause to be
executed and delivered such further documents, certificates, instruments of
conveyance, assignment and transfer and take such further action as
AlliedSignal, Buyer, Parent or Sellers may reasonably request in order to more
effectively to sell, assign, convey, transfer, reduce to possession and record
title to any of the Purchased Assets to Buyer or to better enable Buyer to
complete, perform and discharge any of the Assumed Liabilities. AlliedSignal,
Buyer, Parent and Sellers agree to cooperate with each other in all reasonable
respects to assure to Buyer the continued title to and possession of the
Purchased Assets in the condition and manner contemplated by this Agreement.
Each party hereto shall cooperate and deliver such instruments and take such
action as may be reasonably requested by any other party hereto in order to
carry out the provisions and purposes of this Agreement and the transactions
contemplated hereby. AlliedSignal, Buyer, Parent and Sellers shall cooperate
and shall cause their respective Affiliates, officers, employees, agents and
representatives to cooperate to ensure the orderly transition of the Business
from Sellers to Buyer and to minimize the disruption to the Business resulting
from the transactions contemplated hereby.
9.3 Entire Agreement; Amendments; Waivers. This Agreement, the
-------------------------------------
Confidentiality Agreement, and the documents referred to herein and to be
delivered pursuant hereto constitute the entire agreement between the parties
hereto pertaining to the subject matter hereof, and supersede all prior and
contemporaneous agreements, understandings, negotiations and discussions of the
parties, whether oral or written. No amendment, supplement, modification,
waiver or termination of this Agreement shall be binding unless executed in
writing by the party to be bound thereby. No waiver of any of the provisions of
this Agreement shall be deemed or shall constitute a waiver of any other
provision or breach of this Agreement, whether or not similar, unless otherwise
expressly provided.
9.4 Benefit; Assignment. This Agreement shall be binding upon and
-------------------
inure to the benefit of, and shall be enforceable by, the parties hereto and
their respective successors and permitted assigns. This Agreement shall not be
assigned by any party hereto without the prior written consent of the other
party hereto; provided, however, that AlliedSignal or Buyer may assign any or
-------- -------
all of their respective rights hereunder to one or more Affiliates of
AlliedSignal or Buyer, as the case may be, without the consent of Parent or
Sellers provided that AlliedSignal or Buyer, as the case may be, shall continue
to be obligated to perform all of its obligations hereunder.
9.5 No Presumption. AlliedSignal, Buyer, Parent and Sellers have
--------------
participated jointly in the negotiation and drafting of this Agreement. In the
event any ambiguity or question of intent or interpretation arises, this
Agreement shall be construed as if drafted jointly by AlliedSignal, Buyer,
Parent and Sellers, and no presumption or burden of proof shall
<PAGE>
64
arise favoring or disfavoring any party by virtue of the authorship of any of
the provisions of this Agreement.
9.6 Notices. Notices and other communications provided for herein
---------
shall be in writing and shall be deemed given only if delivered to the party
personally or sent to the party by telecopy, by registered or certified mail
(return receipt requested) with postage and registration or certification fees
thereon prepaid, or by any nationally recognized overnight courier, addressed to
the party at its address set forth below:
If to Parent or Sellers: Banner Aerospace
P.O. Box 20260
Washington, DC 20041
Attention: Chief Financial Officer
Telecopy No.: 703-478-5795
with copy to: Donald E. Miller
10704 Riverwood Drive
Potomac, MD 20854
If to AlliedSignal or Buyer: AlliedSignal Inc.
P.O. Box 2245
101 Columbia Road
Morristown, NJ 07962-2245
Attention: General Counsel
Telecopy No.: 973-455-4413
or to such other address as a party may from time to time designate in writing
in accordance with this section. All notices and other communications given to
any party hereto in accordance with the provisions of this Agreement shall be
deemed to have been given on the date of receipt.
9.7 Terms Generally.
---------------
(a)(i) Words in the singular shall be held to include the plural and
vice versa and words of one gender shall be held to include the other genders as
the context requires, (ii) the terms "hereof," "herein," and "herewith" and
words of similar import shall, unless otherwise stated, be construed to refer to
this Agreement as a whole (including all of the Annexes, Schedules and Exhibits
hereto) and not to any particular provision of this Agreement, and Article,
Section, paragraph, Exhibit and Schedule references are to the Articles,
Sections, paragraphs, Exhibits and Schedules to this Agreement unless otherwise
specified, (iii) the word "including" and words of similar import when used in
this Agreement shall mean "including, without limitation," unless otherwise
specified, (iv) the word "or" shall not be exclusive, and (v) provisions shall
apply, when appropriate, to successive events and transactions.
<PAGE>
65
(b) Each reference in this Agreement (or in any other document or
instrument furnished to AlliedSignal or Buyer by Parent or any Seller pursuant
to this Agreement) to "the best of Parent's and each Seller's knowledge", or
words of similar import referring to Parent and Sellers (including Parent and
Sellers not being aware of a particular event or other matter), means the actual
knowledge, after due inquiry, of each executive officer of Parent and each of
the Companies.
9.8 Counterparts; Headings. This Agreement may be executed in
----------------------
several counterparts, each of which shall be deemed an original, but such
counterparts shall together constitute but one and the same Agreement. The
Article and Section headings in this Agreement are inserted for convenience of
reference only and shall not constitute a part hereof.
9.9 Severability. If any provision, clause or part of this
------------
Agreement or the application thereof under certain circumstances is held invalid
or unenforceable, the remainder of this Agreement, or the application of such
provision, clause or part under other circumstances, shall not be affected
thereby.
9.10 No Reliance. Except for any assignees permitted by Section
-----------
9.4 of this Agreement and the indemnified persons pursuant to Sections 7.2 and
7.3: (i) no third party is entitled to rely on any of the representations,
warranties or agreements of the parties hereto contained in this Agreement; and
(ii) the parties hereto assume no Liability to any third party because of any
reliance on the representations, warranties or agreements of such parties
contained in this Agreement.
9.11 Governing Law. This Agreement shall be construed and
-------------
interpreted according to the laws of the State of New York, without regard to
the conflict of law principles thereof.
9.12 Submission to Jurisdiction; Waivers. The parties hereto
-----------------------------------
hereby irrevocably and unconditionally agree that:
(a) All actions and proceedings arising out of or relating to this
Agreement shall be heard and determined in a New York state or federal court
sitting in the City of New York, and the parties hereto hereby irrevocably
submit to the exclusive jurisdiction of such courts in any such action or
proceedings and irrevocably waive the defense of an inconvenient forum to the
maintenance of any such action or proceeding.
(b) Service of process in any such action or proceeding may be
effected by mailing a copy thereof by registered or certified mail (or any
substantially similar form of mail), postage prepaid, to such party at its
address as provided in Section 9.6.
9.13 Bulk Transfer. The parties hereto hereby waive compliance
-------------
with the provisions of any applicable bulk sales law of any jurisdiction in
connection with the transactions contemplated hereby and no representation,
warranty or covenant contained in this Agreement shall be deemed to have been
breached as a result of such non-compliance. Parent and Sellers hereby agree,
jointly and severally, to indemnify, defend and hold AlliedSignal and Buyer
<PAGE>
66
harmless from and against any and all Losses arising out of or relating to
claims which may be asserted by third Persons, including Governmental Entities,
against the Acquired Assets or any Buyer Indemnified Parties as a result of non-
compliance with any applicable bulk sales law. Nothing in this Agreement shall
be construed as an admission by any party as to the applicability of any bulk
sales laws.
9.14 Use of Names. During the first 180 days after the Closing
------------
Date, Buyer shall have the right to use all of the logos, trademarks and trade
identification of Parent as are located at the Acquired Real Property or on the
Acquired Assets (collectively, the "Trademarks"). Buyer's use of the Trademarks
----------
shall be in accordance with such reasonable quality control standards as shall
be promulgated by Parent and provided to Buyer. If Parent shall notify Buyer in
writing of Buyer's material failure to comply with such reasonable quality
control standards and Buyer continues to not comply with such reasonable quality
control standards for more than 20 days after receipt of such notice, Parent
shall have the right to terminate Buyer's right under this Section 9.14 to use
the Trademarks.
9.15 Herndon Price Allocation. In connection with the purchase
------------------------
price adjustment contemplated by Section 1.6, Parent and AlliedSignal shall
agree on an appropriate allocation of the Adjustment Amount to the Initial
Purchase Price under the Herndon Agreement (expressed as a positive or negative
number) and the Initial Purchase Prices under this Agreement and the Herndon
Agreement shall be adjusted accordingly. Similarly, Parent and AlliedSignal
shall agree on an appropriate allocation of any post-Closing adjustments of the
purchase price required under Section 1.6(f).
9.16 Relationship with Herndon Agreement. The parties acknowledge
-----------------------------------
and agree that it is the intent of the parties that, notwithstanding any other
provision of this Agreement or the Herndon Agreement, the representations,
warranties and covenants contained in this Agreement and in the Herndon
Agreement that (i) have substantially the same language (without regard to the
identity of the parties making such representation or warranty or about whom
such representation or warranty is made) and (ii) contain either the language
"in the aggregate" or a similar combining concept or a reference to a Material
Adverse Effect (a "Collective Representation" or a "Collective Covenant", as the
case may be) shall be deemed to be a single representation and warranty or a
single covenant, as the case may be, for purposes of determining whether such
representation and warranty has been breached or such covenant has been complied
with and all relevant facts relating to such Collective Representation or
Collective Covenant in both agreements shall be considered. As examples, if
there should be an issue regarding whether a Collective Representation contained
in this Agreement has been breached, the parties would consider inaccuracies in
such Collective Representation as well as inaccuracies in the corresponding
Collective Representation in the Herndon Agreement in determining whether a
breach of such Collective Representation had occurred and in determining the
materiality of any breach of a Collective Representation relating to the
Business, reference shall be made to the Combined Business.
<PAGE>
67
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
BANNER AEROSPACE, INC. ALLIEDSIGNAL INC.
By: /s/ Warren D. Persavich By: /s/ Joe Leonard
------------------------------ ------------------------------
Name: Warren D. Persavich Name: Joe Leonard
Title: Senior Vice President Title: Senior Vice President
ADAMS INDUSTRIES, INC. AS BAR LLC
By: /s/ Warren D. Persavich By: ALLIED SIGNAL INC.
------------------------------
Name: Warren D. Persavich
Title: Vice President
AEROSPACE BEARING SUPPORT, INC. By: /s/ Joe Leonard
------------------------------
Name: Joe Leonard
Title: Senior Vice President
By: /s/ Warren D. Persavich
------------------------------
Name: Warren D. Persavich
Title: Vice President
AIRCRAFT BEARING SUPPORT, INC.
By: /s/ Warren D. Persavich
------------------------------
Name: Warren D. Persavich
Title: Vice President
<PAGE>
68
BANNER DISTRIBUTION, INC.
By: /s/ Warren D. Persavich
------------------------------
Name: Warren D. Persavich
Title: Vice President
BURBANK AIRCRAFT SUPPLY, INC.
By: /s/ Warren D. Persavich
------------------------------
Name: Warren D. Persavich
Title: Vice President
HARCO, INC.
By: /s/ Warren D. Persavich
------------------------------
Name: Warren D. Persavich
Title: Vice President
PACAERO
By: /s/ Warren D. Persavich
------------------------------
Name: Warren D. Persavich
Title: Vice President
<PAGE>
ANNEX A
SELLERS
Name of Entity Jurisdiction of Organization
- -------------- ----------------------------
Adams Industries, Inc. Connecticut
Aerospace Bearing Support, Inc. California
Aircraft Bearing Corporation California
Banner Distribution, Inc. Delaware
Burbank Aircraft Supply, Inc. Delaware
Harco, Inc. Delaware
PacAero California
<PAGE>
ANNEX B
SELLER SUBSIDIARIES
Name of Entity Jurisdiction of Organization
- -------------- ----------------------------
Burbank Aircraft International, GmbH Germany
Harco Aerospace Fasteners, Ltd. Canada
Harco Northern Ireland, Ltd. United Kingdom
<PAGE>
ANNEX C
DEFINITIONS
The following terms shall have the respective meanings ascribed to
them in this Annex C. References to Sections constitute references to Sections
of the Agreement.
"Accounts Receivable" means all billed and unbilled accounts receivable and
-------------------
all trade notes receivable relating to the Combined Business whether recorded or
unrecorded, including, without limitation, all trade receivable from other
divisions or Affiliates of Parent and the Companies.
"Acquired Assets" means the Purchased Assets and the Subsidiary Assets.
---------------
"Acquired Real Property" means, collectively, the Leased Real Property and
----------------------
Owned Real Property.
"Acquisition Proposal" has the meaning set forth in Section 4.14.
--------------------
"Adjustment Amount" means an amount equal to the difference between
-----------------
Estimated Closing Date Net Worth and Target Net Worth expressed as a positive
number, as adjusted pursuant to Section 9.15.
"Adjustment Date" has the meaning set forth in Section 1.7(a).
---------------
"Affiliate" of any Person means any Person directly or indirectly
---------
controlling, controlled by or under common control with such Person.
"Agreement" means the Asset Purchase Agreement, dated as of December ___,
---------
1997, by and among Parent, Sellers, AlliedSignal and Buyer, together with the
Annexes, Schedules and Exhibits attached thereto, as the same may be amended
from time to time in accordance with the terms thereof.
"AlliedSignal" had the meaning set forth in the Preamble of the Agreement.
------------
"AlliedSignal Common Stock" means the common stock, par value $1 per share,
-------------------------
of AlliedSignal.
"AlliedSignal Reports" has the meaning set forth in Section 3.6.
--------------------
"Ancillary Agreements" means the agreements to be delivered pursuant to
--------------------
Sections 5.1 and 5.2.
"Antitrust Division" means the Antitrust Division of the United States
------------------
Department of Justice.
<PAGE>
2
"Assets" means businesses, properties, assets, goodwill, rights, interests
------
and privileges of every kind, nature or description, wherever located, whether
real, personal or mixed, tangible or intangible, and without regard to whether
they have value for accounting purposes or are carried on or reflected in
relevant books and records or financial statements.
"Assigned Receivables" has the meaning set forth in Section 1.7(a).
--------------------
"Assumed Liabilities" has the meaning set forth in Section 1.3(a).
-------------------
"Assumed Tax Liabilities" means Tax liabilities for value-added Taxes, real
-----------------------
property Taxes, personal and intangible property Taxes and payroll Taxes, in
each case only to the extent included on the Closing Balance Sheet.
"Average Trading Price" means, as of a specified date, the average of the
---------------------
daily high and low closing prices of AlliedSignal Common Stock as reported on
the NYSE Composite Tape on each of the twenty (20) consecutive trading days
immediately preceding (and not including) such date.
"Balance Sheet" has the meaning set forth in Section 2.6.
-------------
"Basket" has the meaning set forth in Section 7.2(b).
------
"Bid" has the meaning set forth in Section 2.8(d).
---
"Business" has the meaning set forth in the Recitals of the Agreement.
--------
"Business Day" or "business day" means any day other than a Saturday,
------------ ------------
Sunday, or a day on which banking institutions in the City of New York are
authorized or obligated by law or executive order to close.
"Buyer" has the meaning set forth in the Preamble of the Agreement.
-----
"Buyer Escrow Claims" has the meaning set forth in Section 1.5(c).
-------------------
"Buyer Escrow Claim Loss Estimate" has the meaning set forth in Section
--------------------------------
1.5(c).
"Buyer Indemnified Parties" has the meaning set forth in Section 7.2(a).
-------------------------
"Cash Equivalent Purchase Price" means an amount equal to Three Hundred
------------------------------
Forty-Four Million Seven Hundred Seventy-Four Thousand Dollars ($344,774,000)
plus (x) the excess, if any, of the Closing Date Net Worth over the Target Net
- ----
Worth and minus (y) the excess, if any, of the Target Net Worth over the Closing
-----
Date Net Worth.
"Closing" has the meaning set forth in Section 1.8(a).
-------
"Closing Accounts Receivable" has the meaning set forth in Section 1.7(a).
---------------------------
<PAGE>
3
"Closing Date" has the meaning set forth in Section 1.8(a).
------------
"Closing Date Balance Sheet" shall mean the Proposed Closing Date Balance
--------------------------
Sheet as accepted or deemed final pursuant to Section 1.6(d) or (f), as the case
may be.
"Closing Date Net Worth" has the meaning set forth in Section 1.6(a).
----------------------
"Closing Date Shares" has the meaning set forth in Section 1.4(b).
-------------------
"COBRA" has the meaning set forth in Section 2.20(c)(iii).
-----
"Code" means the Internal Revenue Code of 1986, as amended.
----
"Collected Amount" has the meaning set forth in Section 1.7(a).
----------------
"Combined Business" means collectively the Business and the Business as
-----------------
defined in the Herndon Agreement.
"Combined Contracts" means, collectively, all Contracts and all Contracts
------------------
as defined in the Herndon Agreement.
"Companies" has the meaning set forth in the Preamble of the Agreement, and
---------
"Company" means any one of the Companies.
-------
"Competitive Activities" has the meaning set forth in Section 6.4(a).
----------------------
"Confidentiality Agreement" means that certain confidentiality agreement
-------------------------
dated June 27, 1997 between AlliedSignal and Parent.
"Confidential Information" has the meaning set forth in Section 6.5.
------------------------
"Confirmation of Indemnification" has the meaning set forth in Section
-------------------------------
7.4(b).
"Contracts" means (a) all written and oral contracts, licenses,
---------
commitments, agreements and instruments, including all customer contracts,
operating contracts and distribution contracts relating to the Business, (b) all
sales and purchase orders and supply agreements and other agreements relating to
the Business, (c) all leases of Equipment and Real Property relating to the
Business and (d) all other contracts, licenses, agreements and instruments
relating to the Business; provided, however, that the term "Contract" shall not
include any collective bargaining agreement or any employment agreement or other
Plan.
"Debt" means, with respect to any Person, the following Liabilities,
----
whether incurred by such Person, directly or indirectly, without duplication:
(i) its Liabilities for borrowed money;
<PAGE>
4
(ii) its Liabilities for the deferred purchase price of property
acquired by it (excluding accounts payable arising in the ordinary course
of business but including, without limitation, all liabilities created or
arising under any conditional sale or other title retention agreement with
respect to any such property);
(iii) the amount of the obligation of such Person as the lessee under
any Capital Lease that would, in accordance with GAAP, appear as a
Liability on a balance sheet of such Person ("Capital Lease" meaning, at
any time, a lease with respect to which such Person, as lessee, is required
concurrently to recognize the acquisition of an asset and the incurrence of
a Liability in accordance with GAAP);
(iv) amounts secured by any Lien with respect to any property owned by
such Person (whether or not it has assumed or otherwise become liable for
such amounts);
(v) all of its Liabilities in respect of letters of credit or
instruments serving a similar function issued or accepted for its account
by banks and other financial institutions (whether or not representing
obligations for borrowed money);
(vi) any Guarantee of such Person with respect to Liabilities of any
Person of the character described in any of the clauses described in (i)
through (vi) above ("Guarantee" meaning, with respect to any Person, any
obligation (except the endorsement in the ordinary course of business of
negotiable instruments for deposit or collection) of such Person
guaranteeing or in effect guaranteeing any indebtedness, dividend or other
Debt or obligation of any other Person in any manner, whether directly or
indirectly, including (without limitation) obligations incurred through an
agreement, contingent or otherwise, by such Person);
(vii) all Liabilities of any Subsidiary of such Person of the
character described in clauses (i) through (vii) above; and
(viii) all Liabilities of the character described in clauses (i)
through (vii) above with respect to which, and to the extent that, such
Person remains legally liable, notwithstanding that such Liability or
obligation is deemed extinguished under GAAP.
"Defective Inventory" means the aggregate of all (i) excess Inventory, (ii)
-------------------
obsolete or substandard Inventory, and (iii) Inventory that is not Traceable
Inventory, in each case determined in accordance with the procedures and
criteria set forth on Schedule 1.6(a).
"Disputed Account Receivable" has the meaning set forth in Section 1.7(a).
---------------------------
"Dispute Notice" has the meaning set forth in Section 1.6(c).
--------------
<PAGE>
5
"Disputes" has the meaning set forth in Section 1.6(c).
--------
"Employees" has the meaning set forth in Section 8.1.
---------
"Environmental Claim" shall mean any third party or governmental written
-------------------
claim, notice, request for information, demand, investigation, lawsuit,
proceeding, judgment, award, penalty, order or other action that could expose
Parent, the Companies, AlliedSignal or Buyer to Losses under any Environmental
Law or to Losses for personal injuries (including death) or property damage
relating to or arising from the presence of, or exposure to, Hazardous
Materials.
"Environmental Law" means all applicable Laws relating to the protection of
-----------------
the environment (including, but not limited to, natural resources) and human
health and safety, including, without limitation (a) all requirements pertaining
to reporting, licensing, permitting, investigation and remediation of emissions,
discharges, releases or threatened releases of Hazardous Materials or other
environmental conditions into the air, surface water, groundwater or land or
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Materials, and (b) all requirements
pertaining to the protection of the health and safety of employees and other
workers, and the protection of or compensation to individuals from or related to
exposures to Hazardous Materials.
"Environmental Liability" means any Liability (existing at, or arising
-----------------------
after, the Closing) under Environmental Law, or any remedial action (at or after
the Closing), in connection with the Acquired Assets or the Business to the
extent arising from any condition (including any Hazardous Materials condition)
existing, or any act or omission the Companies or any of their predecessors or
any of their past, present or future Subsidiaries, at or prior to the Closing
Date, including claims, demands, assessments, judgments, orders, causes of
action (including toxic tort suits), notices of actual or alleged violations or
Liability (including such notices regarding the disposal or release of Hazardous
Materials on the Acquired Real Property or elsewhere), proceedings and any
associated Losses.
"Environmental Permit" means any Permit issued under any Environmental Law
--------------------
or issued by any Governmental Entity responsible for environmental matters.
"Equipment" means all tangible assets and properties, except Real Property,
---------
owned, used or held for use by any Company, including cars, trucks and other
transportation equipment, machinery and equipment, tools, spare parts,
furniture, office equipment, furnishings and fixtures and machinery and
equipment under order or construction.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
-----
amended.
"Escrow Agent" means the escrow agent under the Escrow Agreement.
------------
"Escrow Agreement" has the meaning set forth in Section 1.9(c).
----------------
"Escrow Cash" means any of the following: (i) any investment in Government
-----------
Obligations; (ii) investments in time deposit accounts, certificates of deposit
and money market
<PAGE>
6
deposits maturing within 180 days of the date of acquisition issued by a bank or
trust issuer which is organized under the laws of the United States of America,
any state thereof or any foreign country recognized by the United States, and
which bank or trust issuer has capital, surplus and undivided profits
aggregating in excess of $50,000,000 (or the foreign currency equivalent
thereof) and has outstanding debt which is rated "A" (or such similar equivalent
rating) or higher by at least one nationally recognized statistical rating
organization (as defined in Rule 436 under the Securities Act) or any money
market fund sponsored by a registered broker dealer or mutual fund distributor;
(iii) repurchase obligations with a term of not more than 30 days for underlying
securities of the types described in clause (ii) above; and (iv) investments in
securities with maturities of six months or less from the date of acquisition
issued or fully guaranteed by any state, commonwealth or territory of the United
States of America, or by any political subdivision or taxing authority thereof,
and rated at least "A" by Standard & Poor's Ratings Group or "A" by Moody's
Investors Service, Inc.
"Escrow Release Date" has the meaning set forth in Section 1.5(c).
-------------------
"Estimated Closing Date Net Worth" has the meaning set forth in Section
--------------------------------
1.4(a).
"Estimated Share Number" has the meaning set forth in Section 1.4(b).
----------------------
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
------------
"Excluded Assets" has the meaning set forth in Section 1.2(b).
---------------
"FAA" means the Federal Aviation Administration.
---
"Fairchild" means The Fairchild Corporation, a Delaware corporation.
---------
"Final Future Tax Benefits" has the meaning set forth in Section 2.6(b).
-------------------------
"Financial Statements" has the meaning set forth in Section 2.6.
--------------------
"Firm" has the meaning set forth in Section 1.6(d).
----
"FIRPTA Affidavit" has the meaning set forth in Section 1.9(a)(viii).
----------------
"Foreign Employees" has the meaning set forth in Section 8.3(a).
-----------------
"Foreign Plan" has the meaning set forth in Section 2.20(a)(iii).
------------
"Former Employees" has the meaning set forth in Section 8.1.
----------------
"Free-Standing Plan" has the meaning set forth in Section 2.20(a)(iii).
------------------
"FTC" means the United States Federal Trade Commission.
---
<PAGE>
7
"GAAP" means United States generally accepted accounting principles,
----
consistently applied.
"Government Contract" shall mean any written prime contract, subcontract,
-------------------
grant or cooperative agreement with (i) the US Government, (ii) any prime
contractor of the US Government or (iii) any subcontractor with respect to any
contract described in clauses (i) or (ii) above.
"Governmental Entity" means (a) any multinational, federal, provincial,
-------------------
state, municipal, local or other governmental or public department, court,
commission, board, bureau, agency, legislative or quasi-legislative body or
instrumentality, domestic or foreign; (b) any subdivision, agent, commission,
board, or department, authority, or similar body or instrumentality of any of
the foregoing; or (c) any quasi-governmental or private body exercising any
regulatory, expropriation or taxing governmental authority under or for the
account of any of the foregoing.
"Government Obligations" means direct obligations (or certificates
----------------------
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged.
"Hazardous Material" means any substance, material or waste (a) the
------------------
presence of which requires investigation or remediation under any Environmental
Law, (b) which is regulated by an applicable Governmental Entity, which
substance, material or waste includes, without limitation, petroleum and its by-
products, friable asbestos, and any material or substance which is defined as a
"hazardous waste," "hazardous substance," "hazardous material," "restricted
hazardous waste," "industrial waste," "solid waste," "contaminant," "pollutant,"
"toxic waste" or "toxic substance" under any provision of Environmental Law, (c)
which is toxic, explosive, corrosive, flammable, infectious, radioactive,
carcinogenic, mutagenic or otherwise hazardous, or (d) the presence of which
causes or threatens to cause a nuisance or trespass to any property or poses or
threatens to pose a hazard to the health or safety of individuals on or about
any such property.
"Herndon" means PB Herndon Aerospace, Inc., a Missouri corporation.
-------
"Herndon Agreement" means the Asset Purchase Agreement, dated as of the
-----------------
date of this Agreement, by and among Parent, Herndon, Banner Aerospace Services,
Inc., AlliedSignal and AS BAR PBH LLC, as the same may be amended form time to
time in accordance with the terms thereof.
"Herndon Assumed Liabilities" means Assumed Liabilities as defined in the
---------------------------
Herndon Agreement.
"Herndon Excluded Assets" means the Excluded Assets as defined in the
-----------------------
Herndon Agreement.
"Herndon Non-Assumed Liabilities" means the Non-Assumed Liabilities as
-------------------------------
defined in the Herndon Agreement.
<PAGE>
8
"Herndon Purchased Assets" means the Purchased Assets as defined in the
------------------------
Herndon Agreement.
"Herndon Sellers" means the Sellers under the Herndon Agreement.
---------------
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
-------
as amended.
"Inactive Employee" has the meaning set forth in Section 8.2(a).
-----------------
"Indemnification Claim" has the meaning set forth in Section 7.4(a).
---------------------
"Indemnification Escrow Shares" means (i) as of the Closing Date, a number
-----------------------------
of shares of AlliedSignal Common Stock equal to five percent (5%) of the
Estimated Share Number and (ii) thereafter, the initial number of
Indemnification Escrow Shares less any Indemnification Escrow Shares from time
to time released from escrow pursuant to Section 1.5(b) or (d).
"Indemnified Party" has the meaning set forth in Section 7.4(a).
-----------------
"Indemnifying Party" has the meaning set forth in Section 7.4(a).
------------------
"Initial Purchase Price" has the meaning set forth in Section 1.4(b).
----------------------
"Intellectual Property" means all foreign and domestic patents (including
---------------------
all reissues, divisions, continuations and extensions thereof), patent rights,
service marks, trademarks and tradenames, trade dress, all product names, all
assumed or fictitious names and the logos associated therewith, copyrights,
applications for the foregoing, licenses and other contractual rights with
respect to the foregoing and other such property and intangible rights owned,
used or held for use by any Company, including financial and marketing business
data, pricing and cost information, business and marketing plans and customer
and suppliers lists, together with the goodwill of the Business in connection
with which such trademarks, tradenames, product names and service marks are
used.
"Inventory" means all inventory of the Combined Business, including
---------
finished goods, work-in-progress, raw materials, operating chemical and
catalysts, parts, accessories, packaging, manufacturing, administrative and
other supplies on hand, goods held for sale or lease or to be furnished under
Assumed Contracts, and other inventory owned, used or held for use by any
Company.
"IRS" means the United States Internal Revenue Service.
---
"Laws" means all laws, constitutions, statutes, codes, ordinances, decrees,
----
rules, regulations, municipal by-laws, judicial or arbitral or administrative or
ministerial or departmental or regulatory judgments, orders, decisions, rulings
or awards, consent orders, consent decrees, policies, voluntary restraints,
guidelines, or any provisions or interpretations of the foregoing, including
general principles of common and civil law and equity, binding on or affecting
the Person referred to in the context in which such word is used.
<PAGE>
9
"Leased Real Property" means all leased Real Property relating to the
--------------------
Business including, without limitation, all Real Property listed on Part B of
Schedule 2.13(a).
"Liabilities" means, as to any Person, all debts, liabilities, obligations
-----------
and responsibilities of any kind or nature whatsoever of such Person, whether
direct or indirect, fixed or contingent, known or unknown, accrued, vested or
otherwise, whether in contract, tort, strict Liability or otherwise, and whether
or not actually reflected, or required by GAAP to be reflected, in such Person's
balance sheets or other books and records.
"Lien" means any lien, charge, claim, pledge, security interest,
----
conditional sale agreement or other title retention agreement, lease, mortgage,
security agreement, right of first refusal, option, restriction, tenancy,
license, covenant, right of way, easement or other encumbrance (including the
filing of, or agreement to give, any financing statement under the Uniform
Commercial Code or statute or law of any jurisdiction).
"Losses" means any losses, costs, expenses, damages including compensatory,
------
exemplary, or punitive damages, Taxes, penalties, fines, charges, demands,
Liabilities and claims of any kind (including interest, penalties and reasonable
attorneys' and consultants' fees, expenses and disbursements), except that
Losses shall not include attorneys' fees of AlliedSignal or Buyer if Parent has
delivered a Confirmation of Indemnification in respect of a Third Party
arbitration claim and offered to assume the defense thereof which offer was not
accepted because the amount of such indemnification claim exceeded Parent's net
worth and Parent was in compliance with (S) 4.17 of the Agreement.
"Major Customer" means any customer of the Combined Business that accounted
--------------
for $500,000 or more in revenues of the Combined Business in the 1997 fiscal
year or could reasonably be expected to account for more than $500,000 or more
in revenues of the Combined Business in the 1998 fiscal year.
"Major Supplier" means any supplier of the Combined Business (including any
--------------
supplier of Intellectual Property) that accounted for $1,000,000 or more in
sales to the Combined Business in the 1997 fiscal year or could reasonably be
expected to account for more than $1,000,000 or more in sales to the Combined
Business in the 1998 fiscal year.
"Material Adverse Effect" means (i) a material adverse effect upon, or
-----------------------
material adverse change in, the operations, Assets, Liabilities, condition
(financial or otherwise), or results of operations of the Combined Business,
taken as a whole (ii) any event, condition, circumstance or change that is
reasonably likely to have a Material Adverse Effect referred to in preceding
clause (i), or (iii) a significant risk that Buyer and the Buyer under the
Herndon Agreement, in any material respect, will not be able after the Closing
to operate the Combined Business substantially as operated by, or to own,
possess and use the Acquired Assets and the Herndon Purchased Assets
substantially as owned, possessed and used by, the Companies and the Herndon
Sellers, taken as a whole, as of the date hereof; provided, however, that the
-------- -------
loss of business from customers and suppliers of the Combined Business
(including through termination of contracts or reduction of purchases) shall not
be deemed a Material Adverse Effect unless the condition in Section 5.1(e) of
the Agreement has not been satisfied.
<PAGE>
10
"Non-Assumed Liabilities" has the meaning set forth in Section 1.3(b).
-----------------------
"Novation Agreement" has the meaning set forth in Section 4.15.
------------------
"NYSE" means the New York Stock Exchange, Inc.
----
"OSHA" has the meaning set forth in Section 2.9(a) hereof.
----
"Owned Real Property" means all Real Property owned by Sellers or any
-------------------
Seller Subsidiary, including, without limitation, all Real Property listed on
Part A of Schedule 2.13(a).
"Parent" has the meaning set forth in the Preamble of the Agreement.
------
"Parent Common Stock" means the common stock, par value $1 per share, of
-------------------
Parent.
"Parent Subsidiaries" means the direct or indirect Subsidiaries of Parent
-------------------
or any other corporation or entity in which Parent owns a majority of the
capital stock or other equity interest.
"Parent Reports" has the meaning set forth in Section 2.28.
--------------
"PBGC" means the Pension Benefit Guaranty Corporation.
----
"Permits" means all franchises, approvals, permits, authorizations,
-------
licenses, orders, registrations, certificates, variances, exemptions and other
similar permits or rights obtained from any Governmental Entity relating to the
conduct of the Business or the Acquired Real Properties and all pending
applications therefor.
"Permitted Liens" means (a) Liens securing Taxes, assessments, governmental
---------------
charges or levies, all of which are not yet due and payable, (b) Liens (other
than any Lien imposed by ERISA) incurred or deposits made in the ordinary course
of the Business and on a basis consistent with past practice in connection with
worker's compensation, unemployment insurance or other types of social security,
(c) mechanics, materialman's, carrier's, warehousemen's, landlords and other
similar Liens under state or common law or (d) such other Liens which,
individually and in the aggregate, do not and would not detract from the value
of or impair the use of any Acquired Asset; it being understood that to the
extent a Permitted Lien relates to or arises from a Non-Assumed Liability, the
applicable Company shall still be liable for such Non-Assumed Liability to the
extent set forth herein.
"Person" means an individual, a corporation, a partnership, a limited
------
Liability company, an association, a firm, a Governmental Entity, a trust or
other entity or organization.
"Plans" has the meaning set forth in Section 2.20(a)(iii).
-----
"Preliminary Future Tax Benefits" has the meaning set forth in Section
-------------------------------
2.6(b).
"Prime Rate" means the rate of interest publicly announced by Citicorp USA,
----------
Inc. in New York, New York from time to time as its base rate.
<PAGE>
"Proposed Closing Date Balance Sheet" has the meaning set forth in Section
-----------------------------------
1.6(a)
"PTO" means the United States Patent and Trademark Office.
---
"Purchase Price Escrow Shares" means a number of shares of AlliedSignal
----------------------------
Common Stock equal to one percent (1%) of the Estimated Share Number.
"Purchased Assets" has the meaning set forth in Section 1.2(a).
----------------
"Real Property" means all real property, together with all fixtures,
-------------
fittings, buildings, structures and other improvements erected thereon, and
easements, rights of way, water lines, rights of use, licenses, hereditaments,
tenements, privileges and other appurtenances thereto (such as appurtenant
rights in and to public streets).
"Receivables Deficiency" has the meaning set forth in Section 1.7(a).
----------------------
"Receivables Excess" has the meaning set forth in Section 1.7(a).
------------------
"Receivables Notice" has the meaning set forth in Section 1.7(a).
------------------
"Receivables Reserve" has the meaning set forth in Section 1.7(a).
-------------------
"Registration Rights Agreement" means an agreement substantially in the
-----------------------------
form of Exhibit 1.9(b)(vi).
"Resolution Period" has the meaning set forth in Section 1.6(c).
-----------------
"Review Period" has the meaning set forth in Section 1.6(c).
-------------
"SEC" means the Securities and Exchange Commission.
---
"Securities Act" means the Securities Act of 1933, as amended.
--------------
"Seller" and "Sellers" have the respective meanings set forth in the
------ -------
Preamble of the Agreement.
"Seller Indemnified Parties" has the meaning set forth in Section 7.3(a).
--------------------------
"Seller Subsidiaries" has the meaning set forth in the Preamble of the
-------------------
Agreement, and "Seller Subsidiary" means any one of the Seller Subsidiaries.
-----------------
"Shortfall Amount" has the meaning set forth in Section 1.6(f)(iii).
----------------
"Side Letters" has the meaning set forth in Section 1.9(a)(xiii).
------------
"Small Claim" has the meaning set forth in Section 7.2(b).
-----------
"Small Licenses" has the meaning set forth in Section 2.15(d).
--------------
<PAGE>
12
"Special Claim" has the meaning set forth in Section 7.4(b).
-------------
"Subsidiary" of any Person means any corporation, partnership, joint
----------
venture, limited liability company, trust or other entity with respect to which
such Person directly or indirectly owns or controls more than 50% of (i) the
issued and outstanding capital stock having ordinary voting power to elect a
majority of the board of directors or other governing body of such corporation
(irrespective of whether at the time capital stock of any other class or classes
of such corporation shall or might have voting power upon the occurrence of any
contingency), (ii) the interest in the capital or profits of such partnership,
joint venture or limited liability company or (iii) the beneficial interest in
such trust.
"Subsidiary Assets" means all Assets of the Seller Subsidiaries.
-----------------
"Subsidiary Shares" means all of the outstanding shares of capital stock of
-----------------
(or other ownership interests in) the Seller Subsidiaries.
"Target Net Worth" means Two Hundred Twenty Million Twenty Five Thousand
----------------
Dollars ($220,025,000) plus the amount, if any, by which Final Future Tax
Benefits exceeds Preliminary Future Tax Benefits, but in any event not less than
$220,025,000.
"Tax" means any tax imposed under Subtitle A of the Code and any net
---
income, alternative or add-on minimum tax, gross income, gross receipts, sales,
use, ad valorem, value added, transfer, franchise, profits, license, lease,
service, service use, withholding on amounts paid to or by any Company, payroll,
employment, excise, severance, stamp, capital stock, occupation, property,
environmental or windfall profits tax, premium, custom duty or other tax,
governmental fee or other like assessment or charge of any kind whatsoever,
together with any interest, penalty, addition to tax or additional amount
imposed by any Governmental Entity responsible for the imposition of any such
tax (domestic or foreign) (a "Tax Authority").
-------------
"Tax Authority" has the meaning set forth in the definition of "Tax".
------------- ---
"Technology" means all formulae, processes, procedures, designs, ideas,
----------
research records, inventions (whether or not patentable), records of inventions,
test information, technical information, engineering data, marketing know-how,
proprietary information, manufacturing information, know-how, and trade secrets
(and all related manuals, books, files, journals, models, instructions,
patterns, drawings, blueprints, plans, designs specifications, equipment lists,
parts lists, descriptions, data, art work, software, computer programs and
source code data related thereto including all current and historical data
bases) owned, used or held for use by any Company ( it being understood that, to
the extent any such technology is licensed to a Company, "Technology" shall mean
any and all rights of such Company under such license).
"Third Party Indemnification Claim" has the meaning set forth in Section
---------------------------------
7.4(b).
"Third Party Rights" has the meaning set forth in Section 1.2(a)(xiii).
------------------
<PAGE>
13
"Traceable Inventory" means Inventory held pursuant to good and valid parts
-------------------
manufacturer approvals issued by the FAA, supplemental type certificates issued
by the FAA or other certificates required by applicable Laws including, without
limitation, those promulgated by the FAA.
"Trademarks" has the meaning set forth in Section 9.14.
----------
"Transaction Documents" has the meaning set forth in Section 2.3.
---------------------
"Transfer Taxes" means all state, local and foreign sales, use, transfer,
--------------
real property transfer, documentary stamp, recording and other similar taxes
arising from and with respect to the sale and purchase of the Purchased Assets.
"U.S. Employee" has the meaning set forth in Section 8.2(a).
-------------
"US Government" shall mean the United States Government and any agencies,
-------------
instrumentalities and departments thereof.
"U.S. Plans" has the meaning set forth in Section 2.20(a)(iii).
----------
"U.S. Transferred Employees" has the meaning set forth in Section 8.2(a).
--------------------------
"WARN Act" means the Worker Adjustment and Retraining Notification Act, as
--------
codified at 29 U.S.C. (S)(S) 2101 - 2109, as amended.
<PAGE>
EXHIBIT 1.9(xiii)(A)
--------------------
[Closing Date]
AlliedSignal Inc.
AS BAR LLC
AS BAR Herndon LLC
101 Columbia Road
Morristown, NJ
I refer to the Asset Purchase Agreement (the "Purchase Agreement") by and among
AlliedSignal Inc. ("AlliedSignal"), AS BAR LLC ("Buyer"), Banner Aerospace, Inc.
and the Sellers listed on Annex A thereto ("Sellers"), relating to the
acquisition of all the assets of Sellers and the Business (as defined therein),
and to the Herndon Agreement (as defined therein).
This will confirm that, as of December 1, 1997 and at all times through and
including the date hereof, I personally have not had and do not have any plan or
intention of entering into the business of distributing aerospace hardware parts
and will not do so through any entity which I control, other than The Fairchild
Corporation and its subsidiaries and affiliates (other than Banner Aerospace,
Inc. and its subsidiaries), during the thirty month period from today's date.
I understand that you are relying upon the assurances provided in this letter as
a material inducement to your consummating the transactions contemplated by the
Purchase Agreement.
Sincerely,
Jeffrey J. Steiner
<PAGE>
EXHIBIT 1.9(xiii)(B)
--------------------
[Closing Date]
AlliedSignal Inc.
AS BAR LLC
AS BAR Herndon LLC
101 Columbia Road
Morristown, NJ
The undersigned, on behalf of The Fairchild Corporation ("Fairchild") confirms
as follows:
We refer to the Asset Purchase Agreement (the "Purchase Agreement") by and among
AlliedSignal Inc. ("AlliedSignal"), AS BAR LLC ("Buyer"), Banner Aerospace, Inc.
and the Sellers listed on Annex A thereto ("Sellers"), relating to the
acquisition of all the assets of Sellers and the Business (as defined therein)
and to the Herndon Agreement (as defined therein).
This will confirm that, as of December 1, 1997 and at all times through and
including the date hereof, neither Fairchild nor any subsidiary or controlled
entity of Fairchild has had or has any plan or intention to acquire all or any
substantial part of the stock, assets or business of Tri-Star Aerospace, Inc.,
M & M Aerospace Hardware, Inc. or WESCO Aircraft Hardware Corporation.
We understand that you are relying upon the assurances provided in this letter
as a material inducement to your consummating the transactions contemplated by
the Purchase Agreement.
THE FAIRCHILD CORPORATION
By_________________________
<PAGE>
EXHIBIT 1.9(xiii)(C)
--------------------
THE FAIRCHILD CORPORATION
[Closing Date]
AlliedSignal Inc.
AS BAR LLC
AS BAR Herndon LLC
101 Columbia Road
Morristown, NJ
We refer to the Asset Purchase Agreement (the "Purchase Agreement") by and among
AlliedSignal Inc. ("AlliedSignal"), AS BAR LLC ("Buyer"), Banner Aerospace, Inc.
("Banner") and the Sellers listed on Annex A thereto ("Sellers"), relating to
the acquisition of all the assets of Sellers and the Business (as such terms are
defined therein) and to the Herndon Agreement (as defined therein).
In consideration of the benefits to be derived by The Fairchild Corporation
("Fairchild") from the transactions contemplated by the Purchase Agreement, this
will confirm the agreement of Fairchild that, during the period Banner is
required to maintain its corporate existence pursuant to Section 4.17 of the
Purchase Agreement, Fairchild shall take no action to authorize or implement
(including, without limitation, voting for) any dissolution of Banner or other
termination of Banner's corporate existence; provided, however, that (i)
-------- --------
Fairchild may take action to dissolve Banner or otherwise terminate its
existence if, prior to the consummation of such transaction, Fairchild agrees in
writing (for the benefit of the Buyer Indemnified Parties as defined in the
Purchase Agreement) to assume and become fully responsible for, pursuant to an
agreement reasonably satisfactory in form and substance to AlliedSignal, all
obligations of Banner under Article VII of the Purchase Agreement and (ii)
Fairchild may vote in favor of, or otherwise take action to implement a merger
or other business combination of Banner or a sale of substantially all its
assets if (x) upon the consummation of such transaction, the successor in
interest to Banner (or the purchaser of such assets, as the case may be) in such
transaction assumes in writing (for the benefit of the Buyer Indemnified Parties
as defined in the Purchase Agreement) and becomes fully responsible for,
pursuant to an agreement reasonably satisfactory in form and substance to
AlliedSignal, all of Banner's obligations under the Agreement (including,
without limitation, Banner's obligations under Article VII) and (y) immediately
after consummation of such transaction, such successor in interest (or
purchaser, as the case may be) has a net worth of not less than the net worth
then required to be maintained by Banner pursuant to Section 4.17 of the
Purchase Agreement.
<PAGE>
2
We understand that you are relying upon the obligations set forth in this letter
as a material inducement to your consummating the transactions contemplated by
the Purchase Agreement.
THE FAIRCHILD CORPORATION
By_________________________
<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 9, 1997
