UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 29, 1996
Commission File Number: 1-6560
THE FAIRCHILD CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 34-0728587
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Washington Dulles International Airport
300 West Service Road, P.O. Box 10803
Chantilly, Virginia 20153
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(Address of principal executive offices)
(Zip Code)
(703) 478-5800
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
---- ----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Outstanding at
Class December 29, 1996
- ----- -----------------
Class A Common Stock, $.10 Par Value 13,938,572
Class B Common Stock, $.10 Par Value 2,632,690
----------
16,571,262
<PAGE>
THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES*
INDEX
PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
as of December 29, 1996 (Unaudited)
and June 30, 1996 3
Consolidated Statements of Earnings
for the Three and Six Months Ended
December 29, 1996 and December 31, 1995
(Unaudited) 5
Condensed Consolidated Statements of Cash
Flows for the Six Months Ended
December 29, 1996 and December 31, 1995
(Unaudited) 7
Notes to Condensed Consolidated Financial
Statements (Unaudited) 8
Item 2. Management's Discussion and Analysis
of Results of Operations and Financial
Condition 15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 23
Item 4. Submission of Matters to Vote of
Secruity Holders 23
Item 5. Other Information 23
Item 6. Exhibits and Reports on Form 8-K 24
*For purposes of Part I of this Form 10-Q, the term "Company" means The
Fairchild Corporation, and its subsidiaries, unless otherwise indicated. For
purposes of Part II, the term "Company" means The Fairchild Corporation
unless otherwise indicated.
<PAGE>
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
<CAPTION>
December 29, June 30,
ASSETS 1996 1996
- ------ ------------- -----------
(Unaudited) (*)
<S> <C> <C>
Current Assets:
Cash and cash equivalents, $7,265 and $8,224
restricted................................. $ 98,323 $ 39,649
Short-term investments....................... 11,194 10,498
Accounts receivable-trade, less allowances
of $6,623 and $6,327....................... 98,360 98,694
Notes receivable............................. -- 170,384
Inventories:
Finished goods............................ 254,314 236,263
Work-in-process........................... 21,118 16,294
Raw materials............................. 15,169 18,586
--------- ---------
290,601 271,143
Prepaid expenses and other current assets.... 23,537 19,275
--------- ---------
Total Current Assets......................... 522,015 609,643
Property, plant and equipment, net of
accumulated depreciation of $85,411 and
$79,273.................................... 86,175 87,956
Net assets held for sale..................... 46,787 45,405
Cost in excess of net assets acquired,
(Goodwill) less accumulated amortization of
$34,141 and $31,912......................... 137,579 140,201
Investments and advances, affiliated
companies................................... 51,381 53,471
Prepaid pension assets....................... 57,774 57,660
Deferred loan costs.......................... 10,228 7,825
Other assets................................. 7,939 7,777
--------- ---------
Total Assets................................. $ 919,878 $1,009,938
========= =========
*Condensed from audited financial statements
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
</TABLE>
<TABLE>
THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
<CAPTION>
December 29, June 30,
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1996
- ------------------------------------- ------------- ----------
(Unaudited) (*)
<S> <C> <C>
Current Liabilities:
Bank notes payable and current maturities
of long-term debt........................... $ 9,408 $ 84,892
Accounts payable............................. 52,653 65,478
Other accrued liabilities.................... 77,950 81,757
Income taxes................................. 9,753 24,635
--------- ---------
Total Current Liabilities.................... 149,764 256,762
Long-term debt, less current maturities...... 390,851 368,589
Other long-term liabilities.................. 19,793 18,605
Retiree health care liabilities.............. 42,432 44,452
Noncurrent income taxes...................... 32,145 31,737
Minority interest in subsidiaries............ 60,246 58,625
--------- ---------
Total Liabilities............................ 695,231 778,770
Stockholders' Equity:
Class A common stock, 10 cents par value;
authorized 40,000,000 shares, 20,180,168
shares issued (19,997,756 in June) and
13,938,572 shares outstanding (13,756,160
in June)................................... 2,018 2,000
Class B common stock, 10 cents par value;
authorized 20,000,000 shares, 2,632,690
shares issued and outstanding (2,633,704
in June)................................... 263 263
Paid-in capital.............................. 70,208 69,366
Retained earnings............................ 201,023 208,618
Cumulative translation adjustment............ 2,974 2,760
Net unrealized holding loss on available-for-
sale securities............................ (120) (120)
Treasury Stock, at cost, 6,241,596 shares of
Class A Common Stock....................... (51,719) (51,719)
--------- ---------
Total Stockholders' Equity................... 224,647 231,168
--------- ---------
Total Liabilities and Stockholders' Equity... $ 919,878 $1,009,938
========= =========
*Condensed from audited financial statements.
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
</TABLE>
<TABLE>
THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited)
(In thousands, except per share data)
<CAPTION>
Three Months Ended Six Months Ended
December 29, December 31, December 29, December 31,
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue:
Net sales of products............. $159,912 $ 76,814 $306,002 $157,633
Revenues from services............ -- 26,636 -- 53,743
Other income (expense), net....... 425 (9) 648 136
------- ------- ------- -------
160,337 103,441 306,650 211,512
Costs and Expenses:
Cost of goods sold................ 121,137 61,175 227,417 125,572
Cost of services.................. -- 19,239 -- 39,177
Selling, general & administrative. 36,406 20,279 72,252 41,274
Research and development.......... 22 23 45 44
Amortization of goodwill.......... 1,113 1,168 2,229 2,378
Restructuring..................... -- 285 -- 285
------- ------- ------- -------
158,678 102,169 301,943 208,730
Operating income.................... 1,659 1,272 4,707 2,782
Interest expense.................... 11,468 17,720 26,140 36,047
Interest income..................... (1,579) (401) (3,771) (1,279)
------- ------- ------- -------
Net interest expense................ 9,889 17,319 22,369 34,768
Investment income (loss), net....... 1,836 (83) 1,461 1,912
Equity in earnings of affiliates.... 398 (169) 2,709 1,889
Minority interest................... (776) (544) (1,561) (1,085)
------- ------- ------- -------
Loss from continuing operations
before taxes....................... (6,772) (16,843) (15,053) (29,270)
Income tax benefit.................. 3,795 7,827 7,458 10,968
------- ------- ------- -------
Loss from continuing operations..... (2,977) (9,016) (7,595) (18,302)
Earnings from discontinued
operations, net.................... -- 3,420 -- 7,290
Loss on disposal of discontinued
operations, net................... -- (7) -- (27)
------- ------- ------- -------
Net loss............................ $ (2,977) $ (5,603) $ (7,595) $(11,039)
======= ======= ======= =======
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
</TABLE>
<TABLE>
THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited)
(In thousands, except per share data)
<CAPTION>
Three Months Ended Six Months Ended
December 29, December 31, December 29, December 31,
1996 1995 1996 1995
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Primary and Fully Diluted
Earnings Per Share:
Loss from continuing operations....... $ (.18) $ (.56) $ (.46) $ (1.13)
Earnings from discontinued operations,
net................................. -- .21 -- .45
------- ------- ------- -------
Net loss.............................. $ (.18) $ (.35) $ (.46) $ (.68)
======= ======= ======= =======
Weighted average number of shares used
in computing earnings per share..... 16,551 16,130 16,489 16,122
The accompanying Notes to Consolidated Financial Statements are an integral part of these
statements.
</TABLE>
<TABLE>
THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
<CAPTION>
Six Months Ended
December 29, December 31,
1996 1995
------------- -----------
<S> <C> <C>
Cash flows provided by (used for)
Operations:
Net loss......................................... $ (7,595) $(11,039)
Depreciation and amortization................... 10,304 16,179
Accretion of discount on long-term liabilities.. 2,235 2,132
Distributed (undistributed) earnings of
affiliates, net............................... 1,906 (1,106)
Minority interest............................... 1,561 1,085
Changes in assets and liabilities............... (62,313) (23,845)
Non-cash charges and working capital changes of
discontinued operations....................... -- 3,524
------- -------
Net cash used for operations.................... (53,902) (13,070)
Investments:
Collections on notes receivable from operations
sold.......................................... 173,719 --
Purchase of property, plant and equipment....... (5,233) (6,873)
Changes in investments.......................... (2,361) (1,297)
Changes in net assets held for sale............. (936) (913)
Other, net...................................... 21 9
Investing activities of discontinued operations. -- (875)
------- -------
Net cash provided by (used for) investments..... 165,210 (9,949)
Financing:
Proceeds from issuance of debt.................. 40,627 17,119
Debt repayments and repurchase of debentures,
net........................................... (94,394) (22,118)
Issuance of Class A common stock................ 859 328
------- -------
Net cash used for financing..................... (52,908) (4,671)
Effect of exchange rate changes on cash............. 274 (525)
Net increase (decrease) in cash..................... 58,674 (28,215)
Cash and cash equivalents, beginning of period...... 39,649 71,182
------- -------
Cash and cash equivalents, end of period............ $ 98,323 $ 42,967
======= =======
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
</TABLE>
THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(In thousands, except per share data)
Note 1 - Financial Statements
The consolidated balance sheet as of December 29, 1996 and the
consolidated statements of earnings and cash flows for the six months ended
December 29, 1996 and December 31, 1995 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 December 29, 1996 and for
all periods presented, have been made. The balance sheet at June 30, 1996
was also 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, 1996 Form
10-K and Banner Aerospace, Inc.'s March 31, 1996 Form 10-K. The results of
operations for the period ended December 29, 1996 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.
Note 2 - Merger Agreement
The Company, RHI Holdings, Inc. ("RHI"), a wholly owned subsidiary of
the Company, 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 Fairchild Holding Corp. ("FHC"),
a wholly owned subsidiary of RHI, 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.
Note 3 - Discontinued Operations
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.
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. In
addition, the Company has an opportunity to earn an additional 100,000 shares
based on the future performance of SSE during the twelve months following the
date of sale.
Accordingly, DME and Data have been accounted for as discontinued
operations. The combined net sales of DME and Data totaled $45,475 and
$91,342 for the second quarter and first six months of Fiscal 1996,
respectively. Net earnings from discontinued operations was $3,420 in the
second quarter of Fiscal 1996 and $7,290 for the six months ended December
31, 1995.
Note 4 - Majority Interest Business Combination
Effective February 25, 1996, the Company completed a transfer of the
Company's Harco Division ("Harco") to Banner Aerospace, Inc. ("Banner") in
exchange for 5,386,477 shares of Banner common stock. The exchange has
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 consolidated Banner on February 25, 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.
Note 5 - Pro forma Financial Statements
The following unaudited pro forma information for the six months ended
December 31, 1995, 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 the period. The pro forma information
is based on the historical financial statements of the Company, DME, Data,
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
to exclude Series C Preferred Stock of FII 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 the
Fiscal 1996 period, nor is it necessarily indicative of future results of the
Company.
<TABLE>
<CAPTION>
Six Months Ended
December 31, 1995
------------------
<S> <C>
Sales................................... $ 284,860
Loss from continuing operations......... (11,331)
Loss from continuing operations
per share........................... (.70)
Net loss................................ (11,404)
Net loss per share.................... (.71)
</TABLE>
The pro forma financial information has not been adjusted for non-
recurring income or expense and gains from disposal of discontinued
operations that have been or are expected to be incurred from these
transactions within the ensuing year.
Note 6 - 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>
Six Months Ended
---------------------------
December 29, December 31,
1996 1995
------------ ------------
<S> <C> <C>
Net sales................................. $147,657 $189,684
Gross profit.............................. 64,487 55,232
Earnings from continuing operations....... 3,199 7,228
Net earnings.............................. 3,199 7,228
</TABLE>
The Company owns approximately 31.9% of Nacanco common stock. The
Company recorded equity earnings of $1,571 and $2,037 from this investment
for the six months ended December 29, 1996 and December 31, 1995,
respectively.
Since March 13, 1996, as a result of the Merger in which the Company
received a 41% interest in STFI, the Company has accounted for its investment
in STFI using the equity method. Prior to March 13, 1996, the Company
consolidated the results of FCSC, which was merged into STFI (see Note 2).
The Company recorded equity earnings of $1,095 during the six months ended
December 29, 1996.
On December 29, 1996, the Company's investments in STFI consisted of (i)
$21,174 carrying value for the $25,000 face value 6% cumulative Convertible
Preferred Stock, (ii) $10,136 carrying value for the $20,000 face value
Special Preferred Stock, and (iii) $(406) carrying value for 6,200,000 shares
of common stock of STFI. At the close of trading on December 27, 1996,
STFI's common stock was quoted at $9.125 per share. Based on this price, the
Company's investment in STFI common stock had an approximate market value of
$56,575.
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 earnings of
$375 from this investment for the six months ended December 31, 1995.
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.
Note 7 - Restricted Cash
The Company had approximately $7,265 and $8,224 of restricted cash on
December 29, 1996 and June 30, 1996, respectively, all of which is maintained
as collateral for certain debt facilities.
Note 8 - Credit Agreements
Prior to July 29, 1996, the Company through RHI's subsidiary Fairchild
Holding Corp. ("FHC"), borrowed under an Interim Credit Agreement (the
"Interim Credit Agreement") with a consortium of banks. The Interim Credit
Agreement at FHC matured on July 29, 1996, at which time the Company repaid
in full the loans made under the Interim Credit Agreement. On July 26, 1996,
the Company amended and restated the terms and provisions of the Interim
Credit Agreement, in their entirety (the "Restated Credit Agreement"). The
Restated 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 and requires a borrowing base to determine
availability under the limit. The borrowing base is determined monthly based
upon specified percentages of FHC's accounts receivable, inventories and the
appraised value of equipment and real property. The FHC Revolver consists
of up to $40,000 available in the United States and $12,000 available in
Europe. 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 1/2% 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 Restated 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
Restated Credit Agreement restricts the FHC's annual capital expenditures to
$12,000. Substantially all of FHC's assets are pledged as collateral under
the Restated Credit Agreement. At December 29, 1996, FHC was in compliance
with all the covenants under the Restated Credit Agreement.
FHC may transfer available cash as dividends to the Company.
On July 1, 1996, Banner amended its credit agreement (the "Banner Credit
Agreement") which provides Banner and its subsidiaries with funds for working
capital and potential acquisitions. The Banner Credit Agreement consists of
a $55,000 term loan and a $71,500 revolving credit facility, both of which
initially bear interest at prime plus 1 1/4% or LIBOR plus 2 1/2%, and a
$30,000 seven-year term loan ("Tranche B Loan"), and requires that loans made
to Banner do not exceed a defined borrowing base, which is based upon a
percentage of inventories and accounts receivable. The Tranche B Loan bears
interest at Prime plus 1 3/4% or LIBOR plus 3%. Banner's term loans require
certain semiannual loan payments. Interest rates on Banner's borrowings
whether computed at the prime rate or LIBOR may increase by 1/4% or decrease
by up to 1% based upon certain performance criteria. On December 31, 1996,
Banner's performance level resulted in borrowings under the Banner Credit
Agreement being at an interest rate of prime plus 1% and LIBOR plus 2 1/4%
for the quarter ending March 31, 1997. Banner's revolving credit facility is
subject to a non-use fee of 1/2% of the unused availability. Substantially
all of Banner's assets are pledged as collateral under the Banner Credit
Agreement.
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 December 29, 1996, Banner was in compliance with all covenants under the
Banner Credit Agreement.
Banner has 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 a 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 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.
Note 9 - Minority Interests in Consolidated Subsidiaries
Included in the Company's $60,246 of minority interest at December 29,
1996, is $59,975 representing approximately 40.7% of Banner's common stock
effectively outstanding on a consolidated basis.
Note 10 - Equity Securities
The Company had 13,938,572 shares of Class A Common Stock and 2,632,690
shares of Class B Common Stock outstanding at December 29, 1996. During the
first six months of Fiscal 1997, 181,398 shares of Class A Common Stock were
issued as a result of the exercise of stock options. Class A Common Stock is
traded on both the New York and Pacific Stock Exchanges while 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 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. During the six months ended December 29, 1996, 1,014
shares of Class B Common Stock were exchanged for Class A Common Stock.
Note 11 - Earnings Per Share
Primary and fully diluted earnings per share are computed by dividing
net income available to common stockholders 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 the six
months ended December 29, 1996 and December 31, 1995, the conversion of
options and warrants was not assumed, as the effect was antidilutive.
Note 12 - Commitments and Contingencies
CL Motor Freight ("CL") Litigation
- ----------------------------------
The Workers Compensation Bureau of the State of Ohio is seeking
reimbursement from the Company for up to $5,400,000 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.
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. 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 and other aerospace fastener and industrial product
manufacturers 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 cleanup. 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 December 29, 1996, the consolidated total recorded liabilities of
the Company for environmental matters approximated $9,655, 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 $17,486.
<PAGE>
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 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.
Note 13 - Subsequent Events
On January 16, 1997, Banner, through its subsidiary, Dallas Aerospace,
Inc., consummated the acquisition of 100% of the outstanding stock of PB
Herndon Company ("PB Herndon") for approximately $14,700. In addition,
Banner paid approximately $1,300 to repay certain loans of PB Herndon.
Banner recorded approximately $3,451 of goodwill as a result of this
acquisition. Banner financed this transaction by borrowing $16,000 from RHI.
PB Herndon is a distributor of a specialty fastener lines and other aerospace
related components.
On January 23, 1997, the Company's Aerospace Fasteners Segment acquired
an exclusive call option to purchase a majority interest in Simmonds, SA
("Simmonds") for approximately $21,000 and the assumption of approximately
$35,500 in debt. The transaction, which is contingent upon receipt of
necessary approvals, gives the Company the right to purchase common shares
and convertible notes representing approximately 84.2% of Simmonds on a fully
diluted basis. The Company is in the process of completing due dilligence
prior to exercise of its call option. Simmonds is one of Europe's leading
manufacturers and distributors of aerospace and automotive fasteners.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
- -------------------------------------------------
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
---------------------------------------------
The Fairchild Corporation (the "Company") was incorporated in October
1969, under the laws of the State of Delaware. On November, 15, 1990, the
Company changed its name from Banner Industries, Inc. to The Fairchild
Corporation. RHI Holdings, Inc. ("RHI") is a direct subsidiary of the
Company. RHI is the 100% owner of Fairchild Holding Corp. ("FHC") and the
majority owner of Banner Aerospace, Inc. ("Banner"). The Company's principal
operations are conducted through RHI and FHC. The Company also holds
significant equity interests in Shared Technologies Fairchild Inc. ("STFI")
and Nacanco Paketleme ("Nacanco").
FISCAL 1996 SIGNIFICANT TRANSACTIONS
The Company, RHI and Fairchild Industries, Inc. ("FII") the Company's
former 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 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 $223.5 million 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.
On February 22, 1996, pursuant to the Asset Purchase Agreement dated
January 26, 1996, the Company, through 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 $244.3 million, as adjusted. The sales price consists of $74.0
million in cash, and two 8% promissory notes in the aggregate principal
amount of $170.3 million (together, the "8% CMI Notes"). On July 29, 1996,
CMI paid in full the 8% CMI Notes.
On January 27, 1996, FII completed the sale of Fairchild Data
Corporation ("Data") to SSE Telecom, Inc. ("SSE") for book value of
approximately $4.4 million and 100,000 shares of SSE's common stock valued at
$9.06 per share, or $.9 million, at January 26, 1996, and warrants to
purchase an additional 50,000 shares of SSE's common stock at $11.09 per
share. In addition, the Company has an opportunity to earn an additional
100,000 shares based on the future performance of SSE during the twelve
months following the date of sale.
Accordingly, DME and Data have been accounted for as discontinued
operations. The combined net sales of DME and Data totaled $45.5 million
and $91.3 million for the second quarter and first six months of Fiscal 1996,
respectively. Net earnings from discontinued operations was $3.4 million in
the second quarter of Fiscal 1996 and $7.3 million for the six months ended
December 31, 1995.
Effective February 25, 1996, the Company completed the transfer of Harco
to Banner in exchange for 5,386,477 shares of Banner common stock. The
exchange has 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 consolidated Banner on
February 25, 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.
<PAGE>
RESULTS OF OPERATIONS
The Company currently operates in three principal business segments:
Aerospace Fasteners, Aerospace Distribution (Banner) and Technology Products
(formerly Industrial Products). For the six months ended December 31, 1995,
the Company consolidated operations in the Communications Services segment
and did not consolidate operations in the Aerospace Distribution segment.
The following table illustrates the historical sales and operating income of
the Company's continuing operations for the three and six month periods ended
December 29, 1996 and December 31, 1995.
<TABLE>
<CAPTION>
(In thousands) Three Months Ended Six Months Ended
December 29, December 31, December 29, December 31,
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Sales by Business Segment:
Aerospace Fasteners................... $ 56,494 $ 55,794 $111,541 $107,990
Aerospace Distribution (a)............ 96,985 -- 181,092 --
Technology Products................... 10,290 15,625 19,944 38,358
Communications Services (b)........... -- 32,031 -- 65,028
Eliminations (c)...................... (3,857) -- (6,575) --
------- ------- ------- -------
Total.................................... $159,912 $103,450 $306,002 $211,376
======= ======= ======= =======
Operating Income (Loss) by Business
Segment:
Aerospace Fasteners................... $ 2,156 $ 639 $ 4,264 $ (916)
Aerospace Distribution (a)............ 6,072 -- 12,053 --
Technology Products................... (2,272) (527) (4,434) 1,643
Communications Services (b)........... -- 4,862 -- 9,771
------- ------- ------- -------
Total.................................... 5,956 4,974 11,883 10,498
Corporate administrative expense...... (4,067) (3,395) (6,997) (7,252)
Other corporate expense............... (230) (307) (179) (464)
------- ------- ------- -------
Operating income......................... 1,659 1,272 4,707 2,782
Net interest expense..................... (9,889) (17,319) (22,369) (34,768)
Investment income (loss), net............ 1,836 (83) 1,461 1,912
Equity in earnings (loss) of affiliates.. 398 (169) 2,709 1,889
Minority interest........................ (776) (544) (1,561) (1,085)
------- ------- ------- -------
Loss from continuing operations before
income taxes.......................... (6,772) (16,843) (15,053) (29,270)
Income tax benefit....................... 3,795 7,827 7,458 10,968
------- ------- ------- -------
Loss from continuing operations.......... $ (2,977) $ (9,016) $ (7,595) $(18,302)
======= ======= ======= =======
(a) The Company became the majority shareholder of Banner Aerospace, Inc. in
February 1996 and accordingly, began consolidating their results as of then.
(b) Effective March 13, 1996, the Company's investment in the Communications
Services segment was recorded using the equity method.
<PAGE>
(c) Intersegment eliminations includes $6.5 million of sales from the
Aerospace Fasteners segment to the Aerospace Distribution segment for the six
months ended December 29, 1996.
</TABLE>
General
- -------
Overall sales increased by $56.5 million in the second quarter and $94.6
million for the Fiscal 1997 six month period, which reflected strong sales
performances from the Aerospace Fasteners and Aerospace Distribution business
segments compared to sales for the same periods in Fiscal 1996. Operating
income increased $.4 million in the second quarter and $1.9 million in the
Fiscal 1997 six month period, compared to operating income for the same
periods in Fiscal 1996. The first six months of Fiscal 1997 includes sales
and operating income from the Aerospace Distribution segment, offset
partially by the exclusion of sales and operating income from the
Communications Services segment which was unconsolidated effective March 13,
1996, as a result of the Merger into STI. (See discussion above).
Aerospace Fasteners
- -------------------
Sales in the Aerospace Fasteners segment increased $.7 million in the
second quarter and $3.6 million in the Fiscal 1997 six month period, compared
to the corresponding Fiscal 1996 periods, reflecting the continued growth
that was anticipated in this industry. New orders have been strong in recent
months. The Harco division was transferred to the Aerospace Distribution
segment on February 25, 1996. Excluding Harco's sales of $14.7 million in
the prior year six months, sales actually increased 19.5% in the Fiscal 1997
six month period.
Operating income in the Aerospace Fasteners segment increased $1.5
million in the second quarter and $5.2 million in the Fiscal 1997 six month
period, compared to the Fiscal 1996 periods. Excluding Harco's operating
income in the prior year six month period, operating income increased $7.1
million. Management intends to continue to implement productivity
improvements and reduce costs.
Aerospace Distribution
- ----------------------
The Aerospace Distribution segment reported sales of $97.0 million in
the second quarter and $181.1 million for the six month period ended December
29, 1996. Operating income was $6.1 million in the second quarter and $12.1
million for the six month period ended December 29, 1996.
As a result of the transfer of Harco to Banner, effective February 25,
1996, Harco's sales and operating income for the three and six months ended
December 29, 1996, are now being reported as part of the Aerospace
Distribution segment.
<PAGE>
Technology Products
- -------------------
Sales in the Technology Products segment, which primarily includes
Fairchild Technologies, decreased $5.3 million in the second quarter and
$18.4 million in the first six months of Fiscal 1997, compared to the Fiscal
1996 periods. This differential resulted primarily from a lower level of
shipments during the first six months of Fiscal 1997, while sales during the
first six months of the prior year benefitted from the shipment of a major
order. During the first six months of Fiscal 1997, Fairchild Technologies
received new orders totaling approximately $55.1 million, including several
multimillion dollar orders recently received which are scheduled to be
shipped during the second half of Fiscal 1997.
An operating loss of $2.1 million in the second quarter and $3.9 million
for the six months ended December 29, 1996, was recorded at Fairchild
Technologies in the Technology Products segment in the current periods,
partially due to the low level of sales, but also due to expansion of the
sales staff into the Far East. The Scandinavian Bellyloading Company ("SBC")
had a six month operating loss of $.5 million, consistent with the prior year
loss while SBC continues to be in a start up mode. SBC recently announced
$15 million of orders which are scheduled to be shipped over the next twelve
months, at which time the operation should become profitable. The Technology
Products segment reported an operating loss of $.5 million in the Fiscal 1996
second quarter and operating income of $1.6 million in the Fiscal 1996 first
six months.
Communications Services
- -----------------------
As a result of the Merger of the Communications Services segment into
STI on March 13, 1996, the Company is accounting for its current investment
in STFI, the merged company, using the equity method. For the three and six
months ended December 31, 1995, this segment reported sales of $32.0 million
and $65.0 million, respectively, and operating profit of $4.9 million and
$9.8 million, respectively.
Other Expenses/Income
- ---------------------
Corporate administrative expense decreased 3.5% in the first six month
period of Fiscal 1997, compared to the same periods in Fiscal 1996. The
decrease in the current six months period was due primarily to a reduction in
staff.
Net interest expense decreased 42.9% in the second quarter and 35.7% in
the six month period ended December 29, 1996, compared to the prior year
periods, due primarily to lower debt, as a result of the sale of DME and the
Merger, and higher interest income earned on higher cash and notes receivable
balances during the Fiscal 1997 first six months.
Investment income, net decreased $.5 million in the first six months of
Fiscal 1997, principally as a result of recording lower unrealized gains on
the fair market value adjustments of trading securities in the Fiscal 1997
period, compared to the Fiscal 1996 period.
Income taxes - The tax benefit from the continuing operations loss was
$7.5 million for the first six months of Fiscal 1997.
Earnings from discontinued operations, net, of $3.4 million in the
Fiscal 1996 second quarter and $7.3 million for the six months ended
December 31, 1995, includes the earnings, net of tax, from DME and Data.
The net loss of $7.6 million in the first six months of Fiscal 1997,
decreased by $3.4 million, compared to the first six months of Fiscal 1996,
after recognizing: (i) a $1.9 million increase in operating income, (ii) a
$12.4 million decrease in net interest expense, offset by (iii) a $3.5
million decrease in the tax benefit, and (iv) $7.3 million in earnings from
discontinued operations recorded in the prior period.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Working capital at December 29, 1996, was $372.3 million, which was
$19.4 million higher than at June 30, 1996. The principal reasons for this
increase included an increase in cash of $58.7 million and a $75.5 million
reduction in short-term notes payable. Other contributions to the increase
in working capital included a $19.5 million increase in inventories and
decreases in accounts payable of $12.8 million and other accrued liabilities,
including taxes, of $18.7 million. Partially offsetting the increase in
working capital was a $170.4 million decrease in notes receivable.
The Company's principal sources of liquidity are cash on hand, cash
generated from operations and borrowings under its credit agreement. The
Company also expects to generate cash from the sale of certain assets and
liquidation of investments. Net assets held for sale at December 29, 1996,
had a book value of $46.8 million and included two parcels of real estate in
California, a 68-acre parcel of real estate located in Farmingdale, New York,
two landfills in Pennsylvania, a real estate joint venture in California, and
several other parcels elsewhere, which the Company plans to sell, lease or
develop, subject to market conditions or, with respect to certain of the
parcels, the resolution of environmental matters.
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, litigation
settlements and related costs.
The Company maintains credit agreements (the "Credit Agreements") with
a consortium of banks, which provides revolving credit facilities to RHI, FHC
and Banner and term loans to Banner (collectively the "Credit Facilities").
Prior to July 29, 1996, the Company through FHC, borrowed under an
Interim Credit Agreement (the "Interim Credit Agreement") with a consortium
of banks. The Interim Credit Agreement at FHC matured on July 29, 1996, at
which time the Company repaid in full the loans made under the Interim Credit
Agreement. On July 26, 1996, the Company amended and restated the terms and
provisions of the Interim Credit Agreement in their entirety (the "Restated
Credit Agreement"). The Restated 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 $52.0 million and requires a borrowing
base to determine availability under the limit. The borrowing base is
determined monthly based upon specified percentages of FHC's accounts
receivable, inventories and the appraised value of equipment and real
property. The FHC Revolver consists of up to $40.0 million available in the
United States and $12.0 million available in Europe. 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 1/2% 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 Restated Credit Agreement requires FHC to comply with certain
financial and non-financial loan covenants, including maintaining a minimum
net worth of $150.0 million and maintaining certain interest and fixed charge
coverage ratios at the end of each Fiscal Quarter. Additionally, the
Restated Credit Agreement restricts the FHC's annual capital expenditures to
$12.0 million. Substantially all of FHC's assets are pledged as collateral
under the Restated Credit Agreement. At December 29, 1996, FHC was in
compliance with all the covenants under the Restated Credit Agreement.
FHC may transfer available cash as dividends to the Company.
RHI's Credit Agreement provides a $4.3 million revolving credit facility
(the "RHI Credit Agreement") which generally bears a base interest rate of
1/2% over the prime rate, requires a commitment fee of 1/2%, and matures on
May 26, 1998. RHI's Credit Agreement requires RHI to comply with specified
covenants and maintain a consolidated net worth of $175.0 million.
Additionally, RHI's capital expenditures are restricted, except for certain
leasehold improvements, to $2.0 million per Fiscal Year plus the selling
price of fixed assets for such Fiscal Year. At December 29, 1996, the
Company was in compliance with all the covenants under RHI's Credit
Agreement.
Banner has a credit agreement (the "Banner Credit Agreement") which
provides Banner and its subsidiaries with funds for working capital and
potential acquisitions. The Banner Credit Agreement consists of a $55.0
million term loan and a $71.5 million revolving credit facility, both of
which initially bear interest at prime plus 1 1/4% or LIBOR plus 2 1/2%, and
a $30.0 million seven-year term loan ("Tranche B Loan"), and requires that
loans made to Banner do not exceed a defined borrowing base, which is based
upon a percentage of inventories and accounts receivable. The Tranche B Loan
bears interest at Prime plus 1 3/4% or LIBOR plus 3%. Banner's term loans
require certain semiannual loan payments. Interest rates on Banner's
borrowings whether computed at the prime rate or LIBOR may increase by 1/4%
or decrease by up to 1% based upon certain performance criteria. On December
31, 1996, Banner's performance level resulted in borrowings under the Banner
Credit Agreement being at an interest rate of prime plus 1% and LIBOR plus
2 1/4% for the quarter ending March 31, 1997. Banner's revolving credit
facility is subject to a non-use fee of 1/2% of the unused availability.
Substantially all of Banner's assets are pledged as collateral under the
Banner Credit Agreement. The Banner Credit Agreement matures August 2001.
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 December 29, 1996, Banner was in compliance with all covenants under the
Banner Credit Agreement.
Banner has 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 $60.0 million
of debt through September 2000, by providing a 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 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 $20.0 million 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.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Reference is made to Note 12 of Notes to Consolidated Financial
Statements.
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Stockholders of the Company was held on November
21, 1996. Six matters of business were held to vote for the following
purposes: (1) the election of twelve directors of the Company for the ensuing
year("Proposal 1"); (2) the amendment of the 1986 Non-Qualified and Incentive
Stock Option Plan("Proposal 2"); (3) the approval of the grant of options
under the 1986 Non-Qualified and Incentive Stock Option Plan ("Proposal 3");
(4) the approval of the 1996 Non-Employee Directors Stock Option Plan
("Proposal 4"); (5) the approval of the material terms of the performance
goals for the fiscal 1997 incentive compensation award for the Company's
Chief Executive Officer ("Proposal 5"); and (6)the approval of material terms
of the performance goals for the fiscal years 1997, 1999, 2000 and 2001
incentive compensation award for the President and General Manager of
Fairchild Technologies, GmbH ("Proposal 6"). The following tables provides
the shareholder election results in number of shares:
<TABLE>
<CAPTION>
Proposal 1
Directors For Withheld
- -------------------- ---------- --------
<S> <C> <C>
Michael T. Alcox 37,970,823 835,089
Melville R. Barlow 37,967,823 838,089
Mortimer M. Caplin 37,969,889 836,023
Colin M. Cohen 37,969,613 836,299
Philip David 37,967,923 837,989
Harold J. Harris 37,970,323 835,589
Daniel Lebard 37,969,823 836,089
Samuel J. Krasney 37,970,481 835,431
Herbert S. Richey 37,968,391 837,521
Robert A. Sharpe II 37,968,826 837,089
Eric I. Steiner 37,963,298 842,614
Jeffrey J. Steiner 37,964,169 841,743
</TABLE>
<TABLE>
<CAPTION>
For Against Abstain Non-Vote
---------- ---------- --------- ---------
<S> <C> <C> <C> <C>
Proposal 2 36,059,782 1,204,356 48,892 1,492,882
Proposal 3 36,231,251 1,042,250 39,529 1,492,882
Proposal 4 36,123,796 1,178,553 10,681 1,492,882
Proposal 5 36,763,006 322,703 227,321 1,492,882
Proposal 6 8,208,036 29,088,250 16,744 1,492,882
</TABLE>
Item 5. Other Information
Articles have appeared in the French press reporting an investigation by
a French magistrate into certain allegedly improper business transactions
involving Elf Acquitaine, its former chairman and various third parties,
including Maurice Bidermann. In connection with this investigation, the
magistrate has made inquiry into allegedly improper transactions between
Jeffrey Steiner and that petroleum company. In response to the magistrate's
request that Mr. Steiner appear in France as a witness, Mr. Steiner submitted
a written statement concerning the transactions and has offered to appear in
person if certain arrangements were made. According to the French press, the
magistrate has also requested permission to investigate other
allegedly improper transactions involving another French petrolelum company
and, if granted, inquiry into transactions between Mr. Steiner and such company
could ensue. The Board of Directors of the Company has formed a special
committee of outside directors to advise it with respect to these matters,
and the special committee has retained counsel.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
--------
(i) Registrant's Amended and Restated Bylaws(as amended as of
November 21, 1996).
(ii) Financial Data Schedules
(b) Reports on Form 8-K
-------------------
No reports on Form 8-K were filed during the quarter.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
For THE FAIRCHILD CORPORATION
(Registrant) and as its Chief
Financial Officer:
By: Colin M. Cohen
Senior Vice President and
Chief Financial Officer
By: William B. Hamilton
Controller
Date: February 12, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> DEC-29-1996
<CASH> 98,323
<SECURITIES> 11,194
<RECEIVABLES> 104,983
<ALLOWANCES> (6,623)
<INVENTORY> 290,601
<CURRENT-ASSETS> 522,015
<PP&E> 86,175
<DEPRECIATION> 85,411
<TOTAL-ASSETS> 919,878
<CURRENT-LIABILITIES> 149,764
<BONDS> 390,851
0
0
<COMMON> 2,281
<OTHER-SE> 222,366
<TOTAL-LIABILITY-AND-EQUITY> 919,878
<SALES> 306,002
<TOTAL-REVENUES> 306,650
<CGS> 227,417
<TOTAL-COSTS> 301,943
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22,369
<INCOME-PRETAX> (15,053)
<INCOME-TAX> (7,458)
<INCOME-CONTINUING> (7,595)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,595)
<EPS-PRIMARY> (0.46)
<EPS-DILUTED> (0.46)
</TABLE>
AMENDED AND RESTATED
BYLAWS
OF
THE FAIRCHILD CORPORATION
(As Amended and Restated on November 21, 1996)
ARTICLE I
Offices
Section 1. The registered office shall be in the City of
Wilmington, County of New Castle, State of Delaware.
Section 2. The corporation may also have offices at such
other places both within and without the State of Delaware as the
board of directors may from time to time determine or the business
of the corporation may require.
ARTICLE II
Meetings of Stockholders
Section 1. All meetings of the stockholders for the election
of directors shall be held in the City of Cleveland, State of Ohio,
at such place as may be fixed from time to time by the board of
directors, or at such other place either within or without the
State of Delaware as shall be designated from time to time by the
board of directors and stated in the notice of the meeting.
Meetings of stockholders for any other purpose may be held at such
time and place, within or without the State of Delaware, as shall
be stated in the notice of the meeting or in a duly executed waiver
of notice thereof.
Section 2. Annual meeting of stockholders, commencing with
the year 1972, shall be held on the third Thursday of November, if
not a legal holiday, and if a legal holiday, then on the next
secular day following, at 2:00 P.M., EST, or at such other date and
time as shall be designated from time to time by the board of
directors and stated in the notice of the meeting, at which the
stockholders shall elect, by a plurality vote and by written
ballot, a board of directors, and transact such other business as
may properly be brought before the meeting.
Section 3. Written notice of the annual meeting stating the
place, date and hour of the meeting shall be given to each
stockholder entitled to vote at such meeting not less than ten or
more than sixty days before the date of the meeting.
Section 4. The officer who has charge of the stock ledger of
the corporation shall prepare and make, at least ten days before
every meeting of stockholders, a complete list of the stockholders
entitled to vote at the meeting, arranged in alphabetical order,
and showing the address of each stockholder and the number of
shares registered in the name of each stockholder. Such list shall
be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a
period of at least ten days prior to the meeting, either at a place
within the city where the meeting is to be held, which place shall
be specified in the notice of the meeting, or, if not so specified,
at the place where the meeting is to be held. The list shall also
be produced and kept at the time and place of the meeting during
the whole time thereof, and may be inspected by any stockholder who
is present.
Section 5. Special meetings of the stockholders, for any
purpose or purposes, unless otherwise prescribed by statute or by
the certificate of incorporation, may be called by the chairman of
the board or president, and shall be called by the chairman of the
board, president or secretary at the request in writing of a
majority of the board of directors, or at the request in writing of
stockholders owning shares representing a majority of the votes
entitled to be cast at such meeting. Such request shall state the
purpose or purposes of the proposed meeting.
Section 6. Written notice of a special meeting stating the
place, date and hour of the meeting and the purpose or purposes for
which the meeting is called, shall be given not less than ten nor
more than sixty days before the date of the meeting, to each
stockholder entitled to vote at such meeting.
Section 7. Business transacted at any special meeting of
stockholders shall be limited to the purposes stated in the notice.
Section 8. The holders of issued and outstanding stock
present in person or represented by proxy constituting a majority
of the votes entitled to be cast at a meeting of stockholders shall
constitute a quorum and the votes that are necessary for the
transaction of any business, except as otherwise required by
statute or the certificate of incorporation. If, however, such
quorum shall not be present or represented at any meeting of the
stockholders, the stockholders entitled to vote thereat, present in
person or represented by proxy, shall by a majority of votes cast
have power to adjourn the meeting from time to time, without notice
other than announcement at the meeting, until a quorum shall be
present or represented. At such adjourned meeting at which a
quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as
originally notified. If the adjournment is for more than thirty
days, or if after the adjournment a new record date is fixed for
the adjourned meeting, a notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at the
meeting.
Section 9. The affirmative vote of a majority of votes
entitled to be cast at a meeting of stockholders by holders of
shares present in person or represented by proxy at the meeting
shall be the act of the stockholders, except as otherwise required
by statute or the certificate of incorporation. Where a separate
vote by class or series of a class is required, the affirmative
vote of a majority of votes entitled to be cast on such matter at
a meeting of stockholders by holders of shares present in person or
represented by proxy at the meeting shall be the act of the
stockholders of such class or series, except as otherwise required
by statute or the certificate of incorporation.
Section 10. Unless otherwise provided in the certificate of
incorporation, any action required to be taken at any annual or
special meeting of stockholders of the corporation, or any action
which may be taken at any annual or special meeting of such
stockholders, may be taken without a meeting, without prior notice
and without a vote, if a consent in writing, setting forth the
action so taken, shall be signed by the holders of outstanding
stock having not less than the minimum number of votes that would
be necessary to authorize or take such action at a meeting at which
all shares entitled to vote thereon were present and voted. Prompt
notice of the taking of the corporate action without a meeting by
less than unanimous written consent shall be given to those
stockholders who have not consented in writing.
ARTICLE III
Directors
Section 1. The number of directors which shall constitute the
whole board shall be not less than three nor more than fifteen.
The first board shall consist of seven directors. Thereafter,
within the limits above specified, the number of directors shall be
determined by resolution of the board of directors or by the
stockholders at the annual meeting. The directors shall be elected
at the annual meeting of the stockholders, except as provided in
Section 2 of this Article, and each director elected shall hold
office until his successor is elected and qualified. Directors
need not be stockholders.
Section 2. Vacancies and newly created directorships
resulting from any increase in the authorized number of directors
may be filled by a majority of the directors then in office, though
less than a quorum, or by a sole remaining director, and the
directors so chosen shall hold office until the next annual
election and until their successors are duly elected and shall
qualify, unless sooner displaced. If there are no directors in
office, then an election of directors may be held in the manner
provided by statute. If, at the time of filling any vacancy or any
newly created directorship, the directors then in office shall
constitute less than a majority of the whole board (as constituted
immediately prior to any such increase), the Court of Chancery may,
upon application of any stockholder or stockholders holding at
least ten percent of the total number of the shares at the time
outstanding having the right to vote for such directors, summarily
order an election to be held to fill any such vacancies or newly
created directorships, or to replace the directors chosen by the
directors then in office.
Section 3. The business of the corporation shall be managed
by its board of directors, which may exercise all such powers of
the corporation and do all such lawful acts and things as are not
by statute or by the certificate of incorporation or by these By-
laws directed or required to be exercised or done by the
stockholders.
Meetings of the Board of Directors
Section 4. The board of directors of the corporation may hold
meetings, both regular and special, either within or without the
State of Delaware.
Section 5. The first meeting of each newly elected board of
directors shall be held at such time and place as shall be fixed by
the vote of the stockholders at the annual meeting and no notice of
such meeting shall be necessary to the newly elected directors in
order legally to constitute the meeting, provided a quorum shall be
present. In the event of the failure of the stockholders to fix
the time or place of such first meeting of the newly elected board
of directors, or in the event such meeting is not held at the time
and place so fixed by the stockholders, the meeting may be held at
such time and place as shall be specified in a notice given as
hereinafter provided for special meetings of the board of
directors, or as shall be specified in a written waiver signed by
all of the directors.
Section 6. Regular meetings of the board of directors may be
held without notice at such time and at such place as shall from
time to time be determined by the board.
Section 7. Special meetings of the board may be called by the
chairman of the board or the president on at least 24 hours' notice
to each director, either personally or by mail, by telegram or by
telephone; special meetings shall be called by the chairman of the
board, president or secretary in like manner and on like notice on
the written request of two directors. Notice of any such meeting
need not be given to any director who shall, either before or after
the meeting, submit a signed waiver of notice or who shall attend
such meeting without protesting before or at its commencement the
lack of notice to him. A notice or waiver of notice of any regular
or special meeting of the board need not state the purpose of or
the business to be transacted at such meeting.
Section 8. At all meetings of the board, one-third of the
total number of directors then serving shall constitute a quorum
for the transaction of business and the act of a majority of the
directors present at any meeting at which there is a quorum shall
be the act of the board of directors, except as may be otherwise
specifically provided by statute or by the certificate of
incorporation. If a quorum shall not be present at any meeting of
the board of directors the directors present thereat may adjourn
the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present.
Section 9. Unless otherwise restricted by the certificate of
incorporation or these By-laws, any action required or permitted to
be taken at any meeting of the board of directors or of any
committee thereof may be taken without a meeting, if all members of
the board or committee, as the case may be, consent thereto in
writing, and the writing or writings are filed with the minutes of
proceedings of the board or committee.
Executive Committee
Section 10. The corporation shall have an executive committee
(the "Executive Committee") consisting of not less than three
members of the board of directors of the corporation. The members
of the Executive Committee shall be designated by the Board of
Directors. The Executive Committee shall have authority to
exercise, by a meeting or by the unanimous written consent of its
members, during intervals between meetings of the board of
directors, all the powers and authority of such board in the
management and business and affairs of the corporation, however
conferred. The chairman of the board of the corporation shall
call, and cause to be held, at least six meetings of the Executive
Committee during each full fiscal year of the corporation.
Audit Committee
Section 11. The corporation shall have an audit committee
(the "Audit Committee") consisting of not less than three non-
management members of the board of directors whose association with
the corporation, in the opinion of the board of directors, will not
be inconsistent with the exercise of judgment independent of
management. The members of the Audit Committee shall be designated
by the board of directors.
Section 12. The purpose of the Audit Committee shall be to
assist the board of directors in discharging its duties relating to
the internal control, accounting and reporting practices of the
corporation and to establish and maintain communication between the
board of directors and the independent auditors of the corporation.
Without limiting the generality of the foregoing, the Audit
Committee shall have the responsibility of securing and reviewing
such financial information as it may deem necessary to enable the
board of directors to confirm that the corporation has devised and
is maintaining a system of internal accounting controls sufficient
to provide reasonable assurances that (1) transactions are being
executed in accordance with management's authorizations, (2)
transactions are being recorded as necessary to permit preparation
of financial statements in conformity with generally accepted
accounting principles, (3) access to assets is being permitted only
when authorized and (4) recorded accountability for assets is being
compared with existing assets at reasonable intervals and
appropriate action is being taken with respect to any differences.
Section 13. In carrying out its duties, the Audit Committee
shall have the authority (which authority may be exercised by a
meeting or by the unanimous written consent of all of the members
of the Committee) to:
a. make recommendations to the board of directors with
respect to the engagement or discharge of the independent auditors
of the corporation;
b. review the corporation's internal auditing procedures,
and coordinate the efforts of the internal and independent auditors
of the corporation;
c. review with the independent auditors of the
corporation the scope of their examination;
d. upon the completion of the annual audit, review the
audit process with the corporation's independent auditors to
ascertain that they (1) received the full cooperation of management,
(2) were fully satisfied with the disclosure and content of the
financial statements and (3) are not certifying the statements under
management pressure, it being the responsibility of the Audit
Committee to review the audit process and not the financial
statements themselves;
e. review any recommendations of the corporation's
independent auditors regarding internal controls and other
management matters;
f. consider the possible effect of any non-audit services
performed by the corporation's independent auditors on the
independence of such auditors;
g. approve the audit and all non-audit services performed
by the corporation's independent auditors and make recommendations
to the board of directors with respect to the compensation for such
services; and
h. receive copies of internal audit reports from the
internal auditing staff and, if deemed appropriate, meet with the
internal auditing staff and review with them any such reports.
Other Committees of Directors
Section 14. In addition to the Executive Committee and the
Audit Committee, the board of directors may designate one or more
other committees, each such other committee to consist of one or
more of the directors of the corporation. Any such other committee,
to the extent provided in the resolution of the board of directors,
shall have and may exercise all the powers and authority of the
board of directors in the management of the business and affairs of
the corporation and may authorize the seal of the corporation to be
affixed to all papers which may require it. Such other committee or
committees shall have such name or names as may be determined from
time to time by resolution adopted by the board of directors.
General Provisions and Restrictions
Applicable to All Committees of Directors
Section 15. With respect to any committee of the board of
directors (including, but not by way of limitation, the Executive
Committee and the Audit Committee), the board of directors may
designate one or more directors meeting the qualifications, if any,
specified for membership on such committee as alternative members of
such committee, who may replace any absent or disqualified member at
a meeting of such committee. In the event of the absence or
disqualification of a member of a committee, and in the event no
director has been designated as an alternative member thereof, the
member or members of such committee present at any meeting and not
disqualified from voting, whether or not he or they constitute a
quorum, may unanimously appoint another member of the board of
directors meeting the qualifications, if any, specified for
membership on such committee to act at the meeting in the place of
any such absent or disqualified member.
Section 16. Notwithstanding anything contained in these By-
laws to the contrary, neither the Executive Committee, the Audit
Committee nor any other committee of the board of directors shall
have any power or authority to (i) approve or adopt or recommend to
the stockholders any action or matter expressly required by the
Delaware General Corporate Law to be submitted to stockholders for
approval, or (ii) adopt, amend or repeal any by-law of the
corporation. If the resolution establishing a particular committee
so provides, such committee shall have the power or authority to
declare a dividend or to authorize the issuance of stock. The board
of directors may (but shall not be obligated to) designate one
member of any committee (including the Executive Committee and the
Audit Committee) as its chairman. The duties and responsibilities
of the members of any committee of the board of directors shall be
in addition to those duties set forth for a member of the board of
directors of the corporation.
Compensation of Directors
Section 17. Unless otherwise restricted by the certificate of
incorporation, the board of directors shall have the authority to
fix the compensation of directors. The directors may be paid their
expenses, if any, of attendance at each meeting of the board of
directors and may be paid a fixed sum for attendance at each meeting
of the board of directors or a stated salary as director. No such
payment shall preclude any director from serving the corporation in
any other capacity and receiving compensation therefor. Members of
special or standing committees may be allowed like compensation for
attending committee meetings.
ARTICLE IV
Notices
Section 1. Whenever, under the provisions of the statutes, of
the certificate of incorporation, of any certificate duly filed in
the State of Delaware pursuant to Section 151 of the Delaware
General Corporation Law or of these By-laws, notice is required to
be given to any director or stockholder, it shall not be construed
to mean personal notice, but such notice may be given in writing, by
mail, addressed to such director or stockholder at his address as it
appears on the records of the corporation, with postage thereon
prepaid, and such notice shall be deemed to be given at the time
when the same shall be deposited in the United States mail. Notice
to directors may also be given by telegram or telephone.
Section 2. Whenever any notice is required to be given under
the provisions of the statutes, of the certificate of incorporation,
of any certificate duly filed in the State of Delaware pursuant to
Section 151 of the Delaware General Corporation Law or of these By-
laws, a waiver thereof in writing, signed by the person or persons
entitled to said notice, whether before or after the time stated
therein, shall be deemed equivalent thereto.
ARTICLE V
Officers
Section 1. The officers of the corporation shall be chosen by
the board of directors and shall be a chairman of the board, a
president, one or more vice-presidents (one or more of whom may be
designated Executive Vice-President or Senior Vice-President), a
secretary and a treasurer. The board of directors may also choose
a controller and one or more assistant secretaries and assistant
treasurers. Any number of offices may be held by the same person,
unless the certificate of incorporation or these By-laws otherwise
provide.
Section 2. The board of directors at its first meeting after
each annual meeting of stockholders shall choose a chairman of the
board, a president, one or more vice-presidents, a secretary and a
treasurer.
Section 3. The board of directors may appoint such other
officers and agents as it shall deem necessary who shall hold their
offices for such terms and shall exercise such powers and perform
such duties as shall be determined from time to time by the board.
Section 4. The salaries of all officers and agents of the
corporation shall be fixed by the board of directors, provided that
the board may delegate to the chairman of the board or the president
the power to fix from time to time the compensation of such officers
and agents as the board shall designate. No officer shall be
prevented from receiving such salary because he is also a director.
Section 5. The officers of the corporation shall hold office
until their successors are chosen and qualify. Any officer elected
or appointed by the board of directors may be removed at any time by
the affirmative vote of a majority of the board of directors. Any
vacancy occurring in any office of the corporation shall be filled
by the board of directors.
The Chairman of the Board
Section 6. The chairman of the board shall be the chief
executive officer of the corporation, shall preside at all meetings
of the stockholders and the board of directors, shall have general
and active management of the business of the corporation and shall
see that all orders and resolutions of the board of directors are
carried into effect. He shall execute bonds, mortgages and other
contracts requiring a seal, under the seal of the corporation,
except where required or permitted by law to be otherwise signed and
executed and except where the signing and execution thereof shall be
expressly delegated by the board of directors to some other officer
or agent of the corporation.
The President
Section 7. The president shall be the chief operating officer
of the corporation, and shall have the duties and responsibilities
as assigned by the chairman and chief executive officer or the board
of directors. He shall preside at any meetings of the stockholders
and of the board of directors if the chairman of the board is
unavailable. He may sign, with the secretary or treasurer or any
other proper officer thereunto authorized by the board of directors,
certificates for shares of the corporation, any deeds, mortgages,
bonds, contracts or other instruments which the board of directors
has authorized to be executed, except in cases where the signing and
execution thereof shall be expressly delegated by the board of
directors or by these By-laws to some other officer or agent of the
corporation, or shall be required by law to be otherwise signed or
executed; and in general, shall perform all duties incident to the
office of the president and such other duties as may be prescribed
by the board of directors from time to time.
The Vice-Presidents
Section 8. In the absence of the president or in the event of
his inability or refusal to act, the vice-president (or in the event
there be more than one vice-president, the vice-presidents in the
order designated, or in the absence of any designation, then in the
order of their election) shall perform the duties of the president,
and when so acting, shall have all the powers of and be subject to
all the restrictions upon the president. The vice-presidents shall
perform such other duties and have such other powers as the board of
directors may from time to time prescribe.
The Secretary and Assistant Secretary
Section 9. The secretary shall attend all meetings of the
board of directors and all meetings of the stockholders and record
all the proceedings of the meetings of the corporation and of the
board of directors in a book to be kept for that purpose and shall
perform like duties for the standing committees when required. He
shall give, or cause to be given, notice of all meetings of the
stockholders and special meetings of the board of directors, and
shall perform such other duties as may be prescribed by the board of
directors, chairman of the board or president, under whose
supervision he shall be. He shall have custody of the corporate
seal and he, or an assistant secretary, shall have authority to
affix the same to any instrument requiring it and, when so affixed,
it may be attested by his signature or by the signature of such
assistant secretary. The board of directors may give general
authority to any other officer to affix the corporate seal and to
attest the affixing by his signature.
Section 10. The assistant secretary, or if there be more than
one, the assistant secretaries in the order determined by the board
of directors (or if there be no such determination, then in the
order of their election), shall, in the absence of the secretary or
in the event of his inability or refusal to act, perform the duties
and exercise the powers of the secretary and shall perform such
other duties and have such other powers as the board of directors
may from time to time prescribe.
The Treasurer and Assistant Treasurers
Section 11. The treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate
accounts of receipts and disbursements in books belonging to the
corporation and shall deposit all moneys and other valuable effects
in the name and to the credit of the corporation in such
depositories as may be designated by the board of directors.
Section 12. He shall disburse the funds of the corporation as
may be ordered by the board of directors, taking proper vouchers for
such disbursements, and shall render to the board of directors, at
its regular meetings, or when the board of directors so requires, an
account of all his transactions as treasurer and of the financial
condition of the corporation.
Section 13. If required by the board of directors, he shall
give the corporation a bond (which shall be renewed every six years)
in such sum and with such surety or sureties as shall be
satisfactory to the board of directors for the faithful performance
of the duties of his office and for the restoration to the
corporation, in case of his death, resignation, retirement or
removal from office, of all books, papers, vouchers, money and other
property of whatever kind in his possession or under his control
belonging to the corporation.
Section 14. The assistant treasurer, or if there shall be more
than one, the assistant treasurers in the order determined by the
board of directors (or if there be no such determination, then in
the order of their election), shall, in the absence of the treasurer
or in the event of his inability or refusal to act, perform the
duties and exercise the powers of the treasurer and shall perform
such other duties and have such other powers as the board of
directors may from time to time prescribe.
The Controller
Section 15. The controller shall be the chief accounting
officer of the corporation and shall perform the duties and exercise
the powers generally incident to such position and such other duties
and powers as the board of directors may from time to time
prescribe.
ARTICLE VI
Certificates of Stock
Section 1. Every holder of stock in the corporation shall be
entitled to have a certificate, signed by, or in the name of the
corporation by, the chairman or vice-chairman of the board of
directors, or the president or a vice-president and the treasurer or
an assistant treasurer, or the secretary or an assistant secretary
of the corporation, certifying the number of shares owned by him in
the corporation. If the corporation shall be authorized to issue
more than one class of stock or more than one series of any class,
the powers, designations, preferences and relative, participating,
optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such
preferences and/or rights shall be set forth in full or summarized
on the face or back of the certificate which the corporation shall
issue to represent such class or series of stock, provided that,
except as otherwise provided in Section 202 of the Delaware General
Corporation Law, in lieu of the foregoing requirements, there may be
set forth on the face or back of the certificate which the
corporation shall issue to represent such class or series of stock,
a statement that the corporation will furnish without charge to each
stockholder who so requests the powers, designations, preferences
and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights.
Section 2. Where a certificate is countersigned (1) by a
transfer agent other than the corporation or its employee, or (2) by
a registrar other than the corporation or its employee, any other
signature on the certificate may be facsimile. In case any officer,
transfer agent or registrar who has signed or whose facsimile
signature has been placed upon a certificate shall have ceased to be
such officer, transfer agent or registrar before such certificate is
issued, it may be issued by the corporation with the same effect as
if he were such officer, transfer agent or registrar at the date of
the issue.
Lost Certificates
Section 3. The board of directors may direct a new certificate
or certificates to be issued in place of any certificate or
certificates theretofore issued by the corporation alleged to have
been lost, stolen or destroyed, upon the making of an affidavit of
that fact by the person claiming the certificate of stock to be
lost, stolen or destroyed. When authorizing such issue of a new
certificate or certificates, the board of directors may, in its
discretion and as a condition precedent to the issuance thereof,
require the owner of such lost, stolen or destroyed certificate or
certificates, or his legal representative, to advertise the same in
such manner as it shall require and/or to give the corporation a
bond in such sum as it may direct as indemnity against any claim
that may be made against the corporation with respect to the
certificate alleged to have been lost, stolen or destroyed.
Transfer of Stock
Section 4. Upon surrender to the corporation or the transfer
agent of the corporation of a certificate for shares duly endorsed
or accompanied by proper evidence of succession, assignment or
authority to transfer, it shall be the duty of the corporation to
issue a new certificate to the person entitled thereto, cancel the
old certificate and record the transaction upon its books.
Fixing Record Date
Section 5. In order that the corporation may determine the
stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or to express consent to
corporate action in writing without a meeting, or entitled to
receive payment of any dividend or other distribution or allotment
of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock or for the purpose of any
other lawful action, the board of directors may fix, in advance, a
record date, which shall not be more than sixty nor less than ten
days before the date of such meeting, nor more than sixty days prior
to any other action. A determination of stockholders of record
entitled to notice of or to vote at a meeting of stockholders shall
apply to any adjournment of the meeting; provided, however, that the
board of directors may fix a new record date for the adjourned
meeting.
Registered Stockholders
Section 6. The corporation shall be entitled to recognize the
exclusive right of a person registered on its books as the owner of
shares to receive dividends, and to vote as such owner, and to hold
liable for calls and assessments a person registered on its books as
the owner of shares, and shall not be bound to recognize any
equitable or other claim to or interest in such share or shares on
the part of any other person, whether or not it shall have express
or other notice thereof, except as otherwise provided by the laws of
Delaware.
ARTICLE VII
General Provisions
Section 1. Dividends upon the capital stock of the
corporation, subject to the provisions of the certificate of
incorporation, if any, may be declared by the board of directors at
any regular or special meeting, pursuant to law. Dividends may be
paid in cash, in property, or in shares of the capital stock,
subject to the provisions of the certificate of incorporation.
Section 2. Before payment of any dividend, there may be set
aside out of any funds of the corporation available for dividends
such sum or sums as the directors from time to time, in their
absolute discretion, think proper as a reserve or reserves to meet
contingencies, or for equalizing dividends, or for repairing or
maintaining any property of the corporation, or for such other
purpose as the directors shall think conducive to the interest of
the corporation, and the directors may modify or abolish any such
reserve in the manner in which it was created.
Indemnification
Section 3.1. Right to Indemnification. The corporation shall
indemnify and hold harmless, to the fullest extent permitted by
applicable law as it presently exists or may hereafter be amended,
any person who was or is made or is threatened to be made a party or
is otherwise involved in any action, suit or proceeding, whether
civil, criminal, administrative or investigative (a "proceeding") by
reason of the fact that he, or a person for whom he is the legal
representative, is or was a director, officer, employee or agent of
the corporation or is or was serving at the request of the
corporation as a director, officer, employee or agent of another
corporation or of a partnership, joint venture, trust, enterprise or
non-profit entity, including service with respect to employee
benefit plans, against all liability and loss suffered and expenses
reasonably incurred by such person. The corporation shall be
required to indemnify a person in connection with a proceeding
initiated by such person only if the proceeding was authorized by
the Board of Directors of the corporation.
Section 3.2. Prepayment of Expenses. The corporation shall pay
the expenses (including, without limitation, reasonable attorneys'
fees) incurred in defending any proceeding in advance of its final
disposition, as they become due; provided, however, that the payment
of expenses incurred by a claimant in advance of the final
disposition of the proceeding shall be made only upon receipt of an
undertaking by the claimant to repay all amounts advanced if it
should be ultimately determined that the claimant is not entitled
to be indemnified under this Article VII, Section 3 or otherwise.
Section 3.3. Claims. Any claim for indemnification must be
made pursuant to a written request, including documentation and
information which is available to the claimant and is reasonably
necessary for the corporation to determine whether and to what
extent the claimant is entitled to indemnification. If a claim for
indemnification or payment of expenses under this Article VII,
Section 3 is not paid in full within sixty days after a written
claim therefor has been received by the corporation, the claimant
may file suit to recover the unpaid amount of such claim and, if
successful in whole or in part, shall be entitled to be paid the
expense of prosecuting such claim. In any such action the
corporation shall have the burden of proving that the claimant was
not entitled to the requested indemnification or payment of expenses
under applicable law.
Section 3.4. Non-Exclusivity of Rights. The rights conferred
on any person by this Article VII, Section 3 shall not be exclusive
of any other rights which such person may have or hereafter acquire
under any statute, provision of the stockholders or disinterested
directors or otherwise.
Section 3.5. No Offsets. A claimant's right to
indemnification and prepayment of expenses pursuant to this Article
VII, Section 3 shall not be subject to any offset or reduction for
amounts due or claimed to be due to the corporation from the
claimant. The corporation may stop paying expenses and otherwise
stop indemnifying a claimant with respect to any claim in which it
has been ultimately determined that the claimant is not entitled to
be indemnified under this Article VII, Section 3 or under applicable
law; and the claimant shall reimburse all amounts advanced by the
corporation on such claim, as per the undertaking executed by the
claimant under Section 3.2 above.
Section 3.6. Other Indemnification. The corporation's
obligation, if any, to indemnify any person who was or is serving at
its request as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust, enterprise or non-
profit entity shall be reduced by any amount such person may collect
as indemnification from such other corporation, partnership, joint
venture, trust, enterprise or non-profit enterprise.
Section 3.7. Amendment or Repeal. Any repeal or modification
of the foregoing provisions of this Article VII, Section 3 shall not
adversely affect any right or protection hereunder of any person in
respect of any act or omission occurring prior to the time of such
repeal or modification.
Contracts and Loans
Section 4. Except as otherwise required by statute, the
certificate of incorporation or these Bylaws, any contracts or other
instruments may be executed and delivered in the name and on behalf
of the corporation by such officer or officers (including any
assistant officer) of the corporation as the board may from time to
time direct. Such authority may be general or confined to specific
instances. No loans shall be contracted on behalf of the
corporation, no pledge of its credit shall be made and no evidences
of indebtedness shall be issued in its name unless authorized by a
resolution of the board of directors. Such authority may be general
or confined to specific instances.
Securities of Other Corporations
Section 5. Any shares or other securities of another
corporation owned by this corporation may be voted on behalf of this
corporation by the chairman of the board, the president or any vice-
president in accordance with proper authorization of the board of
directors. Unless otherwise provided by resolution adopted by the
board of directors, any such officer may from time to time appoint
an attorney or attorneys or agent or agents of the corporation, in
the name and on behalf of the corporation, to cast the votes which
the corporation may be entitled to cast as the holder of stock or
other securities in any other corporation held by the corporation,
at meetings of the holders of the stock or other securities of such
other corporation, or to consent in writing, in the name of the
corporation as such holder, to any action by such other corporation,
and may instruct the person or persons so appointed as to the manner
of casting such votes or giving such consent, and may execute or
cause to be executed in the name and on behalf of the corporation
and under its corporate seal, or otherwise, all such written proxies
or other instruments as he may deem necessary or proper.
Banking
Section 6. All funds of the corporation not otherwise employed
shall be deposited from time to time to the credit of the
corporation in such banks, trust companies, or other depositories as
the board of directors may select. All checks or demands for money
and notes of the corporation shall be signed by such officer or
officers or such other person or persons as the board of directors
may from time to time designate.
Fiscal Year
Section 7. The fiscal year of the corporation shall be fixed
by resolution of the board of directors.
Annual Statement
Section 8. The board of directors shall present at each annual
meeting, and at any special meeting of the stockholders when called
for by vote of the stockholders, a full and clear statement of the
business and condition of the corporation.
Seal
Section 9. The corporate seal shall have inscribed thereon the
name of the corporation, the year of its organization and the words
"Corporate Seal, Delaware". The seal may be used by causing it or
a facsimile thereof to be impressed or affixed or reproduced or
otherwise.
ARTICLE VIII
Amendments
Section 1. These Bylaws may be altered, amended or repealed or
new Bylaws may be adopted by the stockholders or by the board of
directors at any regular meeting of the stockholders or of the board
of directors or at any special meeting of the stockholders or of the
board of directors if notice of such alteration, amendment, repeal
or adoption of new Bylaws be contained in the notice of such special
meeting.
